PROPOSAL TWO: D&O ISSUANCE PROPOSAL
APPROVAL OF THE ISSUANCE OF CERTAIN SHARES OF SERIES A PREFERRED STOCK TO
CERTAIN DIRECTORS, OFFICERS AND EMPLOYEES AND ANY SHARES OF COMMON STOCK
ISSUABLE UPON THE CONVERSION THEREOF
Background
As mentioned above, on January 3, 2025, we entered into Purchase Agreements with new and existing investors. These investors included certain of our directors, officers and employees and entities affiliated with these directors, officers and employees. The directors, officers and employees agreed to purchase 19,432 shares of Series A Preferred Stock at a price of $200 per share of Series A Preferred Stock.
Why We Need Stockholder Approval
Our Common Stock is listed on The Nasdaq Global Select Market, and, as such, we are subject to the applicable rules of the Nasdaq Stock Market, including Nasdaq Listing Rule 5635(c), which requires stockholder approval in connection with certain non-public offerings involving the sale, issuance or potential issuance by a listed company of equity compensation. For this purpose, “equity compensation” includes Common Stock (and/or securities convertible into or exercisable for Common Stock) issued to our officers, directors, employees or consultants at a discount to the market value of the Common Stock, and “market value” is the closing bid price immediately preceding the time that the listed company enters into a binding agreement with such officer, director, employee or consultant to issue the equity compensation. The issuance of our Common Stock underlying the Series A Preferred Stock may result in shares of our Common Stock being issuable to Leslie Trigg, Patrick T. Hackett, Brent D. Lang, D. Keith Grossman, Karen Drexler, Isaac Stockwell, Jennifer Sipple, Dinamarie Stefani, Laura Romike, Brett Fogg, Brandon Felts, Evin Macaluso, and John Geraci, each of which are our executive officers, non-executive employees and/or members of our Board of Directors, or certain of their affiliates, upon conversion of their Series A Preferred Stock, at a price which may be deemed to be below the fair market value of our Common Stock at the time we sold our Series A Preferred Stock to these holders (as described above). Thus, the issuance of such shares of Common Stock may be considered “equity compensation” under Nasdaq Listing Rule 5635(c). By approving this Proposal Two, you are approving the proposal for purposes of the requirements under Nasdaq Listing Rule 5635(c), which may result in Leslie Trigg, Patrick T. Hackett, Brent D. Lang, D. Keith Grossman, Karen Drexler, Isaac Stockwell, Jennifer Sipple, Dinamarie Stefani, Laura Romike, Brett Fogg, Brandon Felts, Evin Macaluso, and John Geraci, or one of their affiliates, acquiring shares of our Common Stock at a price of less than fair market value. In order for their shares of Common Stock to be fully issued as contemplated by the applicable Purchase Agreement, stockholder approval is required because, for purposes of the Nasdaq Listing Rule 5635(c), the issuance of the Series A Preferred Stock could result in shares of our Common Stock being issuable to Leslie Trigg, Patrick T. Hackett, Brent D. Lang, D. Keith Grossman, Karen Drexler, Isaac Stockwell, Jennifer Sipple, Dinamarie Stefani, Laura Romike, Brett Fogg, Brandon Felts, Evin Macaluso, and John Geraci, or certain of their affiliates upon conversion of their Series A Preferred Stock.
The closing price of our Common Stock immediately preceding the signing of the Purchase Agreements was $1.40 per share.
Potential Effects of Approval of this Proposal
If the D&O Issuance Proposal is approved, the issuance of shares of our Common Stock upon conversion of the Series A Preferred Stock issued to certain of our directors, officers and employees and entities affiliated with these directors, officers and employees would dilute, and thereby reduce, each existing stockholder’s proportionate ownership in our Common Stock. Approval of the D&O Issuance Proposal would increase the number of shares of our Common Stock issuable upon conversion of the Series A Preferred Stock by an incremental 4,858,000 shares of Common Stock; provided that if the issuance of Common Stock upon conversion of Series A Preferred Stock would result in a holder exceeding the Maximum Percentage, such excess shares of Series A Preferred Stock shall remain outstanding. The consequences of the issuance of additional shares of our Common Stock upon conversion of the Series A Preferred Stock are consistent with those described above under the Issuance Proposal.
