Warrant Stockholder Approval. Under Nasdaq listing rules, the Warrants may not be exercised unless and until we obtain the approval of our stockholders. While we intend to promptly seek stockholder approval, there is no guarantee that the Warrant Stockholder Approval will ever be obtained. If we are unable to obtain the Warrant Stockholder Approval, the Warrants may not be exercised and will have substantially less value. In addition, we will incur substantial cost, and management will devote substantial time and attention, in attempting to obtain the Warrant Stockholder Approval.
Transferability. Subject to applicable laws, the Warrants and the Prefunded Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We do not intend to apply for the listing of the Warrants or Prefunded Warrants offered in the Private Placement on any stock exchange. Without an active trading market, the liquidity of the Warrants and Prefunded Warrants will be limited.
Rights as a Stockholder. Except as otherwise provided in the Warrants or the Prefunded Warrants or by virtue of such holder’s ownership of our shares of Common Stock, the holder of a Warrant or Prefunded Warrant does not have the rights or privileges of a holder of our shares of Common Stock, including any voting rights, until the holder exercises the Warrant or Prefunded Warrant.
Fundamental Transaction. In the event of a fundamental transaction, as described in the Warrants and the Prefunded Warrants, and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our shares of Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding shares of Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding shares of Common Stock, the holders of the Warrants and the Prefunded Warrants will be entitled to receive upon exercise thereof the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. Notwithstanding the foregoing, in the event of a fundamental transaction, subject to certain exceptions as described in the Warrants and Prefunded Warrants, the holders of the Warrants and Prefunded Warrants shall have the option, exercisable at any time concurrently with, or within thirty days after, the consummation of a fundamental transaction, to require the Company or a successor entity to purchase the Warrants and Prefunded Warrants for cash in the amount of the Black Scholes Value (as defined in each of the Warrants and Prefunded Warrants) of the unexercised portion of the Warrants or Prefunded Warrants, provided, however, that if the fundamental transaction is not within the Company’s control, the holder of Warrants or Prefunded Warrants will only be entitled to receive the same type or form of consideration (and in the same proportion) at the Black Scholes Value of the unexercised portion of such Warrants or Prefunded Warrants that is being offered and paid to the holders of Common Stock in connection with the fundamental transaction.
Governing Law. The Prefunded Warrants and the Warrants are governed by New York law.
Purpose of the Warrant Stockholder Approval
In order to comply with Nasdaq Listing Rule 5635(d) and permit the holders to exercise the Warrants, the stockholders of the Company need to approve the issuance of the Warrants and the Warrant Shares issuable upon exercise of the Warrants together with the additional shares of our Common Stock that may become issuable upon adjustments provided for under the Warrants and the provisions of the Warrants indicated above. Until the Company obtains the Warrant Stockholder Approval in order to comply with Nasdaq Listing Rule 5635(d), the Warrants are not exercisable.
Potential Adverse Effects of the Approval of the Warrant Stockholder Approval Provisions
Following approval by the stockholders of this proposal, existing stockholders, other than the holders of the Warrants whose ownership interests would materially increase if they exercise their Warrants, will suffer significant dilution in their ownership interests upon exercise of the Warrants. Assuming the full exercise of the Series A Warrants after a reset of the exercise price to the Floor Price of $0.132, and assuming the Series B Warrants are exercised on a zero exercise price basis after a reset of the exercise price to the Floor Price of $0.132, an aggregate of 280,421,380 shares of Common Stock would become issuable upon the exercise of the Series A Warrants, and an aggregate of 1,261,896,210 shares of Common Stock would become issuable upon the exercise of the Series B Warrants, with an aggregate of 1,542,317,700 shares of Common Stock issuable upon exercise of the Warrants, and the ownership interest of our existing stockholders, other than the holders of the Warrants whose ownership interests would materially increase, would be correspondingly diluted by approximately 99%.
