SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
(Amendment No. 2)
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14c5(d)(2))
[ ] Definitive Information Statement
THE GREAT AMERICAN BACKRUB STORE, INC.
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(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
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the Form or Schedule and the date of its filing.
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THE GREAT AMERICAN BACKRUB STORE, INC.
4500 140th Avenue North, Suite 221
Clearwater, Florida 33762
May 19, 1998
TO THE SHAREHOLDERS OF THE GREAT AMERICAN BACKRUB STORE, INC.:
The enclosed Notice of Special Meeting and Information Statement relate to
corporate actions approved by the Board of Directors to reincorporate The Great
American BackRub Store, Inc. (the "Company") under the laws of Delaware through
the merger of the Company into a Delaware subsidiary formed specifically for
this purpose and amendments to the Company's Certificate of Incorporation to (a)
change the name of the Company to "Darco International Corp."; (b) reverse split
the outstanding shares of the Company's common stock one-for-four; (c) increase
the number of shares of common stock the Company is authorized to issue from
20,000,000 to 25,000,000; and (d) permit shareholders to take action by written
consent without a meeting. Ascot International Corp. ("Ascot"), which holds
approximately 73% of the Company's common stock, has approved these actions and
will vote their shares in favor of these matters at the meeting.
Pursuant to the provisions of New York law and the Company's certificate of
incorporation, the reincorporation by merger requires the affirmative vote of
2/3 of the Company's outstanding shares of common stock and the other amendments
require the approval of a majority of such shares. Accordingly, the vote of
Ascot is sufficient to approve these matters, which the Company's management
believes is in the best interests of the Company and its shareholders.
Please refer to the Notice and Information Statement for details regarding
this matter. In addition, please note that you are not being asked to send a
proxy and you are requested not to send one.
Sincerely yours,
David S. Coia
Chairman of the Board
THE GREAT AMERICAN BACKRUB STORE, INC.
4500 140th Avenue North, Suite 221
Clearwater, Florida 33762
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of The Great American BackRub Store, Inc. (the "Company") will be
held at 10:00 a.m. on June 22, 1998 at the Homewood Suites located at 2233
Ulmerton Road, Clearwater, Florida 33762 to consider and act upon the following:
1. To approve of the re-incorporation of the Company under the laws of the
State of Delaware through the merger of the Company into a Delaware subsidiary
formed specifically for this purpose.
2. To approve amendments to the Company's Certificate of Incorporation to:
(a) change the Company's name to "Darco International Corp.";
(b) reverse split the issued and outstanding shares of the Company's
Common Stock one-for-four;
(c) increase the number of shares of Common Stock, $.001 par value,
which the Company is authorized to issue from 20,000,000 to
25,000,000; and
(d) permit shareholders to take action by written consent without a
meeting.
3. Such other matters as may property come before the Meeting.
Shareholders of record of the Company's Common Stock at the close of
business on May 18, 1998, the record date fixed by the Board of Directors are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
By Order of the Board of Directors
David L. West
Secretary
Clearwater, Florida
May 19, 1998
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SEE INFORMATION STATEMENT ENCLOSED
THE GREAT AMERICAN BACKRUB STORE, INC.
4500 140th Avenue North, Suite 221
Clearwater, Florida 33762
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INFORMATION STATEMENT
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WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
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This Information Statement (the "Information Statement") is being mailed by
management on or about May 29, 1998 to the holders of record at the close of
business on May 18, 1998 (the "Record Date"), of the Common Stock $0.001 par
value per share (the "Common Stock"), of The Great American BackRub Store, Inc.,
a New York corporation (the "Company") in connection with a Special Meeting of
Shareholders to be held June 22, 1998 (the "Meeting"). At the Meeting, the
following matters will be submitted to shareholders for their approval: The
reincorporation the Company under the laws of Delaware through the merger of the
Company into a Delaware subsidiary formed specifically for this purpose and
amendments to the Company's Certificate of Incorporation to (a) change the name
of the Company to "Darco International Corp."; (b) reverse split the outstanding
shares of the Company's Common Stock one-for-four; (c) increase the number of
shares of Common Stock the Company is authorized to issue from 20,000,000 to
25,000,000; and (d) permit shareholders to take action by written consent
without a meeting. Ascot International Corp. ("Ascot"), which holds
approximately 73% of the Company's Common Stock, has approved these actions and
will vote their shares in favor of these matters at the meeting.
Pursuant to the provisions of New York law and the Company's certificate of
incorporation, the reincorporation by merger requires the affirmative vote of
2/3 of the Company's outstanding shares of Common Stock and the other amendments
require the approval of a majority of such shares. Accordingly, the vote of
Ascot is sufficient to approve these matters, which the Company's management
believes is in the best interests of the Company and its shareholders.
The entire cost of furnishing this Information Statement will be borne by
the Company. The Company will request brokerage houses, nominees, custodians,
fiduciaries and other like parties to forward this information Statement to the
beneficial owners of the Common Stock held of record by them and will reimburse
such persons for their reasonable charges and expenses in connection therewith.
VOTING SECURITIES AND RECORD DATE
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Shareholders of record as of the close of business on the
Record Date are entitled to Notice and to vote at the Meeting. As of the close
of business on the Record Date there were 15,003,591 shares of Common Stock
outstanding. Since Ascot will vote in favor of the proposals, they will be
approved and no proxies are being solicited.
CHANGE OF CONTROL OF THE COMPANY
On September 30, 1997 the Company entered into a Securities Exchange
Agreement (the "Securities Exchange Agreement"), to acquire (the "Acquisition")
100% of the issued and outstanding common stock of Caribsun from Ascot. On
October 16, 1997 the Acquisition closed pursuant to the Securities Exchange
Agreement and the Company initially issued 11,000,000 shares of its Common Stock
to Ascot in exchange for all of the outstanding shares of Caribsun's Common
Stock. Under the terms of the Securities Exchange Agreement, the Company is
obligated to issue an additional 5,930,752 shares of Common Stock (which will be
1,482,688 as a result of either the reincorporation into Delaware or the
one-for-four reverse stock split described herein) upon the approval of the
amendment to the Company's Certificate of Incorporation.
The Securities Exchange Agreement was attached to the Company's Form 8-K
dated September 30, 1997 as an exhibit which was filed via EDGAR with the
Securities and Exchange Commission and is being mailed with this Information
Statement. Further information concerning the acquisition of Caribsun from Ascot
can be found in the Company's Form 8-K Report dated October 16, 1997. The
description in this Information Statement of the Securities Exchange Agreement
and its terms and conditions is qualified in its entirety by reference to the
Securities Exchange Agreement and the respective exhibits and schedules thereto
and is not, and does not purport to be, complete.
As a result shares issued to Ascot at the Closing of the Acquisition, Ascot
owns approximately 73% of the outstanding Common Stock and all of the management
of the Company now consists of officers and directors (or individuals nominated
by such persons) of Ascot.
The Acquisition was approved by the Company's Board of Directors as it was
constituted prior to the Closing consisting of the following persons
(collectively referred to as "Prior Management"):
Name Position
---- --------
William Zanker President, Chairman of the Board
Terrance C. Murray Chief Executive Officer, Director
Stephen Seligman Director
Andrew L. Hyams Director
Donald R. Fleischer Director
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Prior Management resigned effective as of October 16, 1997 (except Mr.
Seligman, whose resignation is effective ten days following the mailing of a
statement to shareholders pursuant to Rule 14F-1 under the Securities Exchange
Act of 1934, as amended), and the following individuals (collectively referred
to as "New Management") were nominated to assume the positions set forth next to
their names until the next annual meeting of shareholders which the Company has
tentatively scheduled for September 1998:
Name Age Position
---- --- --------
David S. Coia 42 Chairman of the Board,
Chief Executive Officer
David Coia 65 President, Chief Operating Officer
David West 39 Chief Financial Officer, Treasurer,
Secretary and Director
Kevin P. Stone 39 Director
Waylon E. McMullen 51 Director
The Acquisition was not submitted to shareholders for approval by Prior
Management because, under New York law and the Company's Certificate of
Incorporation and by-laws, each as amended, the issuance of authorized shares of
Common Stock may be approved by Directors without any action of shareholders.
INTERESTS OF CERTAIN PERSONS IN OR OPPOSITION
TO MATTERS TO BE ACTED UPON
The matters set forth herein were unanimously approved by the Company's
Board of Directors on January 30, 1998. Each of David Coia and David L. West,
who are directors and officers of the Company, are also directors of Ascot,
which owns approximately 73% of the Company's Common Stock. In addition, David
Coia and David West own approximately 41% of the outstanding common stock of
Ascot. As a result of the matters to be approved at the meeting (1) Ascot will
increase its percentage of ownership of outstanding shares of the Company's
Common Stock from approximately 73% to 81%; and (2) Ascot will be able to cause
the Company to take corporate action by written consent without a meeting.
See "Change of Control of the Company", above.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the May 18, 1998 information
concerning ownership of the Company's securities by (i) each Director, (ii) each
executive officer, (iii) all Directors and executive officers as a group, and
(iv) each person known to the Company to be the beneficial owner of more than
five percent of each class:
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Name and Address(1) Amount and Nature Percent of
Title of Class of Beneficial Owner(2) of Beneficial Ownership Class(3)
- -------------- ---------------------- ----------------------- ----------
Common Stock Ascot International Corp. 11,000,000(4) 73.3%
David S. Coia 150,000(5) 1.0 %
1123 Overcash Drive
Dunedin, FL 34698
David Coia 11,000,000(4)(6) 73.3%
David L. West 11,000,000(4)(7) 73.3%
Kevin P. Stone 0 0%
338 Soudan Avenue
Toronto, Ontario, Canada
Waylon E. McMullen 0 0%
P.O. Box 795517
Dallas, TX
All executive officers
and Directors as a Group
(5 persons) 11,150,000(8) 73.6%
- ----------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o The
Great American BackRub Store, Inc., 4500 140th Avenue North, Suite 221,
Clearwater, FL 33762.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act and unless otherwise indicated, represents
securities for which the beneficial owner has sole voting and investment
power.
(3) Based upon 15,003,591 shares outstanding on May 18, 1998.
(4) Does not include up to 5,930,752 additional shares issuable to Ascot under
the terms of the Securities Exchange Agreement which is conditioned upon an
amendment to the Company's certificate of incorporation. When issued,
Ascot's aggrregate holdings will total 16,930,752 of the outstanding Common
Stock (approximately 81%).
(5) Consists of 150,000 shares of Common Stock which the Company has agreed to
issue to a company controlled by David S. Coia as part consideration for a
one year loan of $250,000. David S. Coia is David Coia's son.
(6) Mr. Coia is an officer of Ascot and owns approximately 38% of the shares of
Ascot. He disclaims beneficial ownership of shares of the Company owned by
Ascot.
(7) Mr. West is an officer of Ascot and owns approximately 3% of the shares of
Ascot. He disclaims beneficial ownership of shares of the Company owned by
Ascot.
(8) See Notes 4, 5, 6 and 7 above.
APPROVAL OF REINCORPORATION INTO DELAWARE
The Board of Directors has approved the reincorporation of the Company as a
Delaware corporation through the merger by the Company into its wholly-owned
subsidiary, Darco International Corp., a Delaware corporation ("Darco"), subject
to shareholder approval (the "Merger").
The Board of Directors recommends the reincorporation of the Company in
Delaware through a Merger into Darco, because, in its opinion, the best
interests of the Company will be served. The change of domicile will not involve
any change in the business, properties or
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management of the Company. The proposed Agreement of Merger between the Company
and Darco is set forth in full as Appendix A to this Information Statement. As a
result of the Merger, without any action on the part of the holder thereof, each
outstanding share of common stock, par value $.001 per share, of the Company
("Common Stock") will be converted into one-fourth (1/4) share of common stock,
par value $.001 per share, of Darco ("Delaware Common Stock"); each option or
warrant to purchase shares of common stock of the Company will be converted into
an option or warrant to purchase one-fourth (1/4) shares of common stock, par
value $.001 per share, of Darco at an exercise price equal to four times the
prior exercise price; and each option or warrant to purchase shares of Series A
Preferred Stock of the Company will be converted into an option or warrant to
purchase shares of Series A Preferred Stock of Darco, with the same rights,
preferences and privileges. There are certain differences between New York law
and Delaware law relating to the ability of the directors of the Company to
grant options to employees, officers and directors without shareholder approval,
the procedure and requisite vote for taking corporate action without a meeting
and for approving certain corporate changes, mergers and asset sales, and
procedural and substantive differences related to indemnification of officers
and directors more fully discussed below under "Comparison of Delaware and New
York Law." There may be unanticipated effects of the Merger in addition to those
described in this Information Statement.
The Board of Directors has unanimously approved the proposal to change the
Company's domicile to Delaware. The Agreement of Merger provides, however, that
the proposed Merger may be abandoned at any time prior to becoming effective if
any circumstance should develop that, in the opinion of the Boards of Directors
of the Company and Darco, makes proceeding with the Merger inadvisable.
EXCHANGE OF CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
At the effective time of the Merger (the "Effective Time"), each four
shares of Common Stock of the Company will automatically be combined and changed
into one share of Delaware Common Stock. No additional action on the part of the
Company or any shareholder will be required. Shareholders will be requested to
exchange their certificates representing shares of Common Stock held prior to
the Merger for new certificates representing shares of Delaware Common Stock.
Shareholders will be furnished the necessary materials and instructions to
effect such exchange promptly following the Effective Time. Certificates
representing shares of Delaware Common Stock subsequently presented for transfer
will not be transferred on the books and records of the Company but will be
returned to the tendering person for exchange. Shareholders should not submit
any certificates until requested to do so. In the event any certificate
representing shares of the Company's Common Stock is not presented for exchange
upon request by the Company, any dividends that may be declared after the
Effective Time with respect to the Company's Common Stock represented by such
certificate will be withheld by the Company until such certificate has been
properly presented for exchange, at which time all such withheld dividends which
have not yet been paid to a public official pursuant to relevant abandoned
property laws will be paid to the holder thereof or his designee, without
interest.
No fractional shares of Delaware Common Stock will be issued to any
shareholder. Accordingly, shareholders of record who would otherwise be entitled
to receive fractional shares
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of Delaware Common Stock, will, upon surrender of their certificates
representing shares of the Company's Common Stock, receive a cash payment in
lieu thereof equal to the fair value of such fractional share. Holders of less
than four shares of the Company's Common Stock as a result of the Merger split
will at the Effective Time no longer be shareholders of the Company. The board
of directors has determined that the fair value of the Delaware Common Stock
will be based on the closing price of the Company's Common Stock on OTC
Electronic Bulletin Board the Effective Time, as adjusted for the terms of the
Merger, or, if there are no reported sales on such date, the average of the last
reported high bid and low asked price on such day shall be used.
REASONS FOR CHANGE IN STATE OF INCORPORATION
The Company was originally incorporated in New York, because the laws of
that State were then deemed to be well adapted for the conduct of the Company's
business. The corporation law of Delaware affords a flexible and modern basis
for corporate action including the ability to grant options to its directors,
officers and employees. Because more than 50,000 corporations are incorporated
in Delaware, including a substantial number of the corporations whose securities
are publicly traded, a large body of case law has developed, decided by a
judiciary of corporate specialists, interpreting Delaware law in the corporate
field.
ORGANIZATION OF DARCO
Darco was organized by the Company in Delaware as a wholly-owned subsidiary
of the Company for the sole purpose of the Merger. Upon the Merger becoming
effective, authorized capital stock of Darco will consist of 25,000,000 shares
of Preferred Stock, par value $.001 per share, and 25,000,000 shares of common
stock, par value $.001 per share.
The current Directors of the Company will become the directors of Darco
upon the Merger becoming effective. The officers of the Company will be the
officers of Darco upon the Merger becoming effective.
FEDERAL INCOME TAX CONSEQUENCES
No gain or loss will be recognized to the Company or to Darco as a result
of the Merger, and no gain or loss will be recognized under such law to the
holders of the common stock of the Company as a result thereof.
Generally, cash received in lieu of fractional shares will be treated as a
sale of the fractional shares (although in unusual circumstances such cash might
possibly be deemed a dividend), and shareholders will recognize gain or loss
based upon the difference between the amount of cash received and the basis in
the surrendered fractional share.
This discussion should not be considered as tax or investment advice, and
the tax consequences of the Merger may not be the same for all shareholders.
Shareholders should consult their own tax advisors to know their individual
Federal, state, local and foreign tax consequences.
6
VOTE REQUIRED FOR APPROVAL
The Merger requires the approval of the holders of two-thirds of the
outstanding shares of Common Stock. Ascot, which owns 74% of the outstanding
shares of common stock, has approved the Merger. Therefore, unless the Merger is
abandoned by the Board of the Company and Darco, it will become effective as
described herein.
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 623 and 910 of the New York Business Corporation Law ("NYBCL")
give to any shareholder of the Company who wishes to object to the proposed
Merger of the Company into Darco (an "Objecting Shareholder") the right to
receive from the Company in cash, the fair value of his or her shares, provided
that the Merger is not abandoned or fails to be approved and authorized, and
provided, further, that the following procedure is carefully followed.
(a) The Objecting Shareholder must not vote in favor of the Merger
and, before the plan is submitted to a vote at the Special
Meeting of Shareholders to be held on June 22, 1998, he or she
must file with the Company written objection thereto stating his
or her intention to demand payment for his or her shares. The
written objection should be sent to The Great American BackRub
Store, Inc., 4500 140th Avenue North, Suite 221, Clearwater,
Florida 33762, Attention of Mr. David L. West, Secretary.
Registered Mail, Return Receipt Requested is recommended. The
objection may also be submitted at the meeting, but before a vote
is taken on the reincorporation. A shareholder may not dissent as
to less than all of the shares as to which he has a right to
dissent.
(b) Prior to July 2, 1998, the Company must give written notice to
each Objecting Shareholder that such Merger has been authorized
by the vote of the Company's shareholders.
(c) Within twenty (20) days after such notice is given, the Objecting
Shareholder must make written demand on the Company in accordance
with the method of mailing as set forth in paragraph (a), for
payment of the fair value of his or her shares indicating his or
her name and residence address and the number of shares owned.
Together with the written demand or within one month thereafter,
the Objecting Shareholder must submit certificates representing
all of his shares of the Company's stock to the Company or its
transfer agent for the purpose of affixing a notation indicating
that a demand for payment has been made. Otherwise, at the option
of the Company, he or she will lose his objector's rights, unless
a court, for good cause shown, otherwise directs.
(d) Within fifteen (15) days after the later of the date of the
proposed corporate action is consummated, or the period during
which written demand by the objecting shareholder must be made
(but no case later than
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ninety (90) days from the date of Shareholder Authorizations, the
Company must make a written offer by registered mail to each
Objecting Shareholder to pay for his or her shares at a specified
price which the Company considers to be their fair value.
(e) If, within thirty (30) days after making such offer, the
Objecting Shareholder and the Company agree upon the price to be
paid for his or her shares, payment must be made by the Company
within sixty (60) days of the date of the making of such offer
upon the surrender of the certificates representing his or her
shares.
(f) If the Company fails to make such offer or if the Objecting
Shareholder and the Company fail to agree upon the price to be
paid, the Company must within twenty (20) days after the
expiration of the time periods set forth in subparagraphs (d) and
(e) (whichever is applicable) institute a special proceeding in
the Supreme Court of the State of New York, County of New York to
determine the rights of the Objecting Shareholder and to fix the
fair value of his or her shares.
(g) If the Company fails to institute such special proceeding the
Objecting Shareholder may do so within thirty (30) days after the
expiration of such twenty (20) day period. Failure of the
Objecting Shareholder to institute such proceedings will result
in the loss of his or her objector's rights unless the court, for
good cause shown, otherwise directs.
(h) Within sixty (60) days after the final determination of the
special proceedings, the Company must pay to each Objecting
Shareholder the amount found to be due him or her, upon surrender
of the certificates representing his or her shares.
The foregoing summary of the rights of Objecting Shareholders does not
purport to be complete and is qualified in its entirety by reference to Sections
623 and 910 of the New York Business Corporation Law, a copy of which appears in
Appendix B to this Information Statement.
COMPARISON OF DELAWARE AND NEW YORK LAW
Set forth below is a brief discussion of certain differences between NYBCL,
under which the Company is incorporated, and the Delaware General Corporation
Law (the "DGCL"), under which Darco is incorporated.
The statements set forth under this heading with respect to the NYBCL and
the DGCL and the respective certificates of incorporation of the Company and
Darco are brief summaries thereof and do not purport to be complete. The
statements relating to the NYBCL and the DGCL are subject to the detailed
provisions of such statutes and the case law and other legal interpretations
relating to such statutes. The information relating to the respective
certificates of
8
incorporation of the Company and Darco are qualified in their entireties by such
documents, copies of which are available from the Company.
Dividend Rights
Under the NYBCL, a corporation is prohibited from making a distribution to
shareholders if, after giving effect thereto: (i) such corporation would be made
insolvent, (ii) the declaration, payment or distribution would be contrary to
any restrictions contained in the corporation's certificate of incorporation,
(iii) such corporation's net assets remaining after such declaration, payment or
distribution is less than its stated capital. Under the DGCL, a corporation may
pay dividends out of surplus (defined as the excess, if any, of net assets over
capital), or, if no surplus exists, out of its net profits for the fiscal year
in which such dividends are declared and/or for its preceding fiscal year,
provided, that dividends may not be paid out of net profits if the capital of
such corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets.
Holders of common stock of both the Company and Darco are entitled to
receive such dividends as may be declared by the board of directors from funds,
legally available for such purpose after payment of any dividends due with
respect to a series of preferred stock.
Voting Rights
Unless otherwise provided in the certificate of incorporation, the NYBCL
and the DGCL provide that every shareholder of record shall be entitled at every
meeting of shareholders to one vote for every share owned of record on the
record date for determining shareholders entitled to notice of and to vote at
meeting of shareholders. The certificates of incorporation of both the Company
and Darco do not contain any provision which alters this right. The certificates
of incorporation of both the Company and Darco give the board of directors the
power to create series of preferred stock and to provide for voting rights for
the holders of such series. Such rights may include the right to more than one
vote per share.
Directors
Under the NYBCL, the number of directors of a corporation may be (i) fixed
by the by-laws or (ii) by action of the shareholders or the board of directors
under the specific provisions of a by-law adopted by the shareholders. If the
number is not fixed, there must be a minimum of three directors. Pursuant to an
amendment to the NYBCL, which will become effective in 1998, the minimum number
of directors will be one. Under the DGCL the number of directors shall be fixed
by, or in the manner provided in, the by-laws unless the certificate of
incorporation fixes the number of directors, in which event, the number of
directors can be changed only by an amendment to the certificate of
incorporation. The number of directors of both the Company and Darco are
determined pursuant to the by-laws of such corporation. Directors of each of the
Company and Consolidated--Delaware are elected by a plurality of the votes cast
at a meeting of shareholders by the holders of shares entitled to vote in the
election.
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Ability to Grant Options to Employees and Directors
The NYBCL prohibits the issue of options and rights to purchase capital
stock of a corporation to directors, officers or employees of the corporation or
any subsidiary or affiliate as an incentive to service or continued service
unless authorized at a meeting of shareholders by the vote of the holders of a
majority of all outstanding shares entitled to vote thereon or authorized by and
consistent with a plan adopted by such vote of shareholders. The DGCL does not
include any requirement for obtaining shareholder approval for the issue of such
options or rights.
Fiduciary Duties of Directors
Under the NYBCL, directors owe a fiduciary duty to the corporation and its
shareholders and must perform their duties in good faith and with that degree of
care which an ordinarily prudent person in a like position would use under
similar circumstances. Directors must give reasonable attention to the
corporation's business. New York law presumes that, without evidence to the
contrary, in making a business decision, directors are acting in good faith and
exercising honest judgment. In taking action, directors may consider, among
other things, both the long-term and short-term interests of the corporation and
its shareholders. In addition, directors may consider the effects that the
corporation's actions may have in the short-term or in the long-term upon: (i)
the prospects for potential growth, development, productivity and profitability
of the corporation, (ii) the corporation's current employees, (iii) the
corporation's retired employees and other beneficiaries who are entitled to
receive retirement benefits, (iv) the corporation's customers and creditors, and
(v) the ability of the corporation to provide, as a going concern, goods,
services, employment opportunities and employment benefits to contribute to the
community in doing business. In performing his duties, a director shall be
entitled to rely upon information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared and/or
presented by: (i) officers of the corporation, (ii) legal counsel, public
accountants and other professionals, and (iii) a committee of the corporation.
Under the DGCL, the business and affairs of a corporation are managed by or
under the direction of its board of directors. In exercising their powers,
directors are charged with an unyielding fiduciary duty to protect the interests
of the corporation and to act in the best interests of its shareholders.
Delaware law in general presumes that, in making a business decision, directors
are disinterested and act on an informed basis, in good faith and in the honest
belief that the action taken was in the best interests of such corporation,
which presumption is known as the "business judgment rule." A party challenging
the propriety of a decision of a board of directors bears the burden of
rebutting the applicability of the presumption of the business judgment rule by
demonstrating that, in reaching their decision, the directors breached one or
more of their fiduciary duties -- good faith, loyalty and due care. If the
presumption is not rebutted, the business judgment rule attaches to protect the
directors and their decisions, and their business judgments will generally not
be judicially second guessed. Where, however, the presumption is rebutted, the
directors bear the burden of demonstrating the entire fairness of the relevant
transaction. Notwithstanding the foregoing, Delaware courts subject directors'
conduct to enhanced scrutiny in respect of defensive actions taken in response
to a threat to corporate control and approval of a transaction resulting in a
sale of such control.
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Liability of Directors
Under the NYBCL, a corporation's certificate of incorporation may eliminate
or limit the personal liability of directors to the corporation or its
shareholders for damages in connection with any breach of duty in such capacity,
provided that no such provision may eliminate or limit: (i) the liability of any
director if a judgment or other final adjudication adverse to him establishes
that his acts or omissions were in bad faith or involved intentional misconduct
or a knowing violation of any law or that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled, (ii)
liability which arises from injury suffered by persons as a result of a
declaration of a dividend or other distribution, a purchase of the corporation's
shares, a distribution of assets after dissolution, the making of a loan, any of
which is effected in violation of the NYBCL or (iii) the liability of any
director for any act or omission prior to the adoption of a provision limiting
or eliminating such director's liability.
The DGCL permits a corporation to include in its certificate of
incorporation a provision limiting or eliminating the liability of its directors
to such corporation or its shareholders for monetary damages arising from a
breach of fiduciary duty, except for: (i) a breach of the duty of loyalty to the
corporation; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) a declaration of a
dividend or the authorization of the repurchase or redemption of stock in
violation of the DGCL or (iv) any transaction from which the director derived an
improper personal benefit. The certificate of incorporation of Darco eliminates
director liability to the maximum extent permitted by the DGCL, and it also
contains broad indemnification provisions.
Call of Special Meetings
The NYBCL permits special meetings of the shareholders to be called by the
board of directors and such persons who may be authorized to do so by the
certificate of incorporation or the by-laws. At any such special meeting, only
such business may be transacted which is related to the purpose or purposes set
forth in the written notice provided to shareholders.
Under the DGCL, a special meeting of the shareholders may be called by the
board of directors or such other person as may be authorized by the certificate
of incorporation or by-laws.
Amendment to Charter Documents
Under the NYBCL, amendments or changes to the certificate of incorporation
may be authorized by vote of the board of directors, followed by vote of the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of the shareholders. In addition, the holders of shares of a class or
series are entitled to vote and to vote as a class or series and the amendment
shall be authorized by vote of the holders of a majority of all outstanding
shares of the class or series when a proposed amendment would: (i) exclude or
limit such shareholders' right to vote on any matter, (ii) change such
shareholders' shares to reduce the par value, (iii) change such shares into a
different number of shares of the same class, or into the same or a different
number of shares of any one or more classes or any series thereof, (iv) fix,
change or abolish the designation of any authorized class, any of the relative
rights, preferences or
11
limitations, including any provisions in respect of any undeclared dividends,
whether or not cumulative or accrued, or the redemption of any shares, or any
sinking fund for the redemption or purchase of any shares or any preemptive
rights to acquire shares or other securities (v) provide that their shares may
be converted into shares of any other class or into shares of any other series
of the same class, (vi) alter the terms or conditions upon which their shares
are convertible or change the shares issuable upon conversion of their shares,
if such action would adversely affect such holders' rights or (vii) subordinate
their rights, by authorizing shares having preferences which would be in any
respect superior to their rights. For amendments involving mergers, see
"Approval of Merger and Asset Sales."
Under the DGCL, any provision of the certificate of incorporation of Darco
may be amended by approval of the board of directors and the affirmative vote of
a majority of the voting power of the outstanding shares entitled to vote
thereon; provided, that any amendment which affects the rights of the holders of
any class or series of capital stock must be approved by the holders of a
majority of the shares of such class or series.
Approval of Merger and Asset Sales
Under the NYBCL, the board of directors, upon adopting a plan of merger or
consolidation, must submit such plan to a vote of shareholders. Notice of the
meeting to adopt the plan and an outline of the plan must be given to each
shareholder of record, as of the record date, whether or not such shareholder is
entitled to vote. The plan must be adopted at the meeting of shareholders by
vote of the holders of two-thirds of all outstanding shares entitled to vote
thereon. Notwithstanding any provision in the corporation's certificate of
incorporation, the holders of shares of a class or series of the corporation's
stock, shall be entitled to vote and to vote as a class if the plan contains any
provision entitling the holders of such shares to vote and vote as a class
thereon. In such case, in addition to the authorization of the merger or
consolidation by vote of the holders of two-thirds of all outstanding shares,
the merger or consolidation shall be authorized by a vote of the holders of a
majority of all outstanding shares of each such class or series. Notwithstanding
shareholder authorization, the board of directors may abandon the plan of merger
or consolidation at any time prior to the filing of the certificate of merger or
consolidation with the New York Secretary of State, but only pursuant to a
provision for such abandonment contained in the plan.
No shareholder authorization, from either the parent corporation or the
subsidiary corporation is required when a parent corporation merges any
subsidiary corporation into itself.
Under the NYBCL, a sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation, if not made in the usual or
regular course of business conducted by the corporation, shall be authorized
only by the following procedure: (i) the board of directors must authorize the
proposed sale, lease, exchange or other disposition and direct its submission to
a vote of shareholders, (ii) notice of meeting shall be given to each
shareholder of record, whether or not entitled to vote, and (iii) the
shareholders must approve such sale, lease, exchange or other disposition and
may fix, or may authorize the board to fix, any of the terms and conditions
thereof and the consideration to be received by the corporation therefor, by a
vote at a meeting of shareholders of the holders of two-thirds of all
outstanding shares entitled to vote
12
thereon. Notwithstanding shareholder approval, the board may abandon the
proposed sale, lease, exchange or other disposition without further action by
the shareholders, subject to the rights, if any, of third parties under any
contract.
Under the DGCL, unless required by its certificate of incorporation, and
the certificate of incorporation of Darco contains no such requirement, no vote
of the shareholders of a constituent corporation surviving a merger is necessary
to authorize such merger if: (i) the agreement of merger does not amend the
certificate of incorporation of such constituent corporation; (ii) each share of
stock of such constituent corporation outstanding prior to such merger is to be
an identical outstanding or treasury share of the surviving corporation after
such merger; (iii) either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such common stock are
to be issued under such agreement of merger, or the number of shares of common
stock issued or so issuable does not exceed 20% of the number thereof
outstanding immediately prior to such merger; and (iv) certain other conditions
are satisfied. In addition, the DGCL provides that a parent corporation that is
the record holder of at least 90% of the outstanding shares of each class of
stock of a subsidiary may merge such subsidiary into such parent corporation
without the approval of such subsidiary's shareholders or board of directors.
Whenever the approval of the shareholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease or exchange of all or
substantially all of its assets, such agreement, sale, lease or exchange must be
approved by the affirmative vote of the holders of a majority of outstanding
shares of such corporation entitled to vote thereon; provided, that under the
DGCL, where a corporation's certificate of incorporation provides for more or
less than one vote per share on any matter, the required vote is a majority of
the combined voting power of the corporation's stock.
Rights of Appraisal
Procedure to Dissent. Under the NYBCL, a shareholder has a right to dissent
to any plan of merger or consolidation or any sale, lease, exchange or other
disposition of all or substantially all of the assets of the corporation,
provided that this right exists only when the shareholder was entitled to vote
on the proposed corporate action. In order to dissent, a shareholder must file
with the corporation, before the meeting of shareholders at which the action is
submitted to a vote, or at such meeting but before the vote, written objection
to the action. The objection shall include a notice of his election to dissent,
his name and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares if the action
is taken. Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares.
Right to Receive Fair Value of Shares. Shareholders who properly dissent to
any merger or consolidation under the NYBCL also have the right to receive
payment of the fair value of their shares, if such shareholders were entitled to
vote and did not assent to any plan of merger or consolidation to which the
corporation is a party, except where such shareholders are (i) holders of shares
of the Parent Corporation in a merger of a Parent Corporation and a Subsidiary
Corporation, (ii) holders of shares of the Parent Corporation in a merger or
consolidation of domestic and foreign corporations, or (iii) holders of shares
in a surviving corporation. Notwithstanding the foregoing, shareholders of a
surviving corporation do have the right to
13
receive payment for their shares if the merger or consolidation alters or
abolishes any preferential rights, redemption or sinking fund rights, preemptive
rights or excludes or limits the rights of such holders to vote on any matter.
Furthermore, a shareholder has a right to receive payment of the fair value
of his shares in the case of any sale, lease, exchange or other disposition of
all or substantially all of the assets of a corporation which requires
shareholder approval, provided that shareholders do not have the right to
receive such payment in a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and the
distribution of substantially all of the corporation's net assets to the
shareholders is made in accordance with their respective interests within one
year after the date of such transaction.
The DGCL provides for appraisal rights on the part of the shareholders of a
corporation only in the case of certain mergers or consolidations and not
(unless the certificate of incorporation of a corporation so provides, which the
certificate of incorporation of Darco does not) in the case of other mergers, a
sale or transfer of all or substantially all of such corporation's assets or an
amendment to such corporation's certificate of incorporation. In addition, the
DGCL denies appraisal rights to the shareholders of the surviving corporation in
a merger if such merger did not require for its approval the vote of the
shareholders of such surviving corporation.
Indemnification of Directors and Officers
The NYBCL provides in general that a corporation may indemnify any director
or officer made, or threatened to be made, a party to an action or proceeding (a
"Proceeding") (other than one by or in the right of the corporation to procure a
judgment in its favor), whether civil or criminal, including an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorney fees actually and
necessarily incurred. In order to receive such indemnification, the person must
have acted in good faith, for a purpose which he reasonably believed to be in,
or in the case of service for any other corporation or partnership, joint
venture, trust, employee benefit plan or other enterprise not opposed to the
best interests of the corporation and in addition, in criminal actions or
proceedings such person had no reasonable cause to believe that his conduct was
unlawful. The NYBCL permits similar indemnification in the case of actions by or
in the right of the corporation, provided that indemnification is not permitted
in respect of (i) a threatened action or a pending action which is settled or
otherwise disposed of, or (ii) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court in which the action was brought, or if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as such court deems proper. In any case, the NYBCL provides that the
indemnification permitted under the NYBCL is not exclusive of any other rights
to which a director or officer seeking indemnification or advancement of
expenses may be entitled. No indemnification may be provided to a director or
officer under the NYBCL if a judgment or other final adjudication adverse to the
director or
14
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action, or
that he personally gained in fact a financial profit or other advantage to which
he was not legally entitled.
The DGCL provides in general that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
In addition, the DGCL permits a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which that court shall deem proper.
Furthermore, under the DGCL, the determination of whether indemnification
is proper shall be made (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the shareholders of
the Corporation.
The DGCL provides that the expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay
15
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
The DGCL further provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the DGCL shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Article Seventh of the Company's Certificate of Incorporation, as amended,
presently provides, in general, that the personal liability of the New York
directors of the Company is eliminated to the fullest extent permitted by the
provisions of paragraph (b) of Section 402 of the NYBCL, as the same may be
amended and supplemented. Section 402(b) of the NYBCL provides that the
certificate of incorporation of a New York corporation may set forth a provision
eliminating or limiting the personal liability of directors to the corporation
or its stockholders for damages for any breach of duty in such capacity,
provided that no such provision shall eliminate or limit (1) the liability of
any director if a judgment or other final adjudication adverse to him
establishes that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he personally gained in fact a
financial profit or other advantage to which he is not legally entitled or (2)
the liability of any director for any act or omission prior to the adoption of a
provision authorized by Section 402(b) of the NYBCL.
While the Company's New York certificate of incorporation and by-laws are
silent on matters relating to indemnification, the Company has agreed to
indemnify each director and executive officer pursuant to an Indemnification
Agreement with each such claims, damages and liability incurred by such director
or executive officer for or as a result of action taken or not taken while such
director or executive officer was acting in his capacity as a director, officer,
employee or agent of the Company. The obligations of the Company for
indemnification is limited to the extent provided in the NYBCL and is also
limited in situations where, among others, the indemnitee is deliberately
dishonest, gains any profit or advantage to which he is not legally entitled or
is otherwise indemnified.
The Company has obtained a directors and officers insurance and company
reimbursement policy. The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
reimburse the Company for such loss for which the Company has lawfully
indemnified the directors or officers.
The certificate of incorporation and by-laws of Darco will contain
provisions requiring the Company to indemnify officers and directors to the
fullest extent permitted under the DGCL and it is anticipated that the insurance
policies and Indemnification Agreements will continue without significant
modification.
16
Anti-Takeover Provisions
Section 912 of the NYBCL applies to a broad range of business combinations
between a New York corporation and an interested shareholder. The NYBCL defines
a "business combination" to include mergers, consolidations, sales, leases,
exchanges of shares, mortgages, pledges, securities reclassifications and other
transactions. An "interested shareholder" is defined as any person who (i) is
the beneficial owner, directly or indirectly, of twenty percent or more of the
outstanding voting stock of a corporation or (ii) is an affiliate or an
associate of such corporation and at any time within the five-year period
immediately prior to the date in question was a beneficial owner, directly or
indirectly, of twenty percent or more of the then outstanding voting stock of
such corporation. The NYBCL prohibits a corporation from engaging in a business
combination with an interested shareholder for a period of five years following
such interested shareholder's stock acquisition date except under limited
circumstances, including when (i) such business combination or the purchase of
stock made by such interested shareholder on such interested shareholder's stock
acquisition date is approved by the board of directors of such corporation prior
to such interested shareholder's stock acquisition date, (ii) such business
combination is approved by the affirmative vote of the holders of a majority of
the outstanding voting stock not beneficially owned by such interested
shareholder or any affiliate or associate of such interested shareholder at a
meeting called for such purpose no earlier than five years after such interested
shareholder's stock acquisition date.
Section 912 does not apply (i) to any business combination of a New York
corporation that does not have a class of voting stock registered with the
Securities and Exchange Commission pursuant to Section 12 of the Exchange Act
("Registered Voting Stock"), unless the certificate of incorporation provides
otherwise, or under certain circumstances, such as (ii) to any business
combination of a domestic corporation whose amendment certificate of
incorporation provides that Section 912 applies, which did not have a class of
Registered Voting Stock on the effective date of such amendment, and which is a
business combination with an interested shareholder (as defined therein) whose
stock acquisition date is prior to the effective date of such amendment, or
(iii) to any business combination of a domestic corporation the original
certificate of incorporation or an amended by-laws of which contains a provision
expressly electing not to be governed by Section 912, or (iv) to any business
combination of a domestic corporation with an interested shareholder of such
corporation who became an interested shareholder inadvertently.
Section 203 of the DGCL applies to a broad range of business combinations
(as defined in the DGCL) between a Delaware corporation and an interested
shareholder (as defined). The DGCL definition of "business combination" includes
mergers, sales of assets, issuance of voting stock and certain other
transactions. An "interested shareholder" is defined as any person who owns,
directly or indirectly, 15% or more of the outstanding voting stock of a
corporation. The DGCL prohibits a corporation from engaging in a business
combination with an interested shareholder for a period of three years following
the date on which the shareholder became an interested shareholder, unless (i)
the board of directors approved the business combination before the shareholder
became an interested shareholder, or the board of directors approved the
transaction that resulted in the shareholder becoming an interested shareholder,
(ii) upon consummation of the transaction which resulted in the shareholder
becoming an interested
17
shareholder, such shareholder owned at least 85% of the voting stock outstanding
when the transaction began other than shares held by directors who are also
officers and by certain employee stock plans, or (iii) the board of directors
approved the business combination after the shareholder became an interested
shareholder and the business combination was approved at a meeting by at least
two-thirds of the outstanding voting stock not owned by such shareholder.
Rights of Inspection
Under the NYBCL, every shareholder of record for at least six months
immediately preceding his demand, or any person holding at least five percent of
any class of outstanding shares, upon at least five days written demand, shall
have the right to examine in person or by agent or attorney, during normal
business hours, certain books and records, including the corporation minutes of
the proceedings of its shareholders, a record of shareholders, balance sheets
and profit and loss statements. The shareholder must request the inspection for
a purpose which is in the interest of the corporation or related to his status
as a shareholder.
Under the DGCL any shareholder shall, upon written demand under oath
stating the purpose thereof, have the right during the usual business hours to
inspect for any proper purpose the corporation's stock ledger, list of
shareholders and its other books and records and make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a shareholder.
Liquidation Rights
The holders of the Company's Common Stock and the common stock of Darco
have substantially the same rights on liquidation, dissolution or winding up.
APPROVAL OF AMENDMENTS TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
The Company's approved amendments to the Company's Certificate of
Incorporation to (a) change the name of the Company to Darco International
Corp.; (b) reverse split the outstanding shares of the Company's common stock
one-for-four (the "Reverse Split"); (c) increase the number of shares of common
stock the Company is authorized to issued from 20,000,000 to 25,000,000; and (d)
to permit shareholders to take action by written consent without a meeting.
Ascot which holds approximately 73% of the Company's common stock has approved
these actions and will vote their shares in favor of these matters at the
meeting.
IF THE MERGER OF THE COMPANY INTO DARCO IS NOT ABANDONED AS A RESULT OF
SIGNIFICANT DEMANDS FOR APPRAISAL OR OTHERWISE, THE CERTIFICATE OF INCORPORATION
WILL NOT BE AMENDED BECAUSE EACH OF THE FOREGOING CHANGES WILL BE EFFECTED AS A
RESULT OF THE MERGER.
18
CHANGE OF CORPORATE NAME
The name "The Great American BackRub Store, Inc." was adopted by the
Company when its only business was the ownership and operation of retail stores
that offer reasonably priced back rubs. Since the time it was adopted, the
Company has developed franchising operations for their stores, and has acquired
Caribsun, which owns and engages in the development of vacant land in Antigua
into a hotel, casino and condominium resort. The Company is exploring additional
franchise concepts, real estate and other business opportunities. Management
believes that a more neutral name will permit it to pursue these opportunities
and will permit the parent company to be associated with more than one line of
business.
ONE-FOR FOUR REVERSE SPLIT
As a result of the Reverse Split, each share of Common Stock outstanding at
the effective time of the Reverse Split, will, without any action on the part of
the holder thereof, become one-fourth share of Common Stock. The par value of
the Common Stock will not be affected by the Reverse Split. For purposes of this
description, the Common Stock, as presently constituted, is referred to as the
"Old Common Stock" and the Common Stock resulting from the Reverse Split is
referred to as the "New Common Stock."
The Reverse Split will become effective upon the filing with the Secretary
of State of an amendment to the Company's certificate of incorporation which
states that, upon the filing of the Certificate of Amendment, each share of Old
Common Stock then issued and outstanding would automatically become and be
converted into one-fourth share of New Common Stock.
Principal Effects of the Reverse Split
The principal effects of the Reverse Split will be as follows:
1. Based upon the 15,003,591 shares of Old Common Stock outstanding on
the Record Date and the Company's obligation to issue an additional 5,980,752
shares of Old Common Stock to Ascot as a result of the Acquisition, the Reverse
Split would decrease the outstanding shares of Old Common Stock by 75%, and,
upon the effectiveness of the Reverse Split and the delivery of shares to Ascot,
approximately 5,253,085 shares of New Common Stock would be outstanding.
2. There are outstanding as of the Record Date approximately 1,260,500
options and warrants to purchase shares of their Company's Common Stock at
prices ranging from $.375 to $6.00 per share. In addition, the Company, as part
of a financing agreement, agreed to issue 150,000 shares of its Common Stock to
an affiliate of the Company's Chairman. See "Interests of Certain Persons In or
Opposition to Matters to be Acted Upon." Assuming the Reverse Split is
implemented, each option or warrant will be converted into an option or warrant
to purchase one-fourth of a share of New Common Stock at an exercise price equal
to four time the prior exercise price.
19
The Company will obtain new CUSIP numbers for the New Common Stock and
publicly traded warrants effective at the time of the Reverse Split. Following
the effectiveness of the Reverse Split, the Company will provide each record
holder of Old Common Stock and publicly traded warrants with information to
enable such holder to obtain new stock and warrant certificates.
Subject to the provisions for elimination of fractional shares, as
described below, consummation of the Reverse Split will not result in a change
in the relative equity position or voting power of the holders of Old Common
Stock.
Assuming the Reverse Split is implemented, the Certificate of Amendment
amending the Certificate of Incorporation will be filed with the Secretary of
State of Delaware as promptly as practicable thereafter. The Reverse Split would
become effective as of the date of such filing (the "Effective Date").
Purposes of the Reverse Stock Split
The Reverse Split would decrease the number of shares of Old Common Stock
outstanding and presumably increase the per share market price for the New
Common Stock. Theoretically, the number of shares outstanding should not, by
itself, affect the marketability of the stock, the type of investor who acquires
it, or the Company's reputation in the financial community, but in practice this
is not necessarily the case, as many investors look upon a stock trading under
$1.00 per share as unduly speculative in nature and, as a matter of policy,
avoid investment in such stocks.
Prior to February 1995 the Old Common Stock was traded on the
over-the-counter market. From February 1995 until October 27, 1997, the Common
Stock was traded on The NASDAQ SmallCap Market. Since October 28, 1997, the
Common Stock has been trading on the OTC Electronic Bulletin Board. The Common
Stock was deleted from The NASDAQ SmallCap Market because of the failure of the
Company to meet NASDAQ's capital and surplus and bid price requirements. The
approval and implementation of the Reverse Split are not expected to have any
immediate impact upon the ability of the Company to list its Common Stock on The
NASDAQ SmallCap Market. In order for the Company to have its Common Stock listed
on The NASDAQ SmallCap Market, it will be necessary for the Company to meet the
initial listing requirements for The NASDAQ SmallCap Market. Based upon recent
prices for shares of Old Common Stock, the Company will not meet the tests for
inclusion in The NASDAQ SmallCap Market as a result of the Reverse Split. No
assurance can be given that the Common Stock will ever be listed on The NASDAQ
SmallCap Market or any exchange.
Many leading brokerage firms are reluctant to recommend lower-priced
securities to their clients and a variety of brokerage house policies and
practices currently tend to discourage individual brokers within firms from
dealing in lower-priced stocks. Some of those policies and practices pertain to
the payment of brokers' commissions and to time consuming procedures that make
the handling of lower priced stocks unattractive to brokers from an economic
standpoint. In addition, the structure of trading commissions also tends to have
an adverse impact upon holders
20
of lower priced stocks because the brokerage commission on a sale of a lower
priced stock generally represents a higher percentage of the sales price than
the commission on a relatively higher priced issue.
The Board of Directors believes that the Reverse Split is in the best
interest of the Company and its shareholders. The price of the Old Common Stock
during the period from January 1, 1997 through May 12, 1998 ranged from a low
closing price of $3/64 to a high closing price of $2 3/8. On May 12, 1998, the
last price of the Old Common Stock was $7/32 per share. The prices represent the
last price reported to the OTC Electronic Bulletin Board each trading day.
On May 12, 1998, the following broker-dealers were listed as market makers
for the Company's Common Stocks:
Name Address
---- -------
Hill Thompson Magid & Co. Inc. 15 Exchange Place
Jersey City, NJ 07302
M.H. Meyerson & Co., Inc. 525 Washington Blvd.
Jersey City, NJ 07310
Paragon Capital Corporation 7 Hanover Square, 2nd Floor
New York, NY 10004
Wien Securities Corp. 525 Washington Blvd.
Jersey City, NJ 07310
Alfred Securities, Inc. 120 Broadway
New York, NY 10271-0093
Monarch Financial Corporation 45 Rockefeller Plaza, Suite 3501
of America New York, NY 10111
Knight Securities, L.P. 525 Washington Blvd.
Jersey City, NJ 07310
Herzog, Heine, Geduld, Inc. 525 Washington Blvd., 10th Floor
Jersey City, NJ 07310
Troster Singer 10 Exchange Place, 9th Floor
Jersey City, NJ 07302
Wm. V. Frankel & Co., Inc. 30 Montgomery Street
Jersey City, NJ 07302-3821
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Sherwood Securities Corp. 10 Exchange Place 15th Floor
Jersey City, NJ 07302-3913
The existence of such market makers in no way indicates an active trading
market for shares of the Company's Common Stock.
The Company requires additional capital for its operations and does not
believe that it will be able to raise the necessary capital by selling equity
securities or other securities convertible into shares of Common Stock unless
the price of the Common Stock is higher than the current Common Stock price
levels. However, no assurance can be given that the Reverse Split will result in
any increase in the Common Stock price or that the Company will be able to
complete any financing following the Reverse Split.
As of May 18, 1998, the Company's Common Stock was held by 120
shareholders of record.
Exchange of Certificates and Elimination of Fractional Share Interests
On the Effective Date, each four shares of Old Common Stock will
automatically be combined and changed into one share of New Common Stock. No
additional action on the part of the Company or any shareholder will be required
in order to effect the Reverse Split. Shareholders will be requested to exchange
their certificates representing shares of Common Stock held prior to the Reverse
Split for new certificates representing shares of Old Common Stock. Shareholders
will be furnished the necessary materials and instructions to effect such
exchange promptly following the Effective Date. Certificates representing shares
of Old Common Stock subsequently presented for transfer will not be transferred
on the books and records of the Company but will be returned to the tendering
person for exchange. Shareholders should not submit any certificates until
requested to do so. In the event any certificate representing shares of Old
Common Stock is not presented for exchange upon request by the Company, any
dividends that may be declared after the Effective Date of the Reverse Split
with respect to the Common Stock represented by such certificate will be
withheld by the Company until such certificate has been properly presented for
exchange, at which time all such withheld dividends which have not yet been paid
to a public official pursuant to relevant abandoned property laws will be paid
to the holder thereof or his designee, without interest.
No fractional shares of New Common Stock will be issued to any shareholder.
Accordingly, shareholders of record who would otherwise be entitled to receive
fractional shares of New Common Stock, will, upon surrender of their
certificates representing shares of Old Common Stock, receive a cash payment in
lieu thereof equal to the fair value of such fractional share. Holders of less
than four shares of Old Common Stock as a result of the Reverse Split will on
the Effective Date no longer be shareholders of the Company. The Board of
Directors had determined that the fair value of the Common Stock will be based
on the closing price of the Common Stock on OTC Electronic Bulletin Board the
Effective Date (as adjusted to reflect the Reverse Split) or, if there are no
reported sales on such date, the average of the last reported high bid and low
asked price on such day shall be used.
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Federal Income Tax Consequences of the Reverse Split
The combination of each four shares of the Old Common Stock into one share
of New Common Stock should be a tax-free transaction under the Internal Revenue
Code of 1986, as amended, and the holding period and tax basis of the Old Common
Stock will be transferred to the New Common Stock received in exchange therefor.
Generally, cash received in lieu of fractional shares will be treated as a
sale of the fractional shares (although in unusual circumstances such cash might
possibly be deemed a dividend), and shareholders will recognize gain or loss
based upon the difference between the amount of cash received and the basis in
the surrendered fractional share.
This discussion should not be considered as tax or investment advice, and
the tax consequences of the Reverse Split may not be the same for all
shareholders. Shareholders should consult their own tax advisors to know their
individual Federal, state, local and foreign tax consequences.
Financial Statements
The Company's audited consolidated financial statements, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" with
respect to such financial statements, which are included in the annual report on
Form 10-KSB for the year ended December 31, 1997, and Form 10-QSB report for the
quarter ended March 31, 1998 are incorporated by reference in this Information
Statement. See "Incorporation by Reference."
CHANGE IN AUTHORIZED CAPITAL STOCK
The Board of Directors has approved an amendment to the Company's
certificate of incorporation which would change the number of authorized shares
of Common Stock, par value $.001 per share. The number of authorized shares
would be increased from 20,000,000 shares to 25,000,000 shares.
Financial Statements
The Company's audited consolidated financial statements for the year ended
December 31, 1997, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" with respect to such financial statements,
which are included in the annual report on Form 10-KSB and Form 10-QSB report
for the quarter ended March 31, 1998, are incorporated by reference in this
Information Statement. See "Incorporation by Reference."
Discussion of the Amendment
On the Record Date, there were 15,003,591 shares of Common Stock
outstanding. In addition, at such date the Company was obligated to issue
5,930,752 shares of Common Stock to Ascot in connection with the Acquisition,
150,000 to a company controlled by the Company's Chairman in connection with
certain financing, 350,000 in connection with a possible acquisition
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and 1,260,500 shares upon the exercise of outstanding options and warrants.
There are also warrants outstanding to purchase an aggregate of 2,000,000 Series
A Convertible Preferred Shares ("Series A Shares"). The warrants permit the
holder to purchase Series A Shares for $5.00 per share. The Series A Shares are
convertible into shares of Common Stock determined by dividing $8.00 by the
market price of the Company's Common Stock on the ten days preceding conversion.
Accordingly, the Company does not have sufficient shares of Common Stock
available for issuance pursuant to its existing commitments and for the purpose
of raising additional capital. Except as set forth above, the Company has no
agreements or understandings with respect to the issuance of additional shares
of Common Stock.
Under the Company's certificate of incorporation, the Board of Directors of
the Company has authority to issue authorized and unissued shares of Preferred
Stock without obtaining approval from the holders of the Common Stock. The
holders of the Company's Common Stock and Preferred Stock do not have preemptive
rights. The Preferred Stock provisions give the Board of Directors broad
authority to issue shares of Preferred Stock in one or more series and to
determine such matters as the dividend rate and preference, voting rights,
conversion privileges, redemption provisions, liquidation preferences and other
rights of each series. Each share of Common Stock is entitled to one vote. The
holders of any series of preferred stock issued in the future will be entitled
to such voting rights as may be specified by the Board of Directors.
Because of the broad powers granted to the Board of Directors to issue
shares of Preferred Stock and determine the rights, preferences and privileges
of the holders of such series, the board has the power to issue shares of
Preferred Stock in a manner which could be used as a defensive measure against a
hostile takeover or to keep the Board of Directors in power. However, the Board
of Directors has no present plans to issue shares for such purpose.
The Board of Directors of the Company believes it will benefit the
shareholders to have additional unreserved shares available for issuance in
order that adequate shares may be available for the possible issuance of Common
Stock, convertible Preferred Stock or convertible debt securities in connection
with a possible financing of the Company's business or an acquisition, although,
as described above, the Company has no plans, arrangements, understanding or
commitments with respect to the issuance of such shares.
ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The Board of Directors unanimously approved an amendment to the Company's
Certificate of Incorporation to add a provision permitting action to be taken by
shareholders without a meeting upon the written consent of holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at which all shares entitled to
vote were present and voting rather than the written consent of holders of all
outstanding shares. NYBCL requires, in the absence of such a provision, that
action taken by shareholders without a meeting be taken only if all shareholders
entitled to vote on the matter consent to the action in writing. This does not
change the number of votes necessary to take corporate action but would
eliminate the requirement that such action be taken at a meeting. Because the
Company is a public company, the Company could not, on a timely basis, if at
all, contact all shareholders.
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This Amendment will permit the shareholders to act expeditiously without
the Company spending the time and incurring the expense of soliciting proxies
and holding special meetings of shareholders. For example, at present, if the
Board of Directors determines to amend the Certificate of Incorporation to
authorize additional shares of common stock or preferred stock, such action
would have to wait until the next annual or special meeting of stockholders of
the Company.
Ascot, which as of the record date beneficially owned approximately 73% of
the outstanding shares of the Company's Common Stock, could approve any
shareholder action without the benefit of a shareholders' meeting. New York law
requires that such actions are not effective until notice is sent to all
stockholders.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission ("Commission").
The Company's reports, proxy statements and other information, can be inspected
and copied at the public reference room of the Commission at 450 Fifth Street
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the public reference section of the Commission at its
Washington address at prescribed rates.
INCORPORATION BY REFERENCE
The Company will provide without charge to each person to whom a copy of
this Information Statement is delivered upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(including exhibits to such documents). Requests should be directed to: 4500
140th Avenue North, Suite 221, Clearwater, Florida 33762 or may be requested by
telephone at (813) 532-4818, Attn. Corporate Secretary. Each of the documents
listed below as being incorporated by reference is being delivered to
shareholders simultaneously with this Information Statement (without exhibits).
The following documents filed with the Commission by the Company are hereby
incorporated by reference into this Information Statement:
(1) The Company's Annual Report on Form 10-KSB, as most recently amended,
for the fiscal year ended December 31, 1997;
(2) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998; and
(3) The Company's Form 8-K report dated October 1997, as amended.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies, supersedes or
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replaces such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Information Statement.
OTHER MATTERS
The Board of Directors does not know of any other matters to be brought
before the meeting.
By Order of the Board of Directors
David S. Coia
Chairman of the Board
May 19, 1998
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