Item 1.01 Entry into a Material Definitive Agreement.
A. Transaction Overview
On February 11, 2021, Arch Therapeutics, Inc. (the "Company") entered into a
Securities Purchase Agreement (the "SPA") with certain institutional and
accredited investors (collectively, the "Investors") providing for the issuance
and sale by the Company to the Investors of an aggregate of (i) 43,125,004
shares (the "Shares") of the Company's common stock, $0.001 par value per share
("Common Stock"), and (ii) Series K Warrants (the "Series K Warrants") to
purchase an aggregate of 32,343,753 shares (the "Warrant Shares") of Common
Stock, at a combined offering price of $0.16 per share and related warrant (the
"2021 Financing"). The aggregate gross proceeds for the sale of the Shares and
Series K Warrants will be approximately $6.9 million, before deducting the
placement agent's fees and expenses and other offering expenses payable by the
Company. The closing of the sales of these securities under the SPA is expected
to occur on or about February 17, 2021 (the "Closing Date").
B. Use of Proceeds
The net proceeds to the Company from the 2021 Financing, after deducting the
placement agent's fees and expenses other Company's estimated offering expenses
and excluding the proceeds, if any, from the exercise of the Series K Warrants
and Placement Agent Warrants (as defined below), are expected to be
approximately $6.2 million. The Company intends to use the net proceeds from the
2021 Financing primarily for working capital and general corporate purposes, and
has not allocated specific amounts of any such remaining net proceeds from this
2021 Financing for any specific purposes.
C. Warrants
Upon the closing of the 2021 Financing, the Investors will be issued Series K
Warrants to purchase up to an aggregate of 32,343,753 shares of the Company's
Common Stock in the aggregate. The Series K Warrants will (i) have an exercise
price of $0.17 per share; (ii) have a term of exercise equal to 5.5 years after
their issuance date; (iii) be exercisable immediately after their issuance; and
(iv) have a provision preventing the exercisability of such Series K Warrant if,
as a result of the exercise of the Series K 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 either 4.99% or 9.99% of the Company's Common Stock
(the "Ownership Limitation") immediately after giving effect to the exercise of
the Series K 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 61st day after delivery of such waiver notice. The number of shares of the
Company's Common Stock into which each of the Series K Warrants is exercisable
and the exercise price therefor are subject to adjustment as set forth in the
Series K Warrants, including adjustments for stock subdivisions or combinations
(by any stock split, stock dividend, recapitalization, reorganization, scheme,
arrangement or otherwise).
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D. Registration Rights Agreement
On February 11, 2021, the Company entered into a registration rights agreement
with the Investors (the "Registration Rights Agreement"), pursuant to which the
Company will be obligated, subject to certain conditions, to file with the
Securities and Exchange Commission within 15 days after February 11, 2021 one or
more registration statements (any such registration statement, a "Resale
Registration Statement") to register the Shares and the Warrant Shares for
resale under the Securities Act of 1933, as amended (the "Securities Act"). The
Company's failure to satisfy certain filing and effectiveness deadlines with
respect to a Resale Registration Statement and certain other requirements set
forth in the Registration Rights Agreement may subject the Company to payment of
monetary penalties.
E. Placement Agent Engagement
Pursuant to an engagement agreement (the "Engagement Letter") dated as of
February 8, 2021, by and between the Company and H.C. Wainwright & Co. (the
"Placement Agent"), the Company has agreed to pay the Placement Agent cash fees
equal to (i) 7.5% of the gross proceeds received by the Company from certain
investors participating in the 2021 Financing, and (ii) 6.0% of the gross
proceeds received by the Company from certain investors with pre-existing
relationships with the Company. In addition, the Placement Agent will be
entitled to receive a one-time non-accountable expense fee of $10,000, up to
$50,000 for fees and expenses of legal counsel and other out-of-pocket expenses
and $10,000 for clearing expenses. Pursuant to the Engagement Agreement, the
Company also agreed to issue to the Placement Agent, or its designees, warrants
to purchase up to 7.5% of the aggregate number of shares sold to investors in
the Offering, or warrants to purchase up to 3,234,375 shares (the "Placement
Agent Warrants"). The Placement Agent Warrants have substantially the same terms
as the Series K Warrants, except that the exercise price of the Placement Agent
Warrants is $0.20 per share and the term of the Placement Agent Warrants is 5.5
years from the effective date of the 2021 Financing. The Engagement Agreement
has indemnity and other customary provisions for transactions of this nature.
F. Certain Restrictions on Subsequent Sales and Changes in Capitalization
The SPA contains certain restrictions on our ability to conduct subsequent sales
of our equity securities. In particular, subject to certain customary
exemptions, from February 11, 2021, until 30 days after the Resale Registration
Statement goes effective, neither the Company nor any 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 (the "Offering Restriction"). Similarly, the
Company will be prohibited from entering into or effecting a Variable Rate
Transaction (as defined in the SPA) until February 11, 2022; provided, however,
that once the Offering Restriction expires, the Company may enter into and
effect an at-the-market offering facility with the Placement Agent.
Additionally, the SPA contains certain restrictions on our ability to change our
capitalization. In particular, until 180 days after the closing of the 2021
Financing, the Company may not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Investors, other than in connection with the uplisting of the Common Stock to
the Nasdaq Stock Market or the New York Stock Exchange.
The issuance and sale of the Shares, Series K Warrants and Warrant Shares
(collectively, the "Securities") has not been, and will not upon issuance be,
registered under the Securities Act, and the Securities may not be offered or
sold in the United States absent registration under or exemption from the
. . .
Item 3.02 Unregistered Sales of Equity Securities.
Reference is made to the disclosure set forth in Item 1.01 of this Current
Report on Form 8-K, which disclosure is incorporated by reference into this Item
3.02.
Item 8.01 Other Events
On February 12, 2021, the Company issued a press release announcing the 2021
Financing. The text of the press release is attached hereto as Exhibit 99.1 and
is incorporated by reference herein.
Item 9.01 Financial Statements and Exhibit
(d) Exhibits
Exhibit Description
10.1 Form of Securities Purchase Agreement
10.2 Form of Series K Warrant
10.3 Engagement Agreement
10.4 Form of Placement Agent Warrant
10.5 Form of Registration Rights Agreement
99.1 Press Release issued by Arch Therapeutics, Inc. on February 12, 2021
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ARCH THERAPEUTICS, INC. 