Vote Required and Board Recommendation
Approval of the Charter Amendment to increase the authorized shares of common stock requires the affirmative vote of the holders of a majority of the issued and outstanding shares of the Company’s common stock as of the record date.
Purpose of Proposed Amendment
Our common stock consists of a single class, with equal voting, distribution, liquidation and other rights. As of June 2, 2020, of our 50,000,000 shares of common stock that had been authorized immediately prior to the May Amendment, 40,868,549 shares were outstanding. In addition, there were 3,664,110 shares underlying outstanding equity awards granted under our equity incentive plans, 36,522 shares underlying outstanding equity awards granted outside of our equity incentive plans, 2,111,914 shares reserved for future issuance under our equity incentive plans (without taking into account the increase of an aggregate of 2,950,000 shares of common stock available for issuance under our 2013 Equity Incentive Plan, Non-employee Compensation Plan, Employee Share Purchase Plan and Performance Share Unit Plan approved at our 2020 Annual Meeting), and 3,938,802 shares reserved for future issuance under outstanding warrants as of June 2, 2020.
As of June 2, 2020, approximately 97.0% of our currently authorized common stock was either issued and outstanding, underlay outstanding awards, or was issuable upon exercise of outstanding warrants. The Board of Directors does not believe that we currently have enough shares authorized to provide for sufficient flexibility to pursue appropriate equity financing opportunities if they arise or to take certain other actions that the Board may determine is in the best interests of the Company and the best interests of our stockholders. However, as stated above, at this time we have no plans, arrangements or understandings for any transactions that would involve the issuance of such additional authorized shares.
The increase in authorized shares of common stock will give the Board the flexibility to undertake certain transactions to support our business operations, without the potential expense or delay associated with obtaining stockholder approval for any particular issuance. For example, we could issue additional shares of common stock in the future in connection with one or more of the following (subject to laws, regulations or stock market rules that might require stockholder approval of certain transactions):
financing transactions, such as public or private offerings of common stock or convertible securities;
partnerships, collaborations and other similar transactions;
debt or equity restructuring or refinancing transactions;
stock splits or stock dividends; or
any other proper corporate purposes.
The increase will also facilitate our ability to continue implementing our employee equity programs at competitive levels.
Potential Adverse Effects of Proposed Amendment
If this proposal is adopted, the additional authorized shares of common stock can be issued or reserved with approval of the Board at times, in amounts, and upon terms that the Board may determine, without additional stockholder approval. Stockholder approval of this proposal will not, by itself, cause any change in our capital accounts. However, any future issuance of additional shares of authorized common stock, or securities convertible into common stock, would ultimately result in dilution of existing stockholders’ equity interests and could have a dilutive effect on book value per share and any future earnings per share. Dilution of equity interests could also cause prevailing market prices for our common stock to decline. Current stockholders will not have preemptive rights to purchase additional shares.
In addition to dilution, the availability of additional shares of common stock for issuance could, under certain circumstances, discourage or make more difficult any efforts to obtain control of us. The Board is not aware of any actual or contemplated attempt to acquire control of the Company and this proposal is not being