30MAY201501513574 February 22, 2017 To Our Stockholders, You are cordially invited to attend a Special Meeting of Stockholders of BioPharmX Corporation. The meeting will be held at the law offices of Fenwick & West LLP, counsel to BioPharmX Corporation, located at 801 California Street, Mountain View, California 94041, on Tuesday, March 28, 2017 at 10:00 a.m. (Pacific Time) for the following purposes: 1. To approve an amendment to our certificate of incorporation to increase the total number of authorized shares of common stock from 90,000,000 shares to 450,000,000 shares (the Authorized Share Increase Proposal ). 2. To approve an amendment to our certificate of incorporation to effect a reverse stock split at a ratio not less than 1-for-2 and not greater than 1-for-25, with the exact ratio to be set within that range at the discretion of our board of directors before January 31, 2018 without further approval or authorization of our stockholders (the Reverse Split Proposal ). The board of directors may alternatively elect to abandon such proposed amendment and not effect the reverse stock split authorized by stockholders, in its sole discretion. 3. Contingent upon (i) the approval of the Authorized Share Increase Proposal or (ii) the Reverse Split Proposal and the Board s subsequent determination to effect the reverse split, to approve the amendment of our 2016 Equity Incentive Plan such that the number of shares available for issuance thereunder will increase by 20,000,000 shares on a pre-split basis (the Plan Increase Proposal ). In addition, stockholders may be asked to consider and vote upon such other business as may properly come before the meeting or any adjournment or postponement thereof. This proxy statement was first mailed to our stockholders on or about February 22, 2017. The board of directors unanimously believes that (i) the Authorized Share Increase Proposal, (ii) the Reverse Split Proposal and (iii) the Plan Increase Proposal are in our best interests and that of our stockholders. Accordingly, our board of directors recommends a vote (i) FOR the Authorized Share Increase Proposal, (ii) FOR the Reverse Split Proposal and (iii) FOR the Plan Increase Proposal. Please use this opportunity to take part in our company s affairs by voting on the business to come before the meeting. It is important that your shares be represented and voted whether or not you plan to attend the special meeting in person. You may vote by attending the special meeting and voting in person. You also may vote by submitting a proxy. Voting by proxy will ensure your shares are represented at the special meeting. Please review the voting instructions in the enclosed proxy card or the information forwarded by your bank, broker or other holder of record. Sincerely, Anja Krammer President 25MAY201618535637
30MAY201501513574 BIOPHARMX CORPORATION 1505 Adams Drive Menlo Park, California 94025 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Our Stockholders: I am pleased to invite you to attend the Special Meeting of Stockholders of BioPharmX Corporation (the Company ) that will be held on Tuesday, March 28, 2017 at 10:00 a.m. (Pacific Time) at the law offices of Fenwick & West LLP, counsel to the Company, located at 801 California Street, Mountain View, California 94041 for the following purposes: 1. To approve an amendment to our certificate of incorporation to increase the total number of authorized shares of common stock from 90,000,000 shares to 450,000,000 shares (the Authorized Share Increase Proposal ). 2. To approve an amendment to our certificate of incorporation to effect a reverse stock split at a ratio not less than 1-for-2 and not greater than 1-for-25, with the exact ratio to be set within that range at the discretion of our board of directors before January 31, 2018 without further approval or authorization of our stockholders (the Reverse Split Proposal ). The board of directors may alternatively elect to abandon such proposed amendment and not effect the reverse stock split authorized by stockholders, in its sole discretion. 3. Contingent upon the approval of (i) the Authorized Share Increase Proposal or (ii) the Reverse Split Proposal and the Board s subsequent determination to effect the reverse split, to approve the amendment of our 2016 Equity Incentive Plan such that the number of shares available for issuance thereunder will increase by 20,000,000 shares on a pre-split basis (the Plan Increase Proposal ). In addition, stockholders may be asked to consider and vote upon such other business as may properly come before the meeting or any adjournment or postponement thereof. This proxy statement was first mailed to our stockholders on or about February 22, 2017. Only stockholders of record as of February 15, 2017 are entitled to notice of, and to vote at, the meeting and any adjournments thereof. For ten days prior to the meeting, a complete list of the stockholders entitled to vote at the meeting will be available during ordinary business hours at our principal executive offices for examination by any stockholder for any purpose relating to the meeting. The board of directors unanimously believes that (i) the Authorized Share Increase Proposal, (ii) the Reverse Split Proposal and (iii) the Plan Increase Proposal are in our best interests and that of our stockholders. Accordingly, our board of directors recommends a vote (i) FOR the Authorized Share Increase Proposal, (ii) FOR the Reverse Split Proposal and (iii) FOR the Plan Increase Proposal. Your vote as a BioPharmX Corporation stockholder is very important. With respect to all matters that will come before the meeting, each holder of shares of common stock is entitled to one vote for each share of common stock held as of February 15, 2017, the record date. For questions regarding your stock ownership, if you are a registered holder, you can contact our transfer agent, Computershare
Trust Company, N.A. by email through their website at www.computershare.com/contactus or by phone at (877) 373-6374. By Order of our Board of Directors, 25MAY201618535637 Anja Krammer President Menlo Park, California February 22, 2017 Whether or not you expect to attend the meeting, we encourage you to read the proxy statement and vote through the internet, by telephone or and submit your proxy card as soon as possible, so that your shares may be represented at the meeting. For specific instructions on how to vote your shares, please refer to the section entitled General Information About the Meeting beginning on page 1 of the proxy statement and your proxy card. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 28, 2017: THIS PROXY STATEMENT IS AVAILABLE AT HTTP://www.proxyvote.com
BIOPHARMX CORPORATION PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS TABLE OF CONTENTS GENERAL PROXY INFORMATION... 1 Information About Solicitation and Voting... 1 General Information About the Meeting... 1 Voting Rights; Required Vote... 1 Recommendations of our Board of Directors on Each of the Proposals Scheduled to be Voted on at the Meeting... 2 Voting Instructions; Voting of Proxies... 2 Expenses of Soliciting Proxies... 3 Revocability of Proxies... 3 Voting Results... 4 Stockholder Proposals to be Presented at Next Annual Meeting... 4 PROPOSAL 1: TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANY S AUTHORIZED SHARES OF COMMON STOCK TO 450,000,000 SHARES... 5 Reasons for the Increase... 5 Concurrent Approval of Reverse Stock Split... 7 Approval Required... 7 PROPOSAL 2: TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT... 8 General... 8 Criteria to be Used for Decision to Apply the Reverse Stock Split... 9 Effect of the Reverse Stock Split... 9 Certain Risks and Potential Disadvantages Associated with the Reverse Stock Split... 11 Procedure for Effecting the Reverse Stock Split and Exchange of Stock Certificates... 11 Fractional Shares... 12 No Appraisal Rights... 12 Accounting Consequences... 12 Federal Income Tax Consequences... 12 Vote Required and Board of Directors Recommendation... 13 PROPOSAL 3: APPROVAL TO AMEND OUR 2016 EQUITY INCENTIVE PLAN... 14 Purpose of the Plan Increase... 14 Shares Available Under the 2016 Plan... 15 Summary of 2016 Plan... 15 U.S. Federal Income Tax Consequences... 20 Plan Benefits... 21 History of Grants under the 2016 Plan... 21 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 23 EXECUTIVE COMPENSATION... 25 Fiscal 2017 Summary Compensation Table... 26 Narrative Disclosure to Summary Compensation Table... 26 Outstanding Equity Awards at January 31, 2017... 29 Equity Compensation Plan Information... 30 DIRECTOR COMPENSATION... 30 Compensation Committee Interlocks and Insider Participation... 32 ADDITIONAL INFORMATION... 32 Available Information... 32 Householding Stockholders Sharing the Same Last Name and Address... 32 STOCKHOLDER COMMUNICATIONS... 33 OTHER MATTERS... 33
APPENDIX A BIOPHARMX CORPORATION CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION APPENDIX B BIOPHARMX CORPORATION CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION APPENDIX C BIOPHARMX CORPORATION AMENDED 2016 EQUITY INCENTIVE PLAN
BIOPHARMX CORPORATION 1505 Adams Drive Menlo Park, California 94025 PROXY STATEMENT FOR THE SPECIAL MEETING OF STOCKHOLDERS February 22, 2017 GENERAL PROXY INFORMATION Information About Solicitation and Voting The accompanying proxy is solicited on behalf of the board of directors (the Board ) of BioPharmX Corporation ( we, us or the Company ) for use at our Special Meeting of Stockholders (the meeting or the Special Meeting ) to be held at the law offices of Fenwick & West LLP, counsel to BioPharmX Corporation, located at 801 California Street, Mountain View, California 94041, on Tuesday, March 28, 2017, at 10:00 a.m. (Pacific Time), and any adjournment or postponement thereof. If you held shares of our common stock as of February 15, 2017 (the record date ), you are invited to attend the meeting and vote on the proposals described in this proxy statement. General Information About the Meeting Purpose of the Meeting At the meeting, stockholders will act upon the proposals described in this proxy statement. Record Date; Quorum Only holders of record of shares of our common stock as of February 15, 2017, the record date, will be entitled to vote at the meeting. As of February 15, 2017, we had 67,719,577 shares of common stock outstanding and entitled to vote, and 1,515 shares of Series A convertible preferred stock, which is non-voting except in defined circumstances. The holders of a majority of the voting power of the shares of stock entitled to vote at the meeting as of the record date must be present at the meeting in order to hold the meeting and conduct business. This presence is called a quorum. Your shares are counted as present at the meeting if you are present and vote in person at the meeting or if you have properly submitted a proxy. Voting Rights; Required Vote With respect to all matters that will come before the meeting, each holder of shares of common stock is entitled to one vote for each share of common stock held as of February 15, 2017, the record date. Holders of the Company s Series A convertible preferred stock are not entitled to vote on any of the matters that will come before this meeting. You may vote all shares of common stock owned by you as of February 15, 2017, including (1) shares held directly in your name as the stockholder of record and (2) shares held for you as the beneficial owner in street name through a broker, bank, trustee, or other nominee. Stockholder of Record: Shares Registered in Your Name. If, as of February 15, 2017, your shares were registered directly in your name with our transfer agent, Computershare Trust Company, N.A., then you are considered the stockholder of record with respect to those shares. As a stockholder of 1
record, you may vote at the meeting or vote by telephone or by filling out and returning the proxy card. Beneficial Owner: Shares Registered in the Name of a Broker or Nominee. If, as of February 15, 2017, your shares were held in an account with a brokerage firm, bank or other nominee, then you are the beneficial owner of the shares held in street name. As a beneficial owner, you have the right to direct your nominee on how to vote the shares held in your account. However, the organization that holds your shares is considered the stockholder of record for purposes of voting at the meeting. Because you are not the stockholder of record, you may not vote your shares at the meeting unless you request and obtain a valid proxy from the organization that holds your shares giving you the right to vote the shares at the meeting. Broker non-votes occur when shares held by a broker for a beneficial owner are not voted either because (i) the broker did not receive voting instructions from the beneficial owner, or (ii) the broker lacked discretionary authority to vote the shares. Broker non-votes are counted for purposes of determining whether a quorum is present, but are not treated as votes cast and, therefore, will have the effect of a vote against proposals requiring the affirmative vote of the holders of the majority of the outstanding shares of our common stock and no effect on proposals requiring the affirmative vote of a majority of the votes cast. If your broker holds your shares in its name and you do not instruct your broker how to vote, your broker will only have discretion to vote your shares on routine matters. Where a proposal is not routine, a broker who has not received instructions from its clients does not have discretion to vote its clients uninstructed shares on that proposal. At our Special Meeting, the Authorized Share Increase Proposal and the Reverse Split Proposal are considered routine matters, while the Plan Increase Proposal is considered a non-routine matter. This means that your bank, broker or other nominee may vote in its discretion on the Authorized Share Increase Proposal and the Reverse Split Proposal on your behalf if you have not furnished voting instructions. Absent direction from you, your broker will also not have discretion to vote on the Plan Increase Proposal. Accordingly, we encourage you to provide voting instructions to your broker, whether or not you plan to attend the meeting. The affirmative vote of the holders of the majority of the outstanding shares of our common stock is required for approval of Authorized Share Increase Proposal and the Reverse Split Proposal and broker non-votes and abstentations will have the effect of a vote AGAINST these proposals. The affirmative vote of a majority of the votes cast at the special meeting is required for approval of the Plan Increase Proposal. Abstentions will have the effect of a vote AGAINST this proposal, while broker non-votes will have no effect on the outcome of the vote on this proposal. Recommendations of our Board of Directors on Each of the Proposals Scheduled to be Voted on at the Meeting The board of directors recommends that you vote FOR the Authorized Share Increase Proposal, FOR the Reverse Split Proposal and FOR the Plan Increase Proposal. Voting Instructions; Voting of Proxies If you are a stockholder of record, you may: vote in person we will provide a ballot to stockholders who attend the meeting and wish to vote in person; vote through the internet or via telephone in order to do so, please follow the instructions shown on your proxy card; or 2
vote by mail simply complete, sign and date the enclosed proxy card and return it before the meeting in the envelope provided. Votes submitted through the internet or by telephone must be received by 11:59 p.m., Eastern Time, on March 27, 2017. Submitting your proxy (whether through the internet or by telephone or by mail) will not affect your right to vote in person should you decide to attend the meeting. If you are not the stockholder of record, please refer to the voting instructions provided by your nominee to direct it how to vote your shares. For the Authorized Share Increase Proposal, the Reverse Split Proposal and the Plan Increase Proposal, you may vote FOR or AGAINST or ABSTAIN from voting. Your vote is important. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure that your vote is counted. All proxies will be voted in accordance with the instructions specified on the proxy card. If you sign a physical proxy card and return it without instructions as to how your shares should be voted on a particular proposal at the meeting, your shares will be voted in accordance with the recommendations of our board of directors stated above. If you do not vote and you hold your shares in street name, and your broker does not have discretionary power to vote your shares, your shares may constitute broker non-votes (as described above). If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. To make certain all of your shares are voted, please follow the instructions included on each proxy card and vote each proxy card through the internet or by telephone. If you are voting by mail, please complete, sign and return each proxy card to ensure that all of your shares are voted. Expenses of Soliciting Proxies The expenses of soliciting proxies will be paid by us. Following the original mailing of the soliciting materials, we and our agents may solicit proxies by mail, electronic mail, telephone, facsimile, by other similar means, or in person. Our directors, officers, and other employees, without additional compensation, may solicit proxies personally or in writing, by telephone, e-mail, or otherwise. Following the original mailing of the soliciting materials, we will request brokers, custodians, nominees and other record holders to forward copies of the soliciting materials to persons for whom they hold shares and to request authority for the exercise of proxies. In such cases, the Company, upon the request of the record holders, will reimburse such holders for their reasonable expenses. Revocability of Proxies A stockholder of record who has submitted a proxy may revoke it at any time before it is exercised at the meeting by: delivering to our Corporate Secretary (by any means, including facsimile) a written notice stating that the proxy is revoked; signing and delivering a proxy bearing a later date; voting again by telephone; or attending and voting at the meeting (although attendance at the meeting will not, by itself, revoke a proxy). Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to revoke a proxy, you must contact that firm to revoke any prior voting instructions. 3
Voting Results Voting results will be tabulated and certified by the inspector of elections appointed for the meeting. The final results will be tallied by the inspector of elections and filed with the Securities and Exchange Commission ( SEC ) in a Current Report on Form 8-K within four business days of the meeting. Stockholder Proposals to be Presented at Next Annual Meeting Pursuant to Rule 14a-8 under the Exchange Act, for stockholder nominations to the Board or other proposals to be considered at an annual meeting, the stockholder must give timely notice thereof in writing to the Company at BioPharmX Corporation, 1505 Adams Drive, Menlo Park, CA 94025. To be timely for the 2017 annual meeting, stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act must be delivered to or mailed and received at the principal executive offices of BioPharmX Corporation not later than January 31, 2017 in order to be considered for inclusion in our proxy materials for that meeting. Notices received after January 31, 2017, along with any proposals contained therein, will be considered untimely and the proposals or nominees set forth therein will not be brought before the 2017 annual meeting. Pursuant to Rule 14a-5(e) under the Exchange Act, in order for a notice of a shareholder proposal submitted outside the processes of Rule 14a-8 (as described above) to be considered timely for the Company s 2017 annual meeting, such stockholder proposal pursuant to Rule 14a-5(e) must be delivered to or mailed and received at the principal executive offices of BioPharmX Corporation not later than April 17, 2017. 4
PROPOSAL NO. 1 TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANY S AUTHORIZED SHARES OF COMMON STOCK TO 450,000,000 SHARES On February 10, 2017, our board of directors unanimously approved, subject to stockholder approval, an amendment to our certificate of incorporation to increase the number of shares of common stock authorized for issuance by 360,000,000 shares of common stock, bringing the total number of shares of common stock authorized to 450,000,000 shares. These shares do not offer any preemptive rights. The text of the proposed amendment to the Certificate of Incorporation is attached hereto as Appendix 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 Company s number of shares of authorized common stock will be increased to 450,000,000 shares upon the filing of the certificate of amendment with the Secretary of State of Delaware. The following discussion is qualified in its entirety by the full text of the certificate of amendment, which is incorporated herein by reference. Reasons for the Increase In November 2016, the Company issued warrants to purchase 31,301,511 shares of common stock. In January 2017, the Company issued additional warrants to purchase 198,214 shares of common stock. These warrants are exercisable on the later of the one year anniversary of the issuance date and the first trading day following our stockholder meeting in which the stockholders approve an increase to the number of authorized shares of common stock needed to cover the shares issuable upon exercise of the warrants. The Company has agreed to use reasonable best efforts to obtain approval by the Company s stockholders of an amendment to the Company s certificate of incorporation increasing the aggregate number of authorized shares of common stock such that the Company shall have sufficient authorized but unissued and otherwise unreserved shares of common stock, solely for the purpose of enabling it to issue shares upon exercise of the warrants. The Board believes that it is desirable to have additional authorized shares of common stock available for the exercise of the Company s issued and outstanding warrants (described above), possible future financings, the increase in the number of shares reserved under the Company s 2016 Equity Incentive Plan described in the Plan Increase Proposal (Proposal 3) and other general corporate purposes. The Board believes that having such additional authorized shares of common stock available for issuance in the future will give the Company greater flexibility and may allow such shares to be issued without the expense and delay of a special stockholders meeting unless such approval is expressly required by applicable law. Although such issuance of additional shares with respect to future financings and acquisitions would dilute existing stockholders, management believes that such transactions would increase the overall value of the Company to its stockholders. There are certain advantages and disadvantages of an increase in authorized common stock. The advantages include: The ability to raise capital by issuing capital stock under the type of transactions described above, or other financing transactions. To have shares of common stock available to pursue business expansion opportunities, if any. To have sufficient authorized but unissued shares of common stock available for the exercise of the Company s issued and outstanding warrants. To have sufficient authorized but unissued shares of common stock available for the issuance and exercise of additional stock options if Proposal 3 is approved. 5
The disadvantages include: 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 Board s 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. Most of our stockholders do not have any preemptive or similar rights to subscribe for or purchase any additional shares of common stock that may be issued in the future, and therefore, future issuances of common stock may, depending on the circumstances, have a dilutive effect on the earnings per share, voting power and other interests of existing stockholders of the Company. The additional shares of common stock for which authorization is sought in this proposal would be part of the existing class of common stock and, if and when issued, would have the same rights and privileges as the shares of common stock presently outstanding. 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. At present, other than allowing for the exercise of the Company s issued and outstanding warrants as described in the Authorized Share Increase Proposal (Proposal 1) and granting equity incentives for our employees as described in the Plan Increase Proposal (Proposal 3), our board of directors has no immediate plans, arrangements or understandings to issue the additional shares of common stock. However, we desire to have the shares available to provide additional flexibility to use our common stock for business and financial purposes in the future as well to have sufficient shares available to provide appropriate equity incentives for our employees. If the Company s stockholders do not approve the increase in authorized shares of common stock, then the Company will not be able to increase the total number of authorized shares of common stock from 90,000,000 to 450,000,000, and therefore, the Company could be limited in its ability to use shares of common stock for financing, issuing stock options, or other general corporate purposes. In addition, if the Company s stockholders do not approve an increase of the total number of authorized shares of common stock to a number sufficient to allow for the exercise of its issued and outstanding warrants, the Company has agreed to submit a proposal to increase the total number of authorized shares of common stock at least annually until such approval is obtained. As of January 31, 2017, the Company only had 4,959,097 shares of common stock authorized and unreserved for issuance, which would be available for such purposes, and does not include the warrants described above. Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this proposed amendment, except (1) to the extent of their ownership in shares of our common stock and securities convertible or exercisable for common stock and (2) one of our directors, Stephen Morlock, owns 321,428 warrants to purchase shares of our common stock which cannot be exercised until the later of the one year anniversary of the issuance date and the first trading day following our stockholder meeting in which the stockholders approve an increase to the number of authorized shares of common stock needed to cover the shares issuable upon exercise of the warrants. 6
Concurrent Approval of Reverse Stock Split Concurrently with the approval of the increase in authorized shares of common stock, the Company s stockholders are also being asked to approve a reverse stock split at a ratio of any whole number between 1-for-2 and 1-for-25, as determined by the Board, and an amendment to the Company s Certificate of Incorporation to implement the reverse stock split at any time before January 31, 2018, if and as determined by the Board (see Reverse Split Proposal (Proposal 2)). If the Reverse Split Proposal is approved by the Company s stockholders and a reverse split is effectuated, a reverse stock split would reduce, on a proportionate basis for each stockholder, the aggregate number of shares of common stock outstanding without reducing the total number of shares of common stock authorized for issuance, whether or not such number remains at 90,000,000 or is increased to 450,000,000 by this proposal. As a result, if a reverse stock split were effectuated, the Company would have additional authorized shares available for future issuance without further stockholder approval. Any such future issuance of common stock could, depending on the circumstances, be used to deter a potential takeover or have a further dilutive effect on the earnings per share, voting power and other interests of existing stockholders. The current proposal to increase the number of authorized shares of common stock to 450,000,000 has no bearing on the board of director s ability to effect a reverse stock split, if concurrently authorized by stockholders pursuant to the Reverse Split Proposal (Proposal 2) below. The Board s determination as to whether to effect a reverse stock split and, if so, at what ratio, would be based on the same factors reported in the Reverse Split Proposal below. Approval Required Pursuant to the Delaware General Corporation Law, this proposal must be approved by the affirmative vote of a majority of the outstanding shares of common stock of the Company entitled to vote on the proposal. Abstentions and broker non-votes with respect to this proposal will be counted for purposes of establishing a quorum and, if a quorum is present, will have the same practical effect as a vote against this proposal. The Board recommends that the stockholders vote FOR the proposal to increase the Company s authorized number of shares of common stock to 450,000,000 shares of common stock. 7
PROPOSAL NO. 2 TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT General On February 10, 2017, our board of directors unanimously approved, subject to stockholder approval, an amendment to our certificate of incorporation to effect a reverse stock split of our outstanding common stock by combining outstanding shares of common stock into a lesser number of outstanding shares of common stock by a ratio of not less than 1-for-2 and not more than 1-for-25 at any time prior to January 31, 2018, with the exact ratio to be set within this range by our board of directors at its sole discretion. The board of directors may alternatively elect to abandon such proposed amendment and not effect the reverse stock split authorized by stockholders, in its sole discretion. Upon the effectiveness of the amendment to our certificate of incorporation effecting the reverse stock split, the outstanding shares of our common stock will be reclassified and combined into a lesser number of shares such that one share of our common stock will be issued for a specified number of shares. If this Proposal 2 is approved by our stockholders as proposed, our board of directors would have the sole discretion to effect the amendment and reverse stock split at any time prior to January 31, 2018, and to fix the specific ratio for the reverse stock split, provided that the ratio would be not less than 1-for-2 and not more than 1-for-25. We believe that enabling our board of directors to fix the specific ratio of the reverse stock split within the stated range will provide us with the flexibility to implement the split in a manner designed to maximize the anticipated benefits for our stockholders. The determination of the ratio of the reverse stock split will be based on a number of factors, described further below under the heading Criteria to be Used for Decision to Apply the Reverse Stock Split. The reverse stock split, if approved by our stockholders, would become effective upon the filing of an amendment to our certificate of incorporation with the Secretary of State of the State of Delaware, or at the later time set forth in the amendment. The exact timing of the amendment will be determined by our board of directors based on its evaluation as to when such action will be the most advantageous to us and our stockholders, but will not occur after January 31, 2018. In addition, our board of directors reserves the right, notwithstanding stockholder approval and without further action by our stockholders, to abandon the amendment and the reverse stock split if, at any time prior to the effectiveness of the filing of the amendment with the Secretary of State, our board of directors, in its sole discretion, determines that it is no longer in our best interest and the best interests of our stockholders to proceed. The primary purpose for effecting the reverse stock split is to increase the per share trading price of our common stock so as to: broaden the pool of investors that may be interested in investing in our company by attracting new investors who would prefer not to invest in shares that trade at lower share prices; increase the number of shares of our common stock available for issuance under our 2016 Equity Incentive Plan; make our common stock a more attractive investment to institutional investors; better enable us to raise funds to finance planned operations; and maintain the listing of the Company s common stock and avoid a delisting of the Company s common stock from the NYSE MKT in the future. 8
Our board of directors further believes that an increased stock price may encourage investor interest and improve the marketability of our common stock to a broader range of investors, and thus improve liquidity and lower average transaction costs. Because of the trading volatility often associated with low-priced stocks, many brokerage firms and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Our board of directors believes that the anticipated higher market price resulting from a reverse stock split would enable institutional investors and brokerage firms with policies and practices such as those described above to invest in our common stock. At present, other than allowing for the exercise of the Company s issued and outstanding warrants as described in the Authorized Share Increase Proposal (Proposal 1) and granting equity incentives for our employees as described in the Plan Increase Proposal (Proposal 3), our board of directors has no immediate plans, arrangements or understandings to issue the additional shares of common stock. However, we desire to have the shares available to provide additional flexibility to use our common stock for business and financial purposes in the future as well to have sufficient shares available to provide appropriate equity incentives for our employees. In evaluating the reverse stock split, our board of directors also took into consideration negative factors associated with reverse stock splits. These factors include the negative perception of reverse stock splits held by many investors, analysts and other stock market participants, as well as the fact that the stock price of some companies that have effected reverse stock splits has subsequently declined back to pre-reverse stock split levels. Our board of directors, however, determined that these potential negative factors were significantly outweighed by the potential benefits, and believes that by increasing the per share market price of our common stock as a result of the reverse stock split may encourage greater interest in our common stock and enhance the acceptability and marketability of our common stock to the financial community and investing public as well as promote greater liquidity for our stockholders. The form of the proposed amendment to our certificate of incorporation to effect the reverse stock split is attached as Appendix B to this proxy statement. Any amendment to our certificate of incorporation to effect the reverse stock split will include the reverse stock split ratio fixed by our board of directors, within the range approved by our stockholders. Criteria to be Used for Decision to Apply the Reverse Stock Split If our stockholders approve the reverse stock split, our board of directors will be authorized to proceed with the reverse split. In determining whether to proceed with the reverse split and setting the exact amount of split, if any, our board of directors will consider a number of factors, including results from our ongoing clinical trials, market conditions, and existing and expected trading prices of our common stock. Effect of the Reverse Stock Split The reverse stock split will be effected simultaneously for all outstanding shares of our common stock. The reverse stock split will affect all of our stockholders uniformly and will not affect any stockholder s percentage ownership interest in our company, except to the extent that the reverse stock split results in any of our stockholders owning a fractional share. The reverse stock split will not change the terms of our common stock. After the reverse stock split, the shares of common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized, which is not entitled to preemptive or subscription rights, and is not subject to conversion, redemption or sinking fund provisions. The post-reverse stock split common stock will remain fully paid and non-assessable. The reverse stock split is not intended as, and will not 9
have the effect of, a going private transaction covered by Rule 13e-3 under the Securities Exchange Act of 1934. Following the reverse stock split, we will continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934. As of the effective time of the reverse stock split, we will adjust and proportionately decrease the number of shares of our common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants and other rights to acquire our common stock. In addition, as of the effective time of the reverse stock split, we will adjust and proportionately decrease the total number of shares of our common stock that may be the subject of the future grants under our stock plans. As of the effective time of the reverse stock split, the conversion ratio by which shares of our outstanding preferred stock convert to common stock will also be automatically adjusted such that the number of shares of common stock issuable upon conversion of our preferred stock will be proportionally reduced. The reverse stock split will not change the number of authorized shares of our preferred stock or the terms of the preferred stock. Assuming reverse stock split ratios of 1-for-2, 1-for-12 and 1-for-25, which reflect the low end, middle and high end of the range that our stockholders are being asked to approve, the following table sets forth (i) the number of shares of our common stock that would be issued and outstanding, (ii) the number of shares of our common stock that would be reserved for issuance pursuant to outstanding warrants, options, and preferred stock, and (iii) the weighted-average exercise price of outstanding options and warrants, each giving effect to the reverse stock split and based on securities outstanding as of January 31, 2017. Number of Reverse Shares Before Reverse Stock Reverse Stock Stock Reverse Stock Split Ratio of Split Ratio of Split Ratio of Split 1-for-2 1-for-12 1-for-25 Number of Shares of Common Stock Issued and Outstanding... 67,719,577 33,859,789 5,643,298 2,708,783 Number of Shares of Common Stock Reserved for Issuance... 48,821,051 24,410,526 4,068,421 1,952,842 Weighted Average Exercise Price of Options and Warrants... $ 0.63 $ 1.26 $ 7.59 $ 15.80 If this Reverse Split Proposal (Proposal 2) is approved and our board of directors elects to effect the reverse stock split, the number of outstanding shares of common stock will be reduced in proportion to the ratio of the split chosen by our board of directors. Accordingly, if a reverse stock split is effected, the number of authorized shares of common stock will be proportionally increased. Additionally, if this Reverse Split Proposal (Proposal 2) is approved and our board of directors elects to effect the reverse stock split, we would communicate to the public, prior to the effective date of the stock split, additional details regarding the reverse split, including the specific ratio selected by our board of directors. If the board of directors does not implement the reverse stock split by January 31, 2018, the authority granted in this proposal to implement the reverse stock split will terminate. Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this proposed amendment, except to the extent of their ownership in shares of our common stock and securities convertible or exercisable for common stock. 10
Certain Risks and Potential Disadvantages Associated with the Reverse Stock Split The effect of the reverse stock split upon the market prices for our common stock cannot be accurately predicted, and the history of similar stock split combinations for companies in like circumstances is varied. If the reverse stock split is implemented, the post-split market price of our common stock may be less than the pre-split price multiplied by the reverse stock split ratio. In addition, a reduction in number of shares outstanding may impair the liquidity for our common stock, which may reduce the value of our common stock. Also, some stockholders may consequently own less than one hundred shares of our common stock. A purchase or sale of less than one hundred shares may result in incrementally higher trading costs through certain brokers, particularly full service brokers. Therefore, those stockholders who own less than one hundred shares following the reverse stock split may be required to pay modestly higher transaction costs should they then determine to sell their shares. Please also see the advantages and disadvantages of increasing the number of authorized shares of common stock set forth above in Proposal 1. Procedure for Effecting the Reverse Stock Split and Exchange of Stock Certificates If our stockholders approve the proposal to effect the reverse stock split, and if our board of directors still believes that a reverse stock split is in the best interests of us and our stockholders, our board of directors will determine the ratio of the reverse stock split to be implemented and we will file the certificate of amendment with the Secretary of State of the State of Delaware. As soon as practicable after the effective date of the reverse stock split, stockholders will be notified that the reverse stock split has been effected. Beneficial Owners of Common Stock. Upon the implementation of the reverse stock split, we intend to treat shares held by stockholders in street name (i.e., through a bank, broker, custodian or other nominee), in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the reverse stock split and making payment for fractional shares. If a stockholder holds shares of our common stock with a bank, broker, custodian or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker, custodian or other nominee. Registered Holders of Common Stock. Certain of our registered holders of common stock hold some or all of their shares electronically in book-entry form with our transfer agent, Computershare, Inc. These stockholders do not hold physical stock certificates evidencing their ownership of our common stock. However, they are provided with a statement reflecting the number of shares of our common stock registered in their accounts. If a stockholder holds registered shares in book-entry form with our transfer agent, no action needs to be taken to receive post-reverse stock split shares or payment in lieu of fractional shares, if applicable. If a stockholder is entitled to post-reverse stock split shares, a transaction statement will automatically be sent to the stockholder s address of record indicating the number of shares of our common stock held following the reverse stock split. Holders of Certificated Shares of Common Stock. As of the date of this proxy statement, certain of our shares of common stock were held in certificated form. Stockholders of record at the time of the reverse stock split who hold shares of our common stock in certificated form will be sent a transmittal letter by the transfer agent after the effective time that will contain the necessary materials and instructions on how a stockholder should surrender his, her or its certificates, if any, representing shares of our common stock to the transfer agent. 11
Fractional Shares We will not issue fractional shares in connection with the reverse stock split. Instead, stockholders who otherwise would be entitled to receive fractional shares because they hold a number of shares not evenly divisible by the reverse stock split ratio will be entitled, upon surrender to the exchange agent of certificates representing such shares, to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock, as reported on the NYSE MKT, on the last trading day prior to the effective date of the split. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other rights except to receive payment therefor as described herein. No Appraisal Rights No action is proposed herein for which the laws of the State of Delaware, or our certificate of incorporation or bylaws, provide a right to our stockholders to dissent and obtain appraisal of, or payment for, such stockholders capital stock. Accounting Consequences The reverse stock split will not affect total assets, liabilities or shareholders equity. However, the per share net income or loss and net book value of the common stock will be retroactively increased for each period because there will be fewer shares of common stock outstanding. Federal Income Tax Consequences The following discussion is a summary of certain U.S. federal income tax consequences of a reverse stock split to us and to stockholders that hold shares of our common stock as capital assets for U.S. federal income tax purposes. This discussion is based upon current U.S. tax law, which is subject to change, possibly with retroactive effect, and differing interpretations. Any such change may cause the U.S. federal income tax consequences of a reverse stock split to vary substantially from the consequences summarized below. This summary does not address all aspects of U.S. federal income taxation that may be relevant to stockholders in light of their particular circumstances or to stockholders who may be subject to special tax treatment under the Internal Revenue Code of 1986, as amended (the Code ), including, without limitation, dealers in securities, commodities or foreign currency, persons who are treated as non-u.s. persons for U.S. federal income tax purposes, certain former citizens or long-term residents of the United States, insurance companies, tax-exempt organizations, banks, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, retirement plans, persons whose functional currency is not the U.S. dollar, traders that mark-to-market their securities, persons subject to the alternative minimum tax or Medicare contribution tax on net investment income, persons who hold their shares of our common stock as part of a hedge, straddle, conversion or other risk reduction transaction, persons who hold their shares of our common stock as qualified small business stock under Section 1045 and/or 1202 of the Code, or who acquired their shares of our common stock pursuant to the exercise of compensatory stock options, the vesting of previously restricted shares of stock or otherwise as compensation. The state and local tax consequences of a reverse split may vary as to each stockholder, depending on the jurisdiction in which such stockholder resides, and any state or local tax considerations are beyond the scope of this discussion. This discussion should not be considered as tax or investment advice, and the tax consequences of a reverse stock split may not be the same for all stockholders. Stockholders should consult their own tax advisors to understand their individual federal, state, local and foreign tax consequences. 12