form of the Authorized Stock Amendment to accomplish the reduction in authorized common shares is attached to this Proxy Statement
as Appendix C. The following discussion is qualified in its entirety by the full text of the Authorized Stock Amendment, which
is incorporated herein by reference.
for the Decrease in Authorized Shares
currently have 300 million shares of authorized common stock. As of the Record Date, there were 59,304,222 shares of common stock
issued and outstanding. In addition, as of the Record Date, there were 1,107,689 shares of common stock reserved for issuance
upon exercise of outstanding warrants; 47,844,562 shares of common stock reserved for issuance upon conversion of outstanding
Series A Convertible Preferred Stock; and approximately 3,254,503 shares of common stock reserved for issuance upon exercise of
outstanding equity awards under our stock option and equity incentive plans.
a special meeting of the shareholders held on July 10, 2012, the shareholders approved an increase in the authorized shares from
100 million to 300 million in order to provide a sufficient number of authorized shares for transactions and issuances that were
contemplated at that time. Also at the 2012 special meeting of shareholders, the shareholders approved an amendment to our certificate
of incorporation to effect a reverse stock split of our common stock, and on July 10, 2012, we effected a reverse split of our
common stock at a ratio of one for ten shares. As a result, the number of shares underlying outstanding options, warrants and
other rights to acquire our common stock was significantly reduced. Therefore, the Board of Directors believes that a reduction
of the authorized shares of common stock to 100 million is sufficient to support the Company’s ongoing efforts to raise
capital to fund its operations for the foreseeable future, as well as to maintain appropriate reserves for issuance on conversion
or exercise of outstanding rights to acquire our common stock and future equity grants to employees and directors.
the proposed reduction in our authorized common stock may enable us to reduce the amount of the Company’s annual franchise
tax in the State of Delaware. Each year, we are required to make franchise tax payments to the State of Delaware in an amount
determined, in part, by the total number of shares of stock we are authorized to issue. Accordingly, by reducing the number of
authorized shares of stock, we may be able to reduce the amount of the franchise tax for which we will be liable.
this Proposal No. 5 is approved by the shareholders, the amendment to our Certificate of Incorporation will become effective upon
the filing of the Authorized Stock Amendment with the Secretary of State of the State of Delaware. If our Board of Directors does
not implement the Authorized Stock Amendment within 12 months from the Annual Meeting, the authority granted in this proposal
to implement the reduction in authorized common shares will terminate. Our Board of Directors reserves its right to elect not
to proceed with the reduction in authorized common shares if it determines, in its sole discretion, that this proposal is no longer
in the best interests of the Company or its shareholders.
of the Decrease in Authorized Shares
approved by our shareholders, the lower number of authorized shares of common stock would be available for issuance for any proper
corporate purpose as determined by our Board of Directors without further approval by the shareholders, except as required by
law, the OTCQX® or the rules of any other national securities exchange on which our shares of common stock are listed.
will be no change in the rights attributable to our authorized shares of common stock. The proposed amendment will not affect
the par value of the common stock, which will remain at $0.001 per share. Under our certificate of incorporation, our shareholders
do not have preemptive rights to subscribe to additional securities that we may issue; in other words, current holders of common
stock do not have a prior right to purchase any new issue of our capital stock to maintain their proportionate ownership of common
stock. If we issue additional shares of common stock or other securities convertible into common stock in the future, it will
dilute the voting rights of existing holders of common stock and will also dilute earnings per share and book value per share.