FLUX POWER HOLDINGS, INC. : Entering into a material definitive agreement, creation of a direct financial obligation or obligation under an off-balance sheet arrangement of a registrant, unregistered sale of equity securities, financial statements and exhibits (Form 8 -K)

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Section 1.01 Entering into a Material Definitive Agreement

On May 11, 2022the Company has entered into a credit facility agreement (the “Credit Facility”) with Cleveland Capital, LPa Delaware limited partnership (“Cleveland”), Herndon Oakley factory, Ltd.(“HPO”), and other lenders (as well as Cleveland and HPO, the “Lenders”). The Credit Facility provides the Company with a short-term line of credit (the “LC”) of at least $3,000,000 and no more than $5,000,000, the proceeds of which will be used by the Company for working capital purposes. Pursuant to the LC, the Company has issued a separate unsecured subordinated promissory note to each respective lender (each promissory note, a “Note”) for each lender’s Commitment Amount (each such amount amount, a “commitment amount”). From May 13, 2022the lenders committed a total of $4,000,000.

Pursuant to the terms of the Credit Facility, each Lender individually agrees to make loans (each such Loan, an “Advance”) up to the amount of the Lender’s Commitment to the Company from time to time, until December 31, 2022 (the Maturity Date”). The Company may, from time to time, before the Maturity Date, draw down, repay and re-borrow against the Note, by advising the Lenders of the amount to be drawn down.

Each Bond bears an interest rate of 15.0% per annum on each Advance from the date of disbursement of such Advance and is payable on (i) the Maturity Date in cash or ordinary shares of the Company ( the “Ordinary Shares”) at the Company’s sole option, unless such Maturity Date is extended in accordance with the Note, or (ii) upon the occurrence of an Event of Default (as defined in the Note ). The Maturity Date may be extended (i) at the sole discretion of the Company for an additional period of one (1) year from the Maturity Date upon payment of a commitment fee equal to two percent (2%) of the Commitment Amount to the Lender within thirty (30) days prior to the original due date, or (ii) by the Lender in writing. In addition, each lender has signed a subordination agreement by and between the
Lenders and Bank of Silicon Valleya California company (“SVB”), dated
May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to the indebtedness of SVB by the Company and its wholly owned subsidiary, Flux Power, Inc.currently outstanding or subsequently incurred.

The Credit Facility includes customary representations, warranties and covenants of the Company and the lenders. The Company has also agreed to pay the legal costs of from Cleveland advice for an amount of up to $10,000. In addition, each Note also provides that in the event of default, at the option of the Lender, the entire unpaid Principal Balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) will become immediately due and payable upon written notice to the Company by the Lender.

In connection with entering into the Credit Facility, the Company has agreed to pay each lender a one-time cash committee fee equal to 3.5% of the lender’s commitment amount. In addition, in consideration of the Lenders’ undertaking to provide the Advances to the Company, the Company has agreed to issue each Lender warrants to purchase the number of common shares equal to the proceeds of (i) 160,000 shares ordinary ordinary multiplied by (ii) the ratio represented by the Commitment Amount of each Lender divided by the $5,000,000 (the “Warrants”).

Subject to certain ownership limits, the Warrants will be exercisable immediately from the date of issue, will expire on the fifth (5) anniversary of the date of issue and will have an exercise price of $2.53 per share. The exercise price of the Warrants is subject to certain adjustments, including stock dividends, stock splits, consolidations and reclassifications of the Company’s common shares. In the event of a Triggering Event, as described in the Warrant Certificate, each of the Warrantholders will be entitled to exercise their Warrant and receive the same amount and type of securities, cash or property that such holder would have been entitled to receive on the occurrence of such triggering event if such holder had exercised the rights represented by the warrant certificate immediately prior to such triggering event. In addition, at the holder’s request, the continued or surviving company following such triggering event will issue to such holder a new warrant of the same tenor evidencing the right to purchase the adjusted amount of securities, cash or property and the adjusted price of the warrant.

Under the terms of a sales agreement dated May 11, 2022, the Company has retained HPO as placement agent under the Credit Facility. In consideration for services rendered under the Credit Facility, the Company has agreed to pay HPO a finder’s fee equal to 3% of each lender’s commitment amount placed by HPO in cash.

The foregoing descriptions of the Credit Facility, Note and Warrant Certificate do not purport to be a complete statement of the terms of the agreements and the rights of the parties under such agreements and are qualified in their entirety by reference to the full text of the Credit Facility, the Note and the Warrant Certificate, which are attached hereto as Exhibits 10.1, 10.2 and 4.1 respectively, to this Current Report on Form 8-K and incorporated by reference herein.

Item 2.03 Creation of a Direct Financial Obligation or Obligation Under an Off-Balance Sheet Arrangement of a Registrant

The information disclosed in Section 1.01 of this Current Report on Form 8-K is incorporated by reference into this Section 2.03.

Item 3.02 Unrecorded Sales of Equity securities.

The information disclosed in Section 1.01 of this Current Report on Form 8-K is incorporated by reference into this Section 3.02. Pursuant to the terms of the warrant certificate, each holder may, at its sole discretion and in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the exercise, elect instead to receive on such exercise (in whole or in part) the net number of common shares determined by a formula set forth in the warrant certificate.

The Lenders have made representations to the Company that they meet the definition of accredited investor in Rule 501 of the Securities Act of 1933, as amended (“Securities Act”), and the Company relied on these statements. The offer and sale of the underlying securities in the Note and Warrant were made on the basis of the registration exemption granted by Section 4(a)(2) of the Securities Act , pursuant to Rule 506(b) of Regulation D promulgated thereunder. The offering of the underlying securities has not been made pursuant to a public offering, and no public solicitation or advertisement has been made or relied upon by any investor in connection with the offering. This current report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy, nor should such securities be offered or sold in
United States failure to register or an applicable exemption from the registration requirements.

Item 9.01 Financial statements and supporting documents



(d) Exhibits



Exhibit   Exhibit Description
4.1         Form of Warrant
10.1        Credit Facility Agreement dated May 11, 2022
10.2        Form of Subordinated Unsecured Promissory Note
104       Cover Page Interactive Data File (embedded within the Inline XBRL
          document)

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