PROPOSAL NO. 3
TO ADOPT AND APPROVE AN AMENDMENT TO OUR
RESTATED ARTICLES OF INCORPORATION INCREASING THE NUMBER OF COMMON
STOCK FROM 100,000,000 TO 150,000,000 SHARES
Our Board has approved and has recommended that our stockholders adopt and approve, an amendment to our restated articles of incorporation filed with the Nevada Secretary of State on May 29, 2012, as amended (the “Restated Articles of Incorporation), providing for an increase in the number of our common voting shares, having a par value of $0.001 per share (“common stock”), from 100,000,000 to 150,000,000. A form of Certificate of Amendment reflecting this proposed amendment is included in Appendix A to this proxy statement (“Certificate of Amendment”). If adopted and approved by the stockholders, the proposed amendment to our Restated Articles of Incorporation will become effective upon the filing of the Certificate of Amendment with the Secretary of State of the State of Nevada. If the amendment to increase our authorized shares of common stock is approved by stockholders at the 2021 Annual Meeting, we intend to file the Certificate of Amendment as soon as practicable following the 2021 Annual Meeting.
Purposes of the Proposed Amendment
As of the date of this proxy and assuming proposals 4 and 5 included are approved, the Company would only have approximately 13 million shares remaining for issuance of the currently authorized shares. While we believe our current cash resources to be sufficient to fund our operations for at least the next twelve months, we believe that we will need the ability to raise cash in one or more equity financings, including potentially issuing shares to any potential strategic partners, to fund our operations thereafter. This proposal to increase the number of shares of common stock available for issuance will give the Company greater flexibility to conduct such a financing. We do not have any present plan, arrangement or understanding to designate and issue any of the shares of common stock that will become available as a result of this proposed amendment to our Restated Articles of Incorporation. Although, at present, our Board has no immediate plans to issue the additional shares of common stock, it desires to have the shares available to provide additional flexibility to use our common stock for business and financial purposes in the future. The additional 50,000,000 authorized shares of common stock would be available for issuance for various purposes, as our Board may deem advisable, such as for future financings, to satisfy the issuance of shares of common stock on the conversion or exercise of our options, warrants or other convertible securities, to provide equity incentive to employees, officers, consultants and directors, to make stock-based acquisitions and for other general corporate purposes.
The newly authorized common stock would be available for issuance without further action by stockholders except as required by law, our Restated Articles of Incorporation or applicable stock exchange requirements. Any such issuance could have the effect of diluting existing stockholders. Our Restated Articles of Incorporation do not include any preemptive or other rights of stockholders to subscribe for any shares of common stock which may in the future be issued by the Company, which means that current stockholders do not have a prior right to purchase any new issue of common stock in order to maintain their proportionate ownership of common stock.
Rights of Additional Authorized Shares
The additional common stock to be authorized by stockholder approval of this Proposal No. 3 would have rights identical to the currently outstanding shares of our common stock.
Possible Anti-Takeover Effects of the Proposed Amendment
In addition to the corporate purposes mentioned above, an increase in the number of authorized shares of our common stock may make it more difficult to, or discourage an attempt to, obtain control of the Company by means of a takeover bid that the Board determines is not in the best interest of the Company and its stockholders. The amendment to our Restated Articles of Incorporation to increase the number of authorized shares of common stock is not being proposed in response to any known effort or threat to acquire control of the Company and is not part of a plan by management to thwart such efforts.
Vote Required
Approval of the proposed amendment to our Restated Articles of Incorporation requires a majority of all votes entitled to be cast on the matter. Accordingly, abstentions and broker non-votes will have the same effect as a vote “against”.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ADOPTION AND APPROVAL OF AN AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION INCREASING THE NUMBER OF COMMON STOCK FROM 100,000,000 TO 150,000,000 SHARES.
PROPOSAL NO. 4
TO APPROVE AN AMENDMENT TO OUR 2019 OMNIBUS EQUITY INCENTIVE PLAN TO RESERVE
AN ADDITIONAL 3,000,000 SHARES FOR ISSUANCE UNDER THE PLAN
On September 17, 2021, upon agreement by the Compensation Committee, the Board approved, subject to stockholder approval, an amendment to our 2019 Omnibus Equity Incentive Plan (the “Plan”) to reserve 3,000,000 additional shares for issuance under the Plan.
The Plan, as amended to reflect the additional 3,000,000 shares for issuance under the plan, is attached hereto as Appendix B, and we urge stockholders to review the Plan carefully.
Under applicable NASDAQ rules, the Company is required to obtain stockholder approval of amendment to the Plan. Stockholder approval of the Plan is also required to comply with the incentive stock options rules under Section 422 of the Code. On September 20, 2021, the closing price of our Common Stock as reported by NASDAQ was $3.66.
If approved by the Company’s stockholders, the Plan increase would authorize 3,000,000 additional shares for issuance under the Plan. The number of shares under the Plan would increase from 4,000,000 shares to 7,000,000 shares. The material terms of the Plan are as follows:
Objectives of the Plan
The Plan is intended (a) to allow selected employees of and consultants to the Company and its affiliates to acquire or increase equity ownership in the Company, thereby strengthening their commitment to the success of the Company and stimulating their efforts on behalf of the Company, and to assist the Company and its affiliates in attracting new employees, officers and consultants and retaining existing employees and consultants, (b) to optimize the growth of the Company and its affiliates through incentives which are consistent with the Company’s goals, (c) to provide grantees with an incentive for excellence in individual performance, (d) to promote teamwork among employees, consultants and non-Employee directors, and (e) to attract and retain highly qualified persons to serve as non-employee directors and to promote ownership by such non-employee directors of a greater proprietary interest in the Company, thereby aligning such non-employee directors’ interests more closely with the interests of the Company’s stockholders.
Summary of the Plan
The following is a summary of certain principal features of the Plan, as proposed to be adopted. This summary is qualified in its entirety by reference to the complete text of the Plan. Stockholders are urged to read the actual text of the Plan, as proposed to be amended and restated, in its entirety which is set forth as Appendix B to this proxy statement.
The Plan will be administered by a committee (the “Incentive Plan Committee” or the “Committee”), which will consist of directors of the Company. However, the Board or the Compensation Committee, as applicable, may reserve administrative powers to itself as the Committee or exercise any of the administrative powers of the Committee. Further, the Board of Directors or the Compensation Committee may delegate any or all of its administrative authority to our Chief Executive Officer or to a management committee, except with respect to awards to executive officers who are subject to Section 16 of the Exchange Act.
The stock delivered to settle awards made under the Plan may be authorized and unissued shares or treasury shares, including shares repurchased by us for purposes of the Plan. If any shares subject to any award granted under the Plan (other than a substitute award) are forfeited or otherwise terminated without delivery of such shares (or if such shares are returned to us due to a forfeiture restriction under such award), the shares subject to such awards will again be available for issuance under the Plan. If any option or other award granted under the Plan is exercised through the tendering of shares or by the withholding of shares by the Company, or withholding tax liabilities arising from such option or other award are satisfied by the tendering of shares (either actually or by attestation) or by the withholding of shares by the Company, then only the number of shares issued net of the shares tendered or withheld shall be counted for purposes of determining the maximum number of shares available for grant under the Plan.
If a dividend or other distribution (whether in cash, shares of Common Stock or other property), recapitalization, forward or reverse stock split, subdivision, consolidation or reduction of capital, reorganization, merger, consolidation, scheme of arrangement, split-up, spin-off or combination involving us or repurchase or exchange of our shares or other securities, or other rights to purchase shares of our securities or other similar transaction or event affects our Common Stock such that the Committee determines that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits (or potential benefits) provided to grantees under the Plan, the committee will make an equitable change or adjustment as it deems appropriate in the number and kind of securities subject to awards and the related exercise price relating to an award.
Types of Awards
The Plan permits the granting of any or all of the following types of awards to all grantees:
stock options, including incentive stock options, or ISO;
stock appreciation rights, or SARs;
deferred stock and restricted stock units;
performance units and performance shares;
other stock-based awards.
Awards under the Plan may be granted for no consideration other than prior and future services. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan unless such tandem or substitution Award would subject the Grantee to tax penalties imposed under Section 409A of the Code. The material terms of each award will be set forth in a written award agreement between the grantee and us.
Stock Options and SARs
The Committee is authorized to grant SARs and stock options (including ISOs except that an ISO may only be granted to an employee of ours or one of our subsidiary corporations). A stock option allows a grantee to purchase a specified number of shares of our Common Stock at a predetermined price per share (the “exercise price”) during a fixed period measured from the date of grant. An SAR entitles the grantee to receive the excess of the fair market value of a specified number of shares on the date of exercise over a predetermined exercise price per share. The exercise price of an option or an SAR will be determined by the Committee and will be set forth in the award agreement, but the exercise price may not be less than the fair market value of a share of Common Stock on the grant date. The term of each option or SAR is determined by the Committee and set forth in the award agreement, except that the term may not exceed 10 years. Options may be exercised by payment of the purchase price through one or more of the following means: payment in cash (including personal check or wire transfer), by delivering shares of our Common Stock previously owned by the grantee, or with the approval of the Committee, by delivery of shares of our Common Stock acquired upon the exercise of such option or by delivering restricted shares. The Committee may also permit a grantee to pay the exercise price of an option through the sale of shares acquired upon exercise of the option through a broker-dealer to whom the grantee has delivered irrevocable instructions to deliver sales proceeds sufficient to pay the purchase price to us.
Restricted Shares
The Committee may award restricted shares consisting of shares of our Common Stock that remain subject to a risk of forfeiture and may not be disposed of by grantees until certain restrictions established by the Committee lapse. The vesting conditions may be service-based (i.e., requiring continuous service for a specified period) or performance-based (i.e., requiring achievement of certain specified performance objectives) or both. A grantee receiving restricted shares will have all of the rights of a stockholder, including the right to vote the shares and the right to receive any dividends, except as otherwise provided in the award agreement. Upon termination of the grantee’s affiliation with us during the restriction period (or, if applicable, upon the failure to satisfy the specified performance objectives during the restriction period), the restricted shares will be forfeited as provided in the award agreement.
Restricted Stock Units and Deferred Stock
The Committee may also grant restricted stock unit awards and/or deferred stock awards. A deferred stock award is the grant of a right to receive a specified number of shares of our Common Stock at the end of specified deferral periods or upon the occurrence of a specified event, which satisfies the requirements of Section 409A of the Code. A restricted stock unit award is the grant of a right to receive a specified number of shares of our Common Stock upon lapse of a specified forfeiture condition (such as completion of a specified period of service or achievement of certain specified performance objectives). If the service condition and/or specified performance objectives are not satisfied during the restriction period, the award will be lapse without the issuance of the shares underlying such award.
Restricted stock units and deferred stock awards carry no voting or other rights associated with stock ownership. The award agreement will provide whether grantees may receive dividend equivalents with respect to restricted stock units or deferred stock, and if so, whether such dividend equivalents are distributed when credited or deemed to be reinvested in additional shares of restricted stock units or deferred stock.
Performance Units
The Committee may grant performance units, which entitle a grantee to cash or shares conditioned upon the fulfillment of certain performance conditions and other restrictions as specified by the Committee and reflected in the award agreement. The initial value of a performance unit will be determined by the Committee at the time of grant. The Committee will determine the terms and conditions of such awards, including performance and other restrictions placed on these awards, which will be reflected in the award agreement
Performance Shares
The Committee may grant performance shares, which entitle a grantee to a certain number of shares of common stock, conditioned upon the fulfillment of certain performance conditions and other restrictions as specified by the Committee and reflected in the award agreement. The Committee will determine the terms and conditions of such awards, including performance and other restrictions placed on these awards, which will be reflected in the award agreement.
Bonus Shares
The Committee may grant fully vested shares of our Common Stock as bonus shares on such terms and conditions as specified in the award agreement.
Dividend Equivalents
The Committee is authorized to grant dividend equivalents which provide a grantee the right to receive payment equal to the dividends paid on a specified number of shares of our common stock. Dividend equivalents may be paid directly to grantees or may be deferred for later delivery under the Plan. If deferred such dividend equivalents may be credited with interest or may be deemed to be invested in shares of our Common Stock or in other property. Dividend equivalents may be granted in conjunction with other awards.
Other Stock-Based Awards
In order to enable us to respond to material developments in the area of taxes and other legislation and regulations and interpretations thereof, and to trends in executive compensation practices, the Plan authorizes the Committee to grant awards that are valued in whole or in part by reference to or otherwise based on our securities. The Committee determines the terms and conditions of such awards, including consideration paid for awards granted as share purchase rights and whether awards are paid in shares or cash.
Performance-Based Awards
The Committee may require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria, as a condition of awards being granted or becoming exercisable or payable under the Plan, or as a condition to accelerating the timing of such events. The Committee has the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals. The Committee retains the discretion in all events to adjust such awards downward. Awards may be settled in cash, stock, other awards or other property, in the discretion of the Committee.
Corporate Transactions
If there is a merger or consolidation of us with or into another corporation or a sale of substantially all of our stock (a “Corporate Transaction”), and the outstanding awards are not assumed by surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company), the Committee will cancel any outstanding awards that are not vested and nonforfeitable as of the consummation of such Corporate Transaction (unless the Committee accelerates the vesting of any such awards) and with respect to any vested and nonforfeitable awards, the Committee may either (i) allow all grantees to exercise options and SARs within a reasonable period prior to the consummation of the Corporate Transaction and cancel any outstanding options or SARs that remain unexercised upon consummation of the Corporate Transaction, or (ii) cancel any or all of such outstanding awards (including options and SARs) in exchange for a payment (in cash, or in securities or other property) in an amount equal to the amount that the grantee would have received (net of the exercise price with respect to any
options or SARs) if the vested awards were settled or distributed or such vested options and SARs were exercised immediately prior to the consummation of the Corporate Transaction. If an exercise price of the option or SAR exceeds the fair market value of our Common Stock and the option or SAR is not assumed or replaced by the surviving company (or its parent company), such options and SARs will be cancelled without any payment to the grantee.
Amendment to and Termination of the Plan
The Board may, at any time and from time to time, alter, amend, suspend, discontinue or terminate the Plan in whole or in part without the approval of the Company’s stockholders, except that (a) any amendment or alteration shall be subject to the approval of the Company’s stockholders if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, and (b) the Board may otherwise, in its discretion, determine to submit other such amendments or alterations to stockholders for approval.
In addition, subject to the terms of the Plan, no amendment or termination of the Plan may materially and adversely affect the right of a grantee under any award granted under the Plan, without the written consent of the grantee of such award.
Certain Interests of Directors
In considering the recommendation of the Board with respect to the Plan, stockholders of the Company should be aware that members of the Board may from time to time have interests that present them with conflicts of interest in connection with the proposal to approve the Plan. The Board believes that approval of the Plan will advance the interests of the Company and its stockholders by encouraging employees and directors to make significant contributions to the long-term success of the Company.
Equity Compensation Plans of the Company
Information about the securities issued, or authorized for future issuance, under our equity compensation plans is set forth in the table under the heading “Equity Compensation Plan Information” above.
Vote Required
Approval of this Proposal requires a majority of the votes cast of this Proposal. Accordingly, abstentions and broker non-votes will have no effect on the outcome of this Proposal.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF AN AMENDMENT TO THE 2019 OMNIBUS EQUITY INCENTIVE PLAN TO RESERVE AN ADDITIONAL 3,000,000 SHARES FOR ISSUANCE UNDER THE PLAN.
PROPOSAL NO. 5
TO AUTHORIZE AND APPROVE, FOR PURPOSES OF COMPLYING WITH NASDAQ LISTING RULE 5635, THE ISSUANCE OF UP TO 7,645,268MORE THAN 20% OF THE COMPANY’S ISSUED AND OUTSTANDING SHARES OF OUR COMMON STOCK UPON CONVERSION, EXCHANGE OR OTHERWISEIN CONNECTION WITH OUR LINE OF PRINCIPAL AND ACCRUED INTEREST TOCREDIT PROVIDED BY RICHARD E. UIHLEIN, OUR CHAIRMAN OF THE BOARD OF DIRECTORS, PURSUANTDIRECTORS. THE NUMBER OF SHARES TO BE ISSUED INCLUDES A MAXIMUM OF 20,000,000 COMMON SHARES IN EXCHANGE FOR $60,000,000 FOR THE TERMSPRINCIPAL OF CERTAIN UNSECURED CONVERTIBLE NOTES AGGREGATING $30,000,000THE LINE OF CREDIT, 1,700,000 OF COMMON SHARES FOR STOCK PURCHASE WARRANTS ISSUED IN CONNECTION WITH THE LINE OF CREDIT, AND COMMON SHARES ISSUABLE IN EXCHANGE FOR ACCRUED INTEREST ON THE RELATED ACCRUED INTEREST.
LINE OF CREDIT.
Background and Description of Proposal On April 16, 2021,July 25, 2022, the Company and Richard E. Uihlein (the “Lender”) entered into a debt financing arrangement whereby Mr. Uihlein loaned ten million dollarsLine of Credit Letter Agreement (the “Credit Agreement”), pursuant to Company. In consideration forwhich the loan,Lender shall provide the Company issued a line of credit of up to $60.00 million (the “Line of Credit”) to finance the Company’s working capital needs. The Company may draw upon the Line of Credit through July 31, 2024.
Each advance made pursuant to the Credit Agreement shall be evidenced by an unsecured, convertible promissory note (the “April 2021 Note”(individually, a “Promissory Note,” and collectively, the “Promissory Notes”), and bear interest at the Applicable Federal Rate (AFR) for short term loans (3.01% for September 2022), plus two (2%) percent. Principal and interest on the Promissory Notes are due on or before January 31, 2026. Only with the consent of the Lender, may the Promissory Notes be prepaid, in whole or in part, at any time without premium or penalty, but with interest on the amount or amounts prepaid.
At the election of Lender, the principal and accrued interest on Promissory Note(s) may be converted into the number of shares of the Company’s Common Stock equal to the amount of ten million dollars. The April 2021principal and accrued interest on such Promissory Note has maturitydivided by the price equal to the closing price of the Common Stock on the date of April 16, 2025 and is convertible intosuch Promissory Note, but in no event less than $3.00 per share.
In connection with the Credit Agreement, the Company agreed to issue the Lender warrants to purchase up to an aggregate of 1,700,000 shares of the Company’s common stock, par value $0.001 per share (collectively, the “Warrants”). Upon execution of the Credit Agreement, the Company issued the Lender a Warrant to purchase up to 500,000 shares of Company’s Common Stock at a conversionan exercise price equal toof $5.00 per share, atwhich Warrant is exercisable upon issuance. Further, pursuant to the optionCredit Agreement, the Company shall issue to the Lender additional Warrants to purchase up to the remaining 1,200,000 shares of the noteholder, which was 228%Company’s common stock, ratably, upon borrowings under the Credit Agreement, with exercise prices equal to 150% of the closing price of our stock on April 16, 2021. The April 2021 Note bears interest on at the rate of two percent (2%) per annum, compounded annually, and accrues additional interest at a rate of two and one-half percent (2.5%) per quarter (the “Additional Interest”) beginningCompany’s common Stock on the date of issuancethe Promissory Note evidencing such draw, but in no event more than $10.00 per share nor less than $3.00 per share. The Warrants expire on July 31, 2029.
Estimate of the April 2021 Note and endingNumber of Shares of Common Stock Issuable
We are seeking shareholder approval of (i) 1,700,000 shares of our common stock issuable upon exercise of the Warrants, (ii) up to an aggregate of 20,000,000 shares of our common stock issuable upon conversion of the principal amount of the Promissory Notes, based on the maturity date, provided however, that such Additional Interest is payable ifcredit limit of $60.0 million (if we draw upon the maximum available credit limit) and only if the noteholder elects to convert the entire balanceminimum conversion price of $3.00 per share, and (iii) an indeterminate number of shares of our common stock issuable upon conversion of the April 2021 Note intointerest that may accrue under the Company’s common stock. Upon maturityPromissory Notes because of the April 2021 Note,timing of the Company would issue 2,964,864borrowings and interest rate at the time of borrowings.