PROXY STATEMENT
This proxy statement is furnished to the stockholders of Helix BioMedix, Inc. in connection with the solicitation by the Board of proxies for use at the Meeting and at any and all adjournments or postponements thereof. This proxy statement and the accompanying form of proxy initially will be mailed or made available electronically to stockholders on or about ♦, 2012.
SUMMARY TERM SHEET
The following summary term sheet, together with the Questions and Answers section that follows this summary term sheet, highlights certain information about the proposed Reverse Stock Split, but may not contain all of the information that is important to you. For a more complete description of the Reverse Stock Split, we urge you to carefully read this proxy statement and its annexes before you vote. For your convenience, we have directed your attention to the location in this proxy statement where you can find a more complete discussion of the items listed below.
As used in this proxy statement, “
Helix
,
” “
we
,” “
our
” and “
us
” refer to Helix BioMedix, Inc. In addition, we refer to our directors, executive officers and stockholders who own more than 10% of our outstanding Common Stock as our “
affiliates
,” and those stockholders who are not directors, executive officers or 10% stockholders we refer to in this proxy statement as our “
unaffiliated stockholders
.”
The Reverse Stock Split is part of a plan to make Helix a non-reporting company, and is considered a “going private” transaction as defined in Rule 13e-3 promulgated under the Exchange Act because it is intended and, if completed, will enable us, to suspend our obligation to file periodic reports with the Securities and Exchange Commission (the “
SEC
”). In connection with the Reverse Stock Split, we have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3.
The Reverse Stock Split
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After consideration of numerous factors, including the recommendation of the Special Committee, the Board has reviewed, recommended and authorized the Reverse Stock Split.
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As a result of the Reverse Stock Split:
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each share of Common Stock held of record by a Cashed-Out Stockholder immediately prior to the effective time of the Reverse Stock Split will be converted into the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest; and
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stockholders that hold at least one share of Common Stock after the Reverse Stock Split will continue as Continuing Stockholders, and any resulting fractional shares owned by such Continuing Stockholders following the Reverse Stock Split will remain outstanding as fractional shares and such Continuing Stockholders will not be entitled to receive any cash payment.
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At the Meeting, stockholders are being asked to consider and vote upon a proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split. A copy of the proposed amendment to our Certificate of Incorporation to effect the Reverse Stock Split is attached as
Annex A
to this proxy statement.
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We anticipate that the Reverse Stock Split itself will have very little effect on our business and operations and that ultimately it will eliminate costs associated with our reporting obligations under the Exchange Act, reduce management time spent on compliance and disclosure matters attributable to our Exchange Act filings, and therefore enable management to increase its focus on managing our business and growing stockholder value. We anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, but there can be no assurance of any trading in, or market for, our Common Stock following the Reverse Stock Split. While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders.
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The Board has reserved the right to abandon the Reverse Stock Split if it believes the Reverse Stock Split is no longer in our best interests, if, for example, there is any change in the number of our shares that will be exchanged for cash in connection with the Reverse Stock Split that would increase the anticipated cost and expense of the Reverse Stock Split, and the Board has retained authority, in its discretion, to withdraw the Reverse Stock Split from the agenda of the Meeting prior to any vote. In addition, even if the Reverse Stock Split is approved by stockholders at the Meeting, the Board may determine not to implement the Reverse Stock Split if it subsequently determines that the Reverse Stock Split is not in our best interests, and the Board could propose an alternative transaction to the Reverse Stock Split on different terms and conditions, including, without limitation, a reverse stock split at a lower cash-out price.
In such event, we would file a revised proxy statement and re-solicit proxies from our stockholders.
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See “Special Factors—Purposes of and Reasons for the Reverse Stock Split” beginning on page ♦ and “Special Factors—Termination of Reverse Stock Split” beginning on page ♦.
Purposes of and Reasons for the Reverse Stock Split
The Board and the Special Committee have determined that the costs of being a public reporting company currently outweigh the benefits, and thus it is no longer in our best interests or the best interests of our stockholders, including our unaffiliated stockholders, for us to remain a reporting company under the Exchange Act. The primary purpose of the Reverse Stock Split will be to reduce the number of our stockholders of record to fewer than 500, thereby allowing us to “go private” pursuant to Rule 12h-3 of the Exchange Act. We would do so by filing a Form 15 Certificate of Termination of Registration with the SEC under Section 12(g) of the Exchange Act as soon as possible after consummation of the Reverse Stock Split so that we would no longer be required to file annual, quarterly or current reports under the Exchange Act. Our reasons for proposing the Reverse Stock Split include the following:
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anticipated annual cost savings we expect to realize as a result of the suspension of our reporting obligations under the Exchange Act, including the costs of preparing and filing periodic reports with the SEC, related accounting fees and costs, ongoing expenses for compliance with the Sarbanes-Oxley Act of 2002, as amended (the “
Sarbanes-Oxley Act
”), and the expected increased compliance costs associated with the Dodd–Frank Wall Street Reform and Consumer Protection Act (the “
Dodd-Frank Act
”) relating to executive compensation and corporate governance requirements, and other legal, printing and other miscellaneous costs associated with being a public reporting company, which we estimate to be approximately $350,000 per year, including estimated executive and administrative time incurred in complying with SEC reporting requirements;
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the ability of our management to gain greater operational flexibility by being able to devote more time to our business operations and to focus on long-term growth without an undue emphasis on short-term quarterly results and short-term fluctuations in the market price of our Common Stock;
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not being required to make publicly available certain proprietary or otherwise sensitive information about our business, operations and contractual relationships, which our competitors may otherwise be able use to their competitive advantage;
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the limited benefits from being a public reporting company. Benefits of being a public reporting company typically include access to the public markets for purposes of raising capital, acquisitions and liquidity purposes, and the prestige of being a public reporting company, which can be helpful in recruiting, attracting and retaining key officers, directors and staff. To date, we have not utilized our status as a public reporting company to achieve these benefits; and
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the limited public trading volume and liquidity of our Common Stock and the diffuse and fragmented nature of our stockholder base. There is a relatively illiquid and limited trading market in our shares, and currently more than 350 stockholders each hold of record fewer than 100 shares of Common Stock. As a result, our stockholders currently have limited opportunity to liquidate their investment in us, and the transaction costs associated with open market sales make that alternative impractical for many of our stockholders given their relatively small holdings. Cashed-Out Stockholders (those holding of record fewer than 300 shares of Common Stock) will have the opportunity to obtain cash for their shares at a premium over the closing price for our shares of Common Stock at the time of our announcement of the Reverse Stock Split,
likely without incurring brokerage commissions. We believe that no service charge or brokerage commission will be payable by any Cashed-Out Stockholder in connection with the cash-out of shares in the Reverse Stock Split, but it is possible that individual brokers and agents may impose certain charges and fees in connection with this transaction. We recommend you contact your broker or agent to determine if there are any applicable fees in connection with the cash-out transaction.
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See “Special Factors—Purposes of and Reasons for the Reverse Stock Split” beginning on page ♦.
Fairness of the Reverse Stock Split
The Special Committee and the Board fully considered and reviewed the terms, purposes, alternatives and effects of the proposed Reverse Stock Split. Based on this review and on the recommendation of the Special Committee, the Board unanimously determined that the Reverse Stock Split is procedurally and substantively fair to our affiliated and unaffiliated stockholders, including Cashed-Out Stockholders and Continuing Stockholders.
The Special Committee and the Board considered a number of factors in reaching their determination, including:
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anticipated annual cost savings we expect to realize as a result of the suspension of our reporting obligations under the Exchange Act, including the costs of preparing and filing periodic reports with the SEC, related accounting fees and costs, ongoing expenses for compliance with the Sarbanes-Oxley Act and the Dodd-Frank Act, and other legal, printing, and other miscellaneous costs associated with being a public reporting company, which we estimate to be approximately $350,000 per year, including estimated executive and administrative time incurred in complying with SEC reporting requirements;
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with respect to the consideration to be paid to the Cashed-Out Stockholders, the fairness opinion rendered by Cascadia Capital, LLC (“
Cascadia Capital
”), dated August 16, 2012, to the effect that, as of the date and based upon the assumptions made, matters considered and limits of review set forth in Cascadia Capital’s written opinion, the consideration to be received by the Cashed-Out Stockholders pursuant to the Reverse Stock Split of $0.60 per share is fair, from a financial point of view, to such stockholders;
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the limited trading volume and liquidity of our Common Stock and the diffuse and fragmented nature of our stockholder base, which effectively limits the ability of our stockholders to liquidate their investment in us and, given the transaction costs associated with open market sales, makes it impractical for many of our stockholders to do so given their relatively small holdings;
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the opportunity the Reverse Stock Split affords Cashed-Out Stockholders (those holding of record fewer than 300 shares of Common Stock) to obtain cash for their shares in a relatively limited trading market and at a premium over the market price prevailing at the time of our public announcement of the Reverse Stock Split;
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the $0.60 cash-out price per share represents an approximately 88% premium over the average closing share price for the 30-day period ended August 15, 2012, which was prior to the Board’s approval of the Reverse Stock Split, an approximately 71% premium over the average closing share price for the 60-day period ended August 15, 2012, an approximately 67% premium over the average closing share price for the 90-day period ended August 15, 2012, an approximately 67% premium over the average closing share price for the 120-day period ended August 15, 2012 and an approximately 216% premium over the $0.19 closing share price of Common Stock on September 10, 2012, the day immediately prior to our announcement of the Reverse Stock Split;
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the $0.60 conversion price at which we completed a tender offer in December 2010, and the value associated with our Common Stock in connection with the LOC Agreement we entered into on March 9, 2012, as discussed below under “Special Factors—Background of the Reverse Stock Split” beginning on page ♦;
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the Reverse Stock Split will not affect holders of our Common Stock differently based on their affiliate status, and our officers, directors and significant stockholders will all be treated similarly to unaffiliated stockholders;
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stockholders that desire to retain their equity interest in us after the Reverse Stock Split can do so if they hold 300 shares of Common Stock or more prior to the effective time of the Reverse Stock Split, thereby avoiding being cashed-out. However, given the historically limited liquidity in our Common Stock, we cannot assure you that any shares will be available for purchase and thus there can be no assurance that you will be able to acquire sufficient shares to meet or exceed the required 300 shares. Following the Reverse Stock Split, we anticipate that our Common Stock will likely be traded on the Pink Sheets, but there can be no assurance of any trading in, or market for or opportunity to purchase, our Common Stock following the Reverse Stock Split. While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders; and
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the lack of attractive strategic alternatives.
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The Board considered a number of factors in approving the Reverse Stock Split and related transactions, including:
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the recommendation of the Special Committee, based on the analyses and factors described herein which were adopted by the Board; and
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with respect to the consideration to be paid to the Cashed-Out Stockholders, the fairness opinion rendered by Cascadia Capital dated August 16, 2012 to the effect that, as of the date of, and based upon the assumptions made, matters considered and limits of review set forth in Cascadia Capital’s written opinion, the consideration to be received by the Cashed-Out Stockholders pursuant to the Reverse Stock Split is fair, from a financial point of view, to such stockholders.
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See “Special Factors—Fairness of the Reverse Stock Split” beginning on page ♦ and “Special Factors—Opinion of Cascadia Capital” beginning on page ♦.
Disadvantages of the Reverse Stock Split
If the Reverse Stock Split occurs, there will be certain disadvantages to stockholders, including the following:
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Cashed-Out Stockholders will no longer have any ownership interest in us and will no longer participate in any future earnings and growth, unless they elect to acquire shares in the future. However, given the historically limited liquidity in our stock, there can be no assurance that any shares will be available for purchase in the future.
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We will cease to file annual, quarterly, current and other reports and documents with the SEC, and Continuing Stockholders will cease to receive annual reports and proxy statements as required under the Exchange Act. While we intend to continue to make available audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders, we will not be under any continuing obligation to do so. We will not be providing periodic reports in the format currently required of us under the provisions of the Exchange Act, and as a result, while we intend to continue to maintain ongoing communications with our Continuing Stockholders, those stockholders will have access to less information about us and our business, operations, and financial performance.
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While we anticipate that our Common Stock will likely be traded on the Pink Sheets, trading opportunities in the Pink Sheets will be dependent upon whether any broker-dealers commit to make a market for our Common Stock. We cannot guarantee whether our Common Stock will be traded on the Pink Sheets. In addition, because of the possible limited liquidity for our Common Stock and the suspension of our obligations to publicly disclose financial and other information following the Reverse Stock Split, Continuing Stockholders (including Continuing Stockholders who are our officers, directors and/or significant stockholders) may potentially experience a decrease in the value of their Common Stock.
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We will no longer be subject to the corporate governance compliance and disclosure obligations and other provisions of the Sarbanes-Oxley Act that were designed to protect investors or the liability provisions of the Exchange Act (other than the general anti-fraud provisions thereof). In addition, certain rights and protections that the federal securities laws provide to stockholders of public reporting companies will cease and the suspension of our reporting obligations under the Exchange Act will make many of the provisions of the Exchange Act that are intended to protect investors, such as the proxy solicitation rules under Section 14, the stock ownership reporting rules under Section 13, and the reporting obligations and short-swing profit provisions under Section 16, no longer applicable.
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We estimate that the cost of payment to Cashed-Out Stockholders, professional fees and other expenses related to the Reverse Stock Split will total approximately $430,000.
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The Reverse Stock Split will result in the suspension, and not the termination, of our reporting obligations under the Exchange Act. If on the first day of any fiscal year after the suspension of our filing obligations we have more than 500 stockholders of record (or more than 300 stockholders of record if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years), then we must resume reporting pursuant to Section 15(d) of the Exchange Act, which would result in our once again incurring many of the expenses that we expect to save by virtue of the Reverse Stock Split and suspending our reporting obligations.
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Under Delaware law, our Certificate of Incorporation and our bylaws, no appraisal or dissenters’ rights are available to our stockholders who dissent from the Reverse Stock Split.
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The lack of liquidity provided by a ready market may result in fewer opportunities to utilize equity-based incentive compensation tools to recruit and retain top executive talent.
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Our Common Stock may be a less attractive acquisition currency, as a recipient of less liquid securities of a non-reporting company must depend on liquidity either via negotiated buy-out or buy-back arrangements or a liquidity event by us that is generally outside of our control.
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Following the Reverse Stock Split, since we will no longer be filing the periodic reports and proxy statements required under the Exchange Act, it may be more difficult, costly and time consuming for us to raise equity capital from public or private sources.
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Companies that lose status as a public reporting company may risk losing prestige in the eyes of the public, the investment community and key constituencies.
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The transaction may be taxable for Cashed-Out Stockholders.
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See “Special Factors—Fairness of the Reverse Stock Split” beginning on page ♦.
Recommendation of the Special Committee and Approval of the Board
After careful consideration, the Special Committee and the Board have determined that the Reverse Stock Split is substantively and procedurally fair to and in the best interest of our affiliated and unaffiliated stockholders, including Cashed-Out Stockholders and Continuing Stockholders.
The Board, upon the recommendation of the Special Committee, unanimously approved the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split and unanimously recommends that you vote “
FOR
” the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split.
See “Special Factors—Fairness of the Reverse Stock Split” beginning on page ♦.
Voting Information
The affirmative vote of a majority of all shares of Common Stock issued and outstanding and entitled to vote at the Meeting will be required to approve the proposed amendment to the Certificate of Incorporation to effect the Reverse Stock Split. Our directors and executive officers have indicated that they intend to vote their shares of our Common Stock (2,978,159 shares, or approximately 6.0% of our issued and outstanding shares eligible to vote at the Special Meeting) “FOR” the Reverse Stock Split, and one of our stockholders, Frank T. Nickell, who owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock, as of October 31, 2012, has indicated that he would not generally oppose the Reverse Stock Split.
See “Special Factors—Voting Information” beginning on page ♦ and “Information About the Meeting—Quorum and Voting” beginning on page ♦.
Effects of the Reverse Stock Split
As a result of the Reverse Stock Split:
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Each share of Common Stock held of record by a Cashed-Out Stockholder immediately prior to the effective time of the Reverse Stock Split will be converted into the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest. For example, if a stockholder held of record 299 shares of our Common Stock immediately prior to the effective time of the Reverse Stock Split, such shares would be converted into the right to receive an aggregate of $179.40 on a pre-split basis as a result of the Reverse Stock Split, subject to any applicable U.S. federal, state and local withholding tax, and without interest.
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Stockholders that hold at least one share of Common Stock after the Reverse Stock Split will continue as Continuing Stockholders, and any resulting fractional shares owned by such Continuing Stockholders following the Reverse Stock Split will remain outstanding as fractional shares and such Continuing Stockholders will not be entitled to receive any cash payment. For example, if a stockholder held of record 301 shares of our Common Stock immediately prior to the effective time of the Reverse Stock Split, such stockholder would continue as a Continuing Stockholder and would hold of record one whole share of our Common Stock and 1/300 fractional share of our Common Stock as a result of the Reverse Stock Split and would not be entitled to receive any cash payment.
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We expect that the number of our stockholders of record will be reduced below 500, which will allow us to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act, and we will be able to eliminate most of the expenses related to the disclosure, reporting and compliance requirements of the Exchange Act, including ongoing expenses for compliance with the Sarbanes-Oxley Act.
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Certain rights and protections that the federal securities laws provide to stockholders of public reporting companies will cease to be available and the suspension of our reporting obligations under the Exchange Act will make many of the provisions of the Exchange Act that are intended to protect investors, such as the proxy solicitation rules under Section 14, the stock ownership reporting rules under Section 13, and the reporting obligations and short-swing profit provisions under Section 16, no longer applicable, and the Sarbanes-Oxley Act, which imposed many additional rules and regulations on public reporting companies that were designed to protect investors, including substantive disclosure requirements, will no longer apply to us.
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Liquidity for our Common Stock following the Reverse Stock Split is likely to be limited due to the fact that we will no longer file the reports required by the Exchange Act. While we anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, there can be no assurance of any trading in, or market for, our Common Stock following the Reverse Stock Split.
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While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders. However, since our obligation to file periodic and other filings with the SEC will be suspended, those stockholders may have access to less information about us and our business, operations and financial performance.
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Upon the effectiveness of the Reverse Stock Split and as a result of the reduction of the number of shares of Common Stock outstanding by
approximately ♦ shares
, the ownership percentage of our shares of Common Stock held by Continuing Stockholders, including our affiliates, will increase proportionally. The increase in the ownership percentage of our shares of Common Stock held by Continuing Stockholders, including our affiliates, and the reduction in the number of shares outstanding following the completion of the Reverse Stock Split is based upon information we received as of ♦, 2012 from our transfer agent, American Stock Transfer and Trust Company (our “
Transfer Agent
”), as to our record holders, and information we have received regarding the holdings of beneficial owners of our Common Stock held in street name. The ownership percentage and the reduction in the number of shares outstanding following the Reverse Stock Split may increase or decrease depending on purchases, sales and other transfers of our shares of Common Stock prior to the effective time of the Reverse Stock Split and the number of shares held in street name that are actually cashed-out in the Reverse Stock Split. The ownership percentage of our shares of Common Stock held by our affiliates and the ownership percentage of Continuing Stockholders will proportionally increase or decrease as a result of such purchases, sales and other transfers of our shares of Common Stock prior to the effective time of the Reverse Stock Split, and depending on the number of street name shares that are actually cashed-out in the Reverse Stock Split.
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Based upon the Reverse Stock Split ratio of 1-for-300, proportionate adjustments will be required to be made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options granted under our equity incentive plans. All other terms and conditions of the options will continue to be governed by such plans.
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Based upon the Reverse Stock Split ratio of 1-for-300, proportionate adjustments will be required to be made to the per share exercise price and the number of shares issuable upon the exercise of all of our outstanding warrants. All other terms and conditions of the warrants will continue to be governed by the applicable warrant agreements.
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See “Special Factors—Fairness of the Reverse Stock Split” beginning on page ♦, “Special Factors—Effects of the Reverse Stock Split” beginning on page ♦ and “Special Factors—Potential Conflicts of Interests of Officers, Directors and Certain Affiliated Persons” beginning on page ♦.
Opinion of Advisor to the Special Committee
Cascadia Capital has delivered to the Board a written opinion to the effect that, as of the date of, and based upon the assumptions made, matters considered and limits of review set forth in, Cascadia Capital’s written opinion, the consideration to be received by the Cashed-Out Stockholders pursuant to the Reverse Stock Split of $0.60 per share is fair, from a financial point of view, to such stockholders.
See “Special Factors—Opinion of Cascadia Capital” beginning on page ♦.
Material U.S. Federal Income Tax Consequences of the Reverse Stock Split
The receipt of cash by a Cashed-Out Stockholder in exchange for Common Stock in the Reverse Stock Split in excess of such Cashed-Out Stockholder’s adjusted tax basis in the Common Stock generally will be taxable for U.S. federal income tax purposes. A Continuing Stockholder who does not receive cash in the Reverse Stock Split generally should not recognize any gain or loss with respect to the Reverse Stock Split for U.S. federal income tax purposes.
See “Special Factors—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page ♦.
Source and Amount of Funds and Expenses
The funds for the Reverse Stock Split will come from our currently available cash and, to the extent that we have insufficient cash on hand to fund such expenses, through borrowings against an existing letter of credit established on our behalf with JPMorgan Chase Bank, N.A. by one of our existing stockholders, Mr. Frank Nickell, in the amount of $2.0 million, pursuant to an LOC Agreement entered into between us and Mr. Frank Nickell on March 9, 2012.
See “Source and Amount of Funds and Expenses” beginning on page ♦.
Effectiveness of the Reverse Stock Split
We anticipate that the Reverse Stock Split will be effected as soon as practicable after the date of the Meeting. Following the effective time of the Reverse Stock Split, transmittal materials will be sent to Cashed-Out Stockholders that will describe how to return their share certificates and receive the cash payments. Those stockholders entitled to a cash payment should not return their share certificates at this time.
See “Special Factors—Effective Time” beginning on page ♦.
Termination of Reverse Stock Split
The Board has reserved the right to abandon the Reverse Stock Split if it believes the Reverse Stock Split is no longer in our best interests, if, for example, there is any change in the number of our shares that will be exchanged for cash in connection with the Reverse Stock Split that would increase the anticipated cost and expense of the Reverse Stock Split, and the Board has retained authority, in its discretion, to withdraw the Reverse Stock Split from the agenda of the Meeting prior to any vote. In addition, even if the Reverse Stock Split is approved by stockholders at the Meeting, the Board may determine not to implement the Reverse Stock Split if it subsequently determines that the Reverse Stock Split is not in our best interests, and the Board could propose an alternative transaction to the Reverse Stock Split on different terms and conditions, including, without limitation, a reverse stock split at a lower cash-out price. In such event, we would file a revised proxy statement and re-solicit proxies from our stockholders.
See “Special Factors—Termination of Reverse Stock Split” beginning on page ♦.
No Appraisal or Dissenters’ Rights
Under Delaware law, our Certificate of Incorporation and our bylaws, no appraisal or dissenters’ rights are available to our stockholders who dissent from the Reverse Stock Split.
See “Special Factors—No Appraisal and Dissenters’ Rights” beginning on page ♦.
QUESTIONS AND ANSWERS ABOUT THE REVERSE STOCK SPLIT AND THE MEETING
The following questions and answers are intended to briefly address potential questions regarding the Reverse Stock Split and the Meeting. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and any information and documents referred to or incorporated by reference in this proxy statement.
Where and when is the Meeting?
The Meeting will be held at ♦ a.m. local time on ♦, 2012, at ♦.
What am I being asked to vote on at the Meeting?
Our stockholders will consider and vote upon a proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split.
How does the Board recommend that I vote on the proposal?
The Board, upon the recommendation of the Special Committee, unanimously recommends that you vote “
FOR
” the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split.
How will the Reverse Stock Split affect our day-to-day operations?
Though the Reverse Stock Split itself will have very little effect on our business and operations, ultimately it will eliminate costs associated with our reporting obligations under the Exchange Act, reduce management time spent on compliance and disclosure matters attributable to our Exchange Act filings, and therefore enable management to increase its focus on managing our business and growing stockholder value. In addition, it will allow us to avoid having to make publicly available certain proprietary or otherwise sensitive information about our business, operations and contractual relationships, which our competitors may otherwise be able use to their competitive advantage. Management believes that we will be able to realize significant cost savings by the elimination of most of the expenses related to the disclosure, reporting and compliance requirements of the Exchange Act, the Sarbanes-Oxley Act and other applicable securities laws and regulations, and expects to utilize these savings to continue to grow our business, undertake new initiatives that may result in greater long-term stockholder value, and achieve profitability. The costs associated with these reporting and compliance obligations constitute a significant overhead expense. These costs include professional fees for our auditors and corporate counsel, costs related to our directors’ and officers’ insurance policy, printing and mailing costs, internal compliance costs and transfer agent costs. These SEC reporting-related costs have been increasing over the years, and we believe that they will likely continue to increase.
How did the Special Committee and Board determine the Reverse Stock Split ratio of 1-for-300?
The Special Committee and Board approved a ratio for the Reverse Stock Split of 1-for-300 in order to reduce our record holders to a number sufficiently below 500 that we would be unlikely, in the future, to inadvertently increase our record holder base to 500 or more (or more than 300 stockholders if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years) and thus be required to resume our reporting obligations under the Exchange Act, and in order to consolidate our otherwise diffuse and fragmented stockholder base.
What potential conflicts of interest are posed by the Reverse Stock Split?
Our affiliates may have interests in the Reverse Stock Split that are different from your interests as a stockholder, and have relationships that may present conflicts of interest. While the Board recommends a vote “
FOR
” the Reverse Stock Split, to our knowledge, none of our affiliates has made a recommendation, in their individual capacities, either in support of or opposed to the Reverse Stock Split. Our directors and executive officers have indicated that they intend to vote their shares of our Common Stock (2,978,159 shares, or approximately 6.0% of our issued and outstanding shares eligible to vote at the Meeting) “
FOR
” the Reverse Stock Split, and Mr. Frank Nickell, who owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock, as of October 31, 2012, has indicated that he would not generally oppose the Reverse Stock Split.
Upon the effectiveness of the Reverse Stock Split, the ownership percentage of the shares of our Common Stock held by Continuing Stockholders, including our affiliates, will proportionately increase by less than ♦% as a result of the reduction of the number of shares of our Common Stock outstanding by approximately ♦ shares from 49,720,255 shares as of October 31, 2012. Each of our directors and executive officers will continue to own our Common Stock and/or hold options to acquire shares of our Common Stock and will continue to serve as a director or executive officer immediately after the Reverse Stock Split. As a result of the Reverse Stock Split, the number of shares subject to outstanding stock options will be proportionately decreased and the exercise price will be proportionately increased. Information regarding our officers’ and directors’ compensation and stock ownership will no longer be publicly available. In addition, by suspending our reporting obligations under the Exchange Act we will no longer be prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act, from making personal loans to our directors or executive officers, although no such loans currently are contemplated.
What if I hold fewer than 300 shares of Common Stock and hold all of my shares in street name?
If you hold shares of our Common Stock in street name, your broker, bank or other nominee is considered the stockholder of record with respect to those shares and not you. It is possible that the bank, broker or other nominee also holds shares for other beneficial owners of our Common Stock and that it may hold 300 or more total shares. Therefore, depending upon their procedures, they may not be obligated to treat the Reverse Stock Split as affecting beneficial holders’ shares. It is our desire to treat stockholders holding fewer than 300 shares of our Common Stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their name. However, we or our Transfer Agent may not have the necessary information to compare your record holdings with any shares that you may hold in street name in a brokerage account and these banks, brokers and other nominees may have different procedures for processing the Reverse Stock Split. Accordingly, if you hold your shares of our Common Stock in street name, we encourage you to contact your bank, broker or other nominee.
What happens if I own a total of 300 or more shares of Common Stock beneficially through multiple brokerage firms in street name, or through a combination of record ownership in my name and one or more brokerage firms in street name?
We may not have the information to compare your record holdings and your ownership through a brokerage firm or to compare your holdings in two or more different brokerage firms. As a result, if you hold more than the minimum number of shares, you may nevertheless have your shares cashed-out if you hold them in a combination of record and street name or through accounts in several brokerage firms. If you are in this situation and desire to remain our stockholder after the Reverse Stock Split, we recommend that you combine your holdings in one brokerage account or transfer any shares held through a brokerage firm into record name prior to the effective time of the Reverse Stock Split. You should be able to determine whether your shares will be cashed-out by examining your brokerage account statements to see if you hold more than the minimum number of shares in any one account. To determine the effect of the Reverse Stock Split on any shares you hold in street name (and possible payment of the cash consideration), you should contact your broker, bank or other nominee.
If I am a Cashed-Out Stockholder, will I have to pay a service charge or brokerage commission in connection with the Reverse Stock Split?
We believe that no service charge or brokerage commission will be payable by any Cashed-Out Stockholder in connection with the cash-out of shares in the Reverse Stock Split, but it is possible that individual brokers and agents may impose certain charges and fees in connection with such transaction. We recommend you contact your broker or agent to determine if there are any applicable fees in connection with the cash-out transaction.
If I own fewer than 300 shares of Common Stock, is there any way I can continue to be a stockholder after the Reverse Stock Split?
Stockholders that desire to retain their equity interest in us after the Reverse Stock Split can do so if they hold 300 shares of Common Stock or more prior to the effective time of the Reverse Stock Split, thereby avoiding being cashed-out, or if they elect to acquire shares after the Reverse Stock Split. However, given the historically limited liquidity in our Common Stock, we cannot assure you that any shares will be available for purchase and thus there can be no assurance that you will be able to acquire sufficient shares to meet or exceed the required 300 shares. In such an instance, you would be a Cashed-Out Stockholder and would no longer remain a stockholder after the effective time of the Reverse Stock Split.
We anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, but there can be no assurance of any trading in, or market for or opportunity to purchase, our Common Stock following the Reverse Stock Split. The Pink Sheets is maintained by Pink Sheets OTC Markets, Inc., a quotation service that collects and publishes market maker quotes for over-the-counter securities. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by over-the-counter market makers and company information is provided by the over-the-counter companies. However, there can be no assurance that any broker-dealer will be willing to act as a market maker in our shares after the Reverse Stock Split (at least one market maker is required in order for our shares to be traded on the Pink Sheets) or that there will be any Pink Sheets quotations after the Reverse Stock Split.
Is there anything I can do if I own 300 or more shares of Common Stock, but would like to take advantage of the opportunity to receive cash for my shares as a result of the Reverse Stock Split?
If you own 300 or more shares of our Common Stock before the Reverse Stock Split, you can only receive cash for all of your shares if, prior to the effective time of the Reverse Stock Split, you reduce your stock ownership to fewer than 300 shares by selling or otherwise transferring shares. However, given the historically limited liquidity in our Common Stock, we cannot assure you that any purchaser for your shares will be available, and thus there can be no assurance that you will be able to reduce your stock ownership to fewer than 300 shares. In such an instance, you would remain a Continuing Stockholder and would not be cashed-out in connection with the Reverse Stock Split.
Who is entitled to vote at the Meeting?
Only holders of record of our Common Stock as of the close of business on ♦, 2012 (the “
Record Date
”) are entitled to notice of, and to vote at, the Meeting.
How many shares were outstanding on the Record Date?
At the close of business on the Record Date, there were ♦ shares of Common Stock outstanding. Only shares of Common Stock outstanding on the Record Date will be eligible to vote on the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split. At the Meeting, each of those shares of Common Stock will be entitled to one vote.
What is a “quorum” for purposes of the Meeting?
In order to conduct business at the Meeting, a quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares of Common Stock are present at the Meeting in person or represented by proxy. On the close of business on the Record Date, there were ♦ shares outstanding and entitled to vote and, accordingly, the presence, in person or by proxy, of at least ♦ shares is necessary to meet the quorum requirement.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the Meeting. Abstentions will be counted towards the quorum requirement.
What vote is required to approve the proposal?
Once a quorum has been established, the affirmative vote of a majority of all of the shares outstanding and entitled to vote on this matter will be required to approve the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split.
What is a “broker non-vote”?
Broker non-votes generally occur when shares held by a broker nominee for a beneficial owner are not voted with respect to a proposal because the nominee has not received voting instructions from the beneficial owner and lacks discretionary authority to vote the shares. Brokers normally have discretion to vote on “routine matters,” such as the ratification of independent registered public accounting firms, but not on non-routine matters, such as the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split. Since there are no routine matters being voted on at the Meeting, we will not have any broker non-votes at the Meeting.
How are abstentions counted?
A properly executed proxy marked “ABSTAIN” with respect to any such matter will be counted for purposes of determining whether there is a quorum. However, under Delaware law, a proxy marked “ABSTAIN” is not considered a vote cast. Accordingly, an abstention will have the effect of a vote
against
the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split.
What will happen if the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split is approved by our stockholders?
Assuming that we have fewer than 500 record holders of our Common Stock after the Reverse Stock Split, we will file applicable forms with the SEC to suspend our reporting obligations under the federal securities laws. Upon the effectiveness of those filings, we would no longer be subject to the reporting and related requirements under the Exchange Act that are applicable to public reporting companies or the applicable provisions of the Sarbanes-Oxley Act. Also, any trading in our Common Stock will occur, if at all, on the Pink Sheets or in privately negotiated sales.
What will happen if the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split is not approved?
If the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split is not approved by our stockholders, we will continue to operate our business, and we will continue to incur the costs involved with being a public reporting company. Most of the expense associated with the Reverse Stock Split, including legal and accounting expenses and Cascadia Capital’s fee, will have already been incurred and paid by us. We also may decide to evaluate and explore available alternatives, although the Board has not yet made a determination that any of those alternatives are feasible or advisable.
If the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split is approved by the stockholders, can the Board determine not to proceed with the Reverse Stock Split?
If the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split is approved by the stockholders, the Board may determine not to proceed with the Reverse Stock Split if it believes that proceeding with the Reverse Stock Split is not in our best interests or in the best interests of our stockholders, including our unaffiliated stockholders, if, for example, there is any change in the number of our shares that will be exchanged for cash in connection with the Reverse Stock Split that would increase the anticipated cost and expense of the Reverse Stock Split. In addition, the Board could propose an alternative transaction to the Reverse Stock Split on different terms and conditions, including, without limitation, a reverse stock split at a lower cash-out price. If the Board determines not to proceed with the Reverse Stock Split or any alternative transaction, we will continue to operate our business as presently conducted.
Should I send in my stock certificates now?
No. After the Reverse Stock Split is completed, we will send instructions to Cashed-Out Stockholders on how to receive any cash payments to which they may be entitled. Continuing Stockholders will not be required to take any action following the Reverse Stock Split.
What is the total cost of the Reverse Stock Split to Helix?
Since we do not know how many record and beneficial holders of our Common Stock will receive cash for their shares in the Reverse Stock Split, we do not know the exact cost of the Reverse Stock Split. However, based on information that we have received as of ♦, 2012 from our Transfer Agent with regard to the size of holdings of those of you who may hold shares in street name, as well as our estimates of other Reverse Stock Split expenses, we currently believe that the total cash requirement of the Reverse Stock Split to us will be approximately $430,000. This amount includes approximately $120,000 needed to cash-out fractional shares and approximately $310,000 of legal, accounting, financial advisory fees, SEC filing fees, printing and mailing costs, and transfer agent fees to effect the Reverse Stock Split, most of which has already been incurred and paid by us. This total amount could be larger or smaller depending on, among other things, the number of fractional shares that will be outstanding after the Reverse Stock Split as a result of purchases, sales and other transfers of our shares of Common Stock.
How do I vote?
Sign and date each proxy card you receive and return it in the enclosed envelope prior to the Meeting or attend the Meeting and vote in person. You may also vote by telephone or via the internet in accordance with the procedures on the proxy card.
Can I change my vote?
Yes. You may revoke your proxy and change your vote before your proxy is voted at the Meeting. If you are a stockholder of record, you may revoke your proxy and change your vote as follows:
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if you voted by telephone or via the internet, by voting again by telephone or via the internet no later than 11:59 p.m. Eastern Time on
♦
, 2012;
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if
you completed and returned a proxy card, by submitting a new signed proxy card with a later date and returning to American Stock Transfer and Trust Company, Attn.: Proxy Department, 6201 15th Avenue, Brooklyn, New York 11219-9821 so that it is received by ♦, 2012;
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by submitting written notice of revocation to American Stock Transfer and Trust Company, Attn.: Proxy Department, 6201 15th Avenue, Brooklyn, New York 11219-9821 so that it is received by ♦, 2012; or
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by attending the Meeting and either voting in person or specifically requesting at the Meeting to revoke your proxy.
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Attending the Meeting will not revoke your proxy unless you specifically request to revoke it or submit a ballot at the Meeting.
If you hold your shares in street name, contact your broker, bank, trust or other nominee regarding how to revoke your proxy and change your vote.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign, date and return each proxy card to ensure that all of your shares are voted.
Who are the filing persons?
For the purposes of this proxy statement, the filing persons are those individuals and entities required under the rules of the SEC to provide certain disclosures to our stockholders in order for us to effect the Reverse Stock Split. In addition to us, the filing persons include our directors and executive officers.
Who can help answer my questions?
Questions may be directed to R. Stephen Beatty, President and Chief Executive Officer – 22121 17th Avenue S.E., Suite 112, Bothell, Washington 98021 or by telephone at (425) 402-8400.
SPECIAL FACTORS
Background of the Reverse Stock Split
We have been a public reporting company since 1994. We estimate that the annual cost of operating as a public reporting company and complying with applicable regulations is approximately $350,000 per year, including time of our executive officers and our other employees necessary to prepare and review our public filings and perform other tasks that are necessitated by virtue of being a public reporting company. In addition, in 2002, Congress’s passage of the Sarbanes-Oxley Act ushered in a wave of corporate reforms that have increased our expenses as a public reporting company. Moreover, the Dodd-Frank Act was adopted in 2010 and we expect increased compliance costs associated therewith.
In addition, over the past several years, there has been a relatively illiquid market for our Common Stock and we have realized limited benefits from our status as a public reporting company. Moreover, we continue to face challenging financial conditions. Specifically, our net loss for 2011 was approximately $2.49 million, or $0.05 per share, while we had a net loss of $7.71 million, or $0.28 per share, for 2010 and a net loss of $3.78 million, or $0.15 per share, for 2009. As of December 31, 2011, our accumulated deficit was approximately $46.06 million.
In the ordinary course, management has from time to time reviewed the current and anticipated costs relating to SEC reporting and Sarbanes-Oxley Act compliance and discussed the relative costs and benefits of continuing our status as a public reporting company and the possibility of conducting a transaction that would result in the termination of our status as a public reporting company. While the Board has considered various strategic alternatives from time to time in the past, including potential acquisitions and other strategic partnerships, the Board first fully explored suspending the company’s SEC reporting obligations at its May 22-23, 2012 Board meeting.
Management did not actively investigate a potential transaction to suspend our reporting obligations under the Exchange Act until mid-2012 because until that time, we had been able to fund our operations through private financings and had believed that cash generated from operations would cover our ongoing operating costs in the relatively near future. During the first quarter of 2012, as we continued to incur a net loss and were spending cash at a rate that exceeded our revenues, one of our stockholders, Frank T. Nickell, who owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock, as of October 31, 2012, was able to establish a letter of credit on our behalf, as described below, to fund ongoing operations and protect against any future cash shortfalls. However, it became clear that the requisite long-term financing necessary to sustain our operations at the current level may not continue to be available on acceptable terms and in the amounts necessary. Moreover, management determined that, rather than simply engage in another equity financing at this time to address our short-term cash requirements, it would be in the best interests of our stockholders to take measures to reduce our operating expenses, which we believe will help provide more financial stability in the future. Consequently, management determined that it would be prudent to more aggressively reduce our costs, including expenses related to SEC reporting and Sarbanes-Oxley Act compliance.
At the May 22-23 Board meeting, management discussed with the Board the costs of remaining a public reporting company, and our outside counsel, Summit Law Group, PLLC, discussed various transactions that could enable us to suspend our reporting obligations, and the relative costs and benefits of each. Also present at the meeting were our chief operating officer, Robin Carmichael, and our controller, Nicole Ressler. During this discussion, the Board reviewed our financial condition and operating results, as well as our financing history and near-term and long-term future financial prospects. In response to this discussion, the Board authorized management to investigate alternatives for us to suspend our SEC reporting obligations and to consult with professional advisers as necessary to assist in the analysis.
On June 4, 2012, our chief executive officer, Mr. Beatty, and Jeffrey A. Miller, a member of the Board, engaged in a conference call with Mr. Frank Nickell to discuss on a preliminary basis whether Mr. Frank Nickell would generally be opposed to a going private transaction. We felt that it would be prudent to determine whether Mr. Frank Nickell, as our largest stockholder, would likely vote against such a proposal before we invested significant resources in pursuing a potential going private transaction. During this call, Mr. Beatty and Dr. Miller informed Mr. Frank Nickell that a reverse stock split was being considered to effect the potential going private transaction, that various reverse stock split ratios were being considered to reduce our stockholder base, and that a price of $0.60 per share was being considered as a cash-out price in connection with a reverse stock split. Mr. Beatty and Dr. Miller did not discuss with Mr. Frank Nickell the source of funds that would be necessary to complete a going private transaction. Following this call, Mr. Frank Nickell did not participate in any future meetings or discussions with our management or our Board regarding the going private transaction.
At a Board meeting held on June 12, 2012, the Board resumed its formal discussion of a potential transaction to suspend our reporting obligations. Also present at the meeting were our outside counsel, Ms. Carmichael and Ms. Ressler. During the meeting, the Board reviewed the possible alternatives available to us to reduce the number of our record holders, and the related advantages and disadvantages to us and our stockholders of each of the options considered. Alternatives considered included a reverse stock split, an issuer tender offer, an odd lot tender offer and purchases of shares of our Common Stock on the open market. The Board also discussed the relative costs and benefits of remaining a public reporting company, the details of which are set forth below, and reviewed with management the cost savings that we might anticipate as a result of such a transaction. In particular, management estimated that we could ultimately save approximately $300,000 – $350,000 in annual cost savings as a result of going private.
During the June 12 meeting, the Board discussed a proposed price of $0.60 per share for purposes of cashing out any fractional shares, which was based, in part, on the tender offer we completed in December 2010 pursuant to a Tender Offer Statement on Schedule TO filed with the SEC in connection with which we, among other things, converted certain outstanding convertible promissory notes into shares of our Common Stock at a conversion price of $0.60 per share, and on the value associated with our Common Stock in connection with a letter of credit established on our behalf in March 2012. Specifically, on March 9, 2012, we entered into an LOC Agreement (the “
LOC Agreement
”) with Mr. Frank Nickell, pursuant to which Mr. Frank Nickell established an irrevocable standby letter of credit by JPMorgan Chase Bank, N.A. (“
JPMorgan
”) in the amount of $2.0 million on our behalf and deposited $2.0 million with JPMorgan as collateral. Pursuant to the LOC Agreement, we agreed to use commercially reasonable efforts to consummate an equity financing prior to the termination date of the LOC in which we would sell and issue shares of our Common Stock at a price per share of at least $0.60 for aggregate proceeds of at least $3.0 million, upon consummation of which all amounts outstanding under the LOC shall be immediately repaid.
Also at the June 12 meeting, the Board formed the Special Committee, consisting of Randall L-W. Caudill, Lawrence Blake Jones and Jeffrey A. Miller, each of whom is independent as that term is defined under NASDAQ Rule 5605(a)(2). The Board authorized the Special Committee to retain an independent valuation firm to provide the Board with a fairness opinion to assist the Board in determining whether the consideration price of $0.60 per share to be received by our stockholders (including our unaffiliated stockholders) for their shares of Common Stock to be cashed-out as a result of the Reverse Stock Split is fair, from a financial point of view, to such stockholders, and also asked that the Special Committee assist in determining whether the Reverse Stock Split is in the best interest of our stockholders (including our unaffiliated stockholders).
The Special Committee met on June 21, 2012 and discussed a number of firms that could provide the Board with a fairness opinion. Also present at this meeting was our outside legal counsel. In reviewing these firms, the Special Committee considered the size, location, reputation and experience of each firm, as well as each firm’s expertise in our industry. In addition, the Special Committee discussed the likely fees that each firm would charge to render a fairness opinion. Following this discussion and based on these factors, the Special Committee decided to request proposals from two of these firms. Specifically, these firms were both located in Seattle, Washington in close proximity to our executive offices, have strong reputations in the community, had the capacity and experience to render an opinion in an efficient manner and were likely to charge reasonable fees. On June 23, 2012, members of the Special Committee and our outside legal counsel held a telephonic conference with a representative of one of these firms to discuss its proposed services and fees. In addition, on June 25, 2012, one of the firms to be interviewed by us, Cascadia Capital, held an initial meeting with our chief executive officer, Mr. Beatty, to help define the scope of the fairness opinion, conduct basic diligence on us with regard to the proposed transaction and review our historical financial statements.
Subsequently, on June 28, 2012, Dr. Caudill, chairman of the Special Committee, held an internal organizational meeting with Mr. Beatty to discuss the transaction process generally and provide an update on the Special Committee’s progress in interviewing firms to render a fairness opinion. On July 3, 2012, members of the Special Committee held a telephonic conference with Cascadia Capital to discuss Cascadia Capital’s proposed services and fees. On July 6, 2012, Dr. Caudill, chairman of the Special Committee, and Mr. Beatty met with representatives from Cascadia Capital to further discuss Cascadia Capital’s proposed services and fees. During this meeting, the parties discussed our current and past financial results, the proposed going private transaction and the rationale for proceeding with such transaction, our financing history and our capitalization. In addition, we provided Cascadia Capital with additional due diligence materials, including copies of our filings with the SEC, Board and stockholder presentations, and other publicly available information about the Company’s business and operations, including market and industry information, as well as certain informally prepared, non-detailed prospective financial information.
Following the July 6 meeting, the Special Committee agreed by email to engage Cascadia Capital as its financial advisor. In selecting Cascadia Capital as its financial advisor, the Special Committee considered a number of factors, including that Cascadia Capital had greater resources than the other firm, and also offered a lower fee for its services. An advisory agreement between us and Cascadia Capital was entered into on July 10, 2012.
On July 12, 2012, Cascadia Capital held a conference call with Ms. Carmichael to discuss our strategic partners, our patent expenses, the methodologies used to derive the internal financial forecasts that had been provided to Cascadia Capital, and our market generally. Mr. Beatty, Dr. Caudill and Ms. Carmichael held a conference call with Cascadia Capital on July 26, 2012 to update us regarding the fairness opinion and to discuss a few remaining due diligence items, and Dr. Caudill held a conference call with Cascadia Capital on August 3, 2012 to discuss the scope of Cascadia Capital’s opinion. On August 6, 2012, Cascadia Capital had a call with our lead audit partner at KPMG LLP, our independent registered public accounting firm, regarding our accounting policies and recent audits.
The Special Committee met with Mr. Beatty, Ms. Carmichael, our outside legal counsel, and Cascadia Capital on August 15, 2012 and discussed the proposed ratio for the Reverse Stock Split, the proposed consideration of $0.60 per share to be paid to Cashed-Out Stockholders pursuant to the Reverse Stock Split, and the cost savings to be expected and overall costs of the proposed transaction. In determining the ratio for the Reverse Stock Split, the Special Committee relied Mr. Beatty’s analysis of our stockholder base. Mr. Beatty determined that we had approximately 785 holders of record, of which approximately 475 holders each held less than 300 shares of Common Stock, and based on this information, Mr. Beatty determined that a 1-for-300 Reverse Stock Split would result in fewer than 500 stockholders of record, as determined in accordance with Rule 12g5-1 under the Exchange Act, and thus enable us to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act. During the August 15 meeting, Cascadia Capital summarized its valuation methodologies and analyses and then rendered its oral opinion, that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of such date, the consideration of $0.60 per share to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split was fair, from a financial point of view, to such holders. A copy of Cascadia Capital’s August 15, 2012 presentation is attached as
Annex C
to this proxy statement. Accordingly, the Special Committee unanimously recommended that the Board approve the Reverse Stock Split.
On August 16, 2012, the Board met and invited Ms. Carmichael, Ms. Ressler, our outside legal counsel, and representatives of Cascadia Capital to attend. At this meeting, Cascadia Capital summarized its valuation methodologies and analyses and presented its opinion that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of such date, the consideration to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split of $0.60 per share was fair, from a financial point of view, to such holders. A copy of Cascadia Capital’s written fairness opinion is attached as
Annex B
to this proxy statement.
On August 16, 2012, following discussion, and based on the recommendation of the Special Committee, the Board unanimously approved and recommended for stockholder approval the 1-for-300 Reverse Stock Split in order to enable us to suspend our SEC reporting obligations, and further approved the payment of $0.60 in cash per pre-split share of Common Stock to Cashed-Out Stockholders, subject to any applicable U.S. federal, state and local withholding tax, and without interest. Based upon the factors set forth below, including, with respect to the consideration to be paid to the Cashed-Out Stockholders, the fairness opinion of Cascadia Capital, the Special Committee and the Board further determined that the Reverse Stock Split is both substantively and procedurally fair to our affiliated and unaffiliated stockholders, including Cashed-Out Stockholders and Continuing Stockholders.
Purposes of and Reasons for the Reverse Stock Split
At the Meeting, stockholders are being asked to consider and vote upon a proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split. A copy of the proposed amendment to our Certificate of Incorporation to effect the Reverse Stock Split is attached as
Annex A
to this proxy statement.
The Reverse Stock Split will enable us to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act if, after the Reverse Stock Split, there are fewer than 500 record holders of our Common Stock (given that our total assets have not exceeded $10 million on the last day of any our three most recent fiscal years) and we make the necessary filings with the SEC. Management believes that we will be able to realize significant cost savings by the elimination of most of the expenses related to the disclosure, reporting and compliance requirements of the Exchange Act, the Sarbanes-Oxley Act and other applicable securities laws and regulations, and expects to utilize these savings to continue to grow our business, undertake new initiatives that may result in greater long-term stockholder value, and achieve profitability. The costs associated with these obligations constitute a significant overhead expense. These costs include professional fees for our auditors and corporate counsel, costs related to our directors’ and officers’ insurance policy, printing and mailing costs, internal compliance costs and transfer agent costs. These SEC reporting-related costs have been increasing over the years, and we believe that they will likely continue to increase.
As a result of the Reverse Stock Split:
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each share of Common Stock held of record by a Cashed-Out Stockholder immediately prior to the effective time of the Reverse Stock Split will be converted into the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest; and
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stockholders that hold at least one share of Common Stock after the Reverse Stock Split will continue as Continuing Stockholders, and any resulting fractional shares owned by such Continuing Stockholders following the Reverse Stock Split will remain outstanding as fractional shares and such Continuing Stockholders will not be entitled to receive any cash payment.
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The fractional shares of Common Stock acquired by us as a result of the Reverse Stock Split will be restored to the status of authorized but unissued shares, which will reduce the number of our outstanding shares of Common Stock.
In determining whether the number of our stockholders of record falls below 500 as a result of the Reverse Stock Split, we must count stockholders of record in accordance with Rule 12g5-1 under the Exchange Act. Rule 12g5-1 provides, with certain exceptions, that in determining whether issuers, including us, are subject to the reporting obligations of the Exchange Act, securities are considered to be “held of record” by each person who is identified as the owner of such securities on the respective records of security holders maintained by or on behalf of the issuers. However, institutional custodians such as Cede & Co. and other commercial depositories are not considered a single holder of record for purposes of these provisions. Rather, each depository’s accounts are treated as the record holders of the shares.
As of ♦, 2012, we had ♦ holders of record, of which ♦ held less than 300 shares per holder. As a result of the Reverse Stock Split and the cashing-out of shares held by Cashed-Out Stockholders, we expect to have approximately ♦ record holders of our shares, which would enable us to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act. If the Reverse Stock Split is completed, we intend to file with the SEC a Form 15 to suspend our reporting obligations. Upon the filing of the Form 15, our obligation to file periodic and current reports under the Exchange Act will be immediately suspended. We will not be required to file periodic and current reports with the SEC in the future unless we subsequently file another registration statement under the Securities Act of 1933, as amended, or we again have record holders of our Common Stock in excess of 500 (or 300 if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years).
It is anticipated that our shares of Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split. The Pink Sheets is maintained by Pink Sheets OTC Markets, Inc., a quotation service that collects and publishes market maker quotes for over-the-counter securities. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by over-the-counter market makers and company information is provided by the over-the-counter companies. However, there can be no assurance that any broker-dealer will be willing to act as a market maker in our shares after the Reverse Stock Split (at least one market maker is required in order for our shares to be traded on the Pink Sheets) or that there will be any Pink Sheets quotations after the Reverse Stock Split.
While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders.
Our reasons for proposing the Reverse Stock Split include the following:
Regulatory Requirements.
We expect to realize annual cost savings as a result of the suspension of our reporting obligations under the Exchange Act, including ongoing expenses for compliance with the Sarbanes-Oxley Act and other accounting, legal, insurance, printing, mailing and other miscellaneous costs associated with being a public reporting company, of approximately $350,000 per year. The external costs associated with our public reports and other filing obligations, as well as other external costs relating to public reporting company status, comprise a significant overhead expense, made up principally of the following:
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Fiscal Year Ended
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2012 (est.)
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2011
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2010
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Legal, Audit, Audit-Related Fees, and Tax
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$
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274,000
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$
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270,000
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$
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277,000
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Sarbanes-Oxley Act and Other SEC Compliance
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$
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46,000
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$
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30,000
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$
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25,000
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Transfer Agent and Filing Costs
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$
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43,000
|
|
|
$
|
42,000
|
|
|
$
|
48,000
|
|
|
Totals
|
|
$
|
363,000
|
|
|
$
|
342,000
|
|
|
$
|
350,000
|
|
The historical public reporting company costs presented above are significant as a percentage of our total general and administrative expenses. The legal, audit, audit-related fees, and tax costs include professional fees for our auditors and corporate counsel and external compliance costs incurred in preparing and reviewing such filings. The amounts listed for Sarbanes-Oxley Act and other SEC compliance reflect estimated executive and administrative time incurred in complying with public reporting company requirements. We expect that the Reverse Stock Split will result in the elimination of approximately $350,000 per year of the above historical “public reporting company” costs, which consists of estimated cost savings in external accounting and audit fees, internal Sarbanes-Oxley Act and other SEC compliance, transfer agent fees, external legal fees, annual meeting costs and printing fees, including costs related to the requirement to provide financial statements in XBRL format.
Operational Flexibility
. In addition, as a non-reporting company, our management and employees will no longer be required to spend time preparing the periodic and other reports required of SEC reporting companies under the Exchange Act and complying with the Sarbanes-Oxley Act, although we will continue to be subject to the general anti-fraud provisions of applicable federal and state securities laws. We believe that this time could more effectively be devoted to other purposes, such as operating our business and undertaking new initiatives that may result in greater long-term growth. Moreover, due to the public market’s focus on quarterly results, smaller public reporting companies such as ours are required to focus on short-term goals, such as quarterly financial results, often at the expense of longer-term objectives. As a non-reporting company, we believe management will have increased operational flexibility by being able to devote more time to sustaining long-term growth. We also believe that, as a non-reporting company, we will be able to more quickly react and respond to corporate opportunities in the future and avoid having to make publicly available certain proprietary or otherwise sensitive information about our business, operations and contractual relationships, which our competitors may otherwise be able use to their competitive advantage.
Limited Benefits from Access to the Public Markets.
We enjoy very little benefit from being a public reporting company. Benefits of being a public reporting company typically include:
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·
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access to the public markets for purposes of raising capital and for acquisitions;
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·
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access to public markets for liquidity purposes for our stockholders; and
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·
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the prestige of being a public reporting company, which can be helpful in recruiting, attracting and retaining key officers, directors and staff.
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To date, we have been able to successfully finance our operations through private financings and bank financing. We have found that our status as a public reporting company has not materially impacted our ability to recruit or retain officers and employees.
Lack of an Active Trading Market; Liquidity for Cashed-Out Stockholders.
We believe the public marketplace has little interest in public reporting companies with a very small market capitalization and a limited amount of shares available for trading in the public marketplace. Moreover, we anticipate that it is unlikely that our Common Stock will achieve significant trading volume in the public marketplace so as to create a significantly active and liquid market in the foreseeable future. The average daily trading volume of our Common Stock during the last five years is 3,910 shares, during which time there were 646 days on which our Common Stock did not trade at all, and during the 120-day period ended August 15, 2012, there were 57 trading days on which our Common Stock did not trade at all, compared with only 28 trading days during that period in which our Common Stock was traded. The realization that our Common Stock might not, in the foreseeable future, achieve significant trading volume as a public reporting company and the resulting limited liquidity is one of the reasons that the Special Committee and Board concluded that we are not benefiting substantially from being a public reporting company, and that it would be in our best interest and the best interests of our stockholders for us to suspend our reporting obligations with the SEC. The Reverse Stock Split will also permit our Cashed-Out Stockholders (those holding fewer than 300 shares) to liquidate their holdings in us and receive a premium over the market price prevailing at the time of our public announcement of the Reverse Stock Split, likely without incurring brokerage commissions. We believe that no service charge or brokerage commission will be payable by any Cashed-Out Stockholder in connection with the cash-out of shares in the Reverse Stock Split, but it is possible that individual brokers and agents may impose certain charges and fees in connection with such transaction. We recommend you contact your broker or agent to determine if there are any applicable fees in connection with the cash-out transaction.
Fairness of the Reverse Stock Split
Substantive Fairness
. The Special Committee and the Board believe that the Reverse Stock Split is fair to our affiliated and unaffiliated stockholders, including Cashed-Out Stockholders and Continuing Stockholders. After consideration of all aspects of the Reverse Stock Split, as described below, the Special Committee unanimously recommended, and the Board unanimously approved, the Reverse Stock Split. Except for such recommendation and approval, we are not aware that any of our affiliates has made a recommendation, in their individual capacities, either in support of or opposed to the Reverse Stock Split.
The Special Committee and the Board considered, among other things, the factors listed below, as well as the alternatives to the Reverse Stock Split as noted below in “Special Factors—Alternatives Considered,” in reaching their conclusion as to the fairness of the Reverse Stock Split to our unaffiliated stockholders, including both unaffiliated holders who are cashed-out after the Reverse Stock Split and those who continue as stockholders after the Reverse Stock Split. The Special Committee and the Board did not assign specific weight to any factors they considered, nor did they apply them in a formulaic fashion, although the Special Committee and the Board particularly noted the opportunity in the Reverse Stock Split for Cashed-Out Stockholders to sell their holdings at a premium, as well as the significant cost and time savings for us resulting from the Reverse Stock Split which will benefit our Continuing Stockholders. The discussion below is not meant to be exhaustive, but we believe includes all material factors considered by the Special Committee and the Board in reaching their conclusions.
Future Cost and Time Savings
. The Special Committee and the Board noted that, as a public reporting company, we are required to prepare and file with the SEC, among other items, quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K. As described above under “Special Factors – Purposes of and Reasons for the Reverse Stock Split,” we incur significant costs associated with our public reports and other filing obligations, as well as other external costs relating to our public reporting company status, which costs comprise a significant overhead expense. The Special Committee and the Board considered management’s belief that the anticipated cost savings that we ultimately enjoy from suspension of our reporting obligations will offset the cost of the Reverse Stock Split in less than two years based upon an estimated transaction cost of $430,000.
Opinion of Financial Advisor.
With respect to the determination of whether the consideration to be paid to the Cashed-Out Stockholders is fair, the Special Committee and the Board considered the opinion of Cascadia Capital rendered on August 16, 2012, to the effect that, as of the date of, and based upon the assumptions made, matters considered and limits of review set forth in, Cascadia Capital’s opinion, the consideration to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split of $0.60 per share is fair, from a financial point of view, to such stockholders. For more information about Cascadia Capital's opinion, you should read the discussion below under “Special Factors—Opinion of Cascadia Capital” and review the copy of the opinion attached as
Annex B
to this proxy statement.
Limited Liquidity for Our Common Stock and Opportunity to Liquidate.
The Special Committee and the Board noted that the trading volume in our Common Stock has been, and continues to be, relatively limited. The average daily trading volume of the stock for the 30-day, 60-day, 90-day and 120-day period ended August 15, 2012, which was prior to the Board’s approval of the Reverse Stock Split, was approximately 270, 300, 702 and 1,572 shares, respectively. Moreover, the average daily trading volume of our Common Stock during the last five years is approximately 3,910 shares, during which time there were 646 days on which our Common Stock did not trade at all, and during the 120-day period ended August 15, 2012, there were 57 trading days on which our Common Stock did not trade at all, compared with only 28 trading days during that period on which our Common Stock was traded. Given the limited trading volume and liquidity of our Common Stock and the diffuse and fragmented nature of our stockholder base, the ability of our stockholders to liquidate their investment in us is consequently limited and, given the transaction costs associated with open market sales, it would likely be impractical for many of our stockholders to do so given their relatively small holdings. Accordingly, the Reverse Stock Split provides a significant number of our stockholders with the opportunity to obtain cash for their shares in a relatively limited trading market and at a premium over the closing price of our Common Stock at the time of our announcement of the Reverse Stock Split. While we anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, there can be no assurance of any trading in, or market for, our Common Stock following the Reverse Stock Split.
Current and Historical Market Prices.
The Special Committee and the Board considered both the historical market prices and current market price of our Common Stock. During the 30-day, 60-day, 90-day and 120-day period ended August 15, 2012, which was prior to the Board’s approval of the Reverse Stock Split, our average closing share price was $0.32, $0.35, $0.36 and $0.36, respectively. The $0.60 cash-out price for Cashed-Out Stockholders, therefore, represents an approximately 88% premium over the average closing share price for the 30-day period ended August 15, 2012, an approximately 71% premium over the average closing share price for the 60-day period ended August 15, 2012, an approximately 67% premium over the average closing share price for the 90-day period ended August 15, 2012, an approximately 67% premium over the average closing share price for the 120-day period ended August 15, 2012, and an approximately 216% premium over the $0.19 closing share price of our Common Stock on September 10, 2012, the day immediately prior to our announcement of the Reverse Stock Split.
Financing History
. With respect to the determination of whether the consideration to be paid to the Cashed-Out Stockholders is fair, the Special Committee and the Board considered the tender offer we completed in December 2010 pursuant to a Tender Offer Statement on Schedule TO filed with the SEC in connection with which we, among other things, converted certain outstanding convertible promissory notes into shares of our Common Stock at a conversion price of $0.60 per share. The Special Committee and the Board also considered the value associated with our Common Stock in connection with the LOC Agreement we entered into on March 9, 2012with Mr. Frank Nickell, pursuant to which Mr. Frank Nickell established an irrevocable standby letter of credit by JPMorgan in the amount of $2.0 million on our behalf and we agreed to use commercially reasonable efforts to consummate an equity financing prior to the termination date of the LOC in which we would sell and issue shares of our Common Stock at a price per share of at least $0.60 for aggregate proceeds of at least $3.0 million, upon consummation of which all amounts outstanding under the LOC shall be immediately repaid.
Equal Treatment of Affiliated and Unaffiliated Holders of Our Shares.
The Reverse Stock Split will not affect holders of our shares differently on the basis of affiliate status, and our officers, directors and significant stockholders will all be treated similarly to unaffiliated stockholders. The sole determining factor in whether a stockholder will be a Cashed-Out Stockholder or a Continuing Stockholder as a result of the Reverse Stock Split is the number of shares of our Common Stock held by the stockholder immediately prior to the Reverse Stock Split.
Potential Ability to Control Decision to Remain a Holder of or Liquidate Our Shares.
Current holders of fewer than 300 shares can remain stockholders of us by acquiring additional shares so that they own at least 300 shares immediately before the Reverse Stock Split. Conversely, stockholders that own 300 or more shares and desire to liquidate their shares in connection with the Reverse Stock Split (at the price offered by us) can reduce their holdings to fewer than 300 shares by selling shares prior to the Reverse Stock Split. However, given the historically limited trading market for our Common Stock on the OTCQB, we cannot assure you that any shares will be available for purchase or that any purchaser will be available to purchase your shares; therefore, a stockholder seeking to either increase or decrease holdings prior to the effective time of the Reverse Stock Split may not be able to do so or do so on economically acceptable terms. As a result, there can be no assurance that a stockholder will be able to acquire or sell sufficient shares to control whether such stockholder remains a stockholder following the effective time of the Reverse Stock Split. In addition, while we anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, there can be no assurance of any trading in, or market for, our Common Stock following the Reverse Stock Split. Due to these concerns, the Special Committee and the Board did not place undue emphasis on this factor.
Lack of Attractive Strategic Alternatives.
Neither the Special Committee nor the Board is aware of any firm offers during the past two years by any person or entity, including any unaffiliated person or entity, for the merger or consolidation of us, the sale or other transfer of all or any substantial part of our assets, or a purchase of our shares of Common Stock or other securities that would enable the holder to exercise control of us.
Going Concern Value.
Each of Cascadia Capital’s valuation analyses assumed that we would continue operating as a going concern following the Reverse Stock Split, and therefore neither the Special Committee nor the Board believed that a separate analysis based solely on our going concern value was necessary. Cascadia Capital noted to the Special Committee and the Board that given the inherent uncertain nature of our internal financial forecasts, Cascadia Capital did not utilize or rely on any discounted cash flow analysis for purposes of its valuation analysis.
Net Book Value and Liquidation Value.
The Special Committee and the Board did not consider net book value a material indicator of our value because it is merely indicative of historical costs and, given our significant accumulated net loss to date, does not reflect the reasonable market value for an early stage company like ours. The Special Committee and the Board also determined that a liquidation analysis had minimal relevance in light of the fact that we will remain as a continuing business and the Reverse Stock Split will not result in a change of control of us.
Procedural Fairness
.
No unaffiliated representative acting solely on behalf of our unaffiliated stockholders for the purpose of negotiating the terms of the Reverse Stock Split or preparing a report covering the fairness of the Reverse Stock Split was retained by us, nor were special provisions made to grant unaffiliated stockholders access to our corporate files or to obtain counsel or appraisal services. The Special Committee and the Board took note of the fact that the interests of unaffiliated stockholders inherently varied depending upon whether any particular unaffiliated stockholder held 300 shares or more or held fewer than 300 shares. The Special Committee and the Board believe that separate representatives and advisors for each of these classes would have provided no measurable additional protection to unaffiliated stockholders.
The Special Committee and the Board also noted that this proxy statement, along with our other filings with the SEC, provide a great deal of information to enable unaffiliated stockholders to make an informed decision as to the Reverse Stock Split, and that no special provision for the review of our files was necessary. The Special Committee and the Board noted, though, that subject to certain conditions, Delaware law already provides stockholders with the right to review our books and records.
The Board determined not to condition the approval of the Reverse Stock Split on approval by a majority of unaffiliated stockholders. The Board noted that affiliated and unaffiliated stockholders will be treated equally in the Reverse Stock Split. If separate approval of unaffiliated stockholders were required, our affiliated stockholders would receive lesser voting rights than unaffiliated stockholders solely on the basis of their affiliate status even though they will receive no additional benefits or different treatment in the Reverse Stock Split and any such requirement would prevent a majority of the outstanding shares of our Common Stock from participating in the consideration of the proposed Reverse Stock Split. Furthermore, a vote of the majority of unaffiliated stockholders is not required under Delaware law. Finally, stockholders can attempt to increase or decrease their existing holdings prior to the effective time of the Reverse Stock Split, so as to hold 300 or more shares of Common Stock prior to the effective time of the Reverse Stock Split, thereby avoiding being cashed-out, or reduce their stock ownership to fewer than 300 shares prior to the effective time of the Reverse Stock Split, thereby electing to be cashed-out. However, given the historically limited trading market for our Common Stock on the OTCQB, we cannot assure you that any shares will be available for purchase or that any purchaser will be available to purchase your shares; therefore, a stockholder seeking to either increase or decrease holdings prior to the effective time of the Reverse Stock Split may not be able to do so or do so on economically acceptable terms.
Disadvantages of the Reverse Stock Split
.
The Special Committee and the Board also considered the disadvantages of the Reverse Stock Split, including the following:
No Participation in Future Growth by Cashed-Out Stockholders.
After the Reverse Stock Split, Cashed-Out Stockholders will no longer have any ownership interest in us and will no longer participate in our future earnings and growth. While we anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, there can be no assurance of any trading in, or market for or opportunity to purchase, our Common Stock following the Reverse Stock Split.
Reduction in Information About Us.
After completion of the Reverse Stock Split, we will cease to file annual, quarterly, current, and other reports and documents with the SEC. While we intend to continue to make available audited annual financial statements as well as provide periodic interim financial updates to Continuing Stockholders, we will not be under any continuing obligation to do so. We will not be providing periodic reports in the format currently required of us under the provisions of the Exchange Act and as a result, while we intend to continue to maintain ongoing communications with our Continuing Stockholders, those stockholders will have access to less information about us and our business, operations, and financial performance.
Limited Liquidity.
After the Reverse Stock Split, we anticipate that our Common Stock will likely be traded on the Pink Sheets. However, trading opportunities in the Pink Sheets will be dependent upon whether any broker-dealers commit to make a market for our Common Stock. We cannot guarantee whether our Common Stock will be traded on the Pink Sheets. In addition, because of the possible limited liquidity for our Common Stock and the suspension of our obligation to publicly disclose financial and other information under the Exchange Act, Continuing Stockholders (including Continuing Stockholders who are our officers, directors and/or significant stockholders) may potentially experience a decrease in the value of their Common Stock following the Reverse Stock Split.
Limited Oversight
; Reduced Regulatory Protections
.
After completion of the Reverse Stock Split, we will no longer be subject to the corporate governance compliance and disclosure obligations and other provisions of the Sarbanes-Oxley Act that were designed to protect investors and certain of the liability provisions of the Exchange Act. In addition, certain rights and protections that the federal securities laws provide to stockholders of public reporting companies will cease to be available and the suspension of our reporting obligations under the Exchange Act will make many of the provisions of the Exchange Act that are intended to protect investors, such as the proxy solicitation rules under Section 14, the stock ownership reporting rules under Section 13, and the reporting obligations and short-swing profit provisions under Section 16, no longer applicable.
Transaction Costs.
We currently estimate that the cost of payment to Cashed-Out Stockholders, professional fees, transfer agent costs and other expenses of the Reverse Stock Split will total approximately $430,000. However, it is management’s belief that the anticipated cost savings that we ultimately enjoy from suspension of our reporting obligations will offset the cost of the Reverse Stock Split in less than two years.
Possibility of Filing Requirements Reinstituted.
The filing of the Form 15 will result in the suspension and not the termination of our filing obligations under the Exchange Act. This suspension remains in effect so long as we have fewer than 500 stockholders of record (or 300 stockholders of record if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years). Thus, subsequent to the time the Form 15 becomes effective, if on the first day of any fiscal year we have more than 500 stockholders of record (or 300 stockholders of record if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years), then we must resume reporting pursuant to Section 15(d) of the Exchange Act.
No Appraisal Rights.
Under Delaware law, our Certificate of Incorporation and our bylaws, no appraisal or dissenters’ rights are available to our stockholders who dissent from the Reverse Stock Split.
Reduced Management Incentive.
The lack of liquidity provided by a ready market may result in fewer opportunities to utilize equity-based incentive compensation tools to recruit and retain top executive talent. Stock options and other equity-based incentives are typically less attractive if they cannot be turned into cash quickly and easily once earned. The Special Committee and the Board believe that this is unlikely to have any significant adverse impact on us, since stock options and other equity-based incentives have not been a significant part of our executives’ compensation packages in the past given the relative illiquidity of our Common Stock.
Less Attractive Acquisition Currency.
Stock that is registered with the SEC and actively traded on an exchange or automated quotation system is generally a more attractive acquisition currency than unregistered stock, since the recipient of the publicly traded security has constant access to important information about the public reporting company, can access the market to sell the stock and can easily determine the value of the stock (
i.e.
, the price to be received upon sale). A recipient of less liquid securities of a non-reporting company must depend on liquidity either via negotiated buy-out or buy-back arrangements or a liquidity event by the company that is generally outside of its control. The Special Committee and the Board recognized that this may not be a significant disadvantage, however, because the relative illiquidity of our shares makes our stock less attractive than publicly traded securities with significant trading volume.
Reduced Equity Capital Raising Opportunities.
One of the primary reasons many companies “go public” is to be able to more easily and efficiently access the public capital markets to raise cash. Similar opportunities are generally less available (without significant expense) to companies that do not have a class of securities registered with the SEC. Following the Reverse Stock Split, it will likely be more difficult, costly and time consuming for us to raise equity capital from public sources. Again, the Special Committee and the Board have concluded that this may be of little significance to us since to date we have not accessed the public capital markets to raise funds, and this has not been, and is not expected to be, an action that we would wish to pursue for the foreseeable future.
Loss of Prestige.
Public reporting companies are often viewed by stockholders, employees, investors, customers, vendors and others as more established, reliable and prestigious than non-reporting companies. In addition, public reporting companies are often followed by analysts who publish reports on their operations and prospects and garner more press and media coverage than non-reporting companies. Companies that lose status as a public reporting company may risk losing prestige in the eyes of the public, the investment community and key constituencies. However, the Special Committee and the Board felt that this was not a significant factor in considering whether to undertake the Reverse Stock Split due to the fact that we do not currently enjoy research analyst coverage or similar media attention.
Tax Treatment.
For those stockholders who receive a cash payment as a result of the Reverse Stock Split, their receipt of cash may be a taxable transaction for United States federal income tax purposes and may be taxable for state, local, foreign and other tax purposes as well. Amounts received may result in capital gains or losses depending on their situation. See “Special Factors
–
Material U.S. Federal Income Tax Consequences of the Reverse Stock Split.”
You are urged to consult with your own tax advisor regarding the tax consequences of the Reverse Stock Split in light of your particular circumstances, including under any applicable state and local tax laws.
Alternatives Considered
As stated above in “Special Factors—Background of the Reverse Stock Split,” the Special Committee and the Board considered other methods of effecting a transaction to suspend our reporting obligations under the Exchange Act, but ultimately rejected each of these alternatives and determined that the Reverse Stock Split was preferable to the other alternatives.
When considering the various alternatives to the Reverse Stock Split, the primary focus was the level of assurance that the selected alternative would result in us having fewer than 500 record owners of our Common Stock, thus allowing us to achieve our objective of suspending our reporting obligations under the Exchange Act, the time frame within which such alternative could reasonably be expected to be achieved, again relative to the other alternatives under consideration, as well as the potential costs of the alternative transactions.
Also as discussed above in “Special Factors—Background of the Reverse Stock Split,” from time to time our Board and management have considered whether to engage in various strategic alternatives, including third-party financings or the sale or merger of our company. With respect to equity financings, as described elsewhere in this proxy statement, we have engaged in several debt and equity financings since our inception to fund operations. We did not consider an equity financing as an alternative to the proposed going private transaction because, while we will likely continue to require third-party financing to fund our operations, as described above in “Special Factors—Background of the Reverse Stock Split,” one of the primary purposes of the proposed going private transaction is to reduce our expenses in order to help decrease the amount of revenue that we would need to generate from operations and/or the amount of outside capital that we will be required to obtain in the future in order to cover our operating expenses, and an equity financing would not serve to reduce such expenses. With respect to a sale or merger, during the past several years we have received no serious offers for the purchase of us or the merger of us into another entity, and therefore that has not been a viable alternative for us. We have never considered liquidation as a potential strategic alternative as we are a continuing business and we do not feel that liquidation would be in the best interests of our stockholders. Specifically, the amount of our liabilities far exceeds the value of our assets, and therefore we felt that it was in the best interests of our stockholders to continue as a going concern in an effort to maximize stockholder value.
For these reasons, at the time the Board was considering the options for going private, there was no consideration of any other alternatives, other than simply continuing to maintain our status as a public reporting company, that were not related to suspension of our reporting obligations under the Exchange Act.
Issuer Tender Offer.
Under this alternative, we would offer to purchase a set number of shares of our Common Stock according to a specific timetable. Because of the requirement in an issuer tender offer to treat tendering stockholders ratably, shares would have to be repurchased on a pro rata basis and, as a result, there would be no assurance that enough stockholders would tender all of their shares of our Common Stock to reduce the number of record owners of our Common Stock to fewer than 500. Additionally, the cost of effecting an issuer tender offer would likely be greater than the cost of implementing a reverse stock split since partial tenders by larger holders would require payment for tendered shares without reducing the number of record holders. If the number of record holders remained in excess of 500, we would then have to resort to a reverse stock split to eliminate additional record holders. In light of the indeterminate number of shares necessary to accomplish the objective of a suspending our reporting obligations under this alternative, the cost of doing so was determined to be too uncertain and most likely significantly in excess of the cost associated with the Reverse Stock Split.
Odd Lot Tender Offer.
Unlike a traditional issuer tender offer, an odd lot tender offer would be offered only to stockholders owning a set number (or fewer) shares of our Common Stock. Because the tender of shares would be at the option of the stockholder, there could be no assurance that enough stockholders would participate so as to reduce the number of record holders to fewer than 500. While the time frame for completing an odd lot tender offer is shorter than the period of time involved in accomplishing a reverse stock split and could be less expensive, the Special Committee and Board opted for the Reverse Stock Split because of the lack of assurance that an odd lot tender offer would produce the intended result.
Purchase of Shares on the Open Market.
We have the ability to make periodic repurchases of our Common Stock in the open market. However, this alternative would take an extended amount of time to complete, especially given the number of our stockholders who hold a relatively small number of shares, and, as it would be voluntary, there would be no assurance of acquiring sufficient shares to reduce the number of record holders to fewer than 500. The cost of such a method would also be undeterminable. Also, because many registered stockholders who own small numbers of shares do not hold their shares in brokerage accounts, open market purchase efforts are ineffective in reaching such stockholders, and in any event, the transaction costs associated with open market purchases would likely make this alternative impracticable for many of our stockholders given their relatively small holdings.
Maintaining the Status Quo
. The Special Committee and the Board also considered taking no action to reduce the number of our stockholders and therefore remaining a public reporting company. However, due to the significant and increasing costs of being a public reporting company, the Special Committee and the Board believed that maintaining the status quo would be detrimental to all of our stockholders. We would continue to incur the costs of being a public reporting company without realizing many of the benefits of public reporting company status. Furthermore, the Special Committee and the Board believed that stockholders may not be able to efficiently liquidate their investment in us in the foreseeable future even if we remained a public reporting company.
For the reasons discussed above, the Special Committee and the Board unanimously determined that the Reverse Stock Split was the most expeditious and economical transaction to suspend our reporting obligations under the Exchange Act.
Recommendation of the Special Committee and Approval of the Board
At a meeting held on August 16, 2012, based on the recommendation of the Special Committee and on the foregoing analyses, including a consideration of the advantages, disadvantages, and fairness of the Reverse Stock Split, the Board unanimously determined that the Reverse Stock Split is procedurally and substantively fair to Helix and our affiliated and unaffiliated stockholders, including Cashed-Out Stockholders and Continuing Stockholders, unanimously approved the Reverse Stock Split and recommends that you vote “
FOR
” approval of the Reverse Stock Split.
Voting Information
A majority of the outstanding shares of our Common Stock will constitute a quorum for the purposes of approving the amendment to our Certificate of Incorporation to effect the Reverse Stock Split. Assuming the presence of a quorum, the affirmative vote of the majority of outstanding shares of our Common Stock entitled to vote at the Meeting is required to approve the Reverse Stock Split. Our directors and executive officers have indicated that they intend to vote their shares of our Common Stock (2,978,159 shares, or approximately 6.0% of our issued and outstanding shares eligible to vote at the Special Meeting) “
FOR
” the Reverse Stock Split, and Mr. Frank Nickell, who owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock, as of October 31, 2012, has indicated that he would not generally oppose the Reverse Stock Split.
Effects of the Reverse Stock Split
Generally
The Board is soliciting stockholder approval for the Reverse Stock Split. If approved by the stockholders and implemented by the Board, the Reverse Stock Split will become effective on such date as may be determined by our Board.
At the Meeting, stockholders are being asked to consider and vote upon the proposal to amend our Certificate of Incorporation to effect the Reverse Stock Split. A copy of the proposed amendment to our Certificate of Incorporation to effect the Reverse Stock Split is attached as
Annex A
to this proxy statement.
If the Reverse Stock Split is completed, the following will occur:
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Each share of Common Stock held of record by a Cashed-Out Stockholder immediately prior to the effective time of the Reverse Stock Split will be converted into the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest.
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Stockholders that hold at least one share of Common Stock after the Reverse Stock Split will continue as Continuing Stockholders, and any resulting fractional shares owned by such Continuing Stockholders following the Reverse Stock Split will remain outstanding as fractional shares and such Continuing Stockholders will not be entitled to receive any cash payment.
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We expect to have fewer than 500 record holders of Common Stock following the Reverse Stock Split, and, therefore (given that our total assets have not exceeded $10 million on the last day of any our three most recent fiscal years), we expect to be eligible to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act, including the requirement to file annual and periodic reports and other filings required under the federal securities laws that are applicable to public reporting companies, and eliminate most of the expenses related to the disclosure, reporting and compliance requirements of the Exchange Act.
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Effects on Helix
We have 100,000,000 shares of Common Stock authorized, 12,000,000 of which are reserved for issuance pursuant to our equity incentive plans. As of October 31, 2012, we had 49,720,255 shares issued and outstanding. The consummation of the Reverse Stock Split will not have an effect on the number of shares of our Common Stock authorized and the par value of our Common Stock will remain the same. Following the consummation of the Reverse Stock Split, we will have an aggregate of approximately ♦ shares of Common Stock issued and outstanding, 40,000 shares of Common Stock reserved for issuance pursuant to our equity incentive plans and approximately 9,433 shares of Common Stock reserved for issuance upon exercise of our outstanding warrants. Cashed-Out Stockholders will be paid $0.60 in cash for each share of Common Stock held immediately prior to the Reverse Stock Split, subject to any applicable U.S. federal, state and local withholding tax, and without interest. Shares cashed-out as a result of the Reverse Stock Split will be retired and will be authorized but unissued shares. The Reverse Stock Split will not alter the relative voting and other rights of our outstanding Common Stock.
Each share of Common Stock that remains outstanding after the completion of the Reverse Stock Split will continue to entitle its owner to one vote regarding matters presented to holders of shares of Common Stock. The Reverse Stock Split is expected to reduce the number of our stockholders of record from approximately ♦ to approximately ♦, based on recent stockholder records and determined in accordance with the rules promulgated by the SEC with respect to calculating stockholders of record.
Upon completion of the Reverse Stock Split, it is anticipated that we will have fewer than 500 stockholders and will therefore be eligible to suspend our reporting obligations under the Exchange Act pursuant to Rule 12h-3 of the Exchange Act (given that our total assets have not exceeded $10 million on the last day of any our three most recent fiscal years) and become a non-reporting company. In determining whether the number of our stockholders of record falls below 500 as a result of the Reverse Stock Split, we will count stockholders of record in accordance with Rule 12g5-1 under the Exchange Act. Rule 12g5-1 provides, with certain exceptions, that in determining whether issuers, including us, are subject to the reporting requirements of the Exchange Act, securities are considered to be “held of record” by each person who is identified as the owner of such securities on the respective records of security holders maintained by or on behalf of the issuers. However, institutional custodians such as Cede & Co. and other commercial depositories are not considered a single holder of record for purposes of these provisions. Rather, Cede & Co.’s and these depositories’ accounts are treated as the record holders of our shares. Based on information available to us as of the Record Date, we expect that as a result of the Reverse Stock Split the number of our stockholders of record would be reduced to approximately ♦.
Our reporting obligations under the Exchange Act may be suspended upon application by us to the SEC if there are fewer than 500 holders of record of our Common Stock (given that our total assets have not exceeded $10 million on the last day of any our three most recent fiscal years). Accordingly, after the Reverse Stock Split we will file with the SEC a Form 15 certifying that we have fewer than 500 stockholders of record and our obligation to file periodic and current reports under the applicable provisions of the Exchange Act will be suspended immediately upon the filing of the Form 15 with the SEC. However, following the filing of the Form 15 with the SEC, if on the first day of any fiscal year we have more than 500 stockholders of record (or 300 stockholders of record if our total assets have exceeded $10 million on the last day of any our three most recent fiscal years), we once again will become subject to the reporting obligations of the Exchange Act. We will continue to be subject to the general anti-fraud provisions of applicable federal and state securities laws.
We anticipate that following the Reverse Stock Split we will continue to operate our business as we have done prior to the Reverse Stock Split. It is anticipated that the same officers and directors will continue in their roles as officers and directors immediately following the Reverse Stock Split, and we do not anticipate any significant corporate events in the near future.
The Reverse Stock Split is estimated to result in the retirement of approximately ♦ shares at a cost of $0.60 per share. Including expenses for the Reverse Stock Split, we currently estimate that the total cost of the Reverse Stock Split to us, including fees and expenses for various legal and financial advisers, will be approximately $430,000, most of which has already been incurred and paid by us. The consideration to be paid to Cashed-Out Stockholders and the other costs of the Reverse Stock Split will be paid from cash on hand and, to the extent that we have insufficient cash on hand to fund such expenses, through borrowings against an existing letter of credit with JPMorgan Chase Bank, N.A, which was established on our behalf by Mr. Frank Nickell in the amount of $2.0 million, pursuant to an LOC Agreement entered into between us and Mr. Frank Nickell on March 9, 2012. See “Special Factors—Source and Amount of Funds and Expenses.” It is management’s belief that the anticipated cost savings that we ultimately enjoy from suspension of our reporting obligations will offset the cost of the Reverse Stock Split in less than two years.
Our Common Stock is currently traded on the OTCQB and we expect that after the Reverse Stock Split our Common Stock will likely be traded on the Pink Sheets. The resulting lack of public information concerning us that will be available after the Reverse Stock Split, however, may further reduce the liquidity of our Common Stock. It is expected that any trading in our Common Stock after the transaction will only occur on the Pink Sheets or in privately negotiated sales. The Pink Sheets is maintained by Pink Sheets OTC Markets, Inc., a quotation service that collects and publishes market maker quotes for over-the-counter securities. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by over-the-counter market makers and company information is provided by the over-the-counter companies. There is no assurance that there will be any Pink Sheets quotations after the Reverse Stock Split (at least one market maker is required in order for our shares to be traded on the Pink Sheets) or that, if such quotations begin, they will continue for any length of time.
Effects on Cashed-Out Stockholders
Stockholders holding fewer than 300 shares of Common Stock immediately prior to the effective time of the Reverse Stock Split will be Cashed-Out Stockholders and will cease to be stockholders of us. They will lose all rights associated with being a stockholder of us, such as the rights to attend and vote at stockholder meetings and receive dividends and distributions, if any. Such Cashed-Out Stockholders will have the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest, for each share of Common Stock owned immediately prior to the Reverse Stock Split. Such stockholders will be liable for any applicable taxes but will likely not be required to pay brokerage fees. We believe that no service charge or brokerage commission will be payable by any Cashed-Out Stockholder in connection with the cash-out of shares in the Reverse Stock Split, but it is possible that individual brokers and agents may impose certain charges and fees in connection with such transaction. We recommend you contact your broker or agent to determine if there are any applicable fees in connection with the cash-out transaction. Promptly after the effective time of the Reverse Stock Split, we will send a transmittal letter explaining to such stockholders how they can surrender their share certificates in exchange for cash payment. The length of time between the effective time of the Reverse Stock Split and the date on which Cashed-Out Stockholders will receive their cash will depend, in part, on the amount of time taken by each Cashed-Out Stockholder to return his or her stock certificates with a properly completed letter of transmittal. No cash payment will be made to any Cashed-Out Stockholder until he or she has surrendered his or her outstanding certificate(s), together with the letter of transmittal, in accordance with the terms of the letter of transmittal. Following the surrender of share certificates in accordance with the terms of the letter of transmittal, Cashed-Out Stockholders should receive their cash payments promptly. No interest will be paid on the cash payment at any time. Amounts due to Cashed-Out Stockholders that are not timely claimed after the Reverse Stock Split may be required to be paid to the designated agent under the escheat laws of the various jurisdictions where such stockholders reside, where we are domiciled and where the funds would be deposited. Thereafter, Cashed-Out Stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid pursuant to applicable escheat laws.
If a stockholder owns fewer than 300 shares of our Common Stock before the Reverse Stock Split and thus would be a Cashed-Out Stockholder, the only way that such stockholder can continue to be our stockholder after the Reverse Stock Split is to acquire, prior to the effective time of the Reverse Stock Split, sufficient additional shares to cause such stockholder to own a minimum of 300 shares at the effective time of the Reverse Stock Split or acquire shares of our Common Stock after the Reverse Stock Split. However, given the historically limited liquidity in our stock, there is no assurance that any shares will be available for purchase. In such an instance, the stockholder would no longer remain a stockholder after the effective time of the Reverse Stock Split. While we anticipate that our Common Stock will likely be traded on the Pink Sheets following the Reverse Stock Split, there can be no assurance of any trading in, or market for or opportunity to purchase, our Common Stock following the Reverse Stock Split. Cashed-Out Stockholders will have no further opportunity to share in our assets, earnings or profits, if any, following the effective time of the Reverse Stock Split.
The number of shares held by a stockholder of record in two or more separate but identical record holder accounts will be combined to determine the number of shares of our Common Stock owned by that holder and, accordingly, whether the holder will be a Cashed-Out Stockholder or a Continuing Stockholder. Shares held by record holders in joint accounts, such as by a husband and wife, and shares held in similar capacities will be treated separately and will not be combined with individual accounts in determining whether a holder will be a Cashed-Out Stockholder or a Continuing Stockholder. We intend to treat stockholders holding our Common Stock in street name in the same manner as record holders. Prior to the effective time of the Reverse Stock Split, we will conduct an inquiry of all brokers, banks and other nominees that hold shares of our Common Stock in street name, ask them to provide us with information on how many fractional shares will be cashed-out, and request that they effect the Reverse Stock Split for their beneficial holders. However, these banks, brokers and other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. As a result, a stockholder owning 300 or more shares of Common Stock may nevertheless have those shares cashed-out if the stockholder holds shares in a combination of street name accounts and record holder accounts or holds shares in separate accounts in several brokerage firms. If you are in this situation and desire to remain one of our stockholders after the Reverse Stock Split, you may consolidate your holdings into one brokerage account or record holder account prior to the effective time of the Reverse Stock Split. Conversely, if you hold an account with fewer than 300 shares in street name and want to ensure that your shares are cashed-out, you may want to change the manner in which your shares are held from street name into a record holder account in your own name so that you will be a record owner of the shares.
Effects on Continuing Stockholders
If the Reverse Stock Split is implemented, stockholders owning 300 shares or more of our Common Stock immediately prior to the Reverse Stock Split will continue to be stockholders and will therefore continue to participate, as a stockholder, in our future potential earnings or growth, if any. In addition, such Continuing Stockholders will receive fractional shares to the extent the amount of shares owned by such Continuing Stockholders following the Reverse Stock Split is not equally divisible by 300 and will not receive a cash payment for any of their shares as a result of the Reverse Stock Split.
Continuing Stockholders may experience reduced liquidity of their shares of Common Stock. We anticipate that our Common Stock will likely be traded on the Pink Sheets, but there can be no assurance of any trading in, or market for, our Common Stock following the Reverse Stock Split.
While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders. However, those stockholders will not receive or have access to the same financial and other business information about us that they would if we continued to make public disclosures pursuant to the Exchange Act. Following the Reverse Stock Split, however, Continuing Stockholders will continue to have the right, upon written request to us, to receive certain information in appropriate circumstances, to the extent provided by Delaware law, including, for example, the right to view and copy our stock ledger, a list of our stockholders and other books and records, provided that the requesting party is a stockholder, makes the request in the form required by Delaware law, and does so for a proper purpose.
In addition, certain rights and protections that the federal securities laws provide to stockholders of public reporting companies will cease to be available and the suspension of our reporting obligations under the Exchange Act will make many of the provisions of the Exchange Act that are intended to protect investors, such as the proxy solicitation rules under Section 14, the stock ownership reporting rules under Section 13, and the reporting obligations and short-swing profit provisions under Section 16, no longer applicable, and the Sarbanes-Oxley Act, which imposed many additional rules and regulations on public reporting companies that were designed to protect investors, including substantive disclosure requirements, will no longer apply to us.
We also believe that, following the Reverse Stock Split, Continuing Stockholders will benefit from the savings in direct and indirect operating costs resulting from us no longer being required to maintain our public reporting company status. Our direct out-of-pocket costs resulting from our reporting and other obligations under the Exchange Act and the Sarbanes-Oxley Act were approximately $342,000 in fiscal year 2011 and we expect these costs to be approximately $363,000 in fiscal year 2012. As we noted above, we ultimately expect to realize recurring annual cost savings in excess of $350,000 as a result of suspending our SEC reporting obligations, which includes estimated executive and administrative time incurred in complying with public reporting company requirements. Our Continuing Stockholders, including our unaffiliated stockholders, will be the beneficiaries of these savings. See “Special Factors—Purposes of and Reasons for the Reverse Stock Split.” Continuing Stockholders will have the opportunity to participate in our future growth and earnings, if any, as we go forward as a more streamlined entity without the costs of compliance with SEC reporting requirements.
If a stockholder holds 300 or more shares of our Common Stock before the Reverse Stock Split, such stockholder can only receive cash for all of their shares in connection with the Reverse Stock Split if, prior to the effective time of the Reverse Stock Split, such stockholder reduces its ownership to fewer than 300 shares by selling or otherwise transferring shares. However, given the historically limited liquidity in our Common Stock, we cannot assure you that any purchaser for your shares will be available, and thus there can be no assurance that you will be able to reduce your stock ownership to fewer than 300 shares. In such an instance, you would remain a Continuing Stockholder and would not be cashed-out in connection with the Reverse Stock Split.
Finally, as of June 30, 2012, we had estimated our net operating losses (“
NOLs
”) to be approximately $39.0 million, as determined for U.S. federal income tax purposes. As discussed below, we do not believe that the Reverse Stock Split will limit our ability to utilize the NOLs to offset future taxable income for U.S. federal income tax purposes. See “Special Factors – Material U.S. Federal Income Tax Consequences of the Reverse Stock Split.” Our Continuing Stockholders generally will not be able to take direct advantage of our NOLs as a result of the Reverse Stock Split. While beneficial to us (and indirectly to our stockholders), the preservation of NOLs did not directly impact our decision to structure the Reverse Stock Split in its current form.
Effects on Our Affiliates
Our affiliates will participate in the Reverse Stock Split to the same extent as non-affiliates as described above under “—Effects on Cashed-Out Stockholders” and “—Effects on Continuing Stockholders,” as applicable based on the number of shares of Common Stock held by such affiliates.
Upon the effectiveness of the Reverse Stock Split, the ownership percentage of the shares of our Common Stock held by Continuing Stockholders, including our affiliates, will increase proportionally by less than ♦% as a result of the reduction of the number of shares of our Common Stock outstanding by approximately ♦ shares from 49,720,255 shares as of October 31, 2012, which was not a factor considered by the Special Committee or the Board in evaluating the benefits of the Reverse Stock Split. The increase in the ownership percentage of our shares of Common Stock held by Continuing Stockholders, including our affiliates, and the reduction in the number of shares outstanding following the completion of the Reverse Stock Split is based on record holder information that we received as of ♦, 2012 from our Transfer Agent as to our record holders, and information we have received regarding the holdings of beneficial owners of our Common Stock held in street name. The number of shares of our Common Stock to be cashed-out in the Reverse Stock Split may vary from the estimate above, and the ownership percentage of our shares of Common Stock held by our affiliates and the ownership percentage of Continuing Stockholders after the Reverse Stock Split will proportionally increase or decrease as a result of purchases, sales and other transfers of our shares of Common Stock prior to the effective time of the Reverse Stock Split, and depending on the number of street name shares that are actually cashed-out in the Reverse Stock Split. Like all other Continuing Stockholders, these affiliates also are likely to experience reduced liquidity of their shares of Common Stock.
Our executive officers and directors are expected to retain their respective positions with us immediately following the Reverse Stock Split. In addition, our affiliates may have interests in the Reverse Stock Split that are different from your interests as a stockholder, and have relationships that may present conflicts of interest, including holding options to purchase shares of our Common Stock that will remain outstanding following the Reverse Stock Split. See “Special Factors—Potential Conflicts of Interests of Officers, Directors and Certain Affiliated Persons.”
Effects on Option Holders
Based upon the Reverse Stock Split ratio of 1-for-300, proportionate adjustments will be required to be made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options granted under our equity incentive plans (the “
Plans
”). This would result in approximately the same aggregate price being required to be paid under such options and approximately the same value of shares of Common Stock being delivered upon such exercise immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. For example, outstanding stock options to purchase 15,000 shares of our Common Stock at an exercise price of $1.00 per share prior to the Reverse Stock Split would automatically be adjusted proportionately into stock options to purchase 50 shares of our Common Stock at an exercise price of $300 per share following the Reverse Stock Split, resulting in the same aggregate exercise price being required to be paid under such options and the same value of shares of Common Stock being delivered upon such exercise immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares reserved for issuance pursuant to our Plans will be proportionately adjusted based upon the Reverse Stock Split ratio, subject to our treatment of fractional shares. All other terms and conditions of the options will continue to be governed by the Plans and applicable option agreements.
Effects on Warrant Holders
Based upon the Reverse Stock Split ratio of 1-for-300, proportionate adjustments will be required to be made to the per share exercise price and the number of shares issuable upon the exercise of all of our outstanding warrants. This would result in approximately the same aggregate price being required to be paid under such warrants and approximately the same value of shares of Common Stock being delivered upon such exercise immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. All other terms and conditions of the warrants will continue to be governed by the respective warrant agreements. For example, outstanding warrants to purchase 150,000 shares of our Common Stock at an exercise price of $0.50 per share prior to the Reverse Stock Split would automatically be adjusted proportionately into warrants to purchase 500 shares of our Common Stock at an exercise price of $150 per share following the Reverse Stock Split, resulting in the same aggregate exercise price being required to be paid under such warrants and the same value of shares of Common Stock being delivered upon such exercise immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split.
Opinion of Cascadia Capital
We engaged Cascadia Capital to render an opinion to the Special Committee and the Board as to the fairness, from a financial point of view, of the consideration of $0.60 per share to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split. Cascadia Capital, a Seattle, Washington-based investment and merchant banking firm, served as financial advisor to the Special Committee and the Board. As part of its investment and merchant banking business, Cascadia Capital is regularly engaged in performing financial analyses with regard to businesses and their securities in connection with mergers and acquisitions, financings, restructurings, principal investments, valuations, fairness opinions and other financial advisory services. Since its founding in 2000, the firm has assisted numerous boards of directors of public and private companies in reviewing various transactions and opining as to the fairness of such transactions to certain constituents from a financial point of view.
The advisory agreement between us and Cascadia Capital dated July 10, 2012 provides that for its services, Cascadia Capital is entitled to receive from us a fee of $55,000, which was paid as follows: $25,000 was paid upon execution of the advisory agreement and $30,000 was paid upon Cascadia Capital’s delivery of its August 16, 2012 opinion. No portion of the fee paid to Cascadia Capital was contingent upon the consummation of the Reverse Stock Split. In addition, we have agreed to indemnify Cascadia Capital and certain related persons against liabilities arising out of Cascadia Capital’s services as a financial advisor to the Special Committee and the Board.
Other than the preparation of its opinion in connection with the Reverse Stock Split, during the two years preceding the date of its opinion, Cascadia Capital has not had any material relationship with any party to the proposed transaction for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated; except that, as part of its investment banking and financial advisory businesses, Cascadia Capital is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, private placements and valuations for corporate and other purposes. Cascadia Capital may provide valuation and financial advisory services to us or the Board (or any committee thereof) in the future.
On August 15, 2012, Cascadia Capital summarized its valuation methodologies and analyses and rendered an oral opinion to the Special Committee, which was subsequently confirmed in a written opinion to the Board dated August 16, 2012, that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of such date, the consideration to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split of $0.60 per share was fair, from a financial point of view, to such holders. A copy of Cascadia Capital’s August 15, 2012 presentation is attached as
Annex C
to this proxy statement.
The full text of the written opinion of Cascadia Capital, which sets forth, among other things, assumptions made, procedures followed, matters considered, qualifications and exceptions, and limitations of the reviews undertaken in rendering the opinion, is attached as
Annex B
to this proxy statement. Stockholders are urged to read the opinion carefully and in its entirety. In addition, we will make the opinion available for inspection and copying at our principal executive offices during regular business hours by any stockholder or such stockholder’s representative.
The opinion of Cascadia Capital is directed to the Board and addresses only the fairness, from a financial point of view, of the consideration to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split. The opinion of Cascadia Capital is not a recommendation as to how the Special Committee, the Board, any stockholder or any other person or entity should vote or act with respect to any matters relating to the Reverse Stock Split. Further, the Cascadia Capital opinion does not in any manner address our underlying business decision to pursue the Reverse Stock Split or the relative merits of the Reverse Stock Split as compared to any alternative business transaction or strategy.
The following is a summary of the material analyses performed by Cascadia Capital in connection with rendering its opinion. While this summary describes the analyses and factors that Cascadia Capital deemed material in its opinion, it does not purport to be a comprehensive description of all analyses and factors considered by Cascadia Capital. This summary is qualified in its entirety by reference to the full text of the opinion of Cascadia Capital.
In arriving at its opinion, Cascadia Capital did not attribute any particular weight to any particular analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Several analytical methodologies were employed by Cascadia Capital in its analyses, and no one single method of analysis should be regarded as critical to the overall conclusion reached by it. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Cascadia Capital’s analyses must be considered as a whole, and selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Cascadia Capital, therefore, is based on the application of its own experience and judgment to all analyses and factors considered by it, taken as a whole.
In connection with preparing its opinion, Cascadia Capital made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances, including, but not limited to, the following:
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a review of the following documents:
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our annual reports on Form 10-K and related financial information for the years ended December 31, 2009 through December 31, 2011;
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our quarterly reports on Form 10-Q and the related unaudited financial information for the periods ended March 31, 2012 and June 30, 2012;
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subscription and related documents describing the terms and conditions of our recent financings, including the note conversion and warrant exercise transactions in 2010;
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a draft of this proxy statement prepared in connection with the Reverse Stock Split; and
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certain information, including historical financial data and our internally prepared financial forecasts, relating to the business, earnings, cash flow, assets and prospects of us, furnished to Cascadia Capital by us or publicly available;
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conducted discussions with our senior management and members of our Board concerning our business and
prospects, including discussions and review of informally prepared, non-detailed prospective financial information for 2012 through 2016;
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consulted with KPMG LLP, our independent registered public accounting firm, regarding our accounting policies and recent audits;
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reviewed the historical market prices and trading activity of our Common Stock, as set forth below;
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compared certain financial and market information for us with that of selected publicly traded companies which Cascadia Capital deemed to be relevant;
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compared the financial terms of the Reverse Stock Split with those of certain other transactions which Cascadia Capital deemed to be relevant; and
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reviewed our current capitalization and the general composition of our stockholder base.
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In its review and analysis, and in formulating its opinion, Cascadia Capital:
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assumed and relied upon, without any independent verification, the accuracy and completeness of the financial and other information provided to or discussed with, or reviewed by, Cascadia Capital for the purpose of its opinion;
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assumed
, without any independent verification, the reasonableness and accuracy of the prospective non-public financial information provided to Cascadia Capital by us and assumed that such prospective non-public financial information had been reasonably prepared in good faith and on bases reflecting the best currently available judgments and estimates of our management; however, because of the informality of such prospective non-public financial information and the lack of detail in such information, Cascadia Capital did not rely or express any opinion with respect to such prospective non-public financial information or the assumptions upon which it was based;
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did not review any of our books and records, did not speak with any commercial partners or customers, and did not assume any responsibility for conducting a physical inspection of our properties or facilities;
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did not make any independent valuation or appraisal of our assets or liabilities;
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assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Reverse Stock Split will be obtained without any adverse effect on the Reverse Stock Split;
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was not asked to, nor did it, offer any opinion as to our underlying business decision or the relative merits of the Reverse Stock Split in comparison to other business strategies or transactions that might be available to us;
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was not asked to, nor did it, offer any opinion regarding the non-financial terms of the Reverse Stock Split;
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was not asked to, nor did it, offer any opinion regarding whether any alternative transaction might produce consideration for the Cashed-Out Stockholders in excess of the amount contemplated in the Reverse Stock Split; and
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was not asked to, nor did it, offer any opinion as to the fairness, from a financial point of view or otherwise, of the Reverse Stock Split as it relates to those stockholders that are not Cashed-Out Stockholders.
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Cascadia Capital rendered its written opinion as of August 16, 2012. The opinion was based upon economic, market and other conditions and circumstances as in effect on such date and the information made available to Cascadia Capital as of such date. Subsequent developments may affect its opinion, and Cascadia Capital disclaims any undertaking or obligation to update, revise, or reaffirm its opinion.
Historical Market Prices and Trading Activity
In connection with the preparation of its fairness opinion, and as part of its due diligence investigation of us, Cascadia Capital reviewed the following historical market price information and shares traded analysis:
Three-Year Price Chart:
Twelve-Month Price Chart:
12 Month EV/LTM Revenue (as of March 31, 2012):
Three Years Shares Traded Analysis:
Helix Historical Financing Transactions
In addition, Cascadia Capital considered our historical financing transactions, which were summarized by Cascadia Capital as follows:
1
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Announce
Date
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Description
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Total Raised/Price
per Share
2
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Common
Shares Issued
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May 2003
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Common stock with warrants
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$3,800,000 / $1.00
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3.8 million common
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May 2004
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Private placement of common stock with warrants
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$2,368,000 / $2.00
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1,184,000 common / 414,400 warrants
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February 2005
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Private placement of common stock with warrants
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$2,497,750 / $1.50
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1,665,167 common / 125,000 warrants
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March 2006
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Private placement of common stock with warrants
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$2,598,000 / $1.00
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2,598,000 common / 259,800 warrants
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February 2008/ June 2008
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Convertible notes
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$3,000,000
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No new shares issued/ warrants issued at $1.00 strike
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February 2009
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Convertible notes with warrants
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$3,474,000
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No new shares issued / warrants issued at $1.00 strike
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March 2010/ May 2010
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Convertible notes with warrants
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$3,200,000
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No new shares issued / warrants issued at $0.80 strike
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December 2010
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Private placement of common shares
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$599,839 / $0.60
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999,731 common
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1
The information originally summarized by Cascadia Capital in the following table was subsequently updated to correct certain typographical errors, and Cascadia Capital has confirmed that the errors had no bearing on their fairness opinion. The updated information in the table correctly summarizes our historical financing transactions.
2
Price per share assumes no value is given to the warrants issued
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Announce
Date
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Description
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Amount/Price
per Share
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Common
Shares Issued
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November 22, 2010
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Amended convertible note and converted to common stock
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$3,665,425 / $0.60
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6,109,041 common shares
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Amended convertible note and converted to common stock
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$2,326,334 / $0.60
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3,877,223 common shares
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Warrant exercise
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$750,000 / $0.50
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1,500,000 common shares
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Warrant exercise
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$440,000 / $0.40
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1,100,000 common shares
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November 27, 2010
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Exercise of convertible note
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$3,877,164 / $0.60
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6,461,921 common shares
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Exercise of convertible note
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$1,060,099 / $0.60
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1,766,827 common shares
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Warrant Exercise
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$726,000 / $0.50
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1,452,000 common shares
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Warrant Exercise
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$200,000 / $0.40
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500,000 common shares
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Warrant Exercise
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$150,000 / $0.50
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300,000 common shares
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Weighted average exercise price per share of $0.57
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Summary of Financial Analyses by Cascadia Capital
In rendering its opinion, Cascadia Capital utilized various valuation methodologies as described below. Our relative lack of detailed financial projections and low historical revenue required Cascadia Capital to pursue additional means of valuation beyond the traditional methods of discounted cash flow and trading and transaction comparables. Its opinion was formed through analysis of these various methodologies as well as our historical market stock price and recent financing transactions.
Cascadia Capital’s valuation methodologies, which are detailed below, included the following:
|
|
·
|
Analysis of public market trading comparables;
|
|
|
·
|
Analysis of comparable transactions;
|
|
|
·
|
Discounted cash flow analysis;
|
|
|
·
|
Analysis of private investments in comparable public companies; and
|
|
|
·
|
Analysis of premiums paid by other firms in comparable going-private transactions.
|
In applying public company trading metrics, Cascadia Capital made applications to the latest twelve months (“
LTM
”) as of March 31, 2012. Although we had filed financial statements for the period ended June 30, 2012, Cascadia Capital felt that the publicly filed financial statements as of March 31, 2012 enabled it to be consistent in its application of methodologies as many of the comparable companies had not filed financial statements for the equivalent period ended June 30, 2012. Cascadia Capital believed that the use of LTM as of March 31, 2012 did not impact its conclusion. In addition, the comparable companies were typically not covered by research analysts nor did they provide guidance, which resulted in LTM being the only available metric for use by Cascadia Capital. Moreover, due to our lack of earnings or EBITDA, only multiples of revenue could be analyzed by Cascadia Capital. In rendering its fairness opinion, Cascadia Capital had to take into consideration the relative illiquidity of our Common Stock and, in all cases where applicable, it utilized a normalized stock price based on the 30-day volume weighted average price of $0.28.
Public Market Trading Comparables
As part of its analyses, Cascadia Capital compared certain aspects of our financial and market information with that of selected publicly traded companies which Cascadia Capital deemed to be relevant. Set forth below is a summary of the methodologies and selection criteria utilized by Cascadia Capital for selecting such comparable companies (as well as for comparable transactions, see below).
|
Methodology
|
|
Selection Criteria
|
|
Business Model
|
■
■
|
Research, develop and produce ingredients sold into over-the-counter health and beauty products
Broad product/technology portfolio that companies either licenses or use to develop their own products
|
|
Customer Base
|
■
■
|
Larger health and beauty product producing companies
Retail, spas, salons or ecommerce websites
|
|
Size
|
■
■
|
Transaction enterprise value of less than $500 million
Publicly traded company enterprise value of less than $500 million
|
|
Markets
|
■
|
No limitation was given to geography or exchange where the comparable company traded
|
As noted above, due to our lack of earnings or EBITDA, Cascadia Capital analyzed the public market trading comparables based on multiples of revenue utilizing our trailing revenue for the last twelve months as of March 31, 2012. In addition, comparable companies were selected that were similar in size but potentially subject to the same illiquidity issues (i.e., lack of trading volume) experienced by our Common Stock. In Cascadia Capital’s analysis, no company that met its criteria was omitted from its comparison analysis. The following chart summarizes the public trading comparables evaluated by Cascadia Capital in rendering its fairness opinion:
|
Company
|
|
|
Basilea
Pharmaceutica
AG
|
|
|
Anacor
Pharmaceuticals,
Inc.
|
|
|
Cosmo
Pharmaceuticals
S.p.A.
|
|
|
Zhejiang
Hangzhou Xinfu
Pharmaceutical
Co., Ltd.
|
|
|
Goangdong
Taiantang
Pharmaceutical
Co., Ltd.
|
|
|
Divine Skin, Inc.
|
|
|
|
|
|
Ticker
|
|
|
SWX:BSLN
|
|
|
NasdaqGM:ANAC
|
|
|
SWX:COPN
|
|
|
SZSE:002019
|
|
|
SZSE:002433
|
|
|
OTCPK:DSKX
|
|
Median
|
|
Mean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price as of 8/15/2012
|
|
|
$
|
51.31
|
|
|
$
|
6.15
|
|
|
$
|
25.58
|
|
|
$
|
0.88
|
|
|
$
|
4.02
|
|
|
$
|
0.34
|
|
|
|
|
|
Shares Outstanding
|
|
|
|
9.6
|
|
|
|
31.5
|
|
|
|
13.7
|
|
|
|
220.4
|
|
|
|
100.0
|
|
|
|
107.3
|
|
|
|
|
|
Equity Value
|
|
|
$
|
491.8
|
|
|
$
|
193.8
|
|
|
$
|
349.3
|
|
|
$
|
193.2
|
|
|
$
|
402.5
|
|
|
$
|
36.5
|
|
|
|
|
|
Plus: Debt
|
|
|
|
–
|
|
|
|
17.5
|
|
|
|
2.7
|
|
|
|
82.9
|
|
|
|
42.1
|
|
|
|
–
|
|
|
|
|
|
Plus: Pref. Equity
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
0.0
|
|
|
|
|
|
Plus: Minority Interest
|
|
|
|
–
|
|
|
|
–
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
–
|
|
|
|
|
|
Less: Cash
|
|
|
|
(201.7
|
)
|
|
|
(58.0
|
)
|
|
|
(16.7
|
)
|
|
|
(18.7
|
)
|
|
|
(28.2
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
Enterprise Value
|
|
|
$
|
290.1
|
|
|
$
|
153.4
|
|
|
$
|
335.5
|
|
|
$
|
257.9
|
|
|
$
|
418.4
|
|
|
$
|
35.6
|
|
|
|
|
|
Enterprise Value as a Multiple of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTM
|
(1)
|
|
$
|
68.4
|
|
|
$
|
20.5
|
|
|
|
43.5
|
|
|
$
|
84.2
|
|
|
$
|
70.8
|
|
|
$
|
9.4
|
|
|
|
|
|
2012
|
E
|
|
|
40.5
|
|
|
|
15.0
|
|
|
|
73.0
|
|
|
|
-
|
|
|
|
94.5
|
|
|
|
-
|
|
|
|
|
|
2013
|
E
|
|
|
48.5
|
|
|
|
14.3
|
|
|
|
65.8
|
|
|
|
-
|
|
|
|
124.5
|
|
|
|
-
|
|
|
|
|
|
Implied Multiple:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTM
|
(1)
|
|
|
4.2
|
x
|
|
|
7.5
|
x
|
|
|
7.7
|
x
|
|
|
3.1
|
x
|
|
|
5.9
|
x
|
|
|
3.8
|
x
|
5.1x
|
|
5.4x
|
|
2012
|
E
|
|
|
7.2
|
x
|
|
|
10.2
|
x
|
|
|
4.6
|
x
|
|
NM
|
|
|
|
4.4
|
x
|
|
NM
|
|
5.9x
|
|
6.6x
|
|
2013
|
E
|
|
|
6.0
|
x
|
|
|
10.7
|
x
|
|
|
5.1
|
x
|
|
NM
|
|
|
|
3.4
|
x
|
|
NM
|
|
5.5x
|
|
6.3x
|
(1)
Note that LTM Revenue represents 3/31 LTM reporting period.
Cascadia Capital calculated a range of implied enterprise values for us by applying comparable enterprise value to LTM revenue for the period ending March 31, 2012. Utilizing this analysis and based on a revenue multiple range of 4.3x to 5.8x applied to our LTM revenue ending March 31, 2012 of $2,214,132, Cascadia Capital arrived at a range of implied enterprise values for us of approximately $9.6 million to approximately $12.9 million.
Comparable Transactions
Cascadia Capital reviewed comparable transactions by companies operating in industries that are similar to ours; however, this analysis was tempered by our relatively small size and the fact that these other transactions often included a control premium. With respect to its comparable transactions analysis, Cascadia Capital reviewed and compared the purchase prices and financial multiples paid in selected transactions that Cascadia Capital deemed relevant, based on its experience with merger and acquisition transactions. Cascadia Capital selected such transactions based on, among other things, the similarity to us of the applicable target assets and companies in the selected transactions with respect to size, focus, portfolio composition and other characteristics of their businesses. The following table summarizes the precedent transaction comparables reviewed by Cascadia Capital. In Cascadia Capital’s analysis, no comparable transaction that met its criteria was omitted from its comparison analysis.
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
Enterprise
|
|
EV/LTM
|
|
Announced
|
|
Target Name
|
|
Acquiror Name
|
|
Description
|
|
Value
|
|
Revenue
|
|
EBITDA
|
|
4/5/2011
|
|
Inspire Pharmaceuticals, Inc.
|
|
Merck & Co. Inc.
|
|
Focuses on developing and commercializing ophthalmic products.
The company offers AzaSite, an azithromycin ophthalmic solution
and topical anti-infective for the treatment of bacterial
conjunctivitis, and various other products.
|
|
$375.4
|
|
3.6x
|
|
NM
|
|
9/13/2010
|
|
Synthetech Inc.
|
|
W. R. Grace & Co.- Conn
|
|
Manufactures fine chemicals and intermediates. It offers specialty
amino acids, peptide fragments, chiral intermediates,
organometallics, and boronic acids.
|
|
$17.2
|
|
1.4x
|
|
NM
|
|
6/15/2010
|
|
Eurogentec S.A.
|
|
Kaneka Corporation
|
|
Manufactures oligonucleotides, antibodies, proteins, plasmids,
peptides, arrays, and real-time qPCR kits that support research
institutions, as well as biotech, diagnostic, and pharmaceutical
companies; and kits and consumables, diagnostic oligos and
antibodies, and proteinarrays.
|
|
$63.9
|
|
1.3x
|
|
NA
|
|
3/1/2010
|
|
ScinoPharm Taiwan, Ltd.
|
|
Uni-President Enterprises Corp.
|
|
Engages in the process research and development, production, and
sale of cGMP active pharmaceutical ingredients (APIs) to
pharmaceutical and biotechnology companies primarily in Taiwan,
Europe, and North America.
|
|
$308.1
|
|
2.6x
|
|
8.5x
|
|
2/12/2010
|
|
ISOCHEM S.A.S
|
|
Aurelius AG
|
|
Manufactures and supplies fine chemicals to the pharmaceutical
industry worldwide. The company offers phosgene derivatives,
functional intermediates, and active ingredients, including
aminoacid derivatives, phosgene derivatives, heterocycles, amines,
esters, ketones, alcools, acids, hydrazines, and other building blocks.
|
|
$79.0
|
|
0.5x
|
|
NA
|
|
1/9/2010
|
|
Infinitec Activos, S.L.
|
|
Undisclosed
|
|
Engages in the research and development of active ingredients for
the cosmetic industry. Its products include aqueous phase
nanotechnology, nano LPD's, ultra thin molecular films, hair micro
adhesives, oceanspheres, synthetic peptides, neuropeptides, peptidic
hybridation, peptidic nanoconjugation, peptidic complex, and
polarsome. The company sells its products through distributors
worldwide.
|
|
$2.4
|
|
2.3x
|
|
NA
|
|
|
Range: Select M&A Transactions
|
|
|
|
|
|
High
|
$375.4
|
3.6x
|
8.5x
|
|
|
Median
|
$71.4
|
1.9x
|
8.5x
|
|
|
Mean
|
$141.0
|
1.9x
|
8.5x
|
|
|
Low
|
$2.4
|
0.5x
|
8.5x
|
Cascadia Capital calculated a range of implied enterprise values for us by applying comparable transaction value to LTM revenue at the time of the acquisition. Utilizing this analysis and based on a revenue multiple range of 1.6x to 2.1x applied to our LTM revenue ending March 31, 2012 of $2,214,132, Cascadia Capital arrived at a range of implied enterprise values for us of approximately $3.5 million to approximately $4.7 million.
Discounted Cash Flow Analysis
Cascadia Capital conducted a discounted cash flow analysis based on internal financial forecasts provided by us, and assumed, solely for purposes of its analysis, a discount rate of 25% and a terminal growth rate of 3%. However, given the inherent uncertain nature of our internal financial forecasts, Cascadia Capital did not utilize or rely on the discounted cash flow analysis for purposes of its valuation analysis. Because Cascadia Capital determined at the outset that it would not be relying on a discounted cash flow analysis, the metrics it used for its discounted cash flow analysis were used strictly as points of reference for purposes of making the calculations and were not customized to reflect any specific characteristic of us, our business or our industry. Set forth below is a summary of Cascadia Capital’s discounted cash flow analysis (dollars in millions, except per share amounts):
|
|
|
|
2012E
|
|
|
|
2013E
|
|
|
|
2014E
|
|
|
|
2015E
|
|
|
|
2016E
|
|
|
Revenue
|
|
$
|
2,500.0
|
|
|
$
|
4,000.0
|
|
|
$
|
6,400.0
|
|
|
$
|
10,000.0
|
|
|
$
|
16,000.0
|
|
|
Gross Profit
|
|
|
1,500.0
|
|
|
|
2,600.0
|
|
|
|
4,200.0
|
|
|
|
6,500.0
|
|
|
|
10,400.0
|
|
|
Gross Profit ‐ %
|
|
|
60.0
|
%
|
|
|
65.0
|
%
|
|
|
65.6
|
%
|
|
|
65.0
|
%
|
|
|
65.0
|
%
|
|
Fixed Expenses
|
|
|
(4,300.0
|
)
|
|
|
(4,700.0
|
)
|
|
|
(5,200.0
|
)
|
|
|
(5,700.0
|
)
|
|
|
(6,300.0
|
)
|
|
Cash Flow
|
|
|
(2,800.0
|
)
|
|
|
(2,100.0
|
)
|
|
|
(1,000.0
|
)
|
|
|
800.0
|
|
|
|
4,100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted Cash Flow
|
|
|
(2,504.4
|
)
|
|
|
(1,502.6
|
)
|
|
|
(572.4
|
)
|
|
|
366.4
|
|
|
|
1,502.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPV of Cash Flow
|
|
$
|
(2,711.0
|
)
|
|
|
(76
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Value
|
|
|
6,290.0
|
|
|
|
176
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
$
|
3,578.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Cash
|
|
|
1,163.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value
|
|
$
|
4,742.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding (000ʹs)
|
|
|
49,720.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Price per Share
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Private Financings of Public Company Comparables
Because many of the comparable companies had similar issues of illiquidity, Cascadia Capital elected to also review private investments in comparable public companies to normalize the fair value of the comparables. In connection with this analysis, Cascadia Capital applied historical revenue metrics based on the implied valuation obtained from private investments in companies comparable to us, and utilized this methodology to normalize the illiquidity in the comparable company’s common stock. With respect to its comparable private financing in public company transactions analysis, Cascadia Capital reviewed and compared the implied enterprise value resulting at the time of the private investment, and the resulting multiples, in selected transactions that Cascadia Capital deemed relevant, based on its experience. Cascadia Capital selected such transactions based on, among other things, the similarity to us of the applicable target assets and companies in the selected transactions with respect to size, focus, portfolio composition and other characteristics of their businesses. A summary of the comparable companies and a description of the resulting implied valuations is set forth below. In Cascadia Capital’s analysis, no comparable transaction that met its criteria was omitted from its comparison analysis.
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
Enterprise
|
|
EV/LTM
|
|
Premium/
|
|
Announced
|
|
Target Name
|
|
Description
|
|
Value
|
|
Revenue
|
|
EBITDA
|
|
(Discount)
|
|
3/23/2012
|
|
Chongqing Huapont Pharm Co. Ltd.
|
|
Private placement of 25,000,000 A shares of common at not less than
CNY 36 per share
|
|
$2,093.7
|
|
21.1x
|
|
86.4x
|
|
-7.0%
|
|
1/18/2012
|
|
Goangdong Taiantang
Pharmaceutical Co., Ltd.
|
|
Private placement of 39,000,000 A shares at not less than CNY 20.55
per share for gross proceeds of not more than CNY 801,892,000
|
|
$453.4
|
|
6.9x
|
|
29.4x
|
|
-10%
|
|
10/4/2011
|
|
Divine Skin, Inc.
|
|
Company has raised $1,730,000 by issuing 6,178,571 shares to four
investors
|
|
$28.1
|
|
3.4x
|
|
NM
|
|
-26%
|
|
|
Range: Select M&A Transactions
|
|
|
|
|
|
|
High
|
$2,093.7
|
21.1x
|
86.4x
|
-7%
|
|
|
Median
|
$453.4
|
6.9x
|
57.9x
|
-10%
|
|
|
Mean
|
$858.4
|
10.5x
|
57.9x
|
-14%
|
|
|
Low
|
$28.1
|
3.4x
|
29.4x
|
-26%
|
Due to the relatively low trading volume of some of the comparable companies, Cascadia Capital analyzed private investments in comparable public companies to help take into account this low trading volume, or illiquidity. Cascadia Capital’s analysis on this point was partly based on Cascadia Capital’s assumption that private investors in these companies were more likely to have completed a more thorough analysis of the valuation of these comparable companies. Therefore, Cascadia Capital believed that the implied valuation of these comparable companies at the time of the private investment could be a more accurate representation of the market value. Cascadia Capital calculated a range of implied enterprise values for us by applying the implied enterprise value to LTM revenue multiples resulting from comparable private investments in public company transactions. Utilizing this analysis and based on a revenue multiple range of 5.8x to 7.9x applied to our LTM revenue ending March 31, 2012 of $2,214,132, Cascadia Capital arrived at a range of implied enterprise values for us of approximately $12.9 million to approximately $17.5 million.
Analysis of Premiums in Comparable Going-Private Transactions
Cascadia Capital identified comparable going-private transactions where a tender offer was made at a premium in order to reduce the number of stockholders to the level required to take the companies private and applied these premiums to the 30-day volume weighted average price of our Common Stock to derive a fair value to be paid in the transaction. Based on our unique size and niche industry, Cascadia Capital found only one relevant comparable transaction that had closed in the past three years, as set forth below. No transactions that otherwise met Cascadia Capital’s criteria were excluded from the analysis.
|
Date
|
|
|
|
|
|
Tender
|
|
T-1 Stock
|
|
|
|
Announced
|
|
Company Name
|
|
Description
|
|
Offer Price
|
|
Price
|
|
Premium
|
|
05/05/2009
|
|
CallWave, Inc.
|
|
CallWave, a global provider of mobile and Web-based unified
communications solutions, held a tender offer for their shares at
$1.15. The company had a goal of reducing shareholders of record
below 300 to take the company private.
|
|
$1.15
|
|
$0.80
|
|
43.8%
|
Reference in the table above to “T-1 Stock Price” is meant to describe the price of the comparable company’s stock one day prior to the announcement of the transaction, and the price to be paid in the transaction. This stock price was used in the calculation of the premium paid in the transaction.
Cascadia Capital calculated a premium to our stock price by applying the implied premium paid from the above referenced comparable going private transaction. Based on our last 30 days volume weighted average stock price of $0.28, Cascadia Capital arrived at a range of implied per share value of approximately $0.40.
Summary
A summary of Cascadia Capital’s valuation methodologies and analyses is set forth below:
|
|
|
|
|
As a Multiple of Revenue
|
|
($ in Millions except for Share Prices)
|
|
|
|
Revenue Multiple
|
|
Valuation
|
|
Implied Share Price
|
|
|
|
|
|
Metric
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
|
|
Transaction Comparables
|
|
$2.2
|
|
1.6x
|
-
|
2.1x
|
|
$3.5
|
–
|
$4.7
|
|
$0.09
|
–
|
$0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/12 LTM Revenue
(1)
|
|
Trading Comparables
|
|
$2.2
|
|
4.3x
|
-
|
5.8x
|
|
$9.6
|
–
|
$12.9
|
|
$0.22
|
–
|
$0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPE Comparables
|
|
$2.2
|
|
5.8x
|
-
|
7.9x
|
|
$12.9
|
–
|
$17.5
|
|
$0.28
|
–
|
$0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a premium or current stock price
(2)
|
|
|
|
|
|
Metric
|
|
Premium/(Discount)
|
|
|
|
|
|
Implied Price Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIPE Premium (Discount)
|
|
$0.28
|
|
-10%
|
|
|
|
|
|
$0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Take Private Tender
|
|
$0.28
|
|
44%
|
|
|
|
|
|
$0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Range
|
|
|
|
|
|
|
$0.25
|
–
|
$0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Valuation multiples based on LTM 3/31/2012 revenue
|
|
|
|
|
|
|
|
|
|
(2)Helix stock price represents a 30-day VWAP
|
|
|
|
|
|
|
Accordingly, based on these valuation methodologies, our historical market stock price and financing transactions, and other relevant considerations, on August 16, 2012, Cascadia Capital delivered its opinion to the Board that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of such date, the consideration to be received by Cashed-Out Stockholders pursuant to the Reverse Stock Split was fair, from a financial point of view, to such holders.
Conduct of Our Business After the Reverse Stock Split
Except as described in this proxy statement, we do not have any current plans or proposals to effect any extraordinary corporate transaction, such as a merger, reorganization or liquidation, a sale or transfer of any material amount of our assets, a change in management, a material change in our indebtedness or capitalization (other than periodic debt or equity financings consistent with past practice), or any other material change in our corporate structure or business. We expect to conduct our business and operations after the effective time of the Reverse Stock Split in substantially the same manner as currently conducted. While we will no longer be under a legal obligation to file financial or other reports with the SEC, we intend to maintain communications with our Continuing Stockholders. We plan to make available our audited financial statements as well as to provide periodic interim financial updates to Continuing Stockholders. Except as described in this proxy statement with respect to the use of funds to finance the Reverse Stock Split and related costs and our plans to suspend our reporting obligations under the Exchange Act, the Reverse Stock Split is not anticipated to have a material effect upon the conduct of our business. We intend, however, to continue to evaluate and review our businesses, properties, management and other personnel, corporate structure, capitalization and other aspects of our operations in the same manner as we historically have from time to time, and to make such changes as we consider appropriate. We also intend to continue to explore from time to time other business opportunities to expand or strengthen our businesses, as we have done in the past. In that regard, we may review proposals or may propose the acquisition or disposition of assets or other changes in our business, corporate structure, capitalization, management or other changes that we then consider to be in our best interests and in the best interests of Continuing Stockholders after the Reverse Stock Split. There are currently no plans to enter into any proposals or agreements that require stockholder approval. In addition, our executive officers and directors are expected to retain their respective positions with us immediately following the Reverse Stock Split.
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 us and our stockholders. This summary is based upon the Internal Revenue Code of 1986, as amended (the “
Code
”), existing Treasury Regulations promulgated thereunder, published rulings, administrative pronouncements and judicial decisions, any changes to which could affect the tax consequences described herein, possibly on a retroactive basis. This summary only addresses stockholders who hold their Common Stock as a capital asset. This section does not apply to a stockholder that is a member of a special class of holders subject to special rules, including, without limitation, financial institutions, regulated investment companies, real estate investment trusts, holders who are dealers in securities or foreign currency, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax-exempt organizations, insurance companies, holders that received their Common Stock pursuant to the exercise of stock options or otherwise as compensation, holders who hold their stock as qualified small business stock within the meaning of Section 1202 of the Code, U.S. expatriates, persons liable for alternative minimum tax, holders who hold their Common Stock as part of a hedge, straddle, conversion, constructive sale or other integrated transaction, or holders whose functional currency is not the U.S. dollar. This summary does not address tax considerations arising under any U.S. federal estate or gift tax laws or under any state, local or foreign laws. This summary is not binding on the Internal Revenue Service (the “
IRS
”).
A “
U.S. Holder
” is a beneficial owner of Common Stock that, for U.S. federal income tax purposes, is: (1) a citizen or resident of the United States; (2) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust if (a) the administration of the trust is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust, or (b) a valid election is in effect under applicable Treasury regulations to be treated as a United States person. A “
Non-U.S. Holder
” is a beneficial owner of Common Stock other than a U.S. Holder or an entity treated as a partnership for U.S. federal income tax purposes. If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner with respect to the Reverse Stock Split generally will depend upon the status of the partner and the activities of the partnership. Such a partner or partnership is urged to consult its own tax advisor as to the U.S. federal income tax consequences of the Reverse Stock Split.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. NO RULING FROM THE IRS OR OPINION OF COUNSEL HAS BEEN OR WILL BE OBTAINED REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT. ACCORDINGLY, EACH STOCKHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH HOLDER.
Tax Consequences of the Reverse Stock Split to U.S. Holders
Stockholders Not Receiving Cash in the Reverse Stock Split.
A U.S. Holder that does not receive any cash in the Reverse Stock Split generally should not recognize any gain or loss with respect to the Reverse Stock Split for U.S. federal income tax purposes, and generally should have the same adjusted tax basis and holding period in its Common Stock as such holder had immediately prior to the Reverse Stock Split.
Stockholders Receiving Cash in Exchange for Common Stock in the Reverse Stock Split.
A U.S. Holder’s receipt of cash in exchange for Common Stock in the Reverse Stock Split generally will be a taxable transaction to such holder for U.S. federal income tax purposes. Under the stock redemption rules of Section 302 of the Code (referred to herein as the “
Section 302 tests
”), a U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split generally should be treated as a “sale or exchange” of such stock if the exchange (1) results in a “complete termination” of such holder’s interest in us, (2) is “substantially disproportionate” with respect to such holder or (3) is “not essentially equivalent to a dividend” with respect to the such holder. Each of the Section 302 tests is described in more detail below.
In determining whether any of the Section 302 tests is satisfied, a U.S. Holder must take into account both Common Stock actually owned by such holder and any Common Stock considered as owned by such holder by reason of certain constructive ownership rules in the Code. Under these rules, a U.S. Holder generally will be considered to own Common Stock which such holder has the right to acquire pursuant to the exercise of an option or warrant or by conversion or exchange of a security. A U.S. Holder generally will also be considered to own Common Stock that is owned (and, in some cases, constructively owned) by some members of such holder’s family and by some entities (such as corporations, partnerships, trusts and estates) in which such holder, a member of such holder’s family or a related entity has an interest.
If any of the Section 302 tests is satisfied with respect to a U.S. Holder, and an exchange of Common Stock for cash is therefore treated as a sale or exchange for U.S. federal income tax purposes, such holder generally should recognize gain or loss equal to the difference between the amount of cash received by such holder and such holder’s adjusted tax basis in the Common Stock exchanged in the Reverse Stock Split. Gain or loss must be calculated separately with respect to each block of shares of Common Stock exchanged in the Reverse Stock Split. Any gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if the relevant shares of Common Stock have been held for more than one year on the date of the Reverse Stock Split. Currently, the maximum long-term capital gain rate for individual U.S. Holders is 15%. Certain limitations apply to the deductibility of capital losses.
Conversely, if none of the Section 302 tests is satisfied with respect to a U.S. Holder, such holder generally should be treated as having received a distribution from us in an amount equal to the cash received by such holder in the Reverse Stock Split. We cannot determine prior to the consummation of the Reverse Stock Split the extent to which we will have sufficient current and accumulated earnings and profits to cause any distribution to be treated as a dividend for U.S. federal income tax purposes. To the extent that the amount of a distribution received by a U.S. Holder with respect to the Reverse Stock Split exceeds such holder’s share of our current and accumulated earnings and profits, the excess generally should be treated as a tax-free return of capital to the extent of such holder’s adjusted tax basis in the Common Stock exchanged in the Reverse Stock Split and any remainder generally should be treated as capital gain from the sale or exchange of the Common Stock. If certain holding period and other requirements are satisfied, dividends are currently taxable at a maximum rate of 15% for individual U.S. Holders. To the extent that a U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split is treated as a dividend, such holder’s adjusted tax basis in the Common Stock exchanged therefor generally should be added to the tax basis of any Common Stock retained by such holder.
A corporate U.S. Holder that does not satisfy any of the Section 302 tests and is treated for U.S. federal income tax purposes as receiving a dividend in the Reverse Stock Split may be eligible for the dividends received deduction, subject to certain limitations. In addition, any amount received by a corporate U.S. Holder that is treated as a dividend for U.S. federal income tax purposes generally will constitute an “extraordinary dividend” under Section 1059 of the Code, and result in the reduction of tax basis in such holder’s Common Stock or in gain recognition to such holder in an amount equal to the non-taxed portion of the dividend. Each corporate stockholder is urged consult its own tax advisor as to the tax consequences of dividend treatment to such holder with respect to its receipt of cash in the Reverse Stock Split.
Section 302 Tests.
A U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split must satisfy one of the following tests to be treated as a sale or exchange for U.S. federal income tax purposes:
|
|
·
|
Complete Termination
. A U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split generally will result in a “complete termination” of such holder’s interest in us if, in connection with the Reverse Stock Split, either (i) all of the Common Stock actually and constructively owned by such holder is exchanged for cash, or (ii) all of the shares of Common Stock actually owned by such holder is exchanged for cash, and, with respect to constructively owned shares of Common Stock, such holder is eligible to waive (and effectively waives) constructive ownership of all such Common Stock under procedures described in Section 302(c) of the Code.
|
|
|
·
|
Substantially Disproportionate Redemption.
A U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split generally will be “substantially disproportionate” with respect to such holder if, among other things, immediately after the exchange (
i.e.
, treating all Common Stock exchanged for cash in the Reverse Stock Split as no longer outstanding), (i) such holder’s percentage ownership of our voting stock is less than 80% of such holder’s percentage ownership of our voting stock immediately before the exchange (
i.e.
, treating all Common Stock exchanged for cash in the Reverse Stock Split as outstanding), and (ii) such holder owns less than 50% of the total combined voting power of all classes of our stock entitled to vote. For purposes of these percentage ownership tests, a holder will be considered as owning Common Stock owned directly as well as indirectly through application of the constructive ownership rules described above.
|
|
|
·
|
Not Essentially Equivalent to a Dividend.
In order for a U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split to qualify as “not essentially equivalent to a dividend,” such holder must experience a “meaningful reduction” in its proportionate interest in us as a result of the exchange, taking into account the constructive ownership rules described above. Whether a U.S. Holder’s exchange of Common Stock pursuant to the Reverse Stock Split will result in a “meaningful reduction” of such holder’s proportionate interest in us will depend on such holder’s particular facts and circumstances. The IRS has indicated in a published ruling that even a small reduction in the proportionate interest of a small minority stockholder (for example, less than 1%) in a publicly held corporation who exercises no control over corporate affairs may constitute a “meaningful reduction.”
|
Each stockholder is urged to consult its own tax advisor as to the application of the Section 302 tests to such stockholder under its particular circumstances.
Tax Consequences of the Reverse Stock Split to Non-U.S. Holders
The U.S. federal income tax rules governing Non-U.S. Holders are complex, and the following is only a limited summary of some general rules applicable to certain Non-U.S. Holders with respect to the Reverse Stock Split. Each Non-U.S. Holder is urged to consult its own tax advisor regarding the U.S. federal, state, local and foreign tax consequences to such holder of the Reverse Stock Split.
A Non-U.S. Holder that does not receive any cash in the Reverse Stock Split generally should not recognize any gain or loss with respect to the Reverse Stock Split for U.S. federal income tax purposes.
A payment to a Non-U.S. Holder in the Reverse Stock Split that is treated as a distribution to such holder with respect to its Common Stock generally will be subject to U.S. federal income tax withholding at a 30% rate. Accordingly, as described below, the depositary will withhold 30% of any gross payments made to a Non-U.S. Holder with respect to the Reverse Stock Split, unless such holder properly demonstrates that a reduced rate of U.S. federal income tax withholding or an exemption from such withholding is applicable.
If a Non-U.S. Holder’s exchange of Common Stock for cash in the Reverse Stock Split is treated as a sale or exchange, rather than as a dividend, for U.S. federal income tax purposes, such holder generally should not be subject to U.S. federal income tax on the exchange, unless (1) in the case of a nonresident alien individual, the individual is present in the United States for 183 days or more in the taxable year of the exchange and certain other conditions are satisfied, (2) the gain is effectively connected with a U.S. trade or business of such holder, and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by such holder in the United States, or (3) we are or have been a United States real property holding corporation (a “
USRPHC
”) and certain other requirements are satisfied. A Non-U.S. Holder that is a corporation and whose gain is effectively connected with the conduct of a trade or business within the United States also may be subject to a branch profits tax at a 30% rate (or such lower rate specified by an applicable income tax treaty). We do not believe that we are (or have been) a USRPHC within the last five years.
U.S. Federal Income Tax Withholding Requirements for All Stockholders
As stated above, the depositary will withhold U.S. federal income taxes equal to 30% of any gross payments made to a Non-U.S. Holder with respect to the Reverse Stock Split, unless such holder properly demonstrates that a reduced rate of U.S. federal income tax withholding or an exemption from such withholding is applicable. For example, an applicable income tax treaty may reduce or eliminate U.S. federal income tax withholding, in which case a Non-U.S. Holder claiming a reduction in (or exemption from) such tax must provide the depositary with a properly completed IRS Form W-8BEN claiming the applicable treaty benefit. Alternatively, an exemption generally should apply if the Non-U.S. Holder’s gain is effectively connected with a U.S. trade or business of such holder, and such holder provides the depositary with an appropriate statement to that effect on a properly completed IRS Form W-8ECI.
In addition, to prevent backup U.S. federal income tax withholding equal to 28% of the gross payments made to a stockholder in the Reverse Stock Split, each U.S. Holder who does not otherwise establish an exemption from backup withholding must provide the depositary with such holder’s correct taxpayer identification number (“
TIN
”) or certify that such holder is awaiting a TIN, and provide certain other information by completing, under penalties of perjury, the Substitute Form W-9 included in the letter of transmittal. Non-U.S. Holders should complete and sign the appropriate IRS Form W-8, a copy of which may be obtained from the depositary, in order to avoid backup withholding with respect to payments made to such holders in the Reverse Stock Split.
Tax Consequences of the Reverse Stock Split to Helix
The Reverse Stock Split is intended to constitute a reorganization within the meaning of Section 368(a) of the Code and generally should be treated as a tax-free recapitalization for U.S. federal income tax purposes, in which case we should not recognize any gain or loss for such purposes. In addition, as of June 30, 2012, we had estimated our NOLs to be approximately $39.0 million. Under the Code, an “ownership change” with respect to a corporation can significantly limit the amount of pre-ownership change NOLs and certain other tax assets that the corporation may utilize after the ownership change to offset future taxable income. For this purpose, an ownership change generally occurs when there is a cumulative change of greater than 50% in a corporation’s stock ownership within a three-year period. We do not believe that the Reverse Stock Split, together with all other equity-related transactions during the testing period, will trigger an ownership change with respect to us.
Potential Conflicts of Interests of Officers, Directors and Certain Affiliated Persons
Our affiliates may have interests in the Reverse Stock Split that are different from your interests as a stockholder, and have relationships that may present conflicts of interest. While the Board recommends a vote “
FOR
” the Reverse Stock Split, to our knowledge, none of our affiliates has made a recommendation, in their individual capacities, either in support of or opposed to the Reverse Stock Split. Our directors and executive officers have indicated that they intend to vote their shares of our Common Stock (2,978,159 shares, or approximately 6.0% of our issued and outstanding shares eligible to vote at the Meeting) “
FOR
” the Reverse Stock Split, and Mr. Frank Nickell, who owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock, as of October 31, 2012, has indicated that he would not generally oppose the Reverse Stock Split.
Upon the effectiveness of the Reverse Stock Split, the ownership percentage of the shares of our Common Stock held by Continuing Stockholders, including our affiliates, will increase proportionally by less than ♦% as a result of the reduction of the number of shares of our Common Stock outstanding by approximately ♦ shares from 49,720,255 shares as of October 31, 2012. The increase in the ownership percentage of our shares of Common Stock held by our affiliates and the reduction in the number of shares outstanding following the completion of the Reverse Stock Split is based on record holder information that we received as of ♦, 2012 from our Transfer Agent as to our record holders, and information we have received regarding the holdings of beneficial owners of our Common Stock held in street name. The number of shares to be cashed-out in the Reverse Stock Split may vary from the estimate above, and the ownership percentage of our shares of Common Stock held by our affiliates and the ownership percentage of Continuing Stockholders after the Reverse Stock Split will proportionally increase or decrease as a result of purchases, sales and other transfers of our shares of Common Stock prior to the effective time of the Reverse Stock Split, and depending on the number of street name shares that are actually cashed-out in the Reverse Stock Split. Our executive officers and directors are expected to retain their respective positions with us immediately following the Reverse Stock Split.
In addition, each member of the Board and our executive officers hold options to acquire shares of our Common Stock. As a result of the Reverse Stock Split, proportionate adjustments will be made to the per share exercise price and the number of shares issuable upon the exercise of such stock options, but these options will otherwise remain outstanding after the Reverse Stock Split subject to the Plans and their existing option agreements. As of October 31, 2012, our directors and executive officers held the following options to acquire Common Stock:
|
Name of Officer or Director
|
Number of Shares of Common Stock Subject to Option
|
Exercise Price ($)
|
Date of Grant
|
Vesting Schedule
|
Expiration Date
|
|
R. Stephen Beatty, Director, Chief Executive Officer and President
|
324,000
|
|
1.00
|
7/1/2003
|
Fully vested
|
7/1/2013
|
|
|
165,000
|
|
0.57
|
10/30/2008
|
Fully vested
|
10/30/2018
|
|
|
100,000
|
|
0.34
|
2/3/2010
|
2,777.77 shares/month until 2/3/13
|
2/3/2020
|
|
|
200,000
|
|
0.25
|
2/16/2012
|
Fully vested
|
2/16/2022
|
|
|
500,000
|
|
0.25
|
2/16/2012
|
166,666.66 shares vested on 2/16/13, 13,888.88 shares/month thereafter
|
2/16/2022
|
|
TOTAL
|
1,289,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robin L. Carmichael, Vice President and Chief Operating Officer
|
150,000
|
|
0.50
|
11/15/2007
|
Fully vested
|
11/15/2017
|
|
|
100,000
|
|
0.34
|
2/3/2010
|
2,777.77 shares/month until 2/3/13
|
2/3/2020
|
|
|
200,000
|
|
0.25
|
2/16/2012
|
Fully vested
|
2/16/2022
|
|
|
150,000
|
|
0.25
|
2/16/2012
|
50,000 shares vested on 2/16/13, 4,166.66 shares/month thereafter
|
2/16/2022
|
|
TOTAL
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall L-W Caudill, D. Phil., Director
|
15,000
|
|
1.75
|
12/31/2004
|
Fully vested
|
12/31/2014
|
|
|
15,000
|
|
1.50
|
8/11/2005
|
Fully vested
|
8/11/2015
|
|
|
15,000
|
|
0.85
|
2/16/2006
|
Fully vested
|
2/16/2016
|
|
|
15,000
|
|
0.76
|
1/9/2007
|
Fully vested
|
1/9/2017
|
|
|
15,000
|
|
0.80
|
2/7/2008
|
Fully vested
|
2/7/2018
|
|
|
15,000
|
|
0.49
|
2/5/2009
|
Fully vested
|
2/5/2019
|
|
|
15,000
|
|
0.30
|
2/4/2010
|
Fully vested
|
2/4/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Clifford, Director
|
25,000
|
|
0.77
|
8/31/2007
|
Fully vested
|
8/31/2017
|
|
|
15,000
|
|
0.80
|
2/7/2008
|
Fully vested
|
2/7/2018
|
|
|
15,000
|
|
0.49
|
2/5/2009
|
Fully vested
|
2/5/2019
|
|
|
15,000
|
|
0.30
|
2/4/2010
|
Fully vested
|
2/4/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Cohen, Director
|
25,000
|
|
0.85
|
2/16/2006
|
Fully vested
|
2/16/2016
|
|
|
15,000
|
|
0.76
|
1/9/2007
|
Fully vested
|
1/9/2017
|
|
|
15,000
|
|
0.80
|
2/7/2008
|
Fully vested
|
2/7/2018
|
|
|
15,000
|
|
0.49
|
2/5/2009
|
Fully vested
|
2/5/2019
|
|
|
15,000
|
|
0.30
|
2/4/2010
|
Fully vested
|
2/4/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence Blake Jones, Director
|
25,000
|
|
0.19
|
3/5/2010
|
Fully vested
|
3/5/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey A. Miller, Ph.D., Director
|
15,000
|
|
1.75
|
12/31/2004
|
Fully vested
|
12/31/2014
|
|
|
15,000
|
|
1.50
|
8/11/2005
|
Fully vested
|
8/11/2015
|
|
|
15,000
|
|
0.85
|
2/16/2006
|
Fully vested
|
2/16/2016
|
|
|
15,000
|
|
0.76
|
1/9/2007
|
Fully vested
|
1/9/2017
|
|
|
15,000
|
|
0.80
|
2/7/2008
|
Fully vested
|
2/7/2018
|
|
|
15,000
|
|
0.49
|
2/5/2009
|
Fully vested
|
2/5/2019
|
|
|
15,000
|
|
0.30
|
2/4/2010
|
Fully vested
|
2/4/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry L. Seidman, Director
|
25,000
|
|
1.48
|
11/10/2004
|
Fully vested
|
11/10/2014
|
|
|
15,000
|
|
0.85
|
2/16/2006
|
Fully vested
|
2/16/2016
|
|
|
15,000
|
|
0.76
|
1/9/2007
|
Fully vested
|
1/9/2017
|
|
|
15,000
|
|
0.80
|
2/7/2008
|
Fully vested
|
2/7/2018
|
|
|
15,000
|
|
0.49
|
2/5/2009
|
Fully vested
|
2/5/2019
|
|
|
15,000
|
|
0.30
|
2/4/2010
|
Fully vested
|
2/4/2020
|
|
|
15,000
|
|
0.30
|
3/4/2011
|
Fully vested
|
3/4/2021
|
|
|
25,000
|
|
0.25
|
2/16/2012
|
Quarterly until 2/16/13
|
2/16/2022
|
|
TOTAL
|
140,000
|
|
|
|
|
|
None of our affiliates has any interest, direct or indirect, in the Reverse Stock Split other than interests arising from the ownership of securities where those affiliates receive no extra or special benefit not shared on a pro rata basis by all other holders of our Common Stock, except that, by suspending our reporting obligations under the Exchange Act subsequent to the consummation of the Reverse Stock Split, we will no longer be prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act, from making personal loans to our directors or executive officers. However, we do not have a present intention of making personal loans to our directors or executive officers, and the ability to make such loans was not a reason considered by the Board in evaluating the benefits of the Reverse Stock Split. Additionally, there are no agreements with affiliates to purchase Common Stock upon consummation of or subsequent to the Reverse Stock Split.
Sources and Amounts of Funds and Expenses
Since we do not know how many record and beneficial holders of our Common Stock will receive cash for their shares in the Reverse Stock Split, we do not know the exact cost of the Reverse Stock Split. However, based on information that we have received as of ♦, 2012 from our Transfer Agent with regard to the size of holdings of those stockholders who may hold shares in street name, as well as our estimates of other Reverse Stock Split expenses, we believe that the total cash requirement of the Reverse Stock Split to us will be approximately $430,000. This amount includes approximately $120,000 needed to cash-out Cashed-Out Stockholders (although this amount could be larger or smaller depending on, among other things, the number of fractional shares that will be outstanding at the time of the Reverse Stock Split as a result of purchases, sales and other transfers of our shares of Common Stock, and the number of street name shares that are actually cashed-out in the Reverse Stock Split), and approximately $310,000 of legal, accounting, financial advisory fees, and other costs to effect the Reverse Stock Split as follows:
|
Legal and Accounting Fees
|
$
|
180,000
|
|
Fairness Opinion
|
|
55,000
|
|
Payment for Fractional Shares
|
|
120,000
|
|
Transfer Agent Costs
|
|
30,000
|
|
SEC Filing, Printing and Mailing Costs
|
|
45,000
|
|
Total Expenses
|
$
|
430,000
|
The consideration to be paid to Cashed-Out Stockholders and the other costs of the Reverse Stock Split will be paid from cash on hand and, to the extent that we have insufficient cash on hand to fund such expenses, through borrowings against an existing letter of credit with JPMorgan Chase Bank, N.A, which was established on our behalf by Mr. Frank Nickell in the amount of $2.0 million, pursuant to an LOC Agreement entered into between us and Mr. Frank Nickell on March 9, 2012. See “Information About the Company—Certain Relationships and Related Transactions.”
There are no conditions to the availability of the funds for the Reverse Stock Split and we do not have any alternative financing arrangements or alternative financing plans with respect to the Reverse Stock Split. We do not have any plans or arrangements to repay any amounts drawn down on our existing line of credit in connection with the Reverse Stock Split until the maturity thereof.
Effective Time
The Reverse Stock Split will become effective as of the date that we amend our Certificate of Incorporation through the filing of the Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effectuate the Reverse Stock Split. We intend to effect the Reverse Stock Split as soon as practicable after the Reverse Stock Split is approved by our stockholders. Within approximately five business days after the effective time of the Reverse Stock Split, we expect that our Transfer Agent will send to each holder of record of 300 or fewer shares of our Common Stock, and to brokers, banks and other nominees, based on information we receive from them in response to our inquiries, for each owner of 300 or fewer shares of our Common Stock held in street name, instructions, including letters of transmittal asking them to surrender their shares. Upon proper completion, execution and return of the letter of transmittal and accompanying stock certificate(s) to the Transfer Agent by such Cashed-Out Stockholders, the Transfer Agent will send the payments to these Cashed-Out Stockholders within approximately five business days of receipt. Therefore, the timing of receipt of payment for these stockholders is dependent upon their proper surrender of the certificates and the delivery of properly prepared and executed letters of transmittal. With respect to the Continuing Stockholders, there are no further actions that will be required by such stockholders as a result of the Reverse Stock Split. Instead, the share certificates held by the Continuing Stockholders representing their shares of Common Stock shall, immediately following the effective time of the Reverse Stock Split, automatically and without any further action on the part of the Continuing Stockholder, represent such number of shares of Common Stock as reclassified and converted pursuant to the Reverse Stock Split, including any fractional shares. Our Common Stock acquired in connection with the Reverse Stock Split will be restored to the status of authorized but unissued shares. The suspension of our obligation to file periodic reports and other documents under the Exchange Act will become effective after the filing with the SEC of a Form 15. See “Special Factors—Effects of the Reverse Stock Split.”
Termination of Reverse Stock Split
Under applicable Delaware Law, the Board has a duty to act in the best interest of our stockholders. Accordingly, the Board reserves the right to abandon the Reverse Stock Split, if for any reason the Board determines that, in the best interest of our stockholders, it is not advisable to proceed with the Reverse Stock Split, even assuming the stockholders vote to approve the Reverse Stock Split. Although the Board presently believes that the Reverse Stock Split is in our best interests and has recommended a vote in favor of the Reverse Stock Split, the Board nonetheless believes that it is prudent to recognize that circumstances could possibly change prior to the Meeting such that it might not be appropriate or desirable to effect the Reverse Stock Split at that time. Such reasons might include, but are not limited to:
|
|
·
|
any change in the nature of our stockholdings prior to the effective time of the Reverse Stock Split, which would result in us being unable to reduce the number of record holders of our shares to below 500 as a result of the Reverse Stock Split;
|
|
|
·
|
any change in the number of our record holders that would enable us to suspend our periodic reporting obligations under the Exchange Act without effecting the Reverse Stock Split;
|
|
|
·
|
any change in the number of our shares that will be exchanged for cash in connection with the Reverse Stock Split that would increase the cost and expense of the Reverse Stock Split from that which is currently anticipated;
|
|
|
·
|
any changes in the regulatory environment that would affect our status as a public reporting company or otherwise; or
|
|
|
·
|
any adverse change in our financial condition that would render the Reverse Stock Split inadvisable.
|
If the Board decides to withdraw the Reverse Stock Split from the agenda of the Meeting, the Board will promptly notify our stockholders of the decision by public announcement and by announcement at the Meeting. In addition, the Board could propose an alternative transaction to the Reverse Stock Split on different terms and conditions, including, without limitation, a reverse stock split at a lower cash-out price, if, for example, there is any change in the number of our shares that will be exchanged for cash in connection with the Reverse Stock Split that would increase the anticipated cost and expense of the Reverse Stock Split. In such event, we would file a revised proxy statement and re-solicit proxies from our stockholders.
Process for Payment for Fractional Shares Held by Cashed-Out Stockholders
Our Transfer Agent will act as our agent for purposes of paying for fractional shares held by Cashed-Out Stockholders in connection with the Reverse Stock Split.
We believe that no service charge or brokerage commission will be payable by any Cashed-Out Stockholder in connection with the cash-out of shares in the Reverse Stock Split, but it is possible that individual brokers and agents may impose certain charges and fees in connection with such transaction. We recommend you contact your broker or agent to determine if there are any applicable fees in connection with the cash-out transaction.
If any certificate evidencing shares of our Common Stock has been lost or destroyed, we may in our sole discretion accept in lieu thereof a duly executed affidavit and indemnity agreement in a form satisfactory to us. The holder of any shares of our Common Stock evidenced by any certificate that has been lost or destroyed must submit, in addition:
|
|
·
|
the letter of transmittal sent by us;
|
|
|
·
|
the above-referenced affidavit;
|
|
|
·
|
the above-referenced indemnity agreement; and
|
|
|
·
|
any other document required by us, which may include a bond or other security satisfactory to us indemnifying us and our other persons against any losses incurred as a consequence of paying cash in lieu of issuing fractional shares of our Common Stock in exchange for the existing shares of our Common Stock evidenced or purported to be evidenced by such lost or destroyed certificate.
|
Additional instructions with respect to lost or destroyed certificates will be included with the letter of transmittal that we will send to Cashed-Out Stockholders after the effective time of the Reverse Stock Split. In the event that we are unable to locate certain stockholders or if a stockholder fails to properly complete, execute, and return the letter of transmittal and accompanying stock certificate(s) to the Transfer Agent, any funds payable to such holders pursuant to the Reverse Stock Split will be held in escrow until a proper claim is made, subject to applicable unclaimed property and escheat laws.
Stockholders owning fewer than 300 shares on the effective time of the Reverse Stock Split will be Cashed-Out Stockholders and will have the right to receive $0.60 in cash per pre-split share of Common Stock, subject to any applicable U.S. federal, state and local withholding tax, and without interest. Stockholders that hold at least one share of Common Stock after the Reverse Stock Split will continue as stockholders of the Company and will receive fractional shares to the extent the amount of shares owned by such stockholders following the Reverse Stock Split is not equally divisible by 300 and will not be entitled to receive any cash payment.
For purposes of determining ownership of shares of our Common Stock on the effective time of the Reverse Stock Split, such shares will be considered held by the person in whose name such shares are registered on our Transfer Agent’s records. We intend to treat stockholders holding shares of our Common Stock in street name in the same manner as registered stockholders whose shares are registered in their names. Prior to the effective time of the Reverse Stock Split, we will conduct an inquiry of all brokers, banks and other nominees that hold shares of our Common Stock in street name. We will ask them to effect the Reverse Stock Split for their beneficial holders holding shares of our Common Stock in street name. We will rely on these brokers, banks and other nominees to provide us with information on how many fractional shares will be cashed-out. However, these brokers, banks and other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. If you hold your shares in street name with a bank, broker or other third party, and if you have any questions in this regard, we encourage you to contact your bank, broker or nominee.
Within approximately five business days after the effective time of the Reverse Stock Split, we expect that the Transfer Agent will send to each holder of record of 300 or fewer shares of our Common Stock immediately prior to the Reverse Stock Split, and to brokers, banks and other nominees, based on information we receive from them in response to our inquiries, for each owner of 300 or fewer shares of our Common Stock immediately prior to the Reverse Stock Split held in street name, instructions for surrendering any certificates held thereby representing shares of our Common Stock which will be converted to a right to receive cash as a result of the Reverse Stock Split. Such instructions will include a letter of transmittal to be completed and returned to the Transfer Agent by the holder of such certificates, together with such certificates. The shares we acquire in the Reverse Stock Split will be restored to the status of authorized but unissued shares.
Within approximately five business days after the Transfer Agent receives any surrendered certificate from a Cashed-Out Stockholder, together with a duly completed and executed letter of transmittal with respect thereto and such other documents as we may require, the Transfer Agent will deliver to the person payment in an amount equal to $0.60 subject to any applicable U.S. federal, state and local withholding tax, without interest, for each pre-split share of Common Stock that is represented by the fractional share.
With respect to Continuing Stockholders, there are no further actions that will be required by such stockholders as a result of the Reverse Stock Split. Instead, the share certificates held by the Continuing Stockholders representing their shares of Common Stock shall, immediately following the effective time of the Reverse Stock Split, automatically and without any further action on the part of the Continuing Stockholder, represent such number of shares of Common Stock as reclassified and converted pursuant to the Reverse Stock Split, including any fractional shares.
There will be no differences between the respective rights, such as dividend, voting, liquidation or other rights, preferences or limitations of our Common Stock prior to the Reverse Stock Split and our Common Stock after the Reverse Stock Split.
DO NOT SEND SHARE CERTIFICATES TO US OR THE TRANSFER AGENT UNTIL AFTER YOU HAVE RECEIVED A LETTER OF TRANSMITTAL AND ANY ACCOMPANYING INSTRUCTIONS.
No Appraisal or Dissenters’ Rights
Under Delaware law, our Certificate of Incorporation and our bylaws, no appraisal or dissenters’ rights are available to stockholders of who dissent from the Reverse Stock Split.
Escheat Laws
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where we are domiciled and where the funds for fractional shares would be deposited, amounts due to stockholders in payment for fractional shares that are not timely claimed after the Reverse Stock Split may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Regulatory Approvals
We are not aware of any material governmental or regulatory approval required for completion of the Reverse Stock Split, other than compliance with the relevant federal and state securities laws and Delaware law.
Litigation
There is no ongoing litigation related to the Reverse Stock Split.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains certain “forward-looking statements” which are based on management’s exercise of business judgment, as well as assumptions made by and information currently available to management. When used in this document, the words “may,” “will,” “anticipate,” “believe,” “estimate,” “expect,” “intend” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as described in our annual report on Form 10-K for the year ended December 31, 2011 filed with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Some of these risks and uncertainties include, but are not limited to:
|
|
·
|
the occurrence of any event, change or other circumstance that could give rise to the abandonment of the Reverse Stock Split;
|
|
|
·
|
the failure of the Reverse Stock Split to be consummated for any other reason;
|
|
|
·
|
the outcome of any legal proceedings that may be instituted against us and others relating to the Reverse Stock Split or the suspension of our reporting obligations under the Exchange Act;
|
|
|
·
|
the occurrence of any event, change or other circumstance that could prevent or delay us from suspending our reporting obligations under the Exchange Act, including, without limitation, any failure of the Reverse Stock Split to result in the reduction of the number of our stockholders of record to below 500;
|
|
|
·
|
the effect of the Reverse Stock Split and the suspension of our reporting obligations under the Exchange Act on our customer relationships, operating results and business generally;
|
|
|
·
|
any changes in applicable laws or regulations to which we may be subject;
|
|
|
·
|
the amount of the costs, fees, expenses and charges related to the Reverse Stock Split and the other transactions described herein; and
|
|
|
·
|
the amount of cost savings that we expect to achieve as a result of suspending our reporting obligations under the Exchange Act.
|
For these reasons, you should not place undue reliance on any forward-looking statements included in this proxy statement. Except as specified in SEC regulations, we have no duty to publicly release information that updates the forward-looking statements contained in this proxy statement.
INFORMATION ABOUT THE COMPANY
Name and Address
Our name is Helix BioMedix, Inc., a Delaware corporation. Our principal executive offices are located at 22121 17th Avenue S.E., Suite 112, Bothell, Washington 98021, and our telephone number is (425) 402-8400.
Securities
The class of equity securities to which this proxy statement relates is our Common Stock, $0.001 par value per share, of which 49,720,255 shares were outstanding as of October 31, 2012.
Market Price of Common Stock
Our Common Stock has been quoted on the OTCQB under the symbol “HXBM.OB” since 1994. Prior to 1994, our Common Stock did not trade publicly. The following table summarizes our Common Stock’s high and low daily closing sales prices for the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail markups, markdowns or commissions, and may not represent actual transactions.
|
|
|
Year ended December 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
0.31
|
|
|
$
|
0.25
|
|
|
$
|
0.45
|
|
|
$
|
0.20
|
|
|
$
|
0.40
|
|
|
$
|
0.19
|
|
|
Second Quarter
|
|
$
|
0.44
|
|
|
$
|
0.25
|
|
|
$
|
0.45
|
|
|
$
|
0.22
|
|
|
$
|
0.43
|
|
|
$
|
0.22
|
|
|
Third Quarter
|
|
|
0.40
|
|
|
|
0.15
|
|
|
$
|
0.45
|
|
|
$
|
0.15
|
|
|
$
|
0.49
|
|
|
$
|
0.20
|
|
|
Fourth Quarter (as of ♦, 2012)
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
$
|
0.23
|
|
|
$
|
0.59
|
|
|
$
|
0.23
|
|
As of ♦, 2012, there were approximately ♦ record holders of our Common Stock. Because in some instances our Common Stock is held by brokers and clearing agencies on behalf of stockholders, we are unable to determine the total number of beneficial owners represented by these record holders.
Dividends
We have never declared or paid cash dividends on our capital stock. We intend to retain any future earnings to fund the development and growth of our business, and do not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made by the Board.
Prior Public Offerings
We have not made an underwritten public offering of our Common Stock for cash during the three years preceding the date of this proxy statement.
Stock Purchases
We have not purchased any shares of our Common Stock within the past two years.
In addition, during the last two years, none of our directors, executive officers or other affiliates has purchased shares of our Common Stock except for the grant of equity compensation by us to our directors and officers in the form of stock options as set forth above under “Special Factors – Potential Conflicts of Interests of Officers, Directors and Certain Affiliated Persons” and except as set forth below under “— Certain Relationships and Related Transactions – Financing Transactions Involving Related Persons.”
Certain Information Concerning Us, Our Directors and Executive Officers and Other Affiliates
Each of Helix, its directors and officers and Mr. Frank Nickell is an “affiliate” for purposes of Schedule 13E-3.
Information About Our Directors and Executive Officers
The business address of each of our directors and executive officers is c/o Helix BioMedix, Inc., 22121 17th Avenue S.E., Suite 112, Bothell, Washington 98021 and the business telephone number is (425) 402-8400. The names of our current directors and certain information about them as of October 31, 2012 are set forth below.
|
Name
|
|
Age
|
|
Director Since
|
|
Directorship Term/Class*
|
|
Committee Memberships
|
|
R. Stephen Beatty
|
|
63
|
|
1999
|
|
2015/III
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
Randall L-W. Caudill, D. Phil.
|
|
65
|
|
2001
|
|
2013/I
|
|
Audit Committee
|
|
|
|
|
|
|
|
|
|
Governance Committee
|
|
|
|
|
|
|
|
|
|
|
|
John F. Clifford
|
|
70
|
|
2007
|
|
2015/III
|
|
Compensation Committee
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Cohen
|
|
61
|
|
2005
|
|
2013/I
|
|
Audit Committee (Chairman)
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence Blake Jones
|
|
66
|
|
2010
|
|
2015/III
|
|
Audit Committee
|
|
|
|
|
|
|
|
|
|
Governance Committee
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey A. Miller, Ph.D.
|
|
64
|
|
1999
|
|
2014/II
|
|
Compensation Committee (Chairman)
|
|
|
|
|
|
|
|
|
|
Governance Committee (Chairman)
|
|
|
|
|
|
|
|
|
|
|
|
Barry L. Seidman
|
|
67
|
|
2004
|
|
2013/I
|
|
Compensation Committee
|
|
*
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Terms expire as of the date of our annual stockholder meeting in the year indicated, provided however that directors hold office until their successors are elected and qualified or until their earlier death, resignation or removal.
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R. Stephen Beatty
has served as our president and chief executive officer and as a member of the Board since May 1999. Prior to joining us, Mr. Beatty established and operated Beatty Finance, Inc., a private financial services company. Mr. Beatty holds a B.S. in Mathematics from the University of South Alabama and an M.B.A. from the University of New Orleans.
Having served as our chief executive officer for over ten years, Mr. Beatty brings to the Board critical knowledge and understanding of the products offered by our company, proven management experience, and a thorough understanding of the biotechnology industry in which we operate. In addition, his years of experience owning and operating a financial services company give him valuable insight in the fields of finance and investment.
Randall L-W. Caudill, D. Phil.
has served as a member of the Board since December 2001. Dr. Caudill is the president of Dunsford Hill Capital Partners, Inc., a financial consulting firm advising early-stage health care and technology companies. Prior to forming Dunsford Hill Capital Partners, Inc. in January 1997, he headed the Mergers and Acquisitions Department at Prudential Securities for approximately ten years and was Co-Head of their Investment Bank. Previously, Dr. Caudill was an Executive Director and Co-Head of Mergers and Acquisitions at Morgan Grenfell, Inc., and was a senior executive in the International Mergers and Acquisitions Department of The First Boston Corporation. Dr. Caudill currently serves on the board of directors of Ramgen Power Systems, Inc., a privately held company committed to the development of high performance compressor and expander products, as well as a number of not-for-profit entities. He received an M.P.P.M. (Master’s in Public and Private Management) from Yale University and a D. Phil. from Oxford University, where he was a Rhodes Scholar.
With his years of experience in the finance and healthcare fields, Dr. Caudill brings valuable experience and perspective to the Board. In addition, Dr. Caudill is knowledgeable about accounting principles, financial reporting regulations, the evaluation of financial results, and corporate governance requirements. This experience makes him a valuable asset to the Board; he is also a member of our audit and governance committees.
John F. Clifford
has served as a member of the Board since August 2007. Mr. Clifford has served as a consultant in the aesthetic and dermatology markets since June 2006. He was executive vice president of Dermatology for PhotoMedex, Inc. from May 2005 until June 2006 following its acquisition of ProCyte Corporation. He was president, chief executive officer and chairman of ProCyte Corporation from 1996 until May 2005. Before joining ProCyte Corporation, Mr. Clifford was the president of Orthofix, Inc. U.S., which acquired American Medical Electronics, Inc., where he was chief executive officer. From 1989 to 1994, he was employed by Davis and Geck, Inc. as division vice president. From 1964 to 1989, Mr. Clifford held various sales and marketing positions at Ethicon Inc. and Iolab Corporation, both Johnson & Johnson companies. Mr. Clifford holds a B.S. in Economics from Villanova University and an M.B.A. in Finance from Drexel University.
Mr. Clifford has extensive senior-level management experience in the biotechnology industry and brings to the Board valuable knowledge of the strategic, marketing and operational aspects of running a successful biotechnology business. His experience makes him a strong contributor to the Board and to our compensation committee.
Richard M. Cohen
has served as a member of the Board since December 2005. Since 1996, Mr. Cohen has been the president of Richard M. Cohen Consultants, Inc., a financial services consulting company that assists public and private companies with their corporate finance and corporate governance needs. From 2003 through January 2012, Mr. Cohen served as a director of Dune Energy, Inc. (AMEX:DNE), an oil and gas exploration and production company for which he served as chief financial officer from November 2003 to April 2005. From 2007 until August 2012, Mr. Cohen had served as a director and a member of the audit committee of Rodman & Renshaw Capital Group, Inc. (NASDAQ:RODM). Since December 2009, he has been a director of CorMedix, Inc. (AMEX:CRMD-U), a pharmaceutical company that develops and seeks to commercialize therapeutic products for the treatment of cardiorenal disease, for which he has also serves as the interim chairman since October 2011. Mr. Cohen is a Certified Public Accountant (New York State). He received a B.S. from the University of Pennsylvania (Wharton) and an M.B.A. from Stanford University.
Mr. Cohen has extensive finance and corporate governance experience, including dealing with financial and accounting matters affecting companies in the biotechnology industry. Based on his financial and accounting experience, he serves as our audit committee chairman and financial expert.
Lawrence Blake Jones
has served as a member of the Board since March 2010. Since 1974, Mr. Jones has been a partner with Scheuermann & Jones, a Louisiana-based law firm that practices throughout much of the United States. In addition, he serves on the board of directors of First NBC Bank, a privately held financial institution, where he is a member of the audit committee, the board of directors of First Commerce Holding Company, a privately held holding company, where he is a member of the audit committee, and the national board of directors for the not-for-profit St. Jude’s Ranch for Children, where he is a member of the audit committee. He holds a J.D. from Tulane Law School and a B.A. in history from the Louisiana State University.
With his legal background, his years of experience serving as a partner at a law firm, and his service on the boards of other companies, Mr. Jones brings to the Board demonstrated managerial ability and an understanding of the principles of good corporate governance, which also makes him a valuable contributor to the audit and governance committees.
Jeffrey A. Miller, Ph.D
has served as a member of the Board since December 1999. Since 1991, Dr. Miller has been the president and chief executive officer of Capital Markets Research, Inc., a private company that provides security consulting and expert witness services. He is also the president and chief executive officer of each of Gas-Lock Advisors, LLC (since 2005) and New Arc Investments, Inc. (since 1997), and has served on the board of directors of Think-a-Move Ltd., a privately held company, since 2000. Dr. Miller has advised venture capital investors for over twenty years. Dr. Miller holds a B.A. in Political Science from Bowling Green State University and a Ph.D in Political Science from the University of Michigan.
Dr. Miller has extensive experience in financial markets and analysis, strategic planning for emerging companies and biotech investing, making him particularly qualified to contribute to the strategic and financial aspects of our business. He also has significant senior-level management and board experience with other companies and has deep knowledge of our company as a long-serving member of the Board. Dr. Miller chairs our compensation and governance committees.
Barry L. Seidman
has served as a member of the Board since November 2004. For the past several years, Mr. Seidman has served as an independent consultant in the securities industry. Mr. Seidman served as chairman of the board of Pax Holding Corporation, a privately held full-service options, stock and futures clearing firm, from 2001 to 2005. In prior years, Mr. Seidman was president and chief operating officer of First Options of Chicago and a partner of Spear Leeds and Kellogg. He also served in various positions at The Options Clearing Corporation, culminating as first vice president of national operations. Since 2006 Mr. Seidman has been a director and a member of the compensation committee of Think-a-Move Ltd., a privately held company, and since 2007 he has been a director and a member of the compensation committee of Performance Inc., a privately held company. In the past he has served on the Board of Governors of the Philadelphia Stock Exchange and on the board of directors of The Options Clearing Corporation. Mr. Seidman is a graduate of St. John’s University with a B.S. in accounting.
Mr. Seidman has years of experience in finance and investing and a broad understanding of the strategic priorities of diverse industries and brings this valuable perspective to the Board and our compensation committee.
In addition to R. Stephen Beatty who, in addition to being a director, is also our President and Chief Executive Officer, our only other executive officer is Robin L. Carmichael. Information regarding Mr. Beatty is set forth above. Information about Ms. Carmichael is set forth below:
Robin L. Carmichael
has served as our Vice President and Chief Operating Officer since January 2011, and served as our Vice President, Marketing and Business Development from October 2007 until January 2011. From April 2007 to October 2007, Ms. Carmichael was the Chief Operating Officer of DERMAdoctor, Inc., a company specializing in developing and selling over-the-counter drugs and cosmeceuticals. Prior to joining DERMAdoctor, Inc., from 1998 to December 2006, Ms. Carmichael served as Vice President of Marketing, first with ProCyte Corporation, a biotechnology company specializing in metallic peptides, and then with Photomedex, Inc. following its acquisition of ProCyte in 2005 and as a consultant to the same company from January to June 2007. From 1993 to 1998, she held various marketing and clinical research positions of increasing responsibility with ProCyte. Ms. Carmichael holds a B.S. in Nursing from Seattle University and attended the UCLA Anderson Graduate School of Executive Management.
Neither us nor any of our directors or executive officers has been convicted in a criminal proceeding during the past five years (excluding traffic violations or similar misdemeanors) or has been a party to any judicial or administrative proceeding during the past five years (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Each of our directors and executive officers is a citizen of the United States.
Information About Mr. Frank Nickell and RBFSC Inc.
As of October 31, 2012, Mr. Frank Nickell owned 19,912,799 shares of our Common Stock, or 40.0% of our outstanding shares of Common Stock. Mr. Frank Nickell’s address is 320 Park Avenue, 24th Floor, New York, NY 10022 and his holdings include 17,636,264 shares of Common Stock held by RBFSC Inc., of which Mr. Frank Nickell is president and a director, and 2,000,000 shares of Common Stock issuable pursuant to warrants held by Mr. Frank Nickell. RBFSC Inc. is a New York corporation and is an investment holding company. Neither RBFSC Inc. nor, to our knowledge, any of RBFSC Inc.’s directors or executive officers has been convicted in a criminal proceeding during the past five years (excluding traffic violations or similar misdemeanors) or has been a party to any judicial or administrative proceeding during the past five years (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Mr. Frank Nickell is a citizen of the United States.