Item 1.01 Entry into a Material Definitive Agreement.
On
December 23, 2020 (the “Closing Date”), MobileSmith,
Inc., a Delaware corporation (the “Company”), entered
into Series A Exchange Agreements (the
“Exchange Agreements”) with various holders of the
Company’s convertible and non-convertible debt to convert
such debt and related accrued interest into 1,158,141 shares
of the Company’s newly created Series A Convertible Preferred
Stock (the “Series A Preferred Stock”) as further
described by the Certificate of Designation of Preferences, Rights
and Limitations of Series A Convertible Preferred Stock (the
“Certification of Designations”) which was filed with
the Delaware Secretary of State on December 23, 2020. The Company
is entitled to issue up to 1,750,000 shares of Series A Preferred
Stock pursuant to the terms of the Certificate of
Designations.
Specifically
and as previously disclosed by the Company, pursuant a Convertible
Secured Subordinated Note Purchase Agreement dated November 14,
2007 and a Convertible Subordinated Note Purchase Agreement dated
December 11, 2014, the Company had immediately prior to the Closing
Date outstanding Convertible Secured Subordinated Promissory Notes
and Convertible Subordinated Promissory Notes (collectively, the
“Convertible Promissory Notes”) in the aggregate
principal amount including accrued but unpaid interest of
$52,687,735. The holders of the Convertible Promissory Notes were
entitled to convert at any time the outstanding principal and
accrued but unpaid interest into shares of the Company’s
common stock, par value $0.001 (the “Common Stock”), at
a conversion price of $1.43 (the “Conversion Rate”).
Additionally, the Company had immediately prior to the Closing Date
outstanding non-convertible Subordinated Promissory Notes
(collectively, the “Non-Convertible Promissory Notes”)
in the aggregate principal amount including accrued but unpaid
interest of approximately $5,000,000.
Of the
total aggregate amount of principal and accrued but unpaid interest
of $52,687,735 underlying the Convertible Promissory Notes and
Non-Convertible Promissory Notes, $49,684,130 of such amount was
converted into the 1,158,141 shares of the Series A Preferred Stock
pursuant to the terms of the Exchange Agreement. The Convertible
Promissory Notes and Non-Convertible Promissory Notes which
converted are now terminated pursuant to the terms of the Exchange
Agreement. Subsequent to the Closing
Date, the Company also continues to owe $5,000,000 in principal and
accrued but unpaid interest under the that certain Loan and
Security Agreement with Comerica Bank, which matures in June of
2022 and is secured by an extended irrevocable letter of credit
issued by UBS AG with a renewed term expiring on May 31, 2021. In
addition, the Company continues to owe $3,003,605 in Convertible
Promissory Notes, which it expects to exchange into Series A
Preferred Stock in first quarter of 2021.
The
1,158,141 shares of the Series A Preferred Stock are convertible at
any time into 34,744,230 shares of the Company’s Common Stock
(or 30 shares of Common Stock for each share of Series A Preferred
Stock and subject to adjustment as set forth in the Certificate of
Designation), which equates to the same Conversion Rate that
existed under the Convertible Promissory Notes. The shares of
Series A Preferred Stock will automatically convert in the event of
a Fundamental Transaction (as defined in the Certificate of
Designations).
Each
share of Series A Preferred Stock is entitled to an annual dividend
equal to $3.43, which equates to an annual dividend rate of 8%
which is the same as annual interest rate that existed under the
Convertible Promissory Notes. The dividend is payable in January
and July of each year and may, at the Company’s discretion,
be paid either in cash or in additional shares of Series A
Preferred Stock based on the formula set forth in the Certificate
of Designations.
The holders of the Series A Preferred Stock do not have voting
rights. However and pursuant to the Certificate of Designations,
two-thirds of the Holders of the Series A Preferred Stock have the
right to appoint as Agent. Pursuant to Section 4(f) of the
Certificate of Designations, the Company will not be entitled to
take a number of significant corporate actions with the approval of
the Agent. The requirement of the Agent to approve these corporate
actions is identical to the rights the holders possessed under the
Convertible Promissory Note. The Agent under the Certificate of
Designation will initially be Avy Lugassy, one of Company's
principal shareholders. Mr. Lugassy has acted as the Agent under
the Convertible Promissory Notes in the past.
Below
in tabular format is the name of each holder of Series A Preferred
Stock and number of shares of Series A Preferred Stock owned by
such shareholder immediately subsequent to the Closing
Date:
|
Name of
Series A Preferred
Stock
|
Number of Series A Preferred Stock
Shares Owned
|
|
Union
Bancaire Privee, UBP
SA
|
695,728
|
|
Grasford
International
Ltd.
|
291,555
|
|
Crystal
Management
Ltd.
|
17,643
|
|
The
Blue Line
Fund
|
11,762
|
|
Other
Entities under control of Avy Lugassy (in
aggregate)
|
141,453
|
The
foregoing descriptions of the Exchange Agreement and the
Certificate of Designations by the Company do not purport to be
complete and are qualified in their entirety by reference to the
full text of the Exchange Agreement and Certificate of Designations
which are attached as Exhibits 3.1 and 10.1, respectively, to this
Current Report on Form 8-K and incorporated herein by
reference.
The shares of Series A Preferred Stock and the shares of Common
Stock underlying the Series A Preferred Stock will be issued in
reliance upon an exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended (the
“Securities Act”). All such shares will be
“restricted securities” in accordance with Rule
144(a)(3) of the Securities Act and each of the holders is
“accredited investor” as defined under the Securities
Act. This Current Report on Form 8-K is not and shall not be deemed
to be an offer to sell or the solicitation of an offer to purchase
equity of the Company.
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