Convertible Notes |
3 Months Ended |
|---|---|
Mar. 31, 2026 | |
| Debt Disclosure [Abstract] | |
| Convertible Notes | Note 5 – Convertible Notes
On February 27, 2026, the Company entered into separate Securities Purchase Agreements (the “Securities Purchase Agreements”) with certain accredited investors (the “Purchasers”), pursuant to which the Company issued and sold to the Purchasers convertible promissory notes in an aggregate principal amount of $1.0 million (the “Convertible Notes”) and Series A-4 Common Stock Purchase Warrants (the “Warrants”) to purchase shares of the Company’s common stock. The Convertible Notes bear interest at a rate of 10% per annum (the “Interest Rate”), compounded annually, with interest accruing on the unpaid principal amount and payable on February 27, 2027 (the “Maturity Date”). Upon an event of default, interest accrues at 22% per annum (the “Default Interest Rate”), compounded annually, reverting to the Interest Rate upon remediation of default or written waiver at the election of the Purchasers. The Company may prepay the Convertible Notes in whole or in part at any time without premium or penalty.
Additionally, the Securities Purchase Agreements contain customary representations, warranties, and covenants of the Company and the Purchasers. The Company has agreed to certain covenants, including (i) within six months of the issuance date, filing a resale registration statement covering the shares of common stock issuable upon conversion of the Convertible Notes, (ii) within 30 days of August 26, 2026, filing a resale registration statement covering the shares of common stock issuable upon Warrant exercise, (iii) restrictions on redemption of, or payment of dividends on, the Company’s securities while the Convertible Notes or Warrants are outstanding, and (iv) restrictions on variable rate transactions while the Convertible Notes are outstanding. Upon the occurrence and during the continuance of an event of default, (i) interest on the Convertible Notes would accrue at the Default Interest Rate of 22% per annum, compounded annually, in lieu of the 10% Interest Rate, and (ii) the Purchasers would be entitled, at their election, to accelerate and demand immediate repayment of all outstanding principal, accrued interest, and other amounts then payable under the Convertible Notes. In addition, if the Company fails to deliver conversion shares within the required share delivery deadline following a conversion notice, or if a resale registration statement covering the conversion shares is not effective and available when required, the Company would be obligated to pay the applicable Purchaser a cash amount equal to 2% per month of the value of the conversion shares not timely delivered, subject to an aggregate cap of 10% of the value of such shares, and the Purchaser would have the right to void its conversion notice and pursue other remedies available at law or in equity. As of March 31, 2026, no event of default had occurred under the Convertible Notes and no penalty amounts had been incurred or paid. See Note 8 – Stockholders’ Equity for additional information on the Warrant Liabilities, including certain terms defined therein.
ZYVERSA THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
Upon the issuance of equity securities pursuant to which the Company receives aggregate gross proceeds of at least $15.0 million (a “Qualified Offering”), the Convertible Notes will automatically convert into the same equity securities issued in such Qualified Offering at a conversion price equal to 80% of the price per share paid in the Qualified Offering. Further, at the earlier of (i) six months after the date of issuance (on or after August 26, 2026) or (ii) an event of default, the Purchasers may elect, by delivering a written conversion notice, to convert all or any portion of outstanding principal and accrued interest into common stock at a conversion price equal to 80% of the lowest daily volume-weighted average price (“VWAP”) of the common stock during the 10 trading days prior to delivery of a conversion notice. This conversion price is subject to a floor price of $ per share (the “Floor Price”). If the conversion price on any conversion date would be less than the Floor Price, the Company shall issue the number of conversion shares equal to the notional amount divided by the Floor Price, and additionally pay the Purchasers a cash amount equal to the share shortfall multiplied by the lowest VWAP on the date immediately preceding the delivery of a conversion notice (the “Floor Price True-Up”). Upon delivery of a conversion notice, the Company may elect to instead repay all outstanding principal and accrued interest in cash.
The Company determined that the Convertible Notes contained (i) an automatic redemption feature pursuant to which the conversion price is equal to the price per share in a Qualified Offering with a 20% discount which required bifurcation, (ii) a holders’ conversion option pursuant to which the conversion price is equal to 80% of the lowest daily VWAP of common stock during the 10 trading days prior to delivery of a conversion notice, and subject to the Floor Price True-Up, which may require a combination of net share and cash settlement, which required bifurcation, (iii) an issuer’s election to cash settle upon holders’ written notices to convert which did not require bifurcation, and (iv) an automatic conversion pursuant to and upon a change of control which did not require bifurcation.
As a result of the embedded features on the Convertible Notes that required bifurcation, the Company elected the fair value option (“FVO”) for fair value measurement of the Convertible Notes, which was determined to equal $1,200,000 in the aggregate as of March 31, 2026. The FVO eliminates the requirement to separately bifurcate any of the embedded features because the FVO implicitly reflects the economics of all embedded features without requiring bifurcation. See Note 9 – Fair Value Measurement for additional details regarding the valuation techniques and assumptions used in valuing Level 3 inputs.
|