SHAREHOLDERS SHOULD NOT DESTROY ANY SHARE CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO. SHAREHOLDERS ARE ENCOURAGED TO PROMPTLY SURRENDER CERTIFICATES TO THE TRANSFER AGENT FOLLOWING RECEIPT OF TRANSMITTAL FORMS IN ORDER TO AVOID HAVING SHARES POSSIBLY BECOMING SUBJECT TO ESCHEAT LAWS.
Registered Book-Entry Holders of Common Shares (i.e., shareholders that are registered on the transfer agents books and records but do not hold share certificates)
Shareholders holding uncertificated shares (i.e., shares held in book-entry form and not represented by a physical share certificate) will have their holdings electronically adjusted automatically by the Companys transfer agent to give effect to the Reverse Stock Split, subject to adjustment for treatment of fractional shares.
Beneficial Holders of Common Shares (i.e., shareholders who hold in street name)
Common Shares held by shareholders through a bank, broker, custodian, or other nominee, will be treated by the Company in the same manner as registered shareholders whose Common Shares are registered in their names. However, only fractional Common Shares of registered shareholders will be rounded up to the next whole Common Share. Banks, brokers, custodians, or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding Common Shares in street name. However, these banks, brokers, custodians, or other nominees may have different procedures for processing the Reverse Stock Split and treating fractional shares. If a shareholder holds Common Shares with a bank, broker, custodian, or other nominee and has any questions in this regard, the shareholder is encouraged to contact his/her bank, broker, custodian, or other nominee.
Accounting Consequences
The Reverse Stock Split will not affect total shareholders equity on the Companys consolidated balance sheet. The Reverse Stock Split will increase the par value of the Common Shares from $0.001 to a range of $0.015 (if a 1-for-15 ratio is chosen) to $0.05 (if a 1-for-50 ratio is chosen), depending on the exact exchange ratio chosen by the Board in its sole discretion. Stated capital and additional paid-in capital will not change. The per share net income (loss) will be higher because there would be fewer Common Shares issued and outstanding. All historic share and per share amounts in the consolidated financial statements and related footnotes that the Company files with the SEC in the future will be adjusted accordingly for the Reverse Stock Split.
United States Federal Income Tax Consequences of the Reverse Stock Split
The following is a general discussion based upon present law of certain material United States federal income tax considerations related to the Reverse Stock Split to U.S. holders (as defined below) of Common Shares. Unless otherwise specifically indicated herein, this summary addresses the United States federal income tax consequences only to a beneficial owner of Common Shares that is: (i) a citizen or resident of the United States, (ii) a corporation (including an entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof (including the District of Columbia), (iii) an estate whose income is subject to United States federal income taxation, regardless of its source, or (iv) any trust if: (a) a United States court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) it has a valid election in place to be treated as a U.S. person (each, a U.S. holder). This summary does not address any state, local, or foreign income or other tax consequences, nor does it address all of the tax consequences, that may be relevant to any particular shareholder, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by shareholders. This summary also does not address the tax consequences to: (i) persons that may be subject to special treatment under United States federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that own or have owned directly, indirectly, or constructively, 10% or more of the total combined voting power or value of all of our outstanding shares, (iii) certain taxpayers who file applicable financial statements required to recognize income when the associated revenue is reflected in such financial statements, (iv) persons that hold Common Shares as part of a position in a straddle or as part of a hedging, conversion, or other integrated investment transaction for federal income tax purposes, or (v) persons that (a) do not hold Common Shares as capital assets (generally, property held for investment) and (b) use the U.S. dollar as their functional currency.