UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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| The Stock Market LLC | ||||
| The Stock Market LLC |
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| Item 1.01 | Entry into a Material Definitive Agreement. |
On May 28, 2024, Netcapital, Inc. (the “Company”) entered into inducement offer letter agreements (the “Inducement Letters”) with certain investors (the “Participating Holders”) that hold certain outstanding Series A-2 warrants to purchase up to an aggregate of 14,320,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), originally issued to the Participating Holders on December 27, 2023 (the “Existing Warrants”). The Existing Warrants had an exercise price of $0.25 per share.
Pursuant to the Inducement Letters, the Participating Holders agreed to exercise for cash the Existing Warrants at a reduced exercise price of $0.155 per share in partial consideration for the Company’s agreement to issue in a private placement (x) new Series A-3 Common Stock purchase warrants (the “New Series A-3 Warrants”) to purchase up to 14,320,000 shares of Common Stock (the “New Series A-3 Warrant Shares”) and (y) new Series A-4 Common Stock Purchase Warrants (the “New Series A-4 Warrants” and, together with the New Series A-3Warrants, the “New Warrants”) to purchase up to 14.320,000 shares of Common Stock (the “New Series A-4 Warrant Shares” and, together with the New Series A-3 Warrant Shares, the “New Warrant Shares”). The New Warrants are exercisable beginning on the effective dates of stockholder approval of the issuance of the New Warrants and the New Warrant Shares (the “Initial Exercise Date”) with such warrants expiring on (i) the five year anniversary of the Initial Exercise Date for the Series A-3 Warrants and (ii) the eighteen month anniversary of the Initial Exercise Date for the Series A-4 Warrants.
The closing of the transactions contemplated pursuant to the Inducement Letters occurred on May 29, 2024 (the “Closing Date”). The Company received aggregate gross proceeds of approximately $2.2 million from the exercise of the Existing Warrants by the Holders, before deducting placement agent fees and other expenses payable by the Company. The Company intends to use the net proceeds for general corporate purposes.
The Company engaged H.C. Wainwright & Co., LLC (“H.C. Wainwright”) to act as its exclusive agent in connection with the transactions summarized above and paid H.C. Wainwright a cash fee equal to 7.5% of the aggregate gross proceeds from the exercise of the Existing Warrants at the reduced exercise price and a management fee equal to 1.0% of the aggregate gross proceeds from the exercise of the Existing Warrants at the reduced exercise price. In addition, the Company reimbursed H.C. Wainwright for $50,000 of the fees and expenses of H.C. Wainwright’s legal counsel and other of its out-of-pocket expenses, and (ii) its non-accountable expenses in the amount of $25,000. The Company also issued to H.C. Wainwright or its designees (“PA Warrant Holders”) placement agent warrants (the “Placement Agent Warrants”) to purchase up to 1,074,000 shares of Common Stock (the “Placement Agent Warrant Shares”). The Placement Agent Warrants have the same terms as the New Warrants, except that the Placement Agent Warrants have an exercise price equal to $0.1938 per share.
The original sale or resale of the shares of Common Stock underlying the Existing Warrants have been registered pursuant to an existing registration statement on Form S-1, as amended (File Nos. 333-275910) declared effective by the Securities and Exchange Commission (the “SEC”) on December 21, 2023.
The Company has agreed to file a registration statement on Form S-3 (or other appropriate form, including on Form S-1 if the Company is not then S-3 eligible) providing for the resale of the New Warrant Shares (the “Resale Registration Statement”) within 15 calendar days of the effective date of stockholder approval of the issuance of the shares issuable upon exercise the New Warrants and the PA Warrants (the “Filing Date”), and to use best efforts to cause the Resale Registration Statement to be declared effective by the SEC within 60 calendar days following the date of the Filing Date and to keep the Resale Registration Statement effective at all times until the Holders no longer own any New Warrants or New Warrant Shares.
Pursuant to the Inducement Letters, for a period of twelve (12) months following the Closing Date, the Company agreed not to issue or enter into an agreement to effect a Variable Rate Transaction (as defined in the Inducement Letters), subject to certain exceptions.
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Terms of the New Warrants and Placement Agent Warrants
Duration and Exercise Price
Each New Warrant have an exercise price equal to $0.155 per share. The Placement Agent Warrants have an exercise price equal to $0.1938 per share. The New Warrants are not exercisable until the shareholders of the Company approve the issuance of the New Warrants and the New Warrant Shares (the “Initial Exercise Date), and the New Warrants expire on the (i) 5-year anniversary of the Initial Exercise Date for the Series A-3 Warrants and (ii) the eighteen month anniversary of the Initial Exercise Date for the Series A-4 Warrants. The Placement Agent Warrants are not exercisable until the shareholders of the Company approve the issuance of the Placement Agent Warrants and the Placement Agent Warrant Shares and the Placement Agent Warrants expire on the five-year anniversary of the Initial Exercise Date. The exercise price and number of New Warrant Shares and Placement Agent Warrant Shares issuable upon exercise of the New Warrants or Placement Agent Warrants are subject to appropriate adjustment in the event of stock dividends, stock splits, subsequent rights offerings, pro rata distributions, reorganizations, or similar events affecting the Common Stock and the exercise price.
Exercisability
The New Warrants and Placement Agent Warrants are exercisable (following shareholder approval), at the option of each holder, respectively, in whole or in part, by delivering a duly executed exercise notice accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise (except in the case of a cashless exercise discussed below). A holder or PA Warrant Holder (together with their affiliates) may not exercise any portion of their New Warrants or Placement Agent Warrants to the extent that the holder or PA Warrant Holder would own more than 4.99% (or, at the election of the holder or H.C. Wainwright, 9.99%) of the outstanding Common Stock immediately after exercise, except that upon prior notice from the holder or H.C. Wainwright to the Company, the holder or PA Warrant Holder may increase or decrease the amount of ownership of outstanding stock after exercising their New Warrants or Placement Agent Warrants, as applicable, up to 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the New Warrants and Placement Agent Warrants, provided that any increase will not be effective until 61 days following notice to the Company.
Cashless Exercise
If, at the time a holder exercises its New Warrants, or a PA Warrant Holder exercises its Placement Agent Warrants, a registration statement registering the resale of the New Warrant Shares and Placement Agent Warrants Shares by the holder and the PA Warrant Holder, respectively, under the Securities Act of 1933, as amended (the “Securities Act”), is not then effective or available, then in lieu of making the cash payment otherwise contemplated to be made upon such exercise in payment of the aggregate exercise price, the holder or the PA Warrant Holder may elect instead to receive upon such exercise (either in whole or in part), the net number of shares of Common Stock determined according to a formula set forth in the New Warrants and Placement Agent Warrants.
Rights as a Stockholder
Except as otherwise provided in the New Warrants and Placement Agent Warrants, or by virtue of the holder’s or PA Warrant Holder’s ownership of shares of Common Stock, such holder or PA Warrant Holder does not have the rights or privileges of a holder of Common Stock, including any voting rights, until such holder exercises such holder’s New Warrants or such PA Warrant Holder exercises such Placement Agent Warrants. The New Warrants and Placement Agent Warrants provide that the holders of the New Warrants and the PA Warrant Holder have the right to participate in certain distributions or dividends paid on shares of Common Stock.
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Fundamental Transactions
If at any time the New Warrants and Placement Agent Warrants are outstanding, the Company, either directly or indirectly, in one or more related transactions, effects a Fundamental Transaction (as defined in the New Warrants and Placement Agent Warrants), a holder of New Warrants and the PA Warrant Holder is entitled to receive the number of shares of common stock of the successor or acquiring corporation, or of the Company if the Company is the surviving corporation, and any additional consideration receivable as a result of the Fundamental Transaction by such holder of the number of shares of Common Stock for which the New Warrants and Placement Agent Warrants are exercisable immediately prior to the Fundamental Transaction. As an alternative, the holder or H.C. Wainwright may, at their option, in the event of a Fundamental Transaction, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable fundamental transaction), cause the Company to purchase the unexercised portion of the New Warrants or Placement Agent Warrants from the holder or the PA Warrant Holder, respectively, by paying to the holder or the PA Warrant Holder, as applicable, an amount of cash equal to the Black Scholes Value (as defined in the New Warrants and Placement Agent Warrants) of the remaining unexercised portion of the New Warrants or Placement Agent Warrants on the date of the consummation of such Fundamental Transaction.
Waivers and Amendments
The New Warrants and Placement Agent Warrants may be modified or amended, or the provisions of the New Warrants or Placement Agent Warrants waived, with the Company’s, the holder’s or the PA Warrant Holder’s (as applicable) written consent.
The forms of the Inducement Letter, the New Series A-3 Warrant, New Series A-4 Warrant and the Placement Agent Warrant are attached as Exhibits 10.1, 4.1, 4.2 and 4.3, respectively. The descriptions of the terms of the Inducement Letter, the New Series A-3 Warrant, the New Series A-4 Warrant and the Placement Agent Warrant are not intended to be complete and are qualified in their entirety by reference to such exhibits. The Inducement Letters contain customary representations, warranties and covenants by the Company which were made only for the purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
| Item 3.02 | Unregistered Sales of Equity Securities |
The offer and sale of the New Warrants, the Placement Agent Warrants, the New Warrant Shares and the Placement Agent Warrant Shares have not been registered under the Securities Act and were offered pursuant to the exemption from registration provided in Section 4(a)(2) under the Securities Act.
The descriptions of the New Warrants and Placement Agent Warrants under Item 1.01 of this Form 8-K is incorporated by reference herein.
| Item 3.03 | Material Modifications of Rights to Security Holders |
On May 28, 2024, the board of the directors of the Company agreed to reduce exercise price for all outstanding Series A-2 Warrants to purchase 16,000,000 shares of Common Stock, including the Existing Warrants to $0.155 per share .
Item 9.01 Financial Statements and Exhibits
(d) Exhibits.
| Exhibit No. | Description | |
| 4.1 | Form of New Series A-3 Warrant | |
| 4.2 | Form of New Series A-4 Warrant | |
| 4.3 | Form of Placement Agent Warrant | |
| 10.1 | Form of Inducement Letter | |
| 99.1 | Press Release dated May 24, 2024. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Netcapital Inc. (Registrant) | ||
| May 29, 2024 | By: | /s/ Martin Kay |
| Name: | Martin Kay | |
| Title: | Chief Executive Officer | |
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