CAPS Capstone Therapeutics Corporation (QB)

SPECIAL FACTORS – PROPOSAL NO. 2 REVERSE STOCK SPLIT

This section provides information concerning special factors relating to Proposal No. 2 and the proposed 1-for-1,000 Reverse Stock Split and related transactions including the cashing out of fractional shares following such split and subsequent anticipated SEC deregistration.

THE REVERSE STOCK SPLIT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THE REVERSE STOCK SPLIT OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

Overview

The Board has unanimously adopted resolutions approving and recommending to the stockholders for their approval a reverse stock split of all of the outstanding shares of Common Stock, whereby each 1,000 shares would be combined, converted and changed into one share of Common Stock. As described in greater detail below, the Reverse Stock Split is proposed to decrease the number of stockholders of record to a number less than 300 to, among other things, place the Company in a position to voluntarily deregister from the reporting requirements of the Exchange Act.

Following the Reverse Stock Split, the number of issued and outstanding shares of Common Stock would be reduced in accordance with the Reverse Stock Split ratio. Except for adjustments that may result from the treatment of fractional shares, each stockholder will hold the same percentage of the outstanding Common Stock immediately following the Reverse Stock Split as such stockholder held immediately prior to the Reverse Stock Split. As described in greater detail below, as a result of the Reverse Stock Split, stockholders who hold less than 1,000 shares of Common Stock will no longer be stockholders of the Company on a post-split basis.

Board Deliberations

The Board, with input from senior management, regularly reviews and evaluates the Company’s business, strategic plans and prospects. As part of this regular assessment, from time to time, the Board has considered and deliberated the advantages and disadvantages of a potential deregistration transaction. In connection with such assessment, the Board has considered the costs and expenses of remaining a public company, the limited trading in the Common Stock and the other considerations set forth under the sections “Advantages of the Reverse Stock Split” and “Disadvantages of the Reverse Stock Split,” and has also considered other alternatives to the Reverse Stock Split, including those described under the section “Alternatives Considered.”

Following such deliberations and after obtaining input from BP Peptides, LLC (“Brookstone”), the Company’s largest stockholder, and outside legal counsel with respect to the Reverse Stock Split and potential alternatives, at a meeting of the Board held on May 30, 2019 the Board unanimously approved taking all actions, including obtaining stockholder approval, to effectuate the Reverse Stock Split in connection with the next annual meeting of stockholders.

After review and discussion, the Board determined that the proposed Reverse Stock Split is necessary for execution of the Company’s business plan. In addition, the Board determined that voluntarily deregistering is in the overall best interests of the Company after carefully considering several factors, including

all as further disclosed below in the sections “Advantages of the Reverse Stock Split,” “Disadvantages of the Reverse Stock Split” and “Alternatives Considered.”

As further disclosed under “Advantages of the Reverse Stock Split,” the Board has concluded that the costs of preparing and filing periodic reports with the SEC and the increased outside accounting, audit, legal and other costs and expenses associated with being a public company outweigh the perceived benefits of remaining a public company, particularly in light of the limited trading in the Common Stock. The Board also believes the Reverse Stock Split would free management and staff time to focus on long-term business objectives as well as internal financial reporting and analytics to support those objectives. The Board also considered the fact that the notice of the Reverse Stock Split will provide an opportunity for Stockholders to sell their holdings before the Reverse Stock Split or add to their holdings such that they would not have a fractional share after the Reverse Stock Split.

As further disclosed under “Disadvantages of the Reverse Stock Split,” the Board also considered the requirement that stockholders owning less than 1,000 shares of record surrender their shares and accept the Cash-Out Payment as part of the Reverse Stock Split, thereby foregoing any opportunity to participate in any possible future increases in value of the Common Stock. However, to allow stockholders as of the Record Date to participate in the value, if any, of the development efforts of the Company’s approximately 60% owned subsidiary, LipimetiX Development, Inc. (the “JV”), the Board has approved the issuance of certain contingent value rights (“CVR”) pursuant to the terms of a Contingent Value Rights Agreement (the “CVR Agreement”), the form of which is set forth in Appendix B to this proxy statement. The issuance of the CVRs and the CVR Agreement are contingent upon the approval of the Reverse Stock Split (Proposal 2) at the Annual Meeting. The intent of the CVRs is to provide payment to the stockholders, option holders and warrant holders as of the Record Date of the future value realized, if any, and subject to various costs and expenses, from the Company’s ownership interest in the JV. The Board also considered the possible significant decline in value and liquidity of the Common Stock following the Reverse Stock Split. In particular, the Board noted that the Common Stock may suffer further illiquidity following the Reverse Stock Split as a result of the reduced number of shares of Common Stock and the significant increase in the per share price of Common Stock resulting from the Reverse Stock Split. The decreased liquidity of the Common Stock, coupled with the possible absence of publicly available information, may further decrease the value of the shares owned by continuing stockholders.

Neither the Board nor management believes the Reverse Stock Split itself will be a change factor for better performance of the Company, but the Board believes the Reverse Stock Split is a vehicle the Company can use to reduce costs and redirect time and resources currently devoted to regulatory and reporting compliance, assuming the Company’s stockholders of record are reduced below 300 and the Company is able to deregister with the SEC.

As further disclosed under “Alternatives Considered,” the Board also considered issuer purchases and maintaining the status quo as alternatives but concluded ultimately that the proposed Reverse Stock Split was the best method and was in the best interests of the Company and its stockholders. As further disclosed under “Fairness of the Reverse Stock Split,” the Board has further determined that the Reverse Stock Split is substantively and procedurally fair to the unaffiliated stockholders.

Purpose of the Reverse Stock Split

The Common Stock is currently traded on the OTCQB under the symbol “CAPS.” As of April 30, 2019, there were approximately 396 stockholders of record of the Company. We estimate that if the Reverse Stock Split is approved and implemented, the approximate number of record stockholders will be approximately 139.

The primary purpose of the Reverse Stock Split is to enable us to reduce the number of our stockholders of record to fewer than 300 so that we may terminate our public reporting obligations under the Exchange Act. This will allow:

If approved at the Annual Meeting, the Company will effectuate the Reverse Stock Split by filing an amendment to the Charter in substantially the form attached hereto as Appendix A with the Delaware Secretary of State. See Appendix A.

Principal Effects of the Reverse Stock Split

After the Effective Date, each stockholder will own a reduced number of shares of the Common Stock. However, we expect that the market price of the Common Stock immediately after the Reverse Stock Split will increase substantially above the market price of the Common Stock immediately prior to the Reverse Stock Split. The proposed Reverse Stock Split will be effected simultaneously for all of the Common Stock, and the ratio for the Reverse Stock Split will be the same for all of the Common Stock. The Reverse Stock Split will affect all stockholders uniformly and will not affect any stockholder’s percentage ownership interest in the Company, except to the extent that the Reverse Stock Split would result in any of the stockholders owning a fractional share and except for the negligible aggregate effect of the reduction in the total number of shares outstanding as described below. For example, a holder of 2% of the voting power of the outstanding shares of Common Stock immediately prior to the Reverse Stock Split would continue to hold approximately 2% of the voting power of the outstanding shares of Common Stock immediately after the Reverse Stock Split. The number of stockholders of record will be reduced by the proposed Reverse Stock Split to the extent that the Reverse Stock Split results in any stockholders owning only a fractional share as described below.

Our Common Stock is currently registered under Section 12(g) and Section 15(d) of the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act. If the Reverse Stock Split is approved and implemented, the number of record stockholders will be reduced to below 300. Following the Reverse Stock Split, we intend to file a Form 15 to deregister our Common Stock with the SEC and become a non-reporting company under the Exchange Act. As of the date of the filing of the Form 15, we expect our obligations to file reports under the Exchange Act, including Forms 10-K, 10-Q and 8-K, will be suspended. Subsequent to deregistration, we intend to file current information under the OTCQB Alternative Reporting Standard. There can be no assurance, however, that we will continue to provide such information in the future.

The respective rights, preferences or limitations of our Common Stock will remain the same after the proposed Reverse Stock Split as before the split, except to the extent that the Reverse Stock Split would result in any of the stockholders owning a fractional share. For example, the rights of stockholders regarding voting, dividends, liquidation or other rights of the Common Stock will remain the same and will not change as a result of the proposed Reverse Stock Split. In addition, we have decided not to adjust the par value of our Common Stock in connection with the Reverse Stock Split.

As of April 30, 2019, approximately 379,000 shares of our Common Stock, or approximately .7% of the issued and outstanding shares of Common Stock on such date, were held of record by stockholders owning fewer than 1,000 shares. As the fractional shares will be aggregated and sold by our exchange agent on the OTCQB, the impact of the Reverse Stock Split on the percentage ownership of Continuing Stockholders, including any affiliates, will be negligible.

If the Reverse Stock Split is approved and implemented, the approximate number of record stockholders is anticipated to be approximately 139. This would represent an anticipated reduction of approximately 257 pre-split record stockholders out of the approximately 396 stockholders of record as of the Record Date. We do not anticipate any material impact on our financial statements if the Reverse Stock Split is approved and implemented.

All outstanding options, warrants and future or contingent rights to acquire Common Stock will be appropriately adjusted to reflect the Reverse Stock Split. With respect to outstanding options or warrants to purchase Common Stock, the number of shares of Common Stock that such holders may purchase upon exercise of such options or warrants will decrease, and the exercise prices of such options or warrants will increase, in proportion to the fraction by which the number of shares of Common Stock underlying such options or warrants are reduced as a result of the Reverse Stock Split.

Effects of the Reverse Stock Split on Our Tax Benefit Preservation Plan

In April 2017, our Board adopted a Tax Benefit Preservation Plan (the “Tax Benefit Plan”) with Computershare Trust Company, N.A., pursuant to which each outstanding share of our Common Stock has attached one preferred stock purchase right. Each share of our common stock subsequently issued prior to the expiration of the Tax Benefit Plan will likewise have attached one right. Under specified circumstances involving an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, the right under the Tax Benefit Plan that attaches to each share of our Common Stock will entitle the holder thereof to purchase 1/100 of a share of our Series A preferred stock for a purchase price of $5.00 (subject to adjustment), and to receive, upon exercise, shares of our Common Stock having a value equal to two times the exercise price of the right. The number of rights associated with each outstanding share of Common Stock under our Tax Benefit Plan, and certain terms of the rights, will also be adjusted appropriately to reflect the Reverse Stock Split. Accordingly, any stockholder who own less than 1,000 shares of Common Stock prior to the effectiveness of the Reverse Stock Split will no longer own such preferred stock purchase rights following the Reverse Stock Split.

Effects of the Reverse Stock Split on Our Affiliates

The transaction would not differentiate among stockholders on the basis of affiliate status. The sole determining factor in whether a stockholder will become a Cashed-Out Stockholder or a Continuing Stockholder as a result of the Reverse Stock Split is the number of shares held by such stockholder immediately before the effective time of the Reverse Stock Split as no fractional shares will be issued. The beneficial ownership percentage of shares of our Common Stock held by our executive officers and directors and the beneficial ownership percentage of the stockholders who will continue to hold our Common Stock after the Reverse Stock Split, may, however, increase or decrease as a result of any purchases, sales and other transfer of shares of our Common Stock by our stockholders prior to the effective time of the Reverse Stock Split. As the fractional shares will be aggregated and sold by our exchange agent on the OTCQB, the impact of the Reverse Stock Split on the percentage ownership of Continuing Stockholders, including any affiliates, will be negligible.

As of May 31, 2019, approximately 26,013,827 shares of our Common Stock, or approximately 42.8% of the issued and outstanding shares of Common Stock on such date, were beneficially held, directly or indirectly, by our executive officers and directors. The table below reflects the pre-Reverse Stock Split and an estimate of the post-Reverse Stock Split beneficial ownership of the Company’s Common Stock at May 31, 2019 with respect to (i) each person known to the Company to own beneficially more than five percent of the outstanding shares of the Company’s Common Stock, (ii) each director of the Company, (iii) each of the named executive officers and (iv) all directors and executive officers of the Company as a group. At May 31, 2019, there were 54,385,411 shares of the Company’s Common Stock outstanding. The percentage calculation post-Reverse Stock Split is based on the assumption that 54,385 shares of our Common Stock will remain outstanding after the Reverse Stock Split.

The address of each of the listed stockholders, unless noted otherwise, is in care of Capstone Therapeutics Corp., 1275 West Washington Street, Suite 104, Tempe, AZ 85281.

Additionally, directors, executive officers and 10% stockholders and their affiliates will be relieved of certain SEC reporting requirements and “short-swing profit” trading provisions under Section 16 of the Exchange Act, and public disclosure of information regarding their compensation and stock ownership will no longer be required. The Company after deregistration would also no longer be prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act, from making personal loans to directors or executive officers.

Our executive officers, including certain members of our Board, hold options to acquire shares of our Common Stock (see “Compensation of Directors” and “Executive Compensation - Outstanding Equity Awards at Fiscal Year-End” in this proxy statement for additional information). 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 May 31, 2019, Brookstone held warrants to purchase 6,321,930 shares of our Common Stock. These warrants will remain outstanding after the reverse stock split, but the number of shares issuable upon exercise of each warrant 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.

We do not have any agreement, arrangement or understanding, whether written or unwritten, with any of our affiliates pursuant to which we are obligated to pay to any affiliate compensation, whether present, deferred or contingent, that is based on, or otherwise relates to, the Reverse Stock Split. All of our officers and directors will continue in such capacity after the Reverse Stock Split.

To the extent known by the Company, each executive officer or director of the Company that is entitled to vote at the Annual Meeting intends to vote for the Reverse Stock Split. No executive officer or director of the Company will be entitled to the Cash-Out Payment, except for payment for any fractional shares that may result from the Reverse Stock Split.

Treatment of Fractional Shares

No scrip or fractional shares would be issued if, as a result of the Reverse Stock Split, a registered stockholder would otherwise become entitled to a fractional share. Cashed-Out Stockholders (i.e., those who own fewer than 1,000 shares of Common Stock on the Effective Date) will receive a cash payment for their fractional shares In addition, Continuing Stockholders (i.e., those holding more than 1,000 shares on the Effective Date) who would otherwise hold fractional shares because the number of shares of Common Stock they hold before the Reverse Stock Split is not evenly divisible by the split ratio will be entitled to receive a cash payment from our exchange agent in lieu of such fractional shares. Such cash payment is subject to applicable U.S. federal and state income tax and state abandoned property laws. Stockholders will not be entitled to receive interest for the period of time between the Effective Date and the date payment is received. Subject to our agreement with our exchange agent, in lieu of issuing fractional shares, the aggregate of all fractional shares otherwise issuable to the holders of record of Common Stock shall be issued to our exchange agent for the Common Stock, as agent, for the accounts of all holders of record of Common Stock otherwise entitled to have a fraction of a share issued to them. The sale of all fractional interests will be affected by our exchange agent as soon as practicable after the Effective Date on the basis of prevailing market prices of the Common Stock at the time of sale. We expect that our exchange agent will conduct the sale in an orderly fashion at a reasonable pace and that it may take several days to sell all of the aggregated fractional shares of our Common Stock. After such sale and upon the surrender of the stockholders’ stock certificates, if any, our exchange agent will pay to such holders of record their pro rata share of the net proceeds (after customary brokerage commissions and other expenses) derived from the sale of the fractional interests.

Stockholders would not be entitled to receive interest for the period between the Effective Date and the date payment is made for their fractional shares. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other rights except to receive payment as described herein.

As a result of the Reverse Stock Split, stockholders who hold less than 1,000 shares of Common Stock will no longer be stockholders of the Company on a post-split basis. In other words, any holder of 999 or fewer shares of Common Stock prior to the effectiveness of the Reverse Stock Split would only be entitled to receive cash for the fractional share of Common Stock such stockholder would hold on a post-split basis. The actual number of stockholders that will be eliminated will depend on the actual number of stockholders holding less than 1,000 shares of Common Stock on the Effective Date. Reducing the number of post-split stockholders is the purpose of the Reverse Stock Split.

If you do not hold sufficient shares of pre-split Common Stock to receive at least one post-split share of Common Stock and you want to hold Common Stock after the Reverse Stock Split, you may do so by taking either of the following actions far enough in advance so that it is completed before the Reverse Stock Split is effected:

Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where the Company is domiciled and where the funds for fractional shares would be deposited, sums due to stockholders in payment for fractional shares that are not timely claimed after the effective time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.

Advantages of the Reverse Stock Split

Cost Savings

The costs of being a public reporting company are significant and have increased over the years, including as a result of compliance with the internal control assessment and audit requirements of Section 404 and other requirements imparted by Sarbanes-Oxley Act and the Dodd-Frank Act. These and other requirements increase audit fees and other costs of compliance, such as outside securities legal counsel fees, as well as outside director fees and insurance premiums to cover potential liability faced by our officers and directors. We also incur substantial indirect costs as a result of, among other things, our management’s time expended to prepare and review our public filings.

The Board believes that by deregistering our shares of Common Stock and suspending our periodic reporting obligations we will currently realize a small amount of annual cost savings, but these savings are expected to become material to the Company if it is successful in the execution of its current business plan, including with respect to any acquisitions. These potential cost savings reflect, among other things: (i) a reduction in audit, legal and other fees required for publicly held companies, (ii) the elimination of various internal costs associated with filing periodic reports with the SEC, and (iii) the reduction or elimination of various clerical and other expenses associated with being a public company.

Additionally, the Reverse Stock Split is expected to reduce the administrative burden and expense of maintaining many small stockholders’ accounts.

Limited Liquidity of Common Stock

The Board further believes that the perceived benefits of remaining a public company are outweighed by the costs, particularly in light of the limited public trading value, liquidity and analyst coverage of the Common Stock. The Common Stock is traded on the OTCQB under the symbol “CAPS”. As of May 31, 219, the Company had outstanding 54,385,411 shares of Common Stock. Over the twelve-month period ending April 30, 2019, the average daily trading volume of the Common Stock on the OTCQB was approximately 25,000 shares, or less than 1% of the total outstanding shares as of April 30, 2019. We are not aware of any analyst coverage of the Common Stock.

Additional Potential Management Resources Arising from Reduced Disclosure Obligations

Another benefit is that the proposed Reverse Stock Split would free management and staff time to focus on long-term business objectives. In particular, our management will also be able to focus on long-term growth without undue emphasis on short-term financial results that is often expected of SEC reporting companies.

Disadvantages of the Reverse Stock Split

Holders of less than 1,000 shares of record will be required to give up their shares and accept cash consideration.

The Reverse Stock Split of 1-for-1,000 will force stockholders who own less than 1,000 shares of record to be cashed-out for the Cash-Out Payment. Further, any such stockholders will no longer own any preferred stock purchase rights associated with our Common Stock pursuant to the Tax Benefit Plan following the Reverse Stock Split. Other than acquiring more shares of stock before the Effective Date, stockholders may only vote against the proposed Reverse Stock Split, but if the Reverse Stock Split proposal is approved and implemented, stockholders who own less than 1,000 shares of record will be required to sell for the Cash-Out Payment. However, to allow stockholders as of the Record Date to participate in the value, if any, of the development efforts of the Company’s approximately 60% owned subsidiary, LipimetiX Development, Inc., the Board has approved the issuance of CVRs pursuant to the terms of the CVR Agreement, the form of which is set forth in Appendix B to this proxy statement. The issuance of the CVRs and the CVR Agreement are contingent upon the approval of the Reverse Stock Split (Proposal 2) at the Annual Meeting. The intent of the CVRs is to provide payment to the stockholders, option holders and warrant holders as of the Record Date of the future value realized, if any, and subject to various costs and expenses, from the Company’s ownership interest in the JV.

Reduction of Public Sale Opportunities for our Stockholders

Following the transaction, we anticipate that the market for shares of our Common Stock will be less active and may be eliminated altogether. While we currently intend to file current information under the OTCQB Alternative Reporting Standard, there can be no assurance, however, that we will continue to provide such information in the future. If we discontinue our eligibility for trading on the OTCQB, stockholders may no longer have the option of selling their Common Stock in a public market. While shares may still be quoted in the Pink Sheets, that market may be highly illiquid.

Loss of Certain Publicly Available Information

Upon terminating the registration of our Common Stock under the Exchange Act, our duty to file periodic reports with the SEC will be suspended. The information regarding our operations and financial results that is currently available to the general public and our investors will not be available after we have terminated our registration, unless we voluntarily elect to continue providing such information to the public in order to maintain the eligibility of our Common Stock for trading on the OTCQB. Although we plan to continue providing current information under the OTCQB Alternative Reporting Standard in the near-term, we cannot assure stockholders that we will continue to do so. If we do not, investors seeking information about us may have to contact us directly to request such information. We cannot assure you that we will provide the requested information to an investor. While the Board acknowledges the circumstances in which such termination of publicly available information may be disadvantageous to some of our stockholders, the Board believes that the overall benefit to the Company of no longer being a public reporting company substantially outweighs the disadvantages.

If the Company is no longer subject to certain liability provisions of the Exchange Act, including those associated with officer certifications required by Sarbanes-Oxley, stockholders will find that the information provided to them is more limited and that their recourse for alleged false or misleading statements is also more limited.

Possible Significant Decline in the Value and Liquidity of the Common Stock

The market price of our Common Stock is based on our performance and other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Stock Split is effected and the market price of our Common Stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a Reverse Stock Split. In many cases, both the total market capitalization of a company and the market price of a share of such company’s common stock following a reverse stock split are lower than they were before the reverse stock split.

Furthermore, the liquidity of our Common Stock could be adversely affected by the reduced number of shares that would be outstanding after the Reverse Stock Split, as well as the increase in the stock price triggered by the Reverse Stock Split.

The decreased liquidity of the Common Stock, coupled with an absence of publicly available information, may further decrease the value of the shares owned by continuing stockholders.

Inability to Participate in any Future Increases in Value of our Common Stock

Cashed-Out Stockholders will not have the opportunity to participate in any potential appreciation in the value of our shares. However, to allow stockholders as of the Record Date to participate in the value, if any, of the development efforts of the Company’s approximately 60% owned subsidiary, LipimetiX Development, Inc., the Board has approved the issuance of CVRs pursuant to the terms of the CVR Agreement, the form of which is set forth in Appendix B to this proxy statement. The issuance of the CVRs and the CVR Agreement are contingent upon the approval of the Reverse Stock Split (Proposal 2) at the Annual Meeting. The intent of the CVRs is to provide payment to the stockholders, option holders and warrant holders as of the Record Date of the future value realized, if any, and subject to various costs and expenses, from the Company’s ownership interest in the JV. The Board believes that the Reverse Stock Split is nonetheless fair to our unaffiliated stockholders, because those stockholders are being cashed out at a fair price for their shares and will participate in the value, if any, of the Company’s ownership interest in the JV through the CVRs.

Exchange Act Reporting Requirements May Be Reinstituted

The Reverse Stock Split will allow us to suspend, and not terminate, our filing obligations under Section 15(d) of 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.

Alternatives Considered

The Board considered alternative transactions to reduce the number of stockholders but concluded ultimately that the proposed Reverse Stock Split was the best method and was in the best interests of the Company and its stockholders.

The Board considered issuer purchases, e.g., by tender offer, but concluded that the Company did not have sufficient resources to effectuate such purchases at the level that would reduce record stockholders to below 300, particularly given the potentially increased expenses involved compared to a reverse stock split, including higher legal costs and other transactional expenses.

The Board also considered doing nothing or maintaining the status quo. The Board concluded, however, that this alternative would not allow the Company to achieve the significant potential benefits of completing the Reverse Stock Split and deregistering the Company’s common shares so the Company would no longer be an SEC reporting company. The Board concluded that maintaining the status quo would result in the Company continuing to be burdened by the costs and expenses of remaining a public company without enjoying the benefits traditionally associated with public reporting company status.

The Board unanimously agreed that the significant costs of operating as a reporting company warranted deregistering the Common Stock under the Exchange Act and that the most viable method to achieve that deregistration was a Reverse Stock Split. The Board also agreed that the historically limited trading activity of the Company’s Common Stock supported the conclusion that it was in the Company’s best interest to effectuate a Reverse Stock Split and deregistration.

Fairness of the Reverse Stock Split

The Board has fully reviewed and considered the terms, purpose, alternatives and effects of the Reverse Stock Split, and has unanimously determined that the transaction is in the Company’s best interests and is substantively and procedurally fair to the unaffiliated stockholders.

The Reverse Stock Split does not require the approval of a majority of our unaffiliated stockholders. Despite the foregoing, the Board believes that the Reverse Stock split is substantively and procedurally fair to each differently- impacted group of stockholders – those unaffiliated stockholders who will be cashed out and those affiliated and unaffiliated stockholders who will be Continuing Stockholders. The Board bases its belief on:

In addition, Continuing Stockholders have the advantage of continuing as stockholders in a company that will not be subject to the costs associated with being a public company. These savings should decrease our ongoing expenses.

As discussed further below, the Board believes the Cash-Out Payment is fair to our stockholders as it is based on the arms-length trading activity as reported on the OTCQB stock exchange.

The Board considered the net book value per share of our common stock in relation to the possible Cash-Out Payment. The net book value per share (negative) of our common stock was equal to approximately ($.04) and ($.02), as of March 31, 2019 and December 31, 21018, respectively. Net book value is defined generally as total assets minus total liabilities. While the Board considered the relationship of market value to net book value in its deliberations, the Board does not view net book value alone to be a material indicator of the fair value of our common stock but rather indicative of historical costs. The Board notes that net book value does not take into account our future prospects, market conditions, trends in the industry in which we conduct our business or the business risks inherent in competing with other companies in the same industry. The Board further notes that net book value does not state all assets and liabilities at market value, nor does it take into account the other considerations that might be part of a transaction between a willing buyer and a willing seller.

The Board did not seek to establish, and did not consider, a going concern valuation because the Board determined that the costs associated with engaging an independent financial advisor to assist the Board in analyzing and providing an accurate estimate of our going concern value exceeded the anticipated benefits of such analysis. In addition, the Board believes that the market value determined by the public trading market reflected any value attributable to the Company as a going concern.

The Board further views the liquidation value of the Company to be an inappropriate measure for the purpose of evaluating the fairness of the Cash-Out Payment because the Board considers the Company to be a viable going concern business. There is no present intention of liquidating the Company. Further, the Reverse Stock Split will only result in the termination of an equity interest by those stockholders whose holdings are reduced to fractional shares as a result of the Reverse Stock Split. A liquidation process would also involve additional legal fees, costs of sale and other expenses that would reduce any amounts that stockholders might receive upon liquidation. In addition, the Board believes that the value of the Company’s assets that might be realized in liquidation may be substantially less than its going concern value. Given the other factors considered by the Board as described in this proxy statement, the Board did not pursue a liquidation value approach.

The Board further considered the price of shares in connection with the following transactions and determined that the Cash-Out Payment fairly reflects a premium for a large block of shares (see “Certain Relationships And Related Transactions” in this proxy statement for additional information):

The Board did not have the benefit of any firm offers made within the past two years regarding the merger or consolidation of the Company with or into any other company, the sale or other transfer of all or a substantial portion of the assets of the Company or a purchase of the Company's Common Stock that would enable the purchaser to exercise control of the Company to consider as part of its deliberations.

In evaluating the fairness of the Reverse Stock Split with respect to the unaffiliated stockholders in particular, the Board also noted that the transaction would not differentiate among stockholders on the basis of affiliate status. The sole determining factor in whether a stockholder will become a Cashed-Out Stockholder or a Continuing Stockholder as a result of the Reverse Stock Split is the number of shares held by such stockholder immediately before the Effective Date as no fractional shares will be issued. Accordingly, 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. Furthermore, the proposed Reverse Stock Split does not require the separate approval of stockholders unaffiliated with the Company.

Furthermore, although stockholders with less than 1,000 shares of our common stock will be cashed out mandatorily if the Reverse Stock Split is approved, the Board considered that this potentially coercive impact of the transaction is minimized by the ability of stockholders with less than 1,000 pre-split shares to buy additional shares, at a relatively low cost per share, to get to 1,000 by the Record Date and thereby avoid cash-out if they prefer.

The Board also considered the advantages and disadvantages of the Reverse Stock Split discussed in the sections “Advantages of the Reverse Stock Split,” “Disadvantages of the Reverse Stock Split” and “Alternatives Considered” in reaching its conclusion as to the substantive and procedural fairness of the Reverse Stock Split to our unaffiliated stockholders. The Board did not assign specific weight to each advantage and disadvantage in a formulaic fashion. However, the Board noted in their analysis that the Company historically had limited trading activity and coupled with the costs associated with remaining a public company supported the conclusion that the Company needed to effectuate a Reverse Stock Split.

We have not made any special provision in connection with the Reverse Stock Split to grant stockholders access to our corporate files or to obtain counsel or appraisal services at our expense. The Board determined that these steps were not necessary to ensure the fairness of the Reverse Stock Split. In particular, the Board determined that such steps would be costly, time consuming and would not provide any meaningful additional benefits. Additionally, the Board believes that this proxy statement, together with our other filings with the SEC, provide adequate information for our stockholders to make an informed decision with respect to the Reverse Stock Split.

The Board did not request or rely on a fairness opinion on behalf of unaffiliated stockholders or potential Cashed-Out Stockholders. The potential costs of such an opinion were considered to be quite substantial compared to any potential value of such an opinion. The Board believes the Cash-Out Payment is fair to our stockholders as it is based on the arms-length trading activity as reported on the OTCQB stock exchange. Further, Cashed-Out Stockholders, as stockholders of record as of the Record Date, will nonetheless be entitled to receive the CVRs. In addition, stockholders who are potential Cashed-Out Stockholders would have the opportunity to buy more shares for nominal consideration before the split so as to avoid being Cashed-Out Stockholders immediately before the effective date of such split. Similarly, stockholders who hold somewhat more than 1,000 shares before the proposed split and would like to become Cashed-Out Stockholders could do so simply by selling enough of their shares so that they would have less than 1,000 shares immediately before such split.

Exchange of Stock Certificates

As soon as practicable after the Effective Date, stockholders will be notified that the Reverse Stock Split has been effected. The Company’s transfer agent will act as “exchange agent” for purposes of implementing the exchange of stock certificates. If any of your shares are held in certificated form (that is, you do not hold all of your shares electronically in book-entry form), you will receive a letter of transmittal from the Company’s exchange agent as soon as practicable after the Effective Date, which will contain instructions on how to obtain post-split shares. You must complete, execute and submit to the exchange agent the letter of transmittal in accordance with its instructions and surrender your stock certificate(s) formerly representing shares of stock prior to the Reverse Stock Split (or an affidavit of lost stock certificate containing an indemnification of the Company for claims related to such lost stock certificate). Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares of Common Stock either as stock certificates (including legends, if appropriate) or electronically in book-entry form, as determined by the Company. This means that, instead of receiving a new stock certificate, you may receive a direct registration statement that indicates the number of post-split shares you own in book-entry form. At any time after receipt of your direct registration statement, you may request a stock certificate representing your post-split ownership interest. If you are entitled to payment in lieu of any fractional share interest, payment will be made as described above under the heading “Treatment of Fractional Shares.” No direct registration statements, new stock certificates or payments in lieu of fractional shares will be issued to a stockholder until such stockholder has properly completed and executed a letter of transmittal and surrendered such stockholder’s outstanding certificate(s) to the exchange agent. If you hold any or all of your shares electronically in book-entry form, please see the section below under the heading “Effect on Registered Book-Entry Holders.”

STOCKHOLDERS SHOULD NOT DESTROY ANY PRE-SPLIT STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.

Effect on Beneficial Owners

Stockholders holding Common Stock through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the Reverse Stock Split than those that would be put in place by the Company for registered stockholders that hold such shares directly, and their procedures may result, for example, in differences in the precise cash amounts being paid by such nominees in lieu of a fractional share. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you are encouraged to contact your bank, broker or nominee.

Effect on Registered Book-Entry Holders

The Company’s registered stockholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These stockholders will not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

Accounting Consequences

The par value per share of the Common Stock would remain unchanged at $0.0005 per share after the Reverse Stock Split. As a result, on the Effective Date, the par value on the Company’s balance sheet attributable to the Common Stock will be reduced proportionally from its present amount, and the additional paid in capital account shall be credited with the amount by which the par value for total shares outstanding post-split is reduced. The per share Common Stock net income or loss and net book value will be increased because there will be fewer shares of Common Stock outstanding. The Company does not anticipate that any other accounting consequences would arise as a result of the Reverse Stock Split.

No Appraisal Rights

Stockholders are not entitled to appraisal rights under Delaware law with respect to the proposed amendment to the Charter to effect the Reverse Stock Split. The Board did not consider the presence or lack of appraisal rights to be a material factor in its consideration and approval of the Reverse Stock Split.

Sources of Funds and Expenses

Based on estimates of the record ownership of shares of the Common Stock, the number of shares outstanding and other information as of May 31, 2019, we estimate that the total funds required to consummate the Reverse Stock Split will be approximately $115,000, of which approximately $115,000 will be used to pay the costs of the Reverse Stock Split as follows: $25,000 of legal fees, $75,000 of transfer agent fees and $15,000 of other costs, including costs of printing and mailing. The Company plans to pay out all the costs of the Reverse Stock Split from the Company’s available cash resources.

Trading Market and Price

Our Common Stock commenced trading on Nasdaq on January 28, 1993 and was delisted by Nasdaq on July 21, 2011. Our Common Stock is currently traded on the OTCQB under the symbol “CAPS.” The following table sets forth, for the fiscal periods indicated, the range of high and low sales prices of our Common Stock.

Dividends

We have never paid a cash dividend on our Common Stock. We do not intend to pay any cash dividends on our common stock in the foreseeable future.

Prior Public Offerings

We have not made an underwritten public offering of our Common Stock for cash during the three years preceding the date of this proxy statement.

Prior Stock Purchases

We have not repurchased any shares of our Common Stock in the past two years.

Conduct of Our Business after the Reverse Stock Split

As described in this proxy statement, one of the primary reasons for the Company’s desire to cease to be a SEC reporting entity is the added cost and complexity of SEC rules and regulations on operations of a small company, which the Company currently is, and in execution of the Company’s future business plan of conducting its current primary business, biotech research and development, through an approximately 60% owned joint venture, and exploring future acquisitions of small private companies, to gain scale for administrative costs, diversify risks and utilize our current federal net operation loss carryovers. We have limited assets and need to take action to increase our potential to continue in business. We have been evaluating potential merger or acquisition opportunities and pursuing funding for our joint venture for several years, as disclosed in our SEC filings, but no 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 have been formalized. We expect to conduct our business and operations after the Effective Date in substantially the same manner as currently conducted, until funding for our joint venture is obtained or a merger or acquisition transaction occurs, however no assurance can be given that either event will occur.

Except as described in this proxy statement, 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 general discussion of certain material U.S. federal income tax consequences of the Reverse Stock Split to U.S. holders (defined below) of our stock. This discussion is for general information purposes only, is not intended as tax advice to any person or entity. All stockholders are urged to consult with their own tax advisors with respect to the tax consequences of the Reverse Stock Split. This discussion assumes that the pre-split shares were, and the post-split shares will be, held as “capital assets,” as defined in Section 1221 of the Code.

This discussion does not address the tax consequences of the Reverse Stock Split arising pursuant to the unearned income Medicare contribution tax, the laws of any state, local, or non-U.S. jurisdiction, any U.S. federal estate or gift tax consequences, or any U.S. federal tax consequences other than the material federal income tax consequences specifically addressed below. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), and current Treasury Regulations, administrative rulings and court decisions, all of which are subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. This discussion does not address the tax consequences to stockholders who are subject to special tax rules, such as banks, insurance companies, regulated investment companies, financial institutions, personal holding companies, partnerships (or entities treated as partnerships for U.S. federal income tax purposes), stockholders who are not U.S. holders (as defined herein), U.S. holders whose functional currency is not the U.S. dollar, stockholders who hold their shares as “qualified small business stock” or “Section 1244” stock, broker-dealers (or other dealers in securities), stockholders who hold their stock as part of a straddle, hedge, conversion transaction, or other integrated investment, holders that received their stock pursuant to the exercise of employee stock options or otherwise as compensation, retirement plans, tax-exempt entities, or persons subject to the alternative minimum tax.

If an entity treated as a partnership for U.S. federal income tax purposes owns shares, the U.S. federal income tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships that are owners of shares, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal, state, and local tax, non-U.S. tax, and non-income tax consequences to them of the Reverse Stock Split.

We have not sought any ruling from the Internal Revenue Service (“IRS”), nor have we sought an opinion from counsel with respect to the statements made and conclusions reached throughout this general discussion. There can be no assurance that the IRS would agree with the statements and conclusions set forth throughout this discussion, nor is there any assurance that such statements and conclusions will be sustained by a court if challenged by the IRS.