minimum bid price requirement for continued listing on The Nasdaq Capital Market under Marketplace
Rule 4310(c)(4) (the Rule). This notification has no effect on the listing of the Companys
common stock at this time.
In accordance with Marketplace Rule 4310(c)(8)(D), we have been afforded a 180-day grace
period in order to achieve compliance through achieving or exceeding the $1 minimum bid price
requirement for 10 consecutive business days. As of May ___, 2008, we have not satisfied this
requirement. If compliance with the Rule cannot be demonstrated within the 180 day period, Nasdaq
will determine whether we meet the Nasdaq Capital Market initial listing criteria as set forth in
Marketplace Rule 4310(c), except for the minimum bid price requirement. If we meet the initial
listing criteria, Nasdaq will notify us that we have been granted an additional 180 calendar day
Consequently, we believe that approval of this proposal would provide the Board with the
ability to meet the continued listing standard in the future, to the extent that our common stock
price would not otherwise meet the minimum requirement.
We also believe that a number of institutional investors and investment funds are reluctant to
invest, and in some cases may be prohibited from investing, in lower-priced stocks and that
brokerage firms are reluctant to recommend lower-priced stocks to their clients. By effecting a
reverse stock split, we may be able to raise our common stock price to a level where our common
stock would be viewed more favorably by potential investors.
Other investors may also be dissuaded from purchasing lower-priced stocks because the
brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks.
A higher stock price after a reverse stock split should reduce this concern.
The combination of lower transaction costs and increased interest from institutional investors
and investment funds could have the effect of improving the trading liquidity of our common stock.
The Board believes that stockholder approval of a range of exchange ratios of up to a maximum
of six for one (rather than a single exchange ratio) provides the Board with the flexibility to
achieve the desired results of a reverse stock split. If the stockholders approve this proposal,
the Board would effect a reverse stock split only upon the Boards determination that a reverse
stock split would be in the best interests of the stockholders at that time. To effect a reverse
stock split, the Board would set the timing for such a split and select the specific ratio from
among the range described in this Proxy Statement. No further action on the part of stockholders
will be required to either implement or abandon the reverse stock split. If the proposal is
approved by stockholders, and the Board determines to implement a reverse stock split, we would
communicate to the public, prior to the effective date of the reverse split, additional details
regarding the reverse split, including the specific ratio the Board selects.
You should keep in mind that the implementation of a reverse stock split does not have an
effect on the actual or intrinsic value of the Companys business or your proportional ownership in
the Company. You should also consider that in many cases, the market price of a companys shares
declines after a reverse stock split.
Certain Risks Associated with the Reverse Stock Split
There can be no assurance that the total market capitalization of our common stock (the aggregate
value of all the Company common stock at the then market price) after the implementation of a
reverse stock split will be equal to or greater than the total market capitalization before a
reverse stock split or that the per share market price of our common stock following a reverse
stock split will increase in proportion to the reduction in the number of shares of our common
stock outstanding before the reverse stock split.
There can be no assurance that the market price per new share of our common stock after a
reverse stock split will remain unchanged or increase in proportion to the reduction in the number
of old shares of our common stock outstanding before a reverse stock split. For example, based on
the closing price of our common stock on May 1, 2008 of $0.91 per share, if the Board were to
implement the reverse stock split and utilize a ratio of 1-for-6, we cannot assure you that the
post-split market price of our common stock would be $5.46 (that is, $0.91 × 6) per share or
greater. In many cases, the market price of a companys shares declines after a reverse stock