SMTK 8-K
SmartKem, Inc. (SMTK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| The |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b - 2 of the Securities Exchange Act of 1934 (§240.12b - 2 of this chapter).
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| Item 1.01 | Entry into a Material Definitive Agreement. |
On December 17, 2024, the Company entered into a Consent and Amendment Agreement (the “Agreement”) with certain holders (the “Holders”) of securities issued in the Company’s June 2023 private placement (the “2023 Private Placement”) pursuant to which, among other things, the Holders agreed to (i) amend certain of the terms of the Purchase Agreement, dated June 14, 2023 (as previously amended, the “Purchase Agreement”), as described below and (ii) amend and restate certain of the provisions of the Company’s Series A-1 Convertible Preferred Stock, Stated Value $10,000 per share (the “Series A-1 Preferred Stock”), as described below, effective immediately prior to the closing of a “Qualified Offering” (the “Effective Time”). The Agreement defines a Qualified Offering as a sale of shares of the Company’s common stock and/or common stock equivalents pursuant to an effective registration statement under the Securities Act of 1933, as amended, or in a side-by-side private placement, at an effective price per share at least equal to the then applicable Nasdaq “Minimum Price” resulting in at least $4,000,000 of gross proceeds to the Company. No Qualified Offering has occurred on or prior to the date of this Current Report on Form 8-K and no assurance can be given that a Qualified Offering will occur or as to the terms thereof. If no Qualifying Offering occurs the amendments and restatements summarized herein will not occur and the current terms of the Purchase Agreement and the Series A-1 Preferred Stock will remain in effect.
Amendments to the Purchase Agreement
In the Agreement, the parties agreed to amend the Purchase Agreement effective as of the Effective Time to (i) delete the provisions of (A) Section 4.12(a) of the Purchase Agreement, which had prevented the Company from effecting the issuance of its common stock and common stock equivalents for a period of 180 days after the initial closing of the 2023 Private Placement (the “Initial Closing”) and which had expired by its terms; (B) Section 4.17 of the Purchase Agreement, which restricts the Company’s ability to pay dividends; (C) Section 4.18 of the Purchase Agreement, which grants certain participation rights to Significant Purchasers (as defined in the Purchase Agreement) in connection with a Subsequent Financing (as defined in the Purchase Agreement); (D) Section 4.19 of the Purchase Agreement, which grants Significant Purchasers certain “most favored nation” rights; and (E) Section 4.20 of the Purchase Agreement, which permits Significant Purchasers to exchange their Series A-1 Preferred Stock for the securities sold in a Subsequent Financing. In addition, the parties agreed to amend Section 4.12(b) of the Purchase Agreement effective as of the Effective Time to (i) extend the period during which the Company is prohibited from engaging in a “Variable Rate Transaction” (as defined in the Purchase Agreement) until the end of the 18-month period following the Effective Time; and (ii) provide that after the six-month anniversary of the Effective Time the Company may make sales of common stock in at-the-market offering at a gross price per share at least equal to the price at which shares of common stock are sold in the Qualified Offering (the “Qualified Offering Price”). The parties also agreed to amend 4.12(c) of the Purchase Agreement effective as of the Effective Time to (i) require the Company to obtain the consent of not less than 65% of the Original Significant Purchasers (as defined in the Agreement) of the Series A-1 Preferred Stock for a “Lower Price Issuance” (as defined in the Purchase Agreement); (ii) lower the price at which a Lower Price Issuance would be deemed to occur from the current conversion price of the Series A-1 Preferred Stock to $4.00; and (iii) reduce the time period during which such consent would be required from 30 months from the Initial Closing to the earlier of (A) 18 months from the closing of a Qualified Offering and (B) the date on which the Company has received gross proceeds of not less than $15 million from one or more financing transactions (including the Qualified Offering).
In the Agreement, the Holders also consented to a Qualified Offering and the Hewlett Settlement (described below) and irrevocably waived any rights they had with respect thereto. The Holders also agreed to become parties to the Registration Rights Agreement with respect to any new securities to be issued to them in connection with the transactions contemplated by the Agreement and a Qualified Offering.
Second Amendment and Restatement of the Series A-1 Preferred Stock
In the Agreement, the Holders agreed to further amend and restate the Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series A-1 Convertible Preferred Stock (the “Amended and Restated CoD”) effective upon the Effective Time to, among other things: (i) remove the obligation of the Company to pay dividends on shares of the Series A-1 Preferred Stock in certain circumstances; (ii) remove the provisions of Amended and Restated CoD that require the Company to obtain the consent of the holders of a majority of the outstanding shares of Series A-1 Preferred Stock to take certain actions, such as the incurrence of certain indebtedness, the granting of liens and the purchase or redemption of outstanding equity securities; (iii) remove the liquidation preference applicable to the Series A-1 Preferred Stock; (iv) reduce the conversion price of the Series A-1 Preferred Stock to $4.34; (v) prevent the conversion of the Series A-1 Preferred Stock for a period ending on the earlier of (A) the effective date of a resale registration statement covering the additional shares of common stock issuable upon the conversion of the Series A-1 Preferred Stock as a result of the reduction in the conversion price (the “Effective Date”) and (B) the six-month anniversary of the Effective Time; (vi) provide for the automatic conversion of the Series A-1 Preferred Stock into either shares of common stock or the Company’s Class C Warrants at the conversion price upon the earlier of (A) the Effective Date or (B) as determined by the written consent of the holders of at least a majority of the outstanding shares of Series A-1 Preferred Stock which must include AIGH Investment Partners LP and its Affiliates (“AIGH”) for so long as AIGH holds at least $1,500,000 in aggregate Stated Value of Series A-1 Preferred Stock acquired pursuant to the Purchase Agreement; and (vii) remove certain price protection provisions which had expired pursuant to their terms.
Hewlett Settlement
In connection with the transactions contemplated by the Agreement, the Company entered into a General Release (the “Release”) with the Hewlett Fund LP (the “Hewlett Fund”) pursuant to which the Hewlett Fund has agreed on its own behalf and on behalf of certain of its related parties to release the Company and certain of its related parties from any claims, including claims arising out of the transactions contemplated by the Purchase Agreement, effective as of the Effective Time, in exchange for Class C Warrants to purchase 750,000 shares of Common Stock. These transactions are collectively referred to as the “Hewlett Settlement.”
The Agreement is attached hereto as Exhibit 10.1. The Release is attached hereto as Exhibit 10.2. The descriptions of the Agreement and the Release are summaries only, are not intended to be complete, and are qualified in their entirety by reference to such exhibits.
| Item 8.01 | Other Events. |
The information contained in response to Item 1.01 above is incorporated herein by reference.
According to the 2024 Omdia Report, the microLED market is expected to grow to over $4 billion in 2030, a 59% compound annual growth rate (“CAGR”) from approximately $150 million in 2024 with microLED displays expected to represent approximately 7% to 8% of the total display market by 2030. According to a 2024 report by Yole Intelligence, the advanced packaging market is expected to grow to approximately $28 billion in 2029, a 37% CAGR from approximately $4.3 billion in 2023.
According to a 2024 Omdia Report, “Top 10 Display Topics on 2024 Review and 2025 Prospect,” approximately 200 million square meters of display backplanes are manufactured annually. According to a report from Hendy Consulting commissioned by the Company, the average selling price for display backplanes is over $100 per square meter. As a result, the Company believes that the potential annual addressable market for its OTFT inks is more than $20 billion.
Statements contained in this Current Report on Form 8-K regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may involve risks and uncertainties, such as statements related to potential market size and growth estimates, potential market penetration, backplane manufacturing levels, backplane costs and the timing and terms of any Qualified Offering. The risks and uncertainties involved include uncertainty surrounding the growth and adoption of new technologies, the Company’s ability to address existing and new markets effectively, market acceptance and adoption of the Company’s current and future products, costs of manufacturing microLED displays, and the Company’s ability to consummate a Qualified Offering and the timing thereof, as well as other risks detailed from time to time in the Company’s SEC filings, including in its Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 27, 2024, its Quarterly Reports on Form 10-Q filed with the SEC on May 20, 2024, August 12, 2024 and November 8, 2024.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit No. |
Description | |
| 10.1 | Consent and Amendment Agreement dated December 17, 2024 | |
| 10.2 | General Release dated December 17, 2024 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SMARTKEM, INC. | ||
| Dated: December 18, 2024 | By: | /s/ Barbra C. Keck |
| Name: | Barbra C. Keck | |
| Title: | Chief Financial Officer | |
Exhibit 10.1
CONSENT AND AMENDMENT AGREEMENT
This Consent and Amendment Agreement (this “Agreement”) is dated as of December 17, 2024, among SmartKem, Inc., a Delaware corporation (the “Company”), and the Purchasers identified on the signature pages hereto (including their respective successors and assigns, the “Consenting Holders”).
WHEREAS, on June 14, 2023, the Company entered into a Securities Purchase Agreement (the “Original Purchase Agreement”) with the purchasers identified on the signature pages thereto (the “Purchasers”);
WHEREAS, pursuant to the Original Purchase Agreement, on June 14, 2023 and June 22, 2023, the Company issued and sold securities of the Company, including shares of the Company’s Series A-1 Convertible Preferred Stock, Stated Value $1,000 per share (the “Series A-1 Preferred Stock”), convertible into shares of the Company’s common stock, par value $0.0001 (the “Common Stock”), as specified in the Series A-1 Certificate of Designation (the “Original Series A-1 CoD”);
WHEREAS, on January 26, 2024, the Company and certain of the Purchasers entered into a Consent, Conversion and Amendment Agreement (the “Consent, Conversion and Amendment Agreement”), pursuant to which, among other things, the Original Purchase Agreement was amended in certain respects, including the definition of “Exempt Issuance” contained therein (the “First Amendment”), and the parties agreed to amend the terms of the Original Series A-1 CoD in certain respects;
WHEREAS, on January 29, 2024 the Company filed an Amended and Restated Series A-1 Certificate of Designation (the “First Amended and Restated Series A-1 CoD”) to effect the amendments to the Original Series A-1 CoD agreed to in the Consent, Conversion and Amendment Agreement;
WHEREAS, on March 6, 2024, the Company and the Consenting Holders entered into a Consent and Amendment Agreement (the “First Consent and Amendment Agreement”) pursuant to which (i) the Consenting Holders consented to the issuance of certain shares of Common Stock to a consultant of the Company, and (ii) the definition of “Exempt Issuance” in the Original Purchase Agreement (as amended by the First Amendment) was further amended (collectively, the “Second Amendment”);
WHEREAS, on August 8, 2024, the Company and the Consenting Holders entered into a Consent and Amendment Agreement (the “Second Consent and Amendment Agreement”) pursuant to which the definition of “Exempt Issuance” in the Original Purchase Agreement (as amended by the First Amendment and the Second Amendment) was further amended (the “Third Amendment”);
WHEREAS, the Original Purchase Agreement, as amended by the First Amendment, the Second Amendment and the Third Amendment, is hereinafter referred to as the “Purchase Agreement”;
WHEREAS, the Consenting Holders hold (i) at least a majority of the outstanding shares of Series A-1 Preferred Stock (ii) at least 65% of the outstanding shares of Series A-1 Preferred Stock and (iii) at least 65% in interest of the Securities outstanding held by the Purchasers as of the date hereof, in each case including AIGH Investment Partners L.P. and its Affiliates; and
WHEREAS, the Company and the Consenting Holder desire to further amend certain terms of the Purchase Agreement and the Amended and Restated Series A-1 CoD.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants, and agreements contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Consenting Holder hereby agree as follows:
1. Definitions. In addition to the capitalized terms defined elsewhere in this Agreement, for all purposes of this Agreement, capitalized terms shall have the meanings set forth in the Purchase Agreement unless otherwise indicated.
2. Amended Certificate of Designation. The Consenting Holders, constituting the holders of a majority of the outstanding shares of Series A-1 Preferred Stock and including AIGH Investment Partners L.P. and its Affiliates, hereby irrevocably consent to the Amended and Restated Series A-1 CoD being amended and restated in the form annexed hereto as Exhibit A (the “Second Amended and Restated CoD”) effective as of the Effective Time (as defined below). For avoidance of doubt in the event the Qualified Offering does not occur this Agreement shall be null and void.
3. Purchase Agreement Amendments. Effective as of the Effective Time, the Purchase Agreement shall be further amended as provided in this Section 3.
a. Section 1.1 of the Purchase Agreement is hereby amended by adding thereto the following definitions:
““At-The-Market-Offering” means the offering and sale by the Company from time to time of shares of Common Stock that constitutes an “at the market offering” under Rule 415(a)(iv) of the Securities Act.”.
““Effective Time” shall mean the time immediately prior to the closing of a Qualified Offering (as defined below).”
“Fully Funded” means the receipt by the Company on or after the Effective Time of not less than $15,000,000 in aggregate gross proceeds from the public or private sale of its Common Stock and/or Common Stock Equivalents, including the gross proceeds from a Qualified Offering, and the exercise for cash of any Common Stock Equivalents occurring after the Effective Time.
““Hewlett Settlement” shall mean the release entered into by and among the Hewlett Fund LP (“Hewlett”) and the Company pursuant to which the Company will issue to Hewlett additional Class C Warrants to purchase shares of Common Stock.
““Original Significant Purchaser” means any Purchaser who, together with its affiliates, constituted a Significant Purchaser under the Agreement regardless of whether it continues to hold all, some or none of the shares of Series A-1 Preferred Stock purchased by it pursuant to this Agreement.”
““Qualified Offering” shall mean the sale of shares of Common Stock and/or Common Stock Equivalents pursuant to an effective registration statement under the Securities Act or in a side-by-side private placement, at an effective price per share at least equal to the then applicable Nasdaq “Minimum Price” resulting in at least $4,000,000 of gross proceeds to the Company.”
“”Qualified Offering Price” shall mean the price per share at which shares of Common Stock are sold in the Qualified Offering.
b. Section 4.12(a) of the Purchase Agreement is hereby deleted in its entirety.
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c. Section 4.12(b) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
”(b) For a period ending on the 18-month anniversary of the Effective Time , the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages. Notwithstanding the provisions of this Section 4.12(b), commencing on the six-month anniversary of the Effective Time, the Company shall have the right to sell shares of Common Stock in an At-the-Market Offering at a gross offering price per share at least equal to the Qualified Offering Price (adjusted for reverse and forward stock splits, combinations and recapitalizations following the Effective Time).
d. Section 4.12(c) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“(c) For a period ending on the earlier of (i) the 18-month anniversary of the Effective Time or (ii) the date that the Company is Fully Funded, the Company shall not issue any Common Stock or Common Stock Equivalents with an effective price per share of Common Stock that is or may become lower than $4.00 (adjusted for reverse and forward stock splits, combinations and recapitalizations following the Effective Time) (a “Lower Price Issuance”), without the consent of the Original Significant Purchasers who purchased not less than 65% of the Series A-1 Preferred Stock purchased by all of the Original Significant Purchasers under this Agreement, which Original Significant Purchasers must include AIGH. Each of the Original Significant Purchasers acknowledges that the request for consent to a Lower Price Issuance may contain material non-public information, that it will keep such information confidential, and that it will not trade in any securities of the Company while in possession of such information until the Company either advises such Original Significant Purchaser that the transaction with respect to the Lower Price Issuance has been abandoned or has been publicly disclosed. In the event that the Company requests the consent of any Original Significant Purchaser pursuant to this Section 4.12(c), unless such Original Significant Purchaser otherwise agrees, the Company shall no later than the seventh (7th) Trading Day after such request for consent either confirm in writing to such Original Significant Purchaser that the transaction with respect to the Lower Price Issuance has been abandoned or shall publicly disclose its intention to issue the securities in the Lower Price Issuance. The Company agrees that from and after such confirmation or public disclosure, such Original Significant Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Lower Price Issuance. For the avoidance of doubt, the provisions of this Section 4.12(c) shall not apply to any securities issued in the Qualified Offering or pursuant to the Hewlett Settlement.
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e. Sections 4.17 through 4.20, inclusive, of the Purchase Agreement are hereby deleted in their entirety.
f. This Agreement is deemed an equal treatment for all holders of Series A-1 Preferred Stock.
g. This Agreement is deemed a Transaction Document under the Purchase Agreement.
4. Consent and Waiver. Each of the Consenting Holders hereby irrevocable consents to the Qualified Offering, the Hewlett Settlement and the transactions contemplated thereby, and irrevocably waives any rights it has or may have had with respect thereto.
5. Registration Rights Agreement. In connection with the Qualified Offering, the Company will be entering into a registration rights agreement in the form annexed hereto as Exhibit A (the “Registration Rights Agreement”), with certain of the investors in the Qualified Offering and other parties thereto. No later than the closing of the Qualified Offering, the Consenting Holders agree to become parties thereto and bound thereby with respect to the registration for resale of such securities as the Company shall deem necessary or advisable.
6. Public Disclosure. The Company shall file a Current Report on Form 8-K with the Securities and Exchange Commission, disclosing this Agreement, which shall be an exhibit to such filing, within the time period specified in Form 8-K.
7. Counterparts/Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
8. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreements between the Purchasers and the Company with respect to the subject matter hereof. Except as specifically modified herein, the Transaction Documents shall remain in full force and effect.
9. Notice. All notices under this Agreement, shall be delivered in accordance with the notice provisions of the Purchase Agreement.
10. Governing Law. This Agreement and the performance under this Agreement, and all suits and special proceedings under this Agreement, shall be governed by the choice of law/forum selection in the Purchase Agreement.
11. Severability. In the event that any of the provisions of this Agreement are held to be invalid or unenforceable in whole or in part, all other provisions will nevertheless continue to be valid and enforceable with the invalid or unenforceable parts severed from the remainder of this Agreement.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Consent, Conversion and Amendment Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| SMARTKEM, INC. | ||
| By: | /s/ Barbra C. Keck | |
| Name: Barbra C. Keck | ||
| Title: Chief Financial Officer | ||
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR HOLDER FOLLOWS]
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[CONSENTING HOLDER SIGNATURE PAGES TO SMARTKEM, INC. CONSENT AND AMENDMENT AGREEMENT]
IN WITNESS WHEREOF, the undersigned has caused this Consent and Amendment Agreement to be duly executed by its authorized signatory of the date first indicated above.
Name of Consenting Holder: AIGH Investment Partners, LP
Signature of Authorized Signatory of Consenting Holder: /s/ Orin Hirschman
Name of Authorized Signatory: Orin Hirschman
Title of Authorized Signatory: Manager, AIGH Capital Management, LLC
[CONSENTING HOLDER SIGNATURE PAGES TO SMARTKEM, INC. CONSENT AND AMENDMENT AGREEMENT]
IN WITNESS WHEREOF, the undersigned has caused this Consent and Amendment Agreement to be duly executed by its authorized signatory of the date first indicated above.
Name of Consenting Holder: WVP Emerging Manager Onshore Fund, LLC – AIGH Series
Signature of Authorized Signatory of Consenting Holder: /s/ Orin Hirschman
Name of Authorized Signatory: Orin Hirschman
Title of Authorized Signatory: Manager, AIGH Capital Management, LLC
[CONSENTING HOLDER SIGNATURE PAGES TO SMARTKEM, INC. CONSENT AND AMENDMENT AGREEMENT]
IN WITNESS WHEREOF, the undersigned has caused this Consent and Amendment Agreement to be duly executed by its authorized signatory of the date first indicated above.
Name of Consenting Holder: WVP Emerging Manager Onshore Fund, LLC – Optimized Equity Series
Signature of Authorized Signatory of Consenting Holder: /s/ Orin Hirschman
Name of Authorized Signatory: Orin Hirschman
Title of Authorized Signatory: Manager, AIGH Capital Management, LLC
[CONSENTING HOLDER SIGNATURE PAGES TO SMARTKEM, INC. CONSENT AND AMENDMENT AGREEMENT]
IN WITNESS WHEREOF, the undersigned has caused this Consent and Amendment Agreement to be duly executed by its authorized signatory of the date first indicated above.
Name of Consenting Holder: AIGH Investment Partners, LLC
Signature of Authorized Signatory of Consenting Holder: /s/ Orin Hirschman
Name of Authorized Signatory: Orin Hirschman
Title of Authorized Signatory: Manager
[CONSENTING HOLDER SIGNATURE PAGES TO SMARTKEM, INC. CONSENT AND AMENDMENT AGREEMENT]
IN WITNESS WHEREOF, the undersigned has caused this Consent and Amendment Agreement to be duly executed by its authorized signatory of the date first indicated above.
Name of Consenting Holder : Five Narrow Lane LP
Signature of Authorized Signatory of Consenting Holder: /s/ Arie Rabinowitz
Name of Authorized Signatory: Arie Rabinowitz
Title of Authorized Signatory: Managing Partner
Exhibit A
Exhibit 10.2
GENERAL RELEASE
This General Release (this “Release”), dated December 17, 2024, is made by and between SmartKem, In. (the “Company”), and the Hewlett Fund LP (the “Holder” and together with the Company, the “Parties”).
| 1. | WHEREAS, the Company and the Holder are parties to (i) that certain Securities Purchase Agreement, dated June 14, 2024 (the “Purchase Agreement”) and (ii) that certain Consent, Conversion and Amendment Agreement, dated January 26, 2024 (the “Consent, Conversion and Amendment Agreement.” Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement. |
| 2. | Effective as of the Effective Time (as defined below), the Holder, on its behalf and on behalf of its past, present, or future parents, subsidiaries, affiliates, predecessors, successors, assigns, assignors, officers, directors, shareholders, investors, partners, members, employees, agents, representatives, attorneys, service providers, and independent contractors (together with the Holder, the “Releasing Parties”) fully, finally, unconditionally and irrevocably waives, releases, acquits and forever discharges (i) the Company, (ii) all direct and indirect subsidiaries of the Company, (iii) each member of the board of directors or board of managers (or other governing body) of the Company or any of its subsidiaries, (iv) each of the affiliates of the persons and entities described in clauses (i), (ii) and/or (iii) above, (v) each of the current and former officers, directors, partners, general partners, limited partners, managing directors, members, stockholders, trustees, related investment funds, representatives, employees, principals, agents, partners, subsidiaries, joint ventures, predecessors, successors, assigns, beneficiaries, heirs, executors, personal or legal representatives and attorneys of any of the persons and entities described in clauses (i), (ii), (iii) and/or (iv) above ((i) through (v) above, collectively, the “Released Entities”), from any and all commitments, actions, debts, claims, counterclaims, suits, causes of action, damages, demands, liabilities, and obligations of every kind and nature whatsoever (including, without limitation, any of the foregoing arising under or relating to the Transaction Documents), at law or in equity, whether known or unknown, direct or derivative, contingent or otherwise, or whether or not such Releasing Party is aware of such claims or suspects them to exist in such Releasing Party’s favor, which any Releasing Party had, has or may have had at any time prior to (and including) the Effective Date against any of the Release Entities (the “Released Claims”). |
| 3. | In consideration of the releases contained in paragraph 2 above, not later than one Trading Day following the Effective Time, the Company shall issue to the Holder Pre-funded Warrants (the “Warrants”), in customary form, to purchase 750,000 shares (the “Warrant Shares”) of common stock, par value $0.0001, of the Company (the “Common Stock”) at an exercise price of $0.0001 per share. The Warrants and the Warrant Shares are collectively referred to herein as the “Securities”). The Parties hereto agree that each Warrant shall be deemed to have a value equal to the price per share of Common Stock paid by investors in the Qualified Offering (as defined below). |
| 4. | The Holder hereby represents and warrants to the Company that: |
| a. | It understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “Act”) or under state securities laws and are being issued in reliance upon exemptions from the registration and prospectus delivery requirements of the Act and in reliance upon certain exemptions from the registration requirements of applicable state securities laws and understands that the Company has no present intention of registering the Securities, and, therefore, it must bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Act and applicable state securities law or is exempt from registration. It further understands that the exemptions from registration relied upon by the Company depend upon, among other things, its other representations herein. It further acknowledges that if an exemption from registration is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the securities being acquired by it, and on requirements relating to the Company which are outside of its control, and which the Company is under no obligation and may not be able to satisfy. |
| b. | It is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions set forth therein and further acknowledges and understands that the Company may not be satisfying any applicable current public information requirement of Rule 144 at the time it wishes to sell the Securities and, if so, it may be precluded from selling the securities acquired by it under Rule 144 even if any applicable minimum holding period has been satisfied. It further acknowledges that, in the event all of the requirements of Rule 144 are not met, compliance with another registration exemption will be required. |
| c. | It is acquiring the Securities for its account and not with a view to any sale or distribution thereof within the meaning of the Act, and the rules and regulations of the Securities and Exchange Commission thereunder as amended from time to time (the “Regulations”), except to the extent permitted by the Act and the Regulations. It will make no sale, offer to sell, or transfer of any securities being acquired by it in violation of the Act, the Regulations or any other federal or state securities law, or in violation of the terms of this Agreement. By executing this Agreement, it further represents that it does not presently have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participations to such person or entity or to any third person or entity, with respect to any of the Securities |
| d. | It is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Act. |
| e. | Neither it nor any of its agents has either directly or indirectly, including, through a broker or finder (i) engaged in any general solicitation, or (ii) published any advertisement in connection with the offer and sale of the securities being acquired by it. |
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| f. | It understands that the Securities will be notated with the following legend: |
“THE SECURITIES REPRESENTED HEREBY HAVE NOT 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, AND, ACCORDINGLY, MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES ARE SOLD PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.”
| g. | It acknowledges that it has been advised to consult an attorney before signing this Release and that it has had a sufficient period of time within which to review this Release and that the decision to execute this Release was entirely voluntary. |
| h. | That in executing this Release it is not relying upon, and has not relied upon, any representation or statement not set forth herein made by any of the agents, representatives or attorneys of the Releasing Parties with regard to this Release. |
| 5. | The Parties acknowledges and agree that this Release shall become effective at the time (the “Effective Time”) that the Company executes and delivers definitive purchase documents for the sale of shares of Common Stock and/or Common Stock Equivalents pursuant to an effective registration statement under the Securities Act, or in a side-by-side private placement, at an effective price per share at least equal to the then applicable Nasdaq “Minimum Price” resulting in at least $4,000,000 of gross proceeds to the Corporation (a “Qualified Offering”). |
| 6. | In connection with the Qualified Offering, the Company will be entering into a registration rights agreement with certain of the investors in the Qualified Offering. No later than the closing of the Qualified Offering, the Holder shall agree to become a party thereto and bound thereby with respect to the registration for resale of the Warrant Shares. |
| 7. | Each of the Parties hereto understands and agrees that this Release does not constitute, nor shall it be construed as, in any way, an admission of liability, fault, violations, responsibility, or wrongdoing by any of the Parties hereto, such liability or wrongdoing expressly denied. This Release shall not be admissible in any action or proceeding except to enforce or implement the terms hereof. |
| 8. | This Release will be governed in all respects by the laws of the State of New York without regard to principles of conflicts of law. Any dispute with respect to this Release shall be resolved in a court located in New York. The costs and expenses of the prevailing party in any such action shall be paid by the other party thereto. THE PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER OR IN CONNECTION WITH THE RELEASE OR THE AGREEMENT IS LITIGATED OR HEARD IN ANY COURT. |
| 9. | Should any provision of this Release be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. |
[Signature page follows]
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AGREED AND ACCEPTED:
| SMARTKEM, INC. | |
| /s/ Barbra Keck | |
| By: Barbra Keck | |
| Title: Chief Financial Officer | |
| HEWLETT FUND LP | |
| /s/ Martin Chopp | |
| By: Martin Chopp | |
| Title: General Partner |
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