ARAV Aravive Inc

Effect on Current Stockholders if this Proposal is Not Approved

If our stockholders do not approve this proposal, the Pre-Funded Warrant may not be exercised for Warrant Shares if such exercise would cause the holder, together with certain related parties, to beneficially own a number of shares of Common Stock that would exceed 19.99% of the Company’s then outstanding Common Stock following such exercise. Pursuant to the terms of the Pre-Funded Warrant and Investment Agreement, we are obligated to use our reasonable best efforts to obtain the Requisite Stockholder Approval of the issuance of the Warrant Shares upon full exercise of the Pre-Funded Warrant and if, despite our reasonable best efforts such approval is not effected on or prior to May 5, 2022, to hold an additional stockholder meeting every six (6) months thereafter until such approval is obtained.

Effect of the Issuance Proposal on Current Stockholders-Potential Dilutive Effect to Existing Stockholders

The Pre-Funded Warrant provides that immediately upon obtaining the Requisite Stockholder Approval, the holder of the Pre-Funded Warrant shall have ten (10) calendar days to exercise the Pre-Funded Warrant. If such exercise does not occur on tenth (10th) day following Stockholder Approval, the Pre-Funded Warrant will be automatically exercised via cashless exercise as set forth in the Pre-Funded Warrant.

If the Issuance Proposal is approved, and the Pre-Funded Warrant is exercised in full for cash, an additional 4,545,455 Warrant Shares will be issued upon exercise of the Pre-Funded Warrant, representing approximately 17.7% of the shares of our Common Stock outstanding following exercise of the Pre-Funded Warrant. After such issuance Dr. Eshelman will beneficially own 32.7% of the outstanding shares of Common Stock. Common Stock issuances could have a dilutive effect on book value per share and any future earnings per share. Additional issuances of Common Stock, including as a result of the exercise of the Pre-Funded Warrant, could also cause prevailing market prices for our Common Stock to decline. Upon such issuance, Dr. Eshelman will exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, mergers, acquisitions and other extraordinary transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the Company. In addition, Dr. Eshelman and Eshelman Ventures, LLC will not require approval under Nasdaq Listing Rule 5635(b) for future issuance that are deemed to be above market issuances so long as they beneficially own in excess of 20% of our outstanding shares of common Stock at the time of such issuances.

The Company filed a registration statement, which was declared effective on January 18, 2022 by the Securities and Exchange Commission (the “SEC”), to fulfill the Company’s contractual obligations under the Investment Agreement with Eshelman Ventures to provide for the resale by Eshelman Ventures, LLC of the Warrant Shares issuable upon exercise of the Pre-Funded Warrant. Pursuant to the Investment Agreement, the Company agreed to file such registration statement within six (6) months following the date of the Investment Agreement. The Company agreed to pay all expenses, other than underwriting discounts and commissions, related to the registration statement and agreed to pay up to $50,000 for Eshelman Ventures’ legal, accounting and other fees, costs and expenses incurred in connection with the Investment Agreement and the transactions contemplated thereby, including fees incurred in reviewing the registration statement. 

Description of Common Stock and Pre-Funded Warrant

The following summary describes the material terms of our outstanding capital stock, which includes the material terms of the Common Stock and Pre-Funded Warrant. This is a summary only and does not purport to be complete. It is subject to and qualified in its entirety by reference to: (i) in case of the Common Stock, to the Company’s Amended and Restated Certificate of Incorporation, and Amended and Restated Bylaws, each of which are incorporated by reference as an exhibit to our most recent Annual Report on Form 10-K, and (ii) with respect to the Pre-Funded Warrant, the Form of Pre-Funded Common Stock Warrant of Aravive, Inc. that is filed as Exhibit 4.1 to the Form 8-K that was filed with the SEC on January 4, 2022.  We encourage you to read our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws, the applicable provisions of the Delaware General Corporation Law, and the Pre-Funded Warrant for additional information.

Common Stock

Voting Rights

Each holder of our Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders, except as otherwise required by statute. Except as otherwise provided by statute or by applicable stock exchange rules, in all matters other than the election of directors, stockholders may take action with the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at a stockholder meeting and entitled to vote generally on the subject matter. Cumulative voting for the election of directors is not provided for in our Amended and Restated Certificate of Incorporation. Except as otherwise provided by statute, stockholders may elect directors by a plurality of the votes of the shares present in person, by remote communication, if applicable.

Dividends

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our Common Stock are entitled to receive dividends out of funds legally available at the times and in the amounts that the Board of Directors may determine.

Liquidation Rights

Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Common Stock and any participating convertible preferred stock outstanding at that time after payment of liquidation preferences, on any outstanding shares of convertible preferred stock and payment of other claims of creditors.

Rights and Preferences

The rights, preferences, and privileges of holders of our Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock that we may designate and issue in the future.

Preemptive or Similar Rights

Our Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption.

Fully Paid and Nonassessable

All of the Company’s issued and outstanding shares of Common Stock are fully paid and nonassessable.

Pre-Funded Warrant

The following is a summary of the material terms of the Pre-Funded Warrant:

Duration and Exercise Price

The Pre-Funded Warrant has an initial exercise price per share equal to $0.0001. The Pre-Funded Warrant is immediately exercisable, subject to the Beneficial Ownership Limitation and may be exercised at any time until the Pre-Funded Warrant is exercised in full. The exercise price and number of Warrant Shares are subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the Common Stock and the exercise price.

Exercisability; Stockholder Approval

The Pre-Funded Warrant provides that until we obtain the Requisite Stockholder Approval for the issuance of all of the Warrant Shares, no Warrant Shares will be issued or delivered upon any proposed exercise of the Pre-Funded Warrant, and the Pre-Funded Warrant will not be exercisable to the extent, that such issuance, delivery, or exercise would result in the Investor or a “person” or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) beneficially owning in excess of the Beneficial Ownership Limitation.

We are obligated to hold an annual or special meeting of stockholders (the “Stockholder Meeting”) for the purpose of obtaining the Requisite Stockholder Approval for the issuance of all of the Warrant Shares. The Stockholder Meeting shall be held no later than one-hundred and twenty (120) days (one hundred and fifty days (150) if the SEC reviews the proxy statement for the annual or special meeting of stockholders) following the date of Investment Agreement. We agreed to use our reasonable best efforts to obtain the Requisite Stockholder Approval and to cause our Board of Directors to recommend to the stockholders that they approve such matter. If, despite our reasonable best efforts Requisite Stockholder Approval is not received on or prior to May 5, 2022, we will cause an additional Stockholder Meeting to be held every six (6) months thereafter until such Requisite Stockholder Approval is obtained.

Fractional Shares

No fractional shares of Common Stock will be issued in connection with the exercise of the Pre-Funded Warrant. In lieu of fractional shares of Common Stock, the Company will, at its discretion, pay the holder of the Pre-Funded Warrant an amount in cash equal to the fractional amount multiplied by the exercise price of such Pre-Funded Warrant or round up to the next whole share.

Cashless Exercise

In lieu of making the cash payment otherwise contemplated to be made to us upon exercise of the Pre-Funded Warrant and in payment of the aggregate exercise price, the holder may instead elect to receive upon such exercise (either in whole or in part) the net number of Warrant Shares determined according to a formula set forth in the Pre-Funded Warrant.

Automatic Exercise

Immediately upon obtaining the Requisite Stockholder Approval, the holder of the Pre-Funded Warrant shall have ten (10) calendar days to exercise the Pre-Funded Warrant. If such exercise does not occur on tenth (10th) day following Stockholder Approval, the Pre-Funded Warrant will be automatically exercised via cashless exercise as described above and as set forth in the Pre-Funded Warrant.

Subsequent Rights Offerings

If the Company grants, issues or sells any Common Stock Equivalents (as such term is defined in the Pre-Funded Warrant) or rights to purchase stock, warrants, securities or other property pro rata to all of the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the holder of the Pre-Funded Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the holder of the Pre-Funded Warrant could have acquired if the holder of the Pre-Funded Warrant had held the number of shares of Common Stock acquirable upon complete exercise of the Pre-Funded Warrant (without regard to any limitations on exercise of the Pre-Funded Warrant, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

Pro Rata Distributions

During such time as the Pre-Funded Warrant is outstanding, if we declare or make any dividend or other distribution of our assets (or rights to acquire our assets) to all holders of our Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin-off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of the Pre-Funded Warrant, then, in each such case, the holder of the Pre-Funded Warrant will be entitled to participate in such Distribution to the same extent that the holder of the Pre-Funded Warrant would have participated therein if the holder had held the number of shares of Common Stock acquirable upon complete exercise of the Pre-Funded Warrant (without regard to any limitations on exercise of the Pre-Funded Warrant, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.

Fundamental Transaction

In the event of a fundamental transaction, as described in the Pre-Funded Warrant and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, any holder of the Pre-Funded Warrant will be entitled to receive upon exercise of the Pre-Funded Warrant the kind and amount of securities, cash or other property that the holder of the Pre-Funded Warrant would have received had the such holder exercised the Pre-Funded Warrant immediately prior to such fundamental transaction.

Transferability

Subject to applicable laws, the Pre-Funded Warrant may be transferred at the option of the holder of the Pre-Funded Warrant upon surrender of the Pre-Funded Warrant to us together with the appropriate instruments of transfer.

Exchange Listing

We have not and do not intend to list the Pre-Funded Warrant on any securities exchange or nationally recognized trading system.

Liquidated Damages

If we do not timely deliver Warrant Shares upon exercise of the Pre-Funded Warrant, we are required to pay the holder of the Pre-Funded Warrant certain liquidated damages.

Rights as a Stockholder

Except as otherwise provided in the Pre-Funded Warrant or by virtue of such holder’s ownership of shares of Common Stock, the holder of the Pre-Funded Warrant does not have the rights or privileges of holders of Common Stock, including any voting rights, until the holder exercises the Pre-Funded Warrant.

Effects of Authorized but Unissued Stock

We have shares of Common Stock and preferred stock available for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of The Nasdaq Global Select Market. We may utilize these additional shares for a variety of corporate purposes, including for future public offerings to raise additional capital, or facilitate corporate acquisitions or for payment as a dividend on our capital stock. The existence of unissued and unreserved Common Stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could have the effect of making it more difficult for a third party to acquire or could discourage a third party from seeking to acquire, a controlling interest in our company by means of a merger, tender offer, proxy contest or otherwise. In addition, if we issue preferred stock, the issuance could adversely affect the voting power of holders of Common Stock, and the likelihood that such holders will receive dividend payments and payments upon liquidation.

Anti-Takeover Effects of Our Charter Documents and Some Provisions of Delaware Law

Delaware Law

We are incorporated in the State of Delaware. As a result, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

In general, Section 203 defines a “business combination” to include the following:

In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation. A Delaware corporation may “opt out” of these provisions with an express provision in its certificate of incorporation. We have not opted out of these provisions, which may as a result, discourage or prevent mergers or other takeover or change of control attempts of us; however, our Board of Directors has approved the issuance of the Common Stock in excess of 15% or more of our outstanding voting stock to Eshelman Ventures, LLC for purposes of Section 203. 

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Our Amended and Restated Certificate of Incorporation provides for our Board of Directors to be divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the shares of Common Stock outstanding are able to elect all of our directors. Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws also provide that directors may be removed by the stockholders only for cause upon the vote of 66 2/3% of our outstanding Common Stock. Furthermore, the authorized number of directors may be changed only by resolution of the Board of Directors, and vacancies and newly created directorships on the Board of Directors may, except as otherwise required by law or determined by the Board of Directors, only be filled by a majority vote of the directors then serving on the Board of Directors, even though less than a quorum.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws also provide that all stockholder actions must be effected at a duly called meeting of stockholders and eliminates the right of stockholders to act by written consent without a meeting. Our Amended and Restated Bylaws also provide that only our chairman of the Board, chief executive officer or the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors may call a special meeting of stockholders.

Our Amended and Restated Bylaws also provide that stockholders seeking to present proposals before a meeting of stockholders to nominate candidates for election as directors at a meeting of stockholders must provide timely advance notice in writing and specify requirements as to the form and content of a stockholder’s notice.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that the stockholders cannot amend many of the provisions described above except by a vote of 66 2/3% or more of our outstanding Common Stock.

The combination of these provisions makes it more difficult for our existing stockholders to replace our Board of Directors as well as for another party to obtain control of us by replacing our Board of Directors. Since our Board of Directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.

These provisions are intended to enhance the likelihood of continued stability in the composition of our Board of Directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of their terms.

Choice of Forum

Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for:

A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law-based shareholder class actions, derivative suits and other intra-corporate disputes.

Our management believes limiting state law-based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying Delaware law is avoided, Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when compared to other forums.

While management believes limiting the forum for state law-based claims is a benefit, stockholders could be inconvenienced by not being able to bring a state law-based action in another forum they find favorable.

This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the "Securities Act") or the Securities Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Although our Amended and Restated Certificate of Incorporation contains the choice of forum provision described above, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable.  Several lawsuits involving other companies have been brought challenging the validity of choice of forum provisions in certificates of incorporation, and it is possible that a court could note such provision is inapplicable or unenforceable. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Limitations on Liability and Indemnification of Officers and Directors

Our Amended and Restated Certificate of incorporation limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law and provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:

Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to such amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

Our Amended and Restated Certificate of Incorporation provides that we must indemnify our directors and officers and we must advance expenses, including attorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.

We maintain a general liability insurance policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers.

Indemnification Agreements

We have entered into indemnification agreements with each of our directors and executive officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.

Transfer Agent and Registrar

The transfer agent and registrar for our Common Stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219.

Listing on The Nasdaq Global Select Market

Our Common Stock is listed on The Nasdaq Global Select Market under the symbol “ARAV.”

Required Vote and Recommendation

Approval of the Issuance Proposal requires the affirmative vote of a majority of the issued and outstanding shares of the Company’s Common Stock, represented in person or by proxy at the meeting and entitled to vote thereon. Abstentions will be votes against the proposal and will not affect the outcome of the Issuance Proposal.  Broker non-votes are not expected with respect to this proposal. If there were any broker non-votes, they would not affect the outcome of this proposal.

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ISSUANCE PROPOSAL.