UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 4)
| Filed by the Registrant | x |
| Filed by a Party other than the Registrant | o |
Check the appropriate box:
 |
|
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| x | Preliminary Proxy Statement | |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| o | Definitive Proxy Statement | |
| o | Definitive Additional Materials | |
| o | Soliciting Material Under Rule 14a-12 |
HEALTHCARE ACQUISITION CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| o | No fee required. |
| x | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: Common Stock of Healthcare Acquisition Corp. |
| (2) | Aggregate number of securities to which transaction applies: Acquisition of all of the outstanding securities of PharmAthene, Inc. |
| (3) | 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): N/A |
| (4) | Proposed maximum aggregate value of transaction: $112,500,000 (including up to a maximum of $10,000,000 in milestone payments, 12,500,000 shares of HAQ common stock valued at $7.20 per share based upon the closing price on July 10, 2007 and $12,500,000 in 8% convertible notes) is being paid in exchange for all outstanding capital stock, options, warrants and notes. |
| (5) | Total fee paid: 12,479.00 (previously paid) |
| o | Fee paid previously with preliminary materials. |
| o | 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. |
| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party |
| (4) | Date Filed: |
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
HEALTHCARE ACQUISITION CORP.
2116 Financial Center
666 Walnut Street
Des Moines, Iowa 50309
To the Stockholders of Healthcare Acquisition Corp.:
You are cordially invited to attend a special meeting of the stockholders of Healthcare Acquisition Corp., or HAQ, to be held on July 27, 2007. At the meeting you will be asked to consider proposals relating to the proposed merger of PAI Acquisition Corp., referred to in the attached proxy statement as Merger Sub, a wholly-owned subsidiary of HAQ, into PharmAthene, Inc., referred to in the proxy statement as PharmAthene, resulting in PharmAthene becoming a wholly-owned subsidiary of HAQ. PharmAthene is a privately-held company engaged in the biodefense industry, specifically the discovery and development of new human therapeutics and prophylactics for the treatment and prevention of morbidity and mortality from exposure to chemical and biological weapons.
The special meeting will be held at 10:00 a.m., Eastern Time, on July 27, 2007, at the offices of McCarter & English, LLP, 245 Park Avenue, 27th Floor, New York, NY, 10167-0001 (the “Special Meeting”). At this important meeting, you will be asked to consider and vote upon the following proposals:
| • | the Merger Proposal — the proposed merger with PharmAthene, Inc. (the “Merger”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated as of January 19, 2007, by and among HAQ, Merger Sub and PharmAthene, and the transactions contemplated thereby, whereby PharmAthene will become a wholly-owned subsidiary of HAQ (“Proposal 1” or the “Merger Proposal”) and the stockholders, optionholders, warrantholders and noteholders of PharmAthene shall receive the following consideration (having an aggregate value of $112,500,000 if the maximum milestone payments are achieved and paid and assuming a price of $7.20 per share of HAQ common stock): |
| (i) | an aggregate of 12,500,000 shares of HAQ common stock; |
| (ii) | $12,500,000 in 8% convertible notes issued by HAQ; and |
| (iii) | up to $10,000,000 in milestone payments (if certain conditions are met). |
| • | the Amendment Proposal — the amendment to HAQ's amended and restated certificate of incorporation (the “Certificate of Incorporation Amendment”), to: (i) change HAQ's name from “Healthcare Acquisition Corp.” to “PharmAthene, Inc.”; (ii) remove certain provisions containing procedural and approval requirements applicable to HAQ prior to the consummation of the business combination that will no longer be operative after the consummation of the Merger; and (iii) grant to holders of convertible promissory notes issued in the Merger the right to designate three members to the Board of Directors of HAQ for so long as at least 30% of the original face value of such notes remain outstanding (“Proposal 2” or the “Amendment Proposal”); |
| • | the Incentive Plan Proposal — the adoption of the 2007 Long-Term Incentive Plan (the “Incentive Plan”) pursuant to which HAQ will reserve 3,500,000 shares of common stock for issuance pursuant to the Plan (“Proposal 3” or the “Incentive Plan Proposal”); |
| • | the Adjournment Proposal — the adjournment of the Special Meeting (the “Adjournment”), if necessary and appropriate, for the purpose of soliciting additional proxies if there are not sufficient votes for the foregoing proposals (“Proposal 4” or the “Adjournment Proposal”); and |
| • | such other business as may properly come before the meeting or any adjournment or postponement thereof. |
HAQ's shares of common stock and warrants are listed on the American Stock Exchange under the symbols HAQ and HAQ-WT, respectively. If each of the Merger Proposal, the Amendment Proposal and the Incentive Plan Proposal are approved, the operations and assets of PharmAthene will become those of HAQ, and HAQ's name will be changed to “PharmAthene, Inc.” upon consummation of the Merger.
After careful consideration of the terms and conditions of the proposed merger with PharmAthene, the Certificate of Incorporation Amendment, the adoption of the Incentive Plan and the Adjournment, the Board of Directors of HAQ has determined that such proposals and the transactions contemplated thereby are fair to, and in the best interests of, HAQ and its stockholders. Such determination with respect to the proposed Merger was based upon various factors as described in the enclosed Proxy Statement including the Board’s independent analysis of PharmAthene’s business, technology and future prospects, PharmAthene’s management and historical investments in PharmAthene by third parties. No fairness opinion or valuation analysis was sought or obtained by the Board of Directors nor did the Board determine a specific value for PharmAthene.
HAQ’s initial stockholders, including all of its directors and officers and their affiliates, presently own an aggregate of approximately 19.3% of the outstanding shares of HAQ common stock which shares were purchased prior to the IPO, and all of these stockholders have agreed to vote the shares acquired prior to the IPO in accordance with the vote of the majority in interest of all other HAQ stockholders on the Merger Proposal. In addition, certain members of our Board of Directors have purchased an additional 250,000 shares (2.14% of the outstanding shares of common stock of HAQ) and have advised us that they intend to vote these shares in favor of the Merger.
The Board of Directors of HAQ unanimously recommends that you vote or give instruction to vote: (i) “FOR” the Merger Proposal; (ii) “FOR” the Amendment Proposal; (iii) “FOR” the Incentive Plan Proposal; and (iv) “FOR” the Adjournment Proposal, all as described in Proposals 1, 2, 3 and 4, respectively, in the attached proxy statement.
Enclosed is a Notice of Special Meeting and proxy statement containing detailed information concerning the proposed Merger, the Certificate of Incorporation Amendment, the Incentive Plan and the Adjournment. Whether or not you plan to attend the Special Meeting, we urge you to read this material carefully. We look forward to seeing you at the meeting.
Sincerely,
John Pappajohn
Chairman of the Board
and Secretary
Neither the Securities and Exchange Commission nor any state securities commission has determined if the attached proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.
The proxy statement is dated July 12, 2007 and is first being mailed to HAQ stockholders on or about July 16, 2007.
IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOU WILL NOT BE ELIGIBLE TO HAVE YOUR SHARES CONVERTED INTO A PRO RATA PORTION OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE NET PROCEEDS OF HAQ’S INITIAL PUBLIC OFFERING ARE HELD. YOU MUST AFFIRMATIVELY VOTE AGAINST THE MERGER PROPOSAL AND DEMAND THAT HAQ CONVERT YOUR SHARES INTO CASH NO LATER THAN THE CLOSE OF THE VOTE ON THE MERGER PROPOSAL TO EXERCISE YOUR CONVERSION RIGHTS. SEE “SPECIAL MEETING OF HAQ STOCKHOLDERS — CONVERSION RIGHTS” FOR MORE SPECIFIC INSTRUCTIONS.
SEE ALSO “RISK FACTORS” FOR A DISCUSSION OF VARIOUS FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE MERGER.
HEALTHCARE ACQUISITION CORP.
2116 Financial Center
666 Walnut Street
Des Moines, Iowa 50309
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 27, 2007
TO THE STOCKHOLDERS OF HEALTHCARE ACQUISITION CORP.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Special Meeting”), including any adjournments or postponements thereof, of Healthcare Acquisition Corp., a Delaware corporation (“HAQ”), will be held at 10:00 a.m., Eastern Time, on July 27, 2007, at the offices of at the offices of McCarter & English, LLP, 245 Park Avenue, 27th Floor, New York, NY, 10167-0001, at which you will be asked to consider and vote upon the following:
| • | the Merger Proposal — the proposed merger with PharmAthene, Inc. (the “Merger”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated as of January 19, 2007, by and among HAQ, Merger Sub and PharmAthene, and the transactions contemplated thereby, whereby PharmAthene will become a wholly-owned subsidiary of HAQ (“Proposal 1” or the “Merger Proposal”) and the stockholders, optionholders, warrantholders and noteholders of PharmAthene shall receive the following consideration (having an aggregate value of $112,500,000 if the maximum milestone payments are achieved and paid and assuming a price of $7.20 per share of HAQ common stock): |
| (i) | an aggregate of 12,500,000 shares of HAQ common stock; |
| (ii) | $12,500,000 in 8% convertible notes issued by HAQ; and |
| (iii) | up to $10,000,000 in milestone payments (if certain conditions are met). |
| • | the Amendment Proposal — the amendment to HAQ's amended and restated certificate of incorporation (the “Certificate of Incorporation Amendment”), to: (i) change HAQ's name from “Healthcare Acquisition Corp.” to “PharmAthene, Inc.”; (ii) remove certain provisions containing procedural and approval requirements applicable to HAQ prior to the consummation of the business combination that will no longer be operative after the consummation of the Merger; and (iii) grant to holders of convertible promissory notes issued in the Merger the right to designate three members to the Board of Directors of HAQ for so long as at least 30% of the original face value of such notes remain outstanding (“Proposal 2” or the “Amendment Proposal”); |
| • | the Incentive Plan Proposal — the adoption of the 2007 Long-Term Incentive Plan (the “Incentive Plan”) pursuant to which HAQ will reserve 3,500,000 shares of common stock for issuance pursuant to the Plan (“Proposal 3” or the “Incentive Plan Proposal”); |
| • | the Adjournment Proposal — the adjournment of the Special Meeting (the “Adjournment”), if necessary and appropriate, for the purpose of soliciting additional proxies if there are not sufficient votes for the foregoing proposals (“Proposal 4” or the “Adjournment Proposal”); and |
| • | such other business as may properly come before the meeting or any adjournment or postponement thereof. |
These proposals are described in the attached proxy statement which HAQ urges you to read in its entirety before voting.
Each of the Amendment Proposal and the Incentive Plan Proposal are conditioned upon the approval of the Merger Proposal and, in the event the Merger Proposal does not receive the necessary vote to approve that proposal, then HAQ will not complete any of the transactions identified in any of the proposals. If the Merger proposal is approved but the Amendment Proposal or Incentive Plan are not approved, we may still consummate the Merger if PharmAthene waives these conditions. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
No fairness opinion or valuation analysis from an independent third party was obtained with respect to the Merger Proposal nor did the Board determine a specific value for PharmAthene. The Board of Directors of HAQ has determined that the fair market value of PharmAthene exceeds 80% of HAQ’s net assets and that the terms of the Merger are in the best interest of and fair to the stockholders. Such determination with respect to the proposed Merger and the consideration being paid for PharmAthene was based upon various factors as described in the enclosed Proxy Statement including the Board’s independent analysis of PharmAthene’s business, technology and future prospects, PharmAthene’s management and historical investments in PharmAthene by third parties.
The Board of Directors of HAQ has fixed the close of business on June 15, 2007, as the record date (the “Record Date”) for the determination of stockholders entitled to notice of and to vote at the Special Meeting and at any adjournment thereof. A list of the stockholders entitled to vote as of the Record Date at the Special Meeting will be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of ten calendar days before the Special Meeting at HAQ’s offices at 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa, 50309 and at the time and place of the meeting during the duration of the meeting.
HAQ will not transact any other business at the Special Meeting, except for business properly brought before the Special Meeting, or any adjournment or postponement thereof, by HAQ's Board of Directors.
Your vote is important. Please sign, date and return your proxy card as soon as possible to make sure that your shares are represented at the Special Meeting. If you are a stockholder of record of HAQ common stock, you may also cast your vote in person at the Special Meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares.
For purposes of Proposal 1, under our certificate of incorporation, approval of the Merger Proposal will require (i) the affirmative vote of a majority of the shares of HAQ’s common stock issued in our initial public offering completed in July 2005 (“IPO”) that vote on this proposal at the Special Meeting; and (ii) less than 20% of the shares of HAQ’s common stock issued in HAQ's IPO vote against the Merger Proposal and elect a cash conversion of their shares. For purposes of Proposal 2, the affirmative vote of a majority of the shares of HAQ’s common stock issued and outstanding as of the Record Date is required to approve the Amendment Proposal. For purposes of Proposal 3, the affirmative vote of a majority of the shares of HAQ’s common stock that are present in person or by proxy and entitled to vote at the Special Meeting is required to approve the Incentive Plan Proposal. For purposes of Proposal 4, the affirmative vote of a majority of the shares of HAQ’s common stock that are present in person or by proxy and entitled to vote is required to approve the adjournment of the Special Meeting. Each of the Amendment Proposal and the Incentive Plan Proposal are conditioned upon the approval of the Merger Proposal and, in the event the Merger Proposal does not receive the necessary vote to approve that proposal, then HAQ will not complete any of the transactions identified in any of the proposals. If the Merger Proposal is approved but the Amendment Proposal or Incentive Plan are not approved, we may still consummate the Merger if these proposals, which are conditions to the Merger, are waived by the parties. Therefore, if Proposal 1 is not approved, we will not adopt either the Amendment Proposal or the Incentive Plan Proposal.
If the Merger Proposal is not approved, HAQ will have insufficient time and resources to seek another suitable business combination and will have to commence the winding up, dissolution and liquidation of HAQ, including the liquidation of the trust account and distribution of the trust proceeds, in accordance with the terms of HAQ’s amended and restated certificate of incorporation, the agreement with respect to the trust and Delaware law. In order to do so, under Delaware law, HAQ will be required to obtain stockholder approval for its plan of dissolution. The funds held in HAQ’s trust account may not be distributed except upon HAQ’s dissolution and, unless and until such approval is obtained from its stockholders, the funds held in HAQ’s trust account will not be released. Consequently, holders of a majority of HAQ’s outstanding stock must approve its dissolution in order to receive the funds held in its trust account and the funds will not be available for any other corporate purpose.
In addition, each HAQ stockholder who holds shares of common stock issued in HAQ's IPO or purchased following the IPO in the open market has the right to vote against the Merger Proposal and, at the same time, demand that HAQ convert such stockholder's shares into cash equal to a pro rata portion of the
proceeds in the trust account, including interest, which as of March 31, 2007 is equal to $7.60 per share. If the Merger is not completed, then your shares will not immediately be converted into cash, even if you so elected because we must satisfy the liquidation procedures under Delaware law. If the Merger is not approved, HAQ expects that it will commence the process to seek stockholder approval for its plan of dissolution and liquidation of the trust account within 5 business days after the Special Meeting. We cannot assure you that our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide investors with assurances of a specific time frame for our dissolution. If the holders of 1,880,000 or more shares of HAQ’s common stock, an amount equal to 20% or more of the total number of shares issued in the IPO, vote against the Merger and demand conversion of their shares into a pro rata portion of the trust account, then HAQ will not be able to consummate the Merger. HAQ's initial stockholders, including all of its directors and officers and their affiliates, own an aggregate of approximately 19.3% of the outstanding shares of HAQ common stock which shares were purchased prior to our IPO, and all of these stockholders have agreed to vote all of these shares acquired prior to the IPO in accordance with the vote of the majority in interest of all other HAQ stockholders on the Merger Proposal. Additionally, three of our Board members have purchased an additional 250,000 shares of HAQ common stock (2.14% of the total outstanding shares of common stock of HAQ) and have advised us that they intend to vote such shares in favor of the Merger.
YOUR VOTE IS IMPORTANT. WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED. IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, SINCE IT IS NOT AN AFFIRMATIVE VOTE IN FAVOR OF A RESPECTIVE PROPOSAL, IT (I) WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER PROPOSAL BUT WILL NOT HAVE THE EFFECT OF CONVERTING YOUR SHARES INTO A PRO RATA PORTION OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE NET PROCEEDS OF HAQ'S IPO ARE HELD, UNLESS AN AFFIRMATIVE VOTE AGAINST THE MERGER PROPOSAL IS MADE AND AN AFFIRMATIVE ELECTION TO CONVERT SUCH SHARES OF COMMON STOCK IS MADE ON THE PROXY CARD, (II) WILL BE TREATED AS A VOTE AGAINST THE AMENDMENT PROPOSAL AND, (III) WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE INCENTIVE PLAN PROPOSAL.
SEE THE SECTION ENTITLED “RISK FACTORS'' BEGINNING ON PAGE 31 FOR A DISCUSSION OF VARIOUS FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE MERGER WITH PHARMATHENE SINCE, UPON THE MERGER WITH PHARMATHENE, THE OPERATIONS AND ASSETS OF HAQ WILL LARGELY BE THOSE OF PHARMATHENE.
The attached proxy statement incorporates important business and financial information about HAQ and PharmAthene that is not included in or delivered with this document. This information is available without charge to security holders upon written or oral request. The request should be sent to: Matthew Kinley, President of HAQ at 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309, or by calling him at (515) 244-5746.
To obtain timely delivery of requested materials, security holders must request the information no later than five days before the date they submit their proxies or attend the Special Meeting. The latest date to request the information to be received timely is July 21, 2007.
We are soliciting the proxy on behalf of the Board of Directors, and we will pay all costs of preparing, assembling and mailing the proxy materials. In addition to mailing out proxy materials, HAQ’s officers may solicit proxies by telephone or fax, without receiving any additional compensation for their services. We have requested brokers, banks and other fiduciaries to forward proxy materials to the beneficial owners of our stock. We have also retained the proxy soliciting firm of Morrow & Co., Inc. to solicit proxies on our behalf. If you have any questions or need assistance in voting your shares, please contact Morrow & Co. toll free at 800-607-0088; banks and brokers may call 800-654-2468.
The Board of Directors of HAQ unanimously recommends that you vote “FOR” Proposal 1, the Merger Proposal, “FOR” Proposal 2, the Amendment Proposal, “FOR” Proposal 3, the Incentive Plan Proposal and “FOR” Proposal 4, the Adjournment Proposal.
By Order of the Board of Directors,
John Pappajohn
Chairman of the Board
and Secretary
July 12, 2007
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS OF
HEALTHCARE ACQUISITION CORP.
The Board of Directors of Healthcare Acquisition Corp., or HAQ, has unanimously approved the Agreement and Plan of Merger, dated as of January 19, 2007, among HAQ, Merger Sub and PharmAthene (the “Merger Agreement”) and the Merger contemplated thereby (the “Merger”), whereby HAQ will acquire all of the outstanding securities held by the stockholders of PharmAthene and PharmAthene will become a wholly-owned subsidiary of HAQ. If the Merger Proposal is not approved, then the Merger will not be consummated. In such event, HAQ will have insufficient time and resources to pursue an alternative business combination and will be forced to liquidate the trust which was established at the time of HAQ’s initial public offering and which contains substantially all of the proceeds from the initial public offering. The liquidation will be in accordance with our existing amended and restated certificate of incorporation and applicable Delaware law, as described elsewhere in our proxy statement.
If the Merger is consummated and you vote your shares in favor of the Merger Proposal, you will continue to hold the HAQ securities that you currently own. If the Merger is consummated but you have voted your shares against the Merger Proposal and have elected a cash conversion instead, your HAQ shares will be cancelled and you will receive cash equal to a pro rata portion of the trust account (totalling approximately $71.4 million) which, as of March 31, 2007, was equal to approximately $7.60 per share. The stockholders (including holders of its options, warrants and notes) of PharmAthene will receive 12,500,000 shares of HAQ common stock, subject to possible adjustment, $12,500,000 in 8% convertible notes issued by HAQ and possible milestone payments of up to $10,000,000 in exchange for their shares of capital stock (or applicable options, warrants or notes) of PharmAthene. Based upon the closing price of HAQ common stock on July 10, 2007 of $7.20 per share, assuming the maximum milestone payments are achieved and paid, the aggregate consideration payable to the PharmAthene stockholders, optionholders, warantholders and stockholders has a value of $112,500,000.
HAQ's common stock and warrants are currently listed on the American Stock Exchange under the symbols HAQ and HAQ-WT, respectively. Upon consummation of the Merger, PharmAthene will become HAQ's wholly-owned subsidiary and HAQ's name will be changed to “PharmAthene, Inc.” We will also change the current name of PharmAthene to a name to be determined after the closing. HAQ's common stock and warrants will continue to be traded on the American Stock Exchange, although we anticipate seeking to change our trading symbols.
We believe that, generally, for U.S. federal income tax purposes, the Merger with PharmAthene will have no direct tax effect on stockholders of HAQ. However, if you vote against the Merger Proposal and elect a cash conversion of your shares of HAQ common stock into your pro-rata portion of the trust account and as a result receive cash in exchange for your HAQ shares, there may be certain tax consequences, such as realizing a loss or gain on your investment in HAQ’s shares. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING YOUR PARTICULAR TAX CONSEQUENCES.
This proxy statement provides you with detailed information about the proposed Merger, the proposed Certificate of Incorporation Amendment, the proposed Incentive Plan, the proposed Adjournment and the Special Meeting. We encourage you to carefully read this entire document and the documents incorporated by reference, including the Merger Agreement, the form of Certificate of Incorporation Amendment and the proposed Incentive Plan which are attached hereto as Annexes A, B and C, respectively. YOU SHOULD ALSO CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 31.
The Merger cannot be consummated unless at least a majority of the shares of HAQ's common stock issued in HAQ's IPO and voting at the Special Meeting (whether in person or by proxy) approve and adopt the Merger Agreement and less than 20% of the shares of HAQ's common stock issued in HAQ's IPO vote against the Merger Proposal and elect a cash conversion of their shares.
HAQ’s Board of Directors unanimously approved the Merger Agreement and the proposed Merger, the Certificate of Incorporation Amendment, adoption of the proposed Incentive Plan and unanimously recommends that you vote or instruct your vote to be cast “FOR” Proposal 1, the Merger Proposal, “FOR” Proposal 2, the Amendment Proposal, “FOR” Proposal 3, the Incentive Plan Proposal and “FOR” Proposal 4, the Adjournment Proposal.
This proxy statement incorporates important business and financial information about HAQ and PharmAthene that is not included in or delivered with this document. This information is available without charge to security holders upon written or oral request. The request should be sent to:
Matthew Kinley, President
Healthcare Acquisition Corp.
2116 Financial Center
666 Walnut Street
Des Moines, Iowa 50309
(515) 244-5746
To obtain timely delivery of requested materials, security holders must request the information no later than five days before the date they submit their proxies or attend the Special Meeting. The latest date to request the information to be received timely is July 21, 2007.
We are soliciting the enclosed proxy card on behalf of the Board of Directors of HAQ, and we will pay all costs of preparing, assembling and mailing the proxy materials. In addition to mailing out proxy materials, our officers may solicit proxies by telephone or fax, without receiving any additional compensation for their services. We have requested brokers, banks and other fiduciaries to forward proxy materials to the beneficial owners of our stock. We have also retained the proxy soliciting firm of Morrow & Co., Inc. to solicit proxies on our behalf and expect the costs of such retention not to exceed approximately $30,000.
THIS PROXY STATEMENT IS DATED JULY 12, 2007, AND IS FIRST BEING MAILED TO HAQ STOCKHOLDERS ON OR ABOUT JULY 16, 2007.
HEALTHCARE ACQUISITION CORP.
TABLE OF CONTENTS
i
ii
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| ANNEXES | ||
| Annex A — Agreement and Plan of Merger | ||
| Annex B — Form of Amendment to the Amended and Restated Certificate of Incorporation | ||
| Annex C — Form of 2007 Long-Term Incentive Plan |
iii
SUMMARY OF THE MATERIAL TERMS OF THE MERGER
This Summary, together with the sections entitled “Questions and Answers About the Merger and the Special Meeting” and “Summary of the Proxy Statement,” summarizes certain material information contained in this proxy statement. You should carefully read this entire proxy statement for a more complete understanding of the matters to be considered at the Special Meeting of stockholders.
| • | At the closing, all series of preferred stock of PharmAthene will be surrendered for conversion into shares of HAQ common stock, and the preferred stock will be cancelled. Additionally, a total of 16,118,359 warrants held by the holders of the PharmAthene preferred stock will be cancelled, as well as all related agreements previously entered into by the holders of the preferred stock and PharmAthene. |
| • | At the effective time of the Merger, the 22,108,669 shares of PharmAthene common stock (representing 12,483,472 issued and outstanding shares of common stock and 9,625,197 shares of common stock underlying existing common stock options and common stock warrants) will convert into approximately 1,100,422 shares of HAQ common stock, or a 20.08 to 1 exchange ratio; the 16,442,000 issued and outstanding shares of PharmAthene Series A Convertible Preferred Stock will convert into approximately 1,870,700 shares of HAQ common stock, or a 8.79 to 1 exchange ratio; the 30,448,147 issued and outstanding shares of PharmAthene Series B Convertible Preferred Stock will convert into approximately |
1
| • | The Merger with PharmAthene involves numerous risks. For more information about these risks, see the section entitled “Risk Factors” beginning on page 31. |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
Why am I receiving this proxy statement?
HAQ and PharmAthene have agreed to a business combination under the terms of an Agreement and Plan of Merger, dated January 19, 2007, among HAQ, PAI Acquisition Corp., a newly-formed subsidiary of HAQ (“Merger Sub”) and PharmAthene, Inc. (“PharmAthene”) pursuant to which Merger Sub will be merged (the “Merger”) with and into PharmAthene. This agreement is referred to as the Merger Agreement. A copy of the Merger Agreement is attached to this proxy statement as Annex A, which we encourage you to review in its entirety.
For purposes of Proposal 1, under our certificate of incorporation, approval of the Merger Proposal will require (i) the affirmative vote of a majority of the shares of HAQ’s common stock issued in our IPO that vote on this proposal at the Special Meeting; and (ii) that not more than 20% of the shares of HAQ’s common stock issued in HAQ's IPO vote against the Merger Proposal and elect a cash conversion of their shares.
HAQ will hold a Special Meeting of its stockholders to obtain this approval. This proxy statement contains important information about the proposed merger and the Amendment Proposal and the Incentive Plan Proposal. You should read it carefully.
Your vote is important. We encourage you to vote as soon as possible after carefully reviewing this proxy statement.
What is being voted on?
There are four proposals on which you are being asked to vote. The first proposal is to approve and adopt a Merger Agreement and the transactions contemplated thereby. As a consequence of the Merger, PharmAthene will become a wholly-owned subsidiary of HAQ.
The second proposal is to approve an amendment to HAQ's amended and restated certificate of incorporation, subject to consummation of the Merger, to:
| • | change HAQ's name to “PharmAthene, Inc.” after the Merger; |
| • | remove certain provisions that will no longer be operative to HAQ as an operating company upon consummation of the Merger; and |
| • | grant to the holders of the 8% convertible notes to be issued as part of the Merger the right to designate three members to the Board of Directors of HAQ ( and two out of three members of each Board committee) for so long as at least 30% of the original face value of such notes remain outstanding. |
The third proposal is to approve the adoption of the 2007 Long-Term Incentive Plan, or the Incentive Plan, pursuant to which 3,500,000 of shares of HAQ common stock will be reserved for issuance in accordance with the terms of the Incentive Plan (including approximately 465,961 shares reserved to honor options issued by PharmAthene which will be assumed by HAQ pursuant to the Merger Agreement).
The fourth proposal is to approve the adjournment of the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that, based upon the tabulated vote at the time of the Special Meeting, HAQ would not have been authorized to consummate the Merger.
It is important for you to note that in the event the Merger Proposal does not receive the necessary vote to approve such proposal, then HAQ will not consummate that proposal or the other proposals and HAQ will be forced to liquidate. If the Incentive Plan Proposal or the Amendment Proposal is not approved, but the Merger Proposal is approved, HAQ may still consummate the Merger if the conditions in the Merger Agreement requiring approval of these proposals are waived.
What is a quorum?
A quorum is the number of shares that must be represented, in person or by proxy, in order for business to be transacted at the Special Meeting.
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More than one-half of the total number of shares of our common stock outstanding as of the record date (a quorum) must be represented, either in person or by proxy, in order to transact business at the Special Meeting. Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum. If there is no quorum, a majority of the shares present at the Special Meeting may adjourn the Special Meeting to another date.
However, in order to vote on Proposal 1, more than one-half of the shares of our common stock purchased in our IPO must be represented (4,700,001 shares), because only the holders of those shares may vote on the Merger Proposal.
Why is HAQ proposing the Merger, the Certificate of Incorporation Amendment and the adoption of the Incentive Plan?
HAQ is a blank-check company formed specifically as a vehicle for the acquisition of or merger with a business whose fair market value is at least equal to 80% of the net assets of HAQ at the time of the transaction. In the course of HAQ's search for a business combination partner, HAQ was introduced to PharmAthene, a company which the Board of Directors of HAQ believes has significant growth potential. PharmAthene is in the business of discovering and developing novel human therapeutics and prophylactics for the treatment and prevention of morbidity from exposure to biological and chemical weapons. The Board of Directors of HAQ found PharmAthene to be an attractive merger partner because of the industry in which it operates, its existing products, growth prospects and management team, among other factors. As a result, HAQ believes that the Merger will provide HAQ stockholders with an opportunity to participate in a company with significant growth potential. The Certificate of Incorporation Amendment is being undertaken because upon consummation of the Merger, (i) management desires the name of the business to reflect its operations, (ii) there are provisions in the certificate of incorporation which will no longer be applicable and, (iii) pursuant to the terms of the Merger Agreement, HAQ has agreed that, as a consequence of the Merger, noteholders will have the right to appoint three (3) members to the Board of Directors. The adoption of the Incentive Plan is being undertaken because the Board of Directors of HAQ deems it beneficial for the combined company going forward following the Merger to have incentives available to attract and retain employees and to honor options held by PharmAthene employees which will be assumed as part of the Merger.
What vote is required in order to approve the Merger Proposal?
The approval of the Merger Proposal will require the affirmative vote of a majority of the votes cast at the Special Meeting of the shares of common stock issued as part of HAQ's IPO. We issued 9,400,000 shares as part of our IPO. In addition, stockholders owning less than 20% of such shares (1,880,000 shares) may vote against the Merger and elect to convert their shares into cash from the trust account.
What happens if I vote against the Merger?
Each HAQ stockholder who holds shares of common stock either issued in HAQ's IPO or purchased following such offering in the open market has the right to vote against the Merger Proposal and, at the same time, demand that HAQ convert such stockholder's shares into an amount of cash equal to a pro rata portion of the trust account. These shares will be converted into cash only if the Merger is consummated. Based on the amount of cash held in the trust account as of March 31, 2007 (approximately $71.4 million) without taking into account any interest accrued after such date, stockholders who vote against the Merger Proposal and elect to convert such stockholder's shares as described above will be entitled to convert each share of common stock that it holds into approximately $7.60 per share. However, if the holders of 1,880,000 or more shares of common stock issued in HAQ's IPO (an amount equal to 20% or more of the total number of shares issued in the IPO), vote against the Merger and demand conversion of their shares into a pro rata portion of the trust account, then HAQ will not be able to consummate the Merger and we will be required, because of the lack of time to identify another potential target and negotiate a transaction, to liquidate.
How is Management of HAQ voting?
HAQ's initial stockholders, including all of its directors and officers, who purchased or received shares of common stock prior to HAQ's IPO, presently, together with their affiliates, own an aggregate of approximately 19.3% of the outstanding shares of HAQ common stock and all of these stockholders have agreed to vote all
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of these shares acquired prior to the IPO in accordance with the vote of the majority interest of all other HAQ stockholders on the Merger Proposal. Additionally, three of our Board members have purchased an additional 250,000 shares (2.14% of the outstanding shares of common stock of HAQ) and have advised us that they intend to vote such shares in favor of the Merger.
What vote is required in order to approve the Amendment Proposal?
The approval of the Amendment Proposal will require the affirmative vote of a majority of the shares of HAQ's common stock issued and outstanding as of the Record Date. The officers and directors of HAQ intend to vote all of their shares of common stock in favor of this proposal.
What vote is required in order to approve the Incentive Plan Proposal?
The approval of the Incentive Plan Proposal will require the affirmative vote of a majority of the votes cast at the Special Meeting. The officers and directors of HAQ intend to vote all of their shares of common stock in favor of this proposal.
What vote is required in order to approve the Adjournment Proposal?
Adoption of the Adjournment Proposal requires the affirmative vote of a majority of shares of HAQ's common stock present in person or by proxy and entitled to vote at the Special Meeting. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
If I am not going to attend the Special Meeting of stockholders in person, should I return my proxy card instead?
Yes. Whether or not you plan to attend the Special Meeting, after carefully reading and considering the information contained in this proxy statement, please complete and sign your proxy card. Then return the enclosed proxy card in the return envelope provided herewith as soon as possible, so that your shares may be represented at the Special Meeting.
What will happen if I abstain from voting or fail to vote?
An abstention or failure to vote by a HAQ stockholder will not be counted towards the vote total for the Merger Proposal, and your shares of common stock will not be converted into a pro rata portion of the funds in the trust account. An abstention or failure to vote will have the effect of voting against the Amendment Proposal and the Adjournment Proposal. An abstention will have the effect of voting against the Incentive Plan.
As long as a quorum is established at the Special Meeting, a failure to vote will have no impact upon the approval of the Merger Proposal or the Incentive Plan Proposal but as the Amendment Proposal requires a majority of all outstanding shares of common stock, and the Adjournment Proposal requires the affirmative vote of a majority of the shares of HAQ's common stock present in person or by proxy and entitled to vote at the Special Meeting, a failure to vote will have the effect of a vote against each of the Amendment Proposal and the Adjournment Proposal. Failure to vote will not have the effect of converting your shares into a pro rata portion of the trust account.
If my shares are held in “street name'' by my broker, will my broker vote my shares for me?
If you hold your shares in “street name,” your bank or broker cannot vote your shares with respect to the Merger Proposal, the Amendment Proposal, the Incentive Plan Proposal or the Adjournment Proposal without specific instructions from you, which are sometimes referred to in this proxy statement as the broker “non-vote” rules. If you do not provide instructions with your proxy, your bank or broker may deliver a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank or broker is not voting your shares is referred to as a “broker non-vote.” Broker non-votes will be counted for the purpose of determining the existence of a quorum, but will not count for purposes of determining the number of votes cast at the Special Meeting. Your broker can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide to your broker. If you hold your shares in street name you can obtain physical delivery of the shares into your name, and then vote your shares yourself. In order to obtain shares directly into your name, you must contact your brokerage house representative. Brokerage firms may assess a fee for your conversion; the amount of such fee varies from firm to firm.
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What do I do if I want to change my vote?
If you wish to change your vote, please send a later-dated, signed proxy card to our corporate Secretary, John Pappajohn at HAQ prior to the date of the Special Meeting or attend the Special Meeting and vote in person. You also may revoke your proxy by sending a notice of revocation to John Pappajohn at the address of HAQ's corporate headquarters, provided such revocation is received prior to the Special Meeting.
Will I receive anything in the Merger?
If the Merger is consummated and you vote your shares for the Merger Proposal or you abstain, you will continue to hold the HAQ securities that you currently own. If the Merger is consummated but you have voted your shares against the Merger Proposal and have elected a cash conversion instead, and you timely deliver your stock certificate for conversion, your shares of HAQ common stock will be cancelled and you will receive cash equal to a pro rata portion of the trust account, which, as of March 31, 2007, was equal to approximately $7.60 per share. Because HAQ is acquiring all of the outstanding securities of PharmAthene, the stockholders (and certain optionholders and warrantholders) and noteholders of PharmAthene will receive 12.5 million shares of HAQ common stock, subject to adjustment, 8% convertible notes in the amount of $12,500,000 and up to $10,000,000 in milestone payments, as applicable in exchange for their shares (or applicable options or warrants) of capital stock of PharmAthene and in replacement of currently outstanding notes. Based upon the closing price of HAQ common stock at the time of the execution of the Merger Agreement on January 19, 2007, ($7.46), the total aggregate value of the consideration was $115,750,000. The total merger consideration has an aggregate value of $112,500,000 (based upon the closing price of HAQ’s common stock on July 10, 2007 of $7.20 per share and assuming the maximum milestone payments are achieved and paid).
How is HAQ paying for the Merger?
HAQ will be issuing new shares of its common stock and 8% convertible notes to finance the Merger and is not required to utilize cash for the transaction. Further, as described elsewhere in this proxy statement, the PharmAthene stockholders may also receive milestone payments based upon future revenues of the post-merger company. Assuming the Merger Proposal is approved, a portion of the funds from HAQ’s IPO, now held in trust, will be used to pay certain expenses related to the Merger including fees with respect to listing the Merger related HAQ common stock issued as merger consideration on the American Stock Exchange, accounting and legal fees and payments to those stockholders who (i) vote against the Merger and (ii) elect to convert their shares into cash.
Are PharmAthene stockholders or noteholders required to approve the Merger?
Yes. All of the holders of PharmAthene’s preferred stock, and more than 80% of the holders of the common stock of PharmAthene, have already executed irrevocable consents approving and adopting the Merger Agreement and the transactions contemplated thereby. Accordingly, there are no additional approvals required by PharmAthene to consummate the Merger. In addition, holders of substantially all of the PharmAthene Notes have agreed to exchange their PharmAthene Notes (principal and interest) for the new notes to be issued by HAQ.
What will happen in the Merger?
PAI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of HAQ formed for the purpose of consummating the Merger (which we also refer to as “Merger Sub”), will merge with and into PharmAthene with PharmAthene being the surviving corporation. As a consequence of the Merger, the following will occur:
| • | PharmAthene will be a wholly-owned subsidiary of HAQ; |
| • | the stockholders of PharmAthene will receive shares of HAQ common stock; |
| • | the option and warrant holders of PharmAthene will receive options and warrants to purchase shares of HAQ common stock in exchange for their equity interests in PharmAthene; |
| • | the holders of the 8% convertible notes of PharmAthene will exchange their notes (principal and interest) for $12,500,000 of 8% convertible notes issued by HAQ; |
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| • | at the closing, all series of preferred stock of PharmAthene will be surrendered for conversion into shares of HAQ Common Stock, and the preferred stock will be cancelled. Additionally, a total of 16,118,359 warrants held by the holders of the PharmAthene preferred stock will be terminated, as well as all related agreements previously entered into by the holders of the preferred stock and PharmAthene; |
| • | the Board of HAQ will be restructured and reconstituted to provide that the Board will be comprised of seven persons, and the holders of the 8% notes to be issued to the PharmAthene note holders will have the right to appoint up to three directors. |
Has HAQ received an independent valuation or fairness opinion with respect to the Merger Proposal?
No. Our Board of Directors has determined that the fair market value of PharmAthene exceeds 80% of our net assets as was represented in the prospectus relating to our IPO and required by our amended and restated certificate of incorporation. The Board also determined that the terms of the Merger were fair to HAQ and its stockholders and that the amount of consideration being paid was fair. The terms of the Merger were determined based upon arm’s-length negotiations between us and the management of PharmAthene, who had no prior dealings with us or our officers or directors. Some of our officers and directors, including John Pappajohn, our Chairman, Derace L. Schaffer, M.D., our Chief Executive Officer, and Matthew Kinley, our President, have extensive industry and deal-making experience. Further, obtaining a valuation or fairness opinion is not required under our amended and restated certificate of incorporation or under the Delaware General Corporation Law. Under the circumstances, our Board of Directors believed that the aggregate consideration for the Merger appropriately reflected PharmAthene’s fair market value and that obtaining an independent valuation or fairness opinion was unnecessary.
How did HAQ’s Board of Directors arrive at a valuation of PharmAthene and did the Board of Directors assign a value to PharmAthene?
HAQ’s Board had commenced its negotiations for PharmAthene based on analyses undertaken using publicly available information regarding PharmAthene, certain internally generated information that had been furnished by PharmAthene’s management prior to formal negotiations and some preliminary comparisons to other companies. HAQ’s Board of Directors considered the nature of PharmAthene’s business and assets, including its potential sales, its business plan and forecasts, potential earnings, cash flow and book value of assets. In addition, the Board reviewed PharmAthene’s current capitalization and resulting operating losses, and the liabilities to be assumed in arriving at a valuation of PharmAthene. The publicly available information was, to a large extent, the information contained in a business combination proxy statement that had been filed by SIGA Technologies, Inc. in connection with a proposed merger transaction with PharmAthene which ultimately was terminated. The internally prepared materials furnished by PharmAthene included projections and business summaries prepared by PharmAthene’s management. The Board of Directors determined that the value of PharmAthene was in the range of between $101.4 million and $168.8 million and believed that the negotiated purchase price was fair to HAQ and its stockholders. Based upon the closing price of HAQ common stock at the time of the execution of the Merger Agreement on January 19, 2007 ($7.46), the total aggregate value of the consideration was $115,750.00. The total merger consideration has an aggregate value of $112,500,000 (based upon the closing price of HAQ common stock on July 10, 2007 of $7.20 per share and assuming maximum milestone payments are achieved and paid). We refer you to the more detailed discussions under the headings “Background of the Merger” and “HAQ’s Reasons for the Merger and Recommendation of the HAQ Board.”
What will PharmAthene stockholders receive in the Merger?
The total merger consideration has an aggregate value of $112,500,000 (based upon the closing price of HAQ’s common stock price on July 10, 2007 of $7.20 per share and assuming maximum milestone payments are achieved and paid). The Merger Agreement provides that the holders of PharmAthene capital stock (including holders of warrants and options) and outstanding noteholders will receive the following consideration:
| • | an aggregate of 12,500,000 shares of HAQ common stock, subject to possible adjustment; |
| • | $12,500,000 of 8% convertible notes will be issued by HAQ; and |
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| • | up to $10,000,000 in milestone payments may be paid (if certain conditions are met). |
The Merger Agreement provides that the holders of PharmAthene immediately prior to the Merger will initially own up to approximately 52% of the issued and outstanding shares of HAQ capital stock after the Merger (assuming all PharmAthene options and warrants assumed by HAQ are exercised and excluding as outstanding for purposes of the calculation securities issuable upon exercise of HAQ’s outstanding warrants, upon exercise of the purchase option issued to underwriters in HAQ’s IPO and upon conversion of the 8% convertible notes to be issued in the Merger). Since HAQ has outstanding warrants to purchase 9.4 million shares of common stock and a unit purchase option to purchase 225,000 units, each unit consisting of one share of common stock and one warrant, holders of PharmAthene securities will own as much as 39% of the aggregate issued and outstanding shares of HAQ capital stock after taking into account such securities (assuming all PharmAthene options and warrants assumed by HAQ are exercised and including securities issuable upon the conversion of the 8% convertible notes to be issued in the Merger).
If the entire aggregate principle amount of the 8% convertible notes ($12,500,000) issued by HAQ in the Merger are converted in their entirety, the holders will own an additional 1,250,000 shares of HAQ common stock subsequent to the Merger. The holders of HAQ capital stock immediately prior to the Merger will own the balance of the issued and outstanding shares of HAQ capital stock. Therefore, the holders of HAQ capital stock immediately prior to the Merger will experience substantial dilution of their ownership interest as a result of the Merger.
Will fractional shares of HAQ be paid?
Fractional shares will not be issued to PharmAthene stockholders in the Merger. In lieu of fractional shares, the PharmAthene stockholders will receive cash. As a result of the very limited number of fractional shares which could be issued because there are only 23 PharmAthene stockholders, the amount of cash needed to cover fractional shares will be immaterial.
What will PharmAthene noteholders receive in the Merger?
Pursuant to a Note Exchange Agreement, the execution of which is a condition precedent to consummation of the Merger, current holders of PharmAthene’s $11,800,000 in 8% convertible notes are required to exchange such notes (all principal and accrued interest) for the 8% convertible notes of HAQ in the principal amount of $12,500,000. Pursuant to the Note Exchange Agreement, such holders will also have the right to designate three nominees to HAQ’s Board of Directors, comprised of seven members, and two of the three members to each committee of the Board including the corporate governance and nominating committee and compensation committee.
Do I have conversion rights in connection with the Merger?
If you hold shares of common stock issued in HAQ's IPO, then you have the right to vote against the Merger Proposal and demand that HAQ convert your shares of HAQ common stock into a pro rata portion of the trust account. These rights to vote against the Merger and demand conversion of your shares into a pro rata portion of the trust account are sometimes referred to herein as conversion rights.
If I have conversion rights, how do I exercise them?
If you wish to exercise your conversion rights, you must vote against the Merger Proposal and, at the same time, demand that HAQ convert your shares into cash by marking the appropriate space on the proxy card. You must affirmatively vote against the Merger Proposal and demand that HAQ convert your shares into cash from the trust account no later than the close of the vote on the Merger Proposal to exercise your conversion rights (by indicating so on the proxy card or on the ballot at the Special Meeting). In order to convert your shares you must hold your shares through the closing date of the Merger and then present your physical stock certificate to our transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY, 10004, Attention Greg Denman, (212) 845-3287 by 5:00 p.m New York time on the third business day subsequent to the closing date of the Merger. If you elect to convert your shares of common stock, you will still have the right to exercise the warrants received as part of the units that were issued in our initial public offering in accordance with the terms thereof and you will still have the right to attend the Special Meeting. If, notwithstanding your vote, the Merger is consummated, then you will be entitled to receive a pro
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rata share of the trust account in which a substantial portion of the net proceeds of HAQ's IPO are held, including any interest earned thereon through the date of the Special Meeting. Based on the amount of cash held in the trust account as of March 31, 2007, without taking into account any interest accrued after such date, you will be entitled to convert each share of HAQ common stock that you hold into approximately $7.60 per share. If you exercise your conversion rights, then you will be exchanging your shares of HAQ common stock for cash and will no longer own these shares of common stock. You will only be entitled to receive cash for these shares if you continue to hold these shares through the closing date of the Merger and then tender your stock certificate to HAQ before 5 p.m. EST on the third business day after the consummation of the Merger. Assuming the Merger is approved, HAQ will provide public notice of the closing date for the Merger. If you convert your shares of common stock, you will still have the right to exercise the warrants received as part of the units purchased in the IPO in accordance with the terms thereof. If the Merger is not consummated: (i) then your shares will not be converted into cash at this time, even if you so elected; and (ii) we will commence the dissolution process and you will be entitled to distribution upon liquidation. See “Conversion Rights” at page 53 and the section entitled “Consequences if Merger Proposal is Not Approved” beginning on page 76.
What happens to the funds deposited in the trust account after completion of the Merger?
Upon consummation of the Merger, a portion of the funds remaining in the trust account after payment of amounts, if any, to stockholders requesting and exercising their conversion rights, will be used to pay expenses associated with the Merger. In addition, approximately $720,000 will be used to pay deferred underwriters’ compensation from HAQ’s IPO. Substantially all of the funds will be used to fund working capital of the combined company.
Who will manage HAQ from and after consummation of the Merger with PharmAthene?
From and after consummation of the Merger, HAQ will be managed by the current management of PharmAthene including David P. Wright as President and Chief Executive Officer. It is anticipated that the Board of Directors of the combined company will consist of the following seven board members: John Pappajohn, HAQ’s current Chairman, Derace M. Schaffer, M.D., currently a member of HAQ’s Board of Directors, James Cavanaugh, Ph.D., Steven St. Peter, M.D. Elizabeth Czerepak, Joel McCleary and David Wright, PharmAthene’s current President and Chief Executive Officer, each to serve until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. Ms. Czerepak and Drs. Cavanaugh and St. Peter, all of whom are currently directors on PharmAthene’s Board of Directors, will be directors nominated by the holders of 8% convertible notes to be issued by HAQ in exchange for the currently-outstanding 8% convertible notes of PharmAthene.
What happens if the Merger is not consummated?
If the Merger is not consummated, HAQ's amended and restated certificate of incorporation will not be further amended pursuant to the Amendment Proposal and we will not adopt the Incentive Plan pursuant to the Incentive Plan Proposal. Further, HAQ will be liquidated pursuant to its amended and restated certificate of incorporation. If a liquidation were to occur by approximately August 3, 2007 (the last day on which HAQ would be permitted to consummate the acquisition of PharmAthene under its amended and restated certificate of incorporation), HAQ estimates that with the interest that would accrue on the amounts that are held in trust through such date, there would be a trust balance of approximately $72,280,000 or $7.68 per share. This amount, less any liabilities not indemnified against by certain members of HAQ's Board and not waived by HAQ's creditors, which we estimate will not exceed $280,000, would be distributed to the holders of the 9,400,000 shares of common stock purchased in HAQ's IPO. We estimate that as of March 31, 2007, we have claims from creditors, vendors and tax authorities of approximately $630,000 which have not been waived. HAQ currently has no outstanding liabilities covered by waivers. HAQ currently estimates that, at August 3, 2007, there would be approximately $280,000 in Delaware franchise tax included in the $630,000 which are not waived by such taxing authorities and our Board members have not agreed to indemnify HAQ for such tax claims. Our Board members have agreed to indemnify HAQ for the balance which HAQ owes to certain of its vendors. HAQ has no other outstanding liabilities which are not indemnified against by the members of its Board or for which it has not received waivers from creditors. As of March 31, 2007, HAQ has approximately $467,000 of cash out of trust available to pay for claims and expenses of which only $280,000 of
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potential tax claims will not be covered by the directors’ indemnification. Thus, HAQ estimates that the total amount available for distribution upon liquidation would be approximately $72,000,000 or $7.66 per share.
Separately, HAQ estimates that the dissolution process would cost approximately $50,000 to $75,000 and that HAQ would be indemnified for such costs by HAQ’s executive officers and directors. Such officers and directors have acknowledged and agreed that such costs are covered by their existing indemnification agreement. We do not believe there would be any for claims or liabilities in excess of the funds out of the trust against which HAQ’s executive officers and directors would be required to indemnify the trust account in the event of such dissolution. In the event that such persons indemnifying HAQ are unable to satisfy their indemnification obligation or in the event that there are subsequent claims such as subsequent non-vendor claims for which such persons have no indemnification obligation, the amount ultimately distributed to stockholders may be reduced even further. However, HAQ currently has no basis to believe there will be any such liabilities or to provide an estimate of any such liabilities. The only cost of dissolution that HAQ is aware of that would not be indemnified against by such officers and directors of HAQ is the cost of any associated litigation. See page 31 of the section entitled “Risk Factors” for a further discussion with respect to amounts payable from the trust account.
When do you expect the Merger to be completed?
Assuming the approval of the Merger Proposal, it is currently anticipated that the Merger and other proposals will be completed as promptly as practicable following the Special Meeting of stockholders to be held on July 27, 2007.
What do I need to do now?
HAQ urges you to read carefully and consider the information contained in this proxy statement, including the annexes, and to consider how the merger will affect you as a stockholder of HAQ. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card.
If you have any questions or require assistance in voting your proxy, please contact our proxy solicitors, Morrow & Co., Inc. at 800-607-0088.
Do I need to send in my stock certificates?
If the Merger is approved and consummated, only HAQ stockholders who vote against adoption of the Merger Proposal and elect to have their shares converted into a pro rata share of the funds in the trust account must send their physical stock certificate to our stock transfer agent subsequent to the closing of the Merger. HAQ stockholders who vote in favor of the adoption of the Merger Proposal, or who otherwise do not elect to have their shares converted should not submit their stock certificates now or after the Merger, because their shares will not be converted or exchanged in connection with the Merger. If the Merger is not approved and we initiate the dissolution and liquidation processes, we will at such time provide instructions to stockholders of the procedure for obtaining their pro rata portion of the trust fund.
What should I do if I receive more than one set of voting materials?
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards, if your shares are registered in more than one name or are registered in different accounts. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your HAQ shares.
Who is paying for this proxy solicitation?
HAQ will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and officers may also solicit proxies in person, by telephone or by other means of communication. These parties will not be paid any additional compensation for soliciting proxies. Morrow & Co., Inc., a proxy solicitation firm that we have engaged to assist us in soliciting proxies, will be paid its customary fee of approximately $12,500 plus $5 per solicited stockholder and out-of-pocket expenses and we expect that the
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total fees and expenses payable to Morrow & Co. will not exceed approximately $30,000. Cowen & Company, LLC has been engaged by PharmAthene to act as its advisor for a period of three months commencing July 9, 2007 to, among other things, assist PharmAthene in the arrangement and facilitation of meetings with potential institutional investors of HAQ’s common stock. In consideration for its services, Cowen & Company will receive cash compensation of $500,000 and shall be payable irrespective of the outcome of the vote on the proposed Merger. In addition, Cowen & Company will be entitled to reasonable out-of-pocket expenses. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
Who can help answer my questions?
If you have questions about any of the proposals, you may write or call Healthcare Acquisition Corp. at 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309, (515) 244-5746, Attention: Matthew Kinley or you may call Morrow & Co., Inc., our proxy solicitor, at (800) 607-0088.
You may also obtain additional information about HAQ from documents filed with the Securities and Exchange Commission (“SEC”) by following the instructions in the section entitled “Where You Can Find More Information.”
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SUMMARY OF THE PROXY STATEMENT
This summary highlights certain information from this proxy statement including information with respect to each of the proposals, although the Merger is the primary reason for the calling of the Special Stockholders and the other proposals are dependent upon the approval of the Merger Proposal. This summary does not contain all of the information that is important to you. All of the proposals are described in detail elsewhere in this proxy statement and this summary discusses the material items of each of the proposals. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you. See, “Where You Can Find More Information.” on page 161.
The Merger Proposal (Page 57)
The Parties
HAQ
HAQ is a blank-check company formed specifically as a vehicle for the acquisition of or merger with a business whose fair market value is at least equal to 80% of the net assets of HAQ at the time of the transaction. The principal executive offices of HAQ are located at 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309, and its telephone number is (515) 244-5746.
PAI Acquisition
PAI Acquisition, Inc. or Merger Sub, is a wholly owned subsidiary of HAQ, formed for the purpose of merging with and into PharmAthene. The principal executive offices of Merger Sub are located at 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309, and its telephone number is (515) 244-5746.
PharmAthene
PharmAthene is a privately owned corporation in the business of discovering and developing novel human therapeutics and prophylactics for the treatment and prevention of morbidity and mortality from exposure to chemical and biological weapons. Based in Annapolis, Maryland, PharmAthene’s goal is to become the premier company worldwide specializing in the discovery, development and commercialization of therapeutic and prophylactic drugs for defense against bioterrorism and to eventually leverage its biodefense capabilities for non-biodefense products in broader commercial markets. PharmAthene has two products under development, Valortim, a human monoclonal antibody for the prevention and treatment of anthrax infection, and Protexia®, a bioscavenger for the treatment of organophosphate nerve agent poisoning. Beyond its initial focus in biodefense, PharmAthene intends to identify and develop dual-use technologies which have application and indications in broader commercial markets. PharmAthene has had no revenues from the sale of products since its inception and has incurred significant operating losses.
PharmAthene was incorporated on March 13, 2001 under the name PharmAthene, Inc. The principal executive offices of PharmAthene are located at 175 Admiral Cochrane Drive, Suite #101, Annapolis, MD 21401, and its telephone number is (410) 571-8920.
The Agreement and Plan of Merger (Page 78)
On January 19, 2007, the parties entered into an Agreement and Plan of Merger (the “Merger Agreement”) which provides for a business combination by means of a merger of Merger Sub with and into PharmAthene in which PharmAthene will be the surviving entity and become a wholly-owned subsidiary of HAQ. We will acquire all of the capital stock of PharmAthene and certain of its securities will be terminated. At the closing, and subject to certain adjustments as hereafter described, the PharmAthene stockholders, optionholders, warrantholders and noteholders will receive the following in the Merger (the “Merger Consideration”):
| • | an aggregate of 12,500,000 shares of HAQ common stock; |
| • | $12,500,000 in 8% convertible notes issued by HAQ; and |
| • | up to $10,000,000 in milestone payments (if certain conditions are met). |
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Included in the 12,500,000 shares of HAQ common stock is the reservation of 577,366 HAQ shares for issuance in connection with outstanding options and warrants to acquire shares of common stock and Series C Convertible Preferred Stock of PharmAthene, which will be assumed by HAQ and converted into options and warrants of HAQ. Based upon the closing price of HAQ common stock at the time of the execution of the Merger Agreement on January 19, 2007, ($7.46), the total aggregate value of the consideration was $115,750.00. The Merger Consideration has an aggregate value of $112,500,000 (based upon the closing price of HAQ common stock on July 10, 2007 of $7.20 per share and assuming the maximum milestone payments are achieved and paid).
Milestone payments may be made to the stockholders of PharmAthene as part of the Merger Consideration equal to 10% of the actual collections on gross sales of its product, Valortim, to the U.S. federal government until the earlier of (A) December 31, 2009, or (B) the point at which total aggregate milestone payments to the stockholders, optionholders and warrantholders equal $10 million. These payments will be conditioned upon receipt by PharmAthene of an award, procurement or other contract (x) on or before December 31, 2007; (y) which provides for a procurement by the U.S. government of doses or treatments equal to or greater than 60,000; and (z) with a total contract value of $150 million or more.
The 12,500,000 shares of HAQ common stock issued as a portion of the Merger Consideration will only be subject to adjustment to the extent that the stockholders of HAQ owning more than 5% of the outstanding HAQ common stock exercise their conversion rights. The number of shares of HAQ common stock comprising the stock consideration shall be adjusted upward by the product of (x) the number (as a percentage) that is the difference between the percentage of HAQ common stock that is converted and 5% and (y) 2.25 million. Stockholders holding an aggregate of up to 1,879,060 shares of common stock could convert such shares and the Merger may still be consummated. If such number of shares were converted, the shares of HAQ common stock issued as a portion of the Merger Consideration would be increased by 337,275 shares of common stock. The number of outstanding options and warrants of PharmAthene will not effect the total of 12,500,000 shares to be issued as Merger Consideration.
Of the shares of HAQ common stock to be issued to the PharmAthene stockholders as a portion of the Merger Consideration, 1,375,000 shares of HAQ common stock will be placed in an escrow account for a period of one year from the closing date of the Merger as the sole and exclusive source to satisfy any indemnification claims against PharmAthene under the Merger Agreement.
HAQ, Merger Sub and PharmAthene plan to consummate the Merger as promptly as practicable after the Special Meeting, provided that:
| • | HAQ’s stockholders have approved and adopted the Merger Agreement and the transactions contemplated thereby; |
| • | holders of no more than 19.99% of the shares of the common stock issued in HAQ's IPO vote against the Merger Proposal and demand conversion of their shares into cash; |
| • | at the closing, all series of preferred stock of PharmAthene are surrendered for conversion, all warrants held by the holders of the PharmAthene preferred stock are cancelled, as well as all related agreements previously entered into by the holders of the preferred stock and PharmAthene are terminated; |
| • | all of the noteholders of PharmAthene surrender their notes for exchange into the new 8% convertible notes of HAQ; |
| • | all registration rights, security agreements and any other agreement related to the preferred stock and notes of PharmAthene entered into by the holders of the preferred stock and /or note holders are terminated; and |
| • | the other conditions specified in the Merger Agreement have been satisfied or waived. |
See the description of the Merger Agreement in the section entitled “The Agreement and Plan of Merger” beginning on page 78. The Merger Agreement is included as “Annex A” to this proxy statement. We encourage you to read the Merger Agreement in its entirety.
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Our Stock Ownership (Page 54)
On the Record Date, our officers and directors owned an aggregate of 2,500,000 shares of our common stock, or approximately 21.46% of our outstanding shares, of which 2,250,000 shares were acquired prior to our IPO. They have agreed to vote 2,250,000 of such shares with respect to the Merger Proposal as the holders of a majority of our IPO shares that are voted at the Special Meeting and they have advised us that they intend to vote the remaining 250,000 shares which were purchased in the open market by three of our Board members pursuant to a Rule 10b5-1 plan in favor of the Merger Proposal and all other proposals.
Date, Time and Place of Special Meeting of Our Stockholders (Page 50)
The Special Meeting of our stockholders will be held at 10:00 A.M., local time, on July 27, 2007 at the offices of McCarter & English, LLP, 245 Park Avenue, 27th Floor, New York, NY, 10167-0001.
Record Date; Who is entitled to Vote (Page 51)
You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of our common stock at the close of business on June 15, 2007, which is the record date for the Special Meeting. You will have one vote for each share of our common stock you owned at the close of business on the record date. On the record date, there were 11,650,000 shares of our common stock outstanding, of which 9,400,000 shares were IPO shares. The remaining 2,250,000 shares were issued to our founders prior to our IPO.
Quorum and Vote Required (Page 52)
A quorum of our stockholders is necessary to hold a valid stockholders meeting. A quorum will be present at the Special Meeting if a majority of the shares of our common stock outstanding as of the record date are presented in person or by proxy. Abstentions and broker non-votes will count as present for the purposes of establishing a quorum.
The approval of the Merger Proposal will require the approval of the holders of a majority of the shares of our common stock issued in our IPO present and that vote on the Merger Proposal at the Special Meeting with respect to the Merger. Notwithstanding such approval, the Merger will not be completed if the holders of 20% or more of our IPO shares (1,880,000 or more shares) vote against the Merger Proposal and exercise their conversion rights.
As long as a quorum is established at the Special Meeting, a failure to vote will have no impact upon the approval of the Merger Proposal or the Incentive Plan Proposal but as the Amendment Proposal requires a majority of all outstanding shares of common stock, a failure to vote will have the effect of a vote against such proposal. Failure to vote will not have the effect of converting your shares into a pro rata portion of the trust account.
Voting your Shares; Proxies (Page 51)
Proxies may be solicited by mail, telephone or in person. HAQ will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and officers may also solicit proxies in person, by telephone or by other means of communication. These parties will not be paid any additional compensation for soliciting proxies. Morrow & Co., Inc., a proxy solicitation firm that we have engaged to assist us in soliciting proxies, will be paid its customary fee of approximately $12,500 plus $5 per solicited stockholder and out-of-pocket expenses and we expect that the total fees and expenses payable to Morrow & Co. will not exceed approximately $30,000. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners
If you grant a proxy, you may still vote your shares in person if you revoke your proxy at or before the Special Meeting.
Tax Consequences (Page 75)
There will be no tax consequences to our stockholders resulting from the Merger, except to the extent they exercise their conversion rights.
A stockholder who exercises conversion rights will generally be required to recognize capital gain or loss upon the conversion, if such shares were held as a capital asset on the date of the Merger. This gain or loss
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will be measured by the difference between the amount of cash received and the stockholder’s tax basis in the converted shares. The gain or loss will be short-term gain or loss if the acquisition closes as scheduled, but may be long-term gain or loss if the closing is postponed.
Accounting Treatment (Page 75)
The Merger will be accounted for as a reverse acquisition and equity recapitalization, with HAQ treated as the “acquired” company for financial reporting purposes. For accounting purposes, the transaction is being treated as an acquisition of assets and not a business combination because HAQ did not meet the definition of a business under EITF 98-3, Determination Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. Accordingly, the transaction has been treated as a capital transaction whereby PharmAthene is issuing stock for the net monetary assets of HAQ, accompanied by a recapitalization.
Risk Factors (Page 31)
Before you grant your proxy or vote or instruct the vote with respect to the Merger, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on us and PharmAthene.
Relation of Proposals
Each of the Amendment Proposal and the Incentive Plan Proposal are conditioned upon the approval of the Merger Proposal and, in the event the Merger Proposal does not receive the necessary vote to approve that proposal, then HAQ will not complete any of the transactions identified in any of the proposals. If the Amendment Proposal and/or Incentive Plan Proposal is not approved but the Merger Proposal is approved, we may still consummate the Merger if the conditions in the Merger Agreement requiring the approval of these proposals are waived. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
Approval of PharmAthene's Stockholders
PharmAthene did not hold a stockholders meeting. The approval of the stockholders and noteholders of PharmAthene is required to consummate the Merger. More than 80% of the holders of PharmAthene’s common stock, 100% of its preferred stockholders and holders of substantially all of the PharmAthene Notes have previously approved the Merger and the Merger Agreement by written consent. No further approval is required of PharmAthene securityholders. A form of the Note Exchange Agreement, to be executed at closing, and a form of the 8% convertible notes, to be issued at closing, have been agreed upon by the PharmAthene noteholders and HAQ. Further, the stockholders and noteholders of PharmAthene have agreed to a lockup of their shares issuable to them in the Merger under which 50% of the shares will be released after six months and the remaining shares will be released after 12 months. HAQ has agreed to register the shares issuable to the PharmaAthene stockholders and noteholders following the closing pursuant to the terms of a Registration Rights Agreement, the form of which is filed as Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on January 19, 2007.
Conversion Rights (Page 53)
Pursuant to HAQ’s existing amended and restated certificate of incorporation, a holder of shares of HAQ's common stock issued in its IPO may, if the stockholder votes against the Merger Proposal, demand that HAQ convert such shares into a pro rata portion of the trust account. This demand must be made on the proxy card at the same time that the stockholder votes against the Merger Proposal. We issued a total of 9,400,000 shares in our IPO and, other than the 2,250,000 shares issued to our management, we have no other shares of common stock issued and outstanding. If properly demanded, HAQ will convert each share of common stock as to which such demand has been made into a pro rata portion of the trust account in which a substantial portion of the net proceeds of HAQ's IPO are held, plus all interest earned thereon. If you exercise your conversion rights, then you will be exchanging your shares of HAQ common stock for cash and will no longer own these shares. Based on the amount of cash held in the trust account as of March 31, 2007, without taking into account any interest accrued after such date, you would be entitled to convert each share of common stock that you hold into approximately $7.60 per share. You will only be entitled to receive cash for these shares if you continue to hold these shares through the closing date of the Merger and then tender your
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stock certificate before 5 p.m. EST on the third business day after the Merger is consummated to our transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY, 10004, Attention Greg Denman, (212) 845-3287. Assuming the Merger is approved, we expect to close the transaction on the date of the Special Meeting or shortly thereafter, and will provide public notice of the closing date. The Merger will not be consummated if the holders of more than 1,879,060 shares of common stock issued in HAQ's IPO, an amount equal to less than 20% of such shares, vote against the Merger Proposal and exercise their conversion rights. If the Merger is not consummated, then these shares will not be converted into cash immediately. If you convert your shares of common stock, you will still have the right to exercise the warrants received as part of the units purchased in our IPO in accordance with the terms thereof and you will still have the right to attend the Special Meeting. If the Merger is not consummated, then your shares will not be converted to cash after the Special Meeting, even if you so elected, and your shares will be converted into cash upon liquidation of the trust.
Dissenters’ or Appraisal Rights (Page 53)
No dissenters’ or appraisal rights are available under the Delaware General Corporation Law to the stockholders of HAQ in connection with the proposals. Any stockholder of HAQ holding shares of common stock issued in HAQ's IPO who votes against the Merger Proposal may, at the same time, demand that HAQ convert his shares into a pro rata portion of the trust account. If the holders of 20%, or 1,880,000, or more shares of common stock issued in HAQ's IPO vote against the Merger Proposal and demand conversion of their shares into a pro rata portion of the trust account, HAQ will not be able to consummate the Merger. The only rights for those stockholders voting against the Merger who wish to receive cash for their shares is to simultaneously demand payment for their shares from the trust account.
All of the holders of PharmAthene’s classes of preferred stock and stockholders representing 80% of its outstanding common stock have approved the Merger Proposal by written consent. The holders of PharmAthene common stock who did not consent to the Merger were provided with a notice, dated May 10, 2007, regarding their possible appraisal rights under the Delaware General Corporation Law. Pursuant to such notice and applicable law, dissenting stockholders were required to notify PharmAthene within 20 days of the date of the notice of their election to exercise their appraisal rights. PharmAthene did not receive any notices of such election.
Proxies and Proxy Solicitation Costs
We are soliciting proxies on behalf of our Board of Directors. We and our directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. These parties will not be paid any additional compensation for soliciting proxies. Morrow & Co., Inc., a proxy solicitation firm that we have engaged to assist us in soliciting proxies, will be paid its customary fee of approximately $12,500 plus $5 per solicited stockholder and out-of-pocket expenses. Such fees will be paid with non-trust account funds. We expect that the total fees and related expenses of Morrow & Co. will not exceed $30,000.
We will ask banks, brokers and other institutions, nominees and fiduciaries to forward proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. We may also reimburse them for their reasonable expenses.
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Stock Ownership
The following table sets forth information as of July 12, 2007, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of HAQ’s common stock by (i) each person known by us to be the owner of more than 5% of our outstanding shares of HAQ’s common stock, (ii) each director and (iii) all officers and directors as a group. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
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| Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| John Pappajohn(2)(3) | 1,123,960 | 9.53 % | ||||||
| Derace L. Schaffer, M.D.(2)(4) | 1,123,960 | 9.53 % | ||||||
| Matthew P. Kinley(2)(5) | 561,980 | 4.79 % | ||||||
| Edward B. Berger(6) | 34,500 | * | ||||||
| Wayne A. Schellhammer | 22,500 | * | ||||||
| Sapling, LLC(7) | 697,715 | 6.0 % | ||||||
| Fir Tree Recovery Master Fund, LP(7) | 325,115 | 2.88 % | ||||||
| QVT Financial LP(8) | 640,400 | 5.5 % | ||||||
| Andrew M. Weiss, PhD(9) | 617,825 | 5.3 % | ||||||
| All directors and executive officers as a group (5) persons | 2,866,900 | 24.35 % | ||||||
* Represents beneficial ownership of less than 1%.
| (1) | Includes shares of common stock issuable upon exercise of warrants which are beneficially owned by certain of the persons named in the above table but which are not exercisable until the later of (i) July 28, 2006 or (ii) the consummation by us of a business combination (including our acquisition of PharmAthene). Unless otherwise indicated, the business address of each of the individuals is 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309. |
| (2) | On May 2, 2007, three individuals adopted stock purchase plans intended to comply with the provisions of SEC Rule 10b5-1. Shares purchased under such plans were purchased through an NASD member firm at its discretion, subject to the terms of the plans. Pursuant to the adopted plans, the individuals, John Pappajohn, Matthew Kinley and Derace Schaffer authorized the following open market purchases: |
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| Total Shares | Share Limit Per Day | |||||||
| John Pappajohn | 100,000 shares | 10,000 shares | ||||||
| Derace Schaffer | 100,000 shares | 10,000 shares | ||||||
| Matthew Kinley | 50,000 shares | 5,000 shares | ||||||
The aggregate number of shares that were purchased did not exceed 250,000 shares. Further, each individual adopted a daily limit on the number of shares purchased which in the aggregate was not more than 25,000 shares. The individuals purchased shares at prices up to $7.60 per share. The plans expire on August 3, 2007.
| (3) | Includes 141,960 warrants and 100,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (4) | Includes 141,960 warrants and 100,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (5) | Includes 70,980 warrants and 50,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (6) | Includes 12,000 warrants purchased by Mr. Berger in open market purchases. See footnote 1 above. |
| (7) | Based on information contained in a Statement on Schedule 13G filed by Sapling LLC in February 2007. |
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| Sapling may direct the vote and disposition of the 697,715 shares of common stock, and Fir Tree Recovery may direct the vote and disposition of 325,115 shares of common stock. The address of both Sapling LLC and Fir Tree Recovery is 535 Fifth Avenue, 31st Floor, New York, New York 10017. Fir Tree, Inc. is the investment manager for each of Sapling LLC and Fir Tree Recovery Master Fund, LP. Jeffrey Tannenbaum is the President of Fir Tree, Inc. and has the power to vote or dispose of the securities held by these entities. |
| (8) | Based on information contained in a Statement on Schedule 13G filed by QVT Financial LP on July 10, 2007. QVT Financial LP (“QVT Financial”) is the investment manager for QVT Fund LP (the “Fund”), which beneficially owns 503,160 shares of HAQ common stock. QVT Financial is also the investment manager for a separate discretionary account managed for Deutsche Bank AG (the “Separate Account”), which holds 80,487 shares of HAQ common stock. QVT Financial also acts as the investment manager for Quintessence Fund L.P. (“Quintessence”) and their several feeder funds, which beneficially owns 56,753 shares of HAQ common stock. QVT Financial has the power to direct the vote and disposition of the HAQ common stock held by each of the Fund, the Separate Account and Quintessence. Accordingly, QVT Financial may be deemed to be the beneficial owner of an aggregate amount of 640,400 shares of HAQ common stock, consisting of the shares owned by the Fund and the shares held in the Separate Account QVT Financial GP LLC, as General Partner of QVT Financial, may be deemed to beneficially own the same number of shares of HAQ common stock reported by QVT Financial. Daniel Gold and Lars Bader are each managing members of each of QVT Financial LP and QVT Financial GP LLC and may therefore be considered beneficial holders of the securities held by QVT Financial LP. |
| (9) | Based on information contained in a Statement on Schedule 13G filed by Weiss Asset Management, LLC, Weiss Capital, LLC and Andrew Weiss, PhD on June 4, 2007. Shares reported for Dr. Weiss include shares beneficially owned by a private investment partnership of which Weiss Asset Management is the sole general partner and which may be deemed to be controlled by Dr. Weiss, who is the Managing Member of Weiss Asset Management, and also includes shares held by a private investment corporation which may be deemed to be controlled by Dr. Weiss, who is the managing member of Weiss Capital, LLC the Investment Manager of such private investment corporation. Dr. Weiss disclaims beneficial ownership of the shares reported herein as beneficially owned by him except to the extent of his pecuniary interest therein. |
Other than the shares purchased by Messrs. Pappajohn and Kinley and Dr. Schaffer under 10b5-1 plans (an aggregate of 250,000 shares), all of the shares of HAQ common stock held by our officers and directors were placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until the earliest of (i) July 28, 2008; or (ii) the consummation of a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to our acquisition of PharmAthene.
During the escrow period, the holders of these shares are not able to sell or transfer their securities except to their spouses and children or to trusts established for their benefit, but will retain all other rights as our stockholder including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, none of these stockholders will receive any portion of the liquidation proceeds with respect to common stock owned by them prior to HAQ’s IPO.
As described above, certain of our officers and directors determined to purchase shares of our common stock in open market transactions prior to the Special Meeting pursuant to Rule 10b5-1 stock purchase plans. Shares purchased under these plans (250,000 shares) are entitled to participate in the liquidation of the trust fund in the event the Merger is not approved. Our officers and directors have advised us that they will vote the shares so purchased in favor of the Merger Proposal, Amendment Proposal, Incentive Plan Proposal and Adjournment Proposal. As of July 12, 2007, a total of 250,000 shares have been purchased under these plans.
Reasons for the Merger (Page 67)
No fairness opinion from an independent third party was sought or obtained by our Board of Directors in reaching its determination because the Board of Directors did not believe any such opinion was required to assist them in their decision making process or added value to the stockholder voting process. In reaching its decision with respect to the Merger and the transactions contemplated thereby, the Board of Directors reviewed various industry and financial data and the due diligence and evaluation materials of PharmAthene.
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During negotiations with PharmAthene, the Board of Directors of HAQ determined that the value of PharmAthene was within a range of $101.4 million and $168.8 million. In addition, in reaching its decision to approve the Merger and the final terms of the consideration to be paid, the Board of Directors considered a number of factors including, but not limited to, the following:
| • | the involvement of certain of the stockholders and noteholders of PharmAthene, whom HAQ believes represent strong long term investors with experience in venture transactions and growth companies and their willingness to continue to be involved, as reflected in the agreement to accept notes and common stock as part of the Merger Consideration; |
| • | the experience of PharmAthene’s management, including David P. Wright, PharmAthene’s Chief Executive Officer, in building and operating PharmAthene’s business; |
| • | PharmAthene’s existing products, and the award by U.S. government agencies of contracts related to such products; |
| • | PharmAthene’s business strategy; |
| • | PharmAthene’s financial results, including potential for revenue growth and operating margins. |
| • | PharmAthene’s competitive position; |
| • | the industry dynamics, including barriers to entry; |
| • | the regulatory environment for PharmAthene; |
| • | acquisition opportunities in the industry; |
| • | the valuation of comparable companies; |
| • | the experience of HAQ’s management, in particular, Mr. Pappajohn and Dr. Schaffer, in building consolidating and investing in similar businesses in the U.S. including relationships HAQ could introduce to PharmAthene to potentially enhance its growth; and |
| • | the agreement by the stockholders of PharmAthene to accept merger consideration that was tied to the future growth of the business of PharmAthene, in that the convertible notes were negotiated to be convertible at a premium to the existing market price of HAQ’s common stock (the notes are convertible at $10.00 per share and the per share market price of HAQ’s Common Stock on January 18, 2007 was $7.45) and the milestone payments are only payable upon attainment of actual revenue targets and that the structure also preserved cash for the future growth of the company. |
HAQ's Board of Directors' Recommendation (Page 76)
After careful consideration of the terms and conditions of the Merger Agreement, HAQ’s Board of Directors has determined unanimously that the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, HAQ and its stockholders. Accordingly, HAQ's Board has unanimously approved and declared advisable the Merger and unanimously recommends that the stockholders vote or instruct their vote to be cast “FOR” the Merger Proposal.
HAQ’s Board of Directors has determined unanimously that the Amendment Proposal is fair to, and in the best interest of HAQ and its stockholders. Accordingly, HAQ’s Board of Directors has unanimously approved and declared advisable the Amendment Proposal and unanimously recommends that you vote or instruct your vote to be cast “FOR” the approval of the Amendment Proposal.
HAQ’s Board of Directors has determined unanimously that the adoption of the Incentive Plan is fair to, and in the best interests of, HAQ and its stockholders. Accordingly, HAQ’s Board of Directors has unanimously approved and declared advisable the adoption of the Incentive Plan and unanimously recommends that you vote or instruct your vote to be cast “FOR” the approval of the Incentive Plan Proposal.
Interests of HAQ Directors and Officers in the Merger (Page 66)
When you consider the recommendation of HAQ's Board of Directors that you vote in favor of the Merger Proposal, you should keep in mind that certain of HAQ's Directors and officers have interests in the Merger that are different from, or in addition to, your interests as a stockholder. It is anticipated that after the
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consummation of the Merger, John Pappajohn and Derace L. Schaffer, MD, who currently serve as two of our directors, will remain on the Board. All other current HAQ Directors will resign. If the Merger is not approved, HAQ will be required to liquidate, and the warrants owned by certain of HAQ's directors and the shares of common stock issued at a price per share of $0.0111 prior to HAQ's IPO to and held by HAQ's executives and directors will be worthless because HAQ's executives and directors are not entitled to receive any of the net proceeds of HAQ's IPO that may be distributed upon liquidation of HAQ with respect to shares or warrants previously purchased by them. Additionally, HAQ's officers and directors who acquired shares of HAQ common stock prior to HAQ's IPO at a price per share of $0.0111 will benefit if the Merger is approved because they will continue to hold their shares.
The table below sets forth the value of the shares and warrants owned by the officers and directors of HAQ upon consummation of the Merger (not including shares purchased by such officers and directors in open market transactions, which are entitled to participate in any liquidation of the Trust) and the unrealized profit from such securities based on an assumed market price of the common stock and the warrants of HAQ, as of July 10, 2007, of $7.20 and $.94 respectively. We have not included in the table an aggregate of 250,000 shares owned by these individuals because they were purchased in open market transactions, may participate in liquidation of the trust and may be sold without any lock-up period.
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| Common Shares(a) | Warrants(b) | |||||||||||||||||||||||||||||||
| Owned | Amount Paid | Current Value | Unrealized Profit | Owned | Amount Paid | Current Value | Unrealized Profit | |||||||||||||||||||||||||
| John Pappajohn | 882,000 | 9,800 | 6,350,400 | 6,340,600 | 141,960 | 154,414 | 133,442 | N/A | ||||||||||||||||||||||||
| Derace L. Schaffer, M.D. | 882,000 | 9,800 | 6,350,400 | 6,340,600 | 141,960 | 154,414 | 133,442 | N/A | ||||||||||||||||||||||||
| Matthew P. Kinley | 441,000 | 4,900 | 3,175,200 | 3,170,300 | 70,980 | 77,242 | 66,721 | N/A | ||||||||||||||||||||||||
| Edward B. Berger | 22,500 | 250 | 162,000 | 161,750 | 12,000 | 12,917 | 11,280 | N/A | ||||||||||||||||||||||||
| Wayne A. Schellhammer | 22,500 | 250 | 162,000 | 161,750 | — | |||||||||||||||||||||||||||
| (a) | The purchase price per share for these common shares was $0.0111 per share. Pursuant to escrow agreements signed by these stockholders, these shares may not be sold or pledged until July 28, 2008. Additionally, these shares are currently not registered, although after the release from escrow, these stockholders may demand that HAQ use its best efforts to register the resale of such shares. Does not include an aggregate of 250,000 shares of HAQ common stock that were purchased in open market transactions effected in accordance with Rule 10b5-1 Plans and are not subject to the aforementioned lock up agreement. These shares were purchased at a price of not less than $7.54 per share. This table does not reflect 100,000, 100,000 and 50,000 shares of Common Stock acquired by Mr. Pappajohn, Dr. Schaffer and Mr. Kinley, respectively, in open market transactions in May 2007. |
| (b) | These warrants were purchased pursuant to the guidelines set forth in SEC Rule 10b5-1 in connection with a Rule 10b5-1 Plan. |
Interests of PharmAthene Directors and Officers in the Merger
You should understand that some of the current directors and officers of PharmAthene have interests in the Merger that are different from, or in addition to, your interests as a stockholder of HAQ. Following the closing of the Merger, a majority of the members of the Board of Directors of the combined company will consist of parties initially designated by PharmAthene or its noteholders. In particular, David Wright, PharmAthene’s current Chief Executive Officer, is expected to become HAQ’s Chief Executive Officer and serve on our Board. Further, David Wright is expected to enter into an employment agreement with HAQ in connection with the Merger.
For so long as at least 30% of the 8% convertible notes to be issued in the Merger remain outstanding, the holders of the 8% convertible notes shall have the right, as a separate class (and notwithstanding the existence of less than three such holders at any given time), to (a) elect three members to the Board of Directors of HAQ and, (b) to the extent they elect to fill such committee positions, appoint two of the three members of such committees of the Board. It is currently contemplated that Elizabeth Czerepak, Steven
20
St. Peter, MD and James Cavanaugh, Ph.D., who are currently members of the Board of Directors of PharmAthene, will be members of the HAQ Board of Directors following the Merger as representatives of the noteholders.
In addition, Elizabeth Czerepak, Steven St. Peter, MD and James Cavanaugh, Ph.D. hold management positions with funds affiliated with Bear Stearns Health Innoventures Management, LLC, MPM Capital L.P. and HealthCare Ventures VII, L.P., respectively. Funds affiliated with Bear Stearns Health Innoventures Management, LLC will beneficially own approximately 5.8% of the outstanding voting shares of the combined company (and 20.3% of the HAQ 8% convertible notes), funds affiliated with MPM Capital L.P. will beneficially own approximately 14.1% of the outstanding voting securities of the combined company (and 37.6% of the HAQ 8% convertible notes) and HealthCare Ventures VII, L.P. will beneficially own approximately 13.4% of the outstanding voting securities of the combined company (and 14.5% of the HAQ 8% convertible notes). Accordingly, these funds will have the ability to exercise substantial influence over the election of members of the HAQ Board of Directors and other matters submitted to the stockholders of the combined company.
Interests of The Maxim Group in the Merger; Fees
The Maxim Group served as an underwriter in our IPO and agreed to defer $720,000 of its underwriting discounts and commissions until after the consummation of a business combination. Maxim has also served as our financial advisor in connection with negotiating the Merger. The Maxim Group did not provide any fairness opinion or formal analysis of the value of PharmAthene, the Merger or the merger consideration to the Board of HAQ. The deferred amount payable in connection with the IPO will be paid out of the trust account established for the proceeds of the IPO only if we consummate the Merger. Maxim, therefore, has an interest in our consummating the Merger that will result in the payment of its deferred compensation. Further, Maxim owns an option to purchase 225,000 units (comprised of one share and one warrant) at an exercise price of $10.00 per unit, received as consideration as underwriters in our IPO.
In addition to receiving its deferred compensation, Maxim will receive fees of $500,000 only upon completion of the Merger in consideration for its advisory services to HAQ in connection with the Merger.
Interest of The Bear Stearns Companies, Inc. in the Merger
Bear, Stearns & Co. Inc. was retained by PharmAthene to advise PharmAthene in connection with the negotiations of the terms of the Merger. For its services, Bear, Stearns & Co. Inc. will receive a fee of $1,750,000 of which $1,250,000 is contingent upon completion of the Merger. Bear Stearns, therefore, has an interest in our consummating the Merger that will result in the payment of such fee.
The Bear Stearns Companies, Inc. is the parent company of Bear, Stearns & Co. Inc. and Bear Stearns Asset Management, Inc., which is the sole manager of Bear Stearns Health Innoventures Management, LLC. Funds affiliated with Bear Stearns Health Innoventures Management, LLC will beneficially own approximately 5.8% of the outstanding voting shares of the combined company (and 20.3% of the HAQ 8% convertible notes) following the Merger. In addition, Elizabeth Czerepak is a member of Bear Stearns Health Innoventures Management, LLC and is expected to be a member of the Board of Directors of HAQ following the Merger.
Conditions to the Consummation of the Merger
The obligations of HAQ and PharmAthene to consummate the Merger are subject to the satisfaction or waiver of specified conditions before completion of the Merger, including the following:
Conditions to HAQ's and PharmAthene's obligations to consummate the Merger:
The respective obligations of each of HAQ and PharmAthene to consummate the Merger are subject to the satisfaction of, or waiver of, the following conditions:
| • | the receipt of HAQ stockholder approval; |
| • | the receipt of PharmAthene stockholder approval (which has been obtained and is irrevocable); |
| • | holders of the outstanding notes of PharmAthene shall have executed the Note Exchange Agreement; |
| • | the outstanding classes of preferred stock of PharmAthene, as well as related warrants and side agreements are terminated in full; and |
21
| • | the absence of any order or injunction preventing consummation of the merger. |
Conditions to HAQ's obligations:
The obligation of HAQ to consummate the Merger is further subject to the following conditions, among others:
| • | the representations and warranties made by PharmAthene must be true and correct in all material respects; |
| • | PharmAthene must have performed in all material respects all obligations required to be performed by it under the terms of the Merger Agreement; |
| • | there must not have occurred since the date of the Merger Agreement any material adverse effect on PharmAthene’s financial condition or business; and |
| • | PharmAthene shall have delivered to HAQ executed termination agreements from the holders of the PharmAthene preferred stock and noteholders whereby the holders of such securities terminate all rights under any agreements entered into by PharmAthene and such preferred stockholders and noteholders. |
Conditions to PharmAthene's obligations:
The obligation of PharmAthene to consummate the Merger is further subject to the following conditions, among others:
| • | the representations and warranties made by HAQ and Merger Sub must be true and correct in all respects; |
| • | HAQ and Merger Sub must have performed in all material respects all obligations required to be performed by it under the terms of the Merger Agreement; |
| • | there must not have occurred since the date of the Merger Agreement any material adverse effect on the financial condition or business of HAQ or Merger Sub; |
| • | the HAQ certificate of incorporation shall have been amended and restated to provide for board designee rights of the 8% convertible noteholders; and |
| • | the 12,500,000 shares of HAQ common stock issuable in the Merger and the shares into which the new 8% convertible notes to be issued in the Merger may be converted shall have been accepted for listing on the American Stock Exchange (which condition has been satisfied). |
Termination, Amendment and Waiver
The Merger Agreement may be terminated at any time prior to the consummation of the Merger, whether before or after receipt of stockholder approval, as follows:
| • | by mutual written consent of. |
| • | by either party if the Merger is not consummated on or before August 3, 2007; or |
| • | by either party if any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and nonappealable; or |
| • | by either party if during any 15-day trading period following the execution of the Merger Agreement and before its consummation, the average trading price of the publicly-traded warrants of HAQ is below $0.20 per warrant. |
| • | by either party if the other party has breached any of its covenant or representations and warranties in any material respect, subject to certain conditions and a right to cure, as further described below; or |
| • | by either party if any of the conditions to the consummation of the Merger shall have become incapable of fulfillment; or |
22
| • | by PharmAthene if HAQ has not held its Special Meeting of Stockholders to approve the Merger Proposal within 35 days of the date of approval of the proxy statement by the SEC; or |
| • | by PharmAthene if HAQ’s Board of Directors has withdrawn or changed its recommendation to its stockholders regarding the Merger; or |
| • | by PharmAthene if more than 20% of the holders of the shares issued in HAQ’s IPO entitled to vote on the Merger elect to convert such shares into cash from the Trust Fund. |
If permitted under applicable law, either HAQ or PharmAthene may waive conditions for their own respective benefit and consummate the Merger, even though one or more of these conditions have not been met. We cannot assure you that all of the conditions will be satisfied or waived or that the Merger will occur.
In certain instances, more fully described below, either HAQ or PharmAthene may be liable for a termination fee of $250,000.
Regulatory Matters
We believe the Merger and the transactions contemplated by the Merger Agreement are not subject to any federal or state regulatory requirement or approval, except for filings necessary to effectuate the transactions contemplated by the Merger Proposal and the Amendment Proposal with the Secretary of State of the State of Delaware.
The Amendment Proposal
HAQ is seeking stockholder approval to amend HAQ's amended and restated certificate of incorporation. Any amendment will not become effective unless and until the Merger with PharmAthene is consummated. The material terms of such amendment are to: (i) change HAQ's name from “Healthcare Acquisition Corp.” to “PharmAthene, Inc.” (ii) remove certain provisions containing procedural and approval requirements applicable to HAQ prior to the consummation of the business combination that will no longer be operative after the consummation of the Merger and (iii) grant to holders of certain secured, convertible promissory notes the right to designate three members to the Board of Directors of HAQ for so long as at least 30% of the original face value of such notes remain outstanding.
The Incentive Plan Proposal
HAQ is seeking stockholder approval for the adoption of the Incentive Plan which will provide for the granting of options and/or other stock-based or stock-denominated awards. The material terms of such plan are:
| • | 3,500,000 shares of HAQ common stock will be reserved for issuance; |
| • | the Incentive Plan will be administered by the HAQ Board of Directors, or a committee thereof, and any particular term of a grant or award shall be at the Board's discretion; and |
| • | the Incentive Plan will become effective upon the closing of the Merger with PharmAthene. |
The Adjournment Proposal
If, based on the tabulated vote, there are not sufficient votes at the time of the Special Meeting approving the Merger Proposal, HAQ's Board of Directors may submit a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation of proxies. See the section entitled “The Adjournment Proposal.” beginning on page 104.
23
SELECTED HISTORICAL FINANCIAL INFORMATION
HAQ is providing the following financial information to assist you in the analysis of the financial aspects of the Merger. We are providing the financial information related to PharmAthene since, for accounting purposes, PharmAthene will be deemed the acquiror. We derived PharmAthene’s historical information from the unaudited condensed consolidated financial statements of PharmAthene as of and for each of the three months ended March 31, 2007 and 2006, respectively and from the audited consolidated financial statements of PharmAthene as of and for the years ended December 31, 2006, December 31, 2005, and December 31, 2004. The information is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained elsewhere herein. The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of PharmAthene.
Selected Historical Financials Statements of PharmAthene
|
|
|
||||||
| Three Months Ended March 31, | ||||||||
| 2007 | 2006 | |||||||
| Revenues | $ | 2,968,759 | $ | 186,442 | ||||
| Research and Development | 3,061,059 | 1,750,580 | ||||||
| General and Administrative | 2,510,370 | 1,519,601 | ||||||
| Operating Loss | (2,749,803 | ) | (3,220,075 ) | |||||
| Net Loss attributable to common stockholders | $ | (4,660,617 | ) | $ | (5,130,584 | ) | ||
| Net Loss per share: |
||||||||
| Basic and Diluted | $ | (0.37 ) | $ | (0.47 ) | ||||
| Weighted Average Shares |
||||||||
| Outstanding basic and diluted | 12,483,819 | 10,942,906 | ||||||
| Total Assets | $ | 23,062,352 | $ | 12,931,056 | ||||
| Cash and cash equivalents | 11,910,718 | 3,833,759 | ||||||
| Total Liabilities | 27,693,958 | 3,593,221 | ||||||
| Total Stockholders deficit | (74,432,848 | ) | (53,269,673 | ) | ||||
| Net cash used in operating activities | $ | (1,975,466 | ) | $ | (2,871,462 | ) | ||
|
|
|
|
|||||||||
| Fiscal Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Revenues | $ | 1,663,306 | $ | 1,098,400 | $ | 1,037,979 | ||||||
| Research and Development | 7,140,337 | 6,351,157 | 7,843,863 | |||||||||
| General and Administrative | 8,572,963 | 5,009,267 | 3,327,571 | |||||||||
| Acquired in process Research and Development | — | 12,812,000 | — | |||||||||
| Operating Loss | (14,533,640 | ) | (23,734,591 | ) | (10,158,653 | ) | ||||||
| Net Loss attributable to common stockholders | $ | (21,723,058 | ) | $ | (29,163,455 | ) | $ | (12,441,644 | ) | |||
| Net Loss per share: |
||||||||||||
| Basic and Diluted | $ | (1.90 | ) | $ | (2.70 | ) | $ | (1.16 | ) | |||
| Weighted Average Shares |
||||||||||||
| Outstanding basic and diluted | 11,407,890 | 10,817,949 | 10,740,000 | |||||||||
| Total Assets | $ | 14,767,504 | $ | 16,280,234 | $ | 24,016,883 | ||||||
| Cash and cash equivalents | 5,112,212 | 7,938,116 | 21,662,117 | |||||||||
| Total Liabilities | 16,617,596 | 3,514,292 | 1,639,689 | |||||||||
| Total Stockholders deficit | (69,787,803 | ) | (48,582,098 | ) | (19,899,650 | ) | ||||||
| Net cash used in operating activities | $ | (13,530,005 | ) | $ | (9,990,864 | ) | $ | (12,833,092 | ) | |||
24
HEALTHCARE ACQUISITION CORP. SELECTED FINANCIAL DATA
HAQ is providing the following selected financial information to assist you in your analysis of the financial aspects of the merger. The following selected financial and other operating data should be read in conjunction with `Healthcare Acquisition Corp.'s Management's Discussion and Analysis of Financial Condition and Results of Operations` and its financial statements and the related notes to those statements included elsewhere in this proxy statement. We derived HAQ's historical information from the audited and unaudited financial statements included elsewhere herein. The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of HAQ.
BALANCE SHEETS
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|
|
||||||
| December 31, 2006 | December 31, 2005 |
|||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents | $ | 675,305 | $ | 1,398,181 | ||||
| Cash held in trust | 70,887,371 | 68,636,069 | ||||||
| Prepaid expense | 54,115 | 52,500 | ||||||
| Deferred legal fees | 121,953 | — | ||||||
| Total current assets | 71,738,744 | 70,086,750 | ||||||
| Total assets | $ | 71,738,744 | $ | 70,086,750 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable | $ | 160,514 | $ | 6,996 | ||||
| Accrued expenses | 90,996 | 98,996 | ||||||
| State income tax payable | 139,034 | 48,000 | ||||||
| Capital based taxes payable | 64,072 | 115,000 | ||||||
| Deferred revenue | 591,579 | 141,543 | ||||||
| Total current liabilities | 1,046,195 | 410,535 | ||||||
| Common stock, subject to possible redemption 1,879,060 shares, at conversion value | 13,578,807 | 13,578,807 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $.0001 par value, 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Common stock, $.0001 par value, 100,000,000 shares authorized; 11,650,000 shares issued and outstanding (which includes 1,879,060 subject to possible conversion) | 1,165 | 1,165 | ||||||
| Common stock warrants (9,400,000 outstanding) | — | — | ||||||
| Additional paid-in capital | 55,818,948 | 55,818,948 | ||||||
| Equity accumulated during the development stage | 1,293,629 | 277,295 | ||||||
| Total stockholders’ equity | 57,113,742 | 56,097,408 | ||||||
| Total liabilities and stockholders’ equity | $ | 71,738,744 | $ | 70,086,750 | ||||
25
|
|
|
||||||
| March 31, 2007 | December 31, 2006 | |||||||
| (audited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents | $ | 467,388 | $ | 675,305 | ||||
| Cash held in Trust Fund | 71,486,888 | 70,887,371 | ||||||
| Prepaid expense | 48,396 | 54,115 | ||||||
| Deferred merger fees | 372,570 | 121,953 | ||||||
| Total current assets | 72,375,242 | 71,738,744 | ||||||
| Total assets | $ | 72,375,242 | $ | 71,738,744 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
| Current liabilities |
||||||||
| Accounts payable | $ | 354,654 | $ | 160,514 | ||||
| Accrued expenses | 83,496 | 90,996 | ||||||
| State income tax payable | 160,000 | 139,034 | ||||||
| Capital based taxes payable | 32,136 | 64,072 | ||||||
| Deferred revenue | 711,422 | 591,579 | ||||||
| Total current liabilities | 1,341,708 | 1,046,195 | ||||||
| Common stock, subject to possible redemption 1,879,060 shares, at conversion value | 13,578,807 | 13,578,807 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $.0001 par value, 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Common stock, $.0001 par value, 100,000,000 shares authorized; 11,650,000 shares issued and outstanding (which includes 1,879,060 subject to possible conversion) | 1,165 | 1,165 | ||||||
| Common stock warrants (9,400,000 outstanding) | — | — | ||||||
| Paid-in capital in excess of par | 55,818,948 | 55,818,948 | ||||||
| Equity accumulated during the development stage | 1,634,614 | 1,293,629 | ||||||
| Total stockholders' equity | 57,454,727 | 57,113,742 | ||||||
| Total liabilities and stockholders' equity | $ | 72,375,242 | $ | 71,738,744 | ||||
26
STATEMENTS OF OPERATIONS
|
|
|
|
|||||||||
| For the Year Ended December 31, 2006 |
For the Period from April 25, 2005 (inception) to December 31, 2005 | For the Period from April 25, 2005 (inception) to December 31, 2006 |
||||||||||
| Revenues |
||||||||||||
| Interest income | $ | 46,446 | $ | 19,548 | $ | 65,994 | ||||||
| Interest and dividend income from Trust Fund | 1,801,266 | 566,526 | 2,367,792 | |||||||||
| Total revenues | 1,847,712 | 586,074 | 2,433,786 | |||||||||
| Costs and expenses |
||||||||||||
| Capital based taxes | 153,285 | 115,000 | 268,285 | |||||||||
| Management fees | 90,000 | 37,986 | 127,986 | |||||||||
| Insurance | 95,815 | 37,500 | 133,315 | |||||||||
| Legal fees | 156,391 | 31,036 | 187,427 | |||||||||
| Travel | 100,719 | 27,741 | 128,460 | |||||||||
| General and administrative | 48,168 | 9,016 | 57,184 | |||||||||
| Formation costs | — | 2,500 | 2,500 | |||||||||
| Total expenses | 644,378 | 260,779 | 905,157 | |||||||||
| Income before taxes | 1,203,334 | 325,295 | 1,528,629 | |||||||||
| Provision for income taxes | 187,000 | 48,000 | 235,000 | |||||||||
| Net income | $ | 1,016,334 | $ | 277,295 | $ | 1,293,629 | ||||||
| Basic earnings per share | $ | 0.09 | $ | 0.04 | ||||||||
| Diluted earnings per share | $ | 0.07 | $ | 0.03 | ||||||||
| Weighted average basic shares outstanding | 11,650,000 | 7,869,200 | ||||||||||
| Weighted average diluted shares outstanding | 13,634,353 | 8,323,201 | ||||||||||
27
|
|
|
|
|||||||||
| For the Three Months Ended March 31, 2007 | For the Three Months Ended March 31, 2006 | For the Period from April 25, 2005 (inception) to March 31, 2007 |
||||||||||
| Revenues |
||||||||||||
| Interest income | $ | 6,641 | $ | 14,310 | $ | 72,635 | ||||||
| Interest and dividend income from Trust Fund | 479,674 | 390,713 | 2,847,466 | |||||||||
| Total revenues | 486,315 | 405,023 | 2,920,101 | |||||||||
| Costs and expenses |
||||||||||||
| Capital based taxes | 32,136 | 41,168 | 300,421 | |||||||||
| Management fees | 22,500 | 22,500 | 150,486 | |||||||||
| Insurance | 24,070 | 22,500 | 157,385 | |||||||||
| Professional fees | 7,625 | 45,820 | 195,052 | |||||||||
| Travel | 17,055 | 19,403 | 145,515 | |||||||||
| General and administrative | 20,978 | 16,182 | 78,162 | |||||||||
| Formation costs | — | — | 2,500 | |||||||||
| Total expenses | 124,364 | 167,573 | 1,029,521 | |||||||||
| Income before taxes | 361,951 | 237,450 | 1,890,580 | |||||||||
| Provision for income taxes | 20,966 | 33,000 | 255,966 | |||||||||
| Net income | $ | 340,985 | $ | 204,450 | $ | 1,634,614 | ||||||
| Basic earnings per share | $ | 0.03 | $ | 0.02 | ||||||||
| Diluted earnings per share | $ | 0.02 | $ | 0.01 | ||||||||
| Weighted average basic shares outstanding | 11,650,000 | 11,650,000 | ||||||||||
| Weighted average diluted shares outstanding | 13,667,801 | 13,725,325 | ||||||||||
28
PRO FORMA CAPITALIZATION OF COMBINED COMPANY
The following table sets forth our unaudited total capitalization as of March 31, 2007 on an as adjusted basis to give effect to the consummation of the Merger, including the pro forma capitalization reflecting maximum and minimum stockholder approval. The following table does not reflect 3,500,000 shares of common stock reserved for the Incentive Plan also proposed for approval in this proxy statement.
|
|
|
|
|
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| After Merger with | ||||||||||||||||||
| PharmAthene, Inc. Actual | As Adjusted | Minimum Stockholder Approval |
Maximum Stockholder Approval |
|||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||
| Minority Interest – Series C convertible redeemable preferred stock of PHTN Canada, par value $0.001 per share; unlimited shares authorized | $ | 2,624,605 | $ | 2,624,605 | ||||||||||||||
| Series A convertible redeemable preferred stock, par value $0.001 per share; authorized 16,442,000 shares | $ | 19,545,314 | $ | 19,545,314 | ||||||||||||||
| Series B convertible redeemable preferred stock, par value $0.001 per share; authorized 30,448,147 shares | $ | 32,543,119 | $ | 32,543,119 | ||||||||||||||
| Series C convertible redeemable preferred stock, par value $0.001 per share; authorized 22,799,574 shares | $ | 14,956,947 | $ | 14,956,947 | ||||||||||||||
| Stockholder’s Equity |
||||||||||||||||||
| Preferred stock $0.0001 par value; authorized 1,000,000; none issued and outstanding | $ | $ | $ | |||||||||||||||
| Common stock – $0.0001 par value; authorized 100,000,000 shares; 11,650,000 shares issued and outstanding (which includes 1,879,060 subject to possible conversion) | $ | 1,165 | $ | 2,179 | $ | 2,367 | ||||||||||||
| Common stock, par value $0.0001 per share; authorized 147,089,104 shares, 12,483,472 shares issued and outstanding | $ | 12,485 | $ | 12,485 | ||||||||||||||
| Additional paid-in capital | 55,818,948 | 72,298,324 | 72,298,324 | |||||||||||||||
| Accumulated other comprehensive loss | 118,772 | 118,772 | 118,772 | 118,772 | ||||||||||||||
| Retained Earnings (Accumulated Deficit) | (74,432,848 | ) | (72,798,234 | ) | (20,655,080 | ) | (6,126,062 | ) | ||||||||||
| Total stockholders’ equity | $ | (74,301,591 | ) | $ | (16,846,864 | ) | 51,764,195 | 66,293,401 | ||||||||||
| Total capitalization | $ | (4,631,606 | ) | $ | 52,828,121 | 51,764,195 | 66,293,401 | |||||||||||
29
MARKET PRICE INFORMATION AND DIVIDEND DATA FOR HAQ SECURITIES
HAQ consummated its IPO on August 3, 2005. In the IPO, HAQ sold 9,000,000 units, each consisting of one share of HAQ’s common stock and one warrant to purchase common stock and on August 16, 2005, HAQ consummated the closing of an additional 400,000 units that was subject to the underwriters over-allotment option. The units were quoted on the AMEX from the consummation of the IPO through October 6, 2005 under the symbol HAQ.U. On October 6, 2005, the common stock and warrants included in the units began trading separately and the trading in the units ceased on such date. The shares of HAQ common stock and warrants are currently quoted on the American Stock Exchange under the symbols “HAQ” and “HAQ.WS”, respectively. The closing price per share of common stock and per warrant of HAQ on January 19, 2007, the last trading day before the announcement of the execution of the Merger Agreement, were $7.46 and $1.60 (the closing price on January 19, 2007), respectively. Each warrant entitles the holder to purchase from HAQ one share of common stock at an exercise price of $6.00 commencing on the later of the consummation of a business combination (if consummated) or July 28, 2006. The HAQ warrants will expire at 5:00 p.m., New York City time, on July 27, 2009, or earlier upon redemption. Prior to August 1, 2005, there was no established public trading market for HAQ's securities.
The following table sets forth, for the calendar quarter indicated, the quarterly high and low sales prices of HAQ's common stock, warrants and units as reported on the American Stock Exchange.
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| Quarter Ended | Common Stock | Warrants | Units | |||||||||||||||||||||
| High | Low | High | Low | High | Low | |||||||||||||||||||
| 2007 |
||||||||||||||||||||||||
| June 30, 2007 | $ | 7.56 | $ | 7.38 | $ | 1.50 | $ | .98 | N/A | N/A | ||||||||||||||
| March 31, 2007 | $ | 8.00 | $ | 7.28 | $ | 1.60 | $ | .85 | N/A | N/A | ||||||||||||||
| 2006 |
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| December 31, 2006 | $ | 7.40 | $ | 7.04 | $ | 1.35 | $ | 0.78 | N/A | N/A | ||||||||||||||
| September 30, 2006 | $ | 8.05 | $ | 7.12 | $ | 2.00 | $ | 1.01 | N/A | N/A | ||||||||||||||
| June 30, 2006 | $ | 8.45 | $ | 7.50 | $ | 2.40 | $ | 1.524 | N/A | N/A | ||||||||||||||
| March 31, 2006 | $ | 9.08 | $ | 6.96 | $ | 2.52 | $ | 1.40 | N/A | N/A | ||||||||||||||
| 2005 |
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| December 31, 2005 | $ | 7.20 | $ | 6.75 | $ | 1.75 | $ | 0.985 | N/A | N/A | ||||||||||||||
| September 30, 2005 | N/A | N/A | N/A | N/A | $ | 8.25 | $ | 8.00 | ||||||||||||||||
On June 27, 2007, the closing prices of our common stock and warrants were $7.27 and $1.00, respectively. The current exercise price of the warrants is $6.00. As of March 31, 2007 each share of our common stock entitled to conversion into a portion of the trust fund would be entitled to receive $7.60 from the trust fund. Holders of our warrants are not entitled to receive any proceeds from the trust fund.
Holders
As of June 15, 2007, the Record Date of the Special Meeting, there were 0 holders of record of units, 6 holders of record of the common stock and 1 holder of record of the warrants. We estimate that there are 945 beneficial owners of our common stock and a similar number of beneficial owners of our warrants.
Dividends
HAQ has not paid any cash dividends on its common stock and does not intend to pay dividends prior to consummation of the Merger. It is the present intention of the Board of Directors to retain all earnings, if any, for use in the business operations and, accordingly, the Board does not anticipate declaring dividends in the foreseeable future.
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RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before you decide whether to vote or instruct your vote to be cast to adopt the Merger Proposal. As HAQ’s operations will be those of PharmAthene upon consummation of the Merger, a number of the following risk factors relate to the business and operations of PharmAthene and HAQ, as the successor to such business.
Risks Particular to the Merger
The Board of Directors of HAQ did not obtain any fairness opinion or independent valuation analysis of PharmAthene, or that the merger consideration being paid for PharmAthene was fair to the stockholders of HAQ and no assurance can be given that the determination by HAQ’s Board of Directors represents the actual value of PharmAthene or that you will receive the value of your investment.
The Board of Directors of HAQ has not obtained an independent opinion regarding the valuation of PharmAthene or that the terms of the Merger, including the consideration to be paid, are fair to the stockholders of HAQ. Although the Board of Directors of HAQ undertook analyses of the business and financial conditions and prospects of PharmAthene in making its determination regarding the fairness of the terms of the Merger and that the 80% requirement had been met, there can be no assurance that an independent analysis would arrive at the same conclusion. The Board of Directors and management of HAQ relied upon their own business experience and the expertise of its individual members in the areas of mergers and acquisitions and finance in determining the value range of PharmAthene and whether the terms of the Merger are fair to HAQ stockholders. However, some of their analyses are based on financial projections prepared by PharmAthene’s management and if these projections are not met or prove to be unreasonable, there is a risk that the analyses will be unreasonable as well. Although we have knowledge of PharmAthene’s business and the industry, it is possible that the actual value of PharmAthene’s business is lower than HAQ could realize upon a sale of the combined company or its assets. Although the Board of Directors of HAQ believes that it acted in good faith and otherwise in accordance with Delaware law in reviewing and evaluating the terms of the proposed Merger and in recommending the proposed Merger to the stockholders, and have provided in this Proxy Statement all material information considered by it. There can be no assurance that you will receive the value of your investment upon disposition thereof.
HAQ’s Board of Directors did not determine a specific value of PharmAthene at the time that it entered into the Merger Agreement and a stockholder interpreting standards set forth in HAQ's IPO prospectus and its existing amended and restated certificate of incorporation could interpret such standards differently than HAQ's management interpreted such standards and could make a claim against HAQ for taking actions allegedly inconsistent with HAQ’s IPO prospectus, as a result of which, HAQ may suffer monetary losses.
HAQ's IPO prospectus stated and our existing amended and restated certificate of incorporation provides that the fair market value of a business to be acquired by HAQ would be determined by its Board of Directors based upon standards generally accepted by the financial community such as actual and potential sales, earnings and cash flow and book value. Our Board of Directors, based upon these factors, and its review of the business, financial condition and operations of PharmAthene, determined that the purchase price that was negotiated represents the fair value of PharmAthene and, therefore, exceeds the 80% requirement. A stockholder could, however, make a claim against HAQ that it failed to comply with the terms of HAQ’s existing amended and restated certificate of incorporation when evaluating the proposed merger with PharmAthene.
HAQ stockholders will experience immediate dilution as a consequence of the issuance of shares of HAQ common stock as consideration in the Merger. Having a minority share position may reduce the influence that HAQ’s current stockholders have on the management of the combined company.
Although HAQ would vigorously contest any such claim, it could incur considerable expense in defending such a claim. If HAQ were not successful, it would be liable for damages as determined by a court or may have to make payments in connection with settling such claim.
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Failure to consummate the Merger could negatively impact the market price of HAQ’s common stock, resulting, ultimately, in the disbursement of the trust proceeds, causing investors to experience a loss on their investment.
If the Merger is not completed for any reason, HAQ may be subject to a number of material risks, including:
| • | the market price of HAQ’s common stock may decline to the extent that the current market price of its common stock reflects a market assumption that the Merger will be consummated; and |
| • | certain costs related to the Merger, such as legal and accounting fees which have not been waived, must be paid even if the Merger is not completed to the extent we are not indemnified for such costs by our officers and directors, thereby reducing the amount in trust for distribution. |
We have as of March 31, 2007, claims from creditors, vendors and tax authorities of $630,000 which have not been waived. Our officers and directors have agreed to indemnify HAQ for all but $280,000 of such claims. As a result, the amount in trust available for distribution upon liquidation, could be reduced by the amount of $280,000. We estimate that as of March 31, 2007, there would be approximately $7.60 per share available from the trust in the event of liquidation. To the extent that investors paid more than $7.60 per share and we are required to liquidate because the Merger is not completed, investors would incur a loss in their investment.
HAQ stockholders will experience immediate dilution as a consequence of the issuance of shares of HAQ common stock as consideration in the Merger. Having a minority share position may reduce the influence that HAQ’s current stockholders have on the management of the combined company.
Following the consummation of the Merger, the influence of HAQ’s current stockholders, in their capacity as stockholders of the combined company, will be significantly reduced. HAQ’s current stockholders will hold, in the aggregate, approximately 48% of the issued and outstanding shares of the combined company (assuming all PharmAthene options and warrants assumed by HAQ are exercised and excluding as outstanding for purposes of the calculation securities issuable upon the exercise of HAQ’s outstanding warrants, upon the exercise of the purchase option issued to underwriters in HAQ’s IPO and upon conversion of the 8% convertible notes to be issued in the Merger).
Moreover, following the Merger, funds affiliated with MPM Capital, L.P., HealthCare Ventures VII, L.P. and Bear Stearns Health Innoventures Management LLC will beneficially own approximately 14.1%, 13.4% and 5.8%, respectively, (33.3% in the aggregate) of the outstanding voting shares of the combined company and, therefore, will have the ability to exercise substantial influence over the election of Directors and other issues submitted to the stockholders of the combined company. Funds affiliated with MPM Capital L.P., HealthCare Ventures VI, L.P. and Bear Stearns Health Innoventures LLC, will beneficially own approximately 37.6%, 14.5% and 20.3% respectively, (72.4% in the aggregate) of the outstanding HAQ 8% convertible notes pursuant to the Merger Agreement. The parties have agreed that the noteholders shall have the right to elect three designees to serve on the Board of Directors of the combined company so long as they continue to hold, in the aggregate, at least 30% of the original face amount of such notes. The concentration of ownership, as well as the Board designee provision of the Merger Agreement, may have the effect of delaying or preventing a change in control of the combined company even if such a change in control would be in your interest.
HAQ’s dividend policy may reduce the value of your investment.
Following the Merger, HAQ does not intend that it will in the foreseeable future declare or pay any cash dividend on its shares and anticipates that earnings, if any, will be used to finance the development and expansion of its business. Any payment of future dividends and the amounts thereof will be dependent upon earnings, financial requirements and other factors deemed relevant by its Board of Directors, including its contractual obligations, if any.
HAQ may waive one or more conditions to the Merger without resoliciting stockholder approval for the Merger.
One or more conditions to HAQ’s obligation to complete the Merger may be waived in whole or in part to the extent legally allowable either unilaterally or by agreement of PharmAthene and HAQ. Depending upon
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the condition, the Board of Directors of HAQ, will evaluate the materiality of any such waiver to determine whether amendment to this proxy statement and re-solicitation of proxies as necessary. In the event that the Board of Directors of HAQ determines any such waivers are not significant enough to require re-solicitation of stockholders, it would have the discretion to complete the Merger without seeking further stockholder approval.
HAQ’s stock price is, and is expected to remain, volatile, which could limit investors’ ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time, or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to:
| • | publicity regarding actual or potential clinical results relating to products under development by our competitors or us; |
| • | delay or failure in initiating, completing or analyzing pre-clinical or clinical trials or the unsatisfactory design or results of these trials; |
| • | achievement or rejection of regulatory approvals by our competitors or us; |
| • | announcements of technological innovations or new commercial products by our competitors or us; |
| • | developments concerning proprietary rights, including patents; |
| • | developments concerning our collaborations; |
| • | regulatory developments in the U.S. and foreign countries; |
| • | economic or other crises and other external factors; |
| • | period-to-period fluctuations in our revenues and other results of operations; |
| • | changes in financial estimates by securities analysts; and |
| • | sales and short selling activity of our common stock. |
Additionally, because there is minimal volume of trading in our stock, any information about PharmAthene in the media may result in significant volatility in our stock price.
We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
In addition, the stock market in general, and the market for biopharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
Risks Related to the Business of PharmAthene
It is expected that PharmAthene will incur net losses and negative cash flow for the foreseeable future and we cannot guarantee that we will achieve profitability and our business, results of operations, and financial condition may be materially adversely affected.
PharmAthene has incurred significant losses since it commenced operations. For the year ended December 31, 2006, PharmAthene incurred an operating loss of approximately $14.5 million. The pro forma combined accumulated deficit of the combined company is approximately $68.6 million at December 31, 2006. For the three months ended March 31, 2007, PharmAthene incurred an operating loss of approximately $2.7 million and the pro forma combined accumulated deficit of the combined company is approximately $72.8 million at March 31, 2007. PharmAthene’s losses to date have resulted principally from research and development costs related to the development of its product candidates and general and administrative costs related to its operations.
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It is expected that the combined company will incur substantial losses for the foreseeable future as a result of increases in its research and development costs, including costs associated with conducting preclinical testing, clinical trials and regulatory compliance activities.
The combined company’s likelihood for achieving profitability will depend on numerous factors, including success in:
| • | developing and testing new product candidates; |
| • | carrying out the combined company’s intellectual property strategy; |
| • | establishing the combined company’s competitive position; |
| • | pursuing third-party collaborations; |
| • | acquiring or in-licensing products; |
| • | receiving regulatory approvals; |
| • | manufacturing and marketing products; and |
| • | continuing to receive government funding and identifying new government funding opportunities. |
Many of these factors will depend on circumstances beyond the combined company’s control. We cannot guarantee that we will achieve sufficient revenues for profitability. Even if we do achieve profitability, we cannot guarantee that we can sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow slower than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, then our business, results of operations, financial condition and cash flows will be materially and adversely affected. Because our strategy might include acquisitions of other businesses, acquisition expenses and any cash used to make these acquisitions will reduce our available cash.
PharmAthene is in various stages of product development and there can be no assurance of successful commercialization.
PharmAthene has not commercialized any products or recognized any revenues from product sales. In general, PharmAthene’s research and development programs are at early stages. To obtain FDA approval for PharmAthene’s biological warfare defense products under current FDA regulations, PharmAthene will be required to perform two animal model studies for efficacy and provide animal and human safety data. PharmAthene’s other products will be subject to the relevant approval guidelines under FDA requirements which include a number of phases of testing in humans. Even if PharmAthene initially receives positive pre-clinical or clinical results, such results may not be indicative of similar results that could be anticipated in the later stages of drug development, such as additional pre-clinical testing or human clinical trials.
Other than the Valortim product candidate, the research and development program for PharmAthene is at an early stage. Other drug candidates developed by the combined company will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercial sale. We cannot be sure that PharmAthene’s approach to drug discovery will be effective or will result in the development of any drug. HAQ does not expect that any drugs resulting from the research and development efforts of PharmAthene will be commercially available for several years, if at all. Even if PharmAthene succeeds in developing and commercializing its product candidates, it may never generate sufficient or sustainable revenues to enable it to be profitable. Furthermore, even if the product candidates of PharmAthene are successful when tested in animals, such success would not be a guarantee of the effectiveness and safety of such product candidates in humans. PharmAthene’s first product, its Dominate Negative Inhibitor (“DNI”), was demonstrated to be effective in animal testing, but was determined to be unsafe for humans following clinical trials in human subjects. The DNI program was subsequently terminated. There can be no assurances that one or more of PharmAthene’s future product candidates would not similarly fail to meet safety standards in human testing, even if those product candidates were found to be effective in animal studies. There can be no assurances that any such product candidates will prove to be effective in humans.
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Most of PharmAthene’s immediately foreseeable future revenues are contingent upon grants and contracts from the U.S. government and collaborative and license agreements and PharmAthene may not achieve sufficient revenues from these agreements to attain profitability.
Until and unless PharmAthene successfully markets a product, its ability to generate revenues will largely depend on its ability to enter into additional collaborative agreements, strategic alliances, research grants, contracts and license agreements with third parties, including, without limitation, the U.S. government and branches and agencies thereof, and maintain the agreements it currently has in place. Substantially all of the revenue of PharmAthene for the years ended December 31, 2006, 2005 and 2004, respectively, were derived from revenues related to grants, contracts and license agreements.
In addition, PharmAthene’s business plan calls for significant payments from milestone based collaborative agreements. PharmAthene may not earn significant milestone payments under its existing collaborative agreements until its collaborators have advanced products into clinical testing, which may not occur for many years, if at all.
PharmAthene has a material agreement with Medarex, Inc., to develop Valortim, its fully human monoclonal antibody product designed to protect against and treat inhalation anthrax. Under the agreement with Medarex, PharmAthene will be entitled to a variable percentage of profits derived from sales of Valortim, depending, in part, on the amount of its investment. In addition, PharmAthene has entered into licensing and research and development agreements with a number of other parties and collaborators.
PharmAthene may need additional capital in the future. If additional capital is not available or not available on acceptable terms, PharmAthene may be forced to delay or curtail the development of its product candidates.
PharmAthene’s requirements for additional capital may be substantial and will depend on many other factors, including:
| • | continued funding by the Department of Defense and other branches and agencies of the U.S. Government; |
| • | payments received under present or future collaborative partner agreements; |
| • | continued progress of research and development of PharmAthene’s products; |
| • | PharmAthene’s ability to license compounds or products from others; |
| • | costs associated with protecting PharmAthene’s intellectual property rights; |
| • | development of marketing and sales capabilities; and |
| • | market acceptance of PharmAthene’s products. |
To the extent PharmAthene’s capital resources are insufficient to meet future capital requirements, it will have to raise additional funds to continue the development of its product candidates. We cannot assure you that funds will be available on favorable terms, if at all. To the extent PharmAthene raises additional capital through the sale of securities, the issuance of those securities could result in dilution which may be substantial to the PharmAthene’s stockholders. In addition, if PharmAthene incurs debt financing, a substantial portion of its operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for PharmAthene’s business activities. If adequate funds are not available, PharmAthene may be required to curtail significantly its development and commercialization activities.
Biodefense treatment and drug development is an expensive and uncertain process, and delay or failure can occur at any stage of the combined company’s development process.
To develop and commercialize biodefense treatment and drug candidates, PharmAthene must provide the FDA and foreign regulatory authorities with clinical data that demonstrates adequate safety and immune response. This involves engaging in clinical trials, which is a lengthy and expensive process, the outcome of which is uncertain. Because humans are not normally exposed to anthrax, nerve agents, smallpox or to other lethal biotoxins or chemical agents, statistically significant effectiveness of PharmAthene’s biodefense product
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candidates cannot be demonstrated in humans, but instead must be demonstrated, in part, by utilizing animal models before they can be approved for commercial sale. Delays in obtaining results can occur for a variety of reasons such as slower than anticipated enrollment by volunteers in the trials, adverse events related to the products and unsatisfactory results of any trial. Any delay or adverse clinical event arising during any of its clinical trials could force PharmAthene to abandon a product altogether or to conduct additional clinical trials in order to obtain approval from the FDA and other regulatory bodies. PharmAthene’s development costs will increase substantially if it experiences material delays in any clinical trials or if it needs to conduct more or larger trials than planned. Additionally, few facilities in the U.S. have the capability of testing animals with anthrax or nerve agent exposure. PharmAthene may not be able to secure clinical contracts to conduct the testing in a predictable timeframe or at all. Further, if delays are significant, or if any of PharmAthene’s products do not prove to be safe or effective or do not receive required regulatory approvals, and PharmAthene will be unable to recognize revenues from the sale of products, the commercial prospects for its product candidates will be adversely affected.
Even if PharmAthene completes the development of its nerve agent countermeasure and anthrax treatment product, if PharmAthene fails to obtain contracts to supply products to the U.S. government or the U.S. government does not purchase sufficient quantities of its products, PharmAthene may be unable to generate sufficient revenues to continue operations.
The U.S. government has undertaken commitments to help secure improved countermeasures against bioterrorism including the stockpiling of treatments and vaccines for anthrax through a program known as the Strategic National Stockpile. However, the process of obtaining government contracts is lengthy and uncertain and PharmAthene will have to compete with other companies for each contract. There can be no assurances that PharmAthene will be awarded any contracts to supply the U.S. government with its products as such awards may be made, in whole or in part, to PharmAthene’s competitors. If the U.S. government makes significant future contract awards for the supply of its emergency stockpile to PharmAthene’s competitors, PharmAthene’s business will be harmed and it is unlikely that PharmAthene will ultimately be able to commercialize that particular treatment or product.
Further, changes in government budgets and agendas may result in a decreased and de-prioritized emphasis on procuring the biodefense products PharmAthene will develop. In addition, government contracts typically contain provisions that permit cancellation in the event that funds become unavailable to the governmental agency. If the U.S. government makes significant future contract awards to PharmAthene’s competitors at the exclusion of PharmAthene or otherwise fails to purchase PharmAthene’s products, it is unlikely that PharmAthene will ultimately be able to commercialize that particular treatment or product or that it will be able to generate sufficient revenues to continue operations.
U.S. government agencies have special contracting requirements, which give them the ability to unilaterally control its contracts with PharmAthene.
PharmAthene anticipates that its primary sales will be to the U.S. government. U.S. government contracts typically contain unfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which will subject PharmAthene to additional risks. These risks include the ability of the U.S. government to unilaterally:
| • | suspend or prevent PharmAthene for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations; |
| • | terminate PharmAthene’s contracts; |
| • | reduce the scope and value of PharmAthene’s contracts; |
| • | audit and object to PharmAthene’s contract-related costs and fees, including allocated indirect costs; |
| • | control and potentially prohibit the export of PharmAthene’s products; and |
| • | change certain terms and conditions in PharmAthene’s contracts. |
The U.S. government will be able to terminate any of its contracts with PharmAthene either for its convenience or if PharmAthene defaults by failing to perform in accordance with the contract schedule and
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terms. Termination for convenience provisions would generally enable PharmAthene to recover only PharmAthene’s costs incurred or committed, and settlement expenses and profit on the work completed prior to termination. Termination for default provisions do not permit these recoveries and would make PharmAthene liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.
PharmAthene may fail to fully realize the potential of Valortim and of its co-development arrangement with its partner in the development of Valortim which would have an adverse affect upon its business.
PharmAthene and its development partner have completed the first Phase I clinical trial for Valortim without any reported adverse reactions. However, before it may begin selling any doses of Valortim, it will need to conduct a more comprehensive Phase I trial to a significantly larger group of subjects. PharmAthene will be required to expend a significant amount to scale up manufacturing capability through a contract manufacturer in order to conduct the more extensive Phase I clinical trial. PharmAthene does not expect to commence this trial until 2008. If PharmAthene’s contract manufacturer is unable to produce sufficient quantities at a reasonable cost, then PharmAthene will be unable to commence the necessary clinical trials necessary to begin marketing Valortim. Even after PharmAthene expends the sufficient funds to complete the development of Valortim and when and if it enters into an agreement to market Valortim to the U.S, government, it will be required to share any and all profits from the sale of products with its partner in accordance with a pre-determined formula.
If PharmAthene cannot enter into new licensing arrangements, its ability to develop a diverse product portfolio could be limited and its ability to compete would be harmed.
A component of PharmAthene’s business strategy will be in-licensing compounds and products developed by other pharmaceutical and biotechnology companies or academic research laboratories that may be marketed and developed or improved upon using PharmAthene’s novel technologies. Competition for promising compounds or products can be intense. If PharmAthene is not able to identify new licensing opportunities or enter into other licensing arrangements on acceptable terms, it may be unable to develop a diverse portfolio of products.
PharmAthene will face competition from several companies with greater financial, personnel and research and development resources. Its commercial opportunities may be reduced or eliminated if its competitors are more successful in the development and marketing of their products.
The biopharmaceutical industry is characterized by rapid and significant technological change. PharmAthene’s success will depend on its ability to develop and apply its technologies in the design and development of its product candidates and to establish and maintain a market for its product candidates. There also are many companies, both public and private, including major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions engaged in developing pharmaceutical and biotechnology products. Many of these companies have substantially greater financial, technical, research and development, and human resources than those of PharmAthene. Competitors may develop products or other technologies that are more effective than any that are being developed by PharmAthene or may obtain FDA approval for products more rapidly. If PharmAthene commences commercial sales of products, it still must compete in the manufacturing and marketing of such products, areas in which it has limited experience. Many of these companies also have manufacturing facilities and established marketing capabilities that would enable such companies to market competing products through existing channels of distribution. PharmAthene’s commercial opportunities will be reduced or eliminated if its competitors develop and market products for any of the harmful effects that it targets that:
| • | are more effective; |
| • | have fewer or less severe adverse side effects; |
| • | are more adaptable to various modes of dosing; |
| • | are easier to administer; or |
| • | are less expensive than the products or product candidates PharmAthene will be developing. |
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Even if PharmAthene is successful in developing effective products, and obtains FDA and other regulatory approvals necessary for commercializing them, its products may not compete effectively with other successful products. PharmAthene’s competitors may succeed in developing and marketing products either that are more effective than those that it may develop, alone or with its collaborators, making its products obsolete, or that are marketed before any products that PharmAthene develops are marketed.
Companies that are developing products that would compete with PharmAthene’s products include: VaxGen, Inc., which is developing vaccines against anthrax and smallpox; Avant Immunotherapeutics, Inc., which has vaccine programs for agents of biological warfare, including plague and anthrax; Human Genome Sciences, Inc., Elusys Therapeutics, Inc. and AVANIR Pharmaceuticals, Inc., all of which are developing monoclonal antibodies as anthrax treatments. Other competitors of PharmAthene include: Emergent Biosolutions Inc., Merck & Co., Inc., Bio Sante Pharmaceuticals, Inc., Dynport Vaccine Company, LLC (“DVC”) and Ligocyte Pharmaceuticals, Inc.
Political or social factors may delay or impair PharmAthene’s ability to market its products and its business may be materially adversely affected.
Products developed to treat diseases caused by, or to combat the threat of, bioterrorism will be subject to changing political and social environments. The political and social responses to bioterrorism have been unpredictable. Political or social pressures may delay or cause resistance to bringing PharmAthene’s products to market or limit pricing of its products, which would harm PharmAthene’s business.
The U.S. government’s determination to award any contracts to PharmAthene may be challenged by an interested party, such as another bidder, at the General Accounting Office or in federal court. If such a challenge is successful, a contract may be terminated.
The laws and regulations governing the procurement of goods and services by the U.S. government provide procedures by which other bidders and other interested parties may challenge the award of a government contract. In the event that PharmAthene is awarded a government contract, such protests could be filed even if there are not any valid legal grounds on which to base the protest. If any such protests are filed, the government agency may decide to suspend PharmAthene’s performance under the contract while such protests are being considered by the General Accounting Office or the applicable federal court, thus potentially delaying delivery of goods and services and payment. In addition, PharmAthene could be forced to expend considerable funds to defend any potential award. If a protest is successful, the government may be ordered to terminate PharmAthene’s contract at its convenience and reselect bids. The government could even be directed to award a potential contract to one of the other bidders.
Legal and Regulatory Risks of Development Stage Biotechnology Companies
PharmAthene’s commercial success will be affected significantly by its ability to obtain protection for its proprietary technology and that of its licensors and collaborators and not infringe the patents and proprietary rights of third parties.
The patent position of biotechnology firms generally is highly uncertain and involves complex legal and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology patents. PharmAthene currently holds two U.S. patents and has five U.S. patent applications pending. In addition, it has rights under numerous other patents and patent applications pursuant to exclusive and non-exclusive license arrangements with licensors and collaborators. However, there can be no assurance that patent applications owned or licensed by PharmAthene will result in patents being issued or that the patents, existing or issued in the future, will afford protection against competitors with similar technology. Any conflicts resulting from third-party patent applications and patents could significantly reduce the coverage of the patents owned, optioned by or licensed to PharmAthene or its collaborators and limit the ability of PharmAthene or that of its collaborators to obtain meaningful patent protection.
Further, the commercial success of PharmAthene will depend significantly on its ability to operate without infringing the patents and proprietary rights of third parties. PharmAthene is aware of one U.S. patent covering recombinant production of an antibody, which, it has been argued, covers any reproduction of an antibody, as well as another U.S. patent application with claims over pegylated butyrylcholinesterase.
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Although PharmAthene believes that neither Valortim, which is a monoclonal antibody and uses recombinant reproduction of antibodies, nor Protexia®, which uses pegylated butyrylcholinesterase technology, infringes on any valid claims of such patents, PharmAthene cannot provide any assurances that if a legal action based on either of these two patents were to be brought against PharmAthene or its distributors, licensees or collaborators, that PharmAthene or its distributors, licensees or collaborators would prevail or that PharmAthene would have sufficient funds or resources to defend such claims. If patents are issued to third parties that contain competitive or conflicting claims, PharmAthene, its licensors or collaborators may be legally prohibited from researching, developing or commercializing potential products or be required to obtain licenses to these patents or to develop or obtain alternative technology. PharmAthene, its licensors and/or its collaborators may be legally prohibited from using patented technology, may not be able to obtain any license to the patents and technologies of third parties on acceptable terms, if at all, or may not be able to obtain or develop alternative technologies.
The costs associated with establishing the validity of patents, of defending against patent infringement claims of others and of asserting infringement claims against others is expensive and time consuming, even if the outcome is favorable. An outcome of any patent prosecution or litigation that is unfavorable to PharmAthene or one of its licensors or collaborators may have a material adverse effect on PharmAthene.
Any inability to protect PharmAthene’s intellectual property could harm its competitive position and adversely affect its business.
PharmAthene’s success will depend, in part, on its ability to obtain patents and maintain adequate protection of other intellectual property for its technologies and products in the U.S. and other countries. If PharmAthene does not adequately protect its intellectual property, competitors may be able to use its technologies and erode or negate its competitive advantages. Further, the laws of some foreign countries will not protect PharmAthene’s proprietary rights to the same extent as the laws of the U.S., and PharmAthene may encounter significant problems in protecting its proprietary rights in these foreign countries.
The patent positions of pharmaceutical and biotechnology companies, including PharmAthene’s patent positions, involve complex legal and factual questions and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. PharmAthene will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that it covers its proprietary technologies with valid and enforceable patents or that it effectively maintains such proprietary technologies as trade secrets. PharmAthene will apply for patents covering its technologies and product candidates as it deems appropriate. PharmAthene may fail to apply for patents on important technologies or products in a timely fashion, or at all, and in any event, the applications PharmAthene files may be challenged and may not result in issued patents. Any future patents PharmAthene obtains may not be sufficiently broad to prevent others from practicing its technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around PharmAthene’s patented technologies. In addition, if challenged, PharmAthene’s patents may be declared invalid. Even if valid, PharmAthene’s patents may fail to provide it with any competitive advantages.
PharmAthene will rely upon trade secrets protection for its confidential and proprietary information. PharmAthene has taken measures to protect their proprietary information; however, these measures may not provide adequate protection to PharmAthene. The companies have sought to protect their proprietary information by entering into confidentiality agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose the companies’ proprietary information, and PharmAthene may not be able to meaningfully protect its trade secrets. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to PharmAthene’s trade secrets.
PharmAthene’s use of hazardous materials and chemicals require it to comply with regulatory requirements which may result in significant costs and expose it to potential liabilities.
PharmAthene’s research and development involves the controlled use of hazardous materials and chemicals. PharmAthene will be subject to federal, state, local and foreign laws governing the use, manufacture, storage, handling and disposal of such materials. PharmAthene will not be able to eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, PharmAthene could be
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held liable for significant damages or fines, and these damages could exceed its resources and any applicable insurance coverage. In addition, PharmAthene may be required to incur significant costs to comply with regulatory requirements in the future.
PharmAthene may become subject to product liability claims, which could reduce demand for its product candidates or result in damages that exceed its insurance coverage.
PharmAthene will face an inherent risk of exposure to product liability suits in connection with its products being tested in human clinical trials or sold commercially. PharmAthene may become subject to a product liability suit if any product it develops causes injury, or if treated individuals subsequently become infected or otherwise suffer adverse effects from its products. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to PharmAthene’s reputation, withdrawal of clinical trial volunteers and loss of revenues.
If a product liability claim is brought against PharmAthene, the cost of defending the claim could be significant and any adverse determination may result in liabilities in excess of its insurance coverage. Additionally, PharmAthene will be applying for indemnification under the Support Anti-terrorism by Fostering Effective Technologies Act of 2002 which preempts and modifies tort laws so as to limit the claims and damages potentially faced by companies who provide certain “qualified” anti-terrorism products. However, PharmAthene cannot be certain that it will be able to obtain or maintain adequate insurance coverage on acceptable terms, if at all.
Legislation limiting or restricting liability for medical products used to fight bioterrorism is new, and PharmAthene cannot be certain that any such protection will apply to its products and, therefore, PharmAthene could become subject to product liability suits and other third party claims if such protections do not apply.
The Public Readiness and Emergency Preparedness Act (“Public Readiness Act”) was signed into law in December 2005 and creates general immunity for manufacturers of countermeasures, including security countermeasures (as defined in Section 319F-2(c)(1)(B)), when the Secretary of Defense issues a declaration for their manufacture, administration or use. The declaration is meant to provide general immunity from all claims under state or federal law for loss arising out of the administration or use of a covered countermeasure. Manufacturers are excluded from this protection in cases of willful misconduct.
Upon a declaration by the Secretary of Health and Human Services, a compensation fund is created to provide “timely, uniform, and adequate compensation to eligible individuals for covered injuries directly caused by the administration or use of a covered countermeasure.” The “covered injuries” to which the program applies are defined as serious physical injuries or death. Individuals are permitted to bring a willful misconduct action against a manufacturer only after they have exhausted their remedies under the compensation program. A willful misconduct action could be brought against us if an individual(s) has exhausted their remedies under the compensation program which thereby could expose us to liability. PharmAthene may become subject to standard product liability suits and other third party claims if products it develops which fall outside of the Public Readiness Act cause injury or if treated individuals subsequently become infected or otherwise suffer adverse effects from such products.
PharmAthene may be subject to claims that it or its employees wrongfully used or disclosed alleged trade secrets of the employees’ former employers. Such litigation could result in substantial costs and be a distraction to PharmAthene’s management.
As is commonplace in the biotechnology industry, PharmAthene employs individuals who were previously employed at other biotechnology or pharmaceutical companies, including their competitors or potential competitors. Although no claims against PharmAthene are currently pending, PharmAthene may be subject to claims that these employees or it have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if PharmAthene is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
If PharmAthene experiences delays in obtaining regulatory approvals, or is unable to obtain or maintain regulatory approvals, it may be unable to commercialize any products.
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PharmAthene will need to conduct a substantial amount of additional research and development before any U.S. or foreign regulatory authority will approve any of its products. In addition, PharmAthene’s product candidates will be subject to extensive and rigorous domestic government regulation. Results of PharmAthene’s research and development activities may indicate that its potential products are unsafe or ineffective. In this case, regulatory authorities will not approve them. Even if approved, PharmAthene’s products may not be commercially successful. If PharmAthene fails to develop and commercialize its products, it may be forced to curtail or cease operations.
In addition, the commencement and rate of completion of clinical trials for PharmAthene’s products may be delayed by many factors, including:
| • | lack of efficacy during the clinical trials in animals; |
| • | unsatisfactory results of any clinical trial; |
| • | unforeseen safety issues; |
| • | slower than expected rate of patient recruitment; or |
| • | government or regulatory delays. |
Delays in obtaining regulatory approvals may:
| • | adversely affect the commercialization of any products that PharmAthene or its collaborative partners develop; |
| • | impose costly procedures on PharmAthene or its collaborative partners; |
| • | diminish any competitive advantages that PharmAthene or its collaborative partners may attain; and |
| • | adversely affect PharmAthene’s receipt of revenues or royalties. |
The results from preclinical testing and early clinical trials are often not predictive of results obtained in later clinical trials. Although a new product may show promising results in initial clinical trials, it may subsequently prove unfeasible or impossible to generate sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical studies are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, PharmAthene may encounter regulatory delays or rejections as a result of many factors, including results that do not support its claims, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development. PharmAthene’s business, financial condition, prospects and results of operations may be materially adversely affected by any delays in, or termination of, its clinical trials or a determination by the FDA that the results of PharmAthene’s trials are inadequate to justify regulatory approval.
Any required approvals, once obtained, may be withdrawn. Further, if the companies fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, it may encounter difficulties including:
| • | delays in clinical trials or commercialization; |
| • | product recalls or seizures; |
| • | suspension of production and/or distribution; |
| • | withdrawals of previously approved marketing applications; and |
| • | fines, civil penalties and criminal prosecutions. |
PharmAthene’s collaborative partners may not be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If PharmAthene fails to obtain required governmental approvals, it or its collaborative partners will experience delays in, or be precluded from, marketing products developed through it or, as applicable, their research.
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PharmAthene and its contract manufacturers will also be required to comply with the applicable FDA good manufacturing practice regulations. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. These facilities must be approved before PharmAthene will be able to use them in commercial manufacturing of their products. PharmAthene and its contract manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other FDA regulatory requirements. If PharmAthene and its contract manufacturers fail to comply, they could be subject to fines or other sanctions, or be precluded from marketing their products.
PharmAthene may be required to perform additional clinical trials or change the labeling of its products if it or others identify side effects after its products are on the market, which could harm sales of the affected products.
If PharmAthene or others identify side effects after any of its products are on the market, or if manufacturing problems occur:
| • | regulatory approval may be withdrawn; |
| • | reformulation of the affected products, additional clinical trials, or changes in labeling of PharmAthene’s products may be required; |
| • | changes to or re-approvals of PharmAthene’s manufacturing facilities may be required; |
| • | sales of the affected products may drop significantly; |
| • | PharmAthene’s reputation in the marketplace may suffer; and |
| • | lawsuits, including class action suits, may be brought against PharmAthene. |
Any of the above occurrences could harm or prevent sales of the affected products or could increase the costs and expenses of commercializing and marketing these products.
Risks Relating to HAQ’s Business and Status as a Special Purpose Acquisition Company
Our outstanding warrants may have an adverse effect on the market price of common stock and make it more difficult to effect the Merger.
In connection with the IPO, we issued warrants to purchase 9,400,000 shares of common stock. The sale, or even the possibility of sale, of the shares underlying the warrants could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.
If our existing stockholders exercise their registration rights, it may have an adverse effect on the market price of our common stock.
Our initial stockholders are entitled to require us to register the resale of their shares of common stock at any time after the date on which their shares are released from escrow, which, except in limited circumstances, will not be before July 29, 2008. If our existing stockholders exercise their registration rights with respect to all of their shares of common stock, then there will be an additional 2,250,000 shares of common stock eligible for trading in the public market. The presence of this additional number of shares of common stock eligible for trading in the public market may have an adverse effect on the market price of our common stock.
The American Stock Exchange may delist our securities from trading which could limit investors' ability to make transactions in our securities and subject us to additional trading restrictions.
Our common stock and warrants are listed on the AMEX, a national securities exchange. We cannot assure you that our securities will continue to be listed on the AMEX in the future prior to a business combination. If the AMEX delists our securities from trading on its exchange and we are not able to list our securities on another exchange or to have them quoted on Nasdaq, our securities could be quoted on the OTC
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Bulletin Board, or “pink sheets”. As a result, we could face significant material adverse consequences including:
| • | a limited availability of market quotations for our securities; |
| • | a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; |
| • | a limited amount of news and analyst coverage for our company; and |
| • | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities”. Since we are listed on the AMEX, our securities are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies generally, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states.
If HAQ is deemed to be an investment company, HAQ may be required to institute burdensome compliance requirements and its activities may be restricted, which may make it difficult for it to complete a business combination.
In order not to be regulated as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, unless HAQ can qualify for an exclusion, HAQ must ensure that it is engaged primarily in a business other than investing, reinvesting or trading of securities and that its activities do not include investing, reinvesting, owning, holding or trading “investment securities.” HAQ's business is to identify and consummate a business combination and thereafter to operate the acquired business or businesses. HAQ invests the funds in the trust account only in treasury bills issued by the U.S. having a maturity of 180 days or less or money market funds meeting the criteria under Rule 2a-7 under the Investment Company Act until it uses them to complete a business combination. By limiting the investment of the funds to these instruments, HAQ believes that it will not be considered an investment company under the Investment Company Act. The trust account and the purchase of government securities for the trust account is intended as a holding place for funds pending the earlier to occur of either: (i) the consummation of our primary business objective, which is a business combination, or (ii) absent a business combination, our dissolution, liquidation and distribution of our assets, including the proceeds held in the trust account, as part of our plan of dissolution and liquidation. If we fail to invest the proceeds as described above or if we cease to be primarily engaged in our business as set forth above (for instance, if our stockholders do not approve a plan of dissolution and liquidation and the funds remain in the trust account for an indeterminable amount of time), we may be considered to be an investment company and thus be required to comply with the Investment Company Act.
If HAQ is deemed to be an investment company under the Investment Company Act, its activities may be restricted, including:
| • | restrictions on the nature of its investments; and |
| • | restrictions on the issuance of securities |
each of which may make it difficult for it to consummate a business combination. HAQ would also become subject to burdensome regulatory requirements, including reporting, record keeping, voting, proxy and disclosure requirements and the costs of meeting these requirements would reduce the funds it has available outside the trust account to consummate a business combination.
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If 20% or more of the holders of HAQ’s common stock issued in HAQ’s IPO decide to vote against the Merger Proposal and convert their shares to cash, HAQ will be forced to abandon the Merger with PharmAthene and will seek to liquidate, in which event stockholders may receive less than $7.60 per share and the warrants may expire worthless.
Under the terms of HAQ’s certificate of incorporation, if 20% or more of shares issued in HAQ’s IPO decide to vote against the proposed merger and opt to convert their shares to cash, HAQ will be required to liquidate. In any liquidation, the net proceeds of HAQ’s IPO held in the trust account, plus any interest earned thereon, will be distributed on a pro rata basis to the holders of HAQ’s common stock issued in the IPO. If HAQ liquidates its assets, the per-share liquidation will be the approximately $69 million deposited in the trust account at the time of the IPO, plus interest accrued thereon until the date of any liquidation; as of March 31, 2007, there was approximately $7.60 per share available in the trust account for distribution to stockholders. Furthermore, there will be no distribution with respect to HAQ’s outstanding warrants and, accordingly, the warrants will expire worthless.
If third parties bring claims against HAQ, the proceeds held in trust could be reduced and the per-share liquidation price received by stockholders will be less than $7.60 per share.
Our placing of funds in trust may not protect those funds from third party claims against HAQ. Pursuant to Delaware General Corporation Law Sections 280 and 281, upon a dissolution we will be required to pay or make reasonable provision to pay all claims and obligations of the corporation, including all contingent, conditional or unmatured claims. Although we will seek to have all vendors, prospective target businesses or other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will execute such agreements. Nor is there any guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Accordingly, the proceeds held in trust could be subject to claims which could take priority over the claims of our public stockholders and the IPO per-share liquidation price could be less than $7.60 per share held in the trust account as of March 31, 2007, plus interest, due to claims of such creditors. If we are unable to complete a business combination and are forced to liquidate, our chairman and executive officers will be personally liable under certain circumstances (for example, if a vendor does not waive any rights or claims to the trust account) to ensure that the proceeds in the trust fund are not reduced by the claims of various vendors or other entities that are owed money by us for services rendered or products sold to us, to the extent necessary to ensure that such claims do not reduce the amount in the trust fund. However, we cannot assure you that our executive officers will be able to satisfy those obligations.
In addition, although our directors and officers have agreed to indemnify HAQ for claims by any vendor that is owed money by HAQ for services rendered or products sold to HAQ, to the extent that such claims reduce the amounts in the trust fund to be distributed to the public stockholders upon dissolution and liquidation, this indemnification is limited to claims by vendors that do not execute a valid and enforceable waiver of all rights, title, interest, and claim of any kind in or to the monies held in the trust account. Our independent auditors, LWBJ, LLP have not executed such a waiver as of July 12, 2007, no fees were owned to our auditors. The indemnification provided by certain of our Directors and officers would not cover claims by target businesses or other entities and vendors that execute such waivers nor claims related to torts, such as if someone were to be injured on our premises, securities litigation or franchise and income tax liabilities. We are not aware of any other claims of the type described above nor any basis for any such claim and, as of March 31, 2007, there is approximately $467,000 of cash outside of the trust account. There are only potential liabilities in an amount of $280,000 (which represent potential franchise tax claims from the state of our incorporation) which are not covered by our insider agreements to indemnify. We estimate that as of March 31, 2007, we have claims from creditors, vendors and tax authorities of approximately $630,000 which have not been waived. HAQ currently has no outstanding liabilities covered by waivers. HAQ currently estimates that, at August 3, 2007, there would be approximately $280,000 in Delaware franchise tax which are not waived by such taxing authorities and our Board members have not agreed to indemnify HAQ for such tax claims. Our Board members have agreed to indemnify HAQ for the balance that HAQ owes to certain of its vendors. HAQ has no other outstanding liabilities which are not indemnified against by the members of its Board or for
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which it has not received waivers from creditors. Based on representations made to us by certain of our directors and officers, we currently believe that they are of substantial means and capable of funding a shortfall in our trust account to satisfy their foreseeable indemnification obligations, however, the indemnification may be limited as we have not asked them to reserve for such an eventuality. The indemnification obligations may be substantially higher than certain of our directors and officers currently foresee or expect and/or their financial resources may deteriorate in the future which could also act as a limitation on this indemnification. Hence, we cannot assure you that certain of our directors and officers will be able to satisfy those obligations or that the proceeds in the trust account will not be reduced by such claims. Furthermore, creditors may seek to interfere with the distribution of the trust account pursuant to federal or state creditor and bankruptcy laws, which could delay the actual distribution of such funds or reduce the amount ultimately available for distribution to our public stockholders. If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law and may be included in our bankruptcy estate and subject to claims of third parties with priority over the claims of our stockholders. To the extent bankruptcy claims deplete the trust account, we cannot assure you that we will be able to return to our stockholders the liquidation amounts due to them. Accordingly, the actual per share amount distributed from the trust account to our public stockholders could be significantly less than approximately $7.60 per share as of March 31, 2007 (and estimated to equal 7.66 per share as of August 3, 2007 because of additional interest), without taking into account interest earned on the trust account, due to claims of creditors. Any claims by creditors could cause additional delays in the distribution of trust funds to the public stockholders beyond the time periods required to comply with Delaware General Corporation Law procedures and federal securities laws and regulations. As discussed herein, if the Merger Proposal is not approved and the Merger is not consummated, HAQ will be forced to dissolve and liquidate. In such event, it is more likely than not that the amount distributed to our stockholders will be less than approximately $7.60 per share.
Our stockholders may be held liable for claims against HAQ by third parties to the extent of distributions received by them.
We have agreed with the trustee to promptly adopt a plan of dissolution and liquidation and initiate procedures for our dissolution and liquidation if we do not complete a business combination within 24 months after the consummation of our IPO. Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If we complied with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that we make reasonable provision for all claims against us, including a 60-day notice period during which any third-party claims can be brought against us, a 90-day period during which we may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to a liquidating distribution would be limited to the lesser of such stockholder's pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to make liquidating distributions to our stockholders as soon as reasonably possible after dissolution and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from our public stockholders amounts owed to them by us.
Under Delaware law, our dissolution requires the approval of the holders of a majority of our outstanding stock, without which we will not be able to dissolve and liquidate and distribute our assets to our public stockholders. Therefore, there may be a considerable delay before any distribution of our assets.
We have agreed with the trustee to initiate procedures for our dissolution and liquidation if we do not effect the Merger by August 3, 2007 and we intend to commence such procedures within five business days of such date. However, pursuant to Delaware law, our dissolution requires the affirmative vote of stockholders owning a majority of our then outstanding common stock. Soliciting the vote of our stockholders will require the preparation of preliminary and definitive proxy statements, which will need to be filed with the Securities
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and Exchange Commission and could be subject to their review. This process could take a substantial amount of time ranging from 40 days to several months.
As a result, the distribution of our assets to the public stockholders could be subject to a considerable delay. Furthermore, we may need to postpone the stockholders meeting, resolicit our stockholders or amend our plan of dissolution and liquidation to obtain the required stockholder approval, all of which would further delay the distribution of our assets and result in increased costs. If we are not able to obtain approval from a majority of our stockholders, we will not be able to dissolve and liquidate and we will not be able to distribute funds from our trust account to holders of our common stock sold in our IPO and these funds will not be available for any other corporate purpose. In the event we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we will nonetheless continue to pursue stockholder approval for our dissolution. However, we cannot predict whether our stockholders will approve our dissolution in a timely manner or will ever approve our dissolution. As a result, we cannot provide our stockholders with assurances of a specific timeframe for the dissolution and distribution. If our stockholders do not approve a plan of dissolution and liquidation and the funds remain in the trust account for an indeterminate amount of time, we may be considered to be an investment company.
The financial interests of our officers and directors, which may be different than the best interests of our stockholders, may have influenced their motivation in causing us to enter into and, may influence in the future, their motivation to close the Merger Agreement.
Our officers and directors will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not in the trust account unless the Merger is completed. If we do not complete the Merger or other business combination and are forced to liquidate, the trust account proceeds may be subject to claims that could take priority over the claims of our public stockholders. Certain of our officers and directors have entered into separate indemnity agreements under which they will be personally liable under certain circumstances to ensure that the proceeds of the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or contracted for, or claims of other parties with which we have contracted. The shares of common stock and warrants owned by our officers and directors and their affiliates will be worthless if we do not consummate a business combination. These financial interests of our officers and directors may have influenced their motivation in causing us to enter into and, ultimately, may influence their motivation to close the Merger Agreement.
If third parties bring claims against us or if PharmAthene has breached any of its representations, warranties or covenants set forth in the Merger Agreement, we may not be adequately indemnified for any losses arising therefrom.
Although the Merger Agreement provides that the PharmAthene stockholders will indemnify us for losses arising from a breach of the representations, warranties and covenants by PharmAthene set forth in the Merger Agreement, such indemnification is limited both in the aggregate and the deductible and is subject to other limitations. In addition, the survival period for any claims under the Merger Agreement is limited to claims arising within the twelve months immediately following the effective time of the Merger. Accordingly, we will be prevented from seeking indemnification for any claims above the aggregate threshold or arising after the applicable survival period.
If the Merger’s benefits do not meet the expectations of financial or industry analysts, the market price of HAQ’s common stock may decline.
The market price of HAQ’s common stock may decline as a result of the Merger if:
| • | HAQ does not achieve the perceived benefits of the Merger as rapidly as, or to the extent anticipated by, financial or industry analysts; or |
| • | the effect of the Merger on HAQ’s financial results is not consistent with the expectations of financial or industry analysts. |
Accordingly, investors may experience a loss as a result of a decreasing stock price and HAQ may not be able to raise future capital, if necessary, in the equity markets.
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If we do not consummate a business combination and dissolve, payments from the trust account to our public stockholders may be delayed.
We currently believe that any plan of dissolution and liquidation subsequent to the expiration of the 24 month deadline would proceed in approximately the following manner:
| • | our Board of Directors will, consistent with Delaware law and its obligations described in our amended and restated certificate of incorporation to dissolve, prior to the passing of such deadline, convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to our stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out such plan of dissolution and liquidation as well as the board’s recommendation of such plan; |
| • | soon after such deadline, we would file our preliminary proxy statement with the Securities and Exchange Commission; |
| • | if the Securities and Exchange Commission does not review the preliminary proxy statement, then, approximately 10 days following the passing of such deadline, we will mail the proxy statements to our stockholders, and approximately 30 days following the passing of such deadline we will convene a meeting of our stockholders, at which they will either approve or reject our plan of dissolution and liquidation; and |
| • | if the Securities and Exchange Commission does review the preliminary proxy statement, we currently estimate that we will receive their comments approximately 45 days following the passing of such deadline. We will mail the proxy statements to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty, and which may be substantial) and we will convene a meeting of our stockholders at which they will either approve or reject our plan of dissolution and liquidation. |
In the event we seek stockholder approval for a plan of dissolution and liquidation and do not obtain such approval, we will nonetheless continue to pursue stockholder approval for our dissolution. Pursuant to the terms of our amended and restated certificate of incorporation, our powers following the expiration of the permitted time periods for consummating a business combination will automatically thereafter be limited to acts and activities relating to dissolving and winding up our affairs, including liquidation. The funds held in our trust account may not be distributed except upon our dissolution and, unless and until such approval is obtained from our stockholders, the funds held in our trust account will not be released. Consequently, holders of a majority of our outstanding stock must approve our dissolution in order to receive the funds held in our trust account and the funds will not be available for any other corporate purpose.
The procedures required for us to liquidate under the Delaware law, or a vote to reject any plan of dissolution and liquidation by our stockholders, may result in substantial delays in the liquidation of our trust account to our public stockholders as part of our plan of dissolution and liquidation.
We will dissolve and liquidate if we do not consummate the Merger.
If we do not complete the Merger on or before August 3, 2007, we will dissolve and liquidate pursuant to the provisions of our certificate of incorporation and Delaware law. We view this obligation to dissolve and liquidate as an obligation to our public stockholders and neither we nor our Board of Directors will take any action to amend or waive any provision of our amended and restated certificate of incorporation to allow us to survive for a longer period of time if it does not appear we will be able to consummate the Merger. We will be required to obtain stockholder approval of a plan of dissolution under Delaware law. Upon approval of our plan of dissolution, we will distribute, assuming satisfaction of our creditors, to all of our public stockholders, in proportion to their respective equity interest, an aggregate sum equal to the amount in the trust account (net of taxes payable). Our initial stockholders have waived their rights to participate in any liquidation distribution with respect to their initial shares and have agreed to vote in favor of any plan of dissolution and distribution which we will present to our stockholders for vote. There will be no distribution from the trust account with respect to our warrants which will expire worthless. We will pay the costs of our dissolution and liquidation of the trust account from our remaining assets outside of the trust fund, and we estimate such costs to be between $50,000 and $75,000.
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Because we entered into a definitive agreement to complete a business combination prior to the expiration of 18 months after the consummation of our IPO, we have an additional six months in which to complete the Merger with PharmAthene. If we are unable to consummate the Merger before August 3, 2007, our purpose and powers will be limited to dissolving, liquidating and winding up. Upon notice from us, the trustee of the trust account will liquidate the investments constituting the trust account and will turn over the proceeds to our transfer agent for distribution to our public stockholders as part of our stockholder-approved plan of dissolution and liquidation. Concurrently, we shall pay, or reserve for payment, from funds held outside of the trust account, if available, our liabilities and obligations, although we cannot assure you that there will be sufficient funds for such purpose. The amounts held in the trust account may be subject to claims by third parties, such as vendors, prospective target business or other entities, if we do not obtain waivers in advance from such third parties prior to such parties providing us with services or entering into arrangements with them.
Our public stockholders will be entitled to receive funds from the trust account only in the event of our dissolution and liquidation or if they seek to convert their respective shares into cash upon a business combination which the stockholder voted against and which is completed by us. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account.
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FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement constitutes forward-looking statements. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:
| • | discuss future expectations; |
| • | contain projections of future results of operations or financial condition; and |
| • | state other “forward-looking” information. |
HAQ believes it is important to communicate its expectations to its stockholders. However, there may be events in the future that HAQ or PharmAthene is not able to accurately predict or over which HAQ or PharmAthene have no control. The risk factors and cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by HAQ or PharmAthene in their forward-looking statements, including among other things:
| • | changing interpretations of generally accepted accounting principles; |
| • | outcomes of government reviews, inquiries, investigations and related litigation; |
| • | potential products that appear promising to PharmAthene or its collaborators cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical trials; |
| • | PharmAthene or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products; |
| • | PharmAthene may not be able to obtain anticipated funding for its development projects or other needed funding; |
| • | PharmAthene may not be able to secure funding from anticipated government contracts and grants; |
| • | PharmAthene may not be able to secure or enforce adequate legal protection, including patent protection, for its products; |
| • | continued compliance with government regulations; |
| • | legislation or regulatory environments, requirements or changes adversely affecting the businesses in which PharmAthene is engaged; |
| • | statements about industry trends; |
| • | general economic conditions; and |
| • | geopolitical events and regulatory changes. |
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.
All forward-looking statements included herein attributable to HAQ, PharmAthene or any person acting on either party's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, HAQ and PharmAthene undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast or vote on the approval of the Merger you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement could have a material adverse effect on HAQ or PharmAthene upon completion of the Merger.
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THE HAQ SPECIAL MEETING OF STOCKHOLDERS
The HAQ Special Meeting
HAQ is furnishing this proxy statement to you as part of the solicitation of proxies by the HAQ Board of Directors for use at the Special Meeting in connection with the proposed merger, the proposed Certificate of Incorporation Amendment, the proposed Incentive Plan and the proposed Adjournment. This proxy statement provides you with the information you need to be able to vote or instruct your vote to be cast at the Special Meeting.
Date, Time and Place
The Special Meeting will be held at 10:00 a.m., Eastern Time, on July 27, 2007, at the offices of McCarter & English, LLP, 245 Park Avenue, 27th Floor, New York, NY, 10167-0001, to vote on each of the Merger, the Certificate of Incorporation Amendment, the Incentive Plan and the Adjournment Proposals.
Purpose of the Special Meeting
At the Special Meeting, the holders of HAQ common stock are being asked to consider and vote upon the following:
| • | the Merger Proposal — the proposed merger with PharmAthene, Inc. (the “Merger”), a Delaware corporation, pursuant to the Agreement and Plan of Merger, dated as of January 19, 2007, by and among HAQ, Merger Sub and PharmAthene, and the transactions contemplated thereby, whereby PharmAthene will become a wholly-owned subsidiary of HAQ (“Proposal 1” or the “Merger Proposal”) and the stockholders, optionholders, warrantholders and noteholders of PharmAthene shall receive consideration having an aggregate value of $112,500,000 comprised of the following consideration (having an aggregate value of $112,500,000 assuming the maximum milestone payments are achieved and paid and assuming a price of $7.20 per share based on the closing price of HAQ common stock on July 10, 2007): |
| • | an aggregate of 12,500,000 shares of HAQ common stock; |
| • | $12,500,000 in 8% convertible notes issued by HAQ; and |
| • | up to $10,000,000 in milestone payments (if certain conditions are met); |
| • | the Amendment Proposal — a proposal to amend HAQ’s amended and restated certificate of incorporation effective concurrently with the Merger, to: (i) change HAQ's name from “Healthcare Acquisition Corp.” to “PharmAthene, Inc.”, (ii) remove certain provisions containing procedural and approval requirements applicable to HAQ prior to the consummation of the business combination that will no longer be operative after the consummation of the Merger and (iii) grant to holders of convertible promissory notes the right to designate three members to the Board of Directors of HAQ for so long as at least 30% of the original face value of such notes remain outstanding (“Proposal 2” or the “Amendment Proposal”); |
| • | the Incentive Plan Proposal — a proposal to approve and adopt the 2007 Long-Term Incentive Plan (the “Incentive Plan”') pursuant to which HAQ will reserve 3,500,000 shares of common stock for issuance pursuant to the Incentive Plan (“Proposal 3” or the “Incentive Plan Proposal”); |
| • | the Adjournment Proposal — to consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that, based upon the tabulated vote at the time of the Special Meeting, HAQ would not have been authorized to consummate the Merger — we refer to this proposal as the adjournment proposal. (“Proposal 4” or the “Adjournment Proposal”); and |
| • | such other business as may properly come before the Special Meeting or any adjournment or postponement thereof. |
The HAQ Board of Directors:
| • | has unanimously determined that the Merger Proposal, the Amendment Proposal and the Incentive Plan Proposal are fair to, and in the best interests of, HAQ and its stockholders; |
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| • | has determined that the consideration to be paid by HAQ in connection with the Merger is fair to our current stockholders from a financial point of view and the fair market value of PharmAthene is equal to or greater than 80% of the fair market value of the net assets of HAQ; |
| • | has unanimously approved and declared it advisable to approve the Merger, the Certificate of Incorporation Amendment, the Incentive Plan and the Adjournment Proposals; and |
| • | unanimously recommends that the holders of HAQ common stock vote “FOR” the Merger Proposal, “FOR” the Amendment Proposal, “FOR” the Incentive Plan Proposal and “FOR” the Adjournment Proposal. |
No fairness opinion or valuation analysis from an independent advisor was sought or obtained by our Board of Directors in reaching its determination to approve the Merger, nor did the Board determine a specific value for PharmAthene.
Record Date; Who is Entitled to Vote
The Record Date for the Special Meeting is June 15, 2007. Record holders of HAQ common stock at the close of business on the Record Date are entitled to vote or have their votes cast at the Special Meeting. On the Record Date, there were 11,650,000 outstanding shares of HAQ common stock.
Each share of HAQ common stock is entitled to one vote at the Special Meeting.
Our officers and directors agreed with the underwriter in our initial public offering that any shares of HAQ common stock held by our officers and directors which were obtained prior to our initial public offering will be voted in accordance with the majority of the votes cast at the Special Meeting with respect to the Merger Proposal. The holders of common stock acquired in HAQ's IPO or afterwards are free to vote their shares, as they see fit. We have a total of 11,650,000 shares outstanding, of which 2,250,000 were issued prior to the IPO. All of these shares are held by our officers and directors. Additionally, three of our Board members have purchased an additional 250,000 shares of HAQ common stock and have advised us that they intend to vote such shares in favor of the Merger. If our officers and directors determine to purchase additional shares of our common stock prior to the Special Meeting, they have advised us that they intend to vote these shares in favor of the Merger Proposal.
HAQ's issued and outstanding warrants do not have voting rights and record holders of HAQ warrants will not be entitled to vote at the Special Meeting.
Voting Your Shares
Each share of HAQ common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of HAQ common stock that you own.
There are two ways to vote your shares of HAQ common stock:
| • | You can vote by signing and returning the enclosed proxy card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card, but do not give instructions on how to vote your shares, your shares will be voted, as recommended by the HAQ Board, “FOR” the approval of the Merger Proposal, “FOR” the approval of the Amendment Proposal, “FOR” the approval of the Incentive Plan Proposal and “FOR” the approval of the Adjournment Proposal. |
| • | You can attend the Special Meeting and vote in person. HAQ will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way HAQ can be sure that the broker, bank or nominee has not already voted your shares. |
No Additional Matters May Be Presented at the Special Meeting
The Special Meeting has been called only to consider the approval of the Merger Proposal, the Amendment Proposal, the Incentive Plan Proposal and the Adjournment Proposal. Under HAQ's bylaws, other than procedural matters incident to the conduct of the meeting, no other matters may be considered at the Special Meeting if they are not included in the notice of the meeting.
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Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
| • | You may send another proxy card with a later date; |
| • | You may notify Matthew Kinley, addressed to HAQ, in writing before the Special Meeting that you have revoked your proxy; and |
| • | You may attend the Special Meeting, revoke your proxy, and vote in person. |
Quorum; Vote Required
The approval and adoption of the Merger Agreement and the transactions contemplated thereby will require the affirmative vote of a majority of the shares of HAQ's common stock issued in HAQ’s IPO that vote on this proposal at the Special Meeting. A total of 9,400,000 shares were issued in our IPO. In addition, notwithstanding the approval of a majority, if the holders of 1,880,000 or more shares of common stock issued in HAQ's IPO, an amount equal to 20% or more of the total number of shares issued in the IPO, vote against the Merger and demand conversion of their shares into a pro rata portion of the trust account, then HAQ will not be able to consummate the Merger. Each HAQ stockholder that holds shares of common stock issued in HAQ's IPO or purchased following such offering in the open market has the right, assuming such stockholder votes against the Merger Proposal and, at the same time, demands that HAQ convert such stockholder's shares into cash equal to a pro rata portion of the trust account in which a substantial portion of the net proceeds of HAQ's IPO is deposited. These shares will be converted into cash only if the Merger is consummated and the stockholder requesting conversion holds such shares until the date the Merger is consummated.
The approval and adoption of the Amendment Proposal will require the affirmative vote of a majority of the issued and outstanding shares of HAQ common stock as of the Record Date. The approval and adoption of the Incentive Plan Proposal will require the affirmative vote of a majority of the shares of HAQ’s common stock that are present in person or by proxy and entitled to vote at the Special Meeting. Adoption of the Adjournment Proposal requires the affirmative vote of a majority of the shares of HAQ's common stock present in person or by proxy and entitled to vote at the Special Meeting. Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.
Each of the Amendment Proposal and the Incentive Plan Proposal are conditioned upon the approval of the Merger Proposal and, in the event the Merger Proposal does not receive the necessary vote to approve that proposal, then HAQ will not complete any of the transactions identified in any of the proposals. If the Incentive Plan Proposal and/or the Amendment Proposal are not approved but the Merger Proposal is approved, we may still consummate the Merger. If the conditions in the Merger Agreement requiring approval of these proposals are waived by PharmAthene.
As long as a quorum is established at the Special Meeting, a failure to vote will have no impact upon the approval of the Merger Proposal or the Incentive Plan Proposal but as the Amendment Proposal requires a majority of all outstanding shares of common stock and the Adjournment Proposal requires the affirmative vote of a majority of the shares of HAQ's common stock present in person or by proxy and entitled to vote at the Special Meeting, a failure to vote will have the effect of a vote against each of the Amendment Proposal and the Adjournment Proposal. Failure to vote will not have the effect of converting your shares into a pro rata portion of the trust account.
Abstentions and Broker Non-Votes
If your broker holds your shares in its name and you do not give the broker voting instructions, under the rules of the NASD, your broker may not vote your shares on the proposals to approve the Merger with PharmAthene pursuant to the Merger Agreement and to approve the adoption of the Incentive Plan. If you do not give your broker voting instructions and the broker does not vote your shares, this is referred to as a “broker non-vote.” Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum.
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Assuming the presence of a quorum of more than 50% of the shares of our common stock issued in our IPO, broker non-votes, abstentions or the failure to vote on the Merger Proposal will have no effect on the outcome of the vote.
If you abstain from voting, it will (i) not be a vote against the Merger Proposal and will not have the effect of converting your shares into a pro rata portion of the trust account; (ii) not count as a vote against the Incentive Plan Proposal; and (iii) be treated as a vote against the approval of the Amendment Proposal and the Adjournment Proposal.
If you hold your shares in street name you can obtain physical delivery of your shares into your name, and then vote the shares yourself. In order to obtain shares directly into your name, you must contact your brokerage firm representative. Brokerage firms may assess a fee for your conversion; the amount of such fee varies from firm to firm.
Conversion Rights
Any stockholder of HAQ holding shares of common stock issued in HAQ's IPO who votes against the Merger Proposal may, at the same time, demand that HAQ convert his shares into a pro rata portion of the trust account. You must mark the appropriate box on the proxy card in order to demand the conversion of your shares. You must affirmatively vote against the Merger Proposal and demand that HAQ convert your shares into cash no later than the close of the vote on the Merger Proposal to exercise your conversion rights (either by indicating such on the proxy card or providing such information at the Special Meeting). You must hold your shares through the closing date of the Merger and then you must also present your physical stock certificate to our transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY, 10004, Attention: Greg Denman (212) 845-3274 by the third business day after consummation of the Merger, assuming it is approved by our stockholders. If the Merger Proposal is approved, we expect to close the transaction on the date of the Special Meeting or soon thereafter and we will provide public notice of such closing date. If you convert your shares of common stock, you will still have the right to exercise the warrants received as part of the units in accordance with the terms thereof and you will still have the right to attend the Special Meeting. If so demanded, HAQ will convert these shares into a pro rata portion of the net proceeds from the IPO that were deposited into the trust account, plus interest earned thereon after such date, if the Merger is consummated. If the holders of 20%, or 1,880,000, or more shares of common stock issued in HAQ's IPO vote against the Merger Proposal and demand conversion of their shares into a pro rata portion of the trust account, HAQ will not be able to consummate the Merger. Based on the amount of cash held in the trust account as of March 31, 2007, without taking into account any interest accrued after such date, you will be entitled to convert each share of common stock that you hold into approximately $7.60 per share. HAQ will be liquidated if the Merger is not consummated by August 3, 2007. In any liquidation, the net proceeds of HAQ's IPO held in the trust account, plus any interest earned thereon, will be distributed on a pro rata basis to the holders of HAQ's common stock other than the founders, who will not share in any such liquidation proceeds.
If you exercise your conversion rights, then you will be exchanging your shares of HAQ common stock for cash and will no longer own these shares. You will only be entitled to receive cash for these shares if you continue to hold these shares through the closing date of the Merger and then tender your stock certificate to our transfer agent as set forth above. The closing price of HAQ's common stock on July 10, 2007, the most recent trading day practicable before the printing of this proxy statement, was $7.20 and the amount of cash held in the trust account is approximately $71.5 million as of March 31, 2007, plus interest accrued thereon after such date. If a HAQ stockholder would have elected to exercise his conversion rights on such date, then he would have been entitled to receive $7.60 per share, plus interest accrued thereon subsequent to such date. Prior to exercising conversion rights, HAQ stockholders should verify the market price of HAQ's common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights.
Dissenters’ or Appraisal Rights
No dissenters’ or appraisal rights are available under the Delaware General Corporation Law to the stockholders of HAQ in connection with the proposals. The only rights for those HAQ stockholders voting against the Merger who wish to receive cash for their shares is to simultaneously demand payment for their
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shares from the trust account. All of the holders of PharmAthene’s classes of preferred stock and stockholders representing 80% of its outstanding common stock have approved the Merger Proposal by written consent. The holders of PharmAthene common stock who did not consent to the Merger were provided with a notice, dated May 10, 2007, regarding their possible appraisal rights under the Delaware General Corporation Law. Pursuant to such notice and applicable law, dissenting stockholders were required to notify PharmAthene within 20 days of the date of the notice of their election to exercise their appraisal rights. PharmAthene did not receive any notices of such election.
Solicitation Costs
HAQ is soliciting proxies on behalf of the HAQ Board of Directors. This solicitation is being made by mail but also may be made by telephone or in person. HAQ and its respective directors and officers may also solicit proxies in person, by telephone or by other electronic means, and in the event of such solicitations, the information provided will be consistent with this proxy statement and enclosed proxy card. These persons will not be paid for doing this. HAQ will ask banks, brokers and other institutions, nominees and fiduciaries to forward its proxy statement materials to their principals and to obtain their authority to execute proxies and voting instructions. HAQ will reimburse them for their reasonable expenses.
Morrow & Co., Inc., a proxy solicitation firm that we have engaged to assist us in soliciting proxies, will be paid its customary fee of approximately $12,500 plus $5 per solicited stockholder and out-of-pocket expenses. Such fee will be paid with non-trust account funds. We expect the fees and associated expenses payable to Morrow & Co., Inc. will not exceed approximately $30,000.
Stock Ownership
Of the 11,650,000 outstanding shares of HAQ common stock, HAQ's initial stockholders, including all of its officers and directors and their affiliates, who purchased shares of common stock prior to HAQ's IPO and who own an aggregate of approximately 21.46% of the outstanding shares of HAQ common stock (2,250,000 of which were issued prior to the IPO), agreed to vote such shares acquired prior to the IPO in accordance with the vote of the majority in interest of all other HAQ stockholders on the Merger Proposal and have advised us that they intend to vote the remaining 250,000 shares in favor of the Merger Proposal.
Based solely upon information contained in public filings and the records of our transfer agent, as of the Record Date, the following stockholders beneficially own greater than five percent of HAQ's issued and outstanding common stock, as such amounts and percentages are reflected in the public filing of such stockholder:
The following table sets forth information as of July 12, 2007, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock by (i) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, (ii) each director and (iii) all officers and directors as a group. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
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| Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| John Pappajohn(2)(3) | 1,123,960 | 9.53 % | ||||||
| Derace L. Schaffer, M.D.(2)(4) | 1,123,960 | 9.53 % | ||||||
| Matthew P. Kinley(2)(5) | 561,980 | 4.79 % | ||||||
| Edward B. Berger(6) | 34,500 | * | ||||||
| Wayne A. Schellhammer | 22,500 | * | ||||||
| Sapling, LLC(7) | 697,715 | 6.0 % | ||||||
| Fir Tree Recovery Master Fund, LP(7) | 325,115 | 2.88 % | ||||||
| QVT Financial LP(8) | 640,400 | 5.5 % | ||||||
| Andrew M. Weiss, Ph.D.(9) | 617,825 | 5.3 % | ||||||
| All directors and executive officers as a group (5) persons | 2,866,900 | 24.35 % | ||||||
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| * | Represents beneficial ownership of less than 1%. |
| (1) | Includes shares of common stock issuable upon exercise of warrants which are beneficially owned by certain of the persons named in the above table but which are not exercisable until the later of (i) July 28, 2006 or (ii) the consummation by us of a business combination (including our acquisition of PharmAthene). Unless otherwise indicated, the business address of each of the individuals is 2116 Financial Center, 666 Walnut Street, Des Moines, Iowa 50309. |
| (2) | On May 2, 2007, three individuals adopted stock purchase plans intended to comply with the provisions of SEC Rule 10b5-1. Shares purchased under such plans were purchased through an NASD member firm at its discretion, subject to the terms of the plans. Pursuant to the adopted plans, the individuals, John Pappajohn, Matthew Kinley and Derace Schaffer authorized the following open market purchases: |
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| Total Shares | Share Limit Per Day | |||||||
| John Pappajohn | 100,000 shares | 10,000 shares | ||||||
| Derace Schaffer | 100,000 shares | 10,000 shares | ||||||
| Matthew Kinley | 50,000 shares | 5,000 shares | ||||||
The aggregate number of shares that were purchased did not exceed 250,000 shares. Further, each adopted a daily limit on the number of shares purchased which in the aggregate was not more than 25,000 shares. The individuals purchased shares at prices up to $7.60 per share. The plans expire on August 3, 2007.
| (3) | Includes 141,960 warrants and 100,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (4) | Includes 141,960 warrants and 100,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (5) | Includes 70,980 warrants and 50,000 shares of common stock purchased on behalf of such person pursuant to the guidelines set forth in SEC Rule 10b5-1 under a Rule 10b5-1 Plan. See footnotes 1 and 2 above. |
| (6) | Includes 12,000 warrants purchased by Mr. Berger in open market purchases. See footnote 1 above. |
| (7) | Based on information contained in a Statement on Schedule 13G filed by Sapling LLC in February 2007. Sapling may direct the vote and disposition of the 679,715 shares of common stock, and Fir Tree Recovery may direct the vote and disposition of 325,115 shares of common stock. The address of both Sapling LLC and Fir Tree Recovery is 535 Fifth Avenue, 31st Floor New York, New York 10017. Fir Tree, Inc. is the investment manager for each of Sapling LLC and Fir Tree Recovery Master Fund, LP. Jeffrey Tannenbaum is the President of Fir Tree, Inc. and has the power to vote or dispose of the securities held by these entities. |
| (8) | Based on information contained in a Statement on Schedule 13G filed by QVT Financial LP on July 10, 2007. QVT Financial LP (“QVT Financial”) is the investment manager for QVT Fund LP (the “Fund”), which beneficially owns 503,160 shares of HAQ common stock. QVT Financial is also the investment manager for a separate discretionary account managed for Deutsche Bank AG (the “Separate Account”), which holds 80,487 shares of HAQ common stock. QVT Financial also acts as the investment manager for Quintessence Fund L.P. (“Quintessence”) and their several feeder funds, which beneficially owns 56,753 shares of HAQ common stock. QVT Financial has the power to direct the vote and disposition of the HAQ common stock held by each of the Fund, the Separate Account and Quintessence. Accordingly, QVT Financial may be deemed to be the beneficial owner of an aggregate amount of 640,400 shares of HAQ common stock, consisting of the shares owned by the Fund and the shares held in the Separate Account QVT Financial GP LLC, as General Partner of QVT Financial, may be deemed to beneficially own the same number of shares of HAQ common stock reported by QVT Financial. Daniel Gold and Lars Bader are each managing members of each of QVT Financial LP and QVT Financial GP LLC and may therefore be considered beneficial holders of the securities held by QVT Financial LP. |
| (9) | Based on information contained in a Statement on Schedule 13G filed by Weiss Asset Management, LLC, Weiss Capital, LLC and Andrew Weiss, PhD on June 4, 2007. Shares reported for Dr. Weiss include shares beneficially owned by a private investment partnership of which Weiss Asset Management is the |
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| sole general partner and which may be deemed to be controlled by Dr. Weiss, who is the Managing Member of Weiss Asset Management, and also includes shares held by a private investment corporation which may be deemed to be controlled by Dr. Weiss, who is the managing member of Weiss Capital, LLC the Investment Manager of such private investment corporation. Dr. Weiss disclaims beneficial ownership of the shares reported herein as beneficially owned by him except to the extent of his pecuniary interest therein. |
Other than the shares purchased by Messrs. Pappajohn and Kinley and Dr. Schaffer under 10b5-1 plans (an aggregate of 250,000 shares), all of the shares of HAQ common stock held by our officers and directors were placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until the earliest of (i) July 28, 2008; or (ii) the consummation of a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to our acquisition of PharmAthene.
During the escrow period, the holders of these shares are not able to sell or transfer their securities except to their spouses and children or trusts established for their benefit, but will retain all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, none of these stockholders will receive any portion of the liquidation proceeds with respect to common stock owned by them prior to HAQ’s IPO.
As described above, certain of our officers and directors determined to purchase shares of our common stock in open market transactions prior to the Special Meeting pursuant to Rule 10b5-1 stock puchase plans. Shares purchased under these plans (250,000 shares) are entitled to participate in the liquidation of the trust fund in the event the Merger is not approved. Our officers and directors have advised us that they will vote the shares so purchased in favor of the Merger Proposal, Amendment Proposal, Incentive Plan Proposal and Adjournment Proposal. As of July 12, 2007, a total of 250,000 shares have been purchased under these plans.
At any time prior to the Special Meeting, during a period when they are not then aware of any material nonpublic information regarding HAQ or its securities, the management of HAQ, and/or their affiliates, may enter into a written plan to purchase HAQ securities pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and may engage in other public market purchases, as well as private purchases, of securities at anytime prior to the Special Meeting of Stockholders.
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PROPOSAL 1
THE MERGER PROPOSAL
The discussion in this proxy statement of the Merger Proposal and the principal terms of the Agreement and Plan of Merger, dated January 19, 2007, by and among HAQ, Merger Sub and PharmAthene (the “Merger Agreement”) is subject to, and is qualified in its entirety by reference to, the Merger Agreement, which is attached as “Annex A” to this proxy statement and is incorporated in this proxy statement by reference.
General Description of the Merger
Pursuant to the Merger Agreement, Merger Sub, a wholly-owned subsidiary of HAQ will merge with and into PharmAthene and PharmAthene will be the surviving entity and become a wholly-owned subsidiary of HAQ. At the closing, and subject to certain adjustments as hereinafter described, the PharmAthene stockholders, optionholders and warrantholders and noteholders will receive the following in the Merger:
| • | an aggregate of 12,500,000 shares of HAQ common stock, subject to adjustments as described below; |
| • | $12,500,000 in 8% convertible notes issued by HAQ; and |
| • | up to $10,000,000 in milestone payments (if certain conditions are met); |
in exchange for all of the issued and outstanding capital stock and convertible notes of PharmAthene (other than the securities being cancelled). The merger consideration has an aggregate value of $112,500,000 (based upon the closing price of HAQ’s common stock on July 10, 2007 of $7.20 per share and assuming the maximum milestone payments are achieved and paid).
HAQ is also assuming certain outstanding vested and unvested options and warrants of PharmAthene, which shall be exchanged for options and warrants of HAQ on economically equivalent terms. The 12,500,000 shares of HAQ common stock issued as merger consideration will not increase due to the vesting, issuance of any options or warrants of PharmAthene or the assumption of the PharmAthene options and warrants and the actual number of shares of HAQ common stock ultimately issued may be less to the extent options and warrants are not exercised. The number of shares which are to be issued may be subject to increase in the event that the stockholders of HAQ owning more than 5% of the outstanding HAQ common stock exercise their conversion rights, the number of shares of HAQ common stock comprising the stock consideration shall be adjusted upward by the product of (x) the number (as a percentage) that is the difference between the percentage of HAQ common stock that is converted and 5% and (y) 2.25 million. Stockholders holding an aggregate of up to 1,879,060 shares of common stock could convert such shares and the Merger may still be consummated. If such number of shares were converted, the shares of HAQ common stock issued as a portion of the merger consideration would be increased by 337,275 shares of common stock.
Background of the Merger
The terms of the Merger Agreement are the result of arm's-length negotiations between representatives of HAQ and PharmAthene. The following is a discussion of the background of these negotiations, the Merger and related transactions.
HAQ was incorporated in Delaware on April 25, 2005, as a blank check company formed to serve as a vehicle for the acquisition, through a merger, capital stock exchange