Item
1.01 Entry into a Material Definitive Agreement.
On
May 27, 2021, ComSovereign Holding Corp. (the “Company,” “we,” “us,”
or “our company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with an investor, pursuant to which the Company sold to the investor a senior secured convertible promissory note in the original principal
amount of $11,000,000 (the “Note”) and warrants (the “Warrants”) to purchase up to
1,820,000 shares of our common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price
of $10,000,000 (representing an original issue discount of 10.0% on the Note), of which $5,000,000 was paid on May 28, 2021 and $5,000,000
was paid on June 2, 2021.
The
Note bears interest at the rate of 6% per annum from the date of funding and matures on May 27, 2023. We are required to make
monthly interest payments commencing six months after the date of issuance of the Note and principal payments in 18 equal monthly
installments of $611,111 each, commencing six months after the date of issuance of the Note. So long as shares of our Common Stock
are registered for resale under the Securities Act of 1933, as amended (the “Securities
Act”), or may be sold without restriction on the number of shares or manner of sale, we have the right to make
interest and principal payments in the form of additional shares of Common Stock, which shares will be valued at 90% of the average
of the five lowest daily volume weighted average price per share of the Common Stock during the ten trading days immediately
preceding the date of issuance of such shares of Common Stock (the “Repayment Share Price”); provided,
however, that with respect to the first interest payment, the holder of the Note has the right to direct that the payment of such
interest be made in shares of Common Stock.
The
Note is convertible by the holder in whole or in part at any time after the six-month anniversary of the issuance date into shares of
Common Stock at a conversion price of $4.50 per share, subject to adjustment. However, the holder of the Note will not have the right
to convert any portion of the Note if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number
of shares of our Common Stock outstanding immediately after giving effect to its conversion and under no circumstances may convert the
Note if the holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding
immediately after giving effect to its conversion. We have the right to prepay the Note at any time with no penalty (the “Buy-Back
Right”). However, should we exercise our Buy-Back Right, the holder of the Note will have the option of converting 25%
of the outstanding principal amount of the Note into shares of Common Stock at a conversion price equal to the lower of (A) the Repayment
Price, or (B) the conversion price then in effect.
The
Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets and properties and the assets
and properties of our subsidiaries, subject only to the liens securing approximately $1 million principal amount of outstanding indebtedness
of one of our subsidiaries.
The
Warrants are exercisable to purchase up to 1,820,000 shares of Common Stock for a purchase price of $4.50 per share, subject to
adjustment, at any time on or prior to May 27, 2026, and may be exercised on a cashless basis if the shares of Common Stock
underlying the Warrants are not then registered under the Securities Act. The Warrants have the same exercise limitation as is
included in the Note.
Pursuant
to the Purchase Agreement, we have agreed with the investor to file a registration statement under the Securities Act prior to August
30, 2021 to register the shares of our Common Stock issuable upon conversion of the Note or exercise of the Warrants and to use our best
efforts to have such registration statement declared effective by the Securities and Exchange Commission as soon as practicable after
filing such registration statement, but in no event later than 75 days after the date of such filing.
In
connection with this transaction, we entered into a financial advisory agreement with Kingswood Capital Markets, division of Benchmark
Investments, Inc. (the “Advisor”), pursuant to which we paid to the Advisor a cash fee equal to $400,000 in
connection with the transactions contemplated by the Purchase Agreement.
The
foregoing descriptions of the Purchase Agreement and related exhibits, including the Note, the Warrants, and the guarantee and security
agreements, do not purport to be complete and are qualified in their entirety by reference to the complete text of such agreements, copies
of which are attached as exhibits to this Current Report on Form 8-K and are incorporated by reference herein to this Item 1.01 in their
entirety.
