8-K: FiscalNote Holdings Issues Convertible Notes and Common Stock in Exchange for Existing Debt

FiscalNote Holdings, Inc. entered into a Securities Exchange Agreement, issuing convertible notes and common stock to EGT 11 LLC in exchange for existing subordinated convertible promissory notes.

Summary

• On March 17, 2025, FiscalNote Holdings, Inc. entered into a Securities Exchange Agreement with EGT 11 LLC.
• FiscalNote issued a Senior Subordinated Convertible Promissory Note for $5.5 million and will issue another for $269,000 in exchange for existing notes from FiscalNote Intermediate Holdco.
• The notes mature three years from issuance and accrue interest starting six months after issuance.
• The notes are contractually subordinated to the company's senior secured indebtedness.
• The Exchange Investor can convert the notes into Class A common stock starting six months after issuance, based on the 30-day volume-weighted average market price.
• FiscalNote may also elect to convert the notes if the shares are freely tradeable.
• FiscalNote issued 2,475,000 shares of common stock and will issue an additional 121,050 shares as an inducement for the exchange.
• The company may need to issue additional shares if the Exchange Investor doesn't receive 145% of the principal amount plus accrued interest from sales of the Fee Shares and Conversion Shares within 12 months.
• If certain events like bankruptcy or a change of control occur, FiscalNote may be required to repurchase the Fee Shares for cash.
• FiscalNote issued 300,000 shares of common stock to Northland Securities, Inc. for brokerage services.
• The Exchange Notes have customary events of default, including failure to pay or deliver shares.
• FiscalNote also entered into a Registration Rights Agreement, requiring the company to register the Conversion Shares, Fee Shares, and Additional Shares for resale.
• The company must file a resale registration statement within seven days of filing its definitive proxy statement for the 2025 annual meeting, but no later than April 20, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. The transaction involves a debt exchange and issuance of equity, which has both positive and negative implications. The overall impact depends on the company's financial performance and market conditions.

Positives

• The exchange of debt for convertible notes and equity could potentially improve FiscalNote's balance sheet by reducing near-term cash obligations.
• The Registration Rights Agreement provides liquidity for the Exchange Investor, which could encourage participation in the exchange.

Negatives

• The issuance of new shares dilutes existing shareholders' equity.
• The Exchange Notes are subordinated to FiscalNote's senior secured indebtedness, indicating a higher risk for the noteholders.
• The potential issuance of Additional Shares if the Exchange Investor doesn't achieve a certain return could further dilute existing shareholders.

Risks

• The Exchange Notes are unsecured, increasing the risk for the Exchange Investor.
• The company's ability to make cash payments on the Exchange Notes is limited by the terms of its senior secured indebtedness.
• Failure to meet obligations under the Exchange Notes could trigger events of default and accelerate repayment.
• The market price of FiscalNote's common stock could be negatively impacted by the issuance of new shares.
• The company's obligation to repurchase Fee Shares under certain circumstances could strain its cash reserves.

Future Outlook

The company is required to file resale registration statements for the Conversion Shares, Fee Shares, and Additional Shares, if any, within specified timeframes. The company may be required to issue additional shares or repurchase Fee Shares depending on the Exchange Investor's sales proceeds.

Industry Context

In the current market environment, companies are exploring various financing options, including debt exchanges and convertible notes, to manage their capital structure and liquidity. This transaction is consistent with that trend.

Comparison to Industry Standards

• Similar companies in the tech and information services sectors often use convertible notes to raise capital without immediate equity dilution.
• The terms of the Exchange Notes, such as the interest rate and conversion price, would need to be compared to similar instruments issued by peer companies to assess their competitiveness.
• The issuance of common stock for brokerage services is a common practice in the industry.

Stakeholder Impact

• Shareholders will experience potential dilution from the issuance of new shares.
• The Exchange Investor benefits from the exchange of debt for convertible notes and equity with registration rights.
• The company's creditors are potentially impacted by the subordination of the Exchange Notes to senior secured indebtedness.

Next Steps

• The company will issue the Subsequent Exchange Note.
• The company will file the Exchange Agreement and Registration Rights Agreement as exhibits to its Annual Report on Form 10-K for the year ended December 31, 2024.
• The company will file resale registration statements for the Conversion Shares, Fee Shares, and Additional Shares.
• The Exchange Investor will sell the Conversion Shares and Fee Shares.

Key Dates

Keywords

Convertible Notes, Common Stock, Securities Exchange Agreement, FiscalNote Holdings, Debt Exchange, Registration Rights, EGT 11 LLC