DEF 14A: Banzai International Seeks Stockholder Approval for Potential $100 Million Equity Line with Yorkville Advisors

Banzai International is asking stockholders to approve the issuance of shares to Yorkville Advisors under a Standby Equity Purchase Agreement (SEPA), which could represent over 20% of the company's outstanding stock, to unlock further funding and potential acquisitions.

Summary

• Banzai International is holding a Special Meeting of Stockholders on March 25, 2024, to vote on two proposals.
• Proposal 1 seeks approval for the issuance of Class A common stock to Yorkville Advisors Global, LP, under a Standby Equity Purchase Agreement (SEPA) dated December 14, 2023, which could exceed 20% of the company's outstanding shares.
• Proposal 2 concerns the approval of one or more adjournments of the Special Meeting, if necessary, to solicit additional proxies if there are insufficient votes to approve Proposal 1.
• The SEPA allows Banzai to sell up to $100 million in shares to Yorkville over 36 months.
• Yorkville has also provided a Pre-Paid Advance of up to $4.5 million via convertible promissory notes, with $3.0 million already received.
• Approval of Proposal 1 is required to receive the remaining $1.5 million of the Pre-Paid Advance.
• As of the Record Date, 1,052,257 shares of Class A Common Stock had been issued upon conversion of the Promissory Notes and the aggregate principal amount remaining outstanding under the Promissory Notes was $2,250,000.
• As of March 8, 2024, there were 15,018,110 shares of Class A Common Stock and 2,311,134 shares of Class B Common Stock outstanding.
• CEO Joe Davy holds approximately 60.6% of the total voting power as of the Record Date.

Sentiment

Score: 5

Explanation: The document is neutral in tone, presenting the facts of the proposed share issuance and the associated risks and benefits. The sentiment is moderately positive as the company is seeking access to capital, but the potential dilution is a concern.

Positives

• Approval of Proposal 1 would unlock the remaining $1.5 million of the Pre-Paid Advance.
• The SEPA provides a potential source of capital for acquisitions, working capital, and general corporate purposes.
• The company would gain flexibility to issue shares without being restricted by Nasdaq Listing Rules 5635(b) and 5635(d) or the Exchange Cap.
• The company would be able to issue shares of our Class A Common Stock to Yorkville upon its election to convert some or all of its Promissory Notes without the limitations of Nasdaq Listing Rules 5635(b) or 5635(d).

Negatives

• Issuance of shares under the SEPA and upon conversion of the Promissory Notes will dilute existing stockholders' ownership.
• Increased share count could negatively impact book value per share and future earnings per share.
• Sale or resale of shares issued under the SEPA could cause the market price of Class A Common Stock to decline.
• If Proposal 1 is not approved, the company may not receive the remaining $1.5 million of the Pre-Paid Advance.
• If Proposal 1 is not approved, the company may be limited in its ability to raise additional capital under the SEPA.

Risks

• The company's reliance on Yorkville for funding could create a dependency.
• The market price of the company's stock could be negatively impacted by the issuance of new shares.
• Failure to obtain stockholder approval could hinder the company's ability to execute its strategic plans.
• The exact magnitude of the dilutive effect cannot be conclusively determined.
• The company may need to seek alternative sources of capital to fund our operations, which may not be available to us on favorable terms, or at all, and failure to obtain stockholder approval of this Proposal 1 may discourage future investors from engaging in future financings with us.

Future Outlook

The company expects that, upon approval of Proposal 1, it will receive the final $1.5 million of the Pre-Paid Advance, be able to continue to raise capital by issuing shares of Class A Common Stock pursuant to the SEPA without the limitations of Nasdaq Listing Rules 5635(b) or 5635(d), and be able to issue shares of Class A Common Stock to Yorkville upon its election to convert some or all of its Promissory Notes without the limitations of Nasdaq Listing Rules 5635(b) or 5635(d).

Management Comments

• Our board of directors has determined that it is in our best interests and the best interests of our stockholders to approve this Proposal 1, because being able to sell shares of Class A Common Stock to Yorkville under the SEPA in excess of the Exchange Cap and the additional $1.5 million of the Pre-Paid Advance will provide us with reliable sources of capital for potential acquisitions, working capital and general corporate purposes.
• It is also in our best interests to be able to fulfill our obligations to Yorkville under the Promissory Notes to issue to Yorkville shares of our Class A Common Stock in the event that Yorkville elects to convert some or all of the Promissory Notes.
• Accordingly, our board of directors believes that providing the Company the flexibility to issue shares of Class A Common Stock in excess of the Exchange Cap is advisable and in the best interests of the Company and our stockholders.

Industry Context

Many small-cap companies use equity lines of credit like the SEPA with Yorkville to access capital when traditional financing is unavailable or too expensive. This type of arrangement can be beneficial for funding growth initiatives but also carries risks of dilution and market price pressure.

Comparison to Industry Standards

• Similar arrangements are common among micro and small-cap companies seeking flexible financing options.
• Companies like Digital Ally and Document Security Systems have utilized similar standby equity purchase agreements to raise capital.
• The terms of the SEPA, including the discount to market price and the beneficial ownership limitations, are generally consistent with industry standards for these types of agreements.
• The potential dilution impact is a key consideration, and investors should compare the potential dilution to the expected benefits of the capital raised.

Stakeholder Impact

• Shareholders will be impacted by potential dilution if the share issuance is approved.
• Employees may benefit from the company's access to additional capital for growth and operations.
• The company's ability to execute its strategic plans could impact customers and suppliers.
• Creditors may be affected by the company's financial stability and access to capital.

Next Steps

• Stockholders to vote on Proposals 1 and 2 at the Special Meeting on March 25, 2024.
• If Proposal 1 is approved, Banzai International will receive the remaining $1.5 million of the Pre-Paid Advance.
• Banzai International will then be able to draw down on the $100 million SEPA with Yorkville Advisors, subject to the terms of the agreement.
• The company will hold its 2024 Annual Meeting of Stockholders on or prior to December 31, 2024.

Key Dates

Keywords

Banzai International, Yorkville Advisors, Standby Equity Purchase Agreement, SEPA, Stockholder Approval, Share Issuance, Dilution, Nasdaq Listing Rules, Pre-Paid Advance, Promissory Notes