DEF 14A: FOXO Technologies Seeks Stockholder Approval for Reverse Stock Split and Share Issuance

FOXO Technologies is seeking stockholder approval for a reverse stock split and the issuance of shares related to several agreements, including debt and equity transactions.

Summary

• FOXO Technologies is holding a special meeting on November 29, 2024, to vote on several key proposals.
• The company is proposing a reverse stock split of its Class A common stock at a ratio between 1-for-5 and 1-for-100, with the exact ratio to be determined by the Board before September 30, 2025.
• Stockholders will also vote on approving the issuance of shares related to the Smithline Exchange Agreement, the ClearThink Strata Purchase Agreement, and a Senior Note exchange.
• The company is seeking approval to issue shares exceeding 20% of outstanding stock in connection with these agreements, as required by NYSE American rules.
• Additionally, stockholders will vote on a proposal to adjourn the meeting if necessary to solicit additional proxies.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including the need for a reverse stock split to avoid delisting and reliance on potentially dilutive financing agreements. The company's history of related party transactions and legal disputes also contributes to a negative sentiment.

Positives

• The reverse stock split is intended to increase the per share market price of the stock and maintain the company's listing on the NYSE American.
• The proposed share issuances are intended to raise capital and settle outstanding liabilities.
• The company has secured agreements for potential funding through the ClearThink Strata Purchase Agreement and the Senior Note exchange.
• The Smithline Exchange Agreement resolves a legal dispute and eliminates associated liabilities.
• The company has the right to control the timing and amount of any additional sales of its shares to ClearThink and the Purchase Agreement may be terminated by the company at any time at its discretion without any cost to the company.

Negatives

• The reverse stock split could reduce the number of shares held by each stockholder and increase transaction costs for those selling odd lots.
• The issuance of new shares will dilute the ownership of existing stockholders.
• The company may be in default of the Senior Notes if the requisite stockholder approval is not obtained.
• The company has a history of related party transactions, including agreements with KR8 AI, which is owned by the company's Interim CEO and CFO.
• The company has a history of issuing promissory notes to related parties.
• The company has a history of legal disputes, including a lawsuit with Smithline.

Risks

• The reverse stock split may not increase the stock price or maintain the company's listing on the NYSE American.
• The company's stock price could be volatile due to the potential for significant sales of shares by ClearThink.
• The company may not be able to raise sufficient capital to continue operations if the proposals are not approved.
• The company's financial condition is precarious, and it may be unable to continue as a going concern if it does not raise additional capital.
• The company is subject to various events of default under the Purchase Agreement, which could limit its ability to access funding.
• The company is subject to various events of default under the Senior Notes, which could limit its ability to access funding.

Future Outlook

The company intends to use the proceeds from the proposed transactions to support operations, working capital, and other general corporate purposes. The company may need to raise additional capital in the future.

Management Comments

• The Board strongly believes that the Reverse Split is necessary to maintain our listing on NYSE American.
• Our Board believes that a Reverse Split is a potentially effective means for us to increase the per share market price of our Class A Common Stock.
• The Board believes that the increased market price of our Class A Common Stock expected as a result of implementing the Reverse Split could improve the marketability and liquidity of our Class A Common Stock.
• The Board does not intend for this transaction to be the first step in a series of plans or proposals to effect a going private transaction within the meaning of Rule 13e-3 of the Exchange Act.
• The Board does not intend to issue any Class A Common Stock or securities convertible into Class A Common Stock except on terms that the Board deems to be in the best interests of us and our stockholders.

Industry Context

The proposed reverse stock split and share issuances are common strategies for companies facing delisting or needing to raise capital. The company's actions reflect the challenges faced by many small-cap companies in maintaining exchange listings and securing funding.

Comparison to Industry Standards

• Reverse stock splits are a common tactic for companies trading below minimum listing requirements, such as the $1.00 minimum bid price for NYSE American. Companies like Cassava Sciences (SAVA) and Ocugen (OCGN) have recently undergone reverse stock splits to maintain their listings.
• The issuance of shares to raise capital is a standard practice, but the terms of the ClearThink agreement, with its variable pricing and potential for significant dilution, are less common and may be viewed as a last resort financing option. Similar agreements have been used by companies like FuelCell Energy (FCEL) and Sorrento Therapeutics (SRNE) when facing financial difficulties.
• The use of senior notes with conversion features is a common method for raising capital, but the specific terms, including the exchange rights for preferred stock, are tailored to the company's specific situation. Companies like AMC Entertainment (AMC) have used similar instruments to raise capital during periods of financial stress.
• The related party transactions, particularly with KR8 AI, are not uncommon in smaller companies but raise concerns about potential conflicts of interest. Companies like Tesla (TSLA) have faced scrutiny for related party transactions, highlighting the importance of transparency and independent oversight.

Legal Proceedings

• Smithline filed a complaint against the Company and Jon Sabes, the Companys former Chief Executive Officer, alleging breach of contract, unjust enrichment and fraud.
• The company and Smithline entered into a Settlement Agreement to resolve the dispute.

Related Party Transactions

• The company entered into a letter agreement and a license agreement with KR8 AI, an entity controlled by the company's Interim CEO and CFO.
• The company obtained loans from Andrew J. Poole, a director of the company.
• The company entered into a consulting agreement with Bespoke Growth Partners, Inc., a company controlled by Mark Peikin.
• The company entered into a Stock Exchange Agreement with Myrtle Recovery Centers, Inc. and Rennova Health, Inc., where Mr. Lagan is an executive officer and director and Mr. Langley is a director.
• The company entered into a Stock Exchange Agreement with Rennova Community Health, Inc. and Rennova Health, Inc., where Mr. Lagan is an executive officer and director and Mr. Langley is a director.

Stakeholder Impact

• Shareholders will experience dilution if the share issuance proposals are approved.
• Shareholders may experience a reduction in the number of shares they hold if the reverse stock split is approved.
• Shareholders may experience increased transaction costs if they sell odd lots after the reverse stock split.
• Employees may be impacted by the company's financial instability.
• Creditors may be impacted by the company's financial instability.
• The company's ability to continue as a going concern is dependent on the approval of these proposals.

Next Steps

• Stockholders will vote on the proposals at the special meeting on November 29, 2024.
• The Board will determine the exact ratio for the reverse stock split if approved.
• The company will file a Certificate of Amendment to effect the reverse stock split if approved.
• The company will issue shares in connection with the various agreements if approved.

Key Dates

Keywords

reverse stock split, share issuance, NYSE American, stockholder approval, Smithline Exchange Agreement, ClearThink Strata Purchase Agreement, Senior Notes, dilution, capital raise, proxy statement