SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant 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
ARNOX CORPORATION
(Name of Registrant as Specified in its Charter)
Capston Network, Co.
(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:
(2)Aggregate number 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:
Dear Fellow Stockholders;
You are cordially invited to attend a Special Meeting of the
Stockholders (the "Meeting") of ARNOX CORPORATION, an
inactive Delaware corporation ("Arnox" or the "Company").
The Meeting will be held at 3:00: p.m. on Monday, March 10,
1997, in the Cardita Room of the Sheraton at Sand Key
Resort, 1160 Gulf Blvd., Clearwater Beach, Florida.
As you may recall, in a Proxy Statement dated June 13, 1996,
Capston Network Company ("Capston") sought stockholder
approval of a financial restructuring plan for Arnox that
contemplated a 1 for 10 reverse split and the issuance of a
90% equity interest in the Company to the stockholders of an
unidentified privately-held company. The plan proposed by
Capston was ultimately approved by the holders of a majority
of the issued and outstanding common stock of the Company
and Capston has been actively seeking a business combination
opportunity for the Company since August 16, 1996.
As a result of conversations with the management of several
potential acquisition candidates, Capston has determined
that the original plan has a number of features that will
make difficult, if not impossible, to arrange a suitable
business combination transaction. First, the plan approved
by the Stockholders does not provide for an optimal capital
structure for the Company. Instead, it leaves the existing
capital structure of the Company intact. Second, the Revised
Plan does not provide for the payment of finders fees and
other third-party costs in the event that a suitable
business combination opportunity is identified and a
combination transaction is negotiated. Third, the Revised
Plan does not provide for any payments to Capston in the
event that a suitable business combination opportunity is
identified and a combination transaction is negotiated.
Finally, the plan does not authorize Capston to enter into a
transaction on behalf of the Company. Rather it merely
authorizes Capston to seek out a suitable business
combination and then present the details of the proposed
transaction for a second stockholder vote.
As a result of these discussions, Capston has developed a
revised plan (the "REVISED Plan") whereby the Company will
be restructured as a "clean public shell" for the purpose of
effecting a business combination transaction with a suitable
privately-held company that has both business history and
operating assets. If this Revised Plan is successfully
implemented, you may be able to salvage some of the value
that your Arnox shares once represented. However, Capston
cannot go forward with the Revised Plan without first
obtaining 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 Revised Plan will be presented to
Stockholders as separate proposals, the Revised Plan is an
integrated whole and if all elements of the Revised Plan are
not approved, Capston intends to abandon the Revised Plan in
its entirety. The specific matters to be considered by the
Stockholders are:
1. To elect a person designated by Capston to serve as the
sole member of the Board of Directors until the next
annual Meeting of stockholders, or until her successor
is elected and qualified;
2. To consider and vote upon proposed an Amendment to the
Company's Certificate of Incorporation that will effect
a reverse split of all issued and outstanding shares of
Common Stock in the ratio of one (1) share of new Common
Stock for each 11.4642 shares presently outstanding so
that immediately thereafter the Company will have a
total of 300,000 shares issued and outstanding;
3. To consider and vote upon a proposal to issue 200,000
shares of Common Stock to persons designated by Capston
as compensation for services rendered in connection with
the implementation of the Revised Plan;
4. To consider and vote upon a proposal which will give
the Board of Directors authority to pay an in-kind
Finder's Fee to unrelated third party finders who
introduce the Company to a suitable acquisition
prospect.
5. To consider and vote upon a proposal that will give the
Board of Directors discretionary authority to (i) change
the Company's name and (ii) issue up to 4,500,000 shares
of Common Stock to unrelated third parties, all without
prior stockholder approval, in connection with a
business combination transaction of the type
contemplated by the Revised Plan; and
6. To consider and vote upon a proposed Amendment to the
Company's Certificate of Incorporation that will
increase the authorized capital stock of the Company to
25,000,000 shares of $0.01 par value Common Stock and
5,000,000 shares of $0.01 par value Preferred Stock.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN
PERSON. HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, YOU ARE URGED TO PROMPTLY MARK YOUR VOTE, SIGN,
DATE, AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED, SELF-ADDRESSED, STAMPED ENVELOPE SO THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED AND YOUR SHARES OF STOCK
MAY BE REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR
DESIRES. A STOCKHOLDER MAY REVOKE A PROXY BY DELIVERING TO
CAPSTON A WRITTEN NOTICE OF REVOCATION, DELIVERING TO
CAPSTON A SIGNED PROXY OF A LATER DATE OR APPEARING AT THE
SPECIAL MEETING AND VOTING IN PERSON.
____________________________
Capston Network Company
Sally A. Fonner, President
ARNOX CORPORATION
1612 North Osceola Avenue
Clearwater, Florida 34615
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on March 10, 1997
Pursuant to 312(h) of the General Corporation Law of
Delaware, notice is hereby given that a Special Meeting of
the Stockholders of ARNOX CORPORATION, an inactive Delaware
corporation ("Arnox" or the "Company"), will be held at 3:00
p.m. on Monday, March 10, 1997, in the Cardita Room of the
Sheraton at Sand Key Resort, 1160 Gulf Blvd., Clearwater
Beach, Florida, for the following purposes:
1. To elect a person designated by Capston to serve as the
sole member of the Board of Directors until the next
annual Meeting of stockholders, or until her successor
is elected and qualified;
2. To consider and vote upon proposed an Amendment to the
Company's Certificate of Incorporation that will effect
a reverse split of all issued and outstanding shares of
Common Stock in the ratio of one (1) share of new Common
Stock for each 11.4642 shares presently outstanding so
that immediately thereafter the Company will have a
total of 300,000 shares issued and outstanding;
3. To consider and vote upon a proposal to issue 200,000
shares of Common Stock to persons designated by Capston
as compensation for services rendered in connection with
the implementation of the Revised Plan;
4. To consider and vote upon a proposal which will give
the Board of Directors authority to pay an in-kind
Finder's Fee to unrelated third party finders. who
introduce the Company to a suitable acquisition
prospect.
5. Consider and vote upon a proposal that will give the
Board of Directors discretionary authority to (i) change
the Company's name and (ii) issue up to 4,500,000 shares
of Common Stock to unrelated third parties, all without
prior stockholder approval, in connection with a
business combination transaction of the type
contemplated by the Revised Plan; and
6. To consider and vote upon a proposed Amendment to the
Company's Certificate of Incorporation that will
increase the authorized capital stock of the Company to
25,000,000 shares of $0.01 par value Common Stock and
5,000,000 shares of $0.01 par value Preferred Stock.
A record of stockholders has been taken as of the close of
business on January 31, 1997, and only those stockholders of
record on that date will be entitled to notice of and to
vote at the Meeting. A stockholders' list will be available
commencing February 3, 1997, and may be inspected during
normal business hours prior to the Meeting at the offices of
the Company, 1612 North Osceola Avenue, Clearwater, Florida
34615.
If you do not expect to be present at the Meeting, please
ark your vote, sign and date the enclosed proxy and return
it promptly in the enclosed stamped envelope which has been
provided for your convenience. The prompt return of proxies
will ensure the presence of a quorum and save Capston the
expense of further solicitation.
By Order of Capston
Network Co.
Sally A. Fonner,
President
Clearwater, Florida
January 31, 1997
PROXY STATEMENT
This proxy statement is being mailed to all known
Stockholders of ARNOX CORPORATION ("Arnox" or the "Company")
commencing on or about February 12, 1997, in connection with
the solicitation by Capston Network, Co. ("Capston") of
proxies to be voted at a Special Meeting of Stockholders(the
"Meeting") to be held in Clearwater Beach, Florida on
Monday, March 10, 1997, and at any adjournment thereof. The
Meeting has been called by Capston pursuant to 312(h) of
the General Corporation Law of Delaware for the purpose of
considering a plan proposed by Capston (the "Revised Plan")
whereby the Company will be restructured as a "clean public
shell" for the purpose of effecting a business combination
transaction with a suitable privately-held company.
Proxies will be voted in accordance with the directions
specified thereon and do not confer discretionary authority
on any person. Any proxy on which no direction is specified
will be voted in favor of all proposals. A Stockholder may
revoke a proxy at any time prior to the start of the meeting
by delivering to Capston of a written notice of revocation,
delivering to Capston a signed proxy of a later date or by
appearing at the Meeting and voting in person. Notices of
revocation and replacement Proxies that are not actually
received by Capston prior to the start of the meeting will
be void and of no force and effect.
As of December 31, 1996, there were issued, outstanding and
entitled to vote 3,439,247 shares of common stock of the
Company ("Common Stock"). Each share of Common Stock
entitles the holder to one vote on each matter presented for
consideration by the Stockholders. Under the Company's By-
Laws, the presence, in person or by proxy, of shares
entitled to cast a combined total of 1,146,416 votes will
constitute a quorum. According to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995,
there are 1,816 stockholders entitled to vote. With the
exception of Capston Network Company, no stockholder has
indicated a pre-approval of the proposals described in this
Proxy Statement.
Background Information
In a Proxy Statement dated June 13, 1996, Capston Network
Company ("CAPSTON") sought stockholder approval of a
financial restructuring plan for Arnox that contemplated a 1
for 10 reverse split and the issuance of a 90% equity
interest in the Company to the stockholders of an
unidentified privately-held company. The plan proposed by
Capston was ultimately approved by the holders of a majority
of the issued and outstanding common stock of the Company
and Capston has been actively seeking a business combination
opportunity for the Company since August 16, 1996.
As a result of conversations with the management of several
potential acquisition targets, Capston has determined that
the original plan has a number of features that will make
difficult, if not impossible, to arrange a suitable business
combination transaction. First, the plan approved by the
Stockholders does not provide for an optimal capital
structure for the Company. Instead, it leaves the existing
capital structure intact. Second, the Revised Plan does not
provide for the payment of finders fees and other costs in
the event that a suitable business combination opportunity
is identified and a combination transaction is negotiated.
Third, the Revised Plan does not provide for significant
payments to Capston in the event that a suitable business
combination opportunity is identified and a combination
transaction is negotiated. Finally, the plan does not
authorize Capston to enter into a transaction on behalf of
the Company. Rather it merely authorizes Capston to seek out
a suitable business combination and then present the details
of the proposed transaction for a second stockholder vote.
As a result, Capston has developed a revised plan (the
"REVISED Plan") whereby the Company will be restructured as
a "clean public shell" for the purpose of effecting a
business combination transaction with a suitable privately-
held company that has both business history and operating
assets. If this Revised Plan is successfully implemented,
you may be able to salvage some of the value that your Arnox
shares once represented. However, Capston cannot go forward
with the Revised Plan without first obtaining 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.
Proposed Operations
While the Company has no assets, liabilities, management or
ongoing operations and has not engaged in any business
activities since September 1989, Capston believes that it
may be possible to recover some value for the Stockholders
through the adoption and implementation of a Revised Plan
whereby the Company will be restructured as a "clean public
shell" for the purpose of effecting a business combination
transaction with a suitable privately-held company that has
both business history and operating assets.
Capston believes the Company will offer owners of a suitable
privately-held company the opportunity to acquire a
controlling ownership interest in a public company at
substantially less cost than would otherwise be required to
conduct an initial public offering. Nevertheless, Capston is
not aware of any empirical statistical data that would
independently confirm or quantify Capston's beliefs
concerning the perceived value of a merger or acquisition
transaction for the owners of a suitable privately-held
company. The owners of any existing business selected for a
business combination with the Company will incur significant
costs and expenses, including the costs of preparing the
required business combination agreements and related
documents, the costs of preparing the a Current Report on
Form 8-K describing the business combination transaction and
the costs of preparing the documentation associated with any
future reporting under the Exchange Act and registrations
under the Securities Act.
If the Revised Plan is approved by the Stockholders, the
Company will be fully reactivated and then used as a
corporate vehicle to seek, investigate and, if the results
of such investigation warrant, effect a business combination
with a suitable privately-held company or other business
opportunity presented to it by persons or firms that seek
the perceived advantages of a publicly held corporation. The
business operations proposed in the Revised Plan are
sometimes referred to as a "blind pool" because Stockholders
will not ordinarily have an opportunity to analyze the
various business opportunities presented to the Company, or
to approve or disapprove the terms of any business
combination transaction that may be negotiated by Capston on
behalf of the Company. Consequently, the Company's potential
success will be heavily dependent on the efforts and
abilities of Capston and its officers, directors and
consultants, who will have virtually unlimited discretion in
searching for, negotiating and entering into a business
combination transaction. Capston and its officers, directors
and consultants have had limited experience in the proposed
business of the Company. Although Capston believes that the
Company will be able to enter into a business combination
transaction within 12 months after the approval of the
Revised Plan by the Stockholders, there can be no assurance
as to how much time will elapse before a business
combination is effected, if ever. The Company will not
restrict its search to any specific business, industry or
geographical location, and the Company may participate in a
business venture of virtually any kind or nature.
Capston and its officers, directors and consultants
anticipate that the selection of a business opportunity for
the Company will be complex and extremely risky. Because of
general economic conditions, rapid technological advances
being made in some industries, and shortages of available
capital, Capston believes that there are numerous privately-
held companies seeking the perceived benefits of a publicly
traded corporation. Such perceived benefits may include
facilitating debt financing or improving the terms on which
additional equity or may be sought, providing liquidity for
the principals of the business, creating a means for
providing incentive stock options 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 of such business opportunities extremely difficult
and complex. Capston anticipates that the Company will be
able to participate in only one business venture. This lack
of diversification should be considered a substantial risk
inherent in the Revised Plan because it will not permit the
Company to offset potential losses from one venture against
gains from another. Moreover, due to the Company's lack of
any meaningful financial, managerial or other resources,
Capston believes the Company will not be viewed as a
suitable business combination partner for either developing
companies or established business that are in need of
substantial additional capital.
Acquisition of Opportunities
In implementing a particular business combination
transaction, the Company may become a party to a merger,
consolidation, reorganization, joint venture, franchise or
licensing agreement with another corporation or entity. It
may also purchase stock or assets of an existing business.
After the consummation of a business combination
transaction, it is likely that the present Stockholders of
the Company will only own a small minority interest in the
combined companies. In addition, as part of the terms of the
acquisition transaction, all of the Company's officers and
directors will ordinarily resign and be replaced by new
officers and directors without a vote of the Stockholders.
Capston does not intend to obtain the approval of the
Stockholders prior to consummating any acquisition other
than a statutory merger that requires a Stockholder vote.
Capston and its officers, directors and consultants do not
intend to sell any shares held by them in connection with a
business acquisition.
It is anticipated that any securities issued in a business
combination transaction will be issued in reliance on
exemptions from registration under applicable Federal and
state securities laws. In some circumstances, however, as a
negotiated element of a business combination, the Company
may agree to register such securities either at the time the
transaction is consummated 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 actual terms of a transaction to which the
Company may be a party cannot be predicted, it may be
expected that the parties to the business transaction will
find it desirable to avoid the creation of a taxable event
and thereby structure the acquisition in a so called "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 80%
or more of the voting stock of the surviving entity. In such
event, the stockholders of the Company would retain less
than 20% of the issued and outstanding shares of the
combined companies, which could result in significant
dilution in the equity of such stockholders. The Company
intends to structure any business combination in such manner
as to minimize Federal and state tax consequences to the
Company and any target company.
As part of the Company's investigation of potential business
opportunities, Capston and its officers, directors and
consultants will ordinarily meet personally with management
and key personnel, may visit and inspect material
facilities, obtain independent analysis or verification of
certain information provided, check reference of management
and key personnel, and take other reasonable investigative
measures, to the extent of the Company's limited resources
and Capston's limited expertise. The manner in which the
Company participates in an opportunity will depend on the
nature of the opportunity, the respective needs and desires
of the Company and other parties and the relative
negotiating strength of the Company and such other
management.
With respect to any business combination negotiations,
Capston will ordinarily focus on the percentage of the
Company which target company stockholders would acquire in
exchange for their ownership interest in the target company.
Depending upon, among other things, the target company's
assets and liabilities, the Company's stockholders will in
all likelihood only own a small minority interest in the
combined companies upon completion of the business
combination transaction. Any business combination effected
by the Company can be expected to have a significant
dilutive effect on the percentage of shares held by the
Company's current Stockholders.
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 is 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 Company of the related costs incurred.
Exemption from Rule 419
As an existing Registrant under the Exchange Act, the
Company's proposed activities are not subject to SEC Rule
419 which was adopted to strengthen the regulation of "blind
pool" companies which Congress has found to have been common
vehicles for fraud and manipulation in the penny stock
market. The Company is not subject to Rule 419 because it is
not offering stock to the public in an offering registered
under the Securities Act. Accordingly, Stockholders are not
entitled to the substantive protection provided by Rule 419.
Fees to Capston and Others
Expense Reimbursement. No cash compensation has been paid or
accrued to Capston or any of its officers, director or
consultants to date. Under the Revised Plan, Capston and its
officers, directors and consultants will be entitled to
reimbursement for the actual out-of-pocket expenses incurred
in connection with the reinstatement of the Company's
certificate of incorporation, the preparation and filing of
the Company's reports under the Exchange Act and the
negotiation of a business combination transaction, but they
will not be entitled to any cash compensation in connection
with services rendered prior to the closing of a business
combination. Moreover, any such reimbursement will be
subject to the express approval of the owners of the
business opportunity acquired by the Company.
Stock Issuance. Subject to Stockholder approval, the Company
intends file a Form S-8 Registration Statement under the
Securities Act to register 200,000 shares of Common Stock
that will be issuable to persons designated by Capston as
compensation for services rendered in connection with the
implementation of the Revised Plan. Therefore, if Capston is
successful in arranging a business combination for the
Company, approximately forty percent (40%) of the net value
derived by the Company's Stockholders will vest in Capston
and its officers, directors and consultants and the
remaining sixty percent (60%) will inure to the benefit of
the existing Stockholders of the Company.
Finder's Fees. As is customary in the industry, the Company
may pay a finder's fees to unrelated third parties who
introduce the Company to a suitable acquisition prospect. If
any such fee is paid, it will be approved by the Company's
Board of Directors and will be in accordance with the
standards discussed below. Finder's fees are customarily
between 1% and 5% of the total transaction value, based upon
a sliding scale of the amount involved. The traditional
"Lehman Formula" for calculating finder's fees is 5% of the
first $1 million in transaction value, plus 4% of the second
$1 million, plus 3% of the third $1 million, plus 2% of the
fourth $1 million plus 1% of any transaction value in excess
of $4 million. In Capston's opinion, the traditional Lehman
Formula finder's fee minimizes the economic incentive of
finder's who are involved in larger transactions. Therefore,
if the Revised Plan is approved by Stockholders, Capston
intends to offer a "reversed stretched Lehman fee" to
unrelated third party finders who introduce the Company to a
suitable acquisition prospect. Under the reversed stretched
Lehman formula proposed by Capston, the finder will receive
1% of the first $2 million in transaction value, 2% of the
second $2 million in transaction value, 3% of the third $2
million in transaction value, 4% of the fourth $2 million in
transaction value and 5% of any transaction value in excess
of $8 million. Since the Company does not have sufficient
financial resources to pay such a finder's fee in cash, it
is anticipated that any finder's fees will be paid with
shares of the Company's Common Stock which may be registered
under the Securities Act prior to issuance. Notwithstanding
the foregoing, no finder's fees will be paid to Capston or
any of its officers, directors, employees, agents or
affiliates without the prior consent of the Stockholders.
RISK FACTORS
The Revised Plan proposed by Capston involves a high degree
of risk. Stockholders should carefully consider the
following factors, among others, before executing the form
of Proxy enclosed herewith.
No Recent Operating History. The Company has no assets,
liabilities, management or ongoing operations and has not
engaged in any business activities since February 1989. Even
if the Capston Revised Plan is approved by the Stockholders,
the Company will be subject to all of the risks inherent in
the commencement of a new business enterprise with new
management. There can be no assurance that the Company will
be able to acquire an operating business or that such
business if acquired, will prove to be profitable. Although
Capston and its officers, directors and consultants have had
experience with respect to business acquisitions, the
Company has no recent operating history to aid stockholders
in making an informed judgment regarding the merits of the
Revised Plan. As of the date of this Proxy Statement,
Capston has not entered into any arrangement for, nor is it
presently negotiating with respect to, an acquisition of any
operating business.
No Specific Acquisition Revised Plans. The Company intends
to engage as soon as is reasonably possible, in the search
for and evaluation of potential acquisition opportunities,
but it will not engage in the business of investing,
reinvesting, owning, holding, or trading securities. Capston
has made no specific acquisition plans and no specific
industry or area of business has been selected for
investment. There is no assurance Capston and its officers,
directors and consultants will possess the experience and
skills necessary to make an informed judgment about any
business or industry that may be chosen. Accordingly, the
nature of the Revised Plan involves an extremely high degree
of risk and the Common Stock is not a suitable investment
for anyone who cannot afford the loss of his entire
investment.
Blind Pool. Inasmuch as Capston has not contemplated the
acquisition of any specific operating business, the
Company's proposed business will, in fact, be a Blind Pool
over which Stockholders will have no control. It is
anticipated that under most circumstances stockholders will
not be afforded the opportunity to pass upon the merits of
any business opportunity that the Company may ultimately
acquire and, therefore, Stockholders must rely upon the
abilities of Capston and its officers, directors and
consultants.
Limited Assets of the Company. As of the date of this Proxy
Statement, the Company has no substantial assets and it is
not anticipated that the Company will acquire any
substantial assets other than the assets of any business
opportunity it may acquire. Any business activity the
Company may eventually undertake will require substantial
capital. Since the Company does not know which type of
business it will acquire or the capital requirements for
such business, there can be no representations respecting
the future capital needs of the Company.
Potential Need for Additional Financing. Capston intends to
advance funds from time to time to help defray the Company's
operating costs, including the cost of professionals
retained by the Company, costs associated with complying
with filing requirements of the SEC and costs associated
with investigating and evaluating proposed acquisitions.
These advances will be recorded as liabilities on the books
of the Company and will be reimbursed to Capston upon
successful completion of a business combination transaction.
There is no assurance that Capston will have sufficient
resources to advance all required expenses and if Capston's
resources are insufficient, the Company may be required to
seek capital. No assurance can be given that the Company
will be able to obtain additional capital or, that any funds
will be available on terms acceptable to the Company.
Intense Competition. The Company is and will continue to be
an insignificant participant in the business of seeking
business opportunities. 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.
Dependence on Part-Time Management. The Company has no
employees as of the date hereof. Accordingly, the Company's
success will be largely dependent on the decisions made by
Capston and its officers, directors and consultants, none of
whom will devote their full time to the affairs of the
Company.
Experience of Capston. Although Capston and its officers,
directors and consultants have general business, finance and
acquisition experience, Stockholders should be aware that
Capston and its officers, directors and consultants are not
expected to have any significant experience in operating
such business as the Company might choose to acquire.
Accordingly, the Company will be required to obtain outside
professionals to assist them initially in assessing the
merits and risks of any proposed acquisition and thereafter
in operating any acquired business. No assurance can be made
that the Company will be able to obtain such assistance on
terms acceptable to the Company.
No Assurance of Acquisition of Operating Entity. Although
the Company proposes to combine with an existing, privately
held business which may or may not be profitable but which
is believed to have profitable growth potential
(irrespective of the industry in which such company engages)
and although Capston has received inquires from several
companies seeking to combine with publicly held "shells"
and/or blind pools, neither the Company nor Capston has
solicited any proposals regarding the Company's combination
with another business. There are no assurances that Capston
and its officers, directors and consultants will be able to
locate a suitable combination partner or that a combination
can be structured on terms acceptable to the Company.
Control of Combination Procedure by Capston. A combination
of the Company with another entity may be structured as a
merger or consolidation or involve the direct issuance of
the Company's Common Stock in exchange for the other
company's stock or assets. The General Corporation Law of
Delaware requires the affirmative vote of the holders of at
least a majority of the outstanding shares of a Delaware
corporation's capital stock to approve a merger or
consolidation, except in certain situations in which no vote
of the stockholders is necessary. Since stockholder approval
is not required in connection with the issuance of stock in
exchange for stock or assets and since the Revised Plan will
specifically authorize the issuance of up to 4,500,000
shares of Common Stock, without prior Stockholder approval,
in connection with a business combination transaction, it is
anticipated that Capston will have complete control over the
Company's combination policies and procedures.
Dilution Resulting from Combination. It is anticipated that
any entity which satisfies the Company's combination
suitability standards will possess assets and other indicia
of value substantially greater than those of the Company.
Consequently, any combination will almost certainly result
in a substantial dilution in the percentage of equity
ownership and voting power of holders of the Company's
Common Stock as stockholders of the combined enterprise. In
the aggregate, holders of the Company's Common Stock will
probably own a small minority percentage of the combined
enterprise's voting securities, with a concomitant reduction
in their power to elect directors and otherwise to influence
management policy.
Likely Change in Control. The successful completion of a
merger or acquisition will likely result in a change of
control resulting from the issuance of a large number of
shares of the Company's authorized and unissued Common
Stock. Any such change in control is also likely to result
in the resignation or removal of the Company's present
Officers and Directors. In such an event, no assurance can
be given as to the experience or qualification of such
persons either in the operation of the Company's activities
or in the operation of the business, assets or property
being acquired, although it is likely that successor
management will have greater experience in the business of
the combined companies than Capston and its advisors.
No Market Research. The Company has neither conducted nor
have others made available to it results of market research
concerning the availability of potential business
opportunities. Therefore, Capston and its advisors can offer
no assurances that market demand exists for an acquisition
or merger as contemplated by the Company. Capston and its
advisors have not identified any particular industry or
specific business within an industry for evaluation by the
Company. There is no assurance the Company will be able to
acquire a business opportunity on favorable terms
Lack of Diversification. In the event the Capston and its
advisors are successful in identifying and evaluating a
suitable business opportunity, the Company will in all
likelihood be required to issue its Common Stock in an
acquisition or merger transaction. Inasmuch as the Company's
cash is limited and the issuance of additional Common Stock
will result in a dilution of interest for present
stockholders, it is unlikely the Company will be capable of
negotiating more than one acquisition or merger.
Consequently, the Company's lack of diversification may
subject it to economic fluctuation within a particular
industry in which an acquired enterprise conducts business.
Potential Conflicts of Interest. Capston and its advisors
are all engaged full-time in other business activities, some
of which may be competitive with the proposed business
activities of the Company. In particular, Capston's
principal business involves the restructuring of defunct
public companies as clean public shells for the purpose of
effecting business combination with a suitable operating
companies. To the extent that Capston and its advisors have
fiduciary duties to such other business activities, possible
conflicts of interest may arise or may appear to exist in
respect to the possible diversion of corporate opportunities
to other entities with which they are or may become
associated. No assurance can be given that any such
potential conflicts of interest will not cause the Company
to lose potential opportunities.
No Market Maker. The Company's securities may be quoted on
NASD's Electronic Bulletin Board which reports quotations by
brokers or dealers making a market in particular securities.
The Company has no agreement with any broker or dealer to
act as a market maker for the Company's securities and there
is no assurance Capston and its advisors will be successful
in obtaining a market maker.
No Assurance of Public Market. Prior to this Proxy
Statement, there has been no public market for the Common
Stock and there is no assurance that a public market will
ever develop. If a trading market does in fact develop for
the Common Stock, there is a possibility that it will not be
sustained and Stockholders may have difficulty in selling
their Common Stock in the future at any price.
Possible Issuance of Additional Shares. If the Revised Plan
is approved by the Stockholders, the Company's Certificate
of Incorporation will authorize the issuance of 25,000,000
shares of Common Stock and 5,000,000 shares of Preferred
Stock. Any Preferred Stock that is subsequently issued by
the Company may be subject to conversion into Common Stock
on terms approved by the Board of Directors. If the Revised
Plan is approved by the Stockholders, approximately 98% of
the Company's authorized shares of Common Stock will remain
unissued. The Revised Plan specifically contemplates the
issuance of up to 4,500,000 shares of Common Stock to
unrelated third parties in connection with a business
combination transaction. Moreover, 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. Although the
Company currently has no commitments, contracts or
intentions to issue any additional shares, Stockholders
should be aware that any such issuance may result in a
reduction of the book value or market price, if any, of the
outstanding shares of Common Stock. If the Company issues
additional shares, such issuances will also cause a
reduction in the proportionate ownership and voting power of
all other Stockholders. Further, any new issuance of shares
of Common Stock may result in a change of control of the
Company. If any acquisition resulted in a change of control,
there can be no assurance as to the experience or
qualifications of those new persons involved in either the
management of the Company or of the business being acquired.
In that event, future operations of the Company and the
payment of dividends, if any, would be wholly dependent upon
such persons.
No Assurance of Dividends. The Company has not paid any
dividends upon its Common Stock, and by reason of its
present financial status and its contemplated financial
requirements, does not contemplate paying any dividends in
the foreseeable future.
ELECTION OF DIRECTOR
Since Capston only effected a renewal, revival and
restoration of the Company's certificate of incorporation in
June of 1996, there are presently no members of the Board of
Directors and it will be necessary to appoint at least one
person to serve as a director of the Company to serve,
subject to the provisions of the by-laws of the Company,
until the next annual Meeting of the Stockholders, and until
the election and qualification of a successor board of
directors. Capston's sole nominee for membership on the
Board of Directors is Ms. Sally A. Fonner, the principal
stockholder and president of Capston. A brief account of Ms.
Fonner's business experience and education follows:
Ms. Sally A. Fonner, age 48, has been an independently
employed business consultant for most of the past fifteen
years. She graduated from Stephens University in 1969 with a
Bachelor of Arts Degree in Social Systems. After a stint in
the private sector, Ms. Fonner returned to further her
education and obtained her MBA Degree from the Executive
Program of the University of Illinois in 1979. In many of
her assignments as a business consultant, she is frequently
engaged in dealings which involve financiers and large
monetary transactions. Currently, Ms. Fonner has been
engaged for the last two years in the complex area of
financing rehabilitation providers.
Board and Committee Activity, Structure and Compensation. As
Capston's representative, Ms. Fonner will receive no
compensation for serving on the Board of Directors, although
she will likely be allocated a substantial portion of the
200,000 compensation shares provided for in the Revised
Plan. After the completion of a business combination
transaction, directors who are not a salaried employees of
the Company will likely receive a cash stipend for attending
Meetings of the Board, together with reimbursement for
expenses incurred in connection with attending each such
Meeting. The Company does not currently have any standing
committees; however, it is expected that the Board will
likely designate an Executive Committee, a Compensation
Committee and an Audit Committee after the completion of a
business combination transaction.
Stockholders Entitled to Vote and Vote Required.
Directors will be elected by a plurality of the votes cast
by the holders of all shares of Common Stock entitled to
vote at the Meeting. Abstentions and broker non-votes will
be disregarded in the tabulation of votes for the election
of Directors.
CAPSTON 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 PROXY ENCLOSED
HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS THE
STOCKHOLDER SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSALS
OR EXPRESSLY ABSTAINS FROM VOTING. SINCE CAPSTON HAS
PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON INTENDS TO
ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN
ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSED REVERSE SPLIT
At the date of this Proxy Statement, the Company has an
aggregate of 3,439,247 shares of Common Stock issued and
outstanding. Since (i) Capston believes that the owners of a
suitable target company will ordinarily want to control
between 80% and 90% of the Company's Common Stock upon the
completion of a business combination transaction, and (ii)
Capston believes an ultimate capitalization in the 2,500,000
to 5,000,000 share range is ideal for a small public
Company, Capston believes that it will be in the best
interest of the Company and its Stockholders to reduce the
number of outstanding shares to approximately 300,000 shares
by means of a reverse split. Capston believes such action
will optimize the number of shares issued and outstanding
after a business combination transaction, result in a higher
reported market price for the Common Stock of the combined
companies, and reduce the market volatility of the Common
Stock of the combined companies. These changes, in turn, are
expected to enhance the overall perception of the Common
Stock among institutional investors and larger brokerage
firms. These goals, if achieved, are expected to enhance the
Company's ability to raise additional equity capital, and
attract new market makers and institutional stockholders.
Capston believes that the proposed reverse split will be
beneficial to the Company by significantly reducing the
number of issued and outstanding shares of Common Stock,
reducing the expected level of price volatility, and
otherwise stabilizing the anticipated market price of the
Common Stock. Capston also believes the proposed reverse
split would increase the Company's posture and relative
worth of its shares in the eyes of the investment community,
although there is a risk that the market may not adjust the
price of the Company's Common Stock by the ratio of a
reverse split. Capston is aware of instances where only
modest price appreciation per share has resulted from a
reverse stock split. Trading in the Common Stock thereafter
will be at prices determined by supply and demand and
prevailing market conditions, which will not necessarily
result in the Common Stock of the Company maintaining a
market price in proportion to the reverse split effected.
The Common Stock is currently registered under Section 12(g)
of the Exchange Act, and as a result, the Company is subject
to the periodic reporting and other requirements of the Act.
The proposed reverse split will not effect the registration
of the Common Stock under the Act, and the Company has no
present intention of terminating its registration under the
Act in order to become a "private" company.
Other than the decrease in the total shares to be
outstanding, no substantive changes are being made in the
rights of Common Stock. Accordingly, upon the Effective Date
of a reverse split, each holder of record of new shares
would be entitled to one vote for each new share held at
each Meeting of the Stockholders in respect to any matter on
which Stockholders have the right to vote. Stockholders have
no cumulative voting rights, nor will they have the
preemptive right to purchase any additional shares of Common
Stock. Holders would be entitled to receive, when and as
declared by the Company's Board of Directors, out of
earnings and surplus legally available therefor, any
dividends payable either in cash, in property or in shares
of the capital stock of the Company.
No fractional new shares will be issued. Each holder of less
than 11.4642 shares, after exchange of all other old shares
held by the holder, will be issued one (1) new share in
exchange for such remaining old shares.
As soon as practical after the Effective Date of a reverse
split, the Company will mail letters of transmittal to each
holder of record of a stock certificate or certificates
which represents issued shares of Common Stock outstanding
on the Effective Date. The letter of transmittal will
contain instructions for the surrender of such certificate
or certificates to the Company's transfer agent in exchange
for the certificates representing the number of whole shares
of new Common Stock into which the shares of Common Stock
have been converted as a result of a reverse split. No
payment will be made or new certificate issued to a
stockholder until he has surrendered his outstanding
certificates together with the letter of transmittal to the
Company's transfer agent.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all
shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting will be required to
approve the proposed reverse split. Stockholders have no
right under Delaware law or the Certificate of Incorporation
to dissent from a reverse split In conformity with Article
II, Section 11 of the Company's amended by-laws, the failure
to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all
proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes
against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED REVERSE
SPLIT. THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF
THE PROPOSED REVERSE SPLIT UNLESS THE STOCKHOLDER
SPECIFICALLY VOTES AGAINST THE PROPOSAL OR EXPRESSLY
ABSTAINS FROM VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS
AN INTEGRATED WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN
ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT APPROVED BY
THE STOCKHOLDERS.
ISSUANCE OF COMPENSATION SHARES
As part of the Revised Plan, Capston proposes to issue a
total of 200,000 shares of Common Stock ("Compensation
Shares") to individuals designated by Capston as
compensation for services rendered in connection with the
implementation of the Revised Plan. The purpose of this
proposed grant of Compensation Shares is to increase the
personal stake of the Grantees in the Company since the
Company's long-term business objectives will be dependent in
large part upon their efforts, expertise and abilities.
Subject to Stockholder approval, the Company intends file a
Form S-8 Registration Statement to register the 200,000
Compensation Shares under the Securities Act. Thereafter,
the Compensation Shares will be issued from time to time to
individuals designated by Capston who have materially
participated in the implementation of the Revised Plan. Such
shares will not, however, be issued to finders or for
services rendered in a capital raising transaction. If
Capston is successful in arranging a business combination
for the Company, approximately forty percent (40%) of the
net value derived by the Company's Stockholders will vest in
Capston and its officers, directors and consultants and the
remaining sixty percent (60%) will inure to the benefit of
the existing Stockholders of the Company.
A Grantee will recognize income for federal tax purposes at
the time the Compensation Shares are issued. In general, the
amount of ordinary income recognized by a Grantee will equal
the fair market value of the Compensation Shares on the date
of grant. Gain or loss (if any) from a disposition of
Compensation Shares after the Grantee recognizes ordinary
income will generally constitute short or long-term capital
gain or loss. The Company will be entitled to a tax
deduction at the time the Grantee recognizes ordinary income
on the Compensation Shares.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all
shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting will be required to
approve the proposed issuance of 200,000 Compensation Shares
to persons designated by Capston. In conformity with Article
II, Section 11 of the Company's amended by-laws, the failure
to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all
proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes
against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED ISSUANCE
OF 200,000 COMPENSATION SHARES. THE PROXY ENCLOSED HEREWITH
WILL BE VOTED IN FAVOR OF THE PROPOSED ISSUANCE OF
COMPENSATION SHARES UNLESS THE STOCKHOLDER SPECIFICALLY
VOTES AGAINST THE PROPOSAL OR EXPRESSLY ABSTAINS FROM
VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY
IF ALL ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE
STOCKHOLDERS.
APPROVAL OF FINDER'S FEE FORMULA
As is customary in the industry, the Revised Plan
contemplates the payment of finder's fees to unrelated third
parties who introduce the Company to a suitable acquisition
prospect. If any such fee is paid, it will be approved by
the Company's Board of Directors and will be in accordance
with the standards discussed below.
Finder's fees are customarily between 1% and 5% of the total
transaction value, based upon a sliding scale of the amount
involved. The traditional "Lehman Formula" for calculating
finder's fees is 5% of the first $1 million in transaction
value, plus 4% of the second $1 million, plus 3% of the
third $1 million, plus 2% of the fourth $1 million plus 1%
of any transaction value in excess of $4 million. In
Capston's opinion, however, the traditional Lehman Formula
finder's fee minimizes the economic incentive of finder's
who are involved in larger transactions.
In Capston's opinion, the Company and its Stockholders will
be better served by accepting a relatively small percentage
interest in a relatively large transaction, as opposed to
requiring a relatively large percentage interest in a
relatively small transaction. The reasons for this belief
are numerous. First, Capston believes that the ongoing costs
and expenses associated with reporting under the Exchange
Act can be a significant burden for a small company. Second,
Capston believes that relatively large companies are more
likely to thrive and prosper than smaller companies. Third,
Capston believes that relatively large companies are better
suited to shell transactions than small companies. Finally,
Capston believes that a relatively large company will be
required to satisfy the minimum entry standards for the
NASDAQ Stock Market and the Regional and National Stock
Exchanges. For example, the following table outlines the
newly-adopted Entry Standards for companies that wish to
have their securities listed in the NASDAQ :Small Cap
Market:
Entry Standards for
NASDAQ Small Cap Market
Net Tangible Assets
(Total Asset less Total
Liabilities and Goodwill) $4,000,000,or
Market Capitalization $50,000,000, or
Net Income (2 oflast 3 years) $750,000
Total Assets N/A
Total Equity N/A
Public Float (Shares) 1,000,000
Market Value of Float $5,000,000
Bid Price $4.00
Market Makers 3
Stockholders 300
Operating History (years) 1 or
Market Capitalization
$50,000,000
Similarly, the following table outlines the newly-adopted Entry
Standards for companies that wish to have their securities
listed in the NASDAQ National Market System:
Entry Standards for
NASDAQ National Market System
Net Tangible Assets $6,000,000 $18,000,000 N/A
Market Capitalization N/A N/A $75,000,000
Total Assets N/A N/A $75,000,000
Total Revenue N/A N/A $75,000,000
Pre-tax Earnings (2 of last 3 years) $1,000,000 N/A N/A
Public Float (shares) 1,100,000 1,100,000 1,100,000
Market Value of Float $8,000,000 $18,000,000 $20,000,000
Bid Price $5.00 $5.00 $5.00
Market Makers 3 3 4
Stockholders 400 400 400
Operating History (years) N/A 2 N/A
Since the size of the business operation acquired by the
Company will, in large part, determine the market where the
securities of the combined companies will qualify for
listing, Capston intends to use all reasonable efforts to
identify and negotiate with the largest possible business
combination partners. In furtherance thereof, Capston
intends to offer a "reversed stretched Lehman fee" to
unrelated third party finders who introduce the Company to a
suitable acquisition prospect. Under the reversed stretched
Lehman formula proposed by Capston, the finder may receive
1% of the first $2 million in transaction value, 2% of the
second $2 million in transaction value, 3% of the third $2
million in transaction value, 4% of the fourth $2 million in
transaction value and 5% of any transaction value in excess
of $8 million. Since the Company does not have sufficient
financial resources to pay such a finder's fee in cash, it
is anticipated that any finder's fees will be paid with
shares of the Company's Common Stock which may be registered
under the Securities Act prior to issuance. Notwithstanding
the foregoing, no finder's fees will be paid to Capston or
any of its officers, directors, employees, agents or
affiliates without the prior consent of the Stockholders.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all
shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting will be required to
approve the proposed finder's fee formula. In conformity
with Article II, Section 11 of the Company's amended by-
laws, the failure to appear in person or by proxy and vote
on matters presented to the Meeting will be treated as a
vote FOR all proposals unless the holders of least 10% of
the Company's outstanding Common Stock appear in person or
by proxy and vote AGAINST the proposal. Executed proxies
that are marked "Abstain" and broker non-votes will be
counted as votes against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED FINDER'S
FEE FORMULA. THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN
FAVOR OF THE PROPOSED FINDER'S FEE FORMULA UNLESS THE
STOCKHOLDER SPECIFICALLY VOTES AGAINST THE PROPOSAL OR
EXPRESSLY ABSTAINS FROM VOTING. SINCE CAPSTON HAS PROPOSED
THE PLAN AS AN INTEGRATED WHOLE, CAPSTON INTENDS TO ABANDON
THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT
APPROVED BY THE STOCKHOLDERS.
APPROVAL OF NAME CHANGE
AND BUSINESS COMBINATION FORMAT
In general, a business combination may be structured in the
form of a merger, consolidation, reorganization, joint
venture, franchise, licensing agreement or purchase of the
stock or assets of an existing business. Certain business
combination transactions, such 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 public
company shares that are customarily issued to stockholders
of the privately-held company, those stockholders end up
with a controlling interest in the public company and are
then free to appoint their own slate of officers and
directors.
By using an existing public company, a privately-held
concern 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, reverse takeovers are viewed with some
skepticism by both the financial community and the
regulatory authorities 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. If a privately-held
company believes that substantial additional capital will be
required within the next 6 to 12 months, a reverse takeover
transaction may not be the best alternative.
While the business combination transaction contemplated by
the Revised Plan may be structured as a merger or
consolidation, Capston believes that the reverse takeover
format will be most attractive to potential acquisition
targets. Accordingly, Capston is seeking prior stockholder
authorization for a reverse takeover transaction that will
involve up to 4,500,000 shares of Common Stock. In the event
that a proposed business combination will involve the
issuance of less than 4,500,000 shares to the owners of the
privately-held company, then Capston will be authorized to
conclude the business combination without first seeking the
approval of the Stockholders. If, on the other hand, the
proposed business combination transaction will involve the
issuance of more than 4,500,000 shares to the owners of the
privately-held company, then Capston will seek prior
stockholder approval of the proposed transaction, without
regard to whether such stockholder approval might be
required under Delaware law.
In connection with a business combination transaction, it is
almost certain that management of the acquisition target
will require the Company to change its name to one selected
by the Board of Directors or stockholders of the acquisition
target. Since it is also almost certain that the
stockholders of the acquisition target will possess
sufficient voting power to cause the Company to change its
name after the acquisition, Capston is seeking prior
stockholder authorization for a change in the Company's name
that is (i) a negotiated element of a business combination
transaction of the type contemplated by the Revised Plan,
and (ii) communicated to all Stockholders of the Company as
soon as possible following the consummation of the Revised
Plan.
Stockholders Entitled to Vote and Vote Required.
Authorization of Stock Issuance. The affirmative vote of the
holders of a majority of all shares of Common Stock entitled
to vote and represented in person or by proxy at the Meeting
is required to authorize the issuance of up to 4,500,000
shares of Common Stock to unrelated third in connection with
a business combination transaction of the type contemplated
by the Revised Plan. In conformity with Article II, Section
11 of the Company's amended by-laws, the failure to appear
in person or by proxy and vote on matters presented to the
Meeting will be treated as a vote FOR all proposals unless
the holders of least 10% of the Company's outstanding Common
Stock appear in person or by proxy and vote AGAINST the
proposal. Executed proxies that are marked "Abstain" and
broker non-votes will be counted as votes against the
proposal.
Authorization of Name Change. The affirmative vote of the
holders of a majority of all shares of Common Stock entitled
to vote and represented in person or by proxy at the Meeting
is required authorize an amendment to the Company's
Certificate of Incorporation to effect a Change in the
Company's name that is (i) a negotiated element of a
business combination transaction of the type contemplated by
the Revised Plan, and (ii) communicated to all Stockholders
of the Company as soon as possible following the
consummation of the Revised Plan. In conformity with Article
II, Section 11 of the Company's amended by-laws, the failure
to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all
proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes
against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE EACH OF THE FOREGOING
PROPOSALS. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR
EACH PROPOSAL UNLESS THE STOCKHOLDER SPECIFICALLY VOTES
AGAINST ONE OR MORE PROPOSAL OR EXPRESSLY ABSTAINS FROM
VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY
IF ALL ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE
STOCKHOLDERS.
Increase in Authorized Capitalization.
The authorized capitalization of the Company is presently
fixed at 10,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock. At September 9, 1996, the
Company had 3,439,247 shares of Common Stock issued and
outstanding. Thus, at September 9, 1996, there were
approximately 6,560,753 authorized shares of Common Stock
and1,000,000 authorized shares of Preferred Stock that were
both unissued and not reserved for future issuance.
Since the Company's business plan contemplates the issuance
of up to 4,500,000 shares of Common Stock to the current
owners of an unidentified business or businesses, and
Capston believes that the Company is likely to need
substantial additional financing in the future, although the
amount and timing of the Company's future financing
requirements is not presently ascertainable, Capston
believes that an increase in the authorized capitalization
of the Company is desirable to facilitate the Company's
future financing activities. Accordingly, Capston proposes
to increase the authorized Preferred Stock of the Company
from 1,000,000 shares to 5,000,000 shares, and increase the
authorized Common Stock of the Company from 10,000,000
shares to 25,000,000 shares. Under this proposal, the
relative rights and limitations of the holders of Preferred
and Common Stock would remain unchanged.
The proposed increase in the authorized capitalization of
the Company has been recommended by Capston to assure that
an adequate supply of authorized and unissued shares is
available to finance the acquisition of suitable business
opportunities and the future growth of the Company. In
addition, the proposed new shares could also be used for
general corporate purposes, such as future stock dividends
or stock splits.
The issuance of additional shares of Common Stock may, among
other things, have a dilutive effect on earnings per share
and on the equity and voting power of existing holders of
Common Stock. Until the Board determines the specific
rights, preferences and limitations of any future series of
Preferred Stock, the actual effect on the holders of Common
Stock of the issuance of such shares 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.
There are no current plans or arrangements relating to the
issuance of any additional shares of Common or Preferred
Stock proposed to be authorized. In addition, the Company
has no present intention to issue shares of Common or
Preferred Stock to any person in connection with any
acquisition of assets, merger, business combination,
exchange of securities or other similar transaction. The
terms of any future offering 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 stockholders, 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 stockholder
action, except as may otherwise be provided by law or the
Articles of Incorporation as to holders of Preferred Stock.
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 stockholder approval of
various actions, such as a merger or removal of management.
Stockholders Entitled to Vote and Vote Required.
Increase in Common Stock. The affirmative vote of the
holders of a majority of all shares of Common Stock entitled
to vote and represented in person or by proxy at the Meeting
will be required to approve the proposed increase in the
Company's authorized Common Stock. In conformity with
Article II, Section 11 of the Company's amended by-laws, the
failure to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all
proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes
against the proposal.
Increase in Preferred Stock. The affirmative vote of the
holders of a majority of all shares of Common Stock entitled
to vote and represented in person or by proxy at the Meeting
will be required to approve the proposed increase in the
Company's authorized Preferred Stock. In conformity with
Article II, Section 11 of the Company's amended by-laws, the
failure to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all
proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes
against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED INCREASES
IN THE COMPANY'S AUTHORIZED COMMON AND PREFERRED STOCK. THE
PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF BOTH
PROPOSALS UNLESS THE STOCKHOLDER SPECIFICALLY VOTES AGAINST
THE PROPOSALS OR EXPRESSLY ABSTAINS FROM VOTING. SINCE
CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED WHOLE,
CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL
ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
ADDITIONAL INFORMATION
Capston has engaged the public accounting firm of Want &
Ender, C.P.A. of New York, New York to audit the Company's
financial statement for the period ending July 12, 1994, and
the years ending every year from December 31,1989 to
December 31,1995. Capston has also retained the firm of Want
& Ender as auditors of various other companies, but has no
other relationship with the firm. A representative from the
firm of Want & Ender will attend the meeting and be
available to answer questions from stockholders.
Additional materials enclosed herewith include copies of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as filed with the Securities and Exchange
Commission on June 13, 1996 "Exhibit A." 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.
This solicitation is being conducted by Capston Network
Company on behalf of Arnox Corporation The cost of
soliciting proxies in the accompanying form will be advanced
by Capston and reimbursed by the Company if, as and when a
suitable business combination transaction is effected. The
cost of solicitation including legal, accounting, printing,
mailing and other miscellaneous expenses are estimated at
$12,000. To date, Capston's out-of-pocket expenses have been
approximately $5,000. There is no known opposition to the
solicitation. In addition to solicitations by mail,
Directors, officers and regular employees of Capston 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. Capston does not expect that any matters other than
those referred to in this proxy statement will be presented
for action at the Meeting.
PROXY ARNOX CORPORATION PROXY
This Proxy is Solicited by Capston Network Co. for the
Special Meeting of Stockholders to be Held on March 10, 1997
The undersigned hereby appoints John L. Petersen and Lisa
Duncan, and each of them, either one of whom may act without
joinder of the other, each with full power of substitution
and ratification, attorneys and proxies of the undersigned
to vote all shares of common stock of ARNOX CORPORATION
which the undersigned is entitled to vote at a special
meeting of Stockholders to be held at 3:00 p.m. on Monday,
March 10, 1997, in the Cardita Room of the Sheraton at Sand
Key 430 S., 1160 Gulf Blvd., Clearwater Beach, Florida, and
at any and all adjournments thereof:
1. FOR the election of Sally A. Fonner to serve as
the sole member of the Board of Directors until the
1998 annual Meeting of stockholders, or until her
successor is elected and qualified
nFOR nAGAINST nABSTAIN
2. PROPOSED AMENDMENTS TO ARTICLES OF INCORPORATION.
(a) To effect a reverse split of all issued and
outstanding shares of Common Stock in the ratio of
one (1) share of new Common Stock for each 11.5879
shares presently outstanding so that immediately
thereafter the Company will have a total of
300,000 shares issued and outstanding
nFOR nAGAINST nABSTAIN
(b) To increase the authorized Common Stock of the
Company to 25,000,000 shares.
nFOR nAGAINST nABSTAIN
(c) To increase the authorized Preferred Stock of the
Company to 5,000,000 shares.
nFOR nAGAINST nABSTAIN
3. PROPOSED COMPENSATION SHARE ISSUANCE. To approve
the issuance of 200,000 shares of Common Stock to
persons designated by Capston as compensation for
services rendered in connection with the
implementation of the Revised Plan.
nFOR nAGAINST nABSTAIN
4. TO consider and vote upon a proposal which will give
the Board of Directors authority to pay an in-kind
Finder's Fee to unrelated third party finders. who
introduce the Company to a suitable acquisition
prospect.
nFOR nAGAINST nABSTAIN
5. PROPOSED AUTHORIZATION OF STOCK ISSUANCE. To
authorize the Board of Directors to (i) change the
Company's name and (ii) issue up to 4,500,000 shares
of Common Stock to unrelated third parties, all
without prior stockholder approval, in connection
with a business combination transaction of the type
contemplated by the Revised Plan.
nFOR nAGAINST nABSTAIN
6. IN their discretion Upon such other matters
which may properly come before the meeting and any
adjournment thereof.
nFOR nAGAINST nABSTAIN
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: _____________________, 1997 ____________________________________
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.
n I Revised Plan to personally attend the Special Meeting of
the Stockholders
PLEASE DATE, SIGN AND RETURN THIS PROXY TO CAPSTON
IN THE ENCLOSED ENVELOPE. THANK YOU.
