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Item 1.01.
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Entry into a Material Definitive
Agreement.
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On August 11, 2017, we entered into a Securities
Purchase Agreement with various investors pursuant to which we agreed to sell Class A and Class B equity units for gross proceeds
of approximately $11.8 million. Class A units consist of one (1) share of common stock and a warrant to purchase one and one-half
(1.5) shares of common stock and were sold at a negotiated price of $0.15 per unit. Class B units consist of one (1) share of our
newly created Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase one and
one-half (1.5) shares of common stock for each share of common stock into which the Series A Preferred Stock is convertible and
were sold at a negotiated price of $1,000 per unit to those purchasers who, together with their affiliates and certain related
parties, would beneficially own more than 9.99% of our outstanding common stock following the offering. The offering closed on
August 15, 2017.
Joseph Gunnar & Co., LLC acted as Lead
Placement Agent and Fordham Financial Management, Inc., acted as Co-Placement Agent for the offering.
In the offering, we issued an aggregate
of 63,933,298 shares of our common stock, 2,250 shares of Series A Preferred Stock and warrants to purchase up to an aggregate
of 118,399,947 shares of our common stock. The terms of our Series A Preferred Stock are summarized in Item 5.03 below.
The exercise price of the warrants is $0.18
per share, subject to adjustment for stock splits, stock dividends and similar corporate events and as described below. The warrants
terminate in five years. The warrants are exercisable on the earlier of (i) the date that we effect a one-for-twenty reverse split
and (ii) the forty-fifth calendar date following August 15, 2017. In the event that we do not effect such reverse stock split on
or prior to August 26, 2017, the exercise price of the warrants will be reduced automatically to $0.15. The warrants may be exercised
on a cashless basis if after the six month anniversary of August 15, 2017 there is not an effective registration statement covering
the resale of the underlying shares of common stock.
Until such time as our common stock is listed
on any NASDAQ or NYSE exchange, if we issue securities convertible into shares of our common stock (“Convertible Securities”),
or any rights, warrants or options to purchase shares of our common stock or Convertible Securities, for a consideration per share
(the “New Issuance Price”) less than a price equal to the warrants’ exercise price in effect immediately prior
to such issuance, then the exercise price of the warrants then in effect will be reduced to an amount equal to the New Issuance
Price. Such adjustment of the exercise price does not apply to issuances under our equity incentive plans or for convertible securities
outstanding on August 11, 2017.
An investor will be prohibited from exercising
a warrant if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% or 9.99%, as elected
by the investor at the closing of the offering, of the total number of shares of our common stock then issued and outstanding.
In connection with the offering, on August
11, 2017, we also entered into a Registration Rights Agreement with the investors. Pursuant to the Registration Rights Agreement,
we must file with the Securities and Exchange Commission (the “SEC”) no later than September 5, 2017, a registration
statement on Form S-1 covering the shares of common stock issued in the offering and all of the shares of common stock underlying
the Series A Preferred Stock and warrants. If the registration statement is not declared effective by October 5, 2017, we will
be required pay a penalty to each holder in an amount equal to 2% of its purchase price per month until all shares are covered
by an effective registration statement. In addition, we may not file another registration statement for unrelated securities until
all of the shares of common stock issued in the offering and all of the shares of common stock underlying the Series A Preferred
Stock and warrants are covered by an effective registration statement.
We intend to use the net proceeds of the
offering for sales and marketing expenses to further advance the commercialization of Natesto®, and for working capital and
general corporate purposes.
For the 24 months following the Effective
Date, as defined in the Securities Purchase Agreement, upon any issuance by us of any common stock or common stock equivalents
for cash consideration or indebtedness or a combination thereof (a “Subsequent Financing”), each investor in the offering
will have the right to participate in up to an amount of the Subsequent Financing equal to 35% of the Subsequent Financing on the
same terms, conditions and price provided for in the Subsequent Financing. The “Effective Date” is the earliest
of the date that (a) the initial registration statement registering all of the shares of common stock and the shares of common
stock into which the Series A Preferred Stock is convertible and the warrants (collectively, the “Securities”) are
exercisable has been declared effective by the SEC, (b) all of the Securities have been sold pursuant to Rule 144 or may be sold
pursuant to Rule 144 without the requirement for our company to be in compliance with the current public information required under
Rule 144 and without volume or manner-of-sale restrictions or (c) following the one year anniversary of August 15, 2017, all of
the Securities may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act of 1933, as amended
(the “Securities Act”), without volume or manner-of-sale restrictions.
Until the later of (i) 270 days after the
Effective Date and (ii) 365 days from August 15, 2017, without the consent of investors that purchased at least 51% of the shares
of common stock in the offering, we may not issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any shares of common stock or common stock equivalents, or file any registration statement covering the issuance or resale of
any shares of common stock or common stock equivalents. If the value weighted average price of our common stock exceeds $1.00 (as
adjusted for stock splits, stock dividends and similar corporate events) for five or more consecutive trading days, this right
will terminate.
Until such time as no investor in the offering
holds any of the warrants, we are prohibited from effecting or entering into an agreement to effect any issuance by us of our common
stock or common stock equivalents involving a Variable Rate Transaction, as defined in the Securities Purchase Agreement. “Variable
Rate Transaction” means a transaction in which we (i) issue any debt or equity securities that are convertible into common
stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with,
the trading prices of or quotations for the shares of our common stock at any time after the initial issuance of such debt or equity
securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related
to our business or the market for our common stock or (ii) enter into any transaction under, any agreement, including, but not
limited to, an equity line of credit, an “at-the-market” offering or similar agreement, whereby we may issue securities
at a future determined price.
The form of warrant, the Securities Purchase
Agreement and the Registration Rights Agreement are filed herewith as Exhibits 4.1, 10.1 and 10.2, respectively, and are incorporated
herein by reference. The foregoing descriptions of the warrant, the Securities Purchase Agreement and the Registration Rights Agreement
are not complete and are qualified in their entirety by reference to the respective exhibits.
The common stock, Series A Preferred Stock
and the warrants were sold in a transaction exempt from registration under the Securities Act in reliance on Section 4(a)(2)
and Regulation D promulgated under the Securities Act. Neither the common stock, Series A Preferred Stock nor the warrants may
be offered or sold in the United States absent registration or exemption from registration under the Securities Act and any applicable
state securities laws.
The information contained in this Current
Report on Form 8-K is not an offer to sell or the solicitation of an offer to buy the common stock, the Series A Preferred Stock
or the warrants or any other securities of our company.
Copies of the press releases regarding the
above matters are attached hereto as Exhibits 99.1 and 99.2.