Note 8 - Convertible Senior Secured Debentures |
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Note 8 – Convertible Senior Secured Debentures
Through June 30, 2015, the Company has issued the following convertible Senior Secured Debentures:
* - The maturity date was extended from September 30, 2015 to July 31, 2016 in accordance with the duly exercised First Amendment to Securities Purchase Agreement effective June 2, 2015.
** - The exercise price was reduced to $0.50 as of March 10, 2015, due to the sale of shares, in accordance with the requirements of the debenture agreements. The exercise price was again reduced to $0.10 on June 2, 2015 due to the issuance of additional debentures.
6. Conversion Rights
The debentures may be converted by each buyer at any time through maturity, either in whole or in part, up to the full principal amount and accrued interest thereunder into shares of common stock at $0.075 per share.
The Company may force conversion of the debentures into shares of common stock at $0.075 per share, either in whole or in part, if the closing sale price of shares of common stock during any ten consecutive trading days has been at or above $0.20 per share.
In the event the average closing price of the common stock for the ten trading days immediately preceding, but not including, the maturity date of the debentures is equal to or greater than $0.20, then on the maturity date, the buyers must convert all remaining principal due under the debentures.
Upon conversion of any debentures, an additional Class C Warrant will be issued under the same terms and same amount as the warrants issued in the debenture sale.
7. Security of Debentures. The debentures are guaranteed, pursuant to “Secured Guaranty” and “Pledge and Security Agreement by Guardian 8 Corporation and secured interest in all of the assets of the company and Guardian 8 Corporation.
8. Registration Rights. The Company agreed to file a “resale” registration statement with the Securities and Exchange Commission covering all shares of common stock underlying the debentures and Class C warrants within 90 days of the final closing, on or before August 31, 2014, and to maintain the effectiveness of the registration statement for five years, or until all securities have been sold or are otherwise able to be sold pursuant to Rule 144. The Registrant agreed to use its reasonable best efforts to have the registration statement declared effective within 120 days of the filing date. The Company was obligated to pay to investors liquidated damages equal to 1.0% per month in cash for every thirty day period up to a maximum of six percent, (i) that the registration statement had not been filed after the filing date, (ii) following the effectiveness date that the registration statement has not been declared effective; and (iii) as otherwise set forth in the financing agreements. On October 29, 2014 the Company’s registration statement was declared effective. The registration statement is currently not effective; however, debenture holders are able to utilize Rule 144 for the resale of common stock underlying the debentures.
9. Valuation of Warrants. The Company valued its Class C warrants based upon the change in terms under the June 2, 2015 amendment. The warrants were valued using the Black-Scholes option pricing model and bifurcated out of the note proceeds and recorded as additional paid in capital in the amounts of $535,100. The assumptions used in the pricing model were: term 1.17 years, risk free interest rate .26%, volatility 119.05%, trading price $0.14, and exercise price $0.10. The discount will be amortized over the remaining thirteen months to maturity on July 31, 2016. Based upon the change in terms of the June 2, 2015 amendment, the Company accounted for the change in terms as an extinguishment of debt pursuant to ASC Topic 470-50 and recorded a loss on the extinguishment of $6,118,145. Substantially all of the loss was based upon the change in the fair value of conversion feature of the subject debt from $0.50 per share to $0.10 per share.
In connection with the issuance of $625,000 of convertible debt on June 2, 2015, the Company granted 625,000 warrants. The warrants were valued using the Black-Scholes option pricing model and bifurcated out of the note proceeds and recorded as additional paid in capital in the amount of $220,125. The assumptions used in the pricing model were: term 1.17 years, risk free interest rate .26%, volatility 119.05%, trading price $0.14 per share, and exercise price $0.10. The discount of $2,840,637 as of June 30, 2015 will be amortized over the remaining thirteen months to maturity on July 31, 2016.
10. $455,000 of the debentures were to related parties.
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