Filed by
the Registrant ☒ Filed by a Party other than the
Registrant ☐
PROXY
STATEMENT
For the Special Meeting of Stockholders to be Held on Friday, January 31, 2020
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors, or Board, of ContraFect
Corporation, or ContraFect or the Company, for use at the Special Meeting of Stockholders, or Special Meeting, to be held on Friday, January 31, 2020, beginning at 8:30 a.m., Eastern time, at the offices of Latham & Watkins LLP,
located at 885 Third Avenue, 12th Floor, New York, New York 10022, and at any continuation, postponement or adjournment of the Special Meeting. On or about January 8, 2020, we are releasing this proxy statement and accompanying proxy materials
to our stockholders of record on the record date for the meeting.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON JANUARY 31, 2020
This proxy statement is available at www.astproxyportal.com/ast/19556
INFORMATION ABOUT THIS PROXY STATEMENT
Why you received this proxy statement. You have received these proxy materials because the Companys Board is soliciting your
proxy to vote your shares at the Special Meeting. This proxy statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission, or SEC, and that is designed to assist you in voting your
shares.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
What is the purpose of the Special Meeting?
At our Special Meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including the approval of an
amendment to our amended and restated certificate of incorporation, as amended (our Certificate of Incorporation) to effect a reverse stock split of our common stock at a ratio of 1-for-10, and decrease the number of authorized shares of our common stock to 125,000,000, subject to the Boards authority to abandon such amendment (Proposal 1); and the approval of the
adjournment of the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve Proposal 1 (Proposal 2).
Who is entitled to vote?
You are
entitled to vote at the Special Meeting, or any continuation, postponement or adjournment of the Special Meeting, only if you were a stockholder of record at the close of business on the record date, December 31, 2019, or if you hold a valid
proxy for the Special Meeting. The number of stockholders of record as of the December 31, 2019 record date was 71. Holders of shares of our common stock are entitled to one vote per share.
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Who can attend the meeting?
You may attend the Special Meeting only if you are a ContraFect stockholder who is entitled to vote at the Special Meeting, or if you hold a
valid proxy for the Special Meeting. If you would like to attend the Special Meeting, you must call (914) 207-2308 no later than 5:00 p.m., Eastern time, on January 30, 2020 to have your name placed on
the attendance list. In order to be admitted into the Special Meeting, your name must appear on the attendance list and you must present government-issued photo identification (such as a drivers license). If your bank or broker holds your
shares in street name, you will also be required to present proof of beneficial ownership of our common stock on the record date, such as a bank or brokerage statement or a letter from your bank or broker showing that you owned shares of our common
stock at the close of business on the record date. You may obtain directions to the location of our Special Meeting by calling (914) 207-2308.
What constitutes a quorum?
The presence in person or
by proxy of the holders of a majority of the voting power of our outstanding common stock entitled to vote constitutes a quorum for the transaction of business at the Special Meeting. Each holder of our common stock is entitled to one vote for each
share held as of the record date. As of the December 31, 2019 record date, 153,320,667 shares of our common stock were outstanding and entitled to vote.
How do I vote?
Stockholders of
Record. If you are a stockholder of record, you may vote by marking, signing and dating your proxy card and promptly returning it in the postage-paid envelope we have provided or returning it to American Stock Transfer & Trust Company,
LLC, 6201 15th Avenue, Brooklyn, New York, 11219, so that it is received no later than January 30, 2020. The persons named as your proxy holders on the proxy card will vote the shares represented by your proxy in accordance with the
specifications you make. Please carefully consider the information contained in this proxy statement. Whether or not you expect to attend the Special Meeting in person, we urge you to vote by signing, dating and returning the enclosed proxy card as
promptly as possible in the postage-paid envelope provided, to ensure your representation and the presence of a quorum at the Special Meeting. Stockholders of record desiring to vote in person at the Special Meeting may vote on the ballot provided
at the meeting.
Beneficial Owners. If your shares are held in a brokerage account, by a bank, by a trustee, or by another nominee,
please follow the voting instructions provided by your broker or other nominee. Most brokers or other nominees permit their customers to vote by telephone or by Internet, in addition to voting by signing, dating and returning the voting instruction
form provided by the broker or other nominee.
Beneficial owners desiring to vote in person at the Special Meeting will need to contact
the broker, bank, trustee, or other nominee that is the holder of record of their shares to obtain a legal proxy to bring to the Special Meeting.
Can I change my proxy after I return my proxy card?
Stockholders of Record. Prior to the Special Meeting, you may change your vote by submitting a later dated proxy in one of the manners
authorized and described in this proxy statement. You may also give a written notice of revocation to our Corporate Secretary, as long as it is delivered to our Corporate Secretary at our headquarters, at 28 Wells Avenue, Third Floor, Yonkers, New
York 10701, on or before January 30, 2020, or given to our Corporate Secretary at the Special Meeting prior to the time your proxy is voted at the Special Meeting. You also may revoke any proxy given pursuant to this solicitation by attending
the Special Meeting and voting in person by ballot. However, the mere presence of a stockholder at the Special Meeting will not revoke a proxy previously given unless you follow one of the revocation procedures referenced above.
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Beneficial Owners. If you hold your shares through a broker, bank, trustee or other
nominee, please follow the instructions provided by your broker or other nominee as to how you may change your vote or obtain a legal proxy to vote your shares if you wish to cast your vote in person at the Special Meeting.
Will my shares be voted if I dont return my proxy?
If your shares are registered directly in your name, your shares will not be voted if you do not return your proxy or vote by ballot at the
Special Meeting. If your shares are held in street name by a bank, broker or other nominee, that person, as the record holder of your shares, is required to vote your shares according to your instructions. Your bank, broker or other
nominee will send you directions on how to vote those shares. Under applicable stock exchange rules, even if you do not give instructions to your bank, broker or other nominee, it has discretionary authority to vote your shares with respect to
Proposals 1 and 2. We encourage you to provide voting instructions. This ensures your shares will be voted at the meeting in the manner you desire. If your bank, broker or other nominee chooses not to vote on a matter for which it has discretionary
voting authority, this will be treated as a broker non-vote.
What is the vote required to approve
each matter?
Proposal 1: Approval of an Amendment to our Certificate of Incorporation. The affirmative vote
of a majority of the Companys outstanding common stock is required to approve Proposal 1. Abstentions will have the same effect as votes against Proposal 1. Because brokers have discretionary authority to vote on Proposal 1, we do not expect
any broker non-votes in connection with this proposal. The Board of Directors recommends that you vote FOR Proposal 1.
Proposal 2: Approval of the Adjournment of the Special Meeting. The affirmative vote of the holders of a majority in
voting power of the votes cast affirmatively or negatively is required for approval of Proposal 2. Abstentions will have no effect on the outcome of Proposal 2. Because brokers have discretionary authority to vote on Proposal 2, we do not expect any
broker non-votes in connection with this proposal. The Board of Directors recommends that you vote FOR Proposal 2.
How are votes counted?
Votes will be
counted by the inspector of election appointed for the Special Meeting by the Board. The inspector of election will separately count FOR and AGAINST votes, abstentions and broker
non-votes, if any. The Board has appointed a representative of American Stock Transfer & Trust Company, LLC to serve as the inspector of elections at the Special Meeting.
Are there other matters to be voted on at the Special Meeting?
No. The only matters to be voted on at the Special Meeting are Proposals 1 and 2. Under Section 2.3 of our Amended and Restated Bylaws,
only the matters indicated in the notice of meeting accompanying this proxy statement may be transacted at the Special Meeting.
Our
Board encourages stockholders to attend the Special Meeting. Whether or not you plan to attend, you are urged to submit your proxy. Prompt response will greatly facilitate arrangements for the meeting and your cooperation will be appreciated.
Stockholders who attend the Special Meeting may vote their stock personally even though they may have sent in their proxies.
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PROPOSAL 1
APPROVAL OF AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT AND DECREASE THE NUMBER OF AUTHORIZED SHARES
General
Our Board has adopted
and is recommending that our stockholders approve an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio of
1-for-10, and decrease the number of authorized shares of our common stock to 125,000,000. Pursuant to the law of the State of Delaware, our state of incorporation, the
Board must adopt any amendment to our Certificate of Incorporation and submit the amendment to stockholders for their approval. The form of proposed amendment to our Certificate of Incorporation is attached to this proxy statement as Appendix
A.
By approving this proposal, stockholders will approve an amendment to our Certificate of Incorporation pursuant to which each ten
outstanding shares would be combined into one share of our common stock, and authorize our Board to file such amendment with the Secretary of State of the State of Delaware. The Board may also elect not to effect any reverse stock split. The
Boards decision as to whether and when to effect the reverse stock split will be based on a number of factors, including market conditions, the historical, existing and expected trading price of our common stock, the anticipated impact of the
reverse stock split on the trading price of our common stock, and the continued listing requirements of The Nasdaq Capital Market. Although our stockholders may approve the reverse stock split, we will not effect the reverse stock split if the Board
does not deem it to be in the best interests of the Company and its stockholders.
The proposed certificate of amendment also provides
that the number of authorized shares of our common stock will be decreased to 125,000,000. Because the reverse stock split will decrease the number of outstanding shares of our common stock by a ratio of 1-for-10, the proposed amendment would result in a relative increase in the number of authorized and unissued shares of our common stock. For more information on the relative increase in the number of
authorized shares of our common stock, see Principal Effects and Purpose of Decrease (Relative Increase) in Number of Authorized Shares of our Common Stock and Anti-takeover Effects of Proposed Amendment below.
Purpose and Background of the Reverse Stock Split
On December 27, 2019, the Board approved the proposed amendment to our Certificate of Incorporation to effect the reverse stock split for
the following reasons:
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The Board believes that effecting the reverse stock split could be an effective means of regaining compliance
with the minimum bid price requirement for continued listing of our common stock on The Nasdaq Capital Market;
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The Board believes that continued listing on The Nasdaq Capital Market provides overall credibility to an
investment in our stock, given the stringent listing and disclosure requirements of The Nasdaq Capital Market. Notably, some trading firms discourage investors from investing in lower priced stocks that are traded in the over-the-counter market because they are not held to the same stringent standards;
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The Board believes that a higher stock price, which may be achieved through a reverse stock split, could help
generate investor interest in the Company and help attract, retain, and motivate employees; and
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The Board believes that some potential employees are less likely to work for the Company if we have a low stock
price or are no longer listed on The Nasdaq Capital Market, regardless of size of our overall market capitalization.
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Nasdaq Requirements for Continued Listing
Our common stock is quoted on The Nasdaq Capital Market under the symbol CFRX. One of the requirements for continued listing on The
Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) is maintenance of a minimum closing bid price of $1.00. On January 2, 2020, the closing market price per share of our common stock was $0.58, as reported by The Nasdaq Capital
Market.
On February 20, 2019, we received a written notification from The Nasdaq Stock Market LLC (Nasdaq)
notifying us that we had failed to comply with the minimum bid price requirement because the bid price for our common stock over a period of 30 consecutive business days prior to such date had closed below the minimum $1.00 per share requirement. In
accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had an initial period of 180 calendar days, or until August 19, 2019, to regain compliance with the minimum bid price requirement of $1.00 per share. The Company was unable to gain
compliance with the minimum bid price requirement by August 19, 2019 and requested an additional 180 calendar day period to do so. On August 20, 2019, Nasdaq notified the Company that it was eligible for such an additional 180 day grace
period, or until February 17, 2020 to regain compliance. To regain compliance, the minimum closing bid price per share of our common stock must be at least $1.00 for a minimum of ten consecutive business days. If we fail to regain compliance by
February 17, 2020, Nasdaq will provide written notification that the Companys securities will be delisted. At that time, the Company may appeal Nasdaqs determination to a Hearings Panel. If the Company appeals, the Hearings Panel
will request a plan to regain compliance. Hearings Panels have generally viewed a reverse stock split as the only definitive plan to resolve a bid price deficiency. There can be no assurance that such an appeal would be successful.
In the event that our common stock were to be delisted from The Nasdaq Capital Market, our common stock would likely trade in the over-the-counter market. If our common stock were to trade on the over-the-counter market,
selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, and transactions could be delayed. In addition, in the event our common stock is delisted, broker-dealers have certain regulatory
burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity of our common stock. These factors could result in lower prices and larger spreads in the bid and ask
prices for our common stock.
Such delisting from The Nasdaq Capital Market and continued or further decline in our stock price could also
impair our ability to raise additional necessary capital through equity or debt financing.
In light of the factors mentioned above, our
Board unanimously approved the proposed amendment to our Certificate of Incorporation to effect the reverse stock split as a potential means of increasing and maintaining the price of our common stock to above $1.00 per share in compliance with
Nasdaq requirements.
Potential Increased Investor Interest
In approving the proposed amendment to our Certificate of Incorporation, the Board considered that the Companys common stock may not
appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend
to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks.
Risks Associated with the Reverse Stock Split
There are
risks associated with the reverse stock split, including that the reverse stock split may not result in a sustained increase in the per share price of our common stock. There is no assurance that:
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The market price per share of our common stock after the reverse stock split will rise in proportion to the
reduction in the number of shares of our common stock outstanding before the reverse stock split;
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The reverse stock split will result in a per share price that will increase the level of investment in our common
stock by institutional investors or increase analyst and broker interest in our Company;
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The reverse stock split will result in a per share price that will increase our ability to attract and retain
employees and other service providers; and
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The market price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by
Nasdaq, or that we will otherwise meet the requirements of Nasdaq for continued inclusion for trading on The Nasdaq Capital Market.
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Stockholders should note that the effect of the reverse stock split, if any, upon the market price of our common stock cannot be accurately
predicted. In particular, we cannot assure you that the price for a share of our common stock after the reverse stock split will be ten (10) times the price for a share of our common stock immediately prior to the reverse stock split.
Furthermore, even if the market price of our common stock does rise following the reverse stock split, we cannot assure you that the market price of our common stock immediately after the proposed reverse stock split will be maintained for any
period of time. Even if an increased per-share price can be maintained, the reverse stock split may not achieve the desired results that have been outlined above. Moreover, because some investors may view the
reverse stock split negatively, we cannot assure you that the reverse stock split will not adversely impact the market price of our common stock.
The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the reverse stock
split or the number of shares outstanding. If the reverse stock split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater
than would occur in the absence of a reverse stock split. The total market capitalization of our common stock after implementation of the reverse stock split when and if implemented may also be lower than the total market capitalization before the
reverse stock split. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.
While we aim that the reverse stock split will be sufficient to maintain our listing on The Nasdaq Capital Market, it is possible that, even
if the reverse stock split results in a bid price for our common stock that exceeds $1.00 per share, we may not be able to continue to satisfy Nasdaqs additional criteria for continued listing of our common stock on The Nasdaq Capital Market,
including but not limited to the requirement that we have at least 300 stockholders.
We believe that the reverse stock split may result
in greater liquidity for our stockholders. However, it is also possible that such liquidity could be adversely affected by the reduced number of shares outstanding after the reverse stock split, particularly if the price of our common stock does not
increase as a result of the reverse stock split.
Principal Effects of the Reverse Stock Split
If the stockholders approve this proposal and the Board implements the reverse stock split, we will amend and restate the first sentence of Article FOURTH of
our Certificate of Incorporation relating to our authorized capital, in its entirety to read as follows:
That, effective on the
filing of this Certificate of Amendment of Amended and Restated Certificate of Incorporation with the Office of the Secretary of State of the State of Delaware (the Effective Time), a one-for-ten reverse stock split of the Corporations Common Stock (as defined below) shall become effective, pursuant to which each ten shares of Common Stock outstanding and held of record by each
stockholder of the Corporation (including treasury shares) immediately prior to the Effective Time shall be reclassified and combined into one validly issued, fully-paid and nonassessable share of Common Stock automatically and without any action by
the holder thereof upon the Effective Time and shall represent one
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share of Common Stock from and after the Effective Time (such reclassification and combination of shares, the Reverse Stock Split). The par value of the Common Stock following
the Reverse Stock Split shall remain at $0.0001 per share. No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split. In lieu thereof, (i) with respect to holders of one or more certificates which formerly
represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, upon surrender after the Effective Time of such certificate or certificates, any holder who would otherwise be entitled to a fractional
share of Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment (the Fractional Share Payment) equal to the fraction of which such holder would otherwise be
entitled multiplied by the closing price per share on the trading day immediately preceding the Effective Time as reported by The Nasdaq Capital Market (as adjusted to give effect to the Reverse Stock Split); provided that, whether or not fractional
shares would be issuable as a result of the Reverse Stock Split shall be determined on the basis of (a) the total number of shares of Common Stock that were issued and outstanding immediately prior to the Effective Time formerly represented by
certificates that the holder is at the time surrendering and (b) the aggregate number of shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificates shall have been
reclassified; and (ii) with respect to holders of shares of Common Stock in book-entry form in the records of the Companys transfer agent that were issued and outstanding immediately prior to the Effective Time, any holder who would
otherwise be entitled to a fractional share of Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive the Fractional Share Payment automatically and without any action by the holder.
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 150,000,000 shares, consisting of (i)
125,000,000 shares of Common Stock, $0.0001 par value per share (Common Stock), and (ii) 25,000,000 shares of Preferred Stock, $0.0001 par value per share (Preferred Stock).
The reverse stock split will be effected simultaneously for all issued and outstanding shares of common stock and the reverse stock split
ratio will be the same for all issued and outstanding shares of common stock. The reverse stock split will affect all of our stockholders uniformly and will not affect any stockholders percentage ownership interests in the Company, except to
the extent that the reverse stock split results in any of our stockholders owning a fractional share. After the reverse stock split, the shares of our common stock will have the same voting rights and rights to dividends and distributions and will
be identical in all other respects to our common stock now authorized. Common stock issued pursuant to the reverse stock split will remain fully paid and non-assessable. The reverse stock split will not affect
the Company continuing to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act).
The reverse stock split may result in some stockholders owning odd-lots of less than 100
shares of our 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.
Following the effectiveness of any reverse stock split approved by the stockholders and implementation by the Board, current stockholders will
hold fewer shares of common stock. For example, a stockholder owning a round-lot of 100 shares of common stock prior to the reverse stock split would hold 10 shares of common stock following the
reverse stock split.
In deciding whether to implement the reverse stock split, the Board will consider primarily the satisfaction of the
Nasdaq continued listing requirements, as described above under the heading Nasdaq Requirements for Continued Listing. It may also consider, among other things: (i) the market price of the common stock at the time of the reverse
stock split; (ii) the number of shares that will be outstanding after the reverse stock split; (iii) the expected number of stockholders following the reverse stock split; (iv) the stockholders equity at such time; (v) the
shares of common stock available for issuance in the future; and (vi) the liquidity of the common stock in the market and the improved liquidity that may result. The Board maintains the right to abandon the
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proposed amendment to our Certificate of Incorporation if it determines, in its sole discretion, that we will be able to satisfy the listing requirements of Nasdaq without implementing the
reverse stock split or if the proposed amendment to our Certificate of Incorporation is otherwise no longer in the best interests of the Company.
IF THIS PROPOSAL IS NOT APPROVED, WE MAY BE UNABLE TO MAINTAIN THE LISTING OF OUR COMMON STOCK ON THE NASDAQ CAPITAL MARKET, WHICH COULD
ADVERSELY AFFECT THE LIQUIDITY AND MARKETABILITY OF OUR COMMON STOCK.
Principal Effects and Purpose of Decrease (Relative Increase) in Number of
Authorized Shares of our Common Stock
If the proposed amendment to our Certificate of Incorporation is approved by the
Companys stockholders, at the effective time of the amendment the number of authorized shares of our common stock will be decreased to 125,000,000 from 200,000,000. Because the reverse stock split will decrease the number of outstanding shares
of our common stock by a ratio of 1-for-10, the proposed amendment would result in a relative increase in the number of authorized and unissued shares of our common stock. The purpose of the relative increase
in the amount of authorized and unissued shares of our common stock is to allow our Company the ability to issue additional shares of common stock in connection with future financings, employee and director benefit programs and other desirable
corporate activities, without requiring our Companys stockholders to approve an increase in the authorized number of shares of common stock each time such an action is contemplated. If the proposed amendment to the Certificate of Incorporation
is approved, all or any of the authorized and unissued shares of common stock may be issued in the future for such corporate purposes and such consideration as the Board deems advisable from time to time, without further action by the stockholders
of our Company and without first offering such shares to our stockholders. When and if additional shares of common stock are issued, these new shares would have the same voting and other rights and privileges as the currently issued and outstanding
shares of common stock, including the right to cast one vote per share. Except pursuant to the Companys equity incentive plans for our employees and directors and outstanding warrants, our Company presently has no plan, commitment,
arrangement, understanding or agreement regarding the issuance of common stock. However, the Company regularly considers its capital requirements and may conduct equity offerings in the future.
Because our stockholders have no preemptive rights to purchase or subscribe for any of our unissued common stock, the future issuance of
additional shares of common stock will reduce our current stockholders percentage ownership interest in the total outstanding shares of common stock. In the absence of a proportionate increase in our future earnings and book value, an increase
in the number of our outstanding shares of common stock would dilute our projected future earnings per share, if any, and book value per share of all our outstanding shares of the common stock. If these factors were reflected in the price per share
of our common stock, the potential realizable value of a stockholders investment could be adversely affected. An issuance of additional shares could therefore have an adverse effect on the potential realizable value of a stockholders
investment.
Effects of the Amendment on our Common Stock
After the effective time of the amendment to our Certificate of Incorporation, each stockholder will own fewer shares of our common stock as a
result of the reverse stock split and the number of our authorized shares of common stock will be decreased to 125,000,000 from 200,000,000. Because the reverse stock split will decrease the number of outstanding shares of our common stock, the
proposed amendment will result in a relative increase in the number of authorized and unissued shares of our common stock. All outstanding options and warrants to purchase shares of our common stock, including any held by our officers and directors,
would be adjusted as a result of the reverse stock split. In particular, the number of shares issuable upon the exercise of each instrument would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the
terms of each instrument and based on the ratio of the reverse stock split.
The chart below outlines the capital structure as described
in this proposal and prior to and immediately following a possible reverse stock split at the proposed reverse stock split ratio and the decrease in the number of
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authorized shares of common stock to 125,000,000. The number of shares disclosed in the column Number of shares of common stock before reverse stock split reflects the number of
shares as of the record date, December 31, 2019. The number of shares disclosed in the column Estimated number of shares of common stock after reverse stock split gives effect to the reverse stock split at the proposed ratio of 1-for-10 as of December 31, 2019 as well as the reduction in the number of authorized shares of common stock to 125,000,000, but does not give effect to any other
changes, including any issuance of securities after December 31, 2019.
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Number of shares of
common stock before
reverse stock split
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Estimated number of
shares of common stock
after reverse stock split (3)
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Authorized
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200,000,000
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125,000,000
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Issued and Outstanding
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153,320,667
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15,332,066
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Issuable under Outstanding Warrants
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30,339,059
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3,033,905
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Issuable under Outstanding Stock Options
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12,465,806
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1,246,580
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Reserved for Issuance (1)
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713,801
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71,380
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Authorized but Unissued (2)
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3,874,468
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105,387,449
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(1)
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Shares reserved for future issuance under the Companys existing equity incentive plans, excluding shares
issuable under outstanding stock options.
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(2)
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Shares authorized but unissued represent common stock available for future issuance beyond shares outstanding
as of December 31, 2019 and shares issuable under outstanding warrants and stock options.
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(3)
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The shares presented are an estimate as we do not know the number of fractional shares that will be required to
be paid out in cash following the reverse stock split.
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Procedure for Effecting Reverse Stock Split and Exchange of Stock
Certificates, if Applicable
If the proposed amendment to our Certificate of Incorporation is approved by the Companys
stockholders, the reverse stock split will become effective at the time of filing of the certificate of amendment with the Secretary of State of the State of Delaware (the Effective Time). At the Effective Time, shares of common stock
issued and outstanding immediately prior thereto will be combined, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with the reverse stock split ratio contained in the certificate of
amendment.
As soon as practicable after the Effective Time, stockholders will be notified by our transfer agent that the reverse stock
split has been effected. If you hold shares of common stock in book-entry form, you will not need to take any action to receive post-reverse stock split shares of our common stock. As soon as practicable after the Effective Time, the Companys
transfer agent will send to your registered address a transmittal letter along with a statement of ownership indicating the number of post-reverse stock split shares of common stock you hold. If applicable, a check representing a cash payment in
lieu of fractional shares will also be mailed to your registered address as soon as practicable after the Effective Time (see Fractional Shares below).
Some stockholders hold their shares of common stock in certificate form. Our transfer agent will act as exchange agent for purposes of
implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-reverse stock split shares in certificate form, you will receive a transmittal letter from the
Companys transfer agent as soon as practicable after the Effective Time. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate or certificates representing the pre-reverse stock split shares of our common stock for a statement of ownership. When you submit your certificate or certificates representing the pre-reverse stock split
shares of our common stock, your post-reverse stock split shares of our common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate representing the
aggregate number of post-reverse stock split shares you own, you will receive a statement indicating the number of post-reverse stock split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a
specific request for a certificate representing your post-reverse stock split ownership interest.
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STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL
REQUESTED TO DO SO.
Beginning at the Effective Time, each certificate representing pre-reverse
stock split shares will be deemed for all corporate purposes to evidence ownership of post-reverse stock split shares.
Fractional Shares
No scrip or fractional shares would be issued if, as a result of the reverse stock split, a stockholder would otherwise become entitled to a
fractional share. Instead, each stockholder will be entitled to receive a cash payment equal to the fraction of which such stockholder would otherwise be entitled multiplied by the closing price per share on the trading day immediately preceding the
Effective Time as reported by The Nasdaq Capital Market (as adjusted to give effect to the reverse stock split). No transaction costs would be assessed to stockholders for the cash payment. Stockholders would not be entitled to receive interest for
their fractional shares.
After the reverse stock split, then-current stockholders would have no further interest in our Company with
respect to their fractional shares. A person entitled to a fractional share would not have any voting, dividend or other rights in respect of their fractional share except to receive the cash payment as described above. Such cash payments would
reduce the number of post-reverse stock split stockholders to the extent that there are stockholders holding fewer than that number of pre-reverse stock split shares within the reverse stock split ratio that
is determined by us as described above. Reducing the number of post-reverse stock split stockholders, however, is not the purpose of this proposal.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where we are domiciled and
where the funds for fractional shares would be deposited, sums due to stockholders in payment for fractional shares that are not timely claimed after the Effective Time may be required to be paid to the designated agent for each such jurisdiction.
Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Effect on Outstanding Stock Options and Warrants
The Company has equity incentive plans designed primarily to provide stock-based incentives to employees and directors pursuant to which we
have issued stock options to purchase shares of our common stock. As of December 31, 2019, we had granted 12,465,806 stock options which were outstanding under our equity incentive plans. In addition, we have issued to third party investors and
others warrants to purchase shares of our common stock. As of December 31, 2019, we had issued and outstanding warrants to purchase up to 30,339,059 shares of our common stock. In the event of a reverse stock split, our Board generally has the
discretion to determine the appropriate adjustment to awards granted under the equity incentive plans. Further, the terms of the warrants provide for appropriate adjustments in the event of a stock split. Accordingly, if the reverse stock split is
approved by our stockholders and our Board decides to implement the reverse stock split, as of the Effective Time the number of all outstanding warrants and option grants, the number of shares issuable and the exercise price, as applicable, relating
to options under our equity incentive plans and warrants, will be proportionately adjusted based on the reverse stock split ratio, subject to the terms of such options and warrants. Our Board has also authorized the Company to effect any other
changes necessary, desirable or appropriate to give effect to the reverse stock split, including any applicable technical, conforming changes.
For example, if the proposed 1-for-10 reverse stock split is
effected, the aggregate number of shares issuable under the warrants and stock options would be approximately 3,033,905 and 1,246,580, respectively, representing a 10 fold decrease in the number of shares issuable under those warrants and stock
options. The terms of our outstanding warrants and stock options do not permit exercise for fractional shares. As such, the number of shares issuable under any individual outstanding warrant or stock option shall be rounded up or down
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as provided for under the specific terms of our equity incentive plans and warrants, or in the case of certain of our warrants, upon exercise of those warrants the Company shall pay cash amounts
for fractional shares that otherwise would be issued. Commensurately, the exercise price under each outstanding warrant and stock option would, except as noted above, be increased by 10 times such that upon exercise, the aggregate exercise price
payable by the warrantholder or optionee to the Company would remain the same. Furthermore, the aggregate number of shares currently available under our equity incentive plans for future stock option and other equity-based grants will be
proportionally reduced to reflect the reverse stock split ratio (rounded down to the nearest share). For example, in the event of a 1-for-10 reverse stock split, 713,801
shares that currently remain available for issuance under our equity incentive plans would be adjusted to equal approximately 71,380 shares, subject to future potential increases pursuant to the terms of those plans.
Accounting Matters
The reverse stock
split will not affect the common stock capital account on our balance sheet. However, because the par value of our common stock will remain unchanged at the Effective Time of the split, the components that make up the common stock capital account
will change by offsetting amounts. If the proposed 1-for-10 reverse stock split is effected, the stated capital component will be reduced to an amount of one-tenth (1/10) of its present amount, and the additional paid-in capital component will be increased with the amount by which the stated capital is reduced. The per
share net income or loss and net book value of our common stock will be increased because there will be fewer shares of common stock outstanding. Prior periods per share amounts will be restated to reflect the reverse stock split.
No Dissenters Rights
Under the
Delaware General Corporation Law, the Companys stockholders will not be entitled to dissenters rights with respect to the reverse stock split, and we do not intend to independently provide 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 Exchange Act.
Interests of Certain Persons in the Proposal
Certain of our officers and directors have an interest in this Proposal 1 as a result of their ownership of shares of our common stock, as set
forth below in the section entitled Stock Ownership of Certain Beneficial Owners and Management below. However, we do not believe that our officers or directors have interests in Proposal 1 that are different from or greater than those
of any of our other stockholders.
Anti-takeover Effects of Proposed Amendment
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of
any action, including the proposed amendment to our Certificate of Incorporation discussed herein, that may be used as an anti-takeover mechanism. Because the proposed amendment to our Certificate of Incorporation provides that the number of
authorized shares of common stock will be 125,000,000, the amendment, if such amendment is filed with the Secretary of State of the State of Delaware, will result in a relative increase in the number of authorized but unissued shares of our common
stock vis-à-vis the number of outstanding shares of our common stock after the reverse stock split and, could, under certain circumstances, have an anti-takeover
effect, although this is not the purpose or intent of our Board. A relative increase in the number of our authorized shares could enable the Board to render more difficult or discourage an attempt by a party attempting to obtain control of the
Company
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by tender offer or other means. The issuance of common stock in a public or private sale, merger or similar transaction would increase the number of outstanding shares entitled to vote, increase
the number of votes required to approve a change of control of the Company and dilute the interest of a party attempting to obtain control of the Company. Any such issuance could deprive stockholders of benefits that could result from an attempt to
obtain control of the Company, such as the realization of a premium over the market price that such an attempt could cause. Moreover, the issuance of common stock to persons friendly to the Board could make it more difficult to remove incumbent
officers and directors from office even if such change were favorable to stockholders generally.
As stated above, the Company has no
present intent to use the relative increase in the number of authorized shares of our common stock for anti-takeover purposes, and the proposed amendment is not part of a plan by the Board to adopt a series of anti-takeover provisions; however, if
the proposed amendment is approved by the stockholders, then a greater number of shares of our common stock would be available for such purpose than is currently available. The Company is not aware of any pending or threatened efforts to obtain
control of the Company, and the Board has no present intent to authorize the issuance of additional shares of common stock to discourage such efforts if they were to arise.
Material United States Federal Income Tax Consequences of the Reverse Stock Split
The following discussion describes the anticipated material United States Federal income tax consequences to U.S. holders (as
defined below) of Company capital stock relating to the reverse stock split. This discussion is based upon the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations, judicial authorities, published positions of the
Internal Revenue Service (IRS), and other applicable authorities, all as currently in effect and all of which are subject to change or differing interpretations (possibly with retroactive effect). We have not obtained a ruling from the
IRS or an opinion of legal or tax counsel with respect to the tax consequences of the reverse stock split. The following discussion is for information purposes only and is not intended as tax or legal advice. Each holder should seek advice based on
the holders particular circumstances from an independent tax advisor.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION
OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES, OR UNDER THE
LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TREATY.
For purposes of this discussion, the term U.S.
holder means a beneficial owner of Company capital stock who is for United States Federal income tax purposes:
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(i)
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an individual citizen or resident of the United States;
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(ii)
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a corporation (or other entity treated as a corporation for U.S. Federal income tax purposes) organized under
the laws of the United States, any state, or the District of Columbia;
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(iii)
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an estate with income subject to United States Federal income tax regardless of its source; or
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(iv)
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a trust that (a) is subject to primary supervision by a United States court and for which United States
persons control all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.
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This discussion assumes that Company capital stock is held as a capital asset within the meaning of Code Section 1221. This discussion
does not address all of the tax consequences that may be relevant to a particular Company stockholder (including the Medicare contribution tax on net investment income) or to Company stockholders that are subject to special treatment under United
States Federal income tax laws including, but not
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limited to, banks, financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts,
entities such as partnerships or s-corporations that are treated as flow-through entities, or entities that are disregarded as separate from their owners for tax purposes, persons that are
broker-dealers, traders in securities who elect the mark-to-market method of accounting for their securities, Company stockholders holding their shares of Company
capital stock as part of a straddle, hedge, conversion transaction, or other integrated transaction, U.S. expatriates, persons subject to the alternative minimum tax, persons whose shares constitute
qualified small business stock for purposes of Code section 1202, or persons who hold their Company capital stock through individual retirement or other tax-deferred accounts. This discussion also
does not address the tax consequences to the Company, or to Company stockholders that own 5% or more of the Companys capital stock, are affiliates of Company, or are not U.S. holders. In addition, this discussion does not address other United
States Federal taxes (such as gift or estate taxes or alternative minimum taxes), the tax consequences of the reverse stock split under state, local, or foreign tax laws or certain tax reporting requirements that may be applicable with respect to
the reverse stock split. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
If a partnership (or other entity treated as a partnership for United States Federal income tax purposes) is a Company stockholder, the tax
treatment of a partner in the partnership, or any equity owner of such other entity will generally depend upon the status of the person and the activities of the partnership or other entity treated as a partnership for United States Federal income
tax purposes.
Tax Consequences of the Reverse Stock Split Generally
We believe that the reverse stock split will qualify as a reorganization under Section 368(a)(1)(E) of the Code. Accordingly,
provided that the fair market value of the post-reverse stock split shares is equal to the fair market value of the pre-reverse stock split shares surrendered in the reverse stock split:
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Subject to the discussion below regarding fractional shares, a U.S. holder will not recognize any gain or loss as
a result of the reverse stock split;
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A U.S. holders aggregate tax basis in his, her, or its post-reverse stock split shares will be equal to the
aggregate tax basis in the pre-reverse stock split shares exchanged therefor (less any basis attributable to a fractional share, as discussed below);
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A U.S. holders holding period for the post-reverse stock split shares will include the period during which
such stockholder held the pre-reverse stock split shares surrendered in the reverse stock split; and
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For purposes of the above discussion of the basis and holding periods for shares of Company capital stock, and
except as provided therein, holders who acquired different blocks of Company capital stock at different times for different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged,
converted, canceled or received in the reverse stock split.
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The receipt of cash in lieu of fractional shares of capital
stock pursuant to the reverse stock split will be a taxable transaction for U.S. federal income tax purposes. A holder who receives cash in exchange for a fractional share will generally recognize capital gain or loss for U.S. federal income tax
purposes equal to the difference, if any, between the amount of cash received and the holders adjusted tax basis in the fractional share exchanged.
Information Reporting and Backup Withholding
Cash payments received by a U.S. holder of Company capital stock pursuant to the reverse stock split are subject to information reporting, and
may be subject to backup withholding at the applicable rate specified by the U.S. Internal Revenue Service (currently 24%) if the holder fails to provide a valid taxpayer identification number and comply with certain certification procedures or
otherwise establish an exemption from backup
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withholding. Backup withholding is not an additional United States Federal income tax. Rather, the U.S. Federal income tax liability of the person subject to backup withholding will be reduced by
the amount of the tax withheld. If backup withholding results in an overpayment of medices, a refund may be obtained provided that the required information is timely furnished to the IRS.
Vote Required to Approve the Amendment to our Certificate of Incorporation
Approval of the amendment to our Certificate of Incorporation requires the affirmative vote of a majority of the common stock outstanding and
entitled to vote at the Special Meeting. Abstentions will have the same effect as votes against this proposal. Because brokers have discretionary authority to vote on this proposal, we do not expect any broker
non-votes in connection with this proposal.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
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