SideChannel, Inc SC TO-I, filed Aug 22, 2023
SideChannel, Inc. (SDCH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
SIDECHANNEL, INC.
(Name of Subject Company (Issuer) and Name of Filing Person (Issuer)
Warrants to Purchase Common Stock with an Exercise Price of $1.00
Warrants to Purchase Common Stock with an Exercise Price of $0.36
Warrants to Purchase Common Stock with an Exercise Price of $0.18
(Title of Class of Securities)
N/A
(CUSIP Number of Warrants)
Ryan Polk
Chief Financial Officer
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Phone: (508) 925-0114
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications on Behalf of Filing Persons)
with a copy to:
Michael E. Storck, Esq. Paul J. Schulz, Esq. Lippes Mathias LLP
50 Fountain Plaza, Suite 1700
Buffalo, New York 14202
(716) 853-5100
CALCULATION OF FILING FEE
Transaction valuation* $1.1 million; Amount of filing fee* $112
* Estimated for purposes of calculating the amount of the filing fee only. SideChannel, Inc. (“SideChannel” or the “Company”) is offering to holders of certain of its warrants, as more fully described herein, the opportunity to exchange such warrants for shares of the Company’s common stock, par value $0.001 per share (“Shares” or “Common Stock”) by tendering (i) six (6) warrants with an exercise price of $0.36 in exchange for one (1) share of our Common Stock, and (ii) four (4) warrants with an exercise price of $1.00 or $0.18, as the case may be, in exchange for one (1) share of our Common Stock. The amount of the filing fee assumes that all outstanding warrants that are the subject of the offer will be exchanged and is calculated pursuant to Rule 0-11(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The transaction value was determined assuming that all warrants to purchase SideChannel’s Common Stock eligible to participate in the Offer are exchanged, and that the approximately 12,602,770 shares issued as a result of the Offer have an aggregate value of $1.1 million calculated based on the average of the low and high trading price on August 16, 2023 which was $0.08.
The amount of the filing fee, calculated in accordance with Rule 0-11(b) under the Exchange Act, equals $110.20 per million dollars of the transaction valuation.
| ☐ | Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| Amount Previously Paid: N/A | Filing Party: N/A |
| Form or Registration No.: N/A | Date Filed: N/A |
| ☐ | Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. |
Check the appropriate boxes below to designate any transactions to which the statement relates:
| ☐ | third-party tender offer subject to Rule 14d-1. | |
| ☒ | issuer tender offer subject to Rule 13e-4. | |
| ☐ | going-private transaction subject to Rule 13e-3. | |
| ☐ | amendment to Schedule 13D under Rule 13d-2. |
Check the following box if the filing is a final amendment reporting the results of the tender offer: ☐
SCHEDULE TO
This Tender Offer Statement on Schedule TO (this “Schedule TO”) is filed by SideChannel, Inc., a Delaware corporation (the “Company” or “SideChannel”). This Schedule TO relates to the offer by the Company to holders of certain of the Company’s outstanding warrants (the “Warrants”). The offer is made upon the terms and subject to the conditions set forth in the Company’s offer to exchange, dated August 21, 2023 (the “Offer to Exchange”), and in the related Offer to Exchange materials which are filed as Exhibits (a)(1)(A), (a)(1)(B), (a)(1)(C), (a)(1)(D) and (a)(1)(E) to this Schedule TO (which the Offer to Exchange and related Offer to Exchange materials, as amended or supplemented from time to time, collectively constitute the “Offer Materials”). This is an Offer for all or none of the Warrants. The Offer is subject to the requirement that all Warrants must be tendered by all eligible holders of the Warrants.
The 69,281,020 Warrants subject to our Offer to Exchange consist of (i) warrants to purchase an aggregate of 5,398,966 Shares issued to certain designees of Paulson Investment Company, LLC (“Paulson”) in 2018 with a ten-year term and with an exercise price of $1.00 (“2018 Paulson Warrants”), (ii) warrants to purchase an aggregate of 8,332,439 Shares that were issued to certain designees of Paulson in 2021 with a ten-year term and that had an exercise price of $0.18 (“2021 Paulson Warrants”); and (iii) warrants to purchase an aggregate of 55,549,615 Shares issued to certain investors in 2021 with a five-year term and with an exercise price of $0.36 (“2021 Investor Warrants”). The 2018 Paulson Warrants and the 2021 Paulson warrants are sometimes herein collectively referred to as the “Paulson Warrants.” Under the Offer to Exchange, the holders of the Paulson Warrants will be entitled to receive one (1) share of Common Stock for each four (4) Paulson Warrants exchanged (“Paulson Exchange Ratio”), and (ii) the holders of the Investor Warrants will be entitled to receive one (1) share of Common Stock for each six (6) Investor Warrants exchanged (“Investor Exchange Ratio”). The “Offer Period” is the period commencing on August 21, 2023 and ending at 5:00 p.m., Eastern Time, on September 19, 2023, or such later date to which the Company may extend the Offer (the “Expiration Date”). If all of the Warrants are tendered, the Company will issue approximately 12,602,770 Shares. The Paulson Exchange Ratio and the Investor Exchange Ratio were selected by the Company in order to provide the holders of the Warrants with an incentive to exchange the Warrants.
This Schedule TO is intended to satisfy the reporting requirements of Rule 13e-4 under the Securities Exchange Act of 1934, as amended. Information set forth in the Offer to Exchange is incorporated by reference in response to Items 1 through 13 of this Schedule TO, except those parts of items as to which information is specifically provided herein.
Item 1. Summary Term Sheet.
The information set forth under the heading “Summary” in the Offer to Exchange, attached hereto as Exhibit (a)(1)(A), is incorporated herein by reference.
Item 2. Subject Company Information.
| (a) | Name and Address. |
The name of the subject company and the filing person is SideChannel, Inc., a Nevada corporation. Its principal executive offices are located at 146 Main Street, Suite 405, Worcester, MA 01608. The Company’s telephone number is (508) 925-0114.
| (b) | Securities. |
As of June 30, 2023, the Company has a total of 76,383,520 warrants to purchase shares of Common Stock outstanding (“Outstanding Warrants”). Of the Outstanding Warrants, 69,281,020 warrants are subject to the Offer. Each 2018 Paulson Warrant is currently exercisable for one share of our common stock for an exercise price of $1.00. Each 2021 Paulson Warrant is currently exercisable for one share of our common stock for an exercise price of $0.18. Each 2021 Investor Warrant is currently exercisable for one share of our common stock for an exercise price of $0.36. If all of the Warrants are tendered, the Company will issue approximately 12,602,770 Shares.
| (c) | Trading Market and Price. |
There is no trading market for the Warrants. However, the Common Stock trades under the symbol SDCH on the OTCQB Venture Market. The information set forth in the Offer to Exchange under “The Offer, Section 4. Price Range of Shares” is incorporated herein by reference.
Our Common Stock is considered a “penny stock”, and subject to the requirements of Rule 15g-9, promulgated under the Exchange Act of 1934, as amended. “Penny stock” is generally defined as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
The required penny stock disclosures include the required delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.
Item 3. Identity and Background of Filing Person.
| (a) | Name and Address. |
The Company is the subject company and the filing person. The business address and telephone number of the Company are set forth under Item 2(a) above.
The names of the executive officers and directors of the Company who are persons specified in Instruction C to Schedule TO are set forth below. The business address for each such person is 146 Main Street, Suite 405, Worcester, MA 01608. The business telephone number for each such person is (508) 925-0114.
| Name | Position | |
| Anthony Ambrose | Director | |
| Brian Haugli | Chief Executive Officer, Director | |
| Deborah MacConnel | Director, Chairwoman | |
| Ryan Polk | Chief Financial Officer | |
| Kevin Powers | Director | |
| Hugh Regan, Jr. | Director |
Item 4. Terms of the Transaction.
| (a) | Material Terms. |
The information set forth in the Offer to Exchange under Sections 1 through 11 of “The Offer” is incorporated herein by reference.
The following description of our Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and our Amended and Restated Bylaws (the “Bylaws”), each of which are incorporated by reference as exhibits to our Annual Report on Form 10-K filed December 20, 2022. We encourage you to read our Certificate of Incorporation, Bylaws, and the applicable provisions of the Delaware General Corporation Law for additional information.
Our authorized capital shares consist of 681,000,000 shares of Common Stock, $0.001 par value per share. As of June 30, 2023, there were 212,765,780 shares of Common Stock issued and outstanding. Holders of Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of directors. Our Certificate of Incorporation and Bylaws do not provide for cumulative voting in the election of directors.
Holders of our Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available for the payment of dividends. However, our Board of Directors has no present intention to pay any dividends to holders of our Common Stock.
In the event of our liquidation, the holders of our Common Stock will be entitled to share ratably in any distribution of our assets after payment of all debts and other liabilities and the preferences payable to holders of shares of Preferred Stock then outstanding, if any.
Our Certificate of Incorporation authorizes the issuance of 10,0000,000 undesignated shares of Preferred Stock and permits our Board of Directors to issue Preferred Stock with rights, powers, prerogatives or preferences that could impede the success of any attempt to change control of the Company. For example, our Board of Directors, without stockholder approval, may create or issue Preferred Stock with conversion rights that could adversely affect the voting power of the holders of our Common Stock as well as rights to such Preferred Stock, in connection with implementing a stockholder rights plan. This provision may be deemed to have a potential anti-takeover effect, because the issuance of such Preferred Stock may delay or prevent a change of control of the Company. Furthermore, shares of Preferred Stock, if any are issued, may have other rights, including economic rights, senior to Common Stock, and, as a result, the issuance thereof could depress the market price of our Common Stock.
Our Articles of Incorporation and the Bylaws do not provide holders of our Common Stock cumulative voting rights in the election of directors. The absence of cumulative voting could have the effect of preventing stockholders holding a minority of our shares of Common Stock from obtaining representation on our Board of Directors or the assumption of control by a holder of a large block of our stock or the removal of incumbent management.
In the event of our liquidation, the holders of our Common Stock will be entitled to share ratably in any distribution of our assets after payment of all debts and other liabilities and the preferences payable to holders of shares of Preferred Stock then outstanding, if any.
Our Certificate of Incorporation does not provide appraisal rights to the holders of our Common Stock.
The Offer will increase retained earnings and decrease additional paid-in-capital. The Offer will not materially affect our consolidated statement of operations nor our statement of cash flows.
| (b) | Purchases. |
No directors or officers hold any warrants subject to the Offer.
Item 5. Past Contracts, Transactions, Negotiations and Arrangements.
| (a) | Agreements Involving the Subject Company’s Securities. |
The information set forth in the Offer to Exchange under “The Offer, Section 7. Transactions and Agreements Concerning the Company’s Securities” is incorporated herein by reference.
Item 6. Purposes of the Transaction and Plans or Proposals.
| (a) | Purposes. |
The information set forth in the Offer to Exchange under “The Offer, Section 3.C. Purpose of the Offer” is incorporated herein by reference.
| (b) | Uses of Securities Acquired. |
The securities will be retired.
| (c) | Plans. |
No plans or proposals described in this Schedule TO or in any materials sent to the holders of the Warrants in connection with the Offer relate to or would result in the conditions or transactions described in Regulation M-A, Items 1006(c)(1)-(10), except as follows: (i) (a) the exchange of every six (6) Paulson Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company, and (b) the exchange of every four (4) Investor Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company; and (ii) at the Company’s Annual Meeting of Stockholders held on February 15, 2023, SideChannel’s stockholders granted discretionary authority to our Board of Directors to combine outstanding shares of our common stock into a lesser number of outstanding shares, or a “reverse stock split,” at a specific ratio within a range of 2-to-1 to a maximum of a 100-1 combination, with the exact ratio to be determined by our Board of Directors in its sole discretion; and to effect the reverse stock split, if at all, within two years of the date the proposal is approved by stockholders. The Board of Directors has not yet determined what if any action will be taken pursuant to this reverse-split authorization.
Item 7. Source and Amount of Funds or Other Consideration.
| (a) | Sources of Funds. |
No funds will be paid by the Company to exchanging Warrant holders in connection with the Offer. The Company will use funds on hand to pay the other expenses of consummating the Offer. The Company will use newly issued Shares or Shares held in treasury, if any, to effect the Offer.
| (b) | Conditions. |
Not applicable because there is no financing.
| (c) | Borrowed funds. |
Not applicable because no funds are being borrowed for the Offer to Exchange.
Item 8. Interest in Securities of the Subject Company.
| (a) | Securities ownership. |
No directors or officers hold any warrants subject to the Offer.
| (b) | Securities transactions. |
The Company has not engaged in any transactions in the Warrants required to be disclosed in this Item 8(b).
Item 9. Person/Assets, Retained, Employed, Compensated or Used.
| (a) | Solicitations or Recommendations. |
The Company has not retained a solicitation agent for the tender offer.
The Company will use the services of its officers and employees to solicit holders of the Warrants to participate in the Offer without additional compensation. The Board of Directors has not made any recommendation.
Item 10. Financial Statements
| (a) | Financial Information. |
The Company incorporates by reference the Company’s financial statements that were filed in Part II, Item 8 of its Annual Report on Form 10-K filed with the SEC on December 20 2022. Additionally, the Company incorporates by reference the Company’s unaudited financial statements that were filed in Part I, Item 1 of its Quarterly Reports on Form 10-Q filed with the SEC on February 9, 2023, May 9, 2023, and August 9, 2023 respectively.
The full text of the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K, as well as the other documents the Company has filed with the SEC prior to, or will file with the Commission subsequent to, the filing of this Tender Offer Statement on Schedule TO, can be accessed electronically on the SEC’s website at www.sec.gov. Copies of our SEC filings are also available without charge upon written request addressed to SideChannel, Inc., at 146 Main Street, Suite 405, Worcester, MA 01608, attn.: Corporate Secretary . Our telephone number is: (508) 925-0114.
Our book value as of June 30, 2023 was approximately $7.8 million or approximately $0.04 per share. Book value per share represents our total assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2023.
Our tangible book value as of June 30, 2023 was approximately $1.5 million or approximately $0.01 per share. Tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2023.
Item 11. Additional Information.
| (a) | Agreements, Regulatory Requirements and Legal Proceedings. |
| (1) | Except as set forth in Items 8 and 9 above, there are no present or proposed contracts, arrangements, understandings or relationships between the Company and its executive officers, directors or affiliates relating, directly or indirectly, to the Offer. |
| (2) | Except for the requirements of applicable U.S. federal and state securities laws, the Company knows of no regulatory requirements to be complied with or approvals to be obtained by the Company in connection with the Offer. |
| (3) | There are no applicable anti-trust laws implicated in the Offer to Exchange. |
| (4) | The margin requirements of Section 7 of the Securities Exchange Act of 1934, as amended, and the applicable regulations are inapplicable. |
| (5) | None. |
| (b) | Other Material Information. |
The information set forth in the Offer to Exchange and the related Letters of Transmittal, copies of which are filed as Exhibits (a)(l)(A), (a)(l)(B), (a)(1)(C), (a)(1)(D), and (a)(1)(E) hereto, respectively, is incorporated herein by reference.
The information set forth in the sections of the Offer to Exchange titled “Summary Term Sheet,” “Risk Factors,” “The Offer—Section 11. Additional Information; Miscellaneous,” is incorporated herein by reference. The Company will amend this Schedule TO to include documents that it may file with the SEC after the date of the Offer to Exercise and Exchange pursuant to Sections 13(a), 13(c) or 14 of the Securities Exchange Act of 1934, as amended, and prior to the expiration of the Offer, to the extent required by Rule 13e-4(d)(2) of the Securities Exchange Act of 1934, as amended.
Item 12. Exhibits.
* Filed herewith.
Item 13. Information Required by Schedule 13e-3.
Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| SIDECHANNEL, INC. | ||
| Date: August 21, 2023 | By: | /s/ Ryan Polk |
| Name: | Ryan Polk | |
| Title: | Chief Financial Officer |
Exhibit 99(a)(1)(A)
OFFER TO EXCHANGE COMMON STOCK
FOR CERTAIN OUTSTANDING WARRANTS OF
SIDECHANNEL, INC.
AUGUST 21, 2023
THE OFFER PERIOD AND YOUR RIGHT TO WITHDRAW WARRANTS THAT YOU TENDER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON SEPTEMBER 19, 2023, UNLESS THE OFFER PERIOD IS EXTENDED. THE COMPANY MAY EXTEND THE OFFER PERIOD AT ANY TIME. THIS IS AN OFFER FOR ALL OR NONE OF THE WARRANTS SUBJECT TO THE OFFER.
THE OFFER IS BEING MADE SOLELY UNDER THIS OFFER LETTER AND THE RELATED LETTERS OF TRANSMITTAL TO ALL HOLDERS OF CERTAIN WARRANTS DESCRIBED HEREIN. THE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF WARRANTS RESIDING IN ANY U.S. STATE IN WHICH THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES, BLUE SKY OR OTHER LAWS OF SUCH U.S. STATE.
SideChannel, Inc. which is referred to in this Offer to Exchange as “we”, “us”, “our”, “SideChannel” or the “Company” is making an offer, upon the terms and conditions in this Offer to Exchange and the related Letters of Transmittal (which together constitute the “Offer”), to holders of certain of the Company’s outstanding warrants more particularly described below (the “Warrants”) to receive an aggregate of approximately 12,602,770 shares of the Company’s common stock, par value $0.001 per share (“Common Stock” or “Shares”).
The warrants subject to our Offer to Exchange consist of (i) warrants to purchase an aggregate of 5,398,966 Shares issued to certain designees of Paulson Investment Company, LLC (“Paulson”) in 2018 with a ten-year term and with an exercise price of $1.00 (“2018 Paulson Warrants”), (ii) warrants to purchase an aggregate of 8,332,439 Shares that were issued to certain designees of Paulson in 2021 with a ten-year term and with an exercise price of $0.18 (“2021 Paulson Warrants”). and (iii) warrants to purchase an aggregate of 55,549,615 Shares issued to certain investors in 2021 with a five-year term and with an exercise price of $0.36 (“2021 Investor Warrants”) The 2018 Paulson Warrants and the 2021 Paulson Warrants are sometimes herein collectively referred to as the “Paulson Warrants.” Under this Offer to Exchange, the holders of the Paulson Warrants will be entitled to receive one (1) share of Common Stock for each four (4) Paulson Warrants exchanged and (ii) the holders of the Investor Warrants will be entitled to receive one (1) share of Common Stock for each six (6) Investor Warrants exchanged. The Paulson Warrants and the Investor Warrants are sometimes referred to herein collectively as the “Warrants”.
| i |
Each of the foregoing offers are for all outstanding warrants of each class. All warrants in each class must be tendered for the Offer to Exchange to close, subject to SideChannel’s right to waive the requirement. The “Offer Period” is the period commencing on August 21, 2023 and ending at 5:00 p.m., Eastern Time, on September 19, 2023, or such later date to which the Company may extend the Offer (the “Expiration Date”). If all of the Warrants are tendered, the Company will issue approximately 12,602,770 Shares.
Our Shares trade on the OTCQB, under the symbol SDCH. On August 17, 2023, the last reported closing sales price for the Shares was $0.07 per share.
No scrip or fractional shares will be issued. Warrants may only be exchanged for whole shares. Holders of Warrants who would otherwise have been entitled to receive fractional shares will, after aggregating all such fractional shares of such holder, receive the number of shares as rounded up to the nearest whole share. Holders continue to be entitled to exercise their Warrants on a cash basis, as applicable, during the Offer Period in accordance with the terms of such Warrant until the expiration date of such Warrant.
This Offer is for all or none of the Paulson Warrants and all or none the Investor Warrants and is subject to the condition that all of the Paulson Warrants and all of the Investor Warrants must be tendered for the Offer to close, which SideChannel may waive. If you elect to tender Paulson Warrants or Investor Warrants in response to the Offer, please follow the instructions in this Offer to Exchange and the related documents, including the applicable Letter of Transmittal. If you elect to exercise your Warrants on a cash basis in accordance with their terms, please follow the instructions for exercise included in the Warrants.
If you tender Warrants, you may withdraw your tendered Warrants before the Expiration Date and retain them on their terms by following the instructions herein.
Investing in the Shares involves a high degree of risk. See the “Risk Factors” section of this Offer to Exchange for a discussion of information that you should consider before tendering Warrants in the Offer.
The Offer will commence on August 21, 2023 (the date the materials relating to the Offer are first sent to the Warrant holders) and end on the Expiration Date. Only the Paulson Warrants and the Investor Warrants are subject to the Offer.
A detailed discussion of our Offer to Exchange Common Stock for the Warrants is contained in this Offer to Exchange. Holders of the Paulson Warrants and the Investor Warrants are strongly encouraged to read this entire package of materials, and the publicly-filed information about the Company referenced herein, before deciding regarding the Offer.
THE COMPANY’S BOARD OF DIRECTORS HAS APPROVED THE OFFER. HOWEVER, NONE OF THE COMPANY, ITS DIRECTORS, OFFICERS OR EMPLOYEES (EACH AS DEFINED BELOW) MAKES ANY RECOMMENDATION WHETHER YOU SHOULD EXCHANGE YOUR WARRANTS. EACH HOLDER OF A WARRANT MUST MAKE HIS, HER OR ITS OWN DECISION WHETHER TO TENDER ALL OF HIS, HER OR ITS WARRANTS.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER OR NOT YOU SHOULD PARTICIPATE IN THE OFFER TO EXCHANGE. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS DOCUMENT.
Neither the Securities and Exchange Commission (The “SEC”) nor any state securities commission, bureau or authority has approved or disapproved of this transaction or passed upon the fairness or merits of this transaction or the accuracy or adequacy of the information contained in this Offer to Exchange. Any representation to the contrary is a criminal offense.
| ii |
IMPORTANT PROCEDURES
If you want to tender all of your Warrants, you must:
| ● | complete and sign the Letter of Transmittal applicable to the Warrants you are tendering (Paulson Warrants or Investor Warrants) according to its instructions, and deliver the Letter of Transmittal, together with any other documents required by the Letter of Transmittal, to the Company. |
If you want to tender your Warrants, but your other required documents cannot be delivered to the Company before the Expiration date of the Offer, then you can still tender your Warrants if you comply with the procedures described in Section 2.
TO TENDER YOUR WARRANTS, YOU MUST CAREFULLY FOLLOW THE PROCEDURES DESCRIBED IN THIS OFFER LETTER, THE LETTER OF TRANSMITTAL APPLICABLE TO YOUR TYPE OF WARRANTS AND THE OTHER DOCUMENTS DISCUSSED HEREIN RELATED TO THE OFFER. NO SCRIP OR FRACTIONAL SHARES WILL BE ISSUED. WARRANTS MAY ONLY BE EXCHANGED FOR WHOLE SHARES.
Holders of warrants who would otherwise have been entitled to receive fractional shares will, after aggregating all such fractional shares of such holder, receive the number of shares as rounded up to the nearest whole share.
If you have any questions or need assistance, you should contact SideChannel, Inc. You may request additional copies of this Offer to Exchange and the Letter of Transmittal from the Company. The Company may be reached at:
The address of the Company is:
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Email: accounting@sidechannel.com
Phone: (508) 925-0114
| iii |
TABLE OF CONTENTS
| SUMMARY | 1 | |
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 4 | |
| RISK FACTORS | 5 | |
| THE OFFER | 7 | |
| 1. | GENERAL TERMS | 7 |
| 2. | PROCEDURE FOR TENDERING WARRANTS | 9 |
| 3. | BACKGROUND AND PURPOSE OF THE OFFER | 14 |
| 4. | PRICE RANGE OF SHARES | 16 |
| 5. | SOURCE AND AMOUNT OF FUNDS | 17 |
| 6. | FEES AND EXPENSES | 17 |
| 7. | TRANSACTIONS AND AGREEMENTS CONCERNING THE WARRANTS | 17 |
| 8. | FINANCIAL INFORMATION REGARDING THE COMPANY | 18 |
| 9. | EXTENSIONS; AMENDMENTS; CONDITIONS; TERMINATION; PLANS | 18 |
| 10. | MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES | 20 |
| 11. | ADDITIONAL INFORMATION; MISCELLANEOUS | 22 |
SUMMARY
The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Offer to Exchange. An investment in our Shares involves risks. You should carefully consider the information provided under the heading “Risk Factors.”
| A. | The Company - SideChannel, Inc., a Delaware corporation. Our principal executive offices are located at 146 Main Street, Suite 405, Worcester, MA 01608. | |
| B. | The Warrants - As of June 30, 2023, the Company has a total of 69,281,020 warrants to purchase shares of Common Stock outstanding (“Outstanding Warrants”). Of the Outstanding Warrants, 69,281,020 warrants are subject to the Offer, namely: (i) warrants to purchase an aggregate of 5,398,966 Shares issued to certain designees of Paulson Investment Company, LLC (“Paulson”) in 2018 with a ten-year term and with an exercise price of $1.00 (“2018 Paulson Warrants”), (ii) warrants to purchase an aggregate of 8,332,439 Shares issued to certain designees of Paulson in 2021 with a ten-year term and that had an exercise price of $0.18 (“2021 Paulson Warrants”), and (iii) warrants to purchase an aggregate of 55,549,615 Shares that were issued to certain investors in 2021 with a five-year term and with an exercise price of $0.36 (“2021 Investor Warrants”). The 2018 Paulson Warrants and the 2021 Paulson Warrants are sometimes herein collectively referred to as the “Paulson Warrants.” The 2021 Investor Warrants and the Paulson Warrants are sometimes referred to herein collectively as the “Warrants”. By their terms, the Warrants will expire on dates varying from April 7, 2026 to April 18, 2031.
Only the Paulson Warrants and the Investor Warrants are eligible to be tendered for exchange in this Offer. | |
| C. | Market Price of the Shares - Our Shares trade on the OTCQB, under the symbol SDCH . On August 17, 2023, the last reported closing sales price for the Shares was $0.7 per share. | |
| D. | The Offer - After the closing of the Offer, (i) the holders who have tendered their 2021 Investor Warrants will be entitled to receive one (1) share of Common Stock for each six (6) Investor Warrants tendered for exchange (“Investor Exchange Ratio”), and (ii) the holders who have tendered their Paulson Warrants will be entitled to receive one (1) share of Common Stock for each four (4) Paulson Warrants tendered for exchange (“Paulson Exchange Ratio”). |
| 1 |
The Paulson Exchange Ratio and the Investor Exchange Ratio were selected by the Company in order to provide the holders of the Warrants with an incentive to exchange the Warrants. The “Offer Period” is the period commencing on August 21, 2023 and ending at 5:00 p.m., Eastern Time, on September 19, 2023, or such later date to which the Company may extend the Offer (the “Expiration Date”). This is an all or none offer pursuant to which all Warrants of all three classes outstanding are required be tendered subject to SideChannel’s reserved right to waive this requirement.
If all of the Warrants are tendered as required, the Company will issue approximately 12,602,770 Shares. A holder must tender all or none of the Warrants they hold to participate in the Offer. Warrants may only be exchanged for whole shares. Holders continue to be entitled to exercise their Warrants on a cash basis during the Offer Period in accordance with the terms of the Warrant. See Section 1, “General Terms”.
| E. | Reasons for the Offer - The Offer is being made to all holders of certain classes of Warrants. The purpose of the Offer is to (i) remove impediments to effectively engaging the capital markets caused by certain terms in the Warrants (ii) reduce the aggregate number of warrants outstanding, and (iii) increase the number of Shares in the market. See Section 3.C., “Background and Purpose of the Offer— Purpose of the Offer.” | |
| F. | Expiration Date of Offer - The Expiration Date is 5:00 p.m., Eastern Time, on September 19, 2023, or such date to which we may extend the Offer. All Warrants and related paperwork must be received by the Company by this time, as instructed herein. See Section 9, “Extensions; Amendments; Conditions; Termination; Plans.” | |
| G. | Withdrawal Rights - If you tender your Warrants and change your mind, you may withdraw your tendered Warrants at any time until the Expiration Date, as described in greater detail in Section 2 herein. See Section 2.B., “Withdrawal Rights.” | |
| H. | Participation by Officers and Directors - No directors or officers hold any warrants subject to the Offer (see Section 3.D., “Background and Purpose of the Offer—Interests of Directors and Officers”). |
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| I. | Conditions of the Offer - The conditions of the Offer are that no action or event shall have occurred, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree or injunction shall have been promulgated, enacted, entered or enforced applicable to the Offer or the exchange of Warrants for Shares under the Offer by or before any court or governmental regulatory or administrative agency, authority or tribunal of competent jurisdiction, including, without limitation, taxing authorities, that challenges the making of the Offer or the exchange of Warrants for Shares under the Offer or would reasonably be expected to, directly or indirectly, prohibit, prevent, restrict or delay consummation of, or would reasonably be expected to otherwise adversely affect in any material manner, the Offer or the exchange of Warrants for Shares under the Offer, and that all of the Warrants of each class of Warrants must be tendered; however, the Company may waive this condition in its discretion if all Warrants are not tendered by the Expiration Date. | |
| J. | Termination - We may terminate the Offer if the Conditions of the Offer are not satisfied prior to the Expiration Date. See Section 9, “Extensions; Amendments; Conditions; Termination.” | |
| K. | Fractional Shares - No scrip or fractional shares will be issued. Warrants may only be exchanged for whole shares. Holders of Warrants who would otherwise have been entitled to receive fractional shares will, after aggregating all such fractional shares of such holder, receive the number of shares as rounded up to the nearest whole share. See Section 1.B., “General Terms—Partial Tender Permitted.” | |
| L. | Board of Directors’ Recommendation - Our Board of Directors has approved the Offer. However, none of the Company, its directors, officers or employees makes any recommendation as to whether to tender Warrants. You must make your own decision as to whether to tender some or all of your Warrants. See Section 1.C., “General Terms—Board Approval of the Offer; No Recommendation; Holder’s Own Decision.” | |
| M. | Solicitation Agent - The Company has not retained a solicitation agent for the Exchange Offer. | |
| N. | How to Tender Warrants - To tender your Warrants, you must complete the actions described herein under Section 2 before the Offer expires. You may also contact the Company or your broker for assistance. The contact Information for the Company is SideChannel, Inc., 146 Main Street, Suite 405, Worcester, MA 01608, Phone: (508) 925-0114.
See Section 2, “Procedure for Tendering Warrants.” |
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| O. | Certain Material U.S. Federal Tax Consequences - In general, if you exchange your Warrants for Shares pursuant to the Offer, we believe no gain or loss should be recognized on the exchange for United States federal income tax purposes. Holders are urged to consult their personal tax advisors concerning the tax consequences of an exchange pursuant to the Offer based on their particular circumstances. For a general discussion of certain tax considerations, see Section 10, “Material U.S. Federal Income Tax Consequences.” | |
| P. | Further Information - Please direct questions or requests for assistance, or for additional copies of this Offer to Exchange, Letter of Transmittal or other materials, in writing, to the Company at SideChannel, Inc., 146 Main Street, Suite 405, Worcester, MA 01608, Email accounting@sidechannel.com, Phone: (508) 925-0114. See Section 11, “Additional Information; Miscellaneous.” |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offer to Exchange contains forward-looking statements. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “may,” “anticipate,” “intend,” “estimate,” “project,” “plan,” “assume,” “potential,” “could,” “should,” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words. All statements contained or incorporated by reference in this Offer to Exchange regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, the future of our industries and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements.
You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on the cover of this Offer to Exchange, or, in the case of forward-looking statements in documents incorporated by reference, as of the date of the date of the filing of the document that includes the statement. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except with respect to our obligation to provide amendments for material changes to this Offer to Exchange during the duration of the Offer, we do not undertake and specifically disclaim any obligation to update any forward-looking statements or to publicly announce the results of any revisions to any statements to reflect new information or future events or developments.
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We have identified some of the important factors that could cause future events to differ from our current expectations and they are described in this Offer to Exchange under the caption “Risk Factors,” below, and elsewhere in this Offer to Exchange which you should review carefully. Please consider our forward-looking statements in light of those risks as you read this Offer to Exchange.
RISK FACTORS
An investment in our Shares involves a high degree of risk. You should carefully consider each of the risks described below, together with all of the other information set forth elsewhere on this Offer to Exchange and the risks and other information described in our annual report on Form 10-K filed on December 20, 2022 and our subsequently filed quarterly reports on Form 10-Q. Additional risks and uncertainties not presently known to the Company or that the Company currently deems immaterial also may impair our business operations. If any of the matters identified as potential risks materialize, our business could be harmed. In that event, the trading price of our Common Stock could decline.
There is no guarantee that your decision whether to tender your Warrants in the Offer will put you in a better future economic position.
We can give no assurance as to the price at which a stockholder may be able to sell our Common Stock in the future following the completion of the Offer. If you choose to tender your Warrants in the Offer, certain future events may cause an increase in our Common Stock price and may result in receiving fewer shares of Common Stock now than you might receive from future warrant exercises had you not agreed to exchange your Warrants. Similarly, if you do not tender your Warrants in the Offer, you will continue to bear the risk of ownership of your Warrants after the closing of the Offer, which includes the expiration of the Warrants by their own terms, and there can be no assurance that you can sell your Warrants (or exercise them for Common Stock) in the future at a higher price than would have been obtained by participating in the Offer. You should consult your own individual tax and/or financial advisor for assistance on how this may affect your individual situation.
There is no assurance that the Offer will be successful.
There is no assurance that all of the Warrants will be tendered in the Offer or that the Company will exercise its right to waive that requirement. Moreover, there is no assurance that the price of our Common Stock will increase. The price of our Common Stock and the decision of any investors to make an equity investment in the Company are based on numerous material factors, of which our Warrant overhang is only one. Eliminating or significantly reducing our Warrant overhang will not generate any capital for our Company.
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If the holders of all of our Warrants accept the Offer, we will issue them additional shares of Common Stock. The issuance of additional Common Stock upon the exchange of tendered Warrants will dilute our existing stockholders as well as our future stockholders. The issuance will dilute the percentage ownership interests in the Company of other stockholders.
The market price of our Common Stock will fluctuate, and it may adversely affect Warrant holders who tender their Warrants for Common Stock.
The market price of our Shares will fluctuate between the date the Offer is commenced, the Expiration Date of the Offer and the date on which Shares are issued to tendering Warrant holders. Accordingly, the market price of Shares upon settlement of the Offer could be less than the price at which the Warrants could be sold or the price of our Common Stock when the Warrants were tendered. The Company does not intend to re-adjust the Paulson Exchange Ratio or the Investor Exchange Ratio of Shares based on any fluctuation in the price of our Shares.
The value of the Shares that you receive may fluctuate.
We are offering Shares for validly tendered Warrants. The price of our Shares may fluctuate widely in the future. If the market price of our Shares declines, the value of the Shares you will receive in exchange for your Warrants will decline. The trading value of our Shares could fluctuate depending upon any number of factors, including those specific to us and those that influence the trading prices of equity securities generally, many of which are beyond our control.
The number of Shares outstanding as a result of the Offer may depress the price of the Common Stock.
As a result of this Offer, the number of Shares outstanding and trading will materially increase. This could adversely affect the prevailing market price of the Shares. As a result, holders may not be able to sell the Shares at or above their purchase price and it may impair the Company’s ability to raise capital through future sales of Common Stock or other equity securities.
No rulings or opinions have been received as to the tax consequences of the Offer to holders of Warrants.
The tax consequences that will result to a Warrant holder that participates in the Offer are not well defined by the existing authorities. No ruling of any governmental authority and no opinion of counsel has been issued or rendered on these matters. Warrant holders must therefore rely on the advice of their own tax advisors in assessing these matters. For a general discussion of certain tax considerations, see Section 10, “Material U.S. Federal Income Tax Consequences.”
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Our Common Stock is deemed a “Penny Stock” and, as a result, holders of our Common Stock may have their ability to sell their Shares of the Common Stock impaired.
Our Common Stock is considered a “penny stock” subject to the requirements of Rule 15g-9, promulgated under the Exchange Act of 1934, as amended (“Exchange Act”). “Penny Stock” is generally defined as any equity security not traded on an exchange or quoted on NYSE or Nasdaq that has a market price of less than $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including making an individualized written suitability determination for the purchaser and obtaining the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
The required penny stock disclosures include the required delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.
THE OFFER
Risks of Participating In the Offer
Participation in the Offer involves a number of risks, including, but not limited to, the risks identified in “Risk Factors” above. Holders should carefully consider these risks and are urged to speak with their personal financial, investment and/or tax advisors as necessary before deciding whether to participate in the Offer. In addition, the Company strongly encourages you to read this Offer to Exchange in its entirety and review the documents referred to in “Risk Factors,” above as well, including the risks and other information described in our annual report on Form 10-K filed on December 20, 2022 and our subsequently filed quarterly reports on Form 10-Q .
| 1. | GENERAL TERMS |
Subject to the terms and conditions of the Offer, the Company is making an offer to the holders of certain of our Warrants to tender their Warrants in exchange for Shares of our Common Stock. The Warrants subject to our Offer to Exchange consist of three classes of Warrants, namely (i) warrants to purchase an aggregate of 5,298,966 Shares issued to certain designees of Paulson Investment Company, LLC (“Paulson”) in 2018 with a ten-year term and with an exercise price of $1.00 (“2018 Paulson Warrants”), (ii) warrants to purchase an aggregate of 8,332,439 Shares issued to certain designees of Paulson in 2021 with a ten-year term and that had an exercise price of $0.18 (“2021 Paulson Warrants”), and (iii) warrants to purchase an aggregate of 55,549,615 Shares that were issued to certain investors in 2021 with a five-year term and with an exercise price of $0.36 (“2021 Investor Warrants”). The 2018 Paulson Warrants and the 2021 Paulson Warrants are sometimes herein collectively referred to as the “Paulson Warrants” and the Paulson Warrants and the 2021 Investor Warrants are sometimes herein collectively referred to herein as the “Warrants”. Under this Offer to Exchange, (i) the holders of the Investor Warrants will be entitled to receive one (1) share of Common Stock for each six (6) Investor Warrants exchanged (“Investor Exchange Ratio”), and (ii) the holders of the Paulson Warrants will be entitled to receive one (1) share of Common Stock for each four (4) Paulson Warrants exchanged (“Paulson Exchange Ratio”). The “Offer Period” is the period commencing on August 21, 2023 and ending at 5:00 p.m., Eastern Time, on September 19, 2023, or such later date to which the Company may extend the Offer (the “Expiration Date”).
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This Offer is an all or none offer, and holders must tender all their Warrants to participate. The Offer is subject to the condition that all warrants in all three classes of Warrants, namely all the 2018 Paulson Warrants, all the 2021 Paulson Warrants and all the Investor Warrants must be tendered for exchange for the Offer to close, subject to the Company’s reserved right to waive the requirement and close the Offer. Warrants may only be exchanged for whole shares. No scrip or fractional shares will be issued. Holders of Warrants who would otherwise have been entitled to receive fractional shares will, after aggregating all such fractional shares of such holder, receive the number of shares as rounded up to the nearest whole share. Holders continue to be entitled to exercise their Warrants on a cash basis during the Offer Period in accordance with the terms of the Warrant.
If you elect to tender Warrants in response to the Offer, please follow the instructions in this Offer to Exchange and the related documents, including the Letter of Transmittal applicable to their type of Warrant.
If you tender your Warrants, you may withdraw your tendered Warrants before the Expiration Date and retain them on their terms by following the instructions herein.
This Offer to Exchange is made pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).
| A. | Period of Offer |
The Offer will only be open for a period beginning on August 21, 2023 and ending on the Expiration Date. The Company expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open. There can be no assurance, however, that the Company will exercise its right to extend the Offer.
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| B. | Partial Tender Not Permitted |
This is an all or none Offer. If you choose to participate in the Offer, you must tender all of your Warrants pursuant to the terms of the Offer. Although the Company has reserved the right to waive this condition, there can be no assurance that the Company will in fact waive this condition if all eligible Warrants are not tendered.
HOLDERS MAY ALSO BE ENTITLED TO EXERCISE THEIR WARRANTS ON A CASH BASIS DURING THE OFFER PERIOD IN ACCORDANCE WITH THE TERMS OF THE WARRANT, RATHER THAN TENDERING THEM FOR EXCHANGE.
| C. | Board Approval of the Offer; No Recommendation; Holder’s Own Decision |
THE COMPANY’S BOARD OF DIRECTORS HAS APPROVED THE OFFER. HOWEVER, NONE OF THE COMPANY, ITS DIRECTORS, OFFICERS OR EMPLOYEES MAKES ANY RECOMMENDATION AS TO WHETHER TO TENDER WARRANTS. EACH HOLDER OF A WARRANT MUST MAKE HIS, HER OR ITS OWN DECISION AS TO WHETHER TO TENDER SOME OR ALL OF HIS, HER OR ITS WARRANTS.
| D. | Extensions of the Offer |
The Company expressly reserves the right, in its sole discretion, and at any time or from time to time, to extend the period of time during which the Offer is open. There can be no assurance, however, that the Company will exercise its right to extend the Offer. If the Company extends the Offer, it will give notice of such extension by press release or other public announcement no later than 9:00 a.m., Eastern Time, on the next business day after the previously scheduled Expiration Date of the Offer.
| 2. | PROCEDURE FOR TENDERING WARRANTS |
| A. | Procedures for Tendering Warrants |
You do not have to participate in the Offer. If you decide not to participate in the Offer, you do not need to do anything, and your Warrants will remain outstanding until they expire or are exercised in accordance with their terms.
To participate in the Offer, you must properly complete, sign and date the Letter of Transmittal pertaining to your type of Warrant (Paulson Warrant or Investor Warrant) and mail or otherwise deliver to the Company the applicable Letter of Transmittal and your Warrants so that the Company receives them no later than 5:00 P.M., Eastern Time, on the Expiration Date (or such later date and time if we extend the Offer), at the address set forth in the Letter of Transmittal. The Company will accept email delivery of the Letter of Transmittal and Indemnification at accounting@sidechannel.com.
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The applicable Letter of Transmittal must be executed by the record holder of the tendered Warrants. However, if the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer’s full title and proper evidence of the authority of such person to act in such capacity must be indicated on the Letter of Transmittal.
If you do not submit a Letter of Transmittal for your Warrants prior to the Expiration Date of the Offer, or if you submit an incomplete or incorrectly completed Letter of Transmittal, you will be considered to have rejected the Offer to Exchange.
THE METHOD OF DELIVERY OF WARRANTS, THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE COMPANY IS AT THE ELECTION, EXPENSE AND RISK OF THE HOLDER. IT IS RECOMMENDED THAT HOLDERS ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE COMPANY BEFORE THE EXPIRATION DATE.
| B. | Withdrawal Rights |
You may change your election and withdraw your tendered Warrants only if you properly complete, sign and date the Withdrawal Form included with the Offer and mail, email or otherwise deliver the Withdrawal Form to us so that we receive it no later than 5:00 P.M., Eastern Time, on the Expiration Date, Attention: SideChannel, Inc., 146 Main Street, Suite 405, Worcester, MA 01608. You may also withdraw your tendered Warrants pursuant to Rule 13e-4(f)(2)(ii) under the Exchange Act, if they have not been accepted by us for payment within 40 business days from the commencement of the Offer. Delivery of the Withdrawal Form by facsimile or email will not be accepted.
The Withdrawal Form must be executed by the record holder of the Warrants to be withdrawn. However, if the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer’s full title and proper evidence of the authority of such person to act in such capacity must be indicated on the Withdrawal Form.
Withdrawals of Warrants may not be rescinded. Any Warrants properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Warrants may be re-tendered by again following one of the procedures described in the Offer at any time prior to the Expiration Date.
ALL QUESTIONS AS TO THE FORM AND VALIDITY (INCLUDING TIME OF RECEIPT) OF ANY NOTICE OF WITHDRAWAL WILL BE DETERMINED BY THE COMPANY, IN ITS REASONABLE DISCRETION, WHOSE DETERMINATION WILL BE FINAL AND BINDING. NONE OF THE COMPANY OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF WITHDRAWAL OR INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION.
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THE METHOD OF DELIVERY OF YOUR WITHDRAWAL FORM TO THE COMPANY IS AT THE ELECTION, EXPENSE AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT, HAND DELIVERY SERVICE, OR ELECTRONIC DELIVERY AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE COMPANY. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE COMPANY BEFORE THE EXPIRATION DATE.
| C. | Determination of Validity; Rejection of Warrants; Waiver of Defects; No Obligation to Give Notice of Defects |
We will determine, in our discretion, all questions as to form, validity, including time of receipt, eligibility and acceptance of any tender of Warrants or withdrawal of tendered Warrants. Our determination of these matters will be final and binding on all parties. We may reject any or all tenders of or withdrawals of tendered Warrants that we determine are not in appropriate form or that we determine are unlawful to accept or not timely made. Otherwise, we expect to accept all properly and timely tendered Warrants which are not validly withdrawn. We may waive, as to all eligible Warrant holders, any defect or irregularity in any tender with respect to any particular Warrant. Any waiver granted as to one Warrant holder will be afforded to all holders of Warrants. We may also waive any of the conditions of the Offer in our reasonable discretion, so long as such waiver is made with respect to all Warrant holders. No tender of Warrants or withdrawal of tendered Warrants will be deemed to have been properly made until all defects or irregularities have been cured by the tendering Warrant holder or waived by us. NEITHER WE NOR ANY OTHER PERSON IS OBLIGATED TO GIVE NOTICE OF ANY DEFECTS OR IRREGULARITIES IN TENDERS OR WITHDRAWALS, AND NO ONE WILL BE LIABLE FOR FAILING TO GIVE NOTICE OF ANY DEFECTS OR IRREGULARITIES.
| D. | Acceptance of Warrants; Issuance of Common Stock |
The Offer is scheduled to expire at 5:00 P.M., Eastern Time, on the Expiration Date, September 19, 2023, (subject to our right to extend the Offer). Upon the terms and subject to the conditions of the Offer, we expect, upon the expiration of the Offer, to:
| ● | accept for exchange Warrants properly tendered and not validly withdrawn pursuant to the Offer; and |
| ● | issue Common Stock in exchange for tendered Warrants pursuant to the Offer, rounding the number of shares to which such holder is entitled, after aggregating all fractions, up to the next whole number of shares. |
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If you elect to tender your Warrants pursuant to the Offer and you do so according to the procedures described herein, you will have accepted the Offer. Our acceptance of your outstanding Warrants for tender in the Offer will form a binding agreement between you and us upon the terms and subject to the conditions of the Offer upon the expiration of the Offer. A tender of Warrants made pursuant to any method of delivery set forth herein will also constitute an acknowledgement by the tendering Warrant holder that regardless of any action that we take with respect to any applicable tax related to the Offer and the disposition of Warrants, such Warrant holder acknowledges that the ultimate liability for all tax is and remains his, her or its sole responsibility. In that regard, a tender of Warrants authorizes us to withhold such Shares of Common Stock as may be necessary to cover any applicable tax payable by a tendering Warrant holder.
If you elect not to participate in the Offer, your Warrants will remain outstanding until they expire or are exercised by their original terms.
Our Common Stock is considered a “penny stock”, and subject to the requirements of Rule 15g-9, promulgated under the Exchange Act of 1934, as amended. “Penny stock” is generally defined as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
The required penny stock disclosures include the required delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.
If you tender Warrants pursuant to the Offer, you will receive legended Shares and you will generally be entitled to “tack” your holding period of the Warrants so tendered for purposes of Rule 144 under the Securities Act.
| E. | Extension of the Offer; Termination; Amendment |
Although we do not currently intend to do so, we may, from time to time, at our discretion, extend the Offer at any time as provided above. If we extend the Offer, we will continue to accept validly tendered Warrants until the new Expiration Date.
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We also expressly reserve the right, in our reasonable judgment, prior to the Expiration Date, to terminate or amend the Offer and to postpone our acceptance of any tendered Warrant upon the occurrence of any of the conditions specified below under “The Offer—Conditions to the Offer.”
Extension or amendments to, or a termination of, the Offer may be made at any time and from time to time by an announcement. In the case of an extension, the announcement must be issued no later than 9:00 A.M., Eastern Time, on the next business day after the last previously scheduled or announced Expiration Date. Any announcement made pursuant to the Offer will be disseminated promptly to holders of Warrants in a manner reasonably designed to inform such holders of such amendment. Without limiting the manner in which we may choose to make an announcement, except as required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such announcement other than by issuing a press release.
If we materially change the terms of the Offer or the information concerning the Offer, or if we waive a material condition of the Offer, we will extend the Offer to the extent required by Rules 13e-4(d)(2), 13e-4(e)(3), and 13e-4(f)(1)(ii) under the Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the Offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information.
| F. | Conditions of the Offer |
The Offer is subject to the following conditions: no action or event shall have occurred, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree or injunction shall have been promulgated, enacted, entered or enforced applicable to the Offer or the exchange of Warrants for Shares under the Offer by or before any court or governmental regulatory or administrative agency, authority or tribunal of competent jurisdiction, including, without limitation, taxing authorities, that challenges the making of the Offer or the exchange of Warrants for Shares under the Offer or would reasonably be expected to, directly or indirectly, prohibit, prevent, restrict or delay consummation of, or would reasonably be expected to otherwise adversely affect in any material manner, the Offer or the exchange of Warrants for Shares under the Offer.
The Offer is also subject the condition that all of the Warrants must be tendered for exchange; however, the Company may waive this condition in its reasonable discretion if all Warrants are not tendered by the Expiration Date.
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We may terminate the Offer if the Conditions of the Offer are not satisfied prior to the Expiration Date. In the event that we terminate the Offer, all Warrants tendered by a Warrant holder in connection with the Offer shall be returned to such Warrant holder and the Warrants will expire in accordance with their terms on their respective expiration dates and will otherwise remain subject to their original terms.
| 3. | BACKGROUND AND PURPOSE OF THE OFFER |
| A. | Information Concerning SideChannel, Inc. |
SideChannel’s mission is to make cybersecurity simple and accessible for mid-market and emerging companies, a market we believe is currently underserved. Our cybersecurity offerings identify and develop cybersecurity, privacy, and risk management solutions for our customers. We target customers that need cost-effective security solutions. Our growth plan to address the needs of our customers is to provide more effective and cost-efficient products and tech-enabled services cybersecurity and related including virtual Chief Information Security Officer (“vCISO”), zero trust, third-party risk management, due diligence, privacy, threat intelligence, and managed end-point security solutions.
Our growth strategy focuses on these three initiatives: (i) securing new vCISO clients; (ii) adding new Cyber Security Software and Services (“Cyber Security Software” and “Services”); and (iii) increasing adoption of Cybersecurity Software, including our new product we are developing known as Enclave.
Our principal executive offices are located at 146 Main Street, Suite 405, Worcester, MA 01608. Our telephone number is: (508) 925-0114.
| B. | Establishment of Offer Terms; Approval of the Offer |
The Company’s Board of Directors has approved the terms of the Offer, including the Paulson Exchange Ratio and the Investor Exchange Ratio, but are not recommending whether you should or should not tender your Warrants, nor passing upon the fairness of the Paulson Exchange Ratio or the Investor Exchange Ratio. The Board set the Paulson Exchange Ratio and the Investor Exchange Ratio to provide the holders of the Warrants with an incentive to exchange the Warrants.
| C. | Purpose of the Offer |
SideChannel is pursuing growth through organic initiatives and acquisition opportunities. Further, the company is considering an uplist on a national stock exchange. Successfully executing one or more of these objectives may require the issuance of equity. The warrants issued in the 2021 Private Placement contain anti-dilution clauses that impede the company’s ability to effectively engage the capital markets in support of these objectives. As such, the company believes the warrants are inhibiting its ability to grow and create value.
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Secondarily, the purpose of the Offer is to increase the public float in the market and reduce the number of Shares that would become outstanding upon the exercise of Warrants.
The Offer is being made to all holders of certain classes of Warrants, as more particularly described above.
Since the current exercise price of the Warrants is significantly higher than the market price of the Shares and the Warrants may expire on their respective expiration dates “out-of-the-money” according to their terms, the Company’s Board of Directors established the condition that all of the Warrant holders must tender their Warrants. Holders who tender Warrants will receive Shares with a legend and holders will generally be entitled to “tack” their holding period for purposes of Rule 144. Therefore, the Board of Directors expects the number of freely tradable shares will significantly increase as a result of the completion of this Offer.
In addition, the Company’s Board of Directors believes that by allowing holders of Warrants to exchange their Warrants for Shares of Common Stock according to the Paulson Exchange Ratio and/or the Investor Exchange Ratio, the Company can potentially reduce the substantial number of Shares that would be issuable upon exercise of the Warrants, thus providing investors and potential investors with greater certainty as to the Company’s capital structure.
The Offer is not made pursuant to a plan to periodically increase a securityholder’s proportionate interest in the assets or earnings and profits of the Company. The Warrants acquired pursuant to the exchange will be retired and cancelled.
| D. | Interests of Directors and Officers |
The names of the executive officers and directors of the Company are set forth below. The business address for each such person is: SideChannel, Inc., 146 Main Street, Suite 405, Worcester, MA 01608, and the telephone number for each such person is (508) 925-0114.
| Name | Position | |
| Anthony Ambrose | Director | |
| Brian Haugli | Chief Executive Officer, Director | |
| Deborah MacConnel | Director, Chairwoman | |
| Kevin Powers | Director | |
| Hugh Regan, Jr. | Director | |
| Ryan Polk | Chief Financial Officer |
None of the Directors or Executive Officers possess SideChannel warrants.
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| E. | Plans or Proposals |
Except as set forth below, there are no present plans or proposals by the Company that relate to or would result in: (a) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries; (b) a purchase, sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (c) any change in the present Board of Directors or management of the Company including, but not limited to, any plans or proposals to change the number or the term of directors, to fill any existing vacancy on the Board or to change any material term of the employment contract of any executive officer; (d) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company; (e) any other material change in the Company’s corporate structure or business; (f) changes in the Company’s Articles of Incorporation or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (g) a class of equity security of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (h) the suspension of the issuer’s obligation to file reports pursuant to Section 15(d) of the Exchange Act. The following are exceptions to the foregoing statement: (i)(a) the exchange of every six (6) Paulson Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company, and (b) the exchange of every four (4) Investor Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company; and (ii) at the Company’s Annual Meeting of Stockholders held on February 15, 2023, SideChannel’s stockholders granted discretionary authority to our Board of Directors to combine outstanding shares of our common stock into a lesser number of outstanding shares, or a “reverse stock split,” at a specific ratio within a range of 2-to-1 to a maximum of a 100-1 combination, with the exact ratio to be determined by our Board of Directors in its sole discretion; and to effect the reverse stock split, if at all, within two years of the date the proposal is approved by stockholders. The Board of Directors has not yet determined what if any action will be taken pursuant to this reverse-split authorization.
THE COMPANY’S BOARD OF DIRECTORS HAS APPROVED THE OFFER. HOWEVER, NONE OF THE COMPANY, ITS DIRECTORS, OFFICERS OR EMPLOYEES OR MAKES ANY RECOMMENDATION WHETHER YOU SHOULD TENDER ANY WARRANTS. EACH HOLDER OF A WARRANT MUST MAKE HIS, HER OR ITS OWN DECISION WHETHER TO TENDER SOME OR ALL OF HIS, HER OR ITS WARRANTS.
| 4. | PRICE RANGE OF SHARES |
Our shares traded on the OTCQB under the symbol SDCH. On August 17, 2023, the last reported sales price for the Shares was $0.06. Our Warrants are not publicly traded.
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The Company recommends that holders obtain current market quotations for the Common Stock, among other factors, before deciding whether or not to tender their Warrants.
The high and low sales price per share of the Company’s common stock for each quarter during the last two (2) fiscal years, as well as the most recent quarters of the current fiscal year.
| Low | High | |||||||
| Fiscal Year 2023 | ||||||||
| Third Quarter (April 1 – June 30) | $ | 0.05 | $ | 0.12 | ||||
| Second Quarter (January 1 – March 31) | $ | 0.06 | $ | 0.12 | ||||
| First Quarter (October 1 – December 31) | $ | 0.09 | $ | 0.15 | ||||
| Fiscal Year 2022 | ||||||||
| Fourth Quarter (July 1 – September 30) | $ | 0.08 | $ | 0.18 | ||||
| Third Quarter (April 1 – June 30) | $ | 0.07 | $ | 0.12 | ||||
| Second Quarter (January 1 – March 31) | $ | 0.09 | $ | 0.15 | ||||
| First Quarter (October 1 – December 31) | $ | 0.08 | $ | 0.19 | ||||
| Fiscal Year 2021 | ||||||||
| Fourth Quarter (July 1 – September 30) | $ | 0.14 | $ | 0.24 | ||||
| Third Quarter (April 1 – June 30) | $ | 0.19 | $ | 0.50 | ||||
| Second Quarter (January 1 – March 31) | $ | 0.19 | $ | 0.45 | ||||
| First Quarter (October 1 – December 31) | $ | 0.24 | $ | 0.52 | ||||
| 5. | SOURCE AND AMOUNT OF FUNDS |
Because this transaction is an offer to holders to exchange their existing Warrants for Shares, there is no source of funds to disclose as there is no cash consideration being paid by the Company to those tendering the Warrants. The Company will use funds on hand to pay any incidental expenses.
| 6. | FEES AND EXPENSES |
The Company has not retained a solicitation agent for the exchange offer. We will use our existing funds to pay expenses associated with the Offer. We will not receive any proceeds from this Offer.
| 7. | TRANSACTIONS AND AGREEMENTS CONCERNING THE WARRANTS |
There are no agreements, arrangements or understandings between the Company, or any of its directors or executive officers, and any other person with respect to the Warrants, other than our engagement of Paulson as a consultant regarding the structure of the Offer to Exchange. Paulson will not solicit tender of the Warrants.
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| 8. | FINANCIAL INFORMATION REGARDING THE COMPANY |
The Company incorporates by reference the Company’s financial statements that were filed in Item 8 of its Annual Report on Form 10-K filed with the SEC on December 20 2022. Additionally, the Company incorporates by reference the Company’s unaudited financial statements that were filed in Part 1, Item 1 of its Quarterly Reports on Form 10-Q filed with the SEC on February 9, 2023, May 9, 2023, and August 9, 2023.
The full text of the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K, as well as the other documents the Company has filed with the SEC prior to, or will file with the Commission subsequent to, the filing of this Tender Offer Statement on Schedule TO, can be accessed electronically on the SEC’s website at www.sec.gov. Copies of our SEC filings are also available without charge upon written request addressed to SideChannel, Inc., at 146 Main Street, Suite 405, Worcester, MA 01608, attn.: Corporate Secretary . Our telephone number is: (508) 925-0114.
Our book value as of June 30, 2023 was approximately $7.8 million or approximately $0.04 per share. Book value per share represents our total assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2023.
Our tangible book value as of June 30, 2023 was approximately $1.5 million or approximately $0.01 per share. Tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2023.
| 9. | EXTENSIONS; AMENDMENTS; CONDITIONS; TERMINATION; PLANS |
The Company expressly reserves the right, in its reasonable discretion, and at any time or from time to time, to extend the period of time during which the Offer is open. There can be no assurance, however, that the Company will exercise its right to extend the Offer. If the Company extends the Offer, it will give notice of such extension by press release or other public announcement no later than 9:00 a.m., Eastern Time, on the next business day after the previously scheduled Expiration Date of the Offer.
Amendments to the Offer will be made by written notice thereof to the holders of the Warrants. Material changes to information previously provided to holders of the Warrants in this Offer to Exchange or in documents furnished subsequent thereto will be disseminated to holders of Warrants. Also, should the Company, pursuant to the terms and conditions of the Offer, materially amend the Offer, the Company will ensure that the Offer remains open long enough to comply with U.S. federal securities laws.
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The minimum period during which an Offer must remain open following any material change in the terms of the Offer or information concerning the Offer (other than a change in price or change in percentage of securities sought, all of which require up to 10 additional business days) will depend on the facts and circumstances, including the relative materiality of such terms or information.
The Offer is subject to the conditions that no action or event shall have occurred, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree or injunction shall have been promulgated, enacted, entered or enforced applicable to the Offer or the exchange of Warrants for Shares under the Offer by or before any court or governmental regulatory or administrative agency, authority or tribunal of competent jurisdiction, including, without limitation, taxing authorities, that challenges the making of the Offer or the exchange of Warrants for Shares under the Offer or would reasonably be expected to, directly or indirectly, prohibit, prevent, restrict or delay consummation of, or would reasonably be expected to otherwise adversely affect in any material manner, the Offer or the exchange of Warrants for Shares under the Offer. The Offer is also subject the condition that all of the Warrants must be tendered for exchange; however, the Company may waive this condition in its reasonable discretion if all Warrants are not tendered by the Expiration Date.
We may terminate the Offer if the conditions of the Offer are not satisfied prior to the Expiration Date. In the event that we terminate the Offer, all Warrants tendered by a Warrant holder in connection with the Offer shall be returned to such Warrant holder and the Warrants will expire in accordance with their terms on their respective expiration dates and will otherwise remain subject to their original terms. If you tender your Warrants, you will be agreeing to purchase the Shares issuable pursuant to the Offer, pursuant to the terms and subject to the condition described herein and the Letter of Transmittal.
No plans or proposals described in this Offer to Exchange or the related Schedule TO or in any materials sent to the holders of the Warrants in connection with the Offer relate to or would result in the conditions or transactions described in Regulation M-A, Items 1006(c)(1)-(10), except as follows: (i)(a) the exchange of every six (6) Paulson Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company, and (b) the exchange of every four (4) Investor Warrants pursuant to the Offer will result in the acquisition by the exchanging holder of one (1) Share of the Company; and (ii) at the Company’s Annual Meeting of Stockholders held on February 15, 2023, SideChannel’s stockholders granted discretionary authority to our Board of Directors to combine outstanding shares of our common stock into a lesser number of outstanding shares, or a “reverse stock split,” at a specific ratio within a range of 2-to-1 to a maximum of a 100-1 combination, with the exact ratio to be determined by our Board of Directors in its sole discretion; and to effect the reverse stock split, if at all, within two years of the date the proposal is approved by stockholders. The Board of Directors has not yet determined what if any action will be taken pursuant to this reverse-split authorization.
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| 10. | MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES |
Certain U.S. Federal Income Tax Consequences to U.S. Holders
The following summary describes certain U.S. federal income tax considerations that may be relevant to U.S. Holders (as defined below) that participate in the Offer to exchange Warrants for our Common Stock. This summary does not address any other U.S. federal tax, such as estate and gift, alternative minimum, or any state, local, or foreign tax consequences that may be relevant to a holder that participates in the Offer. Moreover, this discussion does not describe U.S. federal income tax considerations that may be relevant to persons that are not United States persons (within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “Code”)) and other Warrant holders that are not U.S. Holders.
This summary applies only to holders who hold the Warrants and will hold the Common Stock as a capital asset within the meaning of Section 1221 of the Code. This description does not purport to address all potential tax considerations that may be relevant to a holder based on his, her or its particular situation and does not address the tax considerations applicable to holders that may be subject to special tax rules, such as:
| ● | financial institutions; | |
| ● | insurance companies; | |
| ● | real estate investment trusts; | |
| ● | regulated investment companies; | |
| ● | grantor trusts; | |
| ● | tax-exempt organizations; | |
| ● | dealers or traders in securities or currencies; | |
| ● | holders that hold common stock or Warrants as part of a position in a straddle or as part of a hedging, conversion or integrated transaction for U.S. federal income tax purposes; | |
| ● | holders that have a functional currency other than the U.S. dollar; | |
| ● | holders that received their Warrants as compensation for the performance of services; | |
| ● | holders that actually or constructively own 5% or more of our Shares; or | |
| ● | certain U.S. expatriates or long-term U.S. residents. |
If an entity treated as a partnership for U.S. federal income tax purposes holds Warrants, the tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Holders owning their Warrants through a partnership should consult their tax advisors regarding the U.S. federal income tax consequence of exchanging Warrants for Shares pursuant to the Offer.
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This summary is based on the Code, existing and proposed Treasury Regulations, administrative pronouncements and judicial decisions, each as in effect on the date hereof. All of the foregoing are subject to change, possibly with retroactive effect, or to differing interpretations by the Internal Revenue Service or a court, which could alter the tax consequences described herein. For purposes of this description, a U.S. Holder is a beneficial owner of Warrants or Common Stock that is for U.S. federal income tax purposes:
| ● | in individual who is a citizen or resident of the United States; | |
| ● | a corporation (including an entity taxed as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; | |
| ● | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or | |
| ● | a trust if (x) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of such trust or (y) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person. |
This summary is included herein as general information only. No statutory or judicial authority directly addresses all aspects of transactions similar to the Offer. We have not sought and do not intend to seek any rulings from the IRS or opinions of counsel regarding the tax consequences described herein, and accordingly, there is no assurance that the IRS will not successfully challenge any of the tax consequences described herein. Accordingly, each Warrant holder is strongly urged to consult his, her or its own tax advisor with respect to the U.S. federal, state, local and non-U.S. income and other tax consequences of participating in the Offer.
Participation in the Offer
If you participate in the Offer in accordance with the procedures set forth in the Offer, the Company intends to treat your participation for U.S. federal income tax purposes in the applicable manner described below.
Though applicable law and regulations are unclear, the Company believes that there is sufficient justification to treat the tender of Warrants in exchange for shares as a tax-free exercise of the rights conferred by the Warrants. As such, the Company believes that it is more likely than not that if and to the extent you elect to participate in the Offer by tendering Warrants for shares of our Common Stock, the Company will treat the transaction as a “recapitalization” exchange of Warrants for shares of Common Stock. The consequences of such characterization in respect of the Warrants exchanged into Common Stock should be that (i) the exchange of existing Warrants for new Common Stock would not cause recognition of gain or loss, (ii) your aggregate tax basis in the new Common Stock received in the exchange should be equal to the aggregate tax basis in your exchanged Warrants, and (iii) your holding period for the new Common Stock received in the exchange would include your holding period for the exchanged Warrants. Special tax basis and holding period rules apply to holders that acquired different blocks of Warrants at different prices or at different times. Holders should consult their tax advisors as to the applicability of these special rules to their particular circumstances.
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Although the Company believes the tender pursuant to the Offer is not a taxable exchange, the IRS may take a contrary position and assert that the tender gave rise to taxable income. There is no assurance that a court would agree with the position of the Company or the IRS. Under that approach, the value of the Shares received could serve as the proxy value received, all of which might be subject to income taxation. Alternatively, if the IRS or a court were to view the exchange pursuant to the Offer as the issuance of Shares to an exchanging holder, and the value of the Shares having a value in excess of the Warrants surrendered by such holder, such excess value could be viewed as a constructive dividend under Section 305 of the Code. Although not free from doubt, we expect that such constructive dividend, if any, should be considered a dividend of common stock on common stock, which generally should be nontaxable for most holders.
HOLDERS ARE ADVISED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE EXCHANGE TO THEIR PARTICULAR SITUATION.
| 11. | ADDITIONAL INFORMATION; MISCELLANEOUS |
The Company has filed with the SEC a Tender Offer Statement on Schedule TO, of which this Offer to Exchange is a part. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. The Company recommends that holders review the Schedule TO, including the exhibits, and the Company’s other materials that have been filed with the SEC before deciding on whether to accept the Offer.
The Company is subject to the reporting requirements of the Exchange Act and in accordance therewith files and furnishes reports and other information with the SEC. All reports and other documents the Company has filed with or furnished to the SEC, including the Schedule TO relating to the Offer, or will file with or furnish to the SEC in the future, can be accessed electronically on the SEC’s website at www.sec.gov.
IF YOU WOULD LIKE COPIES OF ANY OF THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU, OR IF YOU HAVE QUESTIONS ABOUT THE TRANSACTION, YOU MAY CONTACT THE COMPANY BY TELEPHONE OR IN WRITING AT THE FOLLOWING ADDRESS:
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Email: accounting@sidechannel.com
Phone: (508) 925-0114
ANY QUESTION OR REQUEST FOR ASSISTANCE MAY BE DIRECTED TO THE COMPANY AT THE ADDRESS, PHONE NUMBER AND EMAIL ADDRESS LISTED ABOVE. REQUESTS FOR ADDITIONAL COPIES OF THE OFFER LETTER, THE LETTER OF TRANSMITTAL OR OTHER DOCUMENTS RELATED TO THE OFFER MAY ALSO BE DIRECTED TO THE COMPANY.
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Exhibit 99(a)(1)(B)
LETTER OF TRANSMITTAL
FOR THE PAULSON PLACEMENT AGENT WARRANTS
Representing Warrants Exercisable for Shares of Common Stock at an Exercise Price of $1.00 per Share Issued in 2018 or Warrants Exercisable for Shares of Common Stock at an Exercise Price of $0.18 per Share Issued in 2021
The Warrants are and cannot be traded. There is no market for them. They aren’t certificated but are “book” The transfer agent has never maintained a record of the Warrants
SIDECHANNEL, INC.
(Exchange Ratio of One (1) Share : Four (4) Warrants)
| (A) Names(s) and Address(es) of Registered Owner(s): | (B) Number of Warrants Being Exchanged: | (C) New Shares to be Issued: | ||
| Multiply Column B by 0.25 and Round Up to the Nearest Whole Number. | ||||
| Please fill in exactly as name(s) and address(es) appear on the Warrants. |
No fractional Shares will be issued. Warrants may only be exchanged for whole Shares. In lieu of issuing fractional Shares to which any holder of Warrants would otherwise have been entitled, the Company will round the number of Shares to which such holder is entitled, after aggregating all fractions, up to the next whole number of Shares.
SPECIAL ISSUANCE INSTRUCTIONS
To be completed ONLY if the new shares for surrendered Warrants are to be issued in the name of someone other than the undersigned. Issue the new shares to:
Name:_____________________________________________________________________________
Address:___________________________________________________________________________
Tax Identification or Social Security Number:____________________________________________
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the new shares for surrendered Warrants are to be delivered to someone other than the undersigned or to the undersigned at an address other than that shown above. Deliver the shares to:
Name:_____________________________________________________________________________
Address:___________________________________________________________________________
The undersigned acknowledges that the undersigned has been advised to consult with its own advisors as to the consequences of participating or not participating in the Offer.
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REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE WARRANT HOLDER
The undersigned hereby represents, warrants to the Company, and agrees that:
(a) the undersigned has full power and authority to tender the Warrants and subscribe for all of the shares of the Company which may be received upon exchange of the Warrants;
(b) the undersigned has good, marketable and unencumbered title to the Warrants, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their exchange, sale or transfer, and not subject to any adverse claim;
(c) on request, the undersigned will execute and deliver any additional documents the Company deems necessary to complete the exchange of the Warrants tendered hereby;
(d) the undersigned understands that tenders of Warrants pursuant to the Offer and in the instructions hereto will constitute the undersigned’s acceptance of the terms and conditions of the Offer;
(e) the undersigned agrees to all of the terms of the Offer;
(f) the undersigned hereby agrees to permanently waive and renounce any and all “full ratchet” or other price-based anti- dilution rights that attach to any securities of the Company that it holds that were issued in connection with the Warrants that it is tendering for exchange hereby; and
(g) The undersigned is an “Accredited Investor” as defined in Rule 501 promulgated under the Securities Act of 1933, as amended.
All authorities conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy, and legal representatives of the undersigned. Except as stated in the Offer, this tender is irrevocable.
Delivery of this Letter of Transmittal and all other documents to an address, or transmission of instructions to an email address, other than as set forth below, does not constitute a valid delivery. Please carefully read this entire Letter of Transmittal, including the accompanying instructions before responding.
SideChannel, Inc.
146 Main Street, Suite 405, Worcester, MA 01608
accounting@sidechannel.com
IMPORTANT—WARRANT HOLDERS SIGN HERE
(Must be signed by registered holder(s) exactly as name(s) appear(s) on warrant(s) as evidenced by warrants and documents transmitted herewith. U.S. Holders please also obtain and complete IRS Form W-9. Non-U.S.-Holders please obtain and complete IRS Form W-8BEN, W-8BEN-E, or other applicable IRS Form W-8.)
Signature:__________________________________________________________________________
Name:____________________________________ Capacity:_________________________________
Phone Number:_________________ Tax Identification or Social Security Number: _____________
Date:_________________
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INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. Delivery of Letter of Transmittal and Warrants. The Letter of Transmittal properly completed and duly executed should be delivered to the Company as set forth in the Offer to Exchange. The Company will accept email delivery of the Letter of Transmittal at accounting@sidechannel.com.
THE METHOD OF DELIVERY OF WARRANT(S) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE OWNER. IT IS RECOMMENDED THAT THEY BE SENT BY AN OVERNIGHT OR HAND DELIVERY SERVICE.
2. Inadequate Space. If the space provided on the Letter of Transmittal is inadequate for you to provide the requested information, any information should be listed on a separate schedule to be attached thereto.
3. Signatures of Letter of Transmittal and Endorsements. When the Letter of Transmittal is signed by the registered owner(s) of the warrant(s) listed and surrendered thereby, no endorsements of warrants or separate assignments are required.
If the warrant(s) surrendered is (are) owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal.
If any surrendered warrant are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates.
If the Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorney-in-fact, officers of corporations or others, acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence, satisfactory to the Company, of their authority to do so must be submitted.
4. Special Issuance and Delivery Instructions. Indicate the name and address to which certificates for the new shares are to be sent if different from the name and address of the person(s) signing the Letter of Transmittal.
5. Additional Copies. Additional copies of the Letter of Transmittal may be obtained from the Company at the address listed below.
6. Expiration Date. No Letters of Transmittal will be accepted by the Company after 5:00 p.m. Eastern Time on September 19, 2023.
7. Form W-9 and Form W-8. To avoid backup withholding, a tendering warrant holder is required to provide the Depositary with a correct Taxpayer Identification Number (“TIN”) on Form W-9 and to certify, under penalties of perjury, that such number is correct and that such warrant holder is not subject to backup withholding of U.S. federal income tax, and that such warrant holder is a U.S. person (as defined for U.S. federal income tax purposes). If a tendering warrant holder has been notified by the Internal Revenue Service (“IRS”) that such warrant holder is subject to backup withholding, such warrant holder must cross out item (2) of the Certification box of the Form W-9, unless such warrant holder has since been notified by the IRS that such warrant holder is no longer subject to backup withholding.
Failure to provide the information on the Form W-9 may subject the tendering warrant holder to U.S. federal income tax withholding. If the tendering Warrant holder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such Warrant holder should submit a W-9 once the tendering Warrant holder has received such holder’s TIN.
Certain warrant holders (including, among others, all corporations and certain foreign individuals and entities) may not be subject to backup withholding. Foreign warrant holders should submit an appropriate and properly completed IRS Form W-8, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. Such warrant holders should consult a tax advisor to determine which Form W-8 is appropriate.
All questions as to the validity, form and eligibility of any surrender of warrants will be determined by the Company and such determination shall be final and binding. The Company reserves the right to waive any irregularities or defects in the surrender of any warrants. A surrender will not be deemed to have been made until all irregularities have been cured or waived. The Company is under no obligation to waive or to provide any notification of any irregularities or defects in the surrender of any warrants, nor shall the Company be liable for any failure to give such notification.
For Information:
Company
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Phone: (508) 925-0114
Email:accounting@sidechannel.com
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Exhibit 99(a)(1)(C)
LETTER OF TRANSMITTAL
FOR THE INVESTOR WARRANTS
Representing Warrants Issued to Certain Investors from March 31, 2021 through April 16, 2021 Exercisable for Shares of Common Stock at an Exercise Price of $0.36 per Share
The Warrants are and cannot be traded. There is no market for them. They aren’t certificated but are “book” The transfer agent has never maintained a record of the Warrants
SIDECHANNEL, INC.
(Exchange Ratio of One (1) Share : Six (6) Warrants)
| (A) Names(s) and Address(es) of Registered Owner(s): | (B) Number of Warrants Being Exchanged: | (C) New Shares to be Issued: | ||
| Multiply Column B by 0.167 and Round Up to the Nearest Whole Number. | ||||
| Please fill in exactly as name(s) and address(es) appear on the Warrants. |
No fractional Shares will be issued. Warrants may only be exchanged for whole Shares. In lieu of issuing fractional Shares to which any holder of Warrants would otherwise have been entitled, the Company will round the number of Shares to which such holder is entitled, after aggregating all fractions, up to the next whole number of Shares.
SPECIAL ISSUANCE INSTRUCTIONS
To be completed ONLY if the new shares for surrendered Warrants are to be issued in the name of someone other than the undersigned. Issue the new shares to:
Name:_________________________________________________________________________________________
Address:________________________________________________________________________________________
Tax Identification or Social Security Number:______________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the new shares for surrendered Warrants are to be delivered to someone other than the undersigned or to the undersigned at an address other than that shown above. Deliver the shares to:
Name:_________________________________________________________________________________________
Address:________________________________________________________________________________________
The undersigned acknowledges that the undersigned has been advised to consult with its own advisors as to the consequences of participating or not participating in the Offer.
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REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE WARRANT HOLDER
The undersigned hereby represents, warrants to the Company, and agrees that:
(a) the undersigned has full power and authority to tender the Warrants and subscribe for all of the shares of the Company which may be received upon exchange of the Warrants;
(b) the undersigned has good, marketable and unencumbered title to the Warrants, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their exchange, sale or transfer, and not subject to any adverse claim;
(c) on request, the undersigned will execute and deliver any additional documents the Company deems necessary to complete the exchange of the Warrants tendered hereby;
(d) the undersigned understands that tenders of Warrants pursuant to the Offer and in the instructions hereto will constitute the undersigned’s acceptance of the terms and conditions of the Offer;
(e) the undersigned agrees to all of the terms of the Offer;
(f) the undersigned hereby agrees to permanently waive and renounce any and all “full ratchet” or other price-based anti- dilution rights that attach to any securities of the Company that it holds that were issued in connection with the Warrants that it is tendering for exchange hereby; and
(g) The undersigned is an “Accredited Investor” as defined in Rule 501 promulgated under the Securities Act of 1933, as amended.
All authorities conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy, and legal representatives of the undersigned. Except as stated in the Offer, this tender is irrevocable.
Delivery of this Letter of Transmittal and all other documents to an address, or transmission of instructions to an email address, other than as set forth below, does not constitute a valid delivery. Please carefully read this entire Letter of Transmittal, including the accompanying instructions before responding.
SideChannel, Inc.
146 Main Street, Suite 405, Worcester, MA 01608
accounting@sidechannel.com
IMPORTANT—WARRANT HOLDERS SIGN HERE
(Must be signed by registered holder(s) exactly as name(s) appear(s) on warrant(s) as evidenced by warrants and documents transmitted herewith. U.S. Holders please also obtain and complete IRS Form W-9. Non-U.S.-Holders please obtain and complete IRS Form W-8BEN, W-8BEN-E, or other applicable IRS Form W-8.)
Signature:____________________________________________________________________________
Name:____________________________________ Capacity:_________________________________
Phone Number:_________________ Tax Identification or Social Security Number: _____________
Date:_________________
| 2 |
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
1. Delivery of Letter of Transmittal and Warrants. The Letter of Transmittal properly completed and duly executed should be delivered to the Company as set forth in the Offer to Exchange. The Company will accept email delivery of the Letter of Transmittal at accounting@sidechannel.com.
THE METHOD OF DELIVERY OF WARRANT(S) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE OWNER. IT IS RECOMMENDED THAT THEY BE SENT BY AN OVERNIGHT OR HAND DELIVERY SERVICE.
2. Inadequate Space. If the space provided on the Letter of Transmittal is inadequate for you to provide the requested information, any information should be listed on a separate schedule to be attached thereto.
3. Signatures of Letter of Transmittal and Endorsements. When the Letter of Transmittal is signed by the registered owner(s) of the warrant(s) listed and surrendered thereby, no endorsements of warrants or separate assignments are required.
If the warrant(s) surrendered is (are) owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal.
If any surrendered warrant are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates.
If the Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorney-in-fact, officers of corporations or others, acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence, satisfactory to the Company, of their authority to do so must be submitted.
4. Special Issuance and Delivery Instructions. Indicate the name and address to which certificates for the new shares are to be sent if different from the name and address of the person(s) signing the Letter of Transmittal.
5. Additional Copies. Additional copies of the Letter of Transmittal may be obtained from the Company at the address listed below.
6. Expiration Date. No Letters of Transmittal will be accepted by the Company after 5:00 p.m. Eastern Time on September 19, 2023.
7. Form W-9 and Form W-8. To avoid backup withholding, a tendering warrant holder is required to provide the Depositary with a correct Taxpayer Identification Number (“TIN”) on Form W-9 and to certify, under penalties of perjury, that such number is correct and that such warrant holder is not subject to backup withholding of U.S. federal income tax, and that such warrant holder is a U.S. person (as defined for U.S. federal income tax purposes). If a tendering warrant holder has been notified by the Internal Revenue Service (“IRS”) that such warrant holder is subject to backup withholding, such warrant holder must cross out item (2) of the Certification box of the Form W-9, unless such warrant holder has since been notified by the IRS that such warrant holder is no longer subject to backup withholding.
Failure to provide the information on the Form W-9 may subject the tendering warrant holder to U.S. federal income tax withholding. If the tendering Warrant holder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such Warrant holder should submit a W-9 once the tendering Warrant holder has received such holder’s TIN.
Certain warrant holders (including, among others, all corporations and certain foreign individuals and entities) may not be subject to backup withholding. Foreign warrant holders should submit an appropriate and properly completed IRS Form W-8, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. Such warrant holders should consult a tax advisor to determine which Form W-8 is appropriate.
All questions as to the validity, form and eligibility of any surrender of warrants will be determined by the Company and such determination shall be final and binding. The Company reserves the right to waive any irregularities or defects in the surrender of any warrants. A surrender will not be deemed to have been made until all irregularities have been cured or waived. The Company is under no obligation to waive or to provide any notification of any irregularities or defects in the surrender of any warrants, nor shall the Company be liable for any failure to give such notification.
For Information:
Company
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Phone: (508) 925-0114
Email: accounting@sidechannel.com
| 3 |
Exhibit 99(a)(l)(D)
NOTICE OF WITHDRAWAL
OF PAULSON PLACEMENT AGENT WARRANTS
SIDECHANNEL, INC.
Offer to Exchange
Common Stock for Warrants issued in 2021 exercisable at a price of $0.18 per Share or Warrants issued in 2018 exercisable at a price of $1.00 per Share for Common Stock of SideChannel, Inc.
THE OFFER TO EXCHANGE AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON SEPTEMBER 19 , 2023 UNLESS THE OFFER TO EXCHANGE IS EXTENDED.
The undersigned acknowledges receipt of the offer to exchange statement dated August 21, 2023 (the “Offer to Exchange Statement”) of SideChannel, Inc., a Delaware corporation (the “Company”), for the offer to exchange shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) for all of the Company’s outstanding warrants to purchase an aggregate of (i) 8,332,439 Shares that were issued to certain designees of Paulsen Investment Company’ LLC in 2021exercisable at a price of $0.18 per Share and (ii) 5,398,966 Shares that were issued to certain designees of Paulsen Investment Company’ LLC in 2018 exercisable at a price of $1.00 per Share, each with a ten-year term (the “Paulson Warrants”), that are validly tendered and not properly withdrawn under the terms and subject to the conditions set forth in the Offer to Exchange Statement. All withdrawals of Paulson Warrants previously tendered in the Offer to Exchange (as defined in the Offer to Exchange Statement) must comply with the procedures described in the Offer to Exchange Statement under “Procedure for Tendering Warrants-Withdrawal Rights”.
The undersigned has identified in the table below the Warrants that it is withdrawing from the Offer to Exchange:
Description of Paulson Warrants Withdrawn
The undersigned elects to withdraw Warrants to purchase __________________ shares of common stock.
Date(s) such Warrants were tendered:_____________________
You may transmit this notice of withdrawal to the Company using the information listed below:
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Email: accounting@sidechannel.com
Phone: (508) 925-0114
This notice of withdrawal must be signed below by the registered holder(s) of the Warrants tendered as their names appear on the certificate(s). If signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please set forth the full title of such persons.
Signature: _____________________________________________________________________________________
Name: _________________________________________________________________________________________
Capacity: ______________________________________________________________________________________
Address (including Zip Code): ____________________________________________________________________
Area Code and Telephone Number: _______________________________________________________________
Tax Identification or Social Security Number: ______________________________________________________
Date: ______________________________
The Company will determine all questions as to the validity, form and eligibility (including time of receipt) of any notice of withdrawal in its reasonable discretion, and its determination shall be binding although Warrant holders are not foreclosed from challenging the Company’s determinations in a court of competent jurisdiction. None of the Company, its officers or directors or any other person is under any duty to give notice of any defects or irregularities in any notice of withdrawal and none of them will incur any liability for failure to give any such notice.
Exhibit 99(a)(l)(E)
NOTICE OF WITHDRAWAL
FOR INVESTOR WARRANTS
SIDECHANNEL, INC.
Offer to Exchange
Common Stock for Warrants exercisable at a price of $0.36 per Share for Common Stock of SideChannel, Inc.
THE OFFER TO EXCHANGE AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON SEPTEMBER 19, 2023 UNLESS THE OFFER TO EXCHANGE IS EXTENDED.
The undersigned acknowledges receipt of the offer to exchange statement dated August 21, 2023 (the “Offer to Exchange Statement”) of SideChannel, Inc., a Delaware corporation (the “Company”), for the offer to exchange shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) for any or all of the Company’s outstanding warrants to purchase an aggregate of 55,549,615 Shares that were issued to certain investors from March 31, 2021 through April 16, 2021 with a five-year term and with an exercise price of $0.36 (collectively, the “Investor Warrants”) of the Company that are validly tendered and not properly withdrawn under the terms and subject to the conditions set forth in the Offer to Exchange Statement. All withdrawals of Investor Warrants previously tendered in the Offer to Exchange (as defined in the Offer to Exchange Statement) must comply with the procedures described in the Offer to Exchange Statement under “Procedure for Tendering Warrants-Withdrawal Rights”.
The undersigned has identified in the table below the Warrants that it is withdrawing from the Offer to Exchange:
Description of Investor Warrants Withdrawn
The undersigned elects to withdraw Warrants to purchase __________ shares of common stock.
Date(s) such Warrants were tendered: _______________
You may transmit this notice of withdrawal to the Company using the information listed below:
SideChannel, Inc.
146 Main Street, Suite 405
Worcester, MA 01608
Email: accounting@sidechannel.com
Phone: (508) 925-0114
This notice of withdrawal must be signed below by the registered holder(s) of the Investor Warrants tendered as their names appear on the certificate(s). If signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please set forth the full title of such persons.
Signature: _____________________________________________________________________________________
Name: _________________________________________________________________________________________
Capacity: ______________________________________________________________________________________
Address (including Zip Code): ____________________________________________________________________
Area Code and Telephone Number: _______________________________________________________________
Tax Identification or Social Security Number: ______________________________________________________
Date: ______________________________
The Company will determine all questions as to the validity, form and eligibility (including time of receipt) of any notice of withdrawal in its reasonable discretion, and its determination shall be binding although Warrant holders are not foreclosed from challenging the Company’s determinations in a court of competent jurisdiction. None of the Company, its officers or directors or any other person is under any duty to give notice of any defects or irregularities in any notice of withdrawal and none of them will incur any liability for failure to give any such notice.
Exhibit 99(a)(l)(F)
Exhibit (d)(1)
Exhibit (d)(2)
Warrant #PA-04-2021-27
PURCHASE WARRANT
Issued to:
[Warrantholder]
Exercisable to Purchase
[Quantity] Shares of Common Stock
of
Cipherloc Corporation
Issue Date: April 16, 2021
Expiration Date: April 16, 2031
THE WARRANT REPRESENTED BY THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS, AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.
This is to certify that, as of April 16, 2021, for value received and subject to the terms and conditions set forth below, the Warrantholder is entitled to purchase, and the Company promises and agrees to sell and issue to the Warrantholder, at any time on or after the Initial Exercise Date and on or before the Expiration Date, up to [Quantity] shares of Common Stock at the per share Exercise Price pursuant to this Warrant (the “Warrant”).
This Warrant is issued by the Company pursuant to Section 2(b) of the Placement Agent Agreement, subject to the following terms and conditions:
1. Definitions of Certain Terms. Except as may be otherwise clearly required by the context, the following terms have the following meanings:
(a) “Cashless Exercise” means an exercise of a Warrant in which the Warrantholder elects to pay the Exercise Price with Warrant Shares in lieu of payment in cash.
(b) “Closing Date” means April 16, 2021, the date on which the closing of the Offering occurred.
(c) “Common Stock” means the common stock, par value $0.01 per share, of the Company.
(d) “Company” means Cipherloc Corporation.
(e) “Exercise Price” means $0.18 per share of Common Stock.
(f) “Offering” means the offering of securities made pursuant to the Offering Materials and the Placement Agent Agreement.
(g) “Offering Materials” means the transaction documents and related investment materials described in the Placement Agent Agreement.
(h) “Placement Agent Agreement” means that certain Placement Agent Agreement, dated as of January 11, 2021, between the Company and Paulson Investment Company, LLC.
(i) “Securities Act” means the Securities Act of 1933, as amended.
(j) “Warrant Shares” means the shares of Common Stock for which this Warrant is exercisable.
(k) “Warrantholder” means the record holder of the Warrant.
2. Exercise of Warrant.
(a) All or any part of the Warrant may be exercised commencing on the Closing Date (the “Initial Exercise Date”) and ending at 5:00 p.m. Pacific Time on the ten-year anniversary of the Closing Date (the “Expiration Date”) by surrendering this Warrant, together with the aggregate Exercise Price and appropriate instructions included on the Exercise Form attached hereto as Exhibit A (“Notice of Exercise”), duly executed by the Warrantholder or by its duly authorized attorney, at the office of the Company, 6836 Bee Caves Road, Building 1, Suite 279, Austin, TX 78746; or at such other office or agency as the Company may designate. The date on which the Company receives the Notice of Exercise shall be the date of exercise.
| 1 Cipherloc Warrant #PA-04-2021-27 |
(b) If the Warrantholder elects a Cashless Exercise, the Warrantholder shall surrender shares of Common Stock equal in value to the Exercise Price as payment of the Exercise Price with its Notice of Exercise as provided in Section 2(b), and the Company shall issue to the Warrantholder a number of shares of Common Stock computed using the following formula:
X
= 
| Where: | X = | The number of shares of Common Stock to be issued to the Warrantholder pursuant to a Cashless Exercise | |
| Y = | The number of shares of Common Stock in respect of which the Cashless Exercise election is made | ||
| A = | The fair market value of one share of Common Stock at the time the Cashless Exercise election is made | ||
| B = | The Exercise Price (as adjusted to the date of the Cashless Exercise) | ||
| For purposes of this Section 2(b), the fair market value of one share of Common Stock as of a particular date shall be determined as follows: (i) if traded on a national securities exchange, the value shall be deemed to be the closing price of the Common Stock on such exchange on the day prior to the Cashless Exercise; (ii) if traded over-the-counter, the value shall be deemed to be the mean of the closing bid and ask price of the Common Stock on the day prior to the Cashless Exercise; and (iii) if there is no active public market, the value shall be equal to the lower of (1) the most recent value of the Company’s Common Stock or Common Stock equivalent granted to an employee or consultant and (2) the most recent issue or sale price of the Company’s Common Stock. |
(c) Subject to the provisions below, upon receipt of the Notice of Exercise, this Warrant and payment in full in cash or in surrender of Warrant Shares, the Company shall promptly issue the Warrant Shares to the Warrantholder pursuant to the instructions in the Notice of Exercise. If the Warrantholder requests book-entry shares, the Company shall cause the Warrant Shares to be transmitted by its transfer agent to the Warrantholder by crediting the account of the Warrantholder or its designee with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in that system and either (i) there is an effective registration statement or applicable exemption permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Warrantholder or (ii) this Warrant is being exercised by Cashless Exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. If the Company is not a DWAC participant or the Warrantholder requests a physical certificate representing the Warrant Shares, the Company shall issue and deliver a physical certificate representing the Warrant Shares to the Warrantholder. The Warrant Shares to be obtained on exercise of the Warrant will be deemed to have been issued, and any person exercising the Warrant will be deemed to have become a holder of record of those Warrant Shares, as of the later of (i) the date the Company receives the Notice of Exercise and (ii) the date the Company receives available funds in cash in payment of the Exercise Price (the “Notice Date”). If the Warrant Shares are delivered via DWAC or by physical delivery, the Company must deliver the Warrant Shares within two business days of the Notice Date (the “Warrant Share Delivery Date”).
| 2 Cipherloc Warrant #PA-04-2021-27 |
(d) If the Company does not deliver the Warrant Shares by the Warrant Share Delivery Date, the Company shall pay to the Warrantholder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the value of the Common Stock on the date of the applicable Notice of Exercise), $10 per business day (increasing to $20 per business day on the fifth business day after such liquidated damages begin to accrue) for each business day after the Warrant Share Delivery Date until the Warrant Shares are delivered or Warrantholder rescinds its Notice of Exercise.
(e) No fractional shares of Common Stock will be issued in connection with the exercise of the Warrant. If an exercise of the Warrant would result in a fractional Warrant Share, the number of Warrant Shares to be issued shall be rounded to the nearest whole number.
(f) Upon the exercise of the Warrant and at the request of the Warrantholder, the Company shall engage counsel to issue any legal opinion required to sell or otherwise transfer the Warrant Shares and pay for the provision of the legal opinion and any associated costs.
(g) If fewer than all the Warrant Shares purchasable under the Warrant are purchased, the Company will, upon such partial exercise, execute and deliver to the Warrantholder a new Warrant (dated the date hereof), in form and tenor similar to this Warrant, evidencing that portion of the Warrant not exercised.
(h) Notwithstanding the foregoing, in no event shall Warrant Shares be issued, and the Company is authorized to refuse to honor the exercise of the Warrant, if exercise of the Warrant would result in the opinion of the Company’s Board of Directors, upon advice of counsel, in the violation of any law.
3. Adjustments in Certain Events. The number, class, and price of Warrant Shares for which this Warrant may be exercised are subject to adjustment from time to time as follows:
(a) Adjustment for Stock Splits and Combinations. If the outstanding shares of the Company’s Common Stock are divided into a greater number of shares or a dividend in stock is paid on the Common Stock, the number of shares of Common Stock for which the Warrant is then exercisable will be proportionately increased and the Exercise Price will be proportionately reduced; and, conversely, if the outstanding shares of Common Stock are combined into a smaller number of shares of Common Stock, the number of shares of Common Stock for which the Warrant is then exercisable will be proportionately reduced and the Exercise Price will be proportionately increased. The increases and reductions provided for in this Section 3(a) will be made with the intent and, as nearly as practicable, the effect that neither the percentage of the total equity of the Company obtainable on exercise of the Warrant nor the price payable for such percentage upon such exercise will be affected by any event described in this Section 3(a). Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.
| 3 Cipherloc Warrant #PA-04-2021-27 |
(b) Adjustment for Merger or Reorganization. In case of any change in the Common Stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of substantially all the assets of the Company, or other change in the capital structure of the Company, then, as a condition of such change, lawful and adequate provision will be made so that the Warrantholder will have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property to which the Warrantholder would have been entitled if, immediately prior to such event, the Warrantholder had held the number of shares of Common Stock obtainable upon the exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Warrantholder, to the end that the provisions set forth herein will thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of the Warrant. The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities to be received by the holder of this Warrant, if not the Company, agrees to be bound by and comply with the provisions of this Warrant.
(c) Adjustment Upon Issuance of Additional Shares of Common Stock. If and whenever on or after the date hereof, the Company issues or sells (or is deemed to have issued or sold) any shares of Common Stock for consideration per share less than the Exercise Price in effect immediately prior to that issuance or sale, then the Exercise Price shall be reduced, concurrently with the issuance or sale, to a price (calculated to the nearest one-hundredth of one cent) determined in accordance with the following formula:
CP2 = CP1*(A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
“CP2” shall mean the Exercise Price in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock;
“CP1” shall mean the Exercise Price in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock;
“A” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
| 4 Cipherloc Warrant #PA-04-2021-27 |
“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Company in respect of such issue by CP1); and
“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
(d) Right to Distributions. If securities of the Company or securities of any subsidiary of the Company are distributed pro rata to holders of Common Stock, such number of securities will be distributed to the Warrantholder or its assignee upon exercise of its rights hereunder as such Warrantholder or assignee would have been entitled to if this Warrant had been exercised prior to the record date for such distribution. The provisions with respect to adjustment of the Common Stock provided in this Section 3 will also apply to the securities to which the Warrantholder or its assignee is entitled under this Section 3(d).
(e) Certificate of Adjustments. When any adjustment is required to be made in the number of Warrant Shares issuable upon exercise of the Warrant, the Company will promptly determine the new number of Warrant Shares and shall (i) prepare and retain on file a statement in its corporate records describing in reasonable detail the method used in arriving at the new number of Warrant Shares and (ii) cause a copy of such statement to be mailed to the Warrantholder within 30 days after the date of the event giving rise to the adjustment.
(f) Special Definitions. For the purposes of this Section 3, the following definitions shall apply:
(i) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(ii) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(iii) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued or deemed to be issued by the Company after the date hereof, other than (1) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by this Section 3; (2) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security; and (3) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) through (3), collectively, “Exempted Securities”).
| 5 Cipherloc Warrant #PA-04-2021-27 |
4. Reservation of Shares. The Company agrees that the number of shares of Common Stock sufficient to provide for the exercise of the Warrant upon the basis set forth above will, at all times during the term of the Warrant, be reserved for issuance.
5. Validity of Shares. All Warrant Shares delivered upon the exercise of the Warrant will be duly and validly issued in accordance with their terms and, upon payment of the Exercise Price, will be fully paid and non-assessable. The Company will pay all documentary and transfer taxes, if any, in respect of the original issuance thereof upon exercise of the Warrant.
6. Transferability.
(a) Subject to compliance with any applicable securities laws, the Warrant may be transferred to individuals who are members, a partner, officer or other representative, affiliate or stakeholder of Paulson Investment Company, LLC. The Warrant may be divided or combined, upon request to the Company by the Warrantholder, into additional Warrants evidencing the same aggregate number of Warrant Shares. Any such transfer shall be effected upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of the Warrant substantially in the form attached hereto as Exhibit B duly executed by the Warrantholder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of the Warrant not so assigned, and this Warrant shall promptly be cancelled.
7. Securities Act Compliance. The Warrantholder hereby represents: (a) that this Warrant and any Warrant Shares will be acquired for investment for the Warrantholder’s own account and not with a view to the resale or distribution of any part thereof, and (b) that the Warrantholder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. The Company may place conspicuously upon each certificate representing the Warrant Shares a legend substantially in the following form, the terms of which are agreed to by the Warrantholder:
“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.”
| 6 Cipherloc Warrant #PA-04-2021-27 |
8. No Rights as a Shareholder. Except as otherwise provided herein, the Warrantholder will not, by virtue of ownership of the Warrant, be entitled to any rights of a shareholder of the Company but will, upon written request to the Company, be entitled to receive such quarterly or annual reports as the Company distributes to its shareholders.
9. Notice. Any notices required or permitted to be given hereunder will be in writing and may be served personally or by mail, including by e-mail; and if served will be addressed as follows:
| If to the Company: | Cipherloc Corporation Attn: Ryan Polk 6836 Bee Caves Road Building 1, Suite 279 Austin, TX 78746 Email: ryan@cipherloc.net | |
If to the Warrantholder:
|
c/o Paulson Investment Company, LLC 2141 W. North Ave., 2nd Floor Chicago, Illinois 60647 Attention: Paulson Investment Company, LLC | |
| With a copy (which shall not constitute notice) to: | Harter Secrest & Emery LLP 1600 Bausch & Lomb Place Rochester, NY 14604 Attention: James M. Jenkins, Esq. |
Any notice so given by mail will be deemed effectively given 48 hours after mailing when deposited in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed as specified above. Any notice given by e-mail must be accompanied by confirmation of receipt, and will be deemed effectively given upon confirmation of such receipt. Any party may by written notice to the other specify a different address for notice purposes.
10. Miscellaneous.
(a) Applicable Law and Jurisdiction. Any disputes arising under or relating to this Warrant shall be submitted to binding arbitration in New York, New York under the auspices of FINRA Dispute Resolution. The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction. The Company and Warrantholder shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay its counsel fees and expenses. Notwithstanding the foregoing, the Warrantholder may bring an action solely for equitable, declaratory, or injunctive relief relating to its rights and the Company’s obligations under this Warrant in the federal or state courts of New York County, and the Company hereby waives any objection to the laying of venue or jurisdiction in those courts.
| 7 Cipherloc Warrant #PA-04-2021-27 |
(b) Remedies. The Warrantholder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, is entitled to specific performance of its rights and the Company’s duties under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of the Company’s breach of the provisions of this Warrant and the Company hereby agrees to waive and not to assert the defense that a remedy at law would be adequate in any action for specific performance relating to this Warrant.
(c) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
(d) Non-Waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Warrantholder shall operate as a waiver of such right or otherwise prejudice the Warrantholder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Warrantholder, the Company shall pay to the Warrantholder such amounts as shall be sufficient to cover any reasonable costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Warrantholder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(e) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Warrantholder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Warrantholder, shall give rise to any liability of the Warrantholder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(f) Successors and Assigns. This Warrant may be assigned by the Warrantholder in accordance with applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Warrantholder. The provisions of this Warrant are intended to be for the benefit of any Warrantholder from time to time of this Warrant and shall be enforceable by the Warrantholder or holder of Warrant Shares.
(g) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Warrantholder.
(h) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(i) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
[Signature page follows.]
| 8 Cipherloc Warrant #PA-04-2021-27 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| Cipherloc Corporation | ||
| By: | ||
| Name: | Ryan Polk | |
| Title: | Chief Financial Officer | |
| 9 Cipherloc Warrant #PA-04-2021-27 |
Exhibit A
EXERCISE FORM
(To Be Executed by the Warrantholder to Exercise the Warrant)
TO: Cipherloc Corporation
| (1) | The undersigned hereby irrevocably elects to exercise the right to purchase _________ shares of Common Stock, represented by the enclosed Warrant as follows: |
| [ ] | Exercise for Cash. Pursuant to Section 2(a) of the Warrant, the Warrantholder hereby elects to exercise the Warrant for cash and tenders payment herewith (or has made a wire transfer) to the order of Cipherloc Corporation in the amount of $____________. | |
| [ ] | Cashless Exercise. Pursuant to Section 2(b) of the Warrant, the Warrantholder hereby elects to exercise the Warrant on a cashless basis. |
| (2) | The undersigned requests that the applicable number of shares of Common Stock be issued as follows pursuant to Section 2(c) of the Warrant: |
| [ ] | Book-Entry Shares to be delivered via DWAC. | |
| [ ] | Certificated Shares to be delivered to the address below. |
| (3) | The undersigned requests that the applicable number of shares of Common Stock be issued and delivered to the following address: |
Name: _________________________
DWAC Account Number: ________________(if applicable)
Address: __________________________
___________________________
Email: ___________________________
| (4) | The undersigned understands, agrees and recognizes that: |
| a. | No federal or state agency has made any finding or determination as to the fairness of the investment or any recommendation or endorsement of the securities. | |
| b. | All certificates evidencing the shares of Common Stock, if any, may bear a legend substantially similar to the legend set forth in Section 7 of the Warrant regarding resale restrictions. |
A-1 Cipherloc Warrant #PA-04-2021-27 |
| (5) | The undersigned acknowledges that the undersigned has received, read and understood the Warrant and agrees to abide by and be bound by its terms and conditions. |
| Dated: _____________, 20___. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Note: Signature must correspond with the name as written upon the face of the Warrant in all respects, without alteration or enlargement or any change whatsoever. |
[Placement Agent Warrant Exercise Form]
A-2 Cipherloc Warrant #PA-04-2021-27 |
Exhibit B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
TO: Cipherloc Corporation
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to:
| Name: | ||
| (Please Print) | ||
| Address: | ||
| Phone Number: | ||
| Email Address: | ||
| Date: | ||
Warrantholder’s Signature: |
||
| Warrantholder’s Name: | ||
| (Please Print) |
[Placement Agent Warrant Assignment Form]
B-1 Cipherloc Warrant #PA-04-2021-27 |
EXHIBIT (d)(3)
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
Cipherloc Corporation
| Warrant Shares: _______ | Initial Exercise Date: ________, 20__ |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on ______________1 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Cipherloc Corporation, a Texas corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated _________, 2021, among the Company and the purchasers signatory thereto.
| 1 | 5 years after issue date. |
| 1 |
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $___2, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if at the time of exercise hereof the Registration Statement (or another registration statement) is not effective (or the prospectus contained therein is not available for use) for the issuance of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) | = | as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day; | |
| (B) | = | the Exercise Price of this Warrant, as adjusted hereunder; and | |
| (X) | = | the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
| 2 | 200% of “Per Share Purchase Price” under Purchase Agreement |
| 2 |
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTC:CLOK is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTC:CLOK as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTC:CLOK and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTC:CLOK is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTC:CLOK as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTC:CLOK and if prices for the Common Stock are then reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise and (ii) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within two (2) Trading Days following delivery of the Notice of Exercise.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
| 3 |
iii. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
iv. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
v. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
| 5 |
b) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or after the date of issuance (the “Issuance Date”), the Company issues or sells, or in accordance with this Section 3(b) is deemed to have issued or sold, any shares of Common Stock and/or Common Stock Equivalents (excluding any Exempt Issuance issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Exercise Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Exercise Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately upon such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. For all purposes of the foregoing (including, without limitation, determining the adjusted Exercise Price and the New Issuance Price under this Section 3(b)), the following shall be applicable:
i. Issuance of Options. If the Company in any manner grants or sells any rights, warrants or options to subscribe for or purchase shares of preferred stock and/or Common Stock or Common Stock Equivalents (“Options”) and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of any such Option or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 3(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of any such Option or otherwise pursuant to the terms thereof. Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Common Stock Equivalents upon the exercise of such Options or otherwise pursuant to the terms of or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. This Section 3(b)(i) shall not apply to any Exempt Issuance.
| 6 |
ii. Issuance of Common Stock Equivalents. If the Company in any manner issues or sells any Common Stock Equivalents and the lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Exercise Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Common Stock Equivalents for such price per share. For the purposes of this Section 3(b)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Common Stock Equivalent and upon conversion, exercise or exchange of such Common Stock Equivalent or otherwise pursuant to the terms thereof and (y) the lowest conversion price set forth in such Common Stock Equivalent for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Common Stock Equivalent (or any other Person) upon the issuance or sale of such Common Stock Equivalent plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Common Stock Equivalent (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Common Stock Equivalents is made upon exercise of any Options for which adjustment of the Warrant has been or is to be made pursuant to other provisions of this Section 3(b), except as contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issuance or sale.
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iii. Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Common Stock Equivalents, or the rate at which any Common Stock Equivalents are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 3(a)), the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Common Stock Equivalents provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 3(b)(iii), if the terms of any Option or Common Stock Equivalents that was outstanding as of the Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Common Stock Equivalents and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 3(b) shall be made if such adjustment would result in an increase of the Exercise Price then in effect.
iv. Calculation of Consideration Received. If any Option and/or Common Stock Equivalent and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Holder, the “Primary Security”, and such Option and/or Common Stock Equivalent and/or Adjustment Right, the “Secondary Securities” and together with the Primary Security, each a “Unit”), together comprising one integrated transaction, the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lower of (x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Common Stock Equivalent, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 3(b)(i) or 3(b)(ii) above and (z) the lowest VWAP of the Common Stock on any Trading Day during the four Trading Day period immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the Trading Market on a Trading Day, such Trading Day shall be the first Trading Day in such four Trading Day period). If any shares of Common Stock, Options or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Common Stock Equivalents are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Common Stock Equivalents are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Common Stock Equivalents (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
v. Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Common Stock Equivalents or (B) to subscribe for or purchase shares of Common Stock, Options or Common Stock Equivalents, then such record date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
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c) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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d) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
e) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (and all of its Subsidiaries, taken as a whole) is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
f) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant, subject to the prior written consent of the Holder, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
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b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
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c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
k) Amendment. This Warrant may not be modified or amended or the provisions hereof waived without the written consent of the Company and the Holder of this Warrant.
l) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
m) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
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(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| Cipherloc Corporation | ||
| By: | ||
| Name: | ||
| Title: | ||
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NOTICE OF EXERCISE
| To: | Cipherloc Corporation |
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
(4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: __________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: ___________________________________________________
Name of Authorized Signatory: _____________________________________________________________________
Title of Authorized Signatory: _______________________________________________________________________
Date: __________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | |
| (Please Print) | |
| Address: | |
| (Please Print) | |
| Phone Number: | |
| Email Address: |
Dated: _______________ __, ______
Holder’s Signature:__________________
Holder’s Address:______________________