PROPOSAL NO. 1 - APPROVAL OF THE ISSUANCE OF UP TO 66,226,752 SHARES OF COMMON STOCK UPON THE EXERCISE OF WARRANTS
We are asking stockholders to approve the issuance of shares of our common stock upon the exercise of warrants issued in our October 2022 Underwritten Offering, which was completed on October 18, 2022, as contemplated by Nasdaq Listing Rule 5635, as described in more detail below.
On October 14, 2022, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Ladenburg Thalmann & Co., Inc. (the “Underwriter”) pursuant to which we sold, including pursuant to the over-allotment option of the Underwriter: (1) 20,994,044 Class A Units, priced at a public offering price of $0.25 per unit, with each unit consisting of one share of common stock and 1.5 warrants to purchase one share of common stock at an exercise price of $0.25 per share, and (2) 23,157,124 Class B Units, priced at a public offering price of $0.25 per unit, with each unit consisting of one share of Series I convertible preferred stock, convertible into one share of common stock, and 1.5 warrants to purchase one share of common stock with an exercise price of $0.25 per share (the warrants in each of the Class A Units and Class B Units, a “Warrant” and collectively, the “Warrants”).
The net proceeds received by us from the Offering were approximately $9.8 million after deducting estimated offering expenses and underwriting discounts and commissions. We closed the Offering on October 18, 2022, including the full exercise of the Underwriter’s over-allotment option.
Description of Warrants
Pursuant to Nasdaq Stock Market Rule 5635(d), the Warrants are not exercisable without stockholder approval (“Warrant Approval”). The Warrants will be exercisable beginning on the effective date of a reverse stock split in an amount sufficient to permit the exercise in full of the Warrants, contingent upon stockholder approval of such stock split and of the exercisability of the Warrants. We cannot assure you that we will be able to obtain these requisite approvals, and have agreed that if we do not obtain the Warrant Approval at any special meeting of our stockholders, we will call an additional stockholder meeting every 30 days thereafter until the earlier of the date we obtain such approval or the date the Warrants are no longer outstanding. The Warrants expire on the sixth anniversary of the initial exercise date and the Warrants will have an initial exercise price per share equal to $0.25 per share, subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock, as well as certain price protections, subject to certain conditions.
The Warrant holders must pay the exercise price in cash upon the exercise of the Warrants. However, at any time when a registration statement covering the issuance of the shares of common stock issuable upon exercise of the Warrants is not effective, the holder may, at its option, exercise its Warrants on a cashless basis. When exercised on a cashless basis, a portion of the Warrants is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.
The holders of Warrants do not have the right to exercise any portion of the Warrants if the holder would beneficially own in excess of 4.99% of the shares of our common stock outstanding immediately after giving effect to such exercise (or 9.99% if elected by a holder prior to the issuance of the Warrant). This percentage may, however, be raised or lowered to an amount not to exceed 9.99% at the option of the holder upon at least 61 days’ prior notice from the holder to us.
The exercise price and the number of shares issuable upon exercise of the Warrants is subject to adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock. The Warrant holders must pay the exercise price in cash upon exercise of the Warrants, unless such warrant holders are utilizing the cashless exercise provision of the Warrants, which is only available in certain circumstances such as if the underlying shares are not registered with the SEC pursuant to an effective registration statement. We intend to use commercially reasonable efforts to have a registration statement, effective when the Warrants are exercised. Additionally, holders of Warrants may exercise such Warrants on a “cashless” basis after the initial exercise date. In such event, the aggregate number of shares of common stock issuable in such cashless exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the Warrants in accordance with its terms if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 1.00.