Blueprint
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
SCHEDULE
14A
(Amendment No. 1)
Proxy Statement Pursuant to Section 14(a) of
the
Securities
Exchange Act of 1934
Filed
by the Registrant ☑
Filed
by a Party other than the Registrant ☐
Check
the appropriate box:
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Preliminary
proxy statement
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Definitive
proxy statement
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Confidential,
For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Additional Materials
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Soliciting
Material Under Rule 14a-12
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Paybox Corp
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing proxy statement, if Other Than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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No fee
required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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PRELIMINARY
COPY, SUBJECT TO COMPLETION
DATED
FEBRUARY 2, 2017
Paybox
Corp
500 E.
Broward Blvd., Suite #1550
Ft.
Lauderdale, FL 33394
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
To Be
Held [____] [__], 2017
To Our
Stockholders:
Notice
is hereby given that a Special Meeting of Stockholders of Paybox
Corp, a Delaware corporation (the “Company”), will be held at
[●], on [_____], [______] [__], 2017, at [10:00 A.M.] EST
(the “Special
Meeting”) for the following purpose:
To
consider and vote upon a proposal to amend the Company’s
Certificate of Incorporation (the “Certificate of
Incorporation”) to change the number of issued and
outstanding shares of common stock, par value $0.0001 per share, of
the Company (the “common stock”) by effecting a
1-for-1,000 reverse stock split (the “reverse stock
split”), as further described in the accompanying
proxy statement (“proxy
statement”), as a result of which stockholders of
record who hold fewer than 1,000 shares of common stock before the
reverse stock split will receive a cash payment of $0.80 per
pre-reverse stock split share in lieu of receiving a fractional
post-reverse stock split share.
The
Board of Directors unanimously approved the proposal and recommends
that you vote “FOR” the proposal.
The
primary effect of the reverse stock split will be to reduce the
Company’s total number of record holders to below 300 persons
by cashing out any stockholders of record with fewer than 1,000
shares. This will allow the Company to cease registration of its
common stock under the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”). The
Company anticipates that the reverse stock split will result in
material cost savings to the Company beginning in 2017, while also
allowing management to focus on operating the business and growing
stockholder value.
Please
promptly complete, sign, date and return the enclosed proxy card
promptly in the accompanying reply envelope to assure that your
shares are represented at the Special Meeting. If you attend the
Special Meeting, you may vote in person, if you wish to do so, even
if you have returned a proxy. Only stockholders of record at the
close of business on [_____] [__], 2017 are entitled to notice of
and to vote at the Special Meeting and at any adjournments or
postponements thereof. A list of stockholders entitled to vote at
the Special Meeting will be available for inspection at our
offices. The enclosed proxy is being solicited on behalf of the
Board of Directors of the Company. If you have any further
questions concerning the Special Meeting or any of the items of
business to be presented, please contact Lowell Rush, Chief
Financial Officer, at (954) 510-3765.
Thank
you for your attention to this important matter.
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BY
ORDER OF THE BOARD OF
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DIRECTORS
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/s/
Matthew E. Oakes
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Chairman
of the Board of Directors, Chief Executive Officer and
President
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Ft.
Lauderdale, FL
[___________]
[____], 2017
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Important Notice Regarding Internet Availability of Proxy Materials
for the Special Meeting to Be Held on [_______] [__],
2017:
The Proxy Materials for the Special Meeting, including the proxy
statement, are available at http:// www.gopaybox.com
* * * *
* *
Information
on our website, other than this proxy statement, is not part of
this proxy statement.
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TABLE
OF CONTENTS
Page
SUMMARY TERM SHEET
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1
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QUESTIONS AND ANSWERS ABOUT THE REVERSE STOCK SPLIT AND THE SPECIAL
MEETING
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6
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SPECIAL FACTORS
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11
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Purposes
of and Reasons for the Reverse Stock Split
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11
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Background
of the Reverse Stock Split
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13
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Fairness
of the Reverse Stock Split
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14
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Recommendation
of the Board of Directors
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17
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Alternatives
Considered
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17
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Effects
of the Reverse Stock Split
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17
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Projections
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22
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Conduct
of Our Business after the Reverse Stock Split
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24
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Potential
Conflicts of Interests of Officers, Directors and Certain
Affiliated Persons
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26
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Sources
of Funds and Expenses
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27
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Stockholder
Approval
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28
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Effective
Date
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28
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Termination
of the Reverse Stock Split
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28
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Process
for Payment for Fractional Shares
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28
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No
Appraisal or Dissenters’ Rights
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29
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Escheat
Laws
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29
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Regulatory
Approvals
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30
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Litigation
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30
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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30
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APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO EFFECT
THE REVERSE STOCK SPLIT
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31
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Annex
Relating to Proposal No. 1
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31
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Vote
Required for Approval of Proposal No. 1
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31
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Recommendation
of our Board of Directors
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31
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INFORMATION ABOUT THE COMPANY
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32
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Name
and Address
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32
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Market
Price of Common Stock; Dividends
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32
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Stockholders
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32
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Prior
Public Offerings
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32
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Stock
Purchases
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32
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Certain
Information Concerning the Company, the Company’s Directors
and Executive Officers and the Filing Persons
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32
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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33
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SPECIAL MEETING AND VOTING INFORMATION
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34
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Outstanding
Voting Securities and Voting Rights
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34
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Record
Date
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34
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Information
Concerning Proxies; Revocation of Proxies
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34
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Solicitation
of Proxies
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34
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Quorum
and Certain Voting Matters
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34
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Voting
of Proxies
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34
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Adjournment
or Postponement
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34
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FINANCIAL INFORMATION
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35
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Summary
Historical Financial Information
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35
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Pro
Forma Consolidated Financial Statements (Unaudited)
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37
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WHERE YOU CAN FIND MORE INFORMATION
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39
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PROXY MATERIALS DELIVERED TO A SHARED ADDRESS
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39
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STOCKHOLDER PROPOSALS FOR 2017 ANNUAL
MEETING
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39
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OTHER BUSINESS
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40
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ANNEX A CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF
INCORPORATION OF PAYBOX CORP
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A-1
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ANNEX B FAIRNESS OPINION OF KIDRON DATED
DECEMBER 19, 2016
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B-1
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ANNEX C PROXY CARD
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C-1
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PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED
FEBRUARY 2,
2017
Paybox Corp
500 E.
Broward Blvd., Suite #1550
Ft.
Lauderdale, FL 33394
________________
PROXY STATEMENT
FOR
SPECIAL
MEETING OF STOCKHOLDERS
TO BE
HELD ON [________] [__], 2017
________________
INTRODUCTION
This
proxy statement is furnished to stockholders of Paybox Corp, a
Delaware corporation, in connection with the solicitation by the
Board of Directors of the Company of proxies for use at the Special
Meeting scheduled to be held on [_____], [_____] [__], 2017 at
[10:00 A.M.] EST at [__], [__], and at any and all adjournments or
postponements thereof. “We,” “our” or
“us” in this proxy statement refer to the
Company.
Stockholders of the
Company are being asked to consider and vote upon the following
proposal at the Special Meeting:
To
approve, subject to final action by the Board of Directors, an
amendment to the Company’s Certificate of Incorporation,
whereby the Company will effect a 1-for-1,000 reverse stock split
such that stockholders of record who hold fewer than 1,000 shares
of common stock will have such shares cancelled and converted into
the right to receive $0.80 for each share of common stock held of
record prior to the reverse stock split.
The
proposed amendment to accomplish the reverse stock split is
attached to this proxy statement as Annex A.
The
Board of Directors has decided that the costs of being a Securities
and Exchange Commission (“SEC”)
reporting company outweigh the benefits and, thus, it is no longer
in the best interests of the Company or the best interests of our
stockholders, including our unaffiliated stockholders, for us to
remain an SEC reporting company. The reverse stock split will
enable us to terminate the registration of our common stock under
the Exchange Act, if, after the reverse stock split, there are
fewer than 300 record holders of our common stock and we make the
necessary filings with the SEC.
The
Board has fixed [_____] [__], 2017 as the record date for the
Special Meeting. Stockholders of record as of the record date are
entitled to vote at the Special Meeting and any postponements or
adjournments thereof. We cannot complete the reverse stock split
unless the holders of at least a majority of the issued and
outstanding shares of common stock on the record date approve the
amendment to the Certificate of Incorporation to effect the reverse
stock split at the Special Meeting. On the record date, there were
[12,988,282] shares of common stock outstanding. Our executive
officers and directors, who together own or vote approximately
[59.8]% of the shares outstanding on the record date, have
indicated they will vote in favor of the proposed amendment to the
Certificate of Incorporation with respect to all shares for which
they hold or share voting power.
We urge
you to read this proxy statement carefully and in its entirety,
including the attached Annexes. The accompanying Notice of Special
Meeting of Stockholders, form of proxy, and this proxy statement
are first being mailed to stockholders on or about [_____] [__],
2017.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED
HEREIN, PASSED UPON THE MERITS OR FAIRNESS OF THE PROPOSED
TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL AND A CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
DOCUMENT OR RELATED SCHEDULE 13E-3, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY US.
The
following summary term sheet, together with the Questions and
Answers section that follows, 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 all of 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.
Information About the Reverse Stock Split
●
The Board of
Directors, after consideration of numerous factors, has authorized
an amendment to the Company’s Certificate of Incorporation
that would effect a 1-for-1,000 reverse stock split of our common
stock.
●
We anticipate that
the reverse stock split will be effected as soon as possible after
the date of the Special Meeting, subject to stockholder approval
and subsequent final action by our Board of Directors, on the date
the Company files a Certificate of Amendment to our Certificate of
Incorporation with the Secretary of State of the State of Delaware,
or on any later date that the Company may specify in such
Certificate of Amendment. Following the effective date of the
reverse stock split, transmittal materials will be sent to those
stockholders entitled to a cash payment that will describe how to
turn in their stock certificates and receive the cash payments.
Those stockholders entitled to a cash payment should not turn in
their stock certificates at this time. See “Special Factors
– Effective Date” on page 27.
●
As a result of the
reverse stock split, each holder of record of fewer than 1,000
shares immediately before the effective date will receive cash in
the amount of $0.80 (subject to any applicable U.S. federal, state
and local withholding tax), without interest, per pre-split share
and will no longer be a stockholder of the Company.
●
See “Special
Factors – Purposes of and Reasons for the Reverse Stock
Split” beginning on page 11 and “Special Factors
– Effects of the Reverse Stock Split” on page
17.
Purposes of and Reasons for the Reverse Stock Split
●
The Board of
Directors has decided that the costs of being an SEC reporting
company 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 an SEC reporting
company. The reverse stock split will enable us to terminate the
registration of our common stock under the Exchange Act, if, after
the reverse stock split, there are fewer than 300 record holders of
our common stock and we make the necessary filings with the SEC.
Our reasons for proposing the reverse stock split include the
following:
o
Annual cost savings
we expect to realize as a result of the termination of the
registration of our shares of common stock under the Exchange Act,
including ongoing expenses for compliance with the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley
Act”), (if the
Board of Directors decides not to maintain compliance pursuant to
the Sarbanes-Oxley Act), and other accounting, legal, printing and
other miscellaneous costs associated with being a publicly traded
company, which we estimate will be approximately between $346,000
and $425,000 per year.
o
The large number of
beneficial holders of our common stock who hold fewer than 1,000
shares and whose holdings have a value of less, and in many cases
substantially less, than $500 at current market price.
o
The opportunity to
avoid application of the “penny stock” rules to the
Company’s common stock.
o
The limited public
trading volume and liquidity of our common
stock.
o
The opportunity to
avoid application of the “penny stock” rules to the
Company’s common stock.
o
The ability of our
small stockholders (those holding fewer than 1,000 shares) to
liquidate their holdings in us and receive a price for their shares
that we believe is fair and attractive, without incurring brokerage
commissions.
See
“Special Factors – Purposes of and Reasons for the
Reverse Stock Split” beginning on page 11.
Effects of the Reverse Stock Split
●
As a result of the
reverse stock split:
o
The number of
issued and outstanding shares of our common stock will be reduced
proportionately based on the reverse stock split ratio of
1-for-1,000;
o
The number of
authorized shares of our common stock will be reduced
proportionately based on the reverse stock split ratio of
1-for-1,000;
o
The number of our
stockholders of record will, we expect, be reduced below 300, which
will allow us to terminate the registration of our common stock
under the Exchange Act. Effective on, and following the termination
of the registration of our common stock under the Exchange Act, we
will no longer be subject to any reporting requirements under the
Exchange Act or the rules of the SEC applicable to SEC reporting
companies and will be able, if the Board of Directors so
determines, to eliminate most of the expenses related to the
disclosure, reporting and compliance requirements of the
Sarbanes-Oxley Act.
o
Each share of
common stock held by a stockholder of record owning fewer than
1,000 shares immediately prior to the effective date of the reverse
stock split will be converted into the right to receive $0.80 in
cash (subject to any applicable U.S. federal, state and local
withholding tax), without interest, per pre-split
share.
o
Each share of
common stock held by a stockholder of record owning 1,000 shares or
more immediately prior to the effective date of the reverse stock
split will be reduced proportionately based on the reverse stock
split ratio of 1-for-1,000.
o
The Board of
Directors anticipates that our common stock will continue to be
quoted on OTC Markets, although we expect to be quoted on the lower
OTC Pink tier and not the OTCQB tier where the common stock is
currently quoted. Liquidity is likely to continue to be limited,
and may be further adversely affected because we will no longer
file the reports required by the Exchange Act.
o
Our officers,
directors and 10% stockholders will no longer be subject to the
reporting requirements of Section 16 of the Exchange Act or be
subject to recovery of “short-swing” profits from the
sale of shares of our common stock.
o
Persons acquiring
more than 5% of our common stock will no longer be required to
report their beneficial ownership under the Exchange
Act.
o
Since our
obligation to file periodic and other filings with the SEC will be
suspended, our continuing stockholders may have access to less
information about us and our business, operations and financial
performance.
o
The per share
exercise price of all outstanding option awards will be increased
proportionately and the number of shares of our common stock
issuable upon the exercise of all outstanding option awards will be
reduced proportionately. These adjustments will result in
approximately the same aggregate exercise price being required to
be paid for all outstanding option awards upon
exercise.
o
the number of
shares reserved for issuance and any maximum number of shares with
respect to which equity awards may be granted to any participant
under the Company’s equity-based compensation plan will be
reduced proportionately based on the reverse stock split ratio of
1-for-1,000.
●
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 [12,975,293], we estimate that the ownership
percentage of our shares of common stock held by our current
directors, executive officers and 10% stockholders will increase
from approximately [59.8]% to [60.2]%. The increase in the
ownership percentage of our shares of common stock held by our
current directors, executive officers and 10% stockholders 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 December 2, 2016 from our transfer agent, Manhattan
Transfer Registrar Company, as to our record holders, and
information we have received regarding the holdings of beneficial
owners of our common stock held in street name.
See
“Special Factors – Effects of the Reverse Stock
Split” beginning on page 17, “Special Factors –
Alternatives Considered” beginning on page 19, “Special
Factors – Fairness of the Reverse Stock Split”
beginning on page 14 and “Special Factors – Potential
Conflicts of Interests of Officers, Directors and Certain
Affiliated Persons” beginning on page 26.
Fairness
of the Reverse Stock Split
●
The Board of
Directors fully considered and reviewed the terms, purposes and
effects of the reverse stock split. Based on its review, the Board
of Directors unanimously determined that the reverse stock split is
procedurally and substantively fair to our stockholders, including
the unaffiliated stockholders who will receive cash consideration
in the reverse stock split and unaffiliated stockholders who will
continue as our stockholders.
●
The Board of
Directors considered a number of factors in reaching its
determinations, including:
o
the fairness
opinion prepared by Kidron Capital Advisors LLC
(“Kidron”) dated December 19, 2016, to the effect that,
as of the date and based upon the assumptions made, matters
considered and limits of review set forth in Kidron’s written
opinion, the consideration to be received by stockholders owning
fewer than 1,000 shares of common stock immediately prior to the
effective date of the reverse stock split pursuant to the reverse
stock split is fair, from a financial point of view, to such
stockholders;
o
anticipated annual
cost savings we expect to realize as a result of the termination of
the registration of our shares of common stock under the Exchange
Act, including, potentially, ongoing expenses for compliance with
the Sarbanes-Oxley Act, and other accounting, legal, printing and
other miscellaneous costs associated with being a publicly traded
company, which we estimate will be approximately between $346,000
and $425,000 per year;
o
the limited trading
volume and liquidity of our shares of common stock and the
opportunity the reverse stock split affords our smallest
stockholders to obtain cash for their shares in a relatively
limited trading market and at a price that we believe is fair and
attractive without incurring brokerage commissions;
o
the reverse stock
split will not be applied differently to holders of
shares of our common stock based on their affiliate status;
however, because the number of shares owned by a
stockholder is a factor considered in determining affiliate status,
as a practical matter, the stock of affiliated stockholders will
not be cashed out in the reverse stock
split;
o
stockholders that
desire to retain their equity interest in us after the reverse
stock split can increase the number of shares they hold to 1,000
shares or more prior to the effective date of the reverse stock
split, thereby avoiding being cashed-out, however; given the
historically limited liquidity in our stock, there can be no
assurance that any shares will be available for purchase and thus
there can be no assurance that a stockholder will be able to
acquire sufficient shares to meet or exceed the required 1,000
shares prior to the effective date of the reverse stock
split.
See
“Special Factors – Fairness of the Reverse Stock
Split” beginning on page 14 and “Special Factors
– Opinion of Kidron” beginning on page 20.
Advantages of the Reverse Stock Split
There
are several advantages associated with the reverse stock split,
including the following:
●
We expect to
realize annual cost savings as a result of the termination of the
registration of our shares of common stock under the Exchange
Act.
●
Our smallest
stockholders will have the opportunity to obtain cash for their
shares at a price that we believe is fair and attractive, without
incurring brokerage commissions.
●
The reverse
stock split will not be applied to our directors, executive
officers and stockholders who own more than 10% of our outstanding
common stock, which we refer to in this proxy statement as our
“affiliates”, differently than to
stockholders who are not directors, executive officers or 10%
stockholders, which we refer to in this proxy statement as our
“unaffiliated stockholders”, including unaffiliated
cashed out stockholders and unaffiliated continuing stockholders.
The sole determining factor as to whether a stockholder will be a
continuing stockholder after the reverse stock split is the number
of shares of our common stock that they own on the effective date
of the reverse stock split. However, because the number of shares held
by a stockholder is a factor in determining affiliate status, as a
practical matter, the stock of affiliated stockholders will not be
cashed out in the reverse stock split.
●
Stockholders that
desire to retain their equity interest in us after the reverse
stock split can increase the number of shares they hold to 1,000
shares or more prior to the effective date of the reverse stock
split, thereby avoiding being cashed out, although, there can be no
assurance that a stockholder will be able to acquire sufficient
shares to meet or exceed the required 1,000 shares prior to the
effective date of the reverse stock split.
●
The Company has a
substantial number of very small stockholders, whose continuing
maintenance is uneconomical for the Company, who would be cashed
out in the reverse stock split.
●
As a result of the
reverse stock split our common stock would cease to be subject to
the penny stock rules under the Exchange Act
See
“Special Factors – Purposes of and Reasons for the
Reverse Stock Split” beginning on page 11 and “Special
Factors – Fairness of the Reverse Stock Split”
beginning on page 14.
Disadvantages of the Reverse Stock Split
If the
reverse stock split occurs, there will be certain disadvantages to
stockholders, including the following:
●
Stockholders owning
less than 1,000 shares will no longer have any ownership interest
in the Company and will no longer participate in any future
earnings and growth.
●
We will cease to
file annual, quarterly, current, and other reports and documents
with the SEC, and stockholders will cease to receive annual reports
and proxy statements as required under the Exchange Act. While we
intend to continue to prepare audited financial statements and
periodic unaudited financial statements and to make certain of
those financial statements available to stockholders through our
website, 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, continuing stockholders will have access to less
information about us and our business, operations, and financial
performance.
●
We will no longer
be subject to the provisions of the Sarbanes-Oxley Act or the
liability provisions of the Exchange Act (other than general
anti-fraud provisions), but the Board of Directors may decide, in
its sole discretion, to maintain its compliance with all or
portions of the Sarbanes-Oxley Act.
●
We anticipate that
our common stock will continue to be quoted on OTC Markets.
However, we expect that our stock will no longer be quoted on the
OTCQB tier, and will instead be quoted on the lower OTC Pink tier.
Also, trading opportunities on OTC Markets will be dependent upon
whether any broker-dealers commit to make a market for our common
stock, so that we cannot guarantee that our common stock will
continue to be quoted on OTC Markets. In addition, because of the
possible limited liquidity of our common stock, the suspension of
our obligation to publicly disclose financial and other information
following the reverse stock split, and the deregistration of our
common stock under the Exchange Act, continuing stockholders may
potentially experience a significant decrease in the value of their
common stock.
●
Our directors,
executive officers and 10% stockholders will no longer be required
to file reports relating to their transactions in our common stock
with the SEC. In addition, our directors, executive officers and
10% stockholders will no longer be subject to the recovery of the
short-swing profits provisions of the Exchange Act, and persons
acquiring more than 5% of our common stock will no longer be
required to report their beneficial ownership under the Exchange
Act.
●
We estimate that
the cost of payment to the holders of less than 1,000 shares,
professional fees and other expenses of the reverse stock split
will total approximately $420,000. As a result, immediately after
the reverse stock split, our cash balances on hand will be reduced
by the costs incurred in the reverse stock split.
●
The reverse stock
split will result in the suspension, and not the termination, of
our filing 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 300 stockholders of record, 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.
●
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.
●
The potentially
reduced liquidity of our common stock may result in fewer
opportunities to utilize equity-based incentive compensation tools
to recruit and retain top executive talent.
●
Since our common
stock will no longer be registered with the SEC, and we will not be
filing the periodic reports and proxy statements required under the
Exchange Act, it may be more difficult for us to raise equity
capital from public or private sources.
●
Our decision to
deregister and cease reporting with the SEC could impair our image
with customers, suppliers and other constituency.
See
“Special Factors – Fairness of the Reverse Stock
Split” beginning on page 14.
Voting Information
●
The affirmative
vote the holders of a majority of all shares of common stock issued
and outstanding and entitled to vote at the Special Meeting will be
required to approve the proposed amendments 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 (including the shares of certain of
their affiliates, [7,716,060] shares, or approximately [59.8]% of
our issued and outstanding shares eligible to vote at the Special
Meeting) “FOR”
the reverse stock split. See “Special Factors –
Stockholder Approval” beginning on page 27 and “Special
Meeting and Voting Information – Quorum and Certain Voting
Matters” on page 34.
Material U.S. Federal Income Tax Consequences of the Reverse Stock
Split
●
The receipt of cash
by a holder of less than 1,000 shares 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 23.
Termination of the Reverse Stock Split
●
The Board of
Directors has reserved the right to abandon the reverse stock split
if it believes the reverse stock split is no longer in our best
interests, and the Board of Directors has retained authority, in
its discretion, to withdraw the reverse stock split from the agenda
of the Special Meeting prior to any vote. In addition, even if the
reverse stock split is approved by stockholders at the Special
Meeting, the Board of Directors may determine not to implement the
reverse stock split if it subsequently determines that the reverse
stock split is not in our best interests. See “Special
Factors – Termination of the Reverse Stock Split” on
page 28.
QUESTIONS AND ANSWERS ABOUT THE REVERSE STOCK
SPLIT AND THE SPECIAL MEETING
The
following questions and answers are intended to briefly address
potential questions regarding the reverse stock split and the
Special 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 Special Meeting?
The
Special Meeting will be held at [__], [___] on [_____], [_____]
[__], 2017, at [10:00 A.M.] EST.
What am I being asked to vote on at the Special
Meeting?
Our
stockholders will consider and vote upon the proposal to amend the
Certificate of Incorporation to effect the reverse stock
split.
What is the reverse stock split?
The
reverse stock split is a reduction of the number of our authorized
and issued and outstanding common stock in a ratio of 1,000 shares
prior to the reverse stock split to one share following the reverse
split. Stockholders that own less than 1,000 shares prior to the
reverse stock split will cease to own any shares of our common
stock and instead will receive cash for their shares.
How does the Board recommend that I vote on the
proposal?
The
Board unanimously recommends that you vote “FOR” the proposal to amend the
Certificate of Incorporation to effect the reverse stock
split.
What is the purpose of the reverse stock split?
The
Board of Directors has decided that the costs of being an SEC
reporting company 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 an SEC
reporting company. The reverse stock split will enable us to
terminate the registration of our common stock under the Exchange
Act if, as we anticipate, after the reverse stock split there are
fewer than 300 record holders of our common stock, and we make the
necessary filings with the SEC.
Our
reasons for proposing the reverse stock split include:
●
Annual cost savings
we expect to realize as a result of the termination of the
registration of our shares of common stock under the Exchange Act,
including, potentially, ongoing expenses for compliance with the
Sarbanes-Oxley Act, and other accounting, legal, printing and other
miscellaneous costs associated with being a publicly traded
company, which we estimate will be approximately between $346,000
and $425,000 per year.
●
The large number of
beneficial holders of our common stock who hold fewer than 1,000
shares and whose holdings have a value of less, and in many cases
substantially less, than $500 at current market
values.
●
The opportunity to
avoid application of the “penny stock” rules to the
Company’s common stock.
●
The limited public
trading volume and liquidity of our common stock.
●
The ability of our
small stockholders (those holding fewer than 1,000 shares) to
liquidate their holdings in the Company and receive a price that we
believe is fair and attractive, without incurring brokerage
commissions.
●
The ability of our
management to focus on long-term growth without an undue emphasis
on short-term financial results.
What does the deregistration of our common stock mean?
Following the
reverse stock split, we expect that we will have fewer than 300
stockholders of record, which will enable us to take action to
terminate the registration of our common stock under the Exchange
Act. Effective on and following the termination of the registration
of our common stock under the Exchange Act, we will no longer be
required to file annual, quarterly and other reports with the SEC
and our executive officers, directors and 10% stockholders will no
longer be required to file reports relating to their transactions
in our common stock. Any trading in our common stock will continue
in privately negotiated sales or on OTC Markets. However, trading
opportunities on OTC Markets will be dependent upon whether any
broker-dealers commit to make a market for our common stock, and we
cannot guarantee that our common stock will continue to be quoted
on OTC markets.
What is OTC Markets?
The OTC
Markets collects and publishes quotes of market makers for
over-the-counter securities through its website at
www.otcmarkets.com. OTC Markets has a number of tiers on which
securities may be listed, depending, in part, on the information
available with respect to the issuer of the securities. Our common
stock is currently traded on the OTCQB tier. Following consummation
of the reverse stock split, when we will no longer be filing
reports under the Exchange Act, we anticipate that our common stock
will trade on the lower OTC Pink tier.
How will the reverse stock split affect the day to day operations
of the Company?
Though
the reverse stock split will have very little effect on the
Company’s business and operations, it will reduce management
time spent on compliance and disclosure matters attributable to our
Exchange Act filings, and may therefore enable management to
increase its focus on managing our business and growing stockholder
value.
What will I receive in the reverse stock split?
If you
own fewer than 1,000 shares of our common stock immediately prior
to the effective date of the reverse stock split, you will receive
$0.80 in cash (subject to any applicable U.S. federal, state and
local withholding tax), without interest, from us for each
pre-reverse stock split share that you own. If you own 1,000 shares
or more of our common stock immediately prior to the effective date
of the reverse stock split, you will not receive any cash payment
for your shares in connection with the reverse stock
split.
What potential conflicts of interest are posed by the reverse stock
split?
Our
directors, executive officers and 10% stockholders 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 our Board of Directors recommends a
vote “FOR” the
reverse stock split, to the Company’s knowledge, none of the
Company’s 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, including shares of certain of their affiliates ([7,716,060]
shares, or approximately [59.8]% of our issued and outstanding
shares eligible to vote at the Special Meeting),
“FOR” the
reverse stock split and, if so, approval of the reverse stock split
would be assured regardless of how any other stockholders vote
their shares.
Upon
the effectiveness of the reverse stock split, the aggregate number
of shares of our common stock owned by our current directors,
executive officers and 10% stockholders will be reduced
proportionately by the reverse stock split ratio of 1-for-1,000 and
the ownership percentage of the shares of our common stock held by
our current directors, executive officers and 10% stockholders will
increase by approximately [0.4]% from [59.8]% to [60.2]% as a
result of the reduction of the number of shares of our common stock
outstanding. Each of our directors and executive officers will
continue to own our common stock and will continue to serve as a
director or executive officer after the reverse stock split. In
addition our executive officers, including a member of our Board of
Directors, hold options to acquire shares of our common stock.
These stock options will remain outstanding after the reverse stock
split, although the exercise price of the options and the number of
shares issuable upon exercise will be proportionately adjusted.
Directors, executive officers and any stockholders who own more
than 10% of our outstanding common stock will experience certain
advantages after the reverse stock split in that they will be
relieved of certain SEC reporting requirements and will no longer
be subject to the “short-swing profit” trading recovery
provisions under Section 16 of the Exchange Act. Information
regarding our officers’ and directors’ compensation and
stock ownership will no longer be publicly available, and persons
acquiring more than 5% of our common stock will no longer be
required to report their beneficial ownership under the Exchange
Act. In addition, by deregistering our common stock 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, although no such loans currently are
contemplated.
What if I hold fewer than 1,000 shares of common stock and hold all
of my shares in street name?
If you
hold fewer than 1,000 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 1,000 or
more total shares. Therefore, depending upon their procedures, they
may not be obligated to treat the reverse stock split as affecting
beneficial owners’ shares. It is our desire to treat
stockholders holding fewer than 1,000 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, Manhattan Transfer
Registrar Company, 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 1,000 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 a stockholder of the
Company 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 date 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
reverse stock split’s effect 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 own fewer than 1,000 shares of common stock, is there any way
I can continue to be a stockholder of the Company after the reverse
stock split?
If you
own fewer than 1,000 shares of our common stock before the reverse
stock split, the only way you can continue to be a stockholder of
the Company after the reverse stock split is to acquire, prior to
the effective date, sufficient additional shares to cause you to
own a minimum of 1,000 shares on the effective date. However, given
the historically limited liquidity of 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 1,000 shares. In
such an instance, you would no longer remain a stockholder of the
Company after the effective date.
Is there anything I can do if I own 1,000 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 1,000 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 date, you reduce your stock ownership to
fewer than 1,000 shares by selling or otherwise transferring
shares. However, there can be no assurance that any purchaser for
your shares will be available.
Who is entitled to vote at the Special Meeting?
Only
holders of record of our common stock as of the close of business
on [______] [__], 2017, are entitled to notice of, and to vote at,
the Special Meeting.
How many shares were outstanding on the record date?
At the
close of business on the record date, there were [12,988,282]
shares outstanding. Only shares of common stock outstanding on the
record date will be eligible to vote on the reverse stock split. At
the Special Meeting, each share of common stock entitles the holder
thereof to one vote.
What is a “quorum” for purposes of the Special
Meeting?
In
order to conduct business at the Special Meeting, a quorum of
stockholders is necessary to hold a valid Special Meeting. A quorum
will be present if stockholders holding at least a majority of the
outstanding shares are present at the Special Meeting in person or
by proxy. On the close of business on the record date, there were
[12,988,282] shares outstanding and entitled to vote and,
accordingly, the presence, in person or by proxy, of at least
[6,494,142] 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 Special
Meeting. Abstentions and broker non-votes will be counted towards
the quorum requirement.
What vote is required to approve the proposal?
Once a
quorum has been established, approval of the proposal to amend the
Certificate of Incorporation to effect the reverse stock split
requires the affirmative vote of the holders of a majority of all
of the shares outstanding and entitled to vote on this matter.
Because our directors and officers and certain of their affiliates
beneficially own a majority of our outstanding shares of common
stock, and have indicated their intention to vote in favor of the
reverse stock split, we expect that the reverse stock split will be
approved regardless of how any other shares of our common stock are
voted.
How are broker non-votes counted?
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
amendments to charter documents, or for the election of
directors.
Broker
non-votes will be counted for the purpose of determining the
presence or absence of a quorum, but will not be counted for the
purpose of determining the number of shares required to approve a
specific proposal.
Accordingly, a
broker non-vote will have the effect of a vote against the reverse
stock split proposal.
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 reverse stock
split proposal.
What will happen if the reverse stock split is approved by our
stockholders?
Assuming that we
have fewer than 300 record holders of our common stock after the
reverse stock split, we will file applicable forms with the SEC to
deregister our shares of common stock under the Exchange Act. 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 companies. We will also no longer be
subject to the provisions of the Sarbanes-Oxley Act, although the
Board of Directors may decide, in its sole discretion, to maintain
compliance with the Sarbanes-Oxley Act. Also, any trading in our
common stock will occur, if at all, in privately negotiated sales
or on OTC Markets.
What will happen if the reverse stock split is not
approved?
If 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 company. We also may decide to
evaluate and explore available alternatives, although the Board of
Directors has not yet made a determination that any of those
alternatives are feasible or advisable.
If the reverse stock split is approved by the stockholders, can the
Board of Directors determine not to proceed with the reverse stock
split?
Even if
the reverse stock split is approved by the stockholders, the Board
of Directors 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 all unaffiliated stockholders.
What are the material U.S. federal income tax consequences of the
reverse stock split?
The
receipt of cash by a holder of less than 1,000 shares in the
reverse stock split generally will be taxable for U.S. federal
income tax purposes. In general, neither the Company nor any
continuing stockholder who does not receive cash in the reverse
stock split should be subject to U.S. federal income taxation with
respect to the reverse stock split. To review the material U.S.
federal income tax consequences of the reverse stock split in
greater detail, see “Special Factors – Material U.S.
Federal Income Tax Consequences of the Reverse Stock Split”
beginning on page 23. We urge you to consult with your personal tax
advisor regarding the tax consequences to you of the reverse stock
split.
Should I send in my stock certificates now?
No.
After the reverse stock split is completed, we will send
instructions on how to receive any cash payments to which you may
be entitled.
What is the total cost of the reverse stock split to the
Company?
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 [_____]
[__], 2017 from our transfer agent, Manhattan Transfer Registrar
Company, 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 believe that the total cash
requirement of the reverse stock split to us will be approximately
$420,000. This amount includes approximately $180,000 needed to
cash out fractional shares, approximately $210,00 of legal,
accounting and financial advisory fees, approximately $5,000 for
transfer agent costs and approximately $25,000 of other costs,
including costs of printing and mailing, to effect the reverse
stock split. 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
by our stockholders.
Am I entitled to appraisal rights in connection with the reverse
stock split?
No.
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.
How do I vote?
Sign
and date each proxy card you receive and return it in the enclosed
envelope prior to the Special Meeting or attend the Special Meeting
and vote in person. You may also vote on the Internet by following
the instructions on the proxy card.
Can I change my vote?
Yes.
You may change your proxy instructions at any time before the final
vote at the Special Meeting. If you are the record holder of your
shares, you may revoke your proxy in any one of three
ways:
●
You may submit
another proxy by signing, dating and returning a completed proxy
card with a later date.
●
You may send a
timely written notice that you are revoking your proxy to the
Company’s Secretary at 500 E. Broward Blvd., Suite #1550 Ft.
Lauderdale, FL 33394.
●
You may attend the
Special Meeting and vote in person. Simply attending the Special
Meeting will not, by itself, revoke your proxy.
If your
shares are held by your broker or bank as a nominee or agent, you
should follow the instructions provided by your broker or
bank.
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 and return each proxy card to ensure that all of
your shares are voted.
Purposes of and Reasons for the Reverse Stock
Split
Our
Board of Directors has decided that the costs of being an SEC
reporting company 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 an SEC
reporting company. Therefore, our Board of Directors has
unanimously authorized, subject to stockholder approval, a
1-for-1,000 reverse stock split of our common stock. At the Special
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 for the reverse stock split is
attached as Annex A.
The
reverse stock split will enable us to terminate the registration of
our common stock under the Exchange Act if, after the reverse stock
split, there are fewer than 300 record holders of our common stock,
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 (if the Board of Directors decides not to
maintain compliance with the Sarbanes-Oxley Act), and other federal
securities laws and regulations. The costs associated with these
obligations constitute a significant overhead expense. These costs
include increased professional fees for our auditors and corporate
counsel, costs related to our Director and Officer insurance
policy, printing and mailing costs, internal compliance costs and
transfer agent costs. These SEC registration-related costs have
been increasing over the years, and we believe that they will
continue to increase, particularly as a result of the additional
procedural, reporting, auditing and disclosure obligations imposed
on public companies by the Sarbanes-Oxley Act in general and
Section 404 of the Sarbanes-Oxley Act in particular.
As a
result of the reverse stock split, (i) each share of common stock
held by a stockholder of record owning fewer than 1,000 shares
immediately prior to the effective date of the reverse stock split
will be converted into the right to receive $0.80 in cash (subject
to any applicable U.S. federal, state and local withholding tax),
without interest, per pre-split share, and (ii) each share of
common stock held by a stockholder of record owning 1,000 shares or
more immediately prior to the effective date of the reverse stock
split will represent one share of common stock after completion of
the reverse stock split. The shares of common stock acquired by the
Company 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 outstanding shares.
In
determining whether the number of our stockholders of record falls
below 300 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 the Company, are subject
to the registration provisions 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 the Depository
Trust & Clearing Company 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 holder of shares.
As a
result of the reverse stock split and the repurchase of shares from
holders of less than 1,000 shares, we expect to have approximately
150 record holders of our shares, which would enable us to
terminate the registration of our shares under the Exchange Act. If
the reverse stock split is consummated, we intend to file with the
SEC a Form 15 to deregister our shares. Upon the filing of the Form
15, our obligation to file periodic and current reports under the
Exchange Act will be immediately suspended. Deregistration of our
shares will be effective 90 days after filing of the Form 15. Upon
deregistration of our shares, our obligation to comply with the
requirements of the proxy rules and to file proxy statements under
Section 14 of the Exchange Act will also be terminated. 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 again
have record holders of our common stock in excess of
300.
It is
anticipated that our shares of common stock will continue to be
quoted on OTC Markets following the reverse stock split. OTC
Markets is a centralized quotation service that collects and
publishes market maker quotes for securities. OTC Markets
categorizes all securities trading over-the-counter into easily
identifiable tiers. Our common stock is currently traded on the
OTCQB tier. Following consummation of the reverse stock split, when
we will no longer be filing reports under the Exchange Act, we
anticipate that our common stock will trade on the lower OTC Pink
tier.
Although we
anticipate that our shares will be quoted on OTC Markets, there can
be no assurance that any broker-dealer will be willing to continue
to act as a market maker in our shares after the reverse stock
split.
Our reasons for proposing the reverse stock split include the
following:
Significant Cost Savings. We expect to
realize annual cost savings as a result of the termination of the
registration of our shares of common stock under the Exchange Act,
including ongoing expenses for compliance with the Sarbanes-Oxley
Act if the Board of Directors decides, in its sole discretion, to
no longer maintain compliance pursuant to the Sarbanes-Oxley Act,
and other accounting, legal, printing and miscellaneous costs
associated with being a publicly traded company, between $346,000
and $425,000 per calendar year, as follows:
|
|
|
|
Legal
|
$120,000
|
$96,000
|
$100,000
|
Audit
and Review
|
$130,000
|
$85,000
|
$85,000
|
Sarbanes-Oxley
Audit
|
$25,000
|
$25,000
|
$25,000
|
Insurance
|
$120,000
|
$-
|
$75,000
|
Directors
Fees
|
$140,000
|
$70,000
|
$70,000
|
Investor
Relations
|
$20,000
|
$20,000
|
$20,000
|
Annual
Meeting / Proxy
|
$30,000
|
$20,000
|
$20,000
|
Filing/OTC
Markets Costs
|
$37,000
|
$30,000
|
$30,000
|
TOTAL
|
$622,000
|
$346,000
|
$425,000
|
The
external costs associated with our public reports and other filing
obligations, as well as other external costs relating to public
company status, comprise a significant part of operating
expense.
In
addition, as a non-SEC 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 the Board of Directors may decide, in its sole
discretion, to continue to maintain compliance pursuant to the
Sarbanes-Oxley Act). 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.
Absence of Benefit to the Company and Its
Stockholders of Public Reporting. We enjoy little benefit
from being a public reporting company. The benefits of public
reporting, and the reasons we believe they are currently not
significant to our Company and stockholders, include:
●
Liquidity. Our common stock is quoted
on the OTCQB tier of OTC Markets and does not experience
significant trading volume. Over the preceding 52 weeks the average
daily trading volume of our common stock was 5,375 shares. Because
our common stock is currently thinly traded, we do anticipate that
our ceasing to be a public reporting company will have a
significant effect on the liquidity of shares of our common
stock.
●
Publicly Available Information. We
expect to continue to make available annual financial information
concerning our business and operations on our website. Although
this will not include all the information that is required to be
included in filings with the SEC, it will provide our stockholders
with significant information concerning the Company.
Liquidity for Small Stockholdings. The
reverse stock split will permit our small stockholders (those
holding fewer than 1,000 shares) to liquidate their shares, at a
price that we believe is both fair and attractive, without
incurring brokerage commissions. Given the current lack of market
activity in our common stock, this is an opportunity that might not
otherwise be available to our stockholders.
Substantial Number of Very Small
Holders. The Company has over 2,500 holders of record and a
substantial number of stockholders that hold their shares in street
name. A large number of these stockholders own less than 1,000
shares, which is less, and in many cases substantially less, than
$500 in value at current market prices. The Company believes that
it is uneconomical, for the Company to continue to maintain share
positions of such a small size. These small positions will be
cashed out as a result of the reverse stock split.
Avoiding Application of the Penny Stock
Rules. A “penny stock” generally refers to an
equity security that is priced at less than $5.00 per share and is
not listed on a national security exchange. Under the Exchange Act,
broker-dealers are prohibited from effecting transactions in penny
stock unless the broker-dealer approves the customer for the
transaction and receives a written customer agreement, furnishes
the customer with a document describing the risks of trading in
penny stocks and makes certain other disclosures to the customer.
The Company’s common stock is a penny stock, as defined, and
is therefore subject to the penny stock rules, which the Company
believes may have adversely affected trading. As a result of the
reverse stock split, the common stock will cease to be a penny
stock. The Company has determined to set the ratio of the reverse
stock split at 1-for-1,000, which is higher than needed to avoid
application of the penny stock rules, in order to achieve the other
benefits of the reverse stock split described above.
Background of the Reverse Stock Split
We were
incorporated under the laws of the State of Delaware as Unique
Ventures, Inc. on August 27, 1987. We consummated our initial
public offering in 1992. In May 1990, we changed our name to
Computer Concepts, Inc., in August 2000, we changed our name to
Direct Insite Corp., and in September 2016, we changed our name to
Paybox Corp.
The
flagship component of Paybox Corp’s unified working capital
management platform is PAYBOX®, an
Order-to-Cash process that provides an innovative receivables
automation solution which combines electronic invoicing, online
approvals and adjustments, Payment Card Industry
(“PCI”)-compliant electronic payments, and integration
with any legacy accounting, enterprise resource planning
(“ERP”) or lockbox system. PAYBOX is sold both through
banks to corporate users of their treasury management and lockbox
services, and directly to corporations. Banks and corporations use
PAYBOX to reduce Days Sales Outstanding, lower costs, and improve
straight-through accounts receivables (“AR”)
posting.
Paybox
Corp’s unified working capital management platform also
provides a powerful component that transforms Procure-to-Pay
processes. The component delivers end-to-end capabilities for
supplier registration, invoice capture, electronic invoicing,
workflow, electronic payments, discount management, spend
management, and business intelligence. The platform is uniquely
suited for financial shared services environments.
Paybox
Corp’s clients include IBM, Siemens, Hewlett Packard
Enterprise Services, Saint Gobain, Carlson Wagonlit Travel, and one
of the world’s largest financial institutions.
Our
revenue comes from (i) recurring, on-going services that are billed
monthly; and (ii) non-recurring, professional services derived from
the configuration of our software platform.
For
more than each of the last five years, the Company has had revenues
of less than $9 million, net income of less than $600,000 and an
average market capitalization of less than $16 million. The Board
of Directors of the Company has from time to time considered the
advisability of deregistering the Company’s common stock
under the Exchange Act, to avoid the outsized costs, relative to
the cited metrics, of compliance with the requirements of the
Exchange Act. As part of its deliberations on this issue, the Board
of Directors considered the benefits to the Company and its
stockholders of the continued registration of the common stock and
the near term prospects for upsizing the Company, either through
internal growth or strategic business combination activity, that
might justify the continuing public company costs being incurred by
the Company.
In
November, 2016, the Board of Directors again revisited the issue of
the costs and benefits of remaining a publicly reporting company,
in light of current economic, market and business conditions. While
there were no specific changes in the Company’s business
outlook, the Board of Directors concluded that the costs of
remaining registered with the SEC could no longer be justified
given the level of the Company’s business and the absence in
the near term of prospects for sufficient growth to reasonably
support the current level of public company costs being incurred.
In reaching its decision to proceed with the deregistration through
the reverse stock split, the Board of Directors also considered
preliminarily the various other factors discussed in this
prospectus.
On
December 15, 2016, the Board of Directors met by telephone to
address the payment that would be made to the stockholders who
would be cashed out in the reverse stock split. The Board of
Directors received a presentation from management and counsel, and
also considered the Kidron valuation analysis as well as its own
knowledge of the Company’s business and its prospects. Based
on these considerations, the Board of Directors tentatively
determined that a price of $0.80 per share would constitute fair
and equitable consideration for stockholders whose shares will be
eliminated as a consequence of the reverse stock
split. The
Board of Directors then reviewed considerations for and against the
reverse stock split and the consideration proposed to be paid in
the reverse stock split. The Board of Directors also considered
potential alternatives to the reverse stock split. The Board of
Directors’ determination was made subject to further
consideration, receipt of a fairness opinion from the Board of
Directors’ financial advisor and a final decision whether or
not to proceed with the reverse stock split. The Board of Directors
also preliminarily determined to establish a reverse stock split
ratio of 1-for-1,000
On
December 19, 2016, the Board of Directors met by telephone to make
a determination to proceed with the reverse stock split and the
consideration that would be payable in the reverse stock split to
cashed out stockholders. The Board of Directors received
presentations from management and counsel that briefly reviewed the
considerations addressed at the December 15th meeting. Also,
representatives of Kidron briefly reviewed the financial analysis
presented to the Board of Directors at the December 15th meeting
and answered any questions pertaining to the analysis. Based on the
various considerations reviewed by the Board of Directors,
including the Kidron analysis, the Board of Directors informed
Kidron of its belief that $0.80 per share was a fair and equitable
price for the Company’s shares. Noting that this
price was at the upper range of valuation for the shares delivered
in the Kidron Analysis, the financial advisor delivered its oral
opinion, which was subsequently confirmed in writing, that
consideration of $0.80 per share was fair from a financial point of
view to the stockholders whose shares would be cashed out in the
reverse stock split. Following deliberations, the Board of
Directors then determined unanimously to proceed with a 1-for-1,000
reverse stock split, in which consideration of $0.80 per share
would be paid in respect of the cashed out shares.
For a
further discussion of fairness of the reverse stock split, see
“Special Factors – Fairness of the Reverse Stock
Split” beginning on page 14 and “Special Factors
– Opinion of Kidron” beginning on page 20.
Fairness of the Reverse Stock Split
The
Board of Directors believes that the reverse stock split is fair to
the unaffiliated stockholders of the Company, including both
unaffiliated stockholders who will be cashed out after the reverse
stock split and those who continue to be stockholders of the
Company after the reverse stock split. After consideration of all
aspects of the reverse stock split, as described below, the Board
of Directors unanimously approved the reverse stock split. Except
for such 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.
Substantive Fairness
The
Board of Directors considered, among other things, the factors
listed below, in reaching its conclusion as to the substantive
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 Board of Directors
did not assign specific weight to any factors it considered, nor
did it apply them in a formulaic fashion, although the Board of
Directors particularly noted the opportunity in the reverse stock
split for stockholders to sell their holdings at a fair and
attractive price, as well as the significant cost and time savings
for us resulting from the reverse stock split which will benefit
our continuing stockholders. The Board of Directors relied
upon, and adopted the analyses and conclusions of Kidron in
determining whether the consideration offered to unaffiliated
stockholders constitutes fair value in relation to the going
concern value. The discussion below is not meant
to be exhaustive, but we believe includes all material factors
considered by the Board of Directors in reaching its
determinations.
●
Future Cost and Time Savings. The Board
of Directors noted that, as a public company, we are required to
prepare and file with the SEC, among other items, the
following:
o
Quarterly Reports
on Form 10-Q;
o
Annual Reports on
Form 10-K;
o
Proxy statements
and annual stockholder reports as required by Regulation 14A under
the Exchange Act; and
o
Current Reports on
Form 8-K.
The
Board of Directors noted that the external costs associated with
our public reports and other filing obligations, as well as other
external costs relating to our status as a public reporting
company, comprise a significant overhead expense, as described
above.
The
Board of Directors noted management’s belief that the
anticipated cost savings from deregistration will offset the cost
of the reverse stock split in less than two years based upon an
estimated transaction cost of $420,000. The Board of Directors
noted based on current statutory and regulatory trends, there may
be an increase in the level of governmental and market regulation
of public companies in the future and the cost of compliance with
such regulation may increase further.
●
Opinion of the Financial
Advisor. The Board of Directors considered the
written presentation dated December 13, 2016 made by Kidron, the
oral presentation of Kidron to the Board of Directors on December
15, 2016, and the opinion of Kidron rendered to the Board of
Directors on December 19, 2016, to the effect that, as of the date
and based upon the assumptions made, matters considered and limits
of review set forth in Kidron’s written opinion, the
consideration to be received by stockholders pursuant to the
reverse stock split is fair, from a financial point of view, to
such stockholders. For more information about the opinion, you
should read the discussion below under “Special Factors
– Fairness Opinion of Kidron” and the copy of the
opinion of Kidron dated December 19, 2016 attached as Annex
B to this proxy statement.
●
Valuation. In determining the
consideration to be paid to the holders of less than 1,000 shares
in the reverse stock split, the Board of Directors considered the
implied per share valuation ranges for our common stock calculated
by the Board of Directors’ financial advisor of $0.89 to
$1.15 using the comparable company method, $0.72 to $0.99 using the
comparable transaction method, and $0.47 to $0.63 using the
discounted cash flow (DCF) method and a blended range of $0.61 to
$0.81.
●
Limited Liquidity for the Company’s
Common Stock. The Board of Directors 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 September
30, 2016, which was prior to the Board of Directors’ initial
approval of the reverse stock split, was approximately
10,814, 10,201, 9,196 and 7,362 shares per day,
respectively.
●
Opportunity to Liquidate Shares of Common
Stock. The Board of Directors considered the opportunity the
reverse stock split presents for stockholders owning fewer than
1,000 shares to liquidate their holdings at a price that we believe
is fair and attractive, without incurring brokerage
costs.
●
Potential Ability to Remain a Holder of or
Liquidate Our Shares. Current stockholders of fewer than
1,000 shares can remain stockholders of the Company by acquiring
additional shares so that they own at least 1,000 shares
immediately before the reverse stock split. Conversely,
stockholders that own 1,000 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 less than 1,000
shares by selling shares prior to the reverse stock split. It
should be noted that as there is a limited trading market for our
common stock on OTC Markets, a stockholder seeking to either
increase or decrease holdings prior to the effective date of the
reverse stock split may not be able to do so. 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 date of the reverse stock
split. Due to these concerns, the Board of Directors did not place
undue influence on this factor.
●
Equal Treatment of Affiliated and Unaffiliated
Holders of Our Shares. The reverse stock split
will not be applied to holders of our shares
differently on the basis of affiliate status. The sole determining
factor in whether a stockholder will be a cashed-out holder or a
continuing holder of our common stock 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.
However, because the number of shares held by a stockholder
is a factor in determining whether a stockholder has affiliate
status, as a practical matter affiliated stockholders will not be
cashed out in the reverse stock split.
●
Substantial Number of Very Small
Holders. The Company has over 2,500 holders of record and a
substantial number of stockholders that hold their shares in street
name. A large number of these stockholders own less than 1,000
shares, or less, and in many cases substantially less, than $500 in
value at current market prices. The Company believes that it is
uneconomical for the Company to continue to maintain share
positions of such a small size. These small positions would be
cashed out as a result of the reverse stock split.
●
Avoiding Application of the Penny Stock
Rules. A “penny stock” generally refers to an
equity security that is priced at less than $5.00 per share and is
not listed on a national security exchange. Under the Exchange Act,
broker-dealers are. The Company’s common stock is a penny
stock, as defined under the Exchange Act, and is therefore subject
to the penny stock rules. The Company believes that these rules,
which prohibit broker-dealers from effecting transactions in penny
stock unless the broker-dealer makes certain determinations and
provides certain disclosures to its customer, may have adversely
affected trading. As a result of the reverse stock split, the
common stock would cease to be a penny stock.
●
Current and
Historical Prices. The Board of Directors considered both
the historical market prices and recent trading activity and
current market prices of our common stock. Specifically, the
Board of Director’s considered that the cash-out price of
$0.80 per share represents a 42% premium over the average trading
price of $0.563 for the trailing 12 month period prior to date on
which the reverse split was approved by the Board of Directors, a
52% premium over the average trading price of $0.525 for the
trailing 6 months, and a premium of 79% over the average trading
price of $0.446 for the trailing three month
period.
●
Net Book Value and Liquidation
Value. The Board of Directors
considered that the cash-out price represented a 94% premium
over the Company’s net book value of $0.412 at
September 30, 2016. In reaching its conclusion as to fairness, the
Board of Directors did not consider the liquidation value of the
Company. The liquidation value was not considered because the
Company is a viable going concern, and the Company has no plans to
liquidate.
Disadvantages of the Reverse Stock Split
The
Board of Directors also considered the disadvantages of the reverse
stock split, including that:
●
No Participation in Future Growth by
Cashed-out Stockholders. After the reverse stock split,
holders of less than 1,000 shares of our common stock will no
longer have any ownership interest in us and will no longer
participate in our future earnings and growth.
●
Reduction in Information about the
Company. 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 prepare
audited annual financial statements which will be made available to
stockholders through our website, 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, continuing stockholders will
have access to less information about us and our business,
operations, and financial performance.
●
Limited Liquidity. After the reverse
stock split, we expect that our common stock to be eligible for
quotation on, OTC Markets, although we expect it to be quoted on
the lower OTC Pink tier and not the OTCQB tier where the common
stock is currently quoted. Trading opportunities on OTC Markets
will depend upon whether any broker-dealers commit to make a market
for our common stock, and we cannot guarantee that common stock
will continue to be quoted on OTC Markets. In addition, because of
the possible limited liquidity of our common stock, the suspension
of our obligation to publicly disclose financial and other
information following the reverse stock split, and the
deregistration of our common stock under the Exchange Act,
continuing stockholders may potentially experience a significant
decrease in the value of their common stock.
●
Limited Oversight. After completion of
the reverse stock split, we will no longer be subject to the
provisions of the Sarbanes-Oxley Act (although the Board of
Directors may decide, in its sole discretion, to continue to
maintain compliance with some or all of provisions of the
Sarbanes-Oxley Act) and certain of the liability provisions of the
Exchange Act.
●
Reporting Obligations of Certain
Insiders. Our executive officers, directors and 10%
stockholders will no longer be required to file reports relating to
their transactions in our common stock with the SEC. In addition,
our executive officers, directors and 10% stockholders will no
longer be subject to the short-swing profits recovery provisions of
the Exchange Act, and persons acquiring more than 5% of our common
stock will no longer be required to report their beneficial
ownership under the Exchange Act.
●
Reduced Cash on Hand. We estimate that
the cost of payment to holders of less than 1,000 shares,
professional fees, transfer agent costs and other expenses of the
reverse stock split will total approximately $420,000. As a result,
immediately after the reverse stock split, our cash balances on
hand will be reduced by the costs incurred in the reverse stock
split.
●
Filing Requirements Reinstated. 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 300
stockholders of record. Thus, subsequent to the time the Form 15 is
filed, if on the first day of any fiscal year we have more than 300
stockholders of record, 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
object to the reverse stock split.
●
Reduced Management Incentive. The lack
of liquidity typically associated with stock of an non-reporting
issuer may result in fewer opportunities to utilize equity-based
incentive compensation tools to recruit and retain 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. Our Board of Directors did not view
this as a significant factor because of the current limited
liquidity of our common stock.
●
Less Attractive Acquisition Currency.
Stock that is registered with the SEC is generally a more
attractive acquisition currency than unregistered stock, since the
acquirer of the publicly traded security has constant access to
important information about the publicly traded company. Our Board
of Directors recognized that this may not be a significant
disadvantage, however, because we have not historically utilized
our stock as currency in acquisitions.
●
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, since or common stock will no longer be registered with the
SEC, it will likely be more costly and time consuming for us to
raise equity capital from public or private sources. Again, our
Board of Directors has concluded that this may be of little
significance to us since 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 privately held companies. In addition, public
reporting companies are often followed by analysts who publish
reports on their operations and prospects. 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, our Board of Directors 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.
Procedural Fairness
We did
not retain an unaffiliated representative to act 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. The Board of Directors did not
form a special committee to approve the reverse stock split. Our
Board of Directors did not believe that these protections were
necessary, because the Board of Directors is comprised of five
directors, all but one of whom are independent of management. Also,
the interests of unaffiliated stockholders in the context of the
reverse stock split depend on whether they hold 1,000 shares or
more or fewer than 1,000 shares.
The
Board of Directors also noted that this proxy statement, along with
our other filings with the SEC, provide a great deal of information
for unaffiliated stockholders to make an informed decision as to
the reverse stock split. The Board of Directors therefore made no
special provision for the review of our files by our unaffiliated
stockholders, although subject to certain conditions, Delaware law
provides stockholders with the right to review our books and
records.
The
Board of Directors understands that our directors and executive
officers indicated that they and certain of their affiliates intend
to vote the shares of common stock over which they have voting
power in favor of the reverse stock split and that, if they do so,
the reverse stock split will be approved regardless of how any
other stockholders vote their shares. However, the Board of
Directors determined not to condition the approval of the reverse
stock split on approval by a majority of unaffiliated stockholders.
The Board of Directors 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.
Recommendation of the Board of
Directors
At a
meeting held on December 19, 2016, based on the foregoing analyses,
including a consideration of the disadvantages of the reverse stock
split, the Board of Directors unanimously determined that the
reverse stock split is procedurally and substantively fair to and
in the best interests of the Company and its unaffiliated
stockholders, and unanimously approved the reverse stock split and
recommends that you vote “FOR” approval of the reverse stock
split.
Our
Board of Directors considered other methods of effecting a
transaction to deregister our common stock, 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 300 record owners
of our common stock, thus allowing us to achieve our objective of
terminating registration of our common stock 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.
●
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 holders of our common stock to
fewer than 300. 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 300, we would 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
deregistration transaction 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 300. While the time frame for completing an
odd lot tender offer could be shorter than the period of time
involved in accomplishing a reverse stock split and could be less
expensive, our Board of Directors 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, 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 300. 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.
For the
reasons discussed above, our Board of Directors unanimously agreed
that the reverse stock split was the most expeditious and
economical way of undertaking a deregistration
transaction.
Effects
of the Reverse Stock Split
Generally
The
Board of Directors is soliciting stockholder approval for the
reverse stock split. If approved by the stockholders and
implemented by the Board of Directors, we anticipate that the
reverse stock split will be effected as soon as possible after the
date of the Special Meeting, on the date the Company files a
Certificate of Amendment to our Certificate of Incorporation with
the Secretary of State of the State of Delaware, or on any later
date that the Company may specify in such Certificate of
Amendment.
At the
Special 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 Certificate of
Amendment to our Certificate of Incorporation for the reverse stock
split is attached as Annex A.
If the
reverse stock split is completed, the following will
occur:
●
Each share of
common stock held by a stockholder of record owning fewer than
1,000 shares immediately prior to the effective date of the reverse
stock split will be converted into the right to receive $0.80 in
cash (subject to any applicable U.S. federal, state and local
withholding tax), without interest, per pre-split
share.
●
Each share of
common stock held by a stockholder of record owning 1,000 shares or
more immediately prior to the effective date of the reverse stock
split will represent one one-thousandth of a share of common stock
after completion of the reverse stock split.
●
We expect to have
fewer than 300 stockholders of record of our common stock following
the reverse stock split and, therefore, to be eligible to terminate
registration of our common stock with the SEC, which would suspend
our obligation to continue filing annual and periodic reports and
other filings required under the federal securities laws that are
applicable to public reporting companies and potentially eliminate
most of the expenses related to the disclosure, reporting and
compliance requirements of the Sarbanes-Oxley Act.
●
The Board of
Directors anticipates that our common stock will continue to trade
on OTC Markets, although we expect it to be quoted on the lower OTC
Pink tier and not the OTCQB tier where the common stock is
currently quoted. The liquidity of our common stock has been
limited in the past, however, and its liquidity could further
contract because we will no longer be a public reporting
company.
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.
Effects on the Company
Upon
completion of the reverse stock split, it is anticipated that we
will have fewer than 300 stockholders of record and will therefore
be eligible to terminate the registration of our common stock with
the SEC and become a non-reporting company. In determining whether
the number of our stockholders of record falls below 300 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 registration
provisions 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 the Depository Trust &
Clearing Company and other commercial depositories are not
considered a single holder of record for purposes of these
provisions. Rather, the Depository Trust & Clearing
Company’s and other 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 150.
The
registration of our common stock may be terminated upon application
by us to the SEC if there are fewer than 300 stockholders of record
of our common stock. If the reverse split is consummated and, as
expected, we will have fewer than 300 stockholders of record, we
intend to promptly file with the SEC a Form 15 making a
certification to that effect. Our obligation to file periodic and
current reports as a result of our common stock’s
registration under the applicable provisions of the Exchange Act
will be suspended immediately upon the filing of the Form 15. After
the 90-day waiting period following the filing of the Form
15:
●
our obligation to
comply with the requirements of the proxy rules and to file proxy
statements under Section 14 of the Exchange Act also will be
terminated;
●
our executive
officers, directors and 10% stockholders no longer will be required
to file reports relating to their transactions in our common stock
with the SEC and no longer will be subject to the recovery of
short-swing profits provisions of the Exchange Act;
and
●
persons acquiring
more than 5% of our common stock no longer will be required to
report their beneficial ownership under the Exchange
Act.
However, following
the filing of the Form 15 with the SEC, if on the first day of any
fiscal year we have more than 300 stockholders of record we once
again will become subject to the reporting requirements of the
Exchange Act. Also, 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 as we have done prior to the reverse stock
split.
The
reverse stock split is estimated to result in the retirement of
approximately 226,000 shares of common stock at a cost of $0.80 per
share. Including expenses for the reverse stock split, the Company
estimates that the total cost of the reverse stock split to us,
including fees and expenses for the various legal and financial
advisers, will be approximately $420,000. Our cash balances will be
reduced accordingly. The consideration to be paid to stockholders
of fewer than 1,000 shares and the other costs of the reverse stock
split will be paid from cash on hand. See “Special Factors
– Source of Funds and Expenses” on page
27.
Our
common stock is currently quoted on OTC Markets. We expect that our
common stock will continue to be quoted on OTC Markets following
consummation of the reverse stock split, although we expect it to
be quoted on the lower OTC Pink tier and not the OTCQB tier where
the common stock is currently quoted. The resulting lack of public
information concerning the Company, may further reduce the
liquidity of our common stock.
OTC
Markets is a quotation service that collects and publishes market
maker quotes for over-the-counter securities. OTC Markets 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 quotations of our common stock on OTC
Markets after the reverse stock split or that they will continue
for any length of time.
Effects on the Cashed-Out Stockholders
Stockholders
holding fewer than 1,000 shares of common stock immediately prior
to the effective date of the reverse stock split will cease to be
stockholders of the Company. They will lose all rights associated
with being our stockholder, such as the right to attend and vote at
stockholder meetings and receive dividends and distributions. These
stockholders will receive the right to be paid $0.80 in cash
(subject to any applicable U.S. federal, state and local
withholding tax), without interest, for each share of common stock
owned immediately prior to the reverse stock split. These
stockholders will be liable for any applicable taxes, but will not
be required to pay brokerage fees or service charges. Promptly
after the effective date of the reverse stock split, we will send a
transmittal letter explaining to such stockholders how they can
surrender their stock certificates in exchange for cash payment.
The length of time between the effective date of the reverse stock
split and the date on which a stockholder of less than 1,000 shares
of common stock will receive such stockholder’s cash will
depend, in part, on the amount of time taken by such stockholder to
return his or her stock certificates with a properly completed
letter of transmittal. No cash payment will be made to any such
stockholder until he or she has surrendered his or her outstanding
stock certificate(s), together with the letter of transmittal, in
accordance with the terms of the letter of transmittal. Following
the surrender of stock certificates in accordance with the terms of
the letter of transmittal, stockholders should receive cash
payments promptly. No interest will be paid on the cash payment at
any time.
If a
stockholder owns fewer than 1,000 shares of our common stock before
the reverse stock split, the only way the stockholder can continue
to be our stockholder after the reverse stock split is to acquire,
prior to the effective date of the reverse stock split, sufficient
additional shares to cause such stockholder to own a minimum of
1,000 shares on the effective date of the reverse stock split.
However, given the historically limited liquidity of our common
stock, we cannot assure you that any shares will be available for
purchase and thus there can be no assurance that a stockholder will
be able to acquire sufficient shares to meet or exceed the required
1,000 shares. In such an instance, the stockholder would no longer
remain a stockholder of the Company after the effective date of the
reverse stock split.
The
number of shares of common stock held by a stockholder of record in
two or more separate but identical brokerage accounts will be
combined to determine the number of shares of our common stock
owned by such stockholder and, accordingly, whether the stockholder
will be a cashed-out stockholder or a continuing stockholder.
Shares held by stockholders 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 stockholder 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 date 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. Also, a stockholder owning 1,000 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 date of the reverse stock
split. Conversely, if you hold an account with less than 1,000
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 the Unaffiliated Remaining Stockholders
Stockholders
holding 1,000 or more shares of common stock immediately prior to
the effective date of the reverse stock split will continue to be
stockholders of the Company, will receive no cash in the
transaction and, following the reverse stock split, the number of
shares held by such stockholders will be reduced proportionately by
the reverse stock split ratio of 1-for-1,000.
Stockholders who
continue as stockholders of the Company after the reverse stock
split may experience reduced liquidity of their shares of common
stock. We anticipate that our common stock will continue to be
quoted on OTC Markets, although we expect it to be quoted on the
lower OTC Pink tier and not the OTCQB tier where the common stock
is currently quoted. As such, we anticipate that information
relating to the quotation of our common stock will be published by
OTC Markets, but there can be no assurance of any quotation of, or
market for, our common stock.
Stockholders who
continue as our stockholders after the reverse stock split 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. We anticipate, however,
that the Company will continue to make available annual financial
information on our website. Also, stockholders will continue to
have the right, upon written request, to receive certain
information in appropriate circumstances, to the extent provided by
the Delaware General Corporation Law (“DGCL”), 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 statute,
and does so for a proper purpose.
Our
Board of Directors also believes that, following the transaction,
the remaining stockholders will benefit from the savings in direct
and indirect operating costs to the Company resulting from us no
longer being required to maintain our public reporting company
status, as described above. 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” beginning on page 11. Remaining
stockholders will have the opportunity to participate in our future
growth and earnings as we go forward as a more streamlined entity
without the costs of compliance with SEC reporting
requirements.
Effects on the Affiliated Remaining Stockholders
Our
affiliates, consisting of directors, executive officers and 10%
stockholders, will participate in the reverse stock split to the
same extent as non-affiliates. However, because the number of
shares held by a stockholder is a factor in determining whether a
stockholder has affiliate status, as a practical matter affiliated
stockholders will not be cashed out in the reverse stock
split.
Upon
the effectiveness of the reverse stock split, the aggregate number
of shares of our common stock owned by our current directors,
executive officers and 10% stockholders will be reduced
proportionately by the reverse stock split ratio of 1-for-1,000 and
the ownership percentage of the shares of our common stock held by
our directors, executive officers and 10% stockholders will
increase by approximately [0.4]% from [59.8]% to [60.2]% as a
result of the reduction of the number of shares of our common stock
outstanding. The increase in the ownership percentage of our shares
of common stock held by our current directors, executive officers
and 10% stockholders 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 December
2, 2016 from our transfer agent, Manhattan Transfer Registrar
Company, 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
current directors, executive officers and 10% stockholders and the
ownership percentage of the 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 by our stockholders prior to the effective date of the
reverse stock split, and depending on the number of shares held in
street name that are actually cashed out in the reverse stock
split. Like all other remaining stockholders, these affiliates also
are likely to experience reduced liquidity of their shares of
common stock.
As we
noted above, we ultimately expect to realize recurring annual cost
savings between $346,000 and $425,000 annually as a result of the
reverse stock split. Our continuing stockholders, including our
affiliated stockholders, will be the beneficiaries of these
savings. See “Special Factors – Purposes of and Reasons
for the Reverse Stock Split” beginning on page 11. Remaining
stockholders will have the opportunity to participate in our future
growth and earnings as we go forward as a more streamlined entity
without the costs of compliance with SEC reporting
requirements.
Our
current directors, executive officers and 10% stockholders 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” beginning on page 26.
Opinion of Kidron
The
Board of Directors retained Kidron to assist with its determination
of a fair price at which to compensate stockholders whose stock
would be cashed out in the reverse stock split. Kidron is a
boutique investment-banking firm that caters to emerging growth
companies in technology, media and financial services markets. The
firm offers mergers and acquisitions, divestitures, and corporate
advisory services, and is also engaged from time to time in
providing fairness opinions and valuation analyses in connection
with mergers and acquisitions, recapitalizations, equity offerings
(both private and public and private equity investments). The
Board of Directors selected Kidron to act as its financial advisor
in connection with the reverse stock split because of
Kidron’s experience with small and middle-market
companies.
The type and amount
of consideration payable to holders of common stock that will be
cashed out as a result of the reverse stock split was determined by
the Board of Directors. However, the Board of Directors
relied upon, and adopted the analyses and conclusions of, Kidron in
determining the fairness of the consideration
offered.
The Company has
agreed to pay Kidron for its services in connection with the
reverse split a fee of $100,000, none of which is contingent upon
the consummation of the reverse stock split. The Company has also
has agreed to reimburse Kidron for its expenses incurred in
connection with Kidron’s engagement and to indemnify
Kidron and its directors, officers, employees, agents and
affiliates against specified liabilities, including liabilities
under the federal securities laws.
Kidron has not
previously provided any services to the Company or its affiliates,
and no such services, other than in respect of the reverse stock
split as described herein, are currently
contemplated.
On
December 19, 2016, Kidron rendered an oral opinion to our Board of
Directors, which was subsequently confirmed in a written opinion,
that, subject to the limitations, exceptions, assumptions and
qualifications set forth therein, as of such date, the
consideration to be received by stockholders pursuant to the
reverse stock split was fair, from a financial point of view, to
such holders. The full text of Kidron’s written opinion,
dated December 19, 2016, which sets forth, among other things,
assumptions made, procedures followed, matters considered,
qualifications and exceptions, and limitations of the reviews
undertaken in rendering the opinions, is attached as Annex
B to this proxy statement. Stockholders are urged to
read the opinion carefully and in its entirety.
The
opinion of Kidron is directed to our Board of Directors and
addresses only the fairness, from a financial point of view, of the
consideration to be received by stockholders pursuant to the
reverse stock split and does not address any other aspect of the
proposed transaction and does not constitute a recommendation to
any stockholder with respect to the reverse stock split or any
other matter being considered by the stockholders. The opinion of
Kidron is not a recommendation as to how our Board of Directors,
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 Kidron 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 decision as to
whether to approve the reverse stock split may depend on an
assessment of factors unrelated to the financial analysis on which
the opinion of Kidron is based.
The
following is a summary of the material analyses performed by Kidron
in connection with rendering its opinion. Kidron noted that the
basis and methodology for the opinion have been designed
specifically for this purpose and may not translate to any other
purposes. While this summary describes the analyses and factors
that Kidron deemed material in its presentation and opinion to our
Board of Directors, it does not purport to be a comprehensive
description of all analyses and factors considered by Kidron. The
opinion is based on the comprehensive consideration of the various
analyses performed. Considering the data below without considering
the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Kidron’s financial
analyses. This summary is qualified in its entirety by reference to
the full text of the opinion of Kidron.
In
performing its analyses, Kidron made numerous assumptions with
respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control
of the Company. Kidron does not assume any responsibility if future
results are materially different from those discussed. Any
estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as
set forth below.
Discounted Cash Flow Analysis. Kidron
performed a discounted cash flow analysis on the Company by
calculating ranges of the estimated net present value of the
after-tax free cash flows attributable to shareholders of the
Company that the Company forecasted to generate from 2016 through
fiscal year 2019 and extrapolated such projections for fiscal years
2020 and 2021. All of the information used in Kidron’s
analysis was based on publicly available sources and the financial
projections provided by the Company’s
management.
In
performing its discounted cash flow analysis, Kidron calculated
ranges of the estimated present values of the Company’s
after-tax free cash flows attributable to shareholders of the
Company forecasted for fiscal years 2016 to 2021 by applying
discount rates ranging from 16.2% to 19.2%, reflecting
Kidron’s estimates of the Company’s weighted-average
cost of capital. The weighted-average cost of capital was
calculated using the Capital Asset Pricing Model which took into
account the Company’s beta, betas of comparable companies,
the risk-free rate, a historical equity market risk premium, a
historical small capitalization risk premium, which risk premiums
were sourced from the Ibbotson Valuation Yearbook.
Kidron
calculated an implied price per share for the Company’s
Common Stock based on the terminal value for the Company using a
range of perpetuity growth rates of 3.00% to 5.00%. The perpetuity
growth method calculates the value of a business assuming that it
will operate as a stand-alone business with an assumed fixed growth
rate following the forecasted financial model years. The range of
estimated present values of these estimated terminal value amounts
was then calculated by applying discount rates ranging from 16.2%
to 19.2%. Combining the total present value of the estimated free
cash flows and the present value of the terminal values resulted in
a range of implied enterprise values for the Company. Kidron then
deducted outstanding debt and added outstanding cash and cash
equivalents from the Company balance sheet as of December 8, 2016
and the present value of net operating loss tax savings to
determine a range of implied equity values of the
Company.
Kidron
also calculated an implied price per share for the Company’s
Common Stock based on the terminal value for the Company using a
range of terminal value multiples of 10.0x to 14.0x estimated
EBITDA in 2021. The range of estimated present values of these
estimated terminal value amounts was then calculated by applying
discount rates ranging from 16.2% to 19.2%. Combining the total
present value of the estimated free cash flows and the present
value of the terminal values resulted in a range of implied
enterprise values for the Company. Kidron then deducted outstanding
debt and added outstanding cash and cash equivalents from the
Company balance sheet as of December 8, 2016 and the present value
of net operating loss tax savings to determine a range of implied
equity values of the Company.
The
present value of net operating loss carryforward tax benefits were
calculated assuming a 40% tax rate on taxable income.
The
discounted cash flow analysis implied a range of equity value for
the Company equal to an implied price per share of $0.47 to
$0.63.
Comparable Company Analysis. In
order to assess how the public market values shares of publicly
traded companies similar to the Company, Kidron reviewed and
compared certain financial information relating to the Company with
selected companies, which, in the exercise of its professional
judgment and based on its knowledge of the industry, Kidron deemed
relevant to the Company. Although none of the selected companies is
identical to the Company, Kidron selected these companies because
they had publicly traded equity securities and were deemed to be
similar to the Company in one or more respects including the nature
of their business, size, financial performance, geographic
concentration and listing
jurisdiction.
For the
Company and each of the selected companies, Kidron calculated and
compared various financial multiples and ratios of the Company and
the selected comparable companies based on each respective
company’s public filings for historical
information.
In its
review of the selected companies, Kidron considered, among other
things, (i) market capitalizations (computed using closing stock
prices as of December 8, 2016), (ii) total enterprise values
(“TEV”), (iii) TEV as a multiple of reported revenue
for the latest twelve-month period (“LTM”) and the
project next twelve-month period (“NTM”), (iv) TEV as a
multiple of revenue, and (v) TEV as a multiple of reported earnings
before interest, taxes, depreciation and amortization
(“EBITDA”) for the LTM estimated EBITDA. This
information and the results of these analyses are summarized in the
following table:
Data as of 12/8/2016
|
|
|
|
|
|
|
|
|
|
($ in USD millions, except per share data)
|
|
|
|
|
|
|
|
|
Market Data
|
EV/Revenue
|
EV/EBITDA
|
Stock Ticker
|
Company Name
|
Stock Price
|
52 Week High
|
52 Week Low
|
Market Cap
|
Enterprise Value
|
LTM
|
NTM
|
LTM
|
NTM
|
NasdaqGS: EPAY
|
Bottomline Technologies (de), Inc.
|
$25.32
|
$31.52
|
$18.48
|
$925
|
$971
|
2.8x
|
2.7x
|
28.7x
|
13.4x
|
HLSE: BAS1V
|
BasWare Oyj
|
$39.08
|
$43.43
|
$32.37
|
$561
|
$563
|
3.6x
|
3.2x
|
157.0x
|
180.8x
|
BSE: 538835
|
Intellect Design Arena Limited
|
$2.15
|
$4.49
|
$1.02
|
$217
|
$208
|
1.7x
|
1.4x
|
NM
|
NM
|
AIM: PHD
|
PROACTIS Holdings PLC
|
$1.99
|
$2.07
|
$1.32
|
$98
|
$98
|
4.0x
|
3.0x
|
28.4x
|
10.0x
|
ENXTPA: GENX
|
Generix SA
|
$3.16
|
$3.22
|
$2.45
|
$70
|
$82
|
1.3x
|
1.4x
|
19.4x
|
18.8x
|
NasdaqCM: DTRM
|
Determine, Inc.
|
$1.99
|
$3.10
|
$0.82
|
$23
|
$32
|
1.2x
|
1.1x
|
NM
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mean
|
$316
|
$326
|
2.4x
|
2.1x
|
58.4x
|
55.7x
|
|
|
|
|
Median
|
$158
|
$153
|
2.2x
|
2.1x
|
28.5x
|
16.1x
|
|
|
|
|
|
|
|
|
|
|
|
OTCPK: PBOX
|
Paybox Corp.
|
$0.36
|
$0.76
|
$0.30
|
$5
|
$2
|
0.3x
|
NA
|
3.5x
|
NA
|
Kidron
considered that although the selected companies were used for
comparison purposes, no business of any selected company was either
identical or directly comparable to the Company’s business.
Accordingly, Kidron’s comparison of selected companies to the
Company and analyses of the results of such comparisons was not
purely mathematical, but instead necessarily involved complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could affect
the relative values of the selected companies and the Company.
Based on its analysis of the relevant metrics for each of the
comparable companies, Kidron selected an enterprise value multiple
reference range based on the median LTM multiplies (rounding
down to the nearest integer, and adding 0.5x for the high case and
subtracting 0.5x for the low case) of 1.5x to 2.5x the
Company’s 2016E revenue and 27.5x to 28.5x the
Company’s 2016E EBITDA, which resulted in an average implied
range of price per share of common stock of the Company of $0.89 to
$1.15.
Comparable Transaction
Analysis. Kidron reviewed and compared the purchase
prices and financial multiples paid in selected other transactions
that occurred between 2012-2016 for companies that provide payment
processing services and financial management software where the
total enterprise value was between $90 million and $4.4 billion.
For each of the selected transactions, Kidron reviewed the
enterprise value in the transaction as a multiple of revenue and
EBITDA. Such multiples for the selected transactions were based on
publicly available information at the time of the relevant
transaction.
Kidron
compared the Company's implied enterprise value as a multiple of
revenue and EBITDA to the corresponding multiples for the selected
transactions described above. Based on its analysis of the relevant
metrics for each of the comparable transactions, Kidron selected an
enterprise value multiple reference range of 1.3x to 2.3x the
Company’s 2016E revenue and 16.9x to 17.9x the
Company’s 2016E EBITDA, which resulted in an average implied
range of price per share of common stock of the Company of $0.72 to
$0.99.
Other Considerations. While the
companies utilized for comparative purposes in
Kidron’s analysis have elements that are
comparable to the Company, they are not entirely comparable for a
variety of reasons including size, variety of products and services
offered, market cap and relative stock and financial performance.
Kidron did not have access to nonpublic information
related to any of the companies or transactions used for
comparative purposes. Accordingly, a complex valuation analysis
cannot be limited to a quantitative review of the selected
companies and selected transactions, and involves complex
considerations and judgments concerning differences in financial
and operating characteristics of such companies and targets and the
Company, as well as other factors that could affect their value
relative to that of the Company. Given the foregoing, the
discounted cash flow analysis may be particularly relevant in this
analysis as it measures the value of a business by discounting its
future cash flows. Accordingly, Kidron gave
additional weighting to the DCF valuation analysis over the
comparative analyses. This resulted in an implied a blended range
of price per share of common stock of the Company of $0.61 to
$0.81.
Set
forth are below certain financial projections of the Company. These
projections are being included in this proxy statement because they
were furnished to Kidron and relied upon by Kidron, in part, in
arriving at its opinion that the consideration payable in the
reverse stock split was fair from a financial point of view to
stockholders whose common stock is being cashed out.
The
financial projections were not prepared with a view toward
complying with accounting principles generally accepted in the
United States of America (“U.S. GAAP”), the published
guidelines of the SEC regarding projections or the guidelines
established by the American Institute of Certified Public
Accountants for the preparation and presentation of prospective
financial information. The Company’s independent accountants
have not compiled, examined, or performed any procedures with
respect to the financial projections, nor have they expressed any
opinion or any other form of assurance on such information or its
achievability, and they assume no responsibility for, and disclaim
any association with, the unaudited financial projections.
Financial projections of the type summarized below are based on
estimates and assumptions that are inherently subject to
significant economic, industry and competitive uncertainties and
contingencies, all of which are difficult to predict and many of
which are beyond the Company’s control. The financial
projections are not fact and should not be relied upon as being
indicative of future results which could differ materially from
actual performance and results.
The
financial projections are subjective in many respects and thus
subject to interpretation. While presented with numeric
specificity, they are necessarily based on a variety of estimates
and assumptions which, though considered reasonable by the
Company’s management, may not be realized, and are inherently
subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the
Company’s control. The financial projections are not
indicative of current values or future performance, which may be
significantly more favorable or less favorable. The Company
cautions that no representations can be made as to the accuracy of
these financial projections or to the Company’s ability to
achieve the projected results. Some assumptions inevitably will not
materialize. Further, events and circumstances occurring subsequent
to the date on which these financial projections were prepared may
be different from those assumed or, alternatively, may have been
unanticipated and, thus, the occurrence of these events may affect
financial results in a material and possibly adverse manner.
Furthermore, the financial projections do not necessarily reflect
current estimates or assumptions Company management may have about
prospects for the Company’s business, changes in general
business or economic conditions, or any other transaction or event
that has occurred or that may occur and that was not anticipated at
the time the financial projections were prepared.
Except
as otherwise noted, the financial projections do not take into
account any circumstances or events occurring after the date they
were prepared. The Company does not intend to update or revise any
of the financial projections to reflect circumstances existing
after the date such projections were prepared or to reflect the
occurrence of any particular events. The financial projections are
forward-looking statements.
Readers of this proxy are urged to review the Company’s most
recent SEC filings for additional information on factors which may
cause the Company’s future financial results to materially
vary from the unaudited financial projections. In addition, such
readers are also urged to review the Company’s most recent
SEC filings for a description of the Company’s reported
results of operations, financial condition and capital resources
during the fiscal year ended December 31, 2015 and subsequent
quarters ended March 31, June 30, and September 30, 2016. None of
the financial projections should be viewed as a representation by
the Company or any of its advisors or representatives that the
projections or forecasts reflected therein will be achieved. The
inclusion of the financial projections in this proxy statement
shouldnot be regarded as an indication that the Company or any
other recipient of this information considered, or now considers,
this information to be necessarily predictive of actual future
results nor construed as financial guidance, and they should not be
relied on as such.
($ in
thousands)
|
Management
Projections
|
Fiscal Year
Ending December
|
2016E
|
2017E
|
2018E
|
2019E
|
2020E
|
2021E
|
|
Revenue
|
$6,526
|
$6,100
|
$7,090
|
$8,555
|
$9,370
|
$9,875
|
8.6%
|
Growth
|
|
-6.5%
|
16.2%
|
20.7%
|
9.5%
|
5.4%
|
|
EBITDA
|
$290
|
$(159)
|
$(142)
|
$560
|
$836
|
$937
|
26.4%
|
Margin
|
4.4%
|
-2.6%
|
-2.0%
|
6.6%
|
8.9%
|
9.5%
|
|
Interest and Other
Expenses
|
$2
|
$6
|
$7
|
$9
|
$9
|
$9
|
|
Earnings Before
Taxes
|
$46
|
$(553)
|
$(665)
|
$35
|
$427
|
$528
|
|
Taxes
|
$2
|
$0
|
$0
|
$14
|
$171
|
$211
|
|
Net Operating
Profit After Tax
|
$44
|
$(553)
|
$(665)
|
$21
|
$256
|
$317
|
|
Plus: Depreciation
& Amortization
|
$243
|
$388
|
$516
|
$516
|
$400
|
$400
|
|
Plus: Stock Based
Compensation
|
$174
|
$156
|
$150
|
$150
|
$150
|
$150
|
|
Less: Capital
Expenditures
|
$(73)
|
$(100)
|
$(100)
|
$(100)
|
$(100)
|
$(100)
|
|
Less: Capitalized
Product Development
|
$(398)
|
$(400)
|
$0
|
$0
|
$0
|
$0
|
|
(Increase) Decrease
in Working Capital
|
$(143)
|
$(200)
|
$(200)
|
$100
|
$100
|
$100
|
|
Free Cash
Flow
|
$(152)
|
$(709)
|
$(299)
|
$687
|
$806
|
$867
|
|
Conduct
of Our Business after the Reverse Stock Split
Except
as described in this proxy statement neither we nor our management
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, or any other material change in our
corporate structure or business. We expect to conduct our business
and operations after the effective date of the reverse stock split
in substantially the same manner as currently
conducted.
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 deregister our common stock 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 acquisitions and other business opportunities to expand or
strengthen our businesses. 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. We may also explore opportunities
for business combinations in which the Company may be acquired or
our stockholders would not constitute a majority of the
stockholders of the surviving corporation. There are currently no
plans to enter into any such transactions or any other transactions
that would require stockholder approval. In addition, our executive
officers and directors are expected to retain their respective
positions with us following the transaction.
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 the Company and its
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 employee stock options or otherwise as compensation,
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
TRANSACTION. 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 TRANSACTION 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 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 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 the Company
The
reverse stock split generally should be treated as a tax-free
“recapitalization” for U.S. federal income tax
purposes, in which case the Company should not recognize any gain
or loss for such purposes. In addition, as of September 30, 2016,
the Company had approximately $20 of NOLs. 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 the Company.
Potential Conflicts of Interests of Officers,
Directors and Certain Affiliated Persons
Our
current directors, executive officers and 10% stockholders 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 our Board of Directors recommends a
vote “FOR” the
reverse stock split, to the Company’s knowledge, none of the
Company’s affiliates has made a recommendation, in their
individual capacities, either in support of or opposed to the
reverse stock split. Our current directors and executive officers
have indicated that they intend to vote shares of our common stock
over which they have voting control (including shares held by
certain of their affiliates, [7,716,060] shares, or approximately
[59.8]% of our issued and outstanding shares eligible to vote at
the Special Meeting) “FOR” the reverse stock split.
Because our directors and officers and certain of their affiliates
beneficially own a majority of our outstanding shares of common
stock, and have indicated their intention to vote in favor of the
reverse stock split, we expect that the reverse stock split will be
approved regardless of how any other shares of our common stock are
voted.
Upon
the effectiveness of the reverse stock split, the aggregate number
of shares of our common stock owned by our current directors,
executive officers and 10% stockholders will be reduced
proportionately by the reverse stock split ratio of 1-for-1,000,
and the ownership percentage of the shares of our common stock held
by our current directors, executive officers and 10% stockholders
will increase by approximately [0.4]% from [59.8]% to [60.2]% as a
result of the reduction of the number of shares of our common stock
outstanding. The increase in the ownership percentage of our shares
of common stock held by our current directors, executive officers
and 10% stockholders 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 December
2, 2016 from our transfer agent, Manhattan Transfer Registrar
Company, 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
directors, executive officers and 10% stockholders and the
ownership percentage of the 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 by our stockholders prior to the effective date of the
reverse stock split, and depending on the number of street name
shares that are actually cashed out in the reverse stock
split.
See
“Special Factors – Effects of the Reverse Stock Split
– Effects on the Affiliated Remaining Stockholders”
beginning on page 17.
Directors,
executive officers and any stockholders who own more than 10% of
our outstanding common stock will experience certain advantages
after the reverse stock split in that they will be relieved of
certain SEC reporting requirements and “short-swing
profit” recapture provisions under Section 16 of the Exchange
Act, and information regarding their compensation and stock
ownership will no longer be publicly available. In addition, by
deregistering the common stock 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 of
Directors in evaluating the benefits of the reverse stock
split.
In
addition, our executive officers, including a member of our Board
of Directors, hold options to acquire shares of our common stock.
These stock options will remain outstanding after the reverse stock
split, but the number of shares issuable upon exercise of each
option will be reduced in the ratio of the reverse stock split,
1-for -1,000, and the exercise per share of common stock will be
correspondingly increased in the ratio of 1-for -1,000. As of
December 30, 2016, such current director and executive officers
held the following options to acquire common stock:
Name
|
|
Number of
Securities
Underlying
Unexercised
Options -
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised Options -
Unexercisable
|
|
|
Equity Incentive
Plan Awards:
Number of
Underlying
Unexercised
Unearned
Options
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew E. Oakes
|
|
|
120,000
|
|
|
|
90,000
|
(1)
|
|
|
--
|
|
|
$
|
1.15
|
|
01/01/2017
|
Lowell Rush
|
|
|
40,000
|
|
|
|
40,000
|
(2)
|
|
|
--
|
|
|
$
|
1.50
|
|
12/19/2018
|
|
|
|
30,000
|
|
|
|
60,000
|
(3)
|
|
|
--
|
|
|
$
|
0.90
|
|
03/31/2020
|
(1)
|
7,500 vested each month from February 1, 2016 through
January 1, 2017.
|
(2)
|
These options vest over a four-year period: (i) 20,000 vesting on
December 19, 2014, and (ii) 1,667 vesting each month over 36 months
beginning on January 19, 2015.
|
(3)
|
These
options vest over a three-year period; 30,000 vesting on each of
March 31, 2016, 2017, and 2018.
|
Except
as described above in this section, 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. In particular,
there are no agreements with affiliates to purchase common stock
upon consummation of or subsequent to the reverse stock split or
otherwise with respect to the reverse stock split.
Sources
of Funds and Expenses
Because
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 December
2, 2016 from our transfer agent, Manhattan Transfer Registrar
Company, 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
$420,000. This amount includes approximately $180,000 needed to
cash out fractional shares, approximately $210,00 of legal,
accounting and financial advisory fees, approximately $5,000 for
transfer agent costs and approximately $25,000 of other costs,
including costs of printing and mailing, to effect the reverse
stock split. 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
by our stockholders.
The
consideration to be paid to stockholders of fewer than 1,000 shares
in the reverse stock split and the other costs of the reverse stock
split will be paid from cash on hand. 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. No part of
the funds required for the reverse stock split is expected to be
borrowed.
A
majority of the outstanding shares of our common stock will
constitute a quorum for the purpose 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
holders of a majority of outstanding shares of our common stock
entitled to vote at the Special Meeting is required to approve the
reverse stock split. Our current directors and executive officers
have indicated that they intend to vote the shares of our common
stock over which they have voting control (including shares held by
certain of their affiliates, [7,716,060] shares, or approximately
[59.8]% of our issued and outstanding shares eligible to vote at
the Special Meeting) “FOR” the reverse stock
split.
The
reverse stock split will become effective as of the date that we
amend our Certificate of Incorporation through the filing of a
Certificate of Amendment to the Certificate of Incorporation with
the Secretary of State of the State of Delaware to effect the
reverse stock split. We intend to effect the reverse stock split as
soon as possible after the reverse stock split is approved by our
stockholders, subject to final authorization by our Board of
Directors. Within five business days after the effective date of
the reverse stock split, the Company expects that its transfer
agent, Manhattan Transfer Registrar Company, acting in the capacity
of paying agent, will send to each stockholder of record of fewer
than 1,000 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 fewer than 1,000
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 the return of the letter of transmittal and
accompanying stock certificate(s) to the transfer agent, the
transfer agent will send the payments to these stockholders within
five business days of receipt. Therefore, the timing of receipt of
payment for these stockholders is dependent upon their proper
surrender of their stock certificates and the delivery of properly
prepared and executed letters of transmittal. For shares held in
street name through DTC, payment of the consideration due to
holders of fewer than 1,000 shares of our common stock will be made
in accordance with the practices and procedures of
DTC.
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 certification and notice of termination of
registration on Form 15. The deregistration of our common stock
under Section 12(g) of the Exchange Act will take effect 90 days
after the filing of the Form 15. See “Special Factors –
Effects of the Reverse Stock Split” beginning on page
17.
Termination of the Reverse Stock
Split
Under
applicable Delaware Law, the Board of Directors has a duty to act
in the best interests of our stockholders. Accordingly, the Board
of Directors reserves the right to abandon the reverse stock split,
if for any reason the Board of Directors determines that, in the
best interests of our stockholders, it is not advisable to proceed
with the reverse stock split, even assuming the stockholders
approve the reverse stock split by vote. Although the Board of
Directors presently believes that the reverse stock split is in our
best interests and has recommended a vote “FOR” the reverse stock split, the
Board of Directors nonetheless believes that it is prudent to
recognize that circumstances could possibly change such that it
might not be appropriate or desirable to effect the reverse stock
split at that time. Such reasons include, but are not limited
to:
●
Any change in the
nature of our stockholdings prior to the effective date of the
reverse stock split, which would result in us being unable to
reduce the number of record holders of our shares to below 300 as a
result of 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; or
●
Any change in our
financial condition that would render the reverse stock split
inadvisable.
If the
Board of Directors decides to withdraw the reverse stock split,
whether before or after the time the Special Meeting is held, the
Board of Directors will promptly notify our stockholders of the
decision by public announcement.
Process
for Payment for Fractional Shares
Stockholders owning
fewer than 1,000 shares on the effective date of the reverse stock
split will receive $0.80 (subject to any applicable U.S. federal,
state and local withholding tax) for each pre-split share of common
stock, without interest. Stockholders who own 1,000 or more shares
at the effective date of the reverse stock split will not be
entitled to receive any cash for their fractional share interests
resulting from the reverse stock split.
For
purposes of determining ownership of shares of our common stock on
the effective date 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 date 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 nominee, and if you have
any questions in this regard, we encourage you to contact your
bank, broker or nominee.
Within
five business days after the effective date of the reverse stock
split, we expect that our transfer agent will send to each holder
of record of 1,000 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 fewer than 1,000 shares of our
common stock immediately prior to the reverse stock split held in
street name, instructions for surrendering any stock 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. The 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
five business days after the transfer agent receives from a holder
of fewer than 1,000 shares a surrendered certificate, 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
$0.80 (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.
For
shares held in street name through DTC, payment of the
consideration due to holders of fewer than 1,000 shares of our
common stock will be made in accordance with the practices and
procedures of DTC.
Manhattan Transfer
Registrar Company will act as our agent for purposes of paying for
fractional shares in connection with the reverse stock
split.
No
service charge, brokerage commission, or transfer tax will be
payable by a stockholder of fewer than 1,000 shares in connection
with the cash out of shares in the reverse stock
split.
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:
●
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 respect of
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
stockholders after the effective date of the reverse stock split.
In the event that the Company is 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.
DO NOT SEND STOCK 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 the Company who dissent from the reverse stock
split.
The
unclaimed property and escheat laws of each state provide that
under circumstances defined in that state’s statutes, holders
of unclaimed or abandoned property must surrender that property to
the state. Persons whose shares are cashed out and whose addresses
are unknown to us, or who do not return their stock certificates
and request payment for their cashed out shares, generally will
have a certain period of time from the effective date of the
reverse stock split in which to claim the cash payment payable to
them. For example, with respect to stockholders whose last known
addresses are in New York, as shown by our records, the period is
three years. Following the expiration of that three-year period,
the Unified Disposition of Unclaimed Property Act of New York would
likely cause the cash payments to escheat to the State of New York.
For stockholders who reside in other states or whose last known
addresses, as shown by our records, are in states other than New
York, such states may have abandoned property laws which call for
such state to obtain either (i) custodial possession of property
that has been unclaimed until the owner reclaims it or (ii) escheat
of such property to the state. Under the laws of such other
jurisdictions, the “holding period” or the time period
which must elapse before the property is deemed to be abandoned may
be shorter or longer than three years. If we do not have an address
for the holder of record of the shares, then unclaimed cash-out
payments will be turned over to our state of incorporation, the
State of Delaware, in accordance with its escheat
laws.
The
Company is not aware of any material governmental or regulatory
approval required for completion of the reverse stock split, other
than compliance with the relevant federal securities laws and the
DGCL.
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
concerning, among other things, our anticipated results, and future
plans and objectives that are or may be considered to be
“forward-looking statements.” The words
“believe”, “expect”,
“anticipate”, “should”, “could”
and other expressions that indicate future events and trends
identify forward-looking statements. These expectations are based
upon many assumptions that we believe to be reasonable, but such
assumptions ultimately may prove to be materially inaccurate or
incomplete, in whole or in part and, therefore, undue reliance
should not be placed on them. Several factors which could cause
actual results to differ materially from those discussed in such
forward-looking statements include, but are not limited to: the
reactions of our customers, suppliers and other persons with whom
we do business prior to the reverse stock split; the effects of the
reverse stock split on the market for our common stock; general
global and economic conditions; and other factors recited from time
to time in our filings with the SEC. In light of the uncertainty
inherent in our forward-looking statements, you should not consider
their inclusion to be a representation that the forward-looking
statements will be achieved. In evaluating forward-looking
statements, you should consider all these risks and uncertainties,
together with any other risks described in our other reports and
documents furnished or filed with the SEC, and you should not place
undue reliance on those statements. We assume no obligation for
updating any forward-looking statements, whether as a result of new
information, future events, or otherwise. However, to the extent
that there are any material changes in the information contained in
this proxy statement, the Company will promptly disclose the
changes as and to the extent required by applicable law and the
rules and regulations of the SEC.
PROPOSAL NO.
1
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT
Our
Board of Directors has recommended that the Company pursue a
deregistration transaction by means of a 1-for-1,000 reverse stock
split of our common stock, which will be accomplished by amending
the Certificate of Incorporation.
Annex
Relating to Proposal No. 1
The
form of the proposed amendment to the Certificate of Incorporation
to effect the reverse stock split is attached to this proxy
statement as Annex A.
Vote
Required for Approval of Proposal No. 1
The
affirmative vote the holders of a majority of all of the shares
outstanding and entitled to vote on this matter will be required
for approval. A properly executed proxy marked
“ABSTAIN” with respect to this proposal will be counted
for purposes of determining whether there is a quorum for the
transaction of business at the Special Meeting but will have the
effect of a vote against this proposal.
Recommendation of our Board of
Directors
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
“FOR” THE
APPROVAL OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT.
INFORMATION
ABOUT THE COMPANY
The
name of the Company is Paybox Corp, a Delaware corporation. Our
principal executive offices are located at 500 East Broward
Boulevard, Suite 1550, Ft. Lauderdale, FL 33394, and our telephone
number is (954) 510-3750.
Market
Price of Common Stock; Dividends
Our
common stock is quoted on the OTCQB marketplace under the symbol
“PBOX”. The OTCQB marketplace is maintained by OTC
Markets, Inc., a quotation service that collects and publishes
market maker quotes for over-the-counter securities. The OTCQB
marketplace is not a stock exchange or a regulated entity. The
following table sets forth the high and low bid prices per share of
common stock for our common stock for our three most recent fiscal
years as reported on the OTCQB marketplace. The quotations below do
not reflect the retail mark-up, markdown or commissions and may not
represent actual transactions.
|
|
|
|
|
|
|
|
Year
ending December 31, 2017: 1st Quarter (through February 1,
2017)
|
$0.61
|
$0.50
|
|
|
|
Year ended
December 31, 2016:
|
|
|
1st
Quarter
|
$0.73
|
$0.43
|
2nd
Quarter
|
$0.73
|
$0.56
|
3nd
Quarter
|
$0.48
|
$0.38
|
4th
Quarter
|
$0.50
|
$0.41
|
Year ended
December 31, 2015:
|
|
|
1st
Quarter
|
$0.90
|
$0.72
|
2nd
Quarter
|
$1.18
|
$0.74
|
3rd
Quarter
|
$1.09
|
$0.86
|
4th
Quarter
|
$0.97
|
$0.54
|
We have
not paid cash dividends on our common stock in the past and
currently plan to retain earnings, if any, funding the expansion of
our business and for general corporate purposes.
As of
[_____], 2017 there were approximately [_________]
holders of record of our common stock.
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.
The
Company has not repurchased any shares of its Common Stock in the
past two years.
Certain
Information Concerning the Company, the Company’s Directors
and Executive Officers and the Filing Persons
The
Company and each of its executive officers and directors is a
“filing person” for purposes of Schedule 13E-3. The
business address of each director and executive officer of the
Company is c/o Paybox Corp, 500 East Broward Boulevard, Suite 1550,
Ft. Lauderdale, FL 33394 and the business telephone number is (954)
510-3750, except that the business address for
Mr. Lisiak is 70 East 55th Street, 15th Floor, New York, NY
10022. Neither the Company nor any of the Company’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. Each of the Company’s
directors and executive officers is a citizen of the United
States.
The following
sets forth certain information with respect to the Company’s
directors and executive officers:
Name
|
|
Position
|
James A.
Cannavino
|
|
Director
|
Paul
Lisiak
|
|
Director
|
Thomas C.
Lund
|
|
Director
|
John J.
Murabito
|
|
Director
|
Matthew E.
Oakes
|
|
Chairman of the
Board of Directors, Chief Executive Officer and
President
|
Lowell
Rush
|
|
Chief Financial
Officer, Secretary and Treasurer
|
James
A. Cannavino served as Chairman of the Board from March 2000
to May 2011, and as Chief Executive Officer of the Company from
December 2002 to May 2011. Since that time, he has been a
private investor.
Paul Lisiak has been a director since
May 2012. Since 2008, he has been the Managing Partner of
Metropolitan Equity Partners, which employs a special situation
investment strategy with a particular focus on financial
services.
Thomas C. Lund is Chief Executive
Officer of Lund Capital Group, a private commercial real estate
company that has holdings in various regions across the
U.S. that he founded in 2000.
John J. Murabito served as Chairman of
the Board from May 2011 to May 2012. From November 2001
through February 2011, Mr. Murabito was Chief Executive Officer of
Hapoalim Securities USA, Inc. and its predecessor companies,
including Investec (US) Inc., an affiliate of the Investec Group,
an international banking group. Since that time, he has been a
private investor.
Matthew E. Oakes was appointed Chairman
of the Board of Directors on June 3, 2014. He has held the
position of Chief Executive Officer since May 25, 2011 and has served as President since
March 2009.
Lowell Rush joined Paybox Corp as acting
Chief Financial Officer in October 2013, and was appointed its
Chief Financial Officer, Secretary and Treasurer in December 2013.
Prior to joining the Company, Mr. Rush was the Chief Operating
Officer of Cosmetic Dermatology, Inc., an innovator of high-end
skincare products under the Dr. Brandt Skincare label, from 2011 to
2013.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The
following table sets forth the beneficial ownership of shares of
voting stock of the Company, as of February 29, 2016, (i) each
person known by the Company to beneficially own more than 5% of the
shares of outstanding common stock, based solely on filings with
the SEC, (ii) each of the Company’s executive officers and
directors and (iii) all of the Company’s executive officers
and directors as a group. Except as otherwise indicated, all shares
are beneficially owned, and the persons named as owners hold
investment and voting power:
Name of Beneficial Owner (1)
|
Amount of Common Stock Beneficially Owned
|
Rights to Acquire Beneficial Ownership Through Exercise of Options
and Warrants Within 60 Days
|
Total Beneficially Owned as % of Outstanding Shares
|
Metropolitan
Equity Partners, LLC (2)
|
1,782,703
|
–
|
13.3%
|
James
Cannavino (3)
|
2,592,651
|
6,816
|
19.4%
|
Thomas
C. Lund (4)
|
2,444,925
|
6,816
|
18.3%
|
Paul
Lisiak (5)
|
1,910,136
|
6,816
|
14.3%
|
Matthew
E. Oakes
|
404,993
|
210,000
|
4.6%
|
John
J. Murabito (6)
|
363,355
|
6,816
|
2.8%
|
Lowell
M. Rush
|
-
|
46,667
|
*
|
All
Officers and Directors as a Group (7 persons)
|
7,716,060
|
281,411
|
59.8%
|
*
= Less than 1%
|
|
|
|
(1)
|
Unless
otherwise indicated, the business address of all
Beneficial Owners is c/o Paybox Corp, 500 East Broward
Boulevard, Suite 1550, Fort Lauderdale, FL 33394.
|
(2)
|
The
address of Metropolitan Equity Partners, LLC is 70 East
55th
Street, 15th Floor, New York, NY
10022. Amount includes
214,211 shares owned by Metropolitan MEIH19,
LP.
|
(3)
|
Includes 205,939
shares of restricted stock that have fully vested but not been
issued and 6,186 shares of restricted stock that are expected to
vest within 60 days.
|
(4)
|
Includes 157,353
shares of restricted stock that have fully vested but not been
issued, and 6,186 shares of restricted stock that are expected to
vest within 60 days.
|
(5)
|
Includes 1,782,703
shares of common stock held by Metropolitan Equity Partners, LLC,
127,433 shares of restricted stock that have fully vested but not
been issued and 6,186 shares of restricted stock that are expected
to vest within 60 days. Mr. Lisiak serves as Managing Partner of
Metropolitan Equity Partners, LLC, which is the Manager of
Metropolitan GP Holdings, LLC, Series METVP II (“MetGP
II”) and Metropolitan GP Holdings, LLC, Series MEIH19
(“MetGP”). MetGP II is the general partner of
Metropolitan Venture Partners II, L.P. (“MetVP II”) and
MetGP is the general partner of Metropolitan MEIH19, LP
(“MEIH19”). In addition, Mr. Lisiak is one the members
of the board of directors of the general partner of Metropolitan
Venture Partners, L.P. The business address of Mr. Lisiak is
70 East 55th Street, 1st Floor, New York, NY
10022.
|
(6)
|
Includes 226,733
shares of restricted stock that have fully vested but not been
issued and 6,186 shares of restricted stock that are expected to
vest within 60 days.
|
SPECIAL MEETING AND VOTING INFORMATION
Outstanding Voting Securities and Voting
Rights
The
subject class of securities to which this proxy statement relates
is our common stock, $0.0001 par value per share. Each share of
common stock is entitles the holder thereof to one
vote.
Only
stockholders of record at the close of business on the record date,
[______] [__], 2017, are entitled to receive notice of and to vote
at the Special Meeting or any adjournments or postponements
thereof. As of the close of business on the record date, the
Company had [12,988,282] shares of common stock outstanding and
entitled to vote at the Special Meeting.
Information Concerning Proxies; Revocation of
Proxies
Sending
in a signed proxy will not affect your right to attend the Special
Meeting and vote in person. All proxies which are properly
completed, signed and returned to us prior to the Special Meeting,
and which have not been revoked, unless otherwise directed by you,
will be voted in accordance with the recommendations of the Board
of Directors set forth in this proxy statement. You may revoke your
proxy at any time before it is voted either by (i) filing with the
Secretary of the Company, at its principal executive offices, 500
East Broward Boulevard, Suite 1550, Ft. Lauderdale, FL 33394, a
written notice of revocation or a duly executed proxy bearing a
later date, or (ii) by attending the Special Meeting, delivering
written notice of revocation of your proxy and voting your shares
in person.
The
expenses of this solicitation will be paid by the Company. To the
extent necessary to ensure sufficient representation at the Special
Meeting, proxies may be solicited by any appropriate means by
officers, directors and regular employees of the Company, who will
receive no additional compensation therefor. The Company does not
anticipate utilizing the services of any outside firm for the
solicitation of proxies for the Special Meeting. The Company will
pay persons holding common stock in their names or in the names of
their nominees, but not owning such stock beneficially (such as
brokerage firms, banks and other fiduciaries), for the reasonable
expense of forwarding soliciting material to their
principals.
Quorum
and Certain Voting Matters
A
majority of the outstanding shares of common stock must be
represented in person or by proxy at the Special Meeting in order
to constitute a quorum for the transaction of business. There is no
cumulative voting. Abstentions will be treated as common stock
present and entitled to vote for purposes of determining the
presence of a quorum. If a broker indicates on a proxy that it does
not have the discretionary authority as to certain common stock,
referred to as a broker non-vote, those shares will be considered
present for purposes of determining the existence of a quorum but
will not be entitled to vote at the Special Meeting.
The
affirmative vote holders of a majority of all shares of common
stock issued and outstanding and entitled to vote at the Special
Meeting will be required to approve the proposed amendment to the
Certificate of Incorporation to effect the reverse stock split. The
executive officers and directors of the Company and certain of
their affiliates, who together own or vote approximately 59.8% of
the voting power of the shares outstanding and entitled to vote,
have indicated they will vote in favor of the reverse stock split.
Because our directors and officers and certain of their affiliates
beneficially own a majority of our outstanding shares of common
stock, and have indicated their intention to vote in favor of the
reverse stock split, we expect that the reverse stock split will be
approved regardless of how any other shares of our common stock are
voted.
In
determining whether the proposed amendment to the Certificate of
Incorporation to effect the reverse stock split has received the
requisite number of affirmative votes, broker non-votes will have
the effect of a negative vote. 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 proposed
amendment to the Certificate of Incorporation to effect the reverse
stock split.
Shares
represented by properly executed proxies will be voted at the
Special Meeting in accordance with the instructions specified
thereon. If no instructions are specified, the shares represented
by any properly executed proxy will be voted “FOR” the
proposed amendment to the Certificate of Incorporation to effect
the reverse stock split.
Adjournment or Postponement
The
Special Meeting may be adjourned or postponed. Any adjournment may
be made without notice, other than by an announcement made at the
Special Meeting. The favorable vote of a majority of the shares of
our common stock present in person or represented by proxy and
entitled to vote on the adjournment proposal, may adjourn the
Special Meeting. Any adjournment or postponement of the Special
Meeting will allow our stockholders who have already sent in their
proxies to revoke them at any time prior to their use at the
Special Meeting was adjourned or postponed. Stockholders are not
being asked to provide discretionary authority to postpone or
adjourn the Special Meeting in order for additional proxies to be
solicited.
Summary Historical Financial
Information
The
following summary of consolidated financial
information was derived from our unaudited consolidated financial
statements as of September 30, 2016 and 2015
and our
audited consolidated financial statements for the
fiscal years ended December 31, 2015 and
2014. Results for the nine months ended September 30,
2016 may not be indicative of results to be realized for the entire
year. This financial information is only a summary and should be
read in conjunction with our historical financial statements and
the accompanying footnotes. Please see the information set forth
below under the captions “Where You Can Find More
Information”.
PAYBOX
CORP
(Formerly
Direct Insite Corp.)
CONDENSED
BALANCE SHEETS
(in
thousands, except share data)
|
|
|
|
|
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$ 2,584
|
$ 2,375
|
$ 871
|
Accounts
receivable
|
1,249
|
1,444
|
2,407
|
Prepaid expenses
and other current assets
|
479
|
405
|
383
|
|
4,312
|
4,224
|
3,661
|
Property and
equipment, net
|
1,229
|
934
|
1,020
|
Deferred tax
assets
|
1,195
|
1,195
|
1,195
|
Other
assets
|
220
|
247
|
244
|
|
2,644
|
2,376
|
2,459
|
Total
assets
|
$ 6,956
|
$ 6,600
|
$ 6,120
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$ 1,587
|
$ 1,468
|
$ 1,789
|
Current portion of
capital lease obligations
|
--
|
11
|
27
|
Deferred
rent
|
29
|
37
|
44
|
Deferred
revenue
|
--
|
--
|
52
|
Total current
liabilities
|
1,616
|
1,516
|
1,912
|
Capital lease
obligations, net of current portion
|
--
|
--
|
9
|
Total
liabilities
|
1,616
|
1,516
|
1,921
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock,
$0.0001 par value; 2,000,000 shares authorized; none issued or
outstanding
|
–
|
–
|
–
|
Common stock,
$0.0001 par value; 50,000,000 shares authorized; 13,100,888,
12,979,536 and
12,759,870 shares issued and 13,060,961, 12,939,609 and 12,719,943
shares outstanding in 2016, 2015 and 2014,
respectively
|
1
|
1
|
1
|
Additional paid-in
capital
|
116,590
|
116,478
|
116,161
|
Accumulated
deficit
|
(110,923)
|
(111,067)
|
(111,635)
|
Common stock in
treasury, at cost; 24,371 shares in 2016, 2015 and
2014
|
(328)
|
(328)
|
(328)
|
Total
stockholders’ equity
|
5,340
|
5,084
|
4,199
|
Total liabilities
and stockholders’ equity
|
$ 6,956
|
$ 6,600
|
$ 6,120
|
|
|
|
|
Book value per
share attributable to common stockholders
|
$ 0.41
|
$ 0.40
|
$ 0.33
|
PAYBOX
CORP
(Formerly
Direct Insite Corp.)
CONDENSED
STATEMENTS OF OPERATIONS
(in
thousands, except share data)
|
For
the nine months ended September
30,
|
For
the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Recurring
|
$ 4,078
|
$ 5,086
|
$ 6,745
|
$ 6,515
|
Non-recurring
|
967
|
963
|
1,266
|
1,780
|
Total
revenues
|
5,045
|
6,049
|
8,011
|
8,295
|
Operating costs and
expenses:
|
|
|
|
|
Operations,
research and development
|
2,010
|
2,582
|
3,389
|
3,456
|
Sales and
marketing
|
1,640
|
1,752
|
1,417
|
1,889
|
General and
administrative
|
1,073
|
1,117
|
2,321
|
2,499
|
Amortization and
depreciation
|
176
|
220
|
289
|
327
|
Total operating
costs and expenses
|
4,899
|
5,671
|
7,416
|
8,171
|
Operating
income
|
146
|
378
|
595
|
124
|
Other
(expense)
|
(1)
|
(2)
|
(4)
|
(10)
|
Income before
provision for income taxes
|
145
|
376
|
591
|
114
|
Provision for
income taxes
|
(1)
|
(24)
|
(23)
|
(8)
|
Net
income
|
$ 144
|
$ 352
|
$ 568
|
$ 106
|
|
|
|
|
|
Basic income per
share
|
$ 0.01
|
$ 0.03
|
$ 0.04
|
$ 0.01
|
|
|
|
|
|
Diluted income per
share
|
$ 0.01
|
$ 0.03
|
$ 0.04
|
$ 0.01
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
12,969
|
12,831
|
12,846
|
12,649
|
|
|
|
|
|
Diluted weighted
average common shares outstanding
|
12,972
|
12,854
|
12,865
|
12,670
|
Pro
Forma Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma consolidated balance sheet as of
September 30, 2016, and the unaudited pro forma consolidated
statements of operations for the fiscal year ended December 31,
2015 and for the nine months ended September 30, 2016, show the pro
forma effect of the reverse stock split. The historical amounts as
of and for the nine months ended September 30, 2016 were derived
from the Company’s unaudited consolidated financial
statements that were included in the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016. The
historical amounts for the fiscal year ended December 31, 2015 were
derived from the Company’s audited consolidated financial
statements that were included in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31,
2015.
The reverse stock split assumes that 226,000 shares are purchased
at a price of $0.80 per share (subject to any applicable U.S.
federal, state and local withholding tax). Adjustments to the pro
forma consolidated balance sheet are computed as if the reverse
stock split had occurred at September 30, 2016 and gives effect to
non-recurring expenses incurred in respect of the reverse stock
split. The
pro forma consolidated statements of operations are computed as if
the reverse stock split had occurred at the beginning of the
designated periods and gives effect to the anticipated recurring
cost savings.
The pro forma information is not otherwise necessarily indicative
of what the Company’s financial position or results of
operations actually would have been if the reverse stock split had
occurred as of the dates presented, or of the Company’s
financial position or results of operations in the
future.
PAYBOX
CORP
(Formerly
Direct Insite Corp.)
PRO
FORMA CONDENSED BALANCE SHEET
(in
thousands, except share data)
|
|
Assets
|
|
Current
assets:
|
|
Cash and cash
equivalents
|
$ 2,164
|
Accounts
receivable
|
1,249
|
Prepaid expenses
and other current assets
|
479
|
|
3,892
|
Property and
equipment, net
|
1,229
|
Deferred tax
assets
|
1,195
|
Other
assets
|
220
|
|
2,644
|
Total
assets
|
$ 6,536
|
|
|
Liabilities
and Stockholders’ Equity
|
|
Current
liabilities:
|
|
Accounts payable
and accrued expenses
|
$ 1,587
|
Current portion of
capital lease obligations
|
--
|
Deferred
rent
|
29
|
Deferred
revenue
|
--
|
Total current
liabilities
|
1,616
|
Capital lease
obligations, net of current portion
|
--
|
Total
liabilities
|
1,616
|
|
|
Commitments and
contingencies
|
|
|
|
Stockholders’
equity:
|
|
Preferred stock,
$0.0001 par value; 2,000,000 shares authorized; none issued or
outstanding
|
–
|
Common stock,
$0.0001 par value; 50,000,000 shares authorized; 13,100,888 shares
issued and 12,834,961 shares outstanding
|
1
|
Additional paid-in
capital
|
116,590
|
Accumulated
deficit
|
(111,163)
|
Common stock in
treasury, at cost; 250,371 shares in 2016, 2015 and
2014
|
(508)
|
Total
stockholders’ equity
|
4,920
|
Total liabilities
and stockholders’ equity
|
$ 6,536
|
|
|
Book value per
share attributable to common stockholders
|
$ 0.39
|
PAYBOX
CORP
(Formerly
Direct Insite Corp.)
PRO
FORMA CONDENSED STATEMENTS OF OPERATIONS
(in
thousands, except share data)
|
For the nine months ended
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Recurring
|
$ 4,078
|
$ 6,745
|
Non-recurring
|
967
|
1,266
|
Total
revenues
|
5,045
|
8,011
|
Operating costs and
expenses:
|
|
|
Operations,
research and development
|
2,010
|
3,389
|
Sales and
marketing
|
1,640
|
1,417
|
General and
administrative
|
754
|
1,975
|
Amortization and
depreciation
|
176
|
289
|
Total operating
costs and expenses
|
4,580
|
7,070
|
Operating
income
|
465
|
941
|
Other
(expense)
|
(1)
|
(4)
|
Income before
provision for income taxes
|
464
|
937
|
Provision for
income taxes
|
(1)
|
(23)
|
Net
income
|
$ 463
|
$ 914
|
|
|
|
Basic income per
share
|
$ 0.04
|
$ 0.07
|
|
|
|
Diluted income per
share
|
$ 0.04
|
$ 0.07
|
|
|
|
Basic weighted
average common shares outstanding
|
12,743
|
12,620
|
|
|
|
Diluted weighted
average common shares outstanding
|
12,746
|
12,639
|
WHERE
YOU CAN FIND MORE INFORMATION
The
reverse stock split is a “going private” transaction
subject to Rule 13e-3 of the Exchange Act. The Company has filed a
Rule 13e-3 Transaction Statement on Schedule 13E-3 under the
Exchange Act with respect to the reverse stock split. The Schedule
13E-3 contains additional information about the Company. Copies of
the Schedule 13E-3 are available for inspection and copying at the
principal executive offices of the Company during regular business
hours by any interested stockholder of the Company, or a
representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, by written request
directed to Lowell Rush, Chief Financial Officer, Paybox Corp, 500
East Broward Boulevard, Suite 1550, Ft. Lauderdale, FL
33394.
The
Company is currently subject to the information requirements of the
Exchange Act and files periodic reports, proxy statements and other
information with the SEC relating to its business, financial
condition and other matters.
You may
read and copy any document we file at the SEC’s public
reference room at 100 F Street, N.E., Washington, D.C. 20549.
Please call the Commission at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also
available to the public electronically on the SEC’s Website
at http://www.sec.gov.
PROXY
MATERIALS DELIVERED TO A SHARED ADDRESS
The
Company, upon written or oral request, will deliver without charge
a separate copy of this proxy statement, as may be requested, to
any stockholder at a shared address to which only a single copy of
such materials was delivered, as permitted by the SEC.
STOCKHOLDER
PROPOSALS FOR 2017 ANNUAL MEETING
The following
information is being provided in the event that the reverse stock
split is not consummated and our common stock is not deregistered
under the Exchange Act.
Pursuant to Rule
14a-8 under the Exchange Act, stockholder proposals intended to be
presented at the 2017 Annual Meeting of common stockholders must
have been received at our principal office not later than January
4, 2017 to be included in the proxy statement for that
meeting.
If a stockholder
intends to present a proposal for consideration at the 2017 Annual
Meeting outside of the processes of Rule 14a-8 under the Exchange
Act, we must receive notice of such proposal at our principal
office by April 18, 2017, or such notice will be considered
untimely under Rule 14a-4(c)(1) of the Exchange Act, and our
proxies will have discretionary voting authority with respect to
such proposal in our proxy statement.
The deadlines
described above are calculated by reference to the mailing date of
the proxy materials for our 2016 Annual Meeting. If the Board
changes the date of the 2017 Annual Meeting by more than 30 days,
the Board will, in a timely manner, inform stockholders of such
change and the effect of such change on the deadlines given above
by including a notice in our Annual Report on Form 10-K, our
quarterly reports on Form 10-Q, a current report on Form 8-K or by
any other means reasonably calculated to inform
stockholders.
The
Board of Directors does not intend to bring any other business
before the Special Meeting, and, so far as is known to the Board of
Directors, no matters are to be brought before the Special Meeting
except as specified in the Notice of Special Meeting of the
Stockholders. As to any business that may properly come before the
Special Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
We have
not authorized anyone to give any information or make any
representation about the reverse stock split or us that differs
from, or adds to, the information in this proxy statement or in our
documents that are publicly filed with the SEC. If anyone does give
you different or additional information, you should not rely on
it.
WHETHER
OR NOT YOU PLAN TO ATTEND, PLEASE PROMPTLY VOTE BY DATING, SIGNING
AND MAILING THE ENCLOSED PROXY CARD IN THE RETURN ENVELOPE
PROVIDED, OR VOTE BY INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE
ENCLOSED PROXY CARD, TO ENSURE THAT YOUR SHARES WILL BE REPRESENTED
AT THE SPECIAL MEETING.
|
BY
ORDER OF THE BOARD OF
|
|
DIRECTORS
|
|
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|
|
|
|
|
|
Matthew
E. Oakes
|
|
Chairman
of the Board of Directors, Chief Executive Officer and
President
|
Dated: ____________,
2017
CERTIFICATE
OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PAYBOX
CORP
Paybox Corp, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware
(the “Corporation”),
DOES HEREBY CERTIFY:
FIRST: That resolutions were duly adopted by the Board of
Directors of the Corporation setting forth this proposed Amendment
to the Certificate of Incorporation of the Corporation
and declaring said Amendment to be advisable and
recommended for approval by the stockholders of the
Corporation.
SECOND: Immediately upon the effectiveness of this Amendment
to the Corporation’s Certificate of Incorporation (the
“Effective
Date”), each one thousand (1,000) issued and
outstanding shares of the Corporation’s common stock, par
value $0.0001 per share, shall be converted into one (1) share of
the Corporation’s common stock, par value $0.0001 per share,
as constituted following the Effective Date.
THIRD: To accomplish the foregoing Amendment to the
Certificate of Incorporation of the Corporation, the following
paragraph is hereby added immediately after Fourth Section of the
Certificate of Incorporation of the Corporation:
“FOURTH. Reverse Stock Split. Effective
as of the effectiveness of the amendment to this Certificate of
Incorporation (this “Amendment”)
and without regard to any other provision of this Certificate of
Incorporation, each one (1) share of common stock, either issued or
outstanding or held by the Corporation as treasury stock,
immediately prior to the time this Amendment becomes effective
shall be and is hereby automatically reclassified and changed
(without any further act) into one-one thousandth (1/1,000th) of a
fully paid and nonassessable share of common stock without
increasing or decreasing the amount of stated capital or paid-in
surplus of the Corporation, provided that no fractional shares
shall be issued to any registered holder of fewer than 1,000 shares
of common stock immediately prior to the time this Amendment
becomes effective, and that instead of issuing such fractional
shares to such holders, such fractional shares shall be canceled
and converted into the right to receive the cash payment of $0.80
per share (subject to any applicable U.S. federal, state and local
withholding tax) on a pre-split basis to each stockholder owning
fewer than 1,000 shares of common stock immediately prior to the
effective date of this Amendment.”
FOURTH: That, pursuant to resolution of its Board of
Directors, a Special Meeting of the stockholders of the Corporation
was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at
which Special Meeting the necessary number of shares as required by
applicable law was voted in favor of the Amendment.
FIFTH: That said Amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment of the Certificate of Incorporation to be
executed on this ____________ day of _____________________________,
_____.
PAYBOX CORP
Kidron Fairness Opinion
PRELIMINARY COPY
PAYBOX CORP
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
SPECIAL MEETING OF
STOCKHOLDERS – [ ____ ], 2017 AT [ ____
]
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CONTROL
ID:
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REQUEST
ID:
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The
undersigned hereby appoints Matthew E. Oakes and Lowell M. Rush, or
either of them, attorneys and Proxies with full power of
substitution in each of them, in the name and stead of the
undersigned to vote as Proxy all the stock of the undersigned in
Paybox Corp, a Delaware Corporation, at the Special Meeting of
Stockholders scheduled to be held on [ ____ ], 2017 and any
adjournments thereof.
THE
SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF
THEM, AS SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, STOCKHOLDERS MAY
WITHHOLD THE VOTE FOR ONE OR MORE NOMINEE(S) BY MARKING THE VOTE
WITHHELD PROVIDED ON THE REVERSE HEREOF. IF NO SPECIFICATION IS
MADE, THE SHARES WILL BE VOTED FOR EACH OF THE PROPOSALS AS SET
FORTH ON THE REVERSE HEREOF.
|
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(CONTINUED
AND TO BE SIGNED ON REVERSE SIDE.)
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VOTING
INSTRUCTIONS
|
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If
you vote by phone, fax or internet, please DO NOT mail your proxy
card.
|
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MAIL:
|
Please mark, sign,
date, and return this Proxy Card promptly using the enclosed
envelope.
|
|
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FAX:
|
Complete the
reverse portion of this Proxy Card and Fax to 202-521-3464.
|
|
|
INTERNET:
|
https://www.iproxydirect.com/PBOX
|
|
|
PHONE:
|
1-866-752-VOTE(8683)
|
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SPECIAL
MEETING OF THE STOCKHOLDERS OF
PAYBOX CORP
|
PLEASE
COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE:
☒
|
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PROXY SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
|
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Proposal
1
|
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FOR
|
|
AGAINST
|
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ABSTAIN
|
|
|
|
|
Proposal
to amend the Company's Certificate of Incorporation to effect a
1-for-1,000 reverse stock split.
|
|
☐
|
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☐
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☐
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CONTROL
ID:
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REQUEST
ID:
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MARK
“X” HERE IF YOU PLAN TO ATTEND THE MEETING:
◻
|
In their
discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting, and any
adjournment or adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL
1.
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|
MARK HERE FOR
ADDRESS CHANGE ◻ New Address (if
applicable):
____________________________
____________________________
____________________________
IMPORTANT: Please sign exactly as your
name or names appear on this Proxy. When shares are held jointly,
each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized
person.
Dated:
________________________, 2017
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(Print Name of
Stockholder and/or Joint Tenant)
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(Signature of
Stockholder)
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(Second Signature
if held jointly)
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C-2