PROPOSAL 3 - REVERSE STOCK SPLIT
The Companys Certificate of Incorporation currently authorizes the issuance of 100,000,000 shares of common stock, par value $0.0001 per share. On March 25, 2020, the Company had 25,992,156 shares of common stock issued and outstanding and 29,013,406 shares of common stock reserved pursuant to outstanding warrants, options or restricted stock units or reserved for future issuance under the Companys equity incentive plans.
The Board has unanimously approved an amendment to the Companys Certificate of Incorporation to effect a reverse split of the Companys common stock any time prior to the first anniversary of its approval by the stockholders at a ratio in the range of 1-for-5 to 1-for-30, to be determined at the discretion of the Board, whereby each outstanding 5 to 30 shares would be combined, converted and changed into 1 share of the Companys common stock. A copy of the certificate of amendment (the Certificate of Amendment) to the Certificate of Incorporation is attached hereto as Appendix A.
If the Certificate of Amendment is approved by a majority of the Companys stockholders, the Board will have discretion to determine, as it deems to be in the best interest of the Companys stockholders, the specific ratio to be used within the range described above and the timing of the reverse stock split, which must occur any time prior to the first anniversary of its approval by the stockholders. The Board believes that stockholder approval of the range of reverse stock split ratios (as opposed to approval of a single reverse stock split ratio) provides the Board with maximum flexibility to achieve the purpose of a reverse stock split, as discussed below, and therefore is in the best interests of the Company and its stockholders.
The Board may, in its discretion, determine not to effect the reverse stock split if it determines, subsequent to obtaining stockholder approval, that such action is not in the best interests of the Company. By voting in favor of the reverse stock split, you are expressly authorizing the Board to determine not to proceed with, and abandon, the reverse stock split if it should so decide.
The Board has recommended that the proposed Certificate of Amendment to effect the reverse stock split be presented to the Companys stockholders for approval.
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Reasons for the Reverse Stock Split
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As previously disclosed in a current report on Form 8-K filed on December 20, 2019, on December 17 , 2019, the Listing Qualifications Staff of The NASDAQ Stock Market LLC notified the Company that, based upon the closing bid price of the Companys common stock for the 30 prior consecutive business days, the Company no longer satisfied the minimum $1.00 closing bid price requirement, as set forth in Nasdaq Listing Rule 5550(a)(2), and had been provided a 180-day grace period to regain compliance with that requirement, through June 15, 2020.
The Board is asking the stockholders to grant it the authority, at its discretion, to effect a reverse stock split, which the Board believes is an effective way to increase the minimum bid price of our common stock proportionately and put us in a position to regain compliance with Nasdaq Listing Rule 5550(a)(2).
The Board believes that maintaining the listing of the Companys common stock on Nasdaq is in the best interests of the Company and its stockholders. The Board believes that the delisting of the Companys common stock from Nasdaq would impair our ability to raise additional funds and result in lower prices and larger spreads in the bid and ask prices for the Companys common stock, among other things. See Certain Risk Factors Associated with the Reverse Stock Split below for more information.
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Determination of the Reverse Stock Split Ratio
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In determining the ratio to be used, the Board will consider various factors, including but not limited to, (i) the potential impact and anticipated benefits to the Company and its stockholders, (ii) market conditions and existing and expected market price of the Companys common stock at such time, (iii) the number of shares that will be outstanding after the reverse stock split, (iv) the stockholders equity at such time and (v) the trading volume of the Companys common stock at such time.