Item
1.01 Entry into a Material Definitive Agreement.
As
previously reported, on October 25, 2021, Soluna Holdings, Inc., formally known as Mechanical Technology, Incorporated, (the “Company”)
entered into a Securities Purchase Agreement (the “October SPA”) pursuant to which the Company issued to the purchasers
listed therein (the “October Purchasers”) secured convertible notes in the original aggregate principal amount of $16,304,348
(the “October Notes”) and Class A, Class B and Class C common stock purchase warrants (the “October Warrants”)
to purchase up to an aggregate of 1,776,073 shares of the Company’s common stock, par value $0.001 per share (the “Common
Stock”). The obligations under the October SPA are secured by a Security Agreement dated as of October 25, 2021 (the “October
Security Agreement”) which granted Collateral Services LLC (the “Collateral Agent”) a security interest in the
assets of the Company and its subsidiaries (the “Collateral”).
Addendum
On
July 19, 2022, the Company entered into an Addendum with the Collateral Agent and the October Purchasers to amend certain terms of the
October SPA and the October Security Agreement (the “Addendum”).
Pursuant to the Addendum, among other things, the assets of the Company related to the Company's Dorothy project which secure the
Company's obligations under the October Security Agreement will be released in three tranches in connection with three tranches
of conversions or redemptions of the October Notes. In connection with the first tranche, $1,100,000 of October Notes will be converted
to Common Stock; in connection with the second tranche $1,100,000, of October Notes will be converted to Common Stock; and in connection
with the third tranche, $1,100,000 of October Notes will be converted to Common Stock (each, the “Required Conversion Amount”),
in each case at the then in effect Conversion Price. Prior to each conversion the Conversion Price of the Note will be reduced (but not
increased) to a 20% discount to the 5-day volume weighted average price (“VWAP”) of the Common Stock. The Conversion Price
for the first tranche is $3.75. In addition, the October Purchasers may require the Company to redeem up to $2,200,000 worth of October
Notes in connection with each tranche at a rate of $1.20 for every $1.00 owed, less the amount of October Notes converted during such
tranche, not including the Required Conversion Amount if the October Purchasers are unable to convert out of such amount of the Notes
in each tranche. Each tranche is equal to $3,300,000 of the October Notes and the Addendum contemplates that at least $9,900,000 of the
October Notes may be reduced under the terms of the Addendum. The first tranche begins upon receipt of approval of The Nasdaq Stock Market
LLC (“Nasdaq”) of the transaction (which was received) and ends 50 trading days thereafter, the subsequent tranches will begin
upon the later of 5 days after the previous tranche and receipts of any necessary approvals of Nasdaq and the Company’s shareholders
of the transaction and ends 45 trading days thereafter. The second and third tranches are subject to delay as set forth in the addendum.
The Company is required to deposit up to $1,950,000 in an escrow account in connection with each tranche to satisfy any redemptions. The
Company has undertaken to obtain shareholder approval, if necessary under Nasdaq rules, to be able to complete tranches 2 and 3.
The
exercise price of the Class A and B Warrants and 85,000 warrants to purchase Common Stock issued to the October Purchasers on
January 13, 2022 was reduced to $9.50 a share. In addition, the Company agreed to exchange the Class C Warrants for 296,013 shares
of Common Stock.
Except
under certain circumstances, the Company is prohibited from engaging in any capital raising transactions without the consent of
the October Purchasers.
Securities
Purchase Agreement
On
July 19, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the
“Investor”) pursuant to which the Company issued $6,250,000 stated value of Series B Convertible Preferred Stock, par
value $0.0001 (the “Preferred Stock”), for a purchase price of $5,000,000. At the closing under the SPA, which occurred
on July 19, 2021 (the “Closing”), the Company issued to the Investor (i) 62,500 shares of Preferred Stock which are
initially convertible into 1,155,268 shares of Common Stock (the “Conversion Shares”), at a price per share of $5.41
(“Conversion Price”), a 20% premium to the close of the Company’s Common Stock on July 18, 2022, subject to adjustment
as set forth in the Certificate of Designation governing the terms of the Preferred Stock, and (ii) common stock purchase warrants
(collectively, the “Warrants”) to purchase up to an aggregate of 1,000,000 shares of Common Stock at an initial exercise
price of $10.00 per share of Common Stock (the “Warrant Shares” and collectively with the Preferred Stock, the Conversion
Shares, and the Warrants, the “Securities”). In addition, at the Closing the Investor delivered a warrant to acquire
1,000,000 shares of Common Stock at an exercise price of $11.50 per share for cancellation.
Until
the earlier of (i) three years after the Closing or (ii) if in excess of $500,000 of Preferred Stock or at least 100,000 warrants remain
outstanding, the Company agreed not to (a) issue any common stock, common stock equivalents, preferred stock or other equity securities
at a price that is less than the highest price per share of the Securities, (b) file any registration statement, with certain exceptions,
or (c) enter into an equity line of credit or at the market offering. In addition, the Company may buy out the rights of the Investor
under the preceding sentence for $10,000,000 less any Profit (as defined in the SPA) the Investor has earned from the Securities, including
pursuant to any amount paid for waiver under the following sentences. The Investor has a right of first refusal with respect to the offerings
described in the first sentence of this paragraph for a period of three years beginning on the later of (i) January 1, 2023 and (ii) the
date the October Notes have been fully redeemed or converted. The Company can obtain the Investor’s waiver to the right of first
refusal by delivering to the Investor 10% of the amount raised by the Company in any such offering in cash or in the same securities issued
by the Company. The Investor also has a right to participate in up to 35% of any such offerings for the same three year period.
At
the written request of the Investor, at any time after the October Notes have been fully redeemed or converted and for a period
of one year thereafter, the Company agreed to file a registration statement to register the Preferred Stock and the Conversion
Shares.
The
conversion of the Preferred Stock and the exercise of the Warrants are each subject to beneficial ownership limitations such that
the Investor may not convert the Preferred Stock or exercise the Warrants to the extent that such conversion or exercise would
result in the Investor being the beneficial owner in excess of 4.99% (or, upon election of such Investor, 9.99%) of the number
of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon
such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the
Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
Certificate
of Designation
On
July 20, 2022, the Company filed the Certificate of Designations of Preferences, Rights and Limitations for the Preferred Stock
with the Secretary of State of Nevada (the “Certificate of Designation”) and designated
187,500 shares of its authorized and unissued preferred stock as Series B Preferred Stock. Each share of Preferred Stock
has a par value of $0.0001 per share and a stated value equal to $100.00 (the “Stated Value”). The Preferred Stock will
initially be issued in a physical certificate. The subscription price for each share of Preferred Stock is $80.00 per share. The
Preferred Stock shares can vote with the shares of Common Stock, on an as-converted to Common Stock basis, with respect to all
matters on which the holders of Common Stock are entitled to vote, subject to any applicable Beneficial Ownership Limitations
(as defined in the Certificate of Designation).
The
Certificate of Designation provides that the Preferred Stock includes a 10% accruing dividend compounded daily for 12 months from
the original issue date (the “Dividend Termination Date”) that may be paid in cash or stock at the Company’s
option at the earlier of (i) the date the Preferred Stock is converted, or (ii) the Dividend Termination Date.
In
the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of
shares the Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its
stockholders, the greater of (i) the Stated Value, or (ii) the amount holder would have received if the Preferred Stock was fully
converted to Common Stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment.
Each
share of Preferred Stock is convertible at any time at the option of the holder after the later of a date that is (i) 180 days
after the original issue date or (ii) the date on which October Notes have been fully redeemed or converted (the “Note Release
Date”) into a number of shares of Common Stock determined by dividing the Stated Value by the conversion price then in effect
(the “Conversion Price”). The initial Conversion Price is $5.41, subject to adjustment as set forth in the Certificate
of Designation. The Conversion Price is also subject to adjustment as follows: (i) upon the United States Securities and Exchange
Commission (the “SEC”) declaring effective the resale registration statement referred to in SPA (the “Resale Registration
Statement”), the conversion price will be equal to 90% of the average VWAPs reported on Nasdaq for the five consecutive trading
dates after the effective date of the Resale Registration Statement, and (ii) in the event that the Company undertakes a public
offering of its Common Stock or Common Stock equivalents, upon the completion of the public offering (the “Public Offering”),
the Conversion Price will be equal to 90% of the average VWAPs reported on Nasdaq for the five consecutive trading dates after
the completion date of the Public Offering. The Conversion Price for the Preferred Stock will be rounded down to the nearest $0.01
and will in no event be lower than $1.08.
The
Preferred Stock has no stated maturity date and is not subject to any mandatory redemption or sinking fund. Provided no shares
of the Company’s Series A Preferred Stock is outstanding, either the Company or the holder of the Preferred Stock may at
any time after the later of (i) the third anniversary of the original issue date, or (ii) the Note Release Date, redeem the Preferred
Stock, in whole or part, for the Stated Value. The Certificate of Designation also provides that the Preferred Stock is subject
to a call pursuant to which the Company, upon ten days prior notice to the holder, may demand that the holder convert the Preferred
Stock and Warrants issued pursuant to the SPA, in whole or in part, if the closing bid price of the Common Stock equals or exceeds
$12.98 less Profit (as defined in the SPA) divided by the number of shares of Common Stock into which the Preferred Stock is convertible
on the date of such notice, subject to any price adjustments, for twenty (20) consecutive trading days. If the holder fails to
convert the remaining stated value of the Preferred Stock in its entirety within thirty (30) trading days after receiving the
Company’s notice, the Company may redeem such remaining balance and the Warrants at the remaining Stated Value plus accrued
dividends.
The
Preferred Stock will, as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation,
dissolution or winding-up, rank senior to all classes or series of Common Stock and to all other capital stock issued by the Company
expressly designated as ranking junior to the Preferred Stock. Without the consent of the holders of the Preferred Stock, the
Company may not issue any capital stock that is (i) senior to the preferred stock in respect of dividend rights and rights as
to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, except that the Preferred Stock
will be parri passu with respect to the Company’s Series A Preferred Stock, or (ii) parri passu with respect to dividend
rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up.
Common
Stock Purchase Warrant
The Warrants
have an issue date of July 19, 2022. The Warrants have an initial exercise price of $10.00 per share of Common Stock, subject to adjustment
as set forth in the Warrants. The holder is entitled to exercise the Warrants at any time on or after the date that is 180 days following
the issue date and on or prior to January 19, 2028. On the closing date of the next public offering of the Company’s common stock
or other securities, the exercise price of the Warrants adjusts to a price equal to the lower of (a) the exercise price then in effect,
or (b) the price of the warrants issued in the Company’s next public offering, or if no warrants are issued in the Company’s
next public offering, 110% of the price per share of the Common Stock issued in the Company’s next public offering.
Leak-Out
Agreement
On
July 19, 2022, the Company and the Investor entered into a Leak-Out Agreement (the “Leak-Out Agreement”). The Leak-Out
Agreement remains in effect so long as any Preferred Stock or shares of Series A Preferred Stock of the Company remain outstanding,
unless otherwise expressly extended in writing by the Investor (the “Leak Out Period”), at which time the Investor shall
no longer be subject to the Leak Out restrictions. Pursuant to the Leak-Out Agreement, the Investor agreed during the Leak-Out
Period not to sell, dispose or otherwise transfer on any trading day, in the aggregate, more than 15% of the composite daily trading
volume of the Common Stock as reported by Bloomberg, LP. The Investor also agreed to execute any lock-up agreement reasonably
requested by an underwriter in connection with an underwritten offering of the Company’s securities.
The
Preferred Stock and the Warrants were issued without registration under the Securities Act of 1933, as amended (the “Securities
Act”), based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated
thereunder. The Company did not engage in general solicitation or advertising with regard to the issuance and sale of the Securities.
The Investor represented that he/she/it is an accredited investor and purchased the Securities for investment and not with a view
to distribution.
The
Addendum, SPA, Certificate of Designation, Common Stock Purchase Warrant, and Leak-Out Agreement each contain customary events
of default, representations, warranties, agreements of the Company and the Investor and customary indemnification rights and obligations
of the parties thereto, as applicable. The foregoing does not purport to be a complete description of the Addendum, SPA, Certificate
of Designation, Common Stock Purchase Warrant, or Leak-Out Agreement and is qualified in its entirety by reference to the full
text of such documents, the forms of which are attached as Exhibits 10.1, 10.2, 4.1, 4.2, and 10.3, respectively, to this Current
Report on Form 8-K (this “Form 8-K”), and which are incorporated herein in their entirety by reference.
