Sincerely,
/s/
Charles E. Finelli
Charles
E. Finelli
Chief
Executive Officer
|
1.
|
To
approve amendments to the Company’s Certificate of Incorporation to effect
a 1-for-200 reverse stock split of the Company’s issued common stock, par
value $0.01 per share (“common stock”), including any common stock held in
treasury, immediately followed by a 200-for-1 forward stock split
of the
Company’s then issued common stock, including any common stock held in
treasury, with stockholders of record holding less than 200 shares
of
common stock in the aggregate (after aggregating all common stock
certificates held by such record holder) before the reverse stock
split
having their resulting fractional share interests aggregated and
converted
into the right to receive $2.10 in cash for each such share owned
before
the reverse stock split in a sale of the fractional shares to William
T.
Comfort III, a stockholder and director of the Company (the
“transaction”);
|
2.
|
To
authorize the adjournment of the Special Meeting to a later date,
if in
the discretion of the Board of Directors such adjournment is necessary
to
allow additional time to solicit sufficient proxies to obtain stockholder
approval of the transaction; and
|
3.
|
To
transact such other business as may properly come before the meeting
or
any adjournment thereof.
|
By
Order of the Board of Directors
/s/
Charles E. Finelli
Charles
E. Finelli
Chief
Executive Officer
|
SUMMARY
TERM SHEET
|
1
|
The
Transaction
|
1
|
Quotation
on the NASD Over-the-Counter Bulletin Board
|
2
|
Vote
Required
|
2
|
No
Appraisal or Dissenters’ Rights; Escheat Laws
|
2
|
Purpose
and Reasons for the Transaction
|
3
|
Disadvantages
of the Transaction
|
3
|
Recommendations
of the Board of Directors
|
4
|
Fairness
of the Transaction
|
4
|
Fairness
Opinion of the Financial Advisor
|
5
|
Conditions
to Completion of the Transaction
|
5
|
Source
of Funds; Financing of the Transaction
|
5
|
Conflicts
of Interest of Directors and Management
|
6
|
Treatment
of Shares Held in “Street Name”
|
7
|
Exchange
of Certificates; Payment of Cash Consideration
|
7
|
U.S.
Federal Income Tax Consequences
|
8
|
QUESTIONS
AND ANSWERS
|
9
|
SPECIAL
FACTORS
|
12
|
Background
of the Transaction
|
12
|
Purpose
and Reasons for the Transaction
|
14
|
Alternatives
Considered
|
17
|
Recommendation
of the Non-Purchasing Directors
|
19
|
Recommendation
of the Board of Directors
|
22
|
Fairness
of the Transaction
|
22
|
Opinion
of the Financial Advisor
|
23
|
Certain
Effects of the Transaction
|
27
|
Interests
of Executive Officers and Directors in the Transaction
|
29
|
Interests
of the Company in the Transaction
|
29
|
Quotation
on the Over the Counter Bulletin Board Maintained by the
NASD
|
29
|
Conduct
of the Company’s Business after the Transaction
|
29
|
Asset
Disposition Plan
|
30
|
Access
to Certain Financial Information after the Transaction
|
31
|
Conditions
to the Completion of the Transaction
|
32
|
Source
of Funds and Financing of the Transaction
|
32
|
Anticipated
Accounting Treatment
|
33
|
U.S.
Federal Income Tax Consequences
|
33
|
Regulatory
Approvals
|
34
|
No
Appraisal or Dissenters’ Rights; Escheat Laws
|
34
|
Reservation
of Rights
|
35
|
THE
SPECIAL MEETING
|
36
|
General
|
36
|
Who
Can Vote at the Special Meeting
|
37
|
Annual
Report and Quarterly Report
|
37
|
Vote
Required
|
37
|
Voting
and Revocation of Proxies
|
38
|
Recommendation
of the Board of Directors
|
38
|
SUMMARY
FINANCIAL INFORMATION
|
39
|
Summary
Historical Financial Information
|
39
|
Summary
Pro-Forma Financial Information
|
42
|
MARKET
FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
|
43
|
|
|
THE
PROPOSED AMENDMENTS
|
43
|
|
|
The
Structure of the Transaction
|
44
|
Sale
of Shares in the Transaction
|
44
|
Exchange
of Certificates; Payment of Cash Consideration
|
45
|
Effective
Time of Transaction
|
46
|
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
47
|
|
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY
|
47
|
|
|
COST
OF SOLICITATION OF PROXIES
|
49
|
|
|
OTHER
MATTERS
|
49
|
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
49
|
|
|
DOCUMENTS
INCORPORATED BY REFERENCE
|
49
|
|
|
STOCKHOLDER
PROPOSALS FOR NEXT ANNUAL MEETING
|
50
|
·
|
A
certificate of amendment to our certificate of incorporation will
be filed
effecting the 1-for-200 reverse stock split, the form of which is
attached
to this proxy statement as Appendix A;
|
·
|
Our
stockholders of record holding fewer than 200 shares of common stock
in
the aggregate (after aggregating all common stock certificates held
by
such record holder) immediately before the effective time of the
reverse
stock split will have their shares aggregated and converted into
the right
to receive $2.10 in cash for each such share owned before the reverse
stock split;
|
·
|
William
T. Comfort III, or if the number of shares to be purchased exceeds
119,047
shares, the purchaser of such excess shares as arranged by the Company,
will be deemed to have purchased the shares immediately after the
effective time of the reverse stock split and will pay $2.10 in cash
for
each share owned before the reverse stock
split;
|
·
|
A
certificate of amendment to our certificate of incorporation will
be filed
effecting the 200-for-1 forward stock split, the form of which is
attached
to this proxy statement as Appendix
B;
|
·
|
Our
stockholders of record holding 200 or more shares of common stock
in the
aggregate (after aggregating all common stock certificates held by
such
record holder) at the effective time of the transaction will continue
to
hold the same number of shares after completion of the transaction
and
will not receive any cash payment;
|
·
|
Our
officers and directors at the effective time will continue to serve
as our
officers and directors immediately after the
transaction;
|
·
|
We
believe we will have fewer than 300 holders of record of common stock
and
therefore be eligible to terminate registration of the common stock
with
the Securities and Exchange Commission (“SEC”), which will suspend our
obligation to continue filing periodic reports and proxy statements
pursuant to the Securities Exchange Act of 1934, as amended, and
the rules
and regulations promulgated thereunder (the “Exchange
Act”);
|
·
|
The
common stock will no longer be eligible for listing on the
over-the-counter bulletin board maintained by the NASD or any national
securities exchange or for quotation on the Nasdaq Stock Market,
any
trading in the common stock will occur only in the over-the-counter
markets or in privately negotiated sales, and the common stock will
be
quoted only in the “pink sheets”;
|
·
|
The
number of common stockholders of record will be reduced from approximately
315 to approximately 195;
|
·
|
The
percentage ownership of common stock beneficially owned by William
T.
Comfort III will increase from approximately 6.1% of our common stock
before the transaction to approximately 6.2% (and a maximum of 8.1%)
of
our common stock after the transaction, which will not affect control
of
the Company;
|
·
|
The
percentage ownership of common stock beneficially owned by our directors
and executive officers as a group will increase from approximately
6.1% of
our common stock before the transaction to approximately 6.2% (and
a
maximum of 8.2%) of our common stock after the transaction, which
will not
affect control of the Company;
|
·
|
We
estimate that we will pay cash of approximately $455,000 in the aggregate
to pay the costs of the transaction, and that William T. Comfort
III will
pay cash of approximately $16,800 (to a maximum of approximately
$250,000)
in the aggregate to purchase the fractional shares to be converted
into
the right to receive cash in the
transaction.
|
·
|
The
transaction requires the affirmative vote of holders of a majority
of the
outstanding shares of common stock.
|
·
|
Action
on the proposal to authorize the adjournment of the Special Meeting
in the
discretion of the board of directors, if a quorum is present, requires
approval of a majority of the votes cast at the
meeting.
|
·
|
As
of the record date, our current directors and executive officers
owned
352,267 shares,
or approximately 6.1% of the outstanding shares entitled to vote
at the
Special Meeting.
|
·
|
Our
officers and directors have indicated that they intend to vote “FOR” the
approval of the transaction and the authorization to adjourn. Other
than
such expressed intent of the officers and directors to vote their
shares
for the transaction, we have not obtained any assurances or agreements
from any of our stockholders as to how they will vote on the
transaction.
|
·
|
Please
see the section below entitled “The Special Meeting — Vote Required” for
further information.
|
·
|
Eliminating
the costs associated with filing reports and documents under the
Exchange
Act;
|
·
|
Eliminating
the costs of compliance with the Sarbanes-Oxley Act of 2002 and related
regulations;
|
·
|
Eliminating
the time and effort required of management regarding the implementation
of
Section 404 compliant internal controls and other reporting requirements;
and
|
·
|
Affording
stockholders of record holding fewer than 200 shares of common stock
in
the aggregate (after aggregating all common stock certificates held
by
such record holder) immediately before the transaction the opportunity
to
receive cash for such shares at a price that represents a premium
of more
than 200% over the pre-announcement trading price, without having
to pay
brokerage commissions and other transaction
costs.
|
·
|
We
would have less ability to raise capital in the public security markets,
although we have not done this in many
years.
|
·
|
Remaining
stockholders could experience reduced liquidity for their shares
of common
stock.
|
·
|
As
a result of being quoted only in the “pink sheets” instead of being quoted
on the NASD OTC Bulletin Board, listed on a national securities exchange
or quoted on an interdealer quotation system like the Nasdaq Stock
Market,
the common stock could experience pricing volatility, including the
possibility of sharply reduced trading
prices.
|
·
|
As
a result of being quoted only in the “pink sheets” instead of being quoted
on the NASD OTC Bulletin Board, listed on a national securities exchange
or quoted on an interdealer quotation system like the Nasdaq Stock
Market,
it is possible that there could be greater spreads between the bid
and
asked prices for the common stock.
|
·
|
We
would no longer be subject to certain federal securities laws, including
certain provisions of the Exchange Act and the Sarbanes-Oxley Act
of 2002,
as a result of which:
|
·
|
We
would no longer be required to make filings, such as quarterly reports
on
Form 10-Q and annual reports on Form 10-K, with the SEC and our officers
would no longer be required to make certifications with respect to
our
financial statements;
|
·
|
Certain
liability provisions of the Exchange Act would no longer apply to
us;
|
·
|
Subject
to a 90 day waiting period, the short-swing profit recovery provisions
of
Section 16(b) of the Exchange Act would no longer apply to our officers,
directors, and 10% stockholders and such persons would no longer
be
required to file beneficial ownership reports under Section 16(a);
and
|
·
|
The
Exchange Act’s proxy statement disclosure rules and the related
requirement to provide an annual report to stockholders would no
longer
apply to us.
|
·
|
We
could have less flexibility in attracting and retaining executives
and
employees because equity-based incentives are not as attractive in
a
non-SEC reporting company.
|
·
|
Stockholders
who are cashed out would not have an opportunity to liquidate their
shares
at a time and for a price of their choosing and could be unable to
participate in our future earnings or growth unless they were able
to
purchase our shares after the
transaction.
|
·
|
For
additional information on the disadvantages of the transaction, please
see
the section below entitled “Special Factors — Purpose and Reasons for the
Transaction.”
|
·
|
At
a meeting held on October 10, 2006, the non-purchasing directors
unanimously recommended, and the full board of directors determined,
with
William T. Comfort III abstaining, that the transaction and the cash
consideration of $2.10 for each share of common stock held before
the
reverse split that would be converted into the right to receive cash
under
the terms of the transaction (the “cash consideration”), are advisable,
substantively and procedurally fair to and in the best interests
of the
Company and all holders of shares of common stock, including all
unaffiliated stockholders (both those receiving the cash consideration
and
those remaining as stockholders following the transaction), and recommends
that you vote “FOR” the transaction. As used in this proxy statement, the
term “affiliated stockholder” means any stockholder who is one of our
directors or executive officers, and the term “unaffiliated stockholder”
means any stockholder other than an affiliated stockholder. The term
“executive officer” means any person named under the section entitled
“Directors and Executive Officers of the Company.” For a more detailed
discussion of these matters, please refer to the sections below entitled
“Special Factors — Recommendation of the Non-Purchasing Directors,”
“Special Factors — Recommendation of the Board of Directors” and “Special
Factors — Fairness of the
Transaction.”
|
·
|
For
a more detailed discussion of the factors considered by the board
of
directors related to the transaction’s effects on the unaffiliated
stockholders who would be cashed out in the transaction, please refer
to
the discussion concerning such factors contained in the below sections
entitled “Special Factors — Recommendation of the Non-Purchasing
Directors” and “Special Factors — Recommendation of the Board of
Directors.”
|
·
|
For
a more detailed discussion of the factors considered by the board
of
directors related to the transaction’s effects on the unaffiliated
stockholders who would remain following the transaction, please refer
to
the discussion concerning such factors contained in the below sections
entitled “Special Factors — Recommendation of the Non-Purchasing
Directors” and “Special Factors — Recommendation of the Board of
Directors.”
|
·
|
As
described above under “Recommendation of the Board of Directors,” the
Company’s board believes that the transaction is procedurally and
substantively fair to all unaffiliated holders of common stock,
including
both the unaffiliated stockholders who will receive cash for their
shares
of common stock in the transaction and those who will continue
to be
stockholders following the transaction. In addition, Mr. Comfort
has
determined that the transaction is procedurally and substantively
fair to
the unaffiliated stockholders of the Company. For a more detailed
discussion of these matters, please refer to the section below
entitled
“Special Factors — Fairness of the
Transaction.”
|
·
|
Slusser
Associates, Inc. (“Slusser Associates” or, the “financial advisor”),
financial advisor to the non-purchasing directors and the full board
of
directors, has delivered to the non-purchasing directors and the
full
board of directors its written opinion to the effect that, as of
the date
of such opinion and based upon and subject to the matters stated
in the
opinion, the cash consideration of $2.10 per share payable to holders
who
would be cashed out by the transaction was fair from a financial
point of
view to those stockholders being cashed out in the transaction. The
non-purchasing directors, not Slusser Associates, determined the
amount to
be paid to the holders who would be cashed out in the transaction
on
behalf of the Company. In acting as financial advisor to the
non-purchasing directors and the full board, Slusser Associates was
not
acting as an advisor to Mr. Comfort in his individual
capacity.
|
·
|
The
opinion of Slusser Associates is directed to the non-purchasing directors
and the full board of directors, addresses only the fairness to holders
of
the common stock from a financial point of view of the cash consideration
to be paid in the transaction, and does not constitute a recommendation
to
any stockholder as to how such stockholder should vote at the Special
Meeting.
|
·
|
For
additional information on Slusser Associates’ financial opinion, please
refer to the section below entitled “Special Factors — Opinion of the
Financial Advisor.”
|
·
|
Completion
of the transaction depends upon the approval of the holders of a
majority
of the issued and outstanding shares of common stock for the proposed
amendments to our Certificate of Incorporation and the board’s
determination to implement the transaction. Copies of the proposed
certificates of amendment affecting the reverse stock split and the
forward stock split following immediately thereafter are attached
as
Appendix A and Appendix B to this proxy statement,
respectively.
|
·
|
The
board of directors has reserved the right to defer or abandon (and
not
implement) the transaction, even if the stockholders have approved
and
authorized the transaction and without further action or authorization
by
the stockholders, if the board determines at any time prior to the
transaction’s consummation that the transaction is not then in the best
interests of the Company and our stockholders. The board has reserved
this
right to ensure that it may abandon the transaction in the event that
currently unforeseen changes in circumstances (for example, a change
in
the estimated number of shares that would be converted into the right
to
receive cash in the transaction in excess of 119,047 shares (the
maximum
amount Mr. Comfort has committed to purchase), together with the
board’s
determination that the Company will be unsuccessful in finding another
purchaser of the excess shares) cause the transaction to no longer
be in
the best interests of the Company and our stockholders. Currently,
no such
changes in circumstances are expected and the board intends to implement
the transaction if it is approved by the
stockholders.
|
·
|
If
the transaction is approved but is not consummated by 5:00 p.m. Eastern
Time on the sixtieth
business day following the special meeting, which is
,
2007,
the stockholders’ authorization of the transaction will
terminate.
|
·
|
For
other conditions to the completion of the transaction, please refer
to the
sections below entitled “Special Factors — Conditions to the Completion of
the Transaction” and “Special Factors — Reservation of
Rights.”
|
·
|
Only
one of our members of our board of directors or executive officers,
Mr.
Comfort, holds 200 or more shares of common stock and would retain
such
shares after the transaction.
|
·
|
Charles
E. Finelli, our chief executive officer, and Robin P. Dummett, a
director,
hold stock options representing the right to purchase 200 or more
shares
of common stock, and would retain such options after the
transaction.
|
·
|
As
a result of his purchase of fractional shares resulting from the
transaction, William T. Comfort III would slightly increase his percentage
ownership of common stock. Mr. Comfort agreed to purchase the fractional
shares because the certificate of designation of the Company’s preferred
stock prevents the Company from purchasing the fractional shares
from the
cashed out stockholders without obtaining the approval of the holders
of a
majority of the outstanding preferred stock. Assuming the transaction
is
approved and implemented, the common stock beneficial ownership percentage
of William T. Comfort III is expected to increase from approximately
6.1%
to approximately 6.2% (and a maximum of 8.1%) as a result of the
purchase
of the fractional shares resulting after the transaction. Please
see the
section below entitled “Treatment of Shares Held in “Street Name”.”
|
·
|
If
your shares are held in a stock brokerage account or by a bank or
other
nominee, you are considered the beneficial owner of shares held in
“street
name” with respect to those shares, and the proxy materials are being
forwarded to you by your broker or other nominee. Under Delaware
law, as a
beneficial owner you would not be considered the stockholder of record
for
any such shares. The proposed charter amendments would operate only
at the
record holder level. As a result, beneficial holders who held less
than
200 shares of common stock in street name immediately before the
reverse
stock split would not have their shares converted into the right
to
receive cash in the transaction. However, beneficial owners who hold
less
than 200 shares of common stock in street name may ensure that such
shares
would be subject to the transaction by working through your broker
or
other nominee to have such shares taken out of street name and registered
directly in your name prior to the effective time of the reverse
stock
split. Please see the sections below entitled “Questions and Answers,”
“The Special Meeting — Who Can Vote at the Special Meeting” and “The
Proposed Amendments — Exchange of Certificates; Payment of Cash
Consideration” for further information as to treatment of shares held in
street name.
|
·
|
Pending
surrender, all certificates representing shares of common stock that,
under the terms of the transaction, would be converted into the right
to
receive cash, would represent only the right to receive the cash
consideration after the transaction upon surrender of such certificates
to
American Stock Transfer & Trust Company, our transfer agent and the
exchange agent for purposes of this transaction (the “Transfer
Agent”).
|
·
|
Pursuant
to the terms of that certain Purchase and Sale Agreement, dated October
16, 2006, between William T. Comfort III, a stockholder and director
of
the Company, and the Company, a form of which is attached hereto
as
Appendix D (the “Fractional Share Purchase Agreement”), Mr. Comfort would
purchase, immediately following the effectiveness of the reverse
stock
split, the fractional shares resulting from the transaction up to
a
maximum of 119,047 shares. Once the Company receives the information
regarding the total number of shares to be aggregated and purchased
in the
transaction from the Transfer Agent, it would deliver a notice to
Mr.
Comfort requesting payment for such shares up to a maximum of 119,047
shares at a price of $2.10 per pre-split share. Mr. Comfort would
then pay
all amounts due and payable for such shares to an account of the
Transfer
Agent within 24 hours of his receipt of such notice from the Company.
If
in any event the number of shares to be purchased in the transaction
exceeds 119,047, the Company may arrange for the purchase of any
excess
shares by a third party, which may include employees of the Company
and
its subsidiaries other than the non-purchasing
directors.
|
·
|
Promptly
after the transaction, the Transfer Agent, acting as an exchange
agent,
would send a letter of transmittal and instructions to effect the
surrender of certificates for common stock to all stockholders who
were,
immediately prior to the effective time of the transaction, holders
of
record of fewer than 200 shares of common stock in the aggregate
(after
aggregating all common stock certificates held by such record
holder).
|
·
|
Upon
surrender of any certificates for cancellation to the Transfer Agent,
together with a letter of transmittal duly completed and executed
and
containing the certification that you hold fewer than 200 shares
of common
stock in the aggregate (after aggregating all common stock certificates
held by such record holder), the Transfer Agent would forward to
you a
cash payment payable with respect to the shares formerly represented
by
such certificates.
|
·
|
If
any stockholder is entitled to receive cash in the transaction for
his,
her or its fractional shares and does not return the proper documentation
to the Transfer Agent within one year following the effectiveness
of the
transaction, the Transfer Agent would transfer all remaining funds
to a
designated account set up by the Company for the purpose of forwarding
payment from Mr. Comfort for the fractional shares purchased by him
to any
remaining stockholders whose shares have been converted into the
right to
receive cash in the transaction.
|
·
|
The
unclaimed property and escheat laws of each state provide that, under
circumstances defined in that state's statutes, holders of unclaimed
or
abandoned property must surrender that property to the state. Persons
whose shares are converted into the right to receive cash and whose
addresses are unknown to the Company, or who do not return their
common
stock certificate(s) and request payment therefor, generally will
have a
period of years (depending on applicable state law) from the effective
date of the transaction in which to claim the cash payment payable
to
them. Following the expiration of that period, the escheat laws of
states
of residence of stockholders, as shown by the records of the Company,
generally provide for such state to obtain either (i) custodial possession
of property that has been unclaimed until the owner reclaims it or
(ii)
escheat of such property to the state. If the Company does not have
an
address for the holder of record of the shares, then unclaimed cash-out
payments, without interest, would be turned over to the Company’s state of
incorporation, the state of Delaware, in accordance with its escheat
laws.
|
·
|
For
additional information on the exchange of certificates and payment
of the
cash consideration, please refer to the section below entitled “The
Proposed Amendments - Exchange of Certificates; Payment of Cash
Consideration.”
|
·
|
Stockholders
who receive cash for fractional share interests should be treated
for
federal income tax purposes in the same manner as if the shares were
sold
in the market for cash. Stockholders who would remain stockholders
following the transaction and do not receive cash for fractional
share
interests should not be subject to taxation as a result of the
transaction. Tax matters are very complicated, and the tax consequences
to
you of the transaction, including state, local and foreign tax
consequences, if applicable, will depend on your own situation.
|
·
|
For
further discussion of U.S. Federal Income Tax consequences, please
refer
to the section below entitled “Special Factors — U.S. Federal Income Tax
Consequences.”
|
Q:
|
Who
may be present at the Special Meeting and who may
vote?
|
A:
|
All
holders of common stock may attend the Special Meeting in person.
Only
holders of record of common stock as of , 2006 may cast their votes
in
person at the Special Meeting. If you are a beneficial owner of common
stock held by a broker, bank or other nominee (i.e., in “street name”),
you will need proof of ownership to be admitted to the Special Meeting.
A
recent brokerage statement or letter from a bank or broker are examples
of
proof of ownership.
|
Q:
|
What
shares can I vote?
|
A:
|
You
may vote all shares of common stock that you own as of the close
of
business on the record date, which was , 2006. These shares include
shares
held (i) directly in your name as the “stockholder of record,” and (ii)
for you as the “beneficial owner” either through a broker, bank or other
nominee.
|
Q:
|
How
many votes are required for the proposals to be
approved?
|
A:
|
For
the proposed transaction to be approved, holders of a majority of
the
outstanding shares of common stock must vote “FOR” the
transaction.
|
A:
|
Whether
you hold your shares directly as a stockholder of record or beneficially
in street name, you may direct your vote without attending the Special
Meeting. You may vote by signing a proxy card for shares which you
own or,
for shares held in street name, by following the voting instructions
provided by your broker, bank or other
nominee.
|
Q:
|
How
are my votes counted?
|
A:
|
You
may vote “FOR,” “AGAINST” or “ABSTAIN” on the transaction and on
authorization to adjourn the Special Meeting. If you “ABSTAIN” on the
transaction, it has the same effect as a vote “AGAINST” the transaction.
If you provide specific voting instructions, your shares will be
voted as
you instruct. If you hold your shares of record and sign and return
a
proxy card, but do not provide instructions, your shares represented
by
such proxy card will be voted “FOR” the approval of the transaction and
“FOR” authorization to adjourn the Special Meeting. Your failing to return
a signed proxy card with respect to shares registered in your name
or to
attend the Special Meeting to vote any such shares or to provide
instructions to your broker or other nominee for shares held in street
name will have the same effect as voting such shares “AGAINST” the
transaction.
|
Q:
|
What
is the difference between holding shares as a stockholder of record
and as
a beneficial owner?
|
A:
|
Many
of our stockholders hold their shares through a broker, bank or other
nominee rather than directly in their own name. As summarized below,
there
are important distinctions between shares held of record and those
owned
beneficially.
|
Q:
|
If
I am a beneficial owner and hold shares in street name, will these
shares
be subject to the terms of the
proposal?
|
A:
|
Beneficial
owners of shares held in street name will not have their shares affected
by this proposal. Under Delaware law, beneficial owners are not considered
the stockholder of record of shares held in street name. The proposed
charter amendments would operate only at the record holder level.
As a
result, beneficial holders who held less than 200 shares of common
stock
in street name immediately before the reverse stock split would not
have
their shares converted into the right to receive cash in the transaction.
However, beneficial owners who hold less than 200 shares of common
stock
in street name prior to the effective time of the reverse stock split
may
ensure that such shares would be subject to the transaction by working
through your broker or other nominee to have such shares taken out
of
street name and registered directly in your
name.
|
Q:
|
What
happens if I own a total of 200 or more shares beneficially, but
I hold
fewer than 200 shares of record in my name and fewer than 200 shares
in
“street name” with my broker or other
nominee?
|
A:
|
An
example of this would be if you have 100 shares registered in your
own
name with our Transfer Agent, and you have 100 shares held through
your
broker in “street name.” Accordingly, you would be the beneficial owner of
200 shares, but you would not own 200 shares either of record or
beneficially in street name. If this is the case, as a result of
the
transaction, you would receive cash for the 100 shares you hold of
record
and would retain the 100 shares held in street
name.
|
Q:
|
If
I own of record fewer than 200 shares, is there any way I can continue
to
be a stockholder after the
transaction?
|
A:
|
If
you hold of record fewer than 200 shares in the aggregate (after
aggregating all common stock certificates held by such record holder)
immediately before the reverse stock split, such shares would be
converted
into the right to receive cash in the transaction unless prior to
the
effective time of the transaction you cause sufficient additional
shares
to be registered in your name to cause you to hold of record a minimum
of
200 shares in the aggregate (after aggregating all common stock
certificates held by such record holder) at the effective time or
you
transfer such shares into street name. To cause additional shares
to be
registered in your name you may acquire shares directly in your name
(and
not through a broker or nominee) or you could work with your broker
or
nominee to cause shares you purchase or otherwise hold in street
name to
be registered in your name. In order to transfer your shares held
of
record into street name, you should work with your broker or nominee
to
determine the proper steps to be taken. Additionally, even if your
shares
are converted into the right to receive cash in the transaction,
you
should be able to become a stockholder following the transaction
by
purchasing shares following the transaction in the over-the-counter
market
or a private transaction. We cannot assure you, however, that any
shares
will be available for purchase or exactly when the effective time
might
occur.
|
Q:
|
Is
there anything I can do if I own 200 or more shares of record but
would
like to take advantage of the opportunity to receive cash for my
shares as
a result of the
transaction?
|
A:
|
If
you own 200 or more shares of record in the aggregate (after aggregating
all common stock certificates held by such record holder) before
the
transaction, you can only receive cash for such shares if, prior
to the
effective time of the transaction, you reduce your ownership of such
shares to fewer than 200 by selling or otherwise transferring such
shares.
We cannot assure you, however, that any purchaser for your shares
will be
available or when the effective time might
occur.
|
Q:
|
Should
I send in my stock certificates
now?
|
A:
|
No.
After the transaction has been completed, the Transfer Agent, acting
as
exchange agent, will send instructions on how to receive any cash
payments
you may be entitled to receive. The Transfer Agent will send such
instructions and remit such cash payments promptly following the
effective
time. No interest will accrue and no interest will be paid on any
cash
payments.
|
·
|
Eliminating
the costs associated with filing reports and documents with the SEC
under
the Exchange Act;
|
·
|
Eliminating
the costs of compliance with the Sarbanes-Oxley Act of 2002, including
the
one-time initial cost of compliance with Section 404, and related
regulations;
|
·
|
Eliminating
the time and effort required of management regarding the implementation
of
Section 404 compliant internal controls and other reporting requirements;
and
|
·
|
Affording
stockholders of record holding fewer than 200 shares of common stock
in
the aggregate (after aggregating all common stock certificates held
by
such record holder) immediately before the transaction the opportunity
to
receive cash for such shares at a price that represents a premium
of more
than 200% over the pre-announcement trading price, without having to pay
brokerage commissions and other transaction
costs.
|
·
|
Annual
Reports on Form 10-K;
|
·
|
Quarterly
Reports on Form 10-Q;
|
·
|
Proxy
statements and annual reports required by Regulation 14A under the
Exchange Act; and
|
·
|
Current
Reports on Form 8-K.
|
Areas
of Cost Reduction or Elimination
|
2007
|
2008
|
2009
|
||||||||
Reduction
of Independent Auditors’ Fees
|
$
|
855,000
|
$
|
855,000
|
$
|
855,000
|
|||||
Elimination
of Costs of Compliance with Section 404 of Sarbanes-Oxley
Act
|
$
|
730,000
|
$
|
745,000
|
$
|
560,000
|
|||||
Elimination
of Legal Costs Attributable to SEC Reporting
|
$
|
40,000
|
$
|
40,000
|
$
|
40,000
|
|||||
Reduction
of Transfer Agent, Printing and Mailing Costs
|
$
|
15,000
|
$
|
15,000
|
$
|
15,000
|
|||||
Cost
of Consultants in the United Kingdom with U.S. GAAP
experience
|
$
|
320,000
|
$
|
320,000
|
$
|
320,000
|
|||||
Total
|
$
|
1,960,000
|
$
|
1,975,000
|
$
|
1,790,000
|
|||||
·
|
We
would have less ability to raise capital in the public security markets,
although we have not done this in many
years.
|
·
|
Remaining
stockholders could experience reduced liquidity for their shares
of common
stock.
|
·
|
As
a result of being quoted only in the “pink sheets” instead of being quoted
on the NASD OTC Bulletin Board, listed on a national securities exchange
or quoted on an interdealer quotation system like the Nasdaq Stock
Market,
the common stock could experience pricing volatility, including the
possibility of sharply reduced trading
prices.
|
·
|
As
a result of being quoted only in the “pink sheets” instead of being quoted
on the NASD OTC Bulletin Board, listed on a national securities exchange
or quoted on an interdealer quotation system like the Nasdaq Stock
Market,
it is possible that there could be greater spreads between the bid
and
asked prices for the common stock.
|
·
|
We
would no longer be subject to certain federal securities laws, including
certain provisions of the Exchange Act and the Sarbanes-Oxley Act
of 2002,
as a result of which:
|
·
|
We
would no longer be required to make filings, such as quarterly reports
on
Form 10-Q and annual reports on Form 10-K, with the SEC and our officers
would no longer be required to make certifications with respect to
our
financial statements;
|
·
|
Certain
liability provisions of the Exchange Act would no longer apply to
us;
|
·
|
Subject
to a 90 day waiting period, the short-swing profit recovery provisions
of
Section 16(b) of the Exchange Act would no longer apply to our officers,
directors, and 10% stockholders and such persons would no longer
be
required to file beneficial ownership reports under Section
16(a);
|
·
|
The
Exchange Act’s proxy statement disclosure rules and the related
requirement to provide an annual report to stockholders would no
longer
apply to us; and
|
·
|
We
would lose the ability to have an S-8 on file for any compensation
plans,
making the issuance of securities to unaccredited individuals more
difficult in the future.
|
·
|
We
could have less flexibility in attracting and retaining executives
and
employees because equity-based incentives are not as attractive in
a
non-SEC reporting company.
|
·
|
Stockholders
who are cashed out would not have an opportunity to liquidate their
shares
at a time and for a price of their choosing, and could be unable
to
participate in our future earnings or growth unless they are able
to
purchase our shares after the
transaction.
|
·
|
Taking
No Action and Waiting for the Number of Stockholders to Drop Below
300.
The board considered waiting to see if the number of stockholders
would
decrease below 300 without taking any action. However, the number
of
stockholders of the Company has not changed much over the last few
months.
In addition, even if the number of stockholders were to drop below
300,
the board determined that the risk was too great that the number
of
stockholders could spring back over 300 at any
time.
|
·
|
Cash
Tender Offer at Similar Price Per Share by the Company or an
Affiliate.
The board did not believe that a tender offer would necessarily result
in
the purchase of a sufficient number of shares to reduce the number
of
record holders of common stock to fewer than 300 because many stockholders
with a small number of shares might not make the effort to tender
their
shares and the cost of completing the tender offer could be significant
in
relation to the value of the shares that are sought to be purchased.
Alternatively, if most of the holders of common stock tendered their
shares, we would be required to purchase shares from all tendering
stockholders, which would result in a substantially greater cash
amount
necessary to complete the transaction, or in a proration of purchases
which would not reduce the number of record holders. Regardless,
a tender
offer would provide no guarantee that the number of record holders
of
common stock would ultimately be reduced to fewer than 300, especially
considering the tender offer rules requiring offerors to purchase
stock
pro-rata from all tendering stockholders in the event of an over
subscription. In addition, the Company cannot repurchase common stock
without first obtaining the approval of the holders of a majority
of our
outstanding preferred stock. Also, depending on the amount of shares
tendered, a tender offer may result in a change of control, thereby
limiting the availability of the Company to use its past net operating
losses.
|
·
|
Cash-Out
Merger.
The board considered and rejected this alternative because the proposed
transaction would be more simple and cost-effective than a cash out
merger. In addition, the board feels that it is in the best interest
of
the Company and its stockholders to allow the current stockholders
and
management to work to grow the business, especially considering the
recent
acquisition of Nexus Media. In addition, costs for this type of
transaction would be higher because the Company would need to actively
seek a buyer. The board also rejected this alternative because the
use of
the Company’s net operating losses would be
limited.
|
·
|
Purchase
of Shares in the Open Market.
The board rejected this alternative because it concluded it was unlikely
that we could acquire shares from a sufficient number of record holders
to
accomplish the board’s objectives in large part because we would not be
able to dictate that open share purchases only be from record holders
selling all of their shares. In addition, the Company cannot repurchase
common stock without first obtaining the approval of the holders
of a
majority of our outstanding preferred stock. Also, the Company would
still
have to go through the process of filing a Schedule 13e-3 filing
with the
SEC, so the costs would be approximately the
same.
|
·
|
Reverse
Stock Split Without a Forward Stock Split.
This alternative would accomplish the objective of reducing the number
of
record holders of common stock below the 300 threshold, assuming
approval
of the reverse stock split by our stockholders. In a reverse stock
split
without a subsequent forward stock split, payment would have to be
made
for the interests of the cashed out stockholders, as well as the
fractional share interests of those stockholders who are not cashed
out
(as compared to the proposed transaction in which only those stockholders
whose shares are converted to less than one whole share after the
reverse
stock split would have their shares converted into the right to receive
cash; and all fractional interests held by stockholders holding more
than
one whole share after the reverse stock split would be reconverted
to
whole shares in the forward stock split). Thus, the board, and William
T.
Comfort III, individually, rejected this alternative due to the higher
cost involved of conducting a reverse stock split without a forward
stock
split.
|
·
|
Current
and Historical Prices of the Company’s Common Stock.
The non-purchasing directors considered both the historical market
prices
and recent trading activity and current market prices of the common
stock.
The non-purchasing directors reviewed the high and low sales prices
from
October 1, 2003 to October 1, 2006 for the shares, which ranged from
$0.57
to $3.25 per share. The last sales price of the common stock on October
13, 2006, the last trading day before we announced the transaction,
was
$0.70 per share.
|
·
|
Going
Concern Value.
In determining the cash amount to be paid by William T. Comfort III
to
cashed out stockholders for their fractional shares in the transaction,
the non-purchasing directors considered the valuation of the Company
and
the common stock on the basis of a going concern as presented to
the
non-purchasing directors by Slusser Associates, without giving effect
to
any anticipated effects of the
transaction.
|
·
|
Liquidation
Value.
In determining the cash amount to be paid by William T. Comfort III
to
cashed out stockholders for their fractional shares in the transaction,
the non-purchasing directors did not consider, and did not request
its
financial advisor to evaluate, the Company’s liquidation value. The
non-purchasing directors did not view the Company’s liquidation value to
be a relevant measure of valuation given its view that the Company’s going
concern value significantly exceeded its liquidation value based
on the
net realizable value of the Company’s assets in liquidation taking into
account their age and condition and limited marketability in a liquidation
sale and the significant expenses that would be incurred in liquidating
the Company’s assets, compared to the value of the earnings the Company
expects to earn in its operations using such assets.
|
·
|
Net
Book Value.
As of June 30, 2006, the net book value per share of common stock
was
$3.41. The non-purchasing directors noted that book value per common
share
is an historical accounting value that does not include the additional
preferred stock liquidation value of $9,052,601 as of June 30, 2006.
If
this liability was included in the calculation of net book value,
it would
have the effect of reducing the book value per share to $1.85. The
non-purchasing directors also noted that the book value per common
share
may be more or less than the net market value of our assets after
payment
of our liabilities, and a liquidation would not necessarily produce
a
higher than book value per common share. Accordingly, the non-purchasing
directors believe the book value per common share supports their
determination that the transaction is fair to stockholders who would
be
cashed out by the transaction.
|
·
|
Opinion
of Slusser Associates.
The non-purchasing directors considered the opinion of Slusser Associates
rendered and delivered to the non-purchasing directors and the full
board
of directors on October 10, 2006, to the effect that, as of the date
of
such opinion and based upon and subject to certain matters stated
therein,
the cash consideration of $2.10 per share payable to holders who
would be
cashed out by the transaction was fair from a financial point of
view to
those stockholders being cashed out in the transaction. For more
information about the opinion you should read the discussion below
under
“Special Factors — Opinion of the Financial
Advisor.”
|
·
|
Limited
Liquidity for the Company’s Common Stock.
The non-purchasing directors recognized the lack of an active trading
market and the very limited liquidity of the common stock. With respect
to
the stockholders who would be cashed out in the transaction, the
non-purchasing directors recognized that this transaction presents
such
stockholders an opportunity to liquidate their holdings at a price
which
represented a premium to the pre-announcement market value, without
incurring brokerage costs.
|
·
|
Procedural
Fairness.
In considering the procedural fairness of the transaction to the
unaffiliated stockholders who would be cashed out in the transaction,
the
non-purchasing directors considered the fact that the transaction
is not
structured so that approval of at least a majority of unaffiliated
stockholders is required as well as the fact that no unaffiliated
stockholder representative was retained to act solely on behalf of
the
unaffiliated stockholders in the transaction to negotiate the terms
or
prepare a report on behalf of the unaffiliated stockholders. The
non-purchasing directors believe that the transaction is procedurally
fair
because, among other things:
|
·
|
The
transaction has been approved by the non-purchasing
directors;
|
·
|
The
transaction is being effected in accordance with the applicable
requirements of Delaware law;
|
·
|
In
accordance with the applicable requirements of Company’s certificate of
incorporation and Delaware law, the transaction is being submitted
to a
vote of the stockholders and is subject to approval of holders of
a
majority of the outstanding shares of common
stock;
|
·
|
Stockholders
can increase, divide or otherwise adjust their existing holdings,
before
the effective time of the transaction, so as either to retain some
or all
of their shares or to be cashed out with respect to some or all of
their
shares; and
|
·
|
Stockholders
who would be cashed out in the transaction but who desire to continue
to
be investors in the Company would likely have the opportunity to
use the
proceeds received in the transaction to acquire shares of common
stock in
the over-the-counter markets.
|
·
|
Future
Cost Savings.
The non-purchasing directors considered that unaffiliated stockholders
remaining after the transaction will benefit from the reduction of
direct
and indirect costs borne by us to maintain our status as an SEC reporting
company. Such reduction will include, but not be limited to, the
elimination of costs that would otherwise be required to comply with
the
additional requirements of SEC reporting companies imposed by the
Sarbanes-Oxley Act of 2002 and related SEC and NASD OTC Bulletin
Board
regulations and the time and attention currently required of management
to
fulfill such requirements. In addition, the non-purchasing directors
considered management’s estimates that if the Company remains an SEC
reporting company and is unsuccessful in increasing its revenues
and
decreasing its operating expenses in the future, its expenses would
exceed
its revenues and its cash reserves would be depleted by the end of
2009.
For a full discussion of the cost savings, see “Special Factors — Purpose
and Reasons for the Transaction.”
|
·
|
Limited
Liquidity for the Company’s Common Stock.
The non-purchasing directors recognized the lack of an active trading
market and the very limited liquidity of the common stock. With respect
to
the unaffiliated stockholders who will remain stockholders after
the
transaction, the non-purchasing directors noted that the effect of
this
transaction on their liquidity is mitigated by the limited liquidity
they
currently experience and that shares of common stock will likely
be quoted
on the “pink sheets.”
|
·
|
Same
Effects on Both Affiliated and Unaffiliated Stockholders.
The non-purchasing directors considered the fact that the effects
of the
transaction on the unaffiliated stockholders who would remain following
the transaction would be identical to the effects of the transaction
on
the affiliated stockholders who would remain following the
transaction.
|
·
|
Procedural
Fairness.
In considering the procedural fairness of the transaction to the
unaffiliated stockholders who would remain following the transaction,
the
non-purchasing directors considered all the same factors it considered
with respect to the procedural fairness of the transaction to the
unaffiliated stockholders who would be cashed out in the transaction
as
well as the fact that the effects of the transaction on such stockholders
would be identical to the effects of the transaction on the affiliated
stockholders who would remain following the
transaction.
|
·
|
reviewed
the Proxy Statement;
|
·
|
reviewed
and analyzed current and historical market prices and trading activity
of
the common stock of the Company and certain other relevant historical
information relating to the Company made available to it from published
sources and from the internal records of the
Company;
|
·
|
compared
certain financial information for the Company with similar information
for
certain other publicly traded companies, as described
below;
|
·
|
reviewed
the principal financial terms, to the extent publicly available,
of
selected precedent transactions that it deemed generally comparable
to the
transaction;
|
·
|
reviewed
and discussed the business prospects and financial outlook of the
Company
with representatives of the senior management of the Company; and
|
·
|
performed
such other financial studies, analyses and investigations as it deemed
appropriate.
|
·
|
Incisive
Media plc
|
·
|
Euromoney
Institutional Investor plc
|
·
|
Wilmington
Group plc
|
·
|
Centaur
Media plc
|
·
|
Tarsus
Group plc
|
·
|
the
financial information for the comparable companies and for us is
accurate
and reliable; and
|
·
|
economic,
market, financial and other conditions as they existed at the time
of the
analysis would continue to hold steady in the immediate
future.
|
Enterprise
Value as Multiple of
|
Average
multiple
|
Company
Financials
($000)
|
Implied
Enterprise
Value
($000)
|
Net
Long
Term
Obligations
($000)
|
Implied
Value
per
Share
|
|||||||||||
EBITDA
(estimated 2006)
|
11.2x
|
$
|
1,629
|
$
|
18,244
|
$
|
8,868
|
$
|
1.61
|
·
|
Reduction
in the Number of Stockholders.
We believe that the transaction will reduce the number of record
stockholders of shares, from approximately 315 to approximately
195.
|
·
|
Termination
of Exchange Act Registration.
The common stock is currently registered under the Exchange Act.
To
terminate this registration, we plan to file a Form 15 with the SEC
following the transaction if our common stock is no longer held by
300 or
more stockholders of record of common stock. Terminating the common
stock’s registration under the Exchange Act would substantially reduce
the
information we are required to furnish to our stockholders and to
the SEC.
It would also make certain provisions of the Exchange Act, such as
the
short-swing profit recovery provisions of Section 16(b) of the Exchange
Act, Section 16(a) reporting for officers, directors, and 10%
stockholders, proxy statement disclosure in connection with stockholder
meetings, and the related requirement of an annual report to stockholders,
no longer applicable after a 90 day waiting period. We intend to
file to
affect such termination as soon as practicable following completion
of the
transaction.
|
·
|
Effect
on Market for Common Stock.
The common stock is currently quoted on the NASD OTC Bulletin Board.
After
implementing the transaction, the common stock would be ineligible
for
quotation on the NASD DTC Bulletin Board, listing on a national securities
exchange or quotation on the Nasdaq Stock Market. The common stock’s
ineligibility for listing or quotation, together with the reduction
in
public information concerning us as a result of our no longer being
required to file reports under the Exchange Act, could reduce the
liquidity of the common stock, although we believe the common stock
will
continue to be quoted on the “pink sheets” and our remaining stockholders
will continue to be able to trade their shares in the over-the-counter
markets or private transactions. Deregistration could make it more
difficult for us to raise additional capital, use our stock as
consideration in business acquisitions, or provide equity-based
compensation to our executives and other
employees.
|
·
|
Financial
Effects of the Transaction.
We expect to use approximately $455,000 of cash to pay the transaction
costs in this transaction (excluding the cost to purchase the fractional
shares, which will be paid by William T. Comfort III, and if necessary,
another purchaser of the shares), and that this use of cash will
not have
any materially adverse effect on our liquidity, results of operation,
or
cash flow. We have sufficient cash and short term cash equivalents
to fund
the transaction and believe that such costs will be more than offset
by
anticipated cost savings. For further discussion of our financing
of the
transaction, please refer to the section below entitled “Special Factors —
Source of Funds and Financing of the
Transaction.”
|
·
|
Cashed
Out Stockholders.
Stockholders of record owning fewer than 200 shares of common stock
in the
aggregate (after aggregating all common stock certificates held by
such
record holder) immediately before the effective time of the transaction
will, upon consummation of the
transaction:
|
·
|
Be
entitled to receive cash consideration of $2.10 for each of share
of
common stock held immediately before the effective
time;
|
·
|
No
longer have an equity interest in us with respect to such shares;
and
|
·
|
Be
required to pay federal and, if applicable, state, local and foreign
income taxes on the cash amount received in the transaction or recognize
loss for tax purposes depending upon the purchase price of their
stock.
|
·
|
Remaining
Stockholders.
Potential effects on stockholders who remain as stockholders after
the
transaction include:
|
·
|
After
the expiration of a 90 day waiting period, the directors and executive
officers will no longer be subject to the reporting and short-swing
profit
provisions under the Exchange Act with respect to changes in their
beneficial ownership of common
stock.
|
·
|
The
liquidity of the shares of common stock held by stockholders may
be
further reduced by the transaction due to the expected termination
of the
registration of the common stock under the Exchange Act and its no
longer
being eligible for quotation on the NASD OTC Bulletin Board, listing
on a
national securities exchange or quotation on the Nasdaq Stock Market.
Any
trading in the common stock after the transaction will only occur
in the
over-the-counter markets or in privately negotiated sales, and the
common
stock will likely only be quoted in the “pink sheets.” There can be no
assurance of any market for the common stock after the
transaction.
|
DESCRIPTION
|
AMOUNT
|
||||
Advisory
fees and expenses
|
$
|
100,000
|
|||
Legal
fees and expenses
|
$
|
220,000
|
|||
Accounting
fees and expenses
|
$
|
90,000
|
|||
Printing
and mailing costs
|
$
|
10,000
|
|||
Proxy
Solicitation
|
$
|
15,000
|
|||
Transfer
Agent
|
$
|
20,000
|
|||
Total
|
$
|
455,000
|
|||
·
|
A
citizen or resident of the United
States;
|
·
|
A
corporation or an entity taxable as a corporation created or organized
under U.S. law (federal or state);
|
·
|
An
estate the income of which is subject to U.S. income taxation regardless
of its sources;
|
·
|
A
trust if a U.S. court is able to exercise primary supervision over
the
administration of the trust and one or more U.S. persons have authority
to
control all substantial decisions of the trust;
or
|
·
|
Any
other person whose worldwide income and gain is otherwise subject
to U.S.
income taxation on a net basis.
|
·
|
Approve
amendments to the Company’s Certificate of Incorporation to effect a
1-for-200 reverse stock split of the Company’s issued common stock,
including any common stock held in treasury, immediately followed
by a
200-for-1 forward stock split of the Company’s then issued common stock,
including any common stock held in treasury, with stockholders of
record
holding less than 200 shares of common stock in the aggregate (after
aggregating all common stock certificates held by such record holder)
before the reverse stock split having their resulting fractional
share
interests aggregated and converted into the right to receive $2.10
in cash
for each such share owned before the reverse stock split in a sale
of the
fractional shares to William T. Comfort III, a stockholder and director
of
the Company (the “transaction”);
|
·
|
Authorize
the adjournment of the Special Meeting to a later date, if in the
discretion of the board of directors such adjournment is necessary
to
allow additional time to solicit sufficient proxies to obtain stockholder
approval of the transaction; and
|
·
|
Transact
such other business as may properly come before the Special Meeting
or any
adjournment thereof.
|
ERGO
SCIENCE CORPORATION
|
|||||||||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||||||||
|
Successor
|
Predecessor
|
|||||||||||||
Ergo
Science Corporation consolidated
|
Nexus
Media
|
|||||||||||||
As
of
|
As
of
|
As
of
|
As
of
|
|||||||||||
September
30, 2006
|
December
31, 2005
|
September
30, 2005
|
December
31, 2004
|
|||||||||||
Current
assets
|
$
|
13,131,818
|
$
|
13,656,101
|
$
|
14,965,913
|
$
|
11,157,993
|
||||||
Non
current assets
|
18,937,272
|
18,435,779
|
21,178,792
|
78,783,690
|
||||||||||
Total
assets
|
$
|
32,069,090
|
$
|
32,091,880
|
$
|
36,144,705
|
$
|
89,941,683
|
||||||
Current
liabilities
|
$
|
11,608,624
|
$
|
10,610,652
|
$
|
11,917,772
|
$
|
14,417,553
|
||||||
Non
current liabilities
|
0
|
0
|
0
|
32,035,520
|
||||||||||
Total
liabilities
|
11,608,624
|
10,610,652
|
11,917,772
|
46,453,073
|
||||||||||
Stockholders’
equity
|
20,460,466
|
21,481,228
|
24,226,933
|
43,488,610
|
||||||||||
Total
liabilities and stockholders' equity
|
$
|
32,069,090
|
$
|
32,091,880
|
$
|
36,144,705
|
$
|
89,941,683
|
||||||
Working
capital/(deficit)
|
$
|
1,523,194
|
$
|
3,045,449
|
$
|
3,048,141
|
$
|
(3,112,028
|
)
|
|||||
Book
value per share
|
$
|
3.52
|
$
|
3.69
|
||||||||||
Weighted
average common shares outstanding
|
5,813,856
|
5,813,856
|
Note |
The
book value per share does not include the additional preferred stock
liquidation liability This amount was $9,251,004 and $8,663,500 at
September 30, 2006 and at December 31,2005. If this liability was
included
in the above calculation it would have the effect of reducing the
book
value per share to $1.93 and $2.20 for the same dates.
|
ERGO
SCIENCE CORPORATION
STATEMENT
OF OPERATIONS (SUMMARY)
|
Successor
|
Predecessor
|
|||||||||||||||||
Ergo
Science Corporation consolidated
|
Nexus
Media
|
|||||||||||||||||
Nine
months
ended
September
30, 2006
|
Six
months
ended
September
30, 2005
|
Nine
months
ended
December
31, 2005
|
Three
months
ended
March
31, 2005
|
Year
Ended
December
31, 2004
|
||||||||||||||
Net
revenues
|
$
|
22,767,600
|
$
|
19,366,713
|
$
|
28,399,449
|
$
|
6,584,877
|
36,947,862
|
|||||||||
Gross
profit
|
5,853,711
|
5,663,353
|
9,633,770
|
662,116
|
9,011,191
|
|||||||||||||
Net
(loss)/income
|
$
|
(2,915,559
|
)
|
$
|
(460,414
|
)
|
$
|
(2,633,878
|
)
|
$
|
(1,400,399
|
)
|
$
|
595,728
|
||||
Loss
per common share:
|
||||||||||||||||||
Basic
and Diluted
|
$
|
(0.50
|
)
|
$
|
(0.08
|
)
|
$
|
(0.45
|
)
|
|||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||||
Basic
and Diluted
|
5,813,856
|
5,813,856
|
5,813,856
|
|||||||||||||||
Net
income (loss) per common share is not calculated for the predecessor
periods since the predecessor did not comprise a stand alone entity.
Nexus
Media was a part of Highbury House prior to being acquired by Ergo
and
therefore had no outstanding shares of its own on which earnings
per share
could be calculated.
|
ERGO
SCIENCE CORPORATION
|
|||
FINANCIAL
INFORMATION OF ERGO SCIENCE CORPORATION
PRIOR
TO THE ACQUISITION OF NEXUS MEDIA
|
|||
Statement
of Operations (Summary)
|
|||
Three
months ended
|
||||
March
31, 2005
|
||||
Net
revenues
|
$
|
0
|
||
Gross
profit
|
$
|
0
|
||
Net
loss
|
$
|
154,984
|
||
Loss
per common share:
|
||||
Basic
and Diluted
|
$
|
0.03
|
||
Weighted
average common shares outstanding:
|
||||
Basic
and Diluted
|
5,813,856
|
|||
Condensed
Consolidated Balance Sheet
|
March
31,2005
|
||||
Current
assets
|
$
|
27,036,931
|
||
Non
current assets
|
0
|
|||
Total
assets
|
$
|
27,036,931
|
||
Current
liabilities
|
$
|
920,503
|
||
Non
current liabilities
|
0
|
|||
Total
liabilities
|
920,503
|
|||
Stockholders’
equity
|
26,116,428
|
|||
Total
liabilities and stockholders' equity
|
$
|
27,036,931
|
||
Working
capital
|
$
|
26,116,428
|
High
|
Low
|
||||||
2006
|
|||||||
First
Quarter
|
$
|
1.02
|
$
|
0.81
|
|||
Second
Quarter
|
0.88
|
0.65
|
|||||
Third
Quarter
|
0.90
|
0.61
|
|||||
2005
|
|||||||
First
Quarter
|
3.25
|
2.21
|
|||||
Second
Quarter
|
3.00
|
2.10
|
|||||
Third
Quarter
|
2.39
|
1.14
|
|||||
Fourth
Quarter (Ending December 31, 2005)
|
1.35
|
0.71
|
|||||
2004
|
|||||||
First
Quarter
|
2.65
|
1.95
|
|||||
Second
Quarter
|
2.80
|
2.10
|
|||||
Third
Quarter
|
2.30
|
1.95
|
|||||
Fourth
Quarter (Ending December 31, 2004)
|
2.47
|
1.97
|
·
|
A
certificate of amendment to our certificate of incorporation will
be filed
effecting the 1-for-200 reverse stock split, the form of which is
attached
to this proxy statement as Appendix A;
|
·
|
Our
stockholders of record holding fewer than 200 shares of common stock
in
the aggregate (after aggregating all common stock certificates held
by
such record holder) immediately before the effective time of the
reverse
stock split will have their shares aggregated and converted into
the right
to receive $2.10 in cash for each such share owned before the reverse
stock split;
|
·
|
William
T. Comfort III, and if the number of shares to be purchased exceeds
119,047 shares, the purchaser of such excess shares as arranged by
the
Company, will be deemed to have purchased the shares immediately
after the
effective time of the reverse stock split and will pay $2.10 in cash
for
each share owned before the reverse stock
split;
|
·
|
A
certificate of amendment to our certificate of incorporation will
be filed
effecting the 200-for-1 forward stock split, the form of which is
attached
to this proxy statement as Appendix
B;
|
·
|
All
outstanding shares of common stock, including those shares aggregated
and
sold to Mr. Comfort and any other purchaser, will remain outstanding
with
all rights, privileges, and powers existing immediately before the
transaction; and
|
·
|
All
shares of common stock held in treasury by the Company will continue
to be
held in treasury by the Company with all rights, privileges, and
powers
existing immediately before the
transaction.
|
·
|
make
such inquiries, whether of any stockholder(s) or otherwise, as we
may deem
appropriate for purposes of effecting the transaction;
and
|
·
|
resolve
and determine, in our sole discretion, all ambiguities, questions
of fact
and interpretive and other matters relating to such inquiries, including,
without limitation, any questions as to the number of shares held
by any
holder immediately before the effective time. All such determinations
by
us shall be final and binding on all parties, and no person or entity
shall have any recourse against us or any other person or entity
with
respect thereto.
|
·
|
presume
that any shares of common stock held in a discrete account of record
are
held by a person distinct from any other person, notwithstanding
that the
registered holder of a separate discrete account has the same or
a similar
name as the holder of a separate discrete account;
and
|
·
|
aggregate
the shares held of record by any person or persons that we determine
to
constitute a single holder for purposes of determining the number
of
shares held by such holder.
|
·
|
in
any case where the records of security holders have not been maintained
in
accordance with accepted practice, any additional person who would
be
identified as such an owner on such records if they had been maintained
in
accordance with accepted practice shall be included as a holder of
record;
|
·
|
securities
identified as held of record by a corporation, a partnership, a trust
(whether or not the trustees are named), or other organization shall
be
included as so held by one person;
|
·
|
securities
identified as held of record by one or more persons as trustees,
executors, guardians, custodians or in other fiduciary capacities
with
respect to a single trust, estate, or account shall be included as
held of
record by one person;
|
·
|
securities
held by two or more persons as co-owners shall be included as held
by one
person; and
|
·
|
securities
registered in substantially similar names where the issuer has reason
to
believe because of the address or other indications that such names
represent the same person, may be included as held of record by one
person.
|
·
|
each
person we know to be the beneficial owner of 5% or more of the outstanding
shares of Common Stock based on our review of filings made with the
Securities and Exchange Commission;
|
·
|
each
executive officer;
|
·
|
each
director; and
|
·
|
the
executive officers and the directors as a
group.
|
Shares
Beneficially Owned(2)
|
|||||||
Name
and Address of Beneficial Owner(1)
|
Number
|
Percent
|
|||||
Johnson
& Johnson Development Corporation
|
301,077
|
5.2
|
|||||
William
T. Comfort III
|
352,267
|
6.1
|
|||||
Charles
E. Finelli
|
5,000
|
(3) |
*
|
||||
Robin
P. Dummett
|
0
|
*
|
|||||
Ling
S. Kwok
|
0
|
*
|
|||||
All
directors and officers as a group (four persons)
|
357,267
|
(4) |
6.1
|
%
|
|||
Name
|
Age
|
Position
with the Company
|
Charles
E. Finelli(1)
|
42
|
President,
Chief Executive Officer, Secretary and Director
|
William
T. Comfort III(1)(2)
|
40
|
Director
|
Robin
P. Dummett(3)
|
35
|
Director
|
Ling
S. Kwok(3)
|
35
|
Director
and Vice President, Business
Development
|
FOR
|
AGAINST
|
ABSTAIN
|
¨
|
¨
|
¨
|
FOR
|
AGAINST
|
ABSTAIN
|
¨
|
¨
|
¨
|
(When
signing as attorney, executor, administrator, trustee, guardian,
etc. give
title as such. If a joint account, each joint owner should sign
personally.)
Date:
____________________, 2007
|
ERGO
SCIENCE CORPORATION
By:
Name:
Title:
|
ERGO
SCIENCE CORPORATION
By:
Name:
Title:
|