of such shares in the public market could depress the market price of Seelos' common stock. If the adjustment provisions in the Financing Warrants are triggered,
a substantial number of additional shares of Seelos' common stock may become issuable upon exercise of the Financing Warrants, potentially increasing the impact of any subsequent
exercise of the Financing Warrants and resale of the shares issuable pursuant thereto.
Anti-takeover provisions in Seelos' charter documents and under Nevada law could make an acquisition of Seelos more difficult and may prevent attempts by Seelos' stockholders to replace or remove Seelos' management.
Provisions in Seelos' articles of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified
board of directors and the ability of the board of directors to issue preferred stock without stockholder approval. Although Seelos believes these provisions collectively will provide for an
opportunity to receive higher bids by requiring potential acquirers to negotiate with Seelos' board of directors, they would apply even if the offer may be considered beneficial by some
stockholders. In addition, these provisions may frustrate or prevent any attempts by Seelos' stockholders to replace or remove then current management by making it more difficult for
stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Certain provisions of Nevada corporate law deter hostile takeovers. Specifically, NRS 78.411 through 78.444 prohibit a publicly held Nevada corporation from engaging
in a "combination" with an "interested stockholder" for a period of two years following the date the person first became an interested shareholder, unless (with certain
exceptions) the "combination" or the transaction by which the person became an interested shareholder is approved in a prescribed manner. Generally, a "combination"
includes a merger, asset or stock sale, or certain other transactions resulting in a financial benefit to the interested shareholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, beneficially owns or within two years prior to becoming an "interested shareholder" did own, 10% or more of a corporation's voting
power. While these statutes permit a corporation to opt out of these protective provisions in its articles of incorporation, Seelos' articles of incorporation do not include any such opt-out
Nevada's "acquisition of controlling interest" statutes, NRS 78.378 through 78.3793, contain provisions governing the acquisition of a controlling interest in
certain Nevada corporations. These "control share" laws provide generally that any person that acquires a "controlling interest" in certain Nevada corporations may be
denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. These statutes provide that a person acquires a "controlling
interest" whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or
more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer
crosses one of these thresholds, shares that it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired
or offered to acquire a controlling interest become "control shares" to which the voting restrictions described above apply. While these statutes permit a corporation to opt out of
these protective provisions in its articles of incorporation or bylaws, Seelos' articles of incorporation and bylaws do not include any such opt-out provision.
Further, NRS 78.139 provides that directors of a Nevada corporation may resist a change or potential change in control if the board of directors determines that the
change is opposed to, or not in, the best interests of the corporation.
Seelos' pre-Merger net operating loss carryforwards and certain other tax attributes may be subject to limitations. The pre-merger net operating loss
carryforwards and certain other tax attributes of Seelos may also be subject to limitations as a result of ownership changes resulting from the Merger.
In general, a corporation that undergoes an "ownership change" as defined in Section 382 of the United States Internal Revenue Code of 1986, as
amended, is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards to offset future taxable income. In general, an ownership change occurs if the aggregate
stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of a corporation's common stock, applying certain look-through and aggregation rules,
increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period, generally three years. Seelos may have experienced ownership
changes in the past and may experience ownership changes in the future. It is possible that Seelos' net operating loss carryforwards and certain other tax attributes may also be subject to
limitation as a result of ownership changes in the past and/or the closing of the merger. Consequently, even if Seelos achieves profitability, it may not be able to utilize a material portion of
Seelos' net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.
Seelos may never pay dividends on Seelos' common stock so any returns would be limited to the appreciation of Seelos' stock.
Seelos currently anticipates that Seelos will retain future earnings for the development, operation and expansion of Seelos' business and does not anticipate it
will declare or pay any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.