Item
3.02 Unregistered Sales of Equity Securities.
Issuance
of Series D Convertible Preferred Stock
On
August 30, 2019, Transportation and Logistics Systems, Inc. (the “Company”) issued and sold to investors convertible
promissory notes (the “Notes”), and warrants (the “Warrants”) to purchase shares of our
common stock, par value $0.001 per share (the “Common Stock”) pursuant to a Securities Purchase Agreement (the
“Purchase Agreement”) with the accredited investors (together with their respective heirs, successors and assigns,
the “Investors”). These Notes and Warrants include down-round provisions under which the Note conversion price
and Warrant exercise price were reduced, on a full-ratchet basis, to a fraction of a penny due to Company defaults on the Notes
and other convertible debt securities.
As
previously disclosed by the Company on the Current Report on Form 8-K filed by the Company on July 21, 2020, the Company entered
into an Exchange Agreement with one of the Investors to exchange outstanding Notes and Warrants for Series D Convertible Preferred
Stock (the “Series D”). In connection with this exchange the Company and the Investor also entered into a Leak-Out
Agreement whereby the Investor agreed to limit sale volume for a period of time. In compliance with the Purchase Agreement, the
Company offered to exchange the Notes and Warrants held by the other Investors for Series D on substantially similar terms and
conditions pursuant to one or more Exchange Agreements in substantially the form of the initial Exchange Agreement (“Exchange
Agreements”) and one or more Leak-Out Agreements in substantially the form of the initial Leak-Out Agreement (“Leak-Out
Agreements”).
On
July 22, 2020, the Company entered an Exchange Agreement (the “Puritan Exchange Agreement”) with another Investor,
Puritan Partners LLC (“Puritan”) to exchange outstanding Notes and Warrants for Series D. Pursuant to the Puritan
Exchange Agreement, Puritan exchanged Notes with an aggregate remaining principal amount outstanding of $265,843.79 and Warrants
to purchase 194,445,417 shares of Common Stock for 221,269 shares of Series D (the “Exchange”).
In
connection with the Exchange, the Company and Puritan entered into a Leak-Out Agreement, dated as of July 22, 2020 (the
“Puritan Leak-Out Agreement”), whereby Puritan agreed that, until the earliest to occur of (a) 120 days
from July 22, 2020, (b) the Common Stock trading at an average reported volume of at least 100,000,001 shares for three
consecutive trading days, (c) the price per share of the Common Stock exceeding $0.10 in a transaction, (d) the time of
release (whether by termination of an applicable leak-out agreement or otherwise), in whole or in part, of any leak-out
agreement with any other holder of securities, or (e) any breach by the Company of any term of the Puritan Leak-Out Agreement
that is not cured within five trading days following delivery of written notice of such breach by Puritan to the Company,
neither Puritan, nor any of its Affiliates (as defined in the Puritan Leak-Out Agreement), collectively, shall sell, on any
trading day, more than 10% of the Common Stock sold on such trading day.
A
copy of the form of Exchange Agreement is attached as Exhibit 4.1 to this Current Report on Form 8-K. The above description is
qualified by reference to the complete text of the form of Exchange Agreement. A copy of the form of Leak-Out Agreement is attached
as Exhibit 10.1 to this Current Report on Form 8-K. The above description is qualified by reference to the complete text of the
form of Leak-Out Agreement.
In
connection with the Exchange, the Board of Directors (the “Board”) created the Series D pursuant to the authority
vested in the Board by the Company’s Amended and Restated Articles of Incorporation to issue up to 10,000,0000 shares of
preferred stock, $0.001 par value per share. The Company’s Amended and
Restated Articles of Incorporation explicitly authorize the Board to issue any or all of such shares of preferred stock in one
(1) or more classes or series and to fix the designations, powers, preferences and rights, the qualifications, limitations or
restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the
stockholders.
On
July 20, 2020, the Board filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Preferred Stock
(the “Series D COD”) with the Secretary of State of the State of Nevada designating 1,250,000 shares of preferred
stock as Series D. The Series D does not have the right to vote. The Series D has a stated value of $6.00 per share (the “Stated
Value”). Subject only to the liquidation rights of the holders of Series B Preferred Stock that is currently issued
and outstanding, upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary,
the Series D is entitled to receive an amount per share equal to the Stated Value and then receive a pro-rata portion of the remaining
assets available for distribution to the holders of Common Stock on an as-converted to Common Stock basis. Until July 20, 2021,
the holders of Series D have the right to participate, pro rata, in each subsequent financing in an amount up to 25% of the total
proceeds of such financing on the same terms, conditions and price otherwise available in such subsequent financing.
Subject
to a beneficial ownership limitation and customary adjustments for stock dividends and stock splits, each share of Series D is
convertible into 1,000 shares of Common Stock. A holder of Series D may not convert any shares of Series D into Common Stock if
the holder (together with the holder’s affiliates and any persons acting as a group together with the holder or any of the
holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately
after giving effect to the conversion, as such percentage ownership is determined in accordance with the terms of the Series D
COD. However, upon notice from the holder to the Company, the holder may decrease or increase the beneficial ownership limitation,
which may not exceed 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise,
as such percentage ownership is determined in accordance with the terms of the Series D COD, provided that any such increase or
decrease in the beneficial ownership limitation will not take effect until 61 days following notice to the Company.
Approval
of at least a majority of the outstanding Series D is required to: (a) amend or repeal any provision of, or add any provision
to, the Company’s Articles of Incorporation or bylaws, or file any Certificate of Designation (however such document is
named) or articles of amendment to create any class or any series of preferred stock, if such action would adversely alter or
change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series D,
regardless of whether any such action shall be by means of amendment to the Articles of Incorporation or bylaws or by merger,
consolidation or otherwise or filing any Certificate of Designation, it being understood that the creation of a new security having
rights, preferences or privileges senior to or on parity with the Series D in a future financing will not constitute an amendment,
addition, alteration, filing, waiver or repeal for these purposes; (b) increase or decrease (other than by conversion) the authorized
number of Series D; (c) issue any Series D, other than to the Investors; or (d) without limiting any provision hereunder, whether
or not prohibited by the terms of the Series D, circumvent a right of the Series D.
The
description of the Series D and the Series D COD are qualified in their entirety by reference to the full text of such waiver, a
copy of which is attached hereto as Exhibit 3.1.