OWCP OWC Pharmaceuticals Research Corporation (CE)

PROPOSAL NO. 1

BOARD AUTHORIZATION TO EFFECT AUTHORIZE REVERSE STOCK SPLIT

Our Board of Directors proposes that our stockholders approve a proposal to authorize our Board of Directors to effect a reverse stock split of all outstanding shares of our Common Stock, at any ratio between 1-for 10 and 1-for-20 at such time as our Board of Directors shall determine, in its sole discretion, before September 7, 2020, in order to, among other reasons, assist the Company’s potential capital-raising efforts. The effect of this proposal would be solely to increase the authorized ratio of the reverse split and would not authorize our Board of Directors to effect more than one reverse split. If this proposal is approved, our Board of Directors would have the authority to effect one reverse stock split. Our Board of Directors believes that approval of a proposal providing our Board of Directors with this generalized grant of authority with respect to setting the split ratio, rather than mere approval of a pre-defined reverse stock split, will give our Board of Directors the flexibility to set the ratio in accordance with current market conditions and therefore allow our Board of Directors to act in the best interests of the Company and our stockholders.

In determining the ratio following the receipt of stockholder approval, our Board of Directors may consider, among other things, factors such as:

If our stockholders grant our Board of Directors the authority to effect a reverse stock split, we would file a Certificate of Amendment to the Company’s Certificate of Incorporation, as amended, with the Delaware Secretary of State to effect the proposed reverse stock split, in substantially the form attached to this proxy statement as Appendix A, the text of which may be altered for any changes required by the Delaware Secretary of State and changes deemed necessary or advisable by our Board of Directors. Our Board of Directors has approved and declared advisable the proposed Certificate of Amendment. If the proposed reverse stock split is implemented, then the number of issued and outstanding shares of our Common Stock would be reduced. However, the Board of Directors will retain the authority not to effect the reverse stock split even if we receive stockholder approval. If the Certificate of Amendment is not filed with the Secretary of State of the State of Delaware prior to September 10, 2020, the reverse stock split will be abandoned, without any further effect. Thus, subject to stockholder approval, the Board of Directors, at its discretion, may cause the filing of the Certificate of Amendment to effect a reverse stock split or abandon it and effect no reverse stock split if it determines that such action is not in the best interests of our Company and stockholders.

Purpose of Proposed Reverse Stock Split

At the present time, the Company does not have authorized and unissued shares of Common Stock to issue to any potential investors of the Company or to the holders of the Series A Preferred Stock or Series B Preferred Stock upon conversion of such preferred stock . Without the ability to issue shares of Common Stock, the Company cannot attact investors and obtain the funds required to continue operations and cannot perform its contractual obligations to the holders of the Series A Preferred Stock or Series B Preferred Stock.

We have very limited cash holdings and do not currently generate revenue or cash flows from operations. Unless we are able to raise capital, we will not be able to continue operations, including development and protection of our intellectual property assets.. In order to raise capital through the sale of equity securities, the Company needs to create available authorized capital stock through the Reverse Split. We cannot assure that we will be able to raise additional capital sufficient to fund our anticipated expenditures. There is also no assurance that additional capital will be on terms and conditions favorable to us. Moreover, depending on the trading price for our Common Stock, the Series A Preferred Stock may be convertible into a significant portion of our authorized and unissued Common Stock following the Reverse Split and that factor as well as the other terms of the Series A Preferred Stock may make it difficult or impossible for us to raise capital through the sale of equity or debt securities.

We are submitting this proposal to our stockholders for approval in an attempt to continue to trade on the OTCQB and also in preparation for a potential “uplisting” of our Common Stock from the OTCQB Marketplace to major Capital Market, and to help attract institutional investors with minimum trading price requirements. We believe increasing the trading price of our Common Stock will also assist in our capital-raising efforts by making our Common Stock more attractive to a broader range of investors. Accordingly, we believe that the reverse stock split is in our stockholders’ best interests.

In addition, an increase in the per share trading value of our Common Stock would be beneficial because it may:

You should consider that, although our Board of Directors believes that a reverse stock split will in fact increase the price of our Common Stock, in many cases, because of variables outside of a company’s control (such as market volatility, investor response to the news of a proposed reverse stock split and the general economic environment), the market price of a company’s shares of Common Stock may in fact decline in value after a reverse stock split. You should also keep in mind that the implementation of a reverse stock split does not have an effect on the actual or intrinsic value of our business or a stockholder’s proportional ownership in our Company. However, should the overall value of our Common Stock decline after the proposed reverse stock split, then the actual or intrinsic value of the shares of our Common Stock held by you will also proportionately decrease as a result of the overall decline in value.

Potential Effects of the Proposed Reverse Stock Split

If this proposal is approved and the reverse stock split is implemented, the reverse stock split will be realized simultaneously and in the same ratio for all of our issued and outstanding shares of Common Stock. The immediate effect of a reverse stock split would be to reduce the number of shares of our Common Stock outstanding and to increase the trading price of our Common Stock.

However, we cannot predict the effect of any reverse stock split upon the market price of our Common Stock over an extended period, and in many cases, the market value of a company’s Common Stock following a reverse stock split declines. We cannot assure you that the trading price of our Common Stock after the reverse stock split will rise in inverse proportion to the reduction in the number of shares of our Common Stock outstanding as a result of the reverse stock split. Also, we cannot assure you that a reverse stock split would lead to a sustained increase in the trading price of our Common Stock. The trading price of our Common Stock may change due to a variety of other factors, including our operating results and other factors related to our business and general market conditions.

Examples of Potential Reverse Stock Split at Various Ratios. The table below provides examples of reverse stock splits at various ratios between 1-for 10 and 1-for-20, without giving effect to the treatment of fractional shares. The actual number of shares outstanding after giving effect to the reverse stock split, if implemented, will depend on the actual ratio that is determined by our Board.

The resulting decrease in the number of shares of our Common Stock outstanding could potentially adversely affect the liquidity of our Common Stock, especially in the case of larger block trades.

Effects on Ownership by Individual Stockholders. If we implement a reverse stock split, the number of shares of our Common Stock held by each stockholder would be reduced by multiplying the number of shares held immediately before the reverse stock split by the appropriate ratio and then rounding down to the nearest whole share. We would pay cash to each stockholder in lieu of any fractional interest in a share to which each stockholder would otherwise be entitled as a result of the reverse stock split, as described in further detail below. The reverse stock split would not affect any stockholder’s percentage ownership interest in our Company or proportionate voting power, except to the extent that interests in fractional shares would be paid in cash.

Effect on Preferred Stock, Options and Warrants. In addition, we would adjust all outstanding shares of any preferred stock, options and warrants entitling the holders to purchase or convert into shares of our Common Stock as a result of the reverse stock split, as required by the terms of these securities. In particular, we would reduce the conversion ratio for each instrument, and would increase the conversion price or exercise price, as applicable, in accordance with the terms of each instrument and based on a 1-for-20 ratio of the reverse stock split (i.e., the number of shares issuable under such securities would decrease by up to 95% and the exercise price per share would be multiplied by 20). Also, we would reduce the number of shares reserved for issuance under our existing 2016 Israeli Employee Share Option Plan, or the 2016 Plan, proportionately based on the ratio of the reverse stock split. A reverse stock split would not otherwise affect any of the rights currently accruing to holders of our Common Stock, or options or warrants exercisable for our Common Stock.

Series A Preferred Stock

In the event of conversion of shares of our Series A Preferred Stock and warrants to purchase shares of our Common Stock, you may experience substantial dilution of your Common Stock.

On April 30, 2018, we consummated the sale, to a non-US-based institutional investor, of 500 shares of our Series A Convertible Preferred Stock, which were initially convertible into 25,000,000 shares of our Common Stock and warrants to purchase 12,500,000 shares of our Common Stock, at an initial exercise price of $0.22 per share (the “Warrants”). On November 27, 2018, as a result of a “triggering event,” the conversion price was adjusted to an amount equal to (A) 75% of the quotient determined by dividing (x) the sum of the three (3) lowest closing prices of our Common Stock during the period beginning ten (10) trading days prior to such triggering event conversion date and ending three (3) trading days after the shares of Common Stock are received into the investor’s brokerage account and fully cleared for trading, by (y) three (3), minus (B) $0.01.

On November 27, 2018, as a result of a “triggering event,” as previously disclosed in our filing with the Securities and Exchange Commission (“SEC”), the conversion price of the Series A Preferred Shares was adjusted to an amount equal to (A) 75% of the quotient determined by dividing (x) the sum of the three (3) lowest closing prices of our common stock during the period beginning ten (10) trading days prior to such triggering event conversion date and ending three (3) trading days after the shares of common stock are received into the investor’s brokerage account and fully cleared for trading, by (y) three (3), minus (B) $0.01. As of August [●], 2020, the Investor converted an aggregate of [●]g shares of Preferred Stock into an aggregate of [●] shares of the Common Stock at the conversion prices in effect on the respective conversion dates and in payment of dividends on the Preferred Stock.

As of August [●], 2020, there were issued and outstanding [●] shares of the Series A Preferred Shares, which are currently convertible into [●] shares of our common stock at a conversion price of $0.20, subject to adjustment pursuant to the anti-dilution provisions of the Series A Preferred Shares. The Series A Preferred Shares have a beneficial ownership limitation such that none of the holders of the Series A Preferred Shares have the right to convert the Series A Preferred Shares to the extent that after giving effect to such conversion, the holder (together with its affiliates and any other persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the shares of our common stock outstanding immediately after giving effect to such conversion. By written notice to us, however, a holder of the Series A Preferred Shares may waive the Maximum Percentage provision, which such notice will be effective 61 calendar days after the date of such notice.

Depending on the trading price for our Common Stock, the Series A Preferred Stock may be convertible into a significant portion of our authorized and unissued Common Stock following the Reverse Split and may make it difficult or impossible for us to raise capital through the sale of other equity securities. Thus, the benefit of the Reverse Split may inure substantially to the holder of the Series A Preferred Stock and not the Company or the other holders of our equity securities.

Please read the risk factors contained in our periodic reports with the SEC for a description of other risks related to the Series A Preferred Stock.

Other Effects on Outstanding Shares. If we implement a reverse stock split, the rights pertaining to the outstanding shares of our Common Stock would be unchanged after the reverse stock split. Each share of our Common Stock issued following the reverse stock split would be fully paid and nonassessable.

The reverse stock split would result in some stockholders owning “odd-lots” of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares.

After the effective time, our Common Stock will have a new Committee on Uniform Securities Identification Procedures (CUSIP) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for shares of Common Stock with the new CUSIP number by following the procedures described below. However, until such exchange is made, the old stock certificates will automatically represent the new, post-split number of shares. After the reverse stock split, we will continue to file periodic and current reports and comply with other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Common Stock should continue to be listed on the OTC Pink Market under the symbol “OWCP” subject to any decision of our Board of Directors to list our securities on a stock exchange.

Authorized Shares of Stock

The reverse stock split would affect all issued and outstanding shares of Common Stock and outstanding rights to acquire shares of our Common Stock. We will not change the number of shares of Common Stock currently authorized unless Proposal 2. is approved by the stockholders, in which case we will increase the authorized shares of Common Stock. However, upon the effectiveness of the reverse stock split, the number of authorized shares of Common Stock that are not issued or outstanding would increase due to the reduction in the number of shares of Common Stock issued and outstanding as a result of the reverse stock split.

As of August [●], 2020, we had (i) 500,000,000 shares of authorized Common Stock, par value $0.00001 per share, of which 497,498,338 shares of Common Stock were issued and outstanding, and (ii) 20,000,000 shares of authorized preferred stock, par value $0.00001 per share, of which (i) 500 shares were designated as Series A Convertible Preferred Stock, par value $0.00001 per share, and of [●] shares of Series A Preferred Convertible Preferred Stock were issued and outstanding, and 150,000 shares were designated as Series B Convertible Preferred Stock, par value $0.00001 per share, and of which [●] shares of Series B Preferred Convertible Preferred Stock were issued and outstanding. If we issue additional shares, the ownership interest of holders of Common Stock will be diluted.

We will reserve for issuance any authorized but unissued shares of Common Stock that would be made available as a result of the proposed reverse stock split.

We do not have any plans, arrangements or understandings for the remaining portion of the authorized but unissued shares that will be available following the reverse stock split, with the exception of our current commitments, including our obligations to issue shares of Common Stock upon conversion of our outstanding shares of Series A Convertible Preferred Stock.

Procedure for Effecting the Proposed Stock Split and Exchange of Stock Certificates

If stockholders approve the proposal, we will file with the Delaware Secretary of State a Certificate of Amendment to our Certificate of Incorporation, as amended. The reverse stock split will become effective at the time and on the date of filing of, or at such later time as is specified in, the Certificate of Amendment, which we refer to as the “effective time” and “effective date,” respectively. Beginning at the effective time, each certificate representing shares of Common Stock will be deemed for all corporate purposes to evidence ownership of the number of whole shares into which the shares previously represented by the certificate were combined pursuant to the reverse stock split.

Upon a reverse stock split, we intend to treat stockholders holding our Common Stock in “street name,” through a bank, broker or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers 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 or other nominees may have different procedures than registered stockholders for processing the reverse stock split. If you hold your shares with a bank, broker or other nominee and if you have any questions in this regard, we encourage you to contact your nominee.

Following any reverse stock split, stockholders holding physical certificates must exchange those certificates for new certificates and a cash payment in lieu of any fractional shares.

Our transfer agent will advise registered stockholders of the procedures to be followed to exchange certificates in a letter of transmittal to be sent to stockholders. No new certificates will be issued to a stockholder until the stockholder has surrendered the stockholder’s outstanding certificate(s), together with the properly completed and executed letter of transmittal, to the transfer agent. Any old shares submitted for transfer, whether pursuant to a sale, other disposition or otherwise, will automatically be exchanged for new shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) until requested to do so.

Fractional Shares

We would not issue fractional shares in connection with the reverse stock split. Instead, any fractional share resulting from the reverse stock split because the stockholder owns a number of shares not evenly divisible by the ratio would instead receive cash upon surrender to the exchange agent of the certificates and a properly completed and executed letter of transmittal. The cash amount to be paid to each stockholder would be equal to the resulting fractional interest in one share of our Common Stock to which the stockholder would otherwise be entitled, multiplied by the closing trading price of our Common Stock on the trading day immediately preceding the effective date of the reverse stock split..

No Appraisal Rights

No appraisal rights are available under the Delaware General Corporation Law or under our Certificate of Incorporation or bylaws with respect to the reverse stock split. There may exist other rights or actions under state law for stockholders who are aggrieved by reverse stock splits generally.

Accounting Consequences

The par value of our Common Stock would remain unchanged at $0.00001 per share after the reverse stock split. Also, our capital account would remain unchanged, and we do not anticipate that any other material accounting consequences would arise as a result of the reverse stock split.

No Going Private Transaction

Notwithstanding the decrease in the number of outstanding shares following the reverse stock split, our Board of Directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.

Potential Anti-Takeover Effect

The SEC rules require disclosure and discussion of the effects of any proposal that could be used as an anti-takeover device. This proposal, if adopted and implemented, will result in a relative increase in the number of authorized but unissued shares of our Common Stock vis-à-vis the outstanding shares of our Common Stock and could, under certain circumstances, have an anti-takeover effect, although that is not the purpose or intent of the proposal. A relative increase in the number of authorized but unissued shares of Common Stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized shares. A relative increase in our authorized but unissued shares of Common Stock could potentially deter takeovers, including takeovers that our Board of Directors determines are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. Our Board of Directors is not aware of any attempt to take control of our business and has not considered the reverse stock split to be a tool to be utilized as a type of anti-takeover device. We currently have no plans, proposals or arrangements to issue any shares of Common Stock that would become newly available for issuance as a result of the reverse stock split, with the exception of our commitments, including our obligations to issue shares of Common Stock upon conversion of our outstanding shares of Series A Convertible Preferred Stock.

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split

The following is a summary of the material U.S. federal income tax consequences of the reverse stock split to holders of our shares. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated thereunder, and administrative rulings and court decisions in effect as of the date of this document, all of which may be subject to change, possibly with retroactive effect. This summary only addresses holders who hold their shares as capital assets within the meaning of the Code and does not address all aspects of U.S. federal income taxation that may be relevant to holders subject to special tax treatment, such as financial institutions, dealers in securities, insurance companies, foreign persons and tax-exempt entities. In addition, this summary does not consider the effects of any applicable state, local, foreign or other tax laws.

We have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”), or an opinion from counsel with respect to the U.S. federal income tax consequences discussed below. There can be no assurance that the tax consequences discussed below would be accepted by the IRS or a court. The tax treatment of the reverse stock split to holders may vary depending upon a holder’s particular facts and circumstances.

We urge holders to consult with their own tax advisors as to any U.S. federal, state, local or foreign tax consequences applicable to them that could result from the reverse stock split.

Except as described below with respect to cash received in lieu of fractional shares, the receipt of Common Stock in the reverse stock split should not result in any taxable gain or loss to a holder for U.S. federal income tax purposes. The aggregate tax basis of the Common Stock received by a holder as a result of the reverse stock split (including the basis of any fractional share to which a holder is entitled) will be equal to the aggregate basis of the existing Common Stock exchanged for such stock. A holder’s holding period for the Common Stock received in the reverse stock split will include the holding period of the Common Stock exchanged therefor.

A holder who receives cash in lieu of a fractional share of Common Stock will be treated as first receiving such fractional share and then receiving cash in redemption of such fractional share. A holder generally will recognize capital gain or loss on such deemed redemption in an amount equal to the difference between the amount of cash received and the adjusted basis of such fractional share.

Board Discretion to Implement the Reverse Stock Split

If the proposed reverse stock split is approved at the Meeting, our Board of Directors, in its sole discretion, may determine to implement the reverse stock split at any time as the Board of Directors shall determine before September 7, 2020. Notwithstanding the approval of the reverse stock split amendment at the Meeting, our Board of Directors, in its sole discretion, may determine not to implement the reverse stock split.

Required Vote

The affirmative vote of a majority of the outstanding shares of Common Stock and Series A Preferred Stock entitled to vote is required for approval of the proposed amendment. Therefore, abstentions and broker non-votes will have the same effect as votes against this proposal.

Recommendation of the Board of Directors

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL NO. 1 TO AUTHORIZE OUR BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT.