DIFFUSION PHARMACEUTICALS INC. : entering into a material definitive agreement, unrecorded sale of equity securities, material change in the rights of security holders, changes in the articles of association or regulations; Year change, other events, financial statements and exhibits (Form 8-K)

Section 1.01 Entering into a Material Definitive Agreement.

Private placement

At March 18, 2022, Pharmaceutical Diffusion Inc.a Delaware company (the “Company”, “we” or “our”), has entered into subscription agreements (each a “Subscription Agreement”) with Robert J. CobuzziJr., Ph.D., its President and Chief Executive Officer, and William R. Elderits general counsel and corporate secretary, both accredited investors, pursuant to which the Company has agreed to issue and sell by way of a private placement (the “Offer”), 10,000 newly created by the Company, nominal value
$0.001 per share (the “Series C Preferred Shares”), at an offering price of $0.50
per share, representing 100% of the stated value per share of the Series C Preferred Shares, for aggregate gross proceeds of approximately $5,000, which will be used for general corporate purposes. The Series C Preferred Shares are convertible into 10,000 common shares (subject, in certain circumstances, to customary adjustments) at a conversion price of $0.50 per share, representing an approximate 93% premium to the closing price of our common stock as reported by Nasdaq on March 17, 2022. The Subscription Agreement also contains customary representations, warranties and conditions. The Offering is expected to close on March 18, 2022.

New special meeting

Also on March 18, 2022the Company’s board of directors (the “Board”) has canceled its previously announced special meeting of shareholders 9:00 a.m. (Eastern Time) to April 14, 2022 (the “Former Special Meeting”) as further described in its definitive proxy statement on Schedule 14A filed with the US Securities and Exchange Commission (the “SEC”) on February 28, 2022.

The Company intends to convene a new special meeting of shareholders (the “New Special Meeting”) at which we will seek shareholder approval of an amendment (the “Amendment”) to the certificate of incorporation of the Company, as amended (the “Charter”), to effect the reclassification and combination of all outstanding common shares at a ratio of not less than one to two and not more than one to 50 (the “Consolidation of shares”), with the final decision whether to proceed with the Reverse Stock Split, the effective time of the Reverse Stock Split and the exact ratio of the Reverse Stock Split to be determined by the Board, in its discretion, at any moment before December 31, 2022. As described in more detail below, holders of Series C Preferred Shares are required to vote for their Series C Preferred Shares in a manner that “reflects” the proportions of “for” and “against” votes cast by holders of Series C Preferred Shares. The common shares of the Company are subject to a vote on the Amendment (excluding, for avoidance of doubt, common shares which are not subject to a vote). In accordance with the Charter, the affirmative vote of a majority of the votes entitled to be cast by the holders of our share capital entitled to vote is required to approve the Amendment. Since the Series C Preferred Shares will only reflect the votes cast, abstentions or non-broker votes by Common Shareholders – which would normally have the effect of a “no” vote – will have no effect on the result of the vote.

The Company will announce when a new record date and a new meeting date have been set by the Council for the new special meeting by filing a proxy circular (the “New Proxy Circular”) with the US Securities and Exchange Commission (the second”). The new proxy statement will also contain additional details regarding the impact of the “mirror” voting feature of the Series C Preferred Shares with respect to proposals put to a shareholder vote at the new special assembly.

Series C Preferred Share Terms

Also on March 18, 2022in connection with the Offer, the Company has filed a certificate of appointment (the “Certificate of Appointment”) with the secretary of the State of Delaware designating the rights, preferences and limitations of the Series C Preferred Shares. The designation certificates provide, among other things, that the Series C Preferred Shares shall have no voting rights, other than the right to vote as a class on certain matters specified, except that (i) each Series C Preferred Share will be counted on an as converted basis, with the common shares of the Company as a single class, for the purpose of determining the presence of a quorum at any meeting during which holders are invited to vote on matters relating to the Reverse Stock Split or the Amendment, and (ii) each Series C Preferred Share will be entitled to cast 80,000 votes per Series C Preferred Share upon reverse stock split on a “mirror” basis. This means that holders of Series C Preferred Shares are required to vote for their shares in a manner that “reflects” the . . .

Section 3.02. Unrecorded sales of Equity securities

The information required by Section 3.02 of Form 8-K included in Section 1.01 of this Current Report is incorporated herein by reference.

Section 3.03. Material Changes to Rights of Securityholders.

The information required by Section 3.03 of Form 8-K included in Section 1.01 of this Current Report is incorporated herein by reference.

Section 5.03. Amendments to Articles of Incorporation or Bylaws; Change of fiscal year.

Effective March 18, 2022the board of directors (the “Board”) of Pharmaceutical Diffusion Inc. (the “Company”, “we” or “our”) has approved an amendment to section 2.6 of the Company’s articles of association (as amended from time to time, the “Articles”) providing that the attendance, in person or by duly authorized proxy, holders of 33.4% of the outstanding voting shares shall constitute a quorum for the transaction of business at any meeting of our shareholders (the “Amendment of Articles”). The articles previously required the presence, in person or by duly authorized proxy, of the holders of the majority of the outstanding shares entitled to vote.

The board based its decision, among other things, on the growing prevalence of brokerage firms choosing to forego discretionary or proportional voting of the shares they hold in the street name, making it increasingly difficult for companies having a large retail shareholder base to achieve a majority quorum. We believe that changing the quorum requirement for shareholder meetings will improve the company’s ability to hold shareholder meetings when called and transact necessary business without unnecessary cost and delay, while maintaining a high enough standard to ensure that a wide range of our shareholders are represented at the meeting.

The above summary of the Settlement Agreement does not purport to be complete and is submitted and qualified in its entirety by the copy of the Settlement Amendment attached as Exhibit 3.2 to this Current Report on Form 8-K, which is incorporated herein. by reference.

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Section 8.01 Other Events.

At March 18, 2022, the Company announced that it has canceled the former special meeting and intends to call the new special meeting, during which it will seek approval of the reverse stock split. The Company will announce when a new record date and a new meeting date have been set by the Council for the new special meeting by filing a power of attorney with the SECOND.

Item 9.01 – Financial statements and supporting documents

(d) Exhibits

Exhibit                                Description
Number
3.1       Certificate of Designation of Preferences, Rights, and Limitations of
        Series C Convertible Preferred Stock
3.2       Amendment to the Bylaws, as amended, of Diffusion Pharmaceuticals Inc.,
        effective March 18, 2022
10.1      Form of Subscription Agreement between Diffusion Pharmaceuticals Inc.
        and the investors named therein, dated March 18, 2022
104     Cover Page Interactive Data File (embedded within the Inline XBRL
        document)



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