UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
REGENCY AFFILIATES, INC.
(Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of Securities to which Transaction applies:
2) Aggregate number of securities to which Transaction applies:
3) Per unit price or other underlying value of Transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of Transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
REGENCY AFFILIATES, INC.
610 N.E. JENSEN BEACH BLVD.
JENSEN BEACH, FL 34957
(772) 334-8181
December ___, 2005
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Regency Affiliates, Inc. on January ___, 2006, at 10:00 a.m., at the offices of
Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New York, for the
purposes set forth in the accompanying Notice of Special Meeting of Stockholders
and in this Proxy Statement. We look forward to greeting those stockholders who
are able to attend.
At this important meeting, you will be asked to vote on a proposal to
effectuate a proposed transaction that, if approved, is expected to result in
termination of the registration of Regency's common stock under the federal
securities laws and thereby eliminate the significant expense required to comply
with the reporting and related requirements under those laws. The proposed
transaction will reduce the number of common stockholders of record to fewer
than 300, permitting Regency to file for termination of registration of its
common stock under the federal securities laws. The reduction in the number of
common stockholders will be accomplished by amending our certificate of
incorporation to provide for a 1-for-100 reverse stock split, followed
immediately by a 50-for-1 forward stock split of our common stock. The proposed
certificates of amendment to the certificate of incorporation are attached as
Appendix B to the accompanying proxy statement.
If approved at the Special Meeting, the transaction will affect Regency's
common stockholders as follows:
COMMON STOCKHOLDER
BEFORE THE TRANSACTION NET EFFECT AFTER THE TRANSACTION
------------------------------- ----------------------------------------------
common stockholder holding 100 The common stockholder will receive one-half
or more shares: the number of shares of common stock held by
such stockholder prior to the transaction,
except such stockholder will receive $6.50 in
cash per share, without interest, for any
fractional share that would result from the
forward stock split.
common stockholder holding The common stockholder will receive from
fewer than 100 shares: Regency $6.50 in cash per share, without
interest.
Because Regency has a large number of common stockholders who own fewer
than 100 shares, we expect that the number of common stockholders of record will
be reduced from approximately 2,327 to approximately 118. Regency expects that
approximately 21,512 shares will be purchased as a result of the transaction for
a total cash purchase price of approximately $139,828. As a result of such
purchases and the reverse and forward stock splits, the number of outstanding
common shares will be reduced to approximately 1,549,950 common shares from the
3,113,412 common shares outstanding as of December 12, 2005.
After careful consideration, the Board of Directors, including both
independent directors, has concluded that the costs associated with being a
Securities and Exchange Commission ("SEC") reporting company, especially in
light of the additional costs associated with compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, are not justified by the benefits. Regency estimates
that it will save up to approximately $250,000 annually and up to $150,000 in
one-time Section 404 compliance costs by terminating the registration of its
common stock. We believe that these cost-savings will be in the best interest of
Regency and its stockholders who remain after the transaction. Although our
common stock will no longer be quoted on the Over the Counter Bulletin Board
maintained by the NASD if the transaction is completed, we believe that our
shares would be quoted on the "pink sheets" and our remaining stockholders would
be able to trade their shares in the over-the-counter markets. In addition, the
transaction would allow our common stockholders who hold fewer than 100 shares
immediately before the transaction the opportunity to receive cash for their
shares at a premium to recent trading prices of our common stock, without having
to pay brokerage commissions and other transaction costs.
The independent directors were authorized to determine whether to proceed
with the proposed transaction and to determine the price to pay for fractional
shares and the size of the reverse stock split. In connection with their review
of the proposed transaction, the independent directors were advised by Sanders
Morris Harris Inc., an independent financial adviser, and Eaton & Van Winkle
LLP, independent legal counsel. Based on the independent directors'
determination of the fairness of the proposed transaction, and in reliance on a
fairness opinion received from Sanders Morris Harris, the board of directors
adopted the recommendation of the independent directors and authorized the
proposed transaction.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF REGENCY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSAL REQUIRED TO EFFECTUATE THE TRANSACTION. The enclosed
proxy statement includes a discussion of the alternatives and factors considered
by the board in connection with the board's approval of the transaction. See
"Special Factors -- Background of the Transaction - Board and Independent
Director Deliberations;" "Special Factors -- Fairness of the Transaction" and
"Special Factors - Recommendation of the Board."
Consummation of the transaction is subject to certain conditions,
including the affirmative vote of at least a majority of the shares of Regency's
common stock entitled to vote at the Special Meeting. It is anticipated that the
transaction will become effective at 11:59 p.m. on January ___, 2006, or as soon
as reasonably practicable thereafter. Details of the proposed transaction are
set forth in the accompanying proxy statement, which we urge you to read
carefully in its entirety.
Each of the Company's directors and executive officers as well as Royalty,
which owns a majority of the total issued and outstanding shares of the
Company's common stock, has indicated their intent to vote "FOR" the proposal
required to approve the Transaction. Accordingly, the Company expects that the
proposal will be approved.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE AT YOUR
EARLIEST CONVENIENCE.
Your interest and participation in the affairs of the Company are greatly
appreciated. Thank you for your continued support.
Sincerely,
/s/ Laurence S. Levy
President and Chief Executive Officer
REGENCY AFFILIATES, INC.
610 N.E. JENSEN BEACH BLVD.
JENSEN BEACH, FL 34957
(772) 334-8181
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY ___ 2006
December ___, 2005
To the Stockholders of Regency Affiliates, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Regency Affiliates, Inc., a Delaware corporation (the
"Company" or " Regency "), will be held at the offices of Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York , on January ___, 2006, at 10:00
a.m., for the following purpose:
o To consider and vote upon a proposal to amend the Company's certificate of
incorporation to effect a 1-for-100 reverse stock split of the Company's
common stock (the "Reverse Stock Split"), immediately followed by a
50-for-1 forward stock split (the "Forward Stock Split" and collectively
with the Reverse Stock Split, the "Transaction").
As a result of the Transaction, (a) each stockholder owning fewer than 100
shares of common stock immediately before the Transaction will receive from the
Company $6.50 in cash, without interest, for each of such stockholder's shares
of the Company's common stock; and (b) each share of common stock held by a
stockholder owning 100 or more shares will represent one-half share of the
Company after completion of the Transaction, except that the Company will issue
cash in lieu of fractional shares that would remain after the Forward Stock
Split. The proposed certificates of amendment to the certificate of
incorporation, which effectuate the Transaction, are attached as Appendix B to
this proxy statement.
Owners of record of the Company's common stock at the close of business on
December 30, 2005, the record date, will be entitled to vote at the meeting. If
your shares are held in the name of a broker, trust or other nominee (often
referred to as held in "street name"), you must instruct them on how to vote
your shares. Whether or not you plan to attend the meeting, please date, sign
and mail the enclosed proxy in the envelope provided. Thank you for your
cooperation.
The Board of Directors has carefully considered the terms of the
Transaction and believes that the Transaction is fair to, and in the best
interests of, Regency's stockholders. The Board of Directors unanimously
recommends that you vote "FOR" the proposal, which will effectuate the
Transaction.
By Order of the Board of Directors
/s/ Laurence S. Levy
President and Chief Executive Officer
PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS: APPROVED OR DISAPPROVED OF THE TRANSACTION; PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTION; OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
REGENCY AFFILIATES, INC.
610 N.E. JENSEN BEACH BLVD.
JENSEN BEACH, FL 34957
(772) 334-8181
December ___, 2005
PROXY STATEMENT FOR
JANUARY ___, 2006
SPECIAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is furnished to the holders of common stock of
Regency Affiliates, Inc., a Delaware corporation (the "Company" or "Regency"),
in connection with the solicitation by the Board of Directors of the Company of
proxies to be used at the Special Meeting of Stockholders (the "Special
Meeting") to be held at the offices of Katten Muchin Rosenman LLP, 575 Madison,
New York, New York, on January ____, 2006, at 10:00 a.m., local time, and is
being mailed to the stockholders on or about the date set forth above.
All shares represented by properly executed proxies received by the Board
of Directors pursuant to this solicitation will be voted in accordance with the
stockholder's directions specified on the proxy or, in the absence of specific
instructions to the contrary, will be voted in accordance with the unanimous
recommendation of the Board of Directors, which is:
o FOR the proposal to amend the Company's certificate of incorporation to
effect a 1-for-100 reverse stock split of the Company's common stock, par
value $0.01 per share (the "Reverse Stock Split"), immediately followed by
a 50-for-1 forward stock split (the "Forward Stock Split" and collectively
with the Reverse Stock Split, the "Transaction").
As a result of the Transaction, (a) each stockholder owning fewer than 100
shares of common stock immediately before the Transaction will receive from the
Company $6.50 in cash, without interest, for each of such stockholder's shares
of the Company's common stock; and (b) each share of common stock held by a
stockholder owning 100 or more shares will represent one-half share of the
Company after completion of the Transaction, except that the Company will issue
cash in lieu of fractional shares that would remain after the Forward Stock
Split.
If the Transaction is approved, as permitted by Delaware law, common
stockholders whose shares are converted into less than one whole share in the
Reverse Stock Split (meaning they held fewer than 100 shares at the effective
time of the reverse split) will receive a cash payment from Regency for their
fractional shares interests equal to $6.50 cash, without interest, for each
share of common stock they held immediately prior to the Reverse Stock Split.
Stockholders who own 100 or more shares of common stock at the effective
time of the Transaction will not be entitled to receive any cash for their
fractional share interests resulting from the Reverse Stock Split. The Forward
Stock Split that will immediately follow the Reverse Stock Split will reconvert
their whole share and fractional share interests into one-half the number of
shares of common stock they held immediately prior to the effective time of the
Reverse Stock Split, except that fractional shares that would remain after the
Forward Stock Split will be cashed out by the Company.
After the Transaction, Regency anticipates that it will have approximately
118 common stockholders of record. In the event that there are fewer than 300
common stockholders of record following the Transaction, Regency intends to file
a Form 15 with the Securities and Exchange Commission to terminate registration
of its common stock under the federal securities laws. As a result, Regency
would no longer be subject to the annual and periodic reporting requirements
under the federal securities laws that are applicable to Securities and Exchange
Commission ("SEC") reporting companies. In addition, Regency common stock would
cease to be quoted on the Over the Counter Bulletin Board, any trading in
Regency's common stock after the Transaction and deregistration of the common
stock will only occur in the over-the-counter market or in privately negotiated
sales, and Regency's common stock will likely only be quoted in the "pink
sheets."
This Transaction cannot occur unless the holders of more than a majority
of the issued and outstanding shares of Regency's common stock approve the
proposal to effect the Transaction. If the proposal is approved, Regency intends
to file the proposed certificates of amendment to the certificate of
incorporation, which are attached as Appendix B to this proxy statement.
Each of the Company's directors and executive officers as well as Royalty,
which owns a majority of the total issued and outstanding shares of the
Company's common stock, has indicated their intent to vote "FOR" the proposal
required to approve the Transaction. Accordingly, the Company expects that the
proposal will be approved.
A proxy may be revoked, without affecting any vote previously taken, by
written notice mailed to the Company or delivered in person at the meeting, by
filing a duly executed, later dated proxy, or by attending the meeting and
voting in person.
Only stockholders of record at the close of business on December 30, 2005,
are entitled to notice of and to vote at the Special Meeting. Each share so held
entitles the holder thereof to one vote upon each matter to be voted on. As of
the December 12, 2005, the Company had outstanding 3,113,412 shares of common
stock. The presence of holders of a majority of the issued and outstanding
shares of common stock entitled to vote at the Special Meeting, either in person
or represented by a properly executed proxy, is necessary to constitute a quorum
for the transaction of business at the Special Meeting.
This document provides you with detailed information about the proposed
Transaction. Please see "Where You Can Find More Information" for additional
information about Regency on file with the Securities and Exchange Commission.
This Proxy Statement and the accompanying proxy were first mailed to
stockholders on or about December ___, 2005.
TABLE OF CONTENTS
SUMMARY TERM SHEET.............................................................1
THE TRANSACTION..........................................................1
VOTE REQUIRED............................................................2
THE VOTING MATERIALS.....................................................2
TIME AND PLACE OF THE SPECIAL MEETING....................................3
SOLICITATION OF PROXIES..................................................3
SHARES THAT CAN BE VOTED.................................................3
OWNERSHIP OF SHARES......................................................3
ATTENDANCE AT THE SPECIAL MEETING AND ELIGIBILITY TO VOTE................3
VOTING OF SHARES WITHOUT ATTENDING THE SPECIAL MEETING...................3
COUNTING OF VOTES........................................................4
NO APPRAISAL OR DISSENTERS' RIGHTS; ESCHEAT LAWS.........................4
PURPOSE OF AND REASONS FOR THE TRANSACTION...............................4
BENEFITS OF THE TRANSACTION..............................................4
DISADVANTAGES OF THE TRANSACTION.........................................5
FAIRNESS OF THE TRANSACTION..............................................6
RECENT MARKET PRICE OF REGENCY'S COMMON STOCK............................6
FAIRNESS OPINION OF SANDERS MORRIS HARRIS INC............................6
EFFECTS OF THE TRANSACTION...............................................7
ALTERNATIVES CONSIDERED..................................................8
CONDITIONS TO COMPLETION OF THE TRANSACTION..............................8
RESERVATION OF RIGHTS....................................................8
SOURCE OF FUNDS; FINANCING OF THE TRANSACTION............................8
CONFLICTS OF INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS
AND AFFILIATES...........................................................8
EXCHANGE OF CERTIFICATES.................................................9
EFFECTUATION OF THE TRANSACTION..........................................9
DATE OF COMPLETION OF THE TRANSACTION....................................9
U.S. FEDERAL INCOME TAX CONSEQUENCES.....................................9
QUESTIONS AND ANSWERS ABOUT RESTRUCTURING YOUR SHARE OWNERSHIP.................9
SPECIAL FACTORS...............................................................10
BACKGROUND OF THE TRANSACTION -- BOARD AND INDEPENDENT
DIRECTOR DELIBERATIONS..................................................10
PURPOSE OF AND REASONS FOR THE TRANSACTION..............................12
BENEFITS OF THE TRANSACTION.............................................12
DISADVANTAGES OF THE TRANSACTION........................................13
TIMING OF THE TRANSACTION...............................................14
ALTERNATIVES CONSIDERED.................................................14
FAIRNESS OF THE TRANSACTION.............................................15
RECOMMENDATION OF THE BOARD.............................................17
INTERESTS OF REGENCY'S DIRECTORS AND EXECUTIVE OFFICERS
AND AFFILIATES IN THE TRANSACTION.......................................17
OPINION AND REPORT OF SANDERS MORRIS HARRIS INC.........................18
CERTAIN EFFECTS OF THE TRANSACTION......................................22
CONDUCT OF REGENCY'S BUSINESS AFTER THE TRANSACTION.....................24
CONDITIONS TO THE COMPLETION OF THE TRANSACTION.........................25
SOURCE OF FUNDS AND FINANCING OF THE TRANSACTION........................25
ANTICIPATED ACCOUNTING TREATMENT........................................25
U.S. FEDERAL INCOME TAX CONSEQUENCES....................................25
REGULATORY APPROVALS....................................................28
NO APPRAISAL OF DISSENTERS' RIGHTS; ESCHEAT LAWS........................28
RESERVATION OF RIGHTS...................................................28
EXAMPLES................................................................28
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.......................30
MARKET PRICES OF THE COMMON STOCK.......................................30
DIVIDEND POLICY.........................................................30
TRANSFER AGENT..........................................................30
REGENCY REPURCHASES OF SECURITIES.......................................30
STOCK PURCHASES BY AFFILIATES...........................................30
THE SPECIAL MEETING...........................................................31
GENERAL.................................................................31
WHO CAN VOTE AT AND ATTEND THE SPECIAL MEETING..........................31
VOTE REQUIRED...........................................................32
VOTING AND REVOCATION OF PROXIES........................................32
RECOMMENDATION OF THE BOARD OF DIRECTORS................................32
THE PROPOSED AMENDMENT........................................................33
THE STRUCTURE OF THE TRANSACTION........................................33
CONVERSION OF SHARES IN THE TRANSACTION.................................33
EXCHANGE OF CERTIFICATES................................................34
TIME OF CLOSING.........................................................35
FINANCIAL INFORMATION.........................................................36
MANAGEMENT OF REGENCY.........................................................42
DIRECTORS...............................................................42
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS................................42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS...............................43
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS........................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................45
COST OF SOLICITATION OF PROXIES...............................................45
STOCKHOLDER PROPOSALS.........................................................46
OTHER MATTERS.................................................................46
WHERE YOU CAN FIND MORE INFORMATION...........................................46
DOCUMENTS INCORPORATED BY REFERENCE...........................................47
APPENDICES:
APPENDIX A: Proxy Solicited by the Board of Directors for Special Meeting of
Stockholders to be Held
APPENDIX B: Certificates of Amendment to Certificate of Incorporation of Regency
Affiliates, Inc.
APPENDIX C: Opinion of Sanders Morris Harris Inc.
SUMMARY TERM SHEET
THIS SUMMARY TERM SHEET, TOGETHER WITH THE QUESTIONS AND ANSWERS SECTION
THAT FOLLOWS, PROVIDES AN OVERVIEW OF ALL MATERIAL MATTERS THAT ARE PRESENTED IN
THE PROXY STATEMENT, INCLUDING THE MATERIAL TERMS OF THE PROPOSED TRANSACTION.
FOR A MORE COMPLETE DESCRIPTION WE URGE YOU TO CAREFULLY READ THIS PROXY
STATEMENT AND ITS APPENDICES BEFORE YOU VOTE. FOR YOUR CONVENIENCE, WE HAVE
CROSS-REFERENCED TO THE LOCATION IN THIS PROXY STATEMENT WHERE YOU CAN FIND A
MORE COMPLETE DISCUSSION OF EACH ITEM BELOW.
AS USED IN THIS PROXY STATEMENT, "REGENCY," THE "COMPANY," "WE," "OUR,"
"OURS" AND "US" REFER TO REGENCY AFFILIATES, INC., A DELAWARE CORPORATION, AND
THE "TRANSACTION" REFERS TO THE 1-FOR-100 REVERSE STOCK SPLIT FOLLOWED BY THE
50-FOR-1 FORWARD STOCK SPLIT, TOGETHER WITH THE RELATED CASH PAYMENTS TO COMMON
STOCKHOLDERS HOLDING FEWER THAN 100 SHARES AT THE EFFECTIVE TIME OF THE
TRANSACTION AND COMMON STOCKHOLDERS WHO WOULD HAVE HELD FRACTIONAL SHARES AFTER
THE FORWARD SPLIT.
THE TRANSACTION
If the Transaction is approved and completed:
o Regency's stockholders holding fewer than 100 shares of Regency's common
stock before the Transaction will receive a cash payment from Regency of
$6.50 per share, without interest, for each share of common stock held
immediately prior to the Transaction;
o Regency's stockholders holding 100 or more shares of Regency's common
stock at the effective time of the Transaction will hold one-half the
number of shares of Regency's common stock after completion of the
Transaction, except such holders will receive cash in lieu of any
fractional shares that would remain after the forward split;
o the officers and directors of Regency at the effective time will continue
to serve as the officers and directors of Regency immediately after the
Transaction (however, in an effort to further reduce costs or otherwise,
one or more directors or officers may resign as such following completion
of the Transaction);
o Regency believes it will have fewer than 300 holders of record of common
stock as a result of the Transaction and intends to file a Form 15 to
terminate registration of its common stock with the SEC, which will
terminate its obligation to continue filing periodic reports and proxy
statements pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act");
o after a 90 day period following the filing of a Form 15 with the SEC to
terminate the registration of its common stock under the federal
securities laws (the "90 day waiting period"), Regency's executive
officers, directors and 10% stockholders will no longer be required to
file reports relating to their transactions in Regency's common stock with
the SEC, and trading in Regency's securities by such executive officers,
directors and 10% stockholders will no longer become subject to the
reporting and recovery of profits provisions of the Exchange Act;
o after the 90 day waiting period, persons acquiring 5% of Regency's common
stock will no longer be required to report their beneficial ownership
under Section 13 of the Exchange Act;
o after the 90 day waiting period, tender offers for the beneficial
ownership of more than 5% of Regency's common stock will no longer be
regulated;
o after the 90 day waiting period, tender offer transactions by issuers and
affiliates will no longer be regulated;
o Regency expects to benefit from cost savings of approximately $250,000 per
year going forward as a result of the suspension of our reporting
obligations under the Exchange Act, as well as one-time cost savings of up
to $150,000 resulting from not having to comply with the increased
compliance burdens imposed by the Sarbanes-Oxley Act of 2002;
1
o Regency's common stock will no longer be quoted on the Over the Counter
Bulletin Board, any trading in its common stock will only occur in the
over-the-counter markets and in privately negotiated sales, and its common
stock will likely only be quoted in the "pink sheets";
o outstanding options held by Regency's employees, officers, and directors
to acquire Regency's common stock will remain outstanding following the
Transaction (as adjusted to take into account the effect of the
Transaction);
o the number of Regency's common stockholders of record will be reduced from
approximately 2,327 to approximately 118, and the number of outstanding
shares of Regency's common stock will be reduced by approximately 50%,
from 3,113,412 shares, to approximately 1,549,950 shares;
o the percentage ownership of Regency's common stock beneficially owned by
the directors and officers of Regency as a group will increase from 65.1%
to 65.3% based on shares outstanding as of December 12, 2005;
o the percentage ownership of Regency's common stock beneficially owned by
Royalty will increase from 58.5% to 58.8% based on shares outstanding as
of December 12, 2005;
o aggregate stockholders' equity of Regency as of September 30, 2005, will
be reduced from $19,067,996 on a historical basis to approximately
$18,683,167 on a pro forma basis;
o the net book value per share of common stock as of September 30, 2005,
will be reduced from $6.24 per share on a historical basis to
approximately $5.89 per share (without giving effect to the Reverse Stock
Split and Forward Stock Split) on a pro forma basis;
o Regency will pay cash of approximately $384,828 in the aggregate to
repurchase fractional shares and pay the costs of the Transaction; and
o Regency expects its business and operations to continue as they are
currently being conducted and, except as disclosed in this proxy
statement, the Transaction is not anticipated to have any effect upon the
conduct of such business.
For a more detailed discussion on the Transaction, see "Special Factors"
beginning on page 10. For a description of the provisions regarding the
treatment of shares held in street name, see "Special Factors -- Certain Effects
of the Transaction" beginning on page 22.
VOTE REQUIRED
The proposal to amend the certificate of incorporation to effect the
Reverse Stock Split immediately followed by the Forward Stock Split requires the
approval of the affirmative vote of holders of a majority of the outstanding
shares of our common stock.
Each of the Company's directors and executive officers as well as Royalty,
which owns a majority of the total issued and outstanding shares of the
Company's common stock, has indicated their intent to vote "FOR" the proposal
required to approve the Transaction. Accordingly, the Company expects that the
proposal will be approved. Regency has not obtained any assurances or agreements
from any of its other stockholders as to how they will vote on the Transaction.
THE VOTING MATERIALS
We sent you the enclosed materials because Regency's Board of Directors is
soliciting your vote for use at our Special Meeting of Stockholders, which will
take place on January ___, 2006. As a stockholder, you are invited to attend the
Special Meeting and are entitled to and requested to vote on the proposals
described in this proxy statement.
This proxy statement provides information that you need to know in order
to cast an informed vote at the meeting. You do not need to attend the Special
Meeting, however, to vote your shares. Instead, you may simply complete, sign
and return the enclosed proxy card.
We began sending this proxy statement, notice of Special Meeting, and
enclosed proxy card on or about December ___, 2005 to all stockholders entitled
to notice of and to vote at the Special Meeting. The record date for
stockholders entitled to vote is December 30, 2005. As of December 9, 2005,
2
there were 3,113,412 shares of our common stock outstanding. Stockholders are
entitled to one vote for each share of common stock held as of the record date.
TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at the offices of Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York 10022 at 10:00 a.m., Eastern Time on
January ___, 2006.
SOLICITATION OF PROXIES
This proxy is solicited by the Board of Directors of Regency.
SHARES THAT CAN BE VOTED
You may vote all shares of Regency's common stock that you own as of the
close of business on the record date, which will be December 30, 2005. These
shares include shares held:
o directly in your name as the "stockholder of record," and
o for you as the "beneficial owner" either through a broker, bank or other
nominee.
OWNERSHIP OF SHARES
Many of our stockholders hold their shares through a broker, bank or other
nominee rather than directly in their own name. Regency intends to treat
stockholders holding common stock in street name through a nominee (such as a
bank or broker) in the same manner as stockholders whose shares are registered
in their names (shareholder of record). Nominees may have different procedures,
however, and stockholders holding common stock in street name should contact
their nominees. As summarized below, there are some distinctions between shares
held of record and those owned beneficially.
Stockholder of Record
If your shares are registered directly in your name with our transfer
agent, Transfer On-Line, Inc. (the "Transfer Agent"), you are considered, with
respect to those shares, the "stockholder of record", and these proxy materials
are being sent to you by Regency. As the stockholder of record, you have the
right to vote by proxy or to vote in person at the Special Meeting. Regency has
enclosed a proxy card for you to use.
Beneficial Owner
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the "beneficial owner" of shares held in "street
name" with respect to those shares, and the proxy materials are being forwarded
to you by your broker or other nominee. Your broker or other nominee is
considered, with respect to those shares, the stockholder of record. As the
beneficial owner, you have the right to direct your broker or other nominee how
to vote and are also invited to attend the Special Meeting. As a beneficial
owner, however, you are not the stockholder of record, and you may not vote
these shares in person at the Special Meeting unless you obtain a signed proxy
appointment form from the stockholder of record giving you the right to vote the
shares. Your broker or nominee has enclosed or provided a voting instruction
card for you to use in directing the broker or nominee how to vote your shares.
ATTENDANCE AT THE SPECIAL MEETING AND ELIGIBILITY TO VOTE
All holders of our common stock may attend the Special Meeting in person.
Only holders of record of our common stock as of December 30, 2005 may cast
their votes in person at the Special Meeting.
VOTING OF SHARES WITHOUT ATTENDING THE SPECIAL MEETING
Whether you hold your shares directly as stockholder of record or
beneficially in street name, you may direct your vote without attending the
Special Meeting. You may vote by signing your proxy card or, for shares held in
street name, by signing the voting instruction card included by your broker or
nominee, and mailing it in the enclosed, pre-addressed envelope. If you provide
specific voting instructions, your shares will be voted as you instruct. If you
hold your shares of record and sign your proxy card, but do not provide
instructions, your shares will be voted as described below in "Counting of
Votes?"
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COUNTING OF VOTES
You may vote "FOR," "AGAINST" or "ABSTAIN" on the proposal to amend the
Company's certificate of incorporation to effect the Transaction. If you
"ABSTAIN" on the proposal, such abstention would have the same effect as a vote
"AGAINST" such proposal. If you sign and date your proxy form with no further
instructions, your shares will be voted "FOR" the approval of the proposal.
NO APPRAISAL OR DISSENTERS' RIGHTS; ESCHEAT LAWS
Stockholders do not have appraisal or dissenters' rights under Delaware
state law or Regency's certificate of incorporation or bylaws in connection with
the Transaction.
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Persons whose
shares are eliminated and whose addresses are unknown to Regency, or who do not
return their common stock certificate(s) and request payment therefore,
generally will have a period of years (depending on applicable state law) from
the effective date of the Transaction in which to claim the cash payment payable
to them. Following the expiration of that period, the escheat laws of states of
residence of stockholders, as shown by the records of Regency, generally provide
for such state to obtain either (i) custodial possession of property that has
been unclaimed until the owner reclaims it or (ii) escheat of such property to
the state. If Regency does not have an address for the holder of record of the
shares, then unclaimed cash-out payments, without interest, would be turned over
to Regency's state of incorporation, the state of Delaware, in accordance with
its escheat laws.
PURPOSE OF AND REASONS FOR THE TRANSACTION
If approved, the Transaction will enable Regency to terminate its
registration as an SEC reporting company. Termination of such registration will
terminate Regency's obligation to file annual and periodic reports and make
other filings with the SEC and terminate Regency's obligation to comply with
Section 404 of the Sarbanes-Oxley Act. The reasons for the proposed Transaction
and subsequent termination of SEC registration include:
o eliminating the costs of remaining an SEC reporting company, estimated to
be up to $250,000 per year;
o eliminating the one-time costs of compliance with Section 404 of the
Sarbanes-Oxley Act and related regulations estimated to be up to $150,000;
and
o affording stockholders holding fewer than 100 shares immediately before
the Transaction the opportunity to receive cash for their shares at a
price that represents a premium over recent trading prices.
Please read "Special Factors -- Purpose of and Reasons for the
Transaction" beginning on page 12.
BENEFITS OF THE TRANSACTION
Benefits of the Transaction to Regency are expected to include the following:
o Regency expects to benefit from cost savings of approximately $250,000 per
year going forward as a result of the suspension of our reporting
obligations under the Exchange Act, and one-time cost savings resulting
from not having to comply with the increased compliance burdens imposed by
the Sarbanes-Oxley Act of 2002 of up to $150,000.
Benefits of the Transaction to affiliates of Regency are expected to include the
following:
o affiliated stockholders may benefit from the reduction in total shares
outstanding or from the cost savings by Regency not being public, either
or both of which may result in higher earnings per share, which in turn
may result in a higher price for their shares than they would have
received if Regency remained public;
o Regency's officers will benefit from eliminating the time and effort
associated with implementation of the Section 404 internal controls
certification provisions of the Sarbanes-Oxley Act;
o Regency's officers and directors, and persons holding 5% or more of
Regency's common stock, including Royalty, will benefit because, after the
90 day waiting period, tender offer transactions by issuers and affiliates
will no longer be regulated; and
4
o Regency's officers and directors, and persons holding 5% or more of
Regency's common stock will benefit because after the 90 day waiting
period, such officers, directors and 5% stockholders will no longer be
required to report their acquisition, disposition or ownership of shares
under the Exchange Act.
See "Special Factors-- Purpose of and Reasons For the
Transaction--Benefits of the Transaction" beginning on page 12 and "Special
Factors--Interests of Regency's Directors and Executive Officers and Affiliates
in the Transaction" beginning on page 17.
Benefits of the Transaction to unaffiliated stockholders of Regency are expected
to include the following:
o unaffiliated stockholders holding fewer than 100 shares immediately before
the Transaction will have the opportunity to receive cash for their shares
at a price that represents a premium over recent trading prices, without
having to pay brokerage commissions and other transaction costs;
o unaffiliated stockholders receiving $6.50 for their shares are receiving
an amount that has been determined to be fair by Sanders Morris Harris
Inc., financial advisor to the independent directors. (See "Special
Factors -- Opinion and Report of Sanders Morris Harris Inc." beginning on
page 18.); and
o remaining unaffiliated stockholders may benefit from the reduction in
total shares outstanding or from the cost savings by Regency not being
public, either or both of which may result in higher earnings per share,
which in turn may result in a higher price for their shares than they
would have received if Regency remained public.
See "Special Factors -- Purpose of and Reasons for the Transaction --
Benefits of the Transaction" beginning on page 12.
DISADVANTAGES OF THE TRANSACTION
Disadvantages of the Transaction to Regency are expected to include the
following:
o Regency's working capital and assets will be decreased to fund the
purchase of fractional shares, and to pay the other costs of the
Transaction; and
o the limited ability that Regency has to raise capital in the public
securities markets or to use its stock as an acquisition currency may be
effectively eliminated.
See "Special Factor - Disadvantages of the Transaction" beginning on page
13.
Disadvantages of the Transaction to affiliates of Regency are expected to
include the following:
o Regency's officers and directors and affiliates may experience reduced
liquidity for their shares of common stock, even if the common stock
trades on the "pink sheets", and this reduced liquidity may adversely
affect the market price of the common stock.
See "Special Factors--Disadvantages of the Transaction" beginning on page
13.
Disadvantages of the Transaction to unaffiliated stockholders of Regency are
expected to include the following:
o the cash price offered to stockholders under the proposed Transaction
could be less than the market price at the time the Board decides to
implement the Transaction;
o remaining stockholders may experience reduced liquidity for their shares
of common stock, even if the common stock trades on the "pink sheets", and
this reduced liquidity may adversely affect the market price of the common
stock;
o less public information about Regency will be required or available after
the Transaction and officers will no longer be required to certify the
accuracy of Regency's financial statements (see "Special Factors-- Purpose
of and Reasons For the Transaction" beginning on page 12);
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o after the 90 day waiting period, officers, directors and persons holding
or acquiring 5% of Regency's common stock will no longer be required to
report their beneficial ownership, or change in beneficial ownership,
under the Exchange Act;
o after the 90 day waiting period, tender offers for the beneficial
ownership of more than 5% of Regency's common stock will no longer be
regulated;
o after the 90 day waiting period, tender offer transactions by issuers and
affiliates will no longer be regulated;
o stockholders who are cashed out will be unable to participate in any
future operating results of Regency unless they buy stock after the
Transaction; and
o stockholders who are cashed out for $6.50 per share in the Transaction may
receive less for their shares than they would if the common stock
continued to be quoted on the Over the Counter Bulletin Board.
See "Special Factors--Disadvantages the Transaction" beginning on page 13.
FAIRNESS OF THE TRANSACTION
The independent directors were authorized to determine whether to proceed
with the proposed transaction and to determine the price to pay for fractional
shares and the size of the reverse stock split. In connection with their review
of the proposed transaction, the independent directors were advised by Sanders
Morris Harris Inc., an independent financial adviser, and Eaton & Van Winkle
LLP, independent legal counsel.
The independent directors considered a number of factors that they believe
supports their determination that the Transaction is substantively and
procedurally fair to Regency's stockholders, including each of the following
factors:
o the opinion and report of the independent directors' financial advisor;
o current and historical market prices;
o net book value;
o going concern value;
o prices at which Regency has repurchased shares;
o limited liquidity of Regency's common stock;
o future cost savings;
o interests of unaffiliated stockholders who will remain; and
o certain negative considerations.
For a complete discussion of the factors that were considered by the
independent directors and the full Board in recommending the Transaction, see
"Special Factors -- Fairness of the Transaction" beginning on page 15 and
"Special Factors -- Recommendation of the Board" beginning on page 17.
RECENT MARKET PRICE OF REGENCY'S COMMON STOCK
The closing price of Regency's common stock on December 12, 2005 was $6.25
per share. Over the twelve months prior to such date, the high and low trading
prices of Regency's common stock on the Over the Counter Bulletin Board were
$6.25 and $5.10 per share.
FAIRNESS OPINION OF SANDERS MORRIS HARRIS INC.
Sanders Morris Harris Inc., financial advisor to the independent
directors, has delivered to the Board its written opinion to the effect that, as
of the date of such opinion and based upon and subject to the matters stated in
the opinion, the cash consideration to be paid to those stockholders of Regency
receiving such consideration is fair, from a financial point of view, to such
stockholders. The full text of the written opinion of Sanders Morris Harris,
6
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Appendix C to this proxy statement. You should
read the opinion carefully and in its entirety, along with the discussion under
"Special Factors -- Opinion and Report of Sanders Morris Harris Inc." beginning
on page 18.
The opinion of Sanders Morris Harris is directed to the Board and
addresses only the fairness from a financial point of view of the cash
consideration to be paid in the proposed Transaction to stockholders, and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the Special Meeting.
EFFECTS OF THE TRANSACTION
As a result of the Transaction, Regency anticipates that:
o Regency's stockholders holding fewer than 100 shares of Regency's common
stock at the effective time of the Transaction will receive a cash payment
from Regency of $6.50 per share, without interest, for each share of
common stock held immediately prior to the Transaction;
o Regency's stockholders holding 100 or more shares of Regency's common
stock at the effective time of the Transaction will receive one-half the
number of shares of Regency's common stock after completion of the
Transaction that they held prior to the Transaction, except that they will
receive cash in lieu of any fractional shares to which they would be
entitled after the Forward Stock Split;
o the officers and directors of Regency at the effective time will continue
to serve as the officers and directors of Regency immediately after the
Transaction (however, in an effort to further reduce costs or otherwise,
one or more directors or officers may resign as such following completion
of the Transaction);
o Regency believes it will have fewer than 300 holders of record of common
stock and therefore be eligible to terminate registration of its common
stock with the SEC, which will terminate its obligation to continue filing
periodic reports and proxy statements pursuant to the Exchange Act;
o after the 90 day waiting period, Regency's executive officers, directors
and 5% stockholders will no longer be required to file reports relating to
their transactions in Regency's common stock with the SEC, and trading in
Regency's securities by such executive officers, directors and 10%
stockholders will no longer be subject to the recovery of profits
provision of the Exchange Act;
o after the 90 day waiting period, persons acquiring 5% of Regency's common
stock will no longer be required to report their beneficial ownership
under the Exchange Act;
o after the 90 day waiting period, tender offers for the beneficial
ownership of more than 5% of Regency's common stock will no longer be
regulated;
o after the 90 day waiting period, tender offer transactions by the Company
and affiliates will no longer be regulated;
o Regency will eliminate the costs of remaining an SEC reporting company,
estimated to be up to $250,000 per year;
o Regency will not be required to comply with Section 404 of the
Sarbanes-Oxley Act, the one-time cost of initial implementation of which
is estimated to be up to $150,000;
o Regency's common stock will no longer be quoted on the Over the Counter
Bulletin Board, and any trading in its common stock will only occur in the
over-the-counter markets or in privately negotiated sales, and its common
stock will likely only be quoted in the "pink sheets";
o outstanding options held by Regency's employees, officers and directors to
acquire Regency's common stock will remain outstanding following the
Transaction (as adjusted to take into account the effect of the
Transaction);
o the number of Regency's stockholders of record will be reduced from
approximately 2,327 to approximately 118, and the number of outstanding
shares of Regency's common stock will be reduced by approximately 50%,
from 3,113,412 shares, to approximately 1,549,950 shares;
o aggregate stockholders' equity of Regency as of September 30, 2005, will
be reduced from $19,067,996 on a historical basis to approximately
$18,683,167 on a pro forma basis;
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o the net book value per share of common stock as of September 30, 2005,
will be reduced from $6.24 per share on a historical basis to
approximately $5.89 per share (without giving effect to the Reverse Stock
Split and Forward Stock Split) on a pro forma basis;
o Regency will pay cash of approximately $384,828 in the aggregate to
repurchase fractional shares and pay the costs of the Transaction; and
o Regency expects its business and operations to continue as they are
currently being conducted and, except as disclosed in this Proxy
Statement, the Transaction is not anticipated to have any effect upon the
conduct of such business.
See "Special Factors -- Certain Effects of the Transaction" beginning on
page 22.
ALTERNATIVES CONSIDERED
Prior to deciding to pursue the Transaction, the Board considered and
rejected a number of alternatives, including remaining public, a cash tender
offer at a similar price per share, cash-out merger, purchase of shares in the
open market and reverse stock split without a forward stock split.
See "Special Factors -- Alternatives Considered" beginning on page 14.
CONDITIONS TO COMPLETION OF THE TRANSACTION
The completion of the Transaction depends upon the approval of the
proposed amendments to Regency's certificate of incorporation that will
implement the Transaction by the holders of at least a majority of Regency's
outstanding shares of common stock. A copy of the certificates of amendment to
the certificate of incorporation effecting the Transaction is attached as
Appendix B to this proxy statement.
RESERVATION OF RIGHTS
Regency's Board of Directors reserves the right to abandon the Transaction
without further action by its stockholders at any time before the filing of the
certificates of amendment to the certificate of incorporation with the Delaware
Secretary of State, even if the Transaction has been authorized by Regency's
stockholders at the Special Meeting, and by voting in favor of the Transaction
you are also expressly authorizing Regency's Board of Directors to determine not
to proceed with the Transaction if it so decides. See "Special Factors --
Reservation of Rights" beginning on page 28.
SOURCE OF FUNDS; FINANCING OF THE TRANSACTION
Regency estimates that the total funds required to pay the consideration
to stockholders entitled to receive cash for their shares and to pay the costs
of the Transaction will be approximately $384,828. The consideration to
stockholders and the costs of the Transaction will be paid from working capital
of Regency. See "Special Factors -- Source of Funds and Financing of the
Transaction" on page 25.
CONFLICTS OF INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS AND AFFILIATES
Regency's directors and executive officers and affiliates may have
interests in the Transaction that are different from your interests as a
stockholder, and have relationships that may present conflicts of interest,
including the following:
o each member of Regency's Board of Directors holds 100 or more shares of
Regency common stock and will retain shares after the Transaction;
o each member of Regency's Board of Directors and certain of Regency's
executive officers, hold options to purchase more than 100 shares of
Regency common stock, which will remain outstanding after the Transaction
(as adjusted to take into account the effect of the Transaction); and
o as a result of the Transaction, the stockholders who own of record at the
effective time of the Transaction 100 or more shares, including Regency's
Board members and executive officers and affiliates, will increase their
percentage ownership in Regency as a result of the Transaction. For
example, assuming the Transaction is approved, the beneficial ownership
percentage of the current directors and executive officers of Regency as a
group in Regency's common stock will increase from approximately 65.1% to
8
65.3% as a result of the reduction of the number of shares of common stock
outstanding. Likewise, the beneficial ownership percentage of Royalty will
increase from approximately 58.5% to 58.8%.
See "Special Factors -- Interests of Regency's Directors and Executive
Officers and Affiliates in the Transaction" on page 17.
EXCHANGE OF CERTIFICATES
Promptly after effectiveness of the Transaction, Regency will send a
letter of transmittal and instructions to effect the surrender of certificates
for Regency's common stock to all stockholders. Upon surrender of a certificate
for cancellation to Regency, (i) a holder of fewer than 100 shares prior to the
Reverse Stock Split will receive a cash payment of $6.50 per share, without
interest, from Regency and (ii) a holder of 100 or more shares prior to the
Reverse Stock Split shall receive a certificate representing one-half of the
number of shares held by such holder prior to the Reverse Stock Split, except
that such holder shall receive a cash payment of $6.50 for any fractional share
to which such holder would have been entitled after the Forward Stock Split. See
"The Proposed Amendment -- Exchange of Certificates" beginning on page 34.
EFFECTUATION OF THE TRANSACTION
Assuming the Transaction is approved by the stockholders at the Special
Meeting held on January __, 2006, then, as soon as practicable thereafter,
Regency intends to file the proposed certificates of amendment to the
certificate of incorporation effectuating the Transaction.
DATE OF COMPLETION OF THE TRANSACTION
Regency expects the Transaction to be completed at 11:59 p.m. on January
___, 2006, or as soon as reasonably practicable thereafter.
U.S. FEDERAL INCOME TAX CONSEQUENCES
Generally, for stockholders who receive cash payments from the Company
pursuant to the Transaction and are no longer (directly or through various
attribution rules) stockholders of the Company, the receipt of cash for
fractional shares will be treated for tax purposes in the same manner as if the
shares were sold in the market for cash. Stockholders who will remain
stockholders of Regency following the Transaction should not be subject to
taxation as a result of the Transaction other than with respect to cash
payments. Tax matters are very complicated, and the tax consequences to you of
the Transaction will depend on your own situation. Please read "Special Factors
-- U.S. Federal Income Tax Consequences" beginning on page 25.
QUESTIONS AND ANSWERS ABOUT RESTRUCTURING YOUR SHARE OWNERSHIP
Q: IF I OWN FEWER THAN 100 COMMON SHARES, IS THERE ANY WAY I CAN CONTINUE TO
BE A STOCKHOLDER OF REGENCY AFTER THE TRANSACTION?
A: If you own fewer than 100 common shares before the Reverse Stock Split,
the only way you can continue to be a stockholder of Regency after the
Transaction is to purchase, prior to the effective date, sufficient
additional shares to cause you to own a minimum of 100 shares on the
effective date. Regency cannot assure you, however, that any shares will
be available for purchase.
Q: IS THERE ANYTHING I CAN DO IF I OWN 100 OR MORE COMMON SHARES, BUT WOULD
LIKE TO TAKE ADVANTAGE OF THE OPPORTUNITY TO RECEIVE CASH FOR MY SHARES AS
A RESULT OF THE TRANSACTION?
A: If you own 100 or more common shares before the Transaction, you can only
receive cash for all of your shares if, prior to the effective date, you
reduce your stock ownership to fewer than 100 shares by selling or
otherwise transferring your shares. Regency cannot assure you, however,
that any purchaser for your shares will be available. Alternatively,
before the effective date, you could divide the shares you own among
different record holders so that fewer than 100 shares are held in each
account. For example, you could divide your shares between your own name
and a brokerage account so that fewer than 100 shares are held in each
account.
Q: WHAT HAPPENS IF I OWN A TOTAL OF 100 OR MORE COMMON SHARES BENEFICIALLY,
BUT I HOLD FEWER THAN 100 COMMON SHARES OF RECORD IN MY NAME AND FEWER
THAN 100 COMMON SHARES WITH MY BROKER IN "STREET NAME"?
9
A: An example of this would be if you have 51 common shares registered in
your own name with Regency's Transfer Agent, and you have 50 common shares
held through your broker in "street name." Accordingly, you are the
beneficial owner of 101 shares, but you do not own 101 shares of record or
beneficially in street name. If this is the case, as a result of the
Transaction, you would receive cash for the 51 shares you hold of record
and the 50 shares held in street name.
Q: IF I OWN AT LEAST 101 COMMON SHARES, BUT THE SHARES ARE SPLIT AMONG RECORD
OWNERS AS DESCRIBED ABOVE SO THAT NO RECORD OWNER HOLDS AT LEAST 101
COMMON SHARES, BUT I WISH TO CONTINUE TO OWN COMMON STOCK OF REGENCY AFTER
THE TRANSACTION, WHAT CAN I DO?
A: Before the effective date, you could put all of the shares you own
beneficially in one record name, either in your name or in street name, so
that the total shares you own that are held of record in the same name is
at least 101 shares, and then you would continue to be a stockholder after
the effective date.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Transaction has been completed, Regency will send
instructions to all holders of common stock on how to send in your stock
certificates and receive any cash payments you may be entitled to receive.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION -- BOARD AND INDEPENDENT DIRECTOR DELIBERATIONS
At a Board meeting on April 5, 2005, the Board of Directors considered
managements' proposal to effect a reverse split of the Company's outstanding
common stock such that, as a result, the Company would have fewer than 300
stockholders of record and be permitted to terminate its status as an SEC
reporting company. The Board considered the proposal in general, including the
expected benefits to be derived from the transaction. The Board noted that the
transaction is commonly referred to as "going dark," and that many public
companies with limited resources and minimal benefits to be derived by remaining
public were undertaking such transactions. Mr. Levy summarized the proposal
which had been distributed to all directors prior to the meeting. At Mr. Levy's
request, the Company's outside counsel explained in greater detail the legal
steps necessary and proper to further consider, and if adopted, to effect, the
reverse stock split proposal. Counsel noted that the Board would have to
determine two important factors: (i) based on the shareholdings of record
holders immediately prior to the reverse split, the ratio for the reverse split;
and (ii) the cash price to be paid in lieu of issuing fractional shares. Counsel
also noted that any reverse split proposal adopted by the Board would require
stockholder approval in order to implement, and that a comprehensive disclosure
document would be required to be filed with the SEC, and a proxy statement or
information statement with respect to the proposal would be required to be
distributed to the Company's stockholders.
At the April 5th meeting, counsel noted that Royalty, as a stockholder of
the Company, would be effected by the reverse split in the same manner as other
stockholders, namely: subject to having cash paid to it in lieu of receiving any
fractional shares otherwise issuable to it as a result of the reverse split; and
increasing its percentage ownership in the Company as a result of shares of
other stockholders being acquired in the reverse split. The Board believed that
the interests of Royalty in the proposed transaction would be the same as the
interest of other Regency stockholders, but to eliminate the possibility of any
conflict, determined to authorize Messrs. Glasser and Fleishman, the Company's
independent directors, to evaluate the proposal, consult with Company and their
own counsel with respect to the matter, and, if they should determine to proceed
with the proposal, to determine the reverse split ratio and price to be paid in
lieu of issuing fractional shares, all with the assistance of counsel and a
financial advisor selected and engaged by the independent directors.
Following the April 5th meeting, the independent directors engaged Eaton &
Van Winkle LLP to act as counsel to the independent directors in connection with
the proposed transaction. The independent directors' counsel provided advice and
assistance to the independent directors with respect to their consideration of
the proposed transaction, including matters to be considered and procedures to
be followed.
At a Board meeting on June 14, 2005, the Board again discussed the
proposed reverse split transaction. After a general discussion, the independent
directors indicated that they were in support of the proposed transaction if it
were structured on proper terms and that, with the approval of the Board, they
would retain an independent financial advisor for the purpose of determining the
price to be paid for fractional shares and the ratio for the reverse split. The
Board approved the hiring of a financial advisor by the independent directors.
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Following the June 14th meeting, the independent directors engaged Sanders
Morris Harris Inc. Sanders Morris Harris is an independent and experienced
provider of valuation and fairness opinions. See "Opinion and Report of Sanders
Morris Harris Inc." below for a discussion of the report and opinion rendered to
the independent directors in connection with their determination to recommend
the transaction.
Between June 14 and October 14, the independent directors held various
discussions and conferences regarding the reverse split. In addition, during
such period, Sanders Morris Harris met with the independent directors as well as
Company management and Company counsel in connection with its performance of due
diligence and preparation of its opinion and report to the Board.
At a Board meeting commenced on October 14, 2005 and adjourned to October
17, 2005, the Board, including the independent directors, met with Company
counsel and a representative of Sanders Morris Harris to review and discuss the
proposed transaction and report of Sanders Morris Harris. After review of the
Sanders Morris Harris report, and for the reasons discussed below under
"Fairness of the Transaction" and "Recommendation of the Board," the independent
directors unanimously recommended the proposed transaction, including the
reverse stock split ratio of 100-to-1 and cash consideration of $6.50 per
pre-split share.
Based on the independent directors' determinations and the Sanders Morris
Harris report and opinion, the Board unanimously voted to approve the
Transaction.
11
PURPOSE OF AND REASONS FOR THE TRANSACTION
The purpose of the Transaction is to reduce the number of common
stockholders of record to fewer than 300, permitting Regency to file for
termination of registration of its common stock under the federal securities
laws. The Board has concluded that the costs associated with being a public
reporting company, especially in light of the additional costs associated with
compliance with Section 404 of the Sarbanes-Oxley Act of 2002, are not justified
by the benefits derived by Regency. The Board estimates that Regency will save
up to approximately $250,000 annually and up to $150,000 in one-time compliance
costs by terminating the registration of its common stock. The transaction is
being effectuated by a reverse stock split which will result in stockholders
holding fewer than 100 shares of common stock in any discrete account receiving
$6.50 per pre-split share.
The reasons for the Transaction and subsequent deregistration of Regency
as a public reporting company include:
o the cost savings of approximately $250,000 per year going forward that we
expect to realize as a result of the suspension of our reporting
obligations under the Exchange Act and one-time cost savings of up to
$150,000 resulting from not having to comply with the increased compliance
burdens imposed by the Sarbanes-Oxley Act of 2002; and
o affording stockholders holding fewer than 100 shares immediately before
the Transaction the opportunity to receive cash for their shares, without
having to pay brokerage commissions and other transaction costs, at a
price higher than recent trading prices of the Company's common stock.
BENEFITS OF THE TRANSACTION
Benefits and Cost Savings of Termination as an SEC Reporting Company
Regency incurs substantial additional costs as a result of its status as a
reporting company and being required to file annual reports on Form 10-KSB,
quarterly reports on Form 10-QSB, proxy statements and stockholder reports as
required by Regulation 14A under the Exchange Act, and current reports on Form
8-K.
The annual savings that Regency expects to realize as a result of the
Transaction are estimated to be approximately $250,000, consisting of
approximately $160,000 of legal fees, $20,000 of accounting fees, $25,000
related to annual meetings, printing, filing, transfer agent and other
miscellaneous costs, $30,000 of director compensation costs and $15,000 for
directors and officers insurance.
In addition to the above costs, Regency believes that there will be a
one-time cost savings of up to $150,000 as there will not be any fees for the
auditors to attest to internal controls pursuant to Section 404 of the
Sarbanes-Oxley Act. The estimate regarding Section 404 of the Sarbanes-Oxley Act
of 2002 is only an estimate, and the actual savings to be realized may be higher
or lower than estimated above. In addition, Regency expects the various costs
associated with remaining an SEC reporting company will continue to increase as
a result of enactment of the Sarbanes-Oxley Act of 2002 and regulations adopted
pursuant to that legislation. Based on Regency's size and resources, the Board
does not believe the costs associated with remaining an SEC reporting company
are justified.
Comparing the Benefits of Termination versus Remaining an SEC Reporting Company
The Board believes that Regency will not benefit significantly from
remaining an SEC reporting company. Even as an SEC reporting company that is
quoted on the Over the Counter Bulletin Board, there is a very limited trading
market for Regency's shares, especially for sales of larger blocks of Regency's
shares, and the Board believes that stockholders derive little benefit from
Regency's status as an SEC reporting company that is traded on the Over the
Counter Bulletin Board. During the 30-day period prior to the Board approving
the Transaction, the average daily trading volume was less than 1,000 shares.
Regency's small public float and limited trading volume have limited the ability
of Regency's stockholders to sell their shares without also reducing Regency's
trading price.
Further, the Board does not believe it is feasible for Regency to raise
capital through sales of its securities in a public offering or to acquire other
business entities using Regency's stock as consideration for any acquisition,
and Regency is therefore unlikely to have the opportunity to take advantage of
its current status as an SEC reporting company for these purposes. If for any
reason the Board of Directors decides in the future to access the public capital
markets, Regency could do so by filing a registration statement for such
securities.
12
Benefits of the Transaction to Affiliates of Regency
Benefits of the Transaction to affiliates of Regency are expected to
include the following:
o Regency's officers and directors will increase their percentage ownership
in Regency from 65.1% to 65.3%;
o affiliated stockholders may benefit from the reduction in total shares
outstanding or from the cost savings by Regency not being public, either
or both of which may result in higher earnings per share, which in turn
may result in a higher price for their shares than they would have
received if Regency remained public;
o Regency's officers and employees will benefit from eliminating the time
and effort associated with implementation of the Section 404 internal
controls certification provisions of the Sarbanes-Oxley Act;
o Regency's officers and directors, and persons holding 5% or more of
Regency's common stock will benefit because, after the 90 day waiting
period, tender offer transactions by issuers and affiliates will no longer
be regulated;
o Regency's officers and directors, and persons holding 5% or more of
Regency's common stock will benefit because, after the 90 day waiting
period, such officers, directors and 5% stockholders will no longer be
required to report their acquisition, disposition or ownership of shares
under the Exchange Act;
o Royalty
o Royalty will increase its percentage ownership in Regency from 58.5%
to 58.8%;
o the interest of Royalty in our net book value on a pro forma basis
as of September 30, 2005 would increase on a percentage basis from
approximately 57.27% to approximately 57.67% and would decrease in
dollar amount from approximately $10,920,885 to approximately
$10,774,508; and
o the interest of Royalty in our net earnings on a pro forma basis for
the nine months ended September 30, 2005 would increase on a
percentage basis from approximately 57.27% to approximately 57.67%
and would increase in dollar amount from approximately $795,237 to
approximately $884,907.
See "--Interests of Regency's Directors and Executive Officers and
Affiliates in the Transaction" beginning on page 17.
Benefits of the Transaction to Unaffiliated Stockholders
Benefits of the Transaction to unaffiliated stockholders of Regency are
expected to include the following:
o unaffiliated stockholders holding fewer than 100 shares immediately before
the Transaction will have the opportunity to receive cash for their shares
at a price that represents a premium over recent trading prices of the
Company's common stock, without having to pay brokerage commissions and
other transaction costs;
o unaffiliated stockholders receiving $6.50 for their shares which has been
determined to be a fair price by Sanders Morris Harris, financial advisor
to the independent directors. (See "--Opinion and Report of Sanders Morris
Harris Inc." beginning on page 18); and
o unaffiliated stockholders who remain stockholders of Regency after the
Transaction may benefit from the reduction in total shares outstanding or
from the cost savings by Regency not being public, either or both of which
may result in higher earnings per share, which in turn may result in a
higher price for their shares than they would have received if Regency
remained public.
DISADVANTAGES OF THE TRANSACTION
Disadvantages of the Transaction to Regency
Disadvantages of the Transaction to Regency are expected to include the
following:
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o Regency's working capital and assets will be decreased to fund the
purchase of fractional shares and to pay the other costs of the
Transaction; and
o the limited ability that Regency has to raise capital in the public
securities markets or to use its stock as an acquisition currency may be
effectively eliminated.
Disadvantages of the Transaction to Affiliates of Regency
Disadvantages of the Transaction to affiliates of Regency are expected to
include the following:
o Regency's officers and directors, as well as affiliates, may experience
reduced liquidity for their shares of common stock, even if the common
stock trades on the "pink sheets", and this reduced liquidity may
adversely affect the market price of the common stock.
Disadvantages of the Transaction to Unaffiliated Stockholders of Regency
Disadvantages of the Transaction to unaffiliated stockholders of Regency are
expected to include the following:
o the cash price offered to stockholders under the proposed Transaction
could be less than the market price at the time the Board decides to
implement the Transaction;
o remaining stockholders may experience reduced liquidity for their shares
of common stock, even if the common stock trades on the "pink sheets", and
this reduced liquidity may adversely affect the market price of the common
stock;
o less public information about Regency will be required or available after
the Transaction and officers will no longer be required to certify the
accuracy of Regency's financial statements;
o after the 90 day waiting period, officers, directors and persons holding
or acquiring 5% of Regency's common stock will no longer be required to
report their beneficial ownership, or changes in beneficial ownership,
under the Exchange Act;
o after the 90 day waiting period, tender offers for the beneficial
ownership of more than 5% of Regency's common stock will no longer be
regulated;
o after the 90 day waiting period, tender offer transactions by issuers and
affiliates will no longer be regulated;
o stockholders who are cashed out will be unable to participate in any
future operating results of Regency unless they buy stock after the
Transaction; and
o stockholders who are cashed out for $6.50 per pre-reverse split share in
the Transaction may receive less for their shares than they would if the
common stock continued to be quoted on the Over the Counter Bulletin
Board.
See " - Certain Effects of the Transaction" beginning on page 22.
TIMING OF THE TRANSACTION
In light of the foregoing, the Board believes that it is in the best
interests of Regency and its stockholders, including unaffiliated stockholders,
to change the status of Regency to a non-SEC reporting company at this time
because the sooner the proposal can be implemented, the sooner Regency will
cease to incur the expenses and burdens related to being a reporting company
(which are only expected to increase in the near future) and the sooner
stockholders who are to receive cash in the Transaction will receive and be able
to reinvest or otherwise make use of such cash payments.
ALTERNATIVES CONSIDERED
The Board considered remaining a public reporting company as well as
several alternatives to the Transaction that could accomplish the reduction in
the number of record stockholders to fewer than 300, but ultimately rejected
these alternatives because the Board believed that the proposed Transaction
consisting of a reverse stock split followed by a forward stock split structure
would be the simplest and least costly method.
14
o REMAIN PUBLIC. The Board considered not implementing a reverse stock
split, the result of which would be that the Company would continue to be
a public reporting company. However, in light of the facts that the Board
feels there is no significant benefit to remaining public and that the
Company would incur significant ongoing and additional future costs, the
Board decided to proceed with the Transaction.
o CASH TENDER OFFER BY REGENCY AT A SIMILAR PRICE PER SHARE. The Board did
not believe that a tender offer would necessarily result in the purchase
of a sufficient number of shares to reduce the number of record holders to
fewer than 300 because many stockholders with a small number of shares
might not make the effort to tender their shares and the cost of
completing the tender offer could be significant in relation to the value
of the shares that are sought to be purchased. Alternatively, if most of
the holders of Regency's common stock tendered their shares, Regency would
be required to purchase shares from all tendering stockholders up to the
maximum number of shares specified in the cash tender offer, which would
result in a substantially greater cash amount necessary to complete the
Transaction. Regardless, a tender offer would provide no guarantee that
the number of record holders would ultimately be reduced to fewer than
300. In comparison, the Transaction, if successfully completed, is likely
to allow Regency to accomplish its SEC deregistration objectives.
o CASH-OUT MERGER. The Board considered and rejected this alternative
because it would result in all stockholders being cashed out and thus
greater depletion of the Company's cash.
o PURCHASE OF SHARES BY REGENCY IN THE OPEN MARKET. The Board rejected this
alternative because it concluded it was unlikely that Regency could
acquire shares from a sufficient number of record holders to accomplish
the Company's objectives in large part because Regency would not be able
to dictate that open share purchases only be from record holders selling
all of their shares.
o REVERSE STOCK SPLIT WITHOUT A FORWARD STOCK SPLIT. This alternative would
accomplish the objective of reducing the number of record holders below
the 300 threshold, assuming approval of the Reverse Stock Split by
Regency's stockholders. In a reverse stock split without a subsequent
forward stock split, Regency would acquire the interests of the cashed-out
stockholders and the fractional share interests of those stockholders who
are not cashed-out (as compared to the proposed Transaction in which only
those stockholders whose shares are converted to less than one whole share
after the reverse stock split would have their fractional interests
cashed-out; and fractional interests held by stockholders holding more
than one whole share after the reverse stock split would be reconverted to
whole shares in the forward stock split other than with respect to
fractional shares to be cashed out for holders of an odd number of shares
prior to the Reverse Stock Split). Thus, the Board rejected this
alternative due to the higher cost involved of conducting a reverse stock
split without a forward stock split. In addition, the Board noted that a
reverse stock split not followed by a forward stock split would likely
result in a much higher per share trading price for the Company's common
stock, likely further reducing liquidity for stockholders.
o DIFFERENT REVERSE/FORWARD STOCK SPLIT RATIOS. The independent directors
considered reverse stock splits followed by forward stock splits at
different ratios than the Transaction, such as reverse stock splits in
other amounts, but the independent directors concluded, and the Board
concurred, that a 1 for 100 reverse stock split provided the optimal
combination of cost and likelihood that the number of record holders of
the Company would be reduced below 300.
In summary, the Board, including the independent directors, considered
these alternatives in order for Regency to terminate its registration as an SEC
reporting company. As discussed above, these alternatives were considered
inferior for the reason that either there would be no guarantee that they would
accomplish Regency's objective, such as in the case of a cash tender offer by
Regency at a similar price per share, or in the case of a different
reverse/forward stock split ratio, or for the reason that the alternatives would
be more costly, such as in the case of a cash-out merger, or in the case of a
reverse stock split without a forward stock split. Moreover, in the case of a
purchase of shares in the open market, both uncertainty of completion and cost
considerations made this alternative inferior to the Transaction. Consequently
the Board, including the independent directors, concluded that the Transaction
is the most expeditious and economical alternative to accomplish Regency's
objectives.
FAIRNESS OF THE TRANSACTION
The independent directors, Messrs. Errol Glasser and Stanley Fleishman,
each of whom is independent of the Board of Directors as independence is defined
in NASD Rule 4200(a)(15) and Rule 10A-3(b)(1) of the Exchange Act, retained
Sanders Morris Harris as its financial advisor and Eaton & Van Winkle LLP as its
15
independent legal counsel. The independent directors were authorized by the
Board to determine whether to proceed with the Transaction, and if so
determined, to determine the cash consideration to be paid for fractional shares
and the size of the reverse stock split.
In evaluating the Transaction and the cash consideration, the independent
directors relied on their knowledge of the business, financial condition and
prospects of Regency as well as the advice of their financial advisors and legal
counsel. In view of the wide variety of factors considered in connection with
the evaluation of the Transaction and cash consideration, the independent
directors did not find it practicable to, and did not quantify or otherwise
attempt to assign relative weights to the specific factors it considered it
reaching its determinations. The discussion herein of the information and
factors considered by the independent directors is not intended to be
exhaustive, but is believed to include all material factors considered by the
independent directors. In determining to recommend proceeding with the
Transaction and in determining its substantive fairness to Regency's
unaffiliated stockholders, the independent directors considered the following:
o OPINION AND REPORT OF THE FINANCIAL ADVISOR. The independent directors
considered the opinion of Sanders Morris Harris rendered on October 14,
2005, including the valuation analyses included in the report supporting
such opinion, to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the $6.50 per share in
cash to be paid to those stockholders of Regency receiving such
consideration, is fair, from a financial point of view, to Regency's
common stockholders. For more information about the opinion you should
read the discussion below under "Opinion and Report of Sanders Morris
Harris Inc." beginning on page 18 and a copy of the opinion of Sanders
Morris Harris attached as Appendix C to this proxy statement.
o CURRENT AND HISTORICAL PRICES OF REGENCY'S COMMON STOCK. The independent
directors considered both the historical market prices and recent trading
activity and current market prices of Regency common stock. You should
read the discussion under "Market for Common Stock and Related Stockholder
Matters" on page 30 for more information about Regency's stock prices. The
independent directors noted that, as a positive factor, the cash payment
of $6.50 per share payable to stockholders in lieu of fractional shares
represents a premium over the closing sales prices of Regency's common
stock during the twelve months preceding their approval of the
Transaction. In addition to stockholders receiving a premium to the
trading price of Regency's common stock on any shares redeemed as a result
of the Reverse Stock Split, such stockholders will achieve liquidity
without incurring brokerage commissions and other transaction costs.
o NET BOOK VALUE. As of September 30, 2005, the net book value per common
share was $6.24. While the independent directors noted that the cash
payment of $6.50 per share payable to stockholders in lieu of fractional
shares represents a premium over the net book value per share as of
September 30, 2005, the independent directors also noted that book value
per common share is an historical accounting value which may be more or
less than the net market value of Regency's assets after payment of its
liabilities.
o GOING CONCERN VALUE. In determining the cash amount to be paid in the
Transaction, the independent directors considered the analyses as
presented in Sanders Morris Harris's report, without giving effect to any
anticipated effects of the Transaction. In considering going concern
value, the independent directors considered analyses by Sanders Morris
Harris based on multiples of EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization) and revenue of comparable SEC reporting
companies and discounted cash flow valuations. See "- Opinion and Report
of Sanders Morris Harris Inc." beginning on page 18. Accordingly, the
independent directors believe that Sanders Morris Harris's going concern
analysis supports its determination that the Transaction is fair to
stockholders.
o PRICES AT WHICH REGENCY HAS REPURCHASED SHARES. The independent directors
took account of the fact that Regency had purchased an aggregate of 47,000
shares at $6.25 per share in the third quarter of 2004 and 8,000 shares at
$5.27 per share in the third quarter of 2005. The independent directors
concluded that the foregoing supports the price of $6.50 per share to be
paid in the Transaction.
o LIMITED LIQUIDITY FOR REGENCY COMMON STOCK. The independent directors
recognized the lack of an active trading market and the very limited
liquidity of Regency's common stock. The independent directors considered
the effects of this factor on both the stockholders who own less than 100
shares of common stock and who will receive the cash consideration and
16
those stockholders who will remain after the Transaction. With respect to
the stockholders who will receive the cash consideration and cease to be
stockholders, the independent directors recognized that this Transaction
presents such stockholders with an opportunity to liquidate their holdings
at a price which represented a premium to recent trading prices of
Regency's common stock, without incurring brokerage commissions and other
transaction costs. With respect to the stockholders who will remain after
the Transaction, the independent directors noted that the effect of this
Transaction on their liquidity is mitigated by the limited liquidity they
currently experience and that the shares will likely be quoted on the
"pink sheets."
o FUTURE COST SAVINGS TO STOCKHOLDERS WHO WILL REMAIN. The independent
directors considered that both affiliated and unaffiliated stockholders
remaining after the Transaction will benefit from the reduction of direct
and indirect costs borne by Regency to maintain its status as an SEC
reporting company. Such a reduction will include, but not be limited to,
the elimination of increased costs to comply with the additional
requirements of SEC reporting companies imposed by Section 404 of the
Sarbanes-Oxley Act. For a full discussion of the cost savings, see
"Benefits of the Transaction -- Benefits and Cost Savings of Termination
as an SEC Reporting Company" on page 12.
The independent directors also believe that the Transaction is
procedurally fair to Regency's stockholders based upon, among other things:
o that the independent directors were accorded exclusive discretion and
authority in determining whether Regency should proceed with Transaction
as well as in determining the substantive terms of the reverse stock
split;
o that the independent directors were advised by their own independent legal
counsel and independent financial adviser;
o that the Transaction is being effected in accordance with the applicable
requirements of Delaware law;
o that stockholders can increase, divide or otherwise adjust their existing
holdings, prior to the effective date of the Transaction, so as either to
retain some or all of their shares or to be cashed-out with respect to
some or all of their shares; and
o stockholders who are cashed-out would likely have the option to repurchase
shares of Regency in the over-the-counter markets with the cash obtained
in the Transaction.
No unaffiliated stockholder representative was retained to act solely on
behalf of the unaffiliated stockholders in the Transaction, and approval of the
Transaction does not require the approval of a majority of Regency's
unaffiliated stockholders. However, the independent directors do not believe
that an unaffiliated stockholder representative or unaffiliated vote requirement
is necessary to ensure the procedural and substantive fairness of the
Transaction because they believe there was sufficient representation in the
decision-making by the independent directors to protect the interests of
unaffiliated stockholders, including unaffiliated stockholders.
Based on the foregoing, the independent directors believe that the
Transaction is procedurally and substantively fair to stockholders.
RECOMMENDATION OF THE BOARD
The Board unanimously recommends that stockholders vote "FOR" approval of
the Transaction.
The Board bases its recommendation on the same factors considered by the
independent directors in determining the fairness of the Transaction. At the
board's meeting commenced on October 14, 2005 and adjourned to October 17, 2005,
the Board reviewed the independent directors recommendations and the reasons
therefore, as discussed above under "Fairness of the Transaction," and reviewed
with Sanders Morris Harris its report and proposed fairness opinion. The board
had an opportunity to ask questions and discuss each of the analyses presented
by Sanders Morris Harris. After considerable discussion and deliberation, the
Board concurred in the recommendations of the independent directors and their
reasoning in reaching those recommendations.
INTERESTS OF REGENCY'S DIRECTORS AND EXECUTIVE OFFICERS AND AFFILIATES IN THE
TRANSACTION
In considering the recommendation of the Board of Directors with respect
to the Transaction, stockholders should be aware that Regency' executive
officers and directors have interests in the Transaction that are in addition
to, or different from, the stockholders generally. These interests may create
potential conflicts of interest and include the following:
17
o certain executive officers and each member of the Board of Directors holds
shares or vested options in excess of 100 shares and will, therefore,
retain shares of common stock or options to purchase common stock after
the Transaction (as adjusted to take into account the effect of the
Transaction); and
o as a result of the Transaction, the stockholders who own of record on the
record date, more shares than 100 shares, including Regency's executive
officers and directors and affiliates, will increase their percentage
ownership interest in Regency as a result of the Transaction. For example,
assuming the Transaction is implemented and based on information and
estimates of record ownership and shares outstanding and other ownership
information and assumptions as of December 12, 2005, Regency's officers
and directors, who currently beneficially own 65% of Regency's common
stock (including options exercisable within 60 days) will increase their
percentage ownership in Regency from 65.1% to 65.3%. Likewise, Royalty,
which currently owns 58.5% of Regency's common stock, will increase its
percentage ownership to 58.8%.
OPINION AND REPORT OF SANDERS MORRIS HARRIS INC.
On September 12, 2005, the independent directors formally retained Sanders
Morris Harris to consider the fairness, from a financial point of view, of the
cash consideration to be paid to those stockholders of Regency receiving the
cash consideration. On October 14, 2005, Sanders Morris Harris delivered its
written opinion that, as of that date, the cash consideration to be paid for
fractional shares resulting from the Reverse Stock Split was fair from a
financial point of view to Regency's stockholders.
The independent directors retained Sanders Morris Harris based upon the
following factors: Sanders Morris Harris is an independent and experienced
provider of valuation and fairness opinions and it does not have an advisory or
other potentially conflicting role in the Transaction. No limitations were
imposed by the independent directors or the Board on Sanders Morris Harris with
respect to the investigations made or procedures followed by Sanders Morris
Harris in rendering its opinion. Sanders Morris Harris has not performed
investment banking services for the Company or any of its affiliates in the past
or received fees for other services provided to the Company or its affiliates.
Sanders Morris Harris's opinion and report were delivered at the request
of the independent directors in connection with its and the Board's
consideration of the Transaction. Sanders Morris Harris's opinion does not
address the business decision by Regency to engage in the Transaction or address
the relative merits of any alternatives discussed by the independent directors
and the Board. Sanders Morris Harris's opinion does not constitute a
recommendation as to how any stockholder should vote with respect to the
Transaction. Sanders Morris Harris did not make, and was not requested by
Regency or any other person to make, any recommendations as to the relative
merits of any alternative discussed by the Board.
THE FULL TEXT OF SANDERS MORRIS HARRIS'S WRITTEN OPINION IS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT, AND DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. THE FULL TEXT OF SANDERS MORRIS
HARRIS'S REPORT ON WHICH THEIR OPINION IS BASED WILL BE MADE AVAILABLE FOR
INSPECTION AND COPYING AT REGENCY'S PRINCIPAL EXECUTIVE OFFICES DURING ITS
REGULAR BUSINESS HOURS BY ANY INTERESTED SECURITY HOLDER OR REPRESENTATIVE OF AN
INTERESTED SECURITY HOLDER SO DESIGNATED IN WRITING. THE DESCRIPTION OF SANDERS
MORRIS HARRIS'S OPINION AND REPORT CONTAINED IN THIS PROXY STATEMENT SHOULD BE
REVIEWED TOGETHER WITH THE FULL TEXT OF THE WRITTEN OPINION AND REPORT, WHICH
YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY. THE SUMMARY OF THE OPINION
AND REPORT OF SANDERS MORRIS HARRIS SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION AND
REPORT ATTACHED AS APPENDIX B HERETO AND AS AN EXHIBIT TO THE SCHEDULE 13e-3
FILED BY THE COMPANY WITH THE SEC WITH RESPECT TO THE TRANSACTION.
In connection with the rendering of its opinion and report to the Board,
Sanders Morris Harris:
o Held discussions with Regency senior management, board members and key
personnel;
o Reviewed publicly available information for Regency;
o Examined financial and operating projections of Regency and its operating
holdings;
o Reviewed independent analyses relating to previous transactions conducted
by Regency and appraisals of various operating holdings of the Company;
18
o Compared Regency's and its operating holdings' financial results with
those of comparable publicly-traded companies;
o Analyzed the historical impact of deregistration on the trading values in
other comparable transactions;
o Analyzed the potential pro forma impact of the deregistration on the
future financial performance of Regency;
o Reviewed published estimates of independent research analysts with respect
to the future financial performance of companies comparable to Regency and
its operating holdings;
o Talked to the Company's legal counsel regarding the deregistration process
and the potential impact of the transaction on shareholders; and
o Performed such other financial studies and analyses and considered such
other information as Sanders Morris Harris deemed appropriate for the
purposes of its analysis.
Sanders Morris Harris relied upon the accuracy and completeness of the
financial and other information used by it without assuming any responsibility
for independent verification of such information and further relied upon the
assurances of the Company's management that they are not aware of any facts of
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of the Company and its operating holdings,
Sanders Morris Harris assumed that such projections had been reasonably prepared
on a basis reflecting the best currently available estimates and judgment of the
management of the Company as to the future financial performance of the Company
and its operating holdings, and that the Company and its operating holdings will
perform substantially in accordance with such projections. Sanders Morris Harris
also assumed that the net operating loss schedule provided to it by the Company
had been reasonably prepared on a basis reflecting the best currently available
historical information and judgments of the management of the Company.
Sanders Morris Harris did not conduct a physical inspection of the
properties and facilities of the Company and its operating holdings, did not
make or obtain from third parties any evaluations or appraisals of the assets
and liabilities of the Company or its operating holdings, and had no direct
communications with the operating management of the Company's holdings. As part
of its analyses, Sanders Morris Harris relied on an independent appraisal
obtained by the Company's operating subsidiary, Security Land and Development
Company Limited Partnership, in connection with the November 2003 refinancing of
the property owned by Security Land, and on an independent appraisal obtained by
the Company in June 2005 with respect to the value of the aggregate held by the
Company's operating subsidiary, National Resource Development Corporation.
With respect to all legal, accounting, and tax matters arising in
connection with the Transaction, Sanders Morris Harris relied without
independent verification on the accuracy and completeness of the advice provided
to the Company by its legal counsel, accountants and other financial advisers.
In arriving at its opinion, Sanders Morris Harris did not attribute any
particular weight to any analysis or factors considered by it and believes that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion.
Sanders Morris Harris received a non-contingent fee of $100,000 for
rendering the fairness opinion attached as Appendix C, which fee was due and
payable at the time such opinion was delivered to the Board. Regency also
agreed, in connection with the issuance of its opinion letter in connection with
the Transaction, to indemnify Sanders Morris Harris, its affiliates and each of
its directors, officers, agents and employees and each person, if any,
controlling Sanders Morris Harris or any of its affiliates against certain
liabilities, including liabilities under federal securities laws.
Sum of Parts Valuation. In its sum of parts valuation, Sanders Morris
Harris sought to estimate the total current fair market value of the Company's
assets less its liabilities and the redemption cost of its preferred stock.
Security Land and Development Company Limited Partnership. In determining
the current fair market value of Regency interest in Security Land and
Development Company Limited Partnership, which owns a building referred to as
Security West, Sanders Morris Harris utilized two approaches. First, using the
current equity value approach, Sanders Morris Harris increased the 2003
appraised value of the property of $110,500,000 to $111,233,000 based on two
years of assumed straight-line appreciation (based on the 2018 appraised
residual value) and then reduced the adjusted appraised value by the $98,500,000
19
of debt secured by the property, resulting in a value for Regency's interest in
Security Land of $6,367,000. Second, using the residual value approach, Sanders
Morris Harris discounted the 2018 appraised residual value of the property of
$116,000,000, as reduced by the $10,000,000 of debt secured by the property that
is scheduled to be outstanding at such time, to present value utilizing a 10%
discount rate and then applied a 70% probability of lease renewal. The resulting
value of Regency's interest in Security Land of $10,747,000 was then reduced to
reflect the net present value of cash flows and tax liabilities anticipated to
arise through 2018 under "high" and "low" scenarios reflective of two sets of
projected cash flow and taxable income provided to Regency by the general
partner of Security Land and a disagreement between Regency and the general
partner of Security Land as to the proper allocation of taxable income. The
probability of lease renewal utilized by Sanders Morris Harris was based on
Company management's best estimate of the likelihood of a lease renewal in 2018.
Sanders Morris Harris determined the discount rate utilized in its analysis by
adjusting an assumed 9% capitalization rate for the Security West property by a
risk premium of 1% to account for the property's location and the property's
suitability for single tenant occupancy, both of which factors were believed by
Sanders Morris Harris to limit the number of potential tenants for the property.
Based on the foregoing analysis, Sanders Morris Harris derived a "low,"
"medium" and "high" current fair market value for Regency's interest in Security
Land of $1,895,000, $6,151,000 and $6,367,000 respectively.
MESC Capital, LLC. In determining the current fair market value of
Regency's interest in MESC Capital, LLC, which owns an on-site energy facility
that supplies steam and electricity to a Kimberly-Clark tissue mill in Mobile,
Alabama under a take or pay contract through July 2018, Sanders Morris Harris
utilized a net present value analysis and a comparables analysis.
In its net present value analysis, Sanders Morris Harris discounted to
present value utilizing discount rates ranging from 9% to 11% Regency's after
tax portion of MESC's anticipated cash flows as well as Regency's share of
MESC's estimated residual value in 2018. MESC's residual value was estimated by
Sanders Morris Harris by applying a 6.0 multiple to MESC's estimated 2018
earnings before interest, taxes, depreciation and amortization, or EBITDA, to
derive an estimated 2018 enterprise value of $36.6 million. Sanders Morris
Harris then applied a 70% probability of contract renewal to the estimated 2018
enterprise value to derive an estimated residual value. The probability of
contract renewal utilized by Sanders Morris Harris was based on Company
management's best estimate of the likelihood of a contract renewal in 2018. In
determining the discount rates utilized in its analysis, Sanders Morris Harris
took into account Kimberly-Clarks option to terminate the contract before
expiration for contractually designated liquidated damages. Based on the
foregoing, Sanders Morris Harris derived a net present value range for Regency's
interest in MESC of between $10.4 and $11.8 million.
In its comparables analysis, Sanders Morris Harris derived equity values
for Regency's interest in MESC by applying valuation multiples derived from a
group of comparable public companies and transactions selected by Sanders Morris
Harris. The valuation multiples used by Sanders Morris Harris were: enterprise
value to 2005 actual or estimated revenue and enterprise value to 2005 actual or
estimated earnings before interest, taxes, depreciation and amortization, or
EBITDA. The enterprise value of a comparable company was derived by increasing
the company's equity value (as determined by reference to its stock trading
price) by its debt and preferred and minority interests and decreasing the
equity value by its cash and cash equivalents; or, if utilized in its comparable
transaction analysis, by reference to the transaction value for the company.
In selecting the company comparables, Sanders Morris Harris chose
companies with operations similar in nature to MESC (power generation), and
chose M&A transactions including companies with operations similar in nature to
MESC. No company included in the comparables analysis was identical to MESC and
in selecting the company comparables, Sanders Morris Harris made subjective
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions. In certain cases it determined
appropriate, Sanders Morris Harris adjusted derived public market multiples to
account for MESC's single customer base, limited size and projected growth rate.
Sanders Morris Harris's comparables analysis resulted in the following
derived values for Regency's interest in MESC:
--------------------------------------------------------------------------------
Valuation Multiple Low High
--------------------------------------------------------------------------------
Comparable Public Company Based on 2005 Revenue $6.0 $8.9
--------------------------------------------------------------------------------
Comparable Public Company Based on 2005 EBITDA $5.6 $8.4
--------------------------------------------------------------------------------
Transaction Multiple Based on 2005 Revenue $6.0 $8.9
--------------------------------------------------------------------------------
Transaction Multiple Based on 2005 EBITDA $4.2 $7.0
--------------------------------------------------------------------------------
20
After weighting the results of its net present value analysis and
comparables analysis in a manner determined appropriate by it, Sanders Morris
Harris derived a "high," "medium" and "low" value for Regency's interest in MESC
of $7,500,000, $8,250,000 and $9,000,000, respectively.
National Resource Development Corporation. Based on an independent
appraisal of the aggregate obtained by Regency in June 2005, Sanders Morris
Harris assumed that the fair market value of Regency's interest in NRDC is less
than the face value of Regency's Series C preferred stock and therefore
attributed no value to this interest for purposes of its sum of parts analysis,
since Regency can redeem the Series C Preferred Stock by delivery of its
interest in NRDC.
Summary of Sum of Parts Valuation. The results of the sum of parts
valuation performed by Sanders Morris Harris are summarized below:
Low Medium High
--------------------------------------------
Security Land $ 1,895 $ 6,151 $ 6,367
MESC 7,500 8,250 9,000
Aggregate -- -- --
Cash & current assets(1) 10,449 10,449 10,449
--------------------------------------------
Total asset value $19,844 $24,849 $25,815
Less:
Transaction expenses(2) (1,000) (750) (500)
Tax on Gain(3) -- -- --
Balance Sheet liabilities(4) (591) (591) (591)
Preferred stock(5) (1,097) (1,097) (1,097)
--------------------------------------------
Equity Value $17,156 $22,412 $23,628
Fully-diluted shares outstanding 3,324 3,324 3,324
--------------------------------------------
Per share equity value $ 5.16 $ 6.74 $ 7.11
(1) Based on Regency's cash, cash equivalents and marketable securities as of
June 30, 2005.
(2) Assumed range of potential transaction expenses associated with the sale
of interests in Security Land and MESC.
(3) No tax on gain assumed based on net operating loss availability.
(4) As of June 30, 2005 and excluding preferred stock redemption costs.
(5) Based on redemption price of $477,000 for Series B preferred and $620,000
for Series D preferred. No reduction on account of Series C preferred
since the company can satisfy the redemption price of the Series C
preferred by delivery of its interest in NRDC.
Going Concern Valuation. In its going concern valuation, Sanders Morris
Harris sought to estimate the total current fair market value, and the
corresponding per share value, of the Company as an ongoing operating business
through 2018.
Sanders Morris Harris estimated Regency's cash flows generated each year
from 2005 to 2018, which is the year both the MESC and Security West contracts
are set to expire, and utilized a discounted cash flow ("DCF") analysis to
determine valuation ranges.
Sanders Morris Harris calculated Regency's projected cash flows by
cumulating the cash flows attributed each period to Regency from MESC and
Security West and the interest income generated from the cash and equivalents on
Regency's balance sheet, less projected operating and income tax expenses. In
addition, Sanders Morris Harris assumed residual values for Regency's ownership
interests in MESC and Security West of $10.9 million and $24.1 million,
respectively, which were included in the 2018 annual cash flows. The $10.9
million MESC residual value was estimated in the manner described above under
"Sum of Parts Valuation". In order to calculate the residual value of Security
West, Sanders Morris Harris took the appraisal value of $116 million in 2018,
reduced by the $10 million of debt secured by the property that is scheduled to
be outstanding at such time, implying an equity value of $106 million. Then
Sanders Morris Harris adjusted the equity value to $74.2 million by applying a
70% probability of lease renewal. Given Regency's 50% ownership and assumed tax
rate on the gain realized on the putative sale of the property of 35%, Regency's
share of residual value was estimated to be $24.1 million.
Sanders Morris Harris assumed a corporate tax rate for Regency of 35%,
which was applied to all projected pre-tax income projections throughout the
2005-2018 projections period. In addition, Sanders Morris Harris estimated that
Regency may have up to approximately $8.0 million in net operating loss carry
forwards ("NOLs") available to offset taxable income. However, given the
Company's uncertainty as to whether Regency would be able to apply such NOLs for
income tax purposes, Sanders Morris Harris created DCF analyses for both
scenarios, i.e. "with NOLs" and "without NOLs".
21
As part of its DCF analysis, Sanders Morris Harris utilized a discount
rate of 11%, which Sanders Morris Harris believed reflects the risks associated
with the aforementioned differing viewpoints between Regency and the general
partner of Security West. Assuming a discount rate of 11%, Sanders Morris Harris
arrived at equity values for the "with NOLs" and "without NOLs" cases of $22.9
million and $20.2 million, respectively. The resulting Regency equity value per
fully diluted share was $6.90 with NOLs and $6.08 without NOLs.
Using a range of discount rates from 10% to 12% resulted in the following
equity values per fully diluted share:
--------------------------------------------------------------------------------
Discount Rate: With NOLs Without NOLs
--------------------------------------------------------------------------------
10% $7.30 $6.46
--------------------------------------------------------------------------------
11% $6.90 $6.08
--------------------------------------------------------------------------------
12% $6.56 $5.74
--------------------------------------------------------------------------------
Valuation Summary. The per share valuation ranges yielded by the two
valuation methods utilized by Sanders Morris Harris were $5.16 to $7.11 for the
Sum of Parts Valuation and $6.08 to $6.90 for the Going Concern Valuation. For
comparison purposes, Sanders Morris Harris also calculated the volume-weighted
average prices of Regency shares for the twelve month trading periods preceding
delivery of its opinion. This analysis produced a weighted average trading per
share trading value of approximately $5.75 to $6.00 per share.
Utilizing the various valuation approaches summarized herein, Sanders Morris
Harris concluded that $6.50 per share is a fair price from a financial point of
view to Regency's stockholders.
CERTAIN EFFECTS OF THE TRANSACTION
The Transaction will have various effects on Regency, affiliated
stockholders and unaffiliated stockholders, which are described in the
applicable sections below:
Effects on Regency
If approved at the Special Meeting, the Transaction, if implemented, will
have various effects on Regency, as described below:
o REDUCTION IN THE NUMBER OF STOCKHOLDERS AND THE NUMBER OF OUTSTANDING
SHARES. Regency believes that the Transaction will reduce the number of
record common stockholders from approximately 2,327 to approximately 118.
In calculating this number, Regency assumes that, shareholders of
approximately 18,131 common shares held of record in accounts with fewer
than 100 shares will receive cash in exchange for all of their pre-split
shares in the Transaction. Accordingly the number of outstanding shares of
common stock will decrease from 3,113,412 shares, as of December 12, 2005,
to approximately 1,549,950 shares.
o DECREASE IN NET BOOK VALUE PER SHARE. As a result of the approximately
21,512 pre-split shares of common stock expected to be cashed-out at $6.50
(or $6.50 per fractional share remaining after the Forward Stock Split)
per share for a total cost (including expenses on an after tax basis) of
$139,828:
o aggregate stockholders' equity of Regency as of September 30, 2005,
will be reduced from approximately $19,067,996 on a historical basis
to approximately $18,693,167 on a pro forma basis; and
o the net book value per share of common stock as of September 30,
2005, will be reduced from $6.24 per share on a historical basis to
approximately $5.89 per share (without giving effect to the Reverse
Stock Split and Forward Stock Split) on a pro forma basis.
o TERMINATION OF EXCHANGE ACT REGISTRATION. Regency's common stock is
currently registered under the Exchange Act. Regency plans to file a Form
15 with the SEC following the Transaction to terminate this registration
if its common stock is no longer held by 300 or more stockholders of
record. Termination of registration of Regency's common stock under the
Exchange Act would substantially reduce the information Regency is
required to furnish to its stockholders and to the SEC. It would also make
certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) of the Exchange Act, Section 16(a)
reporting for officers, directors, and 10% stockholders, proxy statement
disclosure in connection with stockholder meetings, and the related
requirement of an annual report to stockholders, no longer applicable.
Regency intends to apply for such termination as soon as practicable
following the Transaction.
22
o EFFECT ON MARKET FOR COMMON STOCK. Regency's common stock is currently
quoted on the Over the Counter Bulletin Board. Any trading in Regency's
common stock after the Transaction and deregistration of the common stock
will only occur in the over-the-counter market or in privately negotiated
sales, and Regency's common stock will likely only be quoted in the "pink
sheets."
o FINANCIAL EFFECTS OF THE TRANSACTION. Regency expects that it will use
approximately $384,828 of cash to complete the Transaction, including
transaction costs, and that this use of cash will not have any materially
adverse effect on Regency's liquidity, results of operation, or cash flow.
Because Regency does not know the exact amount of shares that will be
cashed-out, it can only estimate the total amount to be paid to
stockholders in the Transaction. Regency has sufficient cash and short
term cash equivalents to fund the Transaction. See also "Source of Funds
and Financing of the Transaction."
o EFFECTS ON THE BUSINESS OF REGENCY. Regency expects its business and
operations to continue as they are currently being conducted and, except
as disclosed in this proxy statement, the Transaction is not expected to
have any effect upon the conduct of such business.
Effects on Affiliated Stockholders
The Transaction will have various effects on stockholders who are
affiliates of Regency, as described below. As used in this proxy statement, the
term "affiliated stockholder" means any stockholder who is a director or
executive officer of Regency, or who owns 10% or more of Regency's outstanding
common stock and the term "unaffiliated stockholder" means any stockholder other
than an affiliated stockholder. The effects of the Transaction to an affiliated
stockholder will vary based on whether or not all or any portion of the
affiliated stockholder's shares will be cashed-out in the Transaction. The
determination of whether or not a holder of Regency's common stock will be
cashed-out in the Transaction will be based on whether such holder holds either
fewer than 100 shares or 100 or more shares. Because an affiliated stockholder
may beneficially own shares held by more than one holder of shares, an affiliate
may beneficially own both shares that will be cashed-out in the Transaction and
shares that will remain outstanding in the Transaction.
CASHED-OUT AFFILIATED STOCKHOLDERS. Affiliated stockholders owning fewer than
100 shares immediately prior to the effective time of the Transaction will, upon
consummation of the Transaction:
o receive $6.50 in cash, without interest, per share;
o no longer have any equity interest in Regency and, therefore, will not
participate in its future potential earnings or growth, if any; and
o potentially be required to pay federal and, if applicable, state and local
income taxes on the cash amount received in the Transaction. See "Special
Factors - U.S. Federal Income Tax Consequences" on page 25.
REMAINING AFFILIATED STOCKHOLDERS. Potential effects on affiliated stockholders
who remain as stockholders after the Transaction include:
o Reduced Reporting Requirements for Officers and Directors. Regency's
directors and executive officers and affiliates will no longer be subject
to the reporting and short-swing profit provisions under the Exchange Act
with respect to changes in their beneficial ownership of Regency common
stock.
o Tender Offer Transactions No Longer Regulated. After a 90 day waiting
period, tender offer transactions by the Company and affiliates will no
longer be regulated.
o Decreased Net Book Value Per Share. The net book value per share of common
stock as of September 30, 2005, will be reduced from $6.24 per share on a
historical basis to approximately $5.89 per share (without giving effect
to the Reverse Stock Split and Forward Stock Split) on a pro forma basis.
o Decreased Liquidity. The liquidity of the shares of common stock held by
stockholders may be further reduced by the Transaction due to the expected
termination of the registration of the common stock under the Exchange
Act. Any trading in Regency's common stock after the Transaction will only
occur in the over-the-counter markets and in privately negotiated sales,
and Regency's common stock will likely only be quoted in the "pink
sheets." There can be no assurance of any market for Regency stock after
the Transaction.
23
Effects on Unaffiliated Stockholders
The Transaction will have various effects on stockholders who are not
affiliates of Regency, as described below. The effects of the Transaction to an
unaffiliated stockholder will vary based on whether or not the unaffiliated
stockholder's shares will be cashed-out in the Transaction.
CASHED-OUT UNAFFILIATED STOCKHOLDERS. Unaffiliated Stockholders owning fewer
than 100 common shares immediately prior to the effective time of the
Transaction will:
o receive $6.50 in cash, without interest, per share;
o no longer have any equity interest in Regency and, therefore, will not
participate in its future potential earnings or growth, if any; and
o Potentially be required to pay federal and, if applicable, state and local
income taxes on the cash amount received in the Transaction. See "Special
Factors - U.S. Federal Income Tax Consequences" on page 25.
REMAINING UNAFFILIATED STOCKHOLDERS. Potential effects on unaffiliated Regency
stockholders who remain as stockholders after the Transaction include:
o Decreased Access to Information. If the Transaction is effected, Regency
intends to terminate the registration of its common stock under the
Exchange Act. As a result, Regency will no longer be subject to the
periodic reporting requirements and the proxy rules of the Exchange Act.
Further, executive officers, directors and other affiliates, along with
persons acquiring 5% of Regency's common stock, would no longer be subject
to many of the reporting requirements and restrictions of the Exchange
Act, including, without limitation, the reporting and short-swing profit
provisions of Section 16 of the Exchange Act;
o No Regulation of Tender Offer Transactions. Tender offers for the
beneficial ownership of more than 5% of Regency's common stock, and tender
offer transactions by issuers and affiliates will no longer be regulated;
o Decreased Liquidity. The liquidity of the shares of common stock held by
stockholders may be further reduced by the Transaction due to the expected
termination of the registration of the common stock under the Exchange
Act. Any trading in Regency's common stock after the Transaction will only
occur in the over-the-counter markets and in privately negotiated sales,
and Regency common stock will likely only be quoted in the "pink sheets."
There can be no assurance of any market for Regency stock after the
Transaction; and
o Decreased Book Value Per Share. The net book value per share of common
stock as of September 30, 2005, will be reduced from $6.24 per share on a
historical basis to approximately $5.89 per share (without giving effect
to the Reverse Stock Split and Forward Stock Split) on a pro forma basis.
CONDUCT OF REGENCY'S BUSINESS AFTER THE TRANSACTION
Regency's executive officers and Board of Directors will remain unchanged
immediately following the Transaction (however, in an effort to further reduce
costs or otherwise, one or more directors or officers may resign as such
following completion of the Transaction). Regency expects to conduct its
business and operations after the effective date of the Transaction in
substantially the same manner as they are currently being conducted and, except
as described in this proxy statement with respect to Regency's plans to
deregister its Common Stock under the Exchange Act, the Transaction is not
anticipated to have a material effect upon the conduct of Regency's business.
Neither Regency nor its management nor Royalty has any current plans or
proposals to cause or effect any extraordinary corporate transaction, such as a
merger, reorganization or liquidation; a sale or transfer of any material amount
of its assets; a change in Regency's Board or management; a material change in
its indebtedness or capitalization (except as described in this proxy
statement); or any other material change in its corporate structure or business.
However, Regency may engage in such a transaction in the future to the extent
that management and the Board determines it to be in the interest of Regency and
its stockholders.
24
CONDITIONS TO THE COMPLETION OF THE TRANSACTION
The Transaction will not be effected unless and until Regency stockholders
approve the Transaction and the Board of Directors determines that:
o Regency has available funds necessary to pay for the fractional shares and
costs resulting from the Transaction;
o Regency has sufficient cash reserves to continue to operate its business;
o no event has occurred or is likely to arise that might have a materially
adverse effect on Regency; and
o the Transaction will reduce the number of common stockholders below 300.
In addition, the Board may decide to abandon the Transaction (even after
stockholder approval) at any time prior to its consummation if the Board
believes that such action would be in the best interests of Regency and its
stockholders. Assuming that these conditions are satisfied, Regency will
promptly file certificates of amendment to its certificate of incorporation with
the Delaware Secretary of State and thereby effect the Transaction. In that
case, the approximate date for effectuating the Transaction will be January ___,
2005. If Regency does not effect the Transaction, Regency will continue as a
company with its common stock registered under the Exchange Act, and the common
stock will continue to be quoted on the Over the Counter Bulletin Board.
SOURCE OF FUNDS AND FINANCING OF THE TRANSACTION
Based on estimates of ownership of shares of common stock, the number of
shares outstanding and other information as of December 12, 2005, and assuming
that, as a result of the Transaction, 21,512 fractional shares are cashed out,
Regency estimates that the total funds required to consummate the Transaction
will be approximately $384,828 of which $139,828 will be used to pay the
consideration to stockholders entitled to receive cash for their shares, and
$245,000 will be used to pay the costs of the Transaction, as follows:
Postage and printing $ 30,000
Miscellaneous Costs (including filing fees) 30,000
Legal fees and expenses 80,000
Financial advisor and fairness opinion fees and expenses 100,000
Board fees and expenses 5,000
----------
Total $ 245,000
ANTICIPATED ACCOUNTING TREATMENT
Regency anticipates that it will account for the purchase of outstanding
Regency common stock in the Transaction from stockholders as cancelled stock.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
to the Company and to stockholders resulting from the Transaction. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended, or
the Code, the Treasury Regulations, or the Regulations, issued pursuant to the
Code, and published rulings and court decisions in effect as of the date of this
Proxy Statement. This summary does not take into account possible changes in
laws or interpretations, including amendments to the Code, applicable statutes,
Regulations and proposed Regulations or changes in judicial or administrative
rulings; some of which may have retroactive effect. No assurance can be given
that any change will not adversely affect this summary.
This summary does not address all aspects of the possible federal income
tax consequences of the Transaction and is not intended as tax advice to any
person or entity. In particular, and without limiting the foregoing, this
summary does not consider the federal income tax consequences to stockholders of
the Company in light of their individual investment circumstances nor to
stockholders subject to special treatment under the federal income tax laws (for
25
example, tax exempt entities, life insurance companies, regulated investment
companies and foreign taxpayers), who received shares as compensation for
services or who hold, have held, or will hold, stock as part of a straddle,
hedging, or conversion transaction for federal income tax purposes. In addition,
this summary does not address any consequences of the Transaction under any
state, local or foreign tax laws.
We will not obtain a ruling from the Internal Revenue Service or an
opinion of counsel regarding the federal income tax consequences to the
stockholders of the Company as a result of the Transaction. Accordingly, you are
encouraged to consult your own tax advisor regarding the specific tax
consequences of the proposed transaction, including the application and effect
of state, local and foreign income and other tax laws.
This summary assumes that you are one of the following:
o a citizen or resident of the United States,
o a domestic corporation,
o an estate the income of which is subject to United States federal income
tax regardless of its source, or
o a trust if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
This summary also assumes that you have held, and will continue to hold,
your shares as capital assets for federal income tax purposes.
You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences, applicable to your specific
circumstances.
We believe that the Transaction will be treated as a tax-free
"recapitalization" for federal income tax purposes. This will result in no
material federal income tax consequences to the Company. However, you may not
qualify for tax free "recapitalization" treatment for federal income tax
purposes, depending on whether you are receiving cash or stock in the
transaction.
Federal Income Tax Consequences to Stockholders Who Are Not Cashed Out by the
Transaction
If you continue to hold stock directly immediately after the Transaction
and you receive no cash as a result of the Transaction, you should not recognize
any gain or loss in the Transaction for federal income tax purposes. Your
aggregate adjusted tax basis in your shares of stock held immediately after the
Transaction will be equal to your aggregate adjusted tax basis in your shares of
stock held immediately prior to the Transaction and you will have the same
holding period in your stock as you had in such stock immediately prior to the
Transaction.
Federal Income Tax Consequences to Cashed Out Stockholders
If you receive cash in exchange for fractional shares as a result of the
Transaction, you do not continue to hold any stock directly immediately after
the Transaction, you are not related to any person or entity that holds stock
immediately after the Transaction and you hold no options to acquire stock in
the Company immediately after the Transaction; you will recognize capital gain
or loss on the Transaction for federal income tax purposes, with such gain or
loss measured by the difference between the cash you receive for your cashed out
stock and your aggregate adjusted tax basis in such stock.
If you receive cash in exchange for fractional shares as a result of the
Transaction, but either continue to directly own stock immediately after the
Transaction; or are deemed to constructively own shares of stock in the Company
because you either are related to a person or entity who continues to hold stock
immediately after the Transaction, or you hold options to acquire stock in the
Company immediately after the Transaction, although the matter is not free from
doubt, it is our understanding that you will recognize capital gain or loss in
the same manner as set forth in the previous paragraph, provided that your
receipt of cash either is "not essentially equivalent to a dividend," or
constitutes a "substantially disproportionate redemption of stock," as described
below.
Not Essentially Equivalent to a Dividend. You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in the Company resulting from the Transaction (taking
into account for this purpose the stock constructively owned by you because you
are related to certain persons or entities holding stock in the Company or hold
options to acquire stock in the Company) is considered a "meaningful reduction"
given your particular facts and circumstances. The Internal Revenue Service has
26
ruled that a small reduction by a minority stockholder whose relative stock
interest is minimal and who exercises no control over the affairs of the
corporation will satisfy this test.
Substantially Disproportionate Redemption of Stock. The receipt of cash in
the Transaction will be a "substantially disproportionate redemption of stock"
for you if the percentage of the outstanding shares of stock of the Company
owned by you (taking into account for this purpose the stock constructively
owned by you because you are related to certain persons or entities holding
stock in the Company or hold options to acquire stock in the Company)
immediately after the Transaction is less than 50% of all outstanding shares and
less than 80% of the percentage of shares of stock owned by you immediately
before the Transaction.
In applying these tests, you will be treated as owning shares of stock
actually or constructively owned by certain individuals and entities related to
you. In general, you will be treated as constructively owning stock in the
Company owned by your spouse, children grandchildren and parents. You will also
be treated as constructively owning your proportionate interest in stock held by
entities in which you held an interest either as an owner or as a beneficiary.
If you hold options to acquire stock in the Company, you will be treated as
constructively owning the stock in the Company subject to the options. If your
receipt of cash in exchange for stock is not treated as capital gain or loss
under any of the tests, it (together with all other such distributions) will be
treated first as ordinary dividend income to the extent of the Company's current
and accumulated earnings and profits, then it will be treated as a tax-free
return of capital to the extent of your aggregate adjusted tax basis in your
shares, and any remaining amount will be treated as capital gain. See "Capital
Gain and Loss" and "Special Rate for Certain Dividends," below.
If your receipt of cash in exchange for your shares of stock in the
Company is treated as the receipt of a dividend and if you would have been
treated as completely terminating your actual and constructive ownership of
stock in the Company but for the stock in the Company that you are treated as
constructively owning through related individuals, you may be able to treat your
exchange of your shares for cash as a sale or exchange and not as the receipt of
a dividend if you meet the requirements for a waiver of family attribution.
These requirements include the filing of a waiver with the IRS and the waiving
shareholder must have no interest in the Company (including any interest as an
employee, officer or director, other than as a creditor) after the exchange. You
are urged to consult with your individual tax advisor with respect to whether
you would benefit from a waiver of family attribution and whether you would
qualify for such a waiver.
Capital Gain and Loss
For individuals, net capital gain (defined generally as your total capital
gains in excess of capital losses for the year) recognized upon the sale of
capital assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 15%. Net capital gain recognized from the
sale of capital assets that have been held for 12 months or less will continue
to be subject to tax at ordinary income tax rates. Capital gain recognized by a
corporate taxpayer will continue to be subject to tax at the ordinary income tax
rates applicable to corporations. There are limitations on the deductibility of
capital losses.
Special Rate for Certain Dividends
In general, dividends are taxed at ordinary income rates. However, if you
are an individual or other non-corporate stockholders, any portion of the cash
received that is treated as a dividend under the rules described above generally
will be subject to federal income tax at a rate not to exceed 15%, provided you
satisfy the holding period requirement.
If the cash you receive is treated as the receipt of a dividend, then the
basis in your shares that were exchanged for the cash received will be
transferred to any remaining shares of stock in the Company held by you
immediately after the Transaction. If you do not own any of our shares
immediately after the Transaction, your tax basis in your shares may, under
certain circumstances, be transferred to share of stock in the Company held by a
person related to you or it may be lost entirely. Under recently proposed
regulations, your adjusted tax basis in the shares of our stock that were
exchanged for the cash received would be recognized as a loss by you upon the
occurrence of certain subsequent events. You are urged to consult your tax
advisor as to the applicability of these proposed regulations to you.
Backup Withholding
Stockholders will be required to provide their social security or other
taxpayer identification numbers (or, in some instances, additional information
and certifications) in connection with the Transaction to avoid backup
withholding requirements that might otherwise apply. The letter of transmittal
will require each stockholder to deliver such information when the common stock
certificates are surrendered following the effective date of the Transaction.
Failure to provide such information may result in backup withholding.
27
As explained above, the amounts paid to you as a result of the Transaction
may result in dividend income, capital gain income, or some combination of
dividend and capital gain income to you depending on your individual
circumstances. You should consult your tax advisor as to the particular federal,
state, local, foreign, and other tax consequences of the transaction, in light
of your specific circumstances.
REGULATORY APPROVALS
Regency is not aware of any material governmental or regulatory approval
required for completion of the Transaction, other than compliance with the
relevant federal and state securities laws and the corporate laws of the state
of Delaware.
NO APPRAISAL OF DISSENTERS' RIGHTS; ESCHEAT LAWS
Stockholders do not have appraisal or dissenters' rights under Delaware
state law or Regency's certificate of incorporation or bylaws in connection with
the Transaction.
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Persons whose
shares are eliminated and whose addresses are unknown to Regency, or who do not
return their common stock certificate(s) and request payment therefor, generally
will have a period of years (depending on applicable state law) from the
effective date of the Transaction in which to claim the cash payment payable to
them. Following the expiration of that period, the escheat laws of states of
residence of stockholders, as shown by the records of Regency, generally provide
for such state to obtain either (i) custodial possession of property that has
been unclaimed until the owner reclaims it or (ii) escheat of such property to
the state. If Regency does not have an address for the holder of record of the
shares, then unclaimed cash-out payments, without interest, would be turned over
to Regency's state of incorporation, the state of Delaware, in accordance with
its escheat laws.
RESERVATION OF RIGHTS
The Board has retained for itself the absolute authority to reject (and
not implement) the Transaction (even after approval thereof) if it determines
subsequently that the Transaction is not then in the best interests of Regency
and its stockholders.
EXAMPLES
In general, the Transaction can be illustrated by the following examples:
HYPOTHETICAL SCENARIO RESULT
Mr. Smith is a registered stockholder who Instead of receiving fractional shares of common stock immediately
holds 50 shares of Regency's common stock after the reverse stock split, Mr. Smith will receive cash in the
of record in his name at the effective amount of $6.50 for each of the 50 shares of Regency's common stock
time of the Transaction. Mr. Smith holds held prior to the reverse stock split. (Note: If Mr. Smith wants to
no other shares. continue to invest in Regency, he can buy at least 50 more shares of
Regency's common stock (with such shares held of record in his name so
that it is readily apparent that he owns at least 100 shares). Mr.
Smith would have to act far enough in advance of the effective time of
the Transaction so that the purchase is completed and registered on the
books of Regency before the effective time.)
HYPOTHETICAL SCENARIO RESULT
Ms. Jones holds 99 shares of Regency's Regency intends to treat stockholders holding common stock in street
common stock in a brokerage account at name through a nominee (such as a bank or broker) in the same manner as
the effective time of the Transaction. stockholders whose shares are registered in their own names. Nominees
Ms. Jones holds no other shares. will be instructed to effect the Transaction for their beneficial
holders. Nominees may have different procedures, however, and
stockholders holding common stock in street name should contact their
nominees. Ms. Jones will receive cash in the amount of $6.50 for each
of the 99 shares of Regency's common stock held prior to the reverse
stock split.
28
HYPOTHETICAL SCENARIO RESULT
Mr. Williams holds 75 shares of Regency's Regency will presume that all of the shares are held by a holder of
common stock of record in his name and 50 fewer than 100 shares and Mr. Williams will receive cash in the amount
shares in a brokerage account at the of $6.50 for each of the 125 shares of Regency's common stock held
effective time of the Transaction. Mr. prior to the reverse stock split. (Note: If Mr. Williams wants to
Williams holds no other shares. continue to hold Regency shares, he can transfer at least 25 shares out
of his brokerage account so that they are also held of record in his
name. Mr. Williams would have to act far enough in advance of the
effective time of the Transaction so that the purchase is complete and
registered on the books of Regency before the effective time.)
HYPOTHETICAL SCENARIO RESULT
Ms. Washington holds 1,001 shares of Ms. Washington will hold 500 shares of Regency's common stock after the
Regency's common stock either in her name Transaction. In addition, as no fractional shares will be issued, she
or in a brokerage account at the will receive a payment of $6.50 for the fractional share that she would
effective time of the Transaction. Ms. be entitled to after the Forward Stock Split.
Washington holds no other shares.
29
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICES OF THE COMMON STOCK
Our common stock is traded in the over-the-counter market on the bulletin
board. The symbol for the listing is "RAFI.OB". The following table sets forth
the high and low sales prices for each calendar quarter during the last three
fiscal years of Regency. On December 12, 2005 the closing sale price of our
common stock was $6.25. As of December 12, 2005, there were approximately 2,327
common stockholders of record.
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2003 HIGH ($) LOW ($)
--------------------------------------------------------------------------------
First Quarter 4.40 3.35
--------------------------------------------------------------------------------
Second Quarter 8.00 4.20
--------------------------------------------------------------------------------
Third Quarter 6.60 5.80
--------------------------------------------------------------------------------
Fourth Quarter 6.40 5.95
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004 HIGH ($) LOW ($)
--------------------------------------------------------------------------------
First Quarter 6.45 6.01
--------------------------------------------------------------------------------
Second Quarter 7.45 6.05
--------------------------------------------------------------------------------
Third Quarter 6.50 6.01
--------------------------------------------------------------------------------
Fourth Quarter 6.02 5.15
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2005 HIGH ($) LOW ($)
--------------------------------------------------------------------------------
First Quarter 6.25 5.10
--------------------------------------------------------------------------------
Second Quarter 6.25 5.10
--------------------------------------------------------------------------------
Third Quarter 6.10 5.58
--------------------------------------------------------------------------------
Fourth Quarter (Through 12/12/05) 6.25 6.00
--------------------------------------------------------------------------------
DIVIDEND POLICY
We have not paid or declared cash dividends on our common stock during the
last two years. We have no present intention to pay cash dividends on our common
stock.
TRANSFER AGENT
Transfer On-Line, Inc., Regency's transfer agent, is located at 317 SW
Alder Street, Second Floor, Portland, Oregon 97204. Their telephone number is
(503) 227-2950 and their website is http://www.transferonline.com.
REGENCY REPURCHASES OF SECURITIES
During September 2004, Regency repurchased 47,000 shares of common stock
at $6.25 per share. During July of 2005, Regency repurchased 8,000 shares of
common stock at $5.27 per share. Regency has not made any other repurchases of
its equity securities during the past two years.
STOCK PURCHASES BY AFFILIATES
Except as described below, and except for acquisitions of stock options,
to the best of Regency's knowledge, no executive officer or director of Regency,
or any other person in control of Regency, has purchased any shares of Regency's
common stock within the past two years.
30
During the period from October 1, 2003 through December 12, 2005, the
affiliates purchased an aggregate of 104,000 shares of its common stock. The
following table sets forth information by quarter regarding such share
purchases:
NUMBER OF AVERAGE
SHARES PRICE PAID
CALENDAR PERIOD PURCHASED (ACTUAL)
2005 -- Fourth Quarter (1) 500 (2) n.a.
2005 -- Third Quarter 100,500 (3) $1.58
2005 -- Second Quarter 500 (2) n.a.
2005 -- First Quarter 500 (2) n.a.
2004 -- Fourth Quarter 500 (2) n.a.
2004 -- Third Quarter 500 (2) n.a.
2004 -- Second Quarter 500 (2) n.a.
2004 -- First Quarter 500 (2) n.a.
2003 -- Fourth Quarter 0 n.a.
(1) Through December 12, 2005.
(2) These securities were granted to Mr. Glasser and Mr. Fleishman pursuant to
the Issuer's 2003 Stock Incentive Plan, as amended.
(3) These securities represent 50,000 shares acquired by each of Mr. Levy and
Mr. Hasson upon the exercise of stock options at an exercise price of
$1.58 per share, and 500 shares granted to each of Mr. Glasser and Mr.
Fleishman pursuant to the Issuer's 2003 Stock Incentive Plan, as amended.
THE SPECIAL MEETING
GENERAL
Regency is providing this proxy statement to stockholders of record as of
December 30, 2005, along with a form of proxy that the Regency Board of
Directors is soliciting for use at the Special Meeting to be held on January
___, 2006 at 10:00 a.m., at the offices of Katten Muchin Rosenman LLP, 575
Madison Avenue, New York, New York. At the Special Meeting, the stockholders
will vote upon a proposal to amend the Company's certificate of incorporation to
effect a 1-for-100 reverse stock split of the Company's common stock,
immediately followed by a 50-for-1 forward stock split.
WHO CAN VOTE AT AND ATTEND THE SPECIAL MEETING
You may vote all shares of Regency's common stock that you own as of the
close of business on the record date, which will be December 30, 2005. These
shares include:
- shares held directly in your name as the "stockholder of record," and
- shares held for you as the "beneficial owner" either through a broker,
bank or other nominee.
Many of Regency's stockholders hold their shares through a broker, bank or
other nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.
Stockholder of Record. If your shares are registered directly in your name
with the Transfer Agent, you are considered, with respect to those shares, the
stockholder of record, and these proxy materials are being sent to you by
Regency. As the stockholder of record, you have the right to vote by proxy or to
vote in person at the Special Meeting. Regency has enclosed a proxy card for you
to use.
Beneficial Owner. If your shares are held in a stock brokerage account or
by a bank or other nominee, you are considered the "beneficial owner" of shares
held in "street name" with respect to those shares, and the proxy materials are
being forwarded to you by your broker or other nominee. Your broker or other
31
nominee is considered, with respect to those shares, the stockholder of record.
As the beneficial owner, you have the right to direct your broker or other
nominee how to vote and are also invited to attend the Special Meeting. As a
beneficial owner, however, you are not the stockholder of record, and you may
not vote these shares in person at the Special Meeting unless you obtain a
signed proxy appointment form from the stockholder of record giving you the
right to vote the shares. Your broker or nominee has enclosed or provided a
voting instruction card for you to use in directing the broker or nominee how to
vote your shares.
All holders of Regency's common stock may attend the Special Meeting in
person. If you are a beneficial owner of Regency's common stock held by a
broker, bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the Special Meeting. A recent brokerage statement or
letter from a bank or broker are examples of proof of ownership. Only holders of
record of Regency's common stock as of December 30, 2005 may cast their votes in
person at the Special Meeting.
Whether you hold your shares directly as stockholder of record or
beneficially in street name, you may direct your vote without attending the
Special Meeting. You may vote by signing your proxy card or, for shares held in
street name, by signing the voting instruction card included by your broker or
nominee and mailing it in the enclosed, pre-addressed envelope. If you provide
specific voting instructions, your shares will be voted as you instruct. If you
sign but do not provide instructions, your shares will be voted as described
above in "Counting of Votes".
VOTE REQUIRED
The required vote for the proposal presented at the Special Meeting to
amend the certificate of incorporation to effect the Reverse Stock Split
immediately followed by the Forward Stock Split is subject to the approval of
the affirmative vote of holders of a majority of the outstanding shares of our
common stock.
The proposal set forth above is a "non-discretionary" item, meaning that
brokerage firms cannot vote shares in their discretion on behalf of a client if
the client has not given voting instructions. Accordingly, shares held in street
name that have been designated by brokers on proxy cards as not voted with
respect to the proposal ("broker non-vote shares") will not be counted as votes
cast.
In accordance with Regency's Bylaws relating to special meetings of
stockholders, no other business may be presented at the Special Meeting other
than matters incidental to the conduct of the Special Meeting.
As of December 12, 2005, the directors and executive officers of Regency
beneficially owned approximately 65% of the outstanding shares of Regency's
common stock. Each of the Company's directors and executive officers as well as
Royalty, which owns a majority of the total issued and outstanding shares of the
Company's common stock, has indicated their intent to vote "FOR" the proposal
required to approve the Transaction. Accordingly, the Company expects that the
proposal will be approved.
VOTING AND REVOCATION OF PROXIES
The shares of Regency's common stock represented by properly completed
proxies received at or before the time for the Special Meeting will be voted as
directed by the respective stockholders unless the proxies are revoked as
described below. If no instructions are given, executed proxies will be voted
"FOR" the proposal to effect the Transaction.
The proxies will be voted in the discretion of the proxy holders on other
matters, if any, that are properly presented at the Special Meeting and voted
upon.
You may revoke your proxy at any time before the vote is taken at the
Special Meeting. To revoke your proxy, you must either: notify us in writing at
our principal executive office; submit a later dated proxy to Corporate
Secretary, 610 N.E. Jensen Beach Blvd., Jensen Beach, Florida 34957; or attend
the Special Meeting and vote your shares in person. Your attendance at the
Special Meeting will not automatically revoke your proxy. If you hold your
shares in street name, please see the voting form provided by your broker for
additional information regarding the voting of your shares. Your broker may
allow you to deliver your voting instructions via the telephone or the internet.
If your shares are not registered in your name, you will need additional
documentation from your record holder to vote the shares in person.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Regency has approved the Transaction and
believes that it is fair to and in the best interests of, Regency and its
stockholders. The Board of Directors unanimously recommends that Regency's
stockholders vote "FOR" the proposal to effect the Transaction.
32
THE PROPOSED AMENDMENT
The following is a description of the material terms and effects of the
Transaction. A copy of the proposed amendments to the certificate of
incorporation effecting both the Reverse Stock Split and the Forward Stock Split
following immediately thereafter are attached as Appendix B to this proxy
statement. This discussion does not include all of the information that may be
important to you. You should read the proposed amendments to the certificate of
incorporation and this proxy statement and related appendices before deciding
how to vote at the Special Meeting.
THE STRUCTURE OF THE TRANSACTION
The Transaction includes both a reverse stock split and a forward stock
split of the common stock. If the Transaction is approved by stockholders and
implemented by the Board of Directors, the Reverse Stock Split and Forward Stock
Split are expected to be completed at 11:59 p.m., Eastern Time, on or about
January ___, 2006 (the "effective time").
Upon consummation of the Reverse Stock Split, each registered stockholder
at the effective time will be entitled to 1 share of common stock for each 100
shares of common stock held in his or her account at that time. Upon
consummation of the Forward Stock Split, each registered stockholder who holds 1
or more shares of common stock following the Reverse Stock Split will receive 50
shares of common stock for each 1 share of common stock held in his or her
account at the time. If a registered stockholder holds 100 or more shares of
common stock in his or her account, any fractional shares in such account will
not be cashed-out after the Reverse Stock Split and the Forward Stock Split,
except as otherwise described in this Proxy Statement, and such holder will hold
one-half the number such holder held prior to the Reverse Stock Split, except
that in lieu of fractional shares that would be issuable after the Forward Stock
Split, such holder will receive $6.50 for each fractional share. Any registered
stockholder who holds fewer than 100 shares of common stock in his or her
account at the effective time will receive a cash payment instead of fractional
shares. This cash payment will be determined and paid as described under "-
Conversion of Shares in the Transaction" below.
We intend to treat stockholders holding common stock in street name
through a nominee (such as a bank or broker) in the same manner as stockholders
whose shares are registered in their names, and nominees will be instructed to
effect the Transaction for their beneficial holders. Nominees may have different
procedures, however, and stockholders holding shares in street name should
contact their nominees.
CONVERSION OF SHARES IN THE TRANSACTION
At the effective time of the Transaction:
o stockholders holding fewer than 100 shares of Regency common stock
immediately prior to the Reverse Stock Split, whether record shares (as
defined below) or street shares (as defined below), will receive cash
equal to $6.50 per share, without interest, and such shares will be
cancelled;
o each outstanding share of Regency common stock other than those described
above will be converted into one-half share after the Forward Stock Split
and will have all rights, privileges, and powers existing immediately
before the Transaction, except that fractional shares that would be
remaining after the Forward Stock Split will be cashed out;
As used above:
o the term "record shares" means shares of Regency stock, other than street
shares, and any record share shall be deemed to be held by the registered
holder thereof as reflected on the books of Regency; and
o the term "street shares" means shares of Regency stock held of record in
street name, and any street share shall be deemed to be held by the
beneficial owner thereof as reflected on the books of the nominee holder
thereof.
Regency (along with any other person or entity to which it may delegate or
assign any responsibility or task with respect thereto) shall have full
discretion and exclusive authority (subject to its right and power to so
delegate or assign such authority) to:
o make such inquiries, whether of any stockholder(s) or otherwise, as it may
deem appropriate for purposes of effecting the Transaction; and
33
o resolve and determine, in its sole discretion, all ambiguities, questions
of fact and interpretive and other matters relating to such provisions,
including, without limitation, any questions as to the number of shares
held by any holder immediately prior to the effective time. All such
determinations by Regency shall be final and binding on all parties, and
no person or entity shall have any recourse against Regency or any other
person or entity with respect thereto.
For purposes of effecting the Transaction, Regency may, in its sole
discretion, but without any obligation to do so,
o presume that any shares of Regency common stock held in a discrete account
(whether record or beneficial) are held by a person distinct from any
other person, notwithstanding that the registered or beneficial holder of
a separate discrete account has the same or a similar name as the holder
of a separate discrete account; and
o aggregate the shares held (whether of record or beneficially) by any
person or persons that Regency determines to constitute a single holder
for purposes of determining the number of shares held by such holder.
Rule 12g5-1 under the Exchange Act provides that, for the purpose of
determining whether an issuer is subject to the registration provisions of the
Exchange Act, securities shall be deemed to be "held of record" by each person
who is identified as the owner of such securities on the records of security
holders maintained by or on behalf of the issuer, subject to the following:
o In any case where the records of security holders have not been maintained
in accordance with accepted practice, any additional person who would be
identified as such an owner on such records if they had been maintained in
accordance with accepted practice shall be included as a holder of record.
o Securities identified as held of record by a corporation, a partnership, a
trust (whether or not the trustees are named), or other organization shall
be included as so held by one person.
o Securities identified as held of record by one or more persons as
trustees, executors, guardians, custodians or in other fiduciary
capacities with respect to a single trust, estate, or account shall be
included as held of record by one person.
o Securities held by two or more persons as co-owners shall be included as
held by one person.
o Securities registered in substantially similar names where the issuer has
reason to believe because of the address or other indications that such
names represent the same person, may be included as held of record by one
person.
EXCHANGE OF CERTIFICATES
Promptly after the Transaction, Regency will mail to each holder
immediately prior to the effective time of the Transaction, based on information
available to Regency, a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the certificates shall pass,
only upon delivery of the certificates to Regency) and instructions to effect
the surrender of the certificates in exchange for a cash payment, if any,
payable with respect to such certificates and/or the issuance of a new
certificate. Upon surrender of a certificate for cancellation to Regency,
together with such letter of transmittal, duly completed and executed, and such
other customary documents as may be required pursuant to such instructions, the
holder of such certificate will receive a cash payment payable with respect to
the shares formerly represented by such certificate (including fractional shares
that would result after the Forward Stock Split) and/or a new certificate, and
the certificate so surrendered shall be canceled.
All amounts payable to stockholders will be subject to applicable state
laws relating to abandoned property. No service charges or brokerage commissions
will be payable by stockholders in connection with the Transaction. Regency will
not pay any interest on any cash amounts payable to its stockholders as a result
of the Transaction.
YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER
YOU RECEIVE A LETTER OF TRANSMITTAL FROM REGENCY. LETTERS OF TRANSMITTAL WILL BE
MAILED SOON AFTER THE TRANSACTION IS COMPLETED.
34
TIME OF CLOSING
If the Transaction is approved by the Regency stockholders, the
Transaction will take place on January ___, 2006 or as soon as practicable
thereafter. As soon as practicable following the Special Meeting, the
certificates of amendment to the certificate of incorporation will be filed with
the Secretary of State of Delaware. Each of the Reverse Stock Split and the
Forward Stock Split will become effective on the date of filing such
certificates at the time specified in the certificates of amendment to the
certificate of incorporation.
35
FINANCIAL INFORMATION
Regency Affiliates, Inc. and Subsidiaries
Condensed Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma consolidated balance sheet as of September 30,
2005, and the unaudited pro forma consolidated statements of operations for the
nine months ended September 30, 2005 and for the calendar year ended December
31, 2004, shows the pro forma effect of the Transaction and related events as
required by rule 11-02 of Regulation S-X. The historical figures for the
calendar year ended December 31, 2004, were derived from Regency's audited
consolidated financial statements as restated and included in Regency's Annual
Report on Form 10-KSB/A for the year ended December 31, 2004, which financial
statements and notes thereto are hereby incorporated by reference herein. The
historical figures as of and for the nine month period ended September 30, 2005
were derived from Regency's unaudited condensed consolidated financial
statements that were included in Regency's Quarterly Report on Form 10-QSB for
the nine months ended September 30, 2005, which financial statements and notes
thereto are hereby incorporated by reference herein. See "Documents Incorporated
by Reference" for information about how to obtain copies of the information
incorporated by reference herein.
The pro forma information in this section gives effect to the Transaction based
on estimates of record ownership of shares of common stock, the number of shares
outstanding and other information as of September 30, 2005 and assumes that, as
a result of the foregoing, 21,512 fractional shares are cancelled or cashed out
at a price of $6.50 per pre-Transaction share. Pro forma adjustments to the pro
forma balance sheet are computed as if the Transaction had occurred at September
30, 2005, while the pro forma income statements are computed as if the
Transaction had occurred at the beginning of the period presented.
These pro forma consolidated financial statements do not purport to be
indicative of the results of operations or financial position of the Company
that would have actually been obtained had such transactions been completed as
of the assumed dates and for the periods presented, or which may be obtained in
the future. The pro forma adjustments represent, in the opinion of management,
all adjustment necessary to present the Company's pro forma results of
operations and financial position in accordance with Article 11 of SEC
Regulation S-X based upon available information and certain assumptions
considered reasonable under the circumstances. The pro forma combined financial
statements should be read in conjunction with the historical financial
statements of the Company.
36
Regency Affiliates, Inc. and Subsidiaries
Pro forma Condensed Consolidated Balance Sheet
As of September 30, 2005
(Unaudited)
Pro forma Pro forma
Historical Adjustments * Balances
------------- ------------- --------------
Assets
Current assets
Cash and cash equivalents $ 1,455,216 $ (139,828) a
(245,000) b $ 1,070,387
Marketable securities 8,990,880 8,990,880
Accrued receivables 456,025 456,025
Other current assets 96 96
------------- ------------ --------------
Total current assets 10,902,217 (384,828) 10,517,389
------------- ------------ --------------
Investment in partnerships 8,711,280 -- 8,711,280
Other assets
Aggregate inventory 832,427 832,427
Deferred costs 250,000 250,000
Other assets 1,300 -- 1,300
------------- ------------ --------------
Total other assets 1,083,727 -- 1,083,727
------------- ------------ --------------
Total assets 20,697,224 (384,828) 20,312,396
============= ============ ==============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable 189,690 189,690
Accrued expenses 340,923 -- 340,923
------------- ------------ --------------
Total current liabilities 530,613 -- 530,613
------------- ------------ --------------
Deferred credit 1,098,615 -- 1,098,615
------------- ------------ --------------
Total liabilities 1,629,228 -- 1,629,228
------------- ------------ --------------
Stockholders' equity
Serial preferred stock 1,052,988 1,052,988
Common stock, par value 31,134 (15,634) c 15,500
Additional paid in capital 8,344,951 (369,194) c 7,975,757
Readjustment from quasi-reorganization (1,670,596) (1,670,596)
Retained earnings 14,087,314 14,087,314
Note receivable - sale of stock (2,440,000) (2,440,000)
Treasury stock, 55,000 shares (337,795) -- (337,795)
------------- ------------ --------------
Total stockholders' equity 19,067,996 (384,828) 18,683,168
------------- ------------ --------------
Total liabilities and stockholders' equity $ 20,697,224 $ (384,828) $ 20,312,396
============= ============ ==============
* See explanations of pro forma adjustments below.
37
Regency Affiliates, Inc. and Subsidiaries
Pro forma Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2005
(Unaudited)
Pro forma Pro forma
Historical Adjustments * Balances
------------- ------------- --------------
Net Sales $ -- $ -- $ --
Costs and expenses
Selling, general and administrative expenses 1,142,171 (157,500) d 984,671
------------- ------------ --------------
Loss from operations (1,142,171) 157,500 (984,671)
Income from equity investment in partnerships 2,174,742 2,174,742
Rental income -- --
Interest and dividend income 132,073 (11,550) e 120,523
Other income, net 223,849 -- 223,849
------------- ------------ --------------
Other income 2,530,664 (11,550) 2,519,114
------------- ------------ --------------
Net Income 1,388,493 145,950 1,534,443
============= ============ ==============
Net income per common share:
Basic and diluted $ 0.45 $ 0.97
============= ==============
Weighted average number of common shares outstanding:
Basic and diluted 3,056,002 f 1,585,540
============= ==============
* See explanations of pro forma adjustments below.
38
Regency Affiliates, Inc. and Subsidiaries
Pro forma Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2004
(Unaudited)
Pro forma Pro forma
Historical Adjustments * Balances
------------- ------------- --------------
Net Sales $ -- $ -- $ --
Costs and expenses
Selling, general and administrative expenses 3,710,057 (210,000) d 3,500,057
------------- ------------ --------------
Loss from operations (3,710,057) 210,000 (3,500,057)
Income from equity investment in partnerships 1,215,498 1,215,498
Rental income 4,599 4,599
Interest and dividend income 261,948 (15,400) e 246,548
Other income, net 4,468 -- 4,468
------------- ------------ --------------
Other income 1,486,513 (15,400) 1,471,113
------------- ------------ --------------
Net loss before income taxes (2,223,544) 194,600 (2,028,944)
Income tax expense 41,495 -- 41,495
------------- ------------ --------------
Net loss (2,265,039) 194,600 (2,070,439)
============= ============ ==============
Net loss per common share:
Basic and diluted $ (0.75) $ (1.34)
============= ==============
Weighted average number of common shares outstanding:
Basic and diluted 3,019,317 f 1,550,855
============= ==============
* See explanations of pro forma adjustments below.
39
Regency Affiliates, Inc. and Subsidiaries
Notes to the Pro forma Condensed Consolidated Financial Statements
(Unaudited)
Pro forma Adjustments:
a. The total cost to acquire 21,512 fractional shares at $6.50 per share
equals $139,828. Amount to be paid from cash.
b. Additional costs related to the transaction. See analysis of cost under
the Section entitled "SOURCE OF FUNDS AND FINANCING OF THE TRANSACTION."
c. After the Transaction takes place the number of outstanding shares is
1,549,950 at par value of $.01 for a total par value of $15,500. The
additional cost to acquire the fractional shares (item a. above) and the
additional costs to complete the transaction (item b. above) are deducted
from paid in capital.
d. The annual savings associated with being an entity on a non-reporting
basis is estimated to be $210,000 per year or $157,500 for the nine month
period.
e. The interest income that could have been earned on the $385,000 of cash
used to complete the Transaction is estimated to be 4% or $15,400 per year
and $11,550 for the nine month period.
f. The weighted average number of shares has been recomputed assuming the
Transaction took place at the beginning of the period presented.
40
Regency Affiliates, Inc. and Subsidiaries
Selected Per Share Financial Information
(Unaudited)
The following table sets forth selected historical per share information for
Regency and pro forma per share information for Regency giving effect to the
transaction as if it had been consummated as of the end of each period
presented, in the case of book value per share information, and as of the
beginning of the respective periods, in the case of income per share and
weighted average share information. The information presented below is derived
from (i) the consolidated historical financial statements of Regency, including
the related notes thereto, and (ii) the unaudited pro forma consolidated
financial statements. This table should be read in conjunction with the pro
forma financial statements included herewith and the consolidated financial
statements of Regency and the notes thereto included in Regency's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2004 and with Regency's
Quarterly report on Form 10-QSB for the quarter ended September 30, 2005, which
information is attached to and incorporated by reference in this proxy
statement. As described in the assumptions to the unaudited pro forma financial
statements, the pro forma per share information assumes that 21,512 shares of
common stock will be cashed out in connection with the transaction, and that the
total cash required for the transaction will be $384,828, included the cash paid
for these shares, and amounts required to pay the other costs of the
transaction. The pro forma information set forth below is not necessarily
indicative of what Regency's financial position or results of operations
actually would have been if the transaction had been consummated as of the above
referenced dates or of Regency's financial position or results of operations in
the future.
As of and for the As of and for the
Nine Months Ended Year Ended
September 30, 2005 December 31, 2004
------------------ -----------------
Regency - Historical
--------------------
Net income per common share:
Basic $ 0.45 $ (0.75)
Diluted 0.41 (0.68)
Net book value per common share:
Basic 6.24 5.82
Diluted 5.65 5.26
Ratio of earnings to fixed charges -0- -0-
Dividends per common share -0- -0-
Weighted average common shares outstanding
Basic 3,056,002 3,019,317
Diluted 3,376,002 3,339,317
Regency - Pro Forma
--------------------
Net income per common share:
Basic $ 0.97 $ (1.34)
Diluted 0.88 (1.21)
Net book value per common share:
Basic 11.78 11.07
Diluted 10.70 10.03
Ratio of earnings to fixed charges
Dividends per common share -0- -0-
Weighted average common shares outstanding
Basic 1,585,540 1,550,855
Diluted 1,745,540 1,710,855
41
MANAGEMENT OF REGENCY
Set forth below is information about the directors and executive officers
of Regency.
DIRECTORS
Name Age Positions
Laurence S. Levy 49 President, Chief Executive Officer and Chairman
Neil Hasson 40 Chief Financial Officer and Director
Stanley Fleishman 54 Non-Executive Director
Errol Glasser 52 Non-Executive Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Name Age Positions
Carol Zelinski 41 Secretary
Laurence S. Levy. Mr. Levy is Chairman of the Board of Directors, President, and
Chief Executive Officer of the Company. Mr. Levy is the co-founder of Hyde Park
Holdings, LLC, an investment firm specializing in leveraged buyouts. Mr. Levy
acts as a principal investor at Hyde Park Holdings, LLC and is involved in
identifying, financing, acquiring and managing companies operating in real
estate, manufacturing, infrastructure, parking and sub-assembly. Mr. Levy is
also the chairman of the board and chief executive officer of Rand Acquisition
Corporation, an OTC bulletin board listed company formed in June 2004.
Neil N. Hasson. Mr. Hasson is a Director and Chief Financial Officer of the
Company. In February 2005, Mr. Hasson was appointed as a Director of Citigroup
Property Investors ("CPI"). CPI is an international real estate investment
manager. Previously, Mr. Hasson was the head of European Real Estate for DLJ
Real Estate Capital Partners, a $660 million real estate fund managed by
Donaldson, Lufkin and Jenrette ("DLJ"), where he was involved with the
acquisition of real estate throughout the world. Mr. Hasson joined DLJ as a
Managing Director in New York in January 1995. Mr. Hasson currently serves as a
non-executive director of Sterling Centrecorp, a real estate company listed on
the Toronto Stock Exchange.
Stanley Fleishman. Mr. Fleishman is a Director of the Company. Since 1992, Mr.
Fleishman has been President and CEO of Jetro Holdings, Inc., a wholesale
distributor of dry and perishable retail groceries and food service items.
Errol Glasser. Mr. Glasser is a Director of the Company. Since 1993, Mr. Glasser
has been President of Triangle Capital, LLC, a private investment and advisory
company based in New York City. Previously, Mr. Glasser was a Managing Director
at Kidder, Peabody & Co. with responsibility for its West Coast investment
banking activity.
Carol Zelinski. Ms. Zelinski is the Secretary of the Company. Since 1997, Ms.
Zelinski has been an analyst at Hyde Park Holdings, LLC, a private investment
firm. Ms. Zelinski is not a Director of the Company.
Mr. Hasson is a citizen of the United Kingdom. Each of Messrs. Levy, Fleishman
and Glasser and Ms. Zelinski is a citizen of the United States.
During the last five years, neither the Company nor, to its knowledge, any of
its directors or executive officers or Royalty Management, Inc. or Royalty
Holdings LLC has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and, as a result of
such proceeding, was or is subject to a judgment, decrees or final order
enjoining future violations of or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect
thereto.
42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding beneficial ownership
of outstanding shares of our common stock as of December 12, 2005 by those
individuals or groups who have advised us that they own more than five percent
(5%) of such outstanding shares pre-transaction and the resulting ownership
post-transaction. Beneficial ownership of common stock by individual directors
and the executive officers is disclosed in the section immediately following.
Class
Shares
---------------------------
Amount
Name and Address of Beneficially Percent Of Post- Percent Of
Beneficial Owner Owned Class Transaction Class
-------------------------------------------- ------------ ---------- ----------- ----------
Royalty Holdings LLC and Royalty Management,
Inc. (1) 1,823,738 (1) 58.6% 911,869 58.8%
Raffles Associates, L.P. (2) 167,567 (2) 5.4% 83,783 5.4%
Laurence S. Levy (1) 1,998,738 (1)(3) 61.7% 999,369 61.9%
(1) The address and telephone number of such beneficial owner is c/o Hyde Park
Holdings, LLC, 450 Park Avenue, New York, New York 10022, (212)644-3450.
Based on information contained in the Amended Statement on Schedule 13D
filed by such entities on June 24, 2005. Royalty Holdings LLC is a
Delaware company in the principal business of investing in the Company.
The principal business of Royalty Management, Inc. is manager of Royalty
Holdings LLC. Royalty Management, Inc., a Delaware corporation, is the
Manager of Royalty Holdings LLC. Laurence S. Levy is the president, sole
director and sole stockholder of Royalty Inc.
(2) The address of such beneficial owner is 450 Seventh Avenue, New York, New
York 10123. Based on information contained in the amended Statement on
Schedule 13G filed by such entity on January 20, 2005.
(3) The address of such beneficial owner is c/o Hyde Park Holdings, LLC, 450
Park Avenue, New York, New York 10022. Comprised of (i) the 1,823,738
shares that are beneficially owned by Royalty Management, Inc., of which
Mr. Levy is the President, sole director and sole stockholder, (ii) 50,000
shares held by Mr. Levy and (iii) 125,000 shares underlying currently
exercisable options granted to Mr. Levy under the Company's 2003 Stock
Incentive Plan, as amended.
43
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of December 12, 2005
regarding the ownership of Common Stock pre-transaction and the resulting
ownership of Common Stock post-transaction by each director and executive
officer and all directors and executive officers of the Company as a group.
Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder.
Class
Shares
--------------------------
Amount
Name and Address of Beneficially Percent of Post- Percent Of
Beneficial Owner Owned Class Transaction Class
----------------------------------------------------------------------------------------------
Laurence S. Levy (1) 1,998,738 (2) 61.7% 999,369 61.9%
Neil N. Hasson (1) 175,000 (3) 5.4% 87,500 5.4%
Errol Glasser (5) 18,750 (4) *% 9,375 *%
Stanley Fleishman (6) 14,500 (4) *% 7,250 *%
Carol Zelinski (1) 0 0% 0 0%
All current Directors and 2,206,988 65.1% 1,103,494 65.4%
Executive Officers as a group
(1) The address and telephone number of such beneficial owner is c/o Hyde Park
Holdings, LLC, 450 Park Avenue, New York, New York 10022, (772)334-8181.
(2) Comprised of (i) the 1,823,738 shares that are beneficially owned by
Royalty Management, Inc., of which Mr. Levy is the President, sole
director and sole stockholder, (ii) 50,000 shares held by Mr. Levy and
(iii) 125,000 shares underlying currently exercisable options granted to
Mr. Levy under the Company's 2003 Stock Incentive Plan, as amended.
(3) Comprised of 125,000 shares of Common Stock underlying options currently
exercisable granted to Mr. Hasson under the Company's 2003 Stock Incentive
Plan, as amended.
(4) Includes 12,500 shares of Common Stock underlying stock options currently
exercisable or exercisable within sixty days issued to such individual
under the Company's 2003 Stock Incentive Plan, as amended.
(5) The address of such beneficial owner is 505 Park Avenue, New York, New
York 10022.
(6) The address of such beneficial owner is c/o Jetro, 15-24 132rd Street,
College Point, New York 10123.
* Less than 1%.
44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loan Facility
In order to satisfy the Company's working capital needs, in April 2003 the
Company obtained a loan facility from Royalty Holdings LLC, an affiliate of
Messrs. Levy and Hasson, pursuant to which the Company could have borrowed up to
an aggregate of $300,000 from Royalty Holdings LLC. Amounts borrowed were
evidenced by a demand note bearing interest of 8% per annum. On July 3, 2003,
the Company repaid all amounts outstanding under the $300,000 working capital
loan facility from Royalty Holdings LLC, and terminated the facility. The
payment amount consisted of $180,000 of principal and $2,910 of accrued and
unpaid interest.
License Agreement
Pursuant to a License Agreement entered into in March 2003, Royalty
Management, Inc., which is wholly-owned by Laurence S. Levy, the Company's
President, Chief Executive Officer and a director, provides New York City office
space, office supplies and office services to the Company for $100,000 per year.
Note Conversion
On July 3, 2003 Royalty Holdings LLC converted the remaining $2,004,098
outstanding principal amount of its Convertible Promissory Note plus accrued
interest into 1,037,738 shares of Common Stock. The note had been issued to
Royalty Holdings LLC as part of the Company's October 2002 recapitalization
transactions.
Note Repayment
On July 3, 2003 the Company repaid the full $1,250,000 principal amount
of, and all accrued and unpaid interest under, the 9% Promissory Note of the
Company held by Royalty Holdings LLC. The note had been issued to Royalty
Holdings LLC as part of the Company's October 2002 recapitalization
transactions.
Employment Agreements
We are a party to employment agreements with Laurence S. Levy, our current
President and Chief Executive Officer, and with Neil Hasson, our current Chief
Financial Officer. Under each employment agreement, the executive's employment
terminates upon the date on which the executive attains retirement age, provided
that the executive may terminate his employment upon 30 days notice to Regency
and he may be removed from office upon death or disability or for just cause.
The employment agreements provide for a base annual salary of no less than
$150,000 for Mr. Levy and no less than $50,000 for Mr. Hasson, a discretionary
bonus and other customary benefits. The employment agreements also provide for
the issuance to each of Messrs. Levy and Hasson, of options to purchase 25,000
shares of our common stock for $1.35 per share. Such options were issued in
April 2003 pursuant to the Company's 2003 Stock Incentive Plan.
National Resource Development Corporation; Iron Mountain Resources, Inc.
Until December 2001, our 80%-owned subsidiary, NRDC had as its principal
asset approximately 70 million short tons of Aggregate located at the site of
the Groveland Mine in Dickinson County, Michigan. NRDC never consummated sales
of material amounts of Aggregate. In December 2001, the Aggregate was sold to
Iron Mountain, a 75% owned subsidiary of Regency. The purchase price was
$18,200,000 and was payable, with interest of 2.46%, in ninety-six equal
payments of principal and interest commencing December 2003. Iron Mountain was
unsuccessful in its efforts to sell the Aggregate and, in December 2003,
defaulted under the note to NDRC. In February 2005, in lieu of foreclosure, Iron
Mountain re-conveyed the Aggregate to NRDC and the note was deemed satisfied.
COST OF SOLICITATION OF PROXIES
The cost of this solicitation will be paid by Regency. In addition to the
solicitation of proxies by mail, the directors, officers and employees of
Regency may solicit proxies personally or by telephone or telegraph. Regency may
request persons holding shares in their names for others to forward soliciting
materials to their principals to obtain authorization for the execution of
proxies, and Regency may reimburse such persons for their expenses in doing so.
Regency does not intend to retain a professional proxy solicitation firm to
assist in the solicitation of proxies.
45
STOCKHOLDER PROPOSALS
Proposals for the Company's next annual meeting should be directed to the
attention of Corporate Secretary, 610 N.E. Jensen Beach Blvd., Jensen Beach,
Florida 34957. All proposals must meet the requirements set forth in the rules
and regulations of the SEC in order to be eligible for inclusion in the proxy
statement for the 2006 annual meeting of stockholders.
According to the by-laws of the Company, at any annual meeting of
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. For business to be properly brought before an annual
meeting of stockholders by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 80 days nor more than
180 days prior to the meeting; provided, however, that if the date of the public
meeting was not announced more than 90 days prior to the meeting, notice to be
timely delivered must be delivered to the Secretary of the Company not later
than the close of business on the 10th day following the date on which the
meeting date was communicated to stockholders. The by-laws contain provisions
for the content of a proper notice.
OTHER MATTERS
In accordance with Regency's Bylaws relating to special meetings of
stockholders, no other business may be presented at the Special Meeting other
than matters set forth herein which will be presented for consideration at the
Special Meeting or which are incidental to the conduct of the Special Meeting.
All proxies received duly executed will be voted. You are requested to
sign and date the enclosed proxy and mail it promptly in the enclosed envelope.
If you later desire to vote in person, you may revoke your proxy, either by
written notice to Regency or in person at the meeting, without affecting any
vote previously taken.
WHERE YOU CAN FIND MORE INFORMATION
The Transaction will result in a "going private" Transaction subject to
Rule 13e-3 of the Exchange Act. Regency has filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 under the Exchange Act with respect to the
Transaction. The Schedule 13E-3 contains additional information about Regency.
Copies of the Schedule 13E-3 are available for inspection and copying at the
principal executive offices of Regency during regular business hours by any
interested stockholder of Regency, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail, by
written request directed to Corporate Secretary, 610 N.E. Jensen Beach Blvd.,
Jensen Beach, Florida 34957.
Regency is currently subject to the information requirements of the
Exchange Act and files periodic reports, proxy statements and other information
with the Securities and Exchange Commission relating to its business, financial
and other matters.
Copies of such reports, proxy statements and other information, as well as
the Schedule 13E-3, may be copied (at prescribed rates) at the public reference
facilities maintained by the SEC at 100 F Street, NE, Washington, DC 20549. For
further information concerning the SEC's public reference rooms, you may call
the SEC at 1-800-SEC-0330. Some of this information may also be accessed on the
World Wide Web through the SEC's Internet address at "http://www.sec.gov." The
Company's common stock is quoted on the Over the Counter Bulletin Board under
the symbol "RAFI.OB."
46
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference herein are the documents listed below that
Regency has filed previously with the SEC. They contain important information
about Regency and its financial condition.
o Regency's Annual Report on Form 10-K/A for the year ended December 31,
2004.
o Regency's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2005.
The information incorporated by reference should be considered part of
this proxy statement except for any information superseded by information
contained directly in this proxy statement.
Upon written request by any stockholder, Regency shall deliver, without
charge, by first class mail a copy of any and all of the information (not
including exhibits) that has been incorporated by reference in this Proxy
Statement. Such requests should be made in writing and directed to Corporate
Secretary, 610 N.E. Jensen Beach Blvd., Jensen Beach, Florida 34957.
We have not authorized anyone to give any information or make any
representation about the Transaction or us that differs from, or adds to, the
information in this proxy statement or in our documents that are publicly filed
with the SEC. If anyone does give you different or additional information, you
should not rely on it.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ LAURENCE S. LEVY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
47
APPENDIX A
FOR USE BY STOCKHOLDERS OF
REGENCY AFFILIATES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
JANUARY ___, 2006
The undersigned hereby appoints Laurence S. Levy and Neil N. Hasson and each or
either of them, with full power of substitution, with all the powers which the
undersigned would possess if personally present, to vote as designated below,
all shares of the $0.01 par value Common Stock of the undersigned of Regency
Affiliates, Inc. at a Special Meeting of Stockholders to be held at the offices
of Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New York , on
January ___, 2006, at 10:00 a.m.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS REFERRED TO BELOW. THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR
THE PROPOSAL.
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT A
1-FOR-100 REVERSE STOCK SPLIT, IMMEDIATELY FOLLOWED BY A 50-FOR-1 FORWARD
STOCK SPLIT, OF THE COMPANY'S THEN OUTSTANDING COMMON STOCK.
FOR AGAINST ABSTAIN
|_| |_| |_|
The proxies are authorized to vote in their discretion upon such other business
as may properly come before the meeting.
Receipt of Notice of Special Meeting and accompanying Proxy Statement is hereby
acknowledged. Any proxy heretofore given to vote said shares is hereby revoked.
Please date, sign exactly as printed and return promptly in the enclosed
postage-paid envelope.
Date: ____________
________________________________________
________________________________________
(When signing as attorney, executor,
administrator, trustee, guardian, etc.
give title as such. If a joint account,
each joint owner should sign
personally.)
48
Appendix B
Proposed Form of Amendment to Effect Reverse Stock Split
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF
REGENCY AFFILIATES, INC.
REGENCY AFFILIATES, INC., a Delaware corporation (the "Corporation"), does
hereby certify that:
FIRST: This Certificate of Amendment amends the provisions of the
Corporation's Certificate of Incorporation, as amended (the "Certificate of
Incorporation").
SECOND: The terms and provisions of this Certificate of Amendment have
been duly adopted in accordance with Section 242 of the General Corporation Law
of the State of Delaware and shall become effective at 11:58 p.m., Eastern Time,
on ___, 2006.
THIRD: Article "FOURTH" of the Corporation's Certificate of Incorporation
shall be and is hereby amended by adding the following to the end thereof:
Without regard to any other provision of this Certificate of
Incorporation, each one (1) share of Common Stock issued and outstanding
immediately prior to 11:59 p.m., Eastern Time, on ___, 2006 (the "Reverse Split
Effective Time") shall be and is hereby automatically reclassified and changed
(without any further act) into one-one hundredth (1/100th) of a fully-paid and
nonassessable share of Common Stock, provided that no fractional shares shall be
issued to any holder of record of fewer than 100 shares of Common Stock
immediately prior to the Reverse Split Effective Time, and provided further that
instead of issuing fractional shares to such holders, the Corporation shall pay
an amount in cash equal to $6.50 per share of Common Stock held by such holders
immediately prior to the Reverse Split Effective Time. Promptly after the
Reverse Split Effective Time, the Corporation shall send to all persons who were
holders of record of fewer than 100 shares of Common Stock immediately prior to
the Effective Time instructions for surrendering their certificates for such
shares in exchange for payment of the cash consideration therefor. Pending the
surrender and exchange of such certificates, such certificates shall represent
only the right of the record holder thereof to receive, upon surrender thereof,
payment of the cash consideration therefor, at the rate of $6.50 for each share
of Common Stock held immediately prior to the Reverse Split Effective time, to
which such holder has become entitled under this paragraph.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its officer thereunto duly authorized this ___day of
___, 2006.
REGENCY AFFILIATES, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
49
Proposed Form of Certificate of Amendment to Effect Forward Stock Split
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF
REGENCY AFFILIATES, INC.
REGENCY AFFILIATES, INC., a Delaware corporation (the "Corporation"), does
hereby certify that:
FIRST: This Certificate of Amendment amends the provisions of the
Corporation's Certificate of Incorporation, as amended (the "Certificate of
Incorporation").
SECOND: The terms and provisions of this Certificate of Amendment have
been duly adopted in accordance with Section 242 of the General Corporation Law
of the State of Delaware and shall become effective at 11:59 p.m., Eastern Time,
on ___, 2006.
THIRD: Article "FOURTH" of the Corporation's Certificate of Incorporation
shall be and is hereby amended by adding the following to the end thereof:
Without regard to any other provision of this Certificate of Incorporation
(but after giving effect to the reverse stock split and cash out of certain
fractional share interests effected pursuant to the immediately preceding
paragraph), each one (1) share of Common Stock issued and outstanding
immediately prior to 11:59 p.m., Eastern Time, on ___, 2006 (the "Forward Split
Effective Time") (and each fractional share held of record by any record holder
of one or more whole shares of Common Stock immediately prior to the Forward
Split Effective Time) shall be and is hereby automatically reclassified and
changed (without any further act) into fifty (50) fully-paid and nonassessable
shares of Common Stock (or, with respect to such fractional shares, such lesser
number of shares as may be applicable based upon such 50-for-1 ratio), provided
that instead of issuing fractional shares, the Corporation shall pay an amount
in cash equal to $6.50 per fractional share to which such holder would be
entitled immediately after the Forward Split Effective Time.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its officer thereunto duly authorized this ___day of
___, 2006.
REGENCY AFFILIATES, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
50
Appendix C
[LOGO]
SANDERS MORRIS HARRIS]
October 14, 2005
The Board of Directors
Regency Affiliates, Inc.
610 NE Jensen Beach Boulevard
Jensen Beach, FL 34957
Board of Directors:
We understand that Regency Affiliates, Inc. (the "Company") is considering
entering into a transaction involving a reverse stock split (the "Reverse Stock
Split") and deregistration of the Company's common stock (together with the
Reverse Stock Split, the "Transaction").
We have been retained to act as financial advisor to the Independent Directors
of the Company, to undertake a study and to issue an opinion ("Opinion") to the
Board of Directors as to the fairness from a financial point of view to the
shareholders of the Company of the financial consideration to be paid by the
Company for the fractional shares resulting from the Reverse Stock Split. We
have not been requested to opine as to, and our Opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Transaction.
In arriving at the Opinion, we have reviewed and analyzed, among other things:
1. Publicly available information concerning the Company that we
believe to be relevant to our analysis, including, without
limitation, the Company's 10-Ks and 10Q for the past fiscal year;
3. Certain financial and operating information with respect to the
business, operations, and prospects of the Company and its operating
holdings, including financial and operating projections furnished by
the management of the Company;
4. The historical market prices of the Company's publicly traded
securities during the last five years;
5. The independent analyses conducted by other firms relating to
previous transactions conducted by the Company and appraisals of
various operating holdings of the Company;
6. A comparison of the historical financial results and present
financial condition of the Company and its operating holdings with
those of other publicly-traded companies that we deemed relevant;
7. An analysis of the historical impact of deregistration on the
trading values in other comparable transactions;
8. An analysis of the pro forma impact of the deregistration on the
future financial performance of the Company;
9. Reviewed published estimates of independent research analysts with
respect to the future financial performance of companies comparable
to the Company;
10. The views of the management of the Company with respect to the
Transaction and other matters concerning the Company and its
operating holdings; and
11. Such other information, financial studies, analyses and
investigations as we deemed relevant.
In arriving at our Opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company and its operating holdings, upon advice of the Company, we have assumed
that such projections have been reasonably prepared on a basis reflecting the
best currently available estimates and judgment of the management of the Company
as to the future financial performance of the Company and its operating
holdings, and that the Company and its operating holdings will perform
substantially in accordance with such projections. Upon advice of the Company,
2
we have assumed that the NOL schedule provided to us by the Company has been
reasonably prepared on a basis reflecting the best currently available
historical information and judgments of the management of Company. In arriving
at our Opinion, we have not conducted a physical inspection of the properties
and facilities of the Company and its operating holdings, and we have not had
direct communications with the operating management of the Company's holdings.
As part of our analyses, we relied on independent appraisals obtained by the
Company in prior transactions and have not made or obtained from third parties
any evaluations or appraisals of the assets and liabilities of the Company or
its operating holdings.
With respect to all legal, accounting, and tax matters arising in connection
with the Transaction, we have relied without independent verification on the
accuracy and completeness of the advice provided to the Company by its legal
counsel, accountants, and other financial advisers.
In arriving at this Opinion, Sanders Morris Harris Inc. ("SMH") did not
attribute any particular weight to any analysis or factor considered by it.
Accordingly, SMH believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying this Opinion.
SMH has acted as a financial advisor to the Company in connection with the
Transaction and will receive a fee upon the delivery of this Opinion. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of our engagement. SMH has not performed investment banking
services for the Company in the past or received fees for other services. In the
ordinary course of business, SMH or its affiliates may actively trade in the
Company's securities for their own accounts and for the accounts of SMH's
customers and, accordingly, may at any time hold a long or short position in
such securities.
3
This Opinion is for the use and benefit of the Board of Directors of the Company
and is provided to the Board of Directors in connection with its consideration
of the Transaction. This Opinion does not address the Company's underlying
business decision to pursue the Transaction, the relative merits of the
Transaction as compared to any alternative business strategies that might exist
for the Company or the effects of any other transaction in which the Company
might engage. In addition, we express no opinion as to the price at which shares
of common stock of the Company actually will trade following announcement of the
Reverse Stock Split.
Our Opinion is subject to the assumptions and conditions contained herein and is
based upon market, economic, financial and other conditions as they exist and
can be evaluated on, and on the information available to us as of, the date of
this letter. We assume no responsibility for updating or revising our Opinion
based on circumstances or events occurring after the date hereof. The letter is
not to be used for any other purpose, or to be reproduced, disseminated, quoted
from or referred to at any time, in whole or in part, without our prior written
consent, provided, however, that SMH consents to the inclusion of the text of
this Opinion in any notice or appropriate disclosure to the public shareholders
of the Company and in any filing the Company is required by law to make.
Based upon and subject to the foregoing, it is our Opinion that, as of the date
hereof, the financial consideration to be paid by the Company for the fractional
shares resulting from the Reverse Stock Split is fair from a financial point of
view to shareholders of the Company.
Sanders Morris Harris Inc.
By: /s/ Michael Fitzgerald
----------------------
Michael Fitzgerald
Managing Director
4