UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
Schedule
14C
INFORMATION
REQUIRED IN INFORMATION STATEMENT
SCHEDULE
14C INFORMATION
Information
Statement Pursuant to Section 14(c) of the Securities
Exchange
Act of 1934 (Amendment No. )
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Preliminary
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Confidential,
For Use of the Commission
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(as permitted by Rule 14c-5(d)(2))
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Definitive
Information Statement
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Berkshire
Bancorp Inc.
(Name
of
Registrant as Specified in Its Charter)
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Aggregate
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PRELIMINARY
COPY
BERKSHIRE
BANCORP INC.
160
BROADWAY
NEW
YORK, NEW YORK 10038
INFORMATION
STATEMENT AND NOTICE OF ACTION TAKEN WITHOUT A
MEETING
OF STOCKHOLDERS
**WE
ARE NOT ASKING FOR A PROXY AND
YOU
ARE REQUESTED NOT TO SEND US A PROXY**
INTRODUCTION
This
Information Statement and Notice of Action Taken Without a Meeting of
Stockholders is being furnished by Berkshire Bancorp Inc. (the “Company”)
to its
stockholders of record as of November [17], 2008 (the “Record
Date”),
to
inform them of the November [17], 2008 approval by written consent of
stockholders owning a majority, as of such date, of the Company’s outstanding
common stock, $.10 par value (the “Common
Stock”),
the
only class of the Company’s voting securities as of such date, of the following
actions to be taken by the Company (the “Stockholder
Consent”):
(a)
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the
issuance pursuant to the terms of the Financing (defined below) and
the
transactions contemplated thereby of a number of shares of Common
Stock
upon the conversion of the Series A Preferred Stock (defined below)
(collectively, the “Conversion
Shares”)
in accordance with its terms, which could exceed 19.99% of the number
of
shares of Common Stock outstanding immediately prior to the Financing
(the
“Cap
Amount”),
an action for which prior stockholder approval may be required by
NASDAQ
Marketplace Rules applicable to companies whose securities are quoted
on
The NASDAQ Stock Market; and
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(b)
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the
filing of an amendment to the Company’s Certificate of Incorporation
increasing the number of authorized shares of Common Stock from 10,000,000
to 25,000,000 (the “Amendment”),
an action for which prior stockholder approval is required under
Delaware
law.
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This
Information Statement is dated November __, 2008 and is first being sent or
given to the Company’s Record Date stockholders on or about November __,
2008.
VOTING
RIGHTS AND OUTSTANDING SHARES
The
possible issuance of shares of Common Stock in excess of the Cap Amount and
the
filing of the Amendment were approved by the Stockholder Consent on November
[17], 2008 by stockholders of the Company owning a majority of the outstanding
Common Stock. The Amendment will be filed with the Delaware Secretary of State
on or about December __, 2008.
As
of the
date of the Stockholder Consent, the only class of voting securities of the
Company was its Common Stock.
As
of the
date of the Stockholder Consent, there were issued and outstanding a total
of
[7,054,183] shares of Common Stock. With respect to each of the actions approved
by the Stockholder Consent, each share of Common Stock entitled its holder
to
one vote. The Stockholder Consent was signed by holders of [3,842,419] (or
54.5%) of the [7,054,183] votes that were entitled to be cast on the matters
referred to above.
As
a
result of requirements under applicable federal securities and state law, the
Stockholder Consent will not be effective, and therefore no conversion of the
Conversion Shares above the Cap Amount can be effected and the Amendment cannot
become effective until at least 20 calendar days after this information
statement is sent or given to the Company’s stockholders of record as of the
Record Date.
The
following table sets forth, as of the date of the Stockholder Consent, the
beneficial ownership of shares of Common Stock of the Company by (i) each
person known by the Company to be the beneficial owner of more than five percent
(5%) of the Common Stock, (ii) each person named in the Summary
Compensation Table set forth in Item 10 of Part II of the Company’s Annual
Report on Form 10-K for its fiscal year ended December 31, 2007 (a “Named
Officer”),
(iii) each Director of the Company, and (iv) the Directors and executive
officers of the Company as a group. Except as otherwise indicated, to the
knowledge of the Company, each stockholder listed possesses sole voting and
investment power with respect to the shares indicated as being beneficially
owned by such stockholder.
Title of Class
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Name and Address of
Beneficial Owner (1)
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Amount and Nature
of Beneficial
Ownership as of
the Record Date
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Percent
of Class
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Common
Stock
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William
L. Cohen |
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7,500
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*
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Common
Stock
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Martin
A. Fischer |
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10,800
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(2)
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*
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Common
Stock
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Moses
Krausz |
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90,464
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(3)
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1.3
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%
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Common
Stock
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David
Lukens |
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600
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*
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Common
Stock
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Moses
Marx
160
Broadway
New
York, NY 10038
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3,842,419
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(4)
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54.5
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%
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Common
Stock
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Steven
Rosenberg |
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62,580
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*
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Common
Stock
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Randolph
B. Stockwell |
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21,000
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*
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Common
Stock
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All
executive officers and directors as a group (7 persons) |
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4,035,363
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57.2
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%
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(1)
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Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the
Securities Exchange Act of 1934, as
amended.
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(2)
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Includes
1,000 shares held in Mr. Fischer’s IRA
Account
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(3)
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Includes
2,100 shares owned by Mr. Krausz's
spouse.
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(4)
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Includes
285,000 shares owned by Momar Corporation and 386,163 shares owned
by
Terumah Foundation. Does not include 37,302.32 shares representing
23.0%
of the shares owned by Eva and Esther, L.P., of which Mr. Marx has
a 23.0%
limited partnership interest. Mr. Marx's daughters and their husbands
are
the general partners of Eva and Esther,
L.P.
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SUMMARY
OF FINANCING TRANSACTION
The
Financing
On
October 31, 2008, the Company issued (the “Financing”) to
three
accredited investors, including the Company’s Chairman of the Board (the
“Investors”),
for
an aggregate purchase price of $60 million, an aggregate of 60,000 shares (the
“Offering
Shares”)
of its
8% Non-Cumulative Mandatorily Convertible Perpetual Series A Preferred Stock
(the “Series
A Preferred Stock”).
Reasons
for the Financing
On
September 7, 2008, the United States Department of the Treasury (“U.S.
Treasury”) and the Federal Housing Finance Agency (“FHFA”) announced a plan to
place the Federal National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”) into conservatorship under the
authority of the FHFA, a plan which eliminated dividends on Fannie Mae and
Freddie Mac common and preferred stock for the foreseeable future.
As
previously disclosed by the Company, as of June 30, 2008 the Company’s
wholly-owned subsidiary, The Berkshire Bank (the “Bank”), held auction rate
securities, which included securities collateralized by Fannie Mae and Freddie
Mac preferred securities with a combined adjusted fair market value at
June 30, 2008 of approximately $83.3 million. In addition, at June 30,
2008, the Bank held preferred securities issued by Fannie Mae and Freddie Mac
with a combined adjusted fair market value at June 30, 2008 of
approximately $7.8 million. Based on the foregoing actions by the U.S. Treasury
and the FHFA, the estimated fair market value of these securities has declined
significantly from June 30, 2008. The Company estimates that the foregoing
auction rate and preferred securities had a combined adjusted fair market book
value of $7.9 million and $0.8 million, respectively, as of September 10,
2008. On September 16, 2008, the Company determined that it was likely that
the decrease in fair market value of these securities from June 30, 2008
would result in an other-than-temporary impairment of capital and non-cash
charge to earnings of approximately $86.2 million recognized in the quarter
ended September 30, 2008 (assuming the Company is not able to record a tax
benefit for the loss).
While
this impairment would cause the Bank to no longer qualify as “adequately
capitalized” under applicable regulatory standards, the Company’s Chairman and
majority stockholder agreed to provide equity capital sufficient to restore
the
Bank’s “well capitalized” position and made immediately available to the Company
$60 million in cash from which such capital (and any additional required
capital) was available to be drawn upon the finalization of terms and obtaining
any required regulatory approval of the Financing.
The
Company’s Board of Directors accepted the Chairman’s proposal and appointed a
special committee to negotiate the Financing on behalf of the Company. On
October 16, 2008, the Board of Directors met to review the terms and conditions
of the Financing and authorized the Company through its President to finalize
and enter into definitive agreements. The Company entered into definitive
agreements on October 30, 2008 and consummated the Financing on October 31,
2008.
Pursuant
to the Financing, the Company’s Chairman purchased 30,000 shares of Series A
Preferred Stock for an aggregate purchase price of $30 million and two
non-affiliated investors purchased an aggregate of 30,000 shares of Series
A
Preferred Stock for an aggregate purchase price of $30 million.
The
consummation of the Financing restored the Bank’s capital position to “well
capitalized” for regulatory purposes.
The
Board
of Directors of the Company, by authorizing the Financing, determined that
the
Financing was in the best interest of the Company and its stockholders, despite
the significant ownership dilution that its stockholders would suffer upon
issuance of the Conversion Shares.
Description
of Series A Preferred Stock
General
The
shares of Series A Preferred Stock have a face value of $1,000 per share
(“Stated
Value”).
Voting
Rights
The
shares of Series A Preferred Stock have no voting rights except as from time
to
time required by law or as follows: So long as any shares of Series A Preferred
Stock are outstanding, in addition to any other vote or consent of stockholders
required by law or by the Company’s Certificate of Incorporation, the vote or
consent of the holders of at least 66-2/3% of the shares of Series A Preferred
Stock and any other voting preferred stock at the time outstanding and entitled
to vote thereon, voting together as a single class, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) Authorization
of Senior Stock.
Any
amendment or alteration of the Company’s Certificate of Incorporation or of the
Certificate of Designations creating the Series A Preferred Stock (the
“Designation”) to authorize or create, or to increase the authorized amount of,
any specific class or series of capital stock of the Company ranking senior
to
the Series A Preferred Stock with respect to either or both the payment of
dividends or the distribution of assets on any liquidation, dissolution or
winding up of the Company; or
(ii) Amendment
of Series A Preferred Stock.
Any
amendment, alteration or repeal of any provision of the Certificate of
Incorporation or the Designation so as to materially and adversely affect the
special rights, preferences, privileges or voting powers of the Series A
Preferred Stock, taken as a whole;
provided,
however that
(1)
any increase in the amount of the Company’s authorized but unissued shares of
preferred stock, (2) any increase in the amount of the Series A Preferred Stock,
or (3) the creation and issuance, or an increase in the authorized or issued
amount, of other series of preferred stock ranking equally with or junior to
the
Series A Preferred Stock either or both with respect to the payment of dividends
(whether such dividends are cumulative or non-cumulative) and/or the
distribution of assets upon the liquidation, dissolution or winding up of the
Company, will not be deemed to materially and adversely affect the special
rights, preferences, privileges or voting powers of the Series A Preferred
Stock.
Non-Cumulative Dividends
Holders
of Series A Preferred Stock are entitled to receive, when, as and if declared
by
the Board of Directors of the Company or a duly authorized committee of the
Board of Directors, in its sole discretion, out of funds legally available
for
payment of dividends under the Delaware General Corporation Law, non-cumulative
cash dividends at the annual rate of 8.0% until the shares of Series A Preferred
Stock are converted or redeemed. Such dividends shall be payable quarterly
in
arrears, in cash, but only when, as and if declared by the Board of Directors
or
a duly authorized committee of the Board of Directors, on each March
31, June
30, September
30 and December 31 of each year commencing on December 31, 2008.
So
long
as any share of Series A Preferred Stock remains outstanding, unless the full
dividends for the most recent dividend payment date on all outstanding shares
of
Series A Preferred Stock and parity stock that ranks equally as to the payment
of dividends have been paid, or declared and a sum sufficient for the payment
thereof has been set aside for future payment, (1) no dividend shall be declared
and paid or set aside for payment and no distribution may be declared and made
or set aside for payment on any stock that ranks junior as to the payment of
dividends (other than a dividend payable solely in shares of junior stock),
and
(2) no shares of junior stock that ranks junior as to the payment of dividends
shall be purchased, redeemed or otherwise acquired for consideration by the
Company, directly or indirectly (other than (a) as a result of a
reclassification of junior stock for or into other junior stock or the exchange
or conversion of one share of junior stock for or into another share of junior
stock, (b) repurchases in support of the Company’s employee benefit and
compensation programs and (c) through the use of the proceeds of a substantially
contemporaneous sale of other shares of junior stock).
Mandatory
Conversion
The
shares of Series A Preferred Stock automatically converts (subject to the Cap
Amount limitation, if then applicable) to Conversion Shares on October 31,
2011
at the conversion rate of 123.15 Conversion Shares per share of Series A
Preferred Stock (based on a conversion price of $8.12 per Conversion Share),
subject to certain anti-dilution provisions described in the Designation. In
addition, the Company may not issue shares of Common Stock pursuant to
conversion, to the extent a holder of Series A Preferred Stock would own more
than 9.99% of the outstanding shares of Common Stock after giving effect to
such
conversion, which provision may be waived by the holder. The holders have no
conversion rights.
Redemption
Rights
On
or
after April 30, 2009,
and
prior to the close of business on November 1, 2010, the Company may, at its
option, at any time or from time to time, redeem all or part of the Series
A
Preferred Stock at the redemption price of $1,100 per share of Series A
Preferred Stock, plus all accrued and unpaid dividends through the redemption
date, subject to any necessary approval of the Federal Reserve
Board.
The
description of the Series A Preferred Stock set forth above does not purport
to
be complete and is qualified in its entirety by reference to the full text
of
the Designation, which is filed as an exhibit to the Company’s Current Report on
Form 8-K dated November 5, 2008.
Registration
Rights
In
connection with the Financing, the Company agreed to file a registration
statement with the Securities and Exchange Commission covering the resale of
the
Conversion Shares and shares of Common Stock otherwise issuable under the
Designation.
Use
of Proceeds
The
Company received $60 million of gross proceeds in the Financing. The net
proceeds to the Company from the sale of the Series A Preferred Stock in the
Financing after deducting fees and certain expenses, were approximately
$59,718,000.
The
Company contributed the net proceeds of the Financing to the Bank which used
and
intends to use the net proceeds as working capital. The Financing restored
the
“well capitalized” status, for regulatory purposes, of the Bank.
REASONS
STOCKHOLDER APPROVAL IS REQUIRED
Possible
Issuances in Excess of Cap Amount
Because
the Company’s Common Stock is listed on the NASDAQ Capital Market, the Company
is subject to NASDAQ Marketplace Rules. NASDAQ Marketplace Rule
4350(i)(1)(D)(ii) requires that a company whose securities are traded on NASDAQ
obtain stockholder approval in connection with a transaction (other than a
public offering) involving the potential issuance of shares of common stock
(including shares of common stock issuable upon the conversion or exercise
of
other securities) equal to 20% or more of its aggregate shares of common stock,
or its aggregate voting power, outstanding before the transaction for less
than
the greater of book or market value of its common stock as of the date of the
transaction. By virtue of certain anti-dilution provisions contained in the
Designation, the issuance of the Conversion Shares may be deemed to be at a
price lower than the market value of the Common Stock.
The
Company will be obligated to issue shares of Common Stock upon the conversion
of
the Conversion Shares in excess of the Cap Amount. Therefore, if, by virtue
of
certain anti-dilution provisions, the issuance of the Conversion Shares were
deemed to be at a price lower than the market value of the Common Stock, this
NASDAQ Marketplace Rule would apply to issuances of Common Stock by the Company
in excess of the CAP Amount as a result of the Financing.
Upon
conversion of the Conversion Shares the Company would be required to issue
an
aggregate of approximately 7,389,162 shares of Common Stock. If all of such
shares were issued, they would represent approximately 51.2% of the Company’s
Common Stock on an actual basis (assuming no other outstanding options or
warrants are exercised) and approximately 51.2% of the outstanding Common Stock
on a fully diluted basis, thereby significantly diluting the equity ownership
of
the Company’s existing stockholders.
Amendment
to the Certificate of Incorporation
An
amendment to the Company’s Certificate of Incorporation, such as the Amendment,
which increases the authorized shares of Common Stock is required by Delaware
law.
An
increase in the authorized shares of Common Stock is needed because the Company
does not have sufficient shares of Common Stock authorized to issue all of
the
shares of Common Stock issuable upon conversion of the Conversion Shares and
exercise of the other outstanding securities of the Company that are exercisable
to purchase Common Stock.
The
Company currently has 10,000,000 authorized shares of Common Stock. Immediately
prior to the Financing, the Company had approximately 7,054,183 shares of Common
Stock outstanding and approximately 7,056,259 shares outstanding on a fully
diluted basis. Upon conversion of the Series A Preferred Stock there would
be
approximately 14,443,345 shares of Common Stock outstanding, or approximately
4,443,345 shares in excess of its currently authorized shares (4,445,421 on
a
fully diluted basis).
In
addition to requiring additional authorized shares to satisfy the Company’s
contractual obligations to issue shares of its Common Stock, the Amendment
will
avoid the possible need to call and hold a special meeting for that purpose
at a
later date on an accelerated timetable should the Company decide in the future
to issue additional equity securities. Once authorized, the Board of Directors
is empowered to authorize the issuance of additional authorized shares of Common
Stock at such time or times, to such persons and for such consideration as
the
Board deems appropriate, without further shareholder action. Although such
additional shares could be used to dilute the share ownership of persons seeking
to obtain control of the Company, the Amendment was not adopted for that
purpose.
Except
with respect to the Financing, the Company has no current plans to issue the
additional shares of Common Stock that are the subject of the Amendment other
than with respect to any obligation it has under existing options that are
outstanding or available for future grant pursuant to the Company’s stock option
or stock incentive plans.
None
of
the Company's securityholders have any pre-emptive rights.
REASONS
COMPANY USED STOCKHOLDER CONSENT AS
OPPOSED
TO SOLICITATION OF STOCKHOLDER APPROVAL
VIA
PROXY STATEMENT AND SPECIAL MEETING
Because
of the number of shares of Common Stock potentially issuable as a result of
the
Financing, the approval of the Company’s stockholders with respect to the
potential issuance of securities in excess of the Cap Amount, under Nasdaq
rules, may be required, and the Amendment is required, before the Company can
issue securities that are convertible for shares of Common Stock in excess
of
the Cap Amount. As a result, originally the Investors were not willing to fund
the Financing until such stockholder approval was actually obtained and
effective.
Stockholder
approval could have been obtained by the Company in one of two ways: (1) by
the
dissemination of a proxy statement and subsequent majority vote in favor of
the
actions at a stockholders meeting called for such purpose, or (2) by a written
consent of the holders of a majority of the Company’s voting securities.
However, the latter method, while it represents the requisite stockholder
approval, is not deemed effective until 20 days after this Information Statement
has been sent to all of the Company’s stockholders giving them notice of and
informing them of the actions approved by such consent.
The
Company determined that it would have been detrimental to its ability to
complete the Financing to solicit stockholder approval through the use of a
proxy statement because of the significant delay which would have occurred.
Such
a delay would have correspondingly delayed its receipt of the proceeds from
the
Financing . In addition, the Company would have been subject to the risk of
market price fluctuations of its Common Stock during the waiting period, which
may have jeopardized its ability to complete the Financing on its terms or
at
all.
As
a
result, through negotiation, the Company and the Investors agreed that the
Financing could close and the funds could be released to the Company prior
to
the effectiveness of stockholder approval, provided that the Company agreed
to
obtain the Stockholder Consent after the closing of the Financing.
INTEREST
OF CERTAIN PERSONS
IN
MATTERS TO BE ACTED UPON
Directors
and Officers
In
connection with the Financing, the Company’s Chairman and majority stockholder
purchased 30,000 shares of Series A Preferred Stock for an aggregate purchase
price of $30 Million, constituting 50% of the $60 million raised in the
Financing. The actions taken in the Stockholder Consent are necessary to allow
the shares of Series A Preferred Stock purchased by the investors in the
Financing, including the Chairman, to be fully converted pursuant to their
terms.
WHERE
YOU CAN FIND MORE INFORMATION
The
Company files annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information the Company files at the Securities
and Exchange Commission’s public reference room in Washington, D.C. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference rooms. The Company’s filings with the Securities and
Exchange Commission are also available to the public from commercial document
retrieval services and at the web site maintained by the Securities and Exchange
Commission at http://www.sec.gov.
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN
THIS INFORMATION STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS INFORMATION
STATEMENT. THIS INFORMATION STATEMENT IS DATED NOVEMBER __, 2008. YOU SHOULD
NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN SUCH DATE, AND THE MAILING OF THIS INFORMATION
STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
Dated: November
__, 2008
By
Order
of the Board of Directors,
Emanuel
J. Adler
Secretary