UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 1.01 Entry into a Material Definitive Agreement
Cooperation Agreement
On May 16, 2024, the Company and Presto Automation LLC (the “Borrower”), the Company’s wholly owned subsidiary (the “Loan Parties”) entered into a Cooperation Agreement (the “Cooperation Agreement”) with Metropolitan Partners Group Administration, LLC, the administrative, payment and collateral agent (the “Agent”) under the Credit Agreement, dated as of September 21, 2022 (as amended, the “Credit Agreement”), Metropolitan Levered Partners Fund VII, LP, Metropolitan Partners Fund VII, LP, Metropolitan Offshore Partners Fund VII, LP and CEOF Holdings LP (collectively, the “Lenders”), and certain significant stockholders.
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Extension to Forbearance Date and Related Terms
The Cooperation Agreement provides that the Lenders will not exercise remedies as a result of certain continuing events of default under the Credit Agreement, subject to the following agreements and conditions (the “Forbearance”):
| ● | If we raise $3,000,000 or more of working capital in this or another registered direct offering or private placement by May 22, 2024, with at least $2,500,000 received by May 15, 2024, the Agent and the Lenders agree to extend the Forbearance termination date to June 14, 2024; and |
| ● | If we raise additional working capital of $3,000,000 or more by June 7, 2024 in a registered direct offering or private placement (the “Second Capital Raise”), the Agent and the Lenders agree to extend the Forbearance termination date to July 15, 2024. |
Assuming continued Forbearance, the Lenders have agreed to engage in good faith discussions with a view to concluding a binding agreement with a third party based on a binding written offer (the “Offer”) from such third party submitted by any Loan Party or Significant Stakeholder (as defined in the Cooperation Agreement) to purchase all of the Lenders’ rights and obligations under the Loan Documents, provided that such Offer is (A) for a cash purchase price of at least $20.0 million, (B) accompanied by a binding commitment by the Borrower to issue one or more promissory notes to the Lenders (the “Convertible Notes”) in an aggregate principal amount equal to fifty percent (50%) of the outstanding balance of the Obligations (as defined in the Credit Agreement) less the proposed cash purchase price, which Convertible Notes shall be convertible into equity of the Company of the same class and on the same terms as are set out in that certain convertible subordinated note issued to Remus Capital Series B II, L.P. on January 30, 2024, and (C) accompanied by evidence, in form and substance satisfactory to Lenders in their sole discretion, reflecting that the Offer will provide us with operating capital of not less than $18.0 million, not including the cash purchase price described in subparagraph (A) above. To the extent that the operating capital is less than $18.0 million but greater than $12.0 million, the amount of the convertible note set forth above will be increased by a dollar amount equal the reduction in operating capital below $18.0 million
Cooperation in Connection with Sale of the Company
In the event of termination of Forbearance, the Loan Parties have agreed to cooperate and not impede in the exercise of the Agent’s and Lenders’ rights and remedies under the Loan Documents (as defined in the Credit Agreement), including, among other things, the realization of their collateral and a potential sale process under Article 9 of the Uniform Commercial Code. In the event of such outcome, it is likely that the holders of shares of our common stock will receive no value and the shares will become worthless.
Development of Alternative Path
We have agreed to maintain a committee of independent directors to work with the Lenders on the development and execution of a strategic plan (the “Alternative Path”) to address our obligations under the Credit Agreement in the event that Forbearance ends, including directing our professional advisors to work with the Agent in the development and execution of the Alternative Path, including the identification and solicitation of additional financing sources. We have agreed to provide access to properties, systems and our access to various types of information as the Lenders reasonably request and make reasonably available its directors, officers, employees and advisors.
Release from Claims
We together with our past, present and future successors, assigns, managers, members, officers, directors, agents, employees, professionals and other representatives (in their capacities as such and not in any other capacity), and entities affiliated with Remus Capital and Presto CA LLC (an affiliate of Cleveland Avenue, LLC) together with their respective past, present and future successors and assigns released the Agent and the Lenders from any claims related to our forbearance agreement, the Credit Agreement and any Loan Documents.
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Convertible Note
On May 16, 2024, Presto Automation Inc. (the “Company” or “we”) issued to Remus Capital Series B II, L.P, an entity controlled by Krishna Gupta, a member of our Board of Directors, a subordinated convertible note in the principal amount of $1,500,000 (the “May Note”) in consideration for a cash investment of $1,500,000 from Remus Capital.
PIK Interest. Interest on the May Note accrues monthly by increasing principal at a rate of 7.5% per annum. The interest rate shall increase to 12% in the case of an event of default.
Conversion. The May Note is convertible into 10,714,286 shares of common stock at the option of the holder at an initial conversion price of $0.14 per share.
The May Note shall convert mandatorily into common stock at the then prevailing conversion price immediately prior to (a) a Restructuring Transaction, and (b) a Change of Control transaction with a financial investor (in each case, as such terms are defined in the May Note). For these purposes:
Conversion Cap. Pursuant to Nasdaq Listing Rule 5635(d), the total number of shares of common stock that can be issued upon conversion of the May Note is limited to 19.99% of the outstanding shares of the Company (the “Conversion Share Cap”) at the time of the conversion of the May Note. Absent the Conversion Share Cap, the total number of shares issuable under the May Note is 10,714,286.
Subordination. The May Note is subject to the terms and conditions of the indebtedness (the “Senior Indebtedness”) outstanding under the Credit Agreement and additional provisions set forth in the May Note, including, without limitation, (i) the May Note is subordinated to the prior payment in cash in full of the Senior Indebtedness, and (ii) no principal or interest may be paid in cash on the May Note prior to the repayment in cash in full of the Senior Indebtedness.
Registration Rights Agreement
The Company entered into a Registration Rights Agreement with the May Note holder (the “Registration Rights Agreement”) dated May 16, 2024. Under the Registration Rights Agreement, the Company will file a registration statement (“Registration Statement”) with the SEC within 90 days following the date of the Registration Rights Agreement for purposes of registering the resale of the shares of common stock issuable upon conversion of the May Note. The Company will also use commercially reasonable efforts to cause the SEC to declare the Registration Statement effective as promptly as possible after the filing of the Registration Statement and no later than the earlier of (i) the 150th calendar day following the date of the Registration Rights Agreement and (ii) the 5th trading day after the date the Company is notified by the SEC that the Registration Statement will not be “reviewed” or will not be subject to further review. The Company will also use its commercially reasonable efforts to keep each Registration Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”) until the earlier of (i) such time as all of the registrable securities covered by such Resale Registration Statement have been sold by the holders publicly or pursuant to Rule 144 or (ii) the date that all registrable securities covered by such Registration Statement may be sold by non-affiliates of the Company without volume or manner-of-sale restrictions under Rule 144, and without the requirement for the Company to be in compliance with the current public information requirements under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected holders.
Extension of Secured Promissory Note
On March 21, 2024, we issued to Presto CA LLC (“Presto CA”) a secured promissory note in the principal amount of $4,000,000 (the “Note”), pursuant to which Presto CA made two loans totaling an aggregate of $4.0 million to us. The first loan was made on March 21, 2024 in the amount of $2.0 million and the second loan was made on March 30, 2024 in the amount of $2.0 million (the “Loans”). The Loans were originally to be repaid no later than May 15, 2024.
Presto CA has agreed to extend the maturity of the Note to align with the termination of Forbearance as described above in exchange for an extension of the anti-dilution period in the purchase agreement, dated October 10, 2023 between the Company and Presto CA (as amended, the "CA Purchase Agreement") from September 30, 2024 to December 31, 2024 and a change in the anti-dilution trigger price in the CA Purchase Agreement from $0.25 to $0.14.
The foregoing summaries of the May Note, the Registration Rights Agreement, the Cooperation Agreement, and the Extension do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the applicable agreements filed as exhibits to this Current Report on Form 8-K and incorporated herein by reference.
Forward Looking Statements
This Current Report on Form 8-K (the “Form 8-K”) contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included in this Form 8-K, regarding the Company’s strategy, future operations, prospects, plans and objectives of management, are forward-looking statements. When used in this Form 8-K, the words “could,” “should,” “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “initiatives,” “continue,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. The forward-looking statements speak only as of the date of this Form 8-K or as of the date they are made. The Company cautions you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company. In addition, the Company cautions you that the forward-looking statements contained in this Form 8-K are subject to risks and uncertainties, including but not limited to, the Company’s ability to secure additional capital resources, and those additional risks and uncertainties discussed under the heading “Risk Factors” in the Form 10-K filed by the Company with the SEC on October 11, 2023 and the other documents filed, or to be filed, by the Company with the SEC. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in the reports that the Company has filed and will file from time to time with the SEC. These SEC filings are available publicly on the SEC’s website at www.sec.gov. Should one or more of the risks or uncertainties described in this Form 8-K materialize or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Except as otherwise required by applicable law, the Company disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Form 8-K.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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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 hereunto duly authorized.
| PRESTO AUTOMATION, INC. | |||
| Date: May 16, 2024 | By: | /s/ Susan Shinoff | |
| Name: | Susan Shinoff | ||
| Title: | General Counsel and Corporate Secretary | ||
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