The Company determined to proceed with the Reverse Stock Split at this time, as compared to any other time in the operating history of the Company, due to the continued burdens placed on the Company’s management to comply with the reporting and other obligations imposed by the Securities Exchange Act of 1934, and management’s belief that the benefits of remaining a public company at this time are far outweighed by the direct and indirect costs associated with remaining a public company, as set forth above. See also information under the caption "Special Factors – Strategic Alternatives Considered" in this Proxy Statement for an additional description of the reasons why our Board approved the Reverse Stock Split instead of another alternative transaction structure at this time.
The Reverse Stock Split will terminate the equity interests in the Company of approximately 283 record holders of Common Stock. We intend for the Reverse Stock Split to treat shareholders holding Common Stock in street name through a nominee (such as a bank or broker) in the same manner as record holders. Nominees will be instructed to effect the Reverse Stock Split for their beneficial holders. However, nominees may have different procedures and shareholders holding shares in street name should contact their nominees. The Reverse Stock Split is expected to relieve us of the administrative burden, cost and other disadvantages associated with filing reports and otherwise complying with the requirements of registration under the federal securities laws by deregistering our Common Stock. Additionally, the Reverse Stock Split will provide small shareholders a beneficial mechanism to liquidate their equity interest at a fair price for their shares without having to pay brokerage commissions.
Based on information available to us, we presently have an aggregate of approximately 348 record holders and 1,358 beneficial holders of our Common Stock (collectively, "holders"), of which approximately 1,228 holders each own 10,000 shares or less. In the aggregate, the shares held by these small holders comprise less than 1.8% of our outstanding shares of Common Stock. The administrative burden and cost to us of maintaining records with respect to these numerous small accounts and the associated cost of preparing, printing and mailing information to them is, in the Board's view, excessive given our limited size and the nature of our operations. These expenditures result in no material benefit to us. The Reverse Stock Split will enable us to eliminate much of these costs.
When the Reverse Stock Split is consummated, shareholders owning fewer than 10,000 shares of Common Stock will no longer have any equity interest in the Company and will not participate in our future earnings or any increases in the value of our assets or operations. Thus, only our employees, executive officers, directors and continuing shareholders will benefit from any future increase in our earnings. The shareholders who will continue to hold an equity interest in the Company after the Reverse Stock Split will own a security, the liquidity of which will be severely restricted. See also information under the captions "Recommendation of the Board; Fairness of the Reverse Stock Split" and "Special Factors - Fairness of the Reverse Stock Split to Shareholders" in this Proxy Statement.
The Reverse Stock Split will (i) cause us to cash out shares held by any shareholder holding fewer than 10,000 shares, and (ii) change the percentage of Common Stock held by the remaining shareholders to 100%.
The Board of Directors recommends that the Company’s shareholders vote “FOR” the Certificate of Amendment to effect the Reverse Stock Split. The recommendation of the Board of Directors was made after careful consideration of all the material factors, both positive and negative, as described above.
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