Proposal No. 5
Approval of Amendment to the Amended and Restated Articles of Incorporation to Require that, in the Case of a Combination, the Authorized Shares Should be Reduced Commensurately with the Reduction in Outstanding Shares and Approval to Conform Cross-References and Other Immaterial Clean-Up Changes in the Amended and Restated Articles of Incorporation
Proposal 5(a) – To approve an amendment requiring that, in the case of a combination (a reverse stock split), the authorized shares of the Company should be reduced commensurately with the reduction in outstanding shares.
The Company’s Articles of Incorporation, as amended to date, provides that upon the effectiveness of any “combination,” as such term is defined in Section 607.10025(1) of the Florida Business Corporations Act, the authorized shares of the classes or series of stock affected by the combination shall not be reduced or otherwise affected by the percentage by which the issued shares of such class or series were reduced as a result of the combination.
As part of an ongoing review of our corporate governance and based on shareholder input, the Board determined that it is in the best interests of the Company and our shareholders to require that, in the case of a combination, the authorized shares should be reduced commensurately with the reduction in outstanding shares.
Section 607.10025(1) of the Florida Business Corporation Act provides that a corporation may effect a combination of its shares (a reverse stock split), as provided in that Section. Subsection (2) of that Section permits the combination to be effected by the Board of Directors without shareholder approval unless “the percentage of authorized shares remaining unissued after the share, […] combination will exceed the percentage of authorized shares that was unissued before the division or combination.” In other words, to effect a combination that results in the authorized shares being unaffected (as is currently provided in the Company’s Amended and Restated Articles of Incorporation), shareholder approval would be required.
Subsection (7) of this Section reiterates this position by stating that following a combination, “the authorized shares of the classes or series affected by the combination shall be reduced by the same percentage by which the issued shares of such class or series were reduced as a result of the combination, unless the articles of incorporation otherwise provide or the combination was approved by the shareholders […].” This provision implies that if the articles provide that authorized shares are not decreased, the combination can be effected without shareholder approval. Nevertheless, subsection (2) requires shareholder approval unless the authorized shares are reduced by the same percentage that the outstanding shares were reduced.
From a shareholder approval standpoint, the amendment for which the Company seeks approval, providing that the authorized shares shall be reduced commensurately with the reduction in outstanding shares, is much more shareholder friendly. For example, if there were 200 unauthorized shares and 100 shares outstanding and a 10-to-1 reverse stock split is effected, under the current provision, 10 shares would be outstanding, but 200 shares would still be authorized. This would create a much bigger opportunity to dilute existing shareholders since they own one-half of the authorized shares prior to the reverse split, and only 5% of the shares after the split.
This change is being made to ensure that shareholders are not subject to additional dilution caused by a reverse stock split.
www.sec.gov/Archives/edgar/data/1289496/000135448815002698/cbai_pre14a.htm
