Rights Agreement) are not then registered on an effective registration statement, the date that all of the shares underlying the Preferred Stock and Warrants may be sold pursuant to Rule 144, be
reduced, and only reduced, to equal the lesser of (x) the then effective Conversion Price or Exercise Price, as applicable, and (y) 90% of the average of the five daily volume weighted average prices of the Common Stock immediately prior to
such dates. In the event of a reduction in the Exercise Price, the aggregate number of Warrant Shares shall be increased such that the aggregate Exercise Price of the Warrants on the day immediately following such reduction in the Exercise Price is
equal to the aggregate Exercise Price immediately prior to such adjustment. In addition, from the date of issuance of the Preferred Stock and Warrants until such time that the Companys Common Stock is listed or quoted on a national exchange,
the Conversion Price and the Exercise Price are subject to price-based anti-dilution protections.
The Company expects to receive gross proceeds from the
Private Placement of approximately $20 million, before deducting cash fees in the amount of $1.4 million payable to Roth Capital Partners, LLC (Roth) for serving as placement agent for the Private Placement and cash fees in the
amount of $552,000 payable to Roth for serving as placement agent for certain prior securities offerings by the Company, and other transaction costs, fees and expenses payable by the Company. The Company intends to use the net proceeds of the
Private Placement to (i) pay $440,000 in settlement of litigation between the Company and certain former investors pursuant to a previously reported settlement agreement, (ii) pay $1.921 million in accrued salaries and unreimbursed
employee expenses and (iii) to support the Companys general working capital requirements. Pursuant to the Securities Purchase Agreement, the Company has the right to issue up to an additional $10 million in shares of Series E
Preferred Stock and Warrants in the Private Placement, on or before the 30
th
calendar day following the Private Placements initial closing date.
The sale and issuance of the Series E Preferred Stock and Warrants to the Investors have been determined to be exempt from registration under the United
States Securities Act of 1933, as amended (the Act), in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.
As required by the Securities Purchase Agreement, each director and officer of the Company entered into a
lock-up
agreement with the Company whereby each director and officer agreed that during the period commencing from July 11, 2019 until 120 days after the Effective Date (as defined in the Securities Purchase Agreement), such director or officer will
not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of or enter into any transaction to dispose of, or establish or increase a put position or liquidate or decrease a call position, with respect to any share of Common Stock
or securities convertible, exchangeable or exercisable into, shares of Common Stock. In addition, as required by the Securities Purchase Agreement, each Investor and each officer, director and stockholder holding more than 10% of the issued and
outstanding shares of Common Stock will agree to vote all shares of Common Stock over which it has voting control in favor of any resolution presented to the shareholders of the Company to approve the reverse stock split of the Common Stock as
contemplated by the Securities Purchase Agreement.
Closing of the transactions contemplated by the Securities Purchase Agreement is expected to occur on
or before July 15, 2019, subject to the satisfaction or waiver of various closing conditions. The Securities Purchase Agreement contains customary representations, warranties and covenants for transactions of this type.