Senior Secured Notes

12 Months Ended

Dec. 31, 2022

Note 12 Senior Secured Notes

On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors, LP (the “Investors”) pursuant to which it issued two convertible notes having an aggregate principal amount of $16,500,000 for an aggregate purchase price of $15,000,000 (collectively, the “Notes”). The Notes are secured by a blanket lien on all of the Company’s assets and the shares of our Common Stock and Preferred Stock (the “Pledged Assets”) held by Philip Falcone, FFO1 2021 Irrevocable Trust, FFO2 2021 Irrevocable Trust and Korr Value LP (the “Pledgers”), which shares may be voted by the Investors in the event of default.

In connection with the issuance of the Notes, we issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of our Common Stock (collectively, the “Warrants”) and 1,000 shares of Series F Preferred Stock that convert into 192,073,017 shares of our Common Stock (the “Series F Preferred Stock”). Such warrants and Series F Preferred Stock were each valued at $864,000 based on a $0.0045 price per share of our Common Stock and treated as a debt discount this is amortized over the term of the Notes.

The Notes have a term of thirty-six months and mature on February 17, 2024, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at our election, any interest payable on an applicable payment date may be paid in registered shares of our Common Stock in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average volume-weighted average price of our Common Stock for the five (5) days immediately preceding the date of conversion. At December 31, 2022 and December 31, 2021 accrued and unpaid interest was $3,300,000 and $453,750, respectively.

On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents. Such amendment also waived specified events of default. The Notes were henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $0.02 per share, subject to an event of default adjustment. Notwithstanding the foregoing, at any time during the continuance of any event of default, the conversion price in effect equals the alternate conversion price provided in the Notes. If at any time the conversion price as determined for any conversion would be less than the par share value of the Common Stock, then at the sole discretion of the Holder, such conversion price equals such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal (defined as such additional amount to be added to the principal amount of the Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the holder thereof to the par value price, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price was also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We did not have a right to redeem the Notes.

As part of such purchase agreement with the Investors, we issued warrants to purchase up to 192,073,017 shares of Common Stock. On September 24, 2021, we and the Investors amended the warrants such that each warrant became exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $0.025 per share, adjusted to $0.020 per share when interest is paid late, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Investors could exercise the warrants on a cashless exercise basis.

The Series F Preferred Stock has no voting rights and converts into 4.9% of our issued and outstanding shares of our Common Stock on a fully diluted basis upon the date on which stockholder approval for such issuance is obtained. The Series F Preferred Stock was subsequently converted and 192,073,017 shares of Common Stock, which were issued on October 11, 2021.

On October 27, 2022, the Agent for the Investors notified us that certain events of default have occurred and were continuing under the Investor Notes. On November 21, 2022, we, the Investors and the Agent entered into a Forbearance Agreement, pursuant to which, among other things, we acknowledged the outstanding principal balances of the Investor Notes, that we have an obligation for interest, including default interest, fees and expenses in connection with the Investor Notes, that we have no rights of offset, defenses, claims or counterclaims with respect to our obligations and pursuant to a side letter, dated as of November 21, 2022, we agreed to achieve certain milestones by the dates as set forth therein. The Forbearance Agreement expired on December 30, 2022.

As of December 31, 2022 and 2021, the outstanding liability for our Senior Secured Notes is as follows:

Schedule of senior secured Notes

	2022		2021
Principal	$	16,500,000	$	16,500,000

Less discount		1,900,760		3,580,608

Principal, net of discount	$	14,599,240	$	12,919,392

As of December 31, 2022 and 2021, accrued interest payable on such senior secured Notes is $3,300,000 and $453,750, respectively, with interest accruing at a default rate of 20% per annum in 2022 and at 11% per annum in 2021.

Madison Technologies Inc. 10-K