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Item 1.01.
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Entry into a Material Definitive Agreement.
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Issuance of Commitment Fee Shares, Note, and Warrants
On April 6, 2022, Mitesco, Inc. (the “Company”) entered into separate Securities Purchase Agreement with each of Anson East Master Fund LP (“AEMF”) (the “AEMF Purchase Agreement”) and Anson Investments Master Fund LP (“AIMF”, and collectively with AEMF, the “Investors”) (the “AIMF Purchase Agreement, together with the AEMF Purchase Agreement, the “Purchase Agreements”) with respect to the sale and issuance to AEMF and AIMF of: (i) an aggregate initial commitment fee in the amount of $430,000 in the form of 1,720,000 shares (the “Commitment Fee Shares”) of the Company’s common stock (the “Common Stock”), which Commitment Fee Shares can be decreased to 722,400 shares ($180,000) if the Company repays the Notes on or prior their maturity, (ii) promissory notes in the aggregate principal amount of $750,000 (the “Notes”), and (iii) Common Stock Purchase Warrants to purchase up to an aggregate of 750,000 shares of the Common Stock (the “Warrants”). The Notes and Warrants were issued on April 6, 2022 (the “Original Issue Date”) and were held in escrow pending effectiveness of the Purchase Agreements.
Pursuant to the terms of the Purchase Agreements, the initial Commitment Fee Shares were issued at an aggregate value of $430,000, the Notes were issued in an aggregate principal amount of $750,000 for an aggregate purchase price of $675,000, resulting in an aggregate original issue discount of $75,000; and the Warrants were issued, with an initial exercise price of $0.50 per share, subject to adjustment as described herein. The aggregate cash subscription amount received by the Company from the Investors for the issuance of the Commitment Fee Shares, Notes and Warrants was $629,500, due to a reduction in the $675,000 aggregate purchase price as a result of broker, legal, and transaction fees. This summary is not a complete description of all of the terms of the Purchase Agreements and is qualified in its entirety by reference to the full text of the Purchase Agreements filed as Exhibit 10.1 and 10.2 hereto, which is incorporated by reference into this Item 1.01.
Commitment Fee Shares
The Commitment Fee Shares consist of 1,720,000 shares of the Common Stock, which contain a true-up provision. If the Company repays the balance of the Note within six months of the date of its issuance the Company shall be entitled to redeem 997,600 of the Commitment Fee Shares for a nominal price. At any time the Investors may elect during the period beginning on the date which is the six (6) month anniversary of the closing date of the Purchase Agreements and ending on the date which is the eighteen (18) month anniversary of the closing date of the Purchase Agreements (the “Adjustment Period”), the Investors may deliver to the Company a reconciliation statement showing the net proceeds actually received by the Investors from the sale of the Commitment Fee Shares (the “Sale Reconciliation”). If, as of the date of the delivery by the Investors of the Sale Reconciliation, the Investors have not realized net proceeds from the sale of such Commitment Fee Shares equal to at least the Commitment Fee, as shown on the Sale Reconciliation, then the Company shall either pay in cash the applicable shortfall amount or immediately take all required action necessary or required in order to cause the issuance of additional shares of Common Stock to the Investors in an amount sufficient such that, when sold and the net proceeds thereof are added to the net proceeds from the sale of any of the previously issued and sold Commitment Fee Shares, the Investors shall have received total net funds equal to $430,000 or $180,000, if 997,600 shares of the Commitment Fee Shares are redeemed (the “Commitment Fee”). If additional shares of Common Stock are issued pursuant to the immediately preceding sentence, and after the sale of such additional issued shares of Common Stock, the Investors still have not received net proceeds equal to at least the Commitment Fee, then the Company shall again be required to immediately take all required action necessary or required in order to cause the issuance of additional shares of Common Stock to the Investors as contemplated above, and such additional issuances shall continue until the Investors have received net proceeds from the sale of such Common Stock equal to the Commitment Fee.
Terms of Notes
The Notes mature on October 6, 2022, six (6) months after the Original Issue Date, and provides for interest to accrue at an interest rate equal to 10% per annum, or, upon an Event of Default, as defined in the Notes, the lesser of (i) 18% per annum, and (ii) the maximum amount permitted under law (the “Default Interest”). The Investors shall have the right, only following an Event of Default, to convert all or any part of the outstanding and unpaid principal, interest, penalties, and all other amounts under the Notes into fully paid and non-assessable shares of the Company’s Common Stock, as such Common Stock exists on the date of issuance of the shares underlying the Notes, or any shares of capital stock or other securities of the Company into which such Common Stock shall hereafter be changed or reclassified (the “Conversion Shares”). The conversion price shall equal the lowest trading price during the previous twenty (20) trading day period ending on date of conversion of the Notes, subject to adjustment as provided therein. The Notes are subject to adjustment upon certain events such as distributions and mergers, and has full ratchet anti-dilution protections for issuance of securities by the Company at a price that is lower than the then-current conversion price except for certain exempt issuances. In addition, if, at any time while the Notes are issued and outstanding, the Company issues any convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of common stock, then the Investors will be entitled to acquire, upon the terms applicable to such sales, the aggregate number of shares could have acquired if the Notes had been converted.
The Notes also contain certain negative covenants, including prohibitions on incurrence of indebtedness in excess of the bridge financing currently pending by the Company, sales of assets, stock repurchases, and distributions. The Investors may not convert the Notes into an amount of shares of Common Stock that would result in the beneficial ownership by the Investors and their affiliates of greater than 4.99% of the number of shares of Common Stock outstanding (the “Beneficial Ownership Limitation”). The Notes may be prepaid at any time. The Notes include customary Events of Default, including, among other things, payment defaults, covenant breaches, breaches of certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an Event of Default occurs, the Investors may be entitled to take various actions, which may include the acceleration of amounts due under the Notes and accrual of interest as described above, as well as the conversion of the Notes.
The foregoing description is qualified in its entirety by reference to the full text of the form of Notes filed as Exhibit 4.1 and 4.2 hereto and is incorporated by reference into this Item 1.01.
Terms of Warrants
As described above, the Investors received Warrants to purchase up to 750,000 shares of the Company’s Common Stock. The initial exercise price for the Warrants is $0.50 per share. The Warrants are exercisable for a period of five years from the date of issuance and the purchase price of each of the Warrants is subject to adjustment as set forth in the Warrants for stock splits, stock dividends, recapitalizations and similar events. The Investors may exercise the Warrants on a cashless basis if after the six-month anniversary of date of issuance, the shares of Common Stock underlying the Warrants (the “Warrant Shares”) are not then registered pursuant to an effective registration statement. The Investors have contractually agreed to restrict their ability to exercise the Warrants such that the number of shares of the Company’s Common Stock held by the Investors after such exercise does not exceed the beneficial ownership limitation set forth in the Warrants which may not exceed initially 4.99% or 9.99% of the Company’s then issued and outstanding shares of Common Stock. The exercise price of the Warrants is subject to adjustment upon certain stock splits and recapitalization. The Company has the right to cause the holder of the Warrants to exercise their Warrant upon certain conditions, including that the last closing sale price of the Common Stock has been equal to or greater than $2.00 share (subject to adjustments for splits, dividends, recapitalizations and similar events) for consecutive ten trading days.
The foregoing description is qualified in its entirety by reference to the full text of the form of Warrants filed as Exhibit 10.3 and 10.4 hereto and is incorporated by reference into this Item 1.01.
Closing Rights and Company Obligations
The Purchase Agreements include additional Company obligations including obligations on the Company to satisfy the current public information requirements under SEC Rule 144(c); obligations on the Company with respect to the use of proceeds from the sale of securities under the Purchase Agreements; purchaser rights to approve certain subsequent equity sales by the Company; and purchaser rights to participate in future Company financings. Reference should be made to the full text of the Purchase Agreements filed as Exhibit 10.1 and 10.2 hereto, which is incorporated by reference into this Item 1.01.