PROPOSAL THREE: APPROVAL OF AN INCREASE IN THE NUMBERISSUANCE OF SHARES UPON EXERCISE OF AUTHORIZED COMMON STOCK FROM THIRTY-THREE MILLION THREE HUNDRED THIRTY-THREE THOUSAND AND THREE HUNDRED THIRTY-FOUR (33,333,334) TO SIXTY-SIX MILLION SIX HUNDRED SIXTY-SIX THOUSAND SIXTY HUNDRED SIXTY-SEVEN (66,666,667)THE INDUCEMENT WARRANTS IN ACCORDANCE WITH NASDAQ LISTING RULE 5635
General
UnderOn November 28, 2023, we commenced a warrant inducement offering with the holders of our Articles of Incorporation as amended (our “Articles of Incorporation”), the total number of shares of all classes of capital stock that we are authorized to issue is forty-three million three hundred thirty three thousand and three hundred thirty four (43,333,334),outstanding 31,779,654 warrants consisting ofof: (i) thirty-three million three hundred thirty three thousand and three hundred thirty four (33,333,334) designated as common stock $0.00001 par value per share,purchase warrants issued on or about June 22, 2023; (ii) common stock purchase warrants issued on or about July 10, 2023; (iii) common stock purchase warrants issued on or about July 21, 2023; and (ii) ten million (10,000,000) designated as preferred(iv) common stock $0.00001 par value per share. Our Board of Directors has determined that it is advisable to increase (i)purchase warrants issued on or about October 19, 2023 (collectively, the authorized number of authorized shares from forty-three million three hundred thirty-three thousand and three hundred thirty-four (43,333,334) to seventy-six million, six hundred sixty-six thousand sixty hundred sixty-seven (76,666,667) and (2) the authorized“Existing Warrants”), which were exercisable for an equal number of shares of common stock from thirty-three million three hundred thirty-three thousand and three hundred thirty-four (33,333,334)at an exercise price of $0.525. In the warrant inducement offering, we offered the holders a period of time (the “Inducement Period”) whereby we agreed to sixty-six million, six hundred sixty-six thousand sixty hundred sixty-seven (66,666,667) and recommends that our stockholders approve an amendmentissue new warrants (the “Inducement Warrants”) to our Articles of Incorporationpurchase up to effect the proposed increases. The authorizeda number of shares of preferredcommon stock will not change. The amendmentequal to 200% of the number of shares of common stock issued pursuant to the Articlesexercise by the holders of Incorporation that youthe Existing Warrants during the Inducement Period, for cash, at a reduced exercise price equal to the Nasdaq Minimum Price (as defined in the as defined in Nasdaq Listing Rule 5635(d)).
On November 28, 2023, we entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 13,032,182 shares of common stock at a reduced exercise price of $0.215. Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 26,064,364 Inducement Warrants and we received aggregate gross proceeds of approximately $2.8 million from the exercise of the Existing Warrants. If all of the holders participate in the warrant inducement offering, there would be an aggregate of 63,559,308 Inducement Warrants issued to purchase an equal number of shares of common stock. As of December 6, 2023, we have issued an aggregate of 30,134,772 Inducement Warrants and received gross proceeds in the warrant inducement offering of $3.2 million.
The Inducement Warrants are being askednot exercisable unless and until our stockholders approve (i) this Proposal 3 to approve the issuance of the shares of common stock underlying the Inducement Warrants pursuant to this Proposal No. 3 will be substantially inapplicable Nasdaq rules and (ii) a proposal to amend our charter to increase the formnumber ofAppendix A attached to this Proxy Statement.
Purpose of the Increase in Authorized Shares
As of August 15, 2023, we had thirty-three million three hundred thirty-three thousand and three hundred thirty-four (33,333,334) shares of common stock authorized of which 21,078,656 shares were issued and outstanding. Of the remaining 12,254,678 authorized shares, 12,731,845 shares are reserved for issuance upon(Proposal 2) and/or a reverse stock split without adjusting the exercise of issued and outstanding warrants, 320,383 shares are reserved for issuance upon the exercise of issued and outstanding equity option awards, 366,507 shares are reserved for unvested restricted stock units and 293,259 shares are reserved for future issuance under our stock incentive plan. In addition, the holders of 1,557,268 Warrants dated July 10, 2023 agreed not to exercise such warrants until after Stockholder Approval #1 is obtained. Accordingly, based on the foregoing, we do not have enoughauthorized shares of common stock available for future issuance.(Proposal 1) ((i) and (ii) collectively, “Stockholder Approval”).
Our Board believes it isThe Inducement Warrants will be exercisable at any time on or after the Stockholder Approval date, have an expiration date of five years from the Stockholder Approval date, and have an exercise price equal to the Nasdaq Minimum Price (as defined in the best interestas defined in Nasdaq Listing Rule 5635(d)). The exercise prices of ourthe Inducement Warrants will be subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. In addition, the Inducement Warrants are subject to adjustment in certain circumstances, including upon any subsequent equity sales at a price per share lower than the then effective exercise price of such Inducement Warrants, then such exercise price shall be lowered to such price at which the shares were offered. Section 3(b) of the Inducement Warrants provides as follows:
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell, enter into an agreement to increasesell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the numberExercise Price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of authorized sharesthe Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of our common stockpurchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to give us greater flexibility in considering and planning for future potential business needs, including to raise additional capitalwarrants, options or rights per share which are issued in connection with future equity financings, future opportunitiessuch issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for expandingless than the business through investments or acquisitions, management incentive and employee benefit plans and for other general corporate purposes.
Furthermore, as a material condition to the Stock Purchase Agreement No. 1 and Stock Purchase Agreement No. 2 described in Proposals 1 and 2, respectively, the Company agreed to submit and recommend this proposal to its stockholders. Pursuant to the termsExercise Price on such date of the Stock Purchase Agreement No. 1Dilutive Issuance at such effective price), then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced and Stock Purchase Agreement No. 2, if we do not obtain stockholder approval foronly reduced to equal the Base Share Price. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Proposal 3 and/Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or Proposals 1 and 2 at the Special Meeting, ordeemed issuance of any adjournment of the Special Meeting, we have agreed to call a meeting of stockholders every six months thereafter to seek stockholder approval untilCommon Stock