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The issuance of authorized but unissued stock could be used to deter a potential takeover of the Company that may
otherwise be beneficial to stockholders by diluting the shares held by a potential suitor or issuing shares to a stockholder that will vote in accordance with the Boards desires. A takeover may be beneficial to independent stockholders
because, among other reasons, a potential suitor may offer such stockholders a premium for their shares of stock compared to the then-existing market price. The Company does not have any plans or proposals to adopt provisions or enter into
agreements that may have material anti-takeover consequences.
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Although an increase in the authorized shares of Common Stock could,
under certain circumstances, have an anti-takeover effect, this proposal to adopt the amendment is not in response to any effort, of which the Company is aware, to accumulate Common Stock or obtain control of the Company. Nor is it part of a plan by
management to recommend a series of similar amendments to the Board and stockholders. Other than as disclosed under the heading ProstaGene Acquisition below, the Company has no arrangements, agreements, or understandings in place at the
present time to enter into any merger, consolidation, acquisition or similar business transaction.
If the Companys stockholders do not approve the
increase in authorized shares of Common Stock, then the Company will be limited in its ability to use shares of Common Stock for financing, acquisitions, or other general corporate purposes. As of August 31, 2018, the Company only had
51,128,888 shares of Common Stock authorized and unreserved for issuance, which would be available for such purposes.
ProstaGene Acquisition
On August 27, 2018, the Company entered into a Transaction Agreement (including the schedules and exhibits attached thereto, the Acquisition
Agreement) with ProstaGene, LLC (ProstaGene) and Dr. Richard G. Pestell (Dr. Pestell and, together with ProstaGene, the Sellers), the founder and a principal equity holder of ProstaGene, pursuant to which
the Company agreed, on the terms and subject to the conditions stated therein, to purchase from the Sellers substantially all of the assets and rights, and to assume certain obligations and liabilities, associated with ProstaGenes business
(the ProstaGene Acquisition). The closing of the ProstaGene Acquisition is anticipated to occur in or around November 2018.
Pursuant to the
Acquisition Agreement, in order to achieve certain tax efficiencies, prior to consummating the ProstaGene Acquisition, the Company will reorganize into a holding company pursuant to Section 251(g) of the Delaware General Corporation Law. As part of
the holding company reorganization, the holding company will become the successor to the Company for all purposes, including under applicable securities laws. As a result, for purposes of the following description, all references to the Company and
its Common Stock shall refer, as the case may be, either to CytoDyn Inc. and its Common Stock, before the holding company reorganization, or to the holding company and its common stock, par value $0.001 per share, following the holding company
reorganization. Stockholder approval of the holding company reorganization is not required.
As consideration for the ProstaGene Acquisition, under the
Acquisition Agreement, the Company is obligated to issue to ProstaGene for distribution to its equity holders either (i) an aggregate of 27,000,000 shares of Common Stock or (ii) an aggregate of 270,000 shares of Series C preferred stock, par value
$0.001 per share (the Series C Preferred Stock). The Series C Preferred Stock would automatically convert into an aggregate of 27,000,000 shares of Common Stock upon stockholder approval of an increase in the authorized shares of Common
Stock. Whether Common Stock or Series C Preferred Stock is issued therefore depends on whether the stockholders of the Company have previously approved an amendment to the Companys Certificate of Incorporation to sufficiently increase the
number of authorized shares of Common Stock, as specified in this proposal.
If stockholders do not approve the increase in authorized shares of Common
Stock pursuant to this proposal, then the Company will issue Series C Preferred Stock Consideration at the closing of the ProstaGene Acquisition. As specified in the Acquisition Agreement, the Series C Preferred Stock would be required to contain a
redemption right for cash, commencing on June 30, 2019, based upon the closing price of the Companys Common Stock on the trading day before the closing of the ProstaGene Acquisition. Assuming a redemption price equal to the closing price of
$0.61 on September 6, 2018, the potential dollar amount for such a redemption obligation would be approximately $16.5 million, increasing or decreasing by $270,000 for each $0.01 increase or decrease in such stock price prior to the trading day
before the closing of the ProstaGene Acquisition.
The Company may not be able to finance such a redemption obligation at the time when it comes due,
which could materially and adversely impact the Companys ability to operate its business. In extreme cases, the Company could be forced to file for bankruptcy protection, discontinue its operations or liquidate its assets. Even if the Company
were able to finance such redemption obligation, redeeming the Series C Preferred Stock for cash would not permit such cash to be spent on other activities, including clinical trials, contract manufacturing organization or other activities that
could materially delay the timeframe to submission of a biological license application with the U.S. Food and Drug Administration.
For these reasons, the
Board believes that any use of funds to pay for such redemption obligation would not be in the best interests of the Companys stockholders, and the Board recommends that stockholders vote for this proposal.
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