PROPOSAL 1
APPROVAL OF AN INCREASE IN THE TOTAL NUMBER OF SHARES OF AUTHORIZED COMMON STOCK TO 1,350,000,000 SHARES
Background
The Board believes it is in the best interests of the Company to increase the number of shares of common stock authorized for issuance by 350,000,000 shares of common stock, bringing the total number of shares of common stock authorized from 1,000,000,000 shares to 1,350,000,000 shares. These shares do not offer any preemptive rights. The text of the proposed certificate of amendment to the Company’s Certificate of Incorporation is attached hereto as Exhibit A. This proposal to increase the number of shares of common stock authorized for issuance, if approved at the Special Meeting, will become effective, and the number of authorized shares of the Company’s common stock will be increased to 1,350,000,000 shares, upon the filing of the certificate of amendment with the Secretary of State of the State of Delaware. The following discussion is qualified in its entirety by the full text of the certificate of amendment, which is attached to this proxy statement as Exhibit A and is incorporated herein by reference.
Reasons for the Increase
The Board believes that it is essential to the Company’s continued operations to have additional authorized shares of common stock available for future issuance, as discussed in more detail below. The authorization of a pool of additional shares of common stock at the Special Meeting will provide the Company with the ability to use these shares to meet the Company’s business and financial needs without the expense and delay of another special stockholders’ meeting. These needs include: (i) satisfaction of the Corporation’s existing obligations to issue shares of Common Stock for which authorized shares are not currently available, as discussed in more detail below, (ii) future financings to raise the capital needed to operate the Company’s business, including potential negotiations with third parties to satisfy the Company’s existing payment obligations in shares of common stock rather than cash; (iii) possible acquisition or other strategic transactions or partnerships; (iv) future equity awards as compensation for employees, officers, directors, consultants and advisors, including equity incentives for performance; and (v) other general corporate purposes. Although such issuances of additional shares would dilute existing stockholders, management believes that such transactions would increase the overall value of the Company to its stockholders. In addition, the Board believes the Company’s success depends in part on its continued ability to attract, retain and motivate highly qualified management and clinical and scientific personnel and advisors, as well as independent directors with requisite skills and experience.
As of the date of this proxy statement, the Company has approximately 155.7 million shares of common stock reserved for issuance upon the exercise of outstanding warrants, stock options, and restricted stock units. The Company also has existing obligations to issue approximately 46.4 million additional shares of common stock upon the conversion of outstanding convertible notes and the exercise of warrants to purchase common stock that are not reserved for issuance as of the date of this proxy statement pursuant to waivers from the respective holders. All of the shares underlying outstanding warrants and stock options held by the Company’s directors, executive officers, employees and scientific advisory board members are reserved for issuance as of the date of this proxy statement.
In addition, the Board has directed that a total of 22 million shares of common stock, previously reserved for issuance under the Company’s 2012 Equity Incentive Plan (the “2012 Plan”), be made available temporarily for use in equity financing transactions, with availability of such shares for equity awards under the 2012 Plan to be restored upon approval of Proposal 1. The Board has approved the future grant of an equity award to each nonemployee director of the Company with a grant date fair value of $100,000, as compensation for services during the fiscal year ending May 31, 2023, subject to approval of Proposal 1 by the stockholders at the Special Meeting and restoration of the reservation of 22 million shares of common stock under the 2012 Plan. Similarly, the Board has approved equity awards under the 2012 Plan to the Company’s recently hired President with a total grant date fair value of $1,500,000 contingent on the approval of Proposal 1. As of the date of this proxy statement, only a small number of shares of common stock remain available for future grants of equity awards under the 2012 Plan.
Also, less than one-tenth of one percent of the 1,000,000,000 shares of common stock authorized for issuance under our Certificate of Incorporation remains available and unreserved for issuance as of the date of this proxy statement. Thus, without an increase in authorized shares of common stock, the Company will not be able to issue additional shares for any of the purposes described above.
There are certain advantages and disadvantages of an increase in our authorized common stock. The advantages include having shares of common stock available:
| • | To satisfy our existing obligations to issue approximately 46.4 million shares upon the conversion of outstanding convertible notes and the exercise of certain warrants to purchase common stock that are outstanding or that the Company has agreed to issue, contingent on the approval of Proposal 1, which shares are not currently reserved for issuance. |