RSPI RespireRx Pharmaceuticals Inc (PK)

PROPOSAL 2 - APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK

Our Board of Directors has unanimously adopted a resolution declaring advisable, and recommending to our stockholders for their approval, an amendment to Article Fourth of our second restated certificate of incorporation authorizing an increase in the number of authorized shares of Common Stock from 1,000,000,000 (one billion) to 2,00,000,000 (two billion). The form of Proposed Amendment is attached to this proxy statement as Annex A, and the changes related to the increase in authorized share capital appear in Section 2(i).

Reasons for the Proposed Amendment

The purpose of the increase in authorized share capital is to: (i) ensure compliance with Common Stock reserve requirements of convertible notes issued by the Company in May 2019 and in April, June and July of 2020, pursuant to which principal, interest and/or related warrants with anti-dilution protections remain outstanding, (ii) provide for an adequate number of shares for the issuance of up to $2,000,000 in shares of Common Stock pursuant to the Company’s put right under the Equity Purchase Agreement between the Company and White Lion Capital, LLC (“White Lion”), dated as of July 28, 2020 (the “Equity Purchase Agreement”) and (iii) provide for an adequate number of shares of Common Stock available for future capital raise transactions, including pursuant to Regulation A under the Securities Act of 1933, as amended (the “Securities Act”).

Historically, the Company has issued shares to settle debt, in connection with acquisitions, to pay compensation to its officers, directors, consultants and advisors, and to secure additional capital. The Company may use its additional equity for any or all of these purposes, or other purposes, in the future.

Vote Required and Board Recommendation

Approval of the foregoing proposal requires the affirmative majority vote of all of the outstanding Common Stock. Abstentions will have the same effect as a vote “against.”

Your board of directors recommends a vote “FOR” approval of the amendment of the second restated certificate of incorporation to increase the Company’s authorized share capital.

EFFECTS OF THE PROPOSED AMENDMENT

Pursuant to the Reverse Stock Split, each holder of our Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split (“Old Common Stock”) will become the holder of fewer shares of our Common Stock (“New Common Stock”) after consummation of the Reverse Stock Split. The Reverse Stock Split will not impact authorized shares of Common Stock that are not issued and outstanding.

Although the Reverse Stock Split will not, by itself, impact our assets, operations or prospects, the Reverse Stock Split could result in a decrease in the aggregate market value of our Common Stock. The Board of Directors believes that this risk is outweighed by the benefits of a maintaining the quotation of our Common Stock on the OTCQB marketplace.

If effected, the Reverse Stock Split will result in some stockholders owning “odd-lots” of less than 100 shares of Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares.

Based on 577,842,003 shares of our Common Stock outstanding as of the record date, the following table reflects an estimate of the approximate number of shares of our Common Stock that would be outstanding as a result of the Reverse Stock Split.

*A small portion of the shares of Common Stock outstanding prior to the Reverse Stock Split shown above will be cashed out in the Reverse Stock Split as fractional shares, as discussed elsewhere in this proxy statement. The exact number of shares will be calculated as of the effective date of the Reverse Stock Split. As a result, the final number of shares outstanding after the Reverse Stock Split is expected to be slightly less than the number shown above.

The Reverse Stock Split will affect all stockholders equally and will not affect any stockholder’s proportionate equity interest in the Company, except with respect to those stockholders that will receive cash in lieu of fractional shares. None of the rights currently accruing to holders of our Common Stock will be affected by the Reverse Stock Split. Following the Reverse Stock Split, each share of New Common Stock will entitle the holder thereof to one vote per share and will otherwise be identical to Old Common Stock. The Reverse Stock Split, in itself, also will have no effect on the number of authorized shares of our Common Stock, but Proposal 2, if approved and effected by the Company, will adjust the number of authorized shares of the Company. The shares of New Common Stock will be fully paid and non-assessable.

We are currently authorized to issue 1,000,000,000 shares of our Common Stock. As of the record date, there were 577,842,003 shares of our Common Stock issued and outstanding. Because only outstanding shares of Common Stock will be impacted by the Reverse Stock Split, the number of authorized but unissued shares of our Common Stock will increase as a result of the Reverse Stock Split, and the number of shares of our Common Stock issued and outstanding will be reduced substantially. As a result, the Reverse Stock Split will effectively increase the number of authorized and unissued shares of our Common Stock available for future issuance. With respect to the number of shares reserved for issuance under our 2014 Equity, Equity-Linked and Equity Derivative Incentive Plan (the “2014 Plan”) and our 2015 Stock and Stock Option Plan (the “2015 Plan” and together with the 2014 Plan, the “Plans”), our Board of Directors will proportionately reduce such reserves in accordance with the terms of the Plans. As of September 30, 2020, there were 15,635 shares of Common Stock reserved for issuances in respect of options already granted and an additional 63,245 shares of Common Stock reserved for future awards under the 2014 Plan and 71,623,559 shares of Common Stock reserved for issuances in respect of options already granted and an additional 87,033,715 shares of Common Stock reserved for future awards under the 2015 Plan. Following the Reverse Stock Split, if any, such reserve will be reduced to 1,563 shares of Common Stock reserved for issuances related to options already granted and 6,324 reserved for future issuances under the 2014 Plan, and approximately 7,162,355 shares of Common Stock reserved for issuances related to options already granted and approximately 8,703,371 reserved for future issuances under the 2015 Plan. As of September 30, 2020, there were 251,011,402 shares of Common Stock contractually reserved for the conversion of convertible notes and related warrants, which is a multiple of the number of shares into which such convertible notes and associated warrants would convert and exercise, respectively, as of such date. In addition, there are 12,448,671 shares of Common Stock reserved for the exercise of other warrants as of September 30, 2020. Following the Reverse Stock Split, if any, such reserves will be reduced to approximately 151,992,000 and 1,244,867 shares of Common Stock, respectively. The reserves will not be reduced in the same proportion as the Reverse Stock Split because certain of our outstanding instruments that are convertible or exercisable into Common Stock are silent as to adjustment of the conversion or exercise price upon a reverse stock split. See “ --Effects on Outstanding Convertible Notes and Related Warrant.” The reserve requirements vary over time due to fluctuations in the price of our Common Stock and due to the expiration of certain waivers of contractual reserve requirements on November 25, 2020.

If the increase in authorized share capital is effected, the Company will be authorized to issue 2,000,000,000 shares of its Common Stock. Assuming that the Reverse Stock Split is also effected, the Company will have approximately 1,942,216,000 authorized but unissued shares of Common Stock, 1,908,704,000 of which are not reserved and are available for future issuance as described below.

The Board of Directors will have the authority, subject to applicable securities laws, contractual restrictions and restrictions in the Company’s organizational documents, to issue authorized and unissued shares, upon such terms and conditions as the Board of Directors deems appropriate. Such future issuances include the issuance of up to $2,000,000 in shares of Common Stock pursuant to the Company’s put right under the Equity Purchase Agreement and other future capital raise transactions, including pursuant to Regulation A under the Securities Act.

The Company has filed a registration statement on Form S-1 (the “Form S-1”) to register the resale of 115,000,000 of the shares of Common Stock issuable pursuant to the put right described above. The Form S-1 was initially filed on October 14, 2020 and is not yet effective. The Company intends to file an amendment to the Form S-1 as soon as reasonably practical and intends to immediately thereafter request acceleration of the effective date of the Form S-1. The Company intends to use any net proceeds from the exercise of its put right related to the 115,000,000 shares registered on the Form S-1, although the Company may choose to use the net proceeds differently, as follows:

The Company currently intends to use the net proceeds from any additional capital raise transactions as follows and to the extent such amounts are available:

If the Proposed Amendment is approved by our stockholders, the Board of Directors will have the discretion to implement both Proposals, one but not the other Proposal or to not effect the Proposed Amendment at all. The Board of Directors currently intends to effect both of the Proposals.

We have not proposed either of the Proposals in response to any effort of which we are aware to accumulate our shares of Common Stock or to facilitate any party obtaining control of the Company, nor is it a plan by management to recommend a series of similar actions to our Board of Directors or our stockholders. Notwithstanding the decrease in the number of outstanding shares of Common Stock following the Reverse Stock Split, our Board of Directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, we have not proposed the Proposals to increase the authorized share capital with the intention of using the additional shares for anti-takeover purposes, although we could theoretically use the additional shares to make more difficult or to discourage an attempt to acquire control of the Company.

We do not believe that our officers or directors have interests in either Proposal that are different from or greater than those of any other of our stockholders, other than permitting there to be a sufficient number of authorized shares of Common Stock to continue to compensate our officers and directors in part with equity, as we have done in the past. Other than due to the immaterial effects of the Company paying cash in lieu of issuing fractional shares, we believe that the percentage ownership by management will not change materially after effecting the Proposed Amendment.

Effects on Outstanding Stock Options and Warrants to Purchase Common Stock

If the Reverse Stock Split is effected, all outstanding stock options and other than as described below under “Effects on Outstanding Convertible Notes and Related Warrant,” all outstanding warrants entitling their holders to purchase shares of our Common Stock will be proportionately reduced by our Board of Directors and/or by their terms in the same ratio as the reduction in the number of shares of outstanding Common Stock, except that any fractional shares resulting from such reduction will be rounded down to the nearest whole share to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), Section 409A. Correspondingly, the per share exercise price of such stock options will be increased in direct proportion to the Reverse Stock Split ratio, so that the aggregate dollar amount payable for the purchase of the shares subject to the stock options and warrants will remain unchanged. For example, assuming that we effect the Reverse Stock Split and that an optionee holds stock options to purchase 1,000 shares of our Common Stock at an exercise price of $1.00 per share, upon the effectiveness of the Reverse Stock Split, the number of shares of the Common Stock subject to that option would be reduced to 100 and the exercise price would be proportionately increased to $10.00 per share. Holders of outstanding stock options and warrants to purchase shares of Common Stock do not have any rights of Common Stockholders, including voting rights, until such stock options or warrants are exercised and the underlying common shares are issued. Stock options and warrants to purchase shares of Common Stock do not have the right to receive cash under any circumstances.

Effects on Outstanding Convertible Notes and Related Warrant

 If the Reverse Stock Split is effected, five of the Company’s six outstanding convertible notes provide that the number of shares of Common Stock into which the convertible notes are convertible would be proportionately adjusted to account for the Reverse Stock Split. The convertible note held by White Lion with a principal amount of $40,000 is silent as to adjustment of the conversion price in the case of a reverse stock split. The conversion price is fixed at $0.02 per share. Such note does, however, restrict conversion that would result in White Lion beneficially owning more than 9.99% of the Company’s outstanding Common Stock.

The one outstanding warrant issued in connection with one of the Company's convertible notes is silent as to adjustment of the exercise price in the case of a reverse stock split. The exercise price is $0.0016. Such warrant does, however, restrict exercises that would result in the holder beneficially owning more than 4.99% of the Company's outstanding Common Stock.

Accounting Matters

The par value per share of the Common Stock will remain unchanged at $0.001 per share after the Reverse Stock Split. As a result, on the effective date of the Reverse Stock Split, if any, the stated capital on our balance sheet attributable to the Common Stock will be reduced proportionately based on the ten-to-one (10:1) Reverse Stock Split ratio, from its present amount, and the additional paid-in capital account will be increased by the amount by which the stated capital is reduced. After the Reverse Stock Split, net income or loss per share and other per share amounts will be increased because there will be fewer shares of our Common Stock outstanding. In addition, other than as a result of paying cash in lieu of issuing fractional shares, the Reverse Stock Split will not impact the total amount of stockholder’s equity on the Company’s balance sheet. In future financial statements, net income or loss per share and other per share amounts for all periods ending before the Reverse Stock Split will be restated to give retroactive effect to the impact of the Reverse Stock Split.

The number of shares of authorized but unissued Common Stock reported in our consolidated financial statements and the notes related thereto will increase as a result of both (1) the decrease in the number of shares of Common Stock that are issued and outstanding due to the Reverse Stock Split contemplated by Proposal 1 and (2) the increase in the number of authorized shares contemplated by Proposal 2.

As described above under “Effects of the Reverse Stock Split on Outstanding Stock Options and Warrants to Purchase Common Stock,” the per share exercise price of outstanding stock option awards and warrants would increase proportionately, and the number of shares of our Common Stock issuable upon the exercise of outstanding stock options and warrants would decrease proportionately, in each case based on the ten-to-one (10:1) Reverse Stock Split ratio. The Company does not anticipate that the Reverse Stock Split will have a material effect (other than those described above) on the Company’s results of operations, from a cash, revenue, expense or profitability perspective, or that any other accounting consequences would arise as a result of the Reverse Stock Split.

An increase in the number of authorized shares of Common Stock pursuant to Proposal 2 may increase the Company’s Delaware Franchise Tax.

Shares of Common Stock Issued and Outstanding

With the exception of the number of shares issued and outstanding, the rights and preferences of the shares of our Common Stock prior and subsequent to the Reverse Stock Split and the increase in authorized share capital will remain the same. We do not anticipate that our financial condition, the percentage ownership of management, or any aspect of our business or operations would materially change as a result of these actions. Any of our stockholders holding fewer than 10 shares of Common Stock will cease be a stockholder of the Company as a result of the payment of cash in lieu of issuing fractional shares.

Our Common Stock is currently registered under Section 12(g) of the Exchange Act, and as a result, we are subject to the periodic reporting and other requirements of the Exchange Act. If effected, the Proposed Amendment will not affect the registration of our Common Stock under the Exchange Act or our periodic or other reporting requirements thereunder.

Effectiveness of the Proposed Amendment

The Proposed Amendment, if approved by our stockholders, will become effective upon the filing with the Secretary of State of the State of Delaware of a certificate of amendment to our second restated certificate of incorporation, as amended, in substantially the form of the Proposed Amendment attached to this proxy statement as Annex A. The exact timing of the filing of the Proposed Amendment will be determined by the Board of Directors based upon its evaluation of when such action will be most advantageous to the Company and our stockholders. The Board of Directors reserves the right, notwithstanding stockholder approval and without further action by our stockholders, to elect not to proceed with the Proposed Amendment, in whole or in part, if, at any time prior to filing the Proposed Amendment, the Board of Directors, in its sole discretion, determines that it is no longer in the best interests of the Company and our stockholders. The Board of Directors currently intends to effect the Proposed Amendment unless it determines that doing so would not have the desired effect of supporting the continued quotation of our Common Stock on the OTCQB and the other desired effects described in “Reasons for the Proposed Amendment” under each of Proposal 1 and Proposal 2 above.

Assuming both Proposals are approved by the stockholders, the Board of Directors intends to effect the amendment, or abandon it, within sixty days of the date of the Special Meeting.

Effect on Registered and Beneficial Stockholders

Upon the effectiveness of the Reverse Stock Split, the Company intends to treat stockholders holding shares of our Common Stock in “street name” (that is, held through a bank, broker or other nominee) in the same manner as stockholders of record whose shares of Common Stock are registered in their names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding shares of our Common Stock in “street name;” however, these banks, brokers or other nominees may apply their own specific procedures for processing the Reverse Stock Split. If you hold your shares of our Common Stock with a bank, broker or other nominee, and have any questions in this regard, the Company encourages you to contact your nominee directly.

Effect on “Book-Entry” Stockholders of Record

The Company’s stockholders of record may hold some or all of their shares electronically in book-entry form. These stockholders will not have stock certificates evidencing their ownership of our Common Stock; however, they are provided with a statement reflecting the number of shares of Common Stock registered in their accounts.

If you hold registered shares of Old Common Stock in a book-entry form, you do not need to take any action to receive your shares of New Common Stock in registered book-entry form, if applicable. A transaction statement will automatically be sent to your address of record as soon as practicable after the effective time of the Reverse Stock Split indicating the number of shares of New Common Stock you hold, and, if applicable, payment with respect to any fractional shares will be deposited directly into your account with the organization holding your shares.

Effect on Registered Certificated Shares

Some stockholders of record hold their shares of our Common Stock in certificate form or a combination of certificate and book-entry form. If any of your shares of our Common Stock are held in certificate form, you will be sent a transmittal letter by the Company or the Company’s transfer agent as soon as practicable after the effective time of the Reverse Stock Split, if any. The transmittal letter will be accompanied by instructions specifying how to exchange your certificate representing the Old Common Stock for a statement of holding or a certificate of New Common Stock and, if applicable, payment with respect to any fractional shares, which will be made by check.

STOCKHOLDERS SHOULD NOT DESTROY ANY SHARE CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL ADVISED TO DO SO.

Fractional Shares

Fractional shares will not be issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will not be issued but will be paid out in cash (without interest or deduction) in an amount equal to the number of shares exchanged into such fractional share multiplied by the simple average of the closing trading price of our Common Stock on the OTCQB for the five trading days immediately before the certificate of amendment effecting the Reverse Share Split is filed with the Delaware Secretary of State.

If a stockholder who holds shares in certificated form is entitled to a payment in lieu of any fractional share interest, the stockholder will receive a check as soon as practicable after the effective time and after the stockholder has submitted an executed letter of transmittal and surrendered all stock certificates, as described above in “Effect on Registered Certificated Shares.” Stockholders who hold shares of Common Stock with a broker, bank or other nominee should contact their broker, bank or other nominee for information on the treatment and processing of fractional shares. By signing and cashing the check, stockholders will warrant that they owned the shares of Common Stock for which they received a cash payment. The cash payment is subject to applicable federal and state income tax and state abandoned property laws. Stockholders will not be entitled to receive interest for the period of time between the effective time and the date payment is received.

As a result of the Reverse Stock Split, holders of fewer than 10 shares of Common Stock would be eliminated as stockholders of the Company as a result of the payment of cash in lieu of issuing fractional shares.

Appraisal Rights

Under the Delaware General Corporation Law, our stockholders are not entitled to appraisal or dissenter’s rights with respect to the Proposed Amendment, and we will not independently provide our stockholders with any such rights.

Certain Federal Income Tax Consequences

The following is a discussion of certain material U.S. federal income tax consequences of the Reverse Stock Split to U.S. holders (as defined below). This discussion is included for general information purposes only and does not purport to address all aspects of U.S. federal income tax law that may be relevant to U.S. holders in light of their particular circumstances. This discussion is based on the Code and current Treasury regulations, administrative rulings and court decisions, all of which are subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion.

STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT.

This discussion does not address tax consequences to stockholders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, U.S. holders whose functional currency is not the U.S. dollar, partnerships (or other flow-through entities for U.S. federal income purposes and their partners or members), persons who acquired their shares in connection with employment or other performance of services, broker-dealers, foreign entities, nonresident alien individuals and tax-exempt entities. This summary also assumes that the Old Common Stock shares were, and the New Common Stock shares will be, held as a “capital asset,” as defined in Section 1221 of the Code.

As used herein, the term “U.S. holder” means a holder that is, for U.S. federal income tax purposes:

The Company has not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of the Reverse Stock Split. The state and local tax consequences of the Reverse Stock Split may vary as to each stockholder, depending on the jurisdiction in which such stockholder resides. This discussion should not be considered as tax or investment advice, and the tax consequences of the Reverse Stock Split may not be the same for all stockholders. Stockholders should consult their own tax advisors to know their individual federal, state, local and foreign tax consequences.

Other than with respect to any stockholder that receives cash in lieu of any fractional share, a stockholder generally will not recognize a gain or loss by reason of such stockholder’s receipt of shares of New Common Stock pursuant to the Reverse Stock Split solely in exchange for shares of Old Common Stock held by such stockholder immediately prior to the Reverse Stock Split. A stockholder’s aggregate tax basis in the shares of New Common Stock received pursuant to the Reverse Stock Split (including any fractional shares) will equal the stockholder’s aggregate basis in the Old Common Stock exchanged therefore and will be allocated among the shares of New Common Stock received in the Reverse Stock Split on a pro-rata basis. Stockholders who have used the specific identification method to identify their basis in the shares of Old Common Stock held immediately prior to the Reverse Stock Split should consult their own tax advisers to determine their basis in the shares of New Common Stock received in exchange therefor in the Reverse Stock Split. A stockholder’s holding period in the shares of New Common Stock received pursuant to the Reverse Stock Split will include the stockholder’s holding period in the shares of Old Common Stock surrendered in exchange therefore, provided the shares of Old Common Stock surrendered are held as capital assets at the time of the Reverse Stock Split.

In general, a stockholder who receives cash in lieu of a fractional share of New Common Stock pursuant to the Reverse Stock Split should be treated for U.S. federal income tax purposes as having received a fractional share pursuant to the Reverse Stock Split and then as having received cash in exchange for the fractional share and should generally recognize capital gain or loss equal to the difference between the amount of cash received and the stockholder’s tax basis allocable to the fractional share. Any capital gain or loss will generally be long term capital gain or loss if the stockholder’s holding period in the fractional share is greater than one year as of the effective date of the Reverse Stock Split. Stockholders should consult their own tax advisors regarding the tax effects to them of receiving cash in lieu of fractional shares based on their particular circumstances.

No gain or loss will be recognized by us for federal income tax purposes as a result of the Reverse Stock Split.

This section does not address, and the Company makes no representations regarding, any state, local or foreign tax law consequences. As mentioned above, you are urged to consult your tax advisor regarding these potential tax consequences.