The R/S they are asking shareholders to approve will be 1 for 87
Proposal 2:
(Item 2 on the proxy card)
To Approve an Amendment to Our Certificate of Incorporation to Effect a One-For-Eighty-Seven Reverse Stock Split of the Issued and Outstanding Shares of our Common Stock and to Reduce the Number of Authorized Shares of Our Common Stock From 200,000,000 Shares to 15,000,000 Shares.
General
We are asking our stockholders to approve an amendment to our Certificate of Incorporation to effect the Reverse Stock Split and to reduce the total number of authorized shares of our Common Stock. On October 23, 2010, our Board of Directors approved an amendment to our Certificate of Incorporation, subject to obtaining stockholder approval, to effect the Reverse Stock Split and the reduction in our authorized Common Stock. Our Board of Directors has directed that a proposal to approve this amendment to our Certificate of Incorporation be submitted to our stockholders for consideration and action.
The text of the amendment to the Certificate of Incorporation to effect the Reverse Stock Split as described in this proposal is also set forth in Annex A attached to this proxy statement and is incorporated by reference into this proxy statement.
If our stockholders approve the proposed amendment to our Certificate of Incorporation to implement the Reverse Stock Split and the reduction in our authorized Common Stock, we will file a Certificate of Amendment to our Certificate of Incorporation with the Delaware Secretary of State, including the language reflecting the Reverse Stock Split and the reduction in the number of our authorized shares of Common Stock from 200,000,000 shares to 15,000,000 shares. The amendment will become effective on the Effective Date.
Reasons For Reverse Stock Split
The primary reason for the Reverse Stock Split is to decrease the number of shares of our Common Stock outstanding to a smaller number, which our Board of Directors believes is more appropriate. Our Board of Directors believes that the decrease in the number of outstanding shares may result in an increase in the per share market price of our Common Stock, which might not occur without the Reverse Stock Split. Our Board of Directors believes that this may result in lower amounts and percentage of transaction costs paid by individual stockholders. Our Board of Directors also believes that the Reverse Stock Split will facilitate our ability to raise capital by issuing additional shares of our Common Stock.
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Our Board of Directors believes the decrease in the number of issued and outstanding shares of Common Stock as a consequence of the Reverse Stock Split, and the potential resultant increase in the price of our Common Stock than would otherwise be the case, could encourage interest in our Common Stock and possibly promote greater liquidity for our stockholders, although such liquidity could be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split.
There can be no assurances, however, that active trading will commence in our Common Stock, that the market price of our Common Stock immediately after the Reverse Stock Split or at any time thereafter will be higher than it would have been had the Reverse Stock Split not been effected or that any increased market price that may occur will be maintained for any period of time. Moreover, there can be no assurance that the market price of our Common Stock after the proposed Reverse Stock Split will adjust to reflect the conversion ratio (e.g., if the market price is four cents ($0.04) before the Reverse Stock Split and the ratio is one (1) new share for every eighty-seven (87) shares outstanding, there can be no assurance that the market price immediately after the Reverse Stock Split will be $3.48 (87 x $0.04)), or that the market price following the Reverse Stock Split will either exceed or remain in excess of the current market price.
Effects of Reverse Stock Split on the Common Stock
If the proposed Reverse Stock Split is approved at the Special Meeting, at the Effective Date each outstanding share of Common Stock will immediately and automatically be changed into a fraction of a share of Common Stock based on the Reverse Stock Split ratio of one (1) for eighty-seven (87) shares of Common Stock. Thus, for example, if a stockholder currently owns 87,000 shares of Common Stock, then following the Reverse Stock Split, the stockholder will own 1,000 shares of Common Stock - each share of Common Stock will have immediately and automatically have been changed into approximately eleven and one half one-thousandths (0.0115) of a share of Common Stock. Assuming approximately 174,000,000 shares of Common Stock are outstanding as of the Record Date, the approximate number of shares of Common Stock that would be outstanding following the Reverse Stock Split is approximately 2,000,000 shares.
No fractional shares of our Common Stock will be issued in connection with the proposed Reverse Stock Split. Holders of Common Stock who would otherwise receive a fractional share of Common Stock pursuant to the Reverse Stock Split will receive cash in lieu of the fractional share as explained more fully below.
Because the Reverse Stock Split will apply to all issued and outstanding shares of our Common Stock and outstanding rights to purchase Common Stock, the proposed Reverse Stock Split will not materially alter the percentage ownership of existing stockholders or their relative rights and preferences. The amendment to our Certificate of Incorporation will, however, effectively increase the number of shares of our Common Stock available for future issuance by the Board of Directors, even with the proposed reduction in the total number of authorized shares.
If the Reverse Stock Split is approved at the Special Meeting and the Board of Directors determines to effect the Reverse Stock Split, some stockholders may consequently own less than one hundred (100) shares of our Common Stock. A purchase or sale of less than one hundred shares (100), known as an “odd lot” transaction, may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own less than one hundred shares (100) following the Reverse Stock Split may be required to pay higher transaction costs should they then determine to sell their shares of Common Stock.
Effects of Reverse Stock Split on Warrants
Warrants to purchase 1,375,000 shares of our Common Stock are currently outstanding. Under the terms of the outstanding warrants, the number of shares of Common Stock subject to the warrants will not be reduced as a result of the Reverse Stock Split. However, the warrants provide that the exercise price for each share of Common Stock (currently, one dollar ($1.00) per share) will be increased by eighty-seven times so that after the Reverse Stock Split, the exercise price will be $87.00 per share.
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Effectiveness of the Reverse Stock Split
If the Reverse Stock Split is approved by our stockholders, we will file the Certificate of Amendment containing the language set forth in the form attached to this proxy statement as Annex A, which amendment is incorporated by reference into this proxy statement. The amendment will become effective on the date the Certificate of Amendment is accepted for filing by the Delaware Secretary of State. It is expected that this filing will occur shortly after the Special Meeting, assuming that the stockholders approve the Reverse Stock Split and our Board of Directors decides to implement it. However, the exact timing of the filing of the Certificate of Amendment will be determined by the Board of Directors based upon its evaluation as to when such action will be most advantageous to our company and its stockholders, and our Board of Directors reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to filing the Certificate of Amendment, our Board of Directors, in its sole discretion, determines that it is no longer in the best interests of our company and its stockholders.
