This excerpt taken from the PRVT DEF 14A filed Nov 3, 2009.
Reasons for the Reverse Stock Split Proposal
Our Board of Directors is seeking shareholder approval of the authorization to effect the reverse split of our common stock with the primary intent of increasing the price of our common stock in order to meet and maintain the NASDAQ Global Markets price criteria for continued listing on that exchange. Our common stock is publicly traded and listed on the NASDAQ Global Market under the symbol PRVT.
Under NASDAQ Global Market listing maintenance requirements, a listed company is required to maintain a minimum closing bid price for listed shares of at least $1.00. If the closing bid price falls below $1.00 for 30 consecutive business days a listed company faces delisting if it fails to regain compliance with the $1.00 minimum bid price during the applicable cure period. On September 15, 2009, the Company received a letter from The NASDAQ Stock Market stating that for the previous 30 consecutive business days, the bid price of the Companys common stock closed below the minimum $1.00 per share requirement for continued inclusion on The NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 5450(a)(1) (the Minimum Bid Price Rule) and, therefore, that a deficiency exists with regard to the Minimum Bid Price Rule.
In accordance with NASDAQ Marketplace Rule 5810(c)(3)(A), the Company is provided with a grace period of 180 calendar days, until March 15, 2010, to regain compliance with the Minimum Bid Price Rule. If at any time before March 15, 2010, the bid price of the Companys stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ will notify the Company that it has achieved compliance with the Minimum Bid Price Rule. If the Company does not regain compliance with the Minimum Bid Price Rule by March 15, 2010, NASDAQ will notify the Company that its common stock is subject to delisting from The NASDAQ Global Market.
In the event the Company receives notice that its common stock is subject to delisting from The NASDAQ Global Market, NASDAQ rules permit the Company to appeal any delisting determination by the NASDAQ staff to a NASDAQ Hearings Panel. Alternatively, NASDAQ may permit the Company to transfer its common stock to The NASDAQ Capital Market if it satisfies the requirements for initial inclusion set forth in Marketplace Rule 5505, except for the bid price requirement. If its application for transfer is approved, the Company would have an additional 180 calendar days to comply with the Minimum Bid Price Rule in order to remain on The NASDAQ Capital Market. Therefore, our common stock is subject to NASDAQ delisting procedures if such noncompliance is not rectified by the end of the first 180 day cure period, ending March 15, 2010.
The closing bid price of our common stock has not been at or above $1.00 share from May 6, 2009, through October 26, 2009. On October 26, 2009, the closing bid price of our common stock was $0.82.
Our Board of Directors believes that increasing the per share trading price of our common stock would help ensure the price is increased above, and remains above, the $1.00 bid price required by the NASDAQ listing standard. In addition to bringing the price of our common stock back above $1.00, we also believe that the reverse stock split may make our common stock more attractive to a broader range of institutional and other investors, as the current market price of our common stock may affect its acceptability to certain institutional investors, professional investors and other members of the investing public. 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. In addition, some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Moreover, 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 common stock can result in individual shareholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher.
Reducing the number of outstanding shares of our common stock through the reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there can be no assurance that the reverse
stock split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the reverse stock split, that the market price of our common stock will not decrease in the future, or that we will otherwise be able to comply with applicable listing requirements. Moreover, some investors may view the reverse stock split negatively since it reduces the number of shares of common stock available in the public market.
Depending on the exact reverse stock split ratio chosen by our Board of Directors, the number of shares of common stock issued and outstanding would be reduced, and the number of shares of unreserved authorized common stock available for future issuance would be increased, as the Company is not asking the shareholders to authorize the reduction of the number of authorized shares of common stock as part of the reverse split proposal. The table below shows the number of shares that would be (a) issued and outstanding, (b) unissued shares which are authorized and reserved for issuance (representing outstanding and available stock options, and maximum amount of shares issuable as Earnout Shares for the GameLink companies acquisition), and (c) unissued shares which are authorized but not reserved for issuance, in each case after giving effect to the implementation of the reverse split at specified ratios from 1 for 2 to 1 for 50, based on the Companys outstanding common stock on October 19, 2009, of 62,114,803 shares, and without giving effect to the adoption of the 2009 Equity Incentive Plan. The exact number of shares would be determined by the number of outstanding shares on the date the reverse stock split was effected, and the exact reverse split ratio would be determined by the Board of Directors, in its sole discretion, at any ratio deemed advisable between 1 for 2 and 1 for 50.