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 [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CUMBERLAND TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
CUMBERLAND TECHNOLOGIES, INC. AND FRANCIS M. WILLIAMS
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below 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:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify 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:
CUMBERLAND TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on January __, 2003
TO THE SHAREHOLDERS
OF CUMBERLAND TECHNOLOGIES, INC.
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of
Cumberland Technologies, Inc., a Florida corporation (the "Company"), will be
held at ________ PM, local time, on January ___, 2003, at the Company's
headquarters at 4311 W. Waters Avenue, Tampa, Florida 33614 to approve an
amendment to the Company's Amended and Restated Articles of Incorporation (the
"Articles") which will effect a 150 to 1 reverse stock split of the Company's
Common Stock.
The reverse stock split will have the effect of allowing the Company to
terminate its registration under the Securities Exchange Act of 1934.
The Board of Directors has fixed the close of business on January ___, 2003
as the record date for determining those shareholders entitled to notice of, and
to vote at, the Special Meeting and any adjournments or postponements thereof.
Whether or not you expect to be present, please sign, date and return the
proxy form sent to you as promptly as possible.
By Order of the Board of Directors,
/s/ Joseph M. Williams
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Joseph M. Williams
Secretary/Treasurer Tampa, Florida 33605
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. THOSE SHAREHOLDERS
WHO ARE UNABLE TO ATTEND ARE URGED TO EXECUTE AND RETURN THE PROXY FORM AS
PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY FORM MAY NEVERTHELESS
ATTEND THE MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
SPECIAL MEETING OF SHAREHOLDERS
OF CUMBERLAND TECHNOLOGIES, INC.
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PRELIMINARY PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cumberland Technologies, Inc., a Florida corporation
(the "Company"), of proxies from the holders of the Company's Common Stock (the
"Stock") for use at the Special Meeting of Shareholders of the Company to be
held at the corporate headquarters of Cumberland Technologies, Inc., 4311 W.
Waters Avenue, Tampa, Florida 33614 at __________ PM, local time, on January __,
2003 or at any adjournments or postponements thereof (the "Special Meeting").
The approximate date that this Proxy Statement and the enclosed form of proxy
are first being sent or given to holders of Common Stock is January __, 2003.
The Company's principal executive offices are located at its corporate offices
at 4311 W. Waters Avenue, Tampa, Florida 33614, and its telephone number is
(813) 885-2112.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors (the "Board") and its majority shareholder, Francis M. Williams. The
cost of preparing, assembling and mailing this Proxy Statement, the Notice of
Special Meeting of Shareholders and the enclosed proxy will be borne by the
Company. The Company may request banks, brokers and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies.
PURPOSE OF THE MEETING
At the Special Meeting, the Company's shareholders will consider and vote
to approve an amendment to the Company's Amended and Restated Articles of
Incorporation (the "Articles") which will effect a 150 to 1 reverse stock split
of the Company's Common Stock (the "Stock").
The reverse stock split will have the effect of allowing the Company to
terminate its registration under the Securities Exchange Act of 1934.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation will
be voted in favor of the amendment to the Articles as described herein. In the
event a shareholder specifies a different choice by means of the enclosed proxy,
his or her shares will be voted in accordance with the specifications so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on January __, 2003 as
the record date (the "Record Date") for determining shareholders of the Company
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 5,597,244 shares of Common Stock outstanding, all of which are
entitled to one vote on the proposed amendment to the Articles.
REQUIRED VOTE
Pursuant to the Articles and the Florida General Corporation law, the
affirmative vote of the holders of a majority of the common shares that are
present in person or by proxy at the Special Meeting is required to approve the
proposed amendment. The representation in person or by proxy of a majority of
the issued and outstanding shares of Common Stock (the "Stock") entitled to be
cast is necessary to provide a quorum at the Special Meeting. Broker non-votes
are treated as shares as to which voting power has been withheld by the
beneficial owners thereof and, therefore, as shares not entitled to be cast
thereon. Thus, although broker non-votes have no effect on the vote, they have
the practical effect of reducing the number of affirmative votes required to
approve the proposed amendment to the Articles by reducing the total number of
shares entitled to vote thereon. Proxies sent to the Company that are marked
"abstain" with respect to the approval of the proposed amendment will be counted
for the purpose of determining the number of common shares represented at the
Special Meeting, but will have no effect in determining whether the requisite
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vote has been obtained for approval of the proposed amendment other than the
practical effect of reducing the number of affirmative votes required to approve
the proposed amendment to the Articles by reducing the total number of shares
entitled to vote thereon.
Mr. Francis M. Williams, a Director of the Company directly or indirectly
owns or by irrevocable proxy controls, the voting rights of 2,729,416 shares of
the Common Stock eligible to be cast on the approval of the proposed amendment
to the Articles. Kimmins Corp., a Florida corporation ("Kimmins"), a shareholder
of the company directly or indirectly owns by irrevocable proxy controls, the
voting rights of 1,723,290 shares of the Common Stock eligible to be cast on the
approval of the proposed amendment to the Articles. Mr. Francis M. Williams is
Chairman and majority shareholder of Kimmins. This individual and Kimmins have
advised the Company that they intend to be present at the meeting, and currently
intend to vote their shares for the approval of the Reverse Stock Split
proposal. Since the number of shares of Common Stock held or controlled by these
two shareholders represent a majority of the votes that may be cast at the
Special Meeting, these shareholders will be able to approve the proposed
amendment to the Articles, regardless of how the other holders of Common Stock
vote their shares.
REVOCATION OF PROXY
The giving of a proxy does not preclude the right to vote in person should
any shareholder giving the proxy so desire. Shareholders have a right to revoke
their proxy at any time prior to the exercise thereof, either in person, at the
Special Meeting, or by filing with the Company's Secretary at the Company's
principal executive offices a written revocation or duly executed proxy bearing
a later date; however, no such revocation will be effective until written notice
of the revocation is received by the Company at or prior to the Special Meeting.
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REVERSE STOCK SPLIT PROPOSAL
SUMMARY OF REVERSE STOCK SPLIT PROPOSAL
On December 10, 2002, the Board discussed the mechanics and anticipated
effects of a possible reverse stock split of the Company's Common Stock (the
"Reverse Stock Split"). On December 12, 2002, the Board adopted a resolution,
subject to shareholder approval, that the Articles be amended to effect an 150
to 1 reverse stock split of the Company's common stock, such that each 150
shares of existing Common Stock will be respectively combined into one share of
"new" Common Stock. There are no material differences between the respective
rights, preferences or limitations of the existing Common Stock and the "new"
Common Stock. The form of amendment to the Articles to effect this transaction
is attached hereto as Appendix A (the "Amendment").
In order to complete the Reverse Stock Split, a majority of the
stockholders entitled to vote at the Special Meeting must approve an amendment
to the Articles. By approving this proposal, the stockholders authorize the
Board to implement the Reverse Stock Split by filing the Amendment with the
Florida Secretary of State's office within ten (10) business days following the
proposal's approval at the Special Meeting (hereinafter referred to as the
"Effective Date"). The stockholders may not rescind their vote even if the
timing of the Amendment may adversely affect any particular stockholder.
The following table presents a summary of the effect of the Reverse Stock
Split proposal on the Company's stockholders. Please note that we refer herein
to our shareholders whose shares are registered in their own names as
"Registered Stockholders."
Stockholders as of Net Effect After Reverse
Effective Date Stock Split
Registered Stockholders holding Shares of Common Stock will be
150 shares of Common Stock. converted into one whole share of new
share of new Common Stock.
Registered Stockholders holding Shares of Common Stock will be
more than 150 shares of Common respectively converted into one or
Stock. more shares of new Common Stock on a
150 for 1 basis, with a cash payment
for any shares that would otherwise
result in fractional new shares
Registered Stockholders holding Shares of Common Stock will be
fewer than 150 shares of Common exchanged for a cash payment.
Stock.
Stockholders holding Common Nominees (such as a bank or broker)
Stock in street name through a may have required procedures, and the
nominee, such as a bank or broker. Company stockholder holding Common
Stock in street name should contact
their nominees to determine how the
Reverse Stock Split will affect them.
In lieu of the issuance of any fractional shares, the Company will pay the
fair value for those shares of Common Stock that would otherwise be converted
into fractional shares as a result of the Reverse Stock Split. The Board has
determined that the fair value of such stock shall be the greater of (i) the
Minimum Fixed Price or (ii) The Current Market Price. Payment in lieu of
issuance of a fractional new share will be made promptly after receipt of a
properly completed letter of transmittal and stock certificates (see also the
information under the caption "Exchange of Stock Certificates and Payment of
Fractional Shares" contained in this Proxy Statement).
There will be no service charge payable by stockholders in connection with
the exchange of certificates or in connection with the payment of cash in lieu
of the issuance of a fractional new share.
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BACKGROUND
The Company has approximately 811 Registered Stockholders holding Common
Stock. Approximately 583 of such stockholders hold 150 shares or less of the
Common Stock (the "Small Stockholders"). In the aggregate, the Small
Stockholders own approximately 25,000 shares or less than 0.42% of the Common
Stock. In early 2002, the company recognized that the cost of management and
communication to the Small Stockholders on an annual basis far exceeded the
value of the securities they held.
PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT
The purpose of the Reverse Stock Split proposal is to reduce the number of
Small Stockholders and permit the Company to cease registration of the Common
Stock under the 1934 Securities and Exchange Act (the "1934 Act"). The Board
recommends that the Company stockholders approve the Reverse Stock Split
proposal to achieve this purpose for the reasons set forth below.
For the Small Stockholders, typical transaction costs for public sale of
Common Stock significantly reduce the liquidity of the shares, since in most
cases these transaction costs represent a large percentage of the value of their
holdings (at current stock pricing trends). The Reverse Stock Split proposal
will allow such stockholders to liquidate their holdings at a fair value without
these transaction costs.
For stockholders of the Company other than the Small Stockholders, reducing
such a large number of small stockholders (over 70% of the existing Registered
Stockholders) will result in savings to the Company by reducing the
administrative costs of providing annual reports, proxy information and other
shareholder services. In addition, since it is important in certain corporate
transactions to be able to quickly communicate with its company stockholders,
reducing such a large number of Company stockholders that cannot be easily
contacted reduces delays in implementing corporation strategies.
Another intended effect of the Reverse Stock Split is to position the
Company for terminating registration of its Common stock under the 1934 Act. As
a registered company, the Company is subject to the periodic reporting and proxy
solicitation requirements of the Securities and Exchange Commission (the "SEC").
There is a significant likelihood that the purchase of the fractional shares
following the Reverse Stock Split will reduce the number of Registered
Stockholders of Common Stock to fewer than 300. We estimate that the number of
Registered Stockholders of Common Stock would be reduced to 230 following the
completion of the Reverse Stock Split. If this occurs, the Company will be in a
position to elect to cease registration of its Common Stock under the 1934 Act.
As part of its 1934 Act registration, the Company incurs direct and
indirect costs associated with compliance with the filing and reporting
requirements imposed on public companies. Examples of direct costs savings from
terminating registration of the Common Stock include lower printing and mailing
costs, less complicated disclosure due to the Company's private status;
reduction in direct miscellaneous clerical and other expenses (e.g., the word
processing, EDGARizing, telephone and fax charges associated with SEC filings)
and elimination of the charges of brokers and transfer agents in forwarding
materials to beneficial holders.
The Company also incurs substantial indirect costs due to 1934 Act
registration as a result of the executive time expended to prepare and review
such filings. Ceasing registration of the Common Stock will reduce or eliminate
these costs, as well as lower the risk of liability that typically attends
public (as distinguished from private) company status.
Based on its experience in prior years, the Company's direct costs, which
include the fees and expenses of independent auditors, SEC legal counsel,
directors and officers liability insurance coverage, printing, mailing, and SEC
filing fees are estimated at approximately $150,000 annually. This amount,
however, is just an estimate, and the actual savings to be realized may be
higher or lower than such estimate. It is expected that the majority of the
estimated savings will be not be realized until the fiscal year ending December
31, 2003.
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Another aspect of public registration is the disclosure of proprietary
information, such as material contracts, acquisitions, growth strategies, and
financial information regarding overall operations. Ceasing registration of the
Common Stock will increase the confidentiality of such proprietary information,
which the Company believes can be analyzed by its competitors to place the
Company at a competitive disadvantage.
There are many advantages to being a publicly traded company, including
stock value, stock liquidity, and use of company stock to raise capital or make
acquisitions. In the opinion of the Board, however, the pricing trends and
trading volume of the Common Stock have not allowed the Company to effectively
take advantage of these benefits, at least to the extent of justifying the
continuing direct and indirect costs of public registration. Furthermore, the
Board does not believe that there will be a significant change in this equation
in the near term.
Another factor which has impaired the Company's ability to effectively
take advantage of the benefits of public registration is the September 13, 2002
de-listing of the Company's Common Stock from trading on the Nasdaq SmallCap
Market. Although the Common Stock continues to be traded in the Electronic
Bulletin Board Market, management believes that the de-listing has had
detrimental effects on the trading volume and pricing of the Common Stock, which
contributes to the failure to realize some of the benefits of the Company's
continued registration of the Common Stock under the 1934 Act.
Stockholders should note that the decision by the Board to terminate 1934
Act registration does not require stockholder approval and will not be voted on
at the Special Meeting. Further, there is no assurance that the number of such
stockholders will be fewer than 300 following the Effective Date. While the
Company intends to cease public registration of its Common Stock following the
Reverse Stock Split, the Board may choose not to implement this strategy if the
Board determines that it is not then in the best interests of the Company and
its stockholders given the then existing market conditions.
FAIRNESS OF REVERSE STOCK SPLIT PROPOSAL
The Board believes that the Reverse Stock Split proposal, taken as a whole,
is fair to and in the best interests of the Company and its stockholders,
including unaffiliated stockholders, those stockholders who will receive the
Cash Payment and those stockholders who will receive shares of new Common Stock.
The Board also believes that the process by which the Reverse Stock Split is to
be approved is also fair. Francis M. Williams, individually, believes that the
Reverse Stock Split is fair to the shareholders of the Company and considered
the same factors as the Board considered in reaching that conclusion. All
references to considerations and conclusions by the Board as to fairness and to
factors considered by the Board apply as well to Francis M. Williams. The Board
unanimously approved the Reverse Stock Split proposal and recommends that the
stockholders vote for its approval and adoption. Each member of the Board and
each member of management that owns shares of Common Stock have indicated that
they intend to vote in favor of the Reverse Stock Split proposal, including the
Board members who are not employees of the Company.
In anticipation of the Board's consideration of the Reverse Stock Split,
the Board had a report prepared by management (the "Management Report") to
analyze the factors affecting the value of the Common Stock. The Board's
analysis of the value is based upon the data provided in that Management Report.
In accordance with Section 607.0830 of the Florida Statues, the directors have
relied in good faith upon the Management Report. The Board also reviewed
comparable transactions conducted by other companies, and reviewed the
historical financial information of the Company.
The Board considered a number of factors in determining the fairness of the
Reverse Stock Split prior to approval of the proposed transaction. It recognized
the existing liquidity concerns of the Small Stockholders. It recognized that by
reducing the number of small stockholders would decrease (but not necessarily
eliminate) the problems associated with not being able to readily communicate
with a large portion of its stockholders. It also recognized that the Reverse
Stock Split will likely enable the Company to cease public registration of the
Common Stock, so in making its determination of the fairness of the Reverse
Stock Split proposal, the Board also factored in the added administrative costs
and resources involved in providing annual reports, proxy information and other
shareholder services to such a large proportion of stockholders holding less
than 150 shares. However, even if termination of 1934 Act registration is not
implemented, the Board still concluded that the elimination of the Small
Stockholders is in the best interests of the Company and its stockholders, when
taken as a whole.
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The Board did not retain either an investment bank or other financial
adviser to render a report or opinion with respect to the fairness of the
Reverse Stock Split proposal to the Company or its stockholders. Management
estimated that the cost of such report or opinion would exceed $80,000. The
Board determined that this expense was unwarranted since it concluded that the
Board itself could adequately establish the fairness of the Reverse Stock Split
proposal, without such report or opinion, by addressing the factors and
considerations described in this section.
The Board did not establish an unaffiliated representative to represent the
unaffiliated stockholders of the Company in determining the terms of the Reverse
Stock Split proposal because the Board concluded that there was sufficient
representation in the decision making at the Board level to protect the
interests of unaffiliated stockholders. This decision was based on the fact that
two of the three Board members are not controlled by, or under common control
with the Company, and these Board members are not employees of the Company. In
addition, no independent committee of the Board has reviewed the fairness of the
Reverse Stock Split proposal because the Board concluded that such unaffiliated
Board members could adequately convey their opinions and concerns to the entire
Board without the need for the establishment of such a committee.
The Board determined that the Reverse Stock Split proposal was
substantively fair to all unaffiliated stockholders. In reaching this
determination, the Board considered of the following supporting factors:
The Small Stockholders will be allowed to liquidate their holdings in
a cost effective manner, a task that they could not otherwise accomplish
since all of the Small Stockholders own less than 150 shares of Common
Stock (one Small Stockholder owns one share), with a total estimated market
value for each ten shares of less than $1.30 (calculated at $.13 price per
share - the highest closing price for Common Stock during the third
calendar quarter of 2002). On November 14, 2002, Management conducted a
summary review of the current pricing of transaction fees, and found that
the lowest transaction fee for a stock trade was approximately $11.65 per
trade. (The sole purpose of identifying estimated transaction fees was to
provide a context for establishing the approximate low-end cost of selling
small stock holdings of Common Stock in the public market relative to the
estimated value of such holdings; its purpose was not to identify the
absolute lowest cost or the best value with regard to brokerage services.)
The Reverse Stock Split will not change the rights, preferences or
limitations of unaffiliated stockholders, with the exception of the Small
Stockholders.
No stockholder, whether affiliated or unaffiliated (other than the
Small Stockholders), will have a material decrease in their percentage of
ownership interest of the Company following the Reverse Stock Split and any
decrease that will occur will equally apply to affiliated and unaffiliated
stockholders. Any stockholder whose holdings are not in even multiples of
150 shares will experience a slight relative decrease in their percentage
of interest after the split, but the maximum number of shares that could be
affected would be 149. As an example, the percentage ownership interest of
a stockholder with 3,149 shares would experience a relative decrease of
0.0025% of his or her interest following the Reverse Stock Split due to the
cancellation of the 149 odd lot shares in return for a Cash Payment. We
have qualified the foregoing statements as "relative decreases" because the
percentage of ownership of the remaining shareholders following the split,
affiliated and unaffiliated, will be slightly increased to the extent of
the cancellation of the Small Stockholders' holdings and any other odd-lot
holdings that are not in an even multiple of 150 shares.
Small Stockholders can retain their ownership in the Company by
increasing their number of shares to 150. The highest closing price for
Common Stock in during the third quarter on the OTC Electronic Bulletin
Board was $.13 per share and the lowest closing price during such period
was $.06 per share. Consequently, using the forgoing pricing, a Small
Stockholder could remain a stockholder of the Company for a maximum cost
estimated at or between $9.00 and $19.50, plus transaction fees.
Only the Small Stockholders will cease to be stockholders of the
Company following the split and they are the only stockholders who will
lose a significant percentage of their existing ownership interest in the
Company. As generally described in the information contained herein in the
sections captioned "Background" and "Purpose and Reasons for the Reverse
Stock Split," locating and communicating with the Small Stockholders is not
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economically feasible any longer. Conditioning the approval of the Reverse
Stock Split transaction on the affirmative by majority vote of the
unaffiliated stockholders would not reflect the collective judgment of the
Small Stockholders because the Board determined that it would be unlikely
that large number of such stockholders would vote (in person or by proxy)
due to the inconsequential financial impact on the shares they hold. The
Board therefore concluded that the interests of the unaffiliated
stockholders who were directly impacted by the split would not be
represented because they would not likely be aware of the importance of the
vote and, even if they were aware, their interests would represent a
minority of the unaffiliated stockholders. Since, unlike the Board, the
unaffiliated shareholders have no fiduciary duty to fellow stockholders,
the Board decided that it should not grant the veto on the Reverse Stock
Split to the unaffiliated stockholders. Even if the Small Stockholders
could be effectively communicated with, so as to allow such stockholders to
convey the interests of the majority of this group, the holdings of the
Small Stockholders represent less than .42% of the ownership interests of
the Company. Since the Board has a fiduciary duty to the Company and its
stockholders it determined that an abrogation of the responsibility for the
decision to move forward on the Reverse Stock Split transaction to group
holding such a small interest in the Company would also be incorrect.
The Board ascertained to its satisfaction that this transaction was
not the typical Rule 13e-3 "going private" transaction, which involves the
involuntary or threat of involuntary purchase of all of the ownership
interests of the unaffiliated stockholders. In the Reverse Stock Split
transaction the unaffiliated stockholders, other than the Small
Stockholders, will retain their percentage ownership in the Company in all
material respects. The ownership interests of the Small Stockholders will
be terminated as a result of the Reverse Stock Split (unless they purchase
additional shares as described above), but the Board concluded that the
completion of the split would be an overall benefit to the Small
Stockholders because of the illiquidity issues discussed above.
As part of its considerations, the Board took note of potential
liquidity concerns of certain minority stockholders should the Company, as
expected, cease public registration of the Common Stock. Excluding the holdings
of the Insiders (as defined in the Security Act of 1934), almost all of the
outstanding shares of Common Stock are publicly registered. While this issue
relates to the ceasing of public registration, rather than the Reverse Stock
Split, the Board acknowledged that the split facilitates this action and
therefore the Board identified it as a contradicting factor. The Board weighed
this contradicting factor against what it had determined were the overall
benefits to the stockholders and the Company for this Reverse Stock Split and
concluded that this concern was insufficient to outweigh such benefits in light
of the considerations and conclusions stated in this section.
The Board believes that the Reverse Stock Split is also substantively fair
because the Board determined in good faith that the Cash Payment to be paid for
stock in lieu of issuance of fractional shares constitutes a fair value. Section
607.0604 (5) of the Florida Statutes states that, "When a corporation is to pay
in money the value of fractions of a share, the good faith judgment of the board
of directors as to the fair value shall be conclusive."
The Board adopted the higher of the Minimum Fixed Price or Current Market
Price methodology (both as described below) as the most appropriate measure of
Cash Payment in lieu of issuance of fractional shares.
CONSIDERATION FOR DETERMINING CURRENT MARKET PRICE
The Board considered current market price as a stand-alone factor and
decided to use the greater of (i) the average of the closing market price for
the 20 day period immediately ending on the date of the filing of the initial
preliminary Scheduled 14a Proxy Statement or (ii) the 20 day period ending the
day before the meeting date for the final vote on the definitive proxy matter
(Current Market Price). This analysis and discussion ensued and was treated
separately from fixed price. The Board felt that in the event the market
determines that a reverse stock split and the intent of the company to cease
registration of the common stock under the 1934 Securities Act results in a
higher trading value for the stock of the company, it was appropriate that the
fractional shareholders be paid that increased value. Currently the Current
Market Price based on the 20-day period ending October 30, 2002 would be $.13.
This amount is $.47 per share, less than the fixed price. In addition, if for
any reason the stock on the 20-day period prior to the filing of the preliminary
proxy should increase in value above the fixed number, and at a later date
decrease as a result of this proxy statement, the Board felt that the higher
number should be fair and appropriate to pay the small stockholders.
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The Board further considered the possible effect on stock pricing caused by
the disclosure of the Company's intention to terminate public registration of
the Common Stock. Consequently, the Board adopted the 20-day period immediately
prior to the initial preliminary filing of this Proxy Statement because this
would reflect market valuation prior to the disclosure. The Board also concluded
that the Current Market Price should not be less than the market value
immediately prior to the Meeting Date since this date constitutes the date of
approval of the purchase of the stock and hence the purchase price should at
least reflect the market valuation as close to this time as practical given the
stock volatility issues described in the foregoing paragraph. Because of the
uncertainty inherent in any valuation, the Board also concluded that the Current
Market Price should constitute the greater value of the two established periods
to ensure maximum fairness to the Small Stockholders, since their ownership
interest in the Company would be terminated (absent any action on their behalf
to remain stockholders by purchasing additional shares). Therefore, the Board
determined that the Current Market Price should be determined by the greater of
(i) the average closing prices of Common Stock for the twenty (20) trading days
immediately preceding the initial preliminary filing of this Proxy Statement,
and (ii) the average of bid and asked prices of Common Stock for the twenty (20)
trading days immediately preceding the Meeting Date.
After establishing the Current Market Price of the common stock as a
stand-alone method of calculating the Cash Payment, the Board focused on
identifying the appropriate data or time period to apply this method. After
reviewing other transactions by other publicly- traded companies, management
informed the Board that five to ten trading days is the typical period used to
minimize temporary fluctuations in pricing which do not reflect the true market
valuation of the stock. The Board noted that the historic volatility of the
Common Stock, due to its low trading volume, dictated that a longer period
should be adopted to minimize these effects and chose 20 days as a fairer
measure.
CONSIDERATION FOR DETERMINING MINIMUM FIXED PRICE
In order to reach the Minimum Fixed Price, the Board considered several
methods of valuation (based upon the data and analysis contained in the
Management Report) to the price of the fractioned shareholders and rationalized
that the $.60 as a minimum price (Minimum Fixed Price) was fair to the Small
Stockholders. The following is a discussion of the analysis the Board reviewed
to determine the valuation of the amount to be paid for the fractional shares.
In the consideration of determining the Minimum Fixed Price, the Board
considered the following methods of valuation. They then used an average of
those values to determine what the Minimum Fixed Price should be. The Board
considered weighing the various factors based on what it believed was important
and should be considered more heavily. After a discussion amongst the members of
the Board, and the broad spectrum each of the values created, the Board
determined that the fairest value would be a simple average without attempting
to weight any individual item greater than any other.
Historical market prices - For purposes of assessing an average market
price over an extended period of time, management took and looked at the stock
price over the past twelve months. The stock has been declining steadily to its
current level of $.13. This is caused primarily by the fact that the company has
failed to perform over the past two years and has incurred losses for the past
nine months of approximately $2.4 million. This coupled with our de-listing from
the Nasdaq Small Cap System and ultimate listing on the OTC Bulletin Board, has
caused the stock price to decline steadily. In the assessment of the historical
market price, management believes that these closing prices must be weighted in
reverse order so that the most current price is weighted the highest and the
oldest price was weighted the least. The closing prices from each period were
weighted and averaged on that basis. In determining the historical market price,
the Board looked at the average closing price for the previous twelve months on
a monthly basis, that being the last day of each trading month, that average on
a weighted basis is $.41.
Net book value - As of September 30, 2002, Cumberland. has a net book value
of $5,546,823. As of the same date there are 5,596,744 shares of outstanding
Common Stock. The book value as a result of these numbers at September 30, 2002
is $.99 per share.
Discounted book value - In order to ascertain what a cash book value was as
of the date of this transaction, management developed a discounted book value.
This would be the book value in the event of the sale of the assets after
8
discounting those assets which have a limited value as a result of the period of
time it would take to convert those assets into assets utilizable by the
business. Cumberland has four assets on its balance sheet that would basically
not be utilized by the business in a sale, and management discounted these
assets. The deferred tax asset of approximately $640,872 will be realized over
the next two years and as a result, we establish a discount factor of 12% and
that results in a discounted value of approximately $483,000. The company has
intangible and goodwill of approximately $444,000. These intangibles and
goodwill, in the event of a sale of the company's assets would carry no value.
The company currently has an investment in an agency that is not consistent with
its line of business. Although the investment is worth $640,000 in the event of
a sale, management believes this asset would be discounted over the five years
it would take to recover the investment value. As a result, this discount
reduces that asset from $641,000 to $338,209. The Company has approximately
$355,000 in fixed and other assets that consists primarily of computer hardware
and software. These assets have little or no value in the event of an asset
sale. After adjusting the book value for the discounts, the book value was
$4,291,330 for a per share value of $.77.
Comparative Company Value - The Board reviewed management's assessment of
publicly traded insurance companies. The Company reviewed 105 companies that
were listed as insurance industry; property and casualty insurers. It narrowed
down that list to 11 that had market capitalizations of $5 million or less. Of
the 11, 6 were eliminated on the basis that they were either not property or
casualty insurance companies, or had ceased writing insurance. Of the remaining
5, management determined that the price to sales ratio and the price to book
ratio of the comparable entities provided a meaningful valuation factor. After
applying the price to book ratio only 3 resulted in a positive ratio and the 2
with negative ratios were excluded. On the price to sales ratio all 5 were
meaningful. Management then utilized these two ratios on an average and
determined that the resulting valuation of $.23 per share on a comparable
company basis was meaningful.
Reconciliation of Board's determination on minimum fixed price - After the
assessment of the Board and the review of the market price, book value,
discounted book value, and comparative company value, the Board determined that
there was no one factor that should be more significant than the others in the
assessment and determination of the fair value for purposes of the odd lot
shareholders. As a result, the Board made a determination that what was far was
the average of the valuation methods applied. This average is the sum of market
price ($.41), book value ($.99), discounted book value ($.77), comparative
company value ($.23), divided by 4, resulting in a value per share of $.60.
The Company and its affiliates are not aware of any firm offers to purchase
the Company that have been made during the past two years by any unaffiliated
person. Consequently, the Board did not consider this factor in establishing the
fair value of the stock for the Cash Payment.
The Company has not engaged in a merger or consolidation with another
company or in the sale or other transfer of a substantial part of its assets in
the last two years, so the Board did not consider this factor in establishing
the fair value of the stock for the Cash Payment.
The Board considered an independent analysis and evaluation of the fair
market value of the Common Stock that would be converted into a fractional
share, but, as noted earlier, determined that the time and expense of an
independent analysis and evaluation was unjustified in the circumstances because
the Board concluded that the method of valuation chosen by the board was a fair
representation of value of the stockholdings for the reasons stated above.
The Board discussed two alternative transactions for reducing or
eliminating the Small Stockholders, a tender offer and open market purchases.
The Board, however, determined that either of these alternatives would not
result in shares being tendered by a sufficient number of record stockholders so
as to accomplish the Company's objectives. The Board considered that given the
large number holders of small numbers of shares, even if they were aware of the
offer, it is unlikely that they would make the effort to tender their shares in
sufficient numbers to accomplish the Company's objective. The Board ultimately
determined that the Reverse Stock Split proposal was the preferred method.
After consideration of all the forgoing factors, all of the directors,
including those who are not employees of the Company, have determined that the
Reverse Stock Split proposal is procedurally and substantively fair to the
stockholders of the Company, including the unaffiliated stockholders and the
Small Stockholders.
9
The Board also considered the timing of implementation of the Reverse Stock
Split proposal and the intended termination of the Company's 1934 Act
registration for the Common Stock. The Board concluded that the continued
monetary and human resource expense of such registration was unjustified given
the Company's inability to effectively take advantage of many of the benefits of
public registration. To achieve the savings from termination, the Board
instructed management to implement the Reverse Stock Split proposal and
termination of registration of the Common Stock as soon as practicable. Please
see the section contained herein captioned "Purpose and Reason for the Reverse
Stock Split Proposal" for further discussion of the expenses of registration and
the Company's experiences with respect to the benefits of such registration.
With respect to its intent to terminate the Company's 1934 Act
registration, the Board has considered and will continue to consider the effect
that terminating the registration of the new Common Stock might have on the
market for the holders of the Common Stock and the ability of those stockholders
to buy and sell their shares. The Board also has considered and will continue to
consider whether the value of the Common Stock is being fully recognized in the
public market, and as a result, whether the Company can effectively take
advantage of a public market for its stock. The Board also has considered and
will continue to consider the need to protect the confidentiality of the
Company's proprietary information, along with the potential direct cost savings
and savings related to the time and effort currently required of management to
comply with the reporting and other requirements associated with a reporting
company. After taking into account all of the considerations and conclusions
described herein with respect to the benefits and disadvantages of registration
of the Common Stock under the 1934 Act at the present time, the Board has
determined that it will terminate registration of Common Stock under the 1934
Act as soon as practical following the Reverse Stock Split absent any
significant changes in the foregoing considerations that would result in the
Board determining that the benefits of continued registration would outweigh the
disadvantages. The Board does not foresee any such change in circumstance in the
reasonably near future. See also the section contained herein captioned "Purpose
and Reason for the Reverse Stock Split Proposal."
Potential Detriments of Reverse Stock Split Proposal to Stockholders;
Accretion in Ownership and Control of Certain Stockholders
The potential detriments to stockholders who remain as holders of new
Common Stock after effecting the Reverse Stock Split and termination of
registration under the 1934 Act include decreased liquidity and decreased access
to information about the Company. Upon termination of registration of the Common
Stock, the Company will no longer be subject to the periodic reporting
requirements and the proxy rules of the 1934 Act. Since there will no longer be
a public market for the purchase and sale of the stock, the liquidity and market
value of the shares of Common Stock will be adversely affected.
If the Reverse Stock Split proposal is effected, the Company believes that
228 Registered Stockholders of new Common Stock will remain (based on the
Company's current stockholder records). In addition, individuals who are members
of the Board and executive officers of the Company now owning approximately
86.9% of the Common Stock will own approximately 87.3% of the new Common Stock
after the Reverse Stock Split (the proportionate holdings of the Common Stock
will not be affected). Control of the Company by Mr. Francis M. Williams as
generally described in the information contained herein in the section captioned
"Security Ownership and Certain Beneficial Owners and Management," will not be
materially affected by the Reverse Stock Split.
CONDUCT OF THE COMPANY'S BUSINESS AFTER REVERSE STOCK SPLIT
The Company expects its business and operations to continue as they are
currently being conducted and, except as disclosed below, the Reverse Stock
Split is not anticipated to have any effect upon the conduct of its business.
Other than as described in this Proxy Statement, neither the Company nor
its management has any current plans or proposals to effect any extraordinary
corporate transaction, such as a merger, reorganization or liquidation; to sell
or transfer any material amount of its assets; to change its Board or
management; to change materially its indebtedness or capitalization; or
otherwise to effect any material change in its corporate structure or business.
See also the information contained herein in the section captioned "Purpose and
Reasons for the Reverse Stock Split."
10
As a result of the Reverse Stock Split, the Company plans to become a
privately held company by termination of registration of the Common Stock under
the 1934 Act, if the number of Registered Stockholders is fewer than 300. In
addition, because the new Common Stock will be held by fewer than 300 registered
holders, the Company will be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the 1934 Act, its officers and
directors and stockholders owning more than 10% of the Common Stock will be
relieved of certain reporting obligations under the 1934 Act, and the Company
will cease filing periodic reports under the 1934 Act.
STRUCTURE OF REVERSE STOCK SPLIT
The Reverse Stock Split is of the Common Stock. If the Reverse Stock Split
proposal is approved and occurs, the Reverse Stock Split will occur on the
Effective Date. Assuming stockholder approval of the Reverse Stock Split
proposal is obtained, the Company will file the Amendment within 10 business
days of the proposal's approval at the Special Meeting. The structure of the
Reverse Stock Split, for each stockholder is as follows:
1. Registered Stockholders with Fewer Than 150 shares. If the Reverse Stock
Split proposal is implemented and you are a Registered Holder of fewer than
150 shares of Common Stock of the Effective Date, you will receive a Cash
Payment instead of a fractional share of new Common Stock. After the
reverse split, you will have no further interest in the new Common Stock.
You will not have to pay any service charges or brokerage commissions in
connection with the Reverse Stock Split or the Cash Payments.
2. Registered Holder With 150 or More Shares. If the Reverse Stock Split
proposal is implemented and you are a Registered Holder of 150 or more
shares of Common Stock as of the Effective Date, we will convert your
shares into 1/150 of the number of shares you held immediately prior to the
reverse split, with a Cash Payment for any shares that would otherwise
result in fractional new shares. For example, if you are a Registered
Holder of 10,010 shares of Common Stock immediately prior to the Effective
Date, your shares will be converted to 66 shares of new Common Stock and
you will receive a Cash Payment for 110 shares.
3. Beneficial Owners of the Company Stock. Nominees (such as a bank or
broker) may have required procedures, and stockholders holding Common Stock
in street name should contact their nominees to determine how they will be
affected by the Reverse Stock Split. NOTE: If you are a beneficial owner of
fewer than 150 shares of Common Stock or the beneficial owner of more than
150 shares of Common Stock, but not in an even multiple of 150, and you
want to have your shares exchanged for Cash Payment, you should instruct
your nominee to transfer your shares into a record account in your name in
a timely manner so that you will be considered a holder of record
immediately prior to the Effective Date.
In the event any certificate representing shares of Common Stock is not
presented for exchange or Cash Payment upon request by the Company, the new
Common Stock or the Cash Payment, as applicable, will be administered in
accordance with the relevant abandoned property laws. Until new Common Stock or
Cash Payments have been delivered to the public official pursuant to the
abandoned property laws, such Cash Payments or certificates will be paid to the
holder thereof or his designee, without interest, at such time as the stock
certificate has been properly presented for exchange or Cash Payment.
The Reverse Stock Split is structured to be a "going private" transaction
as defined in Rule 13e-3 promulgated under the 1934 Act because it is intended
to, and, if completed, will likely terminate the Company's reporting
requirements under the 1934 Act. In connection with the Reverse Stock Split
proposal, the Company has filed with the SEC a Schedule 13E-3 pursuant to Rule
13e-3 under the 1934 Act.
Even if the reverse stock split is approved, the Board may abandon the
proposed reverse stock split at any time before or after the meeting and prior
to the filing of the amendment if for any reason the Board deems it advisable to
do so. In addition, the Board may make any and all changes to the amendment that
it deems necessary to file the amendment with the Florida Secretary of State and
give effect to the reverse stock split.
11
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT OF FRACTIONAL SHARES
Continental Stock and Transfer have been appointed the company's agent (the
"Transfer Agent") to carry out the exchange of certificates for new Common
Stock. Registered Stockholders will receive a letter of transmittal after the
Reverse Stock Split is completed. These stockholders must complete and sign the
letter of transmittal and return it with their stock certificate(s) to the
Transfer Agent before they can receive new Common Stock and/or the Cash Payment
for those shares. You should not submit any certificates until requested to do
so.
If the Reverse Stock Split is effected, each Registered Stockholder who
holds fewer than 150 common shares immediately prior to the effectiveness of the
Reverse Stock Split will cease to have any rights with respect to such common
shares and will only have the right to receive the Cash Payment cash in lieu of
the fractional share to which such shareholder of record would otherwise be
entitled. No service charges will be payable by stockholders in connection with
the exchange of certificates or the issuance of new stock or Cash Payments, all
the expenses of which will be borne by the Company. Promptly following the
Effective Date, you will be furnished the necessary materials and instructions
to affect such exchange (and to receive the Cash Payment, if applicable).
Certificates representing shares of Common Stock subsequently presented for
transfer to a third party will not be transferred on the books and records of
the Company until the certificates representing the shares have been exchanged
for the Cash Payment or certificates representing shares of new Common Stock (as
applicable).
COMPANY STOCK OPTIONS AND WARRANTS
At the Effective Date, each option outstanding of Common Stock shall be
adjusted to reflect the right to receive one or more shares of new Common Stock
on a 150-for-1 basis. There are no outstanding warrants.
CERTAIN EFFECTS OF REVERSE STOCK SPLIT PROPOSAL ON THE COMPANY'S STOCKHOLDERS
1. Rights, Preferences and Limitations. There are no material differences
between the respective rights, preferences or limitations of the existing Common
Stock and the "new" Common Stock.
2. Financial Effect. The Reverse Stock Split and the expenditures for
professional fees and other expenses related to the transaction will not have a
material effect on the Company's balance sheet, statement of income, earnings
per share, ratio of earnings to fix charges or book value per share. The
expenditures have been estimated as follows: cash payment for fractional shares
- $30,000; fees and expenses of legal counsel - $15,000; fees and expenses of
accountants - $8,000; printing and postage - $10,000; and miscellaneous -
$10,000. The only consideration to be paid will be the Cash Payment, to be paid
for shares that would otherwise be converted into fractional shares. We will use
the Company's cash-on-hand as the sole source of funds for the expenditures for
professional fees and other expenses related to the transaction.
3. Effect on Market for Shares. The Company estimates that the number of
shares of new Common Stock outstanding after the Reverse Stock Split, if
affected, will be as follows:
CLASS NUMBER OF SHARES NUMBER OF SHAREHOLDERS
----- ---------------- ----------------------
Common 39,435 228
The termination will also cause the Common Stock to be ineligible to trade
on the OTC Bulletin Board. Although the Company believes that the Common Stock
may be listed on the Pink Sheets, there can be no assurance that it will be
listed. In addition, management believes that trading volumes are generally
lower on Pink Sheets, which may reduce the market for the Common Stock.
The Company has no current plans to issue additional shares of stock, but
the Company reserves the right to do so at any time and from time to time at
such prices and on such terms as the Board determines to be in the best
interests of the Company and its then stockholders. Persons who continue as
stockholders following implementation of the Reverse Stock Split proposal will
not have any preemptive or other preferential rights to purchase any of the
Company's stock that may be issued by the Company in the future, unless such
rights are currently specifically granted to such stockholder.
12
4. Securities Laws Relating to the New Common Stock. The Company has not
filed with the SEC a registration statement under the Securities Act of 1933
(the "1933 Act") for the registration of the new Common Stock to be issued and
exchanged pursuant to the Reverse Stock Split proposal. Instead, the new Common
Stock will be issued in reliance on exemptions contained in Section 3(a)(9) and
Rule 145(a)(1) under the 1933 Act. Upon consummation of the Reverse Stock Split,
the new Common Stock are expected to be freely transferable under the 1933 Act
by those stockholders of the Company not deemed to be "affiliates" of the
Company. Shares of new Common Stock acquired by persons who are "affiliates" of
the Company will be subject to the resale restrictions of Rule 144 under the
1933 Act.
5. Termination of 1934 Act Registration of Common Stock. The Reverse Stock
Split proposal will affect the public registration of the new Common Stock with
the SEC under the 1934 Act, as the Company intends to terminate this
registration as soon as practicable after approval of the Reverse Stock Split
proposal by the stockholders. Registration under the 1934 Act may be terminated
by the Company if the Common Stock is no longer held by 300 or more stockholders
of record. Termination of registration of the Common Stock under the 1934 Act
would substantially reduce the information required to be furnished by the
Company to its stockholder and to the SEC and would make certain provisions of
the 1934 Act, such as proxy statement disclosure in connection with stockholder
meetings and the related requirement of an annual report to stockholders, no
longer applicable to the Company.
The termination will also cause the Common Stock to be ineligible to trade
on the OTC Bulletin Board. Although the Company believes that the Common Stock
may be listed on the Pink Sheets, there can be no assurance that it will be so
listed. In addition, management believes that trading volumes are generally
lower on Pink Sheets, which will substantially reduce the market for the Common
Stock.
With respect to the executive officers and directors of the Company, in the
event of the intended termination of registration of the Common Stock under the
1934 Act: (a) executive officers, directors and other affiliates would no longer
be subject to many of the reporting requirements and restrictions of the 1934
Act, including without limitation the reporting and short-swing profit
provisions of Section 16 of the 1934 Act, and (b) executive officers, directors
and other affiliates of the Company may be deprived of the ability to dispose of
shares of Common Stock pursuant to Rule 144 under the 1933 Act. Upon termination
of 1934 Act registration, the Company will continue to be subject to the general
anti-fraud provisions of federal and applicable state securities laws. See also
the information contained above in the section captioned "Securities Laws
Relating to the New Common Stock."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
We summarize below the material federal income tax consequences to the
Company and stockholders resulting from the Reverse Stock Split proposal. This
summary is based on existing U.S. federal income tax law, which may change, even
retroactively. This summary is not binding on the Internal Revenue Service (the
"IRS"). The applicable laws may be changed, possibly retroactively, resulting in
United States federal tax consequences different from those set forth below. The
Company has not sought, and will not seek, any ruling from the IRS or opinion of
counsel with respect to the statements made in the following summary, and there
can be no assurance that the IRS will not take a position contrary to such
statements or that any such contrary position taken by the IRS would not be
sustained by a court. There can be no assurance and none is given that the IRS
or the courts will not adopt a position that is contrary to the statements
contained in this summary. This summary does not discuss all aspects of federal
income taxation, which may be important to you in light of your individual
circumstances, and many stockholders may be subject to special tax rules. In
addition, this summary does not discuss any state, local, foreign, or other tax
considerations. You should consult your tax advisor as to the particular
federal, state, local, foreign, and other tax consequences, in light of your
specific circumstances.
This summary also assumes that you are a one of the following: (i) a
citizen or resident of the United States; (ii) a corporation or other entity
taxable as a corporation created or organized under U.S. law (federal or state);
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its sources; (iv) a trust if a U.S. court is able to exercise
primary supervision over administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust; or (v)
any other person whose worldwide income and gain is otherwise subject to U.S.
federal income taxation. This summary also assumes that you have held and will
13
continue to hold your shares as capital assets for investment purposes under the
Internal Revenue Code of 1986, as amended.
We believe that the Reverse Stock Split proposal should be treated as a
tax-free "recapitalization" for federal income tax purposes. This should result
in no material federal income tax consequences to the Company. If you continue
to hold new Common Stock after the Reverse Stock Split, you should not recognize
any gain or loss in the Reverse Stock Split, and you should have the same
adjusted tax basis and holding period in your new stock as you had in your stock
immediately prior to the Reverse Stock Split.
The receipt by a stockholder of a Cash Payment in lieu of a fractional new
share pursuant to the Reverse Stock Split will be a taxable transaction for
federal income tax purposes. Accordingly, a stockholder who receives cash in
lieu of a fractional new share should recognize gain or loss equal to the
difference between the amount of cash received and the portion of the aggregate
tax basis in his or her shares of common stock allocable to the fractional new
share interest for which he or she received cash. If the shares of your stock
were held as a capital asset on the Effective Date, then the stockholder's gain
or loss will be a capital gain or loss. Such capital gain or loss will be a
long-term capital gain or loss if the stockholder's holding period for the
shares of common stock is longer than one year.
APPRAISAL RIGHTS; ESCHEAT LAWS
There are no appraisal rights for any stockholder who dissents from
approval of the Reverse Stock Split proposal under the Company's governance
documents. Also, the Company concluded that there are no appraisal rights for
any stockholder who dissents from approval of the Reverse Stock Split proposal
under Florida General Corporation law. We refer you, however, to Sections
607.1302 and 607.0604 of the Florida Statutes which respectively prescribe the
rights of shareholders to dissent and general treatment of fractional shares.
Section 607.0604 (5) of the Florida Statutes states that, "when a corporation is
to pay in money the value of fractions of a share, the good faith judgment of
the Board of Directors as to the fair value shall be conclusive." There may
exist other rights or actions under state law for stockholders who are aggrieved
by reverse stock splits generally. Although the nature and extent of such rights
or actions are uncertain and may vary depending on the facts or circumstances,
stockholder challenges to corporate action in general are related to the
fiduciary responsibilities of corporate officers and directors and to the
fairness of corporate transactions.
Stockholders whose shares are eliminated and whose addresses are unknown to
the Company, or who do not return their stock certificates and request payment,
generally have a certain number of years from the date of the Reverse Stock
Split to claim the Cash Payment payable to them. If no claim is made within this
period, state law generally provides that these payments are deemed abandoned
and forfeited to the state. The state law of the state of the last known
residence of the stockholder, as shown on Company records, usually governs. In
Florida, this holding period is 5 years, but the exact number of years may vary
from state to state.
INTENTION TO TERMINATE PUBLIC REGISTRATION
The Company intends to terminate public registration of the new Common
Stock with the SEC under the 1934 Act as soon as practicable after approval of
the Reverse Stock Split proposal by the stockholders. Stockholders should note
that the decision by the Board to terminate 1934 Act registration does not
require stockholder approval and will not be voted on at the Special Meeting.
Further, there is no assurance that the number of such stockholders will be
fewer than 300 following the Effective Date. While the Company intends to cease
public registration of its Common Stock following the Reverse Stock Split, the
Board may choose not to implement this strategy if the Board determines that it
is not then in the best interests of the Company and its stockholders given the
then existing market conditions. See also the discussion of this issue in the
section contained herein captioned "Fairness of Reverse Stock Split Proposal."
The termination will also cause the Common Stock to be ineligible on the
OTC Bulletin Board. Although the Company believes that the Common Stock may be
listed on the Pink Sheets, there can be no assurance that it will be so listed.
In addition, management believes that trading volumes are generally lower on
Pink Sheets, which will substantially reduce the market for the Common Stock.
14
The Board recommends that you vote FOR the Reverse Stock Split proposal.
Proxies solicited by the Board will be voted FOR this Reverse Stock Split
proposal, unless you specify otherwise in your proxy.
15
MANAGEMENT
The current directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Francis M. Williams 60 Chairman of the Board of Directors
Joseph M. Williams 45 President and Treasurer
Andrew J. Cohen 48 Director
R. Donald Finn 58 Director
All Directors of the Company hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Officers of
the Company are elected annually by the Board of Directors and hold office at
the discretion of the Board.
Set forth below is information regarding the directors and executive officers of
the Company:
Francis M. Williams has been Chairman of the Board of the Company since its
inception and, until June 1992, was President of the Company. In addition, Mr.
Williams has been Chairman of the Board and Director of Cumberland Casualty &
Surety Company ("CCS") and Surety Specialists, Inc. from inception and President
and Chairman of the Board of Kimmins since its inception in 1979. Prior to
November 1988, Mr. Williams was the Chairman of the Board and Chief Executive
Officer of Kimmins Corp. and its predecessors and sole owner of K Management
Corp. From June 1981 until January 1988, Mr. Williams was the Chairman of the
Board of Directors of College Venture Equity Corp., a small business investment
company; and since June 1981, he has been Chairman of the Board, Director, and
sole stockholder of Kimmins Coffee Service, Inc., an office coffee service
company. Mr. Williams has also been a director of the National Association of
Demolition Contractors and a member of the executive committee of the Tampa Bay
International Trade Council.
Joseph M. Williams has served as the Treasurer and President of the Company
since June 1992. He also served as Vice President and Secretary of the Company
from its inception on November 18, 1991 through June 1992. Mr. Williams served
as a member of the Board of Directors of the Company from November 18, 1991
through February 24, 1997. In addition, Mr. Williams has been the Secretary and
Treasurer of Kimmins Corp. since October 1988 and a member of the Board of
Directors of CCS since 1988. He held the position of President of CCS from 1991
through August of 1996. From 1989 through 1990 he held the position of Secretary
and Treasurer of CCS and from 1991 through 1994 served as Treasurer of CCS. Mr.
Williams has been employed by the Company and Kimmins Corp. in various
capacities since 1994. From January 1982 to December 1983, he was managing
partner of Williams and Grana, a firm engaged in public accounting. From January
1978 to December 1981, Mr. Williams was employed as a senior tax accountant with
Price Waterhouse & Company. Joseph M. Williams is the nephew of Francis M.
Williams.
Andrew J. Cohen was elected as a Director to the Company's Board effective
February 24, 1997. Mr. Cohen currently is Co-President and Chief Executive
Officer of ABC Capital Corp., an investment management firm based in Tampa,
Florida and also acts as Co-Chairman on its Board of Directors. In addition, Mr.
Cohen is President of Albany Associates, Inc., a Tampa based management
consulting firm. From June of 1972 through 1997, Mr. Cohen was co-President of
ABC Fabric of Tampa, Inc. which was the fourth largest private retail fabric
company in the United States.
R. Donald Finn was elected as a Director to the Company's Board effective
September 9, 1999. For more than the last five years, Mr. Finn has been a
partner in the law firm of Gibson, McAskill & Crosby, located in Buffalo, New
York, where Mr. Finn has practiced law for more than the last 25 years.
16
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The name and address of each person or entity who owned beneficially 5% or
more of the outstanding shares of Common Stock of Cumberland on November 30,
2002, together with the number of shares owned and the percentage of outstanding
shares that ownership represents is set forth in the following table. The table
also shows information concerning beneficial ownership by the President of the
Company, the President of CCS, and by all directors and executive officers as a
group. The number of shares beneficially owned is determined under the rules of
the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has the sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days after the date hereof through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting powers (or shares such powers with his or her spouse) with
respect to the shares set forth in the following table:
NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING
CUMBERLAND STOCK SHARES OF
BENEFICIAL OWNER (1)(2) BENEFICIALLY OWNED CUMBERLAND STOCK
----------------------- ------------------ ----------------
Francis M. Williams
c/o Kimmins Corp.
1501 2nd Avenue
Tampa, Florida 33605......... 3,877,338 (3) 69.3%
Kimmins Corp.
1501 2nd Avenue
Tampa, Florida 33605......... 1,723,590 30.8%
Joseph M. Williams............ 360,493 (4) 6.4%
Andrew J. Cohen............... 47,590 (5) *
R. Donald Finn................ 7,131 (6) *
All current Directors and
Executive Officers as a group
(5 persons).................... 4,868,566 86.9%
*Ownership represents less than 1% of outstanding Cumberland Common Stock.
(1) The address of all Officers and Directors of Cumberland listed above,
unless listed separately, are in care of Cumberland at 4311 West Waters
Avenue, Suite 401, Tampa, Florida 33614.
(2) Cumberland believes that the persons named in the table have sole voting
and investment power with respect to all shares of common stock
beneficially owned by them, unless otherwise noted.
(3) Includes 2,675,610 shares owned by Mr. Francis Williams; 1,149,635 shares
allocated to Mr. Williams based on his 66.7% ownership of Kimmins; 29,346
shares owned by Mr. Williams' wife; 22,748 shares held by Mr. Williams as
trustee for his wife and children. Mr. Williams owns 66.7% of the
outstanding common stock of Kimmins Corp. and is its Chairman and Chief
Executive Officer.
(4) Includes 133,500 shares owned by Mr. Joseph M. Williams; 1,010 shares held
by Mr. Williams as trustee for his children; 219 shares held by the Kimmins
401(k) Plan and ESOP of which Mr. Williams is fully vested. Also includes
205,764 shares held by Kimmins 401(k) Plan, Profit Participation Plan and
ESOP, options to acquire 20,000 shares of the Company's Common Stock held
by the ESOP, of which Mr. Williams is a trustee; Mr. Williams disclaims
beneficial ownership of these shares.
17
(5) Includes 50% of the 72,540 shares owned by C&C Properties, a partnership in
which Mr. Cohen has a 50% ownership and 6,320 shares held in trust for Mr.
Cohen's minor children.
(6) Includes 2,131 shares owned by R. Donald Finn; and options to acquire 5,000
shares of Cumberland common stock.
CERTAIN MARKET INFORMATION
The Common Stock trades on the OTC Bulletin Board. The following is the
high and low sales prices for the Common Stock for each quarter during the past
two years:
QUARTER HIGH LOW
------- ---- ---
First 2000 1.75 1.50
Second 2000 1.88 1.72
Third 2000 1.81 1.75
Fourth 2000 2.50 2.50
First 2001 1.91 1.38
Second 2001 1.10 1.10
Third 2001 .98 .90
Fourth 2001 .95 .95
First 2002 1.00 .75
Second 2002 .59 .35
Third 2002 .30 .14
DIVIDENDS
The payment by the Company of dividends, if any, in the future is within
the discretion of its Board of Directors and will depend upon the Company's
earnings, capital requirements (including working capital needs), and other
financial needs. The Company did not declare or pay dividends in 2001 and does
not anticipate paying any dividends on the Company's Common Stock in the near
future.
The future payment of dividends, if any, by CCS is within the
discretion of its Board of Directors and will depend upon CCS's earnings,
statutory limitations, capital requirements (including working capital needs)
and financial condition, as well as other relevant factors. Applicable state
laws and regulations restrict the payment of dividends by CCS to the extent of
surplus profits less any dividends that have been paid in the preceding twelve
months or net investment income for the year, whichever is less, unless CCS
obtains prior approval from the insurance commissioner. CCS does not anticipate
paying any dividends on CCS common stock in the near future.
18
FINANCIAL AND OTHER INFORMATION
The information contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 and, Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002,
including the financial statements contained under the caption "Selected
Financial Data" on page 12 of the Form 10-K, and in the Company's Quarterly
Reports, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. You may read and copy any materials we file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains information that we file
electronically with the SEC.
By Order of the Board of Directors,
/s/ Joseph M. Williams
------------------------------------
Joseph M. Williams,
President and Treasurer
Tampa, Florida
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APPENDIX A
ARTICLES OF AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CUMBERLAND TECHNOLOGIES, INC.
Pursuant to General Corporation Law of the State of Florida, the
undersigned, being the Chairman of the Board of Directors of Cumberland
Technologies, Inc., a Florida corporation (the "Corporation"), does hereby
execute these Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cumberland Technologies, Inc., on behalf of the Corporation,
and certify as follows:
1. The name of the corporation is Cumberland Technologies, Inc. (the
"Corporation").
2. Article III of the Corporation's Amended and Restated Articles of
Incorporation is hereby deleted in its entirety, with the following
substituted in its place:
The aggregate number of shares which this Corporation shall have
the authority to issue will be designated Common Stock; _____________
shares at the par value of $.15 each per share shall be designated
Common Stock; and 500,000 shares at the par value of $3.00 each per
share shall be designated Preferred Shares.
3. Upon the effectiveness of the foregoing amendment, (i) each 150
outstanding shares of Common Stock of the Corporation, par value $.001,
shall be combined into one share of Common Stock of the Corporation, par
value $.15. Outstanding shares of Common Stock with a par value of $.001,
which would otherwise be respectively converted into a fractional share of
Common Stock of the Corporation, each with a par value of $.15, will be
cancelled, with the holders of such shares receiving cash payment equal to
such share's fair value as determined in the good faith judgment of the
Corporation's Board of Directors.
4. The date of adoption of the resolution approving the combination of
shares of this Corporation set forth in the foregoing amendment is
__________________.
5. The foregoing amendment was required to be approved by the shareholders
of the Corporation and the number of votes cast for the amendment by the
shareholders was sufficient for approval in accordance with Florida General
Corporation Law.
IN WITNESS WHEREOF, the undersigned Chairman of the Board of Directors of
the Corporation has cause these Articles of Amendment to the Amended and
Restated Articles of Incorporation of Cumberland Technologies, Inc., as of this
____ day of __________________.
CUMBERLAND TECHNOLOGIES, INC.
By:________________________________
Francis M. Williams,
Chairman
ATTEST:
By: __________________________
Carol Black
Secretary [CORPORATE SEAL]
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CUMBERLAND TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CUMBERLAND TECHNOLOGIES, INC.
The undersigned hereby appoints Joseph M. Williams as proxy, with power of
substitution, to represent the undersigned at the Special Meeting of
Shareholders of Cumberland Technologies, Inc. (the "Company"), to be held at
__________ p.m., local time, on January __, 2003, at the Company's headquarters
located at 4311 W. Waters Avenue, Tampa, Florida 33614, and at any adjournments
thereof, to vote the number of shares which the undersigned would be entitled to
vote if present in person in such manner as such proxies may determine, and to
vote on the following proposals as specified below by the undersigned.
(1) Reverse Stock Split 150 to 1
_____VOTE FOR ____VOTE AGAINST ___ABSTAIN
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. IN THE ABSENCE OF SPECIFIED DIRECTIONS,
THIS PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE AMENDMENT DESCRIBED IN
THIS PROXY. The proxies are also authorized to vote in their discretion upon
such other matters as may properly come before the meeting or any adjournment
thereof.
If signing as attorney, administrator, executor, guardian, trustee or as a
custodian for a minor, please add your title as such. If a corporation, please
sign in full corporate name and indicate the signer's office. If a partner,
please sign in the partnership's name.
X_________________________________________________________
Printed
Name______________________________________________________
X_________________________________________________________
Printed
Name______________________________________________________
Dated
__________________________________________________________
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