BKHM » Topics » Reasons for Extending the Authorization of the Reverse Stock Split

This excerpt taken from the BKHM DEF 14A filed Sep 4, 2009.
Reasons for Extending the Authorization of the Reverse Stock Split
 
Our board of directors believes that a reverse stock split may be desirable for a number of reasons. The board believes that a reverse stock split may allow us to meet the listing requirements of, and thus remain listed on, the Nasdaq Global Market or, if applicable, the Nasdaq Capital Market. Extending the authorization of the reverse stock split to December 31, 2010 will give us the ability to effect the reverse stock split before its common stock may be delisted by Nasdaq, as explained below. In addition, the board believes that a reverse stock split could improve the marketability and liquidity of our common stock.
 
Our common stock is currently listed on the Nasdaq Global Market. According to applicable Nasdaq rules, in order for our common stock to continue to be listed on the Nasdaq Global Market, we must satisfy certain listing maintenance standards. Among other things, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive trading days and does not thereafter reach $1.00 per share or higher for a minimum of ten consecutive trading days during the 180 calendar days following notification by Nasdaq, Nasdaq may take action to delist our common stock from trading on the Nasdaq Global Market. If we transfer the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market, a similar $1.00 minimum bid price requirement would apply. However, if we meet all the listing maintenance standards of the Nasdaq Capital Market except the $1.00 minimum bid price requirement, then we would have an additional 180 calendar days thereafter in order to raise our stock price above the minimum.
 
On October 16, 2008, Nasdaq announced that it had suspended the enforcement of its rules requiring a minimum bid price of $1.00 per share through January 16, 2009, and the suspension was subsequently extended by Nasdaq on December 18, 2008 and March 18, 2009, such that companies were not cited for failure to meet the minimum bid price requirement. Nasdaq reinstated the minimum bid price requirement on August 3, 2009. We do not expect to receive a staff deficiency notice with respect to the delisting of our common stock resulting from a failure to meet the minimum bid requirement unless we have failed to demonstrate compliance with the minimum bid requirement on or after August 3, 2009. As of September 1, 2009, the closing bid price of our common stock was $0.77, lower than the minimum bid requirement. If the closing bid price remains below $1.00, and if we successfully transfer the listing of our common stock to the Nasdaq Capital Market, we would have until September 9, 2010 to meet the minimum bid price requirement. Extending the authorization for the reverse stock split to December 31, 2010 is intended to allow us full flexibility to comply with Nasdaq’s minimum bid requirement, including in the event Nasdaq were to suspend the minimum bid requirement for some period in the future, and thereby permit our common stock to continue to be listed on the Nasdaq Global Market or, if applicable, the Nasdaq Capital Market.
 
Our board of directors expects that a reverse stock split of our common stock would increase the market price of our common stock so that we would be able to maintain compliance with the Nasdaq minimum bid requirement for the foreseeable future.
 
Our board of directors also believes that the increased market price of our common stock expected as a result of implementing a reverse stock split could improve the marketability and liquidity of our common stock and encourage interest and trading in our common stock. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of our common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. It should be noted that the liquidity of


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our common stock may be harmed by the proposed reverse stock split given the reduced number of shares that would be outstanding after the reverse stock split. Our board of directors is hopeful, however, that the anticipated higher market price will reduce, to some extent, the negative effects of the policies and practices of institutional investors and brokerage houses described above on the liquidity and marketability of the common stock.
 
Notwithstanding the foregoing, there can be no assurance that: (a) the market price per share following the reverse stock split would rise in proportion to the reduction in the number of pre-split shares of our common stock outstanding before the reverse stock split; (b) the market price per share following the reverse stock split would remain in excess of the $1.00 minimum bid price for a sustained period of time, or long enough to satisfy Nasdaq’s continued listing requirements; (c) our common stock will not be delisted by Nasdaq due to a failure to meet other continued listing requirements even if the market price per post-reverse split share of our common stock remains in excess of the $1.00 minimum bid requirement; and (d) the reverse stock split would result in a per share price that would attract brokers and investors who do not trade in lower priced stock. The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding and many of which are beyond our control. If the reverse stock split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split.
 
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