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Item 1.01
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Entry into a Material Definitive Agreement.
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A. Transaction Overview
On June 28, 2018, Arch Therapeutics, Inc.
(the “
Company
”) entered into Securities Purchase Agreement (the “
SPA
”) with 8 accredited
investors (collectively, the “
Investors
”) providing for the issuance and sale by the Company to the Investors,
in a private placement, of an aggregate of 9,070,000 Units at a purchase price of $0.50 per Unit in a registered offering (the
“
2018 Financing
”). Each Unit consisted of a share of the Company’s common stock, par value $0.001 per
share (“
Common Stock
” and such shares, the “
Shares
”), and a Series G Warrant to purchase
0.75 of a share of Common Stock at an exercise price of $0.70 per share at any time prior to the fifth anniversary of the issuance
date of the Series G Warrant subject to certain restrictions on exercise (the “
Warrants
,” and the shares issuable
upon exercise of the Warrants, collectively, the “
Warrant Shares
”). The aggregate gross proceeds for the sale
of the Shares and Warrants will be approximately $4,535,000. The closing of the sales of these securities under the SPA is expected
to occur on July 2, 2018
The securities sold in the offering were offered and sold by the
Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-213878), which was filed with the Securities
and Exchange Commission (the “
SEC
”) on September 30, 2016 and subsequently declared effective on October 20,
2016 (the “
Registration Statement
”), and the base prospectus dated as of October 20, 2016 contained therein.
The Company will file a prospectus supplement with the SEC in connection with the sale of the securities.
B. Use of Proceeds
The net proceeds to the Company from the 2018 Financing, after deducting
the Company’s estimated offering expenses and excluding the proceeds, if any, from the exercise of the Warrants, are expected
to be approximately $4,455,000. We intend to use the net proceeds from the 2018 Financing primarily for working capital and general
corporate purposes, and have not allocated specific amounts of any such remaining net proceeds from this offering for any specific
purposes.
C. The Series G Warrants
Upon the closing of the 2018 Financing, each
Investor will be issued a Warrant to purchase up to a number of shares of the Company’s Common Stock equal to 0.75 of the
Units purchased by such Investor under the SPA. The Warrants will (i) have an exercise price of $0.70 per share; (ii) have a term
of exercise equal to five years after their issuance date; (iii) be exercisable immediately after their issuance; and (iv) have
a provision preventing the exercisability of such Warrant if, as a result of the exercise of the Warrant, the holder, together
with its affiliates and any other persons whose beneficial ownership of Company Common Stock would be aggregated with the holder’s,
would be deemed to beneficially own more than 4.99% of the Company’s Common Stock (the “
Ownership Limitation
”)
immediately after giving effect to the exercise of the Warrant. The holder, upon notice to the Company, may increase or decrease
the Ownership Limitation;
provided that
(i) the Ownership Limitation may only be increased to a maximum of 9.99% of the
Company’s Common Stock; and (ii) any increase in the Ownership Limitation will not become effective until the 61
st
day after delivery of such waiver notice. The number of shares of the Company’s Common Stock into which each of the Warrants
is exercisable and the exercise price therefor are subject to adjustment as set forth in the Warrants, including adjustments for
stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or
otherwise).
D. Certain Restrictions on Subsequent Sales
The SPA contains certain restrictions on our
ability to conduct subsequent sales of our equity securities. In particular, subject to certain customary exemptions, from June
28, 2018 until 90 days after the closing of the 2018 Financing, neither the Company nor is subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or securities convertible, exercisable
or exchangeable for Common Stock. Similarly, until such time as the three lead investors collectively own less than 20% of the
Warrants purchased by them pursuant to the SPA, the Company is prohibited from effecting or entering into an agreement to effect
any issuance by the Company or any of its subsidiaries of Common Stock or securities convertible, exercisable or exchangeable for
Common Stock (or a combination of units thereof) involving a Variable Rate Transaction.
The foregoing description of the SPA and the
Warrants does not purport to be complete and is qualified in its entirety by reference to the copies of the form of Subscription
Agreement and form of Warrant filed herewith as
Exhibits 10.1
, and
10.2
respectively, to this Current Report on Form
8-K, which are incorporated herein by reference.
The legal opinion of McDonald Carano
LLP and Lowenstein Sandler LLP relating to the securities are filed as
Exhibits 5.1
and
5.2
, respectively, to this
Current Report on Form 8-K and are incorporated herein by reference.