RISK FACTORS
Prospective investors should carefully consider the following risk factors, together with the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing our securities. In particular, prospective investors should note that this Prospectus contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and that actual results could differ materially from those contemplated by such statements. The factors listed below represent certain
important factors which we believe could cause such results to differ. These factors are not intended to represent a complete list of the general or specific risks that may affect us. It should be recognized that other risks may be significant,
presently or in the future, and the risks set forth below may affect us to a greater extent than indicated.
Risks
Relating to our Business
We will require additional financing in order to develop the Casino Project and we may be unable to meet
our future capital requirements and execute our business strategy without such financing.
EPT Concord II, LLC
(EPT), a wholly owned subsidiary of Entertainment Properties Trust, is the sole owner of 1,500 acres located at the site of the former Concord Resort (the EPT Property). On December 14, 2012, EPT and Monticello Raceway
Management, Inc., our wholly-owned subsidiary (MRMI), entered into a master development agreement (the MDA) to develop the EPT Property. The MDA defines and governs the overall relationship between EPT and MRMI with respect
to the development, construction, operation, management and disposition of the integrated destination resort and community (the Project) to be developed by the parties on the EPT Property. The parties envision MRMI developing a
comprehensive resort destination that includes a casino and a harness racetrack and may also include one or more hotels, food and beverage outlets, a spa facility, retail venues, space for conferences, meetings, entertainment and special events in a
multi-purpose conference space supported by separate meeting rooms and parking facilities (the Casino Project). In addition to the Casino Project, the Project is expected to include a golf course and a resort including a variety of
amenities.
Because we are unable to generate sufficient cash from our operations to develop the Casino Project, we will be
required to rely on external financing. In order to participate in the Project and to meet our obligations with respect to the development of the Casino Project, we are required to invest a minimum of $300 million. Of this amount, the Company
expects to raise a portion in the short-term to fund the immediate expenses of the Project, which may include permitting, infrastructure and shared master planning costs and expenses, as well as other costs associated with the Projects
development and may seek additional debt and equity financing in public or private transactions, which may include underwritten offerings to the public or rights offerings to current stockholders to fund the development of the Project and our Casino
Project. We can make no assurance that financing will be available in amounts or on acceptable terms, if at all.
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The external financing to support the Project and the Casino Project may be in the form of a
debt offering. The level of indebtedness will likely have several important effects on future operations, including, without limitation:
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a portion of cash flow from current operations may be dedicated to the payment of any interest and/or principal required with respect to outstanding
indebtedness while we are developing the Project and Casino Project;
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the debt documents may contain restrictive covenants curtailing operations and finances;
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increases in outstanding indebtedness and leverage may increase vulnerability to adverse changes in general economic and industry conditions, as well
as to competitive pressure;
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depending on the levels of outstanding indebtedness, our ability to obtain additional financing for working capital, general corporate and other
purposes may be limited, and
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covenants may restrict dividends and transfer of funds from the operating entity to Empire.
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The ability to make payments of principal and interest on indebtedness will depend upon future performance, which is subject to general
economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If sufficient cash flow is not generated from operations to service such debt, requirements among other
things, may be to:
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seek additional financing in the debt or equity markets;
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delay, curtail or abandon altogether our development plans;
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refinance or restructure all or a portion of our indebtedness; or
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Such measures might be insufficient to service the indebtedness. In addition, any such financing, refinancing or sale of assets may not be available on commercially reasonable terms, or at all.
Alternatively, the external financing to support our obligations of the Project and our Casino Project may be in the form of
an equity offering of our equity capital stock. Such future sales of substantial amounts of equity capital stock privately or in the public market, the conversion of a bridge loan (the Bridge Loan) from Kien Huat into shares of common
stock, or the perception that such sales or conversion are likely to occur, could affect the market price of the common stock. Moreover, the sale of additional equity could result in significant dilution to the existing stockholders. In addition,
securities issued in connection with future financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of the common stock.
If funds are not available when needed, or available on acceptable terms, we may be required to delay, scale back or eliminate some of
our obligations with respect to the Project
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and our Casino Project. In addition, we may not be able to grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could
negatively impact our business, operating results and financial condition.
If revenues and operating income from our operations at
Monticello Casino and Raceway do not increase, it could adversely affect our financial performance.
There can be no
assurance that our operations will draw sufficient patrons to Monticello Casino and Raceway to increase our revenues to the point that we will continue to recognize net income. The operations and placement of our VGMs, including the layout and
distribution, are under the jurisdiction of the New York State Gaming Commission (the NYSGC) and the program contemplates that a significant share of the responsibility for marketing the program will be borne by the NYSGC. The NYSGC is
not required to make decisions that we feel are in our best interest and, as a consequence, the profitability of our VGM operations may not reach the levels that we believe to be feasible or may be slower than expected in reaching those levels. By
statute, from April 1, 2008 until March 31, 2014, 42% of gross VGM revenue is distributed to us. Beginning on April 1, 2014, 40% of the first $50 million, 29% of the next $100 million and 26% thereafter of gross VGM revenue will be
distributed to us. Additionally, effective August 4, 2010, legislation was passed to reduce operator fees by one percentage point at each level of VGM revenues. No assurance can be given that such increased revenue will be sufficient to
generate a profit and continue to do so. Our operations are subject to many regulatory, competitive, economic and business risks beyond our control, and a change in this regard could have a material adverse impact on our operations and our business
prospects.
As a holding company, we are dependent on the operations of our subsidiary to pay dividends or make distributions in order
to generate internal cash flow.
We are a holding company with no revenue generating operations. Consequently, our
ability to meet our working capital requirements and to service our debt obligations depends on the earnings and the distribution of funds from our subsidiary. While our current operations generate sufficient cash flow to fund our obligations, there
can be no assurance that the subsidiary will generate sufficient revenue to make cash distributions in an amount necessary for us to satisfy our working capital requirements or our obligations under any current or future indebtedness. In addition,
the subsidiary may enter into contracts that limit or prohibit its ability to make distributions. Should our subsidiary be unable to make distributions, our ability to meet our ongoing obligations would be jeopardized. Specifically, without the
making of distributions, we would be unable to pay our employees, accounting professionals or legal professionals, all of whom we rely on to manage our operations, ensure regulatory compliance and sustain our public company status.
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Changes in the laws, regulations, and ordinances (including local laws) to which the gaming industry
is subject, and the application or interpretation of existing laws and regulations, or our inability or the inability of our subsidiaries, key personnel, significant stockholders, or joint venture partners to obtain or maintain required gaming
regulatory licenses, permits or approvals could prevent us from pursuing future development projects or otherwise adversely impact our results of operation.
The ownership, management and operation of our current and any future gaming facilities are and will be subject to extensive federal, state, provincial, and/or local laws, regulations and ordinances that
are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibilities, financial stability and character of the
owners and managers of gaming operations as well as persons financially interested or involved in gaming operations, and often require such parties to obtain certain licenses, permits and approvals. In addition, some of the licenses that we and our
subsidiaries, officers, directors and principal stockholders hold expire after a relatively short period and thus require frequent renewals and reevaluations. Obtaining these licenses in the first place and the renewal process involves a subjective
determination by the regulatory agencies. If we or our subsidiaries do not obtain and maintain the required licenses, permits and approvals, we may be required to divest our interest in our current or future gaming facilities or our current gaming
facility risks losing its licenses. These laws, regulations and ordinances may also affect the operations of our gaming facilities or our plans in pursuing future projects.
The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. If the NYSGC believes a stockholder does not meet their subjective
determination, a stockholder may be forced to sell any stock they hold and such sale may result in a material loss of investment value for the stockholder.
The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. A failure to possess such qualifications could lead to a material loss of
investment by either us or our stockholders, as it would require divestiture of the stockholders direct or indirect interest in us. Consequently, should any stockholder ever fail to meet the qualifications necessary to own a direct or indirect
interest in us by NYSGC, such stockholder could be forced to liquidate all interests in us. Should such stockholder be forced to liquidate these interests within a relatively short period of time, such stockholder would likely be forced to sell at a
discount, causing a material loss of investment value.
During 2002, certain affiliates of Bryanston Group, Inc.
(Bryanston Group), our former largest stockholder, and certain of our other stockholders and officers (Series E Preferred Stockholders) were indicted for various counts of tax and bank fraud. On September 5, 2003, one of
these Series E Preferred Stockholders pleaded guilty to felony tax fraud, and on February 4, 2004, four additional former officers and Series E Preferred Stockholders were convicted of tax and bank fraud. None of the acts these individuals were
charged with or convicted of relate to their ownership interests in us and their remaining interests do not provide them with any significant control in the management of the Company or MRMI.
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However, there can be no assurance that none of the various governmental agencies that now, or in the future may, regulate and license our gaming related activities will factor in these
indictments or criminal acts in evaluating our ability to obtain or maintain required licenses, permits or approvals. Should a regulatory agency determine that the indictments and convictions of some of our Series E Preferred Stockholders affect our
ability to obtain or maintain required licenses, permits or approvals, we could be forced to liquidate certain or all of our gaming interests.
The gaming industry in the northeastern United States is highly competitive, with many of our competitors better known and better financed than us.
The gaming industry in the northeastern United States is highly competitive and increasingly dominated by
multinational corporations or Native American tribes that enjoy widespread name recognition, established brand loyalty, decades of casino operation experience, and a diverse portfolio of gaming assets and substantially greater financial resources.
We face competition for our VGM operations from Yonkers Raceway which is located within the New York City metropolitan area.
The Yonkers facility, which is much closer to New York City, has a harness horseracing facility, approximately 5,300 VGMs, food and beverage outlets and other amenities. In contrast, we have limited financial resources and currently operate our
harness horse racing facility and VGMs in Monticello, New York, which is approximately a one and a half hour drive from New York City.
Pennsylvania casinos may operate table games and slot machines and have the ability to grant credit to guests of the casino. Pennsylvania legalized the operation of up to 61,000 slot machines at 14
locations throughout the state. As of March 2013, there were eleven casinos in operation within Pennsylvania, with six located at race tracks. One such race track facility is the Mohegan Sun at Pocono Downs, which has approximately 2,300 slot
machines and 84 table games, including 18 poker tables. The Mohegan Sun at Pocono Downs in Wilkes-Barre, Pennsylvania, is approximately 70 miles southwest of Monticello. In addition, the Mount Airy Casino Resort has approximately 2,075 slot machines
and 72 table games, including 11 poker tables, a hotel, spa, and a golf course. The Mount Airy Casino Resort is located in Mount Pocono, Pennsylvania, approximately 60 miles southwest of Monticello. Any expansion of these casinos in Pennsylvania
will likely increase the degree of competition within our market and may have an adverse effect on our business and future operating performance.
Moreover, a number of Native American tribes and gaming entrepreneurs are presently seeking to develop Class III casinos in New York and Connecticut in areas that are 90 miles from New York City such as
Bridgeport, Connecticut and Southampton, New York. We are unable to predict when or if any gaming compacts will be submitted to the United States Department of the Interior or whether taking land into trust for the purpose of Class III casinos will
require an Act of Congress. Based on proximity, a gaming facility, which would include a casino, hotel, restaurants and retail shops, could likely significantly increase the competition we face and have a material adverse effect on our business
operations and future performance.
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No assurance can be given that we will be able to compete successfully for gaming customers
with the established casinos in Pennsylvania, or the competing VGM facility at Yonkers Raceway.
The continuing decline in the
popularity of horse racing and increasing competition in simulcasting could adversely impact the business of Monticello Casino and Raceway.
Since the mid-1980s, there has been a general decline in the number of people attending and wagering at live horse races at North American racetracks due to a number of factors, including increased
competition from other forms of gaming, unwillingness of guests to travel a significant distance to racetracks and the increasing availability of off-track wagering. The declining attendance at live horse racing events has prompted racetracks to
rely increasingly on revenues from inter-track, off-track and account wagering markets. The industry-wide focus on inter-track, off-track and account wagering markets has increased competition among racetracks for outlets to simulcast their live
races. A continued decrease in attendance at live events and in on-track wagering, as well as increased competition in the inter-track, off-track and account wagering markets, could lead to a decrease in the amount wagered at Monticello Casino and
Raceway. Our business plan anticipates the possibility of Monticello Casino and Raceway attracting new guests to our racetrack wagering operations through VGMs in order to offset the general decline in raceway attendance. However, even if our VGM
operations attract new guests to our racetrack, we may not be able to generate profit from operations. Public tastes are unpredictable and subject to change. Any further decline in interest in horse racing or any change in public tastes may
adversely affect our revenues and, therefore, limit our ability to make a positive contribution to our results of operation.
We depend
on our key personnel and the loss of their services would adversely affect our operations and business strategy.
If we
are unable to maintain our key personnel and attract new employees with high levels of expertise in the gaming areas in which we engage and propose to engage, or are unable to do so without unreasonably increasing our labor costs, the execution of
our business strategy may be hindered and our growth limited. We believe that our success is largely dependent on the continued employment of our executive management and the hiring of strategic key personnel at reasonable costs. Competition for
qualified executives is intense and we can give no assurance that we would be able to hire a qualified replacement with the required level of experience and expertise for any current members of our senior management, if required to do so.
Accordingly, if any of our current key executives were unable or unwilling to continue in his or her present position, or we were unable to attract a sufficient number of qualified employees at reasonable rates, our business, results of operations
and financial condition will be materially adversely affected. Additionally, recruiting and hiring a replacement for any executive management position could divert the attention of other senior management and increase our operating expenses.
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Currently, full-scale casino gaming, other than Native American gaming, is not allowed in New York.
There can be no assurance that the required amendment to the New York State Constitution will be passed in order to allow full-scale casino gaming, other than Native American gaming, in a timely manner, or at all.
Currently, we are not permitted to operate a full-scale casino at Monticello Casino and Raceway because full-scale casino gaming, other
than Native American gaming, is not allowed in New York. In order to operate a full-scale casino at Monticello Casino and Raceway, an amendment to the New York State Constitution to permit full-scale casino gaming would need to be passed or we would
need to enter into an agreement with a Native American tribe for the development of a Class III casino. In January 2012, New York Governor Andrew Cuomo proposed an amendment to the New York State Constitution to permit casino gambling regulated by
the state of New York. In order to be amended to permit full-scale casino gaming, the New York State Constitution requires the passage of legislation in two consecutive legislative sessions and then passage of the majority of the states voters
in a statewide referendum. On March 15, 2012, Governor Cuomo, Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos announced that a constitutional amendment authorizing up to seven non-tribal casinos at locations to be
determined by the Legislature was approved by the Legislature. The newly elected Legislature would have to pass the amendment again this year before it goes to a general referendum in November 2013. There can be no assurance given that an amendment
to the New York State Constitution to permit full-scale casino gaming will be passed in a timely manner, or at all. Moreover, if an amendment to the New York State Constitution to permit full-scale casino gaming were passed, there can be no
assurance that we would be able to secure any necessary licenses, regulatory approvals or financing arrangements necessary to develop a full-scale casino at Monticello Casino and Raceway or another location. In the event that full-scale casino
gaming were permitted under an amendment to the New York State Constitution and we are unable to timely develop and successfully operate a full-scale casino at Monticello Casino and Raceway or another location to compete with any full-scale casinos
or Class III casinos that may be developed by our competitors, our business and future operating performance would likely be materially adversely effected.
On March 7, 2012, Concord filed a complaint against EPR and us seeking monetary damages and permanent injunctive relief against EPR and us relating to our joint development of the EPT
Property. This litigation may delay or alter our plans for the development of the Project.
On March 7, 2012,
Concord and various affiliates filed a complaint against EPR and us in the United States District Court for the Southern District of New York. The complaint was amended in June 2012, to add Genting New York, LLC and Kien Huat as defendants. The
amended complaint asserts federal antitrust claims and claims of tortious interference with contract and business relations and seeks damages in an amount of not less than $500 million (subject to automatic trebling under federal antitrust laws),
unspecified punitive damages with respect to the tortious interference claims and permanent injunctive relief against EPR and our agreements. Although we believe this lawsuit is without merit and we will aggressively defend our interests, it may
delay or alter our plans to develop the site of the EPT Property with EPR.
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Risk Relating to our Ownership Structure
Stockholders ability to influence corporate decisions may be limited because our major stockholder owns a large percentage of our common
stock.
Kien Huat Realty III Limited is the beneficial holder of 18,254,246 shares of our common stock, representing
approximately 60% of our voting power. Additionally, under the terms of an investment agreement with Kien Huat (the Investment Agreement), if any option or warrant outstanding as of November 12, 2009, the date of the final closing
of the Investment Agreement, (or, in limited circumstances, if issued after such date) is exercised, Kien Huat has the right (following notice of such exercise) to purchase an equal number of additional shares of our common stock as are issued upon
such exercise at the exercise price for the applicable option or warrant. The percentage of our outstanding shares of common stock and voting power owned by Kien Huat would not increase as a result of the purchase by Kien Huat of any shares of our
common stock pursuant to such matching right, given the issuance of shares upon exercise of the option or warrant that triggered the matching right. Under the terms of the Investment Agreement, Kien Huat is also entitled to recommend three directors
whom we are required to cause to be elected or appointed to our Board of Directors (Board), subject to the satisfaction of all legal and governance requirements regarding service as a director and to the reasonable approval of the
Corporate Governance and Nominations Committee of our Board. Kien Huat recommended Au Fook Yew, Emanuel Pearlman and Joseph DAmato as nominees to the Board pursuant to its rights under the Investment Agreement, all three of which were elected
by the Companys stockholders in November 2012. Kien Huat will continue to be entitled to recommend three directors for so long as it owns at least 24% of our voting power outstanding at such time, after which the number of directors whom Kien
Huat will be entitled to designate for election to our Board will be reduced proportionally to Kien Huats percentage of ownership. Under the Investment Agreement, for so long as Kien Huat is entitled to recommend nominees to serve as board
members, among other things, Kien Huat will have the right to nominate one of its director designees to serve as the Chairman of the Board. Mr. Pearlman has been appointed to serve as Chairman of the Board pursuant to Kien Huats
recommendation. Until such time as Kien Huat ceases to own capital stock with at least 30% of our voting power outstanding at such time, our Board will be prohibited under the terms of the Investment Agreement from taking certain actions relating to
fundamental transactions involving us and our subsidiaries and certain other matters without the affirmative vote of the directors recommended by Kien Huat and elected by shareholders. Consequently, Kien Huat has the ability to exert significant
influence over our policies and affairs, including the election of our Board and the approval of any action requiring a stockholder vote, such as approving amendments to our certificate of incorporation and mergers or sales of substantially all of
our assets, as well as other matters. This concentration of voting power could delay or prevent an acquisition of our Company on terms that other stockholders may desire or force the sale of our company on terms undesirable to other stockholders.
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Risks Relating to the Market Value of Our Common Stock
The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when our stockholders want to
sell their holdings.
The market price of our common stock has in the past been, and may in the future continue to be,
volatile. For instance, between January 1, 2012 and April 1, 2013, the closing price of our common stock has ranged between $3.00 and $1.51 per share. A variety of events may cause the market price of our common stock to fluctuate
significantly, including but not necessarily limited to:
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quarter to quarter variations in operating results;
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adverse or positive news reports or public announcements; and
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market conditions for the gaming industry.
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In addition, the stock market in recent years has experienced significant price and volume fluctuations. This volatility has had a substantial effect on the market prices of companies, at times for
reasons unrelated to their operating performance. These market fluctuations may adversely affect the price of our common stock and other interests in the Company at a time when our stockholders want to sell their interest in us.
If we fail to meet the applicable continued listing requirements of NASDAQ Global Market, NASDAQ may delist our common stock, in which case the
liquidity and market price of our common stock could decline.
Our common stock is currently listed on the NASDAQ
Global Market. In order to maintain that listing, we must satisfy certain continued listing requirements. If we are deficient in maintaining the necessary listing requirements, our common stock may be delisted. If our stock is delisted, an active
trading market for our common stock may not be sustained and the market price of our common stock could decline.
We do not anticipate
declaring any dividends in the foreseeable future.
During the past two fiscal years, we did not declare or pay any
cash dividends with respect to our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. In addition, the
payment of cash dividends to the holders of our common stock is restricted by undeclared dividends on our Series E preferred stock. We have accumulated unpaid Series E preferred dividends of approximately $13.9 million as of December 31, 2012.
There can be no assurance that we will have, at any time, sufficient surplus under Delaware law to be able to pay any dividends.
Future
sales of shares of our common stock in the public market or the conversion of the Bridge Loan by Kien Huat could adversely affect the trading price of shares of our common stock and our ability to raise funds in new stock offerings.
Future sales of substantial amounts of shares of our common stock in the public market, the conversion of the Bridge
Loan by Kien Huat into shares of our common stock, or the
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perception that such sales or conversion are likely to occur could affect the market price of our common stock. Kien Huats stock ownership may also discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
General Business Risks
Instability and volatility in the financial markets could have a negative impact on our business, financial condition, results of operations and
cash flows.
The demand for entertainment and leisure activities tends to be highly sensitive to consumers
disposable incomes, and the recent economic recession that has affected the U.S. and global economies, the tightened credit markets and eroded consumer confidence had a negative impact on overall trends in the gaming industry in 2011 and, to an
extent, in 2012. Discretionary consumer spending habits have been adversely affected by the recent economic crisis and the actual or perceived fear of the extent of the recession could lead to further decrease in spending by our guests. We cannot
predict at what level these negative trends will continue, worsen or improve and the ultimate impact it will have on our future results of operations. The continued weakness in our market and the deterioration of the broader global economy would
have a material adverse effect on our industry and our business, including our revenues, profitability, operating results and cash flow.
Moreover, to the extent we do not generate sufficient cash flows from operations; we may need to incur additional indebtedness to finance our plans for growth or make scheduled payments on or to refinance
our obligations under the Bridge Loan from Kien Huat. Recent turmoil in the credit markets and the resulting impact on the liquidity of certain large financial institutions has had, and may continue to have, an effect through the U.S. economy,
including limiting access to credit markets for certain borrowers at reasonable rates. Due to fluctuations in the credit markets from time to time, we may be unable to incur additional indebtedness to fund our business strategy, in the public or
private markets, on terms we believe to be reasonable, if at all.
We are subject to greater risks than a geographically diverse
company.
Our operations are limited to the Catskills region of the State of New York, which has been affected by
decades long decline in economic conditions. As a result, in addition to our susceptibility to adverse global and domestic economic, political and business conditions, any economic downturn in the region could have a material adverse effect on
our operations. An economic downturn would likely cause a decline in the disposable income of consumers in the region, which could result in a decrease in the number of patrons at our facility, the frequency of their visits and the average amount
that they would be willing to spend at our facility. We are subject to greater risks than more geographically diversified gaming or resort operations, including:
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a downturn in national, regional or local economic conditions;
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an increase in competition in New York State or the northeastern United States and Canada, particularly for day-trip patrons residing in New York
State, including as a
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result of any new tribal Class III casinos or VGMs at certain racetracks and other locations in New York, Connecticut and casinos in Pennsylvania;
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impeded access due to road construction or closures of primary access routes; and
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adverse weather and natural and other disasters in the northeastern United States.
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The occurrence of any one of the events described above could cause a material disruption in our business and make us unable to generate
sufficient cash flow to make payments on our obligations.
Our business is particularly sensitive to energy prices and a rise in energy
prices could harm our operating results.
We are a large consumer of electricity and other energy and, therefore,
higher energy prices may have an adverse effect on our results of operations. Accordingly, increases in energy costs may have a negative impact on our operating results. Additionally, higher electricity and gasoline prices which affect our customers
may result in reduced visitation to Monticello Casino and Raceway and a reduction in our revenues.
Our business could be affected by
weather-related factors and seasonality.
Our results of operations may be adversely affected by weather-related and
seasonal factors. Severe winter weather conditions may deter or prevent patrons from reaching our gaming facilities or undertaking day trips. In addition, some recreational activities are curtailed during the winter months. Although our budget
assumes these seasonal fluctuations in our gaming revenues to ensure adequate cash flow during expected periods of lower revenues, we cannot ensure that weather-related and seasonal factors will not have a material adverse effect on our operations.
We are vulnerable to natural disasters and other disruptive events that could severely disrupt the normal operations of our
business and adversely affect our earnings.
Our operations are located at a facility in Monticello, New York. Although this
area is not prone to earthquakes, floods, tornadoes, fires or other natural disasters, the occurrence of any of these events or any other cause of material disruption in our operation could have a material adverse effect on our business, financial
condition and operating results. Moreover, although we do maintain insurance customary for our industry, including a policy with $10 million limit of coverage for the perils of flood and earthquake, we cannot ensure that this coverage will be
sufficient in the event of one of the disasters mentioned above.
We may be subject to material environmental liability as a result of
unknown environmental hazards.
We currently own 232 acres of land. As a significant landholder, we are subject to
numerous environmental laws. Specifically, under the Comprehensive Environmental Response, Compensation and Liability Act, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic
substances or chemical releases on or relating to its property and may be held liable to a governmental entity or to
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third parties for property damage, personal injury and for investigation and cleanup costs incurred by such parties in connection with the contamination. Such laws typically impose cleanup
responsibility and liability without regard to whether the owner knew of or caused the presence of contaminants. The costs of investigation, remediation or removal of such substances may be substantial.
Potential changes in the regulatory environment could harm our business.
From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming
operations in the jurisdictions in which we operate or intend to operate. In addition, from time to time, certain anti-gaming groups propose referenda that, if adopted, could force us to curtail operations and incur significant losses.
Risks Relating to the Rights Offering
A significant number of our shares will be available for future sale which could depress the market price of our common stock.
As of April 1, 2013, an aggregate of 30,148,817 shares of our common stock were outstanding (which amount does not include 11,950
shares of our common stock issuable upon conversion of our Series B Preferred Stock). In addition, as of April 1, 2013, there were outstanding options to purchase an aggregate of 2,204,303 shares of our common stock, warrants to purchase an
aggregate of 1,083,000 shares of our common stock and option matching rights to purchase an aggregate of 1,276,000 shares of our common stock. Upon exercise of all rights offered hereunder, an additional 6,032,153 shares of common stock would be
outstanding.
We may seek to sell additional convertible debt or equity securities to provide the Company with additional
capital resources to grow the business and fund its development projects. For this purpose we make seek to sell securities in public or private transactions, which may include underwritten offerings to the public or additional rights offerings to
current stockholders. Sales of large amounts of our common stock in the market could adversely affect the market price of the common stock. Moreover, the perceived risk of the potential dilution that would result from the exercise of our outstanding
options, warrants or option matching rights could cause stockholders to attempt to sell their shares and investors to short the stock. All of these events could have a significant adverse impact on the market price of our common stock
and could impair our future ability to raise capital through offerings of our securities in the future at a time and price that we deem appropriate.
The subscription price determined for this offering is not an indication of our value.
The subscription price in the rights offering is equal to $1.8901. The subscription price does not necessarily bear any relationship to the book value of our assets, net worth, past operations, cash
flows, losses, financial condition, or any other established criteria for valuing the Company. You should not consider the subscription price an indication of the value of the Company or our common stock.
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You may not revoke your subscription exercise and your purchase of shares in the rights offering may
be at a price higher than the market price.
Once you exercise your subscription rights, you may not revoke the
exercise. The public trading market price of our common stock may decline before the subscription rights expire. If you exercise your subscription rights and, afterwards, the market price of our common stock falls below the subscription price, then
you will have committed to buy shares of common stock in the rights offering at a price that is higher than the market price. Moreover, we cannot assure you that you will ever be able to sell shares of common stock that you purchased in the rights
offering at a price equal to or greater than the subscription price. Until certificates are delivered or your account at your broker, custodian bank or other nominee is credited upon expiration of the rights offering, you may not be able to sell the
shares of our common stock that you purchase in the rights offering. We will issue certificates representing your shares of our common stock, or credit your account at your broker, custodian bank or other nominee with shares of our common stock,
electronically in registered, book-entry form only on our records or on the records of our transfer agent, Continental Stock Transfer & Trust Company, that you purchased pursuant to your basic subscription and oversubscription rights as
soon as practicable after the rights offering has expired and all proration calculations, reductions, and additions contemplated by the terms of the rights offering have been effected.
If the rights offering is not fully subscribed, Kien Huat will increase its ownership percentage.
On , 2013, the last practicable date before the filing of this prospectus, Kien Huat owned approximately 60.7% of our outstanding
shares of common stock (excluding any option matching rights and a convertible note owned by Kien Huat). As a stockholder as of the record date, KienHuat will have the right to subscribe for and purchase shares of our common stock under both the
rights offering. In accordance with the proposed standby purchase agreement, Kien Huat will agree to exercise its basic subscription rights in full within ten (10) business days of its grant. To the extent Kien Huat participates in the rights
offering and other stockholders do not, Kien Huat will increase its percentage of ownership.
As of December 31, 2012, Kien Huat also
owns option matching rights to purchase 1,276,000 shares at a weighted average exercise price of $8.93 per share. In addition, Kien Huat has the right to convert all or any portion of the principal sum evidenced by the Bridge Loan, which is
currently approximately $17.4 million, such that the unconverted portion is $1,000 or a multiple of $1.00 in excess thereof into our common stock at a conversion price of $2.65 per share, subject to adjustment in accordance with the Loan Agreement.
Depending upon the prices of the shares issuable in the rights offering, the exercise price of the option matching rights and the conversion rate of the note could be subject to downward adjustment, resulting in additional shares being issuable to
Kien Huat.
The issuance of additional shares of our common stock could limit our ability to apply our net operating loss carryforwards
to offset our taxable income (if any) in any future year.
In addition, the issuance of share of our common stock to
Kien Huat in connection with its participation in the rights offering may, when considered with other changes in ownership, constitute a change in ownership as defined under Section 382 of the United States
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Internal Revenue Code of 1986, as amended. If a change in ownership is deemed to have occurred, our net operating loss carryforwards that could be applied to offset our taxable income (if any) in
any future year would be limited. We cannot determine what effect, if any, these factors would have on the trading price of our common stock.
Because we may terminate the offering at any time prior to the expiration date, your participation in the rights offering is not assured.
We do not intend, but have the right, to terminate the offering at any time prior to the expiration date. If we
determine to terminate the offering, we will not have any obligation with respect to the subscription rights except to return any money received from subscribing stockholders promptly, without interest or deduction.
You will need to act promptly and to carefully follow the subscription instructions, or your exercise of rights may be rejected.
Stockholders who desire to purchase shares in the rights offering must act promptly to ensure that all required forms
and payments are actually received by the subscription agent prior to 5:00 pm on
, 2013,
the expiration date. If you are a beneficial owner of shares, you must act promptly to ensure that your broker, custodian bank or other nominee acts for you and that all required forms and payments are actually received by the subscription agent
prior to the expiration date. We shall not be responsible if your broker, custodian or nominee fails to ensure that all required forms and payments are actually received by the subscription agent prior to the expiration date. If you fail to complete
and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your desired transaction the subscription agent may, depending on the circumstances, reject your
subscription or accept it to the extent of the payment received. Neither we nor our subscription agent will undertake to contact you concerning, or attempt to correct, an incomplete or incorrect subscription form or payment. We have the sole
discretion to determine whether a subscription exercise properly follows the subscription procedures.
You will not receive interest on
subscription funds, including any funds ultimately returned to you promptly.
You will not earn any interest on your
subscription funds while they are being held by the subscription agent pending the closing of this rights offering. In addition, if we cancel the rights offering or if you exercise your oversubscription privilege and are not allocated all of the
shares of common stock for which you over-subscribe, neither we nor the subscription agent will have any obligation with respect to the subscription rights except to return, without interest, any subscription payments to you.
You may not receive all of the shares you subscribe for pursuant to oversubscription rights
If an insufficient number of shares are available to fully satisfy all oversubscription right requests, the available shares will be
distributed proportionately among stockholders who exercised their oversubscription rights based on the number of shares each stockholder subscribed for under their basic subscription rights.
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THE RIGHTS OFFERING
Subscription Rights
Basic
Subscription Rights
We will grant to each holder of our common stock and our Series B Preferred Stock who is a record
holder of our common stock or Series B Preferred Stock on the record date, which is April 8, 2013, at no charge, one non-transferable subscription right for each five shares of common stock owned or into which our Series B Preferred Stock would
be convertible as of the record date. As of the date hereof, an aggregate of 30,148,817 shares of our common stock were outstanding and our Series B Preferred Stock was convertible into 11,950 shares of common stock.
The rights offering is being made to Kien Huat in reliance on an exemption from the registration requirements of the Securities Act of
1933, as amended. Shares issued in respect of its participation in the rights offering are not covered by the registration statement of which this prospectus forms a part. Kien Huat is not soliciting participation by the holders of rights in the
rights offering or engaging in any other marketing or sales activity in connection therewith.
The subscription rights will be
evidenced by non-transferable subscription rights certificates. Each subscription right will entitle the rights holder to purchase one share of our common stock (subject to adjustment based on the number of shares outstanding on the record date) at
a price of $1.8901 per share, the subscription price, which shall be paid in cash, upon timely delivery of the required documents and payment of the subscription price. We will not issue fractional shares, but rather will round down the aggregate
number of shares you are entitled to receive to the nearest whole share. Any excess payment will be returned to you promptly without interest or deduction. If rights holders wish to exercise their subscription rights, they must do so prior to 5:00
p.m., New York City time, on , the expiration date for the rights offering. After the expiration date, the subscription rights
will expire and will have no value. See below
Expiration of the Rights Offering and Amendments and Termination
. You are not required to exercise any or all of your subscription rights.
Oversubscription Rights
Subject to the allocation described below, each subscription right also grants the holder an oversubscription right to purchase additional shares of our common stock that are not purchased by other rights
holders pursuant to their basic subscription rights. You are entitled to exercise your oversubscription right only if you exercise your basic subscription right in full.
If you wish to exercise your oversubscription right, you should indicate the number of additional shares that you would like to purchase in the space provided on your rights certificate, as well as the
number of shares that you beneficially own without giving effect to any shares to be purchased in this offering. When you send in your rights certificate, you must
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also send the full purchase price in cash for the number of additional shares that you have requested to purchase (in addition to the payment in cash due for shares purchased through your basic
subscription right). If an insufficient number of shares is available to fully satisfy all oversubscription right requests, the available shares will be distributed proportionately among stockholders who exercised their oversubscription rights based
on the number of shares each stockholder subscribed for under their basic subscription rights. The subscription agent will return any excess payments by mail without interest or deduction promptly after the expiration of the subscription period.
As soon as practicable after the expiration date, the subscription agent will determine the number of shares of common stock
that you may purchase pursuant to the oversubscription right. We will issue certificates representing your shares of our common stock, or credit your account at your broker, custodian bank or other nominee with shares of our common stock,
electronically in registered, bookentry form only on our records or on the records of our transfer agent, Continental Stock Transfer & Trust Company, that you purchased pursuant to your basic subscription and oversubscription rights
as soon as practicable after the rights offering has expired and all proration calculations, reductions, and additions contemplated by the terms of the rights offering have been effected. We will not be able to calculate the number of shares to be
issued to each exercising holder until 5:00 p.m., New York City time, on the third business day after the expiration date of the rights offering, which is the latest time by which subscription rights certificates may be delivered to the subscription
agent under the guaranteed delivery procedures described under
Guaranteed Delivery Procedures
. If you request and pay for more shares than are allocated to you, we will refund the overpayment, without interest or deduction.
In connection with the exercise of the oversubscription right, banks, brokers and other nominee holders of subscription rights who act on behalf of beneficial owners will be required to certify to us and to the subscription agent as to the aggregate
number of subscription rights exercised, and the number of shares of common stock requested through the oversubscription right, by each beneficial owner on whose behalf the nominee holder is acting.
Expiration of the Rights Offering and Amendments and Termination
You may exercise your subscription rights at any time prior to 5:00 p.m., New York City time, on
, 2013, the expiration date for the rights offering. If you do not exercise your subscription rights before the expiration date
of the rights offering, your subscription rights will expire and will have no value. We will not be required to issue shares of our common stock to you if the subscription agent receives your rights certificate or payment, after the expiration date,
regardless of when you sent the rights certificate and payment, unless you send the documents in compliance with the guaranteed delivery procedures described below.
We reserve the right, in our sole discretion, to amend or modify the terms of the rights offering. We also reserve the right to terminate the rights offering at any time prior to the expiration date for
any reason, in which event all funds received in connection with the rights offering will be returned promptly to you without interest or deduction to those persons who exercised their subscription.
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Conditions to and Cancellation of the Rights Offering
The completion of the rights offering is not subject to the satisfaction of any conditions. However, we reserve the right to amend,
cancel, terminate or otherwise modify the rights offering at any time before completion of the rights offering for any reason. In the event that we terminate the rights offering prior to the expiration date, all affected subscription rights will
expire without value and all subscription payments received by the subscription agent will be promptly returned, without interest or deduction. See also
Expiration of the Rights Offering and Amendments and Termination.
Method of Exercising Subscription Rights
The exercise of subscription rights is irrevocable and may not be cancelled or modified. Your subscription rights will not be considered exercised unless the subscription agent receives from you, your
broker, custodian or nominee, as the case may be, all of the required documents properly completed and executed and your full subscription price payment in cash prior to 5:00 p.m., New York City time, on
, 2013, the expiration date of the rights offering. Rights holders may exercise their rights as follows:
Subscription by Registered Holders
Rights holders who are registered holders of our common stock or Series B Preferred Stock may exercise their subscription privilege by properly completing and executing the rights certificate together
with any required signature guarantees and forwarding it, together with payment in full in cash, of the subscription price for each share of the common stock for which they subscribe, to the subscription agent at the address set forth under the
subsection entitled
Delivery of Subscription Materials and Payment
, on or prior to the expiration date.
Subscription by DTC Participants
Banks, trust
companies, securities dealers and brokers that hold shares of our common stock on the rights offering record date as nominee for more than one beneficial owner may, upon proper showing to the subscription agent, exercise their subscription privilege
on the same basis as if the beneficial owners were record holders on the rights offering record date through the Depository Trust Company, or DTC. Such holders may exercise these rights through DTCs PSOP Function on the
agents subscription over PTS procedure and instruct DTC to charge their applicable DTC account for the subscription payment for the new shares or indicating to DTC that such holder intends to pay for such rights through the delivery to
the Company by the holder of an equivalent amount of principal and accrued and unpaid interest of indebtedness owed by the Company to such holder, or a combination thereof, and deliver such amount to the subscription agent. DTC must receive the
subscription instructions and payment for the new shares by the rights expiration date. Except as described under the subsection titled
Guaranteed Delivery Procedures
, subscriptions accepted by the subscription agent via a
Notice of Guaranteed Delivery must be delivered to the subscription agent with payment before the expiration of the subscription period.
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Subscription by Beneficial Owners
Rights holders who are beneficial owners of shares of our common stock and whose shares are registered in the name of a broker, custodian
bank or other nominee, and rights holders who hold common stock certificates and would prefer to have an institution conduct the transaction relating to the rights on their behalf, should instruct their broker, custodian bank or other nominee or
institution to exercise their rights and deliver all documents and payment on their behalf, prior to the expiration date. A rights holders subscription rights will not be considered exercised unless the subscription agent receives from such
rights holder, its broker, custodian, nominee or institution, as the case may be, all of the required documents and such holders full subscription price payment.
Method of Payment
Payments must be made in full in:
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check or bank draft drawn on a U.S. bank, or postal telegraphic or express, payable to Continental Stock Transfer & Trust Company, as
Subscription Agent;
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money order payable to Continental Stock Transfer & Trust Company, as Subscription Agent; or
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wire transfer of immediately available funds directly to the account maintained by Continental Stock Transfer & Trust Company, as Subscription
Agent, for purposes of accepting subscriptions in this Rights Offering at JP Morgan Chase, ABA #021000021, Account # 475-508866 FBO Empire Resorts, Inc. Subscription, with reference to the rights holders name.
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Except if you follow the guaranteed delivery procedures, rights certificates received after 5:00 p.m., New York City time, on
, 2013, the expiration date of the rights offering, will not be honored, and we will return your payment to you promptly, without
interest or deduction.
The subscription agent will be deemed to receive payment upon:
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clearance of any uncertified check deposited by the subject agent;
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receipt by the subscription agent of any certified bank check draft drawn upon a U.S. bank;
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receipt by the subscription agent of any U.S. Postal money order; or
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receipt by the subscription agent of any appropriately executed wire transfer.
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You should read the instruction letter accompanying the rights certificate carefully and
strictly follow it. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS TO US. Except as described below under
Guaranteed Delivery Procedures
, we will not consider your subscription received until the subscription agent has received
delivery of a properly completed and duly executed rights certificate and payment of the full subscription amount. The risk of delivery of all documents and payments is on you or your broker, custodian bank or other nominee, not us or the
subscription agent.
The method of delivery of rights certificates and payment of the subscription amount to the subscription
agent will be at the risk of the holders of rights, but, if sent by mail, we recommend that you send those certificates and payments by overnight courier or by registered mail, properly insured, with return receipt requested, and that a sufficient
number of days be allowed to ensure delivery to the subscription agent and clearance of payment before the expiration of the subscription period.
Unless a rights certificate provides that the shares of common stock are to be delivered to the record holder of such rights or such certificate is submitted for the account of a bank or a broker,
signatures on such rights certificate must be guaranteed by an Eligible Guarantor Institution, as such term is defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, subject to any standards and procedures adopted by
the subscription agent. See
Medallion Guarantee May be Required
.
Medallion Guarantee May Be Required
Your signature on each subscription rights certificate must be guaranteed by an eligible institution, such as a member
firm of a registered national securities exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent in the United States, subject to standards and procedures
adopted by the subscription agent, unless:
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your subscription rights certificate provides that shares are to be delivered to you as record holder of those subscription rights; or
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you are an eligible institution.
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Subscription Agent
The subscription agent for this rights offering is
Continental Stock Transfer & Trust Company. We will pay all fees and expenses of the subscription agent related to the rights offering and have also agreed to indemnify the subscription agent from certain liabilities that it may incur in
connection with the rights offering.
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Information Agent
The information agent for this rights offering is MacKenzie Partners, Inc. We will pay all fees and expenses of the information agent related to the rights offering and have also agreed to indemnify the
information agent from certain liabilities that it may incur in connection with the rights offering. The information agent can be contacted at the following address and telephone number:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2285
E-mail: rightsoffer@mackenziepartners.com
Delivery of Subscription Materials and Payment
You should deliver your
subscription rights certificate and payment of the subscription price in cash, as provided in this prospectus, or, if applicable, notice of guaranteed delivery, to the subscription agent by one of the methods described below:
If delivering by Hand/Mail/Overnight Courier:
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
(212) 509-4000, x 536
Your delivery other than in the manner or to the address listed above will
not constitute valid delivery.
You should direct any questions or requests for assistance concerning the method of
subscribing for the shares of common stock or for additional copies of this prospectus to the information agent.
Guaranteed Delivery
Procedures
The subscription agent will grant you three business days after the expiration date to deliver the rights
certificate if you follow the following instructions for providing the subscription agent notice of guaranteed delivery. On or prior to the expiration date, the subscription agent must receive payment in full in cash, as provided herein, for all
shares of common stock subscribed for through the exercise of the subscription privilege, together with a properly completed and duly executed notice of guaranteed delivery substantially in the
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form accompanying this prospectus either by mail or overnight carrier, that specifies the name of the holder of the rights and the number of shares of common stock subscribed for. If applicable,
it must state separately the number of shares of common stock subscribed for through the exercise of the subscription privilege and a member firm of a registered national securities exchange, a member of the Financial Industry Regulatory Authority,
Inc., or a commercial bank or trust company having an office or correspondent in the United States must guarantee that the properly completed and executed rights certificate for all shares of common stock subscribed for will be delivered to the
subscription agent within three business days after the expiration date. The subscription agent will then conditionally accept the exercise of the rights and will withhold the certificates for shares of common stock until it receives the properly
completed and duly executed rights certificate within that time period.
In the case of holders of rights that are held of
record through DTC, those rights may be exercised by instructing DTC to transfer rights from that holders DTC account to the subscription agents DTC account, together with payment of the full subscription price. The notice of guaranteed
delivery must be guaranteed by a commercial bank, trust company or credit union having an office, branch or agency in the United States or by a member of a Stock Transfer Association approved medallion program such as STAMP, SEMP or MSP.
Notices of guaranteed delivery and payments should be mailed or delivered to the appropriate addresses set forth under
Delivery of Subscription Materials and Payment
.
Calculation of Subscription Rights Exercised
If you do not indicate the number of subscription rights being exercised, or do not forward full payment in cash, as provided herein, of
the total subscription price payment for the number of subscription rights that you indicate are being exercised, then you will be deemed to have exercised your subscription right with respect to the maximum number of subscription rights that may be
exercised with the aggregate subscription price payment in cash, as provided in this prospectus, you delivered to the subscription agent. If we do not apply your full subscription price payment to your purchase of shares of our common stock, we or
the subscription agent will return by check (unless the holder paid for the rights through indebtedness owed by us) the excess amount to you by mail, without interest or deduction, promptly after the expiration date of the rights offering.
Escrow Arrangements
The subscription agent will hold funds received in payment of the subscription price or evidence of our indebtedness in a segregated account until the rights offering is completed or withdrawn and
terminated.
Notice to Beneficial Holders
If you are a broker, a trustee or a depositary for securities who holds shares of our common stock for the account of others as of the record date, you should notify the respective beneficial owners of
such shares of the rights offering as soon as possible to find out their
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intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners with respect to their subscription rights, as set forth in the
instructions we have provided to you for your distribution to beneficial owners. If a beneficial owner so instructs, you should complete the appropriate subscription rights certificates and submit them to the subscription agent with the proper
payment. If you hold shares of our common stock for the account(s) of more than one beneficial owner, you may exercise the number of subscription rights to which all such beneficial owners in the aggregate otherwise would have been entitled had they
been direct record holders of our common stock on the record date, provided that you, as a nominee record holder, make a proper showing to the subscription agent by submitting the form entitled Nominee Holder Certification that we will
provide to you with your rights offering materials. If you did not receive this form, you should contact the subscription agent to request a copy.
Beneficial Owners
If you are a beneficial owner of shares of our common
stock or will receive subscription rights through a broker, custodian bank or other nominee, we will ask your broker, custodian bank or other nominee to notify you of the rights offering. If you wish to exercise your subscription rights, you will
need to have your broker, custodian bank or other nominee act for you. If you hold certificates of our common stock or Series B Preferred Stock directly and would prefer to have your broker, custodian bank or other nominee act for you, you should
contact your broker, custodian bank or other nominee and request it to effect the transactions for you. To indicate your decision with respect to your subscription rights, you should complete and return to your broker, custodian bank or other
nominee the form entitled Beneficial Owners Election Form. You should receive the Beneficial Owners Election Form from your broker, custodian bank or other nominee with the other rights offering materials. If you wish to
obtain a separate subscription rights certificate, you should contact the nominee as soon as possible and request that a separate subscription rights certificate be issued to you. You should contact your broker, custodian bank or other nominee if
you do not receive this form but you believe you are entitled to participate in the rights offering. We are not responsible if you do not receive this form from your broker, custodian bank or nominee or if you receive it without sufficient time to
respond.
Subscription Price
The subscription price was determined by our board of directors on the basis of 95% of the Volume Weighted Average Price of the common stock for the 20 trading days prior to the initial filing with the
Securities and Exchange Commission of the registration statement of which this prospectus forms a part.
The subscription
price does not necessarily bear any relationship to the book value of our assets, net worth, past operations, cash flows, losses, financial condition, or any other established criteria for valuing the Company. You should not consider the
subscription price as an indication of the value of the Company or our common stock or of our common shares to be offered in the rights offering. You should not assume or expect that, after the rights
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offering, our common shares will trade at or above the subscription price. We also cannot assure you that the market price of our common shares will not decline during or after the rights
offering. We also cannot assure you that you will be able to sell common shares purchased during the rights offering at a price equal to or greater than the subscription price. We urge you to obtain a current quote for our common shares before
exercising your subscription rights.
Determinations Regarding the Exercise of Your Subscription Rights
We will decide all questions concerning the timeliness, validity, form and eligibility of the exercise of your subscription rights and
any such determinations by us will be final and binding. We, in our sole discretion, may waive, in any particular instance, any defect or irregularity, or permit, in any particular instance, a defect or irregularity to be corrected within such time
as we may determine. We will not be required to make uniform determinations in all cases. We may reject the exercise of any of your subscription rights because of any defect or irregularity. We will not accept any exercise of subscription rights
until all irregularities have been waived by us or cured by you within such time as we decide, in our sole discretion. Our interpretations of the terms and conditions of the rights offering will be final and binding.
Neither we, nor the subscription agent, will be under any duty to notify you of any defect or irregularity in connection with your
submission of subscription rights certificates and we will not be liable for failure to notify you of any defect or irregularity. We reserve the right to reject your exercise of subscription rights if your exercise is not in accordance with the
terms of the rights offering or in proper form. We will also not accept the exercise of your subscription rights if our issuance of shares of our common stock to you could be deemed unlawful under applicable law.
No Revocation or Change
Once you submit the form of rights certificate to exercise any subscription rights, you may not revoke or change your exercise or request
a refund of monies paid. All exercises of rights are irrevocable, even if you subsequently learn information about us that you consider to be unfavorable. You should not exercise your rights unless you are certain that you wish to purchase
additional shares of our common stock at the subscription price.
Non-Transferability of the Rights
The subscription rights granted to you are non-transferable and, therefore, may not be assigned, gifted, purchased, sold or otherwise
transferred to anyone else. Notwithstanding the foregoing, you may transfer your rights to any affiliate (i.e. entities which control the recipient or are controlled by or under common control with the recipient) of yours and your rights also may be
transferred to the estate of the recipient upon the death of such recipient. If the rights are transferred as permitted, evidence satisfactory to us that the transfer was proper must be received by us prior to the expiration date.
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Rights of Subscribers
You will have no rights as a stockholder with respect to shares you subscribe for in the rights offering until certificates representing shares of common stock are issued to you or your account at your
broker, custodian bank or other nominee is credited with such shares. You will have no right to revoke your subscriptions after you deliver your completed rights certificate, payment in cash, as provided in this prospectus, and any other required
documents to the subscription agent.
Foreign Stockholders and Stockholders with Army Post Office or Fleet Post Office Addresses
The subscription agent will not mail rights certificates to you if you are a stockholder whose address is outside the
United States or if you have an Army Post Office or a Fleet Post Office address. Instead, we will have the subscription agent hold the subscription rights certificates for your account. To exercise your rights, you must notify the subscription agent
prior to 11:00 a.m., New York City time, at least three business days prior to the expiration date, and establish to the satisfaction of the subscription agent that it is permitted to exercise your subscription rights under applicable law. If you do
not follow these procedures by such time, your rights will expire and will have no value.
Standby Purchase Agreement
We have reached an agreement in principal with Kien Huat for the execution of a standby purchase agreement. The following description
summarizes all of the material terms of the proposed standby purchase agreement. Execution of the standby purchase agreement by Kien Huat and the Company would be subject to usual and customary closing conditions. A form of the standby purchase
agreement will be filed as an exhibit to the registration statement of which this prospectus forms a part. We urge you to carefully read the entire document. For purposes of this discussion, we sometimes refer to Kien Huat (and any affiliated
assignee) as the Standby Purchaser.
Conditions to Closing.
We expect the standby purchase agreement
will provide that the obligations of Kien Huat to complete the purchase of our common stock are subject to satisfaction or waiver of the following conditions specified in the standby purchase agreement:
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The respective representations and warranties of the Company must be true and correct in all material respects as of the date of the standby purchase
agreement and as of the closing date of the stock offering;
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Subsequent to the execution and delivery of the standby purchase agreement and prior to the closing date, there must not have been any material adverse
effect on the Company (as defined in the agreement);
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As of the closing date, the parties have satisfied the usual and customary closing conditions set forth in the standby purchase agreement.
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Under the standby agreement a material adverse effect would mean the occurrence,
either individually or in the aggregate, of any material adverse effect on the earnings, business, management, properties, assets, rights, operations (financial or otherwise) of the Company and of the Subsidiaries taken as a whole.
The obligations of the Company to complete the common stock sale to the Standby Purchaser would be subject to satisfaction or waiver of
the following conditions specified in the standby purchase agreement:
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The representations and warranties of the standby purchaser must be true and correct in all material respects as of the date of the standby purchase
agreement and as of the closing date of the stock offering; and
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The standby purchaser confirming its agreement that the shares being purchased by it deemed restricted securities under the Securities Act.
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The respective obligations of the Company and Kien Huat to complete the offering to standby purchaser would subject to
satisfaction or waiver of the following conditions specified in the standby purchase agreement:
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No judgment, injunction, decree, regulatory proceeding or other legal restraint must prohibit, or have the effect of rendering unachievable, the
consummation of the rights offering or the sale of stock to the standby purchaser;
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No stop order suspending the effectiveness of the registration statement may have been issued and no proceeding for that purpose may have been
initiated or threatened by the Commission; and
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The shares of common stock to be issued by the Company must have been authorized for listing on the Nasdaq Global Market.
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Terminating the Standby Purchase Agreement
.
We anticipate the standby purchase agreement may be terminated at any time prior to the closing date by the Standby Purchaser if
(i) any condition to the obligations of the Standby Purchaser is not satisfied, or because of any refusal, inability or failure of the Company to perform any agreement in the standby purchase agreement or (ii) if the rights offering shall
not have been consummated on or before June 30, 2013, unless the failure of the closing to occur by such date shall be due to a default by the Standby Purchaser.
We anticipate the standby purchase agreement may be terminated by the Company or by the Standby Purchaser by written notice to the other party:
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At any time prior to the closing date, if there is a material breach of the agreement by the other party that is not cured within 15 days after the
non-breaching party has delivered written notice to the breaching party of the breach;
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At any time after June 30, 2013, unless the closing has occurred prior to such date; and
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If consummation of the offering to the standby purchaser is prohibited by law, rule or regulation.
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We anticipate the standby purchase agreement may be terminated by the Company in the event
it determines that it is not in the best interests of the Company and its shareholders to go forward with the rights offering.
No Board
Recommendation
An investment in shares of our common stock must be made according to your evaluation of your own best
interests and after considering all of the information herein, including the
Risk Factors
section of this prospectus. Neither we nor our Board of Directors are making any recommendation regarding whether you should exercise your
subscription rights.
Shares of Common Stock Outstanding After the Rights Offering
Based on the 30,148,817 shares of our common stock currently outstanding (which amount does not include 11,950 shares of our common stock
issuable upon conversion of our Series B Preferred Stock), and the potential that we may issue as many as 6,032,153 shares pursuant to this rights offering, up to 36,180,970 shares of our common stock may be issued and outstanding following the
rights offering, which represents an increase in the number of currently outstanding shares of our common stock of approximately 20.0%.
Fees and Expenses
Neither we, nor the subscription agent, will charge a brokerage commission or a fee to subscription rights holders for exercising their
rights. However, if you exercise your subscription rights through a broker, dealer or nominee, you will be responsible for any fees charged by your broker, dealer or nominee.
Questions About Exercising Subscription Rights
If you have any questions
or require assistance regarding the method of exercising your subscription rights or requests for additional copies of this document or any document mentioned herein, you should contact the information agent at the address and telephone number set
forth above under
Delivery of Subscription Materials and Payment
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DESCRIPTION OF CAPITAL STOCK
General
Our authorized
capital stock consists of 150,000,000 shares of common stock and 5,000,000 shares of preferred stock, of which 40,000 shares have been designated Series A Junior Participating Preferred Stock (Series A Preferred Stock), $.01 par value
per share, in connection with the adoption of our stockholder rights plan, described below, 821,496 shares have been designated Series B Preferred Stock, $.01 par value per share, 137,889 shares have been designated Series C Preferred Stock, $.01
par value per share, 4,000 shares have been designated Series D Preferred Stock, $.01 par value per share, and 1,730,697 shares have been designated Series E Preferred Stock, $.01 par value per share.
The following description of our capital stock is based upon our certificate of incorporation, amended and restated bylaws and applicable
provisions of law. We have summarized portions of our certificate of incorporation, amended and restated bylaws and stockholder rights plan below. The summary is not complete. You should read our certificate of incorporation, amended and restated
bylaws and stockholder rights plan for the provisions that are important to you.
Common Stock
As of April 1, 2013, there were 30,148,817 shares of common stock outstanding and 210 holders of record of our common stock.
Voting
Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the holders of common stock.
Dividends
Subject to preferences that may be applicable to any then
outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment
of all of our debts and other liabilities and the satisfaction of any liquidation preferences that may be granted to the holders of any then outstanding shares of preferred stock.
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Rights and Preferences
The common stock has no preemptive, conversion or other subscription rights, and there are no redemption or sinking fund provisions
applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which we may designate and
issue in the future.
Our common stock is admitted for trading on the Nasdaq Global Market under the symbol NYNY.
The transfer agent and registrar for our common stock is Continental Stock Transfer and Trust Company.
Preferred Stock
Our
board of directors has the authority to issue preferred stock in one or more series and to fix the voting powers, designations, preferences and rights, and qualifications, limitations or restrictions thereof, of each such series without any further
vote or action by the stockholders. The issuance of preferred stock with voting rights superior to the common stock may have the effect of delaying, deferring or preventing a change in control in us without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock.
Series A Preferred Stock
We are authorized to issue up to 40,000 shares of Series A Preferred Stock, none of which are issued and outstanding. Because of the
nature of the Series A Preferred Stocks dividend, liquidation and voting rights, the value of the one one-thousandth interest in the Series A Preferred Stock should approximate the value of one share of common stock.
Series B Preferred Stock
We are authorized to issue up to 821,496 shares of Series B Preferred Stock, of which 44,258 shares are issued and outstanding. Each share of Series B Preferred Stock is convertible into .27 of a share of
common stock and represents the right to .27 of a vote on all matters to be voted upon by the holders of common stock. The holders of Series B Preferred Stock are entitled to receive, out of assets legally available for payment, a cash dividend of
$2.90 per annum per share of Series B Preferred Stock. This Series B dividend accrues from the date of initial issuance and is payable on the first day of each January, April, July and October. If any dividend on any share shall for any reason not
be paid at the time such dividend becomes due, such dividend in arrears shall be paid as soon as payments are permissible under Delaware law. However, any dividend payment which is not made on or before January 30 of the following calendar year
shall be payable in the form of shares of common stock in such number of shares as shall be determined by dividing (A) the product of (x) the amount of the unpaid dividend and (y) 1.3 by (B) the fair market value of the common
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stock. Finally, in the event of our liquidation, dissolution or winding up, the holders of our Series B Preferred Stock are entitled to receive a preferential distribution of $29 per share, plus
all unpaid accrued dividends.
Series C Preferred Stock
We are authorized to issue up to 137,889 shares of Series C Preferred Stock, none of which are issued and outstanding. Each share of
Series C Preferred Stock is convertible into 24 shares of common stock and represents the right to 24 votes on all matters to be voted upon by the holders of common stock. The holders of Series C Preferred Stock are entitled to receive, out of
assets legally available for payment, a cash dividend of $5.76 per annum per share of Series C Preferred Stock. This Series C dividend accrues from the date of initial issuance and is payable on the first day of each January, April, July and
October. If any dividend on any share shall for any reason not be paid at the time such dividend becomes due, such dividend in arrears shall be paid as soon as payments are permissible under Delaware law. However, any dividend payment which is not
made on or before January 30 of the following calendar year shall be payable in the form of shares of common stock in such number of shares as shall be determined by dividing (A) the product of (x) the amount of the unpaid dividend
and (y) 1.3 by (B) the fair market value of the common stock. In the event of our liquidation, dissolution or winding up, the holders of our Series C Preferred Stock are entitled to receive a preferential distribution of $72 per share,
plus all unpaid accrued dividends. Finally, we may, within 120 days after the occurrence of a capital event, elect to redeem all or a pro rata portion of the outstanding Series C Preferred Stock for the redemption price of $72 per share,
plus all unpaid accrued dividends. A capital event is defined as a sale of our assets which results in at least a $5,000,000 excess of the purchase price paid for the assets over our basis in such assets.
Series D Preferred Stock
We are authorized to issue up to 4,000 shares of Series D Preferred Stock, none of which are issued and outstanding. The Series D Preferred Stock has a stated value of $1,000 per share and is convertible
into an aggregate of 330,000 shares of common stock at the lesser price of $6.00 per share or the average of the two lowest closing prices of the common stock during the 30 consecutive trading days immediately preceding the date of conversion. Prior
to conversion, the holders of Series D Preferred Stock are not entitled to vote on any matter except as required by Delaware law. The holders of shares of Series D Preferred Stock are entitled to receive a dividend of $70 per annum per share of
Series D Preferred Stock, which shall increase to $150 per annum per share of Series D Preferred Stock upon the conversion of the outstanding Series D Preferred Stock into more than 330,000 shares of common stock. Dividends with respect to a share
of Series D Preferred Stock are payable in arrears on the earlier to occur of the conversion or redemption of such share of Series D Preferred Stock. At our option, Series D Preferred Stock dividends are payable in cash or, subject to certain
limitations, by delivery of that number of shares of common stock that the amount of accrued dividends payable would entitle the Series D Preferred Stock holder to acquire at a price per share of common stock equal to the lesser of $6.00 and the
average of the two lowest closing
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prices of the common stock during the preceding 30 days. In the event of our liquidation, dissolution or winding up, the holders of our Series D Preferred Stock are entitled to receive a
preferential distribution of $1,000 per share, plus all unpaid accrued dividends. On or after February 8, 2005, the holders of Series D Preferred Stock can demand that their Series D Preferred Stock be redeemed for that number of shares of
common stock equal to the product of (a) the number of shares of Series D Preferred Stock surrendered and (b) a fraction, the numerator of which is the common stocks current market price and the denominator of which is the lesser of
$6.00 and the average of the two lowest closing prices of the common stock during the preceding 30 days. The holders of Series D Preferred Stock can also demand that their shares be redeemed if we default in effecting a conversion of shares of
Series D Preferred Stock and such default continues for 10 days, or if we default in the payment of the stated value ($1,000 per share) or of dividends when due and such default continues for 10 days. Upon a redemption following such a default
described in the prior sentence, we must pay the holders of Series D Preferred Stock demanding redemption, in cash, $1,250 per share of Series D Preferred Stock plus all accrued unpaid dividends. Finally, between the date we announce our intention
to effectuate a change in our control until three days prior to such change in control, the holders of Series D Preferred Stock may demand that their Series D Preferred Stock be redeemed for 125% of the number of shares of common stock to which
their Series D Preferred Stock would otherwise be convertible.
Series E Preferred Stock
We are authorized to issue up to 1,730,697 shares of Series E Preferred Stock, all of which are issued and outstanding. These shares of
Series E Preferred Stock are not convertible into shares of common stock. However, each share of Series E Preferred Stock represents the right to .25 of a vote on all matters to be voted upon by the holders of common stock. The holders of Series E
Preferred Stock are entitled to receive, out of assets legally available for payment, a cash dividend of $.80 per annum per share of Series E Preferred Stock. This Series E Preferred Stock dividend accrues from the date of initial issuance and is
payable on the first to occur of the redemption of such Series E Preferred Stock or our liquidation, dissolution or winding up. In the event of our liquidation, dissolution or winding up, the holders of our Series E Preferred Stock are entitled to
receive a preferential distribution of $10 per share, plus all unpaid accrued dividends. Finally, we, at our option, may redeem all or part of the Series E Preferred Stock at any time for the redemption price of $10 per share, plus all accrued
unpaid dividends, in cash or by delivery of a promissory note payable over three years. We have accumulated unpaid Series E preferred dividends of approximately $13.9 million as of December 31, 2012.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a business combination
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with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
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the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
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on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
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Section 203 defines a business combination to include:
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any merger or consolidation involving the corporation and the interested stockholder;
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any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
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subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
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In general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, or controlling, or controlled by, the entity or person. The term owner is broadly defined to include any person
that, individually, with or through that persons affiliates or associates, among other things, beneficially owns the stock, or has the right to acquire the stock, whether or not the right is immediately exercisable, under any agreement or
understanding or upon the exercise of warrants or options or otherwise or has the right to vote the stock under any agreement or understanding, or has an agreement or understanding with the beneficial owner of the stock for the purpose of acquiring,
holding, voting or disposing of the stock.
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The restrictions in Section 203 do not apply to corporations that have elected, in the
manner provided in Section 203, not to be subject to Section 203 of the Delaware General Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or authorized
for quotation on the Nasdaq Stock Market or held of record by more than 2,000 stockholders. Our certificate of incorporation and amended and restated bylaws do not opt out of Section 203.
Section 203 could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, may
discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Certificate of Incorporation and Bylaws
Provisions of our amended and
restated certificate of incorporation and amended and restated bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might
otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our
certificate of incorporation and amended and restated bylaws:
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permit our board of directors to issue up to an additional 3,225,045 shares of preferred stock, without further action by the stockholders, with any
rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control;
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provide that the authorized number of directors may be changed only by resolution of the board of directors;
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provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a
majority of directors then in office, even if less than a quorum;
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do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any
election of directors to elect all of the directors standing for election, if they should so choose);
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provide that special meetings of our stockholders may be called only by the chairman of the board or by the board of directors; and
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set forth an advance notice procedure with regard to the nomination, other than by or at the direction of our board of directors, of candidates for
election as directors and with regard to business to be brought before a meeting of stockholders.
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Limitation of Liability; Indemnification
Our certificate of incorporation contains certain provisions permitted under the Delaware General Corporation Law relating to the
liability of our directors. These provisions eliminate a directors personal liability for monetary damages resulting from a breach of fiduciary duty, except in certain circumstances involving wrongful acts, including:
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for any breach of the directors duty of loyalty to us or our stockholders;
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for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
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any unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions as provided in Section 174 of the Delaware
General Corporation Law; or
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for any transaction from which the director derives an improper personal benefit.
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These provisions do not limit or eliminate our rights or those of any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a directors fiduciary duty. These provisions will not alter a directors liability under federal securities laws. Our amended and restated bylaws also contain provisions indemnifying our directors
and officers to the fullest extent permitted by the Delaware General Corporation Law. We believe that these provisions are necessary to attract and retain qualified individuals to serve as directors and officers.
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