Item 3.02 Unregistered Sales of Equity Securities.
As
described above, on April 18, 2019, the Company closed the
Armistice Transaction and issued to Armistice (1) 3,120,064 shares
of Common Stock of the Company, (2) 2,751,148 shares of Series E
Convertible Preferred Stock of the Company, and (3) a Common Stock
Purchase Warrant (the “Exchange Warrant”) exercisable
for 4,403,409 shares of Common Stock of the Company. The Form of
Certificate of Designation of Series E Convertible Preferred Stock
of the Company and the form of the Exchange Warrant were each filed
as exhibits to the Company’s Quarterly Report on Form 10-Q
filed February 7, 2019. A description of the Series E Convertible
Preferred Stock and the Exchange Warrant is included below. In
connection with the foregoing, the Company relied upon the
exemption from securities registration provided by Regulation D
under the Securities Act of 1933, as amended.
Series E Convertible Preferred
Stock
General
. The preferences and rights of
the Series E Convertible Preferred Stock (the “Series E
Preferred Stock”) are as set forth in the Certificate of
Designation.
Conversion
. Each share of Series E
Preferred Stock is initially convertible at any time at the
holder’s option into one share of common stock, which
conversion ratio is subject to adjustment for stock splits, stock
dividends, distributions, subdivisions and combinations.
Notwithstanding the foregoing, the Certificate of Designation
further provides that the Company shall not effect any conversion
of the Series E Preferred Stock, with certain exceptions, to the
extent that, after giving effect to an attempted conversion, the
holder (together with its affiliates, and any persons acting as a
group together with the holder or any of its affiliates) would
beneficially own a number of shares of common stock in excess of
40% of the shares of the Company’s common stock then
outstanding after giving effect to such exercise.
Fundamental Transaction
. In the event
the Company consummates a merger or consolidation with or into
another person or other reorganization event in which the
Company’s common stock is converted or exchanged for
securities, cash or other property, or the Company sells, leases,
licenses, assigns, transfers, conveys or otherwise disposes of all
or substantially all of its assets or the Company or another person
acquires 50% or more of the Company’s outstanding shares of
common stock, then following such event, the holders of the Series
E Preferred Stock will be entitled to receive upon conversion of
such Series E Preferred Stock the same kind and amount of
securities, cash or property which the holders would have received
had they converted their Series E Preferred Stock immediately prior
to such fundamental transaction. Any successor to the Company or
surviving entity shall assume the obligations under the Series E
Preferred Stock.
Liquidation Preference
. In the event of
a liquidation, the holders of Series E Preferred Stock will be
entitled to participate on an as-converted-to-common-stock basis
with holders of the common stock in any distribution of assets of
the Company to the holders of the common stock.
Voting Rights
. With certain exceptions,
as described in the Certificate of Designation, the Series E
Preferred Stock has no voting rights. However, as long as any
shares of Series E Preferred Stock remain outstanding, the
Certificate of Designation provides that the Company shall not,
without the affirmative vote of holders of a majority of the
then-outstanding shares of Series E Preferred Stock: (a) alter or
change adversely the powers, preferences or rights given to the
Series E Preferred Stock or alter or amend the Certificate of
Designation, (b) amend the Company’s certificate of
incorporation or other charter documents in any manner that
adversely affects any rights of the holders, (c) increase the
number of authorized shares of Series E Preferred Stock or (d)
enter into any agreement with respect to any of the
foregoing.
Dividends
. The Certificate of
Designation provides, among other things, that the Company shall
not pay any dividends on shares of common stock (other than
dividends in the form of common stock) unless and until such time
as it pays dividends on each share of Series E Preferred Stock on
an as-converted basis. Other than as set forth in the previous
sentence, the Certificate of Designation provides that no other
dividends shall be paid on shares of Series E Preferred Stock and
that the Company shall pay no dividends (other than dividends in
the form of common stock) on shares of common stock unless the
Company simultaneously complies with the previous
sentence.
Repurchase Restrictions
. The
Certificate of Designation does not provide for any restriction on
the repurchase of Series E Preferred Stock by the Company while
there is any arrearage in the payment of dividends on the Series E
Preferred Stock. There is no sinking fund provisions applicable to
the Series E Preferred Stock.
Redemption
. The Company is not be
obligated to redeem or repurchase any shares of Series E Preferred
Stock. Shares of Series E Preferred Stock are not otherwise be
entitled to any redemption rights or mandatory sinking fund or
analogous fund provisions.
Exchange Listing.
The Series E
Preferred Stock is not listed on any securities exchange or other
trading system.
The
foregoing summary of the Series E Preferred Stock does not purport
to be complete and is subject to, and qualified in its entirety by,
the full text of the Certificate of Designation, a copy of which is
filed as Exhibit 10.1 to this report and is incorporated herein by
reference.
Exchange Warrant
General
. The Exchange Warrant entitles
Armistice to purchase 4,403,409 shares of the Company’s
common stock at an exercise price of $1.00 per share, subject to
adjustment as discussed below. The Exchange Warrant expires on the
five-year anniversary of issuance, or earlier upon redemption or
liquidation.
Exercise
. The Exchange Warrant may be
exercised by providing an executed notice of exercise form followed
by full payment of the exercise price or on a cashless basis, if
applicable. Armistice does not have the rights or privileges of
holders of common stock or any voting rights with respect to the
shares of common stock represented by the Exchange Warrant until it
exercises the Exchange Warrant and receives its shares of common
stock. After the issuance of shares of common stock upon exercise
of the Exchange Warrant, Armistice will be entitled to one vote for
each share held of record on all matters to be voted on by
stockholders generally.
Beneficial Ownership Limitation
.
Armistice is subject to a requirement that it will not have the
right to exercise the Exchange Warrant, to the extent that after
giving effect to such exercise, Armistice (together with its
affiliates) would beneficially own in excess of 40% of the shares
of common stock of the Company outstanding immediately after giving
effect to such exercise.
Anti-Dilution Protection
. If the number
of outstanding shares of common stock is increased by a stock
dividend payable in shares of common stock, is increased by a
split-up of shares of common stock, is decreased by a combination
of outstanding shares of common stock, or is reclassified by the
issuance of any shares of capital stock of the Company then, on the
effective date of such event, the exercise price of the Exchange
Warrant will be multiplied by a fraction of which the numerator is
the number of shares of common stock outstanding immediately prior
to such event and the denominator is the number of shares of common
stock outstanding immediately after such event, and the number of
shares of common stock issuable upon exercise of the Exchange
Warrant will be proportionately adjusted such that the aggregate
exercise price will remain unchanged. Such adjustment will be
effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution
and will be effective immediately after the effective date in the
case of a subdivision, combination or
re-classification.
In
addition, if the Company, at any time while the Exchange Warrant is
outstanding and unexpired, grants, issues or sells any (i)
securities of the Company or its subsidiaries which would entitle
the holder thereof to acquire at any time common stock, including,
without limitation, any debt, preferred stock, right, option,
warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, common stock, or (ii) rights to purchase stock,
warrants, securities or other property pro rata to the record
holders of any class of shares of common stock (the “Purchase
Rights”), then Armistice will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which it could have acquired if it had held the
number of shares of common stock acquirable upon complete exercise
of the Exchange Warrant immediately before the date on which a
record is taken or the record holders are determined for the grant,
issuance or sale of such Purchase Rights.
Further, if the
Company, at any time while the Exchange Warrant is outstanding and
unexpired, declare or make any dividend or other distribution of
assets to holders of common stock, by way of return of capital or
otherwise, at any time after the issuance of the Exchange Warrant,
then Armistice shall be entitled to participate in such
distribution to the same extent that it would have participated
therein had it held the number of shares of common stock acquirable
upon complete exercise of the Exchange Warrant immediately before
the date of which a record is taken or the record holders are
determined for such distribution.
Fundamental Transaction
. In the event
of a “fundamental transaction” then, upon a subsequent
exercise of the Exchange Warrant, Armistice will have the right to
purchase and receive the same kind and amount of consideration
receivable by the stockholders of the Company in such fundamental
transaction. The Company will cause the surviving company in a
fundamental transaction to assume the obligations of the Company
under the Exchange Warrant. For purposes of the Exchange Warrant, a
“fundamental transaction” includes, subject to certain
exceptions, (i) any reclassification, reorganization or
recapitalization of the common stock of the Company, (ii) any
merger or consolidation of the Company with or into another
corporation, (iii) any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of the
Company’s assets in one or more transactions, (iv) any,
direct or indirect, purchase offer, tender offer or exchange offer
is completed pursuant to which stockholders are permitted to sell,
tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the
outstanding common stock of the Company, or (v) the Company,
directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business
combination with another person whereby such other person acquires
more than 50% of the outstanding shares of common stock of the
Company.
Amendments
. The Exchange Warrant
provides that the terms of the Exchange Warrant may be amended only
in a writing signed by the Company and Armistice.
The
issuance of the Exchange Warrant is not expected to affect the
rights of our existing security holders, other than with respect to
potential dilution as a result of an increase in the number of
shares of common stock outstanding if Armistice exercises the
Exchange Warrant.
The
foregoing summary of the Exchange Warrant does not purport to be
complete and is subject to, and qualified in its entirety by, the
full text of the Exchange Warrant, a copy of which is filed as
Exhibit 10.2 to this report and is incorporated herein by
reference.