UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
Capitol First Corporation
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(Name of Registrant As Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check the box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Dated Filed:
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CAPITOL FIRST CORPORATION
7100 W. Camino Real Boulevard, Suite 402
Boca Raton, FL 33433
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [ ], 2005
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To Our Stockholders:
Notice is hereby given that a special meeting of stockholders (the "Special
Meeting") of Capitol First Corporation (the "Company") will be held at the law
offices of Blank Rome LLP, 1200 N. Federal Highway, Suite 417, Boca Raton, FL
33432, at [ ] [ ].m. (local time) on [ ], 2005. The Special
Meeting is being held for the following purposes:
1. To approve a going private transaction by means of a reverse stock split
of the Company's common stock, par value $0.01 per share (the "Common Stock") at
a ratio of one to 2,000 (the "Reverse Stock Split"); and
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record of the Common Stock, as shown on the transfer
books of the Company, at the close of business on [ ], 2005 are entitled
to notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to mark, sign and return the enclosed proxy as promptly as possible in the
postage prepaid envelope enclosed for that purpose.
Thank you for your continued support.
By Order of the Board of Directors,
Ashley B. Bloom
Acting President and Chief Executive Officer
[ ], 2005
Boca Raton, Florida
CAPITOL FIRST CORPORATION
7100 W. Camino Real Boulevard, Suite 402
Boca Raton, FL 33433
PRELIMINARY PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of Capitol First Corporation, a Nevada
corporation (the "Company"), for use at the special meeting of stockholders (the
"Special Meeting") to be held at the law offices of Blank Rome LLP, 1200 N.
Federal Highway, Suite 417, Boca Raton, FL 33432, at [ ] [ ].m. (local
time) on [ ], 2005, and at any adjournments or postponements of the
Special Meeting, for the purposes set forth herein and in the attached notice of
Special Meeting. Accompanying this proxy statement is the board of directors'
proxy for the Special Meeting, which you may use to indicate your vote on the
proposal described in this proxy statement. This proxy statement and
accompanying proxy are first being mailed to Company stockholders on or about
[ ], 2005.
The principal executive offices of the Company are located at 7100 W.
Camino Real Boulevard, Suite 402, Boca Raton, Florida 33433, and the telephone
number of the Company is (561) 417-7115.
Purpose of the Special Meeting
At the Special Meeting, the stockholders are being asked to consider and
act upon a going private transaction by means of a reverse stock split of the
Company's common stock, par value $0.01 per share (the "Common Stock") at a
ratio of one to 2,000 (the "Reverse Stock Split").
Outstanding Voting Securities and Voting Rights
Only stockholders of record, as shown on the transfer books of the Company,
at the close of business on [ ], 2005 (the "Record Date") will be
entitled to notice of, and to vote at, the Special Meeting or any adjournments
or postponements of the Special Meeting. On the Record Date, there were
[ ] shares of the Common Stock outstanding. The Common Stock is the only
outstanding class of capital stock of the Company with voting rights. Each share
of Common Stock is entitled to one vote.
Information Concerning Proxies
Sending in a signed proxy will not affect a stockholder's right to attend
the Special Meeting and vote in person since the proxy is revocable. All proxies
which are properly completed, signed and returned to the Company prior to the
Special Meeting, and which have not been revoked, will, unless otherwise
directed by the stockholder, be voted in accordance with the recommendations of
the board of directors set forth in this proxy statement. A stockholder may
revoke his or her proxy at any time before it is voted either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed proxy bearing a later date or by attending the
Special Meeting, delivering written notice of revocation of his or her proxy and
voting his or her shares in person.
Voting Procedures
The presence, in person or represented by proxy, of the holders of a
majority of the issued and outstanding shares of Common Stock will constitute a
quorum for the transaction of business at the Special Meeting.
A stockholder is entitled to cast one vote for each share held of record on
the Record Date on all matters to be considered at the Special Meeting. The
affirmative vote of the majority of outstanding shares of Common Stock is
required to approve the Reverse Stock Split.
Abstentions and broker non-votes (i.e., when a nominee holding shares of
Common Stock cannot vote on a particular proposal because the nominee does not
have discretionary voting power with respect to that proposal and has not
received voting instructions from the beneficial owner) will be included in the
number of shares present at the Special Meeting for the purpose of determining
the presence of a quorum. Abstentions and broker non-votes will have the same
legal effect as votes against the proposal.
The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all shares represented by such proxy will be
voted as instructed. Proxies may be revoked as noted above.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the transactions contemplated by any
of the proposals, passed upon the merits or fairness of any of such transactions
or passed upon the adequacy or accuracy of the disclosure in this document. Any
representation to the contrary is a criminal offense.
THE PROPOSED TRANSACTION
Summary Term Sheet
The following is a summary of the material terms of the proposed going
private transaction, which terms are described in greater detail elsewhere in
this proxy statement. You are urged to read carefully the remainder of this
proxy statement for a more complete description of all material information
regarding the proposed transaction. We have included section references to
direct you to a more complete description of the topics described in this
summary. For purposes of this proxy statement, the terms the "Company," "we,"
"us" and "our" refer to Capitol First Corporation and the term "Affiliate Group"
refers to Addison Capital Group LLC, Boca First Capital, LLLP, Howard Bloom and
Diane Bloom.
o Purpose of the Proposed Going Private Transaction. Our board of directors
has determined that the costs of being a public company currently outweigh
the benefits of being a public company and, thus, that it is no longer in
our best interests or the best interests of our stockholders, creditors or
other stakeholders to remain a public company. The purpose of the proposed
transaction is to effect a going private transaction by reducing the number
of our beneficial stockholders to fewer than 300 and thereafter terminating
the registration of our common stock under the Securities Exchange Act of
1934, as amended, thereby suspending our obligations as a public company
under the United States securities laws, and terminating the listing of our
common stock on The Nasdaq Stock Market Over-the-Counter Bulletin Board. We
anticipate that less than 2% of the outstanding shares will be eliminated
through cash payments for fractional shares to bring the number of
stockholders to less than 300. See "The Proposed Transaction - Special
Factors - Purpose" beginning on page 5.
o The Reverse Stock Split. If approved, the reverse stock split will be
effected at a ratio of one to 2,000. Accordingly, immediately after giving
effect to the reverse stock split, stockholders would hold one whole share
of our common stock for each 2,000 shares of our common stock held by such
stockholders immediately prior to giving effect to the reverse stock split.
Stockholders who own less than 2,000 shares of our common stock will
receive cash in exchange for their shares and will no longer be holders of
our common stock. See "The Proposed Transaction - Material Terms - The
Reverse Stock Split" beginning on page 17.
o Payment of Cash for Fractional Shares. In connection with the reverse stock
split, we will pay to all holders of our common stock that would otherwise
hold fractional shares after giving effect to the reverse stock split, in
lieu of issuing fractional shares to such stockholders, cash in the amount
of $0.18 per share of our common stock held by such holder before giving
effect to the reverse stock split that is represented by such fractional
share. Accordingly, all stockholders holding 1,999 or fewer shares of our
common stock immediately prior to giving effect to the reverse stock split
would no longer hold any common stock immediately after giving effect to
the reverse stock split, but would instead be entitled to payment of $0.18
per share of common stock held by such holder immediately prior to giving
effect to the reverse stock split. See "The Proposed Transaction - Material
Terms - Treatment of Fractional Shares" beginning on page 17.
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o Effective Date. The reverse stock split will become effective on a date
determined by our board of directors. We intend to effect the reverse stock
split on or as soon as possible after the reverse stock split is approved
by our stockholders. See "The Proposed Transaction - Material Terms -
Effective Date" beginning on page 19.
o Deregistration of Common Stock and Delisting of Common Stock. Immediately
after effecting the reverse stock split, we intend to terminate the
registration of our common stock under the Securities Exchange Act of 1934,
as amended, and terminate the listing of our common stock on The Nasdaq
Over-the-Counter Bulletin Board. See "The Proposed Transaction - Material
Terms - Deregistration of Common Stock" beginning on page 18 and "The
Proposed Transaction - Material Terms - Delisting of Common Stock"
beginning on page 18.
o Suspension of Public Reporting Obligation. If we effect the reverse stock
split and the subsequent deregistration and delisting of our common stock
as described in this proxy statement, our common stock will no longer be
(i) registered and we will no longer be a reporting company under the
Exchange Act and (ii) quoted on The Nasdaq Stock Market Over-the-Counter
Bulletin Board. We will, therefore, cease to file annual, quarterly,
current, and other reports and documents with the Securities and Exchange
Commission, and stockholders will cease to receive annual reports and proxy
statements. Persons that remain our stockholders after the reverse stock
split and subsequent deregistration are effected will, therefore, have
access to much less information about us and our business, operations and
financial performance. There will likely no longer be any public market for
our common stock, and the market for our common stock will, accordingly, be
much less liquid, adversely effecting the ability of remaining stockholders
to sell their common stock. See "The Proposed Transaction - Material Terms
- Suspension of Reporting Obligations" beginning on page 18.
o Effect on Beneficial Ownership of Common Stock by Major Stockholders. We
currently have one stockholder, Boca First Capital, LLLP, that beneficially
owns 55.2% of our issued and outstanding common stock as of December 31,
2004. After giving effect to the reverse stock split, Boca First Capital,
LLLP will beneficially own 8,000 shares of common stock or approximately
56.2% of the issued and outstanding shares of our common stock. Boca First
Capital, LLLP has indicated to us that it intends to vote in favor of the
reverse stock split. See "The Corporation - Boca First Capital, LLLP and
Addison Capital Group LLC" beginning on page 36.
o Appraisal Rights. Any stockholder that would receive in connection with the
reverse stock split cash in lieu of any fractional share of common stock to
which such stockholder would otherwise be entitled has the right under the
General Corporation Law of the State of Nevada to dissent and instead
obtain payment of the fair value of such fractional share. Any stockholder
that wishes to exercise its appraisal rights in connection with the reverse
stock split must deliver to us written notice of such stockholder's intent
to do so not later than [ ], 2005, in the form attached as Annex B
to this proxy statement. If any dissenting stockholder and we cannot agree
to the fair value of such fractional share, such fair value would be
determined in a
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proceeding before a district court of the State of Nevada. See "The
Proposed Transaction - Material Terms - Appraisal Rights" beginning on page
21.
Note that stockholders who vote in favor of the reverse stock split would
be precluded from exercising their appraisal rights. Therefore,
stockholders who intend to exercise their appraisal rights must either vote
against or abstain from voting on the proposed transaction.
o Board of Directors Position on Fairness. Our board of directors has fully
reviewed and considered the terms, purpose, alternatives and effects of the
proposed transaction, and determined that it is substantively and
procedurally fair to unaffiliated stockholders, including those that will
retain an interest in us and those that will not. See "The Proposed
Transaction - Special Factors - Fairness of the Proposed Transaction"
beginning on page 11.
o Material Federal Income Tax Consequences. The proposed transaction will not
have material United States federal income tax consequences to the Company
or to stockholders that do not receive cash in lieu of fractional shares.
The receipt of cash in lieu of fractional shares will be a taxable
transaction for United States federal income tax purposes. Tax matters are
very complicated and the tax consequences to you of the transaction will
depend on your own situation. See "The Proposed Transaction - Special
Factors - Material Federal Income Tax Consequences" beginning on page 8.
Other Matters
We are not presently aware of any matters that will be brought before the
special meeting that are not reflected in the attached notice of the special
meeting. If any such matters are brought before the special meeting, the persons
named in the enclosed proxy will act or vote in accordance with their best
judgment.
Cost of Proposed Transaction
The entire cost of soliciting proxies, including the costs of preparing,
assembling and mailing this proxy statement, the proxy and any additional
soliciting materials furnished to stockholders, will be borne by us. The costs
are estimated to be approximately $56,018. See "The Proposed Transaction -
Material Terms - Source and Amount of Funds or Other Consideration" beginning on
page 21.
In addition to solicitation by mail, our officers, directors or employees
may solicit proxies in person or by telephone, facsimile or similar means
without additional compensation. Upon request, we will pay the reasonable
expenses incurred by record holders of our common stock who are brokers,
dealers, banks or voting trustees, or their nominees, for sending proxy
materials to the beneficial owners of the shares they hold of record.
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Special Factors
Purpose
The board of directors of the Company has determined that the costs of
being a public company currently outweigh the benefits of being a public company
and, thus, that it is no longer in the best interests of the Company or its
stockholders, creditors, or other stakeholders for the Company to remain a
public company. Accordingly, the Company proposes to undertake the reverse stock
split for the purpose of reducing the number of beneficial stockholders of the
Common Stock to fewer than 300, so that it can then terminate the registration
of the Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and thereby suspend the Company's obligations as a public
company under the United States securities laws, as well as terminate the
listing of the Common Stock on The Nasdaq Stock Market Over-the-Counter Bulletin
Board (the "Nasdaq Bulletin Board").
Alternatives
In addition to a reverse stock split, the Company considered other methods
of effecting a going private transaction (including an issuer tender offer, a
purchase of shares in the open market, and a statutory merger), but determined
that a reverse stock split was the surest, easiest, most expeditious, and most
cost effective method for achieving that end.
When considering the various alternatives to a reverse stock split, the
board of directors of the Company focused on three critical factors: the level
of assurance that the selected alternative would result in the Company having
fewer than 300 beneficial owners of Common Stock, thus allowing the Company to
achieve its objective of going private; the cost of such alternative relative to
the other potential alternatives; and the timeframe within which such
alternative could reasonably be expected to be effected, again relative to the
other alternatives under consideration.
With respect to an issuer tender offer, the board of directors of the
Company concluded that: there was no assurance that enough stockholders would
tender all of their shares of Common Stock to reduce the number of beneficial
owners of Common Stock to fewer than 300 because many stockholders with a small
number of shares would not likely make the effort to tender their shares (prior
to the announcement of the proposed transaction, over 600 stockholders of the
Company owned 100 or fewer shares of Common Stock); the cost of effecting a
tender offer would be incrementally higher than that of a reverse stock split
due to, among other things, the need to engage solicitors to solicit and track
tenders of shares; and the process of effecting a tender offer would likely take
longer than effecting a reverse stock split. The Company could not estimate the
actual cost of a tender offer; however, if all the shares of Common Stock that
are not owned by Boca First Capital, LLLP were purchased, the cost would be in
excess of $2.0 million.
With respect to a purchase of the shares in the open market, the board of
directors of the Company concluded that: given the fact that many beneficial
owners hold their shares of Common Stock in "street name" (i.e., through a
broker, bank, or other third party) unless the Company bought almost all the
outstanding shares of Common Stock, it could not be certain of
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reducing the number of beneficial owners of Common Stock to fewer than 300; the
transaction costs of open market purchases, as determined by the board of
directors, would be three to four times higher than a reverse stock split due
both to brokers fees for executing such purchases, as well as the upward
pressure on the market price of the Common Stock that such an open market
purchase program would generate; and because of the low trading volume of the
Common Stock, the Company could not be assured of being able to complete a
sufficient amount of purchases in a reasonably timely fashion.
As for a statutory merger, which involves locating an entity willing to
purchase all of the Company's stock, when first considered by the board of
directors of the Company as an alternative to a reverse stock split, it was
reasonably likely to take materially longer to effect than a reverse stock
split.
The board of directors and each member of the Affiliate Group, for the
reasons discussed above, determined that the Reverse Stock Split proposal is the
most expeditious and economical way of changing the Company's status from that
of a reporting company to that of a private, non-reporting company.
Reasons
The Company incurs significant direct and indirect costs complying with its
periodic reporting and other obligations under the Exchange Act and the rules of
the Nasdaq Bulletin Board (collectively, the "Public Company Costs"), including:
the legal, accounting, printing, mailing, public relations, compliance and
administrative costs of preparing, reviewing, printing, and distributing the
reports and other filings required under the Exchange Act and the rules of the
Nasdaq Bulletin Board; the broker and transfer agent charges for forwarding
materials to beneficial holders of Common Stock; the management time and
attention expended in preparing and reviewing such reports and other filings;
the substantially higher premiums for directors' and officers' insurance
policies payable by public companies; and the disadvantage of publicly
disclosing detailed operational and financial information of the Company when
non-public competitors are not required to make comparable disclosures. The
administration of dealing with a large number of stockholders that have only a
minor number of shares in the Company is also a very inefficient cost. Prior to
the announcement of the proposed transaction, over 600 stockholders, of an
aggregate of approximately 1,031 stockholders in the Company, owned 100 or fewer
shares of the Common Stock, and over 190 stockholders owned between 101 and
1,999 shares of Common Stock. Subsequent to the announcement of the proposed
transaction, over 600 stockholders, of an aggregate of approximately 1,154
stockholders in the Company, own 100 or fewer shares of Common Stock, and over
280 stockholders own between 101 and 1,999 shares of Common Stock. The direct,
out-of-pocket costs comprising the Public Company Costs were in excess of
$260,000 in the prior fiscal year. Additionally, the Company anticipates that
the out of pocket costs will increase significantly commencing with the 2005
fiscal year and thereafter due to the requirements of complying with new laws
and regulations, such as, but not limited to, the Sarbanes-Oxley Act of 2002.
The Company has projected the Public Company Costs in fiscal year 2005 will be
approximately $390,000 prior to litigation costs associated with on-going
securities litigation.
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In addition to the Public Company Costs, the Company does not presently
intend to exploit the principal benefits of being a public company -- namely to
raise capital through sales of securities in a public offering or to acquire
other businesses or companies using stock as consideration (collectively, the
"Public Company Benefits"). As the business of the Company is within the real
estate industry, the Company does not need and has not been able to raise
capital in the public markets so it does not obtain one of the primary benefits
of being a public company. Nor is the Company able to utilize the Common Stock
of the Company as consideration in its real estate development transactions.
Additionally, the Company's earnings are very erratic due to the health of the
Company and the nature of its business, real estate development. Revenue
generation is based on the health of the Company and transaction closings, and
is not steady or readily predictable, making valuation in the public markets a
difficult prospect. As a result of the foregoing, the Company is not receiving
any of the traditional Public Company Benefits, yet, the Public Company Costs
continue to increase substantially draining the limited resources of the
Company. The increase in Public Company Costs arises not only from increased
regulation, but also an increase in securities litigation. The litigation in
which the Company is currently involved has substantially increased its
expenses. The Company believes that the cost of these on-going expenses together
with the Public Company Costs, if continued, would be extremely detrimental to
the financial condition of the Company.
The board of directors of the Company and each member of the Affiliate
Group have determined that the Public Company Costs currently, and in the
foreseeable future will continue to, outweigh the Public Company Benefits and,
thus, it is no longer in the best interests of the Company or its stockholders,
creditors, or other stakeholders for the Company to remain a public company.
Effects
If the Company effects the proposed transaction as described in this proxy
statement, the Common Stock will no longer be registered under the Exchange Act,
the Company will no longer be a reporting company under the Exchange Act, and
the Common Stock will no longer be listed for trading on the Nasdaq Bulletin
Board.
The Company will, therefore, cease to file annual, quarterly, current, and
other reports and documents with the Securities and Exchange Commission, and
stockholders will cease to receive annual reports and proxy statements. Persons
that remain stockholders of the Company after the Reverse Stock Split is
effected will, therefore, have access to much less information about the Company
and its business, operations, and financial performance.
If the Company effects the proposed transaction, based on the Company's
December 31, 2004 financial results, Boca First Capital, LLLP's interest in the
net book value will increase by $18,141 and 1.8%, and its interest in net losses
will increase by $588 and 1.8%. Addison Capitol Group LLC holds its entire
interest in the Company indirectly through Boca First Capitol, LLLP; therefore,
the effect on Addison Capitol Group LLC will be identical to the effect on Boca
First Capitol, LLLP. Based on the Company's December 31, 2004 financial results,
each of Howard Bloom's and Diane Bloom's interest in the net book value will
increase by $6,133 and 1.7%, and their interest in net losses will increase by
$199 and 1.7%.
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There will no longer be any public market for the Common Stock, and any
market for the Common Stock will, accordingly, be much less liquid, adversely
effecting the ability of remaining stockholders to sell their Common Stock.
The Company also will no longer incur the substantial Public Company Costs
described above, thereby improving the Company's financial position to the
benefit of the Company's stockholders, creditors, and other stakeholders.
There are no differences between the respective rights, preferences or
limitations of the Common Stock prior to the Reverse Stock Split and the Common
Stock after the Reverse Stock Split. There will be no differences with respect
to dividend, voting, liquidation or other rights associated with the Common
Stock before and after the Reverse Stock Split.
Material Federal Income Tax Consequences
The discussion of the United States federal income tax consequences set
forth below is based on the law as currently in effect and as currently
interpreted. The tax consequences to each stockholder will depend in part upon
such stockholder's particular situation. Special tax consequences not described
herein may be applicable to particular classes of taxpayers, such as financial
institutions, brokers, dealers, persons who are not citizens or residents of the
United States, foreign corporations, tax exempt organizations, persons that
acquired Common Stock as part of a straddle, hedge or other integrated
instrument, and stockholders that acquired their Common Stock through the
exercise of an employee stock option or otherwise as compensation.
Consequences of the Proposed Transaction
The proposed transaction will not have material United States federal
income tax consequences to the Company or to stockholders that do not receive
cash in lieu of fractional shares.
The receipt of cash in lieu of fractional shares pursuant to the Reverse
Stock Split will be a taxable transaction for the United States federal income
tax purposes and also may be a taxable transaction under applicable state, local
or foreign tax laws for stockholders receiving cash, which may also include
certain members of the Affiliate Group. Generally, a stockholder that receives
cash in lieu of a fractional shares pursuant to the Reverse Stock Split will
recognize gain or loss for United States federal income tax purposes in an
amount equal to the difference between the amount of cash received in exchange
for the fractional shares and such stockholder's adjusted tax basis in the
Common Stock. Provided that the Common Stock constitutes a capital asset in the
hands of the stockholder, such gain or loss will be a capital gain or loss, and
will be long-term gain or loss if the stockholder has held the Common Stock for
more than one year at the time of sale. Under current law, the maximum United
States federal income tax rate applicable to non-corporate taxpayers on net
long-term capital gains is fifteen percent and the maximum regular United States
federal income tax rate on ordinary income is thirty-five percent. The
deductibility of capital losses is subject to limitations.
Backup Withholding
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A stockholder (other than exempt stockholders, including, among others, all
corporations) that receives cash in lieu of a fractional share may be subject to
twenty-eight percent backup withholding unless the stockholder provides its
taxpayer identification number ("TIN") and certifies that such number is correct
or properly certifies that it is awaiting a TIN, or unless an exemption applies.
A stockholder that does not furnish its TIN may be subject to a penalty imposed
by the Internal Revenue Service (the "IRS"). If backup withholding applies to a
stockholder, the corporation is required to withhold twenty-eight percent from
payments to such stockholder. Backup withholding is not an additional tax.
Rather, the amount of the backup withholding can be credited against the United
States federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an appropriate income tax return on a timely basis.
ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL, OR
FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS.
Background to the Transaction
In June 2004, Ashley Bloom, Acting President and Chief Executive Officer of
the Company, began considering that the Public Company Costs then substantially
exceeded the Public Company Benefits.
At a meeting of the board of directors of the Company held on July 29,
2004, Ashley Bloom discussed, for the first time, with the board of directors
that the Public Company Costs were substantially exceeding the Public Company
Benefits.
At a meeting of the board of directors of the Company held on September 1,
2004, the board of directors discussed, for the first time, the issue of taking
the Company private. Mr. Ashley Bloom reported to the board of directors that
the Company was evaluating the need for a valuation of the Company. Mr. Ashley
Bloom also advised the board of directors that the management of the Company was
analyzing its stockholder lists to determine a reverse split ratio should the
directors decide to effect a going private transaction by the reverse stock
split method. After the meeting, Ms. Monica Schreiber, Chief Financial Officer
of the Company, provided the board of directors with a copy of a sample going
private transaction proxy statement for its review.
At a meeting of the board of directors of the Company held on October 7,
2004, the management of the Company raised the benefits of eliminating the
significant Public Company Costs by effecting a going private transaction.
Management agreed to continue its discussion of the matter to a future date
while indicating that management would continue to weigh the advantages and
disadvantages of being a public company.
At a meeting of the board of directors of the Company held on November 30,
2004, the board of directors again considered the issue of the Public Company
Costs outweighing the
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Public Company Benefits, and discussed the alternative transaction structures
(including an issuer tender offer, a purchase of shares in the open market, and
a statutory merger) for effecting a going private transaction with a view to
eliminating the Public Company Costs. Ms. Schreiber provided the board of
directors with an analysis delineating the advantages and disadvantages of each
of the alternative transaction structures for taking the Company private. The
board of directors requested management to continue its efforts to examine a
going private transaction by means of a reverse stock split, agreed to continue
its discussion as a matter of priority at the next board of directors meeting
and requested that management analyze the fair value of the Common Stock for
purposes of establishing a purchase price for fractional shares. On December 8,
2004, subsequent to the meeting, Ms. Schreiber provided the board of directors
with an analysis of the Public Company Costs for the 2004 fiscal year of
$280,000 and anticipated costs of $460,000 for the 2005 fiscal year. On January
12, 2005, Ms. Schreiber provided the board of directors with a revised analysis
of the Public Company Costs for the 2004 fiscal year of $260,000.
At a meeting of the board of directors of the Company held on January 14,
2005, the board of directors again considered the issue of the Public Company
Costs outweighing the Public Company Benefits. After discussing the analysis
provided by Ms. Schreiber of the revised Public Company Costs for the 2004
fiscal year of $260,000 and anticipated costs of $460,000 for the 2005 fiscal
year, the board of directors unanimously determined that it was in the best
interests of the Company to effect a going private transaction by means of a
reverse stock split. Further, the board of directors unanimously resolved to
direct the management of the Company to commence the process of effecting a
going private transaction by means of the proposed transaction and directed the
management to report to the board of directors all material developments in such
process. The board of directors also discussed the costs and benefits of
obtaining a third-party appraisal of the fair value of the Common Stock. The
Company did obtain three bids from various valuation companies. The board of
directors unanimously determined that obtaining a third-party appraisal of the
fair value of the Common Stock in connection with the Reverse Stock Split was
not in the best interests of the Company or its stockholders in light of the
substantial costs of doing so when compared to the overall value to be paid to
stockholders in connection with the proposed transaction. The Company believes
that less than 2% of the total outstanding shares will be eliminated through
cash payments for fractional shares in order to reduce the number of
stockholders to less than 300, and thus the cost of obtaining a third party
appraisal, which, based on the Company's pre-announcement calculations, would
increase the cost of the proposed transaction by 30% to 90%, would not be cost
effective or appropriate. The board of directors agreed to examine the
information provided by Mr. Ashley Bloom and Ms. Schreiber regarding fair value
of the Common Stock and to hold a discussion and vote on fair value at the next
board of directors meeting.
At a meeting of the board of directors of the Company held on January 21,
2005, the board of directors discussed the fair value of the Common Stock, which
it determined to be $0.18 per share. The board of directors also resolved to set
the Transaction Price at $0.18 per share, and resolved that the proposed
transaction be approved and sent to the stockholders of the Company for their
approval. In determining the Transaction Price, the board of directors
considered the following methods of valuation: current and historical market
prices, net asset value, historical earnings and future earnings prospects,
liquidation value and going concern value. The board of directors considered the
weight of the various factors based on what it believed was important and most
accurate. The board of directors gave the greatest weight to
10
going concern value for this reason. See "- Fairness of the Proposed
Transaction" below for further discussion of how the board of directors
determined the Transaction Price.
At a meeting of the board of directors of the Company held on March 15,
2005, the board of directors discussed the revised cash cost required to effect
the Reverse Stock Split of approximately $90,500 versus the pre-announcement
estimate of $47,500. The board of directors also discussed the one-year
extension of the Section 404 reporting of the Sarbanes-Oxley Act of 2002, which
would reduce the estimate of Public Company Costs for fiscal 2005 by
approximately $70,000, from an estimate of $460,000 to an estimate of $390,000.
The estimated Public Company Costs for fiscal 2006 were estimated to be
$460,000. The board of directors unanimously determined to proceed with the
Reverse Stock Split.
Fairness of the Proposed Transaction
The board of directors of the Company and each member of the Affiliate
Group believe that the Reverse Stock Split, taken as a whole, is fair to, and in
the best interests of the Company and its stockholders, including the Company's
unaffiliated stockholders that will retain an interest in the Company and those
that will not. The board of directors and each member of the Affiliate Group
also believe that the process for approving the Reverse Stock Split is
procedurally fair. All members of the board of directors of the Company,
including all of the directors that are not employees of the Company, approved
the Reverse Stock Split.
In reaching its determination regarding the overall fairness of the Reverse
Stock Split, the board of directors and each member of the Affiliate Group
considered, among other things:
o the advantages and disadvantages to the Company of becoming a private
company; namely the elimination of the extensive Public Company Costs
on the positive side, and the loss of minimal Public Company Benefits;
o the advantages and disadvantages to stockholders of the Company that
would no longer be stockholders after giving effect to the Reverse
Stock Split; principally the opportunity to cash out their equity
interest in the Company without brokerage fees, on the positive side,
and the loss of the opportunity to participate in any future growth
and profitability of the Company, on the negative side; and
o the advantages and disadvantages to stockholders of the Company that
would continue to be stockholders after giving effect to the proposed
transaction; principally, the improved financial outlook for the
Company resulting from the elimination of the Public Company Costs, on
the positive side, and the loss of a public market for the Common
Stock and extensive public information regarding the Company and its
business, operations and financial performance, on the negative side.
As discussed earlier, the board of directors of the Company and each member
of the Affiliate Group has determined that the Public Company Costs currently,
and in the foreseeable future will continue to, outweigh the Public Company
Benefits and, thus, it is no longer in the
11
best interests of the Company or its stockholders, creditors, or other
stakeholders for the Company to remain a public company.
The board of directors determined and the members of the Affiliate Group
believe that the Reverse Stock Split is fair to unaffiliated stockholders owning
fewer than 2,000 shares because it provides them an opportunity, which might not
otherwise be available given the illiquid market for the Common Stock, to
liquidate their holdings at a significant premium without brokerage commissions.
As the proposed transaction is structured, stockholders who own fewer than 2,000
shares of Common Stock will no longer have the opportunity to participate in any
future growth or profitability of the Company after the Reverse Stock Split. The
board of directors determined and the members of the Affiliate Group believe
that this factor does not make the proposed transaction unfair to unaffiliated
stockholders because those stockholders may elect to remain stockholders of the
Company following the Reverse Stock Split by acquiring sufficient shares so that
they hold at least 2,000 shares in their account immediately prior to the
Reverse Stock Split. In addition, the Transaction Price takes into account the
estimated going concern value of such shares.
Unaffiliated stockholders who remain stockholders of the Company will
receive the benefit of an improved financial outlook of the Company resulting
from the elimination of the Public Company Costs. As the proposed transaction is
structured, stockholders who will remain stockholders of the Company will lose a
public market for the Common Stock and extensive public information regarding
the Company. However, because so few shares have been historically traded, the
current public market is highly illiquid. Since, as practical matter, there
currently exists very little liquidity for the Common Stock, the board of
directors and the members of the Affiliate Group believe that any further loss
of liquidity will have little effect on unaffiliated stockholders and will be
outweighed by the benefits of going private. In addition, because the effect of
further losses to liquidity will have the same impact on all of the Company's
stockholders, whether affiliated or unaffiliated, the board of directors and the
members of the Affiliate Group do not believe that this factor makes the
transaction unfair to unaffiliated stockholders. In addition, even though
extensive public information will not be available after the suspension of the
Company's reporting obligations without first contacting the Company and
receiving consent to view such information, the board of directors does not
believe that this factor makes the proposed transaction unfair to unaffiliated
stockholders because any detriment to unaffiliated stockholders that may result
from the suspension of the Company's public filings will be offset by the
benefits of the Company no longer being a public company. The board of directors
and the members of the Affiliate Group also considered that stockholders who
desire to liquidate their shares of Common Stock at the premium price offered
may reduce their holdings to less than 2,000 shares prior to the Reverse Stock
Split.
The board of directors and each member of the Affiliate Group consider the
structure of the proposed transaction to be fair to unaffiliated stockholders
because it allows them to control the decision as to whether to remain
stockholders after the Reverse Stock Split or to receive the cash consideration
offered. Also, because less than 2% of the outstanding shares will be eliminated
through cash payments for fractional shares as a result of the Reverse Stock
Split, the percentage ownership of stockholders that remain after the Reverse
Stock Split will be approximately the same as it was prior to the Reverse Stock
Split. For example, the Company's officers and directors currently own
approximately 3% and Boca First Capital, LLLP currently
12
owns 55.2% of the Common Stock outstanding, and will own approximately the same
percentages following the completion of the Reverse Stock Split. The fact that
the proposed transaction has been structured in a manner that preserves the same
approximate percentage ownership of the stockholders, whether affiliated or
unaffiliated, who remain after the Reverse Stock Split supports the fairness of
the transaction to unaffiliated stockholders.
In determining the $0.18 per pre-split shares price to be paid for
fractional shares in connection with the Reverse Stock Split (the "Transaction
Price") and its fairness, the board of directors and each member of the
Affiliate Group considered, among other things:
Current and Historical Market Prices. The high bid price for the Common
Stock on the Nasdaq Bulletin Board on [ ], 2005, the latest date for
which trading data in respect of the Common Stock was available prior to
printing and mailing this proxy statement, was $[ ] (the "Current Market Bid
Price"). The high bid price for the Common Stock on the Nasdaq Bulletin Board on
January 25, 2005, the day immediately prior to the date on which the Company
announced publicly its intention to effect the Reverse Stock Split, was $0.09
(the "Pre-Announcement Bid Price"). The highest and lowest bids for the Common
Stock recorded over the past two years are listed below under "The Corporation -
Market Price of Common Stock and Dividends" (the "Historical Market Bid Price").
The board of directors determined and the members of the Affiliate Group
believe that an important price datum was the Pre-Announcement Bid Price, as it
reflected the latest available assessment by the market of the value of the
Common Stock (although the announcement of the $0.18 Transaction Price would
itself tend to push the market price of the Common Stock toward $0.18 until the
Reverse Stock Split is effected). However, in order to give stockholders the
benefit of the recent historical bid price range for the Common Stock and to
ensure that the Transaction Price was fair to those stockholders receiving cash
for shares of Common Stock that they may have held for a period of years, the
board of directors and the members of the Affiliate also took into account the
Historical Market Bid Price when setting the Transaction Price. The average of
the high and low quarterly bid prices during the fiscal years ending September
30, 2003 and 2004 was $0.14 per share. The board of directors and the members of
the Affiliate Group considered the Pre-Announcement Bid Price, and more heavily
considered the Historical Market Bid Price, in determining the Transaction
Price.
Net Asset Value. The net asset value of the Company at September 30, 2004
was $1,973,958, or $0.07 per outstanding share of Common Stock. The board of
directors and the members of the Affiliate Group gave little weight to the net
asset value because it is not even sufficient to pay the $1.00 per share
liquidation preference on the Series A Preferred Stock (as discussed further
below) and does not reflect appreciation that would be considered in the market
value of several of the Company's real estate holdings, including its major
asset, Tract A, located in Maumelle, Arkansas.
Historical Earning and Future Earnings Prospects. The net losses of the
Company for the fiscal years ended September 30, 2003 and 2004, per outstanding
share of Common Stock were $(0.03) and $(0.02), respectively. Since the Company
was not profitable for the periods considered, the board of directors and the
members of the Affiliate Group did not give any weight to historical or
projected future earnings when fixing the Transaction Price. Additionally,
13
historical earnings have been very erratic and unreliable due to the nature of
the Company's business and the fact that revenue generation is based upon
transaction closings.
Liquidation Value. Although the Company has no current plans to effect any
liquidation of the Company, the board of directors concluded and the members of
the Affiliate Group believe that it is highly unlikely that there would be any
liquidation value for shares of Common Stock after payment of liabilities and
consideration of the liquidation preference to the holders of the Series A
Preferred Stock. The holders of the Series A Preferred Stock are entitled to a
liquidation preference of $1.00 per share. There are currently 4,137,591 shares
of Series A Preferred Stock issued and outstanding, representing an aggregate
liquidation preference of $4,137,591, which is equivalent to the Company's
average market capitalization over the past two fiscal years of $4.1 million to
$4.2 million, but significantly higher than the net asset value of the Company
at September 30, 2004 of $1,973,958. The board of directors determined and the
members of the Affiliate Group believe that the liquidation value per share of
Common Stock was not an accurate value for the Common Stock.
Going Concern Value. In arriving at a going concern value for the Company,
the board of directors and the members of the Affiliate Group considered: the
valuations resulting from the other methodologies described above in accordance
with the weights of significance noted; the liquidity (or lack thereof) of the
Common Stock; the advantages that will accrue to all stockholders of a
simplified reporting regime for the Company, including the much reduced cost of
compliance with the Exchange Act reporting requirements for public companies;
and the premium that the Transaction Price represents over most of the
valuations resulting from the valuation methodologies considered by the board of
directors and the members of the Affiliate Group, including the premium over
current and historical market prices. More importantly, the board of directors
and members of the Affiliate Group considered a valuation that reflected
management's best estimate of the market value of its major real estate holding.
The board of directors and the members of the Affiliate Group believe that the
Company's major real estate holding is the primary basis for the Company's
value. In reviewing the market value of its major real estate holding, the board
of directors heavily considered the maximum estimated sale price for Tract A at
a variety of time intervals, including a one-year interval and a three-year
interval. The factors considered by the board of directors in determining the
sale price that could effect the value of the property included interest rates,
natural disasters, environmental and zoning issues, the timing of permits and
change in demand for real estate. The board of directors determined and the
members of the Affiliate Group believe that the going concern value for the
Company, based heavily on the detailed assessment of the value of the Company's
major real estate holding, as a whole, was approximately $0.18 per share of
Common Stock. The board of directors and the members of the Affiliate Group gave
significant weight to going concern value.
Other Comparable Transactions. When weighing the procedural fairness and
determining the substantive fairness of the Transaction Price, the board of
directors and the members of the Affiliate Group also considered a number of
comparable transactions, namely transactions in which other public corporations
with similar cost-saving rationale for going private have effected reverse stock
splits with a view to deregistering and delisting their publicly trading shares.
The comparable transactions that the board of directors and the members of the
Affiliate Group considered and the relevant characteristics of each are listed
in Annex C in this proxy statement.
14
In most of the comparable transactions that the board of directors of the
Company and the members of the Affiliate Group considered, due to the financial
situation of the company effecting the going private transaction, the
cost-saving purpose of the transaction, and the low transaction value (in terms
of cash to be paid in lieu of issuing fractional shares) in comparison to the
cost of implementing certain procedural safeguards, the companies did not obtain
third party fairness opinions or appraisals, did not form independent committees
of the board of directors to approve the transaction or the transaction price,
did not engage independent representatives to act on behalf of stockholders, and
if not required by applicable corporate law, did not obtain stockholder approval
of the transactions. The analyses of and reasons provided by these companies for
not implementing certain procedural safeguards were identical to the analysis
and reasons of the board of directors of the Company. In addition, the
Transaction Price is within the range of transaction prices paid in the
comparable transactions in terms of observable metrics such as current and
historical market prices and net asset value. Of the 11 comparable transactions
considered, the transaction price paid to stockholders for fractional shares
represented a premium to the then-current market price (ranging from 0.7 percent
to 900.0 percent) in 10 transactions, and represented neither a premium nor a
discount in the last transaction. The Transaction Price represents a [ ]%
premium to the Company's current market price. The transaction prices paid to
stockholders for fractional shares represented a premium to the highest
historical price during the subject company's two full fiscal years through the
date of announcement of the transaction or the date of filing relating to the
transaction with the Securities and Exchange Commission in only two cases and
the discounts to such historical high prices in the other nine cases (ranging
from 2.0 percent to 99.1 percent). The Transaction Price represents a 60%
discount to the highest historical bid price and a 55% discount to the highest
historical closing price during the Company's two full fiscal years through the
date of announcement. See Annex C for the specific information for each
comparable transaction. The board of directors and the members of the Affiliate
gave some weight to the comparable transactions analysis and, as discussed
above, determined that the Company was within range of the prices, premiums,
discounts and procedures of companies in situations similar to itself.
After the assessment by the board of directors and the members of the
Affiliate Group of market prices, net asset value, earnings, liquidation value
and going concern value, the board of directors determined and the members of
the Affiliate Group believed that the most significant factor in the assessment
and determination of the fair value was going concern value since it most
closely reflected the actual value of the Company and the Common Stock. The
board of directors and the members of the Affiliate Group came to this
conclusion because the net asset value, historical earnings and future earning
prospects, and liquidation value gave little to no value to the Common Stock,
and since the trading of the Common Stock was infrequent, the current and
historical market prices did not seem to accurately reflect the value of the
Company's major real estate holding. The board of directors heavily considered
the maximum estimated sale price for Tract A at a variety of time intervals,
including a one-year interval and a three-year interval. The factors considered
by the board of directors in determining the sale price that could effect the
value of the property included interest rates, natural disasters, environmental
and zoning issues, the timing of permits and change in demand for real estate.
The board of directors and the members of the Affiliate Group also believe that
the Transaction Price, based heavily on the going concern value, is fair to the
unaffiliated stockholders because it represents a premium over all the other
methods of valuation, including the Pre-Announcement Bid Price and
15
the Historical Market Bid Price. Finally, the Transaction Price, as discussed
above, is also within range of the transaction prices paid in comparable
transactions.
The Reverse Stock Split requires the affirmative vote of the majority of
outstanding shares of the Common Stock under the General Corporation Law of the
State of Nevada. Since Boca First Capital, LLLP owns a majority of the Common
Stock and intends to vote in favor of the Reverse Stock Split, approval is
essentially assured. Notwithstanding, the Company has decided to submit the
Reverse Stock Split for approval by its stockholders at the Special Meeting.
Submitting the Reverse Stock Split to a vote of holders of the Common Stock
could benefit the Company in two ways. First, if a majority of the unaffiliated
stockholders of the Company were to approve the Reverse Stock Split, the Company
could, in the event of the Reverse Stock Split is judicially challenged, rely on
that vote as proof of fairness of the Reverse Stock Split to unaffiliated
stockholders. Second, only stockholders that vote against the Reverse Stock
Split would be entitled to appraisal rights, so submitting the Reverse Stock
Split for stockholder approval could substantially reduce the pool of
stockholders eligible to exercise appraisal rights and, thereby force the
Company to incur the costs that such appraisal rights proceedings entail. In the
event of a negative vote on the matter by stockholders, the Company intends to
reconsider alternative methods of effecting a going private transaction or
potentially even liquidation of the Company. The Reverse Stock Split has not
been structured to require the separate approval of unaffiliated stockholders.
The board of directors and the members of the Affiliate Group believe that there
is sufficient representation in the decision-making at the board of director
level to the protect the interests of the unaffiliated stockholders since three
of the four members of the board of directors are independent. The board of
directors and the members of the Affiliate Group also considered the lack of
participation of unaffiliated stockholders in previous stockholder meetings.
Conditioning the approval of the Reverse Stock Split on the affirmative vote by
a majority of unaffiliated stockholders would not reflect the collective
judgment of the stockholders who own less than 2,000 shares of Common Stock
because, based on prior experience, it would be unlikely that a large number of
such stockholder would vote.
No unaffiliated representative was retained to act on behalf of the
unaffiliated stockholders for the purpose of negotiating the terms of the
Reverse Stock Split or to prepare a report addressing the fairness of the
Reverse Stock Split by the Company. The board of directors was aware that the
use of a third party representative is a common procedure in a going private
transaction. Therefore, the board of directors weighed carefully whether such a
representative would be necessary in order to make the proposed transaction
procedurally fair to stockholders, including unaffiliated stockholders. The
board of directors determined and the members of the Affiliate Group believe
that the cost of retaining a third party representative outweighed the benefits
to the Company's stockholders, including its unaffiliated stockholders. The cost
of obtaining a fairness opinion would be prohibitively high given the low price
at which the Common Stock currently trades. The board of directors determined
that this expense was inappropriate since it concluded that the board of
directors itself could adequately establish the fairness of the Reverse Stock
Split, without such report or opinion, by addressing the factors and
considerations described in this proxy statement.
In determining whether not using such a third party advisor would be
procedurally fair, the board of directors evaluated whether the interest of
unaffiliated stockholders would be adequately represented and whether the
purchase price could be fairly determined by the board
16
of directors. The board of directors noted that the adverse effect that the
costs of being a public company is having on the stockholders is affecting all
stockholders, whether or not affiliated with the Company. The board of directors
also concluded and the members of the Affiliate Group believed that there was
sufficient representation in the decision making at the board level to protect
the interests of the unaffiliated stockholders. Three of the four members of the
board of directors are not employees of the Company or employees of an affiliate
of the Company, and participated in board discussions and approved the proposed
transaction. The board of directors also concluded and the members of the
Affiliate Group believed that no independent committee of the board of directors
was necessary to review the fairness of the Reverse Stock Split proposal because
each of the members of the board of directors could adequately convey their
opinions and concerns to the entire board without the need for the establishment
of such a committee.
Each of the member of the board of directors and each member of the
Affiliate Group determined that the Reverse Stock Split is procedurally fair to
all unaffiliated stockholders. As discussed above, the board of directors
determined that the detriments of using procedures such as requiring a majority
vote of unaffiliated stockholders, a special board committee and a third party
representative to represent the unaffiliated stockholders, outweighed their
benefits given the composition of the board of directors and that the
information required to evaluate the fairness of the transaction was obtainable
by the board of directors without the need for specialized expertise.
Unaffiliated stockholders, included those who will no longer be stockholders,
will have an opportunity both to evaluate all of the information contained
herein and to compare the potential value of an investment in the Company with
that of other available investments. The Company recognizes that the approval of
the Reverse Stock Split is ensured based on the voting intentions of Boca First
Capital, LLLP. However, unaffiliated stockholders will have the opportunity,
subject to market conditions, to determine whether or not they remain
stockholders after the Reverse Stock Split by acquiring sufficient shares so
that they hold at least 2,000 shares immediately prior to the Reverse Stock
Split or selling sufficient shares so that they hold less than 2,000 shares
immediately prior to the Reverse Stock Split. In determining that the Reverse
Stock Split was procedurally fair, the board of directors and the members of the
Affiliate Group also considered that the directors and executive officers
combined only own approximately 3% of the Common Stock and that affiliated
stockholders are not being treated differently from unaffiliated stockholders.
The Company is not aware of any firm offer by any unaffiliated person
during the past two years in respect of: (i) the merger or consolidation of the
Company with or into another company, or vice versa; (ii) the sale or other
transfer of all or any substantial part of the assets of the Company; or (iii) a
purchase of the Company's securities that would enable the holder to exercise
control over the Company.
17
Material Terms
The Reverse Stock Split
The board of directors of the Company has approved a proposal that the
Company effect a reverse stock split of the Common Stock, to be effected at a
ratio of one to 2,000. The board of directors determined such ratio based on the
best information available as to the number of beneficial owners of Common Stock
and the numbers of shares of Common Stock held by such stockholders, with a view
to reducing the number of beneficial owners of Common Stock, not just record
holders of Common Stock, to fewer than 300. However, since many beneficial
owners of shares of Common Stock do not have such shares registered in their own
names, but rather in "street names" -- i.e., through a broker, bank, or other
third party -- it is impossible for the board of directors to know such
information with certainty. Accordingly, it is possible that even at a ratio of
one to 2,000, the Company may not achieve (or know with certainty whether or not
it has achieved) its objective of reducing the number of beneficial owners of
Common Stock to fewer than 300, in which case the Company could be forced to
increase the ratio to be used in the Reverse Stock Split, abandon the proposed
transaction, effect a further reverse stock split after the proposed transaction
has been effected, or effect the Reverse Stock Split with fewer than 300 record
holders but more than 300 beneficial owners of Common Stock. The Company would
prefer (but is not required under the federal securities laws) to use the number
of beneficial owners of Common Stock rather than the number of record holders as
the benchmark for determining the appropriate Reverse Stock Split ratio in order
to ensure that the Company does not involuntarily or inadvertently become a
public company again after the proposed transaction is effected. Immediately
after giving effect to the Reverse Stock Split, stockholders will hold one whole
share of Common Stock for each 2,000 shares of Common Stock held thereby
immediately prior to giving effect to the Reverse Stock Split. The shares of
Common Stock acquired by the Company in connection with the Reverse Stock Split
will be restored to the status of authorized but unissued shares.
The board of directors of the Company may postpone or abandon the Reverse
Stock Split at any time prior to its effectuation for any reason. The board of
directors of the Company might elect to abandon the Reverse Stock Split if the
cost of achieving the purpose of the proposed transaction is prohibitively high.
Treatment of Fractional Shares
In connection with the Reverse Stock Split, the Company will pay to all
holders of Common Stock that otherwise would hold fractional shares after giving
effect to the Reverse Stock Split, in lieu of issuing fractional shares to such
stockholders, cash in the amount of $0.18 per pre-split share of Common Stock
that is represented by such fractional shares.
After giving effect to the Reverse Stock Split:
o stockholders holding 1,999 or fewer shares of Common Stock immediately
prior to giving effect to the Reverse Stock Split will no longer hold
any Common Stock, but will instead be entitled to payment of $0.18 per
share of Common Stock held immediately prior to giving effect to the
Reverse Stock Split; and
18
o stockholders holding 2,000 or more shares of Common Stock immediately
prior to giving effect to the Reverse Stock Split will receive one
share of Common Stock for each 2,000 shares of Common Stock so held
and will receive cash in lieu of fractional shares as described above.
Treatment of Series A Preferred Stock
The conversion rate of the Series A Preferred Stock will be proportionately
adjusted so that the holder of any Series A Preferred Stock converted after the
date the Reverse Stock Split is actually effected (the "Effective Date") will be
entitled to received the aggregate number and kind of shares which, if such
Series A Preferred Stock had been converted immediately prior to such time, the
holder would have owned upon such conversion and been entitled to receive by
virtue of such reclassification. No action is required on behalf of Series A
Preferred Stock holders.
Deregistration of Common Stock
Immediately after effecting the Reverse Stock Split, the Company intends to
terminate the registration of the Common Stock under the Exchange Act.
Suspension of Public Reporting Obligations
If the Company effects the Reverse Stock Split and the subsequent
deregistration as described in this proxy statement, the Common Stock will no
longer be registered and the Company will no longer be a reporting company under
the Exchange Act. The Company will, therefore, cease to file annual, quarterly,
current, and other reports and documents with the Securities and Exchange
Commission, and stockholders will cease to receive annual reports and proxy
statements. Persons that remain stockholders of the Company after the Reverse
Stock Split is effected will, therefore, have access to much less information
about the Company and its business, operations, and financial performance.
Delisting of Common Stock
Immediately after effecting the Reverse Stock Split, the Company also
intends to terminate the listing of the Common Stock on the Nasdaq Bulletin
Board. There will likely no longer be any public market for the Common Stock,
and the market for the Common Stock will, accordingly, be much less liquid,
adversely effecting the ability of remaining stockholders to sell their Common
Stock.
19
Stockholder Approval
The Reverse Stock Split requires the affirmative vote of the majority of
outstanding shares of the Common Stock under the General Corporation Law of the
State of Nevada. Since Boca First Capital, LLLP owns a majority of the Common
Stock and intends to vote in favor of the Reverse Stock Split, approval is
essentially assured. Notwithstanding, the Company has decided to submit the
Reverse Stock Split for approval by its stockholders at the Special Meeting.
Submitting the Reverse Stock Split to a vote of holders of the Common Stock
could benefit the Company in two ways. First, if a majority of the unaffiliated
stockholders of the Company were to approve the Reverse Stock Split, the Company
could, in the event of the Reverse Stock Split is judicially challenged, rely on
that vote as proof of fairness of the Reverse Stock Split to unaffiliated
stockholders. Second, only stockholders that vote against the Reverse Stock
Split would be entitled to appraisal rights, so submitting the Reverse Stock
Split for stockholder approval could substantially reduce the pool of
stockholders eligible to exercise appraisal rights and, thereby force the
Company to incur the costs that such appraisal rights proceedings entail. In the
event of a negative vote on the matter by stockholders, the Company intends to
reconsider alternative methods of effecting a going private transaction or
potentially even liquidation of the Company.
Effective Date
The Reverse Stock Split will become effective on a date determined by the
board of directors of the Company. The Company intends to effect the Reverse
Stock Split on or as soon as possible after the Reverse Stock Split is approved
by its stockholders.
The suspension of the Company's obligation to file periodic reports and
other documents under the Exchange Act will become effective upon the filing
with the Securities and Exchange Commission of a certification and notice of
termination of registration on Form 15, and the termination of the registration
of the Common Stock will become effective ninety days thereafter. As a result of
the deregistration, market makers of the Common Stock will be required to cease
their trading of the Common Stock on the Nasdaq Bulletin Board.
Exchange of Certificates and Payment for Fractional Shares
The Company's transfer agent, Interwest Transfer Company (the "Transfer
Agent"), will act as the Company's agent for purposes of exchanging certificates
and paying for fractional shares in connection with the Reverse Stock Split.
As of the Effective Date, each existing share of Common Stock held by any
holder of Common Stock shall automatically be converted into the right to
receive the whole number of shares of new Common Stock determined by dividing
the aggregate number of existing shares of Common Stock then held by such person
by 2,000; provided that, any holder that would otherwise be entitled to a
fractional share will not be entitled to receive any fractional new share of
Common Stock, but instead will be entitled to payment of cash in the amount of
$0.18 multiplied by the aggregate number of pre-split shares of Common Stock
represented by such fractional new share of Common Stock.
20
As soon as practicable after the Effective Date, the Company will send to
each holder of record of Common Stock, and to each beneficial owner of Common
Stock held in "street name" on behalf of such owner, instructions for
surrendering any certificates held thereby representing such shares of Common
Stock. Such instructions will include a letter of transmittal to be completed
and returned to the Transfer Agent by the holder of such certificates, together
with such certificates. The letter attached as Annex B ("Form for Demand for
Payment of Fair Value") to this proxy statement is not a letter of transmittal
for purposes of surrendering shares of Common Stock for exchange or payment. The
attached letter should only be used by stockholders that wish to exercise their
appraisal rights.
As soon as practicable after the Transfer Agent receives any surrendered
certificate, together with a duly completed and executed letter of transmittal
with respect thereto and such other documents as the Company may require, the
Transfer Agent will deliver to the person in whose name such certificate has
been issued: (i) a new certificate registered in the name of such person
representing the number of whole shares of Common Stock into which the shares of
Common Stock represented by such surrendered certificate have been reduced as a
result of the Reverse Stock Split; or (ii) if such person would otherwise be
entitled to receive a fractional share after giving effect to the Reverse Stock
Split, cash in an amount equal to $0.18 per pre-split share of Common Stock that
is represented by such fractional share. Note that appraisal rights may be
exercised only by stockholders who vote against or abstain from voting on the
Reverse Stock Split.
There will be no differences between the respective rights, preferences or
limitations of the Common Stock prior to the Reverse Stock Split and the Common
Stock after the Reverse Stock Split. There will be no differences with respect
to dividend, voting, liquidation or other rights associated with the Common
Stock. There are no accrued or unpaid dividends on the Common Stock. See "The
Proposed Transaction - Material Terms - Deregistration" and "The Proposed
Transaction - Material Terms - Suspension of Public Reporting Obligations" for a
further discussion. The Company intends to terminate the listing of the Common
Stock after the Effective Date. See "The Proposed Transaction - Material Terms -
Delisting of Common Stock" for further discussion of the delisting.
For purposes of determining ownership of shares of Common Stock on the
Effective Date, such shares will be considered held by the person in whose name
such shares are registered on the records of the Company or, in the case of
shares held by a broker, bank or other third party in "street name" on behalf of
its client, in the name of the person whose account such shares are held in by
such broker, bank, or other third party on the Effective Date, regardless of the
beneficial ownership of those shares. Upon effecting the Reverse Stock Split,
the Company intends to treat stockholders holding Common Stock in "street name"
in the same manner as registered stockholders whose shares are registered in
their names. Prior to the Effective Date, the Company will conduct an inquiry of
all the brokers, banks and other third parties ("Participants") that hold shares
of Common Stock in "street name." These Participants will be instructed to
effect the Reverse Stock Split for their beneficial holders holding Common Stock
in "street name." These Participants will provide the Company with information
on how many shares must be issued to all their accounts and how many fractional
shares will be cashed out. However, such Participants may have different
procedures than registered stockholders for processing the Reverse Stock Split.
Investors that hold an aggregate of at least 2,000 shares in
21
multiple accounts, with one or more brokers, may want to consider combining
their holdings into one account if they wish to retain their holdings and ensure
that they are not inadvertently cashed out. If you hold your shares in "street
name" with a bank, broker or other third party, and if you have any questions in
this regard, we encourage you to contact your bank, broker or nominee.
No service charge, brokerage commission, or transfer tax will be payable by
any holder of any old certificate evidencing shares of Common Stock in
connection with the issuance of a new certificate in respect thereof, except
that if any new certificate is to be issued in a name other than that in which
the old certificate that is surrendered for exchange is registered, it will be a
condition to such issuance that: (i) the person requesting such issuance pay to
the Company any transfer taxes payable by reason of such transfer (or any prior
transfer of such surrendered certificate, if any) or establish to the
satisfaction of the Company that such taxes have been paid or are not payable;
and (ii) the surrendered certificate has been properly endorsed and otherwise in
proper form for transfer.
If any certificate evidencing Common Stock has been lost or destroyed, the
Company may in its sole discretion accept in lieu thereof a duly executed
affidavit and indemnity agreement in a form satisfactory to the Company. The
holder of any shares of Common Stock evidenced by any certificate that has been
lost or destroyed must submit, in addition to the letter of transmittal sent by
the Company, the above-referenced affidavit and indemnity agreement, and any
other document required by the Company, a bond or other security satisfactory to
the Company indemnifying the Company and all other persons against any losses
incurred as a consequence of issuing a certificate evidencing new shares of
Common Stock or paying cash in lieu of issuing fractional shares of Common Stock
in exchange for the existing shares of Common Stock evidenced or purported to be
evidenced by such lost or destroyed certificate. Additional instructions with
respect to lost or destroyed certificates will be included with the letter of
transmittal that the Company will send to stockholders after the Effective Date.
DO NOT SEND SHARE CERTIFICATES TO THE CORPORATION OR THE TRANSFER AGENT
UNTIL AFTER YOU HAVE RECEIVED THE ABOVE-REFERENCED LETTER OF TRANSMITTAL AND
ACCOMPANYING INSTRUCTIONS.
Appraisal Rights
Any stockholder that would receive in connection with the Reverse Stock
Split cash in lieu of any fractional share of Common Stock to which such
stockholder would otherwise be entitled has the right under the General
Corporation Law of the State of Nevada to dissent and instead obtain payment of
the fair value of such fractional share. Any stockholder that wishes to exercise
its appraisal rights in connection with the Reverse Stock Split must deliver to
the Company written notice of such stockholders intent to do so not later than
[ ], 2005, in the form attached as Annex B to this proxy statement and
must either abstain from voting or vote against the Reverse Stock Split. Simply
voting against the Reverse Stock Split will not be deemed to satisfy the notice
requirement. A dissenting stockholder must provide written notice to the Company
and must not vote his or her shares in favor of the Reverse Split. A dissenting
stockholder that votes "For" the Reverse Stock Split will be deemed to have
waived its appraisal rights (see NRS 92A.420 set forth in Annex A). Therefore,
stockholders who intend to exercise
22
their appraisal rights must either vote against or abstain from voting on the
proposed transaction. If any dissenting stockholder and the Company cannot agree
to the fair value of such fractional share, such fair value would be determined
in a proceeding before a district court of the State of Nevada. Any
determination of the fair value of any dissenting stockholder's Common Stock
would occur after the Company has effected the Reverse Stock Split, which effect
will occur within 30 days of the receipt of any stockholder's demand for
payment. Set forth in Annex A to this proxy statement is a summary of such
appraisal rights followed by the statutory provisions of governing the rights of
dissenting stockholders.
Source and Amount of Funds or Other Consideration
The maximum total amount of cash that the Company anticipates will be
required to effect the Reverse Stock Split is approximately $90,500. The Company
expects to obtain such funds from working capital or, if necessary, borrowing
from its line of credit that the Company secured with Boca First Capital, LLLP
in April 2002. Boca First Capital, LLLP owns approximately 55.2% of the
outstanding Common Stock as of December 31, 2004. See "The Corporation -
Principal Stockholders." The line of credit matures on November 1, 2007, and
bears an initial interest rate of 10% and will, on a quarterly basis, adjust to
a rate that is equal to the greater of 10% per annum or 1% above the prime rate
in effect on that date. The line of credit is secured by subordinated mortgage
on the remaining 696 acres of the Maumelle, property, 1,000 shares of common
stock of Capitol Development of Arkansas, Inc., a wholly-owned operating
subsidiary of the Company, and a $1.0 million note receivable, which has a
maturity date of January 10, 2006 and an annual rate of interest of 5.75%. In
order to receive a loan advance under the line of credit, the Company must,
among other things, have paid all fees that are payable and not have an event of
default existing under the line of credit. The Company intends to repay the loan
with payments received from repayment of the $1.0 million note receivable
mentioned above.
Following is an itemized list of the expenses the Company has incurred or
expects to incur in connection with the proposed transaction:
Filing fees............................ $ 18
Legal fees............................. $ 40,000
Transfer Agent fees.................... $ 5,000
Printing costs......................... $ 8,000
Mailing costs.......................... $ 3,000
--------
Total estimated expenses............... $ 56,018
========
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED REVERSE STOCK
SPLIT TRANSACTION.
23
THE CORPORATION
The Company is in the business of financial lending collateralized by real
estate, acquisition and sales of real property for its own portfolio, consulting
on real estate development projects and real estate development through its
ownership or control of strategic projects. The Company is the person filing
this proxy statement with the Securities and Exchange Commission and furnishing
it to the stockholders of the Company.
The Company has not made an underwritten public offering of its Common
Stock for cash during the past three years that was registered under the
Securities Act of 1933 or exempt from registration under Regulation A. The
Company has not repurchased any shares of its Common Stock during the past two
years.
Past Contracts, Transactions, Negotiations and Agreements
The Company has entered into agreements with affiliates and has paid fees
or expects to pay fees to certain affiliated companies for various types of
services, and will continue to do so in the future. These arrangements are
summarized below:
Prime Realty & Investments Inc. ("Prime") is a real estate brokerage firm
beneficially owned by Diane Bloom, a controlling stockholder of the Company
through her beneficial interest in Boca First Capital, LLLP. Prime may receive
commissions derived from transactions dealing with the Company. Prime did not
receive any commissions in fiscal 2004 or fiscal 2003. Management anticipates
that any such commissions paid will based on standard industry fees at the
accepted rates paid to non-affiliated third parties.
Highland Mortgage & Finance Co. ("Highland Mortgage") is a mortgage
brokerage firm owned and controlled by Ashley Bloom, the Company's Acting Chief
Executive Officer and Acting President and a beneficial owner of the Company.
Highland Investment may receive mortgage broker fees derived from transactions
completed by the Company and its subsidiaries. Highland may be paid directly by
the Company or by the borrower as indicated in closing statements. Highland
Mortgage received $14,265 in net fees in fiscal 2004 and $0 in fiscal 2003.
Management anticipates that any such commissions paid to Highland Mortgage will
be based on standard industry fee at the accepted rates paid to non-affiliated
third parties.
Ashley Barrett Consulting, Inc. ("ABC") is a consulting firm owned and
controlled by Ashley Bloom, the Company's Acting Chief Executive Office and
Acting President and a beneficial owner of the Company. ABC receives consulting
fees of $2,500 per month from the Company and may also receive mortgage broker
fees derived from transactions completed by the Company and its subsidiaries.
ABC may be paid directly by the Company or by the borrower as indicated in
closing statements. ABC received $89,022 in fiscal 2004 and $0 in fiscal 2003
for fees related to real estate transactions. ABC received $30,000 in consulting
fees in both fiscal 2004 and 2003. Management anticipates that any such
commissions paid to Highland Mortgage will based on standard industry fee at the
accepted rates paid to non-affiliated third parties.
Boca First Capital, LLLP ("Boca") is a limited liability limited
partnership whose general partner is Addison Capital Group, LLC. The members of
Addison are Howard Bloom, Diane
24
Bloom and Michael G. Todd. The Company pays Boca monthly interest for the line
of credit that exists between the parties. During the fiscal year ended
September 30, 2004, the Company paid a $100,000 renewal fee, representing a 2.5%
of the $4,000,000 available line of credit, extending the credit line to
November 1, 2007. Boca received $125,933 in interest in fiscal 2004 and $188,907
in fiscal 2003.
MLT Management Corp. ("MLT") is a Florida corporation owned and controlled
by Diane Bloom, the spouse of Howard Bloom, and a controlling stockholder of the
Company through her beneficial interest in Boca. MLT may receive commissions
derived from transactions dealing with the Company, either directly or paid by
the borrower. MLT received $191,827 in fiscal 2004 and $87,000 in fiscal 2003. A
portion of these fees was paid to Highland, ABC or other parties under
fee-sharing arrangements. Management anticipates that any such commissions paid
will based on standard industry fees at the accepted rates paid to
non-affiliated third parties.
Plans after the Reverse Stock Split
The Company has no plans, proposals or negotiations that would relate to or
would result in: any extraordinary transaction; any purchase, sale or transfer
of a material amount of assets of the Company or any of its subsidiaries; any
material change in the present dividend rate or policy, or indebtedness or
capitalization of the Company; any change in the current board of directors or
management of the Company including, but not limited to, any plans or proposals
to change the number or the term of directors or to fill any existing vacancies
on the board or to change any material term of the employment contract of an
executive officer; or any other material change in the Company's corporate
structure or business.
Market Price of Common Stock and Dividends
The exact title of the Common Stock is Common Stock, par value $0.01 per
share, of the Company. The number of shares of Common Stock outstanding as of
March 21, 2005 was 28,962,634. The principal market in which the Common Stock is
quoted is the Nasdaq Bulletin Board under the symbol "CFRC.OB." The high and low
bid prices for the Common Stock on the Nasdaq Bulletin Board for each quarter
during the past two fiscal years were as follows:
BID
High Low
----- ----
Fiscal Year Ended September 30, 2003
First Quarter $0.08 $0.04
Second Quarter $0.11 $0.04
Third Quarter $0.07 $0.055
Fourth Quarter $0.08 $0.06
25
BID
High Low
----- ----
Fiscal Year Ended September 30, 2004
First Quarter $0.35 $0.08
Second Quarter $0.45 $0.20
Third Quarter $0.33 $0.12
Fourth Quarter $0.14 $0.05
Fiscal Year Ending September 30, 2005
First Quarter $0.09 $0.05
Second Quarter $0.14 $0.06
Third Quarter (through April 12, 2005) $0.10 $0.10
These bid prices were obtained from the National Quotation Bureau, Inc.,
and reflect inter-dealer prices, without retail mark up, mark down or commission
and may not reflect actual transactions.
During the fiscal year ended September 30, 2004 and the fiscal year ended
September 30, 2003, the Company did not declare any cash dividends with respect
to its Common Stock. The Company does not expect to declare dividends on its
Common Stock in the foreseeable future. The Company may not pay any dividend on
the Common Stock until is has paid or declared and set apart for payment, all
accrued and unpaid dividends for all prior periods on the Series A Preferred
Stock and any other class or series of preferred stock that the board of
directors may hereafter designate.
Series A Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock,
par value $0.01 per share, and of those, 7,500,000 are designated Series A
Preferred Stock. As of September 30, 2004, the Company has 4,137,591 issued and
outstanding shares of Series A Preferred Stock that bears a cumulative dividend
of 5.25%. For the fiscal year ended September 30, 2004, the Company accrued, but
did not pay dividends on the 4,137,591 shares of Series A Preferred Stock. The
Company, through its board of directors, has the right to issue other series of
preferred stock. Such rights may include preferences with respect to dividends
as well as prohibitions against the declaration of dividends on Common Stock
under certain circumstances.
At any time after 60 days from the date of issuance, but not sooner than
August 15, 2002, the Company shall have the right to require mandatory
conversion of the Series A Preferred Stock into one share of Common Stock for
each share of Series A Preferred Share, predicated upon certain events
("Triggered Events"). The Triggered Event shall occur, when and if, the Common
Stock, based on the average of the high and low prices of the Common Stock for a
26
consecutive period of ten (10) trading days, as reported by the National
Quotation Bureau, Inc., and reflect inter-dealer prices as reported on the
NASDAQ electronic bulletin board, reaches a price of $1.50 per share of Common
Stock. However, in the event the Company elects such option, it is required to
use its best efforts to register such shares of Common Stock for resale within
180 days from the date of conversion. At any time after 90 days after issuance,
the Series A Preferred is convertible, at the option of the holder, into one
share of the Common Stock. All or any number of Series A Preferred Stock may be
converted by the holder thereof from time to time on or after the Conversion
Date.
Series A Preferred Stock does not have any voting rights, except as
required under Nevada law. Series A Preferred Stock, in the event of any
liquidation, dissolution or winding up of the Company, is senior to the holders
of Common Stock. Series A Preferred Stockholders are entitled to receive a
liquidation preference of $1.00 per share, plus accrued and unpaid dividends to
the payment date.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The information on pages 15 through 19 in the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 2004 and pages 3 through 7
in the Company's Quarterly Report on Form 10-QSB for the period ended December
31, 2004 have also been filed with the Securities and Exchange Commission and
are incorporated herein by reference.
Changes in and Disagreements with Accountants Regarding Accounting and Financial
Disclosure
The information on page 19 in the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 2004 is incorporated herein by
reference.
A representative of Berkovits Lago & Company, P.A., the Company's
independent auditors, will not be present at the Special Meeting. It is
anticipated that all members of management, and some or all of the members of
the board of directors, will be available at the Special Meeting.
27
Financial Information
The audited financial statements of the Company on pages F-1 through F-18
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 2004 have been filed with the Securities and Exchange Commission
and are incorporated herein by reference. The unaudited financial statements of
the Company on pages F-1 through F-12 in the Company's Quarterly Report on Form
10-QSB for the period ended December 31, 2004 have also been filed with the
Securities and Exchange Commission and are also incorporated herein by
reference. This filing is available on the Securities and Exchange Commission's
website at http://www.sec.gov. You may review this filing at the Securities and
Exchange Commission's Public Reference Room at 450 Fifth Street, NW, Washington,
D.C. 20549 or request copies of this document upon payment of a duplicating fee,
by writing the Securities and Exchange Commission. You may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0339.
Ratio of Earnings to Fixed Charges
Fiscal
quarter
ended Fiscal year ended
December 31, September 30,
2004 2004 2003
------------ ------------ ------------
Earnings from continuing operations before fixed charges
Loss from operations $(59,596) $(514,111) $(823,079)
Fixed charges 301,405 1,102,096 1,357,045
Capitalized interest (51,724) (118,794) -
Preferred stock dividends (54,306) (217,224) (217,224)
------------ ------------ ------------
Total earnings from continuing operations before fixed charges $135,779 $251,967 $316,742
------------ ------------ ------------
Fixed charges
Interest expense, net of capitalized interest $195,375 $766,078 $1,139,821
Capitalized interest 51,724 118,794 -
Preferred stock dividends 54,306 217,224 217,224
------------ ------------ ------------
Total fixed charges $301,405 $1,102,096 $1,357,045
------------ ------------ ------------
Ratio of earnings to fixed charges 0.45 0.23 0.23
Book value per share $0.06 $0.07 $0.08
Pro Forma Financial Information
The following unaudited pro forma financial information is intended to
illustrate the approximate effect that the Reverse Stock Split would have had on
the Company's financial condition and results of operations if completed at an
earlier date. Pro forma financial information is combined, condensed and
unaudited and should be read in conjunction with the historical financial
statements and notes incorporated by reference into or included in this proxy
statement. Pro forma balance sheets give effect to the transaction as if
completed at the end of
28
the period. Pro forma income statements give effect of the transaction as if
completed at the beginning of the period. The pro forma financial information is
based on the assumptions stated in the notes to the pro forma financial
statements, which should be carefully considered. Pro forma information may not
be indicative of the results that actually would have occurred if the reverse
split had been in effect on the dates indicated or the results that may be
attained in the future.
Consolidated Balance Sheet
Historical
First quarter
ended
December 31, Pro Forma Pro Forma
2004 Adjustments Combined
------------- ------------- -------------
Current Assets
Cash $374,495 $(90,474) $284,021
Accrued interest receivable 116,160 116,160
Notes and loans receivable, net of valuation allowance 3,335,408 3,335,408
Real estate held for sale 780,871 780,871
Construction in progress 2,843,212 2,843,212
Other current assets 334,609 334,609
------------- -------------
Total current assets $7,784,755 $(90,474) $7,694,281
------------- ------------- -------------
Furniture & equipment, net of depr 31,300 31,300
Other Assets
Notes receivable, long term $1,000,000 $1,000,000
Land & R/E holdings 3,988,471 3,988,471
Other long-term assets 48,363 48,363
Deferred Tax Benefit 1,203,000 1,203,000
------------- -------------
Total Other Assets $6,239,834 - $6,239,834
------------- -------------
Total Assets $14,055,889 $(90,474) $13,965,415
============= ============= =============
Current Liabilities
Accounts payable & accrued expenses $320,768 $320,768
Accrued preferred dividends payable 271,530 271,530
Current portion of long term debt 4,737,122 4,737,122
------------- -------------
Total Current Liabilities $5,329,420 - $5,329,420
------------- -------------
Long Term Liabilities
Long term debt, net of current portion 6,867,112 6,867,112
------------- -------------
Total Long Term Liabilities $6,867,112 - $6,867,112
------------- -------------
Total Liabilities $12,196,532 - $12,196,532
29
Consolidated Balance Sheet (continued)
Historical
First quarter
ended
December 31, Pro Forma Pro Forma
2004 Adjustments Combined
------------- ------------- -------------
Stockholders' Equity
Preferred stock - $0.01 par value; 10,000,000
authorized; 4,137,591 issued and outstanding $41,376 $41,376
Common stock - $0.01 par value, 40,000,000
authorized; 28,962,634 issued and outstanding
historical; 14,230 issued and outstanding pro forma 289,626 (289,484) 142
Additional paid-in capital 9,751,908 199,010 9,950,918
Preferred stock dividends paid & accrued (595,808) (595,808)
Minority interests 100 100
Accumulated deficit (7,627,845) (7,627,845)
------------- -------------
Total Stockholders' Equity 1,859,357 (90,474) 1,768,883
------------- ------------- -------------
Total Liabilities and Stockholders' Equity 14,055,889 (90,474) 13,965,415
============= ============= =============
Issued and outstanding shares, historical 28,962,634 28,962,634 28,962,634
Book value per share, historical $0.06 $0.00 $0.06
Issued and outstanding shares, pro forma 14,230 14,230 14,230
Book value per share, pro forma $130.66 $(6.36) $124.31
Outstanding shares September 30, 2004 28,962,634
Estimated number of repurchased shares (502,634)
Subtotal 28,460,000
Divisor 2,000
Estimated remaining shares 14,230
30
Consolidated Statement of Operations for fiscal year ended September 30, 2004
Historical
Fiscal year
ended
September 30, Pro Forma Pro Forma
2004 Adjustments Combined
------------- ------------- -------------
Revenues
Sales of real property $3,509,000 $3,509,000
Interest income - notes and loans 418,501 418,501
Fee income 426,689 426,689
------------- -------------
Total Revenues $4,354,190 $4,354,190
------------- -------------
Cost of Revenue
Cost of sales - real property $3,348,653 $3,348,653
Cost of sales - loans 389,519 389,519
------------- -------------
Total Cost of Revenue $3,738,172 $3,738,172
------------- -------------
Gross Profit $616,018 $616,018
------------- -------------
Operating Expenses
General and administrative expenses 886,943 260,000 626,943
General and administrative expenses - related parties 36,000 36,000
Financial advisory and consulting fees 207,186 207,186
------------- -------------
Total operating expenses $1,130,129 $870,129
------------- -------------
Loss from operations $(514,111) $(254,111)
------------- -------------
Other income and (expense)
Interest income on cash balances $7,368 $7,368
Interest expense (250,626) (9,047) (259,673)
Interest expense - related parties (125,933) (125,933)
Gain from extinguishment of debt 342,124 342,124
------------- -------------
Total other income and (expense) $(27,067) $(36,114)
------------- -------------
Net loss $(541,178) 250,953 $(290,225)
============= ============= =============
Basic loss per share
Net loss (historical) $(0.02) $0.01 $(0.01)
Net loss (pro forma) $(38.03) $17.64 $(20.40)
Weighted average shares outstanding (historical) 30,010,085 30,010,085 30,010,085
Estimated shares outstanding (pro forma) 14,230 14,230 14,230
31
Consolidated Statement of Operations for fiscal quarter ended December 31, 2004
Historical
First quarter
ended
December 31, Pro Forma Pro Forma
2004 Adjustments Combined
------------- ------------- -------------
Revenues
Sales of land and developed property $1,217,417 $1,217,417
Interest income - notes and loans 146,663 146,663
Fee income 121,489 121,489
------------- -------------
Total Revenues $1,485,569 $1,485,569
------------- -------------
Cost of Revenue
Cost of sales - land and developed property $1,125,838 $1,125,838
Cost of sales - loans 140,884 140,884
------------- -------------
Total Cost of Revenue $1,266,722 $1,266,722
------------- -------------
Gross Profit $218,847 $218,847
------------- -------------
Operating Expenses
General and administrative expenses 246,693 97,500 149,193
General and administrative expenses - related parties 7,500 7,500
Financial advisory and consulting fees 24,250 24,250
------------- -------------
Total operating expenses $278,443 $180,943
------------- -------------
(Loss) income from operations $(59,596) $37,904
------------- -------------
Other income and (expense)
Interest income on cash balances $388 $388
Interest expense (54,491) (2,262) (56,753)
Gain from extinguishment of debt 53,404 53,404
------------- -------------
Total other income and (expense) $(699) $(2,961)
------------- -------------
Net (loss) income $(60,295) 95,238 $34,943
============= ============= =============
Basic (loss) income per share
Net (loss) income - historical $(0.002) $0.003 $0.001
Net (loss) income -- pro forma $(4.24) $6.69 $2.46
Weighted average shares outstanding (historical) 28,962,634 28,962,634 28,962,634
Estimated shares outstanding (pro forma) 14,230 14,230 14,230
32
Ratio of Earnings to Fixed Charges
Historical
First quarter
ended
December 31, Pro Forma Pro Forma
2004 Adjustments Combined
------------- ------------- -------------
Earnings from continuing operations before fixed charges
(Loss) income from operations (59,596) 97,500 37,904
Fixed charges 301,405 2,262 303,667
Capitalized interest (51,724) - (51,724)
Preferred stock dividends (54,306) - (54,306)
------------- ------------- -------------
Earnings from continuing operations before fixed charges 135,779 99,762 235,541
------------- ------------- -------------
Fixed charges
Interest expense, net of capitalized interest 195,375 2,262 197,637
Capitalized interest 51,724 - 51,724
Preferred stock dividends 54,306 - 54,306
------------- ------------- -------------
Total fixed charges 301,405 2,262 303,667
------------- ------------- -------------
Ratio of earnings to fixed charges 0.45 0.78
Notes to Pro Forma Financial Statements
(1) The Company has assumed that the Reverse Stock Split occurred as of December
31, 2004, for the purpose of the unaudited consolidated pro forma balance sheet,
as of October 1, 2003 with respect to the consolidated pro forma income
statement for the fiscal year ended September 30, 2004, and as of October 1,
2004, with respect to the consolidated pro forma income statement for the first
quarter ended December 31, 2004.
(2) The Company has assumed that a total of 502,634 shares are cashed out in the
Reverse Stock Split at a price of $0.18 per share for a total payment of
$90,474.
(3) The Company has assumed that all of the cash required to complete the
Reverse Stock Split was borrowed from Boca First Capital, LLLP, at a rate of
10%.
(4) The Company has adjusted for a pretax cost savings, estimated to be
approximately $260,000 for the fiscal year ended September 30, 2004 and $97,500
for the quarter ended December 31, 2004. This is an estimate of budgeted costs
attributed to those periods for legal, accounting and other professional fees
associated with the filing requirements under the Exchange Act. This adjustment
is not a prediction of future results. No adjustment was made for employee,
overhead, indirect or incidental expenses. Management estimates that costs
associated with being a filing company under the Exchange Act may increase in
later periods.
(5) The applicable incremental federal income tax rate is assumed to be 34%. No
adjustment was made for taxes as the Company has an operating loss as well as
net operating loss carryforwards.
33
Executive Officers and Directors
Name Age Title
- -------------------- ----- -------------------------------------------------
Ashley B. Bloom 31 Acting President, Acting Chief Executive Officer,
Treasurer, Assistant Secretary and Director
Monica Schreiber 43 Chief Financial Officer
Harvey Judkowitz 60 Director
Donald R. LeGault 65 Director
Michael Merlob 49 Director
Ashley B. Bloom. Mr. Bloom has served as the Company's Director, Acting
President and Acting Chief Executive Officer since January 14, 2004 and he
served as the Company's Vice President, Treasurer and Assistant Secretary since
March 31, 2003. Mr. Bloom is a certified public accountant in the state of
Illinois and a licensed mortgage broker in the state of Florida. Mr. Bloom's
experience includes working with Coopers & Lybrand LLP, a certified public
accounting firm, as an Associate in the Litigation Consulting and Corporate
Finance department from June, 1996 to January, 1998 in Miami, Florida, and in
the real estate development industry since 1998. Mr. Bloom is the son of Howard
Bloom and the stepson of Diane Bloom, principal stockholders of the Company.
Monica Schreiber. Ms. Schreiber has served as the Company's Vice President and
Chief Financial Officer since May 18, 2004. Prior to joining the Company, Ms.
Schreiber acted as a consulting financial officer to the Company from January 5,
2004 through May 17, 2004. Prior to engagement with the Company, Ms. Schreiber
was a Senior Financial Analyst at Access Worldwide Communications, Inc., a
provider of marketing services to telecommunications and pharmaceutical clients,
in Boca Raton, Florida, from April, 2002 to December, 2003. Ms. Schreiber was a
Controller at Symmetrical Holdings, Inc., a provider of marketing research
services, in Deerfield Beach, Florida, from November 1997 to September 2001.
Harvey Judkowitz. Mr. Judkowitz joined the board of directors on June 1, 2004.
Mr. Judkowitz is a certified public accountant licensed in both New York and
Florida. From 1988 to date, Mr. Judkowitz has conducted his own CPA practice.
Mr. Judkowitz is the Chairman of the Board and CEO of UniPro Financial Services,
Inc. and the interim Chief Financial Officer of Kirshner Entertainment &
Technology, Inc. He currently serves on the Board of Directors and is chairman
of the audit committees for the following publicly traded companies; Kirshner
Entertainment & Technology, Inc., (KSHR), Global Business Services, Inc., (GBSS)
and Capitol First Corporation (CFRC). In the past, he has served as Chief
Financial Officer of Claire's Stores and several other publicly traded
companies. Mr. Judkowitz graduated from Pace University in 1967 with a BBA in
Accounting. Over the past 15 years, Mr. Judkowitz has been a consultant to
assist several companies in going public and arrange short term financing until
the public money could be raised.
34
Donald R. Le Gault. Mr. LeGault joined the board of directors on October 15,
2003. Mr. LeGault has extensive experience in real estate investment and
development and has been the owner of Sell America Realty Corporation, a real
estate brokerage firm specializing in commercial properties, primarily in South
Florida since 1996. Since 2002, he has served as Chairman of the Florida Real
Estate Marketing Association, a group of real estate professionals who conduct
marketing seminars in various cities throughout Florida.
Michael Merlob. Mr. Merlob joined the board of directors on June 1, 2004. He is
a Fellow of the Society of Actuaries. From November 1975 through March 1994, Mr.
Merlob was employed by William M. Mercer, Inc, a subsidiary of Marsh & McClennan
Companies, Inc., where he served as a Vice President and a consulting actuary.
He joined Buck Consultants (now part of Mellon Financial Corporation) where he
served as a principal and consulting actuary from March 1994 through October
1997. Mr. Merlob relocated to Florida in 1997 to pursue a second career in
education. He now has his own private instructional practice and is employed by
Donna Klein Jewish Academy in Boca Raton, Florida, where he instructs students
in algebra, geometry and advanced placement statistics. Prior to joining Donna
Klein in February 2003, Mr. Merlob was an instructor at Sawgrass Springs Middle
School in Coral Springs, Florida, from October 1999 through June 2002.
Neither the Company nor any of the above-listed executive officers or
directors of the Company was convicted in a criminal proceeding during the past
five years (excluding violations and similar misdemeanors) or was party to any
judicial or administrative proceeding during the past five years (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree, or final order enjoining such person from future violations
of, or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws. Each of the
above-listed executive officers and directors are citizens of the United States.
Currently, there is a vacancy on the board of directors. The Company
expects that the remaining members of the board of directors will fill the
vacancy on the board of directors prior to the next annual stockholders'
meeting; alternatively, the board of directors may elect to eliminate the
vacancy by reducing the number of directors constituting the board of directors.
Each of the officers and directors of the Company, as well as their
respective affiliates intend to vote for the proposal and recommend to the
stockholders of the Company their support for the proposed transaction for the
reasons set forth in "The Proposed Transaction -- Special Factors -- Reasons" in
this proxy statement.
35
Principal Stockholders
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the Record Date for: each person known to
beneficially own more than 5% of the Common Stock; the Company's Chief Executive
Officer and each of the Company's four most highly compensated executive
officers earning at least $100,000; each of the Company's directors; and all of
the Company's executive officers and directors as a group.
Unless otherwise noted below, and subject to applicable community property
laws, to our knowledge, each person has sole voting and investment power over
the shares shown as beneficially owned, except to the extent authority is shared
by spouses under applicable law and except as set forth in the footnotes to the
table.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission. The
information does not necessarily indicate beneficial ownership for any other
purpose. Beneficial ownership, as set forth in the regulations of the Securities
and Exchange Commission, includes securities owned by or for the spouse,
children or certain other relatives of such person as well as other securities
as to which the person has or shares voting or investment power or has the right
to acquire within 60 days after the Record Date. The same shares may be
beneficially owned by more than one person. Beneficial ownership may be
disclaimed as to certain of the securities. For purposes of calculating each
person's or group's percentage ownership, any stock options, convertible
preferred stock and warrants exercisable or convertible within 60 days after the
Record Date are included for that person or group but not any stock options,
convertible preferred stock or warrants of any other person or group.
All addresses for the executive officers and directors are c/o Capitol
First Corporation, 7100 W. Camino Real Boulevard, Suite 402, Boca Raton, FL
33433.
Shares of Percent of
Common Stock Common
Beneficially Stock
Owned Owned
------------ ----------
Boca First Capital, LLLP
Addison Capital Group LLC
7100 W. Camino Real Boulevard, Suite 402
Boca Raton, FL 33433.......................................... 16,000,000 (1) 55.2%
Howard Bloom
12737 NW 68th Drive
Parkland, FL 33076............................................ 16,869,505 (2) 58.2%
Diane Bloom
12737 NW 68th Drive
Parkland, FL 33076............................................ 16,869,505 (3) 58.2%
Stone Financial Group, LLC
Joel A. Stone
630 Dundee Road, Suite 220
Northbrook, IL 60062.......................................... 2,000,000 (4) 6.9%
Michael G. Todd............................................... 16,234,589 (5) 56.0%
Ashley B. Bloom............................................... 785,000 (6) 2.7%
36
Shares of Percent of
Common Stock Common
Beneficially Stock
Owned Owned
------------ ----------
Monica Schreiber.............................................. 10,000 (7) *
Harvey Judkowitz.............................................. -- (8) *
Donald R. LeGault............................................. 60,000 *
Michael Merlob................................................ 56,000 (8) *
All executive officers and directors as a group (5 persons)... 911,000 (9) 3.0%
- -------------------------
* Less than one percent.
(1) Addison Capital Group LLC, a Nevada limited liability company ("Addison"),
is the general partner of Boca First Capital, LLLP, a Florida limited
liability limited partnership ("Boca"). The managing members of Addison are
Howard Bloom, Diane Bloom and Michael G. Todd. The limited partners of Boca
are MB 2002 LLC, a Florida limited liability company, Boca Funding Group,
LLC, a Florida limited liability company, Prescott Investments L.P., a
Nevada limited partnership ("Prescott"), Highland Investments, LLC, a
Florida limited liability company, Michael G. Todd, Alan Katz and Leonard
Gross. Mr. Todd is the sole managing member of Prescott.
(2) Includes 26,000 shares owned directly, 90,000 shares owned by spouse and
minor child, 750,000 shares owned by MB 2002 LLC, a Florida limited
liability company of which Mr. Bloom and his wife are the sole managing
members, 16,000,000 shares owned by Boca, and 3,505 shares owned by MLT
Management Corp., a Florida corporation owned and controlled by Diane
Bloom, the spouse of Howard Bloom. See footnote (1).
(3) Includes 45,000 shares owned directly, 71,000 shares owned by spouse and
minor child, 750,000 shares owned by MB 2002 LLC, 16,000,000 shares owned
by Boca, and 3,505 shares owned by MLT Management Corp. See footnote (1).
(4) Joel A. Stone's membership interest in Stone Financial Group, LLC is
greater than 50% and he controls Stone Financial Group, LLC. Based on a
Schedule 13D filed with the Securities and Exchange Commission on July 30,
2004.
(5) Includes 208,000 shares owned directly, 6,000 shares owned by Granite
Industries LLC of which Mr. Todd is the sole managing member, 1,589 shares
owned by Prescott of which Granite Industries LLC is its managing general
partner, 16,000,000 shares owned by Boca, and 19,000 shares owned by Mr.
Todd's wife. See footnote (1).
(6) Includes 35,000 shares owned directly and 750,000 shares owned by Highland
Investments LLC of which Mr. Bloom is the sole manager. Mr. Bloom is also
the son of Howard Bloom and stepson of Diane Bloom.
(7) Includes 10,000 shares owned directly by Ms. Schreiber.
(8) Mr. Judkowitz and Mr. Merlob will each receive 60,000 pre-split shares in
June of 2005 as stock compensation for their director services.
(9) Includes 56,000 shares beneficially owned by Mr. Merlob, 60,000 shares
beneficially owned by Mr. LeGault, 785,000 shares beneficially owned by Mr.
Ashley Bloom and 10,000 shares beneficially owned by Ms. Schreiber.
Boca First Capital, LLLP and Addison Capital Group LLC
Boca First Capitol LLLP, a Florida limited liability limited partnership,
which owns beneficially and of record 16,000,000 shares of Common Stock,
representing 55.2% of the outstanding Common Stock could be deemed a controlling
affiliate of the Company. After giving effect to the Reverse Stock Split, Boca
will own 8,000 shares, representing 56.2% of the issued and outstanding Common
Stock. The principal business of Boca is to develop, market and sell real estate
and acquire, own, license, maintain, improve, operate, manage, refinance, lease,
and sell its assets. The business address of Boca is 7100 W. Camino Real
Boulevard, Suite 402, Boca Raton, Florida 33433. Boca's general partner is
Addison Capital Group LLC, a Florida limited liability company ("Addison"). The
business address of Addison is 7100 W. Camino Boulevard, Suite 402, Boca Raton,
Florida 33433. The principal business of Addison is management services.
37
To the knowledge of the Company, the members of Addison are:
Current Principal Occupation Other Material Occupations
Name and Business Address During the Past Five Years
- ---------------- ---------------------------- --------------------------
Diane Bloom Real estate investor None
7100 W. Camino Boulevard
Suite 402
Boca Raton, Florida 33433
Howard Bloom Real estate investor None
7100 W. Camino Boulevard
Suite 402
Boca Raton, Florida 33433
Michael G. Todd Real estate investor Former Chief Executive
6454 Leblanc Place Officer and Chairman of the
Rancho Palos, Florida 90275 Board of Directors of the
Company
To the knowledge of the Company, none of Boca, Addison nor any of the
above-listed members of Addison: (i) was convicted in a criminal proceeding
during the past five years (excluding violations and similar misdemeanors); or
(ii) was a party to any judicial or administrative proceeding during the past
five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree, or final order enjoining such
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws. Each of the members of Addison is a citizen of the United
States.
Boca, Addison and certain members of Addison intend to vote for the
proposed transaction for the reasons set forth in "The Proposed Transaction --
Special Factors -- Reasons" in this proxy statement. None of Boca, Addison nor
the members of Addison have made a recommendation regarding the proposed
transaction.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals for the 2004 annual meeting of stockholders must have
been submitted to the Company by December 15, 2004 to receive consideration for
inclusion in the Company's proxy statement or information statement relating to
the 2004 annual meeting of stockholders. Any such proposal must also comply with
Securities and Exchange Commission proxy rules, including Securities and
Exchange Commission Rule 14a-8.
In addition, stockholders are notified that the deadline for providing the
company timely notice of any stockholder proposal submitted outside of the Rule
14a-8 process for consideration at the Company's 2004 annual meeting of
stockholders is February 28, 2005. As to all such matters which the Company does
not have notice on or prior to such date, discretionary authority
38
shall be granted to the persons designated in the Company's proxy related to the
2004 annual meeting of stockholders to vote on such proposal.
39
HOUSEHOLDING
In order to reduce printing costs and postage fees, the Company has adopted
the process called "householding" for mailing its proxy statement to "street
name holders," which refers to stockholders whose shares are held in a stock
brokerage account or by a bank or other nominee. This means that street name
holders who share the same last name and address will receive only one copy of
the Company's proxy statement, unless the Company receives contrary instructions
from a street name holder at that address. The Company will continue to mail a
proxy card to each stockholder of record.
If you prefer to receive multiple copies of the Company's proxy statement
at the same address, you may obtain additional copies by writing to Capitol
First Corporation, Investor Relations, 7100 W. Camino Real Boulevard, Suite 402,
Boca Raton, Florida 33433 or by calling (561) 417-7115. Eligible stockholders of
record receiving multiple copies of the proxy statement can request householding
by contacting the Company in the same manner.
AVAILABLE INFORMATION
The Company files reports, proxy information statements and other
information with the Securities and Exchange Commission. These filings are
available to the public over the internet at the SEC's web site at
http://www.sec.gov. You may review these filings at the Securities and Exchange
Commission's Public Reference Room located at 450 Fifth Street, NW, Washington
D.C. 20549 or request copies of these documents upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the Public Reference Room.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's annual report for the year ended September 30, 2004 on Form
10-KSB and quarterly report for the period ended December 31, 2004 on Form
10-QSB are incorporated herein by reference. The Form 10-KSB and Form 10-QSB are
being delivered to stockholders with this proxy statement.
FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements. Such
forward-looking statements are generally accompanied by words such as "intends,"
"projects," "believes," "anticipates," "plans" and similar terms that convey the
uncertainty of future events or outcomes. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the risk factors described in other documents
that the Company files from time to time with the Securities and Exchange
Commission.
40
By Order of the Board of Directors
[ ], 2005 Ashley Bloom
Acting President and Chief Executive Officer
41
ANNEX A
SUMMARY OF APPRAISAL RIGHTS
IN CONNECTION WITH PROPOSED TRANSACTION
Any stockholder that would receive in connection with the Reverse Stock
Split cash in lieu of any fractional share of Common Stock to which such
stockholder would otherwise be entitled has the right under the General
Corporation Law of the State of Nevada to dissent and instead obtain payment of
the fair value of such fractional share. The rights of dissenting stockholders
in connection with Reverse Stock Split are enumerated in sections 92A.300
through 92A.500, inclusive, of the General Corporation Law of the State of
Nevada, a summary and the full text of which are set forth below.
Summary of Rights of Dissenting Stockholders
Any stockholder that would receive in connection with the Reverse Stock
Split cash in lieu of any fractional share of Common Stock to which such
stockholder would otherwise be entitled may instead demand payment of the fair
value of such fractional share by giving the Company written notice of such
demand, substantially in the form attached as Annex B to the proxy statement to
which this summary is attached, sent by first class mail, by reputable overnight
business courier, or by hand to the principal business offices of the Company at
7100 W. Camino Boulevard, Suite 402, Boca Raton, Florida 33433, not later than
[ ], 2005. Any stockholder demanding payment of the fair value of such
fractional shares must not vote his shares in favor of the Reverse Stock Split.
Any stockholder demanding payment of the fair value of a fractional share
must deposit all certificates held thereby representing shares of Common Stock
with the transfer agent of the Company sent by first class mail, by reputable
overnight business courier, or by hand to Interwest Transfer Company, not later
than [ ], 2005.
Any stockholder that does not timely demand payment of the fair value of
such stockholder's fractional share or does not timely deposit all certificates
held thereby representing shares of Common Stock with the transfer agent as
provided above will not be entitled to payment of the fair value of such
stockholder's fractional share under the dissenters' rights provisions of the
General Corporation Law of the State of Nevada.
Within thirty days after the Company receives any timely and complete
demand for payment of the fair value of a fractional share, the Company must pay
the dissenting stockholder an amount the Company estimates to be the fair value
of such fractional share, plus accrued interest, together with, among other
things:
(i) a balance sheet as of the end of a fiscal year ending not more
than sixteen months before the payment date, a statement of income for that
year, a statement of changes in the stockholders' equity for that year, and the
latest available interim financial statements, if any;
(ii) a statement of the Company's estimate of the fair value of such
fractional share; and
A-1
(iii) an explanation of how the interest was calculated.
The Company may, however, withhold payment with respect to any portion of
such fractional share attributable to shares of Common Stock acquired by such
dissenting stockholder on or after January 25, 2005, the date on which the
Company first publicly announced, by press release and by current report filed
with the United States Securities and Exchange Commission, its intention to
effect the Reverse Stock Split. If the Company elects to withhold payment on
this basis, it must offer to pay the fair value of such fractional share, plus
accrued interest, subject to the agreement of such dissenting stockholder to
accept that amount in full satisfaction of such dissenting stockholder's demand.
Within thirty days of receipt of payment or an offer of payment of the fair
value of such stockholder's fractional share, plus accrued interest, a
dissenting stockholder may notify the Company in writing of such stockholder's
own estimate of the fair value of such fractional share and the amount of
interest due, and demand payment of such amount, less any payment previously
paid by the Company, or reject an offered payment by the Company and demand
payment of the fair value of such fractional share, plus accrued interest, if
such stockholder believes that the amount paid or offered by the Company is less
than the fair value of such stockholder's fractional share or that the interest
due is incorrectly calculated.
If a demand for payment remains unsettled, the Company must commence a
proceeding in a district court of the State of Nevada (either: (i) of the county
where the Company's registered office is located; or (ii) at the election of any
dissenter residing or having its registered office in the State of Nevada, of
the county where the dissenter resides or has its registered office) within
sixty days after receiving such demand, and petition the court to determine the
fair value of the subject fractional share and accrued interest. If the Company
fails timely to commence such a proceeding, it must pay the amount demanded.
The costs of any such proceeding will be borne by the Company, except to
the extent that the court finds the dissenting stockholder acted arbitrarily,
vexatiously, or not in good faith in demanding payment, in which case the court
may assess an equitable amount of such costs against the dissenting stockholder.
The court may also assess the fees and expenses of counsel and experts to either
party to any such proceeding against the other is such other party acted
arbitrarily, vexatiously, or not in good faith in exercising its rights under
the dissenters' rights provisions of the General Corporation Law of the State of
Nevada (or, in the case of the Company, if it did not substantially comply with
the requirements of such provisions).
The foregoing is a summary of certain material terms of the dissenters'
rights provisions of the General Corporation Law of the State of Nevada. It does
not include or summarize all material information regarding the rights of
dissenting stockholders in connection with the Reverse Stock Split. Stockholders
are urged to read carefully the full text of such provisions in order to
understand the full extent of and any applicable limitations on such rights.
A-2
Text of Statutory Provisions Governing Rights of Dissenting Stockholders
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
NRS 92A.310 "Corporate action" defined. "Corporate action" means the action of a
domestic corporation.
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.400 to 92A.480,
inclusive.
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
NRS 92A.350 Rights of dissenting partner of domestic limited partnership. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
NRS 92A.360 Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless
A-3
otherwise provided in the articles of organization or operating agreement, an
agreement of merger or exchange, may provide that contractual rights with
respect to the interest of a dissenting member are available in connection with
any merger or exchange in which the domestic limited-liability company is a
constituent entity.
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
NRS 92A.380 Right of stockholder to dissent from certain corporate actions and
to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a conversion or plan of merger to which the
domestic corporation is a constituent entity:
(1) If approval by the stockholders is required for the
conversion or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation, regardless of whether the stockholder is entitled to vote on the
conversion or plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its parent pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a constituent entity as the corporation whose subject owner's
interests will be acquired, if his shares are to be acquired in the plan of
exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
A-4
2. A stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or
series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the
plan of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National Association of
Securities Dealers, Inc., or held of record by a least 2,000 holders of owner's
interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
A-5
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
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(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days after
the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.440 Demand for payment and deposit of certificates; retention of rights
of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he or the beneficial owner on whose behalf he is
dissenting, as the case may be, acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
NRS 92A.460 Payment for shares: general requirements.
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1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.470 Payment for shares: shares acquired on or after date of dissenter's
notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480. NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate,
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less any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS
92A.470 and demand payment of the fair value of his shares and interest due, if
he believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to
NRS 92A.470 is less than the fair value of his shares or that the interest due
is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs and
fees.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except
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that the court may assess costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously or not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
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ANNEX B
FORM OF DEMAND FOR PAYMENT OF FAIR VALUE
First Capitol Corporation
7100 W. Camino Real Boulevard, Suite 402
Boca Raton, FL 33433
Attention: Chief Financial Officer
Re: Demand for Payment of Fair Value of Fractional Share in Connection with
Reverse Stock Split
The undersigned stockholder of Capitol First Corporation (the
"Corporation") hereby demands pursuant to Section 92A.440 of the General
Corporation Law of the State of Nevada that the Corporation pay to the
undersigned the fair value of the fractional share of Common Stock, par value
$0.01 per share, that the undersigned would be entitled to in connection with
the reverse stock split (the "Reverse Stock Split") to be effected by the
Corporation, as described in the proxy statement, dated [ ], 2005, sent
by the Corporation to its stockholders, if the Corporation had not elected to
pay cash in lieu of issuing such fractional share.
The undersigned hereby certifies that he currently beneficially owns ______
shares of Common Stock, before giving effect to the proposed Reverse Stock
Split. The undersigned hereby certifies that he acquired beneficial ownership of
______ of such shares before [ ], 2005, the date on which the Corporation
first publicly announced, by press release and by current report filed with the
United States Securities and Exchange Commission, its intention to effect the
Reverse Stock Split. The undersigned hereby acknowledges that he is not entitled
to receive payment of the fair value of any shares of Common Stock he acquired
after such date unless he agrees to accept such payment in full satisfaction of
his demand.
- ----------------------------------------------
(Name as it appears on share certificates)
- ----------------------------------------------
(Signature)
- ----------------------------------------------
(Date)
B-1
ANNEX C
COMPARABLE TRANSACTIONS
Following is a list of the transactions that the Company considered in
connection with assessing both the substantive and the procedural fairness of
the Reverse Stock Split. The Company considered any going private transaction
effected by means of a reverse stock split with a principal rationale of
cost-saving to be a comparable transaction for purposes of this analysis. While
the attached is not an exhaustive enumeration of such comparable transactions
undertaken in recent years, the Company believes that it is a representative
sample.
Among the principal findings that the Company noted in reviewing the
selected comparable transactions were:
- Of the 11 comparable transactions considered, the transaction price paid
to stockholders for fractional shares represented a premium to the then-current
market price (ranging from 0.7 percent to 900.0 percent) in 10 transactions, and
represented neither a premium nor a discount in one transaction. The percent
premium to be paid in connection with the proposed transaction is within this
range.
- The transaction price paid to stockholders for fractional shares
represented a premium to the highest historical price during the subject
company's prior two full fiscal years through the date of announcement of the
transaction or the date of the initial filing relating to the transaction with
the Securities and Exchange Commission, as applicable, in two cases (at 12.8
percent and 53.8 percent). The discounts to such historical high prices in the
other 9 cases ranged from 2.0 percent to 99.1 percent.
- In only three of the reviewed transactions did the subject companies
employ any of: (i) approval of the transaction by a vote of unaffiliated
stockholders; (ii) approval of the transaction by a committee of the board of
directors composed of independent directors; (iii) an independent, third-party
fairness opinion; or (iv) an independent, third-party representative.
The Company did consider other elements of the selected comparable
transactions, such as the other financial analyses undertaken by the subject
companies in making their substantive fairness determinations, with similar
results.
C-1
COMPANY; FORM; TRANSACTION MARKET MARKET HISTORICAL TRANSACTION
SYMBOL DATE PRICE CAP (1) PRICE (2) HIGH (3) VALUE (4)
- --------------- ----------- ----------- --------------- ---------------- -------------- ------------
TouchTunes 13E-3; $0.50 $4,003,396; $0.27; $0.51; 2.0% $360,000
Music 02.12.2004 14,827,394 12.02.2003; discount
Corporation; shares 85.2% premium
TTMC
Teltone Corp.; 14A/13E-3; $0.24 $549,288; $0.08; $1.88; 87.2% $44,318
TLTN 09.11.2002; 6,866,105 09.06.2002; discount
09.12.2002 shares 200.0%
premium
Kimmins Corp.; 14A/13E-3; $1.00 $2,923,281; $0.60; $0.65; 53.8% $52,272
KMMN 11.26.2002 4,872,135 11.25.2002; premium
shares 66.7% premium
Genesee 13E-3; $8.60 $14,296,694; $8.54; $39.00; 77.9% $2,169,591
Corporation; 12.24.2002 1,674,086 12.23.2002; discount
GENBB shares 0.7% premium
EBT 14A/13E-3; $0.11 $1,321,241; $0.09; $3.18; 96.5% $525
International 02.03.2003 14,680,459 02.03.2003; discount
Inc.; EBTN shares 22.2% premium
RFP Express 14C/13E-3; $0.20 $345,208; $0.02; $0.239; 16.3% $310
Inc.; RFPX 02.19.2003 17,710,383 02.18.2003; discount
shares 900.0% premium
Acap 14C/13E-3; $485.00 $2,526,780; $345.00; $430.00; $218,250
Corporation; 03.24.2003 7,324 shares 03.21.2003; 12.8% premium
ACPC 40.6% premium
IFX 14A/l3E-3; $0.12 $358,902; $0.03; $13.13; 99.1% $3,000
Corporation; 04.09.2003 11,963,399 04.09.2003; discount
IFXC shares 300.0% premium
Edison Control l4A/13E-3; $7.00 $11,470,165; $7.00; $8.00; 12.5% $3,421,486
Corporation; 04.24.2003 1,638,595 04.24.2003; no discount
EDCO shares premium or
discount
Rampart Capital l4A/13E-3; $3.50 $8,599,223; $2.96; $3.80; 7.9% $2,096,715
Corporation; RAC 06.26.2003 2,905,143 06.26.2003; discount
shares 18.2% premium
Summit Life 14C/13E-3; $0.50 $538,251; $0.20; $1.01; 50.5% $14,207
Corp.; SMLF 09.23.2003; 2,691,255 09.18.2003; discount
09.24.2003 shares 150.0% premium
C-2
(1) This column shows the market capitalization based on the market price of
the subject company's securities as of a specific date (as described below
in Note (2)) and the number of shares outstanding on such date.
(2) This column shows the market price of the subject company's securities on
the date immediately prior to the transaction announcement date or the date
of the initial filing relating to the transaction with the Securities and
Exchange Commission, in cases where the transaction announcement date (if
different) was not readily determinable. This column shows the market
price, the date used for the market price and the premium (or discount) of
the transaction price above (or below) the market price.
(3) This column shows the historical high market price of the subject company's
securities during the subject company's prior two full fiscal years through
the date used for the determination of market price (as described above in
Note (2)), and the premium (or discount) of the transaction price above (or
below) the historical high market price.
(4) This column shows the estimated transaction value on the date that the
Schedule 13E-3 was initially filed.
COMPANY;
SYMBOL PROCEDURE
- ---------------- ---------------------------------------------------
TouchTunes Music No separate unaffiliated stockholder vote; no
Corporation; fairness opinion; no independent board committee;
TTMC no stockholder representative
Teltone Corp.; No separate unaffiliated stockholder vote; no
TLTN fairness opinion; no independent board committee;
no stockholder representative
Kimmins Corp.; No separate unaffiliated stockholder vote; no
KMMN fairness opinion; no independent board committee;
no stockholder representative
Genesee No separate unaffiliated stockholder vote;
Corporation; FAIRNESS OPINION ($25,000 cost); no independent
GENBB board committee; no stockholder representative
EBT No separate unaffiliated stockholder vote; no
International fairness opinion; no independent board committee:
Inc.; no stockholder representative
EBTN
RFP Express No unaffiliated stockholder vote; no fairness
Inc.; opinion; no independent board committee; no
RFPX stockholder representative
C-3
COMPANY;
SYMBOL PROCEDURE
- ---------------- ---------------------------------------------------
Acap No unaffiliated stockholder vote; no fairness
Corporation; opinion; no independent board committee; no
ACPC stockholder representative
IFX Corp.; IFXC No unaffiliated stockholder vote; no fairness
opinion; no independent board committee; no
stockholder representative
Edison Control No unaffiliated stockholder vote; FAIRNESS
Corporation; OPINION ($25,000 cost); INDEPENDENT BOARD
EDCO COMMITTEE; no stockholder representative
Rampart Capital No unaffiliated stockholder vote; FAIRNESS
Corporation; RAC OPINION ($45,000 cost); INDEPENDENT BOARD
COMMITTEE; no stockholder representative
Summit Life No unaffiliated stockholder vote; no fairness
Corp.; SMLF opinion; no independent board committee; no
stockholder representative
C-4
PRELIMINARY PROXY CAPITOL FIRST CORPORATION PRELIMINARY PROXY
7100 W. Camino Boulevard, Suite 402
Boca Raton, Florida 33433
Special Meeting of Stockholders to be on held [ ], 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ashley B. Bloom and Monica Schreiber or
either of them, as proxies and attorneys in fact with full power of substitution
to represent and to vote for the undersigned all shares of Common Stock, $0.01
par value, of Capitol First Corporation that the undersigned would be entitled
to vote if personally present at the Special Meeting of Stockholders of Capitol
First Corporation to be held on [ ], 2005 and at any postponement or
adjournment thereof. The undersigned directs this proxy to vote as indicated on
this proxy card.
1. Approval of the reverse stock split of the Common Stock of Capitol First
Corporation at a ratio of one to 2,000, as more fully described in the
accompanying proxy statement:
FOR: |_| AGAINST |_| ABSTAIN |_|
2. In their discretion, upon such other matters as properly may come before the
meeting.
(To be Signed on Reverse Side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE REVERSE STOCK SPLIT TRANSACTION. IF ANY OTHER BUSINESS IS PRESENTED AT
THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE CAPITAL FIRST CORPORATION PROXY STATEMENT.
Should the undersigned be present and choose to vote at the Special Meeting or
at any postponements or adjournments thereof, and after written notification to
the Secretary of Capitol First Corporation at the Special Meeting of the
stockholder's decision to terminate this proxy, then the power of such attorneys
or proxies shall be terminated and shall have no force and effect. This proxy
may also be revoked by filing a written notice of revocation with the Secretary
or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt with this Proxy and a copy of the proxy
statement for the Special Meeting of Stockholders to be held [ ], 2005.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE CHECK IF YOU INTEND TO BE PRESENT AT THE MEETING [ ]
IMPORTANT: Please date this proxy and Dated:__________________________, 2005
sign exactly as your name(s) appear in
the Company records. If shares held
jointly, signatures should include __________________________
both names. Executors, administrators, Signature of Stockholder
trustees, guardians, and others,
signing in a representative capacity, __________________________
please give full title. If a Signature, if held jointly
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign partnership name by
authorized person.