Note 16.      Subsequent Events

On December 27, 2021, Giga-tronics entered into a Share Exchange Agreement with BitNile and Gresham, which is a wholly-owned subsidiary of BitNile.

The 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 (the “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 Securities Exchange Act of 1934, as amended, immediately following the Exchange Transaction.

The 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 (the “Outstanding Preferred”). The 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 Company has also agreed to seek the approval of the Company's shareholders to (1) increase the number of shares of common stock that the Company is authorized to issue to 100 million shares, (2) to complete a reverse split of the Company's common stock and (3) to change the Company's charter from that of a California corporation to that of a Delaware corporation.

The Exchange Agreement contains certain termination rights for each of the parties, including if (i) the Exchange Transaction is not consummated by June 30, 2022, (ii) the approval of the Company’s shareholders is not obtained, or (iii) there has been a breach by a non-terminating party that is not cured such that the applicable closing conditions are not satisfied. In addition, in certain circumstances, BitNile may terminate the Exchange Agreement prior to the Company’s shareholder approval of the Exchange Transaction in the event that (A) the Company materially breaches its non-solicitation obligations relating to alternative business combination transactions, (B) the Company’s board withdraws or adversely modifies its recommendation to shareholders with respect to the Exchange Transaction or fails to affirm its recommendation within the required time period after an alternate acquisition proposal is made, (C) the Company’s board recommends a tender offer or exchange offer or fails to recommend against such a tender offer or exchange offer within ten business days after commencement. In addition, the Company may terminate the Exchange Agreement to pursue an alternative acquisition transaction. The Exchange Agreement also provides that the Company will be obligated to pay a termination fee of $1.0 million to Gresham if the Exchange Agreement (i) is terminated by BitNile in the circumstances described in the preceding sentence or (ii) (A) if an acquisition proposal is made to the Company or to its shareholders publicly, (B) the Exchange Agreement is terminated for failure to consummate the Exchange Transaction by the End Date for failure to obtain the approval of the Company’s shareholders and (C) the Company enters into a definitive agreement with respect to or consummates certain acquisition proposals within 12 months of termination of the Exchange Agreement or (iii) the Company terminates the Exchange Agreement in order to enter into a definitive agreement with respect to an alternate acquisition proposal. In addition, the Company would be required to immediately repay a $500,000 loan made by an affiliate of BitNile in November 2021 and any additional borrowings received under the loan agreement that otherwise matures in November 2022 (See Note 4 – Term Loans).

During the third quarter of fiscal year 2022, the Company incurred certain costs in connection with the Exchange Agreement as follows (in thousands): 

Of the $402,000 of Exchange Transaction related costs incurred during the third quarter of fiscal year 2022, $366,000 and $36,000 were recognized as general and administrative expenses and costs of revenues, respectively.

On January 7, 2022, the Company amended the loan agreement with Digital Power Lending, LLC and received an additional $300,000 in loan proceeds which increased the outstanding loan amount from $500,000 to $800,000. All other terms of the loan remained the same (See Note 4 – Term Loans).