|
Item
1.01
|
Entry
into a Material Definitive Agreement
|
Financing
On
January 27, 2017, American Power Group Corporation (the “
Company
”) entered into a Convertible Note Purchase
Agreement (the “
Purchase Agreement
”) with certain accredited investors (the “
Purchasers
”),
pursuant to which the Company issued Subordinated Contingent Convertible Promissory Notes (the “
Notes
”) in
the aggregate principal amount $2,605,000. The Company may sell additional Notes in the aggregate principal amount of up to $395,000
on or before July 27, 2017. The Notes bear simple interest at the rate of 10% per annum and will become due and payable on July
27, 2017. The Purchasers include Arrow LLC (“
Arrow
”) and the Matthew D. Van Steenwyk GST Trust, investment
vehicles controlled by Matthew Van Steenwyk and Associated Private Equity (“
Associated
”), an investment vehicle
controlled by Neil Braverman. Messrs. Van Steenwyk and Braverman are members of the Company’s Board of Directors (the “
Board
”).
The Company’s Chairman and Chief Financial Officer also converted certain amounts due to them into Notes.
The
Notes are secured by the assignment of the Company’s interests in an Amended and Restated Senior Secured Demand Note dated
as of December 1, 2015, in the principal amount of $497,190, issued by Trident Resources, LLC in favor of the Company, and in
all related guarantees, security interests and collateral. The Purchasers have agreed to subordinate their rights to payment of
the Notes to the prior payment of all indebtedness and satisfaction of all obligations of the Company to Iowa State Bank.
The
principal amount of the Notes, together with all accrued but unpaid interest thereon, will automatically be convertible into shares
of the Company’s Series E Convertible Preferred Stock (the “
Series E Preferred Stock
”) at a conversion
price of $100,000 per share (the “
Stated Value
”), immediately upon the effectiveness of the filing of a Certificate
of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “
Certificate of Designation
”)
with the Secretary of State of Delaware.
The
Company will not file the Certificate of Designation with the Secretary of State of Delaware unless and until the Company also
files a Certificate of Amendment to the Company’s Restated Certificate of Incorporation increasing the number of authorized
shares of the Company’s Common Stock, par value $.01 per share (“
Common Stock
”), from 350,000,000 to
600,000,000 shares (the “
Certificate of Amendment
”). The Company has agreed to take all action reasonably necessary
to convene a meeting of its stockholders to be held at the earliest practicable time after the date of the Purchase Agreement
for the purpose of approving the Certificate of Amendment and ratifying an amendment of the Company’s 2016 Stock Option
Plan to provide for the issuance of options to purchase up to 90,000,000 shares of Common Stock. Such amendment is contingent
on the approval of the Certificate of Amendment by the Company’s stockholders.
Terms
of the Series E Preferred Stock
The
Series E Preferred Stock will accrue dividends at the rate of 12.5% per annum on the Stated Value. Dividends will accrue quarterly,
whether or not declared, and will be cumulative. Except in connection with the conversion of the Series E Preferred Stock or the
liquidation of the Company, however, dividends will be payable only when, as, and if declared by the Board. Any dividends declared
by the Board may be payable, in the sole discretion of the Board, in cash and/or in shares of Common Stock.
Each
share of Series E Convertible Preferred Stock will be convertible to Common Stock at a conversion price of $.10 per share. Upon
a liquidation of the Company, the holders of the Series E Preferred Stock will be entitled to receive, from funds legally available
for distribution, an amount equal to four times the sum of (i) the Stated Value of the Series E Preferred Stock (
i.e
.,
$100,000 per share), (ii) any declared or accrued dividends, and (iii) any other amounts then owing on the Series E Preferred
Stock. After the payment of all such amounts, the holders of the Company’s Series D Convertible Preferred Stock, Series
D-2 Convertible Preferred Stock and Series D-3 Convertible Preferred Stock will be entitled to receive,
pari passu
, amounts
equal to the sum of (i) Stated Value of the Series D Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock
(
i.e
., $10,000 per share) and (ii) any other amounts then owing on the Series D Preferred Stock, Series D-2 Preferred Stock
and Series D-3 Preferred Stock. After the payment of all such amounts, the holders of the Company’s 10% Convertible Preferred
Stock and Series C Convertible Preferred Stock will be entitled to receive,
pari passu
, amounts equal to the sum of (i)
the Stated Value of the 10% Convertible Preferred Stock and Series C Preferred Stock (
i.e
., $10,000 per share) and (ii)
any other amounts then owing on the 10% Convertible Preferred Stock and Series C Preferred Stock. After the payment of all such
amounts, the Company’s remaining assets will be distributed to the holders of the Common Stock, the 10% Convertible Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series D-2 Preferred Stock, the Series D-3 Preferred Stock
and the Series E Preferred Stock,
pro rata,
based on the number of shares held by each such holder, treating for this purpose
all such securities as if they had been converted to Common Stock pursuant to their respective terms immediately prior to such
liquidation.
Except
as provided in the Voting Agreement described below, the holders of the Series E Preferred Stock will vote with the holders of
the Common Stock and the holders of all other series of the Company’s preferred stock on all matters presented to the holders
of such securities, on a Common Stock-equivalent basis. In addition to certain approval rights of the holders of other series
of preferred stock, the approval of the holders of a majority of the outstanding shares of Series E Preferred Stock will be required
before the Company may take certain actions as described in the Certificate of Designation.
The
Series E Preferred Stock may be required to convert into shares of Common Stock at the Company’s election if the trading
price of the Common Stock meets certain thresholds as set forth in the Certificate of Designation. If the Company fails to meet
certain obligations affecting the Series E Preferred Stock, the holders of Series E Preferred Stock may require the Company to
redeem the Series E Preferred Stock.
The
holders of the Series E Preferred Stock will have other rights set forth in the Certificate of Designation.
Issuance
of Warrants
Upon
the conversion of the Notes into shares of Series E Preferred Stock, the Company will also issue to each Purchaser a warrant (the
“
Warrants
”) to purchase ten times that number of shares of Common Stock into which such Purchaser’s shares
of Series E Preferred Stock are initially convertible, at an initial exercise price of $.10 per share. The Warrants will be exercisable
for a period of ten years from the date of issue.
Amended
and Restated Voting Agreement
In
connection with the financing, the Company’s Amended and Restated Voting Agreement dated as of January 8, 2016, among the
Company and certain investors, was further amended and restated (the “
Voting Agreement
”) to provide that (i)
Arrow will have the right to designate two of the three members of the Board who are elected by the holders of the Company’s
preferred stock voting as a separate class, (ii) Associated will have the right to designate one of the three members of the Board
who are elected by the holders of the Company’s preferred stock voting as a separate class, (iii) Arrow will have the right
to nominate one of the three candidates for the Board who are elected by the holders of shares of Common Stock voting as a separate
class and one candidate for the Board who is elected by the holders of shares of Common Stock and of all classes and series of
preferred stock voting together as a single class, and (iv) Associated will have the right to nominate two of the three candidates
for the Board who are elected by the holders of shares of Common Stock voting as a separate class. Associated has agreed to nominate
the Company’s chief executive officer and at least one candidate who would be deemed to be an independent director for election
by the holders of Common Stock pursuant to this rights under clause (iv) of the preceding sentence.
Forbearance,
Waiver and Amendment Agreement with WPU Leasing, LLC
In
connection with the financing, the Company and its American Power Group, Inc. subsidiary (“
APGI
”) entered into
a Forbearance, Waiver and Amendment Agreement (the “
Forbearance Agreement
”) with WPU Leasing, LLC (“
WPU
”)
to defer all payments of principal, interest and any other amounts due from time to time under certain promissory notes (the “
WPU
Notes
”) until such time as the Board, in its sole discretion, determines to resume such payments;
provided, however
,
that APGI must resume such payments no later than the earlier of (i) the maturity date of the WPU Notes and (ii) such time as
the Company completes two consecutive fiscal quarters in which its earnings before interest, taxes, depreciation and amortization
is greater than $0. WPU also agreed to amend each of the WPU Notes (i) to reduce the interest rate set forth therein from 22.2%
to 15% per annum, retroactively as of December 1, 2016, and (ii) to eliminate the imposition of the default rate of interest from
and after December 1, 2016. WPU waived all existing events of default related to the payments of principal and interest under
WPU Notes. WPU has the option to accept payment or all or any portion of the amounts due under the WPU Notes in shares of Common
Stock. Notwithstanding WPU’s waivers and agreements to forbear from exercising its rights, WPU will have no obligation to
make further advances to APGI under its existing secured financing agreement and secured loan agreement without its consent.
In
consideration of WPU’s agreements and waivers, the Company has issued to WPU’s members warrants (the “
WPU
Warrants
”) to purchase an aggregate of 3,538,172 shares of Common Stock at an initial exercise price of $.10 per share.
The WPU Warrants will be exercisable for a period of ten years from the date of issue.
Amendment
to Registration Rights Agreement
In
connection with the financing, the Registration Rights Agreement dated as of June 2, 2015, among the Company and certain investors,
was amended to include the holders of the Series E Preferred Stock, the Warrants and the WPU Warrants as parties, to the extent
that such holders were not already parties to such agreement, and to include shares of Common Stock underlying the Series E Preferred
Stock, the Warrants and the WPU Warrants as “Registrable Securities” thereunder.
The
foregoing descriptions of the private placement and the Purchase Agreement, the Notes, the Certificate of Designation, the Series
E Preferred Stock, the Warrants, the Voting Agreement, the Forbearance Agreement, the WPU Warrants, the amendment to the Company’s
Registration Rights Agreement and the other agreements and documents described herein do not purport to be complete and are qualified
in their entirety by reference to the complete text of each such agreement or document, copies of which are filed as exhibits
to this Current Report and are incorporated herein by reference.