Name and Address of
Amount and Nature
Aggregate
Percent
of
Beneficial Owner(1)
of Beneficial Ownership(2) Percent of Class
Voting Power
Thomas Scozzafava
100,000 Series E
100.0%
80.0%
Christopher Swartz (3)
310,146 Series D
29.5%
2.6%
Current executive officers and
directors as a group (2 persons)
100,000 Series E
100.0%
80.0%
310,146 Series D
29.5%
2.6%
Dierdre Scozzafava
442,150 Series C
30.5%
3.0%
Frederick Scozzafava
398,100 Series C
27.5%
2.7%
William Scozzafava
138,500 Series C
9.6%
0.9%
Joseph G. La Chausse
102,500 Series C
7.1%
0.7%
Silver Hamilton, LLC
180,290 Series C
12.4%
1.2%
3109 Stirling Road, Suite 200
Ft. Lauderdale, FL 33312
____________________________
3
(1)
The address of each owner, unless otherwise specified, is c/o Seaway Valley Capital Corporation, 10-18 Park Street, 2 nd Floor, Gouverneur, N.Y. 13642
(2)
Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name.
(3)
Includes 310,146 Series D shares held by five organizations over which Mr. Swartz has dispositional and voting control.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE SPLIT OF THE COMMON STOCK AND TO INCREASE THE AUTHORIZED COMMON STOCK
The Board of Directors of SVCC has adopted a resolution to effect a reverse split of SVCC’s common stock in the ratio of 1:5 (the “Reverse Split”) and to increase the number of shares of common stock authorized by the Certificate of Incorporation from 2,500,000,000 to 10,000,000,000 (“Share Increase”). No fractional shares or scrip will be issued; rather, shareholders who would otherwise be entitled to a fractional share as a result of the Reverse Split will receive one whole share of SVCC common stock in lieu of the fraction.
Reasons for Approving the Reverse Split and Share Increase
There are two primary reasons why the Board of Directors approved the Reverse Split and Share Increase. The first reason is that our Certificate of Incorporation currently authorizes the Board of Directors to issue 2,500,000,000 shares of Common Stock, of which 2,333,011,591 shares have been issued and are outstanding. However, there are also outstanding
Convertible Preferred Shares of classes C, D and E, which are convertible into an aggregate total of 171,787,105,189 shares of Common Stock, based on the market price of $.0004 at July 24, 2008;
Warrants which, when exercised, entitle the holder to purchase 194,600,000 shares of Common Stock; and
Convertible Debentures which are convertible, in the aggregate, into a total of 28,464,139,683 shares of Common Stock, based on the market price of $.0004 at July 24, 2008.
The table below identifies the specific securities that are convertible into shares of our Common Stock. The column labeled “Potential Conversion” shows the number of common shares into which the security could be converted at the market price of $.0004 on July 24, 2008.
Security-Holder Original Amount Currently Outstanding Potential Conversion
Series C Preferred(1) 1,458,236 1,449,236 17,049,835,294
Series D Preferred(2) 1,050,000 1,050,000 15,441,176,471
Series E Preferred(3) 100,000 100,000 139,296,093,424
Total - Preferred 171,787,105,189
Warrants 194,600,000 194,600,000 194,600,000
Debentures:
YA Global Investments, L.P. (4) 2,799,037 2,372,673 7,908,910,000
Paul Graham(5) 525,000 415,000 2,075,000,000
4
JMJ Financial(6) 1,525,000 1,488,000 4,960,000,000
Golden Gate Investors, Inc. (7) 1,500,000 1,280,000 4,210,526,316
Renzi Brothers(8) 205,000 205,000 788,461,538
Hackett’s Investors (9) 950,000 950,000 2,638,888,888
Hackett’s Sellers (10) 2,000,000 2,000,000 5,882,352,941
Total - Debentures 28,464,139,683
Total Potential Conversion 200,445,844,872
(1)
The Series C Preferred shares were issued in 2007 in exchange for ownership of WiseBuys Stores, Inc. The shares are convertible at 21¼% of the market price.
(2)
The Series D Preferred shares were issued in 2008 in exchange for ownership of North Country Hospitality, Inc. The shares are convertible at 85% of the market price.
(3)
The Series E Preferred shares are owned by Thomas Scozzafava, our Chairman. They are convertible into 80% of the fully diluted outstanding shares.
(4)
The convertible debentures held by YA Global Investments, LP are convertible at 75% of the market price.
(5)
The convertible debenture held by Paul Graham is convertible at 50% of the market price.
(6)
The convertible debentures held by JMJ Financial are convertible at 75% of the market price.
(7)
The convertible debentures held by Golden Gate Investors, Inc. are convertible at 76% of the market price.
(8)
The convertible debenture held by Renzi Brothers is convertible at 65% of the market price.
(9)
The convertible debentures held by the “Hackett’s Investors” were issued in exchange for debt that those investors held in Patrick Hackett Hardware Company, which was acquired by the Company in 2007. They are convertible at 90% of the market price.
(10)
The convertible debentures held by the “Hackett’s Sellers” were issued in 2007 in exchange for ownership of Patrick Hackett Hardware Company. They are convertible at 85% of the market price.
Therefore, there is not an adequate number of authorized but unissued shares of Common Stock available for conversion of the outstanding Preferred Shares and Convertible Debentures and the exercise of the Warrants. The Reverse Split and the Share Increase will make available some of the shares needed for these purposes. Management hopes that an increase in the stock price will reduce the magnitude of the potential conversions and make 10 billion authorized shares adequate for its purposes. There is no assurance, however, that an additional recapitalization will not be required at a later date.
The second reason for the Reverse Split and Share Increase is that the Board of Directors wishes to have authorized but unissued stock available for various purposes, such as effecting acquisitions, business expansion, obtaining financing, and recruiting management personnel, all of which will be necessary if SVCC is to undertake new business operations.
At the present time, the Board of Directors has not made any specific plan, commitment, arrangement, understanding or agreement with respect to the additional shares that will be available for issuance after the Reverse Split and Share Increase, other than the issuance of common stock upon conversion of the Preferred Stock and Convertible Debentures and exercise of the Warrants.
5
General Effect of the Reverse Split and Share Increase
The table below shows the cumulative effect of the Reverse Split and Share Increase (together, the “Recapitalization”) on SVCC’s common shares outstanding at July 24, 2008, as well as the effect of the Recapitalization on the number of shares that will be outstanding if all of the outstanding preferred stock and debentures are converted, based on the market price of $.0004 at July 24, 2008. The column labeled “After Recapitalization” does not reflect any adjustments that may result from the rounding up of fractional shares. We cannot calculate at this time the number of whole shares that will be issued in lieu of fractions as a result of the Reverse Split.
Prior to After
Recapitalization Recapitalization
Shares of Common Stock:
Authorized 2,500,000,000 10,000,000,000
Issued and outstanding 2,333,011,591 466,602,319
Available for issuance 166,988,409 9,533,397,681
Issuable upon conversion of Series C Preferred 17,049,835,294 3,409,967,059
Issuable upon conversion of Series D Preferred 15,441,176,471 3,088,235,295
Issuable upon conversion of Series E Preferred 139,296,093,424 27,859,218,685
Issuable upon exercise of the Warrants 194,600,000 38,920,000
Issuable upon conversion of Debentures 28,464,139,683 5,692,827,937
Outstanding if all Warrants are exercised and
all Preferred Shares and Debentures are converted 202,778,856,463 40,555,771,293
Available for issuance after exercise of Warrants
and conversion of all Preferred Shares and Debentures 0 0
The Reverse Split and Share Increase will increase the number of shares available for issuance by the Board of Directors to 9,533,397,681. The Board of Directors will be authorized to issue the additional common shares without having to obtain the approval of the SVCC shareholders. Delaware law requires that the Board use its reasonable business judgment to assure that SVCC obtains “fair value” when it issues shares. Nevertheless, the issuance of the additional shares would dilute the proportionate interest of current shareholders in SVCC. The issuance of the additional shares could also result in the dilution of the value of shares now outstanding, if the terms on which the shares were issued were less favorable than the contemporaneous market value of SVCC common stock.
The Reverse Split and Share Increase, with the resulting increase in the number of shares available for issuance, are not being done for the purpose of impeding any takeover attempt. Nevertheless, the power of the Board of Directors to provide for the issuance of shares of common stock without shareholder approval has potential utility as a device to discourage or impede a takeover of SVCC. In the event that a non-negotiated takeover were attempted, the private placement of stock into “friendly” hands, for example, could make SVCC unattractive to the party seeking control of SVCC. This would have a detrimental effect on the interests of any stockholder who wanted to tender his or her shares to the party seeking control or who would favor a change in control.
How the Reverse Split and Share Increase Will Be Effected
6
The officers of SVCC will file an amendment to the Certificate of Incorporation with the Delaware Secretary of State effecting the Reverse Split and Share Increase. The amendment will provide that each five shares of common stock outstanding at the close of business on the effective date of the filing will be exchanged for one post-Reverse Split share of SVCC common stock (“New Common Stock”). The New Common Stock will not be different from the common stock held by SVCC shareholders prior to the Reverse Split. The holders of the New Common Stock will have the same relative rights following the effective date of the Reverse Split as they had before the effective date.
Exchange of Stock Certificates and Liquidation of Fractional Shares.
Upon filing of the certificate of amendment with the Delaware Secretary of State, the outstanding certificates representing shares of SVCC common stock will be automatically converted into certificates representing shares of New Common Stock. Every shareholder who surrenders a certificate representing shares of common stock to the transfer agent with the appropriate stock transfer fee will receive a certificate representing the appropriate number of shares of New Common Stock. The name and address of the transfer agent for SVCC is
Standard Registrar & Transfer Co., Inc.
12528 South 1840 East
Draper, Utah 84020
(801) 571-8844
No Dissenters’ Rights
Under Delaware law, shareholders are not entitled to dissenters’ rights with respect to any of the transactions described in this Information Statement.
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