ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01
A. Transaction Overview
On October 16, 2019, 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, in a registered direct offering, of an aggregate of 14,285,714 Units at a purchase price of $0.175 per Unit (the “2019 Financing”). Each Unit consisted of a share of the Company’s common stock, par value $0.001 per share (“Common Stock” and such shares, the “Shares”), and a Series I Warrant to purchase up to one share of Common Stock at an exercise price of $0.22 per share at any time prior to the fifth anniversary of the issuance date of the Series I Warrant subject to certain beneficial ownership restrictions on exercise (the “Series I Warrants,” and the shares issuable upon exercise of the Series I Warrants, collectively, the “Warrant Shares”). The aggregate gross proceeds for the sale of the Shares and Series I Warrants will be approximately $2.5 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 October 18, 2019.
B. Use of Proceeds
The net proceeds to the Company from the 2019 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 I Warrants and Placement Agent Warrants (as defined below), are expected to be approximately $2.2 million. The Company intends to use the net proceeds from the 2019 Financing primarily for working capital and general corporate purposes, and has not allocated specific amounts of any such remaining net proceeds from this 2019 Financing for any specific purposes.
C. The Series I Warrants
Upon the closing of the 2019 Financing, each Investor will be issued a Series I Warrant to purchase up to a number of shares of the Company’s Common Stock equal to 100% of the Units purchased by such Investor under the SPA. The Series I Warrants will (i) have an exercise price of $0.22 per share; (ii) have a term of exercise equal to five years after their issuance date; (iii) be exercisable immediately after their issuance; and (iv) have a provision preventing the exercisability of such Series I Warrant if, as a result of the exercise of the Series I 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 4.99% of the Company’s Common Stock (the “Ownership Limitation”) immediately after giving effect to the exercise of the Series I 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 I Warrants is exercisable and the exercise price therefor are subject to adjustment as set forth in the Series I Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise).
––
D. Placement Agent Engagement
to an engagement agreement (the “Engagement Letter”) dated as of October 10, 2019, by and between the Company and H.C. Wainwright & Co., LLC (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 2019 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. 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 1,071,429 shares (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as the Series I Warrants, except that the exercise price of the Placement Agent Warrants is $0.21875 per share and the term of the Placement Agent Warrants is five years from the effective date of the 2019 Financing. The Engagement Agreement has indemnity and other customary provisions for transactions of this nature.
E. 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 October 17, 2019, until 90 days after the closing of the 2019 Financing, 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.
Additionally, the SPA contains certain restrictions on our ability to change our capitalization. In particular, until 60 trading days after the closing of the 2019 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.
The securities sold in the offering were offered and sold by the Company to an effective shelf registration statement on Form S-3 (File No. 333-213878), which was filed with the Securities and Exchange Commission (the “SEC”) on September 30, 2016 and subsequently declared effective on October 20, 2016 (the “Registration Statement”), and the base prospectus dated as of October 20, 2016 contained therein. The Company will file a prospectus supplement with the SEC in connection with the sale of the securities.
The foregoing description of the SPA, the Series I Warrants, the Engagement Agreement and the Placement Agent Warrants does not purport to be complete and is qualified in its entirety by reference to the copies of the form of SPA, form of Series I Warrant, Engagement Agreement and form of Placement Agent Warrant filed herewith as Exhibits 10.1, 10.2, 10.3, and 10.4, respectively, to this Current Report on Form 8-K, which are incorporated herein by reference.
––
The legal opinion of McDonald Carano LLP and Lowenstein Sandler LLP relating to the securities are filed as Exhibits 5.1 and 5.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
On October 17, 2019, the Company issued a press release announcing the 2019 Financing. The text of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
(d) Exhibits
| 10.1 | Form of Securities Purchase Agreement |
| 10.2 | Form of Series I Warrants |
| 10.3 | Engagement Agreement |
| 10.4 | Form of Placement Agent Warrant |
| 5.1 | Opinion of McDonald Carano LLP |
| 5.2 | Opinion of Lowenstein Sandler LLP |
| 99.1 | Press Release issued by Arch Therapeutics, Inc. on October 17, 2019 |
––
Arch Therapeutics, Inc. Exhibit
EX-5.1 2 tm19205081_ex5-1.htm EXHIBIT 5.1 Exhibit 5.1 October 18,…
To view the full exhibit click here
About ARCH THERAPEUTICS, INC. (OTCMKTS:ARTH)
Arch Therapeutics, Inc. is a development-stage company. The Company operates as a biotechnology company. The Company focuses on developing products to stop bleeding (hemostasis) and control leaking (sealant) during surgery and trauma care. The Company’s technology is based on a self-assembling peptide that creates a physical, mechanical barrier, which could be applied to seal organs or wounds that are leaking blood and other fluids. The Company’s primary product candidates, collectively known as the AC5 Devices (AC5), are designed to achieve hemostasis in surgical procedures. The Company’s product candidates rely on its self-assembling peptide technology and are designed to achieve hemostasis in skin wounds, and minimally invasive and open surgical procedures. The Company focuses on developing other product candidates based on its technology platform for use in a range of indications. As of September 30, 2016, the Company had not generated any revenues.
