Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial
Obligation or an Obligation under an Off-Balance Sheet Arrangement.
As previously disclosed by MusclePharm Corporation (the "Company") in a Current
Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the
"SEC") on August 22, 2022, the Board of Directors of the Company determined that
the Company's financial statements contained in its Annual Report on Form 10-K
for the year ended December 31, 2021 and its Quarterly Report on Form 10-Q for
the quarter ended March 31, 2022 should no longer be relied upon due to errors
in such financial statements, and that a restatement of such financial
statements is required.
On August 26, 2022, the Company received a letter (the "August Letter") from
Empery Tax Efficient, LP ("Collateral Agent"), pursuant to which Collateral
Agent advised the Company of its position that such public disclosure about the
non-reliance on, and restatement of, the above referenced financial statements
demonstrates a breach of certain representations under Section 3.1(h) of the
Amended and Restated Securities Purchase Agreement, dated June 3, 2022 (the
"Purchase Agreement"), by and among the Company and the purchasers thereto,
including Collateral Agent, Empery Master Onshore, LLC, Empery Debt Opportunity
Fund, LP, Empery Tax Efficient, LP and Empery Tax Efficient III, LP
(collectively, the "Noteholders"). In the August Letter, Collateral Agent
advised further that an event of default under the Original Issue Discount
Senior Secured Notes, dated October 13, 2021 (the "October Notes"), and the
Original Issue Discount Senior Secured Notes, dated June 10, 2022 (the "June
Notes," and together with the October Notes, the "Notes"), issued by the Company
to the Noteholders includes a breach of the representations under the Purchase
Agreement referenced above. Collateral Agent further advised the Company in the
August Letter that any event of default in one Note would result in a
cross-default of the other Notes. In the August Letter, Collateral Agent further
notified the Company that the Noteholders reserve their rights under the Notes.
On September 8, 2022, the Company received a separate letter (the "September
Letter") from Collateral Agent, pursuant to which Collateral Agent advised the
Company of its position that an event of default under the Notes includes Sabina
Rizvi no longer serving as the Company's Chief Financial Officer and as a member
of the Company's Board of Directors, unless Ms. Rizvi resigns without Good
Reason (as defined in the Notes) and the Company replaces Ms. Rizvi with another
Chief Financial Officer and member of the Board of Directors, in each case that
is not objectionable to Collateral Agent, within forty five (45) days. In the
September Letter, Collateral Agent advised further that such forty five (45) day
period has expired and Ms. Rizvi has not been replaced with another Chief
Financial Officer and member of the Board of Directors that is not objectionable
to Collateral Agent. In the September Letter, Collateral Agent further notified
the Company that the Noteholders reserve their rights under the Notes, and
requested information and documentation to confirm the Company's compliance with
the terms and conditions of the Notes, with a request that the Company provide
such information no later than the close of business on September 15, 2022.
Collateral Agent further advised the Company of their position that the
Company's failure to respond with the requested information by such date shall
constitute an event of default under the Notes.
Section 5(b) under the Notes provides that if any event of default occurs, the
outstanding principal amount of the Notes, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the holder's election, immediately due and
payable in cash at the Mandatory Default Amount (as defined in the Notes) and
further that commencing five (5) days after the occurrence of any event of
default and that results in the right or automatic acceleration of the Notes,
the Notes shall accrue interest at an interest rate equal to the lesser of
eighteen percent (18%) per annum or the maximum rate permitted under applicable
law. The October Notes were amended pursuant to a Waiver and Amendment, dated
June 3, 2022 (the "Waiver and Amendment").
As of the filing of this Current Report on Form 8-K, the Noteholders have not
accelerated payment of the outstanding balances under the Notes and have not
informed the Company that the Noteholders intend to accelerate payment of the
outstanding balances under the Notes. However, there can be no assurance that
the Noteholders will not exercise their rights to accelerate payment of
outstanding balances under the Notes.
The foregoing description of the October Notes is not complete and is qualified
in its entirety by reference to the full text of the form of the October Notes,
a copy of which is filed as Exhibit 4.2 to the Company's Current Report on Form
8-K filed with the SEC on October 19, 2021. The foregoing description of the
Purchase Agreement, the June Notes and the Waiver and Amendment is not complete
and is qualified in its entirety by reference to the full text of the forms of
Purchase Agreement, June Notes and Waiver and Amendment, copies of which are
filed as Exhibits 10.1, 10.3 and 10.4, respectively, to the Company's Current
Report on Form 8-K filed with the SEC on June 9, 2022.
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