Item
1.01 Entry into a Material Definitive Agreement.
On
February 16, 2023 Adhera Therapeutics, Inc. (the “Company”) entered into a Securities Purchase Agreement (“SPA”)
with two affiliate accredited investors pursuant to which the
Company issued and sold the investor a non-convertible Original Issue Discount Senior Secured Promissory Note (a “Note”)
in the principal amount of $214,285.72and 339,722 Common Stock Purchase Warrants (“Warrants”) for total gross proceeds of
$150,000 The proceeds from these financings were used for working capital purposes.
In
connection with the January financing, the Company also agreed to increase the principal amount of prior Original Issue Discount Promissory
Notes issued to the investors in May 2022 (the “Prior Notes”) by 25%, from a total of $1,000,000 in principal to $1,250,000
in principal (not including accrued and unpaid interest). The Prior Notes rank pro rata with the new Notes with respect to interest payments.
The terms of the Prior Notes are summarized in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2022 under “Part II. - Item 5. – Other Information,” and a form of the Prior Notes is filed as Exhibit 10.4 thereto.
The
terms of the Notes and Warrants are summarized below.
The
Notes are due on the earlier of (i) the 12 month anniversary of the issuance date, and (ii) the date on which the Company completes a
public offering for cash of common stock and/or common stock equivalents which results in the listing of the Company’s common stock
on a “national securities exchange” as defined in the Securities Exchange Act of 1934 (a “Qualified Financing”),
provided that unless there is an event of default, the Company may extend the maturity date by six months in its discretion. The Notes
bear interest at 8% per annum, payable monthly, subject to an increase to 15% in case of an event of default as provided for therein.
Furthermore, at any time before the 12 month anniversary of the date of issuance of a Note, the Company may, after providing written
notice to the holder, prepay all of the then outstanding principal amount of the Note for cash in an amount equal to the sum of 105%
of the then outstanding principal amount of the Note, accrued but unpaid interest and all liquidated damages and other amounts due in
respect of the Note (if any).
The
Notes may, at the discretion of the Company, be converted into shares of a new class of convertible preferred stock of the Company (the
“Convertible Preferred Stock”) on the closing date of the Qualified Financing. In the event of the conversion, the holder
will receive a number of shares of Convertible Preferred Stock equal to the quotient obtained by dividing (i) the unpaid principal amount
of this Note (together with any interest accrued but unpaid thereon) by (ii) the closing price of the securities issued in the Qualified
Financing on the closing date of the Qualified Financing. Upon issuance, the conversion price of the Convertible Preferred Stock (the
“Preferred Conversion Price”) will be equal to the closing price of the securities issued in the Qualified Financing, subject
to adjustment.
The
Notes provide for certain customary events of default which include failure to maintain the required reserve of shares for the Warrants,
a restatement of the financial statements of the Company resulting in a reduction to the stock price by an enumerated threshold, and
certain other customary events of default, subject to certain exceptions and limitations. Upon an event of default, the Notes will become
immediately due and payable at a 125% premium, which will be reduced to 100% if the event of default occurs while the Company’s
common stock is listed on a national securities exchange.
The
Notes contain customary restrictive covenants which apply for as long as at least 75% of the Notes remain outstanding, including covenants
against incurring new indebtedness or liens, repurchasing shares of common stock or common stock equivalents, paying dividends or distributions
on equity securities, and transactions with affiliates, subject to certain exceptions and limitations. In addition, the SPA imposes certain
additional negative covenants and obligations on the Company, including a prohibition on filing a registration statement (other than
on Form S-8) unless at least 30% of the Notes have been repaid as of such filing, a prohibition on incurring new indebtedness at any
time while any Notes are outstanding, and a 90-day restriction against issuing shares of common stock or common stock equivalents, subject
to certain exceptions and limitations.
Under
the SPA, the Company also granted each investor the right to participate in future financings that are exempt from registration under
the Securities Act of 1933 (the “Securities Act”) in an amount equal to 15% of such financings, which right has a term equal
to the earlier of (i) the 24 month anniversary of the SPA, and (ii) the date the Notes are no longer outstanding. The SPA also provides
the investors with most-favored nations treatment, giving them the right to amend their securities if the Company issues securities with
more favorable terms while the investor’s securities are outstanding, subject to certain exceptions and limitations.
The
Warrants are exercisable for a period of five-years and six months from issuance at an exercise price of $0.82 per share, subject to
certain limitations including beneficial ownership limitations, and subject to adjustment including
downward adjustment upon a dilutive issuance of securities at a per-share price that is below the exercise price. Unless the holder’s
sale of shares of common stock issuable upon exercise of the Warrants at prevailing market prices (not at a fixed price) is registered
on an effective registration statement under the Securities Act, the Warrants may be exercised cashlessly.
The
Company’s obligations under the Notes are secured by a lien on all assets of the Company and its subsidiaries pursuant to Security
Agreements each dated the date of the respective SPA (the “Security Agreement”).
The
SPA requires a reserve of authorized but unissued shares equal to four times the number of shares issuable to the investors upon exercise
of the Warrants, subject to reduction as the Warrants are exercised.
Aegis
Capital Corp. (the “Placement Agent”) served as placement agent in the financings and received a cash commission in the amount
of 10% of the gross proceeds, or $30,000.
Under
the SPA the Company reimbursed the investors a total of $15,000 out of the proceeds from the offerings for fees and expenses incurred
in connection therewith.