Quarterly report pursuant to Section 13 or 15(d)

Share Exchange Agreement with BitNile and Gresham

v3.22.2
Share Exchange Agreement with BitNile and Gresham
3 Months Ended
Jun. 25, 2022
Share Exchange Agreement [Abstract]  
Share Exchange Agreement with BitNile and Gresham

Note 18. Share Exchange Agreement with BitNile and Gresham

On December 27, 2021, Giga-tronics entered into the Share Exchange Agreement with BitNile and Gresham. The Share Exchange Agreement provides that the Company will acquire all of the outstanding shares of capital stock of Gresham in exchange for issuing to BitNile 2,920,085 shares of the Company’s common stock and 514.8 shares of a new series of preferred stock that are convertible into an aggregate of 3,960,043 shares of the Company’s common stock, subject to potential adjustments, and the assumption of Gresham’s outstanding equity awards representing, on an as-assumed basis, 249,875 shares of the Company’s common stock (“Exchange Transaction”). Completion of the Exchange Transaction is subject to the approval of the Company’s shareholders and other customary closing conditions.

Immediately following the completion of the Exchange Transaction, Gresham will be a wholly-owned subsidiary of the Company. Outstanding shares of the Company’s common stock, warrants and options will remain outstanding and unaffected upon completion of the Exchange Transaction. The Company’s common stock will continue to be registered under the Exchange Act immediately following the Exchange Transaction.

The Share Exchange Agreement further provides that BitNile will loan the Company $4.25 million upon the closing of the Exchange Transaction and the Company will use these funds, in part, to repurchase or redeem all of the currently outstanding shares of the Company's Series B, Series C, Series D and Series E preferred stock (“Outstanding Preferred”). The Share Exchange Agreement further provides that following the Exchange Transaction, the Company will pursue an underwritten public offering of $25 million of its common stock. BitNile has agreed to purchase up to $10 million of common stock in the offering, which amount would include the conversion of the $4.25 million to be loaned to the Company upon the closing of the Exchange Transaction.

The Share Exchange Agreement contains certain termination rights for each of the parties, including the right of the Company or BitNile to terminate the Share Exchange Agreement if the Exchange Transaction is not consummated by August 31, 2022.

On April 5, 2022, the Company (1) amended the Share Exchange Agreement, (2) borrowed an additional $500,000 from DPL, and (3) issued a warrant to Gresham.

The Amendment to the Share Exchange Agreement

On April 5, 2022, the Company, BitNile and Gresham amended the Share Exchange Agreement by entering into Amendment No. 1 to the Share Exchange Agreement (“Amendment”). The Amendment (1) extends from June 30, 2022 to August 31, 2022 the earliest date on which either the Company or BitNile may terminate the Share Exchange Agreement for any reason if the share exchange contemplated by the Share Exchange Agreement is not completed (assuming the terminating party’s breach of the Share Exchange Agreement is not the principal cause of the failure to complete the share exchange) (“End Date Termination”), (2) restates an existing provision of the Share Exchange Agreement, which provides that if the Company terminates the Share Exchange Agreement, it must repay the loan from an affiliate of BitNile the following business day, to reflect the full principal amount of such loan, which is $1,300,000 after giving effect to the additional funding described below, and (3) provides for the Company’s issuance of a warrant to Gresham, which is described in more detail below.

The Warrant

On April 5, 2022, as contemplated by the Amendment, the Company issued to Gresham a warrant representing the right to purchase 433,333 shares of its common stock (“Warrant Shares”) at the initial exercise price of $3.00 per share. The Warrant will become exercisable if the closing of the Exchange Transaction contemplated by the Share Exchange Agreement does not occur, unless the failure to close results (1) solely from BitNile’s or Gresham’s breach of the Share Exchange Agreement or (2) BitNile’s election to terminate the Share Exchange Agreement pursuant to the End Date Termination provision (“Trigger Date”). The Warrant may be exercised in whole or part for a period of three years following the Trigger Date or, if earlier, until December 31, 2025. A Warrant holder may not exercise the Warrant with respect to any Warrant Shares that would cause such holder to beneficially own in excess of 4.99% of the Company’s outstanding common stock, though a holder may elect to increase this limit to 9.9% of the Company’s common stock on at least 61 days written notice. The Warrant may be exercised for cash or, if there is no effective registration statement covering the resale of the Warrant Shares, the Warrant may be exercised on a cashless basis beginning six months after the Trigger Date. The number of Warrant Shares issuable upon exercise of the Warrant is subject to adjustment for splits, subdivisions or consolidations of shares and other standard dilutive events, or in the event the Company effects a reorganization, reclassification, merger, consolidation, disposition of assets, or other fundamental transaction. In addition, subject to certain exempt issuances, if at any time while the Warrant is outstanding, the Company sells, issues or grants any shares of Company common stock or other securities entitling the holder to acquire shares of Company common stock at a price per share less than the then exercise price, the exercise price shall be reduced to equal the lesser of either such lesser price or the volume-weighted average price on the next trading date following the first public disclosure of

the issuance. The Warrant includes a most favored nation clause providing that if the Company issues or sells any shares of common stock or any securities of the Company which would entitle the holder of such securities to acquire common stock on terms the holder reasonably believes are more favorable than those in the Warrant, at the request of the holder, the Company shall amend the Warrant to include such terms.