PROPOSAL 3
APPROVAL OF THE NASDAQ ISSUANCE PROPOSAL
We are seeking stockholder approval, as required by Nasdaq Listing Rule 5635(d), of the issuance of more than 19.99% of the outstanding shares of Common Stock in connection with the transactions contemplated by the Securities Purchase Agreement, including the conversion of the Series B Preferred Stock and the Debentures, if issued, and the exercise of the Warrants.
Background
On January 6, 2023, we entered the Securities Purchase Agreement, as amended on January 12, 2023, with four accredited investors (the “Investors”), for the issuance of the Series B Preferred Stock, the Warrants and the Debentures in two tranches. As part of the first tranche, which closed on January 6, 2023 (the “First Closing Date”), and pursuant to the Securities Purchase Agreement, the Company issued (i) 4,222 shares of the Series B Preferred Stock and (ii) Warrants exercisable for up to 6,125,000 shares of Common Stock, each in a private placement pursuant to exemptions from registration in Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and/or the safe harbors under Rule 506 of Regulation D and/or Regulation S promulgated thereunder.
Each share of Series B Preferred Stock is convertible into that number of shares of Common Stock determined by dividing $1,000 by the lesser of (i) $1.00 (the “Fixed Conversion Price”) and (ii) 90% of the average of the three lowest volume-weighted average prices (“VWAPs”) during the 10 consecutive trading days immediately prior to the applicable conversion date (the “Variable Conversion Price” and together with the Fixed Conversion Price, collectively, the “Conversion Price”); provided, however, that in no instance shall the Conversion Price be less than $0.08988, which is 20% of the Minimum Price (as defined under applicable Nasdaq rules)(the “Floor Price”). Based on the prevailing Conversion Price as of , 2023, the 4,222 shares of Series B Preferred Stock issued to the Investors are convertible into shares of our Common Stock. Based on the Floor Price, the 4,222 shares of Series B Preferred Stock issued to the Investors are convertible into 46,973,972 shares of our Common Stock.
The Warrants are exercisable for up to 6,125,000 shares of Common Stock at an exercise price of $1.00 per share, subject to certain adjustments, for a term of five years. In the event of a reverse stock split, the exercise price of the Warrants shall be reduced to equal the lower of (i) the then current exercise price and (ii) the lowest VWAP out of the 5 trading days commencing on the trading day the Common Stock commences trading after taking into account such split on a post-split basis.
Prior to obtaining stockholder approval of the Authorized Stock Amendment Proposal and this Nasdaq Issuance Proposal (“Stockholder Approval”), the Warrants may not be exercised and the Series B Preferred Stock may not be converted for shares of Common Stock which, when aggregated with any shares of Common Stock issued pursuant to conversion of the Series B Preferred Stock or the exercise of any Warrant, would exceed (i) 19.99% of the Company’s outstanding stock as of January 6, 2023, subject to adjustments for stock splits, stock dividends and the like or (ii) the maximum number of shares of Common Stock available for issuance from the Company’s authorized capital stock.
Pursuant to the Securities Purchase Agreement, we also agreed to issue Debentures to the Investors in an aggregate principal amount of $8,888,888, in a private placement pursuant to exemptions from registration in Section 4(a)(2) under the Securities Act, and/or the safe harbors under Rule 506 of Regulation D and/or Regulation S promulgated thereunder, on the second closing date (the “Second Closing Date”), which such date is to be within five trading days of the later of (i) the date of the Stockholder Approval and (ii) the effective date of the registration statement registering for resale the shares of Common Stock underlying the Preferred Stock, the Warrants and the Debentures, which registration statement was filed with the SEC on January 12, 2023. The Debentures will be convertible, at the option of the holder, into shares of Common Stock at the Conversion Price (as defined above with respect to the Series B Preferred Stock); provided, however, that in no instance shall the Conversion Price be less than the Floor Price. The Debentures will have a maturity date of two years from the date of issuance and an interest rate of 6% per annum payable quarterly in cash or, at the option of the Company, in Common Stock at a conversion rate equal to 90% of the lesser of (i) the average of the VWAPs for the 10 consecutive trading days immediately prior to the applicable interest payment date or (ii) the average of the VWAPs for the 10 consecutive trading days immediately prior to the applicable interest payment date. Based on the prevailing Conversion Price as of , 2023, the Debentures to be issued to the Investors will be convertible into approximately shares of our Common Stock. Based on the Floor Price, the Debentures to be issued to the Investors will be convertible into 98,897,287 shares of our Common Stock.
