PROPOSAL
1
AMENDMENT
TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
to Implement a Reverse Stock
Split of the Company’s Outstanding Common Stock
General
We
are seeking stockholder approval for an amendment to the Company’s Amended and Restated Certificate of Incorporation, as
amended (the “Charter”), authorizing a reverse stock split of the issued and outstanding shares of our common stock,
at a ratio within a range of 1-for-8 to 1-for-15, as determined by our board of directors (the “Reverse Stock Split”).
The form of the proposed amendment to the Charter is attached to this proxy statement as Appendix A (the “Amendment”).
On
November 2, 2017, our board of directors approved the proposed Reverse Stock Split and the Amendment in order to effect the Reverse
Stock Split, subject to stockholder approval, and directed that the Amendment be submitted to a vote of the Company’s stockholders
at the Special Meeting.
If
approved by our stockholders, and if implemented by our board of directors, the Reverse Stock Split will become effective at the
time specified in the Amendment, as filed with the Secretary of State of the State of Delaware. The exact ratio of the Reverse
Stock Split within the 1-for-8 to 1-for-15 range would be determined by our board of director and publicly announced by the Company
prior to filing the Amendment. In determining the appropriate ratio for the Reverse Stock Split, our board of directors will consider,
among other things, factors such as:
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the
minimum price per share requirements of The Nasdaq Capital Market;
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the
historical trading price and trading volume of our common stock;
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the
number of shares of our common stock outstanding;
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the
then-prevailing trading price and trading volume of our common stock and the anticipated impact of the Reverse Stock Split
on the trading market for our common stock;
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business
developments affecting us; and
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prevailing
general market and economic conditions.
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Reasons
for the Reverse Stock Split
On
June 7, 2017, we received a letter from The Nasdaq Stock Market (“Nasdaq”) notifying us that, because the closing
bid price for our common stock had been below $1.00 per share for 30 consecutive business days, we no longer complied with the
minimum bid price requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 550(a)(2) requires listed
securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Listing Rule
5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period
of 30 consecutive business days.
Pursuant
to Nasdaq Marketplace Rule 5810(c)(3)(A), we were provided an initial compliance period of 180 calendar days, or until December
4, 2017, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of our common
stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period.
In
the event we are not in compliance with the Minimum Bid Price Requirement by December 4, 2017, we may be afforded a second 180
calendar day grace period. To qualify, we would be required to meet the continued listing requirements for market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price
Requirement. In addition, we would be required to provide written notice of our intention to cure the minimum bid price deficiency
during the second 180 day compliance period by effecting a reverse stock split, if necessary.
As
of the date of this proxy statement, we have not regained compliance with the Minimum Bid Price Requirement. We intend to seek
an extension to the initial deadline of December 4, 2017 to demonstrate compliance with the Minimum Bid Price. If our request
for an extension is granted by Nasdaq, we would have until June 4, 2018 to comply with the Minimum Bid Price Requirement. If we
are unable to regain compliance with the Minimum Bid Price Requirement by this deadline, we would be required to effect a reverse
stock split of our common stock in order to maintain our listing on The Nasdaq Capital Market.
Our
board of directors believes that the delisting of our common stock from The Nasdaq Capital Market would result in decreased liquidity
and/or increased volatility in our common stock, and a diminution of institutional investor interest in our company. Our board
also believes that a delisting could cause a loss of confidence of potential industry partners, lenders and employees, which could
further harm our business and our future prospectus.
Our
board of directors believes that an increased stock price could encourage investor interest and improve the marketability of our
common stock to a broader range of investors, and thus enhance our liquidity. Because of the trading volatility often associated
with low-priced stocks, many brokerage firms and institutional investors have internal policies and practices that either prohibit
them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their
customers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the
stock price than commissions on higher-priced stock, the current share price of our common stock may result in an investor paying
transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher.
Our board of directors believes that the higher share price resulting from the Reverse Stock Split could enable institutional
investors and brokerage firms with such policies and practices to invest in our common stock.
Although
we expect that the Reverse Stock Split will result in an increase in the market price of our common stock, the Reverse Stock Split
may not result in a permanent increase in the market price of our common stock, which is dependent on many factors, including
the results of our anticipated Phase 3 clinical trials, general economic, market and industry conditions and other factors detailed
from time to time in the reports we file with the SEC.
Risks
Associated with the Reverse Stock Split
Our
total market capitalization immediately after the proposed Reverse Stock Split may be lower than immediately before the proposed
Reverse Stock Split.
There
are numerous factors and contingencies that could affect our stock price following implementation of the Reverse Stock Split,
including the results of our anticipated Phase 3 clinical trials, general economic, market and industry conditions and other factors
detailed from time to time in the reports we file with the SEC. Accordingly, the market price of our common stock may not be sustainable
following the Reverse Stock Split. If the market price of our common stock declines after the Reverse Stock Split, our total market
capitalization (the aggregate value of all of our outstanding common stock at the then existing market price) after the Reverse
Stock Split will be lower than before the split.
The
Reverse Stock Split may result in some stockholders owning “odd lots” that may be difficult to sell or require greater
transaction costs per share to sell.
The
Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of our common stock
on a post-split basis. Odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares
in “round lots” of even multiples of 100 shares.
The
Reverse Stock Split may not generate additional investor interest.
While
our board of directors believes that a higher stock price may help generate investor interest, there can be no assurance that
the Reverse Stock Split will result in a per share price that will attract institutional investors or investment funds or that
such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading
liquidity of our common stock may not necessary improve.
Principal
Effects of the Reverse Stock Split
Effect
on Existing Shares of our Common Stock
The
Reverse Stock Split would affect all of our stockholders uniformly and would not affect any stockholder’s percentage ownership
interest in the Company, except to the extent that the Reverse Stock Split results in any stockholders owning a fractional share,
as described below. The Amendment will not change the par value of our common stock.
Effect
on Existing Shares of Preferred Stock
The
number of shares of our Series A Convertible preferred stock (the “Series A Preferred Stock”) outstanding will not
be affected by the Reverse Stock Split. However, the conversion price of each outstanding share of Series A Preferred Stock (and,
as a consequence, the number of shares of common stock into which each outstanding share of Series A Preferred Stock is convertible)
would be adjusted proportionately as a result of the Reverse Stock Split.
Effect
on Options, Warrants and Shares Reserved for Issuance under Compensation Plans
All
outstanding options and warrants to purchase shares of our common stock would be adjusted proportionately as a result of the Reverse
Stock Split. In addition, the maximum number of shares available for grant under our 2015 Equity Incentive Plan would be adjusted
proportionately as a result of the Reverse Stock Split.
Effect
on Authorized but Unissued Shares of Common Stock
If
the Board of Directors determines to implement the Reverse Stock Split, the number of our authorized shares of common stock will
remain the same at 225,000,000 shares.
Anti-takeover
Considerations
Because
the total number of authorized shares of common stock is not being reduced in an amount proportionate to the Reverse Stock Split,
the ability of the board of directors to issue authorized and unissued shares without further stockholder action will be significantly
increased. However, other than as described in this proxy statement, we currently have no plans, arrangements or understandings
to issue these additional authorized shares. In addition, futures issuances of common stock would be subject to the rules promulgated
by the Nasdaq Stock Market requiring stockholder approval of certain transactions involving the issuance of common stock equal
to 20% or more of the common stock outstanding before the issuance, and regulations of the SEC that can limit the size of financing
transactions by companies with public floats of less than $75 million.
The
issuance in the future of additional authorized shares may have the effect of diluting the earnings per share and book value per
share, as well as the stock ownership and voting rights, of the currently outstanding shares of our common stock.
The
additional shares of common stock that would become available for issuance if the Reverse Stock Split is implemented could also
be used by the Company to oppose a hostile takeover attempt or delay or prevent changes in control or management of the Company.
For example, without further stockholder approval, our board of directors could sell shares of common stock or preferred stock,
including preferred stock convertible into shares of common stock, in a private transaction to purchasers who would oppose a takeover
or favor the current board of directors.
Effective
Date
If
this proposal is approved by our stockholders, our board of directors will be permitted (but not required) to effect the Reverse
Stock Split at any time on or before May 19, 2018 (the last day for us to effect a reverse stock split in order
to regain compliance with the Minimum Bid Price Requirement, assuming Nasdaq grants our request for an extension for compliance).
We expect our board of directors to implement the Reverse Stock Split on or before December 31, 2017.
If
the Reverse Stock Split is approved and implemented by our board of directors, the principal effect will be to proportionately
decrease the number of outstanding shares of our common stock based on the Reverse Stock Split ratio selected by our board of
directors. The table below shows the number of issued and outstanding shares of common stock as of the Record Date that will result
from the various Reverse Stock Split ratios (without giving effect to the treatment of fractional shares) and the assumed post-Reverse
Stock Split trading price based on the closing price of our common stock on The Nasdaq Capital Market on November 2, 2017, which
assumes that immediately after the Reverse Stock Split, the market price of our common stock would adjust proportionately to reflect
the Reverse Stock Split ratio. There can be no assurances that our common stock will trade at a price proportionate to the ratio
at which a Reverse Stock Split is implemented, or that our common stock will remain at any given price following implementation
of the Reverse Stock Split.
Reverse
Stock Split ratio
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Approximate
number of shares
of common stock outstanding
following the Reverse Stock Split
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Assumed
post-Reverse
Stock Split trading price
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1-for-8
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6,188,315
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2.80
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1-for-9
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5,500,724
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3.15
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1-for-10
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4,950,652
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3.50
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1-for-11
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4,500,592
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3.85
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1-for-12
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4,125,543
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4.20
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1-for-13
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3,808,193
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4.55
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1-for-14
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3,536,180
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4.90
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1-for-15
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3,300,434
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5.25
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Reservation
of Right to Abandon the Proposed Amendment to our Amended and Restated Certificate of Incorporation
Our
board of directors reserves the right not to file the Amendment without further action by our stockholders at any time before
the effectiveness of the filing of the Amendment with the Secretary of State of the State of Delaware, even if the authority to
effect the Amendment is approved by our stockholders at the Special Meeting. By voting in favor of the Amendment, you are expressly
also authorizing our board of directors to delay, not proceed with, and abandon, the proposed amendment if it should so decide,
in its sole discretion, that such action is in the best interests of the Company and its stockholders.
Fractional
Shares
Stockholders
who would otherwise hold fractional shares because the number of shares of common stock they hold before the Reverse Stock Split
is not evenly divisible, based on the Reverse Stock Split ratio approved by our board of directly, will be entitled to receive
cash (without interest or deduction) in lieu of such fractional shares from our transfer agent, upon receipt by our transfer agent
of a properly completed and duly executed transmittal letter and, where shares are held in certificated form, the surrender of
all old certificate(s), in an amount per share equal to the product obtained by multiplying (a) the closing price per share of
our common stock on the effective date for the Reverse Stock Split as reported on the Nasdaq Stock Market by (b) the fraction
of the share owned by the stockholder, without interest. The ownership of a fractional share interest will not give the holder
any voting, dividend or other rights, except to receive the above-described cash payment.
Implementation
and Exchange of Stock Certificates
As
of the effective time of the Reverse Stock Split, if implemented by our board of directors, each certificate representing shares
of our common stock before the Reverse Stock Split would be deemed, for all corporate purposes, to evidence ownership of the reduced
number of shares of our common stock resulting from the Reverse Stock Split based on the Reverse Stock Split ratio approved by
our board of directors and included in the Amendment filed with the Secretary of State of the State of Delaware.
Our
transfer agent, Corporate Stock Transfer, Inc., will be available to implement the exchange of stock certificates. As soon as
practicable after the effective time of the Reverse Stock Split, stockholders will be notified of the effectiveness of the Reverse
Stock Split. Stockholders of record as of the effective time of the Reverse Stock Split will receive a letter requesting them
to surrender their old stock certificates for new stock certificates reflecting the adjusted number of shares as a result of the
Reverse Stock Split. No new certificates will be issued to a stockholder until such stockholder has surrendered any outstanding
certificates to the transfer agent. Until surrendered, each certificate representing shares before the Reverse Stock Split will
continue to be valid and will represent the adjusted number of shares based on the Reverse Stock Split ratio approved by our board
of directors and included in the Amendment that is filed with the Secretary of State of the State of Delaware.
Certain
of our registered stockholders may hold some or all of their shares of common stock electronically in book-entry form with our
transfer agent. These stockholders do not have stock certificates evidencing their ownership of common stock. They are, however,
provided with a statement reflecting the number of shares registered in their accounts. Stockholders who hold shares electronically
in book-entry form with our transfer agent will not need to take action (the exchange will be automatic) to receive whole shares
of post-Reverse Stock Split common stock, subject to adjustment for treatment of fractional shares.
We
intend to treat shares held by stockholders in a stock brokerage accounts or through a bank or other financial intermediary in
the same manner as shares held by registered stockholders whose shares are registered in their names. Banks, brokers, custodians
and other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our common stock
in street name. However, these banks, brokers, custodians and other nominees may have different procedures than registered stockholders
for processing the Reverse Stock Split. Stockholders who hold their shares of common stock with a bank, broker, custodian or other
nominee and who have any questions are encouraged to contact their banks, brokers, custodians or other nominees.
After
the effective time, our common stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”)
number, which is a number used to identify equity securities.
Stockholders
should not destroy any stock certificate and should not submit any certificates until REQUESTED TO DO SO.
Dissenters’
Rights
Under
the Delaware General Corporation Law, stockholders are not entitled to dissenters’ rights of appraisal with respect to the
proposed amendment to our Charter to effect the Reverse Stock Split, and we will not independently provide our stockholders with
any such right.
No
Going Private Transaction
Notwithstanding
the decrease in the number of outstanding shares following the Reverse Stock Split, the Board does not intend for this transaction
to be the first step in a series of plans or proposals of a “going private transaction” within the meaning of Rule
13e-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Interests
of Certain Persons in the Proposal
Certain
of our executive officers and directors have an interest in this proposal as a result of their ownership of shares of our common
stock. However, we do not believe that our executive officers or directors have interests in this proposal that are different
from or greater than those of any other of our stockholders.
Certain
Federal Income Tax Consequences
The
following discussion summarizes certain material U.S. federal income tax consequences relating to the participation in the Reverse
Stock Split by a U.S. holder (as defined below). This discussion is based on the provisions of the Internal Revenue Code
of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury regulations promulgated thereunder and
current administrative rulings and judicial decisions, all as in effect as of the date hereof. All of these authorities may be
subject to differing interpretations or repealed, revoked or modified, possibly with retroactive effect, which could materially
alter the tax consequences set forth herein.
There
can be no assurance that the IRS will not take a contrary position to the tax consequences described herein or that such position
will not be sustained by a court. No ruling from the IRS has been obtained with respect to the U.S. federal income tax consequences
of the Reverse Stock Split.
This
discussion does not address all aspects of U.S. federal income taxation that may be relevant to such holders in light of their
particular circumstances or to holders that may be subject to special tax rules, including, without limitation: (i) holders subject
to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations;
(iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships
(or other flow-through entities for U.S. federal income tax purposes and their partners or members); (vii) traders in securities
that elect to use a mark-to-market method of accounting for their securities holdings; (viii) U.S. Holders (as defined below)
whose “functional currency” is not the U.S. dollar; (ix) persons holding our common stock as a position in a hedging
transaction, “straddle,” “conversion transaction” or other risk reduction transaction; (x) persons who
acquire shares of our common stock in connection with employment or other performance of services; or (xi) U.S. expatriates. If
a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares
of our common stock, the tax treatment of a holder that is a partner in the partnership generally will depend upon the status
of the partner and the activities of the partnership.
This
discussion is for general information only and is not tax advice. All stockholders should consult their own tax advisors with
respect to the U.S. federal, state, local and non-U.S. tax consequences of the Reverse Stock Split.
For
purposes of the discussion below, a “U.S. Holder” is a beneficial owner of shares of our common stock that for U.S.
federal income tax purposes is: (1) an individual citizen or resident of the United States; (2) a corporation (including any entity
treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States,
any state or political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless
of its source; or (4) a trust, the administration of which is subject to the primary supervision of a U.S. court and as to which
one or more U.S. persons have the authority to control all substantial decisions of the trust, or that has a valid election in
effect to be treated as a U.S. person.
The
Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes,
and subject to the limitations and qualifications set forth in this discussion and the discussion below regarding the treatment
of cash paid in lieu of fractional shares, the following U.S. federal income tax consequences should result from the Reverse
Stock Split:
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A
U.S. holder should not recognize gain or loss on the deemed exchange of shares pursuant to the Reverse Stock Split;
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the
aggregate tax basis of the shares deemed received by a U.S. holder in the Reverse Stock Split should be equal
to the aggregate tax basis of the shares deemed surrendered in exchange therefor (excluding any portion of such basis that
is allocated to any fractional share of our shares); and
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the
holding period of the shares received by a U.S. holder in the Reverse Stock Split should include the holding
period of the shares deemed surrendered therefor.
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Treasury
regulations promulgated under the Code provide detailed rules for allocating the tax basis and holding period of the shares of
our shares surrendered to the shares of our share received pursuant to the Reverse Stock Split. Holders of shares of our shares
acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis
and holding period of such shares.
A
U.S. holder who receives cash in lieu of fractional shares in the Reverse Stock Split should recognize capital gain or
loss equal to the difference between the amount of the cash received in lieu of fractional shares and the portion of the stockholder’s
adjusted tax basis allocable to the fractional shares unless the distribution of cash is treated as having the effect of a distribution
of dividend, in which case the gain will be treated as dividend income to the extent of our current accumulated earnings and profits
as calculated for U.S. federal income tax purposes. Stockholders are urged to consult their own tax advisors to determine whether
a stockholder’s receipt of cash has the effect of a distribution of a dividend.
Information
returns generally will be required to be filed with the IRS with respect to the receipt of cash in lieu of a fractional share
of our common stock pursuant to the Reverse Stock Split in the case of certain U.S. Holders. In addition, U.S. Holders may be
subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide
their taxpayer identification numbers (in the case of individuals, their social security number) in the manner required or otherwise
fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability,
if any, provided the required information is timely furnished to the IRS.
Approval
Required
Pursuant
to the Delaware General Corporation Law, this proposal must be approved by the affirmative vote of a majority of the outstanding
shares of common stock of the Company entitled to vote on the proposal. Abstentions and broker non-votes with respect to this
proposal will be counted for purposes of establishing a quorum and, if a quorum is present, will have the same practical effect
as a vote against this proposal.
The
board of directors recommends that the stockholders vote “FOR” the proposal to amend our Amended and Restated Certificate
of Incorporation, as Amended, to implement a reverse stock split of the Company’s outstanding common stock at a ratio
within the range of 1-for-8 to 1-for-15, as determined by the board of directors.