Business Context and Reporting Period
Company: REED's, INC.
Filing Type: Form 8-K (Current Report)
Date of Report: December 11, 2020 (Transaction completed December 15, 2020)
Context: The company entered into a Satisfaction, Settlement and Release Agreement with Raptor/Harbor Reeds SPV, LLC ("Raptor"), a related party junior secured lender, to satisfy all outstanding obligations.
Key Financial Metrics and Transaction Details
This filing details a debt settlement rather than standard operating financial results. Key transaction metrics include:
- Total Debt Obligation Satisfied: Approximately $5.5 million (principal and accrued interest through April 21, 2021).
- Cash Consideration Paid: $4,250,000.
- Equity Consideration Issued:
- 1,339,286 shares of Common Stock issued upon conversion of $750,000 of the note at a reduced price of $0.56 per share.
- One 5-year warrant to purchase 1,000,000 shares of Common Stock with an exercise price of $0.644.
- Related Party Status: Raptor is a related party; Daniel J. Doherty III, a director of Reed's, is a principal of Raptor.
Material Changes and Agreements
The filing reports the termination of the following material definitive agreements with Raptor:
- Senior Secured Amended and Restated Subordinated Convertible Non-Redeemable Secured Note (dated October 4, 2018).
- Securities Purchase Agreement (dated April 21, 2017) and its amendments.
- Second Lien Security Agreement (dated April 21, 2017).
The transaction required consent from Reed's senior lender, Rosenthal & Rosenthal Inc., contingent upon the pay-down of the senior credit line obligation to zero and the release of collateral.
Guidance, Risks, and Unusual Items
Unusual Items: The transaction involved a related-party settlement with a significant equity component (warrants and stock conversion) to extinguish debt.
Registration Rights: A Registration Rights Agreement was executed to register the shares underlying the warrant for resale. However, sales under this registration statement cannot commence until the 6th trading day after the filing of the company's Annual Report on Form 10-K for the period ending December 31, 2020.
Risks/Contingencies: The issuance of the warrant was unregistered, relying on an exemption under Section 4(a)(2) of the Securities Act of 1933 due to the insubstantial number of persons involved and the pre-existing relationship.
Investor Verification Checklist
- Verify the impact of the $4.25 million cash outflow on the company's current liquidity position.
- Confirm the dilution impact of the 1,339,286 shares issued and the 1,000,000 share warrant.
- Review the upcoming Form 10-K for the full text of the Satisfaction Agreement and Registration Rights Agreement.
- Monitor the status of the senior credit line pay-down to Rosenthal & Rosenthal Inc. as a condition of this settlement.
- Assess the potential future cash flow implications if the warrant is exercised at $0.644 per share.