Recommends Fellow Shareholders Vote AGAINST
Keystone Transaction & the Check-Cap Board Nominees - Further
Recommends a Vote FOR the Symetryx Slate of Director
Candidates
Cites Unrealistic and Aggressive Valuation of
Keystone Used to Justify the Merger and Troubling Cash Burn
by Check-Cap Board & Management
TORONTO, Nov. 28,
2023 /PRNewswire/ - Symetryx, a holder of 5.6% of
Check-Cap Ltd. (NASDAQ: CHEK) shares, today issued the following
open letter to shareholders. In the letter Symetryx cites, among
other items, its serious concerns and reason for voting
AGAINST the proposed transaction with Keystone Dental.
Symetryx discusses its concerns around the actions of the Board in
its evaluation and approval of the transaction, including the
highly questionable valuation of Keystone Dental. Further, Symetryx
urges all shareholders to support and vote FOR its five
highly qualified, experienced and independent director nominees who
will bring accountability back to CHEK and find a more suitable
merger partner. One that will not cause the alarmingly high level
of dilution to the shareholders that the Keystone transaction, if
approved, would entail. The full text of Symetryx's letter
follows:
November
28th, 2023
Dear Fellow Check-Cap Shareholder,
We are writing to you today on behalf of Symetryx Corporation
("Symetryx"), a now 5.6% holder of Check-Cap Ltd. ("Check-Cap"),
with regards to the notice of Annual General Meeting of
Shareholders filed on November 13th,
2023, by the Company. See 425 (sec.gov).
Symetryx is a very diverse private venture capital and
investment company that is invested in a variety of assets,
including computer, technology, and cyber-security, agricultural
technology, real-estate and senior living-care, AI, gold, lithium
and copper mining and audio technology.
The upcoming Check-Cap Annual General Meeting is scheduled to be
held on Monday December 18th, 2023,
at 2 PM local time at the offices of
Check-Cap's legal counsel, FISCHER (FBC & Co.),
located at 146 Menachem Begin Rd., Tel
Aviv 6492103, Israel. A
Proxy Statement and proxy card or vote instruction form should have
been mailed or emailed to you. According to the Company's proxy
materials, you may vote by mail or by internet.
The Proxy statement is very lengthy and may be quite confusing.
We have attempted to distill down the hundreds of pages in the
proxy statement to the most concerning and salient points below. In
essence, Symetryx's position, how we intend to vote, and our
recommendations to our fellow Check-Cap shareholders is to vote
your shares as follows on the various resolutions:
- Our position on Proposal 1- vote AGAINST the Keystone
Merger Proposal
As one of the largest Check-Cap shareholders (currently
5.6%) we're at a loss to understand how the proposal to merge
Check-Cap with Keystone Dental, a manufacturer of dental appliances
("Keystone Merger") could be value-enhancing to ALL
shareholders.
In spite of the length of the proxy materials, based
upon the review of the limited information thus far provided to
shareholders regarding the Keystone Merger, we believe that there
are several problematic issues which compel us not to support this
value-destructive and dilutive transaction:
- Valuation: It isn't clear how all the IP
that Check-Cap shareholders have invested in is being valued
or considered under the combined entity. The valuation of Keystone
at $225M seems elevated, for a
traditional manufacturing company- that would mean that the
EBTIDA for Keystone would be $37m, which seems highly unlikely based -on its
revenue of $61m for F'22 (or
$66M for F'23).
- The following chart is a summary of Keystone's cashflow
projection for the next 10 years, according to the Proxy
statement (page 35):
As you can see above, Keystone is not even
projected to be profitable until 2026 with an unlevered cash flow
of only $5.7 million. Keystone's
EBITA (earnings before interest, taxes, and amortization) for 2025
is projected to be $2.8 million.
Manufacturing companies such as Keystone Dental are typically
valued at 4 x EBITA, i.e. $11.2
million. See Valuation Multiples for a
Manufacturing Business - Peak Business Valuation
-
- Notwithstanding this, the Check-Cap proxy (on page 31) values
Keystone Dental at a staggering $264.7
million, which is an incredible 94 x EBITA, which
we believe is completely unreasonable and inflated to a degree that
defies reality.
- If such a ridiculously high multiple isn't enough cause for
concern, based on our analysis of the information, page 31 of the
Proxy statement highlights Keystone's significant history of losses
and its expectations that it will continue to lose money for the
foreseeable future.
The Prospectus for the merged company states on page 20, Summary
Risk Factors, a litany of potential concerns around the combined
company. Most striking is the section that states: "Some of
Keystone's and Check-Cap's directors and officers may
have interests that are different from yours, which may
influence them to support or approve the Business Combination and
the issuance of shares of New Parent common stock." Shareholders
should rightly question what these different interests might
be and how they have influenced the selection of Keystone as a
merger partner. We urge shareholders to read this section in its
entirety.
The Prospectus for the merged company states on page 29
states:
The lack of a public market for New
Parent common stock makes it more difficult to evaluate the
fairness of the Business Combination.
The Prospectus for the merged company states on page 31
states:
Risks Related to Keystone and Ownership of New
Parent Common Stock Following the Business Combination:
Keystone is a company with a history of significant net
losses, it expects to continue to incur operating losses for the
foreseeable future and it may not be able to achieve or sustain
profitability.
There is substantial doubt about Keystone's ability to
continue as a going concern and, while this
condition is expected to be alleviated by the consummation of the
Business Combination, there is no assurance that Keystone will have
sufficient resources to fund its operations in the
future.
As a result of Keystone's losses, along with Keystone's
current cash and working capital position, Keystone currently does
not have sufficient current resources to fund its planned
operations for the next twelve
months.
How can the valuation of Keystone be justified considering the
foregoing statement? We urge all shareholders to pose this question
to the Board and management of Check-Cap.
Though Check-Cap issued a press release representing Keystone as
an AI company, however, in accordance with the public record, this
is far from true. The complexities of AI are vast and don't seem
well represented by Keystone at all. Where is the disruptive
technology that the shareholders of Check-Cap should expect from
the use of funds that they have invested? It appears these
funds are to be used to support a transaction with a focus on the
traditional manufacturing operations of Keystone, which does not
seem to be particularly disruptive - or in any way related to AI -
in its already crowded industry. There is limited growth potential
with minimal growth demonstrated in F'23.
The total available market in which Keystone is a part is quite
small and limited by the fact that many people in the U.S do not
have access to dental insurance. Thus, the Keystone product does
not, and will not likely in the future, have a large market
saturation. The dental implant industry seems crowded with big and
better competitors such as Sinclair, BioHorizonz, NDX and DFL.
Post-merger, the combined entity would be a small fish in an
even smaller pond.
Furthermore, this should create greater concern to
shareholders regarding the disclosure in the proxy stating that the
lack of public market making it hard to evaluate the fairness of
the deal potentially resulting in shareholders receiving less than
fair value for their current CHEK shares.
The Keystone Merger prospectus discusses management and board
strength and their public company readiness, without providing
information to help assess what are the specific strengths which
will assist them to run a NASDAQ listed company. Curious how this
group of nominees is public-ready when it has taken several months
to produce financial statements, an exercise that for a private
company is much less rigorous than for a publicly traded
entity.
As Symetryx announced in its press release date September 9th, 2023, we believe the
Keystone Merger doesn't maximize shareholder value in any
meaningful way. In fact, we see this as an extremely value
destructive and dilutive transaction. An over aggressive valuation
such as this brings into question the intentions and motivations of
the board, given the disclosures on page 28 of the proxy
statement.
Without Check-Cap providing full disclosure related to Keystone
of all the financial data within a time frame that is reasonable
prior to the Shareholder Meeting and the deadline for
shareholders to vote, it is impossible for shareholders to
accurately assess the validity of the Keystone Merger or determine
that such merger is indeed in the best interests of ALL Check-Cap
shareholders.
Ongoing Operational Concerns: On November 6, 2023, after the merger was suggested
to shareholders by the Board, Keystone revealed that it received
what they referred to as a "deficiency letter" from the FDA
regarding some of their marketed products which could cause a need
for them to "cease marketing and withdraw or recall the product"
which could further worsen the financial conditions of what we
believe to be an already bloated, The Prospectus for Capstone the
merged company states on page 58 states:
Some of Keystone's marketed devices are subject to risks
related to a deficiency letter received from the FDA in connection
with a pending 510(k) notification for the Paltop Short
Implants… This could harm Keystone's business,
financial condition and results of operations.
We see the Keystone Merger as highly value destructive and
dilutive to ALL Check-Cap shareholders.
2. Our Position on Proposal 2- vote
FOR the reappointment of Brightman Almagor Zohar & Co.,
Certified Public Accountants, a firm in the Deloitte Global
Network, as our independent auditor for the year ending
December 31, 2023, and for such
additional period until our next annual general meeting of
shareholders.
3. Our Position on Proposal 3- vote
AGAINST the approval of an amended and restated Compensation
Policy for Executive Officers and Directors. We believe the conduct
of the current executive officers and directors of Check-Cap has
not been aligned with the best interests of all the
shareholders.
4. Our Position on Proposal 4- vote
AGAINST the reverse share split of the Company's ordinary
shares within a range of 1 for 2 to 1 for 5, the exact ratio to be
determined by further action of our Board of Directors, to be
effective on a date to be determined by our Board of Directors and
announced by the Company, and to amend our Articles of Association
accordingly. Page 49 of the Prospectus states the numerous risks
associated with a reverse split.
5. Our Position on Proposal 5
i. vote AGAINST the re-appointment
of each of Company Directors Nominees: Mr. Steven Hanley, Ms. Clara Ezed, Dr. Mary Jo Gorman, Mr. XiangQian (XQ) Lin and Mr.
Yuval Yanai; and
ii. vote FOR the election of each
of Independent Shareholder Director Nominees proposed by Symetryx:
Mr. William Vozzolo, Ms.
Avital Shafran, Mrs. Lilian Malczewski, Mr. Jordan Lipton and Mr. Idan Ben Shitrit.
As a shareholder, based upon the review of the limited
information thus far provided to shareholders regarding the
company's activities and decision-making process regarding the
Keystone transaction, we believe that the current Check-Cap Board
is not acting in the best interest of Check-Cap
shareholders:
Although Symetryx is one of the largest shareholders of
Check-Cap, the current Check-Cap Board has refused to discuss any
initiatives proposed by Symetryx, including at least two possible
takeover offers.
- The Check-Cap directors claimed in their press release of
August 16th, 2023, that
they met with over 150 (unspecified) merger candidates yet refused
to consider any of Symetryx's candidates.
- After numerous press releases and attempts to engage with the
Check-Cap Board with no success, Check-Cap announced the Keystone
Merger with very little detail and did not disclose any financial
statements to justify the validity of this merger and the further
massive dilution of the ownership interests of the current
Check-Cap shareholders in the pro-forma company.
- As part of the Keystone merger agreement, Check-Cap directors
have agreed to pay an absurd amount of $1.5
million termination fee (plus up to $1.5 million of expenses) payable by Check-Cap to
Keystone upon the occurrence of certain events and the potential
effect of such a high termination fee is to deter other potential
acquirers from proposing an alternative transaction that may be
more advantageous to Check-Cap shareholders.
We believe the transaction and its structure, along with the
Board's behavior, is in direct contradiction to the Check-Cap
Board's fiduciary duties to make decisions in the best interest of
the company and ALL its shareholders.
- As a shareholder, we continue to question how Check-Cap board
are comfortable that upon the Keystone Merger's consummation, there
will be only $22,000,000 left in cash
for Check-Cap, or $3.76/share, even
though 2023 started with $42,000,000,
or $7.18 per share. This cash burn
occurred while Check-Cap has had very limited operations, and its
employees were nearly all terminated earlier this year. This is
a shameful waste of Company resources. An explanation to the
shareholders is required immediately, well ahead of the vote
deadline for the Keystone transaction.
- Symetryx press releases of September 9th,
2023, Symetryx explained its concern that the current
Check-Cap directors were burning through the Check-Cap cash reserve
at an alarming rate. As one of the largest Check-Cap shareholders,
we are extremely concerned that Check-Cap's cash is being burnt
through so quickly, notwithstanding that it does not currently have
any true ongoing operations nor staff. We believe this
cash burn is emblematic of a management and Board that do not truly
respect their fiduciary duties and certainly are not acting in the
interest of ALL shareholders.
Although Check-Cap is currently an inactive company with no
revenues, their directors have spent several millions of dollars
without any financial transparency and refuse to provide
shareholders with full financial disclosure.
For these reasons we encourage all shareholders TO VOTE
FOR the following five (5) Symetryx Independent
Shareholder Director Nominees:
- Jordan Lipton
- Avital Shafran
- Idan Ben Shitrit
- William Vozzolo
- Dr. Liliane Malczewski
The full biographies of our nominees can be found at Symetryx
Independent Shareholder Director Nominees.pdf
Notwithstanding that the proposed directors are exceptionally
talented individuals, Check-Cap in their Proxy (page 56)
states: "The Shareholder Director Nominees predominantly
have no listed company experience and bring no proven management
experience to deliver long-term value
for Check-Cap shareholders". The statement is not only untrue,
but is, in our opinion, libelous and actionable. As their
biographies detail, our independent nominees are well experienced
and ready to sit on a public company board of directors.
- On October 17th, 2023,
Symetryx issued a press release seeking to change the current
Check-Cap board. See SYMETRYX SEEKS TO CHANGE BOARD AND
MAXIMIZE SHAREHOLDER VALUE (newswire.ca). Symetryx Nominees are
independent, experienced and qualified and in our opinion, and will
best represent the Company's shareholders and maximize shareholders
value.
6. Our Position on Proposal 6- vote
FOR the approval of the cash remuneration to be paid to the
Director Nominees who are elected to serve as directors at the
Meeting under Proposal 5.
7. Our Position on Proposal 7- vote
FOR the approval of the Company's entry into indemnification
and exculpation agreements and to provide directors' and officers'
liability insurance coverage to a Shareholder Director Nominees who
is elected to serve at the Meeting under Proposal 5.
Symetryx, which as November
27th, 2023, owned 5.6% of Check-Cap shares issued
and outstanding share capital, well exceeding the current
shareholdings of the current Check-Cap executives and directors
which, in accordance with Check-Cap proxy statement, own
approximately 1.2% of the Check-Cap outstanding shares. See
the table below. Symetryx may consider buying further shares of
CHEK on the open market to strengthen its
position.
Thus, Symetryx owns 4.5 times the total shareholdings of all
the current eight (8) Check-Cap executives and directors
combined. Notwithstanding that the current Check-Cap
executives and directors have only 1.2% ownership and minimal "skin
in the game", they nevertheless slander Symetryx on page 56 of
their Proxy statement:
Symetryx considers these statements to be false, defamatory, and
actionable. According to public information released by Check-Cap,
the current Check-Cap executives received over $1,329,560 in compensation in 2022. (See Proxy
page 16). See Check-Cap Ltd. (CHEK) Company Profile
& Facts – Yahoo Finance
The complete salaries and compensation of all the Check-Cap
executives and directors has not been openly disclosed to the
shareholders in the Proxy statement as required by law.
See 425 (sec.gov)
While Check-Cap unjustly accuses Symetryx of making a cash grab,
the opposite in in fact true. Under the Check-Cap watch, over
$20 million of shareholders equity
has disappeared with no financial transparency. The
available cash has decreased in 2023 from $42,000,000, or $7.18 per share, to $22,000,000 or $3.76/share post transaction close, even though
Check-Cap has extremely limited operations. This is shameful.
Again, an explanation to the shareholders is required.
The current Check Cap executives and directors accuse Symetryx
of having no strategic plan or vision for its future (Proxy page
56). This is false. In fact, Symetryx has several merger candidates
it would like the newly constituted Check Cap board to consider,
which is far more profitable and less dilutive than Keystone Dental
and will increase shareholder value. Notwithstanding this,
Check-Cap refused to consider any of Symetryx's merger candidates,
amongst the 150 (undisclosed) candidates it claims to have
considered.
Furthermore, Symetryx has spoken to Yoav Kimchy PhD, the Founder
and former Chief Technology Officer of Check-Cap, who has confirmed
that there is still value in the Intellectual Property (IP) created
over the years, that should not be discarded. A newly constituted
Board comprised of Symetryx's highly qualified independent director
nominees will seriously examine the potential utilization of the
existing IP created by Check Cap to further maximize value to the
shareholders.
In summary, we believe the current Check-Cap Board are behaving
in an arbitrary and high-handed manner, to maximize their own
self-interests to the detriment of all other shareholders. For this
reason, we urge you to vote Against the Keystone merger
(Proxy Proposal 1), and For the replacement of the
current Board with the suggested highly qualified independent
Symetryx candidates listed above.
Symetryx has engaged Mackenzie Partners, Inc. to act as an
advisor in this matter, we welcome shareholders to reach out to
share their views or should they seek clarification on our own.
Mackenzie Partners can be reached at 1-800-322-2885 or
bmarese@mackenziepartners.com.
Sincerely,
Symetryx Corporation
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SOURCE Symetryx Corp