Item 1.01
Entry into a Material Definitive
Agreement
Note
Issuance Under Note Purchase Agreement
On
November 7, 2007, SatCon Technology Corporation (the “Company”) sold $10
million in principal amount of promissory notes (collectively, the “Notes”) to
Rockport Capital Partners II, L.P. and NGP Energy Technology Partners, L.P. (collectively,
the “Purchasers”) pursuant to the terms of the a Note Purchase Agreement, dated
as of October 19, 2007, by and between the Company and the Purchasers (the “Note
Purchase Agreement”). The Notes bear
interest at a rate per annum equal to 17% and are secured by all of the
properties and assets of the Company and its domestic subsidiaries, including
the Company’s ownership interest in the capital stock of its subsidiaries. The Company’s domestic subsidiaries have also
guaranteed the obligations under the Notes.
All unpaid principal, together with accrued but unpaid interest, is due
and payable in full on February 19, 2008, or earlier upon the occurrence of the
events of default specified in the Notes and in the Note Purchase Agreement.
On
November 7, 2007, the Company used approximately $8.5 million of the net
proceeds from the sale of the Notes to retire the Company’s senior secured
convertible notes at 120% of the aggregate outstanding principal plus accrued
and unpaid interest on those convertible notes.
The Company will use the balance of the net proceeds for transaction
expenses and general corporate purposes.
A
more complete description of the terms of the Notes and the Note Purchase
Agreement may be found in the Company’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 25, 2007, which is
incorporated herein by reference. A copy
of the Note Purchase Agreement (and Form of Note) was filed as Exhibit 10.1 to
the Company’s October 25, 2007 Form 8-K.
Series
C Preferred Stock and Warrant Financing
Stock and Warrant Purchase
Agreement
On November 8, 2007, the
Company entered into a Stock and Warrant Purchase Agreement (the “Stock
Purchase Agreement”) with
the
Purchasers. Under the Stock Purchase
Agreement, the Purchasers agreed to
purchase in a private placement up to 25,000 shares of the Company’s newly
created Series C convertible preferred stock (the “Series C Preferred Stock”)
and warrants to purchase up to 19,711,539 shares of Common Stock, for an
aggregate gross purchase price of $25 million.
This private placement will occur in two
closings. The first closing occurred on
November 8, 2007. The Company issued
10,000 shares of Series C Preferred Stock at $1,000 per share for an aggregate
gross purchase price of $10 million.
These shares are currently convertible into 9,615,384 shares of Common Stock
at a conversion price of $1.04 per share.
The Company also issued warrants to purchase an aggregate of 15,262,072
shares of Common Stock. These warrants
have an initial exercise price of $1.44 per share and may not be exercised
until May 8, 2008.
At the second closing, which is subject to
stockholder approval as well as other customary closing conditions, the Company
will issue 15,000 shares of Series C Preferred Stock for an aggregate
gross purchase price of $15 million, of which $10 million will be paid through
the cancellation of the Notes referred to above. These shares will be initially convertible
into
14,423,076 shares of common stock. At this closing, the Company will also issue
warrants to purchase an aggregate of 4,449,467 shares of Common Stock at an
exercise price of $1.25 per share. These
warrants will be exercisable immediately.
This second closing is to take place not later than January 31, 2008.
The
Stock Purchase Agreement contains the following additional material provisions:
•
Board Representation
. The
Company has agreed that each Purchaser has the right to designate one
representative to the Company’s Board of Directors in connection with the first
closing. Accordingly, the Board of
Directors of the Company duly appointed David Prend, as RockPort's designee,
and Philip Deutch, as NGP's designee, to fill vacancies existing on the Board
of Directors and to serve as members, respectively, of the Corporate Governance
and Nominating Committee and the Compensation Committee of the Board. This appointment occurred on November 6,
2007, subject to the first closing.
Accordingly, Messrs. Deutch and Prend became directors on November 8,
2007. Mr. Deutch serves as a Class II
Director and Mr. Prend serves as a Class III Director. Messrs. Prend and Deutch have also been
appointed to serve as members of a four person special committee of the Board
charged with searching for a new Chief Executive Officer of the Company.
•
Future Board Changes
. It
is a condition to the second closing that the Board of Directors be reduced to
seven members and that the Purchasers have the right to designate one
additional director who is “independent” (as that term is defined in the
regulations of the Nasdaq Stock Market) to serve as a director of the
Company. Accordingly, three currently
serving directors will be required to resign for that condition to be
satisfied. Following the second closing,
if the number of members of the Board of Directors must be set at nine to
comply with regulations of the Nasdaq Stock Market, the Purchasers would have
the right to designate one additional “independent” director (or a total of two
“independent” directors).
•
Stockholder Approval
. The
Company has agreed to cause a meeting of its stockholders to be held on or
prior to January 31, 2008 for the purpose of seeking approval for (i) the
transactions to be completed at the second closing, including the issuance and
sale of shares of Series C Preferred Stock and warrants, the possible issuance
and sale of the additional warrants referred to below, the issuance of Common
Stock upon exercise, conversion or redemption of Series C Preferred Stock,
warrants and additional warrants, and the repricing of the exercise price of
the warrants issued at the first closing, (ii) the amendment of the
Company’s Certificate of Incorporation to increase the number of shares of Common
Stock authorized therein from 100,000,000 to 200,000,000 and (iii) the
increase in the aggregate number of shares of Common Stock which may be issued
under the Company’s 2005 Incentive Compensation Plan by 10,000,000 shares of
Common Stock from 4,000,000 to 14,000,000. If stockholder approval of the second
closing is not obtained at the first special meeting of the Company's
stockholders, the Company has agreed to use its best efforts to seek
stockholder approval at a subsequent stockholders meeting to be held not more
than sixty days after the request. The Purchasers may continue to make
subsequent requests until stockholder approval is obtained.
•
Additional
Warrants
. The Company has also agreed to issue the
Purchasers additional warrants in the event that the holders of certain
existing warrants (none of whom are affiliated with the Purchasers) exercise
those warrants in the future. Upon those
exercises, the Company will issue to the Purchasers additional warrants to
purchase Common Stock equal to one-half of the number of shares of Common Stock
issued upon exercise of these existing warrants. The exercise price of these warrants will be
$1.25 per share. If all of these existing
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warrants are exercised, the Company would need to
issue warrants to purchase an additional 4,639,564 shares of Common Stock to
the Purchasers.
•
Future Issuances
. The
Company has agreed that if it issues and sells any new securities prior to the
second anniversary of the stockholders meeting called to approve the second
closing, subject to some exceptions, the Company will give the investors the
right to purchase all or some of those new securities so as to permit the Purchasers
to maintain their ownership percentage in the Company’s stock.
•
Alternative Transaction Fee
. In
the event that (i) the Company elects not to proceed with the second closing
(including terminating the Stock Purchase Agreement) for any reason, and (ii)
the Company enters into an agreement with respect to any Alternative
Transaction (as defined below) prior to July 19, 2008, then, at the election of
the Purchasers, either (A) the Company is obligated to pay the Purchasers a fee
equal to, at the Company’s option, either $2,000,000, if paid in shares of
Common Stock, or $1,500,000, if paid in cash or (B) the Company is to use its
best efforts to provide the Purchasers with the opportunity to invest up to 50%
of the funds to be received by the Company in that Alternative Transaction.
•
Exclusivity
. Until April 30, 2008 (unless
certain conditions extending or shortening that period are met), the Company
has agreed to negotiate exclusively with the Purchasers with respect to (i) any
sale of equity or convertible securities of the Company, (ii) the sale of all
or substantially all of the assets of the Company or (iii) any merger or
consolidation of the Company (each, an “Alternative Transaction”), and has
agreed that neither it nor its officers or directors will initiate, solicit,
encourage, discuss, negotiate or accept any offers from any third party with
respect to any Alternative Transaction.
In
addition to stockholder approval referenced above, the second closing is
subject to customary closing conditions.
The Stock Purchase Agreement is attached to this Form
8-K as Exhibit 10.3.
Warrants
At
the first closing, the Company issued warrants to purchase an aggregate of
15,262,072 shares of Common Stock. These
warrants may be exercised any time after May 8, 2008, but no later than
November 8, 2014, and have an initial exercise price of $1.44 per share. Subject to stockholder approval of the second
closing of the preferred stock financing, the exercise price of these warrants
will be reduced to $1.25 per share.
The
exercise price and number of shares issuable upon exercise of these warrants
are subject to adjustment in the event of stock splits or dividends,
liquidation, dissolution, winding-up, consolidation, merger, sale of
substantially all assets, or similar event.
In addition, subject to stockholder approval of the second closing of
the preferred stock financing, the exercise price and number of shares issuable
upon exercise of these warrants will be subject to adjustment in the event of
dilutive issuances so that the exercise price of these warrants will always be
equal to the product of 120% multiplied by the conversion price of the Series C
Preferred Stock. Upon each adjustment of
the exercise price, the number of shares subject to the warrant will also be
adjusted. The number of shares subject
to the warrant upon adjustment will be determined by multiplying the current
exercise price prior to the
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adjustment by the number of shares subject to
the warrant and dividing the product by the exercise price resulting from the
adjustment.
At
the second closing, the Company will issue warrants to purchase an aggregate of
4,449,467 shares of Common Stock. These
warrants will have the same terms as those warrants issued at the first
closing, except that the warrants issued at the second closing will be
immediately exercisable, the exercise price will be $1.25, the seven-year term
will begin upon the date of issuance, and the anti-dilution protection for
dilutive issuances will apply from the date of issuance.
Under
the warrants issued at both closings, the holders have the option to exercise
the warrants on a “net share” or cashless basis, in which warrant shares are
forfeited in lieu of paying the cash exercise price, in which case the Company
would receive no additional proceeds upon their exercise (but fewer shares
would be issued).
The
Company refers to the warrants issued in the first closing as the “Tranche 1
Warrants” and the warrants to be issued in the second closing as the “Tranche 2
Warrants.” The forms of Tranche 1
Warrant and Tranche 2 Warrant are attached to this Form 8-K as Exhibits 10.4
and 10.5, respectively.
Series C Preferred Stock
The
Series C Preferred Stock was created by filing a Certificate of Designation of
the Relative Rights and Preferences of the Series C Convertible Preferred Stock
(the "Certificate of Designation") with the Secretary of State of
Delaware on November 8, 2007. Set forth
below are the material terms of the Series C Preferred Stock. The Certificate of Designation is attached to
this Form 8-K as Exhibit 10.6.
•
Seniority
. The Series C Preferred Stock
ranks senior to the Common Stock and senior to all other existing or future
classes or series of preferred stock or other equity securities, other than the
Company’s outstanding Series B Preferred Stock, with which it ranks pari
passu. The Series C Preferred Stock is
subordinate to the Company’s indebtedness.
The maximum number of shares of Series C Preferred Stock that may be
issued is 30,000 shares
•
Dividends
. Holders of the Series C
Preferred Stock have the right to receive, in preference to all other classes
of stock junior in rank to the Series C Preferred Stock, cumulative dividends
at a rate of five percent (5%) of the liquidation preference amount (defined
below). After the payment of this
dividend, holders of the Series C Preferred Stock are entitled to participate
on an as converted basis in the payment of any dividends on the Common Stock.
•
Liquidation Preference
. Upon
a liquidation, dissolution, winding-up, consolidation, merger, sale of
substantially all assets or similar event, holders of the Series C Preferred
Stock have the right to receive, in preference to all other classes of our
stock junior in rank to the Series C Preferred Stock, an amount per share equal
to the greater of (i) $1,000 per share plus all accrued but unpaid dividends,
or (ii) the amount per share that a holder would have received if, immediately
prior to the liquidation, that holder’s share had been converted to Common
Stock. After payment of the liquidation preference
described above, holders of the Series C Preferred Stock are not entitled to
any further participation in any distribution of the Company’s assets.
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•
Conversion
. Each share of Series C
Preferred Stock is convertible into that number of shares of Common Stock equal
to the quotient determined by dividing 1,000 (plus accrued dividends) by the
conversion price. The initial conversion
price of the Series C Preferred Stock is $1.04 per share. The conversion price is subject to adjustment
under certain conditions and upon the occurrence of certain events, as
described below. Except as described
below, the holder of a share of Series C Preferred Stock may elect to convert
that holder’s share at any time. In
addition, after November 8, 2009, the Company has the right to force conversion
of all Series C Preferred Stock if, for a 180 consecutive day period, the
average closing price of Common Stock is equal to at least $7.00, subject to
adjustment for stock dividends, stock splits or other similar
recapitalizations. However, until the first
special meeting is held to approve the second closing of the preferred stock
financing, a holder of Series C Preferred Stock may not convert its shares of
Series C Preferred Stock to Common Stock.
Subject to obtaining stockholder approval of the second closing of the
preferred stock financing, the Series C Preferred Stock will receive weighted
average anti-dilution protection in the event of a dilutive issuance in
accordance with a formula set forth in the Certificate of Designation.
•
Voting
. The holders of Series C
Preferred Stock are entitled to vote on all matters on which the holders of
Common Stock are entitled to vote, voting together with the holders of Common
Stock as a single class. Each share of
Series C Preferred Stock is entitled to that number of votes as is equal to the
quotient determined by dividing (i) the original issue price of $1,000 by (ii)
$1.44. Accordingly, each share of Series
C Preferred Stock is entitled to 694 votes.
The number of votes to which a share of Series C Preferred Stock is
entitled is subject to adjustment for any stock dividends, combinations, splits
and the like with respect to shares of Common Stock. The Company is not permitted, without the
affirmative vote or written consent of the holders of 50% of the Series C
Preferred Stock, directly or indirectly, to take any of the following actions
or agree to take any of the following actions:
1)
authorize, create or issue any shares of
preferred stock or other equity securities ranking senior to or on a parity
with the Series C Preferred Stock;
2)
increase or decrease the total number of
authorized shares of Series C Preferred Stock;
3)
amend or modify the Company’s certificate of
incorporation (including the Certificate of Designation governing the Series C
Preferred Stock) or bylaws that would adversely affect the rights, preferences,
powers and privileges of the Series C Preferred Stock;
4)
incur any form of indebtedness for borrowed
money in excess of $5,000,000 in the aggregate (other than indebtedness
existing at November 8, 2007);
5)
repurchase or redeem any equity securities
ranking junior to the Series C Preferred Stock, subject to certain exceptions;
6)
effect any distribution or declare, pay or
set aside any dividend with respect to any equity securities ranking junior to
the Series C Preferred Stock;
7)
effect a liquidation, consummate a
reorganization event or dispose, transfer or license any material assets,
technology or intellectual property, other than non-
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exclusive
licenses in connection with sales of the Company’s products in the ordinary
course of business;
8)
change the size of the Company’s board of
directors;
9)
encumber or grant a security interest in all
or substantially all or a material part of the Company’s assets except to
secure indebtedness permitted above that is approved by the Company’s board of
directors;
10)
acquire a
material amount of assets of another entity, through a merger, purchase of
assets or purchase of capital stock or otherwise;
11)
prior to
obtaining stockholder approval of the second closing, issue any additional
equity securities at a per share price less than $1.04, subject to certain
exceptions; or
12)
enter into
any agreement to do or cause to be done any of the foregoing
•
Redemption
. On or after November 8, 2011,
the holders of two-thirds of the outstanding shares of Series C Preferred Stock
may require the Company to redeem all or any portion of the outstanding shares
of Series C Preferred Stock. The
redemption price is equal to 120% of the liquidation preference amount, to the
extent that the redemption is made in cash, or 140% of the liquidation
preference amount to the extent that, at the Company’s election, the redemption
is made in shares of Common Stock. If
the redemption is made in shares of Common Stock, the shares will be based on
the fair market value of the Common Stock, based on a 10 day volume weighted
average, as of the redemption date.
Registration Rights Agreement
The
Company has agreed to file a registration statement with the Securities
and Exchange Commission covering the resale of shares of Common Stock issuable
upon conversion of the Series C Preferred Stock and upon exercise of the
warrants issued under the Stock Purchase Agreement. The Company is required to file this
registration statement not later than thirty (30) days after the earliest to
occur of the second closing of the preferred stock financing or the date on
which stockholders fail to approve that second closing. The Company has agreed to use its best
efforts to have this registration statement declared effective as soon as
practicable after filing, but not later than sixty (60) days from the required
filing date, and to keep it effective until the earlier of the date on which
all of the shares of common stock covered by that registration statement have
been sold and the date on which the holders of the Series C Preferred
Stock and warrants may sell all of the common stock covered by that
registration statement without restriction pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended.
In
the event there is no registration statement effective with respect to the
shares of Common Stock issuable upon conversion of the Series C Preferred Stock
and upon exercise of the warrants issued in the private placement, the Company
has agreed to provide the Purchasers with two “demand” registration rights, so
long as each demand registration statement covers shares with an anticipated
aggregate offering price of at least $3,000,000. The Company has also agreed to provide the
investors with unlimited “piggyback” rights with respect to offerings by the
Company, subject to certain carve-backs in an underwritten offering.
The
Registration Rights Agreement is attached to this Form 8-K as Exhibit 10.7.
The
above description is a summary of the material provisions of the Stock Purchase
Agreement, the Tranche 1 Warrant, the Tranche 2 Warrant, the Certificate of Designation
and the Registration Rights Agreement. The
summary is not complete and is qualified in its entirety by reference to the
full text of these documents, which are attached as exhibits to this Form 8-K. Readers should review these documents for a
complete understanding of the terms and conditions associated with the preferred
stock financing.
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