UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to
Section 14(a) of the
Securities Exchange Act of 1934
Filed by the
Registrant
x
Filed by a Party other than the Registrant
c
Check the appropriate
box:
x
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Preliminary Proxy Statement
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c
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Confidential, For Use of the Commission
Only (as permitted by Rule 14a
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6(e)(2))
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c
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Definitive Proxy Statement
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c
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Definitive Additional
Materials
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Soliciting Material Under Rule
14a
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12
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BOSS HOLDINGS, INC.
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(Name of Registrant as Specified In Its
Charter)
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(Name of Person(s)
Filing Proxy Statement, if Other Than the
Registrant)
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Payment of Filing Fee (Check the
appropriate box):
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x
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No fee required.
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c
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Fee computed on table below per Exchange
Act Rules 14a
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6(i)(4) and 0
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11.
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(1)
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Title of each class of securities to
which transaction applies:
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(2)
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Aggregate number of securities to which
transaction applies:
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(3)
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Per unit price or other underlying value
of transaction computed pursuant to Exchange Act Rule 0
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11 (set forth the amount on which the filing fee is calculated and
state how it was determined):
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c
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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c
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Fee paid previously with preliminary
materials:
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c
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Check box if
any part of the fee is offset as provided by Exchange Act Rule
0
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11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the date of
its filing.
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(1)
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Amount previously paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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Date Filed:
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BOSS HOLDINGS, INC.
1221 Page Street, Kewanee, Illinois
61443
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Be
Held _______________________, 2010
To the Stockholders:
NOTICE IS HEREBY GIVEN that an Annual Meeting
of Stockholders of Boss Holdings, Inc., a Delaware corporation (the
“
Company
”),
will be held at the Board Room of the Conference Center, 8235 Forsyth Blvd.,
Suite 801, St. Louis, Missouri, 63105 on ______________________, 2010, at 10:00
A.M. Central Standard Time (the “
Meeting
”)
for the following purposes:
1.
To consider and vote upon a proposal to amend the Company’s Certificate
of Incorporation, as amended to date (the “Certificate of Incorporation”), as
follows:
To effect a 1-for-100 reverse stock split (the
“
Reverse
Stock Split
”) of the
Company’s common stock, par value $0.25 per share (the “
Common
Stock
”), by amending the
Certificate of Incorporation, as further described in the accompanying proxy
statement, which, if approved, would enable the Company to cease its periodic
reporting obligations under the Securities Exchange Act of 1934, as amended, and
thereby forgo many of the expenses associated with operating as a public company
subject to Securities and Exchange Commission reporting obligations. A copy of
the proposed amendment to the Certificate of Incorporation for the Reverse Stock
Split is attached as
Annex
A
to the accompanying proxy
statement.
2.
To consider and vote upon a proposal to amend the Certificate of
Incorporation as follows:
To effect a 100-for-1 forward stock split the
“
Forward Stock Split
” and, together with the Reverse Stock Split, the “
Transaction
”) of the Common Stock immediately following the Reverse Stock Split of
the Common Stock, also by amending the Certificate of Incorporation, as further
described in the accompanying proxy statement. A copy of the proposed amendment
to the Certificate of Incorporation for the Forward Stock Split is attached as
Annex B
to the accompanying proxy statement.
As a result of these
proposed amendments, (a) each share of Common Stock held of record by a
stockholder owning fewer than 100 shares immediately prior to the effective time
of the Reverse Stock Split will be converted into the right to receive $7.65 in
cash (subject to any applicable U.S. federal, state and local withholding tax),
without interest, per pre-split share, and (b) each share of Common Stock held
by a stockholder of record owning 100 shares or more immediately prior to the
effective time of the Reverse Stock Split will continue to represent one share
of Common Stock after completion of the Transaction. Although both the Reverse
Stock Split and the Forward Stock Split will be voted on separately, the Company
will not effect either the Reverse Stock Split or the Forward Stock Split unless
both are approved by the Company’s stockholders.
3.
To elect five directors of the Company, each to serve until the next
Annual
Meeting of Stockholders
and until his successor has been elected and qualified or until his earlier
resignation or removal.
4.
To ratify the appointment of McGladrey & Pullen, LLP as the Company’s
independent auditors for the fiscal year ending December 26, 2009.
5.
To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The foregoing items of
business are more fully described in the Proxy Statement accompanying this
notice. Only stockholders of record at the close of business on February 26,
2010, are entitled to notice of and to vote at the Meeting. A list of
stockholders entitled to vote at the Meeting shall be open to the examination of
any stockholder, his agent or attorney for any purpose germane to the Meeting
upon written notice, and the list shall be available for inspection at the
Meeting by any stockholder that is present.
Important Notice Regarding the Internet Availability of Proxy Materials
for the Annual Meeting of Stockholders to be held on ______________________,
2010: This proxy statement and our Annual Report for the fiscal year ended
December 27, 2008 are available to stockholders at www.bossgloves.com in the
“About Boss” section.
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BY ORDER OF THE BOARD OF
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DIRECTORS
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James F. Sanders,
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Corporate Secretary
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Dated:
March ____, 2010
THE TRANSACTION HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTION OR
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO
ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE PROMPTLY VOTE BY
FAX OR BY DATING, SIGNING AND MAILING THE ENCLOSED PROXY CARD IN THE RETURN
ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY WITHDRAW YOUR PROXY, IF YOU WISH, AND
VOTE IN PERSON. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THE PROXY STATEMENT.
TABLE OF CONTENTS
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Page
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SUMMARY TERM SHEET
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1
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The Transaction
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1
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Purposes of and Reasons for the
Transaction
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2
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Effects of the Transaction
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2
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Fairness of the Transaction
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4
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Advantages of the Transaction
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5
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Disadvantages of the
Transaction
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6
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Voting Information
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7
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Effectiveness of the
Transaction
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8
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Material U.S. Federal Income Tax Consequences
of the Transaction
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8
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No Appraisal or Dissenters’
Rights
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8
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Termination of Transaction
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8
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QUESTIONS AND ANSWERS ABOUT THE
TRANSACTION AND THE MEETING
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9
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Where and when is the Meeting?
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9
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What am I being asked to vote on at the
Meeting?
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9
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How does the Board recommend that I vote on the
proposals?
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9
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What is the purpose of the
Transaction?
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10
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What does the deregistration of our Common
Stock mean?
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10
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How will the Transaction affect the day to day
operations of the Company?
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10
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What is the Pink Sheets?
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11
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What will I receive in the
Transaction?
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11
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What potential conflicts of interest are posed
by the Transaction?
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11
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Why are we proposing to carry out the Forward
Stock Split following the Reverse
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Stock Split?
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12
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What if I hold fewer than 100 shares of Common
Stock and hold all of my shares in
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street name?
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12
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What happens if I own a total of 100 or more
shares of Common Stock beneficially
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through multiple brokerage firms in
street name, or through a combination of
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record ownership in my name and one or
more brokerage firms in street name?
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12
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If I own fewer than 100 shares of Common Stock,
is there any way I can continue to
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be a stockholder of the Company after the
Transaction?
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13
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Is there anything I can do if I own 100 or more
shares of Common Stock, but would
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like to take advantage of the opportunity
to receive cash for my shares as a result
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of the Transaction?
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13
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Who is entitled to vote at the
Meeting?
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13
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How many shares were outstanding on the Record
Date?
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13
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What is a “quorum” for purposes of the
Meeting?
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13
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What vote is required to approve the
proposals?
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14
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What is a “broker non-vote”?
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14
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How are broker non-votes
counted?
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14
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How are abstentions counted?
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15
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-i-
What will happen if the Transaction is approved by our
stockholders?
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15
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What will happen if the Transaction is not
approved?
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15
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If the Transaction is approved by the
stockholders, can the Board determine not to
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proceed with the
Transaction?
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15
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What are the material U.S. federal income tax
consequences of the Transaction?
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16
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Should I send in my stock certificates
now?
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16
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What is the total cost of the Transaction to
the Company?
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16
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Am I entitled to appraisal rights in connection
with the Transaction?
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How do I vote?
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16
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Can I change my vote?
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16
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What does it mean if I receive more than one
proxy card?
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SPECIAL FACTORS
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17
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Purposes of and Reasons for the
Transaction
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17
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Background of the Transaction
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21
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Fairness of the Transaction
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24
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Alternatives Considered
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31
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Effects of the Transaction
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32
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Opinion of TM Capital
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38
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Conduct of Our Business After the
Transaction
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48
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Material U.S. Federal Income Tax Consequences
of the Transaction
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48
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Potential Conflicts of Interests of Officers,
Directors and Certain Affiliated Persons
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53
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Sources of Funds and Expenses
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55
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Stockholder Approval
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55
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Effective Date
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56
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Termination of Transaction
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56
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Process for Payment for Fractional
Shares
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57
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No Appraisal or Dissenters’
Rights
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59
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Escheat Laws
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59
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Regulatory Approvals
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59
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Litigation
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59
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CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
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60
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PROPOSAL NO. 1
:
REVERSE STOCK SPLIT
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60
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PROPOSAL NO. 2
:
FORWARD STOCK SPLIT
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61
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INFORMATION ABOUT THE COMPANY
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Name and
Address
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61
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Market Price of Common Stock;
Dividends
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Stockholders
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62
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Prior Public Offerings
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Stock Purchases
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62
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Certain Information Concerning the Company, the
Company’s Directors and
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Executive Officers
and the Filing Persons
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63
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PROPOSAL NO. 3
:
ELECTION OF DIRECTORS
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64
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Relationships Among Directors or Executive
Officers
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65
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Board Meetings and Committees of the
Board
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-ii-
Certain Relationships and Related Transactions
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Compensation Committee
Information
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67
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EXECUTIVE OFFICERS OF THE
COMPANY
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70
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT
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72
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PROPOSAL NO. 4
: APPOINTMENT OF MCGLADREY & PULLEN,
LLP AS THE
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COMPANY’S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING
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DECEMBER 26, 2009
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73
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AUDIT COMMITTEE
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74
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AUDIT COMMITTEE REPORT
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74
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MEETING AND VOTING INFORMATION
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75
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Outstanding Voting Securities and Voting
Rights
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75
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Information Concerning Proxies; Revocation of
Proxies
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75
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Solicitation of Proxies
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75
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Quorum and Certain Voting
Matters
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75
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Voting of Proxies
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76
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Adjournment or Postponement
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FINANCIAL INFORMATION
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77
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Summary Historical Financial
Information
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77
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Pro Forma Consolidated Financial Statements
(Unaudited)
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79
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Ratio of Earnings to Fixed
Charges
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85
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STOCKHOLDER COMMUNICATION AND PROXY
PROPOSALS
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85
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PROXY MATERIALS DELIVERED TO A SHARED ADDRESS
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86
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WHERE YOU CAN FIND MORE
INFORMATION
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86
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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86
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OTHER BUSINESS
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88
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ANNEX A – PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF
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INCORPORATION TO EFFECT REVERSE STOCK
SPLIT
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ANNEX B – PROPOSED FORM OF AMENDMENT TO
CERTIFICATE OF
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INCORPORATION TO EFFECT FORWARD STOCK
SPLIT
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ANNEX C – FAIRNESS OPINION OF TM CAPITAL, DATED AUGUST 26,
2009
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ANNEX D – FAIRNESS OPINION OF TM
CAPITAL, DATED DECEMBER 23, 2009
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ANNEX E – BOSS HOLDINGS, INC. AUDIT COMMITTEE CHARTER
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-iii-
PRELIMINARY COPY, SUBJECT TO COMPLETION,
DATED FEBRUARY 26, 2010
BOSS HOLDINGS, INC.
1221 Page Street, Kewanee, Illinois 61443
PROXY STATEMENT
This Proxy
Statement is furnished to stockholders of Boss Holdings, Inc., a Delaware
corporation (the “
Company
,”
“
we
,”
“
our
,”
“
ours
,” and
“
us
”), in
connection with the solicitation by the Board of Directors of the Company (the
“
Board of Directors
” or the “
Board
”) of
proxies for use at the Annual Meeting of Stockholders (the “Meeting”) scheduled
to be held on [
insert day of the week
] [
insert date
], at
_____A.M. local time at the Board Room of the Conference Center, 8235 Forsyth
Blvd., Suite 801, St. Louis, MO 63105, and at any and all adjournments or
postponements thereof. This Proxy Statement and the accompanying form of proxy
initially will be mailed or made available electronically to stockholders on or
about March ___, 2010.
SUMMARY TERM SHEET
The following summary
term sheet, together with the Questions and Answers section that follows,
highlights certain information about the proposed Transaction (as defined
below), but may not contain all of the information that is important to you. For
a more complete description of the Transaction, we urge you to carefully read
this proxy statement and all of its annexes before you vote. For your
convenience, we have directed your attention to the location in this proxy
statement where you can find a more complete discussion of the items listed
below.
The Transaction
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At the meeting, stockholders are being asked to consider and
vote upon proposals to amend our Certificate of Incorporation, as amended to
date (the “
Certificate of
Incorporation
”), to effect the Reverse Stock Split and
the Forward Stock Split. Copies of the proposed amendments to our Certificate
of Incorporation for the Reverse Stock Split and the Forward Stock Split are
attached as Annexes A and B, respectively. Although both the Reverse Stock
Split and the Forward Stock Split will be voted on separately, the Company
will not effect either the Reverse Stock Split or the Forward Stock Split
unless both are approved by the Company’s stockholders.
See “Special
Factors—Purposes of and Reasons for the Transaction” beginning on page
__.
Purposes of and Reasons for the
Transaction
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The Board of
Directors has decided that the costs of being a Securities and Exchange
Commission (the “
SEC
”)
reporting company currently outweigh the benefits and, thus, it is no longer
in our best interests or the best interests of our stockholders, including our
unaffiliated stockholders, for us to remain an SEC reporting company. The
Transaction will enable us to terminate the registration of our Common Stock
under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), if, after the Transaction, there are fewer than 300 record holders
of our Common Stock and we make the necessary filings with the SEC. Our
reasons for proposing the Transaction include the
following:
-
Annual cost savings
we expect to realize as a result of the termination of the registration of our
shares of Common Stock under the Exchange Act, including ongoing expenses for
compliance with the Sarbanes-Oxley Act of 2002, as amended (the “
Sarbanes-Oxley Act
”), and other accounting, legal, printing and other miscellaneous costs
associated with being a publicly traded company, which we estimate will be
approximately $340,000 per year, which includes estimated executive and
administrative time incurred in complying with public company
requirements.
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The ability of our
management to focus on long-term growth without an undue emphasis on
short-term financial results.
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The limited public
trading volume and liquidity of our Common Stock.
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The ability of our
small stockholders (those holding fewer than 100 shares) to liquidate their
holdings in us and receive a premium over market prices prevailing at the time
of our public announcement of the Transaction, without incurring brokerage
commissions.
See “Special Factors—Purposes of and
Reasons for the Transaction” beginning on page __.
Effects of the Transaction
As a result of the
Transaction:
-
We expect that the
number of our stockholders of record will be reduced below 300, which will
allow us to terminate the registration of our Common Stock under the Exchange
Act. Effective on, and following the termination of the registration of our
Common Stock under the Exchange Act,
we will no longer be subject to any reporting requirements under the Exchange
Act or the rules of the SEC applicable to SEC reporting companies and will be
able to eliminate most of the expenses related to the disclosure, reporting
and compliance requirements of the Sarbanes-Oxley Act.
-2-
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Each share of
Common Stock held of record by a stockholder owning fewer than 100 shares
immediately prior to the effective time of the Reverse Stock Split will be
converted into the right to receive $7.65 in cash (subject to any applicable
U.S. federal, state and local withholding tax), without interest, per
pre-split share.
-
Each share of
Common Stock held by a stockholder of record owning 100 shares or more
immediately prior to the effective time of the Reverse Stock Split will
continue to represent one share of Common Stock after completion of the
Transaction.
-
The Board of
Directors anticipates that we will seek to have our Common Stock traded on the
Pink Sheets; however, liquidity is likely to be limited due to the fact that
we will no longer file the reports required by the Exchange Act.
-
Our officers,
directors and 10% stockholders will no longer be subject to the reporting
requirements of Section 16 of the Exchange Act or be subject to the
prohibitions against retaining short-swing profits in our shares of Common
Stock.
-
Persons acquiring
more than 5% of our Common Stock will no longer be required to report their
beneficial ownership under the Exchange Act.
-
Options evidencing
rights to purchase shares of our Common Stock will be unaffected by the
Transaction because the options will, after the effective date of the
Transaction, be exercisable for the same number of shares of our Common Stock
as they were before the Transaction.
-
Since our
obligation to file periodic and other filings with the SEC will be suspended,
our continuing stockholders may have access to less information about us and
our business, operations and financial performance.
-
Upon the effectiveness of the Transaction and as a result of
the reduction of the number of shares of Common Stock outstanding by
approximately 50,953 shares, we estimate that the ownership percentage of our
shares of Common Stock held by our directors, executive officers and 10%
stockholders will increase from 65.76% to 67.22%. The increase in the
ownership percentage of our shares of Common Stock held by directors,
executive officers and 10% stockholders and the reduction in the number of
shares outstanding following the completion of the Transaction is based upon
information we received as of February 2, 2010 from our transfer agent,
Continental Stock Transfer & Trust Company, as to our record holders, and
information we have received regarding the holdings of beneficial owners of
our Common Stock held in street name. The ownership percentage and the
reduction in the number of shares outstanding following the Transaction may
increase or decrease depending on purchases, sales and other transfers of our
shares of Common Stock by our stockholders prior to the effective time of the
Transaction, and the number of street name shares that are
actually cashed-out in the Transaction. The ownership percentage of our shares
of Common Stock held by directors, executive officers and 10% stockholders and
the ownership percentage of the continuing stockholders will proportionally
increase or decrease as a result of such purchases, sales and other transfers
of our shares of Common Stock by our stockholders prior to the effective time
of the Transaction, and depending on the number of street name shares that are
actually cashed-out in the Transaction.
-3-
See “Special Factors—Effects of the Transaction” beginning on page __,
“Special Factors—Alternatives to the Transaction” beginning on page __, “Special
Factors—Fairness of the Transaction” beginning on page __ and “Special
Factors—Potential Conflicts of Interests of Officers, Directors and Certain
Affiliated Persons” beginning on page __.
Fairness of the Transaction
The Board of
Directors fully considered and reviewed the terms, purposes, alternatives and
effects of the proposed Transaction. Based on its review, the Board of Directors
unanimously determined that the Transaction is procedurally and substantively
fair to our unaffiliated stockholders, including the unaffiliated stockholders
who will receive cash consideration in the Transaction and unaffiliated
stockholders who will continue as our stockholders.
The Board of
Directors considered a number of factors in reaching its determinations,
including:
-
the fairness
opinion prepared by TM Capital dated August 26, 2009, as updated by TM Capital
on December 23, 2009, to the effect that, as of the date and based upon the
assumptions made, matters considered and limits of review set forth in TM
Capital’s written opinion, the consideration to be received by stockholders
owning fewer than 100 shares of Common Stock immediately prior to the
effective time of the Reverse Stock Split (
“Fractional Shareholders”
) pursuant to the Transaction is fair, from
a financial point of view, to such stockholders;
-
anticipated annual cost savings we
expect to realize as a result of the termination of the registration of our
shares of Common Stock under the Exchange Act, including ongoing expenses for
compliance with the Sarbanes-Oxley Act, and other accounting, legal, printing
and other miscellaneous costs associated with being a publicly traded company,
which we estimate will be approximately $340,000 per year, which includes
estimated executive and administrative time incurred in complying with public
company requirements;
-
the limited trading
volume and liquidity of our shares of Common Stock and the opportunity the
Transaction affords our smallest stockholders to obtain cash for their shares
in a relatively limited trading market and at a premium over market prices
prevailing at the time of our public announcement of the Transaction without
incurring brokerage commissions;
-4-
-
the $7.65 cash out
price represents an approximately 49.7% premium over the average share price
for the 30-day period ended August 17, 2009, which was prior to the Board of
Directors’ initial approval of the Transaction, an approximately 44.1% premium
over the average share price for the 60-day period ended August 17, 2009, an
approximately 36.1% premium over the average share price for the 90-day period
ended August 17, 2009, an approximately 37.1% premium over the average share
price for the 120-day period ended August 17, 2009 and an approximately 23.4%
premium over the $6.20 closing sales price of common stock on August 25, 2009
(the day immediately prior to our announcement of the Transaction). In
addition, the $7.65 cash out price represents an approximately 24.8% premium
over the average share price for the 30-day period ended December 18, 2009,
which was prior to the Board of Directors’ subsequent consideration of the
Transaction, an approximately 24.8% premium over the average share price for
the 60-day period ended December 18, 2009, an approximately 26.7% premium over
the average share price for the 90-day period ended December 18, 2009 and an
approximately 27.9% premium over the average share price for the 120-day
period ended December 18, 2009;
-
the Transaction
will not affect holders of shares of our Common Stock differently based on
their affiliate status;
-
stockholders that desire to retain their
equity interest in us after the Transaction can increase the number of shares
they hold to 100 shares or more prior to the effective date of the Reverse
Stock Split, thereby avoiding being cashed-out; however, given the
historically limited liquidity in our stock, there can be no assurance that
any shares will be available for purchase and thus there can be no assurance
that a stockholder will be able to acquire sufficient shares to meet or exceed
the required 100 shares prior to the effective time of the
Transaction.
See “Special Factors—Fairness of the Transaction” beginning on page __
and “Special Factors—Opinion of TM Capital” beginning on page __.
Advantages of the
Transaction
-
We expect to
realize annual cost savings as a result of the termination of the registration
of our shares of Common Stock under the Exchange Act, including ongoing
expenses for compliance with the Sarbanes-Oxley Act, and other accounting,
legal, printing and other miscellaneous costs associated with being a publicly
traded company, of approximately $340,000 per year, which includes estimated
executive and administrative time incurred in complying with public company
requirements.
-
There is a
relatively illiquid and limited trading market in our shares. Our smallest
stockholders will have the opportunity to obtain cash for their shares at a
premium over closing prices for our shares of Common Stock at the time of our
announcement of the Transaction, without incurring brokerage
commissions.
-
Our directors,
executive officers and stockholders who own more than 10% of our outstanding
Common Stock, which we refer to in this proxy statement as our “
affiliates
”, will be treated no differently than stockholders who are not
directors, executive officers or 10% stockholders, which we refer to in this
proxy statement as our “
unaffiliated
stockholders
”, including unaffiliated cashed-out stockholders
and unaffiliated continuing stockholders. The sole determining factor as to
whether a stockholder will be a continuing stockholder after the Transaction
is the number of shares of our Common Stock that they own on the effective
date of the Reverse Stock Split.
-5-
-
Stockholders that desire to retain their equity interest in us
after the Transaction can increase the number of shares they hold to 100
shares or more prior to the effective date of the Reverse Stock Split, thereby
avoiding being cashed-out; however, given the historically limited liquidity
in our stock, there can be no assurance that any shares will be available for
purchase and thus there can be no assurance that a stockholder will be able to
acquire sufficient shares to meet or exceed the required 100 shares prior to
the effective time of the Transaction.
See “Special Factors—Purposes of and Reasons for the Transaction”
beginning on page __ and “Special Factors—Fairness of the Transaction” beginning
on page __.
Disadvantages of the Transaction
If the Transaction occurs, there will be certain disadvantages to
stockholders, including the following:
-
Fractional
Shareholders will no longer have any ownership interest in us and will no
longer participate in any future earnings and growth.
-
We will cease to file annual, quarterly, current, and other
reports and documents with the SEC, and stockholders will cease to receive
annual reports and proxy statements as required under the Exchange Act. While
we intend to continue to prepare audited financial statements and periodic
unaudited financial statements and to make those financial statements
available to shareholders through our company website, we will not be under
any continuing obligation to do so. We will not be providing periodic reports
in the format currently required of us under the provisions of the Exchange
Act and, as a result, continuing stockholders will have access to less
information about us and our business, operations, and financial
performance.
-
We will no longer
be subject to the provisions of the Sarbanes-Oxley Act or the liability
provisions of the Exchange Act (other than the general anti-fraud provisions
thereof).
-
While we anticipate
that our Common Stock will be eligible for quotation in the Pink Sheets,
trading opportunities in the Pink Sheets will be dependent upon whether any
broker-dealers commit to make a market for our Common Stock. We cannot
guarantee or anticipate whether our Common Stock will be quoted in the Pink
Sheets. In addition, because of the possible limited liquidity for our Common
Stock, the suspension of our obligation to publicly disclose financial and
other information following the Transaction, and the deregistration of our
Common Stock under the Exchange Act, continuing stockholders may potentially
experience a significant decrease in the value of their Common Stock.
-6-
-
Our executive
officers, directors and 10% stockholders will no longer be required to file
reports relating to their transactions in our Common Stock with the SEC. In
addition, our executive officers, directors and 10% stockholders will no
longer be subject to the recovery of short-swing profits provision of the
Exchange Act, and persons acquiring more than 5% of our Common Stock will no
longer be required to report their beneficial ownership under the Exchange
Act.
-
We estimate that the cost of payment to Fractional Shareholders,
professional fees and other expenses of the Transaction will total
approximately $640,000. As a result, immediately after the Transaction, our
cash balances on hand will be reduced by the costs incurred in the
Transaction.
-
The Transaction
will result in the suspension, and not the termination, of our filing
obligations under the Exchange Act. If on the first day of any fiscal year
after the suspension of our filing obligations we have more than 300
stockholders of record, then we must resume reporting pursuant to Section
15(d) of the Exchange Act, which would result in our once again incurring many
of the expenses that we expect to save by virtue of the
Transaction.
-
Under Delaware law,
our Certificate of Incorporation and our bylaws, no appraisal or dissenters’
rights are available to our stockholders who dissent from the
Transaction.
-
The lack of
liquidity provided by a ready market may result in fewer opportunities to
utilize equity-based incentive compensation tools to recruit and retain top
executive talent.
-
Our Common Stock
may be a less attractive acquisition currency as an acquirer of illiquid
securities of a privately held company must depend on liquidity either via
negotiated buy-out or buy-back arrangements, or a liquidity event by the
Company that is generally outside of his/her control.
-
Following the
Transaction, since we will no longer be registered with the SEC and will not
be filing the periodic reports and proxy statements required under the
Exchange Act, it will likely be more costly and time consuming for us to raise
equity capital from public or private sources.
-
Companies that lose
status as a public company may risk losing prestige in the eyes of the public,
the investment community and key constituencies.
See “Special
Factors—Fairness of the Transaction” beginning on page __.
Voting Information
-
The affirmative vote of a majority of all shares of Common
Stock issued and outstanding and entitled to vote at the Meeting will be
required to approve the proposed amendments to the Certificate of
Incorporation to effect the Reverse Stock Split and the Forward Stock Split.
The affirmative vote of a plurality of the votes cast at the Meeting is
required for
the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Meeting in person or by proxy and entitled to
vote at the Meeting will be required to ratify the appointment of McGladrey
& Pullen, LLP as the Company’s independent auditors for the fiscal year
ending December 26, 2009. Our directors and executive officers have indicated
that they intend to vote their shares of our Common Stock (1,542,194 shares,
or approximately 65.76% of our issued and outstanding shares eligible to vote
at the Special Meeting) “
FOR
” the Transaction and, therefore, approval of the Transaction
is assured.
-7-
See “Special Factors—Stockholder Approval” beginning on page __ and
“Meeting and Voting Information—Quorum and Certain Voting Matters” beginning on
page __
Effectiveness of the Transaction
-
We anticipate that
the Transaction will be effected as soon as possible after the date of the
Meeting. Following the effective date of the Transaction, transmittal
materials will be sent to those stockholders entitled to a cash payment that
will describe how to turn in their share certificates and receive the cash
payments. Those stockholders entitled to a cash payment should not turn in
their share certificates at this time.
See “Special Factors—Effective Date” beginning on page __.
Material U.S. Federal Income Tax Consequences
of the Transaction
See “Special Factors—Material U.S. Federal Income Tax Consequences of the
Transaction” beginning on page __.
No Appraisal or Dissenters’ Rights
See “Special Factors—No Appraisal and Dissenters’ Rights” beginning on
page __.
Termination of Transaction
-
The Board of
Directors has reserved the right to abandon the Transaction if it believes the
Transaction is no longer in our best interests, and the Board of Directors has
retained authority, in its discretion, to withdraw the Transaction from the
agenda of the Meeting prior to any vote. In addition, even if the Transaction
is approved by stockholders at the
Meeting, the Board of Directors may determine not to implement the
Transaction if it subsequently determines that the Transaction is not in our
best interests.
-8-
See “Special Factors—Termination of Transaction” beginning on page __.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
AND THE MEETING
The following
questions and answers are intended to briefly address potential questions
regarding the Transaction and the Meeting. These questions and answers may not
address all questions that may be important to you as a stockholder. Please
refer to the more detailed information contained elsewhere in this Proxy
Statement, the annexes to this Proxy Statement and any information and documents
referred to or incorporated by reference in this Proxy Statement.
Where and when is the Meeting?
The Meeting will be
held at the Board Room of the Conference Center, 8235 Forsyth Blvd., Suite 801,
St. Louis, Missouri, 63105 on ______________________, 2010, at 10:00 A.M.
Central Standard Time.
What am I being asked to vote on at the
Meeting?
Our stockholders will
consider and vote upon the following proposals:
-
a proposal to amend
the Certificate of Incorporation to effect the Reverse Stock Split
-
a proposal to amend
the Certificate of Incorporation to effect the Forward Stock Split
-
the election of
five directors of the Company, each to serve until the next Annual Meeting of
Stockholders and until his successor has been elected and qualified or until
his earlier resignation or removal
-
the ratification of
the appointment of McGladrey & Pullen, LLP as the Company’s independent
auditors for the fiscal year ending December 26, 2009
How does the Board recommend that I vote on
the proposals?
The Board unanimously
recommends that you vote as follows:
-
“
FOR
” the proposal
to amend the Certificate of Incorporation to effect the Reverse Stock Split
-
“
FOR
” the proposal
to amend the Certificate of Incorporation to effect the Forward Stock Split
-
“
FOR
” the election
of five directors of the Company, each to serve until the next Annual Meeting
of Stockholders and until his successor has been elected and qualified or
until his earlier resignation or removal
-
“
FOR
” the
ratification of the appointment of McGladrey & Pullen, LLP as the
Company’s independent auditors for the fiscal year ending December 26, 2009
-9-
What is the purpose of the Transaction?
The Board of
Directors has decided that the costs of being an SEC reporting company currently
outweigh the benefits and, thus, it is no longer in our best interests or the
best interests of our stockholders, including our unaffiliated stockholders, for
us to remain an SEC reporting company. The Transaction will enable us to
terminate the registration of our Common Stock under the Exchange Act if, after
the Transaction, there are fewer than 300 record holders of our Common Stock and
we make the necessary filings with the SEC.
Our reasons for
proposing the Transaction include:
-
Annual cost savings
we expect to realize as a result of the termination of the registration of our
shares of Common Stock under the Exchange Act, including ongoing expenses for
compliance with the Sarbanes-Oxley Act, and other accounting, legal, printing
and other miscellaneous costs associated with being a publicly traded company,
which we estimate will be approximately $340,000 per year, which includes
estimated executive and administrative time incurred in complying with public
company requirements.
-
The limited public
trading volume and liquidity of our Common Stock.
-
The ability of our
management to focus on long-term growth without an undue emphasis on
short-term financial results.
-
The ability of our
small stockholders (those holding fewer than 100 shares) to liquidate their
holdings in us and receive a premium over market prices prevailing at the time
of our public announcement of the Transaction, without incurring brokerage
commissions.
What does the deregistration of our Common
Stock mean?
Following the
Transaction, we expect that we will have fewer than 300 stockholders of record,
which will enable us to take action to terminate the registration of our Common
Stock under the Exchange Act. Effective on and following the termination of the
registration of our Common Stock under the Exchange Act, we will no longer be
required to file annual, quarterly and other reports with the SEC and our
executive officers, directors and 10% stockholders will no longer be required to
file reports relating to their transactions in our Common Stock. Any trading in
our Common Stock will continue, if at all, in privately negotiated sales or in
the Pink Sheets. However, trading opportunities in the Pink Sheets will be
dependent upon whether any broker-dealers commit to make a market for our Common
Stock, and we cannot guarantee or anticipate whether our Common Stock will be
quoted in the Pink Sheets.
How will the Transaction affect the day to day
operations of the Company?
Though the
Transaction will have very little effect on the Company’s business and
operations, it will reduce management time spent on compliance and disclosure
matters attributable to our Exchange Act filings, and may therefore enable
management to increase its focus on managing our business and growing
stockholder value.
-10-
What is the Pink Sheets?
The Pink Sheets
offers limited information about issuers of securities, like our Common Stock,
and collects and publishes quotes of market makers for over-the-counter
securities through its website at www.pinksheets.com.
What will I receive in the Transaction?
If you own fewer than
100 shares of our Common Stock immediately prior to the effective time of the
Reverse Stock Split, you will receive $7.65 in cash per share (subject to any
applicable U.S. federal, state and local withholding tax), without interest,
from us for each pre-Reverse Stock Split share that you own. If you own 100
shares or more of our Common Stock immediately prior to the effective time of
the Reverse Stock Split, you will not receive any cash payment for your shares
in connection with the Transaction and will continue to hold the same number of
shares of our Common Stock as you did before the Reverse Stock Split.
What potential conflicts of interest are posed
by the Transaction?
Our directors,
officers and 10% stockholders may have interests in the Transaction that are
different from your interests as a stockholder, and have relationships that may
present conflicts of interest. While our Board of Directors recommends a vote
“
FOR
” the Transaction, to the Company’s knowledge,
none of the Company’s affiliates has made a recommendation, in their individual
capacities, either in support of or opposed to the Transaction. Our directors
and executive officers have indicated that they intend to vote their shares of
our Common Stock (1,542,194 shares, or approximately 65.76% of our issued and
outstanding shares eligible to vote at the Special Meeting) “
FOR
” the
Transaction and, therefore, approval of the Transaction is assured.
Upon the
effectiveness of the Transaction, the aggregate number of shares of our Common
Stock owned by our directors, executive officers and 10% stockholders will
remain the same and the ownership percentage of the shares of our Common Stock
held by our directors, executive officers and 10% stockholders will increase by
approximately 1.46% from 65.76% to 67.22% as a result of the reduction of the
number of shares of our Common Stock outstanding. Each of our directors and
executive officers will continue to own our Common Stock and will continue to
serve as a director or executive officer after the Transaction. In addition,
each member of the Board and certain of our executive officers, holds options to
acquire shares of our Common Stock. The Transaction will not affect these stock
options and they will remain outstanding after the Transaction. Directors,
executive officers and any stockholders who own more than 10% of our outstanding
Common Stock will experience certain advantages after the Transaction in that
they will be relieved of certain SEC reporting requirements and “short-swing
profit” trading provisions under Section 16 of the Exchange Act. Information
regarding our officers’ and directors’ compensation and stock ownership will no
longer be publicly available and persons acquiring more than 5% of our Common
Stock will no longer be required to report their beneficial ownership under the
Exchange Act. In addition, by deregistering the Common Stock under the Exchange
Act subsequent to the consummation of the Transaction, we will no longer be
prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act, from making
personal loans to our directors or executive officers, although no such loans
currently are contemplated.
-11-
Why are we proposing to carry out the Forward Stock Split following the
Reverse Stock Split?
The Forward Stock
Split is not necessary for us to reduce the number of holders of record of our
shares of Common Stock and to deregister our shares of Common Stock under the
Exchange Act. However, we have decided that it is in the best interests of our
stockholders to effect the Forward Stock Split to avoid an unusually high stock
price after the effective date of the Reverse Stock Split, to facilitate trading
of the shares of continuing stockholders either in private transactions or in
the Pink Sheets, to mitigate any loss of liquidity in our shares of Common Stock
that may result from the Reverse Stock Split portion of the Transaction, to
avoid the administrative burden of having fractional shares outstanding and to
permit outstanding convertible and exercisable securities, such as stock
options, to be unaffected by the Transaction.
What if I hold fewer than 100 shares of Common Stock and hold all of my
shares in street name?
If you hold fewer
than 100 shares of our Common Stock in street name, your broker, bank or other
nominee is considered the stockholder of record with respect to those shares and
not you. It is possible that the bank, broker or other nominee also holds shares
for other beneficial owners of our Common Stock and that it may hold 100 or more
total shares. Therefore, depending upon their procedures, they may not be
obligated to treat the Reverse Stock Split as affecting beneficial holders’
shares. It is our desire to treat stockholders holding fewer than 100 shares of
our Common Stock in street name through a nominee (such as a bank or broker) in
the same manner as stockholders whose shares are registered in their name.
However, we or our transfer agent, Continental Stock Transfer & Trust
Company, may not have the necessary information to compare your record holdings
with any shares that you may hold in street name in a brokerage account and
these banks, brokers and other nominees may have different procedures for
processing the Reverse Stock Split. Accordingly, if you hold your shares of our
Common Stock in street name, we encourage you to contact your bank, broker or
other nominee.
What happens if I own a total of 100 or more shares of Common Stock
beneficially through multiple brokerage firms in street name, or through a
combination of record ownership in my name and one or more brokerage firms in
street name?
We may not have the
information to compare your record holdings and your ownership through a
brokerage firm or to compare your holdings in two or more different brokerage
firms. As a result, if you hold more than the minimum number of shares, you may
nevertheless have your shares cashed-out if you hold them in a combination of
record and street name or through accounts in several brokerage firms. If you
are in this situation and desire to remain our stockholder after the
Transaction, we recommend that you combine your holdings in one brokerage
account or transfer any shares held through a brokerage firm into record name
prior to the effective time of the Transaction. You should be able to determine
whether your shares will be cashed-out by examining your brokerage account
statements to see if you hold more than the minimum number of shares in any one
account. To determine the Transaction’s effect on any shares you hold in street
name (and possible payment of the cash consideration), you should contact your
broker, bank or other nominee.
-12-
If I own fewer than 100 shares of Common Stock, is there any way I can
continue to be a stockholder of the Company after the Transaction?
If you own fewer than
100 shares of our Common Stock before the Transaction, the only way you can
continue to be our stockholder after the Transaction is to acquire, prior to the
effective time of the Transaction, sufficient additional shares to cause you to
own a minimum of 100 shares at the effective time of the Transaction. However,
given the historically limited liquidity in our stock, we cannot assure you that
any shares will be available for purchase and thus there can be no assurance
that you will be able to acquire sufficient shares to meet or exceed the
required 100 shares. In such an instance, you would no longer remain a
stockholder after the effective time of the Transaction.
Is there anything I can do if I own 100 or more shares of Common Stock,
but would like to take advantage of the opportunity to receive cash for my
shares as a result of the Transaction?
If you own 100 or
more shares of our Common Stock before the Transaction, you can only receive
cash for all of your shares if, prior to the effective time of the Transaction,
you reduce your stock ownership to fewer than 100 shares by selling or otherwise
transferring shares. However, there can be no assurance that any purchaser for
your shares will be available.
Who is entitled to vote at the Meeting?
Only holders
of record of our Common Stock as of the close of business on February 26, 2010
(the “
Record Date
”), are entitled to notice of, and to vote at, the
Meeting.
How many shares were outstanding on the Record
Date?
At the close of
business on the Record Date, there were ____________shares outstanding. Only
shares of Common Stock outstanding on the Record Date will be eligible to vote
on the Transaction. At the Meeting, each of those shares of Common Stock will be
entitled to one vote.
What is a “quorum” for purposes of the
Meeting?
In order to conduct
business at the Meeting, a quorum of stockholders is necessary to hold a valid
meeting. A quorum will be present if stockholders holding at least a majority of
the outstanding shares are present at the meeting in person or represented by
proxy. On the close of business on the Record Date, there were
____________shares outstanding and entitled to vote and, accordingly, the
presence, in person or by proxy, of at least ____________shares is necessary to
meet the quorum requirement.
Your shares will be
counted towards the quorum only if you submit a valid proxy (or one is submitted
on your behalf by your broker, bank or other nominee) or if you vote in person
at the meeting. Abstentions and broker non-votes will be counted towards the
quorum requirement.
-13-
What vote is required to approve the
proposals?
Once a quorum has
been established, the following votes are required to approve the proposals to
be voted upon at the Meeting:
-
The affirmative vote of a plurality of the
votes cast at the Meeting is required for the election of directors. A
properly executed proxy marked “WITHHELD” with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether
there is a quorum. Thus, five directors with the most affirmative votes will
be elected at the Meeting.
What is a “broker non-vote”?
Broker non-votes
generally occur when shares held by a broker nominee for a beneficial owner are
not voted with respect to a proposal because the nominee has not received voting
instructions from the beneficial owner and lacks discretionary authority to vote
the shares. Brokers normally have discretion to vote on “routine matters,” such
as the ratification of independent registered public accounting firms, but not
on non-routine matters, such as amendments to charter document and the election
of directors.
How are broker non-votes counted?
Broker non-votes will
be counted for the purpose of determining the presence or absence of a quorum,
but will not be counted for the purpose of determining the number of shares
entitled to vote on a specific proposal.
-14-
Accordingly, a broker
non-vote will have the effect of:
-
a vote
against
the Reverse Stock Split proposal and a vote against the Forward Stock Split
Proposal; and
-
no effect
on the proposal regarding the election of directors and ratification of our
Audit Committee’s appointment of McGladrey & Pullen, LLP.
How are abstentions counted?
A properly executed
proxy marked “ABSTAIN” with respect to any such matter will be counted for
purposes of determining whether there is a quorum. However, under Delaware law,
a proxy marked “ABSTAIN” is not considered a vote cast.
Accordingly, an
abstention will have the effect of:
-
a vote
against
the Reverse Stock Split proposal and a vote against the Forward Stock Split
Proposal; and
-
no effect
on the proposal regarding the election of directors and ratification of our
Audit Committee’s appointment of McGladrey & Pullen, LLP.
What will happen if the Transaction is
approved by our stockholders?
Assuming that we have
fewer than 300 record holders of our Common Stock after the Transaction, we will
file applicable forms with the SEC to deregister our shares of Common Stock
under the federal securities laws. Upon the effectiveness of those filings, we
would no longer be subject to the reporting and related requirements under the
Exchange Act that are applicable to public companies. We will also no longer be
subject to the provisions of the Sarbanes-Oxley Act. Also, any trading in our
Common Stock will occur, if at all, in privately negotiated sales or in the Pink
Sheets.
What will happen if the Transaction is not
approved?
If the Transaction is
not approved by our stockholders, we will continue to operate our business, and
we will continue to incur the costs involved with being a public company. We
also may decide to evaluate and explore available alternatives, although the
Board has not yet made a determination that any of those alternatives are
feasible or advisable.
If the Transaction is approved by the stockholders, can the Board
determine not to proceed with the Transaction?
If the Transaction is
approved by the stockholders, the Board may determine not to proceed with the
Transaction if it believes that proceeding with the Transaction is not in our
best interests or in the best interests of our stockholders, including all
unaffiliated stockholders. If the Board determines not to proceed with the
Transaction we will continue to operate our business as presently conducted.
-15-
What are the material U.S. federal income tax
consequences of the Transaction?
The receipt of cash
by a Fractional Shareholder in exchange for Common Stock in the Transaction
generally will be taxable for U.S. federal income tax purposes. In general,
neither the Company nor any continuing stockholder who does not receive cash in
the Transaction should be subject to U.S. federal income taxation with respect
to the Transaction. To review the material U.S. federal income tax consequences
of the Transaction in greater detail, see “Special Factors—Material U.S. Federal
Income Tax Consequences of the Transaction” beginning on page __. We urge you to
consult with your personal tax advisor regarding the tax consequences to you of
the Transaction.
Should I send in my stock certificates now?
No. After the
Transaction is completed, we will send instructions on how to receive any cash
payments to which you may be entitled.
What is the total cost of the Transaction to
the Company?
Since we do
not know how many record and beneficial holders of our Common Stock will receive
cash for their shares in the Transaction, we do not know the exact cost of the
Transaction. However, based on information that we have received as of February
2, 2010 from our transfer agent, Continental Stock Transfer & Trust Company,
with regard to the size of holdings of those of you who may hold shares in
street name, as well as our estimates of other Transaction expenses, we believe
that the total cash requirement of the Transaction to us will be approximately
$640,000. This amount includes approximately $389,000 needed to cash-out
fractional shares, approximately $200,000 of legal, accounting and financial
advisory fees, approximately $18,000 for transfer agent costs and approximately
$33,000 of other costs, including costs of printing and mailing, to effect the
Transaction. This total amount could be larger or smaller depending on, among
other things, the number of fractional shares that will be outstanding after the
Reverse Stock Split as a result of purchases, sales and other transfers of our
shares of Common Stock by our stockholders.
Am I entitled to appraisal rights in
connection with the Transaction?
No. Under Delaware
law, our Certificate of Incorporation and our bylaws, no appraisal or
dissenters’ rights are available to our stockholders who dissent from the
Transaction.
How do I vote?
Sign and date each
proxy card you receive and return it in the enclosed envelope prior to the
Meeting or attend the meeting and vote in person. You may also vote by fax in
accordance with the procedures on the proxy card.
Can I change my vote?
Yes. You may change
your proxy instructions at any time before the final vote at the Meeting. If you
are the record holder of your shares, you may revoke your proxy in any one of
three ways:
-16-
-
You may submit another proxy by
fax or by signing, dating and returning a completed proxy card with a later
date.
-
You may send a timely written
notice that you are revoking your proxy to the Company’s Secretary at 1221
Page Street, Kewanee, Illinois 61443.
-
You may attend the Meeting and
vote in person. Simply attending the meeting will not, by itself, revoke your
proxy.
If your shares are
held by your broker or bank as a nominee or agent, you should follow the
instructions provided by your broker or bank.
What does it mean if I receive more than one
proxy card?
If you receive more
than one proxy card, your shares are registered in more than one name or are
registered in different accounts. Please complete, sign and return each proxy
card to ensure that all of your shares are voted.
SPECIAL FACTORS
Purposes of and Reasons for the Transaction
Our Board of
Directors has decided that the costs of being an SEC reporting company currently
outweigh the benefits and, thus, it is no longer in our best interests or the
best interests of our stockholders, including our unaffiliated stockholders, for
us to remain an SEC reporting company. Therefore, our Board of Directors has
unanimously authorized a 1-for-100 reverse stock split (the “
Reverse Stock Split
”) of our Common Stock, followed immediately by a 100-for-1 forward stock
split (the “
Forward Stock Split
” and, together with the Reverse Stock Split, the “
Transaction
”). At the meeting, stockholders are being asked to consider and vote
upon proposals to amend our Certificate of Incorporation to effect the Reverse
Stock Split and the Forward Stock Split. Copies of the proposed amendments to
our Certificate of Incorporation for the Reverse Stock Split and the Forward
Stock Split are attached as Annexes A and B, respectively. Although both the
Reverse Stock Split and the Forward Stock Split will be voted on separately, the
Company will not effect either the Reverse Stock Split or the Forward Stock
Split unless both are approved by the Company’s stockholders.
The Transaction will
enable us to terminate the registration of our Common Stock under the Exchange
Act if, after the Transaction, there are fewer than 300 record holders of our
Common Stock and we make the necessary filings with the SEC. Management believes
that we will be able to realize significant cost savings by the elimination of
most of the expenses related to the disclosure, reporting and compliance
requirements of the Exchange Act, the Sarbanes-Oxley Act, and other securities
laws and regulations. The costs associated with these obligations constitute a
significant overhead expense. These costs include professional fees for our
auditors and corporate counsel, costs related to our Director and Officer
insurance policy, printing and mailing costs, internal compliance costs and
transfer agent costs. These SEC registration-related costs have been increasing
over the years, and we believe that they will continue to increase, particularly
as a result of the additional procedural, reporting, auditing and disclosure
obligations imposed on public companies by the Sarbanes-Oxley Act in general and
Section 404 of the Sarbanes-Oxley Act in particular.
-17-
As a result of the
Transaction, (i) each share of Common Stock held of record by a stockholder
owning fewer than 100 shares immediately prior to the effective time of the
Reverse Stock Split will be converted into the right to receive $7.65 in cash
(subject to any applicable U.S. federal, state and local withholding tax),
without interest, per pre-split share and (ii) each share of Common Stock held
by a stockholder of record owning 100 shares or more immediately prior to the
effective time of the Reverse Stock Split will continue to represent one share
of Common Stock after completion of the Transaction. The shares of Common Stock
acquired by the Company as a result of the Reverse Stock Split will be restored
to the status of authorized but unissued shares, which will reduce the number of
outstanding shares. The Forward Stock Split is not necessary for us to reduce
the number of holders of record of our shares of Common Stock and to deregister
our shares of Common Stock under the Exchange Act. However, we have decided that
it is in the best interests of our stockholders to effect the Forward Stock
Split to avoid an unusually high stock price after the effective date of the
Reverse Stock Split, to facilitate trading of the shares of continuing
stockholders either in private transactions or in the Pink Sheets, to mitigate
any loss of liquidity in our shares of Common Stock that may result from the
Reverse Stock Split portion of the Transaction, to avoid the administrative
burden of having fractional shares outstanding and to permit outstanding
derivative securities, such as stock options, to be unaffected by the
Transaction.
In determining
whether the number of our stockholders of record falls below 300 as a result of
the Transaction, we must count stockholders of record in accordance with Rule
12g5-1 under the Exchange Act. Rule 12g5-1 provides, with certain exceptions,
that in determining whether issuers, including the Company, are subject to the
registration provisions of the Exchange Act, securities are considered to be
“held of record” by each person who is identified as the owner of such
securities on the respective records of security holders maintained by or on
behalf of the issuers. However, institutional custodians such as Cede & Co.
and other commercial depositories are not considered a single holder of record
for purposes of these provisions. Rather, each depository’s accounts are treated
as the record holder of shares.
As a result of
the Transaction and the repurchase of shares from Fractional Shareholders, we
expect to have approximately 219 record holders of our shares, which would
enable us to terminate the registration of our shares under the Exchange Act. If
the Transaction is completed, we intend to file with the SEC a Form 15 to
deregister our shares. Upon the filing of the Form 15, our obligation to file
periodic and current reports under the Exchange Act will be immediately
suspended. Deregistration of our shares will be effective 90 days after filing
of the Form 15. Upon deregistration of our shares, our obligation to comply with
the requirements of the proxy rules and to file proxy statements under Section
14 of the Exchange Act will also be terminated. We will not be required to file
periodic and current reports with the SEC in the future unless we subsequently
file another registration statement under the Securities Act of 1933, as
amended, or again have record holders of common shares in excess of 300.
It is anticipated
that our shares of Common Stock will be quoted in the Pink Sheets following the
Transaction. The Pink Sheets is a centralized quotation service that collects
and publishes market maker quotes for securities. The Pink Sheets categorizes
all securities trading over-the-counter into easily identifiable tiers – the
Company intends for our shares of Common Stock to be quoted in the Pink
Sheets-limited information tier. This tier covers issuers that have provided
limited information with respect to the preceding six months, including
quarterly financial reports that include, at a minimum, balance sheet, income
statement and total shares outstanding for a period within the preceding six
months.
-18-
Although we
anticipate that a broker-dealer will quote our shares on the Pink Sheets, there
can be no assurance that any broker-dealer will be willing to continue to act as
a market maker in our shares after the Transaction.
Our reasons for
proposing the Transaction include the following:
Regulatory Requirements.
While many of the factors that we considered
in deciding to undertake the Transaction have existed for at least several
years, the compelling reason for choosing to undertake the Transaction at this
time is the anticipated additional expense of compliance with the internal
control, audit assessment and review requirements of Section 404 of the
Sarbanes-Oxley Act, both in terms of outside costs and internal time of officers
and staff. Under the requirements of Section 404 of the Sarbanes-Oxley Act, as a
public company, we would be required to file an auditor’s attestation report as
to the status of our internal control systems and procedures alongside our
annual report for fiscal years ending after June 15, 2010, which our independent
auditors have informed us will nearly double our annual audit fees. For a
company of our size and capitalization, the internal control enhancement
implementation costs, the costs of external auditor assessment and certification
and the costs of continuous review and updating required by the current
interpretations of Section 404 of the Sarbanes-Oxley Act are believed by
management to require substantial expenditures for the foreseeable future.
We expect to realize
annual cost savings as a result of the termination of the registration of our
shares of Common Stock under the Exchange Act, including ongoing expenses for
compliance with the Sarbanes-Oxley Act, and other accounting, legal, printing
and other miscellaneous costs associated with being a publicly traded company,
of approximately $340,000 per year. The external costs associated with our
public reports and other filing obligations, as well as other external costs
relating to public company status, comprise a significant overhead expense, made
up principally of the following:
Fiscal Year Ended
|
|
2009 (est.)
|
|
2008
|
|
2007
|
Audit, Audit Related Fees, and
Tax
|
|
$
|
188,225
|
|
|
$
|
229,450
|
|
|
$
|
179,525
|
|
Sarbanes-Oxley Act and Other SEC Compliance
|
|
$
|
89,250
|
|
|
$
|
89,250
|
|
|
$
|
89,250
|
|
Transfer Agent, D&O, and Filing
Costs
|
|
$
|
115,575
|
|
|
$
|
114,900
|
|
|
$
|
154,205
|
|
Totals
|
|
$
|
393,050
|
|
|
$
|
433,600
|
|
|
$
|
422,980
|
|
The historical public
company costs presented above are significant as a percentage of our total cost
of administration. The public reporting, legal and filing costs primarily
include professional fees for our auditors and corporate counsel and external
compliance costs incurred in preparing and reviewing such filings. The amounts
listed for Sarbanes-Oxley Act compliance reflect estimated executive and
administrative time incurred in complying with public company requirements. We
expect that the Transaction will result in the elimination of approximately
$224,825 per year of the above historical “public company” costs, which includes
approximately
(i) $40,000 in external
accounting and audit fees, (ii) $89,250 in internal Sarbanes-Oxley Act
compliance and (iii) a combined $95,575 in transfer agent, D&O insurance,
external legal fees and annual meeting costs.
-19-
Not reflected in the
above historical cost breakdown is the incremental spending which we anticipate
we would have to incur to remain in compliance with the requirements of Section
404 of the Sarbanes-Oxley Act. Beginning in 2010, management estimates the
incremental annual costs related to the internal control audit requirements of
Section 404 would be approximately $115,500. Therefore, the total costs avoided
as a result of the Transaction equals approximately $340,000, which includes
both historical public company costs eliminated and future Section 404 costs
avoided.
In addition, as a
non-SEC reporting company, our management and employees will no longer be
required to spend time preparing the periodic and other reports required of SEC
reporting companies under the Exchange Act, complying with the Sarbanes-Oxley
Act, and managing stockholder relations and communications, although the Company
will continue to be subject to the general anti-fraud provisions of applicable
federal and state securities laws. We believe that this time could more
effectively be devoted to other purposes, such as operating our business and
undertaking new initiatives that may result in greater long-term growth.
Additionally, due to the public market’s focus on quarterly results, smaller
public companies such as ours are required to focus on short-term goals, such as
quarterly financial results, often at the expense of longer-term objectives. As
a non-SEC reporting company, we believe management will have increased
flexibility by being able to devote more time to sustaining long-term growth.
No Need for Access to the Public Markets.
We enjoy very little
benefit from being a publicly held company. Benefits of being publicly held
typically include:
-
access to the public markets for
purposes of raising capital and for acquisitions;
-
access to public markets for
liquidity purposes for our stockholders; and
-
the prestige of being a publicly
held company, which can be helpful in recruiting, attracting and retaining key
officers, directors and staff.
Since the Company’s
initial public offering, we have been able to successfully finance our
operations, expansions and acquisitions through internally generated profits
from operations as well as through traditional bank financing. We have found
that our status as a publicly held and publicly reporting company has not
materially impacted our ability to recruit officers and employees.
Lack of an Active Trading Market; Liquidity
for Small Stockholdings.
Our Board of Directors believes the public marketplace has little
interest in public companies with very small market capitalization and a limited
amount of shares available for trading in the public marketplace. Our Board of
Directors believes it is unlikely that our Common Stock would ever achieve
significant trading volume in the public marketplace so as to create a
significant active and liquid market. The realization that our Common Stock
might not, in the foreseeable future, achieve significant trading volume as a
public company is one of the reasons that our Board of Directors concluded that
we are not benefiting substantially from being a public company, and that it
would be in our best interest and the best interests of our stockholders for us
to terminate the registration of our Common Stock with the SEC. The Transaction
will also permit our small stockholders (those holding fewer than 100 shares) to
liquidate their holdings in us and receive a premium over market prices
prevailing at the time of our public announcement of the Transaction, without
incurring brokerage commissions.
-20-
Background of the Transaction
We have been publicly
traded since 1994. In 2002, Congress’s passage of the Sarbanes-Oxley Act ushered
in a wave of corporate reforms that have increased our expenses as a public
company without enhancing, from an operations perspective in the Board of
Directors’ view, the benefits of being a public company. We have estimated that
the annual cost of operating as a public company and complying with the
Sarbanes-Oxley Act and associated regulations is approximately $393,050 per
year, including time of our executive officers and our other employees necessary
to prepare and review our public filings and perform other tasks that are
necessitated by virtue of being a publicly traded company. In addition, over the
past several years, we have faced an illiquid market for our Common Stock and
realized limited benefits realized from our public company status.
In the ordinary
course, management has from time to time reviewed the current and anticipated
costs relating to SEC reporting and Sarbanes-Oxley Act compliance and discussed
the relative costs and benefits of continuing our status as a public reporting
company and the possibility of conducting a transaction that would result in the
termination of our status as a public reporting company. While informal
discussions had taken place between individual directors and officers, this
issue did not reach our full Board of Directors until its April 23, 2008 Board
Meeting, at which time our general counsel discussed with the Board the costs of
remaining as a public company and whether a transaction that would enable us to
deregister our Common Stock was available to us. In response to this discussion,
the Board authorized management to investigate alternatives for us to deregister
with the SEC and to consult with professional advisers as necessary to assist in
the analysis.
Management did not
actively investigate the potential transaction to deregister our Common Stock
until late in 2008 because of the financial uncertainty in the overall economy
and because the SEC postponed implementation of the Sarbanes Oxley Section 404
compliance for smaller reporting companies such as us. In early 2009, due to the
scheduled requirement for smaller reporting companies, including us, to fully
comply with Section 404 of the Sarbanes-Oxley Act, and the anticipated required
costs and effort of such compliance, management actively began exploring a
possible transaction to deregister our Common Stock.
At the Board of
Directors meeting on February 13, 2009, the Board resumed its formal discussion
of a potential transaction to deregister our Common Stock, considered potential
methods open to us for such a transaction and discussed with management the
cost-savings that we might anticipate as a result of such a transaction. The
Board also reviewed the possible alternatives available to us and the related
advantages and disadvantages to us and our stockholders of each of the options
considered. Alternatives considered included an issuer tender offer, an odd lot
tender offer and purchases of shares of our Common Stock on the open
market.
-21-
Prior to the February
13, 2009 meeting, we had solicited and received several proposals from
investment banking firms offering to assist us in connection with a potential
transaction. After reviewing and discussing those proposals, the Board
unanimously authorized management to proceed with engaging an investment banking
firm to assist us in a potential transaction.
At the Board of
Directors meeting on March 25, 2009, our general counsel and our outside legal
counsel discussed with the Board management’s progress toward a transaction to
deregister our Common Stock. Following the Board’s February 2009 authorization
to pursue engagement of an investment banking firm to advise the Board,
management and counsel had discussed the potential engagement at length with
several of the candidate firms. Management recommended to the Board that TM
Capital Corp. (“
TM Capital
”)
be engaged as its financial advisor. Following discussion of the terms of the
engagement, the Board approved the engagement of TM Capital as financial
advisor.
Prior to the Board’s
meeting on August 6, 2009, the directors were provided a preliminary copy of TM
Capital’s valuation report and at the meeting discussed it at length with
members of management. In addition, in preparation for the Board of Directors
meeting on August 6, 2009, our Board of Directors reviewed an analysis of our
stockholder ledger in order to decide upon a ratio for the Reverse Stock Split
and the Forward Stock Split.
At the Board of
Directors meeting on August 6, 2009, the Board discussed TM Capital’s overview
of us, which included historical financial information, valuation approaches,
analysis of comparative public companies and analysis of comparable
transactions. The directors questioned management concerning the cost savings to
be expected and the overall costs of the transaction. After discussion, the
Board determined that a ratio of 1-for-100 for the Reverse Stock Split and
100-for-1 for the Forward Stock Split would result in sufficiently fewer than
300 resulting stockholders, such that it would be unlikely that we will
inadvertently become required to commence public reporting again.
In determining
the ratio for the Reverse Stock Split, the Board relied on management’s analysis
of the Company’s stockholder base and determination that a 1-for-100 Reverse
Stock Split would result in fewer than 300 stockholders of record, as determined
in accordance with Rule 12g5-1 under the Exchange Act, and thus enable the
Company to terminate its status as a public reporting company with the SEC. It
was decided that, while the Forward Stock Split was not necessary for the
Company to reduce the number of holders of record of our Common Stock and to
deregister our Common Stock under the Exchange Act, it was in the best interests
of our stockholders to effect the Forward Stock Split to avoid an unusually high
stock price after the effective date of the Reverse Stock Split, to facilitate
trading of the shares of continuing stockholders either in private transactions
or in the Pink Sheets, to mitigate any loss of liquidity in our Common Stock
that may result from the Reverse Stock Split portion of the Transaction, to
avoid the administrative burden of having fractional shares outstanding and to
permit outstanding convertible and exercisable securities, such as stock
options, to be unaffected by the Transaction.
Based on TM
Capital’s overview and the analyses set forth therein, management recommended to
the Board that the Company pay between $6.95 per share and $7.15 per share for
the shares to be acquired in the Transaction. Following discussion, but subject
to further discussion with TM Capital and receipt of an acceptable fairness
opinion from TM Capital, the Board determined that it would recommend for
stockholder approval a 1-for-100 Reverse Stock Split, elimination of fractional
shares of less than one share following the Reverse Stock Split, followed
immediately by a 100-for-1 Forward Stock Split in order to accomplish a
deregistration transaction, with payment of $7.15 per share for all shares
acquired by us.
-22-
On August 24, 2009,
the Board of Directors met and invited members of management, our outside legal
counsel, and representatives of TM Capital to attend. In light of recent market
developments, TM Capital had revised its valuation analysis, which revised
presentation was distributed to the directors on August 20, 2009 and a
supplement to the presentation was distributed to the directors on August 24,
2009. TM Capital presented to the Board of Directors its revised financial
analysis of the consideration proposed to be paid in the Transaction. The TM
Capital presentation to our Board of Directors is filed as Exhibit (c)(iii) to
our Schedule 13E-3 and the TM Capital supplement to the presentation is filed as
Exhibit (c)(iv) to our Schedule 13E-3. The revised materials were based upon
$7.65 as the consideration to be paid to Fractional Shareholders in the
Transaction, which increased price reflected recent activity in the Company’s
shares and the shares of comparable companies referred to in TM Capital’s
valuation analysis, as well as changes in other market factors. In addition, TM
Capital presented the Board of Directors with its oral opinion, with the written
opinion to be presented following the meeting, that, as of the date and based
upon the assumptions made, matters considered and limits of review set forth in
TM Capital’s written opinion, the consideration of $7.65 to be received by
Fractional Shareholders pursuant to the Transaction is fair, from a financial
point of view, to such stockholders.
On August 24, 2009,
following discussion, the Board unanimously approved and recommended for
stockholder approval a 1-for-100 Reverse Stock Split, elimination of fractional
shares of less than one share following the Reverse Stock Split, followed
immediately by a 100-for-1 Forward Stock Split in order to accomplish a
deregistration transaction, with payment of $7.65 per share for all shares
acquired by us. In addition, with the benefit of the opinion of TM Capital, the
Board of Directors, having deliberated about the terms, structure, and price of
the Transaction, approved the Transaction and determined that the Transaction is
procedurally fair and substantively fair to our unaffiliated stockholders. Based
upon the factors set forth in this Proxy Statement, the Board of Directors
further determined that the Transaction is both substantively and procedurally
fair to our unaffiliated stockholders who remain stockholders following the
completion of the Transaction. In addition, based upon the factors set forth in
this Proxy Statement, the Board of Directors determined that the Transaction is
both substantively and procedurally fair to our unaffiliated stockholders who do
not remain stockholders following the completion of the Transaction.
Due to the amount of
time that had passed between the Board of Directors’ approval of the Transaction
and preparation of the preliminary proxy materials to be filed with the
Securities and Exchange Commission relating to the Transaction, members of the
Board of Directors requested that TM Capital provide an updated valuation
analysis to the Board of Directors and that the Board of Directors consider the
Transaction prior to the filing of the preliminary proxy materials.
On December 23, 2009,
the Board of Directors met and invited members of management, our outside legal
counsel, and representatives of TM Capital to attend. TM Capital presented its
updated valuation analysis, which updated presentation was distributed to the
directors on December 23, 2009. The TM Capital updated presentation to our Board
of Directors is filed as Exhibit (c)(v) to our Schedule 13E-3. In addition, TM
Capital presented the Board of Directors with its oral opinion, with the written
opinion to be presented following the meeting, that, as of the date and based
upon the assumptions made, matters considered and limits of review set forth in
TM Capital’s written opinion, the consideration of $7.65 to be received by
Fractional Shareholders pursuant to the Transaction is fair, from a financial
point of view, to such stockholders.
-23-
On December 23, 2009,
following discussion, the Board unanimously approved and recommended for
stockholder approval a 1-for-100 Reverse Stock Split, elimination of fractional
shares of less than one share following the Reverse Stock Split, followed
immediately by a 100-for-1 Forward Stock Split in order to accomplish a
deregistration transaction, with payment of $7.65 per share for all shares
acquired by us. In addition, with the benefit of the updated opinion of TM
Capital, the Board of Directors, having deliberated about the terms, structure,
and price of the Transaction, approved the Transaction and determined that the
Transaction is procedurally fair and substantively fair to our unaffiliated
stockholders. Based upon the factors set forth in this Proxy Statement, the
Board of Directors further determined that the Transaction is both substantively
and procedurally fair to our unaffiliated stockholders who remain stockholders
following the completion of the Transaction. In addition, based upon the factors
set forth in this Proxy Statement, the Board of Directors determined that the
Transaction is both substantively and procedurally fair to our unaffiliated
stockholders who do not remain stockholders following the completion of the
Transaction.
For a further
discussion of fairness of the Transaction, see “Special Factors—Fairness of the
Offer” and “Special Factors—Fairness Opinion of TM Capital Corp.”
Fairness of the Transaction
The Board of
Directors believes that the Transaction is fair to unaffiliated stockholders,
including both unaffiliated stockholders who are cashed-out after the
Transaction and those who continue as stockholders after the Transaction. After
consideration of all aspects of the Transaction, as described below, the Board
of Directors unanimously approved the Transaction. All five members of the Board
of Directors, including the three independent members of the Board of Directors,
unanimously approved the Transaction. Except for such approval, we are not aware
that any of our affiliates has made a recommendation, in their individual
capacities, either in support of or opposed to the Transaction.
Substantive Fairness.
The Board of Directors considered, among other
things, the factors listed below, as well as the alternatives to the Transaction
as noted above in “Special Factors—Alternatives to the Transaction” in reaching
its conclusion as to the substantive fairness of the Transaction to our
unaffiliated stockholders, including both unaffiliated holders who are
cashed-out after the Transaction and those who continue as stockholders after
the Transaction. The Board of Directors did not assign specific weight to any
factors it considered, nor did it apply them in a formulaic fashion, although
the Board of Directors particularly noted the opportunity in the Transaction for
stockholders to sell their holdings at a premium, as well as the significant
cost and time savings for us resulting from the Transaction which will benefit
our continuing stockholders. The discussion below is not meant to be exhaustive,
but we believe includes all material factors considered by the Board of
Directors in reaching its determinations.
-24-
Future Cost and Time Savings.
The Board of Directors
noted that, as a public company, we are required to prepare and file with the
SEC, among other items, the following:
-
Quarterly Reports on Form
10-Q;
-
Annual Reports on Form
10-K;
-
Proxy statements and annual
stockholder reports as required by Regulation 14A under the Exchange Act;
and
-
Current Reports on Form
8-K.
The Board of
Directors further noted that, under the requirements of Section 404 of the
Sarbanes-Oxley Act, as a public company, we would be required to file an
auditor’s attestation report as to the status of our internal control systems
and procedures alongside our annual report for fiscal years ending after June
15, 2010, which our independent auditors have informed us will nearly double our
annual audit fees.
The Board of
Directors noted that the external costs associated with our public reports and
other filing obligations, as well as other external costs relating to public
company status, comprise a significant overhead expense, made up principally of
the following:
Fiscal Year Ended
|
|
2009 (est.)
|
|
2008
|
|
2007
|
Audit, Audit Related Fees, and
Tax
|
|
$
|
188,225
|
|
|
$
|
229,450
|
|
|
$
|
179,525
|
|
Sarbanes-Oxley Act and Other SEC Compliance
|
|
$
|
89,250
|
|
|
$
|
89,250
|
|
|
$
|
89,250
|
|
Transfer Agent, D&O, and Filing
Costs
|
|
$
|
115,575
|
|
|
$
|
114,900
|
|
|
$
|
154,205
|
|
Totals
|
|
$
|
393,050
|
|
|
$
|
433,600
|
|
|
$
|
422,980
|
|
The historical public
company costs presented above are significant as a percentage of our total cost
of administration. The public reporting, legal and filing costs primarily
include professional fees for our auditors and corporate counsel and external
compliance costs incurred in preparing and reviewing such filings. The amounts
listed for Sarbanes-Oxley Act compliance reflect estimated executive and
administrative time incurred in complying with public company requirements. The
Board of Directors noted that the Transaction will result in the elimination of
approximately $224,825 per year of the above historical “public company” costs,
which includes approximately (i) $40,000 in external accounting and audit fees,
(ii) $89,250 in internal Sarbanes-Oxley Act compliance and (iii) a combined
$95,575 in transfer agent, D&O insurance, external legal fees and annual
meeting costs.
Not reflected in the
above historical cost breakdown is the incremental spending which we anticipate
we would have to incur to remain in compliance with the requirements of Section
404 of the Sarbanes-Oxley Act. Beginning in 2010, management estimates the
incremental annual costs related to the internal control audit requirements of
Section 404 would be approximately $115,500. The Board of Directors therefore
noted that the total costs avoided as a result of the Transaction equals
approximately $340,000, which includes both historical public company costs
eliminated and future Section 404 costs avoided.
-25-
The Board of
Directors noted management’s belief that the anticipated cost savings from
deregistration will offset the cost of the Transaction in less than two years
based upon an estimated transaction cost of $640,000. The Board of Directors
noted that as a result of the financial and market crisis of 2008 and 2009,
there may be an increase in the level of governmental and market regulation of
public companies in the future and the cost of compliance with such regulation
may increase further. Such additional costs could be significant for a smaller
reporting company such as ours and would be avoided by the Transaction.
Opportunity to Liquidate Shares of Common
Stock.
The Board of
Directors considered the opportunity the Transaction presents for stockholders
owning fewer than 100 shares to liquidate their holdings at a premium over the
closing price per share of our common stock at the time of the approval of the
Transaction, without incurring brokerage costs.
Equal Treatment of Affiliated and Unaffiliated
Holders of Our Shares.
The
Transaction will not affect holders of our shares differently on the basis of
affiliate status. The sole determining factor in whether a stockholder will be a
cashed-out holder or continuing holder of our Common Stock as a result of the
Transaction is the number of shares of our Common Stock held by the stockholder
immediately prior to the Transaction.
Opinion of the Financial
Advisor.
The Board of
Directors considered the presentation dated August 20, 2009 issued by TM
Capital, the supplement to the presentation dated August 24, 2009 and the
updated presentation dated December 23, 2009 and the opinion of TM Capital
rendered to the Board of Directors on August 26, 2009, as updated on December
23, 2009, to the effect that, as of the date and based upon the assumptions
made, matters considered and limits of review set forth in TM Capital’s written
opinion, the consideration to be received by Fractional Shareholders pursuant to
the Transaction is fair, from a financial point of view, to such stockholders.
For more information about the opinion, you should read the discussion below
under “Special Factors—Fairness Opinion of TM Capital” and a copy of the opinion
of TM Capital dated August 26, 2009 and the updated opinion of TM Capital dated
December 23, 2009 attached as Annexes C and D, respectively, to this proxy
statement.
Potential Ability to Control Decision to Remain a Holder of or Liquidate
Our Shares.
Current holders of fewer than 100 shares can remain stockholders
of us by acquiring additional shares so that they own at least 100 shares
immediately before the Transaction. Conversely, stockholders that own 100 or
more shares and desire to liquidate their shares in connection with the
Transaction (at the price offered by us) can reduce their holdings to less than
100 shares by selling shares prior to the Transaction. It should be noted that
as there is a limited trading market for our Common Stock on the OTC Bulletin
Board, a stockholder seeking to either increase or decrease holdings prior to
the effective date of the Transaction may not be able to do so. As a result,
there can be no assurance that a stockholder will be able to acquire or sell
sufficient shares to control whether such stockholder remains a stockholder
following the effective time of the Transaction. Due to these concerns, the
Board of Directors did not place undue influence on this factor.
-26-
Limited Liquidity for the Company’s Common
Stock.
The Board of
Directors noted that the trading volume in our common stock has been, and
continues to be, relatively limited. The average daily trading volume of the
stock for the 30 day, 60 day, 90 day and 120 day period ended August 17, 2009,
which was prior to the Board of Directors’ initial approval of the Transaction,
was approximately 0, 333, 260 and 210 shares per day, respectively. During the
120 day period ended August 17, 2009, however, there were 75 trading days on
which our common stock did not trade at all, compared with only 9 trading days
during that period in which our common stock was traded. The average daily
trading volume of the stock for the 30 day, 60 day, 90 day and 120 day period
ended December 18, 2009, which was prior to the Board of Directors’ subsequent
consideration of the Transaction, was approximately 41, 152, 247 and 657 shares
per day, respectively. During that 120 day period ended December 18, 2009,
however, there were 54 trading days on which our common stock did not trade at
all, compared with 31 trading days during that period in which our common stock
was traded. Accordingly, the Transaction provides a large number of our record
holders and beneficial holders with the opportunity to obtain cash for their
shares in a relatively limited trading market and at a premium over the closing
price of our common stock at the time of our announcement of the Transaction.
Current and Historical Prices.
The Board of
Directors considered both the historical market prices and recent trading
activity and current market prices of our common stock. During the 30 day, 60
day, 90 day and 120 day period ended August 17, 2009, which was prior to the
Board of Directors’ initial approval of the Transaction, our average share price
was $5.11, $5.31, $5.62 and $5.58, respectively. The $7.65 cash out price for
Fractional Shareholders, therefore, represents an approximately 49.7% premium
over the average share price for the 30 day period ended August 17, 2009, an
approximately 44.1% premium over the average share price for the 60 day period
ended August 17, 2009, an approximately 36.1% premium over the average share
price for the 90 day period ended August 17, 2009, an approximately 37.1%
premium over the average share price for the 120 day period ended August 17,
2009, an approximately 23.4% premium over the $6.20 closing sales price of
common stock on August 25, 2009 (the day immediately prior to our announcement
of the Transaction). During the 30 day, 60 day, 90 day and 120 day period ended
December 18, 2009, which was prior to the Board of Directors subsequent
consideration of the Transaction, our average share price was $6.13, $6.13,
$6.04 and $5.98, respectively. The $7.65 cash out price for Fractional
Shareholders, therefore, represents an approximately 24.8% premium over the
average share price for the 30 day period ended December 18, 2009, an
approximately 24.8% premium over the average share price for the 60 day period
ended December 18, 2009, an approximately 26.7% premium over the average share
price for the 90 day period ended December 18, 2009, an approximately 27.9%
premium over the average share price for the 120 day period ended December 18,
2009. In analyzing the Transaction relative to our historical market price
during the past two years, the Board adopted the analysis of TM Capital.
Going Concern Value.
In determining the cash amount to be paid to Fractional Shareholders in
the Transaction, the Board of Directors considered the implied valuation ranges
of our Common Stock on a going concern basis as presented in TM Capital’s
presentation dated August 20, 2009, the supplement to the presentation dated
August 24, 2009 and the updated presentation dated December 23, 2009. The Board
has relied upon and adopted TM Capital’s going concern analyses and the opinion
of TM Capital rendered to the Board of Directors on August 26, 2009, as updated
on December 23, 2009, to the effect that, as of the date and based upon the
assumptions made, matters considered and limits of review set forth in TM
Capital’s written opinion, the consideration to be received by Fractional
Shareholders pursuant to the Transaction is fair, from a financial point of
view, to such stockholders.
-27-
Net Book Value and Liquidation Value.
The Board did not consider
net book value a material indicator of our value because it is merely indicative
of historical costs. In addition, while TM Capital considered a liquidation
analysis, the Board determined that it also had minimal relevance in light of
the fact that we will remain as a continuing business and the Transaction will
not result in a change of control of the Company.
No Firm Offers.
The Board of Directors is not aware of any
firm offers during the past two years by any unaffiliated person for the merger
or consolidation of the Company, the sale or other transfer of all or any
substantial part of the assets of the Company, or a purchase of our shares of
common stock or other securities that would enable the holder to exercise
control of the Company.
Disadvantages of the Transaction.
The Board of Directors
also considered the disadvantages of the Transaction, including that:
No Participation in Future Growth by
Cashed-out Stockholders.
After the Transaction, Fractional Shareholders will no longer have any ownership
interest in us and will no longer participate in our future earnings and growth.
Reduction in Information about the Company.
After completion
of the Transaction, we will cease to file annual, quarterly, current, and other
reports and documents with the SEC. While we intend to continue to prepare
audited annual financial statements and periodic unaudited financial statements
which will be made available to stockholders through our company website, we
will not be under any continuing obligation to do so. We will not be providing
periodic reports in the format currently required of us under the provisions of
the Exchange Act and, as a result, continuing stockholders will have access to
less information about us and our business, operations, and financial
performance.
Limited Liquidity.
After the Transaction, our Common Stock may be
eligible for quotation in the Pink Sheets. However, trading opportunities in the
Pink Sheets will be dependent upon whether any broker-dealers commit to make a
market for our Common Stock. We cannot guarantee or anticipate whether our
Common Stock will be quoted in the Pink Sheets. In addition, because of the
possible limited liquidity for our Common Stock, the suspension of our
obligation to publicly disclose financial and other information following the
Transaction, and the deregistration of our Common Stock under the Exchange Act,
continuing stockholders may potentially experience a significant decrease in the
value of their Common Stock.
Limited Oversight.
After completion of the Transaction, we will
no longer be subject to the provisions of the Sarbanes-Oxley Act and certain of
the liability provisions of the Exchange Act.
Reporting Obligations of Certain
Insiders.
Our executive
officers, directors and 10% stockholders will no longer be required to file
reports relating to their transactions in our common stock with the SEC. In
addition, our executive officers, directors and 10% stockholders will no longer
be subject to the recovery of profits provision of the Exchange Act, and persons
acquiring 5% of our common stock will no longer be required to report their
beneficial ownership under the Exchange Act.
-28-
Reduced Cash on Hand.
We estimate that
the cost of payment to Fractional Shareholders, professional fees, transfer
agent costs and other expenses of the Transaction will total approximately
$640,000. As a result, immediately after the Transaction, our cash balances on
hand will be reduced by the costs incurred in the Transaction.
Filing Requirements Reinstituted.
The filing of the Form 15
will result in the suspension and not the termination of our filing obligations
under the Exchange Act. This suspension remains in effect so long as we have
fewer than 300 stockholders of record. Thus, subsequent to the time the Form 15
becomes effective, if on the first day of any fiscal year we have more than 300
stockholders, then we must resume reporting pursuant to Section 15(d) of the
Exchange Act.
No Appraisal Rights.
Under Delaware law, our Certificate of
Incorporation and our bylaws, no appraisal or dissenters’ rights are available
to our stockholders who dissent from the Transaction.
Reduced Management Incentive.
The lack of liquidity
provided by a ready market may result in fewer opportunities to utilize
equity-based incentive compensation tools to recruit and retain top executive
talent. Stock options and other equity-based incentives are typically less
attractive if they cannot be turned into cash quickly and easily once earned.
Our Board of Directors believes that this is unlikely to have any significant
adverse impact on us, since stock options and other equity-based incentives have
not been a significant part of our executives’ compensation packages in the
past.
Less Attractive Acquisition Currency.
Stock that is registered
with the SEC and actively traded on an exchange or automated quotation system is
generally a more attractive acquisition currency than unregistered stock, since
the acquirer of the publicly traded security has constant access to important
information about the publicly traded company, can access the market to sell the
stock and can easily determine the value of the stock (
i.e.
, the price to
be received upon sale). An acquirer of illiquid securities of a privately held
company must depend on liquidity either via negotiated buy-out or buy-back
arrangements, or a liquidity event by the Company that is generally outside of
his/her control. Our Board of Directors recognized that this may not be a
significant disadvantage, however, because (i) the relative illiquidity of our
shares makes our stock less attractive for larger investors than most publicly
traded securities with significant trading volume, and (ii) we have not
historically utilized our stock as currency in acquisitions.
Reduced Equity Capital Raising Opportunities.
One of the primary reasons
many companies “go public” is to be able to more easily and efficiently access
the public capital markets to raise cash. Similar opportunities are generally
less available (without significant expense) to companies that do not have a
class of securities registered with the SEC. Following the Transaction, since we
will no longer be registered with the SEC, it will likely be more costly and
time consuming for us to raise equity capital from public or private sources.
Again, our Board of Directors has concluded that this may be of little
significance to us since this has not been, and is not expected to be, an action
that we would wish to pursue for the foreseeable future.
-29-
Loss of Prestige.
Public companies are often viewed by
stockholders, employees, investors, customers, vendors and others as more
established, reliable and prestigious than privately held companies. In
addition, public companies are often followed by analysts who publish reports on
their operations and prospects, and garner more press and media coverage than
companies whose securities are not available for purchase by the investing
public. Companies that lose status as a public company may risk losing prestige
in the eyes of the public, the investment community and key constituencies.
However, our Board of Directors felt that this was not a significant factor in
considering whether to undertake the Transaction due to the fact that we do not
currently enjoy research analyst coverage or similar media attention and almost
all of our significant competitors are privately held companies.
Procedural Fairness.
No unaffiliated representative acting solely
on behalf of our unaffiliated stockholders for the purpose of negotiating the
terms of the Transaction or preparing a report covering the fairness of the
Transaction was retained by us, nor were special provisions made to grant
unaffiliated stockholders access to our corporate files or to obtain counsel or
appraisal services. The Board of Directors did not form a special committee to
approve the Transaction. We have only five directors, three of whom are
independent directors. The relatively small number of directors, three of whom
are independent directors, and the fact that the Board received the advice of an
independent financial advisor regarding the fairness of the consideration to be
offered to Fractional Shareholders in the Transaction, contributed to the
Board’s decision not to form a separate committee to consider the Transaction.
In addition, the Board of Directors took note of the fact that the interests of
unaffiliated stockholders inherently varied depending upon whether any
particular unaffiliated stockholder held 100 shares or more or held fewer than
100 shares. The Board of Directors believes that separate representatives and
advisors for each of these classes would have provided no measurable additional
protection to unaffiliated stockholders.
The Board of
Directors also noted that this Proxy Statement, along with our other filings
with the SEC, provide a great deal of information for unaffiliated stockholders
to make an informed decision as to the Transaction, and that no special
provision for the review of our files was necessary. The Board of Directors
noted, though, that subject to certain conditions, Delaware law already provides
stockholders with the right to review our books and records.
The Board of
Directors determined not to condition the approval of the Transaction on
approval by a majority of unaffiliated shareholders. The Board of Directors
noted that affiliated and unaffiliated stockholders will be treated equally in
the Transaction. If separate approval of unaffiliated stockholders were
required, our affiliated stockholders would receive lesser voting rights than
unaffiliated stockholders solely on the basis of their affiliate status even
though they will receive no additional benefits or different treatment in the
Transaction and any such requirement would prevent a majority of the outstanding
shares of our common stock from participating in the consideration of the
proposed Transaction. Furthermore, a vote of the majority of unaffiliated
stockholders is not required under Delaware law. Finally, stockholders can
increase, divide, or otherwise adjust their existing holdings at any time prior
to the effective date of the Transaction, so as to retain some or all of their
shares of common stock, or to receive cash for some or all of their shares, as
they see fit.
-30-
Recommendation of the Board of
Directors.
At meetings
held on August 24, 2009 and December 23, 2009, based on the foregoing analyses,
including a consideration of the disadvantages of the Transaction, the Board of
Directors unanimously determined that the Transaction is procedurally and
substantively fair to, and in the best interests of, the Company and its
unaffiliated stockholders, unanimously approved the Transaction and recommends
that you vote “
FOR
” approval of the Transaction.
Fairness Determination by G. Louis Graziadio
III, William R. Lang, James F. Sanders, Ginarra Partners, LLC and Graziadio
Family Trust
Each of G.
Louis Graziadio III, William R. Lang, James F. Sanders, Ginarra Partners, LLC
and Graziadio Family Trust, udt 10/13/75, each of whom has been deemed a “filing
person” for purposes of Schedule 13E-3, has determined that the Transaction is
procedurally and substantively fair to unaffiliated stockholders, including both
unaffiliated stockholders who are cashed-out after the Transaction and those who
continue as stockholders after the Transaction. In reaching this determination,
these persons relied upon the factors considered by, and the analyses of, our
Board of Directors (including the TM Capital opinions) and adopted such factors
and analyses as their own. See “Special Factors—Fairness of the
Offer.”
Alternatives Considered
As stated above in
“Special Factors—Background of the Transaction”, our Board of Directors
considered other methods of effecting a transaction to deregister our Common
Stock, but ultimately rejected each of these alternatives and determined that
the Transaction was preferable to the other alternatives. There was no
consideration of any other alternatives that were not related to deregistration.
When considering the
various alternatives to the Transaction, the primary focus was the level of
assurance that the selected alternative would result in us having fewer than 300
record owners of our Common Stock, thus allowing us to achieve our objective of
terminating registration of our Common Stock under the Exchange Act, the time
frame within which such alternative could reasonably be expected to be achieved,
again relative to the other alternatives under consideration, as well as the
potential costs of the alternative transactions.
Issuer Tender Offer.
Under this
alternative, we would offer to purchase a set number of shares of our Common
Stock according to a specific timetable. Because of the requirement in an issuer
tender offer to treat tendering stockholders ratably, shares would have to be
repurchased on a pro rata basis and, as a result, there would be no assurance
that enough stockholders would tender all of their shares of our Common Stock to
reduce the number of record owners of our Common Stock to fewer than 300.
Additionally, the cost of effecting an issuer tender offer would likely be
greater than the cost of implementing a reverse and forward stock split since
partial tenders by larger holders would require payment for tendered shares
without reducing the number of record holders. If the number of record holders
remained in excess of 300, we would have to resort to a reverse stock split to
eliminate additional record holders. In light of the indeterminate number of
shares necessary to accomplish the objective of a deregistration transaction
under this alternative, the cost of doing so was determined to be too uncertain
and most likely significantly in excess of the cost associated with the
Transaction.
-31-
Odd Lot Tender Offer.
Unlike a traditional
issuer tender offer, an odd lot tender offer would be offered only to
stockholders owning a set number (or fewer) shares of our Common Stock. Because
the tender of shares would be at the option of the stockholder, there could be
no assurance that enough stockholders would participate so as to reduce the
number of record holders to fewer than 300. While the time frame for completing
an odd lot tender offer is shorter than the period of time involved in
accomplishing a reverse and forward stock split and could be less expensive, our
Board of Directors opted for the Transaction because of the lack of assurance
that an odd lot tender offer would produce the intended result. We previously
implemented an odd lot tender offer in December 2003 in which all shareholders
owning less than 100 shares were allowed to tender their shares to us in
exchange for an agreed share price. After completion of the odd lot tender
offer, we still had approximately 1,242 registered shareholders who owned less
than 100 shares each.
Purchase of Shares on the Open Market.
We have the ability
to make periodic repurchases of our Common Stock in the open market. However,
this alternative would take an extended amount of time to complete, and, as it
would be voluntary, there would be no assurance of acquiring sufficient shares
to reduce the number of record holders to fewer than 300. The cost of such a
method would also be undeterminable. Also, because many registered shareholders
who own small numbers of shares do not hold their shares in brokerage accounts,
open market purchase efforts are ineffective in reaching such shareholders.
For the reasons
discussed above, our Board of Directors unanimously agreed that the Transaction
was the most expeditious and economical way of undertaking a deregistration
transaction.
Effects of the Transaction
Generally.
The Board of
Directors is soliciting stockholder approval for the Transaction. If approved by
the stockholders and implemented by the Board of Directors, the Transaction will
become effective on such date as may be determined by our Board of Directors.
At the meeting,
stockholders are being asked to consider and vote upon proposals to amend our
Certificate of Incorporation to effect the Reverse Stock Split and the Forward
Stock Split. Copies of the proposed amendments to our Certificate of
Incorporation for the Reverse Stock Split and the Forward Stock Split are
attached as Annexes A and B, respectively. Although both the Reverse Stock Split
and the Forward Stock Split will be voted on separately, the Company will not
effect either the Reverse Stock Split or the Forward Stock Split unless both are
approved by the Company’s stockholders.
-32-
If the Transaction is
completed, the following will occur:
-
Each share of Common Stock held of
record by a stockholder owning fewer than 100 shares immediately prior to the
effective time of the Reverse Stock Split will be converted into the right to
receive $7.65 in cash (subject to any applicable U.S. federal, state and local
withholding tax), without interest, per pre-split share.
-
Each share of Common Stock held by
a stockholder of record owning 100 shares or more immediately prior to the
effective time of the Reverse Stock Split will continue to represent one share
of Common Stock after completion of the Transaction.
-
We expect to have fewer than 300
record holders of Common Stock following the Transaction and, therefore, to be
eligible to terminate registration of our Common Stock with the SEC, which
would terminate our obligation to continue filing annual and periodic reports
and other filings required under the federal securities laws that are
applicable to public companies and eliminate most of the expenses related to
the disclosure, reporting and compliance requirements of the Sarbanes-Oxley
Act.
-
The Board of Directors anticipates
that we will seek to have our Common Stock traded on the Pink Sheets; however,
liquidity is likely to be limited due to the fact that we will no longer file
the reports required by the Exchange Act.
Effects on the Company
Upon
completion of the Transaction, it is anticipated that we will have fewer than
300 stockholders and will therefore be eligible to terminate the registration of
our Common Stock with the SEC and become a private company. In determining
whether the number of our stockholders of record falls below 300 as a result of
the Transaction, we will count stockholders of record in accordance with Rule
12g5-1 under the Exchange Act. Rule 12g5-1 provides, with certain exceptions,
that in determining whether issuers, including us, are subject to the
registration provisions of the Exchange Act, securities are considered to be
“held of record” by each person who is identified as the owner of such
securities on the respective records of security holders maintained by or on
behalf of the issuers. However, institutional custodians such as Cede & Co.
and other commercial depositories are not considered a single holder of record
for purposes of these provisions. Rather, Cede & Co.’s and these
depositories’ accounts are treated as the record holders of our shares. Based on
information available to us as of the Record Date, we expect that as a result of
the Transaction the number of our stockholders of record would be reduced to
approximately 219.
The registration of
our Common Stock may be terminated upon application by us to the SEC if there
are fewer than 300 holders of record of our Common Stock. We will be required to
terminate our registration under the applicable provisions of the Exchange Act.
Accordingly, we will file with the SEC a Form 15 certifying that we have less
than 300 stockholders of record. Our obligation to file periodic and current
reports as a result of our Common Stock’s registration under the applicable
provisions of the Exchange Act will be suspended immediately upon the filing of
the Form 15 with the SEC. After the 90-day waiting period following the filing
of the Form 15:
-33-
-
our obligation to comply with the
requirements of the proxy rules and to file proxy statements under Section 14
of the Exchange Act also will be suspended;
-
our executive officers, directors
and 10% stockholders no longer will be required to file reports relating to
their transactions in our Common Stock with the SEC and no longer will be
subject to the recovery of short-swing profits provisions of the Exchange Act;
and
-
persons acquiring more than 5% of
our Common Stock no longer will be required to report their beneficial
ownership under the Exchange Act.
However, following
the filing of the Form 15 with the SEC, if on the first day of any fiscal year
we have more than 300 stockholders of record we once again will become subject
to the reporting requirements of the Exchange Act. We will continue to be
subject to the general anti-fraud provisions of applicable federal and state
securities laws.
We anticipate that
following the Transaction we will continue to operate as we have done prior to
the Transaction. It is anticipated that the same officers and directors will
continue in their roles as officers and directors, and we do not anticipate any
significant corporate events in the near future.
The
Transaction is estimated to result in the retirement of approximately 50,000
shares at a cost of $7.65 per share. Including expenses for the Transaction, the
Company estimates that the total cost of the Transaction to us, including fees
and expenses for the various legal and financial advisers, will be approximately
$640,000. Our cash balance will be reduced accordingly. The consideration to be
paid to Fractional Shareholders and the other costs of the Transaction will be
paid from cash on hand. See “Special Factors—Source of Funds and
Expenses”
Our common stock is
currently traded on the OTC Bulletin Board (“
OTCBB
”) and
we expect that after the transaction our Common Stock will trade on the Pink
Sheets. The resulting lack of public information concerning the Company,
however, will likely reduce the liquidity of our Common Stock. It is expected
that any trading in our Common Stock after the transaction will only occur on
the Pink Sheets or in privately negotiated sales. The Pink Sheets are maintained
by Pink Sheets OTC Markets, Inc., a quotation service that collects and
publishes market maker quotes for over-the-counter securities. The Pink Sheets
is not a stock exchange or a regulated entity. Price quotations are provided by
over-the-counter market makers and company information is provided by the
over-the-counter companies. There is no assurance that there will be any Pink
Sheets quotations after the Transaction or that, if such quotations begin, they
will continue for any length of time.
Effects on the Cashed-Out Stockholders
Stockholders holding
fewer than 100 shares of Common Stock immediately prior to the effective time of
the Transaction will cease to be stockholders of us. They will lose all rights
associated with being a stockholder of us, such as the rights to attend and vote
at stockholder meetings and receive dividends and distributions. These
stockholders will receive the right to be paid $7.65 in cash (subject to any
applicable U.S. federal, state and local withholding tax), without interest, for
each share of Common Stock owned immediately prior to the Reverse Stock Split.
Such stockholders will be liable for any applicable taxes, but will not be
required to pay brokerage fees or service charges. Promptly after the effective
time of the Transaction, we will send a transmittal letter explaining to such
stockholders how they can surrender their share certificates in exchange for
cash payment. The length of time between the effective time of the Transaction
and the date on which Fractional Shareholders will receive their cash will
depend, in part, on the amount of time taken by each Fractional Shareholder to
return his or her stock certificates with a properly completed letter of
transmittal. No cash payment will be made to any Fractional Shareholder until he
or she has surrendered his or her outstanding certificate(s), together with the
letter of transmittal, in accordance with the terms of the letter of
transmittal. Following the surrender of share certificates in accordance with
the terms of the letter of transmittal, Fractional Shareholders should receive
their cash payments promptly. No interest will be paid on the cash payment at
any time.
-34-
If a
stockholder owns fewer than 100 shares of our Common Stock before the
Transaction, the only way the stockholder can continue to be our stockholder
after the Transaction is to acquire, prior to the effective time of the
Transaction, sufficient additional shares to cause such stockholder to own a
minimum of 100 shares at the effective time of the Transaction. However, given
the historically limited liquidity in our stock, we cannot assure you that any
shares will be available for purchase and thus there can be no assurance that a
stockholder will be able to acquire sufficient shares to meet or exceed the
required 100 shares. In such an instance, the stockholder would no longer remain
a stockholder after the effective time of the
Transaction.
The number of shares
held by a stockholder of record in two or more separate but identical record
holder accounts will be combined to determine the number of shares of our Common
Stock owned by that holder and, accordingly, whether the holder will be a
cashed-out stockholder or a continuing stockholder. Shares held by record
holders in joint accounts, such as by a husband and wife, and shares held in
similar capacities will be treated separately, and will not be combined with
individual accounts in determining whether a holder will be a cashed-out
stockholder or a continuing stockholder. We intend to treat stockholders holding
our Common Stock in street name in the same manner as record holders. Prior to
the effective date of the Transaction, we will conduct an inquiry of all
brokers, banks and other nominees that hold shares of our Common Stock in
“street name,” ask them to provide us with information on how many fractional
shares will be cashed-out, and request that they effect the Transaction for
their beneficial holders. However, these banks, brokers and other nominees may
have different procedures than registered stockholders for processing the
Transaction. As a result, a stockholder owning 100 or more shares of Common
Stock may nevertheless have those shares cashed-out if the stockholder holds
shares in a combination of street name accounts and record holder accounts, or
holds shares in separate accounts in several brokerage firms. If you are in this
situation and desire to remain one of our stockholders after the Transaction,
you may consolidate your holdings into one brokerage account or record holder
account prior to the effective date of the Transaction. Conversely, if you hold
an account with less than 100 shares in street name and want to ensure that your
shares are cashed-out, you may want to change the manner in which your shares
are held from street name into a record holder account in your own name so that
you will be a record owner of the shares.
Fractional
Shareholders will have no further opportunity to share in our assets, earnings
or profits following the effective time of the Transaction. It will not be
possible for Fractional Shareholders to reacquire an equity interest in the
Company unless they purchase an interest from a remaining stockholder following
the Transaction and there can be no assurance that such shares will be available
for purchase following the Transaction.
-35-
Effects on the Unaffiliated Remaining Stockholders
Stockholders holding
100 or more shares of common stock immediately prior to the effective time of
the Transaction will continue to be stockholders of us, will receive no cash in
the transaction and, following the Transaction, will hold the same number of
shares as they held prior to the Transaction.
Stockholders who
continue as stockholders of the Company after the Transaction are likely to
experience reduced liquidity of their shares of Common Stock. We anticipate that
our Common Stock will be traded on the Pink Sheets and, as such, we anticipate
that information relating to the trading of our Common Stock will be published
in the Pink Sheets, but there can be no assurance of any trading in, or market
for, our Common Stock.
Stockholders who
continue as stockholders of us after the Transaction will not receive or have
access to the same financial and other business information about us that they
would if we continued to make public disclosures pursuant to the Exchange Act.
Following the transaction, however, stockholders will continue to have the
right, upon written request to us, to receive certain information in appropriate
circumstances, to the extent provided by the Delaware General Corporation Law,
including, for example, the right to view and copy our stock ledger, a list of
our stockholders and other books and records, provided that the requesting party
is a stockholder, makes the request in the form required by statute, and does so
for a proper purpose.
Our Board of
Directors also believes that, following the transaction, the remaining
stockholders will benefit from the savings in direct and indirect operating
costs to the Company resulting from us no longer being required to maintain our
public company status. Our direct, out-of-pocket costs resulting from our
reporting and other obligations under the Exchange Act and the Sarbanes-Oxley
Act were approximately $393,050 in fiscal year 2009 and we expect these costs to
be approximately $508,550 in fiscal year 2010 if we do not complete the
Transaction. As we noted above, we ultimately expect to realize recurring annual
cost savings in excess of $340,000 as a result of the Transaction, which
includes estimated executive and administrative time incurred in complying with
public company requirements. Our continuing stockholders, including our
unaffiliated stockholders, will be the beneficiaries of these savings. See
“Special Factors—Purposes of and Reasons for the Transaction”. Remaining
stockholders will have the opportunity to participate in our future growth and
earnings as we go forward as a more streamlined entity without the costs of
compliance with SEC reporting requirements.
Effects on the Affiliated Remaining Stockholders
Our affiliates,
consisting of directors, executive officers and 10% stockholders, will
participate in the Transaction to the same extent as non-affiliates.
-36-
Upon the
effectiveness of the Transaction, the aggregate number of shares of our Common
Stock owned by our directors, executive officers and 10% stockholders will
remain the same and the ownership percentage of the shares of our Common Stock
held by our directors and executive officers and 10% stockholders will increase
by approximately 1.46% from 65.76% to 67.22% as a result of the reduction of the
number of shares of our Common Stock outstanding. The increase in the ownership
percentage of our shares of Common Stock held by our directors, executive
officers and 10% stockholders and the reduction in the number of shares
outstanding following the completion of the Transaction is based on record
holder information that we received as of February 2, 2010 from our transfer
agent, Continental Stock Transfer & Trust Company, as to our record holders,
and information we have received regarding the holdings of beneficial owners of
our Common Stock held in street name. The number of shares to be cashed-out in
the Transaction may vary from the estimate above, and the ownership percentage
of our shares of Common Stock held by our directors, executive officers and 10%
stockholders and the ownership percentage of the continuing stockholders after
the Transaction will proportionally increase or decrease as a result of
purchases, sales and other transfers of our shares of Common Stock by our
stockholders prior to the effective time of the Transaction, and depending on
the number of street name shares that are actually cashed-out in the
Transaction. Like all other remaining stockholders, these affiliates also are
likely to experience reduced liquidity of their shares of Common Stock.
Our direct,
out-of-pocket costs resulting from our reporting and other obligations under the
Exchange Act and the Sarbanes-Oxley Act were approximately $393,050 in fiscal
year 2009 and we expect these costs to be approximately $508,550 in fiscal year
2010 if we do not complete the Transaction. As we noted above, we ultimately
expect to realize recurring annual cost savings in excess of $340,000 as a
result of the Transaction, which includes estimated executive and administrative
time incurred in complying with public company requirements. Our continuing
stockholders, including our affiliated stockholders, will be the beneficiaries
of these savings. See “Special Factors—Purposes of and Reasons for the
Transaction”. Remaining stockholders will have the opportunity to participate in
our future growth and earnings as we go forward as a more streamlined entity
without the costs of compliance with SEC reporting requirements.
Our executive
officers and directors are expected to retain their respective positions with us
following the transaction. In addition, our directors and executive officers and
10% stockholders may have interests in the Transaction that are different from
your interests as a stockholder, and have relationships that may present
conflicts of interest, including holding options to purchase shares of our
Common Stock that will remain outstanding following the Transaction and will not
be affected by the Transaction. See “Special Factors—Potential Conflicts of
Interests of Officers, Directors and Certain Affiliated Persons”.
Finally, as of
December 27, 2008, the Company had approximately $24,289,000 of net operating
losses (“
NOLs
”), as determined for U.S. federal income tax
purposes. As discussed below, the Company does not believe that the Transaction
will limit the Company’s ability to utilize the NOLs to offset future taxable
income for U.S. federal income tax purposes. See “Special Factors – Material
U.S. Federal Income Tax Consequences of the Transaction – Tax Consequences of
the Transaction to the Company”. The Company’s remaining affiliated stockholders
generally will not be able to take direct advantage of the Company’s NOLs as a
result of the Transaction. While beneficial to the Company (and indirectly to
its shareholders), the preservation of NOLs did not directly impact the
Company’s decision to structure the Transaction in its current
form.
-37-
Opinion of TM Capital
We engaged TM Capital
to render an opinion to our board of directors as to the fairness, from a
financial point of view, of the consideration to be received by Fractional
Shareholders pursuant to the Transaction. TM Capital, a New York, Boston and
Atlanta based investment and merchant banking firm, served as financial advisor
to our board of directors. As part of its investment and merchant banking
business, TM Capital is regularly engaged in performing financial analyses with
regard to businesses and their securities in connection with mergers and
acquisitions, financings, restructurings, principal investments, valuations,
fairness opinions and other financial advisory services. Since its founding in
1989, the firm has assisted numerous boards of directors of public and private
companies in reviewing various transactions and opining as to the fairness of
such transactions to certain constituents from a financial point of view.
On August 26, 2009
and December 23, 2009, TM Capital rendered oral opinions to our board of
directors, which were subsequently confirmed in written opinions, that, subject
to the limitations, exceptions, assumptions and qualifications set forth
therein, as of such dates, the consideration to be received by Fractional
Shareholders pursuant to the Transaction was fair, from a financial point of
view, to such holders.
The full text of the
August 26, 2009 and December 23, 2009 written opinions of TM Capital, which set
forth, among other things, assumptions made, procedures followed, matters
considered, qualifications and exceptions, and limitations of the reviews
undertaken in rendering the opinions, are attached as Annex C and Annex D,
respectively, to this Proxy Statement. Stockholders are urged to read the
opinions carefully and in their entirety.
The opinion of TM
Capital is directed to our board of directors and addresses only the fairness,
from a financial point of view, of the consideration to be received by
Fractional Shareholders pursuant to the Transaction. The opinion of TM Capital
is not a recommendation as to how the board of directors, any stockholder or any
other person or entity should vote or act with respect to any matters relating
to the Transaction. Further, the TM Capital opinion does not in any manner
address our underlying business decision to pursue the Transaction or the
relative merits of the Transaction as compared to any alternative business
transaction or strategy. The decision as to whether to approve the Transaction
may depend on an assessment of factors unrelated to the financial analysis on
which the opinion of TM Capital is based.
The following is a
summary of the material analyses performed by TM Capital in connection with
rendering its opinion. TM Capital noted that the basis and methodology for the
opinion have been designed specifically for this purpose and may not translate
to any other purposes. While this summary describes the analyses and factors
that TM Capital deemed material in its presentation and opinion to our board of
directors, it does not purport to be a comprehensive description of all analyses
and factors considered by TM Capital. The opinion is based on the comprehensive
consideration of the various analyses performed. This summary is qualified in
its entirety by reference to the full text of the opinion of TM Capital.
-38-
In arriving at its
opinion, TM Capital did not attribute any particular weight to any particular
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Several analytical
methodologies were employed by TM Capital in its analyses, and no one single
method of analysis should be regarded as critical to the overall conclusion
reached by it. Each analytical technique has inherent strengths and weaknesses,
and the nature of the available information may further affect the value of
particular techniques. Accordingly, TM Capital believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors in their
entirety, could create a misleading or incomplete view of the evaluation process
underlying its opinion. The conclusion reached by TM Capital, therefore, is
based on the application of its own experience and judgment to all analyses and
factors considered by it, taken as a whole.
In connection with
preparing its opinion, TM Capital made such reviews, analyses and inquiries as
it deemed necessary and appropriate under the circumstances, including, but not
limited to, the following:
-
a review of the following
documents
:
-
the Company’s Annual Reports on
Form 10-K and related financial information for the years ended December 2004
through December 2008;
-
the Company’s Quarterly Reports on
Form 10-Q and the related unaudited financial information for the periods
ended March 28, 2009, June 27, 2009 and September 26, 2009;
-
the Company’s Amendment No. 1 to
its Annual Report on Form 10-K for the year ended December 27, 2008 on Form
10-K/A;
-
a draft of the Company’s proxy
statement prepared in connection with the Transaction;
-
certain information, including
historical financial data and financial forecasts, relating to the business,
earnings, cash flow, assets and prospects of the Company, furnished to TM
Capital by the Company or publicly available;
-
visited the Company, toured
certain facilities and conducted discussions with members of senior management
of the Company concerning its business and prospects;
-
reviewed the historical market
prices and trading activity of the Company’s common stock;
-
compared certain financial and
market information for the Company with that of selected publicly traded
companies which TM Capital deemed to be relevant;
-
compared the financial terms of
the Transaction with those of certain other transactions which TM Capital
deemed to be relevant;
-
reviewed a liquidation analysis of
the Company prepared by management; and
-
reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as TM Capital deemed necessary, including its
assessment of general economic, market and monetary conditions.
-39-
In its review and analysis, and in arriving at
its opinion, TM Capital:
-
relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company;
-
relied upon assurances of the
management of the Company that it is unaware of any facts that would make the
information provided incomplete or misleading;
-
did not make any independent
appraisal of the assets or liabilities of the Company; and
-
assumed that any material
liabilities (contingent or otherwise, known or unknown) of the Company are as
set forth in the consolidated financial statements of the Company or have
otherwise been disclosed by management.
TM Capital prepared
its opinions as of August 26, 2009 and December 23, 2009. The opinions were
necessarily based upon market, economic, financial, and other conditions as they
existed and could be evaluated as of such dates, and TM Capital disclaims any
undertaking or obligation to advise any person of any change in any fact or
matter affecting its opinions coming or brought to the attention of TM Capital
after the dates of the TM Capital opinions.
Summary of Financial
Analyses by TM Capital
The following is a
summary of the material financial analyses used by TM Capital in connection with
providing its December 23, 2009 opinion to our board of directors. The financial
analyses summarized below include information presented in tabular format. In
order to fully understand the financial analyses used by TM Capital, the tables
must be read together with the text of each summary. The tables do not
constitute a complete description of the financial analyses. Rather, the
analyses listed in the tables and described below must be considered as a whole;
considering any portion of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying TM Capital’s opinion.
-40-
Comparable Public
Company Analysis
In order to assess
how the public market values companies with similar characteristics to the
Company, TM Capital reviewed and compared specific financial and operating data
relating to the Company with the following ten selected, publicly-traded,
companies that TM Capital deemed appropriate:
-
Crown Crafts Inc.
-
CSS Industries Inc.
-
CTI Industries Corp.
-
Kid Brands, Inc.
-
Lacrosse Footwear Inc.
|
-
RC2 Corp.
-
Sport Supply Group,
Inc.
-
Summer Infant, Inc.
-
Swank Inc.
-
Universal Security
Instruments Inc.
|
TM Capital chose
these companies based on their general similarity to the Company, noting however
that many of these companies are significantly larger than the Company. These
public companies were selected because they all are primarily distributors,
importing products used in a consumer or industrial end-user application, with
products sourced from third party manufacturers based primarily in the Far East.
Due to the inherent differences between the business, operations and prospects
of the Company and the business, operations and prospects of each of the
companies included in the analysis, TM Capital believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the Comparable Public Company Analysis. Accordingly, TM Capital also made
qualitative judgments concerning differences between the financial and operating
characteristics and prospects of the Company and the companies included in the
Comparable Public Company Analysis that would affect the public trading values
of each. TM Capital used publicly-available historical financial data. TM
Capital reviewed multiples of enterprise value to adjusted earnings before
interest, taxes, depreciation and amortization (“
EBITDA
”) and
earnings before interest and taxes (“
EBIT
”).
The following table
shows for the comparable publicly traded companies and the Company (based upon
the Transaction) their enterprise value and the multiples of their enterprise
value to:
-
Latest twelve month (“
LTM
”)
EBITDA
-
2009
Estimated (“
2009E
”)
EBITDA
-
Historical average EBITDA (for the LTM plus
the latest three fiscal years)
-
Latest twelve month (“
LTM
”)
EBIT
-
2009E EBIT
-
Historical average EBIT (for the LTM plus
the latest three fiscal years)
-41-
(USD in
millions)
|
|
|
|
|
|
Enterprise Value
to
|
|
|
|
|
|
|
|
|
|
|
EBITDA
Multiple
|
|
|
|
Enterprise Value to
EBIT Multiple
|
|
|
|
Enterprise
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Company
|
|
Value
|
|
Average
|
|
LTM
|
|
2009E
|
|
Average
|
|
LTM
|
|
2009E
|
Crown Crafts
Inc.
|
|
|
$35
|
|
|
|
3.3x
|
|
|
|
3.1x
|
|
|
|
NA
|
|
|
|
3.9x
|
|
|
|
4.1x
|
|
|
|
NA
|
|
CSS Industries
Inc.
|
|
|
$256
|
|
|
|
5.0x
|
|
|
|
6.0x
|
|
|
|
NA
|
|
|
|
6.8x
|
|
|
|
8.7x
|
|
|
|
NA
|
|
CTI Industries
Corp.
|
|
|
$21
|
|
|
|
6.0x
|
|
|
|
5.8x
|
|
|
|
NA
|
|
|
|
10.8x
|
|
|
|
11.9x
|
|
|
|
NA
|
|
Kid Brands,
Inc.
|
|
|
$166
|
|
|
|
5.1x
|
|
|
|
6.8x
|
|
|
|
NA
|
|
|
|
6.1x
|
|
|
|
8.2x
|
|
|
|
NA
|
|
Lacrosse Footwear
Inc.
|
|
|
$83
|
|
|
|
7.0x
|
|
|
|
8.1x
|
|
|
|
8.5x
|
|
|
|
8.5x
|
|
|
|
10.9x
|
|
|
|
11.6x
|
|
RC2 Corp.
|
|
|
$290
|
|
|
|
3.8x
|
|
|
|
4.7x
|
|
|
|
4.7x
|
|
|
|
4.8x
|
|
|
|
6.2x
|
|
|
|
6.3x
|
|
Sport Supply Group,
Inc.
|
|
|
$158
|
|
|
|
7.1x
|
|
|
|
6.4x
|
|
|
|
7.3x
|
|
|
|
8.4x
|
|
|
|
7.2x
|
|
|
|
8.4x
|
|
Summer Infant,
Inc.
|
|
|
$102
|
|
|
|
10.4x
|
|
|
|
7.6x
|
|
|
|
7.0x
|
|
|
|
13.4x
|
|
|
|
10.8x
|
|
|
|
9.7x
|
|
Swank Inc.
|
|
|
$27
|
|
|
|
3.7x
|
|
|
|
6.4x
|
|
|
|
NA
|
|
|
|
3.9x
|
|
|
|
7.1x
|
|
|
|
NA
|
|
Universal Security
Instruments Inc.
|
|
|
$16
|
|
|
|
11.3x
|
|
|
|
NM
|
|
|
|
NA
|
|
|
|
11.7x
|
|
|
|
NM
|
|
|
|
NA
|
|
|
|
Median
|
|
|
$92
|
|
|
|
5.5x
|
|
|
|
6.4x
|
|
|
|
7.2x
|
|
|
|
7.6x
|
|
|
|
8.2x
|
|
|
|
9.1x
|
|
|
|
Boss Holdings, Inc.
(a)
|
|
|
$12
|
|
|
|
4.
5
x
|
|
|
|
5.0x
|
|
|
|
5.7x
|
|
|
|
5.7x
|
|
|
|
6.7x
|
|
|
|
7.9x
|
|
____________________
(a) Based on the proposed take out price of fractional shares of $7.65
per share.
NA – Not Available
NM – Not Meaningful
Two data points were
deemed “Not Meaningful” in the above Comparable Public Company Analysis. Both
“Not Meaningful” data points were due to the fact that the subject company had
negative EBIT and EBITDA rendering calculation of EBIT and EBITDA multiples “Not
Meaningful”.
Comparable Transactions
Analysis
TM Capital analyzed 15 historical reverse / forward stock split
transactions announced by publicly traded companies from November 2005 to
December 2009 which had a market capitalization one day prior to the
announcement of a transaction greater than $5 million and a fractional share
payment price per share greater than $1.00.
The following 15 reverse/forward stock split transactions were
analyzed:
|
1.
|
|
American Education Corp.
|
|
2.
|
|
BNS Holding Inc.
|
|
3.
|
|
CallWave Inc.
|
|
4.
|
|
China Direct, Inc.
|
|
5.
|
|
Collins Industries, Inc.
|
|
6.
|
|
Cuisine Solutions Inc.
|
|
7.
|
|
Gander Mountain Co.
|
|
8.
|
|
Grill Concepts Inc.
|
|
9.
|
|
Jaclyn Inc.
|
|
10.
|
|
Lazare Kaplan International Inc.
|
|
11.
|
|
Major Automotive Companies Inc.
|
|
12.
|
|
MedAire Inc.
|
|
13.
|
|
Meritage Hospitality Group Inc.
|
|
14.
|
|
New Horizons Worldwide Inc.
|
|
15.
|
|
Zareba Systems,
Inc.
|
-42-
TM
Capital selected these 15 transactions based on the following criteria:
-
Headquartered
in the United States
-
Traded on a
United States exchange
-
Announced a
reverse stock split immediately followed by a forward stock split between
November 2005 and December 2009
-
Purpose of
the stock split was to reduce the number of stockholders of record to under
300 in order to terminate its public company reporting status and “go dark”
-
Market
capitalization 1 day prior to announcement greater than $5 million
-
Takeout
payment price per share greater than $1.00
The following table
shows the premiums to market price offered in the Comparable Transactions and
pursuant to the Transaction.
|
|
%
Premium vs. Stock Price Prior to Announcement of Intention of
|
|
|
Transaction
|
|
|
1 Day
|
|
7 Day
|
|
30 Day
|
|
60 Day
|
|
90 Day
|
|
120
Day
|
High
|
|
|
208.3
|
%
|
|
|
147.6
|
%
|
|
|
226.1
|
%
|
|
|
208.3
|
%
|
|
|
164.3
|
%
|
|
|
244.4
|
%
|
Median
|
|
|
30.1
|
%
|
|
|
30.1
|
%
|
|
|
22.2
|
%
|
|
|
24.6
|
%
|
|
|
28.0
|
%
|
|
|
35.7
|
%
|
Low
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
(22.4
|
)%
|
|
|
(30.5
|
)%
|
|
|
(37.1
|
)%
|
|
|
(38.6
|
)%
|
|
|
Boss Holdings,
Inc.
|
|
|
23.4
|
%
|
|
|
49.7
|
%
|
|
|
49.7
|
%
|
|
|
32.4
|
%
|
|
|
36.6
|
%
|
|
|
45.7
|
%
|
Discounted Cash Flow
Analysis
A discounted cash
flow analysis is a traditional valuation methodology used to derive a valuation
of an asset by calculating the “present value” of estimated future cash flows of
the asset. “Present value” refers to the current value of future cash flows or
amounts and is obtained by discounting those future cash flows or amounts by a
discount rate that takes into account macroeconomic assumptions and estimates of
risk, the opportunity cost of capital, expected returns and other appropriate
factors.
TM Capital performed
a discounted cash flow analysis by adding (1) the present value of projected
“free cash flows” for the Company for the fiscal years 2010 through 2013 to (2)
the present value of the “terminal value” for the Company as of December 31,
2013. “Free cash flow” is defined as cash that is available to either reinvest
or to distribute to security holders and “terminal value” refers to the value of
all future cash flows from an asset at a particular point in time. The projected
free cash flows that TM Capital used in its analysis were based on financial
projections and estimates prepared by the management of the Company.
Below is a
summary of the financial forecasts prepared by management of the Company that
were considered by TM Capital and used in the discounted cash flow
analysis.
-43-
FINANCIAL
PROJECTIONS
|
($s in thousands,
except per share data)
|
|
Year Ended
December
|
|
|
2009E
|
|
2010P
|
|
2011P
|
|
2012P
|
|
2013P
|
Net
Sales
|
|
|
$47,909
|
|
|
|
$50,016
|
|
|
|
$51,314
|
|
|
|
$52,966
|
|
|
|
$55,010
|
|
Gross Profit
|
|
|
12,029
|
|
|
|
12,164
|
|
|
|
12,367
|
|
|
|
12,757
|
|
|
|
13,316
|
|
EBITDA
|
|
|
2,147
|
|
|
|
2,051
|
|
|
|
2,048
|
|
|
|
1,915
|
|
|
|
2,209
|
|
Operating
Income
|
|
|
1,556
|
|
|
|
1,390
|
|
|
|
1,353
|
|
|
|
1,266
|
|
|
|
1,552
|
|
Net
Income
|
|
|
664
|
|
|
|
834
|
|
|
|
812
|
|
|
|
760
|
|
|
|
931
|
|
|
|
Diluted
EPS
|
|
|
$0.31
|
|
|
|
$0.39
|
|
|
|
$0.38
|
|
|
|
$0.36
|
|
|
|
$0.4 4
|
|
In preparing its
discounted cash flow analysis, TM Capital calculated a terminal value for the
Company by applying a multiple of 4.5x to 6.5x to projected 2013 EBITDA. TM
Capital discounted the projected free cash flows and the terminal value of the
Company using discount rates ranging from 9% to 11%.
The discount
rates of 9.0%, 10.0% and 11.0% used in the discounted cash flow analysis were
based on TM Capital’s estimate of the Company’s weighted average cost of capital
(“
WACC
”). The
WACC was calculated by applying the capital asset pricing model to the Company’s
estimated cost of debt and the Company’s estimated cost of equity which was
calculated by reviewing inputs such as the comparable companies’ median
unlevered equity beta, the current risk free interest rate, and market risk and
size premiums as provided by Ibbotson & Associates.
The terminal
value multiples used of 4.5x, 5.5x and 6.5x were based on TM Capital’s judgment
after reviewing the historical and LTM EBITDA trading multiples for the
comparable public companies, and considering the Company’s relatively smaller
size, profit margins and growth characteristics.
The discounted cash
flow analysis indicated a range of per share present values for the Company’s
common stock of $5.48 to $7.19, as summarized in the table below.
|
|
Per Share Equity
Value
|
|
|
Terminal Value Multiple
of EBITDA
|
|
|
4.5x
|
|
|
5.5x
|
|
6.5x
|
Discount
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.0%
|
|
|
$5.74
|
|
|
|
|
$6.47
|
|
|
|
$7.19
|
|
10.0%
|
|
|
$5.61
|
|
|
|
|
$6.30
|
|
|
|
$7.00
|
|
11.0%
|
|
|
$5.48
|
|
|
|
|
$6.15
|
|
|
|
$6.82
|
|
Liquidation Analysis
Management of the
Company prepared an analysis of the potential liquidation value of the Company’s
assets and liabilities, based upon management estimates of the net realizable
value of each category of the Company’s assets, the Company’s balance sheet
liabilities, and additional off balance sheet liabilities that would be
triggered in a liquidation. Such analyses were not based upon third party
appraisals of properties or other assets, and do not constitute appraisals.
Following is a summary of the Liquidation Analysis.
-44-
(USD in thousands,
except per share amounts)
|
|
|
Valuation
Range
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Liquidation
|
|
|
As
of 9/26/2009
|
|
Value
|
Assets
:
|
|
|
|
|
|
|
|
|
Cash &
Equivalents
|
|
|
$5,641
|
|
|
|
$5,641
|
|
Accounts Receivable,
net
|
|
|
7,537
|
|
|
|
6,224
|
|
Inventories
|
|
|
15,367
|
|
|
|
5,897
|
|
Other Current Assets
|
|
|
393
|
|
|
|
0
|
|
Total
Current Assets
|
|
|
28,938
|
|
|
|
17,762
|
|
Property, Plant &
Equipment, net
|
|
|
3,174
|
|
|
|
1,168
|
|
Goodwill
|
|
|
2,853
|
|
|
|
0
|
|
Deferred Taxes
|
|
|
2,873
|
|
|
|
0
|
|
Other Assets
|
|
|
502
|
|
|
|
0
|
|
Total
Assets
|
|
|
$38,340
|
|
|
|
$18,930
|
|
|
|
Liabilities
:
|
|
|
|
|
|
|
|
|
Current Portion of
Long-Term Debt
|
|
|
$1,136
|
|
|
|
$1,136
|
|
Accounts
Payable
|
|
|
1,839
|
|
|
|
1,839
|
|
Accrued Wages and
Commission
|
|
|
871
|
|
|
|
871
|
|
Other Accrued
Liabilities
|
|
|
1,438
|
|
|
|
1,438
|
|
Total Current
Liabilities
|
|
|
5,284
|
|
|
|
5,284
|
|
Long-Term
Debt
|
|
|
605
|
|
|
|
605
|
|
Deferred
Compensation
|
|
|
202
|
|
|
|
202
|
|
Total
Liabilities
|
|
|
$6,091
|
|
|
|
$6,091
|
|
|
|
Other Estimated
Liquidation Costs
:
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
$778
|
|
Leases
|
|
|
|
|
|
|
903
|
|
Closedown /
Reserve
|
|
|
|
|
|
|
1,350
|
|
Tail
Insurance
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
$3,281
|
|
|
|
Net Liquidation
Value
|
|
|
|
|
|
|
$9,558
|
|
|
|
Net Liquidation Value Per
Share
|
|
|
|
|
|
|
$4.52
|
|
Summary of
Analyses
TM Capital performed
a summary analysis applying a selected range of results of each valuation
methodology to the Company’s results, and compared this with the amount of
consideration to be paid pursuant to the Transaction.
-45-
(USD in millions,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boss
Statistic
|
|
Low
|
|
Mean*
|
|
High
|
Selected Public
Companies Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Average
EBITDA Multiple
|
|
|
|
|
|
|
4.0x
|
|
|
|
4.8x
|
|
|
|
5.5x
|
|
Implied Enterprise
Value – Historical Average EBITDA
|
|
|
$2.7
|
|
|
|
$10.9
|
|
|
|
$12.9
|
|
|
|
$15.0
|
|
Equity Value
|
|
|
|
|
|
|
$14.8
|
|
|
|
$16.8
|
|
|
|
$18.9
|
|
Price Per
Share
|
|
|
|
|
|
|
$6.99
|
|
|
|
$7.95
|
|
|
|
$8.92
|
|
LTM EBITDA
Multiple
|
|
|
|
|
|
|
4.5x
|
|
|
|
5.3x
|
|
|
|
6.0x
|
|
Implied Enterprise
Value – LTM EBITDA
|
|
|
$2.5
|
|
|
|
$11.1
|
|
|
|
$12.9
|
|
|
|
$14.8
|
|
Equity Value
|
|
|
|
|
|
|
$15.0
|
|
|
|
$16.8
|
|
|
|
$18.7
|
|
Price Per
Share
|
|
|
|
|
|
|
$7.08
|
|
|
|
$7.95
|
|
|
|
$8.82
|
|
2009E EBITDA
Multiple
|
|
|
|
|
|
|
5.5x
|
|
|
|
6.3x
|
|
|
|
7.0x
|
|
Implied Enterprise
Value – 2009E EBITDA
|
|
|
$2.1
|
|
|
|
$11.8
|
|
|
|
$13.4
|
|
|
|
$15.0
|
|
Equity Value
|
|
|
|
|
|
|
$15.7
|
|
|
|
$17.3
|
|
|
|
$18.9
|
|
Price Per
Share
|
|
|
|
|
|
|
$7.42
|
|
|
|
$8.19
|
|
|
|
$8.95
|
|
Historical Average EBIT
Multiple
|
|
|
|
|
|
|
5.0x
|
|
|
|
5.8x
|
|
|
|
6.5x
|
|
Implied Enterprise
Value – Historical Average EBIT
|
|
|
$2.2
|
|
|
|
$10.8
|
|
|
|
$12.4
|
|
|
|
$14.0
|
|
Equity Value
|
|
|
|
|
|
|
$14.7
|
|
|
|
$16.3
|
|
|
|
$17.9
|
|
Price Per
Share
|
|
|
|
|
|
|
$6.93
|
|
|
|
$7.70
|
|
|
|
$8.46
|
|
LTM EBIT
Multiple
|
|
|
|
|
|
|
6.0x
|
|
|
|
6.5x
|
|
|
|
7.0x
|
|
Implied Enterprise
Value – LTM EBIT
|
|
|
$1.8
|
|
|
|
$11.1
|
|
|
|
$12.0
|
|
|
|
$12.9
|
|
Equity Value
|
|
|
|
|
|
|
$15.0
|
|
|
|
$15.9
|
|
|
|
$16.8
|
|
Price Per
Share
|
|
|
|
|
|
|
$7.07
|
|
|
|
$7.51
|
|
|
|
$7.94
|
|
2009E EBIT
Multiple
|
|
|
|
|
|
|
7.0x
|
|
|
|
7.5x
|
|
|
|
8.0x
|
|
Implied Value – 2009E
Adjusted EBIT
|
|
|
$1.6
|
|
|
|
$10.9
|
|
|
|
$11.7
|
|
|
|
$12.4
|
|
Equity Value
|
|
|
|
|
|
|
$14.8
|
|
|
|
$15.6
|
|
|
|
$16.3
|
|
Price Per
Share
|
|
|
|
|
|
|
$6.99
|
|
|
|
$7.36
|
|
|
|
$7.73
|
|
____________________
*
Represents mean of selected
range.
Discounted Cash Flow
Analysis
|
|
|
Per Share Equity
Value
|
|
Discount
|
|
Terminal Value Multiple
of EBITDA
|
|
Rate
|
|
4.5x
|
|
5.5x
|
|
6.5x
|
|
|
9.0%
|
|
|
|
$5.74
|
|
|
|
$6.15
|
|
|
|
$7.19
|
|
|
|
10.0%
|
|
|
|
$5.61
|
|
|
|
$6.30
|
|
|
|
$7.00
|
|
|
|
11.0%
|
|
|
|
$5.48
|
|
|
|
$6.15
|
|
|
|
$6.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Liquidation Value of
Assets
|
|
$18,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Liabilities
|
|
$6,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Estimated Liquidation
Costs
|
|
$3,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Liquidation
Value
|
|
$9,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Liquidation Value per Share
|
|
$4.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Transaction
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Premium vs. Stock
Price Prior to Announcement of Intention
|
|
|
|
1
Day
|
|
7
Day
|
|
30
Day
|
|
60
Day
|
|
90
Day
|
|
120
Day
|
Median
|
|
|
30.1%
|
|
|
|
30.1%
|
|
|
|
22.2%
|
|
|
|
24.6%
|
|
|
|
28.0%
|
|
|
|
35.7%
|
|
Implied Stock
Price
|
|
|
$7.61
|
|
|
|
$7.61
|
|
|
|
$7.15
|
|
|
|
$7.29
|
|
|
|
$7.49
|
|
|
|
$7.94
|
|
____________________
Note: Based on the Company’s
closing stock price of $5.85 as of December 18, 2009
-46-
The $7.65 per share
cash consideration to be paid to Fractional Shareholders pursuant to the
Transaction was above the values indicated by the Discounted Cash Flow Analysis
and Liquidation Analysis and within the range indicated by the Historical
Average EBITDA, LTM EBITDA, 2009E EBITDA, Historical Average EBIT, LTM EBIT,
2009E EBIT and Comparable Transactions analyses.
Based on the
information and analyses set forth above, TM Capital delivered its written
opinion to our board of directors, which stated that, as of December 23, 2009,
based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, the consideration to be
received by Fractional Shareholders pursuant to the Transaction is fair to such
holders from a financial point of view.
Fees and Expenses
The TM Capital
engagement letter with us, dated March 31, 2009, provides that, for its
services, TM Capital is entitled to receive from us a fee of $75,000, which was
paid as follows: $37,500 non-refundable retainer upon execution of the
engagement letter and $37,500 upon TM Capital’s delivery of the August 26, 2009
opinion. On December 9, 2009, the TM Capital engagement letter was amended and
such amendment provided for an additional fee of $25,000 payable to TM Capital
upon rendering the December 23, 2009 opinion. No portion of the fee paid to TM
Capital was contingent upon the consummation of the Transaction. The engagement
letter also provides that TM Capital will be paid additional fees at its
standard hourly rates for any time incurred should TM Capital be called upon to
support its findings subsequent to the delivery of the opinion. In addition, we
have agreed to reimburse TM Capital for its reasonable out-of-pocket expenses
and to indemnify TM Capital and certain related persons against liabilities
arising out of TM Capital’s services as a financial advisor to our board of
directors.
Other than the
preparation of the opinion in connection with this Transaction, during the two
years preceding the date of this opinion, TM Capital has not had any material
relationship with any party to the proposed transaction for which compensation
has been received or is intended to be received, nor is any such material
relationship or related compensation mutually understood to be contemplated;
except that, as part of its investment banking and financial advisory
businesses, TM Capital is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, private
placements and valuations for corporate and other purposes. TM Capital may
provide valuation and financial advisory services to us or our board of
directors (or any committee thereof) in the future.
The full text of TM Capital’s written opinion
dated August 26, 2009 is attached as Annex C to this Proxy Statement and the
full text of TM Capital’s updated written opinion dated December 23, 2009 is
attached as Annex D to this Proxy Statement. Each of these documents should be
read carefully and in its entirety. You or your representative (who is
designated in writing) may inspect and copy TM Capital’s presentation dated
August 20, 2009, the supplement to the presentation dated August 24, 2009 and
the updated presentation dated December 23, 2009 at our principal executive
offices, 1221 Page Street, Kewanee, Illinois 61443, during our normal business
hours.
-47-
TM Capital’s opinion is directed to the
Company’s Board of Directors and relates only to the fairness of the proposed
transaction to the shareholders, from a financial point of view, does not
address any other aspect of the proposed transaction and does not constitute a
recommendation to any shareholder with respect to the proposed transaction or
any other matter being considered by the shareholders.
Conduct of Our Business After the Transaction
Except as described
in this Proxy Statement, neither we nor our management have any current plans or
proposals to effect any extraordinary corporate transaction, such as a merger,
reorganization or liquidation, a sale or transfer of any material amount of our
assets, a change in management, a material change in our indebtedness or
capitalization, or any other material change in our corporate structure or
business. We expect to conduct our business and operations after the effective
date of the Transaction in substantially the same manner as currently conducted.
Except as described in this Proxy Statement with respect to the use of funds to
finance the Transaction and related costs and our plans to deregister our Common
Stock under the Exchange Act, the Transaction is not anticipated to have a
material effect upon the conduct of our business. We intend, however, to
continue to evaluate and review our businesses, properties, management and other
personnel, corporate structure, capitalization and other aspects of our
operations in the same manner as we historically have from time to time, and to
make such changes as we consider appropriate. We also intend to continue to
explore from time to time acquisitions and other business opportunities to
expand or strengthen our businesses, as we have done in the past. In that
regard, we may review proposals or may propose the acquisition or disposition of
assets or other changes in our business, corporate structure, capitalization,
management or other changes that we then consider to be in our best interests
and in the best interests of continuing stockholders after the Transaction.
There are currently no plans to enter into any proposals or agreements that
require stockholder approval. In addition, our executive officers and directors
are expected to retain their respective positions with us following the
transaction.
Material U.S. Federal Income Tax Consequences
of the Transaction
The following is a
summary of the material U.S. federal income tax consequences of the Transaction
to the Company and its stockholders. This summary is based upon the Internal
Revenue Code of 1986, as amended (the “
Code
”),
existing Treasury Regulations promulgated thereunder, published rulings,
administrative pronouncements and judicial decisions, any changes to which could
affect the tax consequences described herein, possibly on a retroactive basis.
This summary only addresses stockholders who hold their Common Stock as a
capital asset. This section does not apply to a stockholder that is a member of
a special class of holders subject to special rules, including, without
limitation, financial institutions, regulated investment companies, real estate
investment trusts, holders who are dealers in securities or foreign currency,
traders in securities that elect to use a mark-to-market method of accounting
for securities holdings, tax-exempt organizations, insurance companies, holders
that received their Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation, persons liable for alternative minimum
tax, holders who hold their Common Stock as part of a hedge, straddle,
conversion, constructive sale or other integrated transaction, or holders whose
functional currency is not the U.S. dollar. This summary does not address tax
considerations arising under any U.S. federal estate or gift tax laws or under
any state, local or foreign laws. This summary is not binding on the Internal
Revenue Service (the “
IRS
”).
-48-
A “
U.S. Holder
”
is a beneficial owner of Common Stock that, for U.S. federal income tax
purposes, is: (1) a citizen or resident of the United States; (2) a corporation
(or other entity treated as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; (3) an estate the income of which is
subject to U.S. federal income taxation regardless of its source; or (4) a trust
if (a) the administration of the trust is subject to the primary supervision of
a court within the United States and one or more United States persons have the
authority to control all substantial decisions of the trust, or (b) a valid
election is in effect under applicable Treasury regulations to be treated as a
United States person. A “
Non-U.S. Holder
” is a beneficial owner of Common Stock other than a U.S. Holder or an
entity treated as a partnership for U.S. federal income tax purposes. If a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) holds Common Stock, the tax treatment of a partner with
respect to the Transaction generally will depend upon the status of the partner
and the activities of the partnership. Such a partner or partnership is urged to
consult its own tax advisor as to the U.S. federal income tax consequences of
the Transaction.
THE FOLLOWING DISCUSSION IS FOR GENERAL
INFORMATION ONLY. NO RULING FROM THE IRS OR OPINION OF COUNSEL HAS BEEN OR WILL
BE OBTAINED REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTION. ACCORDINGLY, EACH STOCKHOLDER IS URGED TO CONSULT ITS OWN TAX
ADVISOR AS TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
TRANSACTION TO SUCH HOLDER.
Tax Consequences of the Transaction to U.S.
Holders
Stockholders Not
Receiving Cash in the Transaction
A U.S. Holder
that does not receive any cash in the Transaction generally should not recognize
any gain or loss with respect to the Transaction for U.S. federal income tax
purposes, and generally should have the same adjusted tax basis and holding
period in its Common Stock as such holder had immediately prior to the
Transaction. Our directors and executive officers will continue to own shares of
Common Stock after the Transaction.
Stockholders
Receiving Cash in Exchange for Common Stock in the Transaction
A U.S. Holder’s
receipt of cash in exchange for Common Stock in the Transaction generally will
be a taxable transaction to such holder for U.S. federal income tax purposes.
Under the stock redemption rules of Section 302 of the Code (referred to herein
as the “
Section 302 tests
”), a U.S. Holder’s exchange of Common Stock for cash in the Transaction
generally should be treated as a “sale or exchange” of such stock if the
exchange (1) results in a “complete termination” of such holder’s interest in
us, (2) is “substantially disproportionate” with respect to such holder or (3)
is “not essentially equivalent to a dividend” with respect to the such holder.
Each of the Section 302 tests is described in more detail below.
-49-
In determining
whether any of the Section 302 tests is satisfied, a U.S. Holder must take into
account both Common Stock actually owned by such holder and any Common Stock
considered as owned by such holder by reason of certain constructive ownership
rules in the Code. Under these rules, a U.S. Holder generally will be considered
to own Common Stock which such holder has the right to acquire pursuant to the
exercise of an option or warrant or by conversion or exchange of a security. A
U.S. Holder generally will also be considered to own Common Stock that is owned
(and, in some cases, constructively owned) by some members of such holder’s
family and by some entities (such as corporations, partnerships, trusts and
estates) in which such holder, a member of such holder’s family or a related
entity has an interest.
If any of the Section
302 tests is satisfied with respect to a U.S. Holder, and an exchange of Common
Stock for cash is therefore treated as a sale or exchange for U.S. federal
income tax purposes, such holder generally should recognize gain or loss equal
to the difference between the amount of cash received by such holder and such
holder’s adjusted tax basis in the Common Stock exchanged in the Transaction.
Gain or loss must be calculated separately with respect to each block of shares
of Common Stock exchanged in the Transaction. Any gain or loss generally will be
capital gain or loss and generally will be long-term capital gain or loss if the
relevant shares of Common Stock have been held for more than one year on the
date of the Transaction. Currently, the maximum long-term capital gain rate for
individual U.S. Holders is 15%. Certain limitations apply to the deductibility
of capital losses.
Conversely, if none
of the Section 302 tests is satisfied with respect to a U.S. Holder, such holder
generally should be treated as having received a distribution from us in an
amount equal to the cash received by such holder in the Transaction. We cannot
determine prior to the consummation of the Transaction the extent to which we
will have sufficient current and accumulated earnings and profits to cause any
distribution to be treated as a dividend for U.S. federal income tax purposes.
To the extent that the amount of a distribution received by a U.S. Holder with
respect to the Transaction exceeds such holder’s share of our current and
accumulated earnings and profits, the excess generally should be treated as a
tax-free return of capital to the extent of such holder’s adjusted tax basis in
the Common Stock exchanged in the Transaction and any remainder generally should
be treated as capital gain from the sale or exchange of the Common Stock. If
certain holding period and other requirements are satisfied, dividends are
currently taxable at a maximum rate of 15% for individual U.S. Holders. To the
extent that a U.S. Holder’s exchange of Common Stock for cash in the Transaction
is treated as a dividend, such holder’s adjusted tax basis in the Common Stock
exchanged therefor generally should be added to the tax basis of any Common
Stock retained by such holder.
A corporate U.S.
Holder that does not satisfy any of the Section 302 tests and is treated for
U.S. federal income tax purposes as receiving a dividend in the Transaction may
be eligible for the dividends received deduction, subject to certain
limitations. In addition, any amount received by a corporate U.S. Holder that is
treated as a dividend for U.S. federal income tax purposes generally will
constitute an “extraordinary dividend” under Section 1059 of the Code, and
result in the reduction of tax basis in such holder’s Common Stock or in gain
recognition to such holder in an amount equal to the non-taxed portion of the
dividend. Each corporate stockholder is urged consult its own tax advisor as to
the tax consequences of dividend treatment to such holder with respect to its
receipt of cash in the Transaction.
-50-
Section 302 Tests
A U.S. Holder’s
exchange of Common Stock for cash in the Transaction must satisfy one of the
following tests to be treated as a sale or exchange for U.S. federal income tax
purposes:
-
Complete Termination
.
A U.S. Holder’s
exchange of Common Stock for cash in the Transaction generally will result in
a “complete termination” of such holder’s interest in us if, in connection
with the Transaction, either (i) all of the Common Stock actually and
constructively owned by such holder is exchanged for cash, or (ii) all of the
shares of Common Stock actually owned by such holder is exchanged for cash,
and, with respect to constructively owned shares of Common Stock, such holder
is eligible to waive (and effectively waives) constructive ownership of all
such Common Stock under procedures described in Section 302(c) of the
Code.
-
Substantially Disproportionate
Redemption.
A U.S.
Holder’s exchange of Common Stock for cash in the Transaction generally will
be “substantially disproportionate” with respect to such holder if, among
other things, immediately after the exchange (
i.e.
, treating
all Common Stock exchanged for cash in the Transaction as no longer
outstanding), (i) such holder’s percentage ownership of our voting stock is
less than 80% of such holder’s percentage ownership of our voting stock
immediately before the exchange (
i.e.
, treating
all Common Stock exchanged for cash in the Transaction as outstanding), and
(ii) such holder owns less than 50% of the total combined voting power of all
classes of our stock entitled to vote. For purposes of these percentage
ownership tests, a holder will be considered as owning Common Stock owned
directly as well as indirectly through application of the constructive
ownership rules described above.
-
Not Essentially Equivalent to a
Dividend.
In order for a
U.S. Holder’s exchange of Common Stock for cash in the Transaction to qualify
as “not essentially equivalent to a dividend”, such holder must experience a
“meaningful reduction” in its proportionate interest in us as a result of the
exchange, taking into account the constructive ownership rules described
above. Whether a U.S. Holder’s exchange of Common Stock pursuant to the
Transaction will result in a “meaningful reduction” of such holder’s
proportionate interest in us will depend on such holder’s particular facts and
circumstances. The IRS has indicated in a published ruling that even a small
reduction in the proportionate interest of a small minority stockholder (for
example, less than 1%) in a publicly held corporation who exercises no control
over corporate affairs may constitute a “meaningful reduction.”
Each stockholder is
urged to consult its own tax advisor as to the application of the Section 302
tests to such stockholder under its particular circumstances.
Tax Consequences of the Transaction to
Non-U.S. Holders
The U.S. federal
income tax rules governing Non-U.S. Holders are complex, and the following is
only a limited summary of some general rules applicable to certain Non-U.S.
Holders with respect to the Transaction. Each Non-U.S. Holder is urged to
consult its own tax advisor regarding the U.S. federal, state, local and foreign
tax consequences to such holder of the Transaction.
-51-
A Non-U.S. Holder that does not receive any
cash in the Transaction generally should not recognize any gain or loss with
respect to the Transaction for U.S. federal income tax purposes.
A payment to a
Non-U.S. Holder in the Transaction that is treated as a distribution to such
holder with respect to its Common Stock generally will be subject to U.S.
federal income tax withholding at a 30% rate. Accordingly, as described below,
the depositary will withhold 30% of any gross payments made to a Non-U.S. Holder
with respect to the Transaction, unless such holder properly demonstrates that a
reduced rate of U.S. federal income tax withholding or an exemption from such
withholding is applicable.
If a Non-U.S.
Holder’s exchange of Common Stock for cash in the Transaction is treated as a
sale or exchange, rather than as a dividend, for U.S. federal income tax
purposes, such holder generally should not be subject to U.S. federal income tax
on the exchange, unless (1) in the case of a nonresident alien individual, the
individual is present in the United States for 183 days or more in the taxable
year of the exchange and certain other conditions are satisfied, (2) the gain is
effectively connected with a U.S. trade or business of such holder, and, if
required by an applicable income tax treaty, the gain is attributable to a
permanent establishment maintained by such holder in the United States, or (3)
we are or have been a United States real property holding corporation (a
“
USRPHC
”) and
certain other requirements are satisfied. A Non-U.S. Holder that is a
corporation and whose gain is effectively connected with the conduct of a trade
or business within the United States also may be subject to a branch profits tax
at a 30% rate (or such lower rate specified by an applicable income tax treaty).
We do not believe that we are (or have been) a USRPHC within the last five
years.
U.S. Federal Income Tax Withholding
Requirements for All Stockholders
As stated above, the
depositary will withhold U.S. federal income taxes equal to 30% of any gross
payments made to a Non-U.S. Holder with respect to the Transaction, unless such
holder properly demonstrates that a reduced rate of U.S. federal income tax
withholding or an exemption from such withholding is applicable. For example, an
applicable income tax treaty may reduce or eliminate U.S. federal income tax
withholding, in which case a Non-U.S. Holder claiming a reduction in (or
exemption from) such tax must provide the depositary with a properly completed
IRS Form W-8BEN claiming the applicable treaty benefit. Alternatively, an
exemption generally should apply if the Non-U.S. Holder’s gain is effectively
connected with a U.S. trade or business of such holder, and such holder provides
the depositary with an appropriate statement to that effect on a properly
completed IRS Form W-8ECI.
In addition, to
prevent backup U.S. federal income tax withholding equal to 28% of the gross
payments made to a stockholder in the Transaction, each U.S. Holder who does not
otherwise establish an exemption from backup withholding must provide the
depositary with such holder’s correct taxpayer identification number
(“
TIN
”) or
certify that such holder is awaiting a TIN, and provide certain other
information by completing, under penalties of perjury, the Substitute Form W-9
included in the letter of transmittal. Non-U.S. Holders should complete and sign
the appropriate IRS Form W-8, a copy of which may be obtained from the
depositary, in order to avoid backup withholding with respect to payments made
to such holders in the Transaction.
-52-
Tax Consequences of the Transaction to the Company
The
Transaction generally should be treated as a tax-free “recapitalization” for
U.S. federal income tax purposes, in which case the Company should not recognize
any gain or loss for such purposes. In addition, as of December 27, 2008, the
Company had approximately $24,289,000 of NOLs. Under the Code, an “ownership
change” with respect to a corporation can significantly limit the amount of
pre-ownership change NOLs and certain other tax assets that the corporation may
utilize after the ownership change to offset future taxable income. For this
purpose, an ownership change generally occurs when there is a cumulative change
of greater than 50% in a corporation’s stock ownership within a three-year
period. We do not believe that the Transaction, together with all other
equity-related transactions during the testing period, will trigger an ownership
change with respect to the Company.
Potential Conflicts of Interests of Officers,
Directors and Certain Affiliated Persons
Our directors
and executive officers and 10% stockholders may have interests in the
Transaction that are different from your interests as a stockholder, and have
relationships that may present conflicts of interest. While our Board of
Directors recommends a vote “
FOR
” the
Transaction, to the Company’s knowledge, none of the Company’s affiliates has
made a recommendation, in their individual capacities, either in support of or
opposed to the Transaction. Our directors and executive officers have indicated
that they intend to vote their shares of our Common Stock (1,542,194 shares, or
approximately 65.76% of our issued and outstanding shares eligible to vote at
the Special Meeting) “
FOR
” the
Transaction and, therefore, approval of the Transaction is assured.
Upon the
effectiveness of the Transaction, the aggregate number of shares of our Common
Stock owned by our directors and executive officers and 10% stockholders will
remain the same and the ownership percentage of the shares of our Common Stock
held by our directors, executive officers and 10% stockholders will increase by
approximately 1.46% from 65.76% to 67.22% as a result of the reduction of the
number of shares of our Common Stock outstanding. The increase in the ownership
percentage of our shares of Common Stock held by our directors, executive
officers and 10% stockholders and the reduction in the number of shares
outstanding following the completion of the Transaction is based on record
holder information that we received as of February 2, 2010 from our transfer
agent, Continental Stock Transfer & Trust Company, as to our record holders,
and information we have received regarding the holdings of beneficial owners of
our Common Stock held in street name. The number of shares to be cashed-out in
the Transaction may vary from the estimate above, and the ownership percentage
of our shares of Common Stock held by our directors, executive officers and 10%
stockholders and the ownership percentage of the continuing stockholders after
the Transaction will proportionally increase or decrease as a result of
purchases, sales and other transfers of our shares of Common Stock by our
stockholders prior to the effective time of the Transaction, and depending on
the number of street name shares that are actually cashed-out in the
Transaction.
See “Special
Factors—Effects of the Transaction—Effect on Affiliated Stockholders”.
-53-
Directors, executive
officers and any stockholders who own more than 10% of our outstanding Common
Stock will experience certain advantages after the Transaction in that they will
be relieved of certain SEC reporting requirements and “short-swing profit”
trading provisions under Section 16 of the Exchange Act and information
regarding their compensation and stock ownership will no longer be publicly
available. In addition, by deregistering the Common Stock under the Exchange Act
subsequent to the consummation of the Transaction, we will no longer be
prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act, from making
personal loans to our directors or executive officers, although no such loans
currently are contemplated.
In addition, each
member of the Board, and certain of our executive officers, hold options to
acquire shares of our Common Stock. The Transaction will not affect these stock
options and they will remain outstanding after the Transaction. As of January 1,
2010, our directors and executive officers held the following options to acquire
Common Stock:
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Equity
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Incentive
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Plan
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Awards:
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Number
of
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Number
of
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Number
of
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Securities
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Securities
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Securities
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Underlying
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Underlying
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Underlying
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Unexercised
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Unexercised
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Unexercised
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Option
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Option
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Options
(#)
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Options
(#)
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Unearned
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Exercise
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Expiration
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Stock
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Name
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Exercisable
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Unexercisable
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Options
(#)
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Price
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Date
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Awards
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G. Louis Graziadio
III
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100,000
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-0-
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-0-
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1.90
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3/27/2012
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None
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4,500
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-0-
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-0-
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7.00
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3/31/2014
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30,000
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-0-
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-0-
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7.50
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3/31/2015
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Richard Bern
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5,000
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-0-
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-0-
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3.75
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12/27/2012
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None
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5,000
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-0-
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-0-
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3.20
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3/17/2013
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10,000
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-0-
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-0-
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7.00
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3/31/2014
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James F.
Sanders
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10,000
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-0-
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-0-
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7.50
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3/14/2015
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None
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Perry A.
Lerner
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10,000
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-0-
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-0-
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1.90
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3/26/2012
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None
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5,500
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-0-
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-0-
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7.50
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3/13/2015
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Paul A.
Novelly
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10,000
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-0-
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-0-
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1.90
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3/26/2012
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None
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5,500
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-0-
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-0-
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7.50
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3/13/2015
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Lee E. Mikles
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10,000
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-0-
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-0-
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1.90
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3/26/2012
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None
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5,500
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-0-
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-0-
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7.50
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3/13/2015
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William R.
Lang
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10,000
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-0-
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-0-
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6.21
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3/21/2017
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None
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All of the options
held by our directors and executive officers are fully vested and are currently
exercisable.
None of our
affiliates has any interest, direct or indirect, in the Transaction other than
interests arising from the ownership of securities where those affiliates
receive no extra or special benefit not shared on a pro rata basis by all other
holders of our Common Stock, except that, by deregistering the Common Stock
under the Exchange Act subsequent to the consummation of the Transaction, we
will no longer be prohibited, pursuant to Section 402 of the Sarbanes-Oxley Act,
from making personal loans to our directors or executive officers. However, we
do not have a present intention of making personal loans to our directors or
executive officers, and the ability to make such loans was not a reason
considered by the Board in evaluating the benefits of the Transaction.
Additionally, there are no agreements with affiliates to purchase Common Stock
upon consummation of or subsequent to the Transaction.
-54-
Sources of Funds and Expenses
Since we do
not know how many record and beneficial holders of our Common Stock will receive
cash for their shares in the Transaction, we do not know the exact cost of the
Transaction. However, based on information that we have received as of February
2, 2010 from our transfer agent, Continental Stock Transfer & Trust Company,
with regard to the size of holdings of those of you who may hold shares in
street name, as well as our estimates of other Transaction expenses, we believe
that the total cash requirement of the Transaction to us will be approximately
$640,000. This amount includes approximately $389,000 needed to cash-out
fractional shares (although this amount could be larger or smaller depending on,
among other things, the number of fractional shares that will be outstanding at
the time of the Transaction as a result of purchases, sales and other transfers
of our shares of Common Stock by our stockholders, and the number of street name
shares that are actually cashed-out in the Transaction), approximately $200,000
of legal and financial advisory fees, approximately $18,000 of transfer agent
costs and approximately $33,000 of other costs, including costs of printing and
mailing to effect the Transaction as follows:
Legal
Fees
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$100,000
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Investment Banker/Fairness
Opinion
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100,000
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Payment for
Fractional Shares
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389,000
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Transfer Agent Costs
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18,000
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Printing and
Miscellaneous Costs
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33,000
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Total Expenses
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$640,000
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The consideration to be paid to Fractional Shareholders and the
other costs of the Transaction will be paid from cash on hand. There are no
conditions to the availability of the funds for the Transaction and we do not
have any alternative financing arrangements or alternative financing plans with
respect to the Transaction. No part of the funds required for the Transaction is
expected to be borrowed.
Stockholder Approval
A majority of
the outstanding shares of our Common Stock will constitute a quorum for the
purposes of approving the amendments to our Certificate of Incorporation to
effect the Transaction. Assuming the presence of a quorum, the affirmative vote
of the majority of outstanding shares of our Common Stock entitled to vote at
the Meeting is required to approve each of the Reverse Stock Split proposal
(Proposal No. 1) and the Forward Stock Split proposal (Proposal No. 2). Although
stockholders will be voting separately on the Reverse Stock Split and the
Forward Stock Split, the Company will not effect either the Reverse Stock Split
or the
Forward Stock Split unless both
proposals are approved by stockholders. Our directors and executive officers
have indicated that they intend to vote their shares of our Common Stock
(1,542,194 shares, or approximately 65.76% of our issued and outstanding shares
eligible to vote at the Special Meeting) “
FOR
” the Transaction and, therefore, approval of the Transaction is
assured.
-55-
Effective Date
The Transaction will
become effective as of the date that we amend our Certificate of Incorporation
through the filing of Certificates of Amendment to the Certificate of
Incorporation with the Secretary of State of the State of Delaware to effectuate
the Reverse Stock Split and the Forward Stock Split. We intend to effect the
Transaction as soon as possible after the Transaction is approved by our
stockholders. Within approximately five business days after the effective date
of the Transaction, the Company expects that its paying agent, Continental Stock
Transfer & Trust Company (the “
Transfer Agent
”), will send to each holder of record of 99 or fewer shares of our
Common Stock, and to brokers, banks and other nominees, based on information we
receive from them in response to our inquiries, for each owner of 99 or fewer
shares of our Common Stock held in street name, instructions, including letters
of transmittal asking them to surrender their shares. Upon proper completion,
execution and return of the letter of transmittal, and the return of the letter
of transmittal and accompanying stock certificate(s) to the Transfer Agent, the
Transfer Agent will send the payments to these stockholders within approximately
five business days of receipt. Therefore, the timing of receipt of payment for
these stockholders is dependent upon their proper surrender of the certificates
and the delivery of properly prepared and executed letters of transmittal. Our
Common Stock acquired in connection with the Transaction will be restored to the
status of authorized but unissued shares. The suspension of our obligation to
file periodic reports and other documents under the Exchange Act will become
effective after the filing with the SEC of a certification and notice of
termination of registration on Form 15. The deregistration of our Common Stock
under Section 12(g) of the Exchange Act will take effect 90 days after the
filing of the Form 15. See “Special Factors—Effects of the Transaction”.
Termination of Transaction
Under applicable
Delaware Law, the Board of Directors has a duty to act in the best interest of
our stockholders. Accordingly, the Board of Directors reserves the right to
abandon the Transaction, if for any reason the Board of Directors determines
that, in the best interest of our stockholders, it is not advisable to proceed
with the Transaction, even assuming the stockholders approve the Transaction by
vote. Although the Board of Directors presently believes that the Transaction is
in our best interests and has recommended a vote for the Transaction, the Board
of Directors nonetheless believes that it is prudent to recognize that
circumstances could possibly change prior to the Meeting such that it might not
be appropriate or desirable to effect the Transaction at that time. Such reasons
include, but are not limited to:
-
Any change in the nature of our
stockholdings prior to the effective time of the Transaction, which would
result in us being unable to reduce the number of record holders of our shares
to below 300 as a result of the Transaction;
-
Any change in the number of our
record holders that would enable us to deregister our shares under the
Exchange Act without effecting the Transaction;
-
Any change in the number of our
shares that will be exchanged for cash in connection with the Transaction that
would increase the cost and expense of the Transaction from that which is
currently anticipated; or
-
Any adverse change in our
financial condition that would render the Transaction inadvisable.
If the Board of
Directors decides to withdraw the Transaction from the agenda of the Meeting,
the Board of Directors will promptly notify our stockholders of the decision by
public announcement and by announcement at the Meeting.
-56-
Process for Payment for Fractional Shares
Continental Stock
Transfer & Trust Company will act as our agent for purposes of paying for
fractional shares in connection with the Transaction.
No service charge,
brokerage commission, or transfer tax will be payable by any Fractional
Shareholder in connection with the cash-out of shares in the Transaction.
If any certificate
evidencing shares of our Common Stock has been lost or destroyed, we may in our
sole discretion accept in lieu thereof a duly executed affidavit and indemnity
agreement in a form satisfactory to us. The holder of any shares of our Common
Stock evidenced by any certificate that has been lost or destroyed must submit,
in addition:
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the letter of transmittal sent by
us;
-
the above-referenced
affidavit;
-
the above-referenced indemnity
agreement; and
-
any other document required by us,
which may include a bond or other security satisfactory to us indemnifying us
and our other persons against any losses incurred as a consequence of paying
cash in lieu of issuing fractional shares of our Common Stock in exchange for
the existing shares of our Common Stock evidenced or purported to be evidenced
by such lost or destroyed certificate.
Additional
instructions with respect to lost or destroyed certificates will be included
with the letter of transmittal that we will send to stockholders after the
effective date of the Transaction. In the event the Company is unable to locate
certain stockholders or if a stockholder fails to properly complete, execute,
and return the letter of transmittal and accompanying stock certificate(s) to
the Transfer Agent, any funds payable to such holders pursuant to the
Transaction will be held in escrow until a proper claim is made, subject to
applicable unclaimed property and escheat laws.
-57-
Stockholders owning
less than 100 shares on the effective date of the immediately prior to the
Reverse Stock Split will receive $7.65 (subject to any applicable U.S. federal,
state and local withholding tax) for each pre-split share of Common Stock,
without interest. Stockholders who own 100 or more shares at the effective date
of the Reverse Stock Split will not be entitled to receive any cash for their
fractional share interests resulting from the Reverse Stock Split. The Forward
Stock Split that will immediately follow the Reverse Stock Split will reconvert
their whole shares and fractional share interests back into the same number of
shares of our Common Stock they held immediately before the effective time of
the Reverse Stock Split. As a result, the total number of shares held by such a
stockholder will not change after completion of the Transaction, and the
stockholder will not ordinarily receive new certificates for his or her shares
of our Common Stock.
For purposes of
determining ownership of shares of our Common Stock on the effective date of the
Reverse Stock Split, such shares will be considered held by the person in whose
name such shares are registered on our transfer agent’s records. We intend to
treat stockholders holding shares of our Common Stock in street name in the same
manner as registered stockholders whose shares are registered in their names.
Prior to the effective date of the Reverse Stock Split, we will conduct an
inquiry of all brokers, banks and other nominees that hold shares of our Common
Stock in street name. We will ask them to effect the Reverse Stock Split for
their beneficial holders holding shares of our Common Stock in street name. We
will rely on these brokers, banks and other nominees to provide us with
information on how many fractional shares will be cashed-out. However, these
brokers, banks and other nominees may have different procedures than registered
stockholders for processing the Reverse Stock Split. If you hold your shares in
street name with a bank, broker or other third party, and if you have any
questions in this regard, we encourage you to contact your bank, broker or
nominee.
Within approximately
five business days after the effective date of the Transaction, we expect that
the Transfer Agent will send to each holder of record of 99 or fewer shares of
our Common Stock immediately prior to the Reverse Stock Split, and to brokers,
banks and other nominees, based on information we receive from them in response
to our inquiries, for each owner of 99 or fewer shares of our Common Stock
immediately prior to the Reverse Stock Split held in street name, instructions
for surrendering any certificates held thereby representing shares of our Common
Stock which will be converted to a right to receive cash as a result of the
Reverse Stock Split. Such instructions will include a letter of transmittal to
be completed and returned to the Transfer Agent by the holder of such
certificates, together with such certificates. The shares we acquire in the
Transaction will be restored to the status of authorized but unissued shares.
Within approximately
five business days after the Transfer Agent receives any surrendered certificate
from a Fractional Shareholder, together with a duly completed and executed
letter of transmittal with respect thereto and such other documents as we may
require, the Transfer Agent will deliver to the person payment in an amount
equal to $7.65 (subject to any applicable U.S. federal, state and local
withholding tax), without interest, for each pre-split share of Common Stock
that is represented by the fractional share.
There will be no
differences between the respective rights, such as dividend, voting, liquidation
or other rights, preferences or limitations of our Common Stock prior to the
Transaction and our Common Stock after the Transaction.
-58-
DO NOT SEND SHARE CERTIFICATES TO US OR THE
TRANSFER AGENT UNTIL AFTER YOU HAVE RECEIVED A LETTER OF TRANSMITTAL AND ANY
ACCOMPANYING INSTRUCTIONS.
No Appraisal or Dissenters’ Rights
Under Delaware law,
our Certificate of Incorporation and our bylaws, no appraisal or dissenters’
rights are available to stockholders of the Company who dissent from the
Transaction.
Escheat Laws
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 cashed-out and
whose addresses are unknown to us, or who do not return their stock certificates
and request payment for their cashed-out shares, generally will have a certain
period of years from the effective date of the Transaction in which to claim the
cash payment payable to them. For example, with respect to stockholders whose
last known addresses are in New York, as shown by our records, the period is
three years. Following the expiration of that three-year period, the Unified
Disposition of Unclaimed Property Act of New York would likely cause the cash
payments to escheat to the State of New York. For stockholders who reside in
other states or whose last known addresses, as shown by our records, are in
states other than New York, such states may have abandoned property laws which
call 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. Under the laws of such other jurisdictions, the “holding period”
or the time period which must elapse before the property is deemed to be
abandoned may be shorter or longer than three years. If we do not have an
address for the holder of record of the shares, then unclaimed cash-out payments
would be turned over to our state of incorporation, the State of Delaware, in
accordance with its escheat laws.
Regulatory Approvals
The Company is not
aware of any material governmental or regulatory approval required for
completion of the Transaction, other than compliance with the relevant federal
and state securities laws and Delaware corporate laws.
Litigation
There is no ongoing
litigation related to the Transaction.
-59-
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This proxy statement
contains certain forward-looking statements concerning, among other things, our
anticipated results, and future plans and objectives that are or may be
considered to be “forward-looking statements”. The words “believe”, “expect”,
“anticipate”, “should”, “could” and other expressions that indicate future
events and trends identify forward-looking statements. These expectations are
based upon many assumptions that we believe to be
reasonable, but such
assumptions ultimately may prove to be materially inaccurate or incomplete, in
whole or in part
and, therefore, undue
reliance should not be placed on them. Several factors which could cause actual
results to differ materially from those discussed in such forward-looking
statements include, but are not limited to: continuing effects of the current
global financial crisis on demand for both consumer and industrial products,
pricing and availability of goods purchased from international suppliers,
unusual weather patterns which could affect domestic demand for our products and
curtail imprinting operations, pricing policies of competitors, the ability to
attract and retain employees in key positions, trends in the advertising
specialties industry and other uncertainties and changes in general economic
conditions. In light of the uncertainty inherent in our forward-looking
statements, you should not consider their inclusion to be a representation that
the forward-looking matters will be achieved. In evaluating forward-looking
statements, you should consider all these risks and uncertainties, together with
any other risks described in our other reports and documents furnished or filed
with the SEC, and you should not place undue reliance on those statements. We
assume no obligation for updating any forward-looking statements, whether as a
result of new information, future events, or otherwise. However, to the extent
that there are any material changes in the information contained in this proxy
statement, the Company will promptly disclose the changes as and to the extent
required by applicable law and the rules and regulations of the
SEC.
PROPOSAL NO. 1
: REVERSE STOCK SPLIT
Our Board of
Directors has recommended that the Company pursue a deregistration transaction
by means of a 1-for-100 reverse stock split of our Common Stock, which we refer
to in this Proxy Statement as the “
Reverse Stock Split
”, which will be accomplished by amending the Certificate of
Incorporation, immediately followed by a 100-for-1 forward stock split of our
Common Stock, which we refer to in this Proxy Statement as the “
Forward Stock Split
” and, together with the Reverse Stock Split, the “
Transaction
”, which will be accomplished by a subsequent amendment to the
Certificate of Incorporation. The first step of the Transaction (this Proposal
No. 1) is approval of an amendment to the Certificate of Incorporation to effect
the Reverse Stock Split.
Annex Relating to Proposal No. 1
The form of the
proposed amendment to the Certificate of Incorporation to effect the Reverse
Stock Split is attached to this Proxy Statement as
Annex A
.
Vote Required for Approval of Proposal No. 1
The affirmative vote
of
a majority of all of the shares outstanding
and entitled to vote on this matter
will be required for approval. A properly
executed proxy marked “ABSTAIN” with respect to this proposal will be counted
for purposes of determining whether there is a quorum for the transaction of
business at the Meeting and will have the effect of a vote against this
proposal.
Recommendation of our Board of Directors
OUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “
FOR
” THE APPROVAL
OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO EFFECT THE
REVERSE STOCK SPLIT.
-60-
PROPOSAL NO. 2
: FORWARD STOCK SPLIT
Our Board of
Directors has recommended that the Company pursue a deregistration transaction
by means of the Reverse Stock Split, which will be accomplished by amending the
Certificate of Incorporation, immediately followed by the Forward Stock Split,
which will be accomplished by a subsequent amendment to the Certificate of
Incorporation. The second step of the Transaction (this Proposal No. 2) is
approval of an amendment of the Certificate of Incorporation of the Company to
effect the Forward Stock Split.
Annex Relating to Proposal No. 2
The form of the proposed amendment to the
Certificate of Incorporation to effect the Forward Stock Split is attached to
this Proxy Statement as
Annex B
.
Vote Required for Approval of Proposal No. 2
The affirmative vote
of
a majority of all of the shares outstanding
and entitled to vote on this matter
will be required for approval. A properly
executed proxy marked “ABSTAIN” with respect to this proposal will be counted
for purposes of determining whether there is a quorum for the transaction of
business at the Meeting and will have the effect of a vote against this
proposal.
Recommendation of our Board of Directors
OUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “
FOR
” THE APPROVAL
OF THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO EFFECT THE
FORWARD STOCK SPLIT.
INFORMATION ABOUT THE COMPANY
Name and Address
The name of
the Company is Boss Holdings, Inc., a Delaware corporation. Our principal
executive offices are located at 1221 Page Street, Kewanee, Illinois 61443, and
our telephone number is (309) 852-2131.
Market Price of Common Stock; Dividends
Our common stock is
traded on the OTC Bulletin Board under the symbol “BSHI.OB.” Our Common Stock is
not listed on any national stock exchange or on NASDAQ. The OTC Bulletin Board
is a regulated quotation service that displays real-time quotes, last-sale
prices and volume information for non-listed (over-the-counter) equity
securities. The OTC Bulletin Board is a reporting system for participating
market makers, not an issuer listing service, and should not be confused with
the NASDAQ Stock Market. Participating market makers in the bulletin board
system enter quotes and trade reports on a closed computer network and the
information is made publicly available through numerous websites and other
locations. The OTC Bulletin Board is distinct from the “pink sheets” published
by Pink OTC Markets, Inc. that also report on transactions in non-listed equity
securities. The following table sets forth the high and low bid
prices per share of Common Stock for our
Common Stock for our three most recent fiscal years. The quotations below do not
reflect the retail mark-up, markdown or commissions and may not represent actual
transactions.
-61-
2007
|
|
High
|
|
Low
|
First Quarter
|
|
$
|
7.50
|
|
|
$
|
6.05
|
|
Second Quarter
|
|
$
|
8.00
|
|
|
$
|
7.07
|
|
Third Quarter
|
|
$
|
8.48
|
|
|
$
|
7.17
|
|
Fourth Quarter
|
|
$
|
8.98
|
|
|
$
|
7.35
|
|
|
|
2008
|
|
High
|
|
Low
|
First Quarter
|
|
$
|
8.90
|
|
|
$
|
8.00
|
|
Second Quarter
|
|
$
|
8.35
|
|
|
$
|
7.10
|
|
Third Quarter
|
|
$
|
7.03
|
|
|
$
|
6.10
|
|
Fourth Quarter
|
|
$
|
6.47
|
|
|
$
|
5.00
|
|
|
|
2009
|
|
High
|
|
Low
|
First Quarter
|
|
$
|
5.45
|
|
|
$
|
5.10
|
|
Second Quarter
|
|
$
|
6.90
|
|
|
$
|
5.10
|
|
Third Quarter
|
|
$
|
6.20
|
|
|
$
|
4.20
|
|
Fourth Quarter
|
|
$
|
6.48
|
|
|
$
|
4.27
|
|
|
|
2010
|
|
High
|
|
Low
|
January
|
|
$
|
6.35
|
|
|
$
|
4.51
|
|
February (through February 23,
2010)
|
|
$
|
6.35
|
|
|
$
|
6.00
|
|
We have not paid cash
dividends on our Common Stock in the past and currently plan to retain earnings,
if any, for business development and expansion.
Stockholders
As of February 2, 2010 there were approximately 1,462 holders of record
of our Common Stock.
Prior Public Offerings
We have not
made an underwritten public offering of our Common Stock for cash during the
three years preceding the date of this Proxy Statement.
Stock Purchases
The Company has not
purchased any shares of its Common Stock within the past two years.
In addition, during
the last two years, none of our directors or executive officers have purchased
shares of our Common Stock except as follows:
-
On March 6, 2009
and December 30, 2009, James F. Sanders, our Secretary and General Counsel,
acquired 6,000 and 4,000 shares, respectively, of our Common Stock upon the
exercise of stock options previously granted under a stockholder approved
stock option plan of the Company at exercise prices per share of $1.75 and
$3.625, respectively;
-62-
-
On March 6, 2009, Louis G.
Graziadio III, our Chief Executive Officer and Chairman, acquired 30,000
shares of our Common Stock upon the exercise of stock options previously
granted under a stockholder approved stock option plan of the Company at an
exercise price per share of $1.75;
-
On March 6, 2009, Paul A. Novelly,
a director of the Company, acquired 12,000 shares of our Common Stock upon the
exercise of stock options previously granted under a stockholder approved
stock option plan of the Company at an exercise price per share of
$1.75;
-
On March 6, 2009, Lee E. Mikles, a
director of the Company, acquired 12,000 shares of our Common Stock upon the
exercise of stock options previously granted under a stockholder approved
stock option plan of the Company at an exercise price per share of $1.75;
and
-
On March 6, 2009, Perry A. Lerner,
a director of the Company, acquired 12,000 shares of our Common Stock upon the
exercise of stock options previously granted under a stockholder approved
stock option plan of the Company at an exercise price per share of
$1.75.
Certain Information Concerning the Company, the Company’s Directors and
Executive Officers and the Filing Persons
Each of the
Company, G. Louis Graziadio III, William R. Lang and James F. Sanders is a
“filing person” for purposes of Schedule 13E-3. The business address of each
director and executive officer of the Company (including Messrs. Graziadio, Lang
and Sanders) is c/o Boss Holdings, Inc., 1221 Page Street, Kewanee, Illinois
61443 and the business telephone number is (309) 852-2131. Neither the Company
nor any of the Company’s directors or executive officers (including Messrs.
Graziadio, Lang and Sanders) has been convicted in a criminal proceeding during
the past five years (excluding traffic violations or similar misdemeanors) or
has been a party to any judicial or administrative proceeding during the past
five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws. Each of the Company’s directors and executive officers
(including Messrs. Graziadio, Lang and Sanders) is a citizen of the United
States.
In addition,
each of Ginarra Partners, LLC, a California limited liability company
(“
Ginarra Partners
”), and Graziadio Family Trust, udt 10/13/75 (the “
Graziadio Family Trust
”), is a “filing person” for purposes of
Schedule 13E-3.
Ginarra
Partners, LLC is a holding company with investments in various corporations,
including the Company. Second Southern Corp., of which Mr. Graziadio serves as
Chairman and CEO, is the manager of Ginarra Partners. The business address of
Ginarra Partners is 149 Palos Verdes Blvd., Suite G, Redondo Beach, CA 90277,
and the business telephone number is 310-265-0455. Ginarra Partners has not been
convicted in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors) and has not been a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities
laws.
-63-
Graziadio
Family Trust is a trust established by Mr. Graziadio, but as to which he is
neither a trustee nor a beneficiary. Phillip M. Bardack, William R. Lang and
James F. Sanders serve as the trustees of the Graziadio Family Trust. The
business address of the Graziadio Family Trust is 16633 Ventura Boulevard, Suite
510, Encino, CA 91436, and the business telephone number is 818-990-1125. The
Graziadio Family Trust has not been convicted in a criminal proceeding during
the past five years (excluding traffic violations or similar misdemeanors) and
has not been a party to any judicial or administrative proceeding during the
past five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
PROPOSAL NO. 3
: ELECTION OF DIRECTORS
The Board of
Directors currently consists of five directors, five of whom are to be elected
by the stockholders at the Meeting, each to hold office until the next Annual
Meeting of Stockholders or until a successor is duly elected and qualified.
These nominees are: G. Louis Graziadio III; Perry A. Lerner; Lee E. Mikles; Paul
A. Novelly; and William R. Lang. Each nominee has consented to being named in
this proxy statement and to serve as a director if elected.
The Board of
Directors recommends that you vote “
FOR
” each of the
five nominees named below, all of whom currently are directors of the Company.
Of the five nominees, three of them, Messrs. Lerner, Novelly and Mikles, are
independent of the Company as determined under applicable rules and regulations
of the NASDAQ Stock Market. Unless authority to vote for one or more of the
nominees is specifically withheld, the persons named in the enclosed proxy card
intend to vote “
FOR
” the election of each of the five nominees
named below. The Board of Directors does not contemplate that any of the
nominees will not be able to serve as a director, but if that contingency should
occur prior to the voting of the proxies, the persons named in the enclosed
proxy reserve the right to vote for such substitute nominee or nominees as they,
in their discretion, shall determine.
G. Louis Graziadio III
Age 60 – Chief Executive Officer and Chairman
of the Board of the Company since June 1996. He is also the Chairman and CEO of
Second Southern Corp., which is the manager of Ginarra Partners, LLC, a Los
Angeles based holding company with investments in various corporations,
including the Company. Mr. Graziadio also serves on the Boards of Directors of
Acacia Research, Inc., and True Religion Apparel, Inc.
Perry A. Lerner
Age 66 – Director since June 1996. Mr. Lerner
is the Managing Director of CPW Capital, in New York, NY, a financial advisory
firm. A graduate of Harvard Law School and Claremont McKenna College, Mr. Lerner
is a member of the State Bar of New York, State Bar of California and American
Bar Association.
-64-
Lee E. Mikles
Age 53 – Director since June 1996. Mr. Mikles
is President and CEO of FutureFuel Corp., a chemical and biofuels manufacturer
with headquarters in St. Louis, MO. From 1999 through 2005, Mr. Mikles was the
Chairman of Mikles/Miller Management, Inc., a registered investment adviser. He
also serves on the Board of Directors of FutureFuel Corp.
Paul A. Novelly
Age 66 – Director since June 1996. Mr.
Novelly is Chief Executive Officer of Apex Oil Company, Inc. a petroleum
trading, storage and transportation company headquartered in St. Louis, MO, and
St. Albans Global Management LLLP, a privately held Delaware limited liability
company, and is Chairman of World Point Terminals Inc., a publicly-held Canadian
company headquartered in Montreal, Quebec, Canada. Mr. Novelly also is a
director and Chairman of the Board of FutureFuel Corp.
William R. Lang
Age 50 – Director since June 2006. Mr. Lang
is a certified public accountant and currently is the President of GIC
Enterprises, an investment company based in Los Angeles, California which
manages commercial real estate. From June 1995 through May 2005 he was employed
by the Los Angeles CPA firm of Balser, Horowitz, Frank & Wakeling, including
serving as president of that firm from January 2000 through May 2005. Mr. Lang
is the chief financial officer of Second Southern Corporation, a Los Angeles
based holding company, which is controlled by Mr. Graziadio, the Company’s
chairman and chief executive officer. GIC Enterprises is controlled by adult
siblings of Mr. Graziadio. Mr. Lang also is a trustee of the Graziadio Family
Trust, which owns in excess of 20% of the Company’s common stock.
Vote Required for Approval of Proposal No. 3
The affirmative vote
of
a plurality of the votes cast at the
Meeting
is required for
the election of directors. A properly executed proxy marked “WITHHELD” with
respect to the election of one or more directors will not be voted with respect
to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum. Thus, five directors with the most
affirmative votes will be elected at the Meeting.
Recommendation of our Board of Directors
THE BOARD OF
DIRECTORS RECOMMENDS A VOTE “
FOR
” THE ELECTION
OF EACH OF THE NOMINEES NAMED ABOVE.
Relationships Among Directors or Executive
Officers
Mr. Graziadio and Mr.
Mikles are first cousins; otherwise, there are no family relationships existing
between the officers and directors of the Company.
Board Meetings and Committees of the Board
During the fiscal
year ended December 27, 2008 (“
Fiscal 2008
”), there were two meetings of the Board of Directors. All of the
directors attended at least 75% of the Board meetings, except Mr. Lerner who
attended one of the two meetings. The Company has an Executive Committee and
standing Audit and Compensation Committees of the Board.
-65-
The members of the
Audit Committee are Messrs. Mikles, Lerner and Lang. Mr. Mikles and Mr. Lerner
are independent of the Company while Mr. Lang is employed by a company
affiliated with Mr. Graziadio, the Company’s chief executive officer, and is not
independent of the Company. The Audit Committee has a written charter, a copy of
which is attached as Annex E. The Audit Committee reviews the Company’s
financial statements and internal accounting procedures with the Company’s
independent auditors, McGladrey & Pullen, LLP. The Audit Committee also
considers and discusses with McGladrey & Pullen, LLP all auditing procedures
and fees, and the possible effects of professional services upon the
independence of McGladrey & Pullen, LLP. The Audit Committee held four
meetings during Fiscal 2008. Mr. Lang and Mr. Mikles attended all of the
meetings and Mr. Lerner attended three of the four meetings. The Board has
determined that Mr. Lang qualifies as an audit committee financial expert under
SEC Regulation S-K 401(h). The designation or identification of a person as an
Audit Committee financial expert does not impose on such person any duties,
obligations or liabilities greater than the duties, obligations and liabilities
imposed on other members of the Audit Committee and does not affect the duties,
obligations and liabilities of the other members of the Audit Committee.
The members of the
Compensation Committee are Messrs. Lerner and Novelly, each of whom is
independent of the Company. The Compensation Committee does not have a formal
written charter. The Compensation Committee has the authority to determine and
authorize the compensation and benefits paid to the Company’s senior management
or may make recommendations to the Board concerning such matters for
consideration by the entire Board. The Compensation Committee also makes
determinations under the Company’s various plans providing incentive
compensation for management, directors and consultants. During Fiscal 2008, the
Compensation Committee took action once by unanimous written consent.
The members of the
Executive Committee are Messrs. Graziadio, Lerner, Mikles and Lang. The
Executive Committee generally has and may exercise all the powers and authority
of the full Board in the management of the business and affairs of the Company,
but specifically does not have the power or authority to do any of the
following: (i) amend the Company’s certificate of incorporation (except as
permitted by applicable law with respect to fixing the number, designations,
preferences and rights of shares of stock to be issued by the Company in certain
circumstances); (ii) adopt an agreement of merger or consolidation; (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Company’s property and assets; (iv) recommend to the
stockholders a dissolution of the Company or a revocation of a dissolution; (v)
amend the by-laws of the Company; (vi) declare a dividend; or (vii) authorize
the issuance of stock. Authority with respect to the excepted matters is
reserved to the Board. The full Board may act to rescind any actions previously
taken by the Executive Committee.
The Company does not
have a standing Nominating Committee. Given the Company’s size and its
shareholder base, the Board believes it appropriate not to have a nominating
committee at this time. All directors currently participate in consideration of
director nominees. Alternatively, the Executive Committee of the Board can act
as a nominating committee. Three of the five current Board members are
independent of the Company and two of the four current members of the Executive
Committee are independent. The Board of Directors will consider director
nominees recommended by stockholders. Any such recommendations should be sent in
writing to the Company at its principal executive offices, to the attention of
the Secretary.
-66-
The Company does not
have a policy requiring Board members’ attendance at annual meetings of the
stockholders and only one director attended the Company’s last annual meeting of
stockholders.
Certain Relationships and Related Transactions
The Company
reimburses or pays costs and expenses incurred by Second Southern Corp. and
Ginarra Partners, LLC, companies affiliated with Mr. Graziadio, in connection
with Mr. Graziadio’s execution of his duties as chairman and chief executive
officer of the Company. These costs include clerical and administrative support,
travel and entertainment expenses, and certain direct overhead costs including,
but not limited to, postage, communication charges and office supplies. Payments
to such affiliates of Mr. Graziadio for such costs and expenses in fiscal years
2008, 2007 and 2006 were $135,673, $154,415 and $130,998, respectively. William
R. Lang, a director of the Company, is the chief financial officer of Second
Southern Corp.
James F. Sanders,
corporate secretary of the Company, provides general counsel services to the
Company. During Fiscal 2008, Mr. Sanders was paid $127,775 for legal services.
Mr. Sanders also is employed by Apex Oil Company, Inc., a company controlled by
Paul A. Novelly, a director of the Company.
Richard Bern, a
former president of the Company’s Boss Manufacturing Company subsidiary,
currently provides executive services to the Company as an operations
consultant. Mr. Bern provides services in all of the Company’s significant
operational areas, including sales, production, distribution and purchasing,
including relations with foreign vendors.
On July 30, 2004, the
Company acquired all outstanding shares of common stock of Galaxy Balloons,
Incorporated (“
Galaxy
”)
from Terrence J. Brizz, who continues to serve as president of Galaxy. Under the
stock purchase agreement, Mr. Brizz received payment of: (i) $200,000 of
deferred purchase price, payable in two equal annual increments of $100,000 each
on the first and second anniversaries of the purchase date, (ii) $50,000 under a
non-compete agreement, similarly payable in two equal annual installments of
$25,000 each, and (iii) up to an additional $400,000 of earn-out payments
depending upon Galaxy’s financial performance during fiscal years 2005 through
2007. During Fiscal 2006, the Company paid $125,000 to Mr. Brizz in connection
with the deferred purchase price and non-compete provisions of the Galaxy stock
purchase agreement and $200,000 in earn-out payment with respect to Galaxy’s
2005 financial performance. Galaxy’s financial performance during Fiscal 2006
also exceeded the specified contractual benchmarks, thereby entitling Mr. Brizz
to the final $200,000 earn-out payment, which amount was paid in March, 2007.
Compensation Committee Information
The Compensation
Committee, composed entirely of independent directors, administers the Company’s
executive compensation program. The role of the Committee is to oversee the
Company’s executive compensation and benefit plans and policies, administer its
stock plans (including reviewing and approving equity grants to executive
officers) and review and approve annually the compensation relating to executive
officers. Generally, the CEO makes recommendations to the Committee regarding
compensation for all other executives and the Committee reviews the performance
of all executive officers and makes a final determination on executive
compensation for the CEO. The Committee then reports its decisions regarding
compensation for the CEO to the Board for ratification.
-67-
The philosophy of the
Committee relating to executive compensation is that the executive officers
should be compensated in amounts and in a manner designed to (i) attract,
motivate and retain talented executives who are capable of attaining the
Company’s goals in a competitive and changing environment, (ii) encourage and
reward superior performance, and (iii) strengthen the relationship between
executive pay and shareholder value. For certain matters, the Committee
periodically has retained management and benefits consultants, to provide advice
on the type and amount of compensation to be paid to executive officers and
concerning the Company’s equity compensation plans, but the Committee does not
delegate it decision-making authority to such consultants.
The Company’s Fiscal
2008 and current total compensation programs for executive officers consist of
both cash and stock-based compensation. Salary levels for Company executives are
reviewed and may be adjusted annually. In determining appropriate salaries, the
Committee considers the CEO’s recommendations as to compensation for other
officers, the scope of responsibility and individual performance for each
officer, overall corporate performance, and general pay practices of industry
competitors and other companies similarly situated to the Company. The members
of the Committee have strong backgrounds in the regulation and management of
both private and publicly held companies and use their experience to help
evaluate the Company’s executive pay practices. Evaluation of corporate
performance takes into account special circumstances such as general economic
and competitive conditions and unusual events which can have a material effect
on the Company’s operating results compared with budgeted levels. The
Committee’s analysis is a subjective process that utilizes no specific weighting
or formula for these factors in determining salary amounts.
Stock-based
compensation for executive officers has been provided under the Company’s 1998
Employee Plan, as amended, and the 2004 Stock Plan. Under these Plans, the
stock-based compensation awarded and vesting periods are decided at the
discretion of the Committee. The Committee has not utilized any specific formula
for determining stock-based compensation. All stock-based compensation provided
by the Company to date has been in the form of stock options, but under the
Company’s 2004 Stock Plan the Committee has the flexibility to utilize
restricted stock grants and/or SAR’s if it so determines. Any such grants and
their timing are made by the Committee in its discretion.
In determining the
total compensation for the CEO for Fiscal 2008, the Compensation Committee
considered all of the matters discussed above and in its discretion determined
to utilize strictly cash compensation. Reimbursement of certain expenses
incurred by Mr. Graziadio and a company affiliated with Mr. Graziadio in
connection with the Company’s business is discussed above in the section titled
“Certain Relationships and Related Transactions.”
-68-
Non-equity incentive
plan compensation for Mr. Bern for Fiscal 2008 was set by an annual executive
incentive plan approved by the Committee. Incentive amounts were determined
based on the Company’s earnings before taxes, with the executive eligible to
earn incentive compensation as a percentage of earnings for the full year. The
Company’s earnings before taxes must exceed a predetermined hurdle amount before
any amounts are payable. Percentages increase on a sliding scale as Company
earnings increase. The hurdle amounts, percentages and payment terms are
established by the Committee in its discretion after review and recommendation
by the Company’s chief executive officer. Incentive amounts earned for Fiscal
2008 were payable in two equal installments, one in March, 2009 and the other in
March, 2010, with the 2010 installment dependent upon the executive’s continued
service to the Company and the Company’s continued profitability in Fiscal
2009.
Non-equity incentive
plan compensation for Mr. Brizz and Mr. Donze for Fiscal 2008 was set pursuant
to similar plans which measure the earnings before taxes of the subsidiary
directed by the particular executive, rather than the earnings of the entire
Company as is the case for Mr. Bern’s incentive plan. Again, the subsidiary
earnings must exceed predetermined hurdle amounts and bonus percentages increase
with increased earnings. The incentive plan compensation of Mr. Brizz and Mr.
Donze is reviewed and recommended to the Compensation Committee by Mr. Bern and
the Company’s chief executive officer.
Due to its relatively
small size, the Company currently does not have any defined benefit retirement
or pension programs for its executive officers. Accordingly, the Committee’s
decisions regarding the provision of equity-based compensation currently is not
impacted by consideration of other retirement or pension benefits to which the
executive officer may be entitled. The Company currently does not have any
contracts in place with executive officers that could result in the payment of
compensation as a result of termination or a change-in-control. Although the
Company encourages equity ownership by management, it does not have any program
or policy requiring any particular form or amount of equity ownership. The
Committee has not engaged in any benchmarking of total compensation for
management as it is not aware of any similarly-sized, publicly-held, industry
competitors in the Company’s operating segments.
-69-
EXECUTIVE OFFICERS OF THE
COMPANY
The following is a
list of the names and ages of the executive officers of the Company and its
principal subsidiaries as of the date of this Proxy Statement, indicating all
positions and offices with the Company held by each such person, and each such
person’s principal occupations or employment during the past five
years.
BOSS HOLDINGS, INC.
|
|
|
|
Positions and Offices Held and
Principal
|
Name
|
|
Age
|
|
Occupations or Employment during past 5
years
|
G. Louis Graziadio III
|
|
60
|
|
Chairman of the Board and CEO of the Company since June 1996. He is
also the Chairman and CEO of
Second Southern Corp., which is the manager of Ginarra Partners,
LLC, a holding company with investments in various corporations, including
the Company.
|
|
|
|
|
|
Steven G. Pont
|
|
55
|
|
Vice
President – Finance since January, 2007. From August 2006 through January
2007, he served as vice president/finance of H.C. Duke & Son, Inc., a
manufacturer and distributor of ice cream and frozen desert equipment,
located in East Moline, Illinois. From 1999 through May, 2006, he was Vice
President and Chief Financial Officer of Bomag Americas, Inc., a worldwide
leader in the manufacture and distribution of compaction
equipment.
|
|
|
|
|
|
Terrence J. Brizz
|
|
55
|
|
President of Galaxy Balloons, Incorporated, a subsidiary of the
Company, since its acquisition in July 2004. Prior to the Company’s
acquisition of Galaxy,
Mr. Brizz
was its sole shareholder and CEO.
|
|
|
|
|
|
William E. Donze, Jr.
|
|
59
|
|
President of Boss Pet Products, Inc., a Company subsidiary, since
its organization in October, 2002.
Prior to that he was the president of Roccorp, Inc., whose assets
were acquired by the Company.
|
|
|
|
|
|
James F. Sanders
|
|
52
|
|
Secretary and General Counsel of the Company since October 1998.
Vice President of Boss Manufacturing
Company since January 2007. Mr. Sanders also serves as corporate
counsel for Apex Oil Company, Inc., an affiliate of Mr. Paul A. Novelly, a
director of the Company.
|
-70-
In addition to the
named executive officers, Richard Bern, age 61, has served as an operations
consultant to the Company since March 1999. In his capacity as a consultant, Mr.
Bern currently exercises executive responsibilities in many sales and
distribution functions under the review and direction of the Company’s chief
executive officer. Mr. Bern has extensive experience in importing, distribution
and sales of consumer goods and previously served as president of Boss
Manufacturing Company during 1996 and 1997. Since then he has been a private
investor and worked as a consultant to various manufacturing and distribution
firms, including the Company.
-71-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND
MANAGEMENT
The following
table sets forth, as of February 23, 2010 and pro forma for the Transaction
(based on 50, 953 shares anticipated to be purchased), certain information
regarding the beneficial ownership of the Company’s common stock by (i) each
person known by the Company to be beneficial owner of more than five percent of
the outstanding shares of Company common stock, (ii) each director; (iii) each
named Executive Officer; and (iv) all directors and executive officers as a
group.
|
|
Stock Beneficially
Owned
|
|
|
|
|
|
|
|
Current
|
|
Pro Forma
|
Name and Address of Beneficial
Owner
(1)
|
|
No. Shares
|
|
% of Class
(2)
|
|
% of Class
(2)
|
Ginarra Partners, LLC
(3)
|
|
576,388
|
|
24.58
|
%
|
|
25.12
|
%
|
149 Palos Verdes Blvd., Suite
G
|
|
|
|
|
|
|
|
|
Redondo Beach, CA 90277
|
|
|
|
|
|
|
|
|
|
Graziadio Family Trust u/d/t
10-13-1975
(4)
|
|
410,519
|
|
17.51
|
%
|
|
17.89
|
%
|
16633 Ventura Boulevard, Suite
510
|
|
|
|
|
|
|
|
|
Encino, CA 91436
|
|
|
|
|
|
|
|
|
|
G. Louis Graziadio
III
(5)
|
|
287,500
|
|
12.26
|
%
|
|
12.53
|
%
|
Chairman, President and CEO
|
|
|
|
|
|
|
|
|
|
Advisory Research,
Inc.
(6)
|
|
138,150
|
|
6.50
|
%
|
|
6.66
|
%
|
180 No. Stetson St., Suite
5500
|
|
|
|
|
|
|
|
|
Chicago, IL 60601
|
|
|
|
|
|
|
|
|
|
Perry A. Lerner
(7)
|
|
67,004
|
|
2.86
|
%
|
|
2.92
|
%
|
Director
|
|
|
|
|
|
|
|
|
|
Lee E. Mikles
(7)
|
|
27,500
|
|
1.17
|
%
|
|
1.20
|
%
|
Director
|
|
|
|
|
|
|
|
|
|
Paul A. Novelly
(7)(8)
|
|
114,783
|
|
4.89
|
%
|
|
5.00
|
%
|
Director
|
|
|
|
|
|
|
|
|
|
William R. Lang
(9)(10)
|
|
10,000
|
|
*
|
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
Richard Bern
(11)
|
|
28,500
|
|
1.22
|
%
|
|
1.24
|
%
|
Operational Consultant
|
|
|
|
|
|
|
|
|
|
James F. Sanders
(9)(10)
|
|
20,000
|
|
*
|
|
|
*
|
|
Secretary and General Counsel
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as
a Group
|
|
1,542,194
|
|
65.76
|
%
|
|
67.22
|
%
|
(Excludes Advisory Research,
Inc.)
|
|
|
|
|
|
|
|
|
____________________
(1)
|
|
Unless otherwise
noted, the Company believes all persons named in the table have sole
voting and investment power with respect to shares of common stock
beneficially owned by them. Under the rules of the Securities and Exchange
Commission, a person is deemed to be a “beneficial” owner of securities if
he or she has or shares the power to vote or direct the voting of such
securities or the power to direct the disposition of such securities. More
than one person may be deemed to be a beneficial owner of the same
securities.
|
|
(2)
|
|
Percent of class
owned is based on the number of shares outstanding plus options
exercisable by the named beneficial owners. An asterisk in this column
indicates that the named person holds less than 1% of the issued and
outstanding shares.
|
-72-
(3)
|
|
Mr.
Graziadio has sole voting and investment power over these shares in his
capacity as chief executive officer of Second Southern Corp., which is the
manager of Ginarra Partners, LLC. Mr. Graziadio disclaims any pecuniary
interest or beneficial ownership of the shares owned by Ginarra Partners,
LLC.
|
|
(4)
|
|
Shares
are owned by the Graziadio Family Trust, a trust established by Mr.
Graziadio, but as to which he is neither a trustee nor a beneficiary. Mr.
Graziadio disclaims beneficial ownership of all shares owned by the
Graziadio Family Trust. Mr. Lang and Mr. Sanders serve as two of the three
trustees of the Graziadio Family Trust.
|
|
(5)
|
|
Includes a total of 134,500 shares subject to options granted under
the Company’s incentive stock plans. Does not include 576,388 shares held
by Ginarra Partners, LLC, as to which Mr. Graziadio has sole voting and
investment power by virtue of being the chief executive officer of the
manager of Ginarra Partners. Does not include 410,519 shares which are
owned by the Graziadio Family Trust, a trust established by Mr. Graziadio,
but as to which he is neither a trustee nor a beneficiary. Mr. Graziadio
disclaims beneficial ownership of all shares owned by the Graziadio Family
Trust and Ginarra Partners, LLC.
|
|
(6)
|
|
Based on a Schedule 13G filed by
Advisory Research, Inc. with the SEC on February 12,
2010.
|
|
(7)
|
|
Includes 15,500 shares subject to options granted under the
Company’s 1998 Director Plan.
|
|
(8)
|
|
Includes 87,283 shares which are owned by St. Albans Global
Management LLLP, a Delaware limited liability limited partnership, as to
which Mr. Novelly is the chief executive officer. Mr. Novelly disclaims
beneficial ownership of the shares owned by St. Albans Global Management
LLLP.
|
|
(9)
|
|
Mr.
Lang and Mr. Sanders serve as two of the three trustees of the Graziadio
Family Trust (“Trust”) (see footnote 4 above). As a trustee, each shares
voting and investment power with respect to the 410,519 shares owned by
the Trust. Each of Mr. Lang and Mr. Sanders disclaims any pecuniary
interest in or beneficial ownership of the shares owned by the
Trust.
|
|
(10)
|
|
Includes 10,000 shares subject to options granted under the
Company’s 2004 Stock Plan.
|
|
(11)
|
|
Includes 20,000 shares subject to options granted under the
Company’s 1998 Employee Plan.
|
PROPOSAL NO. 4
: APPOINTMENT OF MCGLADREY & PULLEN, LLP AS THE
COMPANY’S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 26, 2009
The firm of McGladrey
& Pullen, LLP, Certified Public Accountants (“
McGladrey
”),
served as the independent auditors of the Company’s year-end financial
statements for Fiscal 2008, and the Board of Directors recommends the
appointment of McGladrey as the Company’s independent auditors for the fiscal
year ending December 26, 2009. The Board of Directors recommends a vote in favor
of the proposal to ratify this selection, and the persons named in the enclosed
proxy (unless otherwise instructed therein) will vote such proxies “
FOR
” such proposal.
If the stockholders do not approve this selection, the Board will consider other
firms for this engagement. The Audit Committee of the Board has determined that
the provision of non-audit services to the Company by McGladrey is compatible
with maintaining their independence as the Company’s principal accountants.
The Company has been
advised by McGladrey & Pullen, LLP that they will not have a representative
present at the Meeting and therefore will neither make any statement at the
meeting nor be available to respond to stockholder questions.
Votes Required for Approval of Proposal No. 4
The affirmative vote
of
a majority of the votes cast by all the
stockholders entitled to vote for this proposal
will be required for approval. A properly
executed proxy marked “ABSTAIN” with respect to this proposal will be counted
for purposes of determining whether there is a quorum. However, under Delaware
law, a proxy marked “ABSTAIN” is not considered a vote cast. Accordingly, an
abstention will have no effect on the approval of this proposal.
-73-
Recommendation of the Board of Directors
THE BOARD OF
DIRECTORS RECOMMENDS A VOTE “
FOR
” THE
APPOINTMENT OF McGLADREY & PULLEN, LLP AS THE COMPANY’S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 26, 2009.
AUDIT COMMITTEE
The Audit Committee
approves the engagement of the Company’s independent auditors prior to their
rendering of audit or non-audit services and sets their compensation. Pursuant
to SEC regulations, the Audit Committee approves all fees payable to the
independent auditors for all routine and non-routine services provided. The
Audit Committee considers and approves the budget for the annual audit and
financial statement review services on a fixed fee basis prior to initiation of
the work. Non-routine services in the ordinary course of business which are not
prohibited under SEC regulation, such as tax planning, tax compliance and other
services, generally are pre-approved on a case-by-case basis. All of the fees
paid to the independent auditors in Fiscal 2008 were pre-approved by the Audit
Committee.
Audit Fees
: During Fiscal 2008, the Company incurred
fees of $130,050 for audit and financial statement review services from
McGladrey and $131,000 for those services during Fiscal 2007.
Audit-Related Fees
: For Fiscal 2008, the Company did not incur
any additional fees to McGladrey for audit related services and $1,400 for those
services during Fiscal 2007.
Tax Fees
: During Fiscal 2008, the Company incurred
fees of $99,400 to RSM McGladrey, Inc. (RSM), an affiliate of McGladrey, for tax
compliance, tax advice and tax planning. During Fiscal 2007, the Company
incurred fees of $47,125 to RSM for such services. Additional state tax services
were required in 2008 for voluntary disclosure to states not previously filed
in. This accounted for the increase in 2008 tax related fees to RSM.
All Other Fees
: During Fiscal 2008 and Fiscal 2007, the
Company incurred no fees for services other than audit, audit-related and
tax-related services from McGladrey.
AUDIT COMMITTEE REPORT
The audit committee
of the Board of Directors (“
Audit Committee
”) has reviewed and discussed the audited financial statements with
management and with the Company’s independent auditors. The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
SAS 61 (Codification of Statements on Auditing Standards). The Audit Committee
has received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and has discussed with them their
independence. Based on such review and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company’s Annual Report on Form 10-K for Fiscal 2008 for filing
with the Securities and Exchange Commission. A majority of the current members
of the Audit Committee are “independent” of the Company under the rules and
regulations of the NASDAQ Stock Market. A copy of the Audit Committee’s written
charter is attached as Annex E.
Audit Committee Members:
|
Lee E. Mikles
|
Perry A. Lerner
|
William R.
Lang
|
-74-
MEETING AND VOTING INFORMATION
Outstanding Voting Securities and Voting
Rights
The subject
class of securities to which this Proxy Statement relates is our common stock,
$0.25 par value per share. The close of business on February 26, 2010, has been
fixed as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Meeting or any adjournments or
postponements of the Meeting. As of _____________________, 2010, the Company had
outstanding and entitled to vote approximately _________________ shares of
Common Stock. Each share of our common stock is entitled to one
vote.
Information Concerning Proxies; Revocation of
Proxies
Sending in a signed
proxy will not affect your right to attend the Meeting and vote in person since
the proxy is revocable. All proxies which are properly completed, signed and
returned to us prior to the Meeting, and which have not been revoked, unless
otherwise directed by you, will be voted in accordance with the recommendations
of the Board of Directors set forth in this proxy statement. You may revoke your
proxy at any time before it is voted either by (i) filing with the Secretary of
the Company, at its principal executive offices, 1221 Page Street, Kewanee,
Illinois 61443, a written notice of revocation or a duly executed proxy bearing
a later date, or (ii) by attending the Meeting, delivering written notice of
revocation of your proxy and voting your shares in person.
Solicitation of Proxies
The expenses of this
solicitation will be paid by the Company. To the extent necessary to ensure
sufficient representation at the Meeting, proxies may be solicited by any
appropriate means by officers, directors and regular employees of the Company,
who will receive no additional compensation therefore. The Company does not
anticipate utilizing the services of any outside firm for the solicitation of
proxies for the Meeting. The Company will pay persons holding stock in their
names or in the names of their nominees, but not owning such stock beneficially
(such as brokerage houses, banks and other fiduciaries), for the reasonable
expense of forwarding soliciting material to their principals.
Quorum and Certain Voting Matters
A majority of the
outstanding shares of Common Stock must be represented in person or by proxy at
the Meeting in order to constitute a quorum for the transaction of business.
There is no cumulative voting with respect to any matter submitted for vote of
the stockholders. Abstentions will be treated as Common Stock present and
entitled to vote for purposes of determining the presence of a quorum. If a
broker indicates on a proxy that it does not have the discretionary authority as
to certain Common Stock (a “
broker non-vote
”), those shares will not be considered present and entitled to vote with
respect to that matter.
-75-
The affirmative vote
of a majority of all shares of Common Stock issued and outstanding and entitled
to vote at the Meeting will be required to approve the proposed amendments to
the Certificate of Incorporation to effect the Reverse Stock Split and the
Forward Stock Split. The affirmative vote of a plurality of the votes cast at
the Meeting is required for the election of directors. The affirmative vote of
the holders of a majority of the shares of Common Stock represented at the
Meeting in person or by proxy and entitled to vote at the Meeting will be
required to ratify the appointment of McGladrey & Pullen, LLP as the
Company’s independent auditors for the fiscal year ending December 26, 2009. In
determining whether the proposed amendments to the Certificate of Incorporation
to effect the Reverse Stock Split and the Forward Stock Split have received the
requisite number of affirmative votes, broker non-votes will have the effect of
a negative vote. In determining whether the proposals for election of directors
and appointment of the independent auditors have received the requisite number
of affirmative votes, broker non-votes will be disregarded and have no effect on
the outcome of the vote on those matters. Under Delaware law, a proxy marked
“ABSTAIN” is not considered a vote cast. Accordingly, an abstention will have
the effect of a vote against the proposed amendments to the Certificate of
Incorporation to effect the Reverse Stock Split and the Forward Stock Split and
no effect on the proposal regarding the election of directors and ratification
of our Audit Committee’s appointment of McGladrey.
Although stockholders
will be voting separately on the Reverse Stock Split and the Forward Stock
Split, we will not effect either the Reverse Stock Split or the Forward Stock
Split unless both proposals are approved by stockholders.
Voting of Proxies
Shares represented by
properly executed proxies, whether delivered by fax or by physical proxies, will
be voted at the Meeting in accordance with the instructions specified thereon.
If no instructions are specified, the shares represented by any properly
executed proxy will be voted “
FOR
” the proposed
amendments to the Certificate of Incorporation to effect the Reverse Stock Split
and the Forward Stock Split, “
FOR
” the election
of the directors of the Company and “
FOR
” the
ratification of the Company’s independent auditors.
The Board of
Directors is not aware of any matter that will come before the Meeting other
than as described above. If any such other matter is duly presented and in the
absence of instructions to the contrary, such proxies will be voted in
accordance with the judgment of the proxy holders with respect to such matter,
including any stockholder proposal or other matter of which the Company did not
receive proper notice.
Adjournment or Postponement
The Meeting may be
adjourned or postponed. Any adjournment may be made without notice, other than
by an announcement made at the Meeting. The favorable vote of a majority of the
shares of our Common Stock present in person or represented by proxy and
entitled to vote on the adjournment proposal, may adjourn the meeting. Any
adjournment or postponement of the Meeting will allow our stockholders who have
already sent in their proxies to revoke them at any time prior to their use at
the Meeting as adjourned or postponed. Stockholders are not being asked to
provide discretionary authority to postpone or adjourn the Meeting in order for
additional proxies to be solicited.
-76-
FINANCIAL INFORMATION
Summary Historical Financial Information
The following summary
of consolidated financial information was derived from our audited consolidated
financial statements as of and for the years ended December 27, 2008 and
December 29, 2007 and from unaudited consolidated interim financial statements
as of and for the nine months ended September 26, 2009 and September 27, 2008.
All adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
condition and results of operations of the Company, have been included. Results
for the nine months ended September 26, 2009 may not be indicative of results to
be realized for the entire year. This financial information is only a summary
and should be read in conjunction with our historical financial statements and
the accompanying footnotes. Please see the information set forth below under the
captions “Where You Can Find More Information” and “Documents Incorporated By
Reference.”
-77-
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – SUMMARIZED
(Dollars in Thousands, Except Per Share Data)
|
|
September 26,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
December 27,
|
|
December 29,
|
ASSETS
|
|
(Unaudited)
|
|
2008
|
|
2007
|
Current assets:
|
|
|
$30,079
|
|
|
|
$29,652
|
|
|
|
$28,596
|
|
Noncurrent assets:
|
|
|
8,261
|
|
|
|
8,776
|
|
|
|
10,391
|
|
Total assets
|
|
|
$38,340
|
|
|
|
$38,428
|
|
|
|
$38,987
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
$5,284
|
|
|
|
$4,965
|
|
|
|
$5,331
|
|
Noncurrent liabilities:
|
|
|
807
|
|
|
|
1,753
|
|
|
|
2,254
|
|
Total liabilities
|
|
|
$6,091
|
|
|
|
$6,718
|
|
|
|
$7,585
|
|
|
|
Stockholders' equity:
|
|
|
32,249
|
|
|
|
31,710
|
|
|
|
31,402
|
|
Total liabilities and stockholders’ equity
|
|
|
$38,340
|
|
|
|
$38,428
|
|
|
|
$38,987
|
|
|
|
Outstanding Shares
|
|
|
2,116,047
|
|
|
|
2,036,047
|
|
|
|
2,018,345
|
|
Net book value per share
|
|
|
$15.24
|
|
|
|
$15.57
|
|
|
|
$15.56
|
|
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – SUMMARIZED
(Dollars in
Thousands, Except Per Share Data)
|
Nine Months
|
|
Nine Months
|
|
Twelve
|
|
Twelve
|
|
Ended
|
|
Ended
|
|
Months
|
|
Months
|
|
September 26,
|
|
September 27,
|
|
Ended
|
|
Ended
|
|
2009
|
|
2008
|
|
December 27,
|
|
December 29,
|
|
(Unaudited)
|
|
(Unaudited)
|
|
2008
|
|
2007
|
Net sales
|
|
$34,729
|
|
|
|
$40,711
|
|
|
|
$55,732
|
|
|
|
$55,197
|
|
Cost of sales
|
|
26,192
|
|
|
|
30,951
|
|
|
|
41,961
|
|
|
|
40,817
|
|
Gross profit
|
|
8,537
|
|
|
|
9,760
|
|
|
|
13,771
|
|
|
|
14,380
|
|
Operating expenses
|
|
7,685
|
|
|
|
8,640
|
|
|
|
12,451
|
|
|
|
11,924
|
|
Operating income
|
|
852
|
|
|
|
1,120
|
|
|
|
1,320
|
|
|
|
2,456
|
|
Other income (expense):
|
|
(147
|
)
|
|
|
(189
|
)
|
|
|
(251
|
)
|
|
|
(179
|
)
|
Income tax expense
|
|
409
|
|
|
|
378
|
|
|
|
531
|
|
|
|
911
|
|
Net
Income
|
|
$296
|
|
|
|
$553
|
|
|
|
$538
|
|
|
|
$1,366
|
|
Weighted average shares
outstanding
|
|
2,096,120
|
|
|
|
2,018,345
|
|
|
|
2,022,758
|
|
|
|
2,010,449
|
|
Diluted average shares outstanding
|
|
2,201,094
|
|
|
|
2,211,965
|
|
|
|
2,206,171
|
|
|
|
2,205,012
|
|
Earnings
per share from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
$0.41
|
|
|
|
$0.55
|
|
|
|
$0.65
|
|
|
|
$1.22
|
|
Basic earnings per common share
|
|
$0.14
|
|
|
|
$0.27
|
|
|
|
$0.27
|
|
|
|
$0.68
|
|
Diluted earnings
per common share
|
|
$0.13
|
|
|
|
$0.25
|
|
|
|
$0.24
|
|
|
|
$0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-78-
Pro Forma Consolidated Financial Statements
(Unaudited)
The following
unaudited pro forma consolidated balance sheet as of September 26, 2009 and the
unaudited pro forma consolidated statements of operations for the fiscal year
ended December 27, 2008 and for the nine months ended September 26, 2009, show
the pro forma effect of the Transaction. The historical amounts as of and for
the nine months ended September 26, 2009 were derived from the Company’s
unaudited consolidated financial statements that were included in the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 26, 2009. The
historical amounts for the fiscal year ended December 27, 2008 were derived from
the Company’s audited consolidated financial statements that were included in
the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended
December 27, 2008.
The pro forma
information below gives effect of the Transaction based on shares anticipated to
be repurchased and non-recurring expenses incurred to effect the Transaction.
The Transaction assumes that 50,953 shares are purchased at a price of $7.65 per
share (subject to any applicable U.S. federal, state and local withholding tax).
Pro forma adjustments to the pro forma consolidated balance sheet are computed
as if the Transaction had occurred at September 26, 2009, and December 27, 2008,
respectively, while the pro forma consolidated statements of operations are
computed as if the Transaction had occurred at the beginning of the designated
periods. Anticipated cost savings resulting from the Transaction are not
reflected in the pro forma financial information.
The pro forma
information is not necessarily indicative of what the Company’s financial
position or results of operations actually would have been if the Transaction
had occurred as of the dates presented, or of the Company’s financial position
or results of operations in the future.
The unaudited pro
forma financial statements should be read in conjunction with the historical
financial statements and accompanying footnotes included in the Company’s Annual
Report on Form 10-K, as amended, for the year ended December 27, 2008, and in
our Quarterly Report on Form 10-Q for the quarter ended September 26, 2009,
which are incorporated by reference in this Proxy Statement. Please see the
information set forth below under the captions “Where You Can Find More
Information” and “Documents Incorporated By Reference.”
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – PRO FORMA
(Dollars in Thousands, Except Per Share Data)
|
September 26,
|
|
|
|
|
|
Pro Forma
|
|
2009
|
|
Pro Forma
|
|
September 26,
|
|
(Unaudited)
|
|
Adjustments
|
|
2009
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$5,641
|
|
|
|
$(549
|
)
|
(1)
|
|
$5,092
|
|
Accounts receivable,
net
|
|
7,537
|
|
|
|
|
|
|
|
7,537
|
|
Inventories
|
|
15,367
|
|
|
|
|
|
|
|
15,367
|
|
Deferred tax asset
|
|
1,141
|
|
|
|
|
|
|
|
1,141
|
|
-79-
|
September 26,
|
|
|
|
|
|
Pro Forma
|
|
2009
|
|
Pro Forma
|
|
September 26,
|
|
(Unaudited)
|
|
Adjustments
|
|
2009
|
Prepaid expenses and other
|
|
393
|
|
|
|
|
|
|
|
393
|
|
Total current
assets
|
|
30,079
|
|
|
|
(549
|
)
|
|
|
29,530
|
|
|
Property and Equipment, net
|
|
3,174
|
|
|
|
|
|
|
|
3,174
|
|
|
Other assets
|
|
194
|
|
|
|
|
|
|
|
194
|
|
Intangibles, net of amortization
|
|
308
|
|
|
|
|
|
|
|
308
|
|
Goodwill
|
|
2,853
|
|
|
|
|
|
|
|
2,853
|
|
Deferred tax asset
|
|
1,732
|
|
|
|
|
|
|
|
1,732
|
|
|
|
$38,340
|
|
|
|
$(549
|
)
|
|
|
$37,791
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
$1,136
|
|
|
|
|
|
|
|
1,136
|
|
Accounts payable
|
|
1,839
|
|
|
|
|
|
|
|
1,839
|
|
Accrued payroll and related expenses
|
|
871
|
|
|
|
|
|
|
|
871
|
|
Accrued promotional
expenses
|
|
898
|
|
|
|
|
|
|
|
898
|
|
Other accrued liabilities
|
|
540
|
|
|
|
(64
|
)
|
(2)
|
|
476
|
|
Total current
liabilities
|
|
5,284
|
|
|
|
(64
|
)
|
|
|
5,220
|
|
|
Long-Term Obligations, net of current
portion
|
|
605
|
|
|
|
|
|
|
|
605
|
|
|
Deferred Compensation
|
|
202
|
|
|
|
|
|
|
|
202
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.25 par value;
authorized 10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
shares; issued and outstanding 2,116,047
|
|
529
|
|
|
|
(12
|
)
|
|
|
517
|
|
Additional paid-in capital
|
|
66,645
|
|
|
|
(377
|
)
|
|
|
66,268
|
|
Accumulated
(deficit)
|
|
(34,975
|
)
|
|
|
(96
|
)
|
(2)
|
|
(35,071
|
)
|
Accumulated other comprehensive income
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Total stockholders’
equity
|
|
32,249
|
|
|
|
(485
|
)
|
|
|
31,764
|
|
|
|
$38,340
|
|
|
|
$(549
|
)
|
|
|
$37,791
|
|
|
The accompanying notes are an integral
part of these
|
|
|
|
|
|
|
|
|
|
|
|
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
2,116,047
|
|
|
|
(50,953
|
)
|
|
|
2,065,094
|
|
Net book value per share
|
|
$15.24
|
|
|
|
|
|
|
|
$15.38
|
|
-80-
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – PRO FORMA
(Dollars in Thousands, Except Per Share Data)
|
December 27,
|
|
|
|
|
|
Pro Forma
|
|
2008
|
|
Pro Forma
|
|
December 27,
|
|
(Unaudited)
|
|
Adjustments
|
|
2008
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$803
|
|
|
|
$(640
|
)
|
(1)
|
|
$163
|
|
Accounts receivable,
net
|
|
8,256
|
|
|
|
|
|
|
|
8,256
|
|
Inventories
|
|
18,929
|
|
|
|
|
|
|
|
18,929
|
|
Deferred tax asset
|
|
1,141
|
|
|
|
|
|
|
|
1,141
|
|
Prepaid expenses and other
|
|
523
|
|
|
|
|
|
|
|
523
|
|
Total current
assets
|
|
29,652
|
|
|
|
(640
|
)
|
|
|
29,012
|
|
|
Property and Equipment, net
|
|
3,340
|
|
|
|
|
|
|
|
3,340
|
|
|
Other assets
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Intangibles, net of amortization
|
|
457
|
|
|
|
|
|
|
|
457
|
|
Goodwill
|
|
2,853
|
|
|
|
|
|
|
|
2,853
|
|
Deferred tax asset
|
|
2,078
|
|
|
|
|
|
|
|
2,078
|
|
|
|
$38,428
|
|
|
|
$(640
|
)
|
|
|
$37,788
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
$496
|
|
|
|
|
|
|
|
496
|
|
Accounts payable
|
|
1,860
|
|
|
|
|
|
|
|
1,860
|
|
Accrued payroll and related expenses
|
|
1,123
|
|
|
|
|
|
|
|
1,123
|
|
Accrued promotional
expenses
|
|
991
|
|
|
|
|
|
|
|
991
|
|
Other accrued liabilities
|
|
495
|
|
|
|
(100
|
)
|
(2)
|
|
395
|
|
Total current
liabilities
|
|
4,965
|
|
|
|
(100
|
)
|
|
|
4,865
|
|
|
Long-Term Obligations, net of current
portion
|
|
1,607
|
|
|
|
|
|
|
|
1,607
|
|
|
Deferred Compensation
|
|
146
|
|
|
|
|
|
|
|
146
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.25 par value;
authorized 10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
shares; issued and outstanding 2,116,047
|
|
509
|
|
|
|
(12
|
)
|
(3)
|
|
497
|
|
Additional paid-in capital
|
|
66,521
|
|
|
|
(377
|
)
|
(3)
|
|
66,144
|
|
Accumulated
(deficit)
|
|
(35,271
|
)
|
|
|
(151
|
)
|
(2)
|
|
(35,422
|
)
|
Accumulated other comprehensive (loss)
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
Total stockholders’
equity
|
|
31,710
|
|
|
|
(540
|
)
|
|
|
31,170
|
|
|
|
$38,428
|
|
|
|
$(640
|
)
|
|
|
$37,788
|
|
-81-
|
December 27,
|
|
|
|
|
|
Pro Forma
|
|
2008
|
|
Pro Forma
|
|
December 27,
|
|
(Unaudited)
|
|
Adjustments
|
|
2008
|
The accompanying notes are an integral
part of these
|
|
|
|
|
|
|
|
|
|
|
|
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
2,036,047
|
|
|
|
(50,953
|
)
|
|
|
1,985,094
|
|
Net book value per share
|
|
$15.57
|
|
|
|
|
|
|
|
$15.70
|
|
-82-
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – PRO FORMA
(Dollars in
Thousands, Except Per Share Data)
|
Nine
|
|
|
|
|
|
Pro Forma
|
|
Months
|
|
|
|
|
|
Nine
|
|
Ended
|
|
|
|
|
|
Months
|
|
September
|
|
|
|
|
|
Ended
|
|
26, 2009
|
|
Pro Forma
|
|
September
|
|
(Unaudited)
|
|
Adjustments
|
|
26, 2009
|
Net sales
|
|
$34,729
|
|
|
|
|
|
|
|
$34,729
|
|
|
Cost of sales
|
|
26,192
|
|
|
|
|
|
|
|
26,192
|
|
|
Gross profit
|
|
8,537
|
|
|
|
|
|
|
|
8,537
|
|
|
Operating expenses
|
|
7,685
|
|
|
|
160
|
|
(4)
|
|
7,845
|
|
|
Operating
income
|
|
852
|
|
|
|
(160
|
)
|
|
|
692
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Interest expense
|
|
(201
|
)
|
|
|
|
|
|
|
(201
|
)
|
Other
|
|
40
|
|
|
|
|
|
|
|
40
|
|
|
|
(147
|
)
|
|
|
-
|
|
|
|
(147
|
)
|
|
Income before income tax
|
|
705
|
|
|
|
(160
|
)
|
|
|
545
|
|
|
Income tax expense
|
|
409
|
|
|
|
(64
|
)
|
(5)
|
|
345
|
|
Net Income
|
|
$296
|
|
|
|
$(96
|
)
|
(5)
|
|
$200
|
|
|
Weighted average shares
outstanding
|
|
2,096,120
|
|
|
|
(50,953
|
)
|
(6)
|
|
2,045,167
|
|
Basic earnings per common
share
|
|
$0.14
|
|
|
|
|
|
|
|
$0.10
|
|
|
Diluted average shares
outstanding
|
|
2,201,094
|
|
|
|
(50,953
|
)
|
(6)
|
|
2,150,141
|
|
Diluted earnings per common
share
|
|
$0.13
|
|
|
|
|
|
|
|
$0.09
|
|
-83-
BOSS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – PRO FORMA
(Dollars in
Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Twelve
|
|
|
|
|
|
Twelve
|
|
Months
|
|
|
|
|
|
Months
|
|
Ended
|
|
|
|
|
|
Ended
|
|
December
|
|
Pro Forma
|
|
December
|
|
27, 2008
|
|
Adjustments
|
|
27, 2008
|
Net sales
|
|
$55,732
|
|
|
|
|
|
|
|
$55,732
|
|
|
Cost of sales
|
|
41,961
|
|
|
|
|
|
|
|
41,961
|
|
|
Gross profit
|
|
13,771
|
|
|
|
|
|
|
|
13,771
|
|
|
Operating expenses
|
|
12,451
|
|
|
|
251
|
|
(4)
|
|
12,702
|
|
|
Operating income
|
|
1,320
|
|
|
|
(251
|
)
|
|
|
1,069
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
40
|
|
|
|
|
|
|
|
40
|
|
Interest expense
|
|
(313
|
)
|
|
|
|
|
|
|
(313
|
)
|
Other
|
|
22
|
|
|
|
|
|
|
|
22
|
|
|
|
(251
|
)
|
|
|
|
|
|
|
(251
|
)
|
|
Income before income tax
|
|
1,069
|
|
|
|
(251
|
)
|
|
|
818
|
|
|
Income tax expense
|
|
531
|
|
|
|
(100
|
)
|
(5)
|
|
431
|
|
Net Income
|
|
$538
|
|
|
|
$(151
|
)
|
(5)
|
|
$387
|
|
|
Weighted average shares
outstanding
|
|
2,022,758
|
|
|
|
(50,953
|
)
|
(6)
|
|
1,971,805
|
|
Basic earnings for common share
|
|
$0.27
|
|
|
|
|
|
|
|
$0.20
|
|
|
Diluted average shares
outstanding
|
|
2,206,171
|
|
|
|
(50,953
|
)
|
(6)
|
|
2,155,218
|
|
Diluted earnings for common share
|
|
$0.24
|
|
|
|
|
|
|
|
$0.18
|
|
____________________
(1)
|
|
Represents the impact on the September 26, 2009 and the December
27, 2008 historical balance sheets of cash used to effect the Transaction.
The estimated cash required is approximately $640,000, which consist of
$389,000 for the shares subject to the Transaction and $251,000 of
Transaction related expenses. Of the $640,000 estimated required cash,
$91,000 was recorded as expense prior to September 26,
2009.
|
|
(2)
|
|
Retained earnings
and income taxes payable are reduced for the estimated transaction related
expenses, as of September 26, 2009 and December 27, 2008.
|
|
(3)
|
|
Represents the
reduction to common stock and paid in capital for the shares subject to
the transaction.
|
-84-
(4)
|
|
Represents the remaining Transaction
related expenses, consisting of consulting costs, legal costs, transfer
agent fees, filing and printing cost.
|
|
(5)
|
|
Reflects the estimated tax and income
effect of the Transaction related expenses.
|
|
(6)
|
|
Pro
forma basic and diluted weighted outstanding shares are adjusted based on
the assumed redemption of 50,953
shares.
|
Ratio of Earnings to Fixed Charges
BOSS HOLDINGS, INC. AND SUBSIDIARIES
RATIO
OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands, Except Ratio Data)
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Actual
|
|
Pro Forma
|
|
Actual
|
|
Actual
|
|
Twelve
|
|
Twelve
|
|
Nine Months
|
|
Nine Months
|
|
Nine Months
|
|
Months
|
|
Months
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
September 26,
|
|
September 26,
|
|
September 27,
|
|
December 27,
|
|
December 27,
|
|
2009
|
|
2009
|
|
2008
|
|
2008
|
|
2008
|
Income before income tax
|
$545
|
|
|
$705
|
|
|
$931
|
|
|
$818
|
|
|
$1,069
|
|
Fixed Charges
|
61
|
|
|
61
|
|
|
82
|
|
|
106
|
|
|
106
|
|
|
|
Income available to cover fixed
charges
|
$606
|
|
|
$766
|
|
|
$1,013
|
|
|
$924
|
|
|
$1,175
|
|
|
|
Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
59
|
|
|
59
|
|
|
80
|
|
|
104
|
|
|
104
|
|
Interest portion of rental
expense
|
2
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
2
|
|
Total fixed charges
|
$61
|
|
|
$61
|
|
|
$82
|
|
|
$106
|
|
|
$106
|
|
|
|
Ratio of earnings to fixed
charges
(a)
|
9.9 x
|
|
|
12.6 x
|
|
|
12.4 x
|
|
|
8.7 x
|
|
|
11.1 x
|
|
____________________
(a)
|
|
For the purposes
of computing the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense on all indebtedness and the portion of rental expense
that management believes is representative of the interest
factor.
|
STOCKHOLDER COMMUNICATION AND PROXY PROPOSALS
Proposals of
stockholders relating to the Company’s next Annual Meeting must be received in
writing by the Company at its principal executive offices a reasonable time
before the Company begins to print and send its proxy materials in connection
with that meeting in order to be included in the Company’s Proxy Statement and
form of proxy relating to that meeting. Such proposal also will need to comply
with Securities and Exchange Commission regulations regarding the inclusion of
stockholder proposals in Company-sponsored proxy materials. Other communications
by stockholders intended for the Board of Directors or any particular Board
members should be sent in writing to the Company’s principal executive offices
to the attention of the corporate secretary. The corporate secretary will
distribute such communications directly to Board members.
-85-
PROXY MATERIALS DELIVERED TO A SHARED ADDRESS
The Company, upon
written or oral request, will deliver without charge a separate copy of the
Company’s Annual Report on Form 10-K and/or this Proxy Statement, as may be
requested, to any stockholder at a shared address to which only a single copy of
such materials was delivered pursuant to SEC Rule 14a-3(e).
WHERE YOU CAN FIND MORE INFORMATION
The Transaction is a
“going private” transaction subject to Rule 13e-3 of the Exchange Act. The
Company has filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 under the
Exchange Act with respect to the Transaction. The Schedule 13E-3 contains
additional information about the Company. Copies of the Schedule 13E-3 are
available for inspection and copying at the principal executive offices of the
Company during regular business hours by any interested stockholder of the
Company, or a representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, by written request directed to Steven
G. Pont, Vice President – Finance, Boss Holdings, Inc., 1221 Page Street,
Kewanee, IL 61443.
The Company is
currently subject to the information requirements of the Exchange Act and files
periodic reports, proxy statements and other information with the SEC relating
to its business, financial and other matters.
You may read and copy
any document we file at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549 Washington, D.C. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public over the Internet at the SEC’s Website
at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
In our filings with
the SEC, information is sometimes incorporated by reference. This means that we
are referring you to information that we have filed separately with the SEC. The
information incorporated by reference should be considered part of this Proxy
Statement, except for any information superseded by information contained
directly in this Proxy Statement or in any other subsequently filed document.
Pursuant to the
Exchange Act, we currently file annual and quarterly reports with the SEC. Our
Annual Report on Form 10-K, as amended, for the fiscal year ended December 27,
2008, filed pursuant to Section 13 of the Exchange Act, includes financial
statements and schedules. Our most recent quarterly report on Form 10-Q for the
nine month period ended September 26, 2009, filed pursuant to Section 13 of the
Exchange Act, also includes financial statements and schedules. The Company’s
Form 10-K was filed with the SEC on March 27, 2009, its Form 10-K/A was filed
with the SEC on April 28, 2009, its Form 10-Q for the quarter ended March 28,
2009 was filed with the SEC on May 12, 2009, its Form 10-Q for the quarter ended
June 27, 2009 was filed with the SEC on August 11, 2009, and its Form 10-Q for
the quarter ended September 26, 2009 was filed with the SEC on November 10,
2009. We are delivering to you with this Proxy Statement copies of our Annual
Report on Form 10-K, as amended, for the fiscal
year ended December 27, 2008 and our Quarterly Report on Form 10-Q for
the quarter ended September 26, 2009.
-86-
This Proxy Statement
incorporates by reference the following documents that we have previously filed
with the SEC. They contain important information about the Company and its
financial condition.
-
Our Annual Report
on Form 10-K, as amended, for the year ended December 27, 2008.
-
Our Quarterly
Report on Form 10-Q for the quarter ended March 28, 2009.
-
Our Quarterly
Report on Form 10-Q for the quarter ended June 27, 2009.
-
Our Quarterly
Report on Form 10-Q for the quarter ended September 26, 2009.
-
Our Current Reports
on Form 8-K filed on August 27, 2008 and November 4, 2009.
This Proxy Statement
incorporates by reference our financial statements that are contained in certain
documents that we have previously filed with the SEC, as follows:
-
Our audited
Consolidated Balance Sheets for the years ended December 27, 2008 and December
29, 2007, our audited Consolidated Statements of Income for the years ended
December 27, 2008 and December 29, 2007, our audited Consolidated Statements
of Cash Flows for the years ended December 27, 2008 and December 29, 2007 and
the Notes to our audited Consolidated Financial Statements, in each case that
are contained in our Annual Report on Form 10-K for the year ended December
27, 2008; and
-
Our unaudited
Consolidated Balance Sheets for the nine months ended September 26, 2009, our
unaudited Consolidated Statements of Operations for the three and nine months
ended September 26, 2009 and September 27, 2008, our unaudited Consolidated
Statements of Cash Flow for the nine months ended September 26, 2009 and
September 27, 2008, and the Notes to our unaudited Consolidated Financial
Statements, in each case that are contained in our Quarterly Report on Form
10-Q for the fiscal quarter ended September 26, 2009.
We also incorporate
by reference any additional documents that we may file with the Commission under
Section 13(a), 13(c), 14 or 15 (d) of the Exchange Act between the date of this
Proxy Statement and the date of the Meeting.
We will provide,
without charge, upon the written or oral request of any person to whom this
Proxy Statement is delivered, by first class mail or other equally prompt means
within one business day of receipt of such request, a copy of any and all
information that has been incorporated by reference, without exhibits unless
such exhibits are also incorporated by reference in this Proxy Statement. You
may obtain a copy of these documents and any amendments thereto by written
request addressed to Steven G. Pont, Vice President – Finance, Boss Holdings,
Inc., 1221 Page Street, Kewanee, IL 61443. These documents are also included
in our SEC filings, which you can access
electronically at the SEC website located at http://www.sec.gov.
-87-
OTHER BUSINESS
The Board does not
intend to bring any other business before the Meeting, and, so far as is known
to the Board, no matters are to be brought before the Meeting except as
specified in the notice of the Meeting. As to any business that may properly
come before the Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies.
We have not
authorized anyone to give any information or make any representation about the
Transaction or us that differs from, or adds to, the information in this Proxy
Statement or in our documents that are publicly filed with the SEC. If anyone
does give you different or additional information, you should not rely on it.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE
PROMPTLY VOTE BY FAX OR BY DATING, SIGNING AND MAILING THE ENCLOSED PROXY CARD
IN THE RETURN ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES WILL BE REPRESENTED
AT THE MEETING.
|
BY ORDER OF THE BOARD OF
|
|
DIRECTORS
|
|
|
|
|
|
|
|
James F. Sanders,
|
|
Corporate Secretary
|
Dated:
March ___, 2010
-88-
Annex A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BOSS HOLDINGS, INC.
Boss Holdings, Inc.
, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
“
Corporation
”),
DOES HEREBY CERTIFY:
FIRST:
That resolutions were duly adopted by the
Board of Directors of the Corporation setting forth this proposed Amendment to
the Certificate of Incorporation of the Corporation and declaring said Amendment
to be advisable and recommended for approval by the stockholders of the
Corporation.
SECOND:
Immediately upon the effectiveness of this
Amendment to the Corporation’s Certificate of Incorporation (the “
Effective Time
”), each one hundred (100) issued and outstanding shares of the
Corporation’s Common Stock, par value $0.25 per share, shall be converted into
one (1) share of the Corporation’s Common Stock, par value $0.25 per share, as
constituted following the Effective Time.
THIRD:
To accomplish the foregoing Amendment to the
Certificate of Incorporation of the Corporation, the following paragraph is
added immediately after ARTICLE FOUR, Section 3 of the Certificate of
Incorporation of the Corporation:
“Section 4.
Reverse Stock Split
. Effective as of the effectiveness of the
amendment to this Certificate of Incorporation adding this Section 4 to ARTICLE
FOUR (this “
Amendment
”)
and without regard to any other provision of this Certificate of Incorporation,
each one (1) share of Common Stock, either issued or outstanding or held by the
Corporation as treasury stock, immediately prior to the time this Amendment
becomes effective shall be and is hereby automatically reclassified and changed
(without any further act) into one-one hundredth (1/100th) of a fully paid and
nonassessable share of Common Stock without increasing or decreasing the amount
of stated capital or paid-in surplus of the Corporation, provided that no
fractional shares shall be issued to any registered holder of fewer than 100
shares of Common Stock immediately prior to the time this Amendment becomes
effective, and that instead of issuing such fractional shares to such holders,
such fractional shares shall be canceled and converted into the right to receive
the cash payment of $7.65 per share (subject to any applicable U.S. federal,
state and local withholding tax) on a pre-split basis to each stockholder owning
fewer than 100 shares of Common Stock immediately prior to the effective time of
this Amendment.”
A-1
FOURTH:
That, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by applicable law was voted in favor of the Amendment.
FIFTH:
That said Amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
A-2
IN WITNESS WHEREOF
, the Corporation has caused this Certificate
of Amendment of the Certificate of Incorporation to be executed on this ____ day
of ______________________, 2010.
BOSS HOLDINGS, INC.
A-3
Annex B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BOSS HOLDINGS, INC.
Boss Holdings, Inc.
, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
“
Corporation
”),
DOES HEREBY CERTIFY:
FIRST:
That resolutions were duly adopted by the
Board of Directors of the Corporation setting forth this proposed Amendment to
the Certificate of Incorporation of the Corporation and declaring said Amendment
to be advisable and recommended for approval by the stockholders of the
Corporation.
SECOND:
Immediately upon the effectiveness of this
Amendment to the Corporation’s Certificate of Incorporation (the “
Effective Time
”), each one (1) issued and outstanding share of the Corporation’s Common
Stock, par value $0.25 per share, shall be converted into one hundred (100)
shares of the Corporation’s Common Stock, par value $0.25 per share, as
constituted following the Effective Time.
THIRD:
To accomplish the foregoing Amendment to the
Certificate of Incorporation of the Corporation, the following paragraph is
added immediately after ARTICLE IV, Section 4 of the Certificate of
Incorporation of the Corporation:
“Section 5.
Forward Stock Split
. Effective as of the effectiveness of the
amendment to this Certificate of Incorporation adding Section 5 to ARTICLE FOUR
(this “
Amendment
”)
and without regard to any other provision of this Certificate of Incorporation,
each one (1) share Common Stock, either issued or outstanding or held by the
Corporation as treasury stock, and any fractional share held by any shareholder
who holds in excess of one (1) share immediately prior to the time this
Amendment becomes effective shall and is hereby automatically reclassified and
changed (without any further act) into one hundred (100) fully-paid and
nonassessable shares of Common Stock (or, with respect to fractional shares,
such lesser number of shares and fractional shares as may be applicable based
upon such 100-for-1 ratio), without increasing or decreasing the amount of
stated capital or paid-in surplus of the Corporation, provided that no
fractional shares of Common Stock shall be issued.”
FOURTH:
That, pursuant to resolution of its Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by applicable law was voted in favor of the Amendment.
B-1
FIFTH:
That said Amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
B-2
IN WITNESS WHEREOF
, the Corporation has caused this Certificate
of Amendment of the Certificate of Incorporation to be executed on this
____________ day of _____________________________, 2010.
BOSS HOLDINGS, INC.
B-3
Annex C
Fairness Opinion of TM Capital dated August
26, 2009
C-1
C-2
C-3
C-4
Annex D
Fairness Opinion of TM Capital dated December
23, 2009
D-1
D-2
D-3
D-4
Annex E
BOSS HOLDINGS, INC.
AUDIT
COMMITTEE CHARTER
Status
The Audit
Committee (“Committee”) is a committee of the Board of Directors (“Board”) of
Boss Holdings, Inc. (“Company”).
Purpose
The
Committee shall assist the Board in its oversight responsibilities for (i) the
integrity of the Company’s financial statements; (ii) the Company’s compliance
with legal and regulatory requirements pertaining to the presentation of
financial statements; (iii) the independent auditor’s qualifications and
independence; (iv) performance of the independent auditor and the Company’s
internal audit function; and (v) the Company’s system of disclosure controls and
procedures and internal controls over financial reporting. The Committee also
shall prepare the report required by SEC rules to be included in the Company’s
annual report or proxy statement.
Membership
The
Committee shall consist of three or more directors the majority of whom in the
judgment of the Board shall be independent of the Company under applicable rules
and regulations. Each member shall in the judgment of the Board of Directors
have the ability to read and understand the Company’s basic financial statements
or shall at the time of appointment undertake training for that purpose. The
Board will determine whether at least one member of the Committee qualifies as
an “audit committee financial expert” under criteria established by the SEC. The
existence of such a member, including his or her name and whether or not he or
she is independent of the Company, shall be disclosed in periodic filings as may
be required by the SEC.
Meetings
The
Committee shall meet at least four times per year, with authority to convene
additional meetings at such other times determined by the Committee or the
chairperson of the Committee. Members may attend Committee meetings in person,
or via telephone or video conference. Periodically the Committee will meet with
management, the Company’s internal auditor and the independent auditor in
separate executive sessions. The Committee also may meet periodically in
executive session. For regularly scheduled meetings, meeting agendas will be
prepared and provided to members in advance along with other appropriate
briefing materials. The chairperson of the Committee shall appoint an attendee
of each meeting to prepare minutes of the meeting.
Responsibilities and Duties
To fulfill
its responsibilities and duties, the Committee shall:
Relationship with
Independent Auditor
-
Appoint (and recommend
that the Board submit for shareholder ratification), compensate and oversee
the work of the public accounting firm engaged by the Company as its
independent auditor. The independent auditor shall report directly to the
Committee.
-
Resolve any disagreements
between management and the auditor regarding financial reporting.
-
Pre-approve all auditing
and non-audit services performed by the audit firm. The authority to grant
pre-approvals may be delegated to one or more designated member of the
Committee whose decisions will be presented tot the full Committee at its next
regularly scheduled meeting. Approval of non-audit services will be disclosed
in periodic reports as required by the SEC.
-
Review with members of the
public accounting firm selected as the Company’s independent auditor the scope
of their prospective audit and such other matters pertaining to such audit as
the Committee may deem appropriate.
-
Receive from the
independent auditor the report required by Independence Standards Board
Standard No. 1 as in effect from time to time and discuss the report with the
independent auditors. Discuss with the independent auditor the matters
required to be discussed under Statement on Auditing Standards (SAS) No. 61,
as amended by SAS No.
84 and SAS No.
90.
Financial Statements
-
Review and discuss with
management and the independent auditor the annual and quarterly financial
statements of the Company, including significant estimates made by management
and any material changes in accounting principles or practices used in
preparing the statements, prior to the filing of reports on Form 10K or Form
10Q with the SEC. Such review is to include (i) items required by SAS 61 as in
effect from time to time for annual statements, and SAS 71 as in effect from
time to time for quarterly statements, and (ii) all internal control reports.
After review of the financials and the draft Form 10K, recommend to the Board
of Directors whether the audited financial statements should be included in
the Company’s annual report on Form 10K.
-
Review disclosures made by
the Company’s CEO and CFO as part of the Company’s certification process in
filing periodic reports concerning internal controls.
-
Prepare and deliver to the
Board of Directors a report for inclusion in the Company’s annual proxy
statement which summarizes the Committee’s activities in compliance with Item
7 of Schedule 14A and/or other applicable regulations of the Securities and
Exchange Commission.
-
Regularly report to the
Board about Committee activities and issues that arise with respect to the
quality or integrity of the Company’s financial statements, the Company’s
compliance with legal or regulatory requirements, and the performance of the
internal and independent auditors.
Internal Controls
-
Review and assess the
Company’s overall system of internal controls and accounting practices,
including controls for detecting accounting and financial reporting errors,
fraud, defalcations and legal violations and information technology
security.
-
Receive copies of the
annual comments or recommendations from the Company’s independent auditor on
accounting procedures and systems of control; receive and discuss management’s
responses to such comments or recommendations; and review with the independent
auditor any questions, comments or suggestions they may have relating to the
internal controls, accounting practices or procedures of the Company or its
subsidiaries.
Internal Audit
-
Review and advise on the
selection and removal of the Company’s internal auditor or internal audit
director and ensure there are no unjustified restrictions or limitations on
the activities of the internal auditor.
-
Review with management and
the internal auditor the plans, activities and staffing for the internal audit
function.
Other Authority
-
Have the authority to
conduct or authorize investigations into any matters within the scope of its
responsibility.
-
Retain independent
counsel, accountants or others to advise the Committee or assist in the
conduct of any investigation which it deems necessary.
-
Establish procedures for
and monitor the operation of a system for the confidential and anonymous
receipt, retention and treatment of complaints regarding the Company's
accounting, internal controls and auditing matters, as well as for the
confidential, anonymous submission by Company employees of concerns regarding
questionable accounting or auditing matters, all as may be required by the
SEC.
-
Perform such other duties
and functions as may be assigned by the Board.
Effective as of April
20, 2006.
PRELIMINARY COPY, SUBJECT TO COMPLETION,
DATED FEBRUARY 26, 2010
Front of
Card
BOSS HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF
STOCKHOLDERS
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) of
Boss Holdings, Inc., a Delaware corporation (the “
Company
”), hereby acknowledge(s) receipt of
the Proxy Statement dated ________________, 2010 and hereby appoint(s) G. Louis
Graziadio III and James F. Sanders and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of Boss Holdings, Inc., to be held ________________, 2010 at _____
a.m. Central Standard Time, at the Board Room of the Conference Center, 8235
Forsyth Blvd., Suite 801, St. Louis, Missouri 63105 and at any adjournment or
adjournments thereof, and to vote all shares of Company’s common stock, par
value $0.25 per share (the “
Common
Stock
”)
which the undersigned would be entitled to vote if then and there personally
present, on all matters set forth on the reverse side hereof.
(CONTINUED AND TO BE SIGNED ON
REVERSE SIDE.)
VOTING
INSTRUCTIONS
If you vote by fax, please DO NOT
mail your proxy card.
VOTE BY MAIL
:
|
|
Please mark, sign, date, and return this Proxy
Card promptly using the enclosed envelope.
|
|
|
|
VOTE BY FAX
:
|
|
Complete the reverse portion of this Proxy Card
and Fax to ________________.
|
Back of
Card
PROXY FOR ANNUAL MEETING OF
STOCKHOLDERS OF BOSS HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
THE DIRECTORS RECOMMEND A VOTE “FOR”
EACH OF THE FOLLOWING ITEMS:
1.
|
|
To effect a 1-for-100
reverse stock split (the “
Reverse Stock
Split
”) of the
Common Stock, by amending the Company’s Certificate of Incorporation, as
further described in the Company’s proxy statement dated ________________,
2010 relating to the Annual Meeting of Stockholders to be held on
________________, 2010.
|
|
For
o
|
|
Against
o
|
|
Abstain
o
|
|
2.
|
|
To effect a 1-for-100
forward stock split (the “
Forward Stock
Split
”) of the
Common Stock immediately following the Reverse Stock Split, by amending
the Company’s Certificate of Incorporation, as further described in the
Company’s proxy statement dated ________________, 2010 relating to the
Annual Meeting of Stockholders to be held on ________________,
2010.
|
|
For
o
|
|
Against
o
|
|
Abstain
o
|
|
3.
|
|
To elect as Directors of Boss Holdings, Inc.
the nominees listed below:
|
|
For
All
o
|
|
Withhold
All
o
|
|
For
All
Except
o
|
|
|
(1)
|
|
G. Louis Graziadio III
|
|
|
|
|
|
|
|
|
(2)
|
|
William R. Lang
|
|
|
|
|
|
|
|
|
(3)
|
|
Perry A. Lerner
|
|
|
|
|
|
|
|
|
(4)
|
|
Lee E. Mikles
|
|
|
|
|
|
|
|
|
(5)
|
|
Paul A. Novelly
|
|
|
|
|
|
|
|
|
|
To withhold authority
to vote for any individual nominee(s), mark
“For All Except”
and write the name(s) of the nominee(s)
on the line below.
|
|
4.
|
|
To ratify the
appointment of McGladrey & Pullen, LLP as the Company’s independent
auditors for the fiscal year ending December 26, 2009.
|
|
For
o
|
|
Against
o
|
|
Abstain
o
|
|
5.
|
|
To transact such other
business as may properly come before the Annual Meeting of Stockholders or
any adjournment thereof.
|
|
For
o
|
|
Against
o
|
|
Abstain
o
|
The proxies are authorized to vote
upon such other matters as may properly come before the meeting. Each properly
executed proxy will be voted as directed by the stockholder(s).
If no direction is given, such
shares will be voted “FOR” each of the above items, and in the discretion of the
proxies on any other matters that may properly come before the
meeting.
Dated:
|
|
, 2010
|
|
(Print Name of Stockholder and/or Joint
Tenant)
|
|
(Signature of Stockholder)
|
|
(Second Signature if held jointly)
|
|
Note: Please date and sign exactly as your name
appears hereon. When shares are held jointly, each holder should sign. If
acting as an executor, administrator, trustee, guardian, etc., you should
so indicate. If the signer is a corporation, please sign the full
corporate name by a duly authorized officer. If shares are held jointly,
each stockholder should sign
.
|
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