Adial Pharmaceuticals Inc

Management asks shareholders to approve issuing 12,930,601 shares of common stock upon conversion of the Series A Preferred Stock issued in the June 11, 2026 merger with Azora to comply with Nasdaq Listing Rules 5635(a) and 5635(b). The preferred shares were issued as merger consideration and convert into 1,000 common shares each, subject to beneficial ownership limitations and transfer restrictions. Board recommends approval because Nasdaq requires shareholder approval where an issuance equals or exceeds 20% of pre-transaction common shares; without approval the Company may face inability to list, potential cash settlement obligations to preferred holders after six months, and operational disruption (multiple adjournments) under the Merger Agreement. The proposal is tied to broader financing and listing efforts: if approved and Nasdaq grants conditional approval, the conversion will dilute legacy shareholders substantially (the filing estimates tens to hundreds of percentage points of share issuance relative to the small pre-transaction float), materially changing ownership and control; it also enables subsequent steps in the financing and integration. The Board argues that the merger and the concurrent PIPE provide necessary financing and strategic assets (AT177), and Oppenheimer provided a fairness opinion, but the conversion would dramatically increase shares outstanding and could depress share price. The proposal is routine management-solicited approval required by Nasdaq, not a standalone transaction with independent economic terms; the risk-return assessment depends on investor appetite for the combined pipeline and success of the AT177 program and Nasdaq listing. Shareholders should weigh the immediate financing and delisting risk mitigation against severe dilution and governance shifts resulting from conversion and related issuances.

Management requests shareholder approval to allow exercise of the Azora legacy options that Adial assumed in the June 2026 merger, representing up to 1,177,782 shares. This vote is required by Nasdaq rules because the aggregated issuance tied to the merger and financing exceeds Nasdaq thresholds triggering prior shareholder approval. Board recommends approval citing regulatory compliance and to allow option holders to realize their gains. The approval would permit substantial dilution alongside other issuances and is part of a coordinated financings and ownership restructuring which will result in former Azora equity holders and PIPE investors holding the majority of fully-diluted shares. The decision is largely a compliance step; however, it also removes an overhang that may otherwise delay listing or future financings. Voting for advances the combined company’s Nasdaq path and enables integration but increases dilution risk to legacy Adial shareholders.

Management asks shareholders to approve the issuance of up to 11,780,948 shares upon exercise of pre-funded warrants sold in the initial PIPE close and issued to Azora noteholders in exchange for extinguished notes. Approval is required under Nasdaq rules because the private issuance and the number of shares issuable exceed Nasdaq thresholds. Board recommends approval since the private cash financing ($26.8M initial proceeds) was a condition of the merger and is critical to capitalizing the merged company and advancing the AT177 program. The approval would allow warrant holders to exercise and become shareholders; the warrants are pre-funded (exercise price nominal), so exercise will be largely a formality once approved. Together with other conversion/exercise proposals, the approval will create material dilution and potentially alter governance; the shareholder vote is necessary to align Nasdaq compliance and financing milestones. Failure to approve would obstruct planned financing sequencing and might trigger cash settlement obligations and other costs under the merger documents. The merits depend on acceptance of the financing necessity versus dilution risks.

Management seeks approval to permit issuance of up to 23,561,896 shares upon exercise of Milestone Pre-Funded and Milestone Incentive Warrants that could be sold in future milestone closings if certain clinical or stock-price milestones are met. Approval under Nasdaq rules is necessary given the large number of potential shares. Board recommends approval because the milestone tranches are part of the negotiated PIPE that enabled the merger and provide contingent financing tied to development milestones (e.g., IND acceptance or dosing). Approving the proposal preserves the ability for the company to receive additional funding in the future if milestones are met, but it also contingently commits the company to substantial future dilution and increases liquidation supply. For analysts, the proposal indicates financing architecture contingent on development progress; shareholders must weigh potential value capture from successful clinical progress against dilution and potential downward pressure on trading liquidity.

Management proposes increasing authorized common shares from 100 million to 500 million to ensure there are sufficient authorized, unissued shares to allow conversion of the Series A Preferred, exercise of warrants and options, reserve grants under equity plans, and future financings without needing additional shareholder approval. The Board recommends approval to avoid constraints on capitalization flexibility that may impede financing, Nasdaq compliance and operational actions. If approved, the Board will have greater leeway to issue shares for financings, employee compensation and acquisitions, which is useful given the large contingent issuances tied to the merger and PIPE. Opponents might view the increase as a tool enabling dilution and an anti-takeover device; however, management frames it as a practical necessity to accommodate the merger consideration and planned equity plans and to enable efficient execution of corporate strategy. The decision abates the administrative burden of repeated shareholder votes and mitigates risk of being unable to complete required share issuance.

Management requests shareholder approval to enable exercise of up to 552,940 Series F warrants issued as inducement for early exercise of prior warrants. Nasdaq rules require shareholder approval if private placement exercise would be below the Minimum Price; securing approval allows those warrants to be exercisable and enables the company to receive approximately $4.3M in potential cash proceeds if exercised for cash at the stated exercise price. The Board recommends approval to preserve financing flexibility and to honor inducement commitments. Against this, approval enables issuance of shares at potentially below-market effective pricing and dilutive issuance; shareholders will weigh immediate proceeds and honoring financing arrangements against dilution and share overhang. Management notes the warrants are already issued and the approval is a listing rule compliance step.

Management is seeking shareholder approval to increase the share reserve under the legacy 2017 Equity Incentive Plan by 25,666 shares to permit the option previously granted to newly appointed director Wendy Young to vest and become exercisable. The Board contends that this is a limited, discrete adjustment to honor a recently granted inducement award; it is portrayed as a technical (and routine) amendment rather than a broad expansion of the equity reserve. The proposal includes a time-limited contingency that the option would be forfeited if shareholders decline approval. The Board recommends a vote FOR to fulfill commitments to a key director post-merger. Shareholder considerations include whether to approve a retroactive grant (sometimes criticized) and the effect on overall dilution (minor) and governance; given the small number of shares relative to outstanding and the inducement context, the allocation is modest but still gives equity to management and directors of the combined company.

Management requests approval of a comprehensive new equity incentive plan (2026 Plan) designed to replace the legacy 2017 Plan as the primary mechanism for granting options, RSUs and other equity awards to employees, directors and consultants. The plan reserve is 3,078,147 shares initially, with automatic annual increases (5% of outstanding capital/convertible holdings) over the next ten years, and a separate ISO limit of 9,234,440 shares; it also contains customary plan features (adjustments for capitalization events, repricing authority subject to participant consent, change-in-control provisions, clawback, and Section 409A compliance). The Board recommends adoption so the combined company has adequate equity to recruit and retain talent post-merger. The plan will enable meaningful equity compensation critical for biotech development-stage companies but will also introduce dilution that shareholders must weigh vs. the benefits of improved talent alignment and retention. For sophisticated investors, key evaluation points include the size of the initial reserve relative to the pro forma fully-diluted capitalization and auto-increase mechanics, which can lead to ongoing dilution absent shareholder oversight; however management emphasizes that awards under the legacy plan are limited and that the new plan is needed operationally after the merger.

Management seeks shareholder approval for a new Employee Stock Purchase Plan (2026 ESPP) to provide broad-based employee equity ownership opportunities. The initial reserve is 307,815 shares with automatic annual increases of 1% of outstanding capital/convertible shares on each January 1 through 2036 (unless Board reduces). The ESPP contains customary features: 85% lookback purchase price, participation limits ($25k annual lookback), transfer and tax provisions, and a 423-qualified component for U.S. employees and a Non-423 component for non-U.S. employees. Board recommends approval to promote employee ownership, retention and alignment with shareholders. From an investor perspective, the share reserve and auto-increase mechanics can cause gradual dilution; however, the reserve is modest relative to the overall post-merger capitalization, and the ESPP supports employee morale and recruitment in the biotech development stage.

Management requests authority to adjourn the annual meeting if necessary to solicit additional proxies to obtain approval for transaction-related proposals (the ‘Transaction Stockholder Matters’). The Board recommends this to avoid failing to obtain votes needed to comply with the Merger Agreement and Nasdaq requirements and to continue pursuing approval without abandoning the financing or listing process. The proposal is procedural but consequential: it allows management to extend the meeting to secure approvals rather than accepting defeat and facing possible cash-settlement obligations, delisting risk or other contracting consequences. Approval grants management tactical flexibility, yet opponents might view it as a device to keep pushing a contested slate until results change; still it is a common corporate governance tool in merger transactions.