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To Our Stockholders:
NOTICE IS HEREBY GIVEN that the following actions will be taken pursuant to a written consent, dated October 21, 2008, by the stockholders of the Company holding a majority of the votes of the Common Stock and the Series A Preferred Stock of Earth Biofuels, Inc. (the “Company”), outstanding on October 21, 2008 (the “Record Date”), and entitled to vote, in lieu of a special meeting of the stockholders. Such actions will be taken on or about November 25, 2008:
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1.§
AMENDING THE COMPANY’S AMENDED CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE (THE “ COMMON STOCK ”), OF THE COMPANY FROM 400,000,000 SHARES TO 2,500,000,000 SHARES (THE “ SHARE INCREASE ”); AND
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AMENDING THE COMPANY’S AMENDED CERTIFICATE OF INCORPORATION TO EFFECTUATE THE CHANGE OF COMPANY’S NAME TO EVOLUTION ENERGY, INC.; AND
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3.
AMENDING THE COMPANY’S AMENDED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY AT A RATIO OF ONE (1) FOR 20 (THE “ REVERSE SPLIT ”) IMMEDIATELY FOLLOWING THE SHARE INCREASE.
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Reasons for the Reverse Stock Split
The Board believes that the current per-share price of the Common Stock has limited the effective marketability of the Common Stock because of the reluctance of many brokerage firms and institutional investors to recommend lower-priced stocks to their clients or to hold them in their own portfolios. Further, analysts at many brokerage firms do not monitor the trading activity or otherwise provide research coverage of lower priced or penny stocks. Certain policies and practices of the securities industry may tend to discourage individual brokers within those firms from dealing in lower-priced stocks. Some of these policies and practices involve time-consuming procedures that make the handling of lower priced stocks economically unattractive. The brokerage commission on a sale of lower priced stock also may represent a higher percentage of the sale price than the brokerage commission on a higher priced issue. Any reduction in brokerage commissions resulting from a reverse stock split may be offset, however, by increased brokerage commissions required to be paid by stockholders selling "odd lots" created by the reverse stock split.
In evaluating the reverse stock split, the Company's Board of Directors also took into consideration negative factors associated with reverse stock splits. These factors include the negative perception of reverse stock spits held by many investors, analysts and other stock market participants, as well as the fact that the stock price of some companies that have effected reverse stock splits has subsequently declined back to pre-reverse stock split levels. The Board, however, determined that these negative factors were outweighed by the potential benefits.
Potential Effects of the Reverse Stock Split
The immediate effect of a reverse stock split would be to reduce the number of shares of Common Stock outstanding, and to increase the trading price of the Company's Common Stock. However, the effect of any reverse stock split upon the market price of the Company's Common Stock cannot be predicted, and the history of reverse stock splits for companies in similar circumstances is varied. The Company cannot assure you that the trading price of the Company's Common Stock after the reverse stock split will rise in exact proportion to the reduction in the number of shares of the Company's Common Stock outstanding as a result of the reverse stock split. Also, as stated above, the Company cannot assure you that a reverse stock split will lead to a sustained increase in the trading price of the Company's Common Stock, or that the trading price would reach any of the thresholds required by the NASDAQ markets. The trading price of the Company's Common Stock may change due to a variety of other factors, including the Company's operating results, other factors related to the Company's business, and general market conditions.
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