SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the company X
Filed by a Party other than the company n
Check the appropriate box:
X Preliminary Proxy Statement
n Definitive Proxy Statement
n Confidential for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)
n Definitive Additional Materials
n Soliciting Material Pursuant to 14a-11(c) or Rule 14a-12
THE ENCHANTED VILLAGE, INC.
(Name of company as Specified in its Charter)
THE ENCHANTED VILLAGE, INC.
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
n $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2) n $500
for each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3) n
Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
n Fee paid previously with preliminary materials.
n Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identifying 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
\ (4) Date Filed:
1
THE ENCHANTED VILLAGE, INC.
1407 North Fort Harrison, Suite F
Clearwater, Florida 33755
(727) 469-8691
Dear fellow stockholder;
According to our records, you have been a stockholder of The Enchanted
Village, Inc., an inactive Delaware corporation, for many years. We have
recently revived the company's charter and restored its corporate existence. We
would like to restructure the company so that it will be suitable for use as a
public shell. You are cordially invited to attend a Special Meeting of the
Stockholders that will be held at 10:00 am on November 15, 2002, in our
executive offices, located at 1407 Fort Harrison Avenue, Suite H, Clearwater,
Florida.
The company's business was originally conducted through of a chain of 15
retail stores that sold educational toys and related goods and services. After
encountering financial difficulties, the company filed a voluntary petition
under Chapter 11 of the Bankruptcy Act on April 24, 1987. Subsequently, the
company voluntarily converted its' Chapter 11 case into a case in Chapter 7. At
present, the company has no assets, liabilities, or ongoing business operations.
As a result, your shares have been worthless for several years. At the meeting
you will be asked to consider and vote upon our plan to restructure the company
as a "public shell" that will then endeavor to implement a business combination
with a suitable privately held company that has both business history and
operating assets, and wants to be publicly held.
If our plan is successfully implemented, you may be able to salvage some
of the value that your Enchanted Village shares once represented. However, there
can be no assurance our plan will be approved by the stockholders or
successfully implemented. Even if our plan is approved and successfully
implemented, there can be no assurance that the value of your Enchanted Village
shares will increase significantly. In any event, we cannot implement our plans
without stockholder approval. Therefore, it is critically important that you
read the enclosed Proxy Statement and promptly mark your vote, sign and return
your Proxy Card.
While the elements of the plan will be presented to stockholders as
separate proposals, the plan is an integrated whole and if all elements of the
plan are not approved, we may abandon our restructuring proposals and liquidate
the company. The specific matters to be considered by the stockholders are:
1. To consider and vote upon a series of proposed amendments to our
Certificate of Incorporation that will be sequentially adopted for the
purpose of:
a. Increasing our authorized capital to 50,000,000 shares of Common Stock
and 5,000,000 shares of preferred stock;
b. Reclassifying our Class A Common Stock as voting Common Stock;
c. Reclassifying our Convertible Series A $25 Preferred Stock as voting
Common Stock;
d. Implementing a reverse split of our outstanding Common Stock in the ratio
of one (1) new share for each 6,000 shares presently outstanding; and
e. Implementing a 100 for 1 forward split of our Common Stock.
2. To ratify the adoption of amended and restated by-laws for our company
that expressly authorize a single-member board of directors;
3. To elect Sally A. Fonner to serve as the sole director of our company
until the next annual meeting of the stockholders, or until her successor
is elected and qualified;
4. To authorize the payment of stock-based compensation to our officers,
legal counsel and consultants in connection with the implementation of
our business plan;
5.
To authorize the sale of additional stock to related parties for cash that
will be used to pay the costs of holding the meeting and implementing
our business plan;
6. To approve a plan of operations that presumes the board of directors
will exercise discretionary authority with respect to the sale of
shares to related parties and the closing of a business combination
transaction without first seeking the express consent or approval of
the stockholders; and
7. To ratify the selection of Want & Ender CPA PC, as the Company's
independent auditors for the current year.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
HOWEVER, REGARDLESS OF WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE
URGED TO PROMPTLY MARK YOUR VOTE, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED, SELF-ADDRESSED, STAMPED ENVELOPE SO THAT YOUR SHARES MAY
BE REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR DESIRES. YOU MAY REVOKE YOUR
PROXY AT ANY TIME BY DELIVERING A WRITTEN NOTICE OF REVOCATION TO THE COMPANY,
BY DELIVERING A SIGNED PROXY OF A LATER DATE TO THE COMPANY OR BY APPEARING AT
THE SPECIAL MEETING AND VOTING IN PERSON.
Sally A. Fonner, President and Sole Director
THE ENCHANTED VILLAGE, INC.
1407 North Fort Harrison, Suite F
Clearwater, Florida 33755
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on November 15, 2002
Notice is hereby given that a Special meeting of the stockholders of The
Enchanted Village, Inc., an inactive Delaware corporation, will be held at 10:00
am on November 15, 2002, in our executive offices, located at 1407 Fort Harrison
Avenue, Suite F, Clearwater, Florida, for the following purposes:
1. To consider and vote upon a series of proposed amendments to our
Certificate of Incorporation that will be sequentially adopted for the
purpose of:
a. Increasing our authorized capital to 50,000,000 shares of Common Stock
and 5,000,000 shares of preferred stock;
b. Reclassifying our Class A Common Stock as voting Common Stock;
c. Reclassifying our Convertible Series A $25 Preferred Stock as voting
Common Stock;
d. Implementing a reverse split of our outstanding Common Stock in the ratio
of one (1) new share for each 6,000 shares presently outstanding; and
e. Implementing a 100 for 1 forward split of our Common Stock.
2. To ratify the adoption of amended and restated by-laws for our company
that expressly authorize a single-member board of directors;
3. To elect Sally A. Fonner to serve as the sole director of our company
until the next annual meeting of the stockholders, or until her successor
is elected and qualified;
4. To authorize the payment of stock-based compensation to our officers,
legal counsel and consultants in connection with the implementation of
our business plan;
5. To authorize the sale of additional stock to related parties for cash
that will be used to pay the costs of holding the meeting and
implementing our business plan;
6. To approve a plan of operations that presumes the board of directors
will exercise discretionary authority with respect to the sale of
shares to related parties and the closing of a business combination
transaction without first seeking the express consent or approval of
the stockholders; and
7. To ratify the selection of Want & Ender CPA PC, as the Company's
independent auditors for the current year.
A record of stockholders has been taken as of the close of business on
October 14, 2002, and only persons who were stockholders of record on that date
will be entitled to notice of and to vote at the meeting. A stockholders' list
is available and may be inspected prior to the meeting during normal business
hours at the offices of the company, 1407 North Fort Harrison, Suite F,
Clearwater, Florida 33755.
Regardless of whether you expect to attend the meeting in person, please
mark your vote, sign and date the enclosed Proxy Card and return it promptly in
the enclosed stamped envelope that has been provided for your convenience.
Clearwater, Florida By Order of the Board of Directors
October 15, 2002 Sally A. Fonner, President and Sole Director
THE ENCHANTED VILLAGE, INC.
1407 North Fort Harrison, Suite F
Clearwater, Florida 33755
PROXY STATEMENT
This proxy statement has been prepared for use in connection with the
solicitation of proxies to be voted at a special meeting of stockholders of The
Enchanted Village, Inc. that will be held in Clearwater, Florida on November 15,
2002. The proxy statement was mailed to all known stockholders of our company on
October 15, 2002. The board of directors has called the meeting for the purpose
of asking our stockholders to ratify certain recent corporate actions and
consider a proposal to restructure our company as a "public shell" that will
endeavor to implement a business combination with a suitable privately held
company.
Outstanding capital stock
At the date of this proxy statement, our outstanding capital stock
consists of:
o 14,828,333 shares of Common Stock ("Common Stock");
o 3,167,550 shares of non-voting Class A Common Stock ("Class A Common"); and
o 164,450 shares of non-voting Convertible Series A $25 Preferred Stock
("Preferred Stock").
Shareholders entitled to vote
Each share of Common Stock entitles the holder to one vote on each matter
presented for consideration at the meeting.
Each share of Preferred Stock entitles the holder to one vote on the
proposed amendment to our Certificate of Incorporation that will reclassify the
Preferred Stock. Holders of Preferred Stock will have no right to vote on the
other matters presented for consideration at the meeting.
Holders of Class A Common may attend the meeting, but will have no right
to vote on any matters presented for consideration at the meeting.
Quorum requirements
On the date of this Proxy Statement, 14,828,333 shares of Common Stock
were issued, outstanding and entitled to vote. The required quorum for the
meeting is a simple majority of our outstanding Common Stock. Stirling Corporate
Services LLC ("Stirling"), the registered owner of 9,600,000 shares of Common
Stock, has advised that one of its' officers will attend the meeting. Therefore
the presence of a quorum is assured.
While a simple majority of the outstanding Common Stock will constitute a
quorum for the meeting, the proposed reclassification of our Preferred Stock
cannot be considered unless the holders of a two-thirds majority of our
outstanding Preferred Stock are also present in person or represented by proxy.
We have been advised that the holders of a two-thirds majority of our
outstanding Preferred Stock intend to submit proxies for the meeting.
Vote required
Directors will be elected by a plurality of the votes cast at the
meeting. The proposed amendment that will reclassify our Preferred Stock into
Common Stock must be approved by:
o The holders of a majority of our outstanding Common Stock, voting separately
as a class; and
o The holders of a two-thirds majority of our outstanding Preferred Stock,
voting separately as a class.
The holders of a majority of our outstanding Common Stock can approve the
other proposed amendments. Proposals that do not amend our Certificate of
Incorporation be decided by a simple majority of the votes cast.
Proxies and voting
A form of proxy is enclosed. If properly executed and received in time
for voting, your proxy will be voted in accordance with your instructions. If
you fail to give specific instructions on one or more matters, your proxy will
be voted in favor of all proposals. All stockholders who submit a proxy will be
counted as present for purposes of determining the existence of a quorum.
Sending in a signed proxy will not affect your right to attend the
meeting nor will it preclude you from voting in person because the proxy is
revocable at any time before the proxy is exercised. Any shareholder who signs a
proxy has the power to revoke that proxy by giving written notice of revocation
to the Secretary of the Company; by filing a later-dated proxy with the
Secretary of the Company; or by appearing in person at the meeting and making a
written demand to vote in person.
Under Delaware law, the act of "voting" does not include recording the
fact of abstention, regardless of whether the person entitled to vote
characterizes the conduct as voting. Nevertheless, the legal effect of an
abstention varies depending on the nature of the proposal:
o The proposed amendments to our Certificate of Incorporation must
be approved by a majority of the shares entitled to vote.
Therefore, abstentions on our amendment proposals will ordinarily
have the same effect as a No vote.
o All other matters must be approved by a majority of the shares
voted. Therefore abstentions on our other proposals will
ordinarily be disregarded in the final tabulation.
A broker non-vote occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not have
discretionary voting power for that particular item and has not received
instructions from the beneficial owner. Broker non-votes, if any, will have the
same general effect as abstentions.
Voting by Stirling
Stirling owns 9,600,000 shares of Common Stock, and those shares will be
counted in determining whether a quorum is present, Nevertheless, Stirling will
not exercise independent voting authority with respect to its' shares until our
company has completed a business combination with a private company. Instead,
Stirling will vote its shares in accordance with a majority of the votes cast
for or against each proposal by stockholders who were not officers, directors or
affiliates of our company on January 31, 1987. Stirling will not consider
abstentions and broker non-votes in its determination of the votes cast for or
against a proposal.
In connection with each stockholder vote, Stirling will refrain from
voting its shares until the votes cast by previously unaffiliated stockholders
have been tallied. When the results of the preliminary stockholder vote are
known, Stirling will vote all of its shares in accordance with the wishes of the
majority. Since all of the shares held by Stirling will be voted as a single
block, each proposal will ultimately be approved or rejected by the holders of a
majority of our outstanding Common Stock.
Rejection of proposals
If the proposals that will be considered at the meeting are not approved,
the company intends to abandon the restructuring plan and liquidate in
accordance with Delaware law. In such an event, it is unlikely there would be
any remaining assets available for distribution to the stockholders.
SPECIAL INSTRUCTIONS FOR
BROKERAGE FIRMS, CUSTODIANS AND OTHER NOMINEES.
In connection with this proxy solicitation, we have made reasonable
efforts to ascertain the identities and mailing addresses of the beneficial
owners of our securities that are held in "street name" or other custodial
accounts. Our transfer agent, the Depository Trust Company and ADP Proxy
Services have encouraged brokerage firms and other custodians to analyze their
client accounts for the purpose of restoring positions in our securities that
were previously written off as worthless. Nevertheless, experience has shown
that brokerage firms and custodians are not always able to readily identify and
communicate with the beneficial owners of securities that have been written off.
Accordingly, there is no assurance that the beneficial owners of securities held
in custodial accounts will receive this proxy statement in a timely manner.
Based on a review of the applicable SEC regulations and discussions with
our transfer agent, DTC, ADP and the proxy departments of several large
brokerage firms, we have concluded that the most appropriate response from other
custodians who hold our shares for the accounts of unidentified or unlocatable
clients will be to appear by proxy with respect to all such shares, and to
abstain from voting any shares of that are held for the accounts of unidentified
or unlocatable clients. If custodians follow this procedure, we believe that (i)
custodians will not be required to exercise authority on behalf of unidentified
or unlocatable clients, and (ii) the ultimate decision making authority with
respect to the proposals included in this proxy statement will be vested in a
majority of the identifiable and locatable owners of our securities who receive
actual notice of the meeting and vote on the proposals set forth herein.
Brokerage firms and other custodians are urged to appear by proxy with
respect to all of our equity securities that are held by them for the benefit of
clients, but to refrain from voting any equity securities that are held for the
account of unidentified or unlocatable clients. This action will help assure the
presence of a quorum and vest the ultimate decision making authority in those
holders of our equity securities who receive actual notice of the meeting and
vote with respect to the proposals set forth herein.
CORPORATE BACKGROUND INFORMATION
Introduction
Our company was incorporated in Delaware in March 1982. In July 1983, we
completed an initial public offering of Common Stock that was registered on Form
S-18. In May 1984 we filed a Form 8-A to register our Common Stock under the
Securities Exchange Act of 1934 (the "Exchange Act"). In April 1986, we
completed a second public offering of Class A Common and Convertible Preferred
Stock that was registered on Form S-1.
We conducted our business through of a chain of 15 retail stores that
sold educational toys and related goods and services. After encountering
financial difficulties, we filed a voluntary petition under Chapter 11 of the
Bankruptcy Act on April 24, 1987 in the U.S. Bankruptcy Court for the Eastern
District of New York, (case no. 887-70613). On May 11, 1988, we converted our
Chapter 11 case into a Chapter 7 case, which resulted in the liquidation of our
business. In connection with the conversion of our Chapter 11 case to a Chapter
7 case, all of our properties were transferred to the trustee on May 11, 1988
and we terminated our business operations. Our Chapter 7 case was closed by an
order of the Court on April 14, 1992 and the trustee was discharged.
Since, we did not file franchise tax returns with or pay any franchise
taxes to the State of Delaware during the pendancy of our bankruptcy case, our
Certificate of Incorporation was revoked by order of the Secretary of State of
the State of Delaware on March 1, 1989.
While our former management did not file a Form 15 to terminate our
reporting obligations under the Exchange Act, we did not file any of the
documents or reports required by Sections 13 or 15(d) of the Exchange Act
between May 1988 and July 2002. As a result, we remained subject to the
reporting requirements of the Exchange Act but were delinquent in our SEC
reporting obligations.
On April 18, 2002, Karen H. Mounts and Stirling Corporate Services, LLC
("Stirling"), commenced a civil action in the Delaware Court of Chancery
demanding an annual meeting of the stockholders. On May 20, 2002, the Court of
Chancery, acting in accordance with ss.211 of the General Corporation Law of
Delaware, ordered an annual meeting of our company's stockholders. The meeting
was duly noticed in accordance with the order of the Court of Chancery and held
in Wilmington Delaware on June 18, 2002.
The Court of Chancery order provided that notwithstanding the quorum
requirements of our bylaws, the stockholders who attended the meeting in person
would constitute a quorum for the election of directors. Two stockholders who
collectively owned a total of 1,050 shares of Common Stock attended and
participated in the meeting. The only action taken at the meeting was the
election of three new directors who assumed office immediately after the
meeting. The following table identifies our newly elected directors:
Name Age Residence
Sally A. Fonner 53 Dunedin, Florida
Michael Manion 52 Apopka, Florida
Robert R. Williams 72 Bowie, Maryland
A meeting of the newly elected board of directors was called and held
immediately after the completion of the stockholders meeting. At this meeting,
the newly elected board voted to revive and restore our Certificate of
Incorporation in accordance with Delaware law; and to adopt amended and restated
by-laws for our company that expressly authorize a single-member board of
directors. Then, Messrs. Manion and Williams resigned from the board and Ms.
Fonner, acting as our sole remaining director, took the following additional
actions:
o She determined that it was in the best interest of our company and
our stockholders to sell 9,600,000 shares of Common Stock and
1,400,000 shares of Class A Common to Stirling for a total
consideration of $30,000, consisting of $6,724 in cash and a
release of Stirling's claims for $23,276 in out-of-pocket costs
associated with obtaining the Court order and holding the meeting;
o She determined that it was in the best interest of our company and
our stockholders to file certain reports and other documents under
the Exchange Act; and
o She determined that it was in the best interest of our company and
our stockholders to develop a plan to restructure our company as a
public shell that would subsequently seek to engage in a merger or
other business combination with a private company that wants to
become publicly held.
We filed a Certificate of Revival and Restoration of the company's
Certificate of Incorporation with the Secretary of State of the State of
Delaware on June 27, 2002. As a result, the company is now duly organized,
validly existing and in good standing under the laws of the State of Delaware.
On July 3, 2002, we filed an omnibus report on Form 10-K as of May 11, 1988 and
for the fiscal years ended January 31, 1989 through 2002. Our omnibus report on
Form 10-K and other SEC filings cannot wholly expunge our earlier delinquencies.
Moreover, we will not be considered "current" with respect to our Exchange Act
reporting obligations until we have filed all necessary reports for a period of
one-year.
Security Ownership of Certain
Beneficial Owners and Management
On June 30, 2002, our outstanding equity securities included 5,228,333
shares of voting Common Stock; 1,767,550 shares of non-voting Class A Common and
164,450 shares of non-voting Preferred Stock.
On July 2, 2002, we sold 9,600,000 shares of Common Stock and 1,400,000
shares of Class A Common to Stirling for an aggregate consideration of $30,000,
consisting of $6,724 in cash and a release of Stirling's claims for $23,276 in
out-of-pocket costs associated with holding our June stockholders' meeting. As a
result, Stirling currently owns 64.74% of our Common Stock and 44.20% of our
Class A Common. Stirling does not own any shares of our Preferred Stock. Sally
A. Fonner, an officer and principal stockholder of Stirling, also serves as the
president and sole director of our company.
We have 14,828,333 shares of Common Stock outstanding on the date of this
proxy statement. The following table presents certain information regarding the
beneficial ownership of our Common Stock by (i) each person known to own more
than 5% of such securities, (ii) each of our directors, and (iii) all directors
and officers as a group. Unless otherwise noted, we believe that each of
identified stockholders has sole investment and voting power with regard to the
securities listed opposite his name.
<table>
<caption>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Bernard Tessler (1) 2,548,000 16.51%
Stirling Corporate Services LLC (2) 9,600,000 64.74%
Sally Fonner (2)(3) 9,600,000 64.74%
All officers & directors as a group 9,600,000 64.74%
(1) 310 East Shore Road, Great Neck, New York 11023
(2) 1407 North Fort Harrison, Suite F, Clearwater, Florida 33755.
(3) Sally A. Fonner, the president and sole director of our company, is an
officer and principal stockholder of Stirling and may be deemed to be a
beneficial owner of the shares held by Stirling.
SUMMARY DESCRIPTION OF PLAN
Outstanding capital stock
At the date of this proxy statement, our outstanding capital stock
consists of:
o 14,828,333 shares of Common Stock ("Common Stock");
o 3,167,550 shares of non-voting Class A Common Stock ("Class A Common"); and
o 164,450 shares of non-voting Convertible Series A $25 Preferred Stock
("Preferred Stock").
Reasons for restructuring proposal
We believe the existence of three classes of equity securities will
significantly impair our company's utility as a public shell. We also believe a
total capitalization of less than 20,000,000 shares is very important for a
small public company. Since the owners of a suitable Target will typically want
to own 90% to 95% of the stock of the combined companies, we believe it will be
necessary to affect a reverse split of approximately 1 for 60 to properly
position our company as a viable public shell.
In connection with their evaluation of our stockholder list, our new
management team discovered that a simple reverse split of 1 for 60 would leave
our company with approximately 30 "round lot" stockholders (i.e. persons who own
more than 100 shares) and over 900 "odd lot" stockholders (i.e. persons who hold
less than 100 shares). We believe that an inordinately high percentage of odd
lot holders would be very undesirable to potential targets because odd lot
holders:
o Are not counted as "stockholders of record" for market listing purposes;
o Are frequently unable to sell their shares in the OTC or Nasdaq markets;
and
o Significantly increase a company's mailing and communication costs.
Therefore our new management team decided that the best solution would be
to propose a three-step reverse-split and amendment process that will eliminate
the odd lot stockholder problem; establish a reasonable authorized capital
structure for the company; and simplify, update and restate our Certificate of
Incorporation.
Procedural details of restructuring proposal
As the first step in our restructuring process, we propose to amend our
Certificate of Incorporation to:
o Increase our authorized capital stock to 50,000,000 shares of $.002 par
value Common Stock and 5,000,000 shares of $1.00 par value preferred stock;
o Convert our outstanding Class A Common into voting Common Stock; and
o Convert our outstanding Preferred Stock into voting Common Stock.
Upon completion of the first step in the restructuring process, our company will
have a single class of securities outstanding and all of our stockholders will
own voting Common Stock.
As the second stage of our restructuring plan, we propose to amend our
Certificate of Incorporation to implement a reverse split of our outstanding
Common Stock in the ratio of 1 share for every 6,000 shares presently
outstanding. We will not purchase fractional shares for cash or issue scrip to
the holders of fractional shares. Instead, all calculations that would result in
the issuance of a fractional share will be rounded up to the next highest whole
number. Upon completion of the second step in the restructuring process, every
record stockholder will own at least one whole share.
As the third stage of our restructuring plan, we propose to amend our
Certificate of Incorporation to implement a 100 for 1 forward split of the
shares outstanding upon completion of the second step. Upon completion of the
third step, every record stockholder will own at least one hundred shares of New
Common and our company will have a total of 502,300 shares of New Common
outstanding.
Vote required to approve proposals
Proposal to reclassify Preferred Stock. The proposal to reclassify our
outstanding Preferred Stock will materially and adversely affect the rights of
the holders. Accordingly, the holders of a majority of those shares, voting
separately as a class, must approve the proposed reclassification. The holders
of a majority of our Common Stock, voting separately as a class, must also
approve the proposed reclassification of the Preferred Stock. If either class of
stockholders withholds their consent, the proposed reclassification cannot
occur.
All other proposals. Since the proposals to increase our authorized
capital; reclassify our Class A Common; implement a 1 for 6,000 reverse split;
and implement a 100 for 1 forward split will not adversely affect the rights of
any other class of stockholders, the holders of a majority of our Common Stock
will be able to approve the proposals without the consent of any other class of
stockholders.
Effect of restructuring proposal on certain stockholders
The implementation of a reverse split followed by a forward split does
not treat all stockholders equally. If we were to reclassify the Class A Common
and Preferred Stock and then affect a simple 1 for 60 reverse split, our company
would have 412,444 shares outstanding. However, since we propose to implement a
1 for 6,000 reverse split followed by a 100 for 1 forward split, our company
will have 502,300 shares of New Common outstanding. Substantially all of the
benefit arising from this procedure will inure to the benefit of stockholders
who currently own fewer than 6,000 shares and would become odd lot stockholders
if a simple 1 for 60 reverse split were implemented. The following table
illustrates the impact of this procedure on our principal stockholders.
<table>
<caption>
Common Class A Preferred Pre-restructuring New Common
Stock Stock (1) Stock (2) Total Percent Shares Percent
Bernard Tessler 2,448,000 2,448,000 9.89% 40,900 8.14%
Cede & Co. (3) 1,763,932 1,529,485 5,834,752 9,128,169 36.89% 152,200 30.30%
Stirling Corporate Services 9.600,000 1,400,000 11,000,000 44.45% 183,400 36.51%
</table>
(1) Based on a one for one reclassification of the Class A Common.
(2) Based on 164,450 outstanding shares of Preferred Stock and the current
conversion ratio of 41.05 shares of Class A Common for
each share of Preferred Stock.
(3) Under Delaware law, Cede & Co. and other depository institutions will be
treated as a single stockholder. Therefore, the beneficial owners of
shares held by Cede & Co. and other depository institutions will suffer
the same level of dilution as our principal stockholders.
Stirling and our company's other large stockholders will bear the bulk of
the dilution associated with our proposed restructuring procedures.
Nevertheless, our new management team believes that the advantages of having a
large number of "round lot" stockholders justify the disproportionate benefit to
be derived by our company's smaller stockholders.
COMPENSATION TO STIRLING, MS. FONNER AND CONSULTANTS
We will incur a variety of direct operating expenses including the fees
charged by our transfer agent and auditors, the costs of communicating with our
stockholders and the costs of maintaining an information website for our
stockholders and other interested parties. Our company will also be obligated to
reimburse Stirling, Ms. Fonner, our legal counsel and certain consultants for
the out-of-pocket expenses they incur on our behalf. There is no limit on the
amount of allowable expense reimbursements and Ms. Fonner will have the sole
authority to review and approve of the reasonableness of such expenses.
Cash compensation. If the stockholders approve our plan, our company will
agree to pay substantial cash compensation to Stirling, Ms. Fonner, legal
counsel and certain consultants. Ms. Fonner will have the unilateral authority
to negotiate the underlying compensation agreements and her decisions will not
be subject to review by the stockholders. Since Ms. Fonner is both an officer
and principal stockholder of Stirling and the sole director of our company, the
proposed compensation arrangements summarized below present significant
potential for conflicts of interest. Notwithstanding the foregoing, Ms. Fonner
believes the proposed arrangements are fair and reasonable in light of our
limited financial resources, the speculative nature of our proposed activities
and the fact that we will not be able to pay any cash compensation unless we
negotiate a business combination with at target that is willing to pay any
accrued but unpaid compensation amounts.
The following table summarizes the cash compensation our company will
agree to pay to Stirling, Ms. Fonner, legal counsel and consultants.
Summary of Cash Compensation and Other Payments
Monthly Annual One-time Two-year
Stirling Corporate Services (2)(3) amount amount payments Total (1)
Administrative fees $5,000 $60,000 $120,000
Out-of-pocket expenses actual actual actual
Sally A. Fonner (2)(4)
Officer's and Directors' fees $10,000 $120,000 $240,000
Out-of-pocket expenses actual actual actual
Legal Counsel (5)
Fees and expenses of Delaware counsel $10,000 $10,000
Preparation of our Form 10-K $25,000 $25,000
Preparation of our proxy statement $35,000 $35,000
Review of our future SEC reports $5,000 $60,000 $120,000
Out-of-pocket expenses actual actual actual
Other consultants and advisors (6) unknown unknown unknown unknown
Grand totals $20,000 $240,000 $70,000 $550,000
(1) Assumes that we will require a period of two years to identify a target
and close a business combination.
(2) Our agreements with Stirling and Ms. Fonner will have initial terms of
two years, provide for a fixed monthly compensation and provide for a
lump sum bonus equal to any unearned compensation if we close a business
combination before the expiration of the initial term.
(3) Stirling will provide all necessary office facilities and equipment,
manage our day-to-day operations and manage our accounting and reporting
functions. Stirling has agreed to carry the bulk of its fees as an
account receivable until we complete a business combination.
(4) Ms. Fonner has agreed to carry the bulk of her fees as an account
receivable until we complete a business combination. (5) Petersen &
Fefer, the law firm that will represent us in connection with certain
SEC matters, has agreed to carry the bulk of their fees as an account
receivable until we complete a business combination.
(6) I In light of our limited financial resources, we are unlikely to enter
into consulting or advisory agreements that require the payment of
substantial cash fees.
We are unlikely to enter into a business combination with a potential
target that is unwilling to pay all or at least a substantial portion of the
accrued cash compensation to Stirling, Ms. Fonner, legal counsel and third party
consultants. With the exception of their accrued compensation, Stirling, Ms.
Fonner and their respective affiliates will not receive any direct or indirect
compensation from a target, or any officer, director, affiliate or associate of
a target in connection with a business combination. While a target may decide to
retain Stirling, Ms. Fonner or one or more of their respective affiliates to
provide future services for the combined companies, Stirling, Ms. Fonner and
their respective affiliates cannot require a target to enter into such an
agreement as condition of a proposed business combination.
Stock based compensation. If the stockholders approve our plan, our
company will agree to issue up to 300,000 shares of New Common to Ms. Fonner,
legal counsel and consultants as partial compensation for services. Ms. Fonner
will have the unilateral authority to negotiate the underlying compensation
agreements and her decisions will not be subject to review by the stockholders.
Since Ms. Fonner is both an officer and principal stockholder of Stirling and
the sole director of our company, the proposed compensation arrangements
summarized below present significant potential for conflicts of interest.
Notwithstanding the foregoing, Ms. Fonner believes the proposed arrangements are
fair and reasonable in light of our company's limited financial resources, the
speculative nature of our proposed activities and the speculative value of our
New Common.
The following table summarizes the stock based compensation our company
will agree to pay to Stirling, Ms. Fonner, legal counsel and consultants.
Summary of Stock-based Compensation
Monthly Annual One-time Two-year
amount amount payments Total (1)
Sally A. Fonner
Officer's and Director's fees 5,000 60,000 120,000
Legal Counsel
Preparation of our Form 10-K 30,000 30,000
Preparation of our proxy statement 40,000 40,000
Review of our future SEC reports 1,250 15,000 30,000
Other consultants and advisors 80,000
Grand totals 6,250 75,000 70,000 300,000
(1) Assumes that we will require a period of two years to identify a target
and close a business combination.
(2) Our agreement with Ms. Fonner will have an initial term of two years,
provide for a fixed monthly compensation and provide for a lump sum bonus
equal to any unearned compensation if we close a business combination
before the expiration of the initial term.
The shares of New Common specified in the table will be issued in
transactions that are exempt from registration under ss.4(2) of the Act. When we
negotiate a business combination, the underlying agreements may require the
combined companies to register the resale of those securities under the Act. In
the absence of such a registration rights agreement, the recipients of the
shares specified in the table will be required to rely on Rule 144 or another
exemption from registration if they wish to resell their shares.
Additional stock sales to Stirling. Stirling paid $6,724 in cash and
released reimbursement claims for $23,276 in out-of-pocket costs when it
purchased 9,600,000 shares of Common Stock and 1,400,000 shares of Class A
Common. Based on current estimates, we believe our company will need
approximately$30,000 in additional cash to pay the out-of-pocket costs
associated with conducting the meeting and implementing our business plan. Until
the meeting date, Stirling intends to advance funds to our company on an
as-needed basis. If the stockholders approve our plan, Stirling will make an
additional lump-sum contribution to our company in an amount sufficient bring
its' total additional contribution up to $30,000. In return for these additional
cash contributions, Stirling will be entitled to receive 250,000 shares of New
Common. The $0.12 per share cash price that Stirling will pay for these
additional shares is equal to the original par value of our Common Stock. Since
the market value of our New Common may be more than $0.12 per share after
meeting, the additional stock sale to Stirling may be viewed as a related party
transaction that confers a compensatory benefit.
Brokerage commissions and finder's fees. We have no cash resources that
can be used to pay brokerage commissions or finders' fees associated with a
business combination. In addition, if we agree to pay stock-based brokerage
commissions or finders' fees, those stock issuances will reduce the number of
shares of New Common that would otherwise be available to the owners of a
target. Under these circumstances, we believe the target must bear the ultimate
responsibility for all decisions respecting the payment of brokerage commissions
and finders' fees and our company not enter into any binding agreements without
the express consent of the target.
We will not pay brokerage commissions, finders' fees or similar
compensation to Stirling, Ms. Fonner or any of their respective employees and
affiliates. Our company and our officers will not pay any finders' fees,
commissions or similar compensation to persons who are not duly licensed
broker-dealers without first obtaining an opinion of legal counsel that
broker-dealer registration is not required under the circumstances.
PROPOSED OPERATIONS
If the stockholders approve the plan described in this proxy statement,
we believe it may be possible to recover some stockholder value by restructuring
the company as a public shell that will then attempt to negotiate a business
combination transaction with a suitable privately held company.
If our stockholders approve the plan, we will seek, investigate and, if
the results of such investigation warrant, effect a business combination with a
suitable privately held company or other business opportunity. Our proposed
operations are sometimes referred to as a "blind pool" because our stockholders
will not ordinarily have an opportunity to analyze the various business
opportunities presented to us, or to approve or disapprove the terms of any
business combination transaction that we may negotiate. Consequently, our
potential success will be primarily dependent on the efforts and abilities of
our new management team, who will have virtually unlimited discretion in
searching for, negotiating and entering into a business combination transaction.
Our new management team anticipates that the selection of a business
opportunity will be complex and extremely risky. Because of general economic
conditions, rapid technological advances being made in some industries and
shortages of available capital, our new management team believes that there are
numerous privately held companies seeking the perceived benefits of becoming a
publicly held corporation. Such perceived benefits may include facilitating debt
financing or improving the terms on which additional equity may be sought,
providing liquidity for the principals of the business, creating a means for
providing stock incentives or similar benefits to key employees, providing
liquidity for all stockholders and other factors.
Potential business opportunities may occur in many different industries
and at various stages of development, all of which will make the task of
comparative investigation and analysis extremely difficult and complex. Our new
management team believes we will only be able to participate in one business
venture. This lack of diversification should be considered a substantial risk
because it will not allow us to offset potential losses from one venture against
gains from another. Moreover, since we do not have any financial, managerial or
other resources, our new management team believes we will not be viewed as a
suitable business combination partner for either developing companies or
established business that currently need substantial additional capital.
Our new management team believes our company will offer owners of a
suitable privately held company the opportunity to acquire a controlling
ownership interest in a public company:
o In less time than would be required for a traditional IPO;
o For less out-of-pocket cost than would be required for a traditional IPO;
and
o With a greater degree of certainty that the transaction will ultimately close.
Nevertheless, the owners of any target that we select will incur significant
costs and expenses, including the costs of preparing the required business
combination agreements and related documents, the costs of preparing a Current
Report on Form 8-K describing the business combination transaction and the costs
of preparing the documentation associated with future reporting under the
Exchange Act.
Sally A. Fonner, our president and sole director, has previously served
as the sole officer and director of five inactive public shells that effected
business combinations with private companies. In each of these transactions, the
combined companies have only qualified for quotation on the OTC Bulletin Board,
trading has not been active, liquid or sustained and the market prices have been
volatile. Even if we negotiate and close a business combination, an active,
liquid, stable and sustained public market for our shares may never develop.
Stockholders are encouraged to independently review the available information on
Ms. Fonner's prior transactions.
While our new management team believes our company will be able to enter
into a business combination transaction within 12 months, there can be no
assurance as to how much time will elapse before a business combination is
effected, if ever. We will not restrict our search to any specific business,
industry or geographical location, and our company may participate in a business
venture of virtually any kind or nature. We may not, however, enter into a
business combination with a target that is otherwise an affiliate of Stirling or
Ms. Fonner.
Acquisition opportunities
In implementing a particular business combination transaction, our
company may become a party to a merger, consolidation, reorganization, joint
venture, franchise or licensing agreement with another corporation or entity. We
may also purchase stock or assets of an existing business. After the
consummation of a business combination transaction, it is likely that our
present stockholders will only own a small minority interest in the combined
companies. In addition, as part of the terms of the acquisition transaction, all
of our current officers and directors will ordinarily resign and be replaced by
new officers and directors selected by the target. Our new management team does
not intend to obtain stockholder approval before consummating any acquisition
other than a statutory merger.
In connection with our investigation of potential business opportunities,
our new management team will ordinarily meet personally with the management and
key personnel of potential targets. They may also visit and inspect material
facilities, check the references of management and key personnel, and take other
reasonable investigative measures. Since the financial and other resources of
our company will be limited, our new management team is not likely to obtain
independent analysis or verification of the information provided by a potential
target
The terms of any business combination we may negotiate in the future will
depend on the nature of the opportunity, the needs and desires of the target and
its owners, and the relative negotiating strength of our company and the other
parties to the proposed transaction. In negotiating the terms of a potential
business combination, our management team will ordinarily focus on the
percentage of the combined companies' stock that will be held by the owners of
the target upon completion of the transaction. While our management team will
endeavor to maximize the total value to our current stockholders, it is likely
that the owners of the target will want to own 90% to 95% of the outstanding
stock the combined companies upon completion of the transaction. Therefore, any
business combination will likely have a significant dilutive effect on the
voting power held by our current stockholders. Stirling and Ms. Fonner may, but
do not presently intend to sell any portion of their shares in connection with a
business combination. If Stirling or Ms. Fonner ultimately decide to sell shares
in connection with a business combination, the selling price of such shares may
not represent a premium to the per share value received by our company.
Upon completion of a business combination transaction, there can be no
assurance that the combined companies will have sufficient funds to undertake
any significant development, marketing and manufacturing activities.
Accordingly, the combined companies may be required to either seek additional
debt or equity financing or obtain funding from third parties, in exchange for
which the combined companies might be required to issue a substantial equity
position. There is no assurance that the combined companies will be able to
obtain additional financing on terms acceptable to the combined companies.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision were made not to participate in a specific business
opportunity the costs incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached for the participation
in a specific business opportunity, the failure to consummate that transaction
may result in the loss of the related costs incurred.
If our company issues securities in connection with a business
combination, we will probably do so in reliance on exemptions from registration
under applicable Federal and state securities laws. In some circumstances,
however, as our company may agree to register such securities either at the time
the transaction or at some specified time thereafter. The issuance of
substantial additional securities and their potential sale into any trading
market that may develop may have a depressive effect on such market.
While the terms of a future transaction cannot be predicted, it is likely
that the parties to the business transaction will want to avoid a taxable event.
Therefore, the most likely transaction format would be an acquisition structured
as a tax-free reorganization under Sections 368(a)(1) or 351 of the Internal
Revenue Code of 1986, as amended (the "Code"). In order to obtain tax-free
treatment under the Code, it may be necessary for the owners of the acquired
business to own at least 80% of the voting stock of the surviving entity. In
such event, our current stockholders would retain less than 20% of the combined
companies. We intend to structure any business combination in such manner as to
minimize Federal and state tax consequences to the target.
NASDAQ listing requirements
We believe the most likely business combination structure will involve a
"reverse takeover" where we issue shares of New Common in exchange for the
assets or outstanding stock of a target. Upon the completion of a reverse
takeover, we expect that the former stockholders of the target will likely own a
substantial majority interest in the combined companies. Since the ongoing costs
and expenses associated with reporting under the Exchange Act can be a
significant burden for a small company, we believe that larger established
companies are better suited to shell transactions than small entrepreneurial
companies. Moreover, a substantial business combination transaction will be
required to satisfy the minimum listing standards for Nasdaq. Since the size of
the target will, in large part, determine the market where the securities of the
combined entity will qualify for listing, we intend to use all reasonable
commercial efforts to identify and negotiate with the largest possible business
combination candidates
The following table summarizes the recently adopted quantitative listing
standards for companies that want to list their securities on Nasdaq:
[GRAPHIC OMITTED]
We have approximately 1,000 record stockholders and we will not negotiate
a business combination transaction on terms that would result in the combined
companies having a public float of less than 1,000,000 shares. While we will
endeavor to negotiate a business combination with a target that has sufficient
operating history, stockholders' equity and net income to satisfy the Nasdaq
listing standards, there is no assurance that our efforts will be successful.
Moreover, Nasdaq requires an established trading history of 90 days at a price
that exceeds the minimum bid price requirement before it will consider a listing
application. Therefore, the combined companies' shares will have to begin
trading on the OTC Bulletin Board, the Pink Sheets or the proposed BBX, and wait
to apply for a Nasdaq listing until all applicable listing standards are met.
Under the circumstances, there is no assurance the combined companies' shares
will ever qualify for Nasdaq.
Stock issuance for a business combination
The determination of the number of shares of New Common to be issued in
connection with a business combination is not an exact science and entails a
great deal of subjective business judgment. In arriving at an optimal capital
structure for a business combination transaction, our board will ordinarily
evaluate the strengths, weaknesses and growth potential of a target against
similarly situated publicly held companies in the same market segment. Based on
this analysis, our board will then attempt to estimate the stabilized market
capitalization that the combined companies can expect to achieve under
reasonably foreseeable circumstances. This value will then be risk weighted by
an appropriate factor and used to determine the number of shares of New Common
that can be issued by our company. In the case of a target that can only
reasonably expect a stabilized market capitalization of $20 million to $25
million, the number of shares of New Common issuable to the owners of the target
will be much smaller than would be the case if the target could reasonably
expect a stabilized market capitalization of $100 million. The following table
reflects the potential future ownership of our company under three possible
business combination scenarios:
80% to Target 90% to Target 95% to Target
Shares Percent Shares Percent Shares Percent
Original stockholders (1) 318,900 6.06% 318,900 3.03% 318,900 1.52%
Original Stirling stock purchases 183,400 3.49% 183,400 1.74% 183,400 0.87%
Additional Stirling stock purchases 250,000 4.75% 250,000 2.38% 250,000 1.19%
Compensation to Ms. Fonner 120,000 2.28% 100,000 0.95% 100,000 0.48%
Compensation to counsel and advisors (3) 180,000 3.42% 200,000 1.90% 200,000 0.95%
Target company stockholders 4,209,200 80.00% 9,470,700 90.00% 19,993,700 95.00%
--------- ------ --------- ------ ---------- ------
Total 5,261,500 100.00% 10,523,000 100.00% 21,046,000 100.00%
========= ======= ========== ======= ========== =======
(1) Assumes that all outstanding Preferred Stock will be reclassified in the
ratio of 41.05 shares of Common Stock for each share of Preferred Stock.
(2) The 9,600,000 shares of Common Stock and 1,400,000 shares of Class A
Common originally purchased by Stirling will be converted into 183,400
shares of New Common.
(3) Stirling will purchase 250,000 additional shares of New Common for
$30,000 in cash that will be used to pay the costs of holding the meeting
and implementing our business plan.
(4) Ms. Fonner will receive 100,000 shares of New Common as compensation for
services rendered.
(5) We will issue up to 200,000 shares of New Common to our legal counsel and
advisors as compensation for services rendered.
The potential business combination scenarios set forth above are only
intended to serve as examples of the range of business combination transactions
will be permissible under the Plan and it is possible that the final terms of a
business combination may fall outside of the range presented. Since Stirling and
Ms. Fonner have not yet identified a target, or commenced any discussions or
negotiations with the owners thereof, it is impossible to predict the ultimate
structure of a future business combination or to quantify the ultimate interest
of our original stockholders in the combined companies.
Future disclosure respecting a business combination
Our Common Stock is registered under the Securities Exchange Act of 1934
and we cannot conclude a business combination with a company that is unable to
provide audited financial statements for the periods specified in the applicable
SEC regulations. This requirement will limit our pool of potential targets and
may make it impossible for us to implement our business plan.
In most cases, we will not provide detailed information on a proposed
business combination to our stockholders or request stockholder approval of a
proposed transaction. Within 15 days after the closing of a business
combination, the combined companies will be required to file a Form 8-K that
discloses the terms of the transaction and provides the audited financial
statements and other information specified by Form 8-K.
In a letter dated April 7, 2000, the SEC's Office of Small Business
advised the NASD that the SEC would raise no objection to "back-door"
registrations involving public shells if the combined companies could provide
"some minimally acceptable level of information." The letter then went on to
explain that while disclosure comparable to a Form 10 or Form 10-SB is
preferable, the term "minimally acceptable" means complete audited and pro forma
financial statements, which must be filed on Form 8-K within 15 days of the
transaction.
After discussing the minimal requirements for a Form 8-K succession
transaction, the SEC went on to explain that their policy was to subject "back
door" filings on Form 8-K to the same standards of review and comment as filings
on Form 10 and Form 10-SB.
While the contents of the disclosure provided by the combined companies
will be the province of successor management, we believe the interests of our
stockholders will be best served if the combined companies file a Form 8-K
containing information that is substantially equivalent to the information that
would be included in a Form 10 or Form 10-SB registration statement. We will
endeavor to negotiate contractual provisions that require the combined companies
to make such a filing, but we can provide no assurances respecting the quality
or timeliness of the future SEC reports filed by successor management.
Our proposed activities are not subject to SEC Rule 419 because we are
not offering stock to the public in an offering that has been registered under
the Securities Act. Therefore, our stockholders and the owners of potential
targets are not entitled to the substantive protection provided by Rule 419.
RISK FACTORS
The plan involves a high degree of risk. Stockholders should carefully
consider the following factors, among others, before executing the Proxy Card
enclosed herewith.
Capital restructuring procedures. The procedures that we intend to use in
connection with the proposed capital restructuring do not treat all stockholders
equally. If we were to affect a simple 1 for 60 reverse split, our company would
have a total of 412,444 shares outstanding. As a direct result of the
three-stage restructuring process, however, we will have 502,300 shares of New
Common outstanding. Substantially all of the economic benefit arising from our
proposed capital restructuring procedures will inure to the benefit of
stockholders who own fewer than 6,000 shares and would become odd lot
stockholders if a simple reverse split were implemented.
No recent operating history. We have no assets, liabilities, management
or ongoing operations and we have not engaged in any business activities for
over 14 years. Even if the stockholders approve the plan, there can be no
assurance that we will be able to acquire a target or that the combined
companies will be profitable. While Stirling and its affiliates, employees and
advisors have had limited experience in similar shell transactions, we have no
recent operating history that stockholders can consider in making an informed
judgment regarding the merits of our plan. Stockholders will probably not be
given the opportunity to pass upon the merits of any target that is ultimately
selected.
No specific acquisition plans. We have made no specific acquisition plans
and no specific industry or type of business has been selected for investment.
None of our officers, directors or promoters, or their respective employees
affiliates and associates, have had any preliminary contact or discussions with
any representatives of the owners of any business or company regarding the
possibility of a business combination transaction There is no assurance that we
will possess the experience and skills necessary to make an informed judgment
about a particular target. Accordingly, our proposed operations involve an
extremely high degree of risk.
Blind pool. Our proposed business is frequently referred to as a blind
pool because neither our management nor our stockholders know what the business
of our company may ultimately be. Stockholders will not usually have an
opportunity to evaluate the merits of a proposed target and they must rely upon
management to identify a target and negotiate the terms of a business
combination. We will probably not give stockholders an opportunity vote on a
proposed business combination. Moreover, if we implement a business combination
as a "reverse takeover" transaction stockholders will not receive complete
disclosure on the business and financial affairs of the target until the
combined companies file their Annual Report on Form 10-K for the year of the
transaction. Nevertheless, the combined companies will be required to file a
Form 8-K and disclose limited information concerning the acquisition, including
financial information on the target, within 15 days after the closing of the
acquisition.
Limited assets. We have no material assets and we are not likely to
acquire any substantial assets other than the assets of a target. Any business
activity we eventually undertake will require substantial capital. Since we do
not know which type of business our company will acquire or the capital
requirements for such business, there can be no representations respecting the
future capital needs of our company.
Intense competition. A large number of established and well-financed
entities, including venture capital firms, have recently increased their merger
and acquisition activities, especially among companies active in high technology
fields. Nearly all such entities have significantly greater financial resources,
technical expertise and managerial capabilities than the company and,
consequently, the company will be at a competitive disadvantage in identifying
suitable acquisition candidates and concluding a business combination
transaction.
Experience of Stirling. Sally A. Fonner, our president and sole director,
has previously served as the sole officer and director of five inactive public
shells that effected business combinations with private companies. In each of
these transactions, the combined companies have only qualified for quotation on
the OTC Bulletin Board, trading has not been active, liquid or sustained and the
market prices have been volatile. Even if we negotiate and close a business
combination, an active, liquid, stable and sustained public market for the
combined companies' shares may never develop. Stockholders are encouraged to
independently review the available information on Ms. Fonner's prior
transactions.
Corporate governance. Stirling owns a majority of our Common Stock and
its president Sally A. Fonner is the sole director of our company. Therefore,
our current management has both the executive and voting power to approve all
corporate actions without your consent. We do not have any independent directors
or an audit committee to review related party transactions. We do not intend to
solicit stockholder approval for a business combination. We do not intend to
comply with the corporate governance standards that would be required under
Nasdaq or BBX rules until we complete a business combination.
Dependence on part-time management. We have no full-time employees and
our success will be largely dependent on the decisions made by Stirling and its
affiliates, employees and advisors, none of whom will devote their full time to
our affairs.
Bankruptcy law considerations. The company filed a voluntary petition
under Chapter 11 of the Bankruptcy Act that was subsequently converted to a case
under Chapter 7. While this bankruptcy proceeding resulted in the sale of all
corporate assets and the use of the proceeds therefrom to pay corporate
liabilities, it did not formally "discharge" the unpaid balance of the company's
debts. While we believe that legal actions to enforce our company's prior unpaid
obligations are now barred by statutes of limitation, the existence of the
earlier bankruptcy will complicate the "due diligence" and may make it more
difficult to negotiate a business combination transaction on favorable terms.
Control of combination procedure. A combination between our company and a
target may be structured as a merger or consolidation or involve the direct
issuance of New Common in exchange for the target's stock or assets. The
Corporation Law of Delaware requires the affirmative vote of the holders of at
least a majority of our outstanding shares to approve a merger or consolidation.
Since stockholder approval is not required in connection with the issuance of
stock in exchange for stock or assets, it is anticipated that our management
will have complete control over our business combination policies and
procedures. Our management does not intend to seek a fairness opinion in
connection with any business combination transaction.
Anticipated change in control. We will issue New Common in connection
with a business combination and we expect that such a transaction will result in
a change in control. After a change in control, the owners of the target will
have the right to appoint their own management team and our current management
will not be able to influence future decisions, seek a listing for the combined
companies' shares or take any other action to promote a public market. There can
be no assurance that we will be able to negotiate appropriate after-market
support agreements or that any terms we negotiate will be effective. If
successor management does not devote sufficient time and resources to developing
and promoting a public market, you may be unable to sell your shares at any
price.
No market research. We have not conducted any market research concerning
the availability of potential targets. Therefore, we can offer no assurances
that market demand exists for a business combination of the type contemplated by
the plan. We have not identified any particular industry or specific business
within an industry for evaluation by the company. There is no assurance we will
be able to acquire a target on favorable terms.
Lack of diversification. We will probably not be able to make multiple or
sequential acquisitions. Therefore, the future success of our company will
likely be dependent on the success or failure of a single business. We may also
be subject to economic fluctuation within a particular industry.
Potential conflicts of interest. Our officers are not required to devote
any specific amount of time to our business. Each of our officers is actively
involved in other business pursuits and they will all face conflicts in
allocating their time among their various business interests. Such conflicts may
cause delays or prevent us from effecting a business combination.
Single market maker. At the date of this proxy statement, our stock is
quoted in the National Quotation Bureau's OTC Pink Sheets and we have only one
market maker. While we expect our stock to qualify for quotation on the OTC
Bulletin Board or listing on the proposed BBX upon completion of a business
combination, we have no agreement with any broker or dealer to act as a market
maker for our securities and there is no assurance that the combined companies
will be successful in obtaining an OTC Bulletin Board quotation or a BBX
listing.
No assurance of public market. There has been no public market for our
securities for over 14 years and there is no assurance that a public market will
ever develop. If a trading market does develop, it is likely to be illiquid and
volatile. Stockholders may have difficulty in selling their shares in the future
at any price.
Possible issuance of additional shares. If our stockholders approve the
plan, our Certificate of Incorporation will authorize the issuance of 50,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. All shares that
are not issued to our current stockholders will be available for any proper
corporate purposes. The plan specifically contemplates the sale of 250,000
shares of New Common to Stirling for cash and the issuance of 300,000 shares of
New Common to Ms. Fonner, our legal counsel and our advisors. It also
contemplates the issuance of an indeterminate number of shares of New Common in
connection with a business combination. After completion of a business
combination, the Board of Directors of the combined companies will have the
power to issue additional shares of Common Stock without stockholder approval.
Such issuances may result in a reduction of the book value or market price, if
any, of our outstanding securities.
Shares available for future sale. Stirling purchased 9,600,000 shares of
common stock and 1,400,000 shares of Class A Common Stock in June of this year.
If the stockholders approve our plan, Stirling's current holdings will be
converted into 183,400 shares of New Common. The plan contemplates the issuance
of 300,000 shares of New Common in compensatory transactions and the sale of
250,000 shares of New Common for cash.
On January 21, 2000, the SEC's Division of Corporate Finance issued an
interpretive letter to the OTC Compliance Unit of NASD Regulation, Inc., which
addresses seven specific practices that the SEC and the NASD have long
considered to be schemes or devices to avoid the registration requirements of
the Act. While our prior activities and our proposed stock issuances do not fall
within any of the fact patterns discussed in the NASD Regulation letter, the
SEC's staff has taken the position that the NASD Regulation letter stands for a
broader proposition that persons who may be deemed to be "promoters" of shell
companies are always underwriters who may never resell their shares in the
absence of an effective registration statement under the Act. We believe the
law; the applicable regulations; and the prior decisions of the SEC do not
support this expansive interpretation of the NASD Regulation letter.
Nevertheless, if the staff's interpretation is incorporated into the SEC's
regulations or upheld by the courts, future developments may limit the ability
of Ms. Fonner or Stirling to rely on Rule 144.
Penny stock rules. Under applicable SEC regulations, shares that are
issued by a company that has less than $5,000,000 in net tangible assets, have a
market price of less than $5 and are not listed on Nasdaq or a stock exchange
are classified as "penny stock." The penny stock regulations impose significant
restrictions on brokers who sell penny stock to persons other than established
customers and accredited investors. The combined companies' shares are likely to
be subject to the penny stock regulations, which may discourage brokers from
effecting transactions in those shares. This would decrease market liquidity,
adversely affect market price and make it difficult to use the combined
companies' shares as collateral.
MS. FONNER'S PRIOR SHELL TRANSACTIONS
Sally A. Fonner, our president and sole director, has previously served
as the sole officer and director of five inactive public companies that entered
into business combination transactions with privately held companies. In
connection with her management of each of these companies, Ms. Fonner filed the
certificates necessary to restore valid corporate existence under state law;
restored dormant relationships with transfer agents, brokerage firms and
depository institutions, filed the necessary State and Federal tax returns and
SEC reports; solicited proxies; obtained stockholder approval of plans to
restructure the business affairs, debts and capital of the companies;
implemented the stockholder approved restructuring plans; and ultimately
negotiated a business combination with a private company selected by her.
Summary information on these transactions is set forth below.
Name of combined eNote.com, Inc. Telemetrix, Inc. Liberty Group Dupont Direct Yifan
companies Holdings, Inc. Financial Communications, Inc.
Holdings, Inc.
Original name of Webcor Arnox Corporation Bio Response, Marci Smart Games
the shell company Electronics, Inc. Inc. International Interactive, Inc.
Imports, Inc.
Inactive since 1989-Bankrupt 1989-Bankrupt 1989-Bankrupt 1989-Bankrupt 1997-Insolvent
Name of target Navis Tracy Corp. II Liberty Food Wavecount, Inc. Yifan.com, Inc.
Technologies, Ltd. and Telemetrix Group, Ltd.
Resource Group
Closing date 4/7/1999 4/7/1999 11/23/1999 1/28/2000 7/31/2000
Cash Fees paid by $250,000 (3) $125,000 $75,000 $150,000 (4) $350,000
target (1)(2)
Stock held by 540,000 300,000 300,000 300,000 316,206
original public 3.60% 2.33% 4.71% 4.20% 2.43%
stockholders
Ms. Fonner's 740 (5) 87 (5) 63 (5) 111 (5) 462,500 (6)(7)
stock purchases
Stock issued to 740,000 (7)(8) 450, 000 (7)(8) 450, 000 (7)(8) 450, 000 (7)(8) 33,794 (8)(9)
Ms. Fonner and 4.93% 3.50% 7.84% 6.29% 3.82%
her advisors
Stock issued to 13,720,000 12,117,000 5,575,000 6,400,000 12,174,671
target and its 91.47% 94.17% 87.45% 89.51% 93.75%
advisors
OTC Symbol ENOT (10) TLXT LGHI (10) DIRX YIFN (10)
(1) In connection with the prior transactions, the target and/or its principal
stockholders paid cash M&A fees to Ms. Fonner and her affiliates. No M&A
fees may be paid to any of our officers or their respective affiliates.
(2) The table does not include information on the profits received by Ms.
Fonner, her affiliates and her advisors from the resale of shares held by
them. Given the nature of the relationships between Ms. Fonner and her
non-affiliated advisors, it would be impractical to provide such
information.
(3) In connection with the eNote.com transaction, $100,000 of the cash M&A fee
was paid to third-party finders.
(4) In connection with the Dupont transaction, $10,000 of the cash M&A fee was
paid to third-party finders.
(5) Before beginning her activities with respect to Webcor, Arnox, Bio
Response and Marci, Ms. Fonner purchased between 800 and
5,000 shares for nominal consideration in open market transactions. The
numbers in the table give retroactive effect to the reverse splits
implemented by these companies. Except for these initial purchases, Ms.
Fonner and her affiliates did not purchase any of the outstanding shares
and she believes that none of her advisors purchased any outstanding
shares.
(6) In March 2000, a private investor purchased a majority interest in Smart
Games by contributing $75,000 in cash to the company in exchange for
375,000 shares of Common Stock. The investor then appointed Ms. Fonner to
serve as the company's sole director. Thereafter, Ms. Fonner contributed
an additional $48,286 in cash to the company in exchange for 87,500 shares
of Common Stock. All contributed funds were used to settle the company's
debts and pay the third-party costs associated with the reorganization.
(7) The reorganization plans for Webcor, Arnox, Bio Response and Marci each
provided that Ms. Fonner and her advisors would receive newly issued
shares of Common Stock as compensation for services rendered. The numbers
presented in the table include all shares issued to Ms. Fonner and her
affiliates and advisors.
(8) The bulk of the shares issued to or purchased by Ms. Fonner and her
affiliates and advisors were ultimately allocated to unaffiliated
third-party advisors. The following summarizes the number of shares
retained by Ms. Fonner and her affiliates in connection with the
transactions identified above.
eNote.com, Inc. 180,600 shares
Telemetrix, Inc. 110,500 shares
Liberty Group Holdings, Inc. 69,520 shares
Dupont Direct Financial Holdings, Inc. 96,400 shares
Yifan Communications, Inc. 68,115 shares
(9) After the closing of the Yifan transaction, Ms. Fonner entered into a
1-year personal services contract with that company which provided for the
issuance of 180,000 additional shares of Common Stock.
(10) eNote.com, Liberty Group Holdings and Yifan Communications were ultimately
removed from the OTC Bulletin Board for failure to file their required
Exchange Act reports in a timely manner.
Stockholders are encouraged to review the available public information on
the five companies that were previously managed by Ms. Fonner. Certain
information on these companies is included in the reports that these companies
filed with the SEC both before and after their respective business combinations.
These reports can be inspected and copied at the SEC's public reference room at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004.
In addition, the SEC maintains a web site at www.sec.gov that can be used to
download copies of all such reports. The following table provides summary
document location information for stockholders that want to independently
evaluate Ms. Fonner's prior activities.
Company Name SEC Central Initial Filing Transaction Transaction Report
(Original name) Index Key Type Date Date Type Date
Telemetrix, Inc. 0000742814 Form 10-K 6/14/96
(Arnox Corporation) Proxy 6/14/96 3/22/99 Form 8-K 4/14/99
eNote.com, Inc. 0000058636 Form 10-K 12/31/96
(Webcor Electronics, Inc.) Proxy 1/3/97 4/5/99 Form 8-K 4/20/99
Dupont Direct
Financial Services, Inc. 0000807904 Form 10-K 1/2/97
(Marci International Imports, Inc.) Proxy 1/3/97 4/5/99 Form 8-K 4/20/99
Liberty Group 0000311927 Form 10-K 1/2/97
Holdings, Inc.
(Bioresponse, Inc.) Proxy 1/3/97 11/23/99 Form 8-K 11/26/99
Yifan Communications, Inc. 0000915766 Form 8-K 4/17/00
(Smart Games Interactive, Inc.) Form 10-K 4/19/00 7/31/00 Form 8-K 8/14/00
Additional information, including press releases and the trading history of the
named companies is available from a variety of public sources.
In each of Ms. Fonner's prior transactions, the combined companies' stock
only qualified for quotation on the OTC Bulletin Board. In each these
transactions, the market price has been highly volatile, and the market has not
been active, liquid or sustained. Even if we negotiate and close a business
combination, there is no assurance that an active, liquid, stable and sustained
public market for the combined companies' shares will ever develop.
A QUORUM WILL BE PRESENT AT THE MEETING
Our bylaws provide that the holders of a majority of the shares entitled
to vote will constitute a quorum at any meeting of the stockholders. As
described above, Stirling owns 9,600,000 shares of our voting Common Stock. A
duly authorized officer of Stirling will attend the meeting as Stirling's
representative. Therefore the presence of a quorum is assured.
While a simple majority of our voting Common Stock will constitute a
quorum for the meeting, the proposed reclassification of our Preferred Stock
cannot be considered unless the holders of a majority of our Preferred Stock are
also present in person or represented by proxy. We have been advised that the
holders of a majority of our outstanding Preferred Stock intend to submit
proxies for the meeting.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
If the stockholders approve the proposals described in this proxy
statement, we believe it may be possible to recover some stockholder value by
restructuring the company as a public shell that will then attempt to negotiate
a business combination transaction with a suitable privately held company. The
following sections separately describe a series of proposed amendments to our
Certificate of Incorporation that will be sequentially adopted.
Increase in Authorized Capitalization
The authorized capitalization of the Company is presently fixed at
15,000,000 shares of Common Stock, 10,000,000 shares of Class A Common Stock and
1,000,000 shares of blank check preferred stock. At the date of this proxy
statement 14,828,333 shares of Common Stock, 3,167,550 shares of Class A Common
and 164,450 shares of Preferred Stock are outstanding. In addition 6,750,673
shares of Class A Common are reserved for issuance upon conversion of the
Preferred Stock. Therefore, our company cannot issue more than 171,776 shares of
Common Stock and 81,778 shares of Class A Common without exceeding the limits of
our Certificate of Incorporation.
An increase in the company's authorized capitalization is an essential
element of the restructuring plan. Without an increase in its authorized
capital, the company will not have sufficient authorized stock to:
o Reclassify the Class A Common and Preferred Stock; or
o Effect a subsequent business combination transaction.
Therefore the board is asking the stockholders to approve an amendment to our
company's Certificate of Incorporation that will increase our authorized capital
to 50,000,000 shares of $.0001 par value Common Stock and 5,000,000 shares of
$.0001 par value preferred stock. Under the proposed amendment the relative
rights and limitations of the holders of Common Stock, Class A Common and
Preferred Stock would remain unchanged.
The proposed increase in the company's authorized capitalization has been
recommended by the Board to assure that an adequate supply of authorized and
unissued shares is available to accommodate the restructuring, facilitate a
business combination with a target and provide sufficient authorized and
unissued stock to facilitate future financing activities.
Until the Board establishes the specific rights, preferences and
limitations of any future series of preferred stock, the actual effect on the
holders of Common Stock cannot be ascertained. However, such effects might
include restrictions on dividends on the Common Stock if dividends on the
preferred stock are in arrears, dilution of the voting power of the holders of
Common Stock to the extent that any series of preferred stock has voting rights,
and reduction of amounts available on liquidation of the company as a result of
any liquidation preference granted to the holders of any series of preferred
stock.
Except as described in this proxy statement, are no current plans or
arrangements relating to the issuance of any additional securities of the
company. The terms of any future issuance of common or preferred stock will be
largely dependent on market conditions and other factors existing at the time of
issuance and sale.
If this proposal is approved by the shareholders, the Board will be
authorized to issue additional common and/or preferred stock, from time to time,
within the limits authorized by the proposal without further shareholder action,
except as may otherwise be provided by law or the Certificate of Incorporation.
Such additional shares may be issued for cash, property or services, or any
combination thereof, and at such price as the board deems reasonable under the
circumstances. The increase in authorized shares of Common Stock and preferred
stock has not been proposed for an anti-takeover-related purpose and the board
and management have no knowledge of any current efforts to obtain control of the
company or to effect large accumulations of the company's stock. Nevertheless,
the issuance of additional shares by the company may potentially have an
anti-takeover effect by making it more difficult to obtain shareholder approval
of various actions, such as a merger or removal of management.
Vote Required for Approval. The proposed amendment to increase our
authorized capital must be approved by affirmative vote of the holders of a
majority of our outstanding Common Stock. Since the proposed amendment will not
adversely affect the rights of the holders of our Class A Common or our
Preferred Stock, those stockholders will not be entitled to vote with respect to
the proposal.
Only shares voted "FOR" or "AGAINST" the proposed amendment will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
Reclassification of Class A Common
The board believes the existence of three classes of outstanding
securities will significantly impair our company's utility as a public shell.
Therefore, the board is asking the stockholders to approve an amendment to our
Certificate of Incorporation that will reclassify our outstanding Class A Common
as Common Stock.
Under our current Certificate of Incorporation, our Class A Common and
Common Stock are identical in all respects to the Common Stock, except that the
holders of Class A Common stock have no voting rights. Under the proposed
amendment, full voting rights would be granted to the holders of Class A Common
through the reclassification of their shares on a one-for-one basis.
At the date of this proxy statement, the voting power is divided among
14,828,333 shares of Common Stock. The reclassification of the Class A Common
will increase the outstanding Common Stock by 3,167,550 shares and the voting
power held by the current holders of our Common Stock will be proportionally
reduced.
Vote Required for Approval. The proposed amendment to reclassify the
Class A Common must be approved by affirmative vote of the holders of a majority
of our outstanding Common Stock. Since the proposed amendment will not adversely
affect the rights of the holders of our Class A Common, those stockholders will
not be entitled to vote with respect to the proposal.
Only shares voted "FOR" or "AGAINST" the proposed amendment will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
Reclassification of Preferred Stock
The board believes the existence of three classes of outstanding
securities will significantly impair our company's utility as a public shell.
Therefore, the board is asking the stockholders to approve an amendment to our
Certificate of Incorporation that will reclassify our outstanding Preferred
Stock as Common Stock.
Under our current Certificate of Incorporation, the holders of Preferred
Stock enjoy a liquidation preference of $25 per share and are entitled to
annual, cumulative dividends at the rate of $2.50 per annum, payable
semi-annually. The holders of Preferred Stock do not generally have voting
rights. However, we cannot, without the vote of the holders of two-thirds of the
outstanding Preferred Stock:
o Issue securities ranking on a parity with or senior to the Preferred Stock
with respect to dividends or distribution of assets;
o Change any of the preferences, rights, designations or powers of the
Preferred Stock so as to affect the holders adversely;
o Increase the number of authorized shares of Preferred Stock; or
o If dividends on the Series A Preferred are not current, increase the number of
directors other than to add two directors elected by the holders of the
Series A Preferred.
Whenever dividends are in arrears for four consecutive semi-annual
dividend periods, holders of Preferred Stock are entitled to elect two
additional directors and, by written request by the holders of 25% or more of
the Preferred Stock, may cause a special meeting to be called for the purpose of
electing such directors. The Preferred Stock was initially convertible at the
option of the holder into shares of Class A Common stock at an initial
conversion price of $1.5625. After giving effect to the sale of 9,600,000 shares
of Common Stock and 1,400,000 shares of Class A Common to Stirling, the current
conversion price is approximately $61 and each share of Series A Preferred is
convertible into 41.05 shares of Class A Common.
Under the proposed amendment, all outstanding shares of Preferred Stock
would be reclassified using a ratio of 41.05 shares of Common Stock for each
share of Preferred Stock. In connection therewith, the holders of Preferred
Stock would lose their liquidation preference of $25 per share, lose their
annual dividend preference of $2.50 per share, and surrender their potential
claims for approximately $40 per share in prior unpaid dividends.
At the date of this proxy statement, the voting power is divided among
14,828,333 shares of Common Stock. The reclassification of the Preferred Stock
tock will increase our outstanding Common Stock by an additional 6,750,673
shares and the voting power held by the current holders of our Common Stock will
be proportionally reduced.
Vote Required for Approval. Since the proposal to reclassify our
outstanding Preferred Stock will materially and adversely affect the rights of
the holders of those shares, it must be approved by the holders of a two-thirds
majority of the outstanding Series A Convertible Preferred, voting separately as
a class. The holders of a majority of our Common Stock, voting separately as a
class, must also approve the proposed reclassification. If either class of
stockholders withholds their consent, the proposed reclassification cannot
occur.
Only shares voted "FOR" or "AGAINST" the proposed amendment will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
Reverse split and forward split
The board believes it will be necessary to affect a reverse split of
approximately 1 for 60 to properly position our company as a viable public
shell. Since a simple 1 for 60 reverse split would leave the company with over
900 odd lot stockholders, the board proposes to implement a 1 for 6,000 reverse
split, which will be immediately followed by a 1 for 100 forward split.
The board is asking the stockholders to approve an amendment to our
Certificate of Incorporation that will affect a 1 for 6,000 reverse split of our
outstanding Common Stock, including the shares of Common Stock issuable upon the
reclassification of the Class A Common and Preferred Stock. We will not purchase
fractional shares for cash or issue scrip to the holders of fractional shares.
Instead, all calculations that would result in the issuance of a fractional
share will be rounded up to the next highest whole number.
The board is also asking the stockholders to approve an amendment to our
Certificate of Incorporation that will affect a 100 for 1 forward split of our
outstanding Common Stock that will be implemented immediately after the reverse
split described above. The Common Stock issued in connection with the forward
split will be fully paid and non-assessable. The number of stockholders will
remain unchanged. Upon completion of the forward split, every record stockholder
will own at least one hundred shares of New Common and our company will have a
total of 502,300 shares of New Common outstanding.
The implementation of a reverse split followed by a forward split does
not treat all stockholders equally. If we were to reclassify the Class A Common
and Preferred Stock and then affect a simple 1 for 60 reverse split, our company
would have 412,444 shares outstanding. However, since we propose to implement a
1 for 6,000 reverse split followed by a 100 for 1 forward split, our company
will have 502,300 shares of New Common outstanding. Substantially all of the
economic benefit arising from this procedure will inure to the benefit of
stockholders who currently own fewer than 6,000 shares and would become odd lot
stockholders if a simple 1 for 60 reverse split were implemented.
The par value of our Common Stock will be $.0001 per share following the
reverse split and the subsequent forward split. As a result, the aggregate par
value of our outstanding Common Stock will be decreased, while the aggregate
capital in excess of par value attributable to our outstanding Common Stock for
statutory and accounting purposes will be correspondingly increased. The reverse
split and the subsequent forward split will not affect our total stockholder
equity. All share and per share information will be retroactively adjusted to
reflect the reverse split and the subsequent forward split for all periods
presented in future filings.
Vote Required for Approval. The proposed amendment to affect a 1 for
6,000 reverse split of our Common Stock followed by an immediate 100 for 1
forward split must be approved by affirmative vote of the holders of a majority
of our outstanding Common Stock. Since the proposed amendment will not adversely
affect the rights of the holders of our Class A Common or Preferred Stock, those
stockholders will not be entitled to vote with respect to the proposal.
Only shares voted "FOR" or "AGAINST" the proposed amendment will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
The board asks all stockholders to vote for each of the proposed
amendments to our certificate of incorporation. The enclosed proxy will be voted
for the proposed amendments unless the stockholder votes against the proposal or
abstains from voting. Since the board has proposed the plan as an integrated
whole, the board will abandon the plan if all of the proposed amendments are not
approved by the stockholders.
RATIFICATION OF AMENDMENT TO BY-LAWS
On May 20, 2002, the Delaware Court of Chancery ordered an annual meeting
of our stockholders. The meeting was held on June 18, 2002. The Court order
provided that notwithstanding the quorum requirements of our bylaws, the
stockholders who attended the meeting in person would constitute a quorum for
the election of directors. Two stockholders who collectively owned a total of
1,050 shares of Common Stock attended and participated in the meeting. The only
action taken at the meeting was the election of three new directors who assumed
office immediately after the meeting.
A meeting of the newly elected board of directors was called and held
immediately after the completion of the stockholders meeting. At this meeting,
the newly elected board voted to adopt amended and restated by-laws for our
company that expressly authorize a single-member board of directors. Since an
insignificant number of stockholders were present at the Court ordered meeting,
the board is asking the stockholders of the company to ratify the new by-laws.
The amended and restated by-laws contain no other unusual provisions.
Vote Required for Approval. The affirmative vote of the holders of a
majority of the common shares represented and voting at the meeting will be
required to ratify the amendment of the company's by-laws.
Only shares voted "FOR" or "AGAINST" the ratification proposal will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
The board is asking all stockholders to vote for the ratification
proposal. The enclosed proxy will be voted for the ratification proposal unless
the stockholder votes against the proposal or abstains from voting. Since the
board has proposed the plan as an integrated whole, the board may elect to
abandon the plan if the ratification proposal is not approved by the
stockholders.
ELECTION OF SOLE DIRECTOR
In connection with the Court ordered stockholders meeting, the
stockholders elected three new directors who assumed office immediately after
the meeting. After approving the revival of the company's charter and the bylaw
amendments discussed above, two of the three newly elected directors resigned
from the board. Therefore, Ms. Sally A. Fonner has acted as the company's sole
director since June 18, 2002.
The board of directors believes it will be in the best interests of the
company and its stockholders to continue with a single member board until the
company completes a business combination. Therefore, Ms. Fonner is the only
nominee for election as director. If elected, Ms. Fonner will serve as the sole
director of the company until the next annual meeting of stockholders, or until
her successors are elected and qualified.
Ms. Sally Fonner is an officer and principal stockholder of Stirling. She
has also served as the president and sole director of our company since June 18,
2002. Ms. Fonner is not a full-time employee and is not required to devote any
specific amount of time to our business. Ms. Fonner graduated from Stephens
University in 1969 with a Bachelor of Arts in Social Systems. After a stint in
the private sector, she returned to further her education and earned her MBA
degree from the Executive Program of the University of Illinois in 1979. Since
December 2000, Ms. Fonner has served as the president of Win or Lose Acquisition
Corporation, a publicly held blank check company that intends to pursue a
business strategy that is similar to our proposed business. Due to significant
structural differences between our company and Win or Lose Acquisition
Corporation, the two companies are not expected to be direct competitors in the
search for acquisition candidates. Stockholders should be aware, however, that
Win or Lose Acquisition Corporation will offer a number advantages to
substantial acquisition candidates that are contemplating a transaction with a
public shell.
During the past five years Ms. Fonner has served as an officer and
director and managed the business affairs of five inactive and insolvent public
companies that ultimately engaged in business combination transactions with
privately held companies. The following table identifies the five public
companies that have been managed by Ms. Fonner during the last five years and
provides summary information on the time periods for which she served as an
officer and director.
Company Name Term as an officer Term as a director
eNote.com, Inc. June 1998 to April 1999 June 1998 to November 1999
Telemetrix, Inc. July 1997 to April 1999 July 1997 to April 1999
Dupont Direct Financial Holdings, Inc. June 1998 to April 1999 June 1998 to March 2000
Liberty Group Holdings, Inc. March 1997 to November 1999 March 1997 to December 1999
Yifan Communications, Inc. March 2000 to July 2000 March 2000 to March 2001
From 1996 through 2001, Ms. Fonner was the sole stockholder, officer and
director of Capston Network Company, a corporation that performed administrative
services for the public companies managed by her. Since February of this year,
Ms. Fonner has been an officer and principal stockholder of Stirling. Ms. Fonner
is not an officer, director or principal stockholder of any other company with a
class of securities registered under section 12 of the Exchange Act or subject
to the requirements of section 15(d) of such Act.
Vote Required for Approval. Directors will be elected by a plurality of
the votes cast at the meeting.
Only shares voted "FOR" or "AGAINST" the election of Ms. Fonner will be
treated as Votes Cast. Stirling will refrain from voting its shares until the
Votes Cast by stockholders who were not previously officers, directors or
affiliates of our company have been tallied. When the results of the preliminary
stockholder vote are known, Stirling will vote all of its shares in accordance
with the wishes of the majority.
The board asks all stockholders to vote for the election of ms. Fonner to
serve as the sole director of the company until the next annual meeting of
stockholders. The enclosed proxy will be voted for ms. Fonner unless the
stockholder votes against ms. Fonner or abstains from voting. Since the board
has proposed the plan as an integrated whole, the board may elect to abandon the
plan if all of the ratification proposals are not approved by the stockholders.
AUTHORIZATION OF COMPENSATORY STOCK ISSUANCES
As part of the plan, the board proposes to 120,000 shares of New Common
to Ms. Fonner and an additional 180,000 shares of New Common to legal counsel
and consultants. All such shares will be issued in transactions that are exempt
from registration under ss.4(2) of the Act. When we negotiate a business
combination, the underlying agreements may require the combined companies to
register the resale of those securities under the Act. In the absence of such a
registration rights agreement, the recipients of those shares will be required
to rely on Rule 144 or another exemption from registration if they wish to
resell their shares.
On January 21, 2000, the SEC's Division of Corporate Finance issued an
interpretive letter to the OTC Compliance Unit of NASD Regulation, Inc., which
addresses seven specific practices that the SEC and the NASD have long
considered to be schemes or devices to avoid the registration requirements of
the Act. While our prior activities and our proposed stock issuances do not fall
within any of the fact patterns discussed in the NASD Regulation letter, the
SEC's staff has taken the position that the NASD Regulation letter stands for a
broader proposition that persons who may be deemed to be "promoters" of shell
companies are always underwriters who may never resell their shares in the
absence of an effective registration statement under the Act. We believe the
law; the applicable regulations; and the prior decisions of the SEC do not
support this expansive interpretation of the NASD Regulation letter.
Nevertheless, if the staff's interpretation is incorporated into the SEC's
regulations or upheld by the courts, future developments may limit the ability
of Ms. Fonner or Stirling to rely on Rule 144.
Under Delaware law, the board of directors generally has the corporate
power and authority to issue stock in compensatory transactions as long as the
fair value of the consideration received exceeds the par value of the shares
issued and is reasonably related to the fair market value of the issued shares.
It is ordinarily difficult for stockholders to successfully challenge a
compensatory stock issuance unless the transaction terms are inherently
unreasonable. Since the contemplated compensatory stock issuances will largely
inure to the benefit of a related party, the board believes that stockholder
approval of the proposal will effectively foreclose a subsequent legal action to
challenge the propriety of the proposed transactions.
Vote Required for Approval. The affirmative vote of the holders of a
majority of the common shares represented and voting at the meeting will be
required to approve the issuance of up to 300,000 additional shares of New
Common in compensatory transactions.
Only shares voted "FOR" or "AGAINST" the proposal will be treated as
Votes Cast. Stirling will refrain from voting its shares until the Votes Cast by
stockholders who were not previously officers, directors or affiliates of our
company have been tallied. When the results of the preliminary stockholder vote
are known, Stirling will vote all of its shares in accordance with the wishes of
the majority.
The board asks all stockholders to vote for the authorization of
additional stock issuances. The enclosed proxy will be voted for the proposal
unless the stockholder votes against the proposal or abstains from voting. Since
the board has proposed the plan as an integrated whole, the board may elect to
abandon the plan if all of the proposals are not approved by the stockholders.
AUTHORIZATION OF RELATED PARTY STOCK SALES
As part of the plan, the board proposes sell 250,000 shares of New Common
to Stirling for $30,000 in cash, or $0.12 per share. These funds will be used to
pay the out-of-pocket costs associated with conducting the meeting and
implementing our business plan. Until the meeting date, Stirling intends to
advance funds to our company on an as-needed basis. If the stockholders approve
our plan, Stirling will make an additional lump-sum contribution to our company
in an amount sufficient bring its' total additional contribution up to $30,000.
In return for these additional cash contributions, Stirling will receive 250,000
shares of New Common. The $0.12 per share cash price that Stirling will pay for
the additional shares is equal to the original par value of our Common Stock.
Since the market value of our New Common may be more than $0.12 per share after
meeting, the additional stock sale to Stirling may confer a compensatory benefit
on Stirling.
Under Delaware law, the board of directors generally has the corporate
power and authority to issue stock in related party transactions as long as the
fair value of the consideration received exceeds the par value of the shares
issued and is reasonably related to the fair market value of the issued shares.
It is ordinarily difficult for stockholders to successfully challenge such a
stock issuance unless the transaction involves a related party or the terms are
inherently unreasonable. Since the contemplated sale of 250,000 shares of New
Common to Stirling will largely inure to the benefit of a related party, the
board believes that stockholder approval of the proposal will effectively
foreclose a subsequent legal action to challenge the propriety of the proposed
stock sales.
Vote Required for Approval. The affirmative vote of the holders of a
majority of the common shares represented and voting at the meeting will be
required to approve the sale of 250,000 additional shares of New Common to
Stirling at a price of $0.12 per share.
Only shares voted "FOR" or "AGAINST" the proposal will be treated as
Votes Cast. Stirling will refrain from voting its shares until the Votes Cast by
stockholders who were not previously officers, directors or affiliates of our
company have been tallied. When the results of the preliminary stockholder vote
are known, Stirling will vote all of its shares in accordance with the wishes of
the majority.
The board asks all stockholders to vote for the authorization of the
planned stock sale. The enclosed proxy will be voted for the proposal unless the
stockholder votes against the proposal or abstains from voting. Since the board
has proposed the plan as an integrated whole, the board may elect to abandon the
plan if all of the proposals are not approved by the stockholders.
APPROVAL OF BUSINESS COMBINATION FORMAT
A business combination may be structured in the form of a merger,
consolidation, reorganization, joint venture or purchase of the stock or assets
of an existing business. Certain business combination transactions, such as a
statutory merger, are complex to negotiate and implement and require stockholder
approval from both parties to the merger. On the other hand, the simplest form
of business combination is commonly known as a reverse takeover. In a reverse
takeover transaction, the stockholders of the privately held company exchange
their private company shares for newly issued stock of the public company. As a
result of the transaction, the privately held company becomes a wholly-owned
subsidiary of the public company and due to the large number of shares that are
customarily issued to stockholders of the privately-held company, those
stockholders end up with a controlling interest in the combined companies and
are free to appoint their own slate of officers and directors.
By using an existing public company, a privately held company that wants
to establish a public market for its stock can start with an existing
stockholder base. In addition, there are usually several brokers who will have
an interest in the newly reorganized company because they have stock on their
books.
There are several potential problems that arise in connection with a
reverse takeover. First, there may be large blocks of stock in the hands of
individuals who are eager to sell at any price, thereby making it difficult to
support the market during the period immediately after the reorganization.
Second, in addition to inheriting the stockholders and brokers associated with
the public company, the stockholders of the private company will also inherit
the business history of the public company. Accordingly, a thorough due
diligence investigation of the public company and its principal stockholders is
essential to ensure that there are no unreported liabilities or other legal
problems.
In general, both the financial community and the regulatory authorities
view reverse takeovers with some skepticism until the reorganized company has
been active for a sufficient period of time to demonstrate credible operating
performance. Until this performance is demonstrated, it can be difficult to
raise additional money for a company that went public through a reverse takeover
transaction. Therefore, the reverse takeover strategy is most appropriate in
cases where the purpose for establishing a public trading market is not related
to a perceived short-term need for additional capital.
While the business combination transaction contemplated by the plan may
be structured as a merger or consolidation, the board believes that the reverse
takeover format will be most attractive to potential acquisition targets.
Accordingly, the board is seeking prior stockholder authorization for a reverse
takeover transaction that will involve the issuance of an indeterminate number
of shares of New Common to the owners of the target.
Under Delaware law, the board of directors generally has the corporate
power and authority to issue stock in exchange for property as long as the fair
value of the consideration received exceeds the par value of the shares issued
and is reasonably related to the fair market value of the issued shares. It is
ordinarily difficult for stockholders to successfully challenge a property
acquisition transaction unless the transaction involves a related party or the
terms are inherently unreasonable. Since the contemplated business combination
transaction is almost certain to result in a change in control, such a
transaction might be subject to a stockholder action to challenge the propriety
or fairness of the transaction. The board believes that stockholder approval of
the proposal will likely deter stockholders from challenging a specific business
combination transaction into by the board, but it will not foreclose such
litigation.
Vote Required for Approval. The affirmative vote of the holders of a
majority of the common shares represented and voting at the meeting will be
required to approve the proposed business combination format.
Only shares voted "FOR" or "AGAINST" the proposal will be treated as
Votes Cast. Stirling will refrain from voting its shares until the Votes Cast by
stockholders who were not previously officers, directors or affiliates of our
company have been tallied. When the results of the preliminary stockholder vote
are known, Stirling will vote all of its shares in accordance with the wishes of
the majority.
The board asks all stockholders to vote for the approval of the proposed
business combination format. The enclosed proxy will be voted for the proposal
unless the stockholder votes against the proposal or abstains from voting. Since
the board has proposed the plan as an integrated whole, the board may elect to
abandon the plan if all of the proposals are not approved by the stockholders.
RATIFICATION OF AUDITORS FOR CURRENT FISCAL YEAR
The Board has appointed the firm of Want & Ender CPA PC, Certified Public
Accountants, as the Company's independent auditors for the year ending January
31, 2003, and proposed such appointment for ratification by the Company's
shareholders. In the event the shareholders fail to ratify the selection of Want
& Ender, the Board would reconsider such selection.
Want & Ender audited the Company's financial statements for the years
ended January 31, 1989 through 2002. Want & Ender's report on our Financial
Statements contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles. A
partner or other representative of Want & Ender is expected to be present at the
Annual Meeting and will be afforded the opportunity to make a statement. Such
representative is expected to be available to respond to appropriate questions.
For the year ended January 31, 2002, Want & Ender billed the Company an
aggregate of $500.00 for professional services rendered for the audit of the
Company's 2002 Financial Statements. Want & Ender did not perform any non-audit
related consulting or tax work during the year ended January 31, 2002.
Accordingly, our board of directors has determined that Want & Ender has
retained its independence.
Peat Marwick, Main & Co., Certified Public Accountants, audited our
financial statements for the year ended January 31, 1987. As a result of the
bankruptcy case discussed elsewhere herein, we did not prepare audited financial
statements for the year ended January 31, 1988. In connection with the election
of the new board of directors on June 18, 2002, the firm of Want & Ender,
Certified Public Accountants was retained to audit our balance sheet as of May
11, 1988 and for each of the intervening years during the period from January
31, 1988 through January 31, 2002, and to serve as our auditor in the future.
Vote Required for Approval. The affirmative vote of the holders of a
majority of the common shares represented and voting at the meeting will be
required to ratify the selection of Want & Ender as the Company's independent
auditors for the current year.
The Board recommends a vote FOR the ratification of the selection of Want
& Ender as the Company's independent auditors for the current fiscal year.
ADDITIONAL INFORMATION
Our 2003 Annual Meeting has been scheduled for July 15, 2003. Any
shareholder who wishes to submit a proposal for action to be included in the
proxy statement and form of proxy relating to the 2003 annual meeting is
required to submit such proposals to the Company on or before May 15, 2003 and
any notice of a stockholder proposal received after this date will be considered
untimely.
Additional soliciting materials that are being sent to stockholders along
with this proxy statement include copies of our Annual Report on Form 10-K as of
May 11, 1988 and for the fiscal years ended January 31, 1989 through 2002, as
filed with the Securities and Exchange Commission on July 3, 2002. The Form 10-K
is incorporated herein by this reference and all disclosures herein relating to
the company and its management, business and financial condition are qualified
in their entirety by reference to the Form 10-K.
The board of directors is conducting this solicitation on behalf the
company. The company will pay the cost of soliciting proxies from its available
financial resources. The cost of solicitation including legal, accounting,
printing, mailing and other miscellaneous expenses are estimated at $37,500.
There is no known opposition to the solicitation. In addition to solicitations
by mail, directors, officers and regular employees of the company may solicit
proxies by telephone, telegram, fax or personnel solicitation. Brokers,
nominees, fiduciaries and other custodians will be instructed to forward
soliciting material to the beneficial owners of shares held of record by them,
and such custodians will be reimbursed for their expenses.
The persons designated as proxies to vote shares at the meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the meeting. The company does not expect that any matters other than
those referred to in this Proxy Statement will be presented for action at the
meeting.
PROXY THE ENCHANTED VILLAGE, INC. PROXY
- ----- -----
This Proxy is Solicited by The Enchanted Village Inc. for the
Special Meeting of Stockholders to be held on November 15, 2002
The undersigned hereby appoints Cecil Banhan and Michael Manion, and each
of them, either one of whom may act without the other, each with full power of
substitution and ratification, attorneys and proxies of the undersigned to vote
all shares of the Voting Common Stock of The Enchanted Village, Inc. (the
"Company") which the undersigned is entitled to vote at a special meeting of
Stockholders to be held at 10:00 am on November 15, 2002, at 1407 Fort Harrison
Avenue, Suite F, Clearwater, Florida, and at any and all adjournments thereof:
1.PROPOSED AMENDMENTS to the company's Certificate of Incorporation.
(a) To increase the company's authorized capital to 50,000,000
shares of Common Stock and 5,000,000 shares of preferred
stock:
n FOR n AGAINST n ABSTAIN
(b) To reclassify the company's outstanding non-voting Class A Common
Stock as voting Common Stock:
n FOR n AGAINST n ABSTAIN
(c) To reclassify the company's outstanding Convertible Series A $25
Preferred Stock as voting Common Stock:
n FOR n AGAINST n ABSTAIN
(d) To implement a reverse split of all of the company's
outstanding Common Stock in the ratio of one (1) new share for
each 6,000 shares presently outstanding:
n FOR n AGAINST n ABSTAIN
(3) To implement a forward split of all of the company's
outstanding Common Stock in the ratio of one hundred (100) new
shares for each shares outstanding after the completion of the
reverse split:
n FOR n AGAINST n ABSTAIN
2. PROPOSED RATIFICATION of prior amendments to the company's
by-laws that authorize a single-member board of directors
until the reorganization of our affairs is completed:
n FOR n AGAINST n ABSTAIN
3. PROPOSED ELECTION of Sally A. Fonner to serve as the sole
member of the board until the next annual meeting of the
stockholders, or until her successor is elected and qualified:
n FOR n AGAINST n ABSTAIN
4. PROPOSED AUTHORIZATION for the issuance of up to 500,000
shares of New Common to Ms. Fonner, legal counsel and
consultants in connection with the implementation of the company's
business plan:
n FOR n AGAINST n ABSTAIN
5. PROPOSED SALE of 250,000 shares of New Common to Stirling Corporate
Services LLC at a price of $0.12 per share:
n FOR n AGAINST n ABSTAIN
6. PROPOSED AUTHORIZATION for the issuance of an indeterminate number
of shares of New Common to unrelated third parties in connection
with a business combination of the type contemplated by the
company's business plan:
n FOR n AGAINST n ABSTAIN
7. PROPOSED RATIFICATION of the selection of Want & Ender CPA PC, as the
Company's independent auditors for the current year:
n FOR n AGAINST n ABSTAIN
8. IN THEIR DISCRETION upon such other matters that may properly come before
the meeting and any adjournment thereof:
n FOR n AGAINST n ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN.
UNLESS OTHERWISE SPECIFIED, THE
SHARES WILL BE VOTED FOR THE
DIRECTOR NOMINEE AND FOR ALL
PROPOSALS.
The undersigned hereby revokes any Proxy previously given
in respect of the Annual Meeting.
Dated: _____________________, 2002
Signature of Stockholder(s)
Note: Signature should agree with the name on stock certificate as
printed thereon. Executors, administrators and other fiduciaries
should so indicate when signing.
___ I Plan to personally attend the Special Meeting of the Stockholders
PLEASE DATE, SIGN AND RETURN THIS PROXY TO THE
COMPANY IN THE ENCLOSED ENVELOPE.
THANK YOU.
PROXY THE ENCHANTED VILLAGE, INC. PROXY
- ----- -----
This Proxy is Solicited by The Enchanted Village Inc. for the
Special Meeting of Stockholders to be held on November 15, 2002
The undersigned hereby appoints Cecil Banhan and Michael Manion, and each
of them, either one of whom may act without the other, each with full power of
substitution and ratification, attorneys and proxies of the undersigned to vote
all shares of the Non-voting Preferred Stock of The Enchanted Village, Inc. (the
"Company") which the undersigned is entitled to vote at a special meeting of
Stockholders to be held at 10:00 am on November 15, 2002, at 1407 Fort Harrison
Avenue, Suite F, Clearwater, Florida, and at any and all adjournments thereof:
1. PROPOSED AMENDMENTS to the company's Certificate of Incorporation
that will reclassify the company's outstanding Convertible Series
A $25 Preferred Stock as voting Common Stock:
n FOR n AGAINST n BROKER NON-VOTE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
.. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED FOR THE PROPOSAL.
The undersigned hereby revokes any Proxy previously given
in respect of the Annual Meeting.
Dated: _____________________, 2002
Signature of Stockholder(s)
Note: Signature should agree with the name on stock certificate as
printed thereon. Executors, administrators and other fiduciaries
should so indicate when signing.
___ I Plan to personally attend the Special Meeting of the Stockholders
PLEASE DATE, SIGN AND RETURN THIS PROXY TO THE
COMPANY IN THE ENCLOSED ENVELOPE.
THANK YOU.