Item 1.01
Entry into a Material Definitive Agreement.
On June 21, 2019 we received funds from FirstFire Global Opportunities Fund LLC ("FirstFire") under a Securities Purchase Agreement dated
June 18, 2019 (the “SPA”). Under the terms of the SPA we received a total of $135,000, after an original issue discount of $15,000, and issued a convertible promissory note dated June 18, 2019, in the principal amount of $150,000 (the " Note").
We also issued to FirstFire immediately exercisable five-year warrants to purchase 150,000 shares of our common stock at $1.00, subject to adjustment in the event we issue shares at less than the current exercise price (the “Warrant”). The Warrant
also contains a cashless exercise provision and a most favored nations provision.
The maturity date of the Note is nine months from June 18, 2019. The Note bears interest at 10% per annum at its face amount, with a default
rate of 15% per annum (or the maximum amount permitted by law). If we prepay the Note through the 90
th
day following the date thereof, we must pay an amount equal to 125% of the principal amount of the Note and any accrued but unpaid
interest thereon, plus any default interest. If we prepay the Note from the 91
st
day through the 180
th
day following the date thereof, we must pay an amount equal to 135% of the principal amount of the Note and any accrued
but unpaid interest thereon, plus any default interest. After the 180
th
day we have no further right of prepayment.
FirstFire may, at any time, convert all or any part of the outstanding principal and interest, including default interest, of the Note into
shares of our common stock at the lower of $0.75 per share or a price per share equal to 55% (representing a 45% discount rate) of the lowest trading price of the common stock during the 20 trading day period prior to the date of conversion.
FirstFire may not convert the Note to the extent that such conversion would result in beneficial ownership by FirstFire and its affiliates of more than 4.99% of our issued and outstanding common stock, or up to 9.99% at the option of FirstFire. We
have agreed to reserve for issuance the greater of 25,000,000 shares or the number of shares equal to 3.5 times the number of shares issuable upon conversion of the Note.
The debt evidenced by the Note ranks senor to any other debt incurred as of or following the date of the Note. So long as any obligations
under the Note remain outstanding, the Company cannot incur or guarantee any indebtedness that is senior to or pari passu with the debt evidenced by the Note, and cannot, without prior consent, pay or declare any dividends or other distributions to
shareholders.
For a period of 18 months, FirstFire has a right of first refusal to purchase up to $150,000 of equity, debt, or equity equivalent securities
offered by us during the 18-month period. The Company is required to provide FirstFire 10 business days’ notice of a proposed transaction, which, if accepted, is required to be completed by FirstFire within 10 business days following the notice
period. The terms of the acceptance by FirstFire must not be more favorable to FirstFire or less favorable to the Company than those set forth in the offer notice.
So long as the Note is outstanding, the Company cannot enter into any variable rate transaction whereby the Company issues any securities
convertible into shares of its common stock at a price based on trading or quotation prices of the Company’s common stock.
Within 60 calendar days following funding, the Company is required to obtain director and officer insurance for a period of at least 18
months, with two years of tail coverage. The Company has also agreed to indemnify FirstFire against any actions arising under the SPA. Under the terms of the SPA, the Company also granted piggyback registration rights to FirstFire to register for
resale shares issuable upon conversion of the Note or exercise of the Warrant.
The Note contains certain representations, warranties, covenants (both affirmative and negative), and events of default. In the event of a
default, the Note will be immediately due and payable, and the amount of repayment increases to 150% of the outstanding balance of the Note. The Company has also authorized FirstFire to appear ex parte without notice to the Company to confess
judgment against the Company for the unpaid amount of the Note following an event of default.
The SPA also grants FirstFire a right of first refusal for any future capital raises or financings by the Company. It also contains a most
favored nations provision for any more favorable terms in future financing transactions.
As a result of granting the Warrant to FirstFire with an exercise price of $1.00, Crown Bridge Partners, LLC, the holder of warrants to
purchase 60,606 shares of the Company’s common stock at a stated exercise price of $1.65 per share, has the option to reduce the exercise price to $1.00 per share and to increase the number of shares issuable upon exercise of the warrant to 100,000
shares.
Item 1.01 of this Current Report on Form 8-K contains only a brief description of the material terms of the Note, the SPA, and the Warrant
(the “Transaction Documents”) and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions are qualified in their entirety by reference to the full text of the Transaction
Documents filed as exhibits to this Current Report on Form 8-K.