upon exercise of the Conversion Option by Foris is intended to be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the Securities Act and/or the Regulation D “safe harbor” provisions promulgated thereunder.
Potential Adverse Effects — Dilution and Impact of the Offering on Existing Stockholders
The issuance of shares of our Common Stock upon exercise by Foris of its Conversion Option would have a dilutive effect on current stockholders and the percentage ownership of the Company held by such current stockholders would decline as a result of such issuance, and therefore, our current stockholders would have less ability to influence significant corporate decisions requiring stockholder approval. In addition, the issuance of our Common Stock upon exercise by Foris of its Conversion Option could have a dilutive effect on book value per share and any future earnings per share of our Common Stock. Dilution of equity interests could also cause prevailing market prices for our Common Stock to decline.
Due to potential adjustments to the number of shares of our Common Stock issuable upon exercise by Foris of its Conversion Option, the exact magnitude of the potential dilutive effect of the issuance of shares of our Common Stock upon such exercise cannot be conclusively determined. However, the dilutive effect may be material to current stockholders of the Company. As a result of the potential effects of this issuance, Foris may be able to continue to control or significantly influence our management and affairs, and matters requiring stockholder approval (e.g., the election of directors, the approval of significant corporate transactions, such as mergers, consolidations or the sale of all or substantially all of our assets), and may not act in the best interests of our other stockholders in any of these matters. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, or a change in our management or board of directors, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, even if such actions would benefit our other stockholders.
Interests of Certain Persons When you consider the Board’s recommendation to vote in favor of Proposal 1, you should be aware that director John Doerr is affiliated with Foris as well as Kleiner Perkins Caufield & Byers, a current stockholder, and may have interests that may be different from, or in addition to, the interests of other of our stockholders. The beneficial ownership of Foris and its affiliates, including Mr. Doerr and Kleiner Perkins Caufield & Byers, is outlined below in the Section “Security Ownership of Certain Beneficial Owners and Management.” Foris currently also holds shares of Series E Convertible Preferred Stock that will automatically convert if Proposal 2 is approved and Rights to purchase shares of Common Stock. Foris will not, as a result of the exercise of its Conversion Option and outstanding Rights and automatic conversion of its shares of Series E Convertible Preferred Stock, acquire rights to a majority of the voting power of the Company.
The Loan Agreement Amendment, including the Conversion Option, was approved via unanimous written consent of the Board. There are no stockholders with preemptive rights that apply with respect to the Conversion Option or the Loan Agreement Amendment.
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