Filed with the Securities and Exchange Commission on July 2, 1999.
Securities Act Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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GUM TECH INTERNATIONAL, INC.
(Exact Name of registrant as specified in its Charter)
Utah 2067 87-0842806
State of other jurisdiction of Primary Standard Industrial (IRS Employer
incorporation or organization Classification Code No. I.D. Number)
246 E. Watkins Street
Phoenix, Arizona 85004
(602) 252-1617
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Gary Kehoe, President
Gum Tech International, Inc.
246 E. Watkins Street
Phoenix, Arizona 85004
(602) 252-1617
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copies of All Communications To:
Richard B. Stagg
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
(602) 382-6363
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the Offering.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each Amount maximum maximum
class of securities to be offering price aggregate Amount of
to be registered registered(2) per unit(2) offering price(1) registration fee
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Common Stock, no par value 1,000,000 shares $9.8125 $9,812,500 $2,727.88
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(1) In the event of a stock split, stock dividend, or similar transaction
involving the registrant's common stock, in order to prevent dilution, the
number of shares registered will be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act
of 1933.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE CANNOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED JULY 2, 1999
PROSPECTUS
GUM TECH INTERNATIONAL, INC.
Common Stock
1,000,000 Shares
Fisher Capital Ltd. and Wingate Capital Ltd. are offering to sell up to
1,000,000 shares of Gum Tech's common stock issuable upon conversion or
redemption of 2,000 shares of Gum Tech's Series A Preferred Stock, conversion or
redemption of up to $4,000,000 aggregate principal amount of its 8% Senior
Secured Redeemable Notes, in lieu of cash payments of interest on the Notes, and
upon exercise of warrants issued to the selling stockholders by Gum Tech. The
selling stockholders may sell some or all of the common stock to new purchasers
through ordinary brokerage transactions, directly to market makers of our
shares, or through any of the other means described in the section entitled
"Plan of Distribution" beginning on page 11.
The selling stockholders will receive all of the proceeds from the sale
of the common stock, less any brokerage or other expenses of sale incurred by
them. We will receive up to $3,732,000 if the selling stockholders fully
exercise their warrants. We are paying for the costs of registering the resale
of the common stock and the shares underlying the warrants covered by this
prospectus.
Our common stock is traded on the Nasdaq National Market under the
symbol "GUMM."
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BEFORE PURCHASING ANY OF THE SHARES COVERED BY THIS PROSPECTUS,
CAREFULLY READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 5. YOU SHOULD BE PREPARED TO ACCEPT ANY AND ALL
OF THE RISKS ASSOCIATED WITH PURCHASING THE SHARES, INCLUDING A LOSS OF YOUR
INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SALE OF THE COMMON STOCK OR DETERMINED THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANY
PERSON TO TELL YOU OTHERWISE.
The date of this prospectus is ____________, 1999.
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TABLE OF CONTENTS
PAGE
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Business....................................................................1
Risk Factors................................................................5
Use of Proceeds.............................................................8
Selling Stockholders........................................................9
Description of Securities..................................................10
Plan of Distribution.......................................................12
Legal Matters..............................................................13
Experts....................................................................13
Where You Can Find More Information........................................13
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. No
one has been authorized to provide you with different information.
The common stock is not being offered in any jurisdiction where the
offer is not permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the documents.
ii
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BUSINESS
SUMMARY
Gum Tech develops and manufactures specialty chewing gum products for
branded and private label customers, as well as products marketed under its own
brand. Specialty chewing gums include vitamins, herbals, and active
over-the-counter drug ingredients formulated to provide specific health-related
benefits to the user. Gum Tech manufactures and continues to develop specialty
chewing gums that are formulated to:
* promote oral hygiene and breath freshness;
* promote weight management;
* reduce pain;
* relieve indigestion;
* contribute to energy and endurance;
* reduce the risk of osteoporosis;
* reduce tobacco cravings; and
* relieve cold and flu symptoms.
A substantial majority of Gum Tech's sales currently are attributable
to products developed, manufactured and packaged by Gum Tech for marketing and
sale by major branded and private label consumer products companies such as
Breath Asure, Inc., Ranir/DCP, Inc., Heritage Consumer Products, Herbalife
International, Inc., and Pharma-Green Ltd. Gum Tech also is actively involved in
discussions with other major consumer product companies regarding the
development and formulation of a variety of additional specialty chewing gum
products.
In 1998, following a significant management restructuring, Gum Tech
changed its principal strategy from developing, manufacturing, and distributing
its own branded and private label gum products to developing, manufacturing, and
packaging specialty gum products for sale and distribution by major branded and
private label customers that have the capital resources and distribution
capability to promote and market specialty chewing gums on a large national and
international scale. Gum Tech adopted this change in strategy primarily because
it did not have the financial resources, name recognition, and distribution
capability to successfully market and distribute its gums on a wide scale basis.
Gum Tech operates the only stainless steel gum manufacturing facility
in the United States registered with the Food and Drug Administration to produce
over-the-counter (OTC) chewing gum products. Completed in 1996, Gum Tech
believes this facility is the only facility in the United States that currently
is capable of producing over-the-counter drugs in chewing gum form.
Through a joint venture with BioDelivery Technologies, Inc. (formerly
Gel Tech, Inc.), a California corporation, Gum Tech also is engaged in the
manufacture, marketing and distribution of health-related products using a
patent-pending, nasal gel technology. The initial product being developed and
marketed by this joint venture is Zicam(TM), a nasal gel formula that has been
formulated to reduce the severity and duration of the common cold.
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An initial internal study of Zicam has indicated that use of Zicam
reduced the duration of the common cold from an average of 10-14 days to 1-3
days. To conduct additional clinical studies and further develop, manufacture,
and market Zicam, Gum Tech and BioDelivery Technologies entered into an
operating agreement under which both parties transferred their respective
interests in the patent rights to the nasal gel technology in exchange for
membership interests in Gel Tech LLC, an Arizona limited liability company. Gum
Tech has a 60% interest in the capital and profits of the joint venture and
parties affiliated with BioDelivery Technologies collectively own a 40% interest
in the capital and profits of the joint venture. In addition, as contemplated by
the operating agreement, Gum Tech contributed $3.5 million dollars to the joint
venture, which will be repaid to Gum Tech prior to any distributions to other
holders if Gel Tech is sold or otherwise liquidated. Because Zicam is in the
initial stages of production and distribution, there can be no assurance that
this product will be successful.
Gum Tech was incorporated in Utah in 1991. Gum Tech's principal
executive offices are located at 246 E. Watkins Street, Phoenix, Arizona and its
telephone number is (602) 252-1617.
STRATEGY
Gum Tech is pursuing the following business strategies:
* CONTINUE TO RESEARCH AND DEVELOP NEW SPECIALTY GUM PRODUCTS. Gum Tech
possesses considerable gum formulation expertise, and together with
its existing and potential customers, is developing new products in
the specialty chewing gum market. Gum Tech is uniquely positioned to
manufacture over-the-counter gum products because it possesses the
only stainless steel gum making facility in the United States
registered with the FDA to produce over-the-counter chewing gum
products.
* PARTNER WITH MAJOR CONSUMER PRODUCT COMPANIES TO INCREASE SALES. Since
early 1998, Gum Tech has pursued a strategy of partnering with major
consumer products companies that have the financial resources and
distribution capability to market and distribute specialty chewing gum
products on a national scale. Gum Tech expanded these relationships
significantly during 1998 with the addition of Breath Asure,
Ranir/DCP, Heritage Consumer Products, Pharma-Green Ltd. (an Israeli
company), and EcoDenT, among others.
* IMPROVE MANUFACTURING OPERATIONS TO ENHANCE EFFICIENCY AND INCREASE
PROFIT MARGINS. Gum Tech has recently expanded its operations,
including adding personnel and additional packaging and coating
equipment, to meet an expected increase in demand for several
products. Following this expansion of operations, Gum Tech is
continuing to take steps to increase its business and to lower the
costs of manufacturing its gum products.
* CONTINUE TO EFFECTIVELY MARKET GUM TECH BRANDED PRODUCTS. While Gum
Tech has changed its principal strategy to focus on contract
manufacturing for others, Gum Tech continues to support several of its
own branded products and believes that these products and related
marketing efforts provide a showcase for new product concepts and
demonstrate Gum Tech's expertise in developing new gum formulations.
* EFFECTIVELY MANAGE THE DEVELOPMENT AND GROWTH OF THE GEL TECH LLC
JOINT VENTURE AND THE MANUFACTURING AND MARKETING OF ZICAM. Zicam is a
new product that Gum Tech believes represents an opportunity for
substantial growth in its revenues. In order to realize this growth in
revenues, however, Gum Tech must effectively manage the development
and growth of its joint venture with BioDelivery Technologies and
Zicam must achieve significant market acceptance. In addition, Gum
Tech has contributed $3.5 million to Gel Tech LLC to fund its initial
capital requirements to develop, manufacture, and market Zicam,
including the costs necessary to conduct an independent clinical
study.
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PRODUCT INFORMATION
The table below describes certain information related to specific chewing
gum products currently manufactured by Gum Tech for other consumer products
companies.
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PRODUCT BENEFITS TO USER MARKET DISTRIBUTED BY
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Breath Asure Dental Gum(TM) Promotes oral hygiene and breath freshness Oral Care Breath Asure
Private label dental gums Promotes oral hygiene and breath freshness Oral Care Ranir/DCP
AcuTrim(R) Promotes weight management OTC drug Heritage Consumer Products
Aspergum(R) Pain relief OTC drug Heritage Consumer Products
Chooz Antacid and prevents osteoporiasis OTC drug Heritage Consumer Products
Herbalife NRG(R) Improves energy & endurance Dietary supplement Herbalife
Herbalife Chew Slim(R) Promotes weight management Dietary supplement Herbalife
Pharma-Green seven varieties Various Dietary supplement Pharma-Green Ltd.
Brain Gum(TM) Improves brain function Dietary supplement KR Research, Inc.
</TABLE>
Gum Tech also markets the following products under the Gum Tech brand: Ginseng,
Chew & Soothe(R), CitrusSlim(R), Chromatrim(R), Calcium, Zone(TM),
DentaHealth(R) and Love Gum(R).
MANUFACTURING AND PACKAGING
The manufacture of specialty chewing gums involves:
* storing bulk raw materials and "fine" raw materials, such as flavor,
colors and active ingredients;
* producing and mixing the gum base in large stainless steel mixers;
* extruding the gum into selected sizes and shapes;
* coating the gum, generally with a sugarless coating solution;
* branding the product if required;
* packaging the gum in blister packages; and
* packaging the blisters, according to customer specifications, for
shipment.
All of Gum Tech's gum products contain one or more active ingredients
which are added either to the gum center in the mixing stage or included in the
coating solution.
Prior to commencing production of the chewing gum, Gum Tech records lot
numbers for all ingredients, examines and files certificates of ingredients,
performs quality control tests, and sanitizes equipment and utensils. Gum Tech
personnel conduct additional quality control tests throughout the manufacturing
process. Gum Tech manufactures its products in compliance with good
manufacturing procedures requiring written standard operating procedures.
Gum Tech manufactures all of its gum products, including those marketed
and distributed by others. In 1998, Gum Tech added significantly to its coating
and packaging capability and secured an additional gum rolling line to meet an
anticipated increase in demand for its gums.
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COMPETITION
Although the specialty gum market is emerging as a market category
distinct from the traditional, established chewing gum market, Gum Tech and the
companies to whom it sells face significant competition in each of the four
categories in which they operate. These categories include oral care products,
OTC drugs, smoking cessation products, and dietary supplements. In the oral care
products market, Gum Tech manufactures products for Breath Asure and Ranir/DCP,
which compete directly with Arm & Hammer dental gum, Trident Advantage and V-6
dental gum. Gum Tech manufactures OTC drug-related gum products, including
Aspergum, an analgesic, Chooz, an antacid/calcium supplement, and AcuTrim, a
dietary gum. Each of these products competes generally with analgesics,
antacids, and dietary products produced and marketed by major consumer products
companies. Gum Tech is evaluating opportunities in the smoking cessation market,
which is currently dominated by the Nicorette product marketed by Pharmacia and
Upjohn. In the dietary supplement market, Gum Tech's various gum products
compete with a large number of non-gum dietary supplement products.
Competitive factors in the chewing gum industry include price, flavor,
and name recognition resulting from media advertising. Gum Tech currently does
not have the capital resources, marketing and distribution networks, product
name recognition, and advertising budget to produce or introduce chewing gum
brands that could compete effectively with the multi-national chewing gum
manufacturers and large specialty chewing gum marketers. Accordingly, Gum Tech
has adopted a strategy of partnering with major branded and private label
customers that possess the resources and capabilities needed to market and
distribute gum products on a wide scale basis.
Gum Tech also faces significant competition from a large number of
major drug companies involved in selling cold and flu products that will compete
directly with Zicam. Most of these competitors have greater name recognition,
more established brands, wider distribution capabilities and greater financial
and marketing resources than Gum Tech.
FDA AND OTHER GOVERNMENT REGULATION
Gum Tech is subject to various Federal, state and local laws affecting
its business. All of Gum Tech's products are subject to regulation by the FDA,
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients. In addition, some of Gum Tech's products are considered
"drugs," which require that the manufacture of such products comply with "good
manufacturing practices" mandated by the FDA, which prescribes specific
requirements and procedures for the manufacture of FDA-regulated drug products.
If Gum Tech fails to comply with these requirements and procedures, the FDA has
the right to restrict the sale of or remove such products from the market. Gum
Tech believes that all of its products comply with all regulatory requirements
including the FDA manufacturing standards and practices for drug products.
Advertising claims made by Gum Tech with respect to its products also
are subject to the jurisdiction of the FDA and the Federal Trade Commission. In
both cases, Gum Tech is required to obtain scientific data to support any
advertising or labeling of health claims it makes concerning its products.
In addition, Gum Tech's chewing gum manufacturing facility is subject
to regulation by various governmental agencies including state and local
licensing, zoning, land use, construction and environmental regulations and
various health, sanitation, safety and fire codes and standards. Suspension of
certain licenses or approvals, due to failure to comply with applicable
regulations or otherwise, could interrupt Gum Tech's manufacturing operations.
Gum Tech also is subject to federal and state laws establishing minimum wages
and regulating overtime and working conditions.
TRADEMARKS, TRADE NAMES, AND PROPRIETARY RIGHTS
Gum Tech owns a perpetual, exclusive U.S. license (and a non-exclusive
license abroad) to use Microdent(TM), a plaque-reducing agent, in its coated
chewing gum products. Microdent is the critical ingredient in the chewing gums
manufactured and packaged by Gum Tech for Breath Asure and Ranir/DCP.
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Gum Tech routinely seeks trademark protection from the United States
Patent Office ("USPO") and from similar agencies in foreign countries for
chewing gum brands. Despite these protections, Gum Tech may not be able to
successfully defend any trademarks granted to it against claims from or use by
competitors. In addition, trademark applications may not be approved by the USPO
or any similar foreign agency.
Gum Tech considers some of its chewing gum formulations and processes
to be proprietary in nature and relies upon a combination of nondisclosure
agreements, other contractual restrictions and trade secrecy laws to protect
this proprietary information. Despite these precautions, these steps may not be
adequate to prevent misappropriation of Gum Tech's proprietary information and
Gum Tech's competitors could independently develop chewing gum formulations and
processes that are substantially equivalent or superior to those developed by
Gum Tech.
EMPLOYEES
As of June 30, 1999, the Company employed approximately 75 individuals,
including 2 executive officers, 57 manufacturing and warehouse personnel, 4
research and development personnel, and 12 administrative/sales personnel.
RISK FACTORS
Prospective purchasers of Gum Tech's common stock should carefully
consider the following risk factors and other information contained in this
prospectus before purchasing shares of common stock. Information contained in
this prospectus includes "forward-looking statements" which can be identified by
the use of forward-looking words such as "believes", "expects", "may", "should"
or "anticipates," or by discussions of trends or strategy. No assurance can be
given that we will achieve the future results addressed by the forward-looking
statements.
WE HAVE INCURRED SIGNIFICANT LOSSES AND MAY NOT BECOME PROFITABLE
We began operations in February 1991 and have a limited operating
history upon which potential investors may evaluate our performance. We reported
significant losses for the last three years and for the first quarter of 1999.
We can give no assurance that future operations will be profitable. The
likelihood of our success must be considered relative to the problems,
difficulties, complications and delays frequently encountered in connection with
the development and operation of a new business, the significant change in
strategy in early 1998, and the development and marketing of Zicam, a new
product.
OUR RELIANCE ON A FEW CUSTOMERS MAY NEGATIVELY IMPACT OUR FINANCIAL RESULTS
With our shift in strategy in early 1998 to a focus on contract
manufacturing, Gum Tech has become very dependent for its current sales and
future growth on a few customers. These customers include Herbalife, Breath
Asure, Ranir, and Heritage Consumer Products. While the decision to partner with
these firms relieves Gum Tech of the direct responsibility of marketing
products, it does introduce a dependability on these customers to market their
products. Further, we are at risk for their non-payment or late payment for
amounts owed us. While Gum Tech intends to add to this portfolio of customers to
reduce the risk of non-performance by any single customer, there can be no
assurance that we will be successful in that effort.
OUR INABILITY TO PROVIDE SCIENTIFIC PROOF FOR PRODUCT CLAIMS MAY ADVERSELY
AFFECT OUR SALES
The marketing of certain of our chewing gum products involves claims
that such products assist in weight loss, promote dental hygiene and the like.
Under FDA and FTC rules, we are required to obtain scientific data to support
any health claims we make concerning our products. Although we have not provided
nor been requested to provide any scientific data to the FDA, we have obtained
such scientific data for all of our products. There can be no assurance that the
scientific data we have obtained in support of such claims will be deemed
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acceptable by the FDA or FTC, should either agency request any such data in the
future. If we are unable to provide support that is acceptable by the FDA or the
FTC, either agency could force us to stop making the claims in question or
restrict us from selling the affected products.
FDA AND OTHER GOVERNMENT REGULATION MAY RESTRICT OUR ABILITY TO SELL
OUR PRODUCTS
We are subject to various federal, state and local laws affecting our
business. Our chewing gum products are subject to regulation by the FDA,
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients. If we do not comply with these regulations, the FDA could
force us to stop selling the affected products or incur substantial costs in
adopting measures to maintain compliance with these regulations.
Our advertising claims regarding our products are subject to the
jurisdiction of the FTC as well as the FDA. In both cases we are required to
obtain scientific data to support any advertising or labeling health claims we
make concerning our products, although no pre-clearance or filing is required to
be made with either agency. If we are unable to provide the required support for
such claims, the FTC may stop us from making such claims or require us not to
sell the related product.
Our chewing gum manufacturing facility is subject to regulation by
various governmental agencies, including state and local licensing, zoning, land
use, construction, and environmental regulations and various health, sanitation,
safety and fire codes and standards. Suspension of certain licenses or
approvals, due to failure to comply with applicable regulations or otherwise,
could interrupt our manufacturing operations.
We are subject to federal and state laws establishing minimum wages and
regulating overtime and working conditions. Since many of our personnel are paid
at rates based on the federal minimum wage, an increase in such minimum wage
will result in an increase in our labor costs.
UNANTICIPATED PROBLEMS ASSOCIATED WITH PRODUCT DEVELOPMENT COULD DELAY OR
HINDER INTRODUCTION OF NEW PRODUCTS
We may experience unanticipated difficulties in developing new products
that could delay or prevent the introduction of those products. We may be
dependent in the near future upon chewing gum products that are currently being
developed. If we are unable to develop new chewing gum products on a timely
basis, our business, operating results, and financial condition could be
materially adversely affected.
WE MAY BE UNABLE TO SUCCESSFULLY EXPAND OUR OPERATIONS
We intend to continue to expand our manufacturing and marketing
operations. Expansion will place substantial strains on our newly retained
management and our operational, accounting, and information systems. Successful
management of growth will require us to improve our financial controls,
operating procedures, and management information systems, and to train,
motivate, and manage our employees.
Failure to manage growth effectively would have a material adverse
effect on the results of our operations and our ability to execute our business
strategy.
TERMS OF SERIES A PREFERRED STOCK AND NOTES COULD DEPRESS THE PRICE OF OUR
STOCK OR LEAD TO FORECLOSURE
The terms of the Series A Preferred Stock and Notes issued to the
selling stockholders in June 1999 contain a number of restrictive covenants that
we must satisfy and that require repayment of the Series A Preferred Stock and
Notes at various times during the two year period following the closing of that
offering. We generally have the ability to make these payments in shares of
stock rather than cash, which could depress the price of our common stock if
demand for our shares does not meet the increased number of shares being sold
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into the market. In addition, failure to meet any of the restrictive covenants
or failure or inability to pay the required amounts under the Series A Preferred
Stock or the Notes when due will enable the selling stockholders to exercise a
variety of remedies, including foreclosure of its security interests in
substantially all the assets of Gum Tech. In that event, Gum Tech's operations
and financial results will be severely and adversely affected and the price of
our common stock could decline significantly.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALES MAY
DEPRESS THE PRICE OF OUR STOCK
Sales of substantial amounts of common stock in the open market or the
availability of such shares for sale could adversely affect the market price for
the common stock. Substantially all of our outstanding shares of common stock,
as well as the shares underlying vested but unexercised warrants and options,
have either been registered for public sale or may be sold under Rule 144
promulgated under the Securities Act. Therefore, all of these shares may be
immediately sold by the holders. A substantial increase in the volume of trading
in our stock may depress the price of our common stock.
WE MAY BE UNABLE TO PREVENT OTHERS FROM DEVELOPING SIMILAR PRODUCTS
We routinely seek trademark protection from the United States Patent
Office ("USPO") and from similar agencies in foreign countries for chewing gum
brands. There can be no assurance that we will be able to successfully defend
any trademarks or trade names against claims from or use by competitors or that
trademark or trade name applications will be approved by the USPO or any similar
foreign agency.
We consider some of our chewing gum formulations and processes to be
proprietary in nature and rely upon a combination of non-disclosure agreements,
other contractual restrictions and trade secrecy laws to protect such
proprietary information. There can be no assurance that these steps will be
adequate to prevent misappropriation of our proprietary information or that our
competitors will not independently develop chewing gum formulations and
processes that are substantially equivalent or superior to our own.
THE PRICE OF OUR STOCK MAY CONTINUE TO BE VOLATILE
The market price of our common stock has been highly volatile and may
continue to be volatile in the future. Factors such as our operating results or
public announcements may cause the market price of our stock to decline quickly.
Market prices for securities of many small capitalization companies have
experienced wide fluctuations in response to variations in quarterly operating
results, general economic indicators and other factors beyond our control. The
registration of the stock we are currently offering in this prospectus could
increase the volatility of the common stock by increasing the number of shares
of publicly traded common stock outstanding.
WE MAY INCUR SIGNIFICANT COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
We are subject to significant liability should use or consumption of
our products cause injury, illness or death. Although we carry product liability
insurance, there can be no assurance that our insurance will be adequate to
protect us against product liability claims or that insurance coverage will
continue to be available on reasonable terms.
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WE MAY REQUIRE ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS
We may be required to seek additional debt or equity financing in the
future in order to fund anticipated expansion of our manufacturing activities.
There can be no assurance that such additional financing will be available on
acceptable terms or at all. Any future equity financing may involve substantial
dilution to the interests of our stockholders.
INABILITY TO RETAIN CURRENT MANAGEMENT COULD NEGATIVELY IMPACT OUR OPERATIONS
Our operations are dependent upon our ability to hire and retain
qualified management personnel and upon the continued services of our executive
officers. The loss of the services of any of our executive officers, whether as
a result of death, disability, or otherwise, could have a material adverse
effect upon our business.
We experienced significant management and Board changes in 1998,
including the appointment of a new President and a new Chief Financial Officer.
We have entered into employment agreements with our current executive officers
and have applied for key man life insurance upon certain of their lives.
YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR OPERATIONS
We recognize the potential business impacts related to the Year 2000
computer system issue and are implementing a plan to assess and improve our
state of readiness with respect to such issues. The Year 2000 issue is one where
computer systems may recognize the designation "00" as 1900 when it means 2000,
resulting in system failure or miscalculations.
In recognition of the Year 2000 issue, we have started a comprehensive
review of all information technology and non-information technology systems that
we use. This review includes testing and analysis and inquiries of third parties
supplying information technology and non-information technology systems,
computer hardware and software products and components, and other equipment to
us.
As a result of its review to date, we have determined that certain of
our internal software systems may be inadequate for our future business needs,
and may need to be updated, because of various considerations, including Year
2000 non-compliance. We expect to make necessary modifications or changes to our
computer information systems related to Year 2000 non-compliance prior to the
Year 2000. We believe the costs of modification to the current information
technology systems will not have a material effect on our financial position or
results of operations.
At this time, we have not developed Year 2000 contingency plans, other
than the review and remedial actions described above, and do not intend to do so
unless we believe such plans are merited by the results of our continuing Year
2000 review.
If we or the third parties with which we have relationships were to
cease or not successfully complete Year 2000 remediation efforts, we could
encounter disruptions to our operations that could have a material adverse
effect on our business, financial condition, and results of operations. We also
could be materially and adversely impacted by widespread economic or financial
market disruption caused by Year 2000 computer system failures.
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale
of the common stock offered under this prospectus. If the selling stockholders
exercise all of their warrants, Gum Tech will receive gross proceeds of
approximately $3,732,000, which we anticipate would be used for general
corporate purposes. The selling stockholders may or may not exercise any or all
of the warrants.
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SELLING STOCKHOLDERS
The table below lists the selling stockholders and other information
regarding the beneficial ownership of our common stock by each of the selling
stockholders. The second column lists the number of shares of common stock that
would have been issuable to each selling stockholder on July 2, 1999 assuming
conversion of all of our Series A Preferred Stock, upon payment of the principal
owed under the notes then held by that selling stockholder, and upon exercise of
the warrants, without regard to restrictions on the number of shares that a
selling stockholder may own at any time. Our conversion calculations in the
second column assume a conversion price for our Series A Preferred Stock of
approximately $9.44 (95% of the average of the closing bid prices of our common
stock for the 20 consecutive trading days prior to July 2, 1999) and a
conversion price for the notes of approximately $9.94 (the average of the
closing bid prices of our common stock for the 20 consecutive trading days prior
to July 2, 1999). The numbers listed in the second column are subject to
fluctuations from time to time based on changes in the closing sale price of our
common stock. The selling stockholders are offering all of the shares of common
stock that they may acquire on conversion of our Series A Preferred Stock, upon
payment of amounts owed under the notes, and upon exercise of the warrants, as
indicated in the third column. As each selling stockholder resells shares of
common stock, we will file prospectus supplements as necessary to update the
number of shares of common stock that each selling stockholder intends to sell,
reflecting prior resales and changes in the conversion price. The fourth column
assumes the sale of all of the shares offered by each selling stockholder.
Pursuant to the terms of the Securities Purchase Agreement, Gum Tech
will not be obligated to issue more than 1,454,617 shares of common stock
pursuant to the terms of the Series A Preferred Stock, the notes, and the
warrants until such time as Gum Tech obtains the approval of its stockholders or
receives a waiver from the National Association of Securities Dealers of the
application of Rule 4310(c)(25)(H)(i)(d) to the transactions contemplated by the
Securities Purchase Agreement. The information provided in the table below has
been obtained from the selling stockholders. The selling stockholders may sell
all, some or none of their shares in this offering. See "Plan of Distribution."
NAME OF SELLING SHARES OWNED MAXIMUM NUMBER SHARES OWNED
STOCKHOLDER BEFORE OFFERING OF SHARES OFFER(2) AFTER OFFERING
----------- --------------- ------------------ --------------
NUMBER PERCENTAGE
------ ----------
Fisher Capital Ltd.(1) 585,424 600,000 0 --
Wingate Capital Ltd.(1) 390,283 400,000 0 --
- ----------
(1) Citadel Limited Partnership is the trading manager of each of Fisher
Capital Ltd. and Wingate Capital Ltd. (collectively, the "Citadel
Entities") and consequently has voting control and investment discretion
over securities held by the Citadel Entities. Kenneth C. Griffin indirectly
controls Citadel Limited Partnership. The ownership for each of the Citadel
Entities does not include the ownership information for the other Citadel
Entity. Citadel Limited Partnership, Kenneth C. Griffin, and each of the
Citadel Entities disclaims ownership of the shares held by the other
Citadel Entities.
(2) Based on a pro rate allocation.
We are registering the shares for resale by the selling stockholders in
accordance with registration rights granted to the selling stockholders. We will
pay the registration and filing fees, printing expenses, listing fees, blue sky
fees, if any, and fees and disbursements of our counsel and the selling security
holders' counsel in connection with this offering, but the selling stockholders
will pay any underwriting discounts, selling commissions and similar expenses
relating to the sale of the shares. In addition, we have agreed to indemnify the
selling stockholders, underwriters that they may select, and certain affiliated
parties against certain liabilities, including liabilities under the Securities
Act, in connection with this offering. The selling stockholders have agreed to
indemnify Gum Tech and our directors and officers, as well as any person that
controls us, against certain liabilities, including certain liabilities under
the Securities Act.
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DESCRIPTION OF SECURITIES
We are authorized to issue up to 20,000,000 shares of common stock and
1,000,000 preferred shares. As of June 5, 1999, 7,294,087 shares of common stock
were issued, all of which were outstanding and none were held in our treasury;
and a total of 2,000 shares of Series A Preferred Stock were issued and
outstanding.
Our Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any series of unissued shares of preferred stock and to
determine the number of shares constituting any series and the designation of
the series, without any further vote or action by the shareholders.
The following summary of certain provisions of the common stock and
Series A Preferred Stock does not purport to be complete and is subject to, and
is qualified in its entirety by, our amended Articles of Incorporation, Restated
Code of Bylaws, and by the provisions of applicable law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on
all matters on which shareholders are entitled to vote. Subject to the rights of
holders of any class or series of shares, including preferred stock, having a
preference over the common stock as to dividends or upon liquidation, the
holders of our common stock are also entitled to dividends as may be declared by
our Board of Directors out of funds that are lawfully available, and are
entitled upon liquidation to receive pro rata the assets that are available for
distribution to holders of common stock. Holders of the common stock have no
preemptive, subscription, or conversion rights. The common stock is not subject
to assessment and have no redemption provisions.
SERIES A PREFERRED STOCK
We have authorized, issued and outstanding 2,000 of our Series A
Preferred Stock. These shares have no par value per share and are automatically
convertible on June 2, 2001 into common stock at a conversion price equal to 80%
of the average trading price of the common stock during the 20 trading days
prior to the maturity date. The conversion provisions are subject to adjustment
if there is a stock split, dividend, distribution, reorganization,
reclassification, merger, consolidation, share exchange, or other similar
corporate transaction. Cumulative dividends on the shares accrue at the rate of
14% per annum and are payable in cash on June 30, September 30, December 31, and
March 31 for each period during which the shares are outstanding. We may not pay
dividends on the common stock or other series junior to these preferred shares
unless all accrued dividends have been paid on the preferred shares. On
liquidation, the holder of the preferred shares will be entitled to receive,
before any distribution to holders of our common stock or other series junior to
the preferred shares, liquidation distributions equal to the stated value of
$1,000.00 per preferred share, accrued and unpaid dividends, and default
interest on these unpaid dividends. We may redeem the Series A Preferred Stock
at any time and must redeem at least 50% of the shares of Series A Preferred
Stock by June 2, 2000, on at least 2 days written notice, at a redemption price
equal to 110% of the stated value of the preferred shares plus accrued and
unpaid dividends being redeemed. If we choose to effect any redemption in shares
of common stock as opposed to cash, the price of the common stock will be based
upon 95% of the average trading price during the 20 trading days prior to the
date of redemption. The holders of the preferred shares have the right to call
for a mandatory redemption of up to all of the outstanding preferred shares upon
an event of default as described in our Certificate of Designations dated June
2, 1999 at a price of either $1,000 or $1,100 per share, depending on the nature
of the event of default. The preferred shares have no voting rights except as
otherwise provided by law or the Articles of Incorporation. Fisher Capital and
Wingate Capital own all of the Series A Preferred Shares.
8% Senior Secured Redeemable Notes
On June 2, 1999, we issued $4,000,000 in aggregate principal amount of
8% Senior Secured Redeemable Notes to Fisher Capital Ltd. and Wingate Capital
Ltd. Pursuant to the terms of these notes, we must repay the principal amount on
June 2, 2001, and pay interest on the unpaid balance at 8% per annum from June
2, 1999, payable quarterly on June 30, September 30, December 31, and March 31
of each year, commencing June 30, 1999 until the principal becomes due and
payable. To the extent permitted by applicable law, upon the occurrence of an
event of default, for the period from the date of the event of default to the
date the event of default is either cured or waived, the interest on the unpaid
balance of the notes will be increased to a rate of 15% per annum. We may prepay
all or any part of the notes at any time on a pro-rata basis at a price equal to
110% of the principal amount so prepaid, plus accrued interest to the date of
prepayment. Prepayment may be made in cash or by issuance of a number of shares
of common stock determined by dividing the prepayment amount by the average of
the closing bid prices of the Common Stock for the 20 consecutive trading days
immediately preceding the date of the notice of prepayment.
Fisher Capital Ltd. and Wingate Capital Warrants
On June 2, 1999, we issued Fisher Capital Ltd. and Wingate Capital Ltd.
warrants to acquire a total of 300,000 shares of our common stock at an initial
price of $12.44 per share. The warrants may be exercised by the holders at any
time prior to June 2, 2002. The warrant exercise price and the number of shares
of common stock issuable upon exercise of these warrants will be adjusted if we
issue or sell any shares of common stock for a consideration per share less than
the market price of the common stock for the five consecutive trading days
immediately preceding the date of issue or sale. The holders of these warrants
have a right to participate in any pro rata distribution of rights to purchase
stock, warrants, securities, or other property to record holders of any class of
our common stock. After June 2, 2000, we will have the right to redeem, on a pro
rata basis, one-third, two-thirds, or all of the warrants on any day immediately
following any 20 consecutive trading day period during which the closing bid
price of our common stock exceeds $14.93, $19.90, or $24.88 respectively.
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OPTIONS
STOCK OPTION PLAN
Pursuant to our Stock Option Plan, we have issued or reserved for
issuance options to acquire 1,013,750 shares of our common stock to our
employees. All of the options issued to date have exercise prices equal to
market price of the underlying common stock on the date the respective options
were granted.
WHITEHILL ORAL TECHNOLOGIES
Gum Tech has or will grant options to acquire up to 70,000 shares of
common stock to the principals of Whitehill Oral Technologies. Options to
acquire 25,000 shares were granted in June 1998 at the then market price of
$11.44 per share. Options to acquire 25,000 shares will be granted in June 1999
at the then current market price. Options to acquire 20,000 shares will be
granted in June 2000 at the then current market price.
LESSMAN OPTIONS
Options to purchase 200,000 shares of common stock were granted to
Andrew Lessman on October 30, 1997 in connection with a joint marketing
arrangement. These options have an exercise price of $9.00 per share.
GEL TECH OPTIONS
Options to purchase 190,000 shares of common stock were granted to the
officers of Gel Tech, L.L.C. in May 1999 in conjunction with their employment
agreements. These options have an exercise price of $9.61 per share.
WARRANTS
In addition to the warrants issued to the selling stockholders, we have
issued various warrants, including the following which are still outstanding:
1995 BRIDGE LOAN FINANCING
In 1995, we issued warrants to acquire 290,000 shares of common stock
at a purchase price of $2.00 per share in connection with our bridge loan
financing.
1996 INITIAL PUBLIC OFFERING
In 1996, we issued warrants to acquire up to 109,668 shares of common
stock to the underwriters at a purchase price of $8.0625 per share in connection
with our initial public offering. These warrants will expire on April 24, 2001.
INTERCONTINENTAL CAPITAL CORPORATION
In connection with the financing by the selling stockholders, we issued
warrants to acquire 60,000 shares of our common stock to Intercontinental
Capital Corporation as partial payment of a finder's fee. Pursuant to these
warrants, 30,000 shares may be purchased at $11.70 per share and 30,000 shares
may be purchased at $15.00 per share.
ANTI-DILUTION OF OPTIONS AND WARRANTS
The exercise price and number of shares purchasable upon exercise of
our options and warrants are subject to adjustment upon the occurrence of a
stock split, reverse stock split, or distribution to stockholders.
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<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer Agent and Registrar for our common stock is Corporate
Stock Transfer, Inc.
PLAN OF DISTRIBUTION
The selling stockholders (or, subject to applicable law, their
pledgees, donees, distributees, transferees or other successors in interest) may
sell shares from time to time in public transactions, on or off the Nasdaq
National Market, or in private transactions, at prevailing market prices or at
privately negotiated prices, including but not limited to, one or any
combination of the following types of transactions:
* ordinary brokers' transactions;
* transactions involving cross or block trades or otherwise on the
Nasdaq National Market;
* purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this
prospectus;
* "at the market" to or through market makers or into an existing
market for the common stock;
* in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
* through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise);
* in privately negotiated transactions; or
* to cover short sales, provided that the selling stockholders may
not create or maintain a short position in our common stock at
any time before June 2, 2000, and thereafter may do so only to
the extent of the number of shares of our common stock
represented by the warrants held by a selling stockholder.
In effecting sales, brokers or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate in the
resales. The selling stockholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling stockholders also may sell
shares short and deliver the shares to close out such short positions. The
selling stockholders also may enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealer of the shares,
which the broker-dealer may resell pursuant to this prospectus. The selling
stockholders also may pledge the shares to a broker or dealer, and upon a
default, the broker or dealer may effect sales of the pledged shares pursuant to
this prospectus.
Brokers, dealers, or agents may receive compensation in the form of
commissions, discounts, or concessions from selling stockholders in amounts to
be negotiated in connection with the sale. The selling stockholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether any underwriter that the selling stockholders
may select, or any other broker-dealer, is acting as principal or agent for the
selling stockholders, the compensation to be received by any underwriter that
the selling stockholders may select or by any broker-dealer acting as principal
or agent for the selling stockholders, and the compensation to be paid to other
broker-dealers, in the event the compensation of such other broker-dealers is in
excess of usual and customary commissions, will, to the extent required, be set
forth in a supplement to this prospectus. Any dealer or broker participating in
any distribution of the shares may be required to deliver a copy of this
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<PAGE>
prospectus, including a prospectus supplement, if any, to any person who
purchases any of the shares from or through such dealer or broker.
We have advised the selling stockholders that during such time as they
may be engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Securities Exchange Act. With certain
exceptions, Regulation M precludes any selling stockholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security that is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the common stock.
We will not receive any of the proceeds from the selling stockholders'
sale of their common stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Snell & Wilmer, L.L.P., Salt Lake City, Utah.
EXPERTS
The financial statements included in our Annual Report on Form 10-KSB
for the year ended December 31, 1998 which are incorporated by reference in the
Registration Statement of which this Prospectus forms a part, have been audited
by Angell & Deering, independent auditors, as stated in their report, and have
been included in reliance upon their expertise in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
GOVERNMENT FILINGS: We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Commission's Public Reference Room at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for more
information about the Public Reference Rooms. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
STOCK MARKET: Our common stock is listed on the Nasdaq National Market
and similar information can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
REGISTRATION STATEMENT: We have filed a registration statement under
the Securities Act with the Commission with respect to the common stock offered
under this prospectus. This prospectus is a part of the registration statement.
However, it does not contain all of the information contained in the
registration statement and its exhibits. You should refer to the registration
statement and its exhibits for further information about Gum Tech and the common
stock offered under this prospectus.
INFORMATION INCORPORATED BY REFERENCE: The Commission allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We have filed the following
documents with the Commission and they are incorporated by reference into this
prospectus:
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* Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998;
* Our Quarterly Report on Form 10-QSB for the three months ended
March 31, 1999;
* Our Quarterly Report on Form 10-QSB for the three months ended
June 30, 1999;
* Proxy Statement for our Annual Meeting of Stockholders held on
July 17, 1998;
* Description of common stock contained in our Registration
Statement on Form SB-2 declared effective under the Securities
Act on November 8, 1996 (File Number 333-14667);
* Description of Series A Preferred Stock contained in our Form 8-K
filed on June 9, 1999; (File Number 000-27646).
* All other documents subsequently filed by Gum Tech International,
Inc. pursuant to Sections 12, 13(a), 13(c), 14 and 15(d) of the
Exchange Act.
Please note that all other documents and reports filed under Sections 13(a),
13(c), and 14 or 15(d) of the Exchange Act following the date of this prospectus
and prior to the termination of this offering will be deemed to be incorporated
by reference into this prospectus and to be made a part of it from the date of
the filing of our reports and documents.
You may request free copies of these filings by writing or telephoning
us at the following address:
William J. Hemelt
Gum Tech International, Inc.
246 E. Watkins Street
Phoenix, Arizona 85004
(602) 252-1617
14
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====================================== ======================================
We have not authorized any dealer,
sales representative, or other person
to give any information or represent GUM TECH INTERNATIONAL, INC.
anything not contained in this
prospectus. You must not rely on any
unauthorized information. This
prospectus does not offer to sell or
buy any common stock in any
jurisdiction where it would be ---------------
unlawful. Neither the delivery of this
prospectus nor any sale made hereunder PROSPECTUS
implies, under any circumstances, that
the information presented is correct ---------------
after the date of this prospectus.
---------------
TABLE OF CONTENTS
Page
----
Business........................... 1
Risk Factors....................... 5
Use of Proceeds.................... 8
Selling Stockholders............... 9
Plan of Distribution...............10
Description of Securities..........12
Legal Matters......................13
Experts............................13
Where You Can Find More
Information.....................13 _________ ___, 1999
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
SEC Registration Fee....................................... $ 2,728
Printing Expenses.......................................... $ 5,000
Legal Fees and Expenses.................................... $ 7,500
Accounting Fees............................................ $ 4,000
Miscellaneous Expenses..................................... $ 2,500
-------
TOTAL...................................................... $21,728
=======
(1) All expenses are estimated except the SEC Registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 5 of the Registrant's Bylaws provides as follows:
"ARTICLE 5. INDEMNIFICATION OF DIRECTORS,
OFFICERS, AGENTS AND EMPLOYEES
5.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify any individual made a party to a proceeding because the individual is
or was a director or officer of the corporation, against liability incurred in
the proceeding, but only if such indemnification is both (i) determined
permissible and (ii) authorized, as such are defined in subsection (a) of this
section 5.1 (Such indemnification is further subject to the limitation specified
in subsection 5.1(c).)
5.1(a) DETERMINATION AND AUTHORIZATION. The corporation shall not
indemnify a director or officer under this section unless:
(1) a determination has been made in accordance with the procedures
set forth in section 16-10a-906(2) of the Act that the director
or officer met the standard of conduct set forth in subsection
(b) below; and
(2) payment has been authorized in accordance with the procedures set
forth in section 16-10a-906(4) of the Act based on a conclusion
that the expenses are reasonable, the corporation has the
financial ability to make the payment, and the financial
resources of the corporation should be devoted to this use rather
than some other use by the corporation.
5.1(b) STANDARD OF CONDUCT. The individual shall demonstrate that:
(1) his or her conduct was in good faith; and
(2) he or she reasonably believed that his or her conduct was in, or
not opposed to, the corporation's best interests; and
(3) in the case of any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful.
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5.1(c) NO INDEMNIFICATION IN CERTAIN CIRCUMSTANCES. The corporation
shall not indemnify a director or officer under this Section 5.1 of Article 5:
(1) in connection with a proceeding by or in the right of the
corporation in which the director or officer was adjudged liable
to the corporation; or
(2) in connection with any other proceeding charging that the
director or officer derived an improper personal benefit, whether
or not involving action in his or her official capacity, in which
proceeding he or she was adjudged liable on the basis that he or
she derived an improper personal benefit.
5.1(d) INDEMNIFICATION IN DERIVATIVE ACTIONS LIMITED. Indemnification
permitted under this section 5.1 in connection with a proceeding by or in the
right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
5.2 ADVANCE OF EXPENSES FOR DIRECTORS AND OFFICER. If a determination
is made, following the procedures of section 16-10a-906(2) of the Act, that the
director or officer has met the following requirements and if an authorization
of payment is made following the procedures and standards set forth in section
16-10a-906(4) of the Act, then the corporation shall pay for or reimburse the
reasonable expenses incurred by a director or officer who is a party to a
proceeding in advance of final disposition of the proceeding, if:
5.2(a) the director or officer furnishes the corporation a written
affirmation of his or her good faith belief that he or she has met the standard
of conduct described in section 5.1;
5.2(b) the director or officer furnishes the corporation a written
undertaking, executed personally or on his or her behalf, to repay the advance
if it is ultimately determined that he or she did not meet the standard of
conduct; and
5.2(c)a determination is made that the facts then known to those
making the determination would not preclude indemnification under section 5.1 of
these bylaws or Part 9 of the Act.
5.3 INDEMNIFICATION OF AGENTS AND EMPLOYEES WHO ARE NOT DIRECTORS OR
OFFICERS. The board of directors may indemnify and advance expenses to any
employee or agent of the corporation who is not a director or officer of the
corporation to any extent consistent with public policy, as determined by the
general or specific actions of the board of directors.
5.4 INSURANCE. By action of the board of directors, notwithstanding any
interest of the directors in such action, the corporation may purchase and
maintain liability insurance on behalf of a person who is or was a director,
officer, employee, fiduciary or agent of the corporation, against any liability
asserted against or incurred by such person in that capacity or arising from
such person's status as a director, officer, employee, fiduciary or agent,
whether or not the corporation would have the power to indemnify such person
under the applicable provisions of the Act."
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ITEM 16. EXHIBITS.
(a) Exhibits
Exhibit No. Title
----------- -----
3.1 Certificate of Incorporation of the Registrant and Amendments
thereto (2)
3.2 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of Gum Tech International, Inc.
dated June 2, 1999 (1)
3.3 Bylaws of the Registrant (2)
4.1 Form of Warrant granted to Fisher Capital, Ltd. and Wingate
Capital, Ltd. on June 2, 1999 (1)
4.2 Registration Rights Agreement by and between Gum Tech
International, Inc., Fisher Capital, Ltd. and Wingate Capital,
Ltd. dated June 2, 1999 (1)
5.1 Opinion of Snell & Wilmer L.L.P.
10.1 Securities Purchase Agreement dated June 2, 1999 (1)
23.01 Consent of Angell & Deering
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K,
file number 000-27646, filed June 2, 1999.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB filed on May 17, 1999, file number 000-27646.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and Exchange
Commission such supplementary and periodic information, documents and reports as
may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the time
such post-effective amendment is filed.
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(d) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-3 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Phoenix, Arizona, on July 1, 1999.
GUM TECH INTERNATIONAL, INC.
By /s/ Gary S. Kehoe
------------------------------
Gary S. Kehoe
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Bruce A. Jorgensen Chairman of the Board of Directors July 1, 1999
- --------------------------
Bruce A. Jorgensen
/s/ William D. Boone Director July 1, 1999
- --------------------------
William D. Boone
/s/ William J. Hemelt Secretary, Chief Financial Officer July 1, 1999
- -------------------------- (Principal Financial Officer),
William J. Hemelt Principal Accounting Officer
/s/ W. Brown Russell, III Director of Legal and Investor July 1, 1999
- -------------------------- Relations, and Director
W. Brown Russell, III
/s/ William A. Yuan Director July 1, 1999
- --------------------------
William A. Yuan
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Title
----------- -----
3.1 Certificate of Incorporation of the Registrant and Amendments
thereto (2)
3.2 Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of Gum Tech International, Inc.
dated June 2, 1999 (1)
3.3 Bylaws of the Registrant (2)
4.1 Form of Warrant granted to Fisher Capital, Ltd. and Wingate
Capital, Ltd. on June 2, 1999 (1)
4.2 Registration Rights Agreement by and between Gum Tech
International, Inc., Fisher Capital, Ltd. and Wingate Capital,
Ltd. dated June 2, 1999 (1)
5.1 Opinion of Snell & Wilmer L.L.P.
10.1 Securities Purchase Agreement dated June 2, 1999 (1)
23.01 Consent of Angell & Deering
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K,
file number 000-27646, filed June 2, 1999.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB filed on May 17, 1999, file number 000-27646.
II-6
EXHIBIT 5
July 1, 1999
GUM TECH INTERNATIONAL, INC.
246 East Watkins Street
Phoenix, Arizona 85004
Re: Issuance of Common Stock
Gentlemen:
We have acted as counsel to Gum Tech International, Inc., a Utah
corporation (the "Company"), in connection with its Registration Statement on
Form S-3 (the "Registration Statement") filed under the Securities Act of 1933,
as amended (the "1933 Act"), relating to the registration of up to 1,000,000
shares of the Company's Common Stock, without par value (the "Shares"), for
resale by Fisher Capital Ltd. and Wingate Capital Ltd. ("Sellers"), which may be
acquired pursuant to the conversion of the Company's Series A Preferred Stock,
the redemption of the Company's 8% Senior Secured Redeemable Notes, and the
exercise of the Warrants dated June 2, 1999 by the Sellers pursuant to that
certain Securities Purchase Agreement dated June 2, 1999, by and among the
Company and Sellers (the "Agreement").
In rendering the opinions set forth herein, we have limited our factual
inquiry to (i) reliance on a certificate of the Secretary of the Company, (ii)
reliance on the facts and representations contained in the Registration
Statement, including without limitation those relating to the number of the
Company's Common Shares, without par value, which are authorized, issued or
reserved for issuance upon conversion or exercise of preferred shares, warrants
and options, and (iii) such documents, corporate records and other instruments
as we have deemed necessary or appropriate as a basis for the opinions expressed
below, including without limitation a certificate issued by the Utah Division of
Corporations and Commercial Code dated May 10, 1999, attesting to the corporate
existence of the Company in the State of Utah, and telephonic verification with
such Division of Corporations and Commercial Code with respect to the Company's
continued valid existence as of the date hereof.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all
<PAGE>
GUM TECH INTERNATIONAL, INC.
July 1, 1999
Page 2
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. In rendering the opinion expressed
below, we have assumed that the shares (i) will conform in all material respects
to the description thereof set forth in the Registration Statement, (ii) were
issued and delivered in accordance with the terms of the Agreement, and (iii)
were issued pursuant to an exemption from the registration requirements of the
1933 Act pursuant to Section 4(2) of the 1933 Act.
Based upon the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that the Shares will be, when issued, fully paid
and nonassessable.
The foregoing opinion is limited to the current internal laws of the
State of Utah (without giving effect to any conflict of law principles thereof),
and we have not considered, and express no opinion on, the laws of any other
jurisdiction. This opinion is based on the laws in effect and facts in existence
on the date of this letter, and we assume no obligation to revise or supplement
this letter should the law or facts, or both, change.
This opinion is intended solely for the use of the Company in
connection with the registration of the Shares. It may not be relied upon by any
other person or for any other purpose, or reproduced or filed publicly by any
person, without the written consent of Snell & Wilmer; provided, however, that
we hereby consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the references to Snell & Wilmer contained in the Registration
Statement.
Very truly yours,
/s/ SNELL & WILMER L.L.P.
tch
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of Gum Tech International, Inc., of our report dated
February 5, 1999, except for the last paragraph of Note 14 as to which the date
is March 30, 1999, which appears on page F-1 of Gum Tech International, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31, 1998, and the
reference to our firm under the caption "Experts" in the Prospectus contained in
said Registration Statement.
Angell & Deering
Certified Public Accountants
Denver, Colorado
July 1, 1999
