| CARMIKE CINEMAS INC ITEM 1A RISK FACTORS The risk factors set forth below are applicable to us |
| You should carefully consider the following risks in evaluating us and our operations |
| The occurrence of any of the following risks could materially adversely affect, among other things, our business, financial condition and results of operations |
| Our business will be adversely affected if there is a decline in the number of motion pictures available for screening or in the appeal of motion pictures to our patrons |
| Our business depends to a substantial degree on the availability of suitable motion pictures for screening in our theatres and the appeal of such motion pictures to patrons in our specific theatre markets |
| Our results of operations will vary from period to period based upon the number and popularity of the motion pictures we show in our theatres |
| A disruption in the production of motion pictures by, or a reduction in the marketing efforts of, the major studios and/or independent producers, a lack of motion pictures, the poor performance of motion pictures in general or the failure of motion pictures to attract the patrons in our theatre markets will likely adversely affect our business and results of operations |
| Our substantial lease and debt obligations could impair our financial flexibility and our competitive position |
| We now have, and will continue to have, significant debt obligations |
| Our long-term debt obligations consist of the following: • term loans in the aggregate amount of dlra321dtta4 million outstanding as of June 30, 2006; • a revolving credit facility providing for borrowings of up to dlra50dtta0 million, of which no amounts were outstanding as of June 30, 2006; and • financing obligations of dlra214dtta0 million as of December 31, 2005 inclusive of interest but net of dlra57dtta8 million which is expected to be settled through non-cash consideration consisting of property subject to financing obligations |
| We also have, and will continue to have, significant lease obligations |
| As of December 31, 2005, our total capital and operating lease obligations with terms over one year totaled dlra511dtta8 million |
| These obligations could have important consequences for us |
| For example, they could: • limit our ability to obtain necessary financing in the future and make it more difficult for us to satisfy our lease and debt obligations; • require us to dedicate a substantial portion of our cash flow to payments on our lease and debt obligations, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements; • make us more vulnerable to a downturn in our business and limit our flexibility to plan for, or react to, changes in our business; and • place us at a competitive disadvantage compared to competitors that might have stronger balance sheets or better access to capital by, for example, limiting our ability to enter into new markets or renovate our theatres |
| If we are unable to meet our lease and debt obligations, we could be forced to restructure or refinance our obligations, to seek additional equity financing or to sell assets, which we may not be able to do on satisfactory terms or at all |
| As a result, we could default on those obligations |
| Our common stock is currently listed for quotation on the Nasdaq National Market |
| If we were unable to maintain our listing on the Nasdaq National Market, it may be more difficult for our stockholders to sell our stock in the public market |
| On March 31, 2006, we announced that we had received a notice from the Nasdaq Listing Qualifications staff indicating that because Nasdaq had not received our Form 10-K for the year ended December 31, 2005, we were no longer in compliance with Nasdaq Marketplace Rule 4310(c)(14) |
| Further, on May 22, 11 _________________________________________________________________ [48]Table of Contents 2006, we announced that we had received a notice from the staff stating that because we have not filed our Form 10-Q for the period ended March 31, 2006, we were in further noncompliance with Nasdaq Marketplace Rule 4310(c)(14) |
| On April 27, 2006 a hearing was held before the Nasdaq Listing Qualifications Panel regarding our appeal of Nasdaq’s determination to delist our common stock |
| The panel’s determination of continued listing was conditioned upon the filing of this Form 10-K, and all required restatements, and upon the filing of our Form 10-Q for the quarter ended March 31, 2006 on or before July 27, 2006 |
| At the time we determined that we would be unable to make each of these required filings by the July 27, 2006 deadline, we requested that the panel provide a further extension of the filing deadline to August 22, 2006 |
| On July 31, 2006, we received a notice from Nasdaq indicating that the panel had determined to grant our request for continued listing on Nasdaq |
| The panel’s determination of continued listing is conditioned upon the filing of this Form 10-K, all required restatements, and our Form 10-Q for the quarter ended March 31, 2006 by no later than August 22, 2006 |
| In addition, if we meet this extended deadline, the panel also agreed to consider a brief extension of time to allow us to file our Form 10-Q for the quarter ended June 30, 2006 |
| If we are unable to continue to maintain our listing on the Nasdaq National Market it may become more difficult for our stockholders to sell our stock in the public market and the price of our common stock may be adversely affected because of the anticipated decreased liquidity |
| If our common stock were delisted, it would not be eligible for listing on another stock exchange until we became current in our SEC reports |
| Also, our stock would not be eligible for quotation on the OTC Bulletin Board (the Over-The-Counter-Market) until we had publicly available financial statements as of a date within six months of a possible quote |
| Should our stock be delisted from the Nasdaq National Market, it may continue to be quoted on the National Quotation Service Bureau (the “Pink Sheets”); however, its liquidity may be adversely affected, as well as the price at which it is traded, as a result of quotation in the Pink Sheets |
| A delisting from the Nasdaq National Market and a drop in the price of our stock would also subject our securities to so-called penny stock rules that impose additional sales practice and market-making requirements on broker-dealers who sell or make a market in such securities |
| Finally, removal from the Nasdaq National Market could affect the ability or willingness of broker-dealers to sell or make a market in our common stock and the ability of purchasers of our common stock to sell their securities in the secondary market |
| We may not generate sufficient cash flow to meet our needs |
| Our ability to service our indebtedness and to fund potential acquisitions and capital expenditures for theatre construction, expansion or renovation will require a significant amount of cash, which depends on many factors beyond our control |
| Our ability to make scheduled payments of principal, to pay the interest on or to refinance our indebtedness is subject to general industry economic, financial, competitive, legislative, regulatory and other factors that are beyond our control |
| We cannot assure you that our business will generate sufficient cash flow from operations to meet our needs |
| Our business is subject to significant competitive pressures |
| Large multiplex theatres, which we and some of our competitors built, have tended to and are expected to continue to draw audiences away from certain older theatres, including some of our theatres |
| In addition, demographic changes and competitive pressures can lead to the impairment of a theatre |
| Over the last several years, we and many of our competitors have closed a number of theatres |
| Our competitors or smaller entrepreneurial developers may purchase or lease these abandoned buildings and reopen them as theatres in competition with us |
| We face varying degrees of competition from other motion picture exhibitors with respect to licensing films, attracting customers, obtaining new theatre sites and acquiring theatre circuits |
| In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theatres near one of our existing theatres |
| Competitors have built and are planning to build theatres in certain areas in which we operate |
| In the past, these developments have resulted and may continue to result in excess capacity in those areas, adversely affecting attendance and pricing at our theatres in those areas |
| Even where we are the only exhibitor in a film licensing zone (and therefore do not compete for films), we still may experience competition for patrons from theatres in neighboring zones |
| There have also been a number of consolidations in the film exhibition industry, and the impact of these consolidations could have an adverse effect on our business if greater size would give larger operators an advantage in negotiating licensing terms |
| Our theatres also compete with a number of other motion picture delivery systems including cable television, pay-per-view, video disks and cassettes, satellite and home video systems |
| New technologies for motion picture delivery (such as video on demand) could also have a material adverse effect on our business and results of operations |
| While the impact of these alternative types of motion picture delivery systems on the motion picture exhibition industry is difficult to determine precisely, there is a risk that they could adversely affect attendance at motion pictures shown in theatres |
| 12 _________________________________________________________________ [49]Table of Contents Our ability to attract patrons is also affected by the DVD release window, which is the time between the release of a film for play in theatres and when the film is available on DVD for general public sale or rental |
| The release window has been narrowing over the past several years and is currently averaging approximately 18 weeks |
| Theatres also face competition from a variety of other forms of entertainment competing for the public’s leisure time and disposable income, including sporting events, concerts, live theatre and restaurants |
| Our revenues vary significantly depending upon the timing of the motion picture releases by distributors |
| Our business is seasonal, with higher revenues generated during the summer months and year-end holiday season |
| While motion picture distributors have begun to release major motion pictures more evenly throughout the year, the most marketable motion pictures are usually released during the summer months and the year-end holiday season, and we usually earn more during those periods than in other periods during the year |
| As a result, the timing of motion picture releases affects our results of operations, which may vary significantly from quarter to quarter and year to year |
| If we do not comply with the covenants in our credit agreements or otherwise default under them, we may not have the funds necessary to pay all our amounts that could become due |
| On February 4, 2004, we completed an offering of dlra150 million of 7dtta50prca senior subordinated notes due 2014 to institutional investors, and on May 19, 2005 we entered into senior secured credit facilities consisting of a dlra50 million revolving credit facility, a dlra170 million seven-year term loan and a dlra185 million delayed-draw term loan |
| On June 6, 2006, we drew down dlra156 million on this delayed-draw term loan to repay our outstanding 7dtta50prca senior subordinated notes, all accrued and unpaid interest thereon and certain other fees and expenses related thereto |
| As described below under “Subsequent Event of Default”, we had not submitted audited financial statements for the year ended December 31, 2005 by the 65th day following the end of the previous fiscal year nor had we submitted unaudited financial statements for the three month period ended March 31, 2006 by the 40th day following the end of such three month period as required by the covenants contained in our senior secured credit facility |
| Therefore, we entered into a series of amendments to our senior secured credit agreement extending the date by which we were to submit audited financial statements for the year ended December 31, 2005 and unaudited financial statements for the three month period ended March 31, 2006 |
| Finally, effective July 27, 2006, we entered into a fifth amendment to our senior secured credit agreement with our lenders, which included (i) an extension of the deadline for the delivery of our audited financial statements for the year ended December 31, 2005 until September 30, 2006; (ii) an extension of the deadline for delivery of our unaudited financial statements for the quarter ended March 31, 2006 until September 30, 2006; and (iii) an extension of the deadline for delivery of our unaudited financial statements for the quarters ended June 30, 2006 and September 30, 2006 until December 31, 2006 |
| The series of amendments also provide for waivers of certain defaults under the credit agreement, including the default resulting from our 7dtta50prca senior subordinated notes being accelerated |
| The fifth amendment provides that until we have delivered to the lenders the audited financial statements for the year ended December 31, 2005 and the unaudited financial statements for the quarter ended March 31, 2006, the maximum principal amount of indebtedness that we may incur under the dlra50 million revolving credit facility comprising part of the senior secured credit agreement is dlra10 million |
| In addition, the maximum principal amount of indebtedness that we may incur under the revolving credit facility will continue to be limited to dlra10 million if we are unable to deliver our unaudited financial statements for the quarter ended June 30, 2006 by August 14, 2006 or if we are unable to deliver our unaudited financial statements for the quarter ended September 30, 2006 by November 14, 2006, until such time as these unaudited financial statements are delivered |
| We intend to make all required filings as required by our lenders; however, our failure to make such filings or our failure to obtain any future waivers or amendments to the senior secured credit agreement may result in an event of default under the senior secured credit facilities, in which case, the administrative agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate the revolving credit facility and may declare all or any portion of the obligations under the revolving credit facility and the term loan facilities due and payable |
| 13 _________________________________________________________________ [50]Table of Contents We may be unable to fund our additional capital needs |
| Our access to capital may be limited because of our current leverage |
| In addition, because of our bankruptcy, we may have difficulty obtaining financing for new development on terms that we find attractive |
| Traditional sources of financing new theatres through landlords may be unavailable for a number of years |
| The opening of large multiplexes by our competitors and the opening of newer theatres with stadium seating in certain of our markets have led us to reassess a number of our theatre locations to determine whether to renovate or to dispose of underperforming locations |
| Further advances in theatre design may also require us to make substantial capital expenditures in the future or to close older theatres that cannot be economically renovated in order to compete with new developments in theatre design |
| In addition, we cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth will be realized or that future capital will be available for us to fund our capital expenditure needs |
| We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability |
| As of December 31, 2005, after utilizing approximately dlra6dtta6 million of operating loss carryforwards for 2005, we had approximately dlra85dtta7 million of federal and state operating loss carryforwards with which to offset our future taxable income |
| The federal and state net operating loss carryforwards will begin to expire in the year 2020 |
| The determination of whether we underwent an ownership change for purposes of Section 382 as a result of the issuance of common stock pursuant to our plan of reorganization (the “Plan Stock Issuance”) is subject to a number of highly complex legal issues and factual uncertainties |
| In our federal income tax return for 2002, we reported the Plan Stock Issuance as causing a Section 382 ownership change, although the matter is not free from doubt and arguments can be advanced to support the contrary position |
| Based on our reported tax treatment, we believe that the special exception in Section 382(l)(5) available to debtors in bankruptcy applied, so that our net operating loss carryforwards did not become subject to a Section 382 limitation as a result of the Plan Stock Issuance |
| If, however, we underwent a second ownership change within two years following our date of reorganization — that is, by January 31, 2004 — and assuming that the Plan Stock Issuance caused an ownership change, our net operating losses would have become subject to a Section 382 limitation of zero and their future use effectively would have been eliminated |
| The sale of shares in the offering of August 2004, caused us to undergo an “ownership change” within the meaning of Section 382 (g) of the Internal Revenue Code of 1986, as amended |
| The ownership change will subject our net operating loss carryforwards to an annual limitation on their use, which will restrict our ability to use them to offset our taxable income in periods following the ownership change |
| In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate, and is further increased by certain “built-in gains” recognized during the five-year period following the ownership change |
| Such limitation is projected to be dlra26dtta9 million per year for the first five years and will decrease to approximately dlra15 million per year thereafter |
| Deterioration in our relationships with any of the major film distributors could adversely affect our access to commercially successful films and could adversely affect our business and results of operations |
| Our business depends to a significant degree on maintaining good relationships with the major film distributors that license films to our theatres |
| Deterioration in our relationships with any of the major film distributors could adversely affect our access to commercially successful films and adversely affect our business and results of operations |
| We suffered such deterioration for a period of time while we were in bankruptcy |
| When we commenced our bankruptcy, several film distributors ceased supplying us with new film product in light of their claims against us for exhibition fees aggregating approximately dlra37dtta2 million |
| Those film distributors recommenced supplying us with new film product upon our agreeing to pay their claims in full, which we did in 17 weekly installments ending on December 26, 2000 |
| Because the distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases, we cannot ensure a supply of motion pictures by entering into long-term arrangements with major distributors |
| Rather, we must compete for licenses on a film-by-film and theatre-by-theatre basis and are required to negotiate licenses for each film and for each theatre individually |
| 14 _________________________________________________________________ [51]Table of Contents Our success depends on our ability to retain key personnel |
| We believe that our success is due in part to our experienced management team |
| We depend in large part on the continued contribution of our senior management and, in particular, Michael W Patrick, our President and Chief Executive Officer |
| Losing the services of one or more members of our senior management could adversely affect our business and results of operations |
| We entered into a five-year employment agreement with Michael W Patrick as Chief Executive Officer on January 31, 2002, the term of which extends for one year each December 31, provided that neither we nor Mr |
| Patrick chooses not to extend the agreement |
| We face uncertainties related to digital cinema |
| Digital cinema is in the early implementation stage in the motion picture exhibition industry |
| There are multiple parties competing to be the leading manufacturer of digital cinema technology |
| Digital projectors and related equipment require substantial investment in re-equipping theatres |
| As discussed under the heading “Digital Cinema,” we have entered into a contract to convert the majority of our theatres to digital cinema |
| If the contract we have in place cannot be performed by the vendor, we may have to raise additional capital to finance the conversion costs associated with the digital conversion |
| The additional capital necessary may not, however, be available to us on terms we deem acceptable |
| A prolonged economic downturn could materially affect our business by reducing amounts consumers spend on attending movies |
| Our business depends on consumers voluntarily spending discretionary funds on leisure activities |
| Movie theatre attendance may be affected by prolonged negative trends in the general economy that adversely affect consumer spending |
| Any reduction in consumer confidence or disposable income in general may affect the demand for movies or severely impact the motion picture production industry such that our business and operations could be adversely affected |
| Compliance with the ADA could require us to incur significant capital expenditures and litigation costs in the future |
| The ADA and certain state statutes and local ordinances, among other things, require that places of public accommodation, including both existing and newly constructed theatres, be accessible to customers with disabilities |
| The ADA requires that theatres be constructed to permit persons with disabilities full use of a theatre and its facilities |
| The ADA may also require that certain modifications be made to existing theatres in order to make them accessible to patrons and employees who are disabled |
| We are subject to a settlement agreement arising from a complaint filed with the US Department of Justice concerning theatres operated by us in Des Moines, Iowa |
| As a result of the settlement agreement, we removed barriers to accessibility at two Des Moines theatres and distributed to all of our theatre managers a questionnaire designed to assist our central management in identifying existing and potential barriers and determining what steps might be available for removal of such existing and potential barriers |
| We are aware of several lawsuits that have been filed against other motion picture exhibitors by disabled moviegoers alleging that certain stadium seating designs violated the ADA If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance |
| Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results |
| We are subject to other federal, state and local laws which limit the manner in which we may conduct our business |
| Our theatre operations are subject to federal, state and local laws governing matters such as construction, renovation and operation of our theatres as well as wages, working conditions, citizenship and health and sanitation requirements and licensing |
| While we believe that our theatres are in material compliance with these requirements, we cannot predict the extent to which any future laws or regulations that regulate employment matters will impact our operations |
| At December 31, 2005, approximately 41prca of our hourly employees were paid at the federal minimum wage and, accordingly, the minimum wage largely determines our labor costs for those employees |
| Increases in the minimum wage will increase our labor costs |
| Disruption of our relationship with our primary concession suppliers could harm our margins on concessions |
| We purchase substantially all of our concession supplies, except for beverage supplies, as well as janitorial supplies from Showtime Concession Supply, Inc, and we are by far its largest customer |
| In return for our concession supplies, we pay Showtime Concession at contractual prices that are based on the type of concession supplied |
| Our current agreement with Showtime Concession will expire on December 8, 2006 |
| While we expect to renew this agreement on favorable terms, if this relationship was disrupted, we 15 _________________________________________________________________ [52]Table of Contents could be forced to negotiate a number of substitute arrangements with alternative vendors which are likely to be, in the aggregate, less favorable to us than the current arrangement |
| We purchase the majority of our beverage supplies from The Coca-Cola Company |
| On January 1, 2004 we entered into a new agreement with The Coca-Cola Company |
| Under the agreement, The Coca-Cola Company may raise beverage supply costs by 3prca to 5prca annually beginning January 1, 2004 through the term of the agreement |
| As a result of the GKC theatre acquisition, we assumed their Pepsi-Cola contract to provide beverage supplies to the remaining 29 GKC theatres |
| If beverage supply costs are increased at a higher rate or we are unable to negotiate favorable terms with either The Coca-Cola Company or the Pepsi-Cola Company when these agreements are up for renewal, our margins on concessions may be negatively impacted |
| Our development of new theatres poses a number of risks |
| We plan to continue to expand our operations through the development of new theatres and the expansion of existing theatres |
| However, we anticipate our development activities in 2006 will be limited to four theatres |
| Developing new theatres poses a number of risks |
| Construction of new theatres may result in cost overruns, delays or unanticipated expenses related to zoning or tax laws |
| Desirable sites for new theatres may be unavailable or expensive, and the markets in which new theatres are located may deteriorate over time |
| Additionally, the market potential of new theatre sites cannot be precisely determined, and our theatres may face competition in new markets from unexpected sources |
| Newly constructed theatres may not perform up to our expectations |
| We face significant competition for potential theatre locations and for opportunities to acquire existing theatres and theatre circuits |
| Because of this competition, we may be unable to add to our theatre circuit on terms we consider acceptable |
| The opening of large multiplexes and theatres with stadium seating by us and certain of our competitors has tended to, and is expected to continue to, draw audiences away from certain older theatres, including some of our theatres |
| In addition, demographic changes and competitive pressures can lead to the impairment of a theatre |
| Whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable, we review those assets to be held and used in the business for impairment of long-lived assets and goodwill |
| We also periodically review and monitor our internal management reports and the competition in our markets for indicators of impairment of individual theatres |
| We had impairment charges in each of the last five fiscal years totaling dlra121dtta0 million |
| Our impairment charge recognized for 2001 was significantly larger than in prior years due to the write-off of leasehold improvements on rejected theatres, the impact of closing owned theatres, the diminished value of our entertainment centers, changes in competition in some of our markets and the write-down of surplus equipment removed from closed theatres |
| Additionally, in 2001 we included equipment in the theatre valuation calculations based on the reduced capital building program in the future as well as the excess supply of equipment in inventory |
| For fiscal years 2005, 2004 and 2003, our impairment charges were dlra2dtta5 million, $ |
| Through December 31, 2005, we believe we have properly tested for impairments |
| There can be no assurance that we will not take additional charges in the future related to the impairment of our assets |
| If we fail to remediate our system of disclosure controls and procedures and internal controls over financial reporting, we may not be able to accurately report our financial results in a timely manner |
| Our chief executive officer and chief financial officer performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2005 and concluded that they were not effective as a result of material weaknesses identified in our internal control over financial reporting |
| A material weakness is a control deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected |
| Specifically, we did not ensure the completeness and accuracy of supporting schedules and underlying data for routine journal entries and journal entries recorded as part of our period-end closing and consolidation process |
| In addition, we did not accurately account for certain lease transactions nor did we maintain a sufficient complement of personnel with appropriate skills, training and Company-specific experience in the selection, application and implementation of generally accepted accounting principles commensurate with our financial reporting requirements |
| See Part II, Item 9A of this Annual Report on Form 10-K for more detailed information concerning these material weaknesses |
| 16 _________________________________________________________________ [53]Table of Contents These material weaknesses in our internal control over financial reporting contributed to the restatements to our previously issued consolidated financial statements as of January 1, 2003, for the years ended December 31, 2004 and 2003 and for the three month periods ended March 31, June 30 and September 30, 2005 |
| We cannot be certain that any remedial measures we take will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future |
| Any failure to implement new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations |
| In particular, if the material weaknesses described above are not remediated, they could result in a material misstatement to our annual or interim consolidated and combined financial statements in future periods that would not be prevented or detected |
| Our growth strategy includes acquisitions |
| We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully |
| We may acquire theatres and/or theatre circuits in order to expand into new markets and to enhance our position in existing markets nationally |
| We cannot assure you, however, that we will be able to successfully identify suitable candidates, negotiate appropriate acquisition terms, obtain necessary financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses and theatres into our existing operations or expand into new markets |
| Once integrated, acquired operations and theatres may not achieve levels of revenues, profitability or productivity comparable with those achieved by our existing operations, or otherwise perform as expected |
| In addition, future acquisitions may also result in potentially dilutive issuances of equity securities |
| We cannot assure you that difficulties encountered with acquisitions will not have a material adverse effect on our business, financial condition or results of operations |
| Our business makes us vulnerable to future fears of terrorism |
| If future terrorist incidents or threats cause our customers to avoid crowded settings such as theatres, our attendance would be adversely affected |
| Our certificate of incorporation and bylaws contain provisions that make it more difficult to effect a change in control of the Company |
| Certain provisions of our certificate of incorporation and bylaws and the Delaware General Corporation Law could have the effect of delaying, deterring or preventing a change in control of the Company not approved by the Board of Directors, even if the change in control were in the stockholders’ interests |
| Under our certificate of incorporation, our Board of Directors has the authority to issue up to one million shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders |
| The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future |
| While we have no present intention to issue shares of preferred stock, an issuance of preferred stock in the future could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock |
| In addition, our bylaws provide that a special meeting of the stockholders of the Company may only be called by the Chairman, President or Secretary, at the request in writing of a majority of our Board of Directors or at the request in writing of stockholders owning at least 66 2/3prca of our capital stock then issued and outstanding and entitled to vote |
| Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner |
| The application of Section 203 could have the effect of delaying or preventing a change of control that could be advantageous to the stockholders |