RYTHM, Inc. current report, 18 August 2022

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SEC Form 8-K Summary

Registrant: Agrify Corporation (Nasdaq: AGFY), despite the request metadata identifying RYTHM, Inc.

Report date: August 19, 2022; earliest reported event: August 18, 2022. The filing concerns a restructuring of the company’s existing secured debt and warrants. It does not report operating results for a specific fiscal quarter or year.

Material Financing Transaction

  • Agrify entered into a Securities Exchange Agreement with the lender holding its existing $65.0 million senior secured promissory note and warrant.
  • Agrify will partially prepay $35.2 million of the existing note and exchange the remaining balance for a new senior secured note with original principal of $35.0 million.
  • The Exchange Note bears interest at 9.0% annually, payable monthly in cash beginning September 1, 2022, and matures three years after issuance.
  • The lender will receive a cash sweep equal to 20% of proceeds from future equity financings, reducing the outstanding principal.
  • The lender received a new warrant for 14,227,643 shares at an exercise price of $1.23 per share. The existing warrant covering 6,881,108 shares will be exchanged for a warrant covering the same number of shares at a reduced exercise price of $2.15 per share.

Key Financial Terms and Liquidity Constraints

  • Agrify may voluntarily redeem the Exchange Note at 102.5% of outstanding principal plus accrued interest.
  • The lender may require redemption on the first or second anniversary at par plus accrued interest, or upon a fundamental change at 102.5% plus accrued interest.
  • Upon an event of default, the lender may require repayment at 115% of outstanding principal plus accrued interest; default interest accrues at 15% annually.
  • The note restricts additional indebtedness, liens, investments, dividends and distributions, and imposes maximum cash-spend and minimum-cash-on-hand requirements.
  • The lender has participation rights for up to 30% of certain future debt, equity or equity-linked offerings while the note remains outstanding.
  • The filing does not provide current revenue, profit, cash flow, margin, cash balance, or net debt figures.

Warrant and Equity-Related Terms

  • The Warrant Exchange Warrant becomes exercisable six months after issuance, has a five-and-one-half-year term, and generally has cash exercise provisions.
  • The Note Exchange Warrant is exercisable immediately, has a five-and-one-half-year term, and has an exercise price subject to downward adjustment if Agrify issues securities at a lower price before completing a qualified equity financing of at least $15.0 million.
  • Until that qualified financing, Agrify may not issue warrants with more favorable or preferential terms.
  • Warrant exercises are subject to beneficial ownership limitations generally capped at 4.99%, adjustable by the lender up to 9.99% following required notice.
  • Exercise of more than an aggregate of 5,308,578 shares requires shareholder approval. Agrify agreed to seek approval no later than June 30, 2023.
  • Agrify must file a resale registration statement for the warrant shares within 45 days after closing.

Outlook, Risks and Unusual Items

  • The transaction reduces near-term principal obligations through a $35.2 million prepayment and extends the remaining debt over a three-year maturity, but leaves the company with a senior secured obligation and ongoing cash interest requirements.
  • Cash-sweep provisions, minimum cash requirements and spending restrictions may limit financial flexibility.
  • The warrants could result in significant future dilution, subject to ownership and shareholder-approval limitations.
  • The note’s default provisions create materially higher repayment obligations and a 15% default-interest rate if a default occurs.
  • The securities were issued in a private placement to an accredited investor under Section 4(a)(2) and Rule 506(b) of Regulation D and were not registered under the Securities Act.
  • The filing provides no management guidance regarding revenue, earnings, cash flow or future operating performance.

Investor Verification Items

  • Confirm the actual closing date and amount of the $35.2 million prepayment.
  • Review the executed Exchange Agreement, Exchange Note and warrant documents for final terms, covenants, events of default and adjustment provisions.
  • Verify Agrify’s cash balance, liquidity runway and ability to fund monthly interest and minimum-cash requirements.
  • Assess potential dilution from the 20,? Actually no, warrants total 21,108,751 shares before any adjustments or limitations.
  • Confirm the status of the required resale registration statement and shareholder approval for additional warrant exercises.
  • Review subsequent filings for defaults, equity financings, cash-sweep payments, warrant exercises or changes to the debt balance.