NOTE 13 — SUBSEQUENT EVENTS

Financing Activities

As discussed in Note 6, the Company granted each of the New Investors a call option to provide additional financing whereby each New Investor may elect to purchase up to $10.0 million of Common Stock at a purchase price equal to the greater of (i) $0.29 per share or (ii) 75% of the volume weighted average closing price (“VWAP”) of the Company’s Common Stock during the thirty consecutive trading days prior to the date of the notice. As discussed in Note 9, in June 2019 the Company entered into a financial advisory agreement to undertake a private placement of (i) the shares of Common Stock issuable under the call option issued to the New Investors for a total of $20.0 million, plus (ii) between approximately $20 million and $30 million of equity or equity equivalent securities to be issued to other investors. On July 23, 2019, the Company entered into a purchase agreement whereby the New Investors exercised their call option to purchase an aggregate of approximately 69.0 million shares of Common Stock for gross cash proceeds of $20.0 million. Since VWAP for the previous thirty consecutive trading days was $0.20 per share, the New Investors exercised the call option at a purchase price of $0.29 per share. In addition, during July and August 2019 other investors purchased an aggregate of approximately 14.0 million shares of Common Stock at a purchase price of $0.29 per share for gross cash proceeds of $4,050,000. Pursuant to the financial advisory agreement, the Company agreed to pay a fee of 6.0% of the gross proceeds received from these private placements. The total advisory fees related to these issuances in July and August 2019 amounted to approximately $1.4 million, resulting in net proceeds of $22.6 million.

As discussed in Note 4, the completion of these financings resulted in the obligation to make Early Payments of approximately $3.4 million under the License Agreement with Xoma. The Early Payments were paid in August 2019 and eliminated the requirement to make Future Cash Payments that would have otherwise been due on September 30, 2020 for $2.0 million and on June 30, 2020 for approximately $1.4 million.

Restricted Funds

In connection with the private placement discussed above, one of the investors purchased approximately 13.1 million shares of Common Stock for gross proceeds of $3.8 million. Pursuant to a separate agreement with the investor, the Company agreed to make expenditures totaling $3.8 million prior to August 2020 for qualified research and development activities, and for the Company’s planned uplisting to a national stock exchange.

Unaudited Pro Forma Disclosure

Presented below is an unaudited pro forma balance sheet that gives effect to the Financing Activities and Early Payments discussed above, as if these events had occurred on June 30, 2019:

Employment Agreements

On July 31, 2019, the Board of Directors approved entering into three employment agreements with officers of the Company that provide for aggregate annual base salaries of approximately $1.0 million plus eligibility for performance bonuses up to between 25% and 30% of annual compensation. This employment agreements may be terminated by the Company at any time with or without cause. If termination occurs within one year after a change of control, then the officers are entitled to a severance payment equal to their respective annual base salaries which range from $280,000 to $365,000. On July 31, 2019, the Company also entered into an employment agreement with the Company’s former chief accounting officer that provided for an annual base salary of $265,000. This agreement was terminated in August 2019.

2019 Equity Incentive Plan

On July 31, 2019, the Company’s Board of Directors adopted the 2019 Non Qualified Stock Option Plan (the “2019 Plan”). The 2019 Plan provides for the authority to grant 15.0 million shares of the Company’s Common Stock to employees, officers, non-employee directors, consultants, independent contractors, or advisors of the Company. Options granted under the 2019 Plan are limited to non-qualified stock options.

The 2019 Plan is administered by the Board of Directors or a committee designated by the Board, who have the authority to determine the employees, officers, non-employee directors, consultants, independent contractors, or advisors to whom options will be granted, the vesting rights, and the terms and conditions of each option that is granted. Options granted pursuant to the 2019 Plan are exercisable no later than ten years after the date of grant. The exercise price per share of common stock for options granted pursuant to the 2019 Plan shall be determined by the Board or such committee designated by the Board. The 2019 Plan will terminate on July 31, 2029.

Stock Option Grants

On July 31, 2019, the Board of Directors granted stock options for an aggregate of approximately 34.0 million shares of Common Stock to certain officers and employees at an exercise price of $0.29 per share. The closing price of the Company’s shares of Common Stock on the date of grant was approximately $0.21 per share. The option grants were designated for 19.0 million shares under the 2016 Plan and 15.0 million shares under the 2019 Plan. Presented below is a summary of the number of options granted to executive officers and other employees:

In August 2019, the Company’s chief accounting officer terminated employment which resulted in forfeiture of stock options shown in the table above with time-based vesting for 0.8 million shares and performance vesting for 0.4 million shares.

Accrued Bonus Payments

On July 31, 2019, the Board of Directors approved cash bonus payments to three executive officers for past services totaling $448,000. The liability to make these payments is included in accrued compensation and benefits in the consolidated balance sheet as of June 30, 2019. In August 2019, the Company paid the cash bonus payments to the three executive officers.

Master Services Agreement

Effective July 1, 2019, the Company entered into a Master Services Agreement (“MSA”) with the New Investors whereby certain employees of the Company will provide services on behalf of, and at the direction of, the New Investors.  The services relate to an existing long acting growth hormone program being advance by the New Investors. This program is referred to as GX-H9, and the objective of the MSA is to assist the New Investors to advance GX-H9 to Phase 3 studies in the U.S. and Europe. Pursuant to the MSA, the New Investors agreed to reimburse the Company for future services at a fixed rate of $200 per hour spent by the Company’s designated employees.

Reverse Stock Split

On August 2019, the Company’s Board of Directors approved a reverse stock split (the “Reverse Stock Split”) that is subject to stockholder approval at a special meeting that is expected to occur in 2019. If approved by stockholders, the Board of Directors would then have the ability at any time through September 25, 2020 to execute the Reverse Stock Split and set the exchange ratio between 20 and 100 shares of the Company’s outstanding Common Stock, $0.001 par value per share, into one issued and outstanding share of Common Stock, without any change in the par value per share or the number of shares of common stock authorized. If the Reverse Stock Split is subsequently implemented, the number of shares subject to outstanding stock options and warrants will also be adjusted with a corresponding adjustment to the related exercise prices.