Reduced Risk of NASDAQ Delisting. The primary reason our Board believes a reverse stock split is desirable is to maintain the listing of our common stock on The NASDAQ Capital Market. By potentially increasing our stock price, the reverse stock split would reduce the risk that our stock will be delisted from The NASDAQ Capital Market, which requires, among other things, that issuers maintain a closing bid price of at least $1.00 per share. We announced on June 4, 2010, that we had 24
received a letter, dated June 1, 2010, from the Listing Qualifications Department of The NASDAQ Stock Market, or the Staff, notifying us that, for 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement, or the Bid Price Requirement, for continued inclusion on The NASDAQ Capital Market pursuant to NASDAQ Listing Rules. In accordance with NASDAQ Listing Rules, we were given 180 calendar days, or until November 29, 2010, to regain compliance. To regain compliance, the bid price of our common stock needed to close at or above $1.00 for at least 10 consecutive business days at any time prior to November 29, 2010. Because the bid price of our common stock did not close above $1.00 for 10 consecutive days, we received a further notification from NASDAQ on November 30, 2010, informing us that our common stock would be subject to delisting from The NASDAQ Capital Market unless we requested a hearing to the NASDAQ Listing Qualifications Panel. On December 7, 2010, we requested a hearing, which was conducted on January 6, 2011. At this hearing we requested that the Listing Qualifications Panel grant us an additional extension to May 31, 2011, in which to regain compliance with the $1.00 minimum closing bid price requirement, and on March 1, 2011, we were notified by NASDAQ that our request had been granted. However, if we fail to regain compliance during this extension period, our common stock could be subject to delisting. We may need to effect the proposed reverse stock split in order to regain compliance. • Increase in Eligible Investors. In addition, a reverse stock split would allow a broader range of institutions to invest in our stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing the trading volume and liquidity of our common stock. • Increased Analyst and Broker Interest. A reverse stock split would help increase analyst and broker interest in our stock as their policies can discourage them from following or recommending companies with low stock prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have adopted internal policies and practices that either prohibit or discourage them from investing in such stocks or recommending them to their customers. Some of those policies and practices may also function to make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on transactions in 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.