11. Subsequent Events

Agreement and Plan of Merger

On January 28, 2021, the Company acquired Quellis. Under the terms of the Merger Agreement, the Company issued to the stockholders of Quellis 3,332,669 shares of the Company’s common stock, par value $0.001 per share, and 50,504 shares of newly designated Series X Preferred Stock (as described below) which had a conversion value on the closing date of $122.7 million. In addition, the Company assumed options granted under the Quellis stock option plan, a warrant to purchase 2,805 shares of Series X Preferred Stock at an exercise price of $341.70 per share, and a warrant to purchase 185,136 shares of the Company’s common stock at an exercise price of $0.35 per share, which warrants are exercisable until December 14, 2030.

Stock Purchase Agreement

On January 28, 2021, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Investors”). Pursuant to the Purchase Agreement, the Company agreed to sell an aggregate of 35,573 shares of Series X Preferred Stock for gross proceeds of approximately $110.0 million (the “February 2021 Financing”).

Series X Preferred Stock

As a result of the above transactions, in 2021 the Company issued the following Series X Preferred Stock or warrants to purchase Series X Preferred Stock:


	Series X	Common Stock
	Preferred	Issuable Upon
	Shares	Conversion (1)
Outstanding shares issued in merger	50,504	50,504,000
Outstanding shares issued in February 2021 Financing	35,573	35,573,000
Warrants assumed in merger	2,805	2,805,000
Total	88,882	88,882,000

(1)

Requires stockholder approval for conversion.

Subject to stockholder approval, each share of Series X Preferred Stock is convertible into 1,000 shares of common stock.

The Company is required to hold a stockholders’ meeting to submit the following matters to its stockholders for their consideration: (i) the approval of the conversion of the Series X Preferred Stock into shares of the Company’s common stock in accordance with Nasdaq Listing Rule 5635(a) (the “Conversion Proposal”) and (ii) if necessary or appropriate, the approval of an amendment to the certificate of incorporation of the Company to authorize sufficient shares of common stock for the conversion of the Series X Preferred Stock issued pursuant to the Merger Agreement and the Purchase Agreement (as described above) and/or to effectuate a reverse stock split the “Charter Amendment Proposal.”

If the Company’s stockholders do not approve the conversion of the Series X Preferred Stock by July 28, 2021, then the holders of the Series X Preferred Stock are entitled to require the Company to make redemption payments at a price per share equal to the fair value of undelivered shares of common stock, defined as the last reported closing price of the Company’s common stock on the trading day on which notice of conversion is delivered to the Company. Using the closing price on March 4, 2021 of $2.87, if all currently outstanding Series X Preferred Stock was redeemed for cash, the Company would be required to make a payment of $247.0 million. The Company has insufficient liquidity to make such a payment, if required.

Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the Company’s common stock. Except as otherwise required by law, the Series X Preferred Stock does not have voting rights. However, as long as any shares of Series X Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series X Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series X Preferred Stock or alter or amend the Certificate of Designation that authorized the Series X Preferred Stock, amend or repeal any provision of, or add any provision to, the Company’s Certificate of Incorporation or bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series X Preferred Stock, (ii) issue further shares of Series X Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series X Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing. Additionally, the approval of the holders of a majority of the Series X Preferred Stock is required for certain change of control transactions, provided that this approval right will terminate upon stockholder approval of the Conversion Proposal.

Following stockholder approval of the Conversion Proposal, on the fourth business day after the date on which such stockholder approval is received, each share of Series X Preferred Stock then outstanding automatically converts into 1,000 shares of the Company’s common stock, subject to certain beneficial ownership limitations, including that a holder of Series X Preferred Stock is prohibited from converting shares of Series X Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (to be initially set at 9.99% and thereafter adjustable by the holder to a number between 4.99% and 19.99%) of the total number of shares of the Company’s common stock issued and outstanding immediately after giving effect to such conversion. Shares of Series X Preferred Stock not converted automatically are thereafter subject to conversion at the option of the holder.

Registration Rights Agreement

On January 28, 2021, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Investors. Pursuant to the Registration Rights Agreement, the Company agreed to prepare and file a resale registration statement with the SEC within 90 calendar days following the closing of the February 2021 Financing (the “Filing Deadline”). The Company agreed to use its reasonable best efforts to cause this registration statement to be declared effective by the SEC within 30 calendar days of the Filing Deadline (or within 60 calendar days if the SEC reviews the registration statement).

The Company also agreed, among other things, to indemnify the Investors, their officers, directors, members, employees and agents, successors and assigns under the registration statement from certain liabilities and pay all fees and expenses (excluding any legal fees of the selling holder(s), and any underwriting discounts and selling commissions) incident to the Company’s obligations under the Registration Rights Agreement.