(long post warning) PRER 14A - changes from the PER 14A
I did not compare the first 2 pages, the Introduction p. 3 appears the same, and Purpose of the Meeting p. 4 adds the middle initial “D.” to John Powell’s name. (This is changed consistently throughout the document. Rumor of needing to add a full middle name instead of an initial was incorrect.) There are indeed significant revisions and clarifications. I have deleted sections without changes. Changes are noted as {{changes}}.
Record Date and Shareholder Information
The Company’s Board of Directors has fixed the close of business on January [ ], 2007 as the record date (the “Record Date”) for determining Shareholders entitled to notice of and a vote at the Special Meeting and any adjournment thereto. As of the close of business on the Record Date, there were issued and outstanding 494,170,082 shares of Common Stock {{deleted - of the company}} and 3,500,000 shares of Preferred Stock {{deleted - of the company,}} which Preferred Stock is owned solely by the President of the Company, Mr. Charles Bitters. {{added language - As of the Record Date, the Company had approximately 419 record holders.}} As of the Record Date, there were no Shareholders who beneficially owned a 5% or greater voting interest in the Company. As of the Record Date, officers and directors of the Company together beneficially owned less than 1% of the Company’s shares. However, if Mr. Bitters were to convert the Preferred Stock to Common Stock, he would own approximately 2.71% of the Company’s shares.
General Information
Each share of Common Stock is entitled to a single vote. {{added - Though the Preferred Stock is entitled, by its terms, to elect two directors, Mr. Bitters, as the sole holder of the Preferred Stock, has declined to exercise that entitlement. Thus,}} the Common Stock is the only class of securities of the Company entitled to vote at the Special Meeting. A Shareholder is entitled to vote all shares of Common Stock held of record as of the Record Date, in person or by proxy, at the Special Meeting. All votes will be tabulated by the inspector of election appointed for the Special Meeting.
Quorum
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Broker non-votes and abstentions will be counted for purposes of determining the presence of a quorum, but will not be voted FOR or AGAINST a proposal. Accordingly, abstentions and broker non-votes effectively will be a vote against any proposal where the required vote is a percentage of the shares present or outstanding. Broker non-votes and abstentions will not be counted as votes cast for purposes of determining whether sufficient votes have been received to approve a proposal. {{added - However, abstentions and non-votes will operate as a vote against the proposal to authorize the Board to withdraw the Company’s election to be regulated as a BDC.} }
Adjournments
If a quorum is not present at the Special Meeting or, although a quorum is present, an insufficient number of votes in favor of any of the proposals described in this proxy are received by the date of the Special Meeting, the persons named as proxies may vote for one or more adjournments of the Special Meeting. No notice, other than an announcement at the Special Meeting, is required for an adjournment. Further solicitations of proxies with respect to these proposals may be made. Broker non-votes and abstentions will not be voted for any adjournments. {{added - Likewise, votes against authorizing the Board to withdraw the Company’s election to be regulated as a BDC will not be voted for any adjournments.}}
Vote Required
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Electronic or Telephone Voting
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Proposal One
Election of Mr. John D. Powell, Mr. Larry P. Horner and Mr. Charles Bitters to the Board of Directors
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The Board believes that any and all Board actions taken have been appropriate and valid for state law purposes. However, since electing to become a BDC, the Company has not had a properly constituted Board of Directors for purposes of Section 16 of the 1940 Act, which requires that a candidate for director be elected by Shareholders (and not merely appointed by the Board) where at least two-thirds of the directors then holding office were not elected by Shareholders of the Company. Consequently, actions required to have been taken by the Board pursuant to the 1940 Act could be deemed to have not been appropriately approved. {{added - In addition, from December 21, 2004 until November 19, 2005 the Company had a single Director, who was an interested person of the Company (i.e., not independent) for purposes of the 1940 Act, by virtue of his role as an officer of the Company. Thus, the Company was in violation of Section 56(a) of the 1940 Act, which requires that a majority of a BDC’s directors be persons who are not interested persons of such company.}}
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Independent Directors: The following nominees are considered independent for purposes of the 1940 Act.
John D. Powell
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Larry P. Horner
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Interested Director: Mr. Bitters is considered interested as defined by the 1940 Act due to his position as an officer of the Company.
Charles Bitters
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EQUITY OWNERSHIP IN THE COMPANY
Dollar Range of Ownership
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COMPENSATION
Name of Person, Position Aggregate Compensation from the Company Pension or Retirement Benefits Accrued as Part of Company Expenses Estimated Annual Benefits Upon Retirement Total Compensation From the Company Paid to Directors
John Powell $11,000 none none $11,000
Larry Horner $9,000 none none $9,000
Charles Bitters $382,500 none none $382,500 note 1
TOTAL COMPENSATION FOR DIRECTORS $402,500 {{error - corrected math error $382,500 total in PRE 14A}}
{{added - note 1: This total includes the amounts received from the rental of equipment to the Company.}}
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF MESSRS. POWELL, HORNER AND BITTERS TO THE BOARD OF DIRECTORS.
Proposal Two
Authorization of the Board to Withdraw the Company’s Election to be Treated as a BDC under the 1940 Act
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Specifically, the Company determined that it had, among other things: failed to adequately disclose the process of valuing its portfolio securities; issued convertible debentures, potentially violating Section 61 of the 1940 Act; issued shares for services to be provided to the Company, potentially violating Section 23 of the 1940 Act; failed to properly constitute the Board through a shareholder vote, pursuant to Section 16 of the 1940 Act; {{added - failed to have a majority of directors that were not interested persons of the Company, pursuant to Section 56(a) of the 1940 Act;}} failed to obtain a fidelity bond, potentially violating Section 17 of the 1940 Act; issued preferred stock, which did not have voting rights equal to that of the common stock, potentially violating Section 18(i) of the 1940 Act; and neglected to adopt compliance policies and procedures. {{added - In addition, the Company has never appointed a Chief Compliance Officer. In the absence of an active Chief Compliance Officer and complete diligence on the part of the Company, there can be no assurance that there are no additional compliance issues.}}
The Board reviewed the facts surrounding these compliance failures and their implications for the Company. Ultimately, the Board caused the Company to take certain steps to remediate the compliance failures, including issuing this proxy statement to properly elect {{added - two of}} the Directors, contacting the holders of the shares issued for services to request that the Company repurchase those shares, and retaining experienced BDC counsel. The Company’s violations of the 1940 Act may cause the Company to incur certain liabilities. Such liabilities can not be estimated by management as of this time, but may include regulatory enforcement actions. However, such liabilities, if incurred, could have a significant impact on the Company’s ability to continue as a going concern.
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Accordingly, and after careful consideration of the 1940 Act requirements applicable to BDCs, its holding company operations, an evaluation of the Company’s ability to operate as a going concern in an investment company regulatory environment, the cost of 1940 Act compliance needs and a thorough assessment of the Company’s current business model, the Board has determined that continuation as a BDC is not in the best interests of the Company and its shareholders at the present time. Further, were the Company to remain a BDC, the Company would be required to substantially change its business model to meet the definition of an “investment company.” {{text deleted - , thus potentially losing value that the Company has worked diligently to acquire. Therefore, the Board requests that the shareholders of the Company vote FOR the grant of authorization to withdraw the Company’s election to be regulated as a BDC.}}
{{added - In making the determination that continuation as a BDC is not in the best interests of the Company and its shareholders, the Board considered the viable alternatives available to the Company at this time. The Board considered that the Company could remain an investment company and restructure its portfolio investments to reduce its ownership of investee companies to non-majority ownership positions, while attempting to cure the significant compliance failures that it has incurred. However, the Board determined that the Company’s business model required majority ownership of its portfolio companies and that the significant expense associated with that alternative would make it unlikely that the Company would be able to continue operations. In the event that the Company does not receive sufficient votes to authorize the Board to withdraw the Company’s election to be regulated as a BDC, the Board and the management of the Company will make reasonable attempts to bring the Company into compliance with the requirements of the 1940 Act, but the ability of the Company to operate as a going concern in an investment company regulatory environment is uncertain. }}
{{added - Therefore, the Board requests that the shareholders of the Company vote FOR the grant of authorization to withdraw the Company’s election to be regulated as a BDC. }}
{{added - TIMELINE}}
{{added - If Shareholders approve the proposal to authorize the Board to withdraw the Company’s election to be regulated as a BDC, the Board will file a Form N-54C to effect the withdrawal as soon as practicable thereafter. As of the date hereof, the Board believes that the Company meets the requirements for filing the notification to withdraw its election to be regulated as a BDC, upon the receipt of Shareholder approval.}}
RISKS ASSOCIATED WITH THE WITHDRAWAL OF ELECTION TO BE REGULATED AS A BDC
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EFFECT ON THE FINANCIAL STATEMENTS AND TAX STATUS
The withdrawal of the Company’s election to be regulated as a BDC {{added - under the 1940 Act}} will result in a {{added - significant}} change in {{wording revised - the Company's required}} method of accounting. BDC financial statement presentation and accounting utilizes the value method of accounting used by investment companies, which allows BDCs to recognize income and value their investments at market value as opposed to historical cost. {{added - In addition, majority-owned subsidiaries are not consolidated; rather, investments in those subsidiaries are reflected on the balance sheet as an investment in a majority-owned portfolio company at fair value.}}
{{added - In accordance with BDC accounting requirements, the Company has recorded a significant unrealized gain on its investments.} {wording revised - As an operating company, the required financial statement presentation and accounting for securities held will be either the fair value or historical cost method of accounting, depending on how the Company’s investments are classified and how long the Company intends to hold the investment.} {added - Since the Company’s only investments have been in its wholly-owned portfolio companies, all of the previously recorded unrealized gain on investments will no longer be reflected in the Company’s financial statements. Thus, though there is no reason to believe that the worth of the investments would be different, the method of accounting will change.}}
Changing the Company’s method of accounting could reduce the market value of its investments in privately held companies by eliminating the Company’s ability to report an increase in value of its holdings as they occur. {{added - As an operating company, the Company will be required to consolidate its financial statements with subsidiaries, thus eliminating the portfolio company reporting benefits available to BDCs. Also, as an operating company, the Company will no longer present a Net Asset Value (“NAV”) in its financial statements or supplemental NAV financial information in the footnotes to the Company’s consolidated financial statements.}}
{{added - Because the Company will be considered an “oil and gas operating company”, the Company will use the “successful efforts” method of accounting for acquisition, exploration, development and production of oil and gas properties, whereby only the direct costs of acquiring or drilling successful (proved reserves) are capitalized. Costs of acquisition, development, and exploration activities that are not known to have resulted in the discovery of reserves (unproved) will be charged to operations. All capitalized costs of oil and gas properties will be depleted using the units-of-production method based on total proved reserves.}}
{{added - The change in accounting due to the conversion to an operating company from a BDC is considered a change in accounting principle. As a result, in accordance with Statement of Financial Accounting Standard 154, "Accounting for Changes and Error Corrections," which requires that a change in accounting principle be retrospectively applied to all prior periods presented, the Company’s financial statements will be presented on an operating and consolidated basis for all current and prior periods presented on a retrospective basis without regard to the BDC method of accounting. The change in presentation may have an impact on the market’s response to the Company, the nature and extent of which cannot be predicted. Please see the attached Exhibit A for unaudited pro forma comparisons of the Company’s balance sheet and statement of operations, showing the difference between the BDC presentation and the presentation that will be made going forward after the de-election.}}
The Company does not believe that withdrawing its election to be regulated as a BDC will have any impact on its federal income tax status, because the Company never elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code. Instead, the Company has always been subject to corporate level federal income tax on its income (without regard to any distributions it makes to its shareholders) as a “regular” corporation under Subchapter C of the Internal Revenue Code.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
{{added - The President of the Company, who is also a Director, has a lease agreement with the Company according to which the Company leases certain equipment from him. This agreement does not give him an interest in the withdrawal of the Company’s election to be regulated as a BDC and will likely continue regardless of the outcome of the vote.}} Except in their capacity as Shareholders (which interest does not differ from that of the common shareholder), none of the Company’s officers, directors or any of their respective affiliates has any interest in the withdrawal of the Company’s election to be regulated as a BDC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AUTHORIZATION OF THE BOARD TO WITHDRAW THE COMPANY’S ELECTION TO BE TREATED AS A BDC UNDER THE 1940 ACT.
ADDITIONAL INFORMATION
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(I was getting bored and hungry and did not examine the exhibits and end papers.)
AI
