| Item 1.01 |
Entry into a Material Definitive Agreement. |
On June 10, 2022 (the “Closing Date”), EZRaider Co., a Florida
corporation (the “Company”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) with AJB
Capital Investments, LLC, a Delaware limited liability company (the “Investor”), pursuant to which the Company sold and issued
to the Investor a 12% secured promissory note in the principal amount of $880,000 (the “Note”), dated as of the Closing Date.
The Company received net proceeds in the amount of $691,900, after paying (a) the Investor a 10% original issuance discount in the amount
of $88,000, and a management due diligence fee in the amount of $7,500, (b) the Investor’s legal fees in the amount of $17,600,
and (c) a commission to ThinkEquity LLC, a registered broker-dealer, in the amount of $75,000. The Company intends to use the net proceeds
for working capital and general corporate purposes.
Pursuant to the Purchase Agreement, the Company agreed
that, until the sooner of the 12-month anniversary of the Closing Date, or all amounts due under the Note have been fully paid or converted,
it will not, without Investor’s written consent, change the nature of its business, sell or acquire any material assets, or enter
into any variable rate debt transaction. In addition, the Company agreed that, for as long as the Note is outstanding, (a) the Investor
will have the right of first refusal to participate in up to 100% of any subsequent offering of the Company’s securities, and (b)
if the Company issues any securities upon terms more favorable than those provided to the Investor, the terms of the securities issued
to the Investor will be adjusted accordingly.
The Note bears interest at a rate of 12% per annum and has a stated maturity
date of December 10, 2022 (the “Maturity Date”). Interest accrues on a monthly basis and is payable on the first date of each
month, with the final payment due on the Maturity Date. The Maturity Date may be extended by the Company for up to an additional 6 months,
in which case the interest will be increased to 15% per annum. Any amount of principal or interest not paid when due will bear interest
at the lesser of 18% per annum, or the maximum rate permitted by law. The Note may be prepaid in whole or in part by the Company without
penalty. Commencing 180 days after the Closing Date, at any time following an Event of Default (as defined in the Note), amounts due under
the Note will be convertible into shares of the Company’s common stock (the “Conversion Shares”) at a conversion price
(the “Conversion Price”) equal the lowest trading price of the Company’s common stock during the 20 days prior to either
(a) the date of issuance of the Note, or (b) the date of conversion of the Note, subject to a 4.99% conversion limitation. The Conversion
Price is subject to adjustment upon the occurrence of any merger, consolidation, distribution, or other dilutive issuance by the Company.
The Company agreed to reserve 12,000,000 shares of common stock for issuance upon conversion of amounts due under the Note. Upon the occurrence
of an Event of Default (as defined in the Note), all amounts due under the Note will become immediately due and payable. The Note contains
certain negative covenants, restricting the Company from certain distributions, stock repurchases, borrowings, sales of assets, advances
and loans, and exchange offers without the written consent of the Investor.
As additional incentive for the Investor to purchase the Note, on the Closing
Date, the Company issued the Investor an incentive fee of 302,500 shares of the Company’s common stock (the “Commitment Shares”),
valued at $2.00 per share. The Company may redeem up to 165,000 of the Commitment Shares, for a price of $1.00, if the total outstanding
amount due under the Note is fully repaid within 6 months from the Closing Date. At the Investor’s request, the Company will issue
additional shares to the Investor following the 6-month anniversary of the Closing Date in order to maintain the agreed-upon aggregate
value for the incentive fee of $605,000.
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On the Closing Date, the Company also issued the Investor
a 5-year warrant (the “Warrant”) to purchase up to 800,000 shares of the Company’s common stock (the “Warrant
Shares”), at an exercise price of $3.00 per share (the “Exercise Price”). The Warrant is exercisable for cash, or on
a cashless basis, subject to a 4.99% beneficial ownership limitation. The number of Warrant Shares and Exercise Price are subject to adjustment
in the event of a distribution of assets, subdivision of combination of common stock, consummation of a merger or other fundamental transaction,
or other dilutive issuance.
On the Closing Date, the Company and Investor entered into a Security Agreement
(the “Security Agreement”), pursuant to which, as further inducement for the Investor to purchase the Note, the Company granted
the Investor a security interest in all of the Company’s assets to secure the prompt payment and performance in full of all of Company’s
obligations under the Note. The security interest will be discharged upon full repayment or conversion of all amounts due under the Note.
The Company and Investor also entered into Registration
Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to (a) file a registration statement
on Form S-1 (the “Registration Statement”) to register for resale the Commitment Shares, the Conversion Shares, and the Warrant
Shares (the “Registrable Securities”) within 90 days of the Closing Date, (b) have the Registration Statement declared effective
by the SEC within 180 days of the Closing Date, and (c) keep such Registration Statement effective until the Investor has sold all the
Registrable Securities.
The foregoing descriptions of the Purchase Agreement, the Note, the Warrant,
the Security Agreement and the Registration Rights Agreement are not complete and are qualified in their entirety by reference to the
full text of the forms of the Purchase Agreement, the Note, the Warrant, the Security Agreement and the Registration Rights Agreement,
copies of which are attached hereto as Exhibits 10.1, 4.1, 4.2, 10.2, and 10.3, and incorporated herein by reference.