On June 8, 1999, the Company entered into a common stock purchase agreement (the "Agreement") with GEM Singapore Pte Ltd. ("GEM Singapore") and Turbo International Ltd. ("Turbo"), which provided for the sale of an aggregate of 17,000,000 shares of Common Stock to GEM Singapore and Turbo for a purchase price of $170,000. The Agreement further provided that (i) four (4) of the six (6) directors of the Company would resign, (ii) the size of the Board of Directors would be reduced to five (5) members, and (ii) three (3) nominees of GEM Singapore and Turbo would be appointed to the Board of Directors in order to complete the remaining terms of the resigning directors. The three (3) replacement directors are Christopher F. Brown, Thomas Tuttle and Edward J. Tobin.
Christopher F. Brown, age 36, became a director of the Company on June 11, 1999, to fill a vacancy created by the resignation of three of the directors of the Company. Mr. Brown is also the President of GEM North America Inc. Previously he was with Drexel Burnham Lambert as an associate, Smith Barney as an Investment Advisor from 1986 to 1988, and Shearson Lehman Brothers from 1988 to 1993. He subsequently founded and managed the Mergers and Acquisitions department at Drake Capital Securities, Inc. From September 12, 1996 to April 1999, Mr. Brown served as a director of D-Vine, Ltd.
Edward Tobin, age 42, became a director of the Company on June 11, 1999, to fill a vacancy created by the resignation of three of the directors of the Company. Mr. Tobin is also Managing Director of GEM Ventures, Ltd. Prior to joining GEM, Mr. Tobin was Managing Director of Lincklaen Partners, a private venture capital group. From September 11, 1996 to April 1999, Mr. Tobin served as Chairman of the Board of Directors and Chief Executive Officer of D- Vine, Ltd. Mr. Tobin received his M.B.A. from the Wharton School, and a Master of Science in Engineering and a Bachelor of Science in Economics from the University of Pennsylvania.
Thomas Tuttle, age 32, became a director of the Company on June 11, 1999, to fill a vacancy created by the resignation of three of the directors of the Company. Mr. Tuttle is also a Managing Director of Global Emerging Markets North America, Inc. Prior to this he was the Indonesian county manager for Morgan Stanley where he was responsible for capital raising and advisory services in that market. From September 12, 1996 to April 1999, Mr. Tuttle served as a director of D-Vine, Ltd.
The Letter further provides that GEM will seek an entity with an operating business with which the Company could acquire or merge. It is contemplated that if such an acquisition or merger were to occur, the Company would form a subsidiary, and transfer and assign its current assets and liabilities to the subsidiary but retain the newly acquired assets. Presently, GEM has been investigating several private companies to introduce to the Company. No letter of intent, acquisition, merger or reorganization agreement has been negotiated or entered into.
The Board of Directors of the Company believes that a merger or acquisition would benefit both the Company and the private company and have identified a number of potential benefits of a possible merger or acquisition
(1) Increasing the asset and revenue base of the Company as well as provide new opportunities for capital appreciation;
(2) Addressing its debt service needs with a new source of revenue
(3) Obtaining a business with operations and revenue to allow the Company to again meet the listing requirement for the NASDAQ SmallCap Market/(C)/;
(4) Allowing the private company to obtain a larger shareholder base and establish a public trading market for its securities;
(5) Helping the private company gain the interest of investment bankers and brokerage firms that only raise capital for public companies; and
(6) Enabling the private company to access public capital markets to raise money for research and development efforts.
Since the Company does not know when or through what method it will be reorganized, the Company is unable to discuss the material federal income tax consequences of any corporate combination to its shareholders.
The Company would endeavor to have any corporate reorganization or combination treated as a nontaxable reorganization within the meaning of Section 368(a)(1)(a) of the Code.
If the contemplated corporate combination is treated as a nontaxable reorganization, then the following Federal income tax consequences may result:
(a) no gain or loss will be recognized by holders of the Company's Common Stock upon the exchange of the outstanding shares of private company's Common Stock;
(b) no gain or loss will be recognized by the private company's
shareholders upon the exchange of their shares of the private company common stock for shares of Common Stock of the Company; and
(c) the holding period of the private company's shareholders with respect to the Shares of the Company's Common Stock received by them will not include the holding period of such shareholders with respect to the shares of the private company common stock surrendered in exchange therefore.
Further, since the Company does not know the type of method of corporate reorganization or combination, the Company is unable at this time to discuss the accounting statement of any contemplated transaction.
Ability to Meet and Maintain SmallCap Market Status
The Company's Common Stock was traded on the NASDAQ SmallCap Market/(C)/ from March of 1997 to April of 1999, when it was delisted for failing to meet the maintenance requirements for a continued listing. One of the several requirements of NASDAQ for a listing on the SmallCap Market/8/ is maintaining a market price of at least $1.00 per share. During the first quarter of 1999, the Company's Common Stock traded below $1.00 per share. The Board of Directors believes that there are other benefits to the Reverse Split. The Reverse Split could increase the market price of the Company's Common Stock in order to meet the minimum requirements for a listing of the Common Stock on the NASDAQ SmallCap Market/(C)/.
The Board of Directors believes that there are benefits to the Company and its stockholders to obtain the listing of the Common Stock on the NASDAQ SmallCap Market/(C)/. By reducing the number of outstanding shares of Common Stock through a Reverse Split, the trading price of the Common Stock may increase, thereby enabling the Company to meet the $4.00 per share minimum price required by NASDAQ for an initial listing. A higher share price may also make the Common Stock more attractive to a broader group of investors. Stockholders should note, however, that the Board of Directors cannot predict what effect, if any, the Reverse Split will have on the market price of, or the market for, the Common Stock. |
