<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996.
REGISTRATION NO. 333-10263
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
ATLANTIC CENTRAL ENTERPRISES LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
</TABLE>
ATLANTIC CENTRAL ENTERPRISES LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM 12, BERMUDA
TEL: (809) 295-2244
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEVIN J. QUINN
11400 OLYMPIC BLVD., 2ND FLOOR
LOS ANGELES, CA 90064
TEL: (310) 914-0161
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
KEVIN J. QUINN, ESQ.
11400 OLYMPIC BLVD., 2ND FLOOR
LOS ANGELES, CA 90064
PETER BUBENZER, ESQ.
APPLEBY, SPURLING & KEMPE
CEDAR HOUSE, 41 CEDAR AVENUE
HAMILTON HM 12, BERMUDA
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE
TITLE OF EACH CLASS TO BE PRICE PER OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... 1,811,681 $5.00 $9,058,405 $3,105.33(2)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of which $2,974.69 has already been paid.
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ATLANTIC CENTRAL ENTERPRISES LIMITED
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 HEADING OF PROSPECTUS
---------------- ---------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover page of Prospectus................... Cover Page; Cross Reference Sheet;
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Table of Contents; Available
Information; Additional Information;
Front Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Selected Financial Data;
Proposal to Approve the Liquidation
of the Company
4. Terms of the Transaction......................... Summary; Proposal to Approve the
Liquidation of the Company
5. Pro Forma Financial Information.................. Proposal to Approve the Liquidation
of the Company -- Unaudited Pro Forma
Condensed Consolidated Statements of
Operations
6. Material Contracts with the Company Being
Acquired......................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel........... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
10. Information with Respect to S-3 Registrants...... Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information with Respect to Registrants Other
Than
S-2 or S-3 Registrants........................... Summary; Selected Financial Data;
Proposal to Approve the Liquidation
of the Company -- Vista Technologies,
Inc. -- Description of Capital Stock
of Atlantic Central Enterprises
Limited; Financial Statements
15. Information with Respect to S-3 Companies........ Not Applicable
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................. Summary; Selected Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; The Company; Financial
Statements
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Notice to Stockholders; Front Cover
Page; Summary; General Information
About the Meeting; Ownership of
Securities of the Company; Executive
Officers and Liquidating Agent;
Proposals of Stockholders
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer................................... Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus, one to be
used in connection with the Extraordinary General Meeting of the Shareholders of
the Company relating to the proposed reorganization of Pharma Patch Public
Limited Company (the "Company") and the distribution of its remaining assets,
consisting of shares of its owned subsidiary, Atlantic Central Enterprises
Limited ("Ace") to Company shareholders (the "Prospectus-Proxy Statement") and
one to be used in connection with the proposed exchange offer to be made by Ace
to Company warrantholders on the basis of one share of common stock of Ace for
ten warrant certificates evidencing any combination of the outstanding Class A,
Class B, Class C and/or Class D Warrants of the Company (the "Exchange
Prospectus").
The Exchange Prospectus will be identical in all respects to the
Prospectus-Proxy Statement except for the alternative pages in the Exchange
Prospectus, included herein, each of which is labeled "Alternative Page for
Exchange Prospectus."
i
<PAGE> 4
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
To Shareholders of Pharma Patch Public Limited Company:
An Extraordinary General Meeting of Shareholders ("Extraordinary Meeting")
of Pharma Patch Public Limited Company, an Irish corporation (the "Company"),
will be held on , 1996 at 12:00 PM, local time at 15/16 Fitzwilliam
Place, Dublin 2, Ireland, for the following purposes:
1. To consider and vote upon a proposal to reorganize the Company in
accordance with the terms of that certain Plan of Reorganization which was
adopted by the Company's Board of Directors on , 1996, pursuant
to which, among other things, the Company will transfer to Atlantic Central
Enterprises Limited, a wholly-owned subsidiary of the Company incorporated
in Bermuda ("Ace"), all of its assets and liabilities in exchange for
shares of Ace common stock ("Ace Shares") and thereafter, the Company will
be wound up voluntarily as a members voluntary winding up and distribute
the Ace Shares to its shareholders;
2. Appoint Peter H. Beamish as the Liquidator of the Company for the
purposes of such winding up;
3. To transact such other business as may properly come before the
Extraordinary Meeting or any adjournment thereof.
The Plan of Reorganization is attached as Annex A to the accompanying
Prospectus -- Proxy Statement and Annexes thereto form a part of the Notice.
The affirmative vote of the holders of more than 75% of the outstanding
Ordinary Shares present in person or by proxy at the Extraordinary Meeting is
required to (i) approve the Plan of Reorganization and (ii) to appoint Mr. Peter
H. Beamish, the Liquidator for the Company. Only shareholders of the record at
the close of business on , 1996, the record date for the
Extraordinary Meeting, are entitled to notice of and to vote at the
Extraordinary Meeting and any adjournments or postponements thereof.
By Order of the Board of Directors,
Paul E. Heney, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE EXTRAORDINARY MEETING IN PERSON, YOU
ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE. THE ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE EXTRAORDINARY
MEETING. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. YOUR PROXY
MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER
DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF THE
COMPANY A WRITTEN REVOCATION BEARING A LATER DATE, OR BY ATTENDING AND VOTING AT
THE EXTRAORDINARY MEETING.
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD.
ii
<PAGE> 5
PROSPECTUS-PROXY STATEMENT
------------------------
ATLANTIC CENTRAL ENTERPRISES LIMITED
PROSPECTUS
------------------------
PHARMA PATCH PUBLIC LIMITED COMPANY
PROXY STATEMENT FOR EXTRAORDINARY GENERAL
MEETING OF SHAREHOLDERS
TO BE HELD , 1996
------------------------
This Prospectus-Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Pharma Patch Public Limited
Company, an Irish corporation (the "Company"), for use at the Extraordinary
General Meeting of Shareholders of the Company scheduled to be held on
, 1996 at 15/16 Fitzwilliam Place, Dublin 2, Ireland, and at any
adjournments or postponements thereof (the "Extraordinary Meeting"). At the
Extraordinary Meeting, the Company shareholders of record as of the close of
business on , 1996 will be asked to consider and vote upon a
proposal to reorganize the Company in accordance with the terms of that certain
Plan of Reorganization, pursuant to which, among other things, the Company will
transfer to Atlantic Central Enterprises Limited, a wholly-owned subsidiary of
the Company incorporated in Bermuda ("Ace"), all of its assets and liabilities
in exchange for shares of Ace common stock ("Ace Shares") and, thereafter, the
Company will commence liquidation and distribute the Ace Shares to its
shareholders. A copy of the Plan of Reorganization is attached as Annex A to
this Prospectus-Proxy Statement. Shareholders of the Company will receive one
share of Ace common stock for each ten Ordinary Shares of the Company. See "Risk
Factors".
This Prospectus-Proxy Statement also constitutes the prospectus of Ace
filed with the Securities and Exchange Commission (the "Commission") as part of
a Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the Ace
Shares to be delivered to shareholders of the Company upon the consummation of
the Plan of Reorganization. All information concerning Ace contained in this
Prospectus-Proxy Statement has been furnished by Ace and all information
concerning the Company prior to the date hereof contained in this
Prospectus-Proxy Statement has been furnished by the Company.
Shareholders are urged to read and carefully consider the information
contained in this Prospectus-Proxy Statement. This Prospectus-Proxy Statement
and the related form of proxy are first being mailed or delivered to
shareholders of the Company on or about , 1996.
THE ACE SHARES ISSUABLE IN CONNECTION WITH THE PLAN HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS OCTOBER , 1996.
<PAGE> 6
ADDITIONAL INFORMATION
The Company and Vista Technologies, Inc., its approximately 44% owned
subsidiary ("Vista"), are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at The Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and Room 1300, Seven World Trade Center,
New York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549. In addition, material filed by the Company
and Vista may be inspected at the office of the National Association of
Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
Atlantic Central Enterprises Limited ("Ace") has filed a registration
statement on Form S-4 with the Commission, of which this Proxy
Statement-Prospectus is a part (together with any amendments thereto, the
"Registration Statement"), pursuant to the Securities Act of 1933, as amended,
with respect to the shares of Ace Common Stock to be issued pursuant to or as
contemplated by this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
does not contain all the information set forth or incorporated by reference in
the Registration Statement and the exhibits and schedules relating thereto in
the Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement and the exhibits filed or
incorporated as a part thereof, which are on file at the Commission's principal
office in Washington, D.C. at the address set forth above. Statements contained
in this Proxy Statement/Prospectus, or in any document incorporated into this
Proxy Statement/Prospectus by reference, as to the contents of any contract or
other document incorporated herein by reference, and as to the contents of any
contract or other document referred to herein or therein, are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document and each such statement is qualified in all respects by such reference.
No person is authorized to give any information or make any representation
with respect to the matters described in this Prospectus-Proxy Statement other
than those contained herein or in the documents incorporated by reference herein
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, Vista or any other person. This
Prospectus-Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus-Proxy Statement nor any
distribution of the securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the assets, properties
or affairs of the Company or Vista since the date hereof or that the information
contained or incorporated by reference herein is correct as of any time
subsequent to the date hereof or the date of the document that includes the
information incorporated by reference.
2
<PAGE> 7
SUMMARY
The following is a summary of certain information contained in this
Prospectus-Proxy Statement. This Summary does not contain a complete statement
of all material information relating to the Reorganization of the Company
pursuant to a Plan of Reorganization and is qualified in all respects by
reference to the more detailed information and financial statements contained
elsewhere in this Prospectus-Proxy Statement or incorporated by reference
herein.
GENERAL
This Prospectus-Proxy Statement relates to the proposed reorganization of
the Company pursuant to a Plan of Reorganization, a copy of which is attached
hereto as Annex A, in which the Company's shareholders will receive, for each
ten (10) Company Ordinary Shares, one share of common stock of Ace (as "Ace
Shares"). See "The Plan of Reorganization." The Company made a significant shift
in its business direction in recent months as a result of the sale of
substantially all of its operating assets and thereafter through the acquisition
of a significant interest in a laser vision company, Vista Technologies, Inc.
("Vista"). Vista determined not to establish any facilities in Ireland, the
country in which the Company is incorporated and therefore cannot take advantage
of favorable tax incentives offered in Ireland. The board of directors of the
Company determined that it would be in the best interests of the shareholders of
the Company to reorganize the Company by contributing its assets subject to its
remaining liabilities to its wholly owned subsidiary Atlantic Central
Enterprises Limited ("Ace") and thereafter to distribute the Ace Shares to its
shareholders in liquidation. See "Reasons For The Reorganization Of The
Company." Under the terms of the Plan of Reorganization, once the Company's
assets are transferred to Ace, the Company will be liquidated and will
distribute all of its Ace shares to Company shareholders.
THE EXTRAORDINARY GENERAL MEETING
Date, Time and Place.......... The Extraordinary Meeting will be held on
, 1996, at 2 p.m., local time, at
15/16 Fitzwilliam Place, Dublin 2, Ireland.
Purpose of the Extraordinary
Meeting..................... At the Extraordinary Meeting, shareholders of
the Company will be asked to consider and
vote on a proposal to approve the Plan of
Reorganization.
Record Date................... , 1996
Required Vote................. 75% of the Company Ordinary Shares represented
at the Extraordinary Meeting.
THE PLAN--REORGANIZATION OF THE COMPANY
Plan of Reorganization........ Upon shareholder approval and the appointment
of the Liquidator, the Plan of Reorganization
contemplates the transfer of all of the
assets of the Company, subject to all Company
liabilities to Ace. The Liquidator will then
proceed to wind up the Company and will
distribute all of the Ace Shares owned by it
to the individuals whose names appear in the
Register of Members as registered
shareholders of the Company.
Recommendation of the Board
of Directors of the
Company..................... On , 1996, the Board of Directors
of the Company unanimously approved the Plan
of Reorganization as being in the best
interests of the Company and its shareholders
and resolved to recommend that the Company
shareholders vote in favor of approval of the
Plan of Reorganization. The Company will
substantially reduce its non-operating
expenses by moving its domicile to Bermuda
through the liquidation of the Company. See
"Reasons for the Reorganization of the
Company." If
3
<PAGE> 8
the Plan of Reorganization is not approved,
the Company will continue as an Irish
company.
Fractional Shares............. No fractional Ace Shares will be issued in
connection with the consummation of the Plan
of Reorganization. See "No Fractional
Shares."
Risk Factors.................. See "Risk Factors" with respect to a discussion
of certain risks relating to the consummation
of the Plan of Reorganization, changes in
shareholders rights and current and future
operations of Ace and Vista.
Certain Federal Income Tax
Consequences................ The Company intends to treat the Reorganization
as a tax-free reorganization. Holders of
Company Ordinary Shares should be aware,
however, that the application of U.S. federal
income tax principles to the Reorganization
is unclear and, accordingly, there is
uncertainty as to whether the Reorganization
will qualify as tax free. See "Certain United
States Federal Income Tax Considerations."
The Company shareholders are urged to consult
their own tax advisors as to the specific tax
consequences to them of the Reorganization.
Differences in Irish and
Bermuda laws................ There are significant differences between Irish
and Bermuda law which could materially affect
the rights of shareholders. The principal
material differences between Irish and
Bermuda law are as follows: under Bermuda law
(i) there is no distinction between ordinary
and special resolutions; (ii) the Board of
Directors of Ace will be empowered by Ace's
Bye-laws to issue unissued shares without
shareholder approval; and (iii) there is no
requirement for a person who own shares in
Ace to notify Ace of this interest or any
restriction on the percentage of shares that
can be held. See "Comparison of Bermuda Law
to Irish Law."
Absence of Appraisal Rights... Shareholders of the Company do not have any
statutory right to elect to have the fair
value of their Company Ordinary Shares
judicially appraised and paid to them in cash
in lieu of receiving the Ace Shares. See "The
Plan of Reorganization--Absence of Appraisal
Rights."
Exchange Offer................ Concurrently with the mailing of this
Prospectus-Proxy Statement, Atlantic Central
Enterprise Limited, a Bermuda corporation
("Ace") and a wholly-owned subsidiary of the
Company, is offering to the holders of the
Company's outstanding Class A, Class B, Class
C and/or Class D Warrants (collectively the
"Warrants"), the opportunity to exchange up
to 320,230 shares of the common stock of Ace,
par value $1.00 ("Ace Shares"), at a rate of
one Ace Share for (i) each 100 Class A
Warrants, (ii) each 100 Class B Warrants,
(iii) each 100 Class C Warrants, or (iv) each
100 Class D Warrants or any combination
thereof equaling ten Warrants. Holders of the
Warrants who do not exchange their Warrants
for Ace Shares will be entitled to receive
Ace Shares upon exercise of the Ace's
Warrants upon the same terms and conditions
as are contained in the Warrants.
4
<PAGE> 9
RISK FACTORS
An investment in the Ace securities offered hereby involves a high degree
of risk and should not be exchanged for the Company's Ordinary Shares by persons
who cannot afford the loss of their entire investment. The following factors, in
addition to those discussed elsewhere in this Prospectus-Proxy statement should
be considered carefully in connection with making an investment in the
securities of Ace offered hereby.
Limited Operating History. Ace was organized February, 1996 and has had no
operations to date. Accordingly, Ace has not generated any revenues and had no
operating history from which to forecast its future business and operations.
Other than its investment in Vista, the Company has not contemplated operating
or being involved in any other business. Ace has no operations whatsoever at
present time and shareholders of the Company should look to the operations and
financial condition of Vista in connection with their evaluation of Ace and the
Company.
Consummation of the Plan of Reorganization. If the shareholders of the
Company approve the liquidation of the Company and the contribution of the
Company's assets, subject to the Company's liabilities to Ace, there is no
assurance that Ace will be a viable and/or profitable company.
Changes in Rights of Shareholders. As a result of the consummation of the
Plan of Reorganization, the shareholders of the Company will become shareholders
of Ace, a Bermuda company. There are significant differences between Bermuda law
and Irish law. The principle differences are discussed under the caption
"Comparison of Bermuda Law to Irish Law" and may materially affect the rights of
Company shareholders.
Limited Operating History of Vista; Operating Losses and Accumulated
Deficit. Vista was initially organized in June 1992 and did not commence
operations until March 31, 1994. As of June 30, 1996, Vista has accumulated a
deficit of $16,051,073 and net losses of $804,027 for the three months ended
June 30, 1996, $3,814,935 for the fiscal year ended March 31, 1996 and
$11,420,180 for the fiscal year ended March 31, 1995. Vista therefore has a
limited operating history from which to forecast future business operations.
Vista will be subject to numerous risks incident to the creation of a business
in a relatively new industry with a limited history of operations. Prospective
investors should consider the frequency with which newly developed businesses
encounter unforeseen expenses, difficulties, complications and delays, and other
factors such as the possibility of competition with larger companies. As
examples, Vista may experience unanticipated delays in its planned expansion of
LVC Services through Regional Joint Ventures in North America, there can be no
prediction as to the amount of revenues Vista's European subsidiaries and
Regional Joint Venture enterprises will generate from new locations and whether
such revenues will be sufficient to provide positive cash flows, and it may be
difficult or impossible to obtain additional financing if required for Vista's
business. There can be no assurance that Vista will become profitable or that
profitability, if ever attained, will be sustained.
No assurance of Market Acceptance. Vista's operating subsidiaries and
Regional Joint Ventures provide access to excimer laser vision correction
("LVC") equipment and related support services, and therefore rely upon
physician use of recently developed LVC technology and procedures, such as
photorefractive keratectomy ("PRK") and laser assisted in situ keratomileusis
("LASIK"). These procedures for refractive surgery are relatively new
technological innovations subject to governmental regulation. There can be no
assurance that the general public will accept laser surgery as a broadly
accepted treatment for refractive disorders or that vision care professionals
will require and contract for use of LVC equipment and services on an ongoing
basis. Vista believes that its profitability and growth will depend on broad
market acceptance of LVC procedures in Europe, the United States and Canada by
the general public as well as by health care professionals in the ophthalmic
community. Market acceptance of new methodology requires substantial time and
effort and is subject to various risks. The acceptance of LVC procedures for
treatment of refractive disorders may be adversely affected by their cost,
concerns relating to safety and efficacy, general resistance to surgery, the
effectiveness of alternative methods of correcting refractive vision disorders,
the lack of long-term follow-up data, the possibility of unknown side effects
and the lack of third-party reimbursement for the cost of LVC refractive
procedures. Many consumers may choose not to undergo LVC surgery due to the
availability of conventional and cheaper methods of vision correction such as
eyeglass and contact lenses. Any future reported adverse effects or other
unfavorable publicity involving patient outcomes from LVC procedures could also
adversely affect Vista's business. There can be no assurance there will be
significant
5
<PAGE> 10
public acceptance of LVC technologies, and demand for Vista's LVC equipment and
services would be adversely affected if broad market acceptance of such
procedures is not attained.
Dependence on Medical Professionals. Applicable laws in Europe, Canada and
the United States prevent a corporation (other than a professional medical
corporation) from providing medical and health care services to patients.
Vista's operating subsidiaries and Regional Joint Ventures conduct their
business by offering LVC equipment for use by licensed professionals and
providing billing, accounting, administrative, marketing and management services
to independent vision care professionals who provide refractive eye care. The
ability to realize revenues from independent professionals will be significantly
dependent upon the ability of Vista and its corporate affiliates to attract the
use of equipment and LVC Services by ophthalmologists ("MDs") and optometrists
("ODs") and on the performance of those professionals. In addition, the amount
of revenues to be received by Vista's operating subsidiaries and Regional Joint
Ventures will be dependent upon the amount of the gross procedure fee charged by
professionals to their patients, and the amount of such fees are established by
the professionals and not by Vista. There can be no assurance that additional
professionals will require and contract for Vista's LVC services, and even those
professionals that do contract with Vista's operating subsidiaries and Regional
Joint Ventures cannot be required to use Vista's services for their LVC practice
on an exclusive or any other basis.
Conflicts of Interest with Affiliates. Vista Technologies currently
operates six LVC surgical centers in Italy and Sweden and to date has sponsored
the formation of five Regional Joint Ventures in various stages of development
to acquire, manage and administer LVC equipment and support services under the
"Vista Laser Centers" service mark in different designated geographic areas of
North America. Dr. Donald G. Johnson, in addition to serving as Chairman of the
Board and a director of Vista, is primarily engaged as a practicing physician
with and serves as Chairman of the Board and Chief Executive Officer of London
Place Eye Centre, Inc., a Canadian corporation that Vista Laser Centers of the
Northwest, Inc. proposes to acquire upon completion of an initial public
offering. Dr. J. Charles Casebeer, a director and professional consultant to
Vista, primarily serves as a practicing physician associated with and Chairman
of the Board of Vista Laser Centers of the Southwest, Inc., based in Scottsdale,
Arizona. These individuals and other directors of Vista may also serve from time
to time as directors and/or officers for other Regional Joint Ventures organized
and sponsored by Vista.
Persons serving as consultants to, or directors of, Vista who also serve as
consultants, directors and/or officers of Regional Joint Ventures sponsored by
Vista may have a conflict of interest in that their time and resources may be
devoted to activities other than the business of Vista or because the
compensation payable to them from, or equity interests in, other business
activities in certain instances may be greater than their compensation from and
equity interests in Vista.
Dependence on Management. The success of Vista will be substantially
dependent on the services of its officers, directors and professional
consultants who have experience in providing access to physicians for refractive
surgical laser equipment and the management of surgical outpatient facilities.
Vista is dependent in particular upon the services of Dr. Donald G. Johnson, its
Chairman and Chief Executive officer and Dr. J. Charles Casebeer, who have prior
experience in managing high volume ophthalmology outpatient clinics specializing
in LVC refractive surgery, and on the services of Thomas A. Schultz, President
and Chief Executive Officer of Vista. Vista's operations therefore are dependent
upon a limited number of key employees and consultants and the loss of the
services of these or other key personnel could have a material adverse effect
upon Vista. Vista does not maintain key man insurance on the lives of its
executive officers and key professional consultants.
Competition. The refractive eye care business generally and the market for
corrective LVC procedures, for which Vista provides equipment and support
services, are characterized by intense competition and technological innovation.
Most of the companies engaged in these businesses have substantially greater
financial resources, personnel, marketing experience and other capabilities than
are currently available to Vista and its corporate affiliates. Competition for
providing access to PRK equipment and support services has intensified as a
result of recent U.S. Food and Drug Administration ("FDA") premarket approvals
for U.S.
6
<PAGE> 11
commercial use of certain PRK laser equipment systems for treatment of the vast
majority of nearsighted refractive disorders. Eyeglasses and contact lenses, as
well as manual refractive surgical alternatives to LVC procedures such as radial
keratotomy ("RK"), are expected to remain competitive in the market for
refractive eye care primarily due to cost considerations.
Possible Need for Additional Financing. Due to the risks associated with
the planned expansion of its business, Vista may require additional financing at
a future date to maintain or expand its business operations. Vista and its
corporate affiliates plan to rely upon equipment leasing and other forms of
installment purchase obligations to finance a significant portion of their
equipment requirements. Commitments for additional lease or installment purchase
financing have been yet applied for or obtained. No assurance can be given that
additional financing would be available on reasonable terms or on any terms.
Possible Liability for Personal Injury. Use of excimer laser equipment and
facilities for LVC vision care may give rise to claims against Vista or one or
more of its corporate affiliates by persons alleging injury as a result of the
procedures performed. Vista will endeavor, whenever possible, to seek recovery
from manufacturers of refractive laser systems for claims based on alleged
defects in their laser systems, if any. There can be no assurance that such
manufacturers will carry liability insurance adequate to protect against such
claims or that Vista would prevail if it were required to assert such claims.
Vista believes that health care professionals using Vista's equipment to perform
refractive or other procedures will be covered by medical malpractice or
liability insurance, and Vista's policy will be to require that professionals
contracting for use of Vista's LVC equipment and services maintain such
insurance. However, there can be no assurance that Vista would be successful in
seeking recovery from third parties and there can be no assurance that Vista
will be able to obtain insurance at reasonable rates in an amount adequate to
cover all of the risks of use of its LVC equipment and support services. To the
extent Vista becomes exposed to uninsured liability claims, if any, Vista may be
adversely affected.
Risks of Failure to Comply with or Change in Governmental
Regulation. Vista's business will be subject to extensive regulation, in Europe,
Canada and in the United States at the federal, provincial, state and local
levels, affecting the health care industry and the delivery of health care.
These regulations include laws and regulations prohibiting the practice of
medicine and optometry by persons not licensed to practice medicine or
optometry, prohibiting the unlawful rebate or unlawful division of fees and
limiting the manner in which prospective patients may be solicited. Other
regulatory requirements, such as regulations concerning the use of excimer laser
systems, also apply to Vista's business. In addition, there can be no assurance
that future changes in laws and regulations or the interpretation thereof will
not adversely affect Vista's operations.
Absence of Governmental Approval in the United States for Certain LVC
Procedures. Vista is uncertain whether certain LVC procedures for which it will
own equipment in Canada and Europe may ever be utilized commercially in the
United States. In the United States, Vista's plan is to acquire equipment that
has received premarket approval from the FDA for commercial use of PRK
procedures applicable to the vast majority of myopia cases and PTK procedures.
Equipment for certain other LVC procedures, such as TMM PRK or LASIK procedures
to treat hyperopia, astigmatism or extreme myopia, have not received FDA
premarket approval nor has the FDA established standards for clinical testing of
equipment for many of these other LVC procedures. Notwithstanding that fact,
Vista has been advised that certain MDs in the United States use excimer lasers
to perform LASIK Procedures. The FDA advised U.S. eye care professionals in May
1996 that LASIK and bilateral surgery (treatment of both eyes at the same time)
are outside the scope of currently FDA approved labeling for excimer lasers.
Although the FDA noted that physician discussions with patients, and physician
decisions to conduct either of those procedures, are considered the practice of
medicine, the FDA cautioned that it expects health care practitioners and others
will advertise and promote the use of FDA approved lasers in the U.S. only
within the scope of their currently FDA approved use. Nevertheless, there can be
no assurance that the use of excimer lasers to perform LVC procedures other than
PRK and PTK will ultimately be found to be effective or safe by the FDA or that
the FDA will not modify or withdraw its pre-market approval of PRK equipment, in
which event Vista's markets in the United States may be adversely affected.
7
<PAGE> 12
Possible Future Concerns as to Safety and Efficacy of LVC Treatment. LVC
procedures have been used in clinical trials and commercially in various parts
of the world only since 1989, and accordingly there has been limited experience
in assessing their long-term effects. Concerns with respect to the safety and
efficacy of refractive laser procedures such as PRK and LASIK include
predictability and stability of results and potential complications or side
effects, such as post-operative pain, corneal haze during healing, decreased
contract sensitivity, unintended undercorrection or overcorrection, refractive
corneal scars or reversion or regression of effect. There can be no assurance
that additional complications will not be identified in the future that may
materially and adversely affect the safety and efficacy of these LVC procedures
for performing refractive surgery, and which would negatively affect market
acceptance of such procedures and/or lead to product liability or other claims
against Vista.
Reliance on Suppliers of Laser Equipment. Vista is not involved in the
research, development or manufacture of laser equipment and will be dependent
upon unrelated third-party manufacturers or distributors for supply and service
of LVC equipment required for providing access to LVC Services. Vista believes
that two companies in the U.S., Summit Technologies ("Summit") and VISX
Incorporated ("VISX"), account for approximately 70% of the excimer lasers for
refractive surgery that have been installed to date, mostly in various countries
outside of the U.S. Nidek Co., Ltd. of Japan is also believed to be a
significant factor outside of the U.S. At present, Summit has entered the market
for providing excimer laser service facilities and may compete with Vista,
either directly or indirectly. Certain suppliers, such as Summit and VISX,
currently require license, royalty or other fees for the purchase and use of
their excimer laser systems that may place users of such equipment at a
competitive cost disadvantage. If Vista is unable to obtain agreements on
acceptable terms for the supply and/or service of laser systems, Vista could
incur delays and its planned business expansion in the U.S. may be adversely
affected. Vista's ability to offer LVC equipment and services at additional
locations for future expansion, and the timing thereof, will be dependent upon
the availability of equipment from suppliers with equipment approved for
commercial use in the U.S. and the availability, if any, of financing programs
to acquire equipment on a lease or installment purchase basis.
Risk of Future Technological Change. Refractive eye care in general and the
development of LVC procedures in particular have undergone and may be expected
to continue to experience technological change. There can be no assurance that
future technological innovations and developments will not render Vista's
equipment uneconomical or obsolete or that Vista will not be adversely affected
by competition or future technological developments.
No Third-Party Reimbursement. At present, third party insurance
reimbursement through health insurance or other third-party reimbursement
programs generally is not available for PRK and other LVC refractive surgical
procedures. Vista does not anticipate that third-party reimbursement for LVC
procedures will be available in the foreseeable future, and this factor may
restrict the market for LVC patients and related LVC Services.
Volatility of Securities Prices. The public market for equity securities of
high technology and medical companies, including securities of companies engaged
in providing LVC equipment and/or services, has been volatile. The price of
Vista's securities in the future may be subject to wide fluctuations in response
to quarterly variations in operating results, news, trading volume, general
market trends and other factors beyond the control of Vista.
Foreign Currency Fluctuations. The business operations of Vista's operating
subsidiaries are located in Italy and Sweden and it is anticipated that a
significant portion of Vista's consolidated revenues and expenses will be
collected and paid in foreign currencies. Vista publishes its consolidated
financial statements in U.S. dollars after translating transactions in foreign
currencies into U.S. dollars. In periods when the U.S. dollar depreciates
against the relevant foreign currencies, reported earnings attributable to
transactions in foreign currencies may be materially enhanced. In periods when
the U.S. dollar appreciates against the relevant foreign currencies, however,
reported earnings attributable to transactions in foreign currencies may be
materially reduced. Fluctuations in the exchange rate between foreign currencies
and the U.S. dollar may also affect the book value of Vista's assets and the
amount of its stockholders' equity.
8
<PAGE> 13
DESCRIPTION OF ACE
Atlantic Central Enterprise Limited ("Ace") was incorporated under the laws
of Bermuda on February 2, 1996 under the name Bamburgh Limited as a wholly-owned
subsidiary of the Company. Thereafter, on April 2, 1996, the name was changed to
"Atlantic Central Enterprises Limited". Ace has not conducted any business
operations since inception, owns no property, is not involved in any litigation
whatsoever, has no publicly traded shares and has never changed accountants. The
financial statements of Ace since inception are included elsewhere in this
Prospectus-Proxy Statement.
The officers and directors of Ace are as follows:
<TABLE>
<S> <C> <C>
Murray Watson -- President and Director
Kenneth Howling -- Vice President, Treasurer and Director
Paul E. Heney -- Secretary
William G. Hutchison -- Director
Kevin J. Quinn -- Director
Peter Bubenzer -- Director
Judith Collis -- Director
</TABLE>
Each of the above individuals other than Mr. Bubenzer and Ms. Collis are
currently officers and/or directors of the Company. See "Management of the
Company" below. Mr. Bubenzer and Ms. Collis are partners in the law firm of
Appleby, Spurling & Kempe, Bermuda counsel to Ace.
The consulting agreements between the Company and corporate affiliates of
Messrs. Watson and Howling will be assumed by Ace upon consummation of the Plan
of Reorganization. See "Management of the Company -- Employment and Consulting
Agreements" below for a description of these agreements.
On February 2, 1996, the Board of Directors of Ace adopted its 1996 Stock
Option Plan. The plan is administered by a Compensation Committee designated by
the Board of Directors of Ace which is comprised of outside directors. The
aggregate number of common shares reserved for issuance under the Plan is
3,500,000. On February 3, 1996, the following options to purchase common shares
of Ace were issued to the persons or entities below, all of which have a five
year term:
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE PRICE
NAME SUBJECT TO OPTION PER SHARE
------------------------------------------------ ----------------- --------------
<S> <C> <C>
Trident Management, Inc......................... 150,000 $ 0.50
Pinnacle Financial Corporation.................. 75,000 $ 0.50
William G. Hutchison............................ 20,000 $ 0.50
Kevin J. Quinn.................................. 10,000 $ 0.50
Paul E. Heney................................... 10,000 $ 0.50
</TABLE>
The above-referenced options only become exercisable in the event that the
closing price of the Ace common stock equals or exceeds U.S. $5.00 in any 21 day
trading period (whether or not consecutive).
9
<PAGE> 14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical and pro forma
consolidated financial information concerning the Company and is qualified by
reference to the consolidated financial statements and the unaudited pro forma
consolidated statement of loss and notes thereto included elsewhere in this
Prospectus. See "Consolidated Financial Statements" and "Pro Forma Consolidated
Statements of Operations". The three month period ended May 31, 1996 includes
the results of operations of Vista Technologies, Inc. since the acquisition in
March 1996. Reference should be made to Note 1 to the Consolidated Financial
Statements with respect to the basis of presentation.
PHARMA PATCH PLC
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
PRO FORMA 3 MONTH PERIOD ENDED PRO FORMA
MAY 31, MAY 31, FEBRUARY 29, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996(1) 1996 1995 1996(1) 1996 1995 1994 1993 1992
---------- ---------- ---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED
OPERATING
DATA:
Revenue... 724,098 482,732 -- 2,130,073 -- -- -- -- --
Loss from
Continuing
Operations (648,625) (730,192) (174,902) (4,449,390) (1,728,683) (2,039,091) (1,307,672) -- --
Earnings
(Loss) from
Discontinued
Operations.. -- -- (703,444) -- 13,819,359 (11,698,353) (1,919,752) (718,748) (176,837)
Net
Earnings
(Loss)... (648,625) (730,192) (878,346) (4,449,390) 12,090,676 (13,737,444) (3,227,424) (718,748) (176,837)
Per Share
Earnings
(Loss)
from:
Continuing
Operations... (.05) (.05) (.04) (.36) (.22) (.38) (.38) -- --
Discontinued
Operations -- -- (.14) -- 1.72 (2.18) (.55) (.30) (.05)
--------- ---------- --------- ---------- --------- ----------- ---------- --------- ---------
Earnings
(Loss)... (.05) (.05) (.18) (.36) 1.50 (2.56) (.93) (.30) (.05)
========== ========== ========= ========== ======== ========== ========== ========= =========
Weighted
Average
Number
of
Ordinary
Shares... 16,607,489 15,580,315 4,960,425 12,533,265 8,033,265 5,368,298 3,453,874 2,414,748 3,536,740
BALANCE
SHEET:
Working
Capital
(Defic-
iency) -- 7,765,931 (592,617) 14,581,298 (608,600) 1,487,820 540,358 1,281,329
Technology.. -- -- -- -- -- 2,164,170 -- --
Total
Assets... -- 18,898,909 1,654,771 17,748,332 1,628,021 5,237,293 753,729 1,422,587
Note
Payable... -- -- 5,000,000 -- 5,000,000 -- -- --
Shareholders'
Equity
(Deficiency).. -- 12,083,067 (4,753,868) 14,581,298 (4,708,222) 4,337,356 672,234 1,371,893
</TABLE>
- ---------------
(1) After giving effect to the Vista Acquisition as if it had occurred on March
1, 1995.
10
<PAGE> 15
SUMMARY UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
INTRODUCTION
In March 1996, Pharma Patch Plc ("Pharma Patch" or the "Company") acquired
3,160,000 common shares or 61.3% ("Vista Acquisition") of the issued and
outstanding capital of Vista Technologies, Inc. ("Vista"). The Company acquired
2,260,000 newly issued shares from Vista for $500,000, a $750,000 promissory
note and 200,000 shares of Technical Chemicals and Products, Inc. common stock.
In addition, the Company acquired 900,000 shares of Vista from outside investors
in exchange for 4,500,000 newly issued shares of the Company. The pro forma
financial information has been prepared with respect to the pro forma condensed
consolidated statements of operations, with the assumption that the Vista
Acquisition occurred on March 1, 1995.
The unaudited pro forma consolidated statement of operations for the three
months ended May 31, 1996 has been prepared using the unaudited historical
consolidated statement of loss of Pharma Patch for the three months ended May
31, 1996 which includes the results of Vista since the acquisition (assumed to
be March 31, 1996) and the unaudited historical consolidated statement of
operations and accompanying notes of Vista for the month ended March 31, 1996.
The unaudited pro forma consolidated statement of operations for the year ended
February 29, 1996 have been prepared using the audited historical consolidated
statement of loss and accompanying notes of Pharma Patch for the year ended
February 29, 1996 and the historical audited consolidated statement of
operations and accompanying notes of Vista for the year ended March 31, 1996.
The pro forma financial information gives effect to the Vista acquisition
under the purchase method of accounting based on the assumptions and adjustments
described in the accompanying notes. The pro forma adjustments relate to the
amortization of the cost in excess of the net assets acquired and the recording
of minority interest for the portion of Vista that Pharma Patch does not own. It
should be understood that the pro forma condensed consolidated statements of
operations do not reflect actual consolidated results of operations since among
other factors, actual expenses may be lower or higher than amounts assumed or
estimated. The pro forma condensed consolidated statements of operations may not
be indicative of the results that actually would have occurred if the
transaction had taken place on the dates indicated nor do they represent a basis
for assessing future performance. The pro forma consolidated statements of
operations should be read in conjunction with the historical financial
statements and the accompanying notes of Pharma Patch and Vista.
11
<PAGE> 16
PHARMA PATCH PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PHARMA VISTA PRO FORMA
PATCH PLC TECHNOLOGIES, INC. TOTALS FOR
FOR THE THREE FOR THE ONE THE THREE MONTH
MONTH PERIOD ENDED MONTH PERIOD ENDED PERIOD ENDED
MAY 31, 1996 MARCH 31, 1996 ADJUSTMENTS MAY 31, 1996
$ $ $ $
------------------ ------------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE........................... 482,732 241,366 -- -- 724,098
EXPENSES
General & Administrative........ 871,526 278,610 -- -- 1,150,136
Depreciation & amortization..... 149,788 49,418 25,476(a) -- 224,682
Interest expense (income)....... (2,894) -- -- -- (2,894)
Other........................... 567 232 -- -- 799
------- ------- ------ ------ ---------
Total expenses.................... 1,018,987 328,300 25,476 -- 1,372,723
------- ------- ------ ------ ---------
Loss from operations.............. 536,255 86,894 25,476 -- 648,625
------- ------- ---------
Equity Investee Loss.............. 7,468 3,734 -- -- 11,202
Minority Interest (Benefit)....... (68,434) 10,202 -- 53,339(b) (111,571)
Other (income) Expense............ 254,903 -- -- -- 254,903
------- ------- ------ ------ ---------
Loss from continuing operations... 730,192 100,830 25,476 53,339 803,159
Loss from continuing operations
per ordinary share.............. .05 .05
Weighted average number of
ordinary shares outstanding..... 15,580,315 16,607,489
</TABLE>
See accompanying notes.
12
<PAGE> 17
PHARMA PATCH PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PHARMA VISTA
PATCH PLC TECHNOLOGIES, INC. PRO FORMA
FOR THE FOR THE TOTALS FOR
YEAR ENDED YEAR ENDED THE YEAR ENDED
FEBRUARY 29, 1996 MARCH 31, 1996 ADJUSTMENTS FEBRUARY 29, 1996
$ $ $ $
------------------ ------------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUE..................... -- 2,130,073 -- -- 2,130,073
EXPENSES
General &
Administrative......... 1,798,524 4,624,630 -- -- 6,423,154
Depreciation &
amortization........... -- 467,509 382,152(a) -- 849,661
Interest expense
(income)............... -- 63,645 -- -- 63,645
Other..................... 2,285 695 -- -- 2,980
--------- --------- ------- --------- ---------
Total expenses.............. 1,800,809 5,156,479 382,152 -- 7,339,440
--------- --------- ------- --------- ---------
Loss from Operations........ 1,800,809 3,026,406 382,152 -- 5,209,367
Equity Investee Loss........ -- 11,202 -- -- 11,202
Minority Interest........... -- (1,816) -- 1,476,380(b) (1,478,196)
Other (Income) Expense...... (72,126) 779,143 -- -- 707,017
--------- --------- ------- --------- ---------
Loss from continuing
operations................ 1,728,683 3,814,935 382,152 1,476,380 4,449,390
Loss from continuing
operations per ordinary
share..................... .22 (.36)
Weighted average number of
ordinary shares
outstanding............... 8,033,265 12,533,265
</TABLE>
See accompanying notes.
13
<PAGE> 18
PHARMA PATCH PLC
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
(a) To record the amortization of the cost in excess of net assets acquired (15
year life assumed for entire excess cost as final allocation of purchase
price is not yet complete). Consideration for both components of the Vista
transaction include the following:
<TABLE>
<S> <C>
Cash............................................................. $ 500,000
Note payable..................................................... 750,000
TCPI investment (200,000 shares)................................. 3,032,000
Pharma Patch plc common stock (4,500,000 shares)................. 2,250,000
---------
$6,532,000
</TABLE>
The cost in excess of net assets acquired of approximately $4.5 million was
calculated utilizing the original carrying value of the TCPI investment
($15.16 per share). TCPI shares had a fair value of $22.00 per share on the
date of the Vista transaction.
(b) To record the minority interest of Vista's net loss not acquired by Pharma
Patch PLC.
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BACKGROUND
The operations of the Company were primarily those of its wholly owned
subsidiaries PP Holdings, Inc., Medipro Sciences Limited ("Medipro") and Flora,
Inc. ("Flora"). The Flora operation was acquired on June 30, 1994 and is
reflected in fiscal 1995 accordingly. The Medipro operation was significantly
downsized after the acquisition of the assets of Flora and officially ceased
operations January 31, 1995. The operations of the Company were primarily those
of Medipro for the first four months of fiscal 1995 and all prior years. On
November 15, 1995 the Company sold substantially all of its assets to Technical
Chemicals and Products, Inc. ("TCPI") for 786,214 shares of TCPI common stock.
Operating results related to this business have been treated as discontinued
operations in the consolidated financial statements. Accordingly, the financial
statements for fiscal 1996 include a loss from the discontinued operations of
approximately $2,600,000, and a gain on the sale of approximately $16,400,000.
See "Certain Transactions." The consolidated financial statements have been
prepared in accordance with US GAAP.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995
Revenues for the three months ended May 31, 1996 were generated from photo
refractive keratectomy and other laser vision correction facility and service
fees earned by European operations of the Company's subsidiary Vista. The
Company did not generate any revenue for the comparable prior year period.
Expenses for the three month period ended May 31, 1996 totalled $1,018,987.
The increase of $838,201 from the three months ended May 31, 1995 is primarily
attributable to the inclusion of Vista operations in the companies first quarter
financial statements. Total expenses of $1,018,987 consist primarily of
salaries, equipment (excimer lasers) and facility leases related to the laser
vision correction operations and depreciation and amortization.
During the first quarter ended May 31, 1996 the Company sold 210,000 shares
of TCPI generating a loss including commissions of $254,903.
The net loss for the three months ended May 31, 1996 was $730,192 or $0.05
per share compared to $878,346 or $0.18 per share for the three months ended May
31, 1995.
FISCAL YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
As a result of the November 1995 TCPI transaction, the operations of the
Company's subsidiaries, PP Holdings Inc. and Medipro, have been presented in the
Company's Consolidated Statements of Earnings and Loss and Deficit as
discontinued operations as per U.S. GAAP. The transaction with TCPI resulted in
a gain of approximately $16,400,000 as the Company had previously written-off
its acquired technologies and all research and development expenditures
associated with these technologies. TCPI issued 786,214 shares of TCPI's common
stock with a fair value of approximately $11,919,000 to the Company and also
satisfied the $5,000,000 promissory note previously issued by the Company to
Flora, Inc.
During the fiscal year ended February 29, 1996, the Company had revenue
from discontinued operations of $469,055 versus nil for the previous year. These
revenues were primarily due to feasibility studies conducted by the Company on
behalf of third parties. The Company does not expect to have similar revenue in
fiscal 1997.
The loss from continuing operations in fiscal 1996 of $1,728,683 consists
mainly of administration expenses of the Company during the year. Administration
expenses of continuing operations of $1,798,524 increased by approximately
$657,223 or 58% from 1995. This increase can be attributed to an increase in
professional fees relating to the TCPI transaction and increased compensation
expenses for the year relating to the anticipated reorganization of the Company.
Other income during the year of $64,321 was primarily derived from receipt of
proceeds from the sale of certain securities. Interest income is down from 1995
by
15
<PAGE> 20
$36,865 or 76% to $11,698 due to lower cash balances being available for
short-term investments during the year.
Medipro Sciences Limited ceased operations January 1995 and accordingly,
this subsidiary did not report any results to effect the Company's fiscal 1996
results. In fiscal 1995, Medipro Sciences Limited reported expenses of $876,101
and $1,088,786 related to general and administration and research and
development respectively. The loss from operations of the discontinued business
segment of $2,593,468 in fiscal 1996 consists mainly of operating expenses of
the Company's subsidiary PP Holdings Inc. PP Holdings, Inc. recorded $1,164,681
and $558,033 of research and development and general and administrative expenses
respectively during fiscal 1996 versus $974,145 and $781,693 for research and
development and general and administrative expenses respectively during fiscal
1995. In addition, $337,667 in interest on long-term debt was incurred during
the year related to the $5,000,000 note satisfied by TCPI. In total, research
and development expenses for fiscal 1996 of $1,164,681 declined by approximately
$898,000 from fiscal 1995 due to a duplication of expenses associated with
operating two research and development facilities (Toronto, Ontario and Menlo
Park, California) for seven months while the Company was in the process of
closing its Toronto facility and moving all research and development activities
to Menlo Park, California (location of the facility acquired from Flora). The
fiscal 1995 loss from operations of discontinued business segment of $11,698,353
for fiscal 1995 is $9,104,885 higher than the 1996 amount because of the unusual
items charged in 1995's financial statements. These included the write-off of
capitalized technologies, restructuring costs of Medipro and the write-off of a
foreign currency translation amount, all totalling approximately $6,361,000. In
addition to these amounts, fiscal 1995 costs were higher due to higher research
and development costs incurred of $2,355,515.
For the year ended February 29, 1996 the Company has a net earnings of
$12,090,676 or $1.50 per share (fiscal 1995 -- a loss of $2.56 per share). This
net income in fiscal 1996 is due to the gain on the sale of assets to TCPI
whereas the fiscal 1995 loss is attributable to the unusual items charged in
fiscal 1995 listed above.
FISCAL YEARS ENDED FEBRUARY 28, 1995 AND 1994
Expenses from continuing operations for the fiscal year ended February 28,
1995 were $2,081,891 versus $1,348,112 for the fiscal year ended February 28,
1994. The increase in expenses are primarily attributable to the write-off of
Cangene acquisition costs and the loss on disposal of the Cangene investment
($992,843) partially off-set by a reduction in administration expense and a
foreign exchange gain. Loss from continuing operations for the 12 month periods
ending February 28, 1995 and 1994 are $2,039,091 and $1,307,672 respectively.
The increase in the loss from continuing operations is attributable as outlined
above.
The loss from discontinued operations for fiscal year 1995 were $11,698,353
versus $1,919,752 for the fiscal year ended February 28, 1994. The year over
year increase in the loss from discontinued operations is primarily attributable
to unusual items written off in fiscal 1995 totalling $6,361,084 and an increase
in expenses associated with the operations of PP Holdings, Inc. The unusual
items relate to acquired technology ($2,775,336), write-off of capitalized
technology ($1,685,516), Medipro restructuring costs ($1,492,070) and a
write-off of the cumulative translation adjustment related to Medipro Sciences
Limited ($408,162).
The net loss for fiscal 1995 increased 326% to $13,737,444 from $3,227,424
in fiscal 1994. The increase was primarily attributable to the unusual items
described above and duplication of discontinued operating expenses as defined
above.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has relied upon private and public equity
financing and internally generated cash flows, principally from the license and
contract product development fees, to finance its operations.
The increase in cash of $2,957,777 from February 29, 1996 to May 31, 1996
represents the net proceeds from the balance of a closing of the Private
Placement ($276,894) and the net proceeds from the sale of 210,000 shares of
TCPI shares ($2,928,696) offset primarily by the net cash component of the
purchase price
16
<PAGE> 21
paid to Vista ($998,500) less cash held by Vista at the time of purchase of
$288,312 for a net effect of ($710,188), the purchase of fixed assets ($5,412)
and other on-going working capital requirements. The Company has 576,214 shares
of TCPI remaining for which the lock up agreement ends in October 1996, at which
time the stock can be sold. As of August 8, 1996 the TCPI stock had a market
value of $10.25 per share.
The net loss for the three month period ended May 31, 1996 of $730,192
included depreciation and amortization and a net change in non-cash working
capital of $149,788 and $570,617 respectively.
The Company has had limited operating revenues and has accumulated a
deficit of $6,979,820 as of May 31, 1996. The Company expects to continue to
incur operating losses until such time, if ever, it generates sufficient
revenues. There is no assurance that the Company will ever operate profitably.
The Company has a significant investment in Vista, however, the Company
will continue to look at other investment opportunities over the next twelve
months. The Company believes that its cash and marketable securities (if
necessary) are sufficient to meet the Company's anticipated cash requirements
for the next twelve months.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Term Assets and for Long-Term Assets to be Disposed of" which
is effective for fiscal year beginning after December 15, 1995. This statement
is not expected to have a significant effect on the results of operations or
financial position of the Company. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which is effective for years beginning after December 15, 1995. The Company
anticipates electing to continue its current accounting methodology regarding
stock options granted to employees and will add the required additional footnote
disclosures prescribed by SFAS No. 123. In addition, options granted to
non-employees will have compensation expense associated with it, calculated in
accordance with the new pronouncement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Subject to the limitations described in the next paragraph, the following
discussion describes the material U.S. federal income tax consequences of the
Reorganization and the general U.S. federal income tax considerations relevant
to a holder of Ordinary Shares and/or Ace Shares that is (i) a citizen or
resident of the United States, (ii) a corporation created or organized in the
United States or under the laws of the United States or of any state or (iii) an
estate or trust, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source (a "U.S. Holder").
This summary is for general information purposes only and does not purport to be
a comprehensive description of all of the U.S federal income tax considerations
that may be relevant to the Reorganization or to a decision to purchase Ace
Shares. This summary generally considers only U.S. Holders that own Company
Ordinary Shares and will own Ace Shares as capital assets. Except to the limited
extent discussed below, this summary does not consider the United States tax
consequences to a person that is not a U.S. Holder (a "Non-U.S. Holder").
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated thereunder, and administrative and judicial decisions as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
This discussion does not address all aspects of U.S. federal income taxation
that may be relevant to any particular shareholder based on such shareholder's
particular circumstances (including potential application of the alternative
minimum tax), U.S. federal income tax consequences to certain shareholders that
are subject to special treatment such as taxpayers who are broker-dealers,
insurance companies, tax-exempt organizations, financial institutions, holders
of securities held as part of a "straddle," "hedge" or "conversion transaction"
with other investments, holders owning directly, indirectly or by attribution at
least 10% of the voting power of Ace, non-U.S. corporations, non-resident aliens
of the United States or taxpayers whose functional currency is not the U.S.
dollar, or any aspect of state, local or non-United States tax laws.
Additionally, the discussion
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does not consider the tax treatment of persons who hold Company Ordinary Shares
or Ace Shares through a partnership or other pass-through entity or the possible
application of United States federal gift or estate taxes.
EACH HOLDER IS ADVISED TO CONSULT SUCH PERSON'S OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX CONSEQUENCES TO SUCH PERSON OF THE REORGANIZATION AND OF
ACQUIRING, HOLDING OR DISPOSING OF THE ACE SHARES.
THE REORGANIZATION
The Company intends to treat the Reorganization as a tax-free
reorganization under Section 368(a) of the Code. Holders of Company Ordinary
Shares should be aware, however, that the application of U.S. federal income tax
principles to the Reorganization is unclear and, accordingly, there is
uncertainty as to whether the Reorganization will qualify as tax free. The
parties will not request, and the Reorganization is not conditioned upon, a
ruling from the Internal Revenue Service (the "IRS") in connection with any of
the U.S. federal income tax consequences of the Reorganization.
If the Reorganization qualifies as a reorganization under Section 368(a) of
the Code, then, for U.S. federal income tax purposes, (i) no gain or loss will
be recognized by the Company or by Ace as a result of the Reorganization, (ii)
no gain or loss will be recognized by a U.S. Holder of Company Ordinary Shares
that are exchanged for Ace Shares in the Reorganization, (iii) the tax basis of
the Ace Shares received in the Reorganization by a U.S. Holder will be the same
as the tax basis of the Company Ordinary Shares surrendered in exchange therefor
and (iv) the holding period of the Ace Shares received in the Reorganization
will include the period during which the Company Ordinary Shares were held. U.S.
Holders of Company Ordinary Shares will be required to file a notice with the
IRS on or before the last day for filing their U.S. federal income tax returns,
stating that the exchange is described in Section 367(b) of the Code and
including a complete description of the exchange, the stock or securities
received in the exchange, and certain other information required under Treasury
regulations. In addition, if the Company were a Passive Foreign Investment
Company (see discussion below under the caption -- "Passive Foreign Investment
Company Considerations"), U.S. Holders would be required to file Form 8621 with
their U.S. Federal income tax returns that, among other things, describes the
Ace Shares received in the Reorganization and indicates why no gain would be
required to be recognized.
If the Reorganization does not qualify as a reorganization under Section
368(a) of the Code, then, subject to the discussion below under the caption --
"Passive Foreign Investment Company Considerations," a U.S. Holder of Ordinary
Shares will generally recognize capital gain or loss in an amount equal to the
difference between the fair market value of the Ace Shares received in the
exchange and such U.S. Holder's basis in the Company Ordinary Shares. Such gain
or loss will be long-term capital gain or loss if the U.S. Holder of Ordinary
Shares has a holding period of more than one year at the time of the exchange.
Gain realized by a U.S. Holder on the exchange generally will be treated as
United States source income for foreign tax credit purposes. Under current law,
the source of any loss on the exchange of Company Ordinary Shares is uncertain.
Under proposed regulations (which may be retroactive), however, a loss on the
exchange of Company Ordinary Shares generally would be foreign source passive
income or, in the case of a financial services entity, foreign source financial
services income.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
A foreign corporation, such as the Company or Ace, would be a passive
foreign investment company (a "PFIC") for U.S. federal income tax purposes if
75% or more of its gross income (including the pro rata share of the gross
income of any company (U.S. or foreign) in which the Company or Ace is
considered to own 25% or more of the shares by value) in a taxable year is
passive income. Alternatively, the Company or Ace would be considered to be a
PFIC if at least 50% of the assets (averaged over the year and generally
determined based upon fair market value) of the Company or Ace (including the
pro rata share of the assets of any company of which the Company or Ace is
considered to own 25% or more of the shares by value) in a taxable year are held
for the production of, or produce, passive income.
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If the Company has been or is a PFIC, each U.S. Holder who was a
shareholder at any time during which the Company was a PFIC would, in the
absence of an election by such U.S. Holder of Ordinary Shares to treat the
Company as a "qualified electing fund" ("QEF"), as discussed below, upon a
taxable exchange of the Company Ordinary Shares that results in a gain, be
liable to pay tax at the then prevailing U.S. federal income tax rates on
ordinary income, as if the gain had been recognized ratably over the U.S.
Holder's holding period for the Company Ordinary Shares plus interest on the tax
on such gain allocated to each year in such shareholder's holding period (other
than the current year) that the Company was classified as PFIC. The tax
consequences discussed in this paragraph would not be applicable to an exchange
of Company Ordinary Shares that results in a loss.
If Ace has been or is a PFIC, each U.S. Holder of Ace Shares who was a
holder of Ace Shares or Company Ordinary Shares at any time during which the
Company or Ace was a PFIC may, in the absence of a QEF election by such U.S.
Holder, upon certain distributions by Ace and upon disposition of the Ace Shares
at a gain, be liable to pay tax at the then prevailing U.S. federal income tax
rates on ordinary income plus interest on the tax, as if the distribution or
gain had been recognized ratably over the U.S. Holder's holding period for the
Ace Shares (including the period such U.S. Holder held Company Ordinary Shares
exchanged therefore to the extent they were received tax-free and the Company
was a PFIC). Additionally, if Ace were to become a PFIC, U.S. Holders who
acquire Ace Shares from a decedent would be denied the normally-available
step-up of the U.S. federal income tax basis for the such Ace Shares to fair
market value at the date of death and, instead, would have a tax basis equal to
the decedent's basis, if lower.
The Company believes that it may have been a PFIC in the past, that it may
currently be a PFIC and/or that it may continue to be or become a PFIC in the
future. The Company can give no assurance that it will have timely knowledge of
its status as PFIC. Ace believes that it may currently be a PFIC or that it may
become a PFIC in the future. Ace can give no assurance that it will have timely
knowledge of its status a PFIC.
If a U.S. Holder of Ordinary Shares has made a QEF election for all taxable
years that such holder has held the Company Ordinary Shares or the Ace Shares
and the Company or Ace was a PFIC, recognized gain will not be deemed to have
been recognized ratably over the taxpayer's holding period or subject to an
interest charge and instead will be characterized as capital gain. A shareholder
of a QEF is required for each taxable year to include in income for U.S. federal
income tax purposes its pro rata shares of the ordinary earnings of the QEF as
ordinary income and of the net capital gain of the QEF as long-term capital
gain, regardless of whether the Company has distributed such earnings or gain.
Ace does not assume any obligation to make timely disclosure with respect
to its PFIC status. Moreover, Ace does not undertake to provide U.S. Holders
with the necessary information to make a QEF election. Consequently, as a
practical matter, U.S. Holders should assume that they will not be able to make
a QEF election.
TAXATION OF ACE SHARES
Dividends
A U.S. Holder of Ace Shares generally will be required to include in gross
income as ordinary dividend income the amount of any distributions paid on the
Ace Shares (including the amount of any Bermuda taxes withheld therefrom) to the
extent that such distributions are paid out of the Ace's current or accumulated
earnings and profits as determined for U.S. federal income tax purposes.
Distributions in excess of such earnings and profits will be applied against and
will reduce the U.S. Holder's tax basis in the Ace Shares and, to the extent in
excess of such tax basis, will be treated as gain from a sale or exchange of Ace
Shares. Dividends generally will not qualify for the dividends-received
deduction available to corporations. The amount of any cash distribution paid in
Bermuda Dollars will equal the U.S. dollar value of the distribution, calculated
by reference to the exchange rate in effect on the date on which payment is
includible in gross income. U.S. Holders should consult their own tax advisors
regarding the treatment of foreign currency gain or loss, if any, on any Bermuda
Dollars received which are converted into U.S. dollars on a date subsequent to
receipt.
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Generally, U.S. Holders of Ace Shares will have the option of claiming the
amount of any Bermuda income taxes withheld at source either as a deduction from
gross income or as a dollar-for-dollar credit against their U.S. federal income
tax liability. Individuals who do not claim itemized deductions, but instead
utilize the standard deduction, may not claim a deduction for the amount of the
Bermuda income taxes withheld, but such amount may be claimed as a credit
against the individual's U.S. federal income tax liability. The amount of
foreign income taxes which may be claimed as a credit in any year is subject to
certain complex limitations and restrictions, which must be determined on an
individual basis by each shareholder. The limitations set out in the Code
include, among others, rules which limit foreign tax credits allowable with
respect to specific classes of income to the U.S. federal income taxes otherwise
payable with respect to each such class of income. Dividends paid by Ace
generally will be foreign source "passive income" for U.S. foreign tax credit
purposes or, in the case of a financial services entity, "financial services
income." Foreign income taxes exceeding a shareholder's credit limitation for
the year of payment or accrual of such tax can be carried back for two taxable
years and forward for five taxable years, subject to the credit limitation
applicable in each of such years. U.S. Holders of Ace Shares claiming a
deduction for foreign income taxes in a particular tax year must deduct, and
cannot claim a credit for, any foreign taxes for that year. Additionally, the
foreign tax credit in any taxable year may not offset more than 90% of a U.S.
Holder's liability for U.S. individual or corporate alternative minimum tax.
Disposition of Ace Shares
Except to the extent discussed under -- "Special U.S. Tax Considerations"
below and -- "Passive Foreign Investment Company Considerations" above, upon the
sale, exchange or other disposition of Ace Shares, a U.S. Holder generally will
recognize capital gain or loss for an amount equal to the differences between
such U.S. Holder's basis in the Ace Shares and the amount realized on the
disposition. The gain or loss realized on the sale, exchange or disposition of
Ace Shares will be long-term capital gain or loss if the U.S. Holder has a
holding period of more than one year at the time of disposition. Gain realized
by a U.S. Holder on a sale, exchange or other disposition of Ace Shares
generally will be treated as United States source income for United States
foreign tax credit purposes. Under current law, the source of any loss on the
sale, exchange or other disposition of Ace Shares is uncertain. Under proposed
regulations (which may be retroactive), a loss on the sale, exchange or other
disposition of Ace Shares would be foreign source passive income or, in the case
of a financial services entity, foreign source financial services income. U.S.
Holders of Ace Shares should consult their own tax advisors regarding other
treatment of any foreign currency gain or loss on any Bermuda Dollars received
in respect of the sale, exchange or other disposition of Ace Shares.
Special U.S. Tax Considerations
U.S. Holders of Ace Shares may be subject to one or more of the special
anti-deferral regimes pertaining to foreign corporations. Various provisions
contained in the Code impose special taxes in certain circumstances, including
sales of stock in non-United States corporations and their shareholders. In
addition, U.S. Holders who own an interest in a foreign corporation may be
required to file Form 5471 with the IRS.
NON-U.S. HOLDERS OF ACE SHARES
Except as described in -- "Information Reporting and Backup Withholding"
below, a Non-U.S. Holder of Ace Shares will not be subject to U.S. federal
income or withholding tax on the payment of dividends on, and the proceeds from
the disposition of, Ace Shares, unless (i) such item is effectively connected
with the conduct by the Non-U.S. Holder of a trade or business in the United
States and, in the case of a resident of a country which has a treaty with the
United States, such item is attributable to a permanent establishment (or, in
the case of an individual, a fixed place of business) in the United States or
(ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S.
Holder is present in the United States for 183 days or more in the taxable year
of the sale and certain other conditions are met.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders are generally subject to information reporting requirements
with respect to dividends paid on Ace Shares. Under existing regulations, such
dividends are not subject to back-up withholding (currently imposed at a rate of
31%). However, under proposed regulations such dividends paid in the United
States would be subject to back-up withholding. Non-U.S. Holders will not be
subject to information reporting or back-up withholding with respect to
dividends on Ace Shares unless payment is made through a paying agent (or
office) in the United States. Non-U.S. Holders generally will be subject to
information reporting (and, under proposed regulations, could be subject to
back-up withholding) with respect to the payment within the United States of
dividends on Ace Shares, unless the holder provides a taxpayer identification
number, certifies to its foreign status, or otherwise establishes an exemption.
U.S. Holders generally will be subject to information reporting and back-up
withholding at 31% on proceeds paid on the disposition of Ace Shares, unless the
U.S. Holder provides a W-9, a taxpayer identification number, or otherwise
establishes an exemption. Non-U.S. Holders generally will be subject to
information reporting and back-up withholding on the payment to or through the
United States office of a broker, whether domestic or foreign, of proceeds from
the disposition of Ace Shares, unless the holder provides a taxpayer
identification number, certifies to its foreign status or otherwise establishes
an exemption. Non-U.S. Holders will not be subject to information reporting or
back-up withholding with respect to the payment by a foreign office of a broker
of proceeds from the disposition of Ace Shares; provided, however, that, if the
broker is a U.S. person or "U.S. related person," information reporting (but not
back-up withholding) will apply, unless the broker has documentary evidence in
its records of the Non-U.S. Holder's foreign status or the Non-U.S. Holder
certifies to its foreign status under penalties of perjury or otherwise
establishes an exemption. For this purpose, a "U.S. related person" is a broker
or other intermediary that is a controlled foreign corporation for United States
federal income tax purposes or that is a person 50% or more of the gross income
from all sources of which, over a specified three year period, is effectively
connected with the conduct of a United States trade or business.
The amount of any back-up withholding will be allowed as a credit against
such holder's U.S. federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the IRS.
REASONS FOR THE REORGANIZATION OF THE COMPANY
The Company, through its approximately 44% owned subsidiary, Vista
Technologies, Inc. ("Vista") operates photorefractive keratectomy and other
laser vision correction facilities and provides related services to the health
care industry. Vista does not intend to establish any facilities in Ireland and,
as a result, cannot take advantage of the favorable tax incentives Ireland
offers as was originally envisioned when the Company incorporated in Ireland. It
was anticipated that the Company would have its manufacturing facilities in
Ireland. The Company sold all of its operating assets prior to commencing any
manufacturing operations.
By moving to Bermuda upon consummation of the Plan of Reorganization, the
Company will cease to incur the additional costs of being an Irish company such
as capital tax, stamp duty taxes, Irish auditors and legal advisors, increased
transfer agent fees because of the ADR system, statutory Irish financial
statements, requirement to use Irish GAAP and Irish statutory filing
requirements.
The further advantages to being in Bermuda include the elimination of the
ADR system, corporate taxes which will not exceed $25,000 and minimal Bermuda
statutory filing requirements.
The Company estimates that the one-time expenses to be incurred in
connection with the Plan of Reorganization will approximate $200,000 while the
anticipated savings by moving to Bermuda will be approximately $150,000 per
year.
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DISSOLUTION PROCESS UNDER IRISH LAW
Under Irish Law the shareholders of a company may vote to wind-up the
affairs of their company. In the case of a solvent company the directors first
declare that the company will be able to discharge all liabilities of the
company within the twelve months period from the date of the vote to wind-up the
company. On , 1996 the directors made such a declaration, a copy of
which is annexed to the notice of Extraordinary Meeting attached as page of
this Prospectus-Proxy Statement. An independent person who is the auditor of the
Company, or if not the auditor, would be qualified to act as auditor must then
report on the declaration and confirm that in their opinion the declaration of
the directors is reasonable. On , 1996, Ernst & Young, Chartered
Accountants and Registered Auditors of Harcourt Centre, Harcourt Street, Dublin
2, Ireland reported on the declaration of the directors dated , 1996
as follows:
"We have examined the statement of assets and liabilities of Pharma
Patch Public Limited Company dated , 1996 which forms part of
the statutory declaration of solvency made by the directors on ,
1996. The scope of our work for the purpose of this report was limited to
confirming that (a) the statement of the Company's assets and liabilities
at 1996 and (b) the opinion of the directors that the Company
will be able to pay its debts in full within the period specified in the
statutory declaration of solvency are reasonable.
In our opinion and to the best of our knowledge and accordingly to the
information given to us, (a) the statement of the Company's assets and
liabilities at 1996 and (b) the opinion of the directors that the
Company will be able to pay its debts in full within the stated period are
reasonable."
A copy of the foregoing report is annexed to the declaration of the directors.
At the Extraordinary Meeting summoned to be held on , 1996 at 2
p.m. o'clock at 15/16 Fitzwilliam Place, Dublin 2, Ireland, a resolution will be
put to the shareholders of the Company to adopt the Plan of Reorganization to
wind-up the Company and to appoint Mr. Peter H. Beamish as liquidator. To be
passed this resolution must be approved by the holders of not less than 75% of
the ordinary shares whose holders are present at the meeting in person or are
voting by proxy. Immediately on being passed Mr. Peter H. Beamish will assume
the office of liquidator.
Peter H. Beamish, FCA, is a fellow of the Institute of Chartered
Accountants in England and Wales and has practiced in Jersey as a partner in the
Channel Islands firm of Deloitte & Touche since 1984.
As liquidator Mr. Peter H. Beamish will have the following duties powers
and functions:
A.
1. to bring or defend any action or other legal proceedings in the name or
on behalf of the Company;
2. to carry on the business of the Company so far as may be necessary for
the beneficial winding up;
3. to appoint a solicitor to assist him in the performance of his duties;
4. to sell the real and personal property of the company;
5. to do all acts and to execute, in the name and on behalf of the
Company; all deeds, receipts and other documents and, when necessary to
use the Company's Seal;
6. to deal with the estate in bankruptcy of any contributory;
7. to draw, accept, make or endorse any bill of exchange or promissory
note in the name and on behalf of the Company;
8. to borrow money on the security of the assets of the Company;
9. to take out in his name Letters of Administration to any deceased
contributory;
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10. to give security for costs in any proceedings commenced by the Company
or by the Liquidator in the name of the Company;
11. to appoint an agent to do any business which the Liquidator is unable
to do himself; and
12. to do all such other things as may be necessary for the winding up of
the Company and distributing its assets;
B.
1. he may exercise the power of the Court under the Companies Acts of
1963-1970 of the Republic of Ireland (the "Irish Companies Acts") of
setting a list of contributories;
2. he may exercise the power of the Court in making calls on
contributories;
3. he may summon general meetings of the Company for the purpose of
obtaining the sanction of the Company by resolution for any other
purpose as he may think fit;
4. he has power to pay the debts of the Company;
5. he has power to adjust the rights of contributories among themselves;
6. he has power to apply to Court to determine any question arising in the
winding-up of the Company (Section 280);
7. he may apply to the Court to exercise all or any of the powers which
the Court might exercise if the Company were wound-up by the Court
(Section 280);
8. to take proceedings against past or present promoters, directors,
managers, liquidators or officers of the Company to compel the
restoration of money or property or the payment of compensation in
respect of misapplication retainer misfeasance or breach of trust; and
9. to disclaim, with the approval of the Court, onerous or unsaleable
property or unprofitable contracts.
DUTIES OF THE LIQUIDATOR
a. Collect the assets of the Company.
b. Establish the extent of liabilities of the Company and pay off the
creditors with whatever funds are available.
c. Take possession of the books and records of the Company and the
Company seal.
d. Change the registered office of the Company to its own registered
office.
e. Write to all individuals dealing with the company, debtors, creditors
and banks. Close all bank accounts and transfer all funds to its own
bank accounts.
f. The Liquidator must then be seen to complete the winding-up of the
Company under the terms set out in the Irish Companies Acts.
The Liquidator engagement begins as soon as he is appointed by way of
resolution of the stockholders of the Company. If the appointment is not to take
effect until the end of that meeting then his appointment commences at that
stage.
Following upon the appointment of Mr. Peter H. Beamish as liquidator the
assets of the Company will be distributed by the liquidator to the shareholders
of the Company. In this way each holder of ADRs will receive common shares in
Ace and his underlying shares will be surrendered to the Company.
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IRISH TAX CONSIDERATIONS
CORPORATION TAX
There are no Irish corporation tax considerations as the Company is not
resident in Ireland and as Mr. Peter H. Beamish the proposed liquidator is not
resident in Ireland the Company will not following his appointment be deemed to
have become resident in Ireland.
STAMP DUTY
Irish Stamp duty at a fixed rate of IR pound sterling 10 on each document
transferring shares in Ace to a stockholder of the Company and is payable by
such stockholders. This cost will be discharged by the liquidator out of the
assets of the Company.
IRISH CAPITAL TAXES AND TAXES ON CAPITAL GAINS
No Irish Capital taxes or taxes on chargeable gains will be payable as a
result of the liquidation of the Company.
COMPARISON OF BERMUDA LAW TO IRISH LAW
As a result of the consummation of the Plan, the shareholders of the
Company will become shareholders of Atlantic Central Enterprises Limited
("Ace"), a Bermuda company.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE COMPANY TO EXCHANGE THEIR
EXISTING STOCK CERTIFICATES FOR CERTIFICATES OF ACE. OUTSTANDING STOCK
CERTIFICATES OF THE COMPANY SHOULD BE DESTROYED OR SENT TO THE COMPANY.
Set forth below is a brief comparison of the more significant differences
between Bermuda law and Irish law. Bermuda and Irish law differ in many
respects. It is not practical to summarize all of such differences in this
Prospectus -- Proxy Statement, but some of the principal differences which could
materially affect the rights of shareholders are discussed below.
Ace is incorporated under the laws of Bermuda. The rights of the holders of
shares of Ace are governed by Bermuda law and assuming that there are no other
agreements in existence, those rights are governed by the Companies Act 1981
(the "Companies Act") by the Memorandum of Association of Ace (the "Ace
Memorandum") and by Ace's Bye-laws (the "Ace Bye-laws").
Set forth below is certain information concerning the Company's capital
stock and a brief summary of certain provisions of the Company's Articles of
Association and the Irish Companies Acts, 1963 to 1990. Also below is a summary
of certain provisions of the Ace Memorandum and the Ace Bye-laws and a summary
of certain material differences between the rights of the holders of the
Company's Ordinary Shares and the rights of the holders of Ace's Common Stock.
This description and summary does not purport to be complete and is qualified in
its entirety by reference to the Company's Articles of Association, the Ace
Memorandum and the Ace Bye-laws (copies of which have been filed or are
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus Proxy Statement is a part). Copies are also available for
inspection at the offices of the Company and Ace and O'Donnell Sweeney, 16
Fitzwilliam Place, Dublin 2, Ireland, Irish counsel to the Company.
THE COMPANY
The Company's authorized share capital is 52,046,576 Ordinary Shares of
IRL.01 per share. The Company as of June 30, 1996 had issued and outstanding
16,934,375 Ordinary Shares.
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ORDINARY SHARES
All of the Ordinary Shares issued as of the date of this
Prospectus -- Proxy Statement have been credited as fully paid, duly authorized
and validly issued. Holders of Ordinary Shares are entitled to receive such
dividends as may be recommended by the Board of Directors of the Company and
approved by the shareholders and/or such interim dividends as the Board of
Directors of the Company may decide. No dividends have been paid on the Ordinary
Shares prior to the date of this Prospectus -- Proxy Statement. On liquidation
or a winding up of the Company, the assets available for distribution among the
holders of ADSs and Ordinary Shares not otherwise represented by ADSs shall be
distributed pro rata. The Ordinary Shares have no conversion or redemption
rights.
VOTING RIGHTS
Holders of Ordinary Shares are entitled to one vote per share, either in
person or by proxy, at shareholder meetings and five or more shareholders
present in person or by proxy, not being less than five individuals, holding not
less than 66.6% of the issued Ordinary Shares constitutes a quorum at such
meetings. A majority of votes cast in favor of the resolution is required for
ordinary resolutions; however, a 75% vote in favor of the resolution is required
for the adoption of special resolutions. Variation of the rights relating to a
class of Ordinary Shares requires the approval of a special resolution by the
class in question. Shareholders do not have cumulative voting rights for the
election of directors.
ACE
The authorized share capital of Ace consists of Common Shares of par value
$0.01 each, of which 1,200,000 Ace Ordinary Shares were issued and outstanding
as of July 15, 1996.
ORDINARY SHARES
Holders of Ace Ordinary Shares are entitled to receive such dividends as
may be recommended by the Board of Directors of Ace. No dividends have been paid
to date. On a liquidation of Ace, the assets available for distribution shall be
distributed pro rata to the holders of the Ace Ordinary Shares.
VOTING
Under Bermuda law, in the absence of any other agreement to the contrary,
the voting rights of Shareholders are regulated by a company's Bye-laws. The Ace
Bye-laws specify that two persons present in person and representing throughout
the meeting, in person or by proxy, at least 5% of the total issued share
capital of the Company shall form a quorum for the transaction of business. Any
individual Ace Shareholder who is present at a meeting may vote in person, as
may any corporation which is present by a duly authorized representative. The
Ace Bye-laws also permit votes by proxy, provided the instrument appointing the
proxy, together with such evidence of its due execution as is satisfactory to
Ace's Board of Directors, is delivered to Ace's Registered Office (or at any
other place specified in the notice convening the meeting or adjourning the
meeting) 48 hours prior to the meeting or in the case of a poll taken
subsequently, 24 hours before the appointed time of the poll. Under the Ace
Bye-laws (subject to any rights or restrictions otherwise afforded to any shares
of Ace) the holders of Ace Ordinary Shares are entitled to one vote per share.
Voting occurs by show of hands unless a poll is demanded. Under Ace Bye-laws a
poll may be demanded as follows:
(a) by the Chairman of the meeting;
(b) by at least three shareholders present in person or represented by
proxy, or by any shareholder or shareholders present in person or
represented by proxy and holding between them not less than 1/10th of the
total voting rights of all the shareholders having the right to vote at
such meeting; or by
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<PAGE> 30
(c) any Ace shareholder or shareholders present in person or
represented by proxy holding shares conferring the right to vote at such
meeting, being shares of Ace on which an aggregate sum has been paid up
equal to not less than 1/10th of the total sum paid up on all such shares
conferring such rights. If a poll is demanded on the election of a chairman
or on a question of adjournment, it shall be taken at the meeting. If a
poll is demanded on any other question, it shall be taken in such manner
and at such time and place as the chairman may direct and any business
other than that upon which a poll has been demanded may be considered
pending the taking of the poll.
A majority of votes cast in favor of a resolution is required for most
resolutions. However, certain actions, such as the variation of rights attaching
to Ace's shares require a 75% vote in favor of the resolution. Variation of
rights also requires the approval of a resolution of the class in question.
Shareholders do not have cumulative voting rights for the election of directors.
THE COMPANY
Rights of Dissenting Shareholders. There are no appraisal rights under
Irish law.
ACE
Rights of Dissenting Shareholders. The Companies Act 1981 of Bermuda
provides that any shareholder who does not vote in favor of an amalgamation and
who is not satisfied that he has been offered fair value for his shares, may
within 1 month of the giving of notice of the shareholder meeting, apply to the
court to appraise the fair value of his shares. This right is specific to an
amalgamation and in general there are no appraisal rights under Bermuda law.
THE COMPANY
Rotation and Appointment of Directors. The Ace Bye-laws provide that each
director shall hold office until the next annual meeting of shareholders or
until his or her successor shall have been elected or appointed. Each of the
directors retiring at that time may offer themselves for re-election. The Board
may fill any vacancies on the Board created by a retiring director and may
appoint additional directors up to a maximum number specified by the
Shareholders.
ACE
Rotation and Appointment of Directors. The Articles of Association of the
Company require that a third of the non-executive directors shall retire by
rotation at each annual general meeting of the Company. Each of the directors
retiring at this time may offer themselves for re-election. The directors may,
during the period between annual general meetings of the Company, add additional
directors to the Board of Directors of the Company. Directors who are added to
the Board in such a fashion must resign at the next annual general meeting and
may offer themselves for re-election.
THE COMPANY
Shareholder Meetings. Under Irish law, a company's annual general meeting
of shareholders must take place in the Republic of Ireland and any business
transacted at a meeting held in breach of this requirement will be void, unless
all shareholders entitled to attend and vote at such meeting consent in writing
to the meeting being held elsewhere or alternatively a resolution providing that
the meeting be held elsewhere has been passed at the preceding annual general
meeting of shareholders. The Articles of Association of the Company permit
general annual meetings to be held outside Ireland if the above procedures are
followed. Under Irish law, extraordinary general shareholders' meetings may be
convened by the Board of Directors or at the request of shareholders holding not
less than one-tenth of the paid-up capital of the Company as at the relevant
date. An annual general meeting of the Company must be held within 18 months of
the date of
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<PAGE> 31
incorporation and thereafter one in each calendar year so that not more than 15
months shall elapse between one meeting and the next. The Minister for
Enterprise and Employment of Ireland may, on the application of any shareholder,
call or direct the calling of a general meeting if default is made in holding
such a meeting. Irish law requires at least 14 days written notice of a meeting,
except that an annual general meeting for passing a special resolution requires
at least 21 days written notice.
Resolutions which may be passed by the members in general meetings are of
two kinds, ordinary and special. Ordinary resolutions require that a simple
majority of members present in person or by proxy (where voting by proxy is
allowed) at the meeting and entitled to vote approve and vote for the
resolutions. Special resolutions must be passed by not less than three quarters
of the votes in person or by proxy (where voting by proxy is allowed).
ACE
Shareholder Meetings. Under Bermuda law, an annual general meeting of Ace
must be held once in each calendar year at such time and place as any Director
or the Board of Directors of Ace shall appoint. The Ace Bye-laws further provide
that the Board of Directors may convene a special general meeting whenever in
their judgment such meeting is necessary.
A special general meeting may be called on the request of shareholders
holding, at the date of deposit of the request, at least one tenth of such of
Ace's paid-up share capital carrying the right to vote. Ace's Board of Directors
must proceed to convene a special general meeting within 21 days of the date of
deposit of the request. If the Board of Directors fail to do so, the requesting
shareholders, or any number of them, representing more than one half of the
total voting rights of all of them, may convene a meeting which must be held
within 3 months of the date of the deposit of the request.
At least 5 days' notice of an annual meeting should be given to each
shareholder stating the date, place and time of the meeting and as far as
practical the business to be conducted at the meeting. Similarly not less than
14 days' notice must be given of any special general meeting of Ace and must
state the time, place and the general nature of the business to be conducted at
the meeting. A general meeting called by less notice shall be deemed to have
been properly called if it is so agreed by all the shareholders entitled to
attend and vote thereat in the case of an annual meeting and by a majority of
the shareholders in number holding 95% or more in nominal value of the shares
giving a right to attend and vote thereat in the case of a special general
meeting.
THE COMPANY
Issuance of Shares. Irish law restricts the power of the Board of Directors
to allot shares to grant share subscription rights and rights to convert loans
or other obligations of a company into shares unless the shareholders pass a
resolution conferring such powers on the Board of Directors for periods of up to
five years. The Company's shareholders have passed such a resolution. In
addition, the Company may not pay, directly or indirectly, a commission in
excess of 10% of the price at which shares are issued to any person subscribing
for or procuring subscriptions for the Company's shares.
ACE
Issuance of Shares. Subject to provisions of the Bye-laws, the unissued
shares of Ace shall be at the disposal of the Board which may offer, allot or
grant options or otherwise dispose of them to such persons at such times and for
such consideration upon such terms and conditions as they determine.
Furthermore, the Board may in connection with the issue of any shares exercise
all powers of paying commission and brokerage conferred or permitted by law.
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<PAGE> 32
THE COMPANY
Substantial Shareholdings. Under the Irish Companies Acts a person who has
an interest in 5% or more of the issued voting share capital of a public limited
company must notify the company (in a prescribed manner and normally within five
business days) of his interest and of certain circumstances and events affecting
that interest. In general, such a person must notify changes in his interest
above the 5% level and any reduction which takes his interest below 5%. Failure
to notify punctually and properly is an offense. Additionally, no right or
interest in respect of the relevant shares will be enforceable by the person who
fails to notify the company of such an interest, whether directly or indirectly
by action or legal proceeding. The courts may remove the restriction but not if
the failure to notify was the result of any deliberate act or omission on the
part of the applicant. Any interest in an ADS would be regarded as an interest
in the Ordinary Shares for this purpose.
ACE
Substantial Shareholdings. Under Bermuda law there is no general
requirement for any person who owns shares in a Bermuda company to notify the
company of this interest or any restriction on the percentage of shares that can
be held.
THE COMPANY
Pre-emptive Rights. Irish law provides that issuance of shares for cash
(and rights to subscribe for or convert into shares for cash) must be offered,
pro rata, to the existing holders of shares. The shareholders may by special
resolution eliminate this requirement for periods of up to five years. The
Company's shareholders have passed such a resolution.
ACE
Pre-emptive Rights. Under Bermuda law, no shareholder has a pre-emptive
right to subscribe for additional issues of a company's shares unless, and to
the extent that such right is expressly granted to such shareholder under the
Bye-laws of the company or under any contract between such shareholder and the
company. The Ace Bye-laws do not provide for pre-emptive rights and Ace is not a
party to any contract with any shareholder providing such rights.
THE COMPANY
Derivative Action Suits. As a general principle of Irish law, only a
company itself can be the proper plaintiff for the purposes of maintaining
proceedings in respect of wrongs done to the company. Neither an individual
shareholder, nor any group of shareholders has any right of action in such
circumstances. There are, however, certain exceptions to this principle
available under equitable principles on a case-by-case basis. For example, the
controlling shareholders cannot perpetrate a fraud on the minority shareholders
or commit an act which is illegal or ultra vires. Additionally, if a company
purports to act on the strength of a decision by a simple majority where certain
decisions call for more than a simple majority, an individual shareholder is
entitled to bring suit. In cases where the controlling shareholders will not
institute proceedings in the name of the company in those instances where they
are properly called for, one or more of the aggrieved minority shareholders may
bring what has come to be known as derivative action, namely an action that
derives from the injury to the company rather than the injury to individual
shareholders. A minority shareholder is also able to initiate proceedings in the
name of the Company in certain other limited circumstances.
ACE
Derivative Action Suits. Under general principles of Bermuda law, only the
company itself can be the proper plaintiff for the purposes of maintaining
proceedings in respect of wrongs done to the Company.
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<PAGE> 33
Neither an individual shareholder nor any group of shareholders has any right of
action in such circumstances. There are however, certain exceptions to this
principle in equity for example where there is an absolute necessity to waive
the general rule that a shareholder may not bring such an action in order that
there not be a denial of justice or a violation of Ace's Memorandum of
Association.
THE COMPANY
Class Action Suits. In contrast to derivative action, Irish law permits an
action by a shareholder in his own right where his personal rights have been
infringed. Such a shareholder may commence a suit in a representative capacity
on behalf of himself and other affected shareholders of the same class if their
rights are identical. Additionally, under Irish law any member of a company who
claims that the affairs of the company are being conducted, or that the powers
of the directors of the company are being exercised in a manner oppressive to
him or any of their members (including himself) or in disregard of his or their
interests as members, may apply to the courts for an appropriate order.
ACE
Class Action Suits. Bermuda law is similar to Irish law with respect to
class action suits.
THE COMPANY
Interlocking and Interested Directors. Irish law provides that it shall be
the duty of a director of a company who is in any way, whether directly or
indirectly, interested in a contract or proposed contract with the company to
declare the nature of his interest at a meeting of the directors of the company
at which that contract is discussed. A director includes a "shadow director,"
who is any person in accordance with whose directions or instructions the
directors are accustomed to act. The Irish law and the Articles of Association
of the Company provide, among other things, that a director may not generally
vote in respect to any contract or arrangement or any other proposal in which he
has any material interest otherwise than by virtue of his interests in shares or
other securities of or otherwise in or through the Company. The Articles of
Association also provide that if any question shall arise at any meeting as to
the materiality of a director's interest or as to the entitlement of any
director to vote, such question shall be referred to the Chairman of the
meeting. Additionally, the Articles of Association provide that the shareholders
of the Company may, by Ordinary Resolution, suspend or relax these provisions to
any extent to ratify any transaction not only duly authorized by reason of a
contravention of the Articles of Association.
Significant changes have recently been made in Irish law with regard to
transactions of a company involving its directors and connected persons, i.e., a
director's spouse, immediate family, trustee, guarantor, surety, partner or
corporate body controlled by that director. The matters, dealt with include
loans, share dealings and disclosures. A sale or purchase of an asset by a
director to the company or from the company is void in certain circumstances
unless the transaction is approved by the company in general meeting. It is
illegal for a company to give a loan or loan type finance to or grant security
for a director save in specified circumstances. Where permitted loans are made
the director may be held personally liable for the debts of the Company by a
court in a winding up and these loans must be disclosed in the accounts of the
company. There are also extensive obligations on directors to disclose to the
company certain transactions in the company's annual accounts. All directors,
shadow directors and secretaries have to disclose any interests in shares in the
company or a subsidiary or a holding company of the company. Each company is
obliged to keep a register of interests. Interests of spouses or minor children
are considered to be interests of a director for purposes of Irish law.
Interlocking and Interested Directors. Bermuda law provides that it shall
be the duty of the director of a company who is in any way, whether directly or
indirectly, interested in a contract with the company to declare the nature of
his interest at a meeting of the directors of the company at which that contract
is discussed. However, a director may vote in respect of such contract unless
the Bye-laws otherwise provide. The Ace Bye-laws also provide that if a question
shall arise at a meeting as the materiality of a director's interest or as to
the
29
<PAGE> 34
entitlement of any director to vote, such question shall be referred to the
chairman of the meeting. Additionally, the Ace Bye-laws provide that the
shareholders of the company may by ordinary resolution suspend or relax these
provisions to any extent to ratify any transaction. It is illegal for a company
to give a loan to or grant security to a director unless such loan or security
has received shareholder approval.
THE COMPANY
Approval of Consolidated Financial Statements by Shareholders. The Board
of Directors is required to submit the Company's consolidated financial
statements and a report of their conduct to the shareholders annually for their
approval. The shareholders must approve or reject such financial statements.
ACE
Approval of Consolidated Financial Statements by Shareholders. If all
shareholders and directors of Ace agree, either in writing or at a general
meeting, that in respect of a particular period no financial statements or
auditors report need be presented before a general meeting, then there shall be
no obligation on the Directors to prepare financial statements for such period.
THE COMPANY
Purchase of Own Shares. The Company has authority in its Articles of
Association to purchase its own shares. This power may not be exercised unless
the shareholders of the Company have passed a special resolution giving the
Company general authority to purchase its own shares, which the Company has not
done.
ACE
Purchase of Own Shares. Ace has the authority in its Memorandum of
Association to purchase its own shares. This power may not be exercised unless
the Board of Directors of Ace have approved the repurchase and the provisions of
the Companies Act, 1981 of Bermuda regarding the solvency of Ace are satisfied.
NO FRACTIONAL SHARES
Holders of Ordinary Shares will not receive any fractional Ace Shares. All
fractions of Ace Shares which such holders would otherwise be entitled to
receive will be rounded to the next lowest whole number if the first decimal
place is less than five and rounded up to the next highest whole number if the
first decimal place is five or higher.
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<PAGE> 35
PRICE RANGE OF THE COMPANY'S ADRS
The Company's ADRs were traded on the NASDAQ Stock Market (Small Cap Market
["NASDAQ"]) and on the Boston Stock Exchange ("BSE") through August 16, 1995.
Effective August 17, 1995, the ADRs were de-listed from NASDAQ and the BSE. The
ADRs now trade on NASDAQ's OTC Bulletin Board. The Company's ADR's began trading
on NASDAQ on March 1,1994. Set forth below is the high and low closing bid and
high and low closing asking prices for the ADRs through August 16, 1996 and the
closing bid and asking prices thereafter for the periods indicated:
<TABLE>
<CAPTION>
PERIOD CLOSING BID CLOSING ASK
- ------------------------------------------------------- --------------------------- ------------
1994 HIGH LOW HIGH LOW
- ------------------------------------------------------- ----------- ----------- ---- ---
<S> <C> <C> <C> <C>
First Quarter (March 2 thru March 31).................. 9 7 1/2 9 1/8 7 7/8
Second Quarter......................................... 6 7/8 4 5/8 7 1/4 5
Third Quarter.......................................... 5 2 5 3/4 2 1/2
Fourth Quarter......................................... 2 7/8 1 3 1/2 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW HIGH LOW
- ------------------------------------------------------- ----------- ----------- ---- ---
<S> <C> <C> <C> <C>
First Quarter.......................................... 1 3/16 1 1 2 1/4
Second Quarter......................................... 1 5/8 1 1 5/8 1 1/8
Third Quarter (July 1 through August 16)............... 1 7/8 1 1/16 2 1/8 1 1/8
</TABLE>
<TABLE>
<CAPTION>
1995 CLOSING BID CLOSING ASK
- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Third Quarter (after August 16)........................ 15/16 1 3/8
Fourth Quarter......................................... 13/16 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1996
- -------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter.......................................... 3/4 1 3/16
Second Quarter......................................... 13/16 1 1/2
Third Quarter.......................................... 1/8 5/8
Fourth Quarter (through October 2)..................... 1/8 5/8
</TABLE>
On August 17, 1995, the Company's ADR's and warrants were de-listed from
the NASDAQ Small Cap Stock Market and the Boston Stock Exchange because the
Company was not in technical compliance with the applicable listing
requirements. As the result of such de-listing, any broker or dealer effecting a
purchase or sale of unlisted ADR's will be required to comply with the "penny
stock" rules set forth in Section 15(g) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder, unless the transaction
is otherwise exempt pursuant to specified exemptions contained in such rules.
The "penny stock" rules require that, prior to the transaction, the broker or
dealer has (i) approved the prospective investor's account for the transaction
in the penny stock in compliance with specified procedures and (ii) receive from
the investor a written agreement to the transaction setting forth the identity
and quantity of the penny stock to be purchased. These requirements may further
adversely affect the liquidity of and market for the ADR's.
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<PAGE> 36
BUSINESS OF THE COMPANY
The Company had no revenues from continuing operations and has accumulated
a deficit as of February 29, 1996 of $6,249,628 after giving effect to the sale
of assets described below. The Company made a significant shift in its business
direction in recent months through the sale of substantially all of its
operating assets and subsequently through the acquisition of a significant
interest in a laser vision company. The Company does expect to continue to incur
operating losses until such time, if ever, as it derives revenues from
operations. There is no assurance that the Company will ever operate profitably.
On November 1, 1995, the Company sold substantially all of its assets,
including the operations and technology acquired from Flora, Inc. on June 30,
1994, to Technical Chemicals and Products, Inc. ("TCPI") in exchange for 786,214
shares of TCPI common stock ("Shares") with a fair value of $11,919,000 after
net closing adjustments of $81,000 and the satisfaction by TCPI of a $5,000,000
promissory note previously issued by the Company. As a result of the
consummation of this transaction, the Company then owned approximately 9.9% of
TCPI's outstanding common shares. In April 1996, the Company sold 210,000 TCPI
shares pursuant to the underwritten TCPI public offering described in the next
paragraph and received net proceeds of $2,928,697.
On January 16, 1996, the Company entered into a Supplemental Agreement
("Supplemental Agreement") with TCPI which amends certain provisions of the
Asset Purchase Agreement dated as of November 1, 1995 ("Asset Purchase
Agreement") between the Company and TCPI and addressing certain additional
matters. TCPI has filed a Registration Statement on Form S-1 ("S-1") with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares ("Offering"). Pursuant to the terms of the Supplemental Agreement,
the Company agreed to execute a lock-up letter with the representative of the
Underwriters providing that it would not sell or otherwise dispose of any of its
shares of Common Stock for a period to expire 180 days following the closing
date of the Offering. As consideration for the execution of this lock-up
agreement, TCPI agreed (i) to terminate an existing lock-up agreement covering
Common Stock owned by the Company, executed in connection with the Asset
Purchase Agreement; (ii) effective as of the closing date of the Offering, to
terminate the voting trust agreements, shareholders' agreement and irrevocable
proxy, executed in connection with the Asset Purchase Agreement which, among
other things, limited the Company's ability to vote or dispose of its shares of
Common Stock; (iii) allow the Company to offer for sale 100,000 shares of this
Common Stock in the Offering (plus up to an additional 110,000 if the
Underwriters' over-allotment option is exercised); (iv) effective as of the
closing date of the Offering, issue to the Company a two-year warrant to
purchase 100,000 shares of Common Stock at an exercise price equal to the per
share Offering price; and (v) to file a registration statement on Form S-3 to
register all of the remaining shares of Common Stock owned by the Company after
the Offering. All 210,000 shares were sold in the Offering which closed on April
30, 1996.
On March 31, 1996, the Company acquired a controlling interest in Vista
Technologies, Inc. ("Vista"), a publicly traded company. Vista also received
equity financing from the Company in a series of transactions. The Company
purchased 200,000 Vista shares for $500,000 cash and received 2,060,000 Vista
shares and 500,000 Vista Class C Warrants in exchange for a loan to Vista of
$750,000 repayable in six months and 200,000 restricted shares of TCPI common
stock owned by the Company. In July 1996, the Company acquired an additional
200,000 Vista shares upon the partial exercise of a warrant received by it in
March 1996. See "Certain Transactions." Vista provides photorefractive
keratectomy and other laser vision correction facilities and services to the
health care industry.
The mailing address and telephone number of the Company's registered head
office are 15/16 Fitzwilliam Place, Dublin 2, Ireland and 011-353-1-662-5222,
respectively.
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<PAGE> 37
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- ---- -----
<S> <C> <C>
Murray D. Watson 52 Chairman of the Board, Chief Executive
Officer, President and Director
Kenneth G. Howling 38 Vice President -- Finance and Chief
Financial
Officer
Paul E. Heney 37 Secretary
Kevin J. Quinn 54 Director(1)
William G. Hutchison 58 Director(1)
</TABLE>
- ---------------
(1) Member of the Audit, Compensation and Nominating Committees.
All of the above persons have served in their respective capacities since
July 30, 1993 with the following exceptions: Mr. Howling began his service on
November 8, 1993. Mr. Quinn became a director on March 15, 1996 and Mr.
Hutchison became a director on July 2, 1996. No director receives any
compensation for his services as such.
The function of the Audit Committee is to review significant financial and
accounting issues, to review the services performed by, and reports of, the
Company's independent auditors and to make recommendations to the Board of
Directors with respect to these and related matters.
The Compensation Committee is responsible for establishing and
administering the Company's executive compensation programs. The Nomination
Committee is responsible for making recommendations for vacancies on the Board
of Directors.
MURRAY D. WATSON, B.A.SC., M.B.A., CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, PRESIDENT AND DIRECTOR
Mr. Watson became the Chairman of the Board and Chief Executive Officer of
the Company on July 30, 1993. Prior thereto, he had been the President and Chief
Operating Officer of Medipro Sciences Limited since November, 1987. He has over
25 years of experience in the international health care industry including Vice
President, Picker International Inc., President, Odyssey Inc., and General
Manager, American Hospital Supply Corp. of Canada. As President of the M.D.W.
Group Inc., a privately owned merchant banking company since 1985, he has
managed a broad spectrum of business ventures. Mr. Watson received his B.A.Sc.,
in Civil Engineering in 1965 from the University of Toronto and his MBA in 1971
from York University in Toronto, Canada. Mr. Watson is also a director of Vista
and is the Vice-Chairman of the Board of Vista. See "The Company" and "Certain
Transactions".
KENNETH G. HOWLING, C.P.A., VICE PRESIDENT -- FINANCE AND CHIEF FINANCIAL
OFFICER
Mr. Howling became the Vice President -- Finance and Chief Financial
Officer of the Company on November 8, 1993. He served as the Corporate Secretary
and Controller for Roberts Company Canada Limited from June 1988 until May 1991
and also served as General Manager from June 1991 to November 1993. Prior
thereto, he spent 10 years in financial and general management positions
including positions with Smith Kline Beecham, Bencard Allergy Laboratories,
McGraw Edison, and Price Waterhouse. He has been involved in acquisitions,
corporate restructuring, cash flow management, human resource management, and
management information systems. Mr. Howling received his Certified Public
Accountant license from the state of New Jersey in 1987 and his B.A. in
Accounting from Upsala College in East Orange, New Jersey.
PAUL E. HENEY, B.SOC.SCI., LL.B., M.B.A., SECRETARY
Mr. Heney became the Secretary of the Company on July 30, 1993. He is an
attorney and has practiced in the Toronto, Ontario firm of Heney and Associates
since 1991. Between 1985 and 1991 he worked with the
33
<PAGE> 38
Toronto law firm of Holden Day Wilson. He received his B.Soc.,Sci. in economics
from the University of Ottawa in 1981, his LL.B. from the University of Ottawa
in 1984 and his M.B.A. in 1985 from York University, Toronto.
KEVIN J. QUINN, BBA, LLM., DIRECTOR
Mr. Quinn was elected a director of the Company in March 1996. He has been
a practicing attorney in Los Angeles, California since 1969.
WILLIAM G. HUTCHISON, B. ENG., P. ENG -- DIRECTOR
Mr. Hutchison is the Managing Director of Quorum Growth International
Limited, located in Singapore. Quorum is a Canadian headquartered company
providing expansion capital and strategic management expertise to
technology-rich growth companies. Prior to joining Quorum, Mr. Hutchison was
National Managing Partner for the Information Technology Practice of Ernst &
Young (Canada) and also National Director, Information, Communications and
Entertainment Industries and Chairman of the International Telecommunications
Industries Practice of Ernst & Young; Chairman & CEO of Informart, Canada's
largest multimedia publishing firm and President and CEO of Consolidated
Computer Inc., Canada's first computer systems manufacturing firm. Mr. Hutchison
has focused much of his 35 year career in pioneering efforts to help establish
Canada's advanced technology infrastructure. He was Chairman of the Executive
Committee that created CANARIE Inc.; a former Chairman of the Board and he
continues as a director. Other positions Mr. Hutchison has held include
Vice-Chairman of the Prime Minister's National Advisory Board for Science and
Technology; founder, Director and Chairman of the Canadian Advanced Technology
Association (CATA); and founder and Director of Precarn Associates Ltd. Mr.
Hutchison received his B. Eng. in Electrical Engineering in 1962 from McGill
University in Montreal, Quebec.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into a three (3) year management agreement commencing
August 3, 1993 (the "TMI Agreement") with Trident Management Inc. ("TMI"). Mr.
Watson is a minority shareholder of TMI.
On February 28, 1994 the TMI Management Agreement was terminated save and
except for the option provisions and a three-year employment agreement between
the Company and Mr. Watson became effective. On January 22, 1996, the TMI
Agreement was terminated, effective November 15, 1995. A new consulting
agreement was entered into between the Company and TMI on February 27, 1996,
effective November 16, 1995. The new agreement provides that TMI will provide
general supervision of the day to day operations and provide consulting services
with respect to the worldwide business and affairs of the company and designated
Murray D. Watson, a minority shareholder of TMI, to serve as the Company's
Chairman of the Board and Chief Executive Officer.
The agreement provides for annual salary of $225,000 U.S., payable monthly.
The annual base salary shall be increased annually at the rate of 10% per annum.
TMI shall be entitled to receive an annual performance bonus payable in cash or
by mutual agreement by equivalent equity in the amount equal to 100% of the
gross annual base remuneration payable during the first year of the term thereof
but only in the event that closing price of the Company's ADSs equals or exceeds
U.S.$2.00 for any 21 day period (whether or not consecutive) prior to February
28, 1997. With respect to subsequent years, the bonus shall be in an amount
agreed upon between the compensation committee of the Company's board of
directors and TMI. If the Company terminates the agreement without cause, TMI
will be entitled to receive severance payments in an amount equal to the greater
of the amounts payable each year for the number of years or part thereof
remaining under the contract or 12 months.
On November 8, 1993, the Company entered into an employment agreement with
Mr. Kenneth Howling for a term of three (3) years. On January 22, 1996, this
agreement was terminated, effective November 15, 1995. Pinnacle Financial
Corporation ("Pinnacle") and the Company entered into a new three year
consulting agreement on February 27, 1996, effective November 16, 1995. Pinnacle
is wholly-owned by Mr. Howling. The new agreement provides that Pinnacle will
provide general supervision of the day to day financial
34
<PAGE> 39
operations and provide consulting services with respect to the worldwide
business and affairs of the company and designated Kenneth G. Howling, its sole
shareholder, to serve as the Company's Vice President of Finance and Chief
Financial Officer.
The agreement provides for annual salary of $125,000 U.S., payable monthly.
The annual base salary shall be increased annually at the rate of 10% per annum.
Pinnacle shall be entitled to receive an annual performance bonus payable in
cash or by mutual agreement by equivalent equity in the amount equal to 100% of
the gross annual base remuneration payable during the first year of the term
thereof but only in the event that closing price of the Company's ADSs equals or
exceeds US$2.00 for any 21 day period (whether or not consecutive) prior to
February 28, 1997. With respect to subsequent years, the bonus shall be in an
amount agreed upon between the compensation committee and the Company's board of
directors. If the Company terminates the agreement without cause, Pinnacle will
be entitled to receive severance payments in an amount equal to the greater of
the amounts payable each year for the number of years or part thereof remaining
under the contract or 12 months.
The TMI Agreement and the Pinnacle Agreement described above will be
assumed by Ace upon commencement of the liquidation of the Company.
Effective December 1, 1993, the Company entered into a consulting agreement
with Dr. Joseph G. Masterson pursuant to which Dr. Masterson will provide the
Company with consulting services including assistance in establishing strategic
alliances. This agreement was terminated on January 22, 1996.
Also on January 22, 1996, the employment or management agreements between
the Company, Hooper & Associates of which Mr. Gary R. Hooper is the sole
shareholder, Dr. Thomas S. Spencer and Dr. Vithal J. Rajadhyaksha were
terminated. Mr. Hooper resigned as the President and Chief Operating Officer of
the Company; Dr. Spencer resigned as the Executive Vice President and Chief
Technical Officer of the Company; and Dr. Rajadhyaksha resigned as the Vice
President -- Pharmaceutical Development of the Company. These transactions were
effective November 15, 1995. In connection with the termination of these
agreements, as consideration for contractual obligations not met by the Company,
services rendered, severance pay, accepting shares in lieu of cash as payment
for salaries in fiscal 1996, the obligations of TMI, Hooper & Associates, Mr.
Howling, and Dr. Spencer under promissory notes valued at $741,250 issued in
August of 1995 with respect to the purchase of Ordinary Shares were deemed paid
in full and TMI was issued 206,250 additional Ordinary Shares valued at
$103,125. (See "Certain Transactions").
Murray D. Watson, through TMI and Kenneth G. Howling, through Pinnacle, are
paid compensation for acting as officers and/or directors of Vista at the annual
rate of $100,000 U.S. and $60,000 U.S., respectively. Such compensation
commenced on April 1, 1996. Each of TMI and Pinnacle are entitled to a bonus to
be reviewed by the Board of Directors of Vista at the end of each fiscal year up
to 100% of base compensation.
STOCK OPTION PLANS
On July 30, 1993, and July 19, 1994, the Board of Directors adopted its
1993 and 1994 Share Option Plans (together, the "Plans"), the purpose of which
is to provide the Company's employees, officers and directors with additional
incentives to improve the Company's ability to attract, retain and motivate
individuals upon whom the Company's sustained growth and financial success
depend.
The Plans are administered by the Compensation Committee designated by the
Board of Directors (the "Committee"), which is comprised of outside directors.
The aggregate number of Ordinary Shares reserved for issuance under the 1993
Plan is 550,000 shares, while the aggregate number of Ordinary Shares reserved
for issuance under the 1994 Plan is 150,000 shares. Options for a total of
685,000 shares were outstanding and have expired.
35
<PAGE> 40
On March 3, 1996, the following options to purchase Ordinary Shares were
issued to the persons and entities listed below, all of which have terms of five
years:
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE PRICE
NAME SUBJECT TO OPTION(1) PER SHARE
---- -------------------- --------------
<S> <C> <C>
Trident Management, Inc...................... 350,000 $ 0.50
Pinnacle Financial Corporation............... 250,000 $ 0.50
S. Lynda Murtha.............................. 33,334 $ 0.50
Kevin J. Quinn............................... 33,333 $ 0.50
Paul E. Heney................................ 33,333 $ 0.50
All officers and directors as a group (5
persons)................................... 700,000
</TABLE>
- ---------------
(1) These options shall vest only in the event that the closing price of the
Company's ADS's equals or exceeds U.S. $2.00 in any 21 day trading period
(whether or not consecutive) prior to the February 28, 1997.
Options granted under the Plans are immediately exercisable. The exercise
price of the options is determined by the Committee and will be at least 100% of
the market price of the Ordinary Shares on the date the option is granted. No
awards can be made under the Plans after August 2002. The term of any option
will be determined by the Committee, provided that the term may not exceed ten
(10) years from the date of grant. Unless otherwise expressly authorized by the
Board, all options will terminate not more than ninety (90) days after
termination of the option holder's employment or service with the Company (or
one year after such termination because of death or disability). Under certain
circumstances involving a change of control of the Company, the Committee may
accelerate the exercisability and termination of the option.
36
<PAGE> 41
PRINCIPAL SHAREHOLDERS
The Company has outstanding 16,934,375 Ordinary Shares as of August 31,
1996. Such total excludes Ordinary Shares issuable upon the exercise of
outstanding Class A, Class B, Class C and Class D Warrants.
The following table sets forth the Company's Ordinary Shares beneficially
held as of the date of this Prospectus by (i) each person known by the Company
to beneficially hold 5% or more of such shares, (ii) each director and officer
of the Company, and (iii) all officers and directors as a group. All of the
persons and groups shown below have voting and investment power with respect to
the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
ORDINARY SHARES OUTSTANDING
BENEFICIALLY OWNED(1) SHARES
--------------------- -----------
<S> <C> <C>
Trident Management Inc.(2).................................... 880,339 5.2%
Murray Watson................................................. -0- --
Paul E. Heney................................................. 302,500 1.7%
Kenneth G. Howling............................................ 113,000 *
Pinnacle Financial Corporation(3)............................. 143,750 *
Kevin J. Quinn................................................ 116,408 *
All officers and directors as a group (5 persons)............. 1,555,997 9.2%
</TABLE>
- ---------------
* Less than .1%
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person or entity in the table
above. The address for each beneficial holder is c/o the Company, 15/16
Fitzwilliam Place, Dublin 2, Ireland.
(2) Mr. Watson is a minority shareholder of Trident Management Inc. Mr. Watson
disclaims beneficial ownership of such shares and options.
(3) Mr. Howling is a controlling shareholder of Pinnacle Financial Corporation
and is the beneficial owner of these shares.
EXECUTIVE COMPENSATION
The following table sets forth in the prescribed format the compensation
paid the Company's Chief Executive Officer and the executive officers of the
Company who received total annual salary and bonus for the fiscal year ended
February 29, 1996 in excess of $100,000 for services rendered in all capacities
during the Company's last completed fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION SALARY BONUS COMPENSATION OPTIONS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------- ---- ------- ----- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Murray D. Watson 1996 211,719(1) -- 309,375(1)(2) N/A N/A
Gary Hooper 1996 128,333(3) -- 160,000(4)
Thomas Spencer 1996 99,167 -- 140,000(5)
Kenneth Howling 1996 117,917(6) -- 115,000(7)
</TABLE>
- ---------------
(1) This amount was paid to TMI in which Mr. Watson is a minority shareholder.
(2) Represents 257,813 Ordinary Shares valued at $0.80 per share and 206,250
Ordinary Shares valued at $0.50 per share which were issued to TMI in which
Mr. Watson is a minority shareholder.
(3) Includes $15,000 paid to a consulting company in which Mr. Hooper is the
sole shareholder.
37
<PAGE> 42
(4) Represents 200,000 Ordinary Shares valued at $0.80 per share.
(5) Represents 175,000 Ordinary Shares valued at $0.80 per share.
(6) Includes $38,333 paid to a consulting company in which Mr. Howling is the
sole shareholder.
(7) Represents 146,750 Ordinary Shares valued at $0.80 per share issued to a
consulting company in which Mr. Howling is the sole shareholder.
The following tables set forth certain information in the prescribed format
with respect to options granted and exercised under the Company's various stock
option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
% OF ANNUAL
TOTAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION
UNDERLYING TO FOR OPTION
OPTIONS EMPLOYEES TERM(1)
GRANTED IN FISCAL EXERCISE EXPIRATION -----------
NAME (#) YEAR (%) PRICE ($) DATE 5% 10%
- ---- ---------- --------- --------- ---------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Murray D. Watson -0- N/A N/A N/A N/A N/A
Gary Hooper -0- N/A N/A N/A N/A N/A
Thomas Spencer -0- N/A N/A N/A N/A N/A
Kenneth Howling -0- N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Potential realizable value is based on an assumption that the stock price of
the common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten year option term. Such
amounts are based on the assumption that the named person hold the options
for their full 10-year term. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNDERLYING
SECURITIES
UNEXERCISED OPTIONS
---------------------------
AT FY- AT FY-
END ENDED(1) VALUE OF UNEXERCISED
--------------------------- IN THE MONEY OPTIONS
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME ON EXERCISE (#) ($) ($) ($) ($) ($)
- ---- ---------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Murray D. Watson None N/A 0 0 0 0
Gary Hooper None N/A 0 0 0 0
Thomas Spenser None N/A 0 0 0 0
Kenneth Howling None N/A 0 0 0 0
</TABLE>
- ---------------
(1) The amounts in this column are calculated using the difference between the
closing market price of the Company's ordinary shares at the Company's 1996
fiscal year-end and the option exercise prices.
38
<PAGE> 43
CERTAIN TRANSACTIONS
On July 30, 1993, pursuant to an Agreement for Purchase of Assets, as
amended, TPR acquired from Synorex Incorporated, a Delaware corporation
("Synorex"), substantially all of the assets of Synorex, consisting primarily of
patents and patent applications relating to certain skin penetration enhancer
technologies in exchange for 2,046,576 TPR Class B Preferred Shares. After
February 28, 1994, such TPR Class B Preferred Shares were exchanged for 300,000
Ordinary Shares of the Company held by TPR. The 300,000 Ordinary Shares may not
be sold or transferred for a period of up to one (1) year after February 28,
1994 without the prior written consent of Westfield Financial Corporation, one
of the underwriters of the Company's initial public offering.
In connection with the Synorex transaction, Dr. Vithal J. Rajadhyaksha
("Dr. Raj"), the principal inventor of the Synorex technology, entered into a
Consulting and Non-Compete Agreement ("Consulting Agreement") with TPR pursuant
to which Dr. Raj agreed to provide part time technical consulting services to
TPR through December 31, 1996. In connection with the TPR License described
below, the Consulting Agreement was assigned to the Company. Thereafter, the
Consulting Agreement was terminated and Dr. Raj entered into an employment
agreement with the Company. See "Management -- Employment and Consulting
Agreements."
On July 30, 1993, TPR completed the private placement of 1,250,000 of its
Class A Preferred Shares, for with TPR received aggregate gross proceeds of
$5,000,000. Also on July 30, 1993, TPR contributed $4,387,500 to the Company in
exchange for 1,250,000 Units, each of which was comprised of one (1) Ordinary
Share, one-half of a Class A Warrant, and one-quarter of a Class B Warrant. See
"Description of Capital Stock."
The Company entered into the TPR License Agreement dated July 30, 1993,
with TPR pursuant to which TPR granted the Company an exclusive, fully paid,
worldwide license to sublicense, develop, manufacture, use and sell all of the
skin penetration enhancer technologies which TPR purchased from Synorex. As
consideration for the license, the Company paid the following to TPR:
<TABLE>
<S> <C>
(1).......................................... $300,000;
(2).......................................... 600,000 Units;
(3).......................................... 2,400,000 Class C Warrants; and
(4).......................................... 500,000 Class D Warrants.
</TABLE>
For a description of the Class C Warrants and the Class D Warrants, see
"Description of Capital Stock -- Warrants."
TPR may be deemed to be a promoter of the Company in view of the foregoing
transactions.
On July 30, 1993, the Company entered into a Share Exchange Agreement
("Exchange Agreement") with Medipro and each of its shareholders pursuant to
which the Company acquired all of the issued and outstanding shares of capital
stock of Medipro in exchange for 2,309,432 Ordinary Shares of the Company. The
former Medipro shareholders received registration rights with respect to such
shares, which rights become exercisable on or after July 30, 1995. The majority
of the Company's current directors were nominated by former Medipro
shareholders.
EC/American Ltd. a consulting firm, received from TPR fees of $262,500 and
a payment of $50,000 for expenses as partial consideration for management
consulting services rendered in connection with the development and
implementation of TPR's licensing, acquisition and restructuring strategies.
Such amounts were paid from the proceeds of the TPR Private Offering. In
addition, EC/American Ltd. received Class D Warrants from TPR to acquire up to
500,000 Units which warrants EC/American Ltd. transferred to certain
individuals.
On November 30, 1993, the Company entered into a license agreement with
Genetronics pursuant to which the Company acquired the exclusive world wide
license to exploit electrofusion patents and technological know-how developed by
Genetronics for the purpose of developing and selling transdermal drug delivery
39
<PAGE> 44
systems, excluding cosmetic applications. The Company paid a license fee of
$150,000 and is required to pay royalties to be mutually agreed by the parties
on a product by product basis. The agreement also provides that Genetronics
shall have the right to manufacture certain components that the parties expect
will be incorporated in drug delivery systems which include these technologies.
On March 7, 1994, the Company completed its initial public offering in the
United States of ADRs and warrants generating gross proceeds of $3,715,000 (the
"ADS Offering").
On June 13, 1994, the Company acquired a total of 1,319,996 common shares
of Cangene Corporation ("Cangene") from Arca Investments Inc. ("Arca"). In
payment for these shares, the Company issued a total of 439,999 of its Ordinary
Shares, on the basis of one Ordinary Share for each three shares of Cangene held
by Arca. The Company agreed to register 439,999 Ordinary Shares (which will be
represented by ADRs) issued to Arca and has filed this Registration Statement
under the U.S. Securities Act of 1933, as amended. This acquisition was
completed as part of a bid by the Company to acquire all of the common shares of
Cangene which was subsequently withdrawn. The Cangene shares acquired have since
been sold by the Company. (See "Managements Discussion and Analysis of Results
of Operations and Financial Condition").
On June 30, 1994, the Company acquired from Flora substantially all of the
assets of Flora and assumed certain specified liabilities arising after June 30,
1994. The acquired business ("Business") primarily relates to the research and
development of (i) passive transdermal systems, (ii) a periodontal delivery
system and (iii) a buccal system, each for the systemic delivery to humans of
therapeutic drugs and compounds.
In exchange for the Business, the Company issued a two year senior secured
convertible promissory note in the amount of $5,000,000 (the "Note"). The
principal amount of the Note was due and payable on June 30, 1996. The Note was
secured by a pledge of all of the assets acquired from Flora. Such assets were
transferred at the direction of the Company directly to PP Holdings, Inc. a
wholly owned subsidiary of the Company, on June 30, 1994.
On July 6, 1994, the Company entered into an Agreement with LDI, Inc.
("LDI") pursuant to which LDI has provided lease financing in the Canadian
dollar equivalent amount of $750,000 which will be utilized by the Company to
purchase prototype manufacturing equipment costing $1,100,000. The balance of
the acquisition costs, approximately $350,000, has been paid by the Company in
the form of deposits. The equipment supplier has agreed with LDI to repurchase
the equipment if the Company defaults on its lease payments. The Company was
required to provide LDI with a letter of credit for the difference between the
repurchase amount and the lease amount. In September 1994, the Company
terminated the lease arrangement. In full and complete settlement of all claims
regarding this matter, on December 16, 1994, the equipment lessor drew down the
letter of credit, received a further CDN.$25,000 and accepted delivery of 86,908
common shares of Cangene from the Company. (See "Management's Discussion and
Analysis of Results of Operations and Financial Condition").
The Company entered into agreements with Pharmacia AB of Sweden in December
1994 pursuant to which it sold to Pharmacia the nicotine patch and buccal patent
rights and know-how acquired from Flora in June 1994. The terms of the sale
included a cash payment to the Company of $1,250,000 and on-going royalties tied
to the revenue generated from the commercialization of these patent rights. The
agreements with Pharmacia entitle the Company to a royalty on the sale by
Pharmacia of certain second generation nicotine patches to be developed by
Pharmacia, as well as a non-exclusive license, with right of sublicense, to use
the patent rights sold by the Company to Pharmacia.
On May 24, 1995, August 14, 1995, August 23, 1995, September 13, 1995 and
September 25, 1995, the Company had closings of a private placement of 1,699,400
shares ("Placement Shares") of its Ordinary Shares at a price of $1.00 per share
for net proceeds of $1,486,777. The Placement Shares were issued to 35
investors. The Company granted registration rights to the purchasers of the
Placement Shares and has filed a separate Registration Statement with respect to
the Placement Shares. 2,150,000 Class C Warrants were retired in connection with
this private placement.
40
<PAGE> 45
In March 1996, the Company concluded a private placement of 2,150,000
Ordinary Shares to 16 investors. The Company received net proceeds of $1,075,000
from this private placement. 2,150,000 Class C Warrants were retired in
connection with respect to this private placement.
On May 25, 1995, the Company declared bonuses valued at an aggregate of
$261,250 to Messrs. Watson, Hooper, Spencer and Howling pursuant to their
respective employment agreements or consulting agreements, as the case may be,
with the Company in respect of the fiscal year ended February 28, 1995. One
third of each bonus was paid in cash and the balance paid in an aggregate of
174,167 Ordinary Shares valued at $1.00 per share. During the fiscal year ended
February 29, 1996, senior management received an aggregate of 423,627 ordinary
shares at an equivalent price of $.50 per share in lieu of receiving salary or
consulting fees which were billed to the Company for an aggregate of $211,813.
On June 28, 1995, the Company's Board of Directors authorized the issuance
of an aggregate of 926,563 Ordinary Shares to the following persons or entities,
all of which are either officers, directors or affiliates of officers and
directors of the Company. The price per share was $.80 representing a discount
of 20% from the market price on the date the Board of Directors authorized the
issuance thereof as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SUBSCRIPTION PRICE
---- ------------------------ ------------------
<S> <C> <C>
Trident Management, Inc............... 257,813 Ordinary Shares $206,250
Hooper & Associates, Inc.............. 200,000 Ordinary Shares 160,000
Thomas Spencer........................ 175,000 Ordinary Shares 140,000
Pinnacle Financial Corporation........ 143,750 Ordinary Shares 115,000
Lennart Perlhagen..................... 50,000 Ordinary Shares 40,000
Malcolm Rowe.......................... 50,000 Ordinary Shares 40,000
Joseph Masterson...................... 50,000 Ordinary Shares 40,000
</TABLE>
Each person or entity executed a promissory note in the amount set forth
above which was secured by a pledge of the shares received by them. The shares
were issued at a discount because the shares could not be sold until the
promissory note was satisfied.
On January 22, 1996, the employment or management agreements between the
Company and each of the above persons or entities were terminated effective
November 15, 1995. In connection with the termination of these agreements, as
consideration for contractual obligations not met by the Company, accepting
shares in lieu of cash as payment for salaries in fiscal 1996, severance pay
and/or the granting of a bonus for fiscal 1996, the obligations of the above
persons or entities under such promissory notes valued at $741,250 were deemed
paid in full and TMI was issued 206,250 additional shares.
During March 1996, the Company and Vista Technologies Inc. ("Vista")
consummated certain agreements pursuant to which Vista received equity financing
from the Company in a series of transactions and the Company acquired a
controlling equity interest in Vista. These definitive agreements are summarized
as follows:
Stock Purchase Agreement for $500,000
On March 21, 1996, Vista and the Company consummated a Stock Purchase
Agreement which provided for 200,000 newly issued shares of Vista common stock
to be sold to the Company for a cash price of $500,000, or $2.50 per share.
These funds were part of the proceeds of a private placement of 2,150,000
Ordinary Shares, the net proceeds of $1,075,000 were received by the Company on
March 21, 1996.
Exchange of Shares by Certain Stockholders
Three Vista stockholders, including Therapeutic Patch Research N.V.
("TPR"), Saliva Research Limited ("SRL") and Westcliff Partners Inc. ("WPI"),
agreed to exchange a total of 900,000 shares of Vista's outstanding common stock
owned by TPR, SRL and WPI for 4,500,000 newly issued Ordinary Shares of the
Company in a privately-negotiated transaction. The transaction was consummated
on March 21, 1996.
41
<PAGE> 46
Exchange Agreement with Vista
On March 1, 1996, the Company and Vista executed an agreement ("Exchange
Agreement") which was consummated on March 21, 1996.
Under the Exchange Agreement, Vista delivered 2,060,000 newly issued shares
of Vista common stock to the Company at a stated value of $5,150,000, or $2.50
per Vista share, plus 500,000 Vista Class C common stock purchase warrants. In
exchange, Vista received from the Company (i) an interest-free note due in six
months from the Company in the principal amount of $750,000, and (ii) 200,000
shares of TCPI common stock currently held by the Company at a stated value at
July 19, 1996 of $10.25 per TCPI share.
As additional consideration for these transactions, the Exchange Agreement
granted the Company an option exercisable at any time on or before September 30,
1996 to purchase up to an additional 250,000 newly issued shares of Vista's
Common Stock at an option exercise price of $2.50 per share in cash (the "Six
Month Option"). In July 1996, the Company acquired 200,000 Vista shares upon
partial exercise of the Six-Month Option.
The 500,000 Class C Warrants issuable to the Company under the Exchange
Agreement each represent the right to purchase one (1) share of Vista's Common
Stock during the month of February 1997 and/or the month of February 1998, and
expire thereafter to the extent not exercised. In each instance, the exercise
price per share will be determined by the average of the quoted closing prices
for the Common Stock in the over-the-counter market during the month of January
immediately preceding the date Class C Warrants or any portion thereof are
exercised, except that the Class C Warrant exercise price per share will not in
any event exceed $10.00 per share of Common Stock. The exercise price and number
of shares issuable on exercise of Class C Warrants are subject to adjustment in
certain events to prevent dilution in the event of any subsequent stock split,
stock dividend, reclassification or recapitalization affecting the outstanding
Common Stock as a class.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, the Company acquired a
controlling interest in Vista.
After giving effect to the issuance of 2,260,000 newly issued Vista shares
required by the Stock Purchase Agreement and the Exchange Agreement (but without
giving effect to other common stock reserved for outstanding stock options,
warrants, conversion or exchange of debt obligations, or for additional Regional
Joint Ventures other than 1,700,000 shares committed for issuance to four Vista
Laser Centers in formation), there are approximately 6,706,104 Vista shares
outstanding. Of that amount, 3,160,000 Vista common shares, or approximately
61.3% of the total then outstanding, are owned by the Company upon closings of
the Stock Purchase Agreement, the Exchange Agreement and the Company's exchange
of shares with TPR, SRL and WPI. Vista and the Company anticipate this
percentage ownership may be reduced in the near future as Vista issues
additional common shares in connection with its sponsorship of additional
Regional Joint Ventures currently in various stages of negotiation and for a
planned private placement offering of Vista securities for Vista's own account.
Vista entered into a registration rights agreement at the closing the
Exchange Agreement. This agreement grants the Company certain "piggy-back"
registration rights in the event Vista files registration statements covering
offerings of its securities under the Securities Act of 1933. In addition, the
Company will have the right on one occasion after March 31, 1997 to demand that
all or a portion of the Vista common stock held by the Company as a result of
the Stock Purchase Agreement, the Exchange Agreement and issuable upon exercise
of Class C Warrants be registered under the Securities Act of 1933. Any such
registration of Vista common stock for the account of the Company will be at
Vista's expense.
Murray D. Watson has served since July 1993 as Chairman of the Board, Chief
Executive Officer and a director of the Company. He is also a director of Vista
since January 31, 1994. On February 16, 1996, Mr. Watson was elected Vista's
Vice Chairman of the Board and Kenneth G. Howling, Vice President and Chief
Financial officer of the Company, was elected Vista's Treasurer and Chief
Financial Officer. In each
42
<PAGE> 47
case, their election as Vista officers was subject to a condition that
definitive agreements for the contemplated transactions between Vista and the
Company be executed, which events occurred on March 1, 1996.
The transactions contemplated by the Stock Purchase Agreement and the
Exchange Agreement were authorized and approved by the boards of directors of
the Company and Vista at a board meeting held in February 1996 attended by all
of the Company's and Vista's then directors. The Boards approved the Stock
Purchase Agreement and Exchange Agreement transactions with knowledge and
disclosure of the proposed exchange by TPR, SRL and WPI of 900,000 shares of
Vista common stock with the Company. Messr. Watson and Rowe, each a director of
the Company, abstained from voting on the proposed transactions due to there
being directors of Vista and in the case of Mr. Watson, because of his position
as the Chief Executive Officer and a director of the Company.
$800,000 SECURED LOAN FROM PHARMA PATCH PLC
On August 26, 1996, Vista borrowed $800,000 from the Company in exchange
for an 8% Secured Promissory Note (the "8% Secured Note"). Vista's assets
include 200,000 restricted shares of Technical Chemicals and Products, Inc.
common stock (the "TCPI Shares") which were registered under the Securities Act
of 1933 on June 20, 1996 for possible resale by Vista after approximately
October 23, 1996. The TCPI Shares have been pledged as collateral by Vista to
secure its obligations under the 8% Secured Note.
Principal and interest on the 8% Secured Note are payable on December 31,
1996, or earlier in the event Vista elects to sell all or any portion of its
interest in the TCPI Shares. In the event net proceeds from a sale of a portion
of the TCPI Shares is insufficient to provide for full payment of the 8% Secured
Note, the unpaid balance of the 8% Secured Note will remain due on its original
maturity date of December 31, 1996 or earlier in the event of a subsequent sale
of TCPI Shares for the account of Vista.
The original maturity date of the 8% Secured Note may be extended by Vista
up to two times, for an additional six months each, so long as Vista pays all
accrued interest at the date of each renewal and is not otherwise in default on
its loan obligations. The Company has the right to accelerate the maturity date
of the loan if the fair value market of TCPI Shares pledged as collateral falls
to less than 150% of the unpaid principal of the 8% Secured Note unless Vista,
within five business days after notice, prepays a sufficient amount of the note
principal so that the fair market value of TCPI Shares then pledged as
collateral is not less than 150% of the remaining unpaid principal of the 8%
Secured Note.
On September 7, 1996, the Company's Board of Directors authorized the
issuance of an aggregate of 650,000 Ordinary Shares to the following persons or
entities listed below, all of which are either officers, directors or affiliates
of officers and directors of the Company as compensation for services rendered
in connection with the Plan of Reorganization and related matters.
<TABLE>
<CAPTION>
NAME NO. OF SHARES
---------------------------------------------------------------- -------------
<S> <C>
Trident Management, Inc. 190,000
Pinnacle Financial Corporation 150,000
Paul E. Heney 115,000
Kevin J. Quinn 115,000
William G. Hutchison 75,000
</TABLE>
The Company will record expense associated with this issuance calculated
using the fair value of Ordinary Shares on the date of the grant date.
DESCRIPTION OF PROPERTY
The Company leases an approximately 1,000 square foot office for
administrative purposes on a month to month basis in Toronto, Ontario, Canada,
at a monthly rental of $1,640.
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LEGAL PROCEEDINGS
The Company is not involved in or aware of any legal proceedings.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Ordinary Shares
since inception. Pursuant to Irish law, the directors can pay interim dividends
on Ordinary Shares and the right to declare a final dividend is reserved to the
shareholders of a company at the annual general meeting of the shareholders,
although such dividend cannot exceed the amount recommended by the Board of
Directors.
CHANGES IN ACCOUNTANTS
The Company changed its independent accountants in April 1996. The
accounting firm of Ernst & Young acted as principal independent public
accountants to audit the consolidated financial statements of the Company for
its fiscal years ended February 28, 1995 and 1994. Effective April 1, 1996, the
Company's Board of Directors accepted the resignation of its independent
certifying public accountants, Ernst & Young. The Company's Board of Directors
participated in and approved the decision to change independent accountants.
The reports of Ernst & Young on the consolidated financial statements of
the Company for the fiscal years ended February 28, 1995 and 1994, did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified as
to uncertainty, audit scope, or accounting principles, except as follows: The
reports of Ernst & Young on the Company's consolidated financial statements for
its fiscal years ended February 28, 1995 and 1994 contained a paragraph
expressing certain doubts about the Company's ability to continue as a going
concern.
In connection with its audits for the fiscal years ended February 28, 1995
and 1994, there have been no disagreements of the Company with Ernst & Young on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Ernst & Young would have caused them to make reference
thereto in their report on the financial statements for such year. During the
periods described above and through May 6, 1996, there have been no reportable
events as that term is defined in Regulation S-K, Item 304(a)(1)(v) promulgated
by the Securities and Exchange Commission.
The Company requested that Ernst & Young furnish the Company with a letter
addressed to the Securities and Exchange Commission stating whether or not Ernst
& Young agrees with the above statements. A copy of such letter was filed with
the Securities and Exchange Commission.
On May 6, 1996, the Company engaged the services of the independent public
accounting firm of KPMG Peat Marwick LLP to act as the principal independent
accountants as to the Company's consolidated financial statements for its most
recent fiscal year ended February 29, 1996. Prior to engaging KPMG Peat Marwick
LLP, the Company did not consult its new independent public accountants as to
the application of accounting principles to a specified transaction, either
completed or proposed, or as to the type of audit opinion that might be rendered
on the Company's financial statements.
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<PAGE> 49
DESCRIPTION OF THE WARRANTS
The Company has outstanding (a) 897,000 Class A Warrants exercisable to
purchase 897,000 Ordinary Shares and 897,000 Class B Warrants, (b) 1,015,425
Class B Warrants exercisable to purchase 1,015,425 Ordinary Shares, (c) 789,875
Class C Warrants exercisable to purchase 789,875 Units (consisting of one-half
of Class A Warrant and one-quarter of a Class B Warrant), and (d) 500,000 Class
D Warrants exercisable to purchase 500,000 Class D Warrants exercisable to
purchase 500,000 Units (collectively, the "Warrants").
CLASS A WARRANTS
The Class A Warrants are exercisable until February 28, 1999. Every Class A
Warrant entitles the holder to purchase one ADS and receive one Class B Warrant
at an exercise price of $1.92 per Class A Warrant, subject to adjustment under
certain circumstances.
CLASS B WARRANTS
The Class B Warrants are exercisable until February 28, 1999. Each Class B
Warrant entitles the holder to purchase one ADS at an exercise price of $2.31
per share, subject to adjustment under certain circumstances.
CLASS C WARRANTS
Each Class C Warrant is exercisable to purchase one Unit consisting of one
ADS, one-half of a Class A Warrant and one-quarter of a Class B Warrant at an
exercise price of $3.89 per Unit. The Class C Warrants are not exercisable until
(i) the Company generates revenues in excess of $10,000,000 in any one fiscal
year or (ii) the Units, or the sum of their components trade a price equal to
$12.00, for a period of 14 consecutive trading days. The Class C Warrants expire
on February 28, 1999.
The Class C Warrants are exchangeable at the option of the warrant
holder(s) for Units of the Company on a formula basis, reflecting the spread
between the exercise price of the Warrants and the fair market price of the
Units (or the sum of their component parts) at the time when the exchange is
requested by the Warrant holder(s).
CLASS D WARRANTS
Each Class D Warrant is exercisable to purchase one Unit consisting of one
ADS, one-half of a Class A Warrant and one-quarter of a Class B Warrant. The
Class D Warrants became exercisable commencing May 29, 1994. The exercise price
per Class D Warrant is $1.54. The Class D Warrants expire on July 30, 1997.
The Class D Warrants are exchangeable at the option of the warrant
holder(s) for Units of the Company on a formula basis, reflecting the spread
between the exercise price of the Warrants and the fair market price of the
Units (or the sum of their component parts) at the time when the exchange is
requested by the Warrant holder(s).
REDEMPTION
The Company may, on 30 days written notice, redeem each Class A and Class B
Warrant then issued and outstanding commencing March 1, 1995 for $0.10 per
Warrant, provided that the closing bid price per Ordinary Share shall have
exceeded $7.50 in the case of the Class A Warrants and $9.00 in the case of the
Class B Warrants for 30 consecutive trading days prior to notice of redemption.
The Class A and Class B Warrants can be exercised up to the last business day
preceding the redemption date. The Class C and Class D Warrants are not
redeemable by the Company.
GENERAL
The Warrants may be exercised during their respective exercise periods upon
surrender of the Warrant Certificate on or prior to the expiration date (or
earlier redemption date) of such warrants at the office of the Depository, with
the form of Election of Purchase on the reverse side of the Warrant certificate
completed and executed, as indicated, accompanied by payment of the full
exercise price (by certified check payable to the order of the Warrant Agent)
for the number of Warrants being exercised.
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<PAGE> 50
The Warrants do not confer upon the holders any voting or any other rights
as a shareholder of the Company. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Securities and Exchange Commission a current prospectus
covering the issuance of Units, ADS and Warrants issuable upon exercise of the
Warrant and the issuance of Shares has been registered or qualified or is deemed
to be exempt from registration or qualification under the securities laws of the
state of residence of the holder of the Warrant. The Company has undertaken to
use its best efforts to maintain a current prospectus relating to the issuance
of ADSs representing Ordinary Shares upon the exercise of the Warrants until the
expiration of the Warrants, subject to the terms of the Warrant Agreement. While
it is the Company's intention to maintain a current prospectus, there is no
assurance that it will be able to do so.
No fractional Ordinary Shares or ADSs will be issued upon exercise of the
Warrants. However, if a holder exercises all warrants then owned of record by
him, the Company will pay to that holder, in lieu of the issuance of any
fractional shares that are otherwise issuable, an amount of cash based on the
market value of the ADSs on the last trading day before the exercise date.
WARRANT AGENT
The warrant agent for the Warrants is the Bank of New York, 101 Barclay
Street, New York, New York 10286 (the "Warrant Agent").
The Warrants were issued pursuant to a warrant agreement between the
Company and the Warrant Agent.
In connection with the Company's initial public offering in March 1994, the
Company sold to Westfield Financial Corporation, the Underwriter and its
designees, for an aggregate of $10.00, warrants (the "Underwriter's Warrants")
to purchase up to 100,000 ADSs at $9.90 per ADS, 50,000 Class B Warrants at
$0.165 per B Warrant and 50,000 Class C Warrants at $0.165 per C Warrant. The
Underwriter's Warrants could not be transferred until February 28, 1995, except
to the officers and partners of the Underwriter or members of the selling group,
and are exercisable during the four year period commencing February 28, 1995
(the "Warrant Exercise Term"). The exercise price of the Underwriter's Warrants
and the number of Ordinary Shares issuable upon exercise of the Underwriter's
Warrants are subject to adjustment under the anti-dilution provisions contained
in the Underwriter's Warrants. The Company has also granted certain registration
rights to the holders of the Underwriter's Warrants.
During the Warrant Exercise Term, the holders of the Underwriter's Warrants
are given, at nominal cost, the opportunity to profit from a rise in the market
price of the Company's ADRs. To the extent that the Underwriter's Warrants are
exercised, dilution to the equity interests of the Company's shareholders will
occur if, at the time of exercise, the Company's book value exceeds the exercise
price. Further, the terms upon which the Company will be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital on terms more favorable to the Company than those provided in the
Underwriter's Warrants.
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<PAGE> 51
BUSINESS OF VISTA
INTRODUCTION
Certain information in this Proxy Statement -- Prospectus includes
forward-looking statements within the meaning of applicable securities laws that
involve risks and uncertainties including, but not limited to, market acceptance
of new technologies, the sufficiency of financial resources available to Vista
and its corporate affiliates, economic, competitive, governmental and
technological factors affecting Vista operations, markets, services and prices,
and other factors described in this Proxy Statement -- Prospectus and in prior
Vista filings with the Securities and Exchange Commission. The Vista's actual
results could differ materially from those suggested by any forward-looking
statements as a result of such risks.
Vista, through its European operating subsidiaries and joint venture
interests in other affiliated companies in the United States and Canada, is
primarily engaged in providing access to advanced laser vision correction
("LVC") equipment and support services (collectively "LVC Services") for use by
licensed ophthalmologists in the treatment of refractive vision disorders.
Computer-controlled excimer lasers can be used to treat refractive vision
disorders such as nearsightedness and astigmatism to eliminate or reduce the
need for corrective lenses. The Company's subsidiaries and affiliates provide
individual physicians and group ophthalmic practices with shared access to laser
equipment, thus eliminating capital costs, investment risk and maintenance of
such equipment by the health care professional. LVC Services provided by the
Company's subsidiaries and affiliates also include various support services,
such as physician and staff training, technical support services, equipment
maintenance, billing and accounting and other administrative services.
Vista's European operating subsidiaries have owned and operated excimer
laser facilities in Italy and Sweden since 1992 and 1994, respectively, and
currently maintain five excimer lasers in use at outpatient surgical centers,
three in Italy and two in Sweden. Another laser owned by a third party is shared
by the Company at a recently established fourth center in Italy. See "European
Operating Subsidiaries" below.
In anticipation of recent approvals by the United States Food and Drug
Administration ("FDA") of excimer laser technology and equipment supplied by two
manufacturers to treat certain refractive vision disorders, the Company
developed a strategic plan commencing in June 1995 to organize and sponsor
additional companies to provide LVC Services in the United States and Canada
through regional joint venture alliances with certain prominent
ophthalmologists. A key part of Vista's strategy for expansion in the United
States and Canada is to develop, invest in, and act as a consultant to, regional
joint venture companies ("Regional Joint Ventures") that are to be independently
financed and offer advantages of equity incentives and management control to
skilled and prominent ophthalmologists experienced in a variety of LVC
treatments, procedures and post-operative care. To date, the Company has
organized and sponsored five Regional Joint Ventures in various stages of
development including one in Northern California that recently commenced
operations in June 1996 with an excimer laser at each of three locations. See
"North American Regional Joint Venture Investments and Affiliations".
During March 1996, Vista completed equity financing transactions with the
Company that resulted in a change in control of Vista. See "Agreements with the
Company for Equity Financing and Change in Control" below.
In July 1995, Vista abandoned efforts to acquire control of Medical
Development Resources, Inc. ("MDRI") and wrote off $5,643,000 of prior
investments in MDRI and its subsidiaries at the end of its prior fiscal year on
March 31, 1995. The joint venture operations of an excimer laser clinic in
London, England were discontinued in June 1995 in response to unfavorable local
pricing for PRK procedures due to overcrowding of the market, a history of
unprofitable operations and a change in business strategy of the joint venture
partner.
Vista was incorporated under the laws of Nevada on June 15, 1992 and its
principal office is located at 167 South San Antonio Road, Suite 9, Los Altos,
California 94022, telephone number (415) 947-1750.
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BACKGROUND AS TO LASER VISION CORRECTION SYSTEMS
Advanced LVC equipment supplied by various manufacturers has been
commercially available in recent years for use in foreign countries, including
Canada and various countries in Europe, among others. Two U.S. manufacturers,
Summit Technology, Inc. ("Summit") and VISX, Incorporated ("VISX"), recently
received FDA pre-market approval in October 1995 and March 1996, respectively,
for use of the Summit SVS Apex excimer laser system and VISX's excimer laser
systems Models "B" and "C" to perform photorefractive keratectomy ("PRK") to
treat low to moderate myopia (nearsightedness). PRK is a form of LVC treatment
involving the use of an excimer laser to reshape the cornea, thereby adjusting
refractive power of the eye. Excimer lasers manufactured by Summit and VISX have
also been approved for use in the United States and other countries to treat a
number of pathological superficial corneal disorders in a procedure called
phototherapeutic keratectomy ("PTK").
Other LVC procedures employed in Canada and other foreign countries include
the use of excimer lasers to perform a procedure known as laser in situ
keratomileusis ("LASIK") and holmium lasers for laser thermalkeratoplasty
("LTK") and laser sclerostomy ("LS") procedures. LASIK is primarily prescribed
for treatment of hyperopia (farsightedness), astigmatism and extreme myopia; LTK
may be prescribed for instances of mild hyperopia and astigmatism; and LS is
used for treatment of symptoms of glaucoma. In May 1996, the FDA advised U.S.
eye care professionals that LASIK and bilateral surgery (treatment of both eyes
at the same time) are outside the scope of currently FDA approved labeling for
excimer lasers; although the FDA noted that physician discussions with patients
and decisions to conduct either of those procedures are considered the practice
of medicine, the FDA cautioned that it expects excimer laser equipment
manufacturers and health care practitioners will advertise and promote the use
of FDA approved lasers in the United States only within the scope of their
currently FDA approved use, i.e. for PRK and PTK.
All of these LVC procedures are normally performed on an outpatient basis
and require from 15 to 30 minutes in addition to pre-operative consultations and
post-operative care. Depending upon the severity of the patient's pre-treatment
vision disorder, improved vision resulting from LVC procedures either eliminates
or significantly reduces the patient's need to wear eyeglasses or contact
lenses. Vista's existing European subsidiaries and planned Regional Joint
Ventures in the United States focus primarily on PRK treatment to correct low
and mild myopia. Regional Joint Venture operations planned for at least two
locations in Canada adjacent to the U.S. border are expected to offer a wider
variety of LVC services, including LASIK, bilateral treatment and an advanced
proprietary method of PRK developed by Dr. Donald G. Johnson called the Johnson
transepilthelial multi-zone, multi-pass PRK procedure ("TMM PRK"). TMM PRK
provides for a smoother ablation zone than standard PRK procedures, thus
reducing glare and central islands side effects sometimes encountered in PRK
procedures. The epithelium (a layer of cells comprising the outer surface of the
cornea) is removed in the TMM PRK procedure by use of the laser, thus avoiding
direct contact with the eye by the physician or instruments. Vista believes that
the TMM PRK method promotes faster post-operative regrowth during the period
when risk of pain and infection risk is highest.
Vision care professionals engaged by Vista and/or its Regional Joint
Ventures establish medical and operational standards relating to LVC Services,
train ophthalmologists and optometrists in advanced LVC procedures, and
establish advisory boards consisting of credentialed and prominent
ophthalmologists and optometrists with similar skills and experience. Vista
believes that its Regional Joint Ventures planned for targeted market
segments of North America will be capable of supporting a full range of LVC
procedures because of access to physicians skilled in advanced methods and the
ability to make appropriate referrals to medical professionals in Canada
offering certain LVC procedures not currently available in the U.S.
VISION DISORDERS AND ALTERNATE FORMS OF CORRECTIVE TREATMENT
The human eye is approximately 25 millimeters in diameter and functions
much like a camera, with a lens in front and a light sensitive screen, the
retina, in the rear. Images enter the human eye through the cornea, a
transparent domed window at the front of the eye. In a properly functioning eye,
the cornea bends
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(refracts) incoming images, causing the images to focus on the retina. The
inability of the cornea to properly refract incoming images results in blurred
vision and is called a refractive disorder.
Myopia (nearsightedness), hyperopia (farsightedness) and astigmatism are
three of the most common refractive disorders resulting from an inability of the
optic system to properly focus images on the retina. The amount of refraction is
dependent on the shape, specifically the curvature, of the cornea. In a
nearsighted (myopic) eye, images are focused in front of the retina; in a
farsighted (hyperopic) eye, images are focused behind the retina; and in an
astigmatic eye, images are not focused at any one single point.
Conventional methods of correcting refractive disorders are by prescription
of eyeglasses and contact lenses. Over the last 15 years, refractive vision
disorders have also been treated by several surgical techniques. These include
radial keratotomy ("RK"), in which small incisions approximately 400 to 450
microns deep in a radial configuration are made around the periphery of the
cornea to cause a flattening of the cornea. Other surgical techniques are
keratomileusis, which involves freezing the cornea and reshaping it, and
automated lamellar keratoplasty ("ALK"), which involves using a microkeratone to
remove microscopic amounts of corneal tissue. Industry sources estimate that
200,000 RK procedures were performed in the United States in 1994. Because RK is
a manual procedure and not performed with a computer-controlled device, RK is
highly dependent on the surgical skill of the ophthalmologist performing the
procedure. Moreover, because RK involves incisions into the corneal tissue, it
weakens the structure of the cornea which may have adverse consequences as
patients age. RK has never undergone a controlled clinical study under an FDA
protocol because no medical device, other than a scalpel, is used in the
procedure. Compared to RK, the Company believes that laser surgery involves
reduced surgical risk, does not weaken the corneal tissue, is less invasive and
is less dependent on the ophthalmologist's skill.
LASER VISION CORRECTION ("LVC") SYSTEMS
Lasers have been used routinely for a variety of medical purposes since the
1960s. Lasers emit photons of light into a highly intense beam of energy that is
delivered to targeted tissue by means of optical mirrors or fiber optics. The
degree of absorption by the tissue varies with the choice of wavelength and is
an important variable in the application of laser technology in treating various
tissues. Surgical lasers emit light in a continuous stream or in a series of
very short duration "pulses", thus interacting with tissue through heat or shock
waves. Several factors, including the wavelength of the laser and the frequency
and duration of the exposure or pulse, determine the amount of energy which
interacts with the targeted tissue.
Laser technology has been accepted in the ophthalmic community for the
treatment of certain eye disorders. In general, ophthalmic lasers are used to
coagulate, cut or ablate (remove) targeted tissue.
EXCIMER LVC SYSTEMS AND PROCEDURES
Excimer lasers were first developed in the late 1980s, and are incorporated
in a fully integrated ophthalmic surgical workstation for use by
ophthalmologists to perform procedures to treat refractive and other ophthalmic
disorders. The excimer laser system delivers pulses of ultraviolet laser light
to ablate (remove) submicron layers of tissue from the surface of the cornea in
a computer-assisted, predetermined pattern to reshape the cornea. Most of the
laser light generated by the excimer system is absorbed by the removed corneal
tissue during a procedure. As a result, the laser light does not penetrate
interior portions of the eye and does not create substantial amounts of heat in
the surrounding tissue. These attributes make the excimer laser system well
suited to corneal surgery.
PRK. Photorefractive keratectomy ("PRK") is procedure performed with a
excimer laser system to treat primarily nearsightedness. When performing PRK
with the excimer laser, the ophthalmologist determines the exact correction
required (which is measured by the same type of examination used to prescribe
eyeglasses or contact lenses) and programs the correction into the system's
computer. The ophthalmologist removes the thin surface layer of the cornea (the
epithelium) and positions the patient for the laser procedure. The average PRK
procedure consists of approximately 150 laser pulses, each of which lasts
several billionths of a second over a period ranging for 15 to 40 seconds.
Cumulative exposure to the laser light is less than one
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<PAGE> 54
second. The entire procedure, including patient preparation and post-operative
dressing, generally lasts no more than thirty minutes.
Following the PRK procedure, the ophthalmologist may prescribe topical
pharmaceuticals to promote corneal healing and to alleviate discomfort. A series
of patient follow up visits is scheduled with the ophthalmologist or an
optometrist to monitor the corneal healing process, to verify that there are no
complications and to test the correction achieved by the PRK procedure. Patients
undergoing PRK generally experience discomfort for approximately 24 hours, and
blurred vision for approximately 48 to 72 hours after the procedure. Although
most patients experience improvement in uncorrected vision within a few days of
the procedure, it generally takes from two to six months for the correction to
stabilize and for the full benefit of the procedure to be realized. An
individual typically has one eye treated in a session, with the second eye
treated three to six months thereafter. The Company anticipates, however, that a
significant percentage of patients at Vista's Regional Joint Ventures planned
for Canada may be eligible for bilateral treatment in which both eyes are
treated simultaneously.
Although a patient usually experiences a substantial improvement in clarity
of vision within a few days following the PRK procedure, it generally takes from
two to six months for the full benefit of the procedure to occur. The PRK
procedure is used today primarily to correct the vision of patients with myopia
(or nearsightedness) ranging from -1.5 to up to -7.00 diopters, although the PRK
procedure has also been performed in foreign countries on higher diopter
nearsighted and, occasionally, farsighted and astigmatic patients. Approximately
90% of all myopic patients are nearsighted up to -6.00 diopters and use of the
PRK procedure to correct the vision of nearsighted patients of up to -6.00
diopters therefore has received the greatest degree of testing.
LASIK. Laser assisted in situ keratomileusis ("LASIK") is a procedure
performed with an excimer laser system primarily to treat extreme cases of
myopia. LASIK, although a more unusual and delicate surgical procedure than PRK,
offers advantages in that the epithelium is not touched by the laser and
therefore promotes quicker healing. The ophthalmologist uses a microkeratone to
open a flap on the surface of the cornea, laser energy is used to ablate corneal
cells on the exposed surface, and the flap is then folded back into place. Glare
and central islands are practically non-existent after LASIK since ablation
occurs in the stroma layer (under the surface epithelium layer). Due to the
corneal flap, subsequent retouches are facilitated with minimal recovery time.
LASIK may be more predictable in treating high levels of myopia, but the
LASIK procedure not been specifically approved in the United States by the FDA.
The FDA has advised physicians that discussions with patients and decisions to
conduct LASIK or bilateral surgery (treatment of both eyes at the same time) are
considered the practice of medicine, and the Company believes that certain
surgeons in the U.S. are performing LASIK procedures. The FDA has cautioned eye
care professionals in the U.S. to advertise and promote the use of FDA approved
lasers only within the scope of their currently FDA approved use, i.e. for PRK
and PTK.
PTK. Phototherapeutic keratectomy ("PTK") is a procedure performed with the
excimer system to treat corneal pathologies. In this procedure, submicron layers
of tissue are ablated from the surface of the cornea in order to remove
diseased, scarred or sight-inhibiting tissue. The goal of PTK is not necessarily
to cure the corneal pathology, but to alleviate symptoms associated with the
pathology. The FDA has granted pre-market approvals for use in the United States
of PTK procedures with Summit excimer laser equipment in February 1995 and for
VISX equipment in October 1995.
Other. Excimer lasers may also be used to treat glaucoma by a procedure
known as Partial Excimer Traheculectomy ("PET"). The PET procedure involves the
use of the excimer laser to create a penetrating filter through the scleral
tissue (the tough, fibrous tissue covering all of the eye except the cornea),
which causes the permeation of fluids from within the eye, thus reducing
pressure levels. Vista believes that one laser manufacturer has received an
Investigational Device Exemption from the FDA to conduct clinical trials for the
PET procedure in the United States.
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HOLMIUM LVC SYSTEMS AND PROCEDURES
LTK. Another recently developed LVC technology is the holmium laser system.
The holmium system delivers high intensity pulses of infrared light to an eye by
means of a fiber optic cable and a single-use, hand-held probe that directly
contacts the eye at the exact spots chosen by the ophthalmologist. Vista is
aware of two manufacturers that have developed holmium laser systems. Vista
believes that both of those companies are in the process of conducting clinical
trials for the FDA to demonstrate the safety and efficacy of the holmium laser
to perform laser thermal keratoplasty ("LTK"). LTK is a refractive procedure
performed to treat farsightedness and astigmatism in which peripheral corneal
tissue is thermally shrunk, causing the central portion of the cornea to
steepen.
LS. Laser Sclerostomy ("LS") is a surgical procedure performed with the
holmium system to treat the symptoms of glaucoma by making an opening in the
front chamber of the eye. Summit has received FDA pre-market approval to sell
its holmium system in the U.S. for treatment of glaucoma.
OTHER LVC SYSTEMS
Vista is aware of three companies that have reportedly developed solid
state lasers, ophthalmic laser surgical systems that apply a beam of high
intensity light to remove tissue from the inside, as opposed to the surface of,
the cornea. These solid state lasers are designed to ablate tissue inside the
cornea without violating the cornea's surface by computer guiding the laser beam
to the inner corneal tissue and vaporizing the targeted tissue.
EUROPEAN OPERATING SUBSIDIARIES
From February to May 1994, Vista negotiated and completed the acquisition
of controlling interests in certain foreign subsidiaries offering access to
excimer lasers at outpatient surgical centers in Italy, Sweden and the United
Kingdom. At the time of those acquisitions in 1994, these European operating
subsidiaries had excimer lasers at four refractive surgical centers, two in
Italy, one in Sweden and one in England. The center in England was subsequently
closed in June 1995 and two new centers, one in Italy and one in Sweden, have
been opened since these acquisitions were accomplished. Due primarily to the
limited operating history of these surgical centers including charges for
depreciation and amortization, Vista's operations in Europe have not yet been
profitable. However, Vista's Italian subsidiary, representing approximately 57%
of Vista's consolidated revenues for its fiscal year ended March 31, 1996,
produced positive cash flow from operations during its fiscal year ended
December 31, 1995.
Vista's European LVC Services are operated under the trade name Vista
Vision(TM). As of March 31, 1996, Vista owned approximately 73.57% of Vista
Vision S.p.A. ("Vista-Italy") and 100% of Vista Vision Scandinavia AB
("Vista-Sweden"). Vista's interest in Vista-Sweden is held through a
wholly-owned Dutch company organized to facilitate administration of Vista's
European operations. A United Kingdom subsidiary of Vista, Vista Vision
International Ltd. ("Vista-UK"), owned a 50% joint venture interest in a
surgical center in London, England and was liquidated in mid-1995 when Vista and
its joint venture partner determined to close the London clinic.
Vista-Italy's locations include a Milan center originally opened in
February 1992 and relocated during 1995, a Pisa clinic established in March 1993
and relocated in January 1996 to Viareggio, and a Rome center started in January
1995 and a Palermo center established in July 1996. The Vista-Sweden centers
include a center in Stockholm purchased from a third party in June 1994 and a
center in Malmo opened in August 1995.
Vista's European operating subsidiaries typically receive a fee or a
percentage of the surgeon's fee for each LVC surgical procedure performed, which
to date have consisted primarily of PRK procedures. The gross professional fee
for PRK procedures in Italy and Sweden currently ranges from approximately
$1,500 to $2,500 per procedure, with a single eye constituting one procedure,
and fees payable to Vista-Italy and Vista-Sweden generally range from $800 to
$1,800 per procedure. Certain operating expenses of Vista-Italy and Vista-Sweden
under cooperative agreements for their facilities and equipment use are in turn
based upon the number of procedures performed.
51
<PAGE> 56
Vista-Italy and Vista-Sweden maintain a total of five VISX excimer lasers.
Another laser owned by a third party is shared by Vista-Italy at a center
recently opened in Palermo, Italy. The following chart summarizes certain
information as to the number of LVC surgical procedures performed at Vista's
European centers for the periods indicated (excluding the center at Palermo,
Italy opened in July 1996 after the periods covered by the table):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Milan, Italy (opened February 1992)................................... 595 466 239
Viareggio, Italy (opened March 1993).................................. 504 404 213
Rome, Italy (opened January 1995)..................................... 268 41 --
Stockholm, Sweden (see Note a)........................................ 581 524 420
Malmo, Sweden (opened August 1995).................................... 77 -- --
---
-
----- -----
Totals................................................................ 2,025 1,435 972
===== ===== ====
</TABLE>
- ---------------
(a) Includes procedures performed at this center for periods prior to the June
1994 purchase of assets by Vista-Sweden
NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment supplied
by Summit and VISX, Vista's business strategy developed in June 1995 is to
expand in North America by organizing and sponsoring independently financed
regional enterprises (the "Regional Joint Ventures") in which Vista will obtain
a significant equity interest and long-term fee-based consulting arrangements.
Vista has obtained and will continue to seek affiliations for its each of its
Regional Joint Venture subsidiaries with experienced LVC eye care professionals;
these regional enterprises will seek third-party financing with Vista's
assistance to provide equipment and other LVC support services to vision care
professionals in targeted regional markets operating under the name "Vista Laser
Centers".
In the typical Regional Joint Venture enterprise, Vista has subscribed to a
5% Series B convertible preferred stock issue of the Regional Joint Venture
enterprise in exchange for shares of Vista common stock.
From July 1995 through June 1996, a foreign venture capital corporate investor
named Refractive Services-800, Inc. provided at least $100,000 in initial seed
capital to each of five Regional Joint Ventures (for an aggregate investment of
$520,000) to finance initial organizational expenses and costs of negotiating
agreements with vision care professionals and seeking additional financing. In
exchange for that investment, and in view of the high risks associated with a
start-up enterprise, Refractive Services-800, Inc. received shares of a 10%
Series A convertible preferred issue of the Regional Joint Venture with a
liquidation preference equal to five times its cash investment in four Regional
Joint Ventures and six times its cash investment in one other Regional Joint
Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by refractive Services-800, Inc. in
all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and 900
telephone numbers for telemarketing purposes at the election of Regional Joint
Ventures.
After initial organization of a Regional Joint Venture, negotiations with
one or more local prominent ophthalmologists have been instituted and these
physicians are offered the opportunity of providing additional seed capital
investment in common stock and/or common stock purchase warrants issuable by the
Regional Joint Venture. Agreements with professionals are negotiated for use of
the Regional Joint Venture's equipment and other LVC Services and for management
to be provided to the Regional Joint Venture by local vision care professionals
or management personnel designated by them; these agreements are in certain
cases conditioned upon receipt of additional financing in the form of a
subsequent private placement and/or initial
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<PAGE> 57
public offering of securities by the Regional Joint Venture, Based upon its
experience in LVC Services and affiliations with prominent LVC specialists,
Vista also enters into a long-term consulting service agreement to provide
certain administrative and consulting services to the Regional Joint Venture in
exchange for a percentage of revenues realized by the Regional Joint Venture,
which is also contingent upon additional financing.
The Regional Joint Venture is licensed by Vista on a non-exclusive basis
for no additional charge to operate under the name and style of "Vista Laser
Centers" of the particular region during the term of Vista's consulting services
agreement. Vista has adopted use of, and has filed trademark applications in the
United States and Canada to register, the service mark "Vista Laser
Centers"(TM). To date, Vista has organized and sponsored five Regional Joint
Ventures discussed below, all of which are incorporated under the laws of
Nevada.
Upon commencing business, each Regional Joint Venture plans to enter into
nonexclusive LVC Service agreements with additional ophthalmologists and
optometrists who desire to contract for access to equipment and LVC Services.
Regional Joint Ventures will earn fees for the fair market value of their LVC
Services by billing health care professionals at the time of use, with such fees
typically based upon a negotiated percentage of the gross procedure fees charged
to patients by the professional; payment normally will be received when the
professional collects its gross procedure fee from the patient. The gross
procedure fee is established by the professional, except that consent of the
Regional Joint Ventures will be required for gross procedures fees at less than
a specified minimum per eye. Generally speaking, gross procedure fees charged by
professionals for LVC treatment in most markets in the United States and Canada
currently ranges from approximately $1,500 to $2,200 per eye, although there can
be no assurance these levels will be maintained for the long term. Support
services offered by the Regional Joint Ventures will include, among others,
access to equipment, supplies and support personnel; administration of
accounting, billing, collection and other information processing functions;
training and education in advanced LVC procedures; and marketing support. There
can be no assurance that ophthalmologists and optometrists will require and
contract for LVC Services of these Regional Joint Ventures, and independent
professionals and groups that do contract for such services cannot be required
under applicable laws and regulations to agree that they will use exclusively
the services of any single provider for their LVC practice on an exclusive
basis.
NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment supplied
by Summit and VISX, Vista's business strategy developed in June 1995, is to
expand in North America by organizing and sponsoring independently financed
regional enterprises (the "Regional Joint Ventures") in which Vista obtains an
equity interest and long-term fee-based consulting arrangements. The Company has
obtained and will continue to seek affiliations for each of its Regional Joint
Venture subsidiaries with experienced LVC eye care professionals; these regional
enterprises will seek third-party financing with Vista's assistance to provide
equipment and other LVC support services to vision care professionals in
targeted regional markets operating under the name "Vista Laser Centers".
In the five Regional Joint Ventures formed and sponsored by Vista to date,
Vista has acquired common stock of the Regional Joint Venture in exchange for
shares of Vista common stock. From July 1995 through May 1996, a foreign
corporate investor, Refractive Services 800, Inc., provided at least $100,000 in
initial seed capital to each of these five Regional Joint Ventures (for an
aggregate investment of $520,000) to finance initial organizational expenses and
costs of negotiating agreements with vision care professionals and seeking
additional financing. Vista recently negotiated an agreement on July 18, 1996 to
acquire the equity interest owned by Refractive Services-800, Inc. in all five
of these Regional Joint Ventures in exchange for 520,000 shares of Vista common
stock.
After the initial organization of a Regional Joint Venture, negotiations
with one or more local prominent ophthalmologists are instituted and these
selected physicians have been offered the opportunity of providing additional
seed capital investments in common stock and/or common stock purchase warrants
issuable by the Regional Joint Venture. Agreements with professionals are
negotiated for use of the Regional Joint Venture's equipment and other LVC
Services and for management to be provided to the Regional Joint Venture by
local
53
<PAGE> 58
vision care professionals or management personnel designated by them; these
agreements are in certain cases conditioned upon receipt of additional financing
in the form of a subsequent private placement and/or initial public offering of
securities by the Regional Joint Venture.
Based upon its experience in LVC Services and affiliations with prominent
LVC specialists, Vista also enters into a long-term consulting services
agreement to provide certain consulting services to the Regional Joint Venture
discussed below. Upon commencing business, each Regional Joint Venture seeks to
enter into associations and agreements with additional ophthalmologists and
optometrists who desire to contract for access to LVC equipment and related
support services offered by the Regional Joint Venture. The Regional Joint
Venture is licensed by Vista to operate under the name and style of "Vista Laser
Centers" at locations within its particular region during the term of Vista's
consulting services agreement. Vista is currently evaluating service mark
applications filed by Vista in the U.S. and Canada to determine whether a
modification to that particular name would enhance Vista's rights to a service
mark.
In the typical consulting services agreement between Vista and a Regional
Joint Venture, Vista agrees to provide consulting service to the Regional Joint
Venture relating to LVC developments in Europe and at other LVC Regional Joint
Ventures sponsored by Vista in North America, advice as to equipment and
leasehold financing options and alternatives, information as to certain legal
matters relating to the operation of an LVC Services business and consulting
advice as to locations for additional sites for expansion. To date Vista has
advanced approximately $1,400,000 and guaranteed equipment financing obligations
of approximately $500,000 for certain of the Regional Joint Ventures sponsored
by Vista.
In exchange for its continuing services, Vista typically will charge the
Regional Joint Venture 5% of revenues realized by the Regional Joint Venture
from providing LVC equipment and related services to physicians. In certain
cases, the percentage of such revenues payable to Vista may be subject to a
monthly credit for items negotiated between Vista and the Regional Joint
Venture. The Regional Joint Venture's revenues from LVC operations is generally
defined as its fees for use of LVC equipment and services charged by the
Regional Joint Venture to its affiliated physicians and physician groups, and
does not include non-operating revenues such as gains or losses on the sale of
equipment.
Each Regional Joint Ventures derives its LVC operating revenues by billing
health care professionals at the time of equipment use, with such fees normally
based upon a negotiated percentage of the gross procedure fees charged to
patients by the professional. The gross procedure fee is required by law to be
established by the professional; however, each Regional Joint Venture requires
prior consent for the gross procedures fee to be less than a stated minimum per
LVC procedure in an effort to insure recovery of its estimated costs of
operations and a reasonable margin. Depending upon the particular circumstances,
the Regional Joint Ventures generally seek to charge an average of approximately
60% of the gross procedure fee as a fair allocation for the costs and market
value of their LVC Services, and the consulting fee payable to Vista in turn is
based upon those revenues earned by the Regional Joint Venture. However, the
fees charged to individual physicians may vary depending upon the skill and
experience of the physician, the volume of his or her anticipated use of LVC
equipment offered by the Regional Joint Venture and the individual policies of
each Regional Joint Venture. One of the five Regional Joint Ventures has
established a policy of charging a flat dollar amount for each LVC procedure in
lieu of a percentage of the physician's gross procedure fee.
Payment of fees charged to physicians by the Regional Joint Venture
normally will be received by the Regional Joint Venture when the professional
collects the gross procedure fee from the patient. Collection normally occurs at
or prior to the LVC procedure. For this purpose, the gross procedure fee is
generally defined to include all charges to the patient for services of one or
more professionals to perform an LVC procedure for one eye, which typically
includes professional services for the procedure, post-operative care and
re-operative procedures, if required, plus all charges to the patient for
equipment use, medical supplies and related items. Generally speaking, gross
procedure fees charged by professionals for LVC treatment in most North American
markets currently range from approximately $1,500 to $2,200 per eye, although
there can be no assurance these levels will be maintained for the long term.
Health insurance providers in both Canada and the United States generally
consider LVC procedures to be elective surgery and do not provide insurance or
other third-party reimbursement; accordingly, the Regional Joint Venture and the
physician must assess and bear the credit risk of payment directly by the
patient.
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<PAGE> 59
In the event LVC revenues of a Regional Joint Venture are attributable to a
subsidiary that is not wholly-owned by the Regional Joint Venture, Vista's 5%
consulting fee may be reduced in proportion to the Regional Joint Venture's
percentage ownership in the subsidiary. Consulting fees are not accrued or
payable to Vista until the specific Regional Joint Venture has attained a
minimum level of equity financing from the private placement or public offering
of its securities. Thereafter, consulting fees are payable to Vista within a
month after the Regional Joint Venture recognized LVC services revenues in
accordance with generally acceptable accounting principles applied by that
Regional Joint Venture for revenue recognition purposes.
Terms of the consulting services agreement between Vista and a Regional
Joint Venture may be subject to negotiation between Vista and operating
management of the Regional Joint Venture, and will not necessarily be identical
in all cases. In each instance, the initial term of the consulting services
agreement between Vista and the Regional Joint Venture will be ten years from
the date on which the specific Regional Joint Venture has attained a minimum
level of equity financing from the private placement or public offering of its
securities. The amount of a minimum level of equity financing for this purpose
generally ranges from $4 million to $6 million depending upon the particular
region.
The Regional Joint Ventures sponsored by the Company are in various stages
of development. As noted below, four of the five Regional Joint Ventures has
commenced business operations during 1996.
At June 30, 1996, Vista Laser Centers of Michigan, Inc. ("VLC-Michigan")
had received $157,600 in cash subscriptions for 637,500 shares of its common
stock and 337,500 Class A warrants exercisable at $1 per share. VLC-Michigan
recently entered into an agreement to purchase the capital stock of Windsor
Excimer Corporation, an affiliate of Dr. Fouad Tayfour, effective as of August
1, 1996. The agreement is subject to certain conditions to closing. Dr. Tayfour
will serve as Chairman of the Board and a Medical Director for VLC-Michigan,
will subscribe for the purchase of 500,000 Class A warrants for $50,000 in cash
and will agree to provide consulting services to VLC-Michigan for a term of five
years. Upon closing the agreements, VLC-Michigan will pay a purchase price of
approximately $1,000,000 for Windsor Excimer Corporation, payable in two
promissory notes bearing interest at 10% per annum. One note for approximately
$500,000 will be due on November 30, 1996 and the remaining $500,000 will be due
on September 30, 1998. The operations of Windsor Excimer Corporation are located
in facilities leased at Windsor, Ontario. Equipment owned by Windsor Excimer
Corporation includes a Summit OmniMed UV 200 excimer laser, a Sunrise
Technologies LTK holmium laser and related equipment.
VLC-Michigan has assumed a lease obligation from one of those physicians in
Michigan as to a Summit holmium laser with rental payments of $10,850 per month
until December 1999, at which point VLC-Michigan has the right to purchase the
equipment for a nominal payment of $1, plus an obligation in the aggregate
amount of $230,000, payable at the rate of $250 each time the equipment is used
by a physician.
Vista Laser Centers of the Southwest, Inc. ("VLC-Southwest") commenced
business operations at a location in Scottsdale, Arizona in February 1996.
VLC-Southwest has leased a newly acquired VISX excimer laser. As of June 30,
1996, VLC-Southwest had received cash subscriptions of $291,500 to 100,000
shares of its Series A preferred stock ($100,000), 35,000 shares of its common
stock ($35,000), 315,000 Class A warrants ($31,500) exercisable at $1 per share
and a private placement ($125,0000) of units aggregating $125,000 in principal
amount of 11% convertible notes and 12,500 Class B warrants exercisable at $4
per share. One of the investors in common stock and Class A warrants of
VLC-Southwest is Dr. J. Charles Casebeer. If VLC-Southwest successfully
completes additional financing activities, as to which there can be no
assurance, it is expected that VLC-Southwest will negotiate the purchase of
certain assets from an affiliate of Dr. Casebeer, who is Chairman of the Board
and a director of VLC-Southwest and also a director of Vista.
Vista Laser Centers of the Pacific, Inc. ("VLC-Pacific") commenced business
operations in June 1996 following receipt of $1,295,000 in cash subscriptions to
100,000 shares of its Series A preferred stock ($100,000), 50,000 shares of its
common stock ($50,000), 450,000 Class B warrants ($45,000) exercisable at $1 per
share and a private placement ($950,000) of units aggregating $950,000 in
principal amount of 11% convertible notes and 95,000 Class A warrants
exercisable at $4 per share. VLC-Pacific has assumed equipment lease obligations
from physicians affiliated with VLC-Pacific for two VISX excimer lasers in
55
<PAGE> 60
Sacramento and San Jose, California and for a Summit excimer laser in San
Leandro, California, and is currently operating at leased facilities in those
three locations.
Vista Laser Centers Metro, Inc., to be renamed Vista Laser Centers of the
Northeast, Inc. ("VLC-Northeast") commenced business operations at a center in
Toronto, Ontario and received $100,000 in cash subscriptions to 100,000 shares
of Series A preferred stock. Additional cash subscriptions to common stock and
warrants from local physicians and from a private placement of 11% convertible
note and warrants are pending. VLC-Northeast owns a newly acquired VISX excimer
laser and is engaged in negotiations to establish its next location in the New
York City metropolitan area.
Vista Laster Centers of the Northwest, Inc. ("VLC-Northwest") has not yet
commenced business operations and has received $191,250 in cash subscriptions
for 137,500 shares of its common stock ($137,500) and 337,500 Class A warrants
($33,750) exercisable at $1 per share. An investor in common stock and Class A
warrants of VLC-Northwest is Dr. Donald G. Johnson, Chairman of the Board of
Vista. If VLC-Northwest successfully completes an initial public offering or
private placement of its securities, as to which there can be no assurance, it
is expected that VLC-Northwest will negotiate the purchase of capital stock for
an existing LVC services business from an affiliate of Dr. Johnson, who is
Chairman of the Board and a director of VLC-Northwest and also Chairman of the
Board and a director of Vista.
Vista does not exercise control over the Regional Joint Ventures and Vista
has granted or is committed to grant irrevocable proxies to vote certain shares
in the Regional Joint Venture owned by Vista to one or more local affiliates of
each Regional Joint Venture. However, Vista has or will retain the right to
representation on the Board of Directors of the Regional Joint Ventures.
Although there can be no assurance one or more Regional Joint Ventures will be
successful in plans for an initial public offering or additional private
placement financing, each Regional Joint Venture plans to ultimately effect a
public offering of its securities that would reduce Vista's beneficial ownership
in the Regional Joint Venture to significantly less than 50%.
<TABLE>
<CAPTION>
VISTA TECHNOLOGIES COMMON STOCK
ISSUED TO ACQUIRE SERIES B PREFERRED SHARES IN
REGIONAL JOINT VENTURE
-----------------------------------------------
NUMBER OF
VISTA COMMON DATE
REGIONAL JOINT VENTURES SHARES(1) ISSUED SERIES B(1) SERIES A PRIMARY(2) DILUTED
----------------------- ------------ -------- ----------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Vista Laser Centers of Michigan, Inc...... 200,000 11-16-95 200,000(4) 100,000(4) 90.9% 46.2%
Vista Laser Centers of the Southwest,
Inc..................................... 250,000 3-18-96 350,000(5) 100,000(5) 87.2% 47.7%
Vista Laser Centers of the Pacific,
Inc..................................... 500,000 5-08-96 500,000(6) 100,000(6) 67.6% 38.5%
Vista Laser Centers of the Northeast,
Inc..................................... 450,000 5-08-96 675,000(7) 100,000(7) 100% 100%
Vista Laser Centers of the Northwest,
Inc..................................... 500,000 5-08-96 500,000(8) 100,000(8) 94.1% 51.1%
Common Stock issued to acquire Series A
Preferred............................... 520,000 7-18-96
</TABLE>
- ---------------
(1) In each case, Vista has granted or is committed to grant to one or more
persons associated with the Regional Joint Venture an irrevocable proxy
granting such person or persons the right to vote shares acquired by Vista
in the Regional Joint Venture for a five year term. Conversely, the Board
of Directors of Vista has received for the same period an irrevocable proxy
from the Regional Joint Venture to vote shares of Vista common stock issued
to the Regional Joint Venture. All of such proxies will terminate as to any
shares which are sold to a bona fide third party prior to expiration of the
proxy.
(2) Represents percentage of common and common equivalent shares of the Regional
Joint Venture that would be outstanding if all its convertible securities
issued as of July 30, 1996 were converted into common stock. Does not give
effect to the exercise of warrants and/or stock options issued by the
Regional Joint Venture or to the possibility of additional offerings of
securities planned by the Regional Joint Venture.
(3) Calculated on a fully-diluted basis to give effect to the assumed conversion
or exercise into common stock of all convertible securities, warrants
and/or stock options issued by the Regional Joint Venture as of July 30,
1996. Does not give effect to the possibility of additional offerings of
securities planned by the Regional Joint Venture. Based upon current
proposals, if planned initial public offerings for VLC-Michigan and
VLC-Pacific are successfully completed, as to which there can be no
assurances, the
56
<PAGE> 61
beneficial ownership of shares held by the Company in VLC-Michigan and
VLC-Pacific on a fully-diluted basis would decrease to approximately 20.7%
and 20.3% respectively.
(4) Shares of 5% Series B preferred stock issued by VLC-Michigan have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Michigan on a one-for-one basis. The appraised value of
the Series B preferred shares in VLC-Michigan as of the date of original
issuance for financial purposes is $217,597. Shares of 10% Series A
preferred stock acquired by Vista for 100,000 shares of Vista Common Stock
on July 18, 1996 were originally issued by VLC-Michigan for $1.00 per share
in cash, have a preference in liquidation of $5.00 per share and are
convertible into common stock of VLC-Michigan on a one-for-one basis.
(5) Shares of 5% Series B preferred stock issued by VLC-Southwest have a
preference in liquidation of $2.50 per share and are convertible into
VLC-Southwest common stock on a one-for-one basis. The value of the Series
B preferred shares in VLC-Southwest has not yet been appraised. Shares of
10% Series A preferred stock acquired by Vista for 100,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Southwest for
$1.00 per share in cash, have a preference in liquidation of $5.00 per
share and are convertible into common stock of VLC-Southwest on a
one-for-one basis.
(6) Shares of 5% Series B preferred stock issued by VLC-Pacific have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Pacific on a one-for-one basis. The appraised value of
the Series B preferred shares in VLC-Pacific as of the date of original
issuance for financial reporting purposes is $487,855. Shares of 10% Series
A preferred stock acquired by Vista for 100,000 shares of Vista Common
Stock on July 18, 1996 were originally issued by VLC-Pacific for $1.00 per
share in cash, have a preference in liquidation of $5.00 per share and are
convertible into common stock of VLC-Pacific on a one-for-one basis.
(7) Shares of 5% Series B preferred stock issued by VLC-Northeast have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Northeast on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northeast has not yet been appraised.
Shares of 10% Series A preferred stock acquired by Vista for 100,000 shares
of Vista Common Stock on July 18, 1996 were originally issued by
VLC-Northeast for $1.00 per share in cash, have a preference in liquidation
of $6.00 per share and are convertible into common stock of VLC-Michigan on
a one-for-one basis.
(8) Shares of 5% Series B preferred stock issued by VLC-Northwest have a
preference in liquidation of $3.00 per share and are convertible into common
stock of VLC-Northwest on a one-for-one basis. The value of the Series B
preferred shares in VLC-Northwest not yet been appraised. Shares of 10%
Series A preferred stock acquired by Vista for 120,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Northwest for
$1.20 per share in cash, have a preference in liquidation of $6.00 per share
and are convertible into common stock of VLC-Michigan on a one-for-one
basis.
OTHER RELATIONSHIPS WITH PROFESSIONALS
Dr. Donald G. Johnson is Chairman of the Board and a director of Vista and
has agreed to render part-time consulting services to certain of Vista's
Regional Joint Ventures. The TMM PRK procedure was developed by Dr. Johnson, who
is one of the world's most experienced PRK surgeons. Dr. Johnson developed TMM
PRK procedures with VISX equipment and, as of December 31, 1995, has
successfully treated approximately 7,400 eyes with excimer laser procedures.
Dr. J. Charles Casebeer is an educator and trainer in the LASIK procedure
and has previously served other companies as a consultant in the LASIK field.
Dr. Casebeer is a director of Vista and has entered into a Consulting Agreement
with VLC-Michigan contingent upon completion of its pending public offering. He
is expected to continue his efforts in LASIK procedures and to assist in
managing programs for training vision care professionals in the use and
performance of LVC procedures and in recommending standards to establish a
program of credentialing and training health care professionals in various
aspects relating to LVC procedures and patient treatment. If an initial public
offering of securities by VLC-Michigan is successfully completed, Dr. Casebeer's
professional corporation will receive from VLC-Michigan compensation at the rate
of $60,000 per annum plus additional compensation for each vision care
professional that enters a credentialing program to be established by
VLC-Michigan.
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<PAGE> 62
Dr. Casebeer and Dr. Johnson are expected to promote advanced LVC methods
for both Vista and for various Regional Joint Ventures that have been formed, or
may be formed in the future by Vista, to service various North American
geographic markets.
SAFETY AND EFFICACY
The first PRK procedure for the treatment of nearsightedness using an
excimer laser system was performed in 1989, and the first PTK procedure for the
treatment of a corneal pathology using an excimer system was performed in 1988.
A large majority of PRK and PTK procedures to date have been performed only
since 1990. PRK to correct myopia has been performed in at least 35 countries
outside the U.S. prior to 1996.
Some potential medical risks have been identified in connection with the
use of LVC surgery and there may be other risks which will not be known until
the procedure has been more widely used and monitored over an extended period of
time.
Possible concerns with respect to the safety and efficacy of LVC excimer
laser systems for refractive surgery include predictability and stability of
results and potential complications, such as modest decreases in best corrected
vision and side effects from PRK, PTK, LASIK and LTK. Other possible effects
include postoperative discomfort; corneal haze during healing (an increase in
the light scattering properties of the cornea); glare/halos (undesirable visual
sensations produced by bright lights); decrease in contrast sensitivity
(diminished vision in low light); temporary increases in intraocular pressure in
reaction to post procedure medication; modest fluctuations in astigmatism and
modest decreases in best corrected vision (i.e., with eyeglasses); unintended
over or under corrections; instability, reversal or regression of effect;
corneal scars (blemishing marks left on the cornea); corneal ulcers
(inflammatory lesions resulting in loss of corneal tissue); and corneal healing
disorders (compromised or weakened immune system or connective tissue disease
which causes poor healing).
Summit has reported that two year follow-up data accumulated by Summit
during its Phase III PRK clinical trials indicate all of the individuals
undergoing PRK experienced an improvement in visual acuity without corrective
eyewear. Prior to PRK, 95% of the eyes in this group were 20/200 or worse. Of
the eyes treated, approximately 91% improved to 20/40 or better, the legal
requirement to obtain a driver's license in most states without corrective
eyewear, while the remaining 9% experienced improved vision without corrective
eyewear, but still required corrective eyewear to achieve 20/40 vision or
better.
MARKET POTENTIAL FOR LVC SERVICES
It is estimated that in excess of 100 million people in the U.S., and a
much larger number worldwide, use eyeglasses or contact lenses to correct common
vision disorders, with over 60 million of these individuals suffering from
nearsightedness. U.S. consumers spent an estimated $13.8 billion in eyeglass and
contact lens purchases in 1993. While excimer laser procedures can treat people
who are farsighted or are astigmatic, both the existing technology and
application for regulatory approvals for those uses are in an earlier stage than
for use of excimer lasers for treatment for nearsightedness.
Refractive disorders generally are corrected with conventional methods such
as eyeglasses and contact lenses. Alternative treatments for permanently
reshaping the cornea to relieve nearsightedness, farsightedness and astigmatism
include surgical methods, the most popular of which has been RK, discussed
earlier in this Report. RK is used primarily to correct nearsightedness, but is
known to have potential limitations such as: (i) weakening the cornea, (ii)
potential for infection and (iii) producing inconsistent visual correction
results. However, RK procedures are generally substantially less expensive than
LVC procedures.
Vista believes that the market potential for alternative refractive care
utilizing excimer laser systems is commercially significant. Many eyeglass or
contact lens wearers are potential candidates for laser refractive surgery.
Generally speaking, Vista believes that younger persons are more apt to elect
refractive surgery than older people who have become accustomed to eyeglasses or
contact lenses over an extended period. However, the degree to which Vista's LVC
Services can penetrate the potential market for vision correction will depend
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on a variety of factors including, but not limited to, medical and public
acceptance of laser vision correction procedures and alternative technologies.
None of these factors is under the immediate control of Vista nor is any
predictable at this time.
Vista's growth strategy includes: (a) increasing market penetration into
Canada and the United States through Vista's sponsorship, investment and
affiliation with Regional Joint Ventures; (b) continuing to promote alliances
with prominent ophthalmologists and other vision care professionals with a goal
of maximizing excimer laser usage for both its European operating subsidiaries
and North American Regional Joint Ventures; (c) targeting Regional Joint Venture
efforts toward specific markets and key demographic groups within their regional
markets; (d) expanding market acceptance of LVC procedures by both vision care
professionals and the general public through Vista's participation in seminars
and training programs and dissemination of public information and advertising;
and (e) on a longer-term basis, the possible acquisition of other companies
engaged in providing LVC Services.
LVC EQUIPMENT AND SUPPLIERS
Vista is not involved in the research, development or manufacture of
refractive laser systems, and is dependent on unrelated manufacturers for the
supply of laser equipment and systems to Regional Joint Venture companies and
for possible expansion in Europe. Vista believes there are four U.S. companies
that have conducted or are conducting clinical trials with excimer lasers for
refractive surgery: in addition to Summit and VISX, these include Chiron Corp.
and LaserSight Incorporated. As discussed earlier, Summit and VISX have received
pre-market approval to commercially sell and market in the United States their
excimer lasers for PRK treatment of low and mild myopia and for PTK procedures.
The current cost of an excimer laser ranges from approximately $475,000 to
$525,000, plus sales tax. For laser equipment purchased from VISX or Summit, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their excimer laser
technology. The purchase price typically includes a one or two year warranty on
all parts except the optics (mirror and glass components) which generally carry
a 30-day warranty. Annual maintenance and service fees are contracted for
separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the equipment
cost, Vista believes that most ophthalmologists interested in LVC surgery will
not be able or willing to purchase a laser, seek financing for the purchase
and/or arrange for required maintenance of the laser equipment.
Equipment currently maintained or expected to be acquired by the Company's
European operating subsidiaries and Regional Joint Ventures are described above
under the captions "European Operating Subsidiaries", "Vista Laser Centers of
Michigan, Inc." and "Other Vista Laser Centers Regional Joint Ventures".
Reference is also made to Note 12 of the Notes to the Consolidated Financial
Statements. Regional Joint Ventures in which the Company has acquired an
interest plan to enter into additional commitments to purchase and lease LVC
equipment which may be contingent in certain instances upon the respective
Regional Joint Venture obtaining additional financing.
In June 1996, the Company entered into two rental agreements with Summit
for the lease of two Summit Apex excimer lasers. The term of each rental
agreement commences upon equipment installation and will continue for a 27 month
period. After the first three months of operation, each equipment lease provides
for a minimum monthly rental fee of $6,500. The Company anticipates installing
these lasers at one or more of its Regional Joint Ventures under a sublease
arrangement.
FDA PRE-MARKET APPROVAL OF LVC EXCIMER SYSTEMS
Excimer laser systems are regulated as medical devices by the United States
Food and Drug Administration ("FDA") and require pre-market clearance or
pre-market approval (referred to as a "PMA") by the FDA prior to commercial sale
and use in the U.S. Medical devices in the U.S. are classified into one of three
classes on the basis of the controls deemed necessary by the FDA to reasonably
ensure safety and effectiveness. Class III devices, which include medical
lasers, generally are those which must receive PMA by
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the FDA to ensure their safety and effectiveness and include, among other
devices, new devices which have been found not to be "substantially equivalent"
to existing legally marketed devices.
A PMA application must be supported by valid scientific evidence which
typically includes extensive preclinical and clinical trial data to demonstrate
the safety and effectiveness of the device. If human clinical trials of a device
are required, and the device presents a "significant risk," the sponsor of the
trial (usually the manufacturer or distributor of the device) will have to file
an Investigational Device Exemption ("IDE") application prior to commencing
human clinical trials. The IDE application must be supported by data, typically
including results of animal and laboratory testing. If the IDE application is
approved, human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.
A PMA application must contain the results of clinical trials, the results
of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, a detailed description of methods,
facilities and controls used to manufacture the device and certain other
information. FDA review of a PMA application generally takes one to two years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information, including additional clinical trials for clarification of
information provided in the submission. When conditions have been fulfilled to
the satisfaction of the FDA, it will issue a PMA approval letter, authorizing
commercial distribution of the device for certain applications. If the FDA's
evaluation is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter". There are devices for which FDA approval has
been sought which have never been approved for marketing in the U.S. The FDA may
approve a device for some procedures but not others, or for certain classes of
patients and not others. Modifications to a device that is an approved PMA also
may require approval by the FDA of PMA supplements or new PMAs.
GOVERNMENTAL REGULATION
The manufacturing, labeling, distribution, marketing and promotion of
medical devices such as excimer lasers to which Vista and its affiliated
companies provide access are subject to extensive and rigorous government
regulation in the United States and in certain other countries.
Excimer lasers in the United States are required to be the subject of an
approved PMA application. Summit and VISX have received approval of PMA
applications for use of their excimer lasers in PRK and PTK procedures for the
treatment of low to mild myopia. There can be no assurance that FDA approval
will be received by equipment manufacturers for use of PRK for other refractive
disorders, such as extreme myopia, astigmatism and hyperopia (farsightedness) or
that other LVC procedures, such as LASIK or TMM PRK, will ever be approved by
the FDA. Failure to receive such approvals could have the effect of limiting the
market for LVC procedures in the United States, although the Company's plan in
such event is that vision care professionals affiliated with its Regional Joint
Ventures will have an option of referring patients desiring these alternative
procedures to physicians in Canada associated with one or more Regional Joint
Ventures.
Users of medical devices in the United States are subject to continuing FDA
obligations. Medical devices are required to be manufactured in accordance with
regulations setting forth current Good Manufacturing Practices ("GMP"), which
require that devices be manufactured and records be maintained in a prescribed
manner with respect to manufacturing, testing and control activities. It is the
FDA's view that with respect to excimer lasers, users, as well as manufacturers,
are required to comply with FDA requirements with respect to labeling and
promotion. The Medical Device Reporting regulation adopted by the FDA would
require that the user provide information to the FDA whenever there is evidence
to reasonably suggest that one of its devices may have caused or contributed to
a death or serious injury, or that there has occurred a malfunction that would
be likely to cause or contribute to a death or serious injury if the malfunction
were to recur. Users of medical devices are subject to periodic inspections by
the FDA. Failure to comply with applicable FDA requirements could subject one or
more Regional Joint Ventures subject to FDA regulation in the United States to
enforcement action, including product seizures, recalls, withdrawal of
approvals, and civil and criminal penalties, any one or more of which could have
a material adverse effect.
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Medical device laws and regulations are also in effect in Canada and
Europe. These range from comprehensive device approval requirements to requests
for product data or certifications. The number and scope of these requirements
are increasing. Medical device laws and regulations are also in effect in some
states in which the Company may plan to sponsor Regional Joint Ventures. The
failure of the Company's European operating subsidiaries or Regional Joint
Ventures to comply with applicable foreign or state medical device laws and
regulations may have a material adverse effect on the Company's business.
Federal, state and foreign laws and regulations regarding the manufacture
and marketing of medical devices are subject to change. For example, the FDA is
currently considering significant changes to its GMP and to other regulations.
The Company cannot predict what impact, if any, such changes might have on its
business.
The operations of Vista's European subsidiaries and the Regional Joint
Ventures are also subject to extensive rules and regulations, both in the United
States and foreign countries at the federal, provincial, state and local level,
affecting the health care industry and the delivery of health care. These
include laws and regulations prohibiting the practice of medicine and optometry
by persons not licensed to practice medicine or optometry, prohibiting the
unlawful rebate or unlawful division of fees and limiting the manner in which
prospective patients may be solicited.
Current regulatory requirements and restrictions that relate to corporate
entities involved in the ownership and operation of healthcare facilities
include prohibitions against: the corporate practice of medicine except by an
entity owned by healthcare professionals and/or wherein the professionals
exercise control over medical judgments; patient referrals by healthcare
professionals (including ophthalmologists and optometrists) to a facility owned
or compensated by such referring professional (either generally, or sometimes by
defining such payments as "kick backs"); and "fee splitting" between healthcare
professionals and corporate entities. Other laws in both the United States and
foreign countries specifically regulate the nature and compensation provisions
of employment or management relationships that healthcare professionals may have
with a corporate-owned facility, may affect the form of business entity to be
utilized, may limit payments either to the entity or to healthcare professionals
to the "fair market value" of their contributions, or affect the manner of
marketing the service performed at the healthcare facility. Additional
regulations in some jurisdictions also now affect, or in the future may affect,
the administration and use of LVC Services, including requirements for
certificates of need and/or other licensing and registration of medical
equipment.
Laws and regulations affecting the manner in which LVC Services may be
marketed, administered or compensated for vary significantly from jurisdiction
to jurisdiction. In some instances these laws and regulations are ambiguous, and
sometimes regulators fail to provide adequate guidelines. Vista believes that
its European operating subsidiaries and Regional Joint Ventures have adopted
strategies that enables each of them to offer and administer LVC Services in
compliance with applicable regulatory requirements in their areas of operations.
However, federal, state and provincial regulatory attention may continue to be
directed to the practice of medicine, and any changes in applicable law or
regulations, or in governmental agency and judicial interpretations of such laws
and regulations, could cause one or more of these strategies currently in
compliance with applicable laws to cease to comply.
The use of excimer lasers and other medical equipment is also subject to
numerous government laws and regulations relating to such matters as safe
working conditions, environmental protection, fire hazard control and disposal
of potentially hazardous substances. There can be no assurance that the
Company's European operating subsidiaries and one or more Regional Joint
Ventures will not be required to incur significant costs to comply with such
laws and regulations in the future.
INSURANCE AND INDEMNIFICATION
Health insurance providers in North America generally consider LVC
procedures to be elective surgery and do not provide insurance reimbursement. In
other countries, reimbursement programs vary by country and region, and
reimbursement is not generally available for European locations at which the
Company's European subsidiaries currently operate.
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Use of laser systems by health care professionals using laser equipment and
other LVC Services may give rise to claims against Vista or its affiliates by
persons alleging injury. Vista's subsidiaries generally do not currently have
malpractice liability insurance due to limited capital resources.
Vista believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that Vista and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can be
no assurance that laser suppliers will carry product liability insurance or that
any such insurance will be adequate to protect Vista.
Generally speaking, the policy of Vista's operating subsidiaries and
Regional Joint Ventures are to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
At a future date, Vista intends to explore the availability and cost of
obtaining umbrella coverage with respect to any malpractice claims relating to
procedures performed by use of LVC Services and of obtaining errors and
omissions coverage with respect to the Company's staff. There can be no
assurance that Vista will be able to retain adequate liability insurance at
reasonable rates, or that insurance or indemnification provided by health care
providers will be adequate to cover claims asserted against Vista, in which
event Vista's business may be materially adversely affected.
PROPRIETARY RIGHTS
Vista has no licenses, patents, registered trademarks or registered
copyrights except that it has filed trademark applications in the United States
and Canada for the service mark "Vista Laser Centers" (TM) and its European
operating subsidiaries conduct business under the name of Vista Vision (TM).
COMPETITION
The vision care industry is extremely competitive and includes numerous
companies that are substantially larger than Vista and have greater financial,
marketing and technical resources. Vista believes principal competitive factors
affecting revenues include market acceptance of LVC procedures by both patients
and vision care professionals, performance, success relative to alternative
refractive correction methods, pricing, regulatory requirements, quality of
equipment and convenience to the patient and physicians, some of which are
factors beyond the Company's control.
Vista competes with other surgical and non-surgical forms of treatments for
refractive disorders, including eyeglasses, contact lenses, manual refractive
surgery (such as RK), corneal transplants and possibly other new technologies
currently under development. Continued use of eyeglasses and contact lens are
expected to be the most popular methods of treating refractive vision disorders
due to low immediate cost and the avoidance of surgery. Notwithstanding certain
limitations and disadvantages compared to LVC procedures, RK surgery is
generally less expensive than are LVC procedures, and RK may remain a
competitive surgical treatment due to cost considerations or the skills of
particular physicians.
The market for access to excimer lasers is highly competitive and Vista and
its Regional Joint Ventures compete, or will compete, in various geographic
markets with other businesses formed since 1990 offering similar access to LVC
equipment and services in Europe, Canada and the United States. These
competitors are pursuing a variety of business and marketing strategies, such as
marketing directly to consumers through optical chains or affiliating with
hospitals or physician group practices.
Summit, a supplier of laser equipment, operating through a subsidiary named
Refractive Centers International, Inc., to open various laser centers in the
United States. Other companies which do not manufacture laser equipment
currently provide, or have indicated they intend to provide, access to laser
equipment in the United States, including: Beacon Eye Institute Inc. (a
subsidiary of Hawker Siddley Canada Inc.); Vision International, Inc., which
operates PRK clinics in Mexico, Finland and Argentina; Laser Vision Centers,
Inc. ("LVCI"), which has operated centers in Canada since 1991 and in Europe
since 1993; Global Vision, Inc.; LCA Vision, Inc.; Sight Resources, Inc.;
Sterling Vision, Inc.; The Laser Centre; and 20/20 Laser Centers, Inc.
Additional competition also exists or may develop from hospital affiliated
groups,
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physician group practices and private ophthalmologists electing to purchase
refractive laser systems in certain markets, some of whom are believed to
operate equipment for which royalties are not payable to a laser manufacturer.
LVCI reportedly operates 12 sites in the U.S., and plans to open additional U.S.
locations, in conjunction with Columbia Healthcare Corporation, formerly named
Columbia/HCA, which operates ambulatory surgery centers in approximately 27
states. LVCI has also announced plans to develop self-contained mobile laser
surgery centers and to apply for pre-market approval of its mobile system with
the FDA.
The ability of Vista and its Regional Joint Ventures to compete
successfully may also depend in the future on their ability to adapt to
technological changes and advances in the treatment of refractive vision
disorders. There can be no assurance that, as the market for excimer laser
surgery and other treatments of refractive disorders develops, that equipment
owned and/or leased by Vista and its affiliates will not become obsolete, and if
this occurs, there can be no assurance that Vista will be able to secure new
equipment to allow Vista and its affiliates to compete effectively.
INVESTMENT IN TECHNICAL CHEMICALS AND PRODUCTS, INC.
As part of an agreement between Vista and the Company generating additional
financing for Vista in March 1996, Vista received 200,000 restricted shares of
Technical Chemicals and Products, Inc. ("TCPI") common stock from the Company at
a value of $2,662,500, or $13.31 per TCPI share. At the time this transaction
was completed and at March 31, 1996, shares of TCPI acquired by Vista were
restricted as to resale under federal securities laws and have been valued at
both dates for financial statement purposes at a 25% discount from the public
market price. On March 21, 1996, the date the Company and Vista closed the
agreement, the closing price for TCPI common stock was $17.75 per share.
Subsequent closing prices for TCPI common stock were $16.50 on March 31, 1996
and $10.63 on September 30, 1996.
TCPI is principally engaged in the design, development, manufacture and
marketing of a wide range of medical diagnostic products for use in physician
offices, at home and at other point-of-care locations. TCPI's medical diagnostic
products employ patented and proprietary membrane-based technology, and include
approximately 25 different tests to detect conditions such as pregnancy,
ovulation timing, cholesterol levels, blood glucose levels, infectious diseases
and drugs of abuse. TCPI markets diagnostic products through a marketing and
distribution alliance between TCPI and Boehringer Mannheim and also markets
products under its proprietary brand name and under private label arrangements
to drug, discount and supermarket chains. In addition to its diagnostics
business, TCPI is also involved, through its Pharmetrix Division acquired from
Pharma Patch PLC in November 1995, in research, development and
commercialization of transdermal and mucosal drug delivery systems and skin
permeation enhancers. For its fiscal year ended December 31, 1995, TCPI reported
net sales of $4,188,000 and a net loss of $1,494,000.
TCPI's common stock is publicly-traded in the over-the-counter market and
quoted on the Nasdaq SmallCap Market under the symbol "TCPI". TCPI is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission") which may
be inspected and copied at the public reference facilities maintained by the
Commission at its principal office in Washington D.C. and at its regional
offices in Chicago and New York.
As the assignee of the Company with respect to its investment in TCPI, the
Company is entitled to certain benefits and subject to certain obligations
arising under prior agreements between the Company and TCPI. TCPI filed a
registration statement on Form S-3 to register certain shares of TCPI common
stock acquired by the Company from TCPI, including the 200,000 shares assigned
to Vista. The resale of these shares pursuant to such registration is subject to
a lock-up agreement executed by Vista. Under that lock-up, Vista has agreed it
will not sell, contract to sell, grant any option for the sale of, or otherwise
directly or indirectly dispose of Vista's shares of TCPI common stock during the
period expiring 180 days following the closing of a public offering of
securities by TCPI on May 2, 1996 without the prior consent of the
representative of the underwriters of TCPI's public offering.
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EMPLOYEES
Vista's corporate operations employ the services of eight employees and
consultants, including three on a full time basis and five on a part-time basis,
all of which are involved in management or administrative functions. Vista's
European subsidiaries employ six persons at Vista-Italy and five persons at
Vista-Sweden. Management believes that the Company's relationship with its
employees is satisfactory. As the Company expands, it expects to add additional
employees, primarily in marketing, administrative and management positions. The
Company does not anticipate difficulty in hiring such personnel when needed.
DESCRIPTION OF PROPERTY
Vista's principal office is located at 167 S. San Antonio Road, Suite 9,
Los Altos, California 94022.
The Company and its subsidiaries do not own any real property. The
following table summarizes information as to facilities utilized by the Company
and its European operating subsidiaries.
The following table summarizes information as to facilities utilized by
Vista and its European operating subsidiaries:
<TABLE>
<CAPTION>
SIZE AND LEASE--
LOCATION USE EXPIRATION DATA
-------- --- ---------------
<S> <C> <C>
UNITED STATES FACILITIES:
Vista Technologies Inc. Corporate office 404 square feet; expires 8/31/96
1250 Oakmead Parkway, Suite
210 Sunnyvale,
California
167 S. San Antonio Road Corporate office 1,042 square feet; expires 7/31/01
Suite 9
Los Altos,
California
EUROPEAN FACILITIES:
Vista Vision SpA:
Milan Center LVC center 430 square feet; expires January 1997
Milan, Italy (renewed every 3 years unless notice given
six months in advance)
Viareggio Center LVC center shared use of facilities under operating
Viareggio, Italy agreement on month-to-month basis
Rome Center LVC center 1,600 square feet; expires November 2000
Rome, Italy
Palermo Center LVC center shared use of facilities under operating
Palermo, Italy agreement on a month-to-month basis
Vista Vision Scandinavia AB:
Klara Clinic LVC center shared use of facilities under operating
Stockholm, Sweden agreement on a month-to-month basis
Malmo Center LVC center shares use of facilities operating agreement
Malmo, Sweden with Gustav Adolf Clinic expiring on May 1,
1988 (renewed every 3 years unless notice
given 12 months in advance)
</TABLE>
The Company believes that its facilities are in good operating condition
and repair and are adequate for their existing requirements. See Note 12 of the
Notes to Consolidated Financial Statements elsewhere herein for additional
information concerning lease obligations of the Company. The lease for the
Company's new
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corporate offices in Los Altos, California provides for a base rental of $2,084
per month adjusted at the end of each year during the five-year term for changes
in the consumer price index and in any event not less than a 3% nor more than a
7% increase per year.
LEGAL PROCEEDINGS
PENDING LEGAL PROCEEDINGS AS TO VISTA-ITALY
Vista-Italy is a party to pending litigation proceedings arising as a
result of prior transactions between Vista-Italy and Laser Vision Centers, Inc.
("LVCI") of St. Louis, Missouri. An unfavorable determination in these
proceedings would not adversely affect the business operations of the Company or
Vista-Italy as presently conducted.
On October 8, 1993, LVCI filed civil litigation in the Circuit Court of St.
Louis County, Missouri against Vista-Italy alleging fraud and breach of contract
on the part of Vista-Italy arising from agreements made and partly performed
between the parties from May 1991 to March 1993. Vista-Italy did not file
responsive pleadings in this proceeding based upon its counsel's advice, among
other things, that the Missouri court did not have jurisdiction. On December 17,
1993, a default judgment was entered in this action against Vista-Italy (a)
terminating and rescinding all agreements and proposed agreements between LVCI
and Vista-Italy, (b) awarding damages of $175,000 against Vista-Italy, and (c)
ordering a return to LVCI of 275,000 shares of its common stock previously
issued or issuable to Vista-Italy (of which only 200,000 shares were delivered
to Vista-Italy). Vista-Italy filed a motion to vacate this judgment which was
denied by the trial court; the trial court's decision recently was affirmed on
appeal. Vista-Italy intends to petition for an appeal to the Missouri Supreme
Court. The ultimate outcome of these proceedings cannot presently be determined.
In view of the default judgment and uncertainty as to the ability of
Vista-Italy to set aside that judgment, Vista recorded the following
transactions on its consolidated financial statements as of September 30, 1994:
(i) the cancellation of 287,500 shares of Vista-Italy previously issued to LVCI
under the agreements that would be rescinded by the default judgment; (ii)
cancellation of 200,000 shares of LVCI stock previously delivered to
Vista-Italy; and (iii) an accrued liability of approximately $175,000 for
damages awarded by the default judgment. Vista-Italy does not believe that the
money damage portion of the default judgment would be enforced by a court of
competent jurisdiction in Italy.
SEC SUBPOENA RELATING TO TRADING IN U.S. SHOE CORP. SECURITIES
In June 1996, Vista received a subpoena duces tacum from the Securities and
Exchange Commission ("Commission") in connection with an investigation by the
Commission into trading in the securities of U.S. Shoe Corp., Commission File
Number HO-3018. Based on the subpoena, this investigation is apparently focused
on trading in U.S. Shoe Corp. securities during the period from October 1, 1994
through March 3, 1995. The subpoena requires Vista to furnish the Commission
with various documents relating, among other things, to Vista's bank accounts,
brokerage accounts, telephone records and documents referring or relating to 29
named individuals and entities. As of July 29, 1996, Vista had transmitted to
the Commission copies of all documents then in its possession required by the
subpoena. (Additional documents received from storage files of a former
executive officer were delivered to Vista on July 29, 1996 and will be produced
for the Commission after review by Vista's counsel.) Vista has never directly or
indirectly traded in the securities of U.S. Shoe Corp. and management therefore
believes that Vista is not a target of the Commission's investigation. Counsel
for Jac. J. Lam, a former director of Vista, has advised Vista that Mr. Lam
purchased call options covering securities of U.S. Shoe Corp. during 1994 based
solely on then publicly-available information. To avoid any possible
complications arising as a result of these proceedings, Mr. Lam resigned as a
director of Vista on July 2, 1996.
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OTHER
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by Vista has been advised by a third party that
it contends the physician breached commitments or obligations to the third party
by the physician's decision to associate with one of Vista's Regional Joint
Ventures. In one of these matters, the third party contends that its plan of
operations to enter the business of providing access to LVC equipment in
association with the physician has been damaged. In the other, the third party
contends that the physician breached fiduciary duties to the third party and
misappropriated client lists and data, and the claimant also has threatened to
hold Vista and certain other parties responsible as well as the physician. To
date, neither dispute has resulted in the filing of legal proceedings although
legal proceedings have been threatened. Based on information currently known to
Vista, Vista believes these claims are without merit and will not result in
material liability to either of the Regional Joint Ventures involved or to
Vista.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of Vista common stock were initially offered and sold to the public
in an initial public offering completed in December 1993. However, an active
trading market did not develop until March 18, 1996 following a one-for-five
reverse stock split as to the Company's common stock effective as of March 15,
1996. Vista's common stock is traded in the over-the-counter market and quoted
on the NASD's Electronic Bulletin Board under the trading symbol "VIII". The
following table sets forth, for the periods indicated, the high and low closing
bid and asked prices for Vista's common stock as reported by the National
Quotation Bureau, Inc. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
CLOSING BID PRICES CLOSING ASKED PRICES
-------------------- ------------------------
PERIOD HIGH BID LOW BID HIGH ASKED LOW ASKED
- -------------------------------------------------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C>
1996:
Quarter ended March 31 (from March 18).......... $ 2.50 $0.875 $2.625 $ 2.50
Quarter ended June 30........................... $ 4.50 $ 2.50 $ 6.00 $ 2.625
July 1, 1996 to July 22, 1996................... $ 3.00 $ 2.50 $ 3.75 $ 3.00
</TABLE>
On July 15, 1996, the closing sale price for Vista's common stock as
reported in the over-the-counter market was $3.00 and the closing bid and asked
prices were $2.875 bid and $3.50 asked. As of July 8, 1996, there were
approximately 135 holders of record of Vista's Common Stock. Additional
beneficial owners of the Common Stock hold shares in street name or other
nominee accounts.
No cash dividends have been declared or paid by Vista since its inception.
Vista intends to employ all available funds for development of its business and,
accordingly, does not intend to pay cash dividends in the foreseeable future.
There are no contractual provisions that would prohibit Vista from payment of
dividends on its common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION AND PLAN OF OPERATION
Vista commenced business operations in February 1994. Vista acquired
controlling equity interests in European subsidiaries during 1994. Vista
developed a strategic plan in mid-1995 to sponsor and invest in Regional Joint
Ventures to conduct additional businesses engaged in providing access to laser
vision correction ("LVC") equipment and related services ("LVC Services") in
regional markets of North America.
Since commencing operations, Vista has financed its business operations,
acquisition and expansion activities primarily from the issuance or sale of
equity securities. From February 1994 through March 31, 1996, Vista had received
approximately $7,437,500 from the sale of 1,197,500 shares of common stock and
1,225,000 warrants, approximately $278,000 from the sale of convertible debt
instruments, and had issued an additional 3,692,756 shares of common stock and
259,000 warrants in connection with the acquisition of other
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assets and investments. During the quarter ended March 31, 1996, Vista also
received approximately $712,500 from the sale of 300,000 shares of common stock
and issued an additional 1,450,000 shares of common stock in connection with the
acquisition of other assets and investments.
At June 30, 1996, Vista had an accumulated deficit of $16,051,000. Vista's
net loss for the most recent three months ended June 30, 1996 was $804,000 and
its net loss for the fiscal year ended March 31, 1996 was $3,815,000. Vista's
European subsidiaries have not operated profitably since their inception.
Although its Italian subsidiary generated positive cash flow from operations in
fiscal 1996 and for the most recent three months ended June 30, 1996, and
Vista-Sweden's cash flow from operations was approximately cash neutral during
such periods, there can be no assurance that European operations will be
profitable in the future.
Vista's operating management anticipates Vista will continue to incur
losses for the immediate near term due to Vista's current level of fixed
expenses for general and administrative expenses and depreciation, but at a
lower rate than that experienced in the fiscal year ended March 31, 1996. Losses
are expected to continue until such time as revenues increase to a level
necessary to absorb fixed costs. No assurances can be given as to whether or
when revenue increases may be achieved. Revenue increases will be dependent,
among other things, in part upon expanding use of the Company's services by
physicians, general public acceptance of laser surgery to correct refractive
disorders and competitive factors.
Management's strategy developed in mid-1995 has been to expand its
participation in a developing market for LVC Services in the United States,
while at the same time minimizing Vista's short-term cash requirements for such
expansion. Since insurance reimbursement is not available, Vista's management
believes the skills and reputation of health care professionals involved in
recommending and performing refractive eye procedures are an important and often
critical element in the patient's decision to elect an LVC refractive procedure.
Vista has therefore designed and is implementing a program to organize and
sponsor U.S. and Canadian Regional Joint Ventures in alliance with prominent
physicians that are to be largely independently financed and will offer
advantages of equity incentives and management control to skilled and prominent
ophthalmologists experienced in a variety of LVC treatments, procedures and
post-operative care.
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities to finance Vista's operations and
expansion plans in North America.
Vista's business activities are subject to both predictable and unforeseen
risks incident to the creation of new businesses with a limited history of
operations. Prospective investors should consider the frequency with which newly
developed businesses encounter unforeseen expenses, difficulties, complications
and delays, and other factors such as Vista's losses from its continuing
operations.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995
Revenues: During the three months ended June 30, 1996 (the "1996 Period"),
Vista's consolidated revenues from operations were $786,000, an increase of
66.5% compared to $472,000 in consolidated revenues for the three months ended
June 30, 1995 (the "1995 Period"). Consolidated revenues in the 1996 Period
principally included $379,000 attributable to the operations of Vista-Italy,
approximately a 59% increase compared to $239,000 in the 1995 Year, and $402,000
from the operations of Vista-Sweden, an increase of approximately 77% over
$227,000 in the 1995 Year. These increases were in part attributable to $48,000
of revenues in the 1996 Period at a new LVC Services center opened in August
1995 in Malmo, Sweden, and otherwise are attributable to a 54% increase in the
number of LVC procedures performed at other locations of Vista-Italy and
Vista-Sweden.
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<PAGE> 72
The following chart summarizes certain information as to the number of LVC
surgical procedures performed at Vista's European centers for the periods
indicated.
<TABLE>
<CAPTION>
3 MONTHS ENDED
JUNE 30,
---------------
1996 1995
---- ----
<S> <C> <C>
Italy (3 centers in each period)............................. 431 388
Sweden (1 center in 1995 period and 2 centers in 1996
period).................................................... 266 65
--- ---
Totals............................................. 697 453
=== ===
</TABLE>
During July 1996, Vista-Italy established a fourth Italian center in
Palermo, Italy.
Operating Expenses: Costs and expenses of operations for the 1996 Period
were $1,061,000 a decrease of 10% compared to costs and expenses of operations
of $1,179,000 in the 1995 Year. Costs and expenses in the 1996 Period consisted
of $1,005,000 in general and administrative expenses, a 11% decrease compared to
the 1995 Period, and $57,000 in depreciation and amortization, a $11,000
increase compared to the 1995 Period. General and administrative expenses for
the 1996 Year included $136,000 for Vista-Italy and $308,000 for Vista-Sweden.
Costs and expenses for operations were reduced in part by the absence of costs
of operations in England, which closed in June 1995. Vista's European
subsidiaries sustained losses from operations in the 1996 Period that were
significantly reduced compared to the 1995 Period. Vista-Italy generated
positive cash flow from operations in the 1996 Period and Vista-Sweden's cash
flow from operations was marginally cash positive. Profitable operations from
European operating subsidiaries in the future will be dependent upon increasing
revenues, as to which there can be no assurance. Other major components of the
Company's general and administrative expenses in the 1996 Period included
approximately $518,000 of general and administrative expenses at the Vista
parent corporation level.
Other Expenses and Income: Other net expenses in the 1996 Period totalled
$4,000, a reduction of $372,000 compared to $376,000 in other net expenses in
the prior 1995 Period. Interest expense in the 1996 Period remained
approximately the same compared to the prior 1995 Period.
Net Loss: Net loss for the 1996 Period was $804,000, equal to a net loss of
$0.12 per common share, compared to a net loss in the 1995 Period of $1,084,000,
or $0.77 per common share.
RESULTS OF OPERATIONS:
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
Revenues: During the fiscal year ended March 31, 1996 (the "1996 Year"),
Vista's consolidated revenues from operations were $2,130,000, an increase of
76% compared to $1,210,000 in consolidated revenues for the prior fiscal year
ended March 31, 1995 (the "1995 Year"). Consolidated revenues in the 1996 Year
principally included $1,216,000 attributable to the operations of Vista-Italy,
approximately a 100% increase compared to the 1995 Year, and $929,000 from the
operations of Vista-Sweden, an increase of approximately 60% over the 1995 Year.
These increases were in part attributable to new LVC Services centers opened in
January 1995 and August 1995 in Rome, Italy and Malmo, Sweden, respectively, and
in part to increases in the number of LVC procedures performed at other
locations of Vista-Italy and Vista-Sweden.
Operating Expenses: Costs and expenses of operations for the 1996 Year were
$5,092,000, an increase of 51.8% compared to costs and expenses of operations of
$3,354,000 in the 1995 Year. Vista believes that increases in costs and expenses
of operation were generally commensurate with the 76% increase in consolidated
revenues. Costs and expenses in the 1996 Year consisted of $4,625,000 in general
and administrative expenses, a 66.8% increase compared to the 1995 Year, and
$468,000 in depreciation and amortization, a $113,000 decrease compared to the
1995 Year. General and administrative expenses for the 1996 Year included
$1,173,000 for Vista-Italy, a 40% increase compared to the 1995 Year, and
$1,198,000 for Vista-Sweden, a 127% increase compared to the 1995 Year due
primarily to start-up operations in Malmo. Costs and expenses for operations in
England which were closed in June 1995 were $152,000 for the 1996 Year compared
to $199,000 in the prior 1995 Year. Vista's European subsidiaries accordingly
sustained losses from operations in the 1996 Year that were significantly
reduced compared to the 1995 Year and will not be
68
<PAGE> 73
impacted in future years by the England operation closed in June 1995.
Vista-Italy generated positive cash flow from operations in fiscal 1996 and
Vista-Sweden's cash flow from operations was approximately cash neutral as a
result of the start-up at Malmo. Profitable operations from European operating
subsidiaries in the future will be dependent upon increasing revenues, as to
which there can be no assurance. Other major components of Vista's consolidated
general and administrative expenses in the 1996 Year included approximately
$2,552,000 of general and administrative expenses at the Vista parent
corporation level.
Other Expenses and Income: Other net expenses in the 1996 year totalled
$843,000, a reduction of $3,012,000 compared to $3,855,000 in other net expenses
in the prior 1995 Year. The primary portion of such expenses in the prior 1995
Year was nonrecurring charges of $3,826,000 for impairment of goodwill relating
to Vista's investments in its European subsidiaries ($2,762,000 relating to
Vista-Italy, $633,000 as to Vista-UK and $431,000 relating to Vista-Sweden and
Convista Vision B.V.). Approximately 53% of other net expenses in the 1996 Year
was a charge of $447,000 for the impairment of idle equipment consisting of a
laser acquired by Vista from a corporate affiliate. Other major components of
income and expense items in the 1996 Year included a reserve of $135,000 for
losses incurred in closing operations in England, a $152,000 loss on trading
securities and $64,000 of interest expense. Interest expense increased by
$54,000 compared to the prior 1995 Year due to an increase in outstanding debt
obligations.
Net Loss: Net loss for the 1996 Year was $3,815,000, equal to a net loss of
$1.92 per common share, compared to a net loss in the 1995 Year of $11,420,000,
or $9.64 per common share.
FISCAL YEAR ENDED MARCH 31, 1995
Revenues: During the fiscal year ended March 31, 1995 (the "1995 Year"),
Vista's consolidated revenues from operations were $1,210,000. Consolidated
revenues principally included $607,000 attributable to the operations of
VistaItaly and $580,000 to the operations of Vista-Sweden. No revenues were
recognized in the comparable prior year's twelve month period ended March 31,
1994 because Vista had not acquired interests in operating subsidiaries prior to
March 31, 1994.
Operating Expenses: Costs and expenses of operations for the 1995 Year were
$3,354,000, consisting of $2,773,000 in general and administrative expenses and
$581,000 in depreciation and amortization. General and administrative expenses
for the 1995 Year included $836,000 for Vista-Italy, $526,000 for Vista-Sweden
and $199,000 for operations in England which were closed in June 1995. Vista's
European subsidiaries accordingly sustained losses from operations in the 1995
Year, which increased as a result of the start-up of a clinic in Rome and the
relocation of the Milan clinic. Other major components of general and
administrative expenses in the 1995 Year included approximately $463,000 in
legal and accounting fees, a majority of which were attributable to transactions
with Medical Development Resources, Inc. that were ultimately abandoned in July
1995, $226,000 in officers' salaries, $208,000 in travel expenses and $131,000
in consulting fees.
Other Expenses and Income: Other net expense in the 1995 year totalled
$3,855,000. The primary portion of such expenses was a $3,826,000 impairment of
goodwill charge relating to the Company's investments in its European
subsidiaries ($2,762,000 relating to Vista-Italy, $633,000 as to Vista-UK and
$431,000 relating to Vista-Sweden and Convista Vision B.V.). Other income and
expense items included an expense reserve of $186,000 for litigation, a writeoff
of $125,000 in advances to a stockholder and $29,000 in foreign currency
exchange losses; these expenses were partially offset by $129,000 of realized
gains and $117,000 of unrealized gains on trading securities.
Extraordinary Loss: During the 1995 Year, Vista recognized an extraordinary
loss of $5,643,000 attributable to the write-off of its investment in, and
advances to, Medical Development Resources, Inc. and its subsidiaries. See Item
12 of this Report and the Notes to Consolidated Financial Statements included
elsewhere herein.
Net Loss: Net loss for the 1995 Year was $11,420,000, equal to a net loss
of $9.64 per common share. The 1995 Year includes results of operations of
consolidated subsidiaries only from their respective dates of acquisition.
69
<PAGE> 74
LIQUIDITY AND CAPITAL RESOURCES
Vista's principal capital requirements include cash requirements to finance
programs to acquire additional LVC equipment and support activities of Regional
Joint Ventures sponsored by Vista since June 1995, working capital for
management and administration and, in the future, anticipated requirements to
finance sales and marketing. Subject to availability of adequate capital, as to
which there can be no assurance, expenditures for additional excimer laser
equipment may be significant during the foreseeable future to support Vista's
program of expanding LVC Services and supporting the activities of Regional
Joint Ventures.
Vista and its Regional Joint Ventures plan to select strategically located
sites for additional expansion, each of which will be equipped with
state-of-the-art laser equipment systems permitted for commercial use in the
state or province in which such equipment is located, as well as diagnostic,
pre-operative and post-operative facilities. Vista's corporate affiliate will
own or lease and maintain the LVC equipment at each site, will lease real estate
facilities for each location, and will offer MDs and ODs billing, accounting,
administrative, marketing and management services, as well as access to a
trained support staff and necessary LVC equipment and supplies, so that health
care professionals may concentrate their efforts on patient care.
The current cost of an excimer laser ranges from approximately $475,000 to
$525,000, plus sales tax. For laser equipment purchased from VISX or Summit, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their current laser
technology. The purchase price typically includes a one or two year warranty on
all parts except the optics (mirror and glass components) which generally carry
a 30-day warranty. Annual maintenance and service fees are contracted for
separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the equipment
cost, Vista believes that most ophthalmologists interested in LVC surgery will
not be able or willing to purchase a laser, seek financing for the purchase
and/or arrange for required maintenance of the laser equipment.
Vista's European subsidiaries currently own or lease and maintain six
excimer lasers, and at present Vista's Regional Joint Ventures in the United
States and Canada collectively own or lease and maintain six excimer lasers.
Expenditures for additional excimer laser equipment to support Vista's program
of expanding LVC Services offered by Vista's corporate affiliates may be
significant. To date, Vista and its corporate affiliates have been able to
provide a deposit of approximately $50,000 per laser and have not experienced
difficulty in arranging for equipment financing of the balance of the purchase
price, either from the equipment manufacturer or a third party, by means of a
capital equipment lease or an installment note secured by the equipment. Due to
current demand for and the cost of excimer lasers, Vista believes that the
resale value of an excimer laser has facilitated obtaining equipment financing
for a substantial portion of the equipment price, especially when the third
party financing source has reason to believe the laser will be utilized on a
consistent basis by experienced professionals. Vista intends to continue to rely
upon such third party financing techniques to finance a substantial portion of
additional equipment acquisitions, as well as raising additional capital through
a future offering of equity securities by Vista. In addition, Regional Joint
Ventures sponsored by Vista each plan to raise additional capital through either
the private placement and/or initial public offerings of their securities to
enhance their ability to obtain additional equipment to expand operations in
their region. There can be no assurance that additional equipment financing will
continue to be available to Vista and its corporate affiliates or that either
Vista or any of its Regional Joint Ventures will be successful in obtaining
additional equity capital from private and/or public offerings of their
securities.
As of June 30, 1996, Vista had $576,000 in cash and consolidated working
capital of $410,000. Consolidated working capital improved by $303,000 from
consolidated working capital of $107,000 at March 31, 1996. Consolidated working
capital during the three months ended June 30, 1996 increased by $2,568,000 in
cash received from the sale of common stock that was particularly offset by
$1,205,000 of net cash used by operating activities and $919,000 applied to
equity investments. Additional cash was generated subsequent to June 30, 1996 by
(i) the exercise of a stock option by Pharma Patch PLc. in July 1996 for
$500,000, (ii) the private placement sale of 100,000 shares of common stock in
August 1996 for $212,500 and (iii) the sale of an 8% promissory note to Pharma
Patch in August 1996 for $800,000. Vista's assets include
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<PAGE> 75
200,000 restricted shares of Technical Chemicals and Products, Inc. common stock
(the "TCPI Shares") which were registered under the Securities Act of 1933 on
June 20, 1996 for possible resale by the Company after approximately October 23,
1996. The TCPI Shares have been pledged as collateral by Vista to secure its
$800,000 promissory note to the Company that is due on December 31, 1996, but
may be extended by Vista up to two times for an additional six months each so
long as Vista is not in default on its loan obligations.
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities to finance Vista's operations and
expansion plans in North America.
Although Vista's European operating subsidiaries appear to have achieved
positive or neutral cash flow levels of operations, Vista's management
anticipates that its consolidated operations will incur negative cash flows for
the immediate future, primarily due to fixed expenses for corporate general and
administrative overhead. Management is actively pursuing strategies to increase
Vista's revenues and reduce its negative cash flow. Based on currently planned
activities, management believes that its cash and marketable securities
resources at June 30, 1996 are sufficient to fund Vista's operations for at
least the next 12 months. There can be no assurance that Vista's consolidated
revenues will increase to the point that operating expenses will be fully
absorbed by revenues from operations.
U.S. DOLLAR PRESENTATION AND FOREIGN CURRENCY FLUCTUATIONS
Vista publishes its consolidated financial statements in U.S. dollars after
translating transactions in foreign currencies to U.S. dollars. A significant
portion of Vista's consolidated revenues and expenses are collected and paid in
local currency of its European operating subsidiaries, i.e. Italian lira and
Swedish krona. Income and expense items in foreign currencies are translated at
the weighted average exchange rate prevailing during the period, except that
expenses related to nonmonetary assets and liabilities are translated at
historical rates. In periods when the U.S. dollar depreciates against relevant
foreign currencies, reported earnings attributable to transactions in foreign
currencies may be materially enhanced. In periods when the U.S. dollar
appreciates against the relevant foreign currencies, however, reported earnings
attributable to transactions in foreign currencies may be materially reduced.
Fluctuations in the exchange rate between relevant foreign currencies and the
U.S. dollar may also affect the book value of Vista's consolidated assets and
the amount of its stockholders' equity. Except as otherwise stated in this
Report, all monetary amounts have been presented in U.S. dollars.
DIRECTORS AND EXECUTIVE OFFICERS
Vista's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Donald G. Johnson, M.D. 57 Chairman of the Board; Director
Thomas A. Schultz 46 President and Chief Executive Officer;
Director
Murray D. Watson 52 Vice Chairman of the Board; Director
J. Charles Casebeer 57 Director
Kenneth G. Howling 39 Vice President of Finance, Treasurer and
Chief Financial Officer
William M. Curtis 55 Secretary
</TABLE>
DR. DONALD G. JOHNSON was elected Chairman of the Board and a director of
Vista on February 16, 1996. Dr. Johnson, an ophthalmologist actively practicing
in Canada, has successfully treated approximately 7,400 eyes with excimer laser
procedures as of December 31, 1995. He also developed the proprietary Johnson
transepilthelial multi-zone, multi-pass PRK procedure ("TMM PRK"), which
provides for a smoother ablation zone and substantially reduces glare and
central islands side effects sometimes encountered in standard PRK procedures.
Dr. Johnson has practiced in New Westminster, British Columbia continuously
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since 1969, first participating in a group practice for general ophthalmology
from 1969 to 1981, then as a solo practitioner from 1981 to 1985. He established
the London Place Eye Centre in New Westminster as an outpatient medical and
surgical eye center in November 1985 where he still practices. Dr. Johnson has
published 16 articles and conducted 11 clinical investigation studies in the
field of ophthalmology, including clinical investigations of the VISX 20/20 and
Nidek EC-5000 excimer lasers and the Sunrise holmium laser. He has appeared as a
guest speaker on radio and television and at numerous hospital and professional
seminars since 1991 on subjects relating to excimer lasers. Dr. Johnson has been
affiliated with St. Mary's Hospital, Royal Columbian Hospital and Surrey
Memorial Hospital since 1969 and Whitehorse General Hospital since 1970. He
received his M.D. degree from the University of Western Ontario, served his
internship at Toronto Western Hospital, his general surgery residency at
Shaughnessy Hospital, Vancouver, British Columbia, and his ophthalmology
residency at the University of British Columbia. His post graduate
accomplishments include certifications in the United States for radial
keratotomy (1984), epikeratophakia (1986), advanced corneal transplantation
(1987), small incision cataract and advanced phacoemulsification (1990) and
excimer laser PRK and PTK (1990) and certification in Germany for non freeze
B.S.K. method of lamellar keratoplasty (1988).
THOMAS A. SCHULTZ was elected a director, President and Chief Executive
Officer of Vista on February 16, 1996. Mr. Schultz was a director and employee
of Chrystallume, Inc., from 1986 to January 16, 1996 and served as its Chairman
of the Board and Chief Executive Officer from April 15, 1993 until October 15,
1995. Chrystallume, a publicly-held company, produced diamond film for
electronic and industrial applications. From 1983 to 1986, Mr. Schultz served as
Corporate Vice President of Dole Food Co., formerly named Castle and Cooke,
Inc., a consumer foods company. From 1979 to 1983, he was a staff member of
Booz, Allen & Hamilton, an international business consulting firm. Mr. Schultz
holds a B.E.S. degree in Operations Research from John Hopkins University and an
M.B.A. from Harvard Business School.
MURRAY D. WATSON was elected a director of Vista on January 31, 1994 and
Vice Chairman of the Board on February 16, 1996. He has served as Chairman of
the Board, Chief Executive Officer and a director of the Company, a
publicly-traded company, since July 1993 and as director of Technical & Chemical
Products, Inc., a publicly traded company, from January 1996 to May 1996. The
Company is an Irish public company and was engaged in the research and
development of both advanced transdermal drug delivery systems and advanced skin
penetration enhancers, a business sold by the Company in late 1995 to Technical
& Chemical Products, Inc. Prior to July 1993, Mr. Watson had been the President
and Chief Operating Officer of the Company's predecessor, Medipro Sciences
Limited, from November 1987. Mr. Watson has over 25 years of experience in the
international health care industry, including Vice President, Picker
International, Inc.; President, Odyssey, Inc.; and General Manager, American
Hospital Supply Corp. of Canada. As president since 1985 of the M.D.W. Group,
Inc., a privately owned merchant banking company, he has managed a broad
spectrum of business ventures. Mr. Watson received his B.A. Science in Civil
Engineering in 1965 from the University of Toronto and his M.B.A. in 1971 from
York University, Toronto, Canada.
DR. J. CHARLES CASEBEER was elected a director of Vista and its Chairman of
the Board on February 16, 1996. Dr. Casebeer is an ophthalmologist actively
practicing in the United States and his experience since 1983 includes over
10,000 refractive procedures and the education of more than 3,000 physicians
worldwide in various refractive procedures ranging from radial keratotomy ("RK")
to PRK and laser assisted in situ keratomileusis ("LASIK"). He has been engaged
in private practice from 1971 to the present time, including associations with
the Northern Arizona Eye Clinic, Ltd. Outpatient Surgery Center, Flagstaff,
Arizona from 1971 to July 1994, where he served as President and Medical
Director; Northern Arizona Eye Clinic, Ltd., Scottsdale, Arizona from 1992 to
May 1994; the J. Charles Casebeer Laser/Refractive Surgery Center Ltd.,
Scottsdale, Arizona from May 1994 to August 1994; and Casebeer Eye Centers,
Ltd., Scottsdale, Arizona from August 1994 to the present. Dr. Casebeer's
experience in keratorefractive surgery dates from 1983 to the present, and
includes more than 6,000 cases. From 1987 to the present, Dr. Casebeer has
served as a Course Director in RK technique and practice development and in
automated lamellar keratoplasty ("ALK") at numerous courses and symposiums
worldwide. Since 1992, he has been a Clinical Professor for the University of
Utah Department of Ophthalmology. Dr. Casebeer has lectured extensively since
1989 at over 150 seminars, courses and symposiums on various refractive surgery
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<PAGE> 77
topics including, among others, RK, ALK and LASIK procedures. He has authored
four books or book chapters on refractive surgery, has 16 articles published in
peer-reviewed medical journals, and since July 1993 has authored a monthly
ocular surgery news column entitled "The Comprehensive Refractive Surgeon" in
Ocular Surgery News. He received his B.A. degree from Harvard University, his
Doctor of Medicine degree from the University of Southern California School of
Medicine, served his internship at the Medical College of Virginia, his
residency in ophthalmology at Stanford University Medical Center and currently
holds professional licenses in the States of Arizona, California and Utah.
KENNETH G. HOWLING was elected Vice President of Finance, Treasurer and
Chief Financial Officer of Vista on February 16, 1996. He has served from
November 8, 1993 until the present time as Vice President of Finance and Chief
Financial Officer of the Company. From June 1988 until November 1993, Mr.
Howling was employed by Roberts Company Canada Limited in the capacities of
corporate Secretary and Controller from June 1988 until May 1991 and as General
Manager from June 1991 until November 1993. Prior to June 1988, he was employed
for ten years in financial and general management positions with Smith Kline
Beecham, Bancard Allergy Laboratories, McGraw Edison and Price Waterhouse. Mr.
Howling has been involved in acquisitions, corporate restructuring, cash flow
management, human resource management and management information systems. He
received a Certified Public Accountant license from the State of New Jersey in
1987 and holds a B.A. degree in Accounting from Upsala College in East Orange,
New Jersey.
WILLIAM M. CURTIS was elected corporate Secretary of Vista in October 1994.
Mr. Curtis has been principally engaged in a private law practice in Southern
California since 1976 specializing in corporate, merger and acquisition, finance
and securities matters. Mr. Curtis holds a law degree from Duke University.
There is no family relationship between any of Vista's directors and
executive officers. All directors hold office until the next annual meeting of
stockholders and until their successors are elected. Officers serve at the
discretion of the Board of Directors. There are no arrangements or
understandings between any director and any other person pursuant to which any
person was elected or nominated as a director.
The Board of Directors currently has a Compensation Committee and a Stock
Option Committee.
The Compensation Committee is responsible for reviewing and reporting to
the Board on the recommended annual compensation for Vista's executive officers
and for reviewing management recommendations concerning compensation programs
for other members of management. The Compensation Committee met once during the
fiscal year ended March 31, 1996 at a meeting of the full Board. The
Compensation Committee currently consists of Mr. Watson and a vacancy to be
filled by the Board.
The Stock Option Committee is responsible for granting options under the
Company's employee stock option plans, establishing the terms and conditions of
options granted under those plans, and administering employee stock options.
Actions by the Stock Option Committee during the fiscal year ended March 31,
1996 were by unanimous written consent and at one meeting of the full Board of
Directors. The Stock Option Committee currently consists of Mr. Watson and a
vacancy to be filled by the Board.
Vista intends to establish an Audit Committee during 1996 responsible for
meeting independently with representatives of Vista's independent accountants
and with representatives of senior management. The Audit Committee will also be
responsible for reviewing the general scope of the audit and matters relating to
internal control systems.
During the fiscal year ended March 31, 1996 the Board of Directors held
eight meetings and took certain actions by unanimous written consent of the
Board. No incumbent director attended fewer than 75% of all meetings of the
Board of Directors.
No director received compensation for his services as a director during the
fiscal year ended March 31, 1996, except that an award of 25,000 shares of
common stock was granted by Vista to each of its three then directors in
December 1995, including Murray D. Watson and two former directors. Although the
Company has no current compensation plan for directors other than stock options,
Vista's By-Laws permits compensation of directors and the Board reserves the
right of changing compensation policies for directors from time to
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<PAGE> 78
time. The salaries of all officers are subject to review and adjustment from
time to time by the Board of Directors.
SUMMARY EXECUTIVE COMPENSATION
The following Summary Compensation Table indicates the cash compensation
paid by Vista as well as certain other compensation, paid or accrued for its
fiscal years ended March 31, 1996 and 1995 to each of its Chief Executive
Officer and other executive officers whose salary and bonus exceeded $100,000
for such periods.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES -------
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPEN- AWARDS OPTIONS PAYOUTS COMPEN-
PRINCIPAL POSITION YEAR(1) ($) ($) SATION ($) ($) SARS (#) ($) SATION ($)
- -------------------------------- ------- -------- -------- ---------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz 1996 $ 12,000 -0- -0- -0- 300,000 -0- (6)
President and Chief Executive
Officer(2)
Jac. J. Lam 1996 $225,000 -0- -0- $ 18,750(7) -0- -0- -0-
President and Chief Executive
Officer(3)
Drago A. Cerchiari 1996 $ 20,000 -0- $ 20,260(8) $ 25,000(8) -0- -0- -0-
President & Chief Executive 1995 $ 33,100 -0- $ 84,000(9) -0- 190,000 -0- -0-
Officer(4)
G. Lennart Perlhagen 1995 $130,000 -0- -0- -0- -0- -0- -0-
Chairman or President and
Chief Executive Officer(5)
</TABLE>
- ---------------
(1) Information set forth in the table represents data for the fiscal years
ended March 31, 1996 ("1996") and March 31, 1995 ("1995").
(2) Mr. Schultz was elected President and Chief Executive Officer of the Company
on February 16, 1996.
(3) Mr. Lam was elected acting President and Chief Executive Officer of the
Company on June 9, 1995 and resigned from that position when he was replaced
on February 16, 1996.
(4) Mr. Cerchiari was elected President and Chief Executive Officer of the
Company on February 1, 1995 and resigned as an executive officer of the
Company on June 1, 1995.
(5) Mr. Perlhagen was elected Chairman, President and Chief Executive Officer of
the Company on February 1, 1994. On January 15, 1995, he relinquished the
titles of President and Chief Executive Officer. Mr. Perlhagen resigned as
an executive officer of the Company on June 1, 1995.
(6) Mr. Schultz's employment agreement provides he will be entitled to a cash
bonus of $75,000 upon the filing of the second of two registration
statements for an initial public offering by Regional Joint Ventures
sponsored by the Company.
(7) Represents the value of 25,000 shares of common stock awarded in December
1995 to Mr. Lam for services as a director in the fiscal year ended March
31, 1996 valued at $.75 per share.
(8) Includes 4,000 shares of common stock valued at $20,260 paid in settlement
of claim for expenses and subject to a put option subsequently exercised by
Mr. Cerchiari and $25,000 in common stock (5,000 shares valued at $5.00 per
share) paid in settlement of a hiring bonus claim under the terms of a
Termination Agreement between the Company and Mr. Cerchiari effective June
1, 1995.
(9) Includes $84,000 in consulting payments for the 1995 period paid prior to
Mr. Cerchiari's election as an officer and director.
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<PAGE> 79
STOCK OPTIONS
The following tables summarize stock option activity during the fiscal year
ended March 31, 1996 for each of the named officers shown in the table "Summary
Executive Compensation":
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
ENDED MARCH 31, 1996
-----------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS/SARS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS/SARS IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($)(3) 10%($)(3)
- ---------------------------- ----------- ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz........... 150,000(1) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Thomas A. Schultz........... 150,000(2) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Jac. J. Lam................. 150,000(1) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Jac. J. Lam................. 150,000(2) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Drago A. Cerchiari.......... -0- -- n/a n/a n/a n/a
G. Lennart Perlhagen........ 50,000(1) 3.3% $ 2.50 2/15/01 $ 34,535 $ 76,314
</TABLE>
- ---------------
(1) Options granted under the Company's 1994 Stock Option Plan at an exercise
price of not less than fair market value on date of grant, exercisable in 12
equal quarter-annual installments commencing May 15, 1996.
(2) Options granted under the Company's 1994 Stock Option Plan at an exercise
price of not less than fair market value on date of grant, exercisable
during the last 30 days of the five-year option term or earlier if the
Company's common stock has traded at $10.00 or more for 30 days which need
not be consecutive.
(3) The 5% and 10% assumed annualized rates of compound stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
common stock prices.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
-----------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)(A)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------- ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz............. -0- n/a -0- 300,000 -0- $37,500
Jac. J. Lam................... -0- n/a -0- 300,000 -0- $37,500
Drago A. Cerchiari............ -0- n/a -0- -0- -0- -0-
G. Lennart Perlhagen.......... -0- n/a -0- 50,000 -0- $ 6,250
</TABLE>
- ---------------
(A) The value of unexercised in-the-money options is based upon an estimated
fair market value for the common stock on March 29, 1996 of $2.625 per
share, based on the last reported closing price for the common stock as of
that date.
75
<PAGE> 80
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
------------------------------------------------------------------
PERFORMANCE
NUMBER OF OR OTHER
SHARES, PERIOD UNTIL
UNITS OR MATURATION
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- -------------------------------------- ------------ ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Thomas A. Schultz..................... -0- n/a n/a n/a n/a
Jac. J. Lam........................... -0- n/a n/a n/a n/a
Drago A. Cerchiari.................... -0- n/a n/a n/a n/a
G. Lennart Perlhagen.................. -0- n/a n/a n/a n/a
</TABLE>
- ---------------
(1) The Company does not have any compensation plans involving stock
appreciation rights or long-term incentive or deferred pension or
profit-sharing plans.
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
Vista has entered into a written employment agreement dated as of January
31, 1996 with Thomas A. Schultz, who was elected President and Chief Executive
Officer on February 16, 1996. The employment agreement with Mr. Schultz is for a
term of 36 months from January 15, 1996 and is renewable thereafter on a
year-to-year basis unless either party provides at least 60 days prior notice of
termination before the expiration of its original term or any renewal term. The
agreement provides for an annual base salary of $150,000, participation in group
benefit programs, payment of Mr. Schultz's existing insurance premiums for
long-term disability and life insurance for the initial 12 months of the
agreement, and an amount not exceeding 7 1/2% of his base salary for personal
benefit expenses relating to Mr. Schultz and his family members as he shall
determine. Mr. Schultz is eligible to receive an annual performance bonus of up
to 100% of his annual base salary based upon achievement of Vista goals to be
determined by the Board of Directors. In addition, he is entitled to a cash
bonus of $75,000 upon the filing of the second of two registration statements
for the initial public offerings by Regional Joint Ventures sponsored by Vista.
Mr. Schultz's employment agreement further provides he is entitled to
severance benefits if his employment is involuntarily terminated, other than for
cause (as defined in the agreement), death or disability, equal to (i) a
lump-sum payment equal to his annual base salary, (ii) continuation of insurance
benefits for life, health, dental and long-term disability for a period of 12
months after employment termination, and (iii) continued vesting of his
outstanding stock options for a period of 12 months after employment
termination. Mr. Schultz is required to devote his full business time to the
affairs of Vista except for such investment, business, professional and
continuing education activities that do not interfere with the performance of
his duties as Vista's President and Chief Executive Officer. The employment
agreement contains confidentiality and non-competition provisions in favor of
the Company. Mr. Schultz's employment agreement was approved by the Board of
Directors on February 6, 1996.
OTHER RECENT COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
On February 6, 1996, Vista approved compensation for certain executive
officers and directors. A corporate affiliate of Murray Watson, effective April
1, 1996, receives a base salary of $100,000 per year plus a bonus to be reviewed
by the Board at the end of each fiscal year up to 100% of his base salary. A
corporate affiliate of Kenneth G. Howling, effective April 1, 1996, receives a
base salary of $60,000 per year plus a bonus to be reviewed by the Board at the
end of each year up to 100% of his base salary. A corporate affiliate of Dr. J.
Charles Casebeer, effective upon his election as a director of Vista on February
16, 1996 and in further consideration of his agreement to provide certain
consulting services to be defined by the Board, receives a base salary of
$60,000 per year. Dr. Casebeer also serves as a director of certain Regional
Joint Ventures and is Chairman of the Board and Chief Executive Officer of Vista
Laser Centers of the Southwest, Inc. Upon successful completion of an initial
public offering by three of those Regional Joint Ventures, Dr. Casebeer's
corporate affiliate will become entitled to annual compensation of $60,000 per
year from each of three Regional Joint Ventures. Dr. Donald G. Johnson,
effective upon his election as Chairman of the Board and a director of the
Company on February 16, 1996 and in further consideration of his agreement to
provide certain
76
<PAGE> 81
consulting services to be defined by the Board, receives a base salary of
$60,000 per year. Dr. Johnson is also Chairman of the Board and Chief Executive
Officer of Vista Laser Centers of the Northwest, Inc. and is expected to enter
into an employment agreement providing compensation for such services effective
upon completion of an initial public offering by VLC-Northwest at an annual
compensation rate of $180,000 plus an annual bonus based upon a formula to be
determined relating to pre-tax earnings of VLC-Northwest.
In December 1995, Vista's Board of Directors authorized the issuance of
25,000 shares of the Company's common stock to each of its then three directors,
Messrs. Jac. J. Lam, Malcolm J. Rowe and Murray D. Watson, or their nominees, as
compensation for their services as directors during the fiscal year ending March
31, 1996. Due to the absence of an active trading market for the common stock at
the time of this award and other factors deemed relevant by the Board, these
shares were valued by the Company at $.75 per share.
TERMINATION AGREEMENTS WITH FORMER EXECUTIVE OFFICERS
The Company previously had employment agreements with: Robert L. Ferrera,
who resigned as the Company's Chief Financial Officer on April 14, 1995; Drago
A. Cerchiari, who resigned as Vista's President and Chief Executive Officer on
June 1, 1995; and G. Lennart Perlhagen, who resigned as Vista's Chairman on June
1, 1995.
Under an agreement dated as of July 5, 1995, Vista issued 16,000 shares of
its common stock to Mr. Perlhagen in payment of $80,000 of unreimbursed business
expenses.
Under an agreement dated as of June 1, 1995, Vista paid Mr. Cerchiari
$8,740 in cash and issued 4,000 shares of common stock for reimbursement of a
total of $29,000 of unreimbursed business expenses. Vista agreed that Mr.
Cerchiari had the right to put the 4,000 shares of common stock to the Company
after January 31, 1996 at a price equal to $20,260 plus interest from June 1,
1995 at the rate of 1% per month. Mr. Cerchiari exercised that option on
February 1, 1996. Vista also issued 5,000 shares of common stock to Mr.
Cerchiari under the June 1, 1995 agreement as a negotiated settlement for a
one-time hiring bonus in his original employment agreement of January 15, 1995.
STOCK OPTION PLANS
Vista's Board of Directors has adopted a policy of providing long-term
incentive to members of its Board and senior management tied to performance of
Vista's common stock through stock option plans. These plans are intended to
foster management incentive and positively align and reinforce management and
stockholder interests. The plans are structured to allow the Board of Directors
or its Stock Option Committee discretion in creating management and key employee
equity incentives which assist Vista in motivating and retaining the appropriate
talent needed to conduct its business successfully.
Vista's Board of Directors and stockholders adopted two stock option plans
in 1994, the 1994 Stock Option Plan (the "1994 Plan") and the Restricted Stock
Option Plan (the "Restricted Plan"). The 1994 Plan covers an aggregate of
150,000 shares of common stock and on February 6, 1996 the Board increased the
total number of shares subject to the 1994 Plan to a total of 1,900,000 shares
subject to ratification and approval of that increase by stockholders of the
Company with one year. The Restricted Plan covers a total of 50,000 shares of
common stock. Under both Plans, the number of shares available for options and
subject to option, and the option exercise price of outstanding options, is to
be adjusted upward or downward, as the case may be, in the event of any stock
dividend, recapitalization, merger, consolidation, split up or similar
transaction affecting shares of Vista's common stock.
Both Plans are by the Board of Directors or by a Stock Option Committee of
two or more members of the Board of Directors of Vista. The Stock Option
Committee currently consists of Mr. Watson and a vacancy to be filled by the
Board. The Stock Option Committee, or the Board in the absence of a Committee,
determines the persons to receive options under the Plans, the terms of options
granted, including the exercise price, the number of shares subject to the
option and the terms and conditions of exercise.
77
<PAGE> 82
Both Plans contains provisions which authorize the Stock Option Committee,
in the event of a sale or merger of all or substantially all of the Company's
assets, or a merger or consolidation in which Vista is not the surviving
corporation, to take certain action in its discretion. In the event of such a
transaction, the Committee may accelerate the exercisability of any option to
permit its exercise in full during such period as the Committee may prescribe
following the public announcement of a sale of assets or merger, or may elect to
earlier grant that right at the time an individual option is granted. The
Committee may also require in the event of such a transaction that an optionee
surrender an option in return for a substitute option issued by a surviving
corporation which is determined by the Committee to have a value substantially
equal to the value of the surrendered option.
Each of the Plans provides that shares of common stock acquired upon
exercise of options will be paid for in cash or, in the sole discretion of the
Committee, through the delivery of shares of Vista's common stock with a market
value equal to the option exercise price. The ability to pay the option price in
shares would, if permitted by the Committee, enable an optionee to engage in a
series of successive stock for stock exercises of an option (sometimes referred
to as "pyramiding") and thereby fully exercise an option with little or no cash
investment by the optionee. The Board of Directors has not established any
policy as to whether it will permit exercises of options through payment with
shares.
The maximum term for each option under both Plans is ten years; to date no
option has been granted for a term in excess of five years under either Plan. If
any option granted under either Plan expires or terminates without having been
exercised in full, the shares covered by the unexercised portion of the option
may be used again for new grants under that Plan. No option granted under the
Plans may be transferred by the optionee other than by will, the laws of descent
and distribution, or by a qualified domestic relations order, and each option is
exercisable during the lifetime of the optionee only by such optionee or a
corporate entity controlled by the optionee.
1994 STOCK OPTION PLAN
The 1994 Plan provides that options granted thereunder may be either
incentive stock options pursuant to Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), or, at the discretion of a Stock Option
Committee, non-qualified stock options which do not qualify as incentive stock
options under the Code. The 1994 Plan provides that incentive stock options must
be granted at an option price which is not less than the fair market value of
the Common Stock on the date of grant, and that any non-qualified option granted
must be at an option price which is not less than 50% of the fair market value
of the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting rights of the Company's outstanding capital stock,
the exercise price of any incentive stock option under the 1994 Plan must be not
less than 110% of fair market value on the date of grant. To date, all options
granted under the 1994 Plan were granted at fair market value on date of grant.
Options under the 1994 Plan may be granted to officers, directors, key employees
of, and consultants to, the Company and its subsidiaries.
In the event of termination of employment, the optionee's option will
terminate and may be exercised during a three month period after termination to
the extent the option was exercisable on the date of termination. In the event
termination of employment was caused by death or permanent disability, the
period of exercisability is extended under the 1994 Option Plan to one year
after the date of termination, but in no event after the date the option would
have expired in the absence of termination of employment. No shares acquired on
exercise of an option granted under the 1994 Plan may be sold or otherwise
disposed of by an optionee until the expiration of at least six months following
the date on which the exercised option was originally granted by the Company.
At July 15, 1996, no options had been exercised under the 1994 Plan, and
unexercised options were outstanding to purchase 1,567,000 shares of common
stock at an average option exercise price of $2.73 per share, of which options
covering 1,520,000 shares at an option exercise price of $2.50 per share are
subject to stockholder ratification of an increase in the number of shares
covered by the 1994 Plan approved by the Board on February 6, 1996, and up to
333,000 shares were available for future grants of options under the 1994 Plan.
Of the total options outstanding, options to purchase 383,000 shares are
exercisable in the fiscal year ending
78
<PAGE> 83
March 31, 1997 without regard to the market price of Vista's common stock and
450,000 shares are exercisable during the last 30 days of the five-year option
term or earlier if Vista's common stock has traded at $10.00 per share or more
for at least 30 days, which need not be consecutive days. Of the unexercised
options outstanding, options covering 828,000 shares are held by five current
officers and directors (of which options covering 181,333 shares are exercisable
in the fiscal year ending March 31, 1997 without regard to the market price of
Vista's common stock and 300,000 shares are exercisable at such time as Vista's
common stock has traded at $10.00 per share or more for at least 30 days,) at an
average exercise price of $2.57 per share.
RESTRICTED STOCK OPTION PLAN
The Restricted Plan provides that options granted thereunder must be
granted at an option price which is the lesser of $0.50 per share or 10% of the
fair market value of the Common Stock on the date of grant. No options granted
under the Restricted Plan may be exercised until the expiration of at least two
years following the date on which the option was originally granted by Vista.
Options under the Restricted Plan may be granted only to directors and senior
management of Vista, including its Chairman of the Board, its President, and any
other persons appointed to act as Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of the Company.
In the event of termination of an optionee's service as a director or
member of senior management, the optionee's option will terminate and may be
exercised during a 12 month period after termination to the extent the option
was exercisable on the date of termination. In the event termination of
employment was caused by death or permanent disability, the amount exercisable
is extended under the Restricted Plan to the extent the option would have become
exercisable during the 12 month period if not prevented by the optionee's death
or disability. In no event may any option be exercised after the date the option
would have expired in the absence of termination of employment.
At July 15, 1996, no options had been exercised under the Restricted Plan,
unexercised options were outstanding to purchase 8,000 shares of common stock
(all of which are exercisable in the fiscal year ending March 31, 1997) at an
average exercise price of $.50 per share, and up to 42,000 shares were available
for future grants of options under the Restricted Plan.
1996 STOCK COMPENSATION PLAN
On February 6, 1996, the Company's Board of Directors adopted a 1996 Stock
Compensation Plan (the "Stock Plan") subject to approval of the Stock Plan
within one year thereafter by stockholders of the Company. The purpose of the
Stock Plan is to permit the Board or a Committee of the Board the flexibility of
issuing shares of Vista common stock in lieu of cash to compensate officers,
directors, employees and other individuals acting as professionals, consultants
and/or advisers to the Company for services rendered to Vista and its
subsidiaries. A "subsidiary" of the Corporation for purposes of the Stock Plan
is any corporation in which Vista at the time of a compensation award owns or
controls, directly or indirectly, at least 50% or more of the outstanding voting
capital stock.
Shares may be issued under the Stock Plan solely in payment for the value
of services actually rendered to Vista. In no event may shares be issued as
compensation under the Stock Plan: (i) for services which are either directly or
indirectly related to the offer or sale of securities in a capital-raising
transaction by Vista or its corporate affiliates; or (ii) for the sale of goods,
merchandise, products or other tangible assets. Common stock issued as
compensation under the Stock Plan will be valued at their fair market value on
the date such shares are authorized to be issued to a participant for designated
services rendered in a specified dollar amount. In determining the fair market
value of any such payment, the Board or a Committee of the Board will take into
consideration the quoted prices in the public market for common stock on the
date shares are authorized for issuance and, if deemed applicable by the Board
or the Committee to its determination of fair market value, a reasonable
discount to quoted market prices not exceeding 25% of the low bid price on the
date of such authorization if such discount is deemed appropriate to allow for
price volatility and/or possible lack of liquidity based on reported prices and
trading volume in the public market for the common stock when
79
<PAGE> 84
compared to the number of shares authorized for issuance as compensation and any
applicable forfeiture or restrictive provisions relating to the award.
Shares of common stock authorized by the Stock Plan may be issued as
compensation only upon the execution of an agreement by the recipient to accept
the same in lieu of all or a designated portion of cash compensation otherwise
payable for his or her services. If the award of shares is subject to
contractual restrictions or performance conditions that may result in a
forfeiture, the recipient's interest in the shares may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on which any
applicable restriction or performance condition and period shall lapse without
the requirement of forfeiture.
The Stock Plan will be administered by the Board or by a Committee of not
less than two directors. No member of the Committee will be eligible to
participate in the Stock Plan while serving on the Committee. The Committee has
the authority to (i) select the participants to whom common stock compensation
may be granted; (ii) determine the number of shares and the fair market value
thereof for each payment of common stock compensation; (iii) determine any other
terms and conditions of common stock compensation payments, including but not
limited to any restrictions or forfeiture conditions relating to the performance
of services by the participant; (iv) determine whether, to what extent and under
what circumstances a common stock payment of compensation under the Stock Plan
may be deferred either automatically or at the election of the participant under
a written agreement; and (v) approve any agreement executed by participants
under the Stock Plan.
Subject to approval of the Stock Plan by Vista stockholders, 250,000 shares
of common stock will be available for payment of compensation under the Stock
Plan. If any shares are issued under the Stock Plan and subsequently cease to be
outstanding as a result of any forfeiture or failure to satisfy restrictive
conditions, such shares will again be available for compensation payments under
the Stock Plan. No compensation awards under the Stock Plan have been made as of
July 30, 1996.
OTHER
Vista currently has no pension, retirement, annuity, savings or similar
benefit plan which provides compensation to its executive officers or directors
except for group health and life insurance plans.
80
<PAGE> 85
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information (except as otherwise indicated
by footnote) as of September 30, 1996 as to Vista's common stock owned by (i)
each person known by management to beneficially own more than 5% of Vista's
outstanding Common Stock, (ii) each of Vista's directors, and (iii) all
executive officers and directors as a group:
<TABLE>
<CAPTION>
COMMON STOCK (1)
-------------------------------------------------------------------
SHARES BENEFICIALLY OWNED
BEFORE EFFECT OF PROXIES
GRANTED TO THE COMPANY'S
BOARD OF DIRECTORS(2) VOTING RIGHTS ONLY (3)
------------------------------- -------------------------------
NAME OR GROUP (1) NO. OF SHARES % OF CLASS NO. OF SHARES % OF CLASS
- --------------------------------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
DIRECTORS AND NOMINEES:
Dr. J. Charles Casebeer.............. 265,000*(4) 3.5% -0- --
Dr. Donald G. Johnson................ 515,000*(5) 6.7% -0- --
Thomas A. Schultz.................... 37,500 (6) 0.5% -0- --
Murray D. Watson..................... 3,484,500*(7) 3,385,000*(7)
Proxies granted to the Board of
Directors by Regional Joint
Ventures.......................... -- (8) -- 1,900,000*(8)
All officers and directors as a group
[6 persons]....................... 4,327,000*(9) 55.3% 5,285,000*(9) 69.3%
OTHER 5% SHAREHOLDERS:
Pharma Patch PLC..................... 44.4%
15/16 Fitzwilliam Place
Dublin 2, Ireland
Refractive Services-800, Inc. ....... 520,000 (11) 6.8% 520,000 (11) 6.8%
Reaal 5-V, P.O. Box 4
2350 AA Leiderdorp, The Netherlands
Vista Laser Center of the Northeast,
Inc. ............................. 450,000 (12) 5.9% -0- --
131 Bloor Street West, Suite 210
Toronto, Ontario M5S 1R1 Canada
Vista Laser Centers of the Northwest,
Inc. ............................. 500,000*(13) 6.6% -0- --
110 Fifth Street
Lynden, Washington 98264
Vista Laser Centers of the Pacific,
Inc. ............................. 500,000 (14) 6.6% -0- --
14895 East 14th Street, Ste 400
San Leandro, California 94578
</TABLE>
- ---------------
* Includes certain shares that are listed elsewhere in the table. See Notes 4,
5, 7, 8, 10 and 13 below.
(1) To the best knowledge of Vista's management, the persons named in the table
have sole voting and investment power with respect to all shares shown to
be beneficially owned by them, except as otherwise indicated in the
information contained in the footnotes below and, where applicable,
community property laws.
(2) Based on 7,626,112 shares of Common Stock outstanding at September 30, 1996
plus, where applicable, shares issuable upon exercise of stock options held
only by the person or group indicated that were fully exercisable or
exercisable within a period of 60 days from September 30, 1996. These
columns do not include shares as to which Vista's Board of Directors holds
only a proxy to vote the shares (see Notes 3 and 8 below) except to the
extent such person or a member of the group has another direct or indirect
beneficial interest in the shares. See Notes 4, 5, 7, 10 and 13 below.
(3) Voting rights in these columns includes only those shares of Common Stock
that the named person or group is entitled to vote as of the Record Date
and the percentage shown is based upon 7,626,112 shares outstanding as of
the Record Date. As described in Note 8 below, five Regional Joint Ventures
holding an aggregate of 1,900,000 shares of Vista Common Stock have granted
irrevocable proxies to Vista's
81
<PAGE> 86
Board of Directors expiring in each instance approximately five years after
the Regional Joint Venture has completed a planned initial public offering
of its securities. All other rights of beneficial ownership as to such
shares are retained by the respective Regional Joint Venture, including the
power to dispose of the shares in a bona fide sale transaction free of the
proxy restrictions. See Notes 4, 5 and 13 below as to the interest of
certain directors in shares beneficially owned by two of the Regional Joint
Ventures and Notes 7 and 10 below as to the interest of a director in
shares owned by Pharma Patch PLC.
(4) Includes 15,000 shares issuable upon exercise of stock options held
directly by Dr. Casebeer that are exercisable within 60 days after the
Record Date plus 250,000 shares owned by Vista Laser Centers of the
Southwest, Inc. in which Dr. Casebeer is Chairman of the Board and Chief
Executive Officer. Dr. Casebeer disclaims beneficial ownership of shares
owned by Vista Laser Centers of the Southwest, Inc. Does not include shares
owned by other Regional Joint Ventures for which Vista's Board of Directors
holds irrevocable voting proxies but has no other rights of ownership (see
Note 8 below). Dr. Casebeer's business address is 15100 North 78th Way,
Suite 100, Scottsdale, Arizona 85260.
(5) Includes 15,000 shares issuable upon exercise of stock options held
directly by Dr. Johnson that are exercisable within 60 days after September
30, 1996 plus 500,000 shares owned by Vista Laser Centers of the Northwest,
Inc. in which Dr. Johnson is Chairman of the Board and Chief Executive
Officer. Dr. Johnson disclaims beneficial ownership of shares owned by
Vista Laser Centers of the Northwest, Inc. Does not include shares owned by
other Regional Joint Ventures for which Vista's Board of Directors holds
irrevocable voting proxies but has no other rights of ownership (see Note 8
below). Dr. Johnson's business address is 918 12th Street, New Westminster,
British Columbia V3M 6B1, Canada.
(6) Includes 37,500 shares issuable upon exercise of stock options held
directly by Mr. Schultz that are exercisable within 60 days after September
30, 1996. Does not include shares owned by other Regional Joint Ventures
for which Vista's Board of Directors holds irrevocable voting proxies but
has no other rights of ownership (see Note 8 below). Mr. Schultz's business
address is 167 S. San Antonio Road, Suite 9, Los Altos, California 94022.
(7) Includes: (i) 25,000 shares of Common Stock and 49,500 shares issuable upon
exercise of stock options held directly by Trident Management, a corporate
affiliate of Mr. Watson, that are exercisable within 60 days after
September 30, 1996; plus (ii) 3,360,000 shares of Common Stock and fully
exercisable stock options covering 50,000 shares owned by Pharma Patch PLC
(see Note 10 below) in which Mr. Watson is Chairman of the Board and Chief
Executive Officer. Mr. Watson disclaims beneficial ownership of shares
owned by Pharma Patch PLC. Does not include shares owned by Regional Joint
Ventures for which Vista's Board of Directors holds irrevocable voting
proxies but has no other rights of ownership (see Note 8 below). Mr.
Watson's business address is 15/16 FitzWilliam Place, Dublin 2, Ireland.
(8) The following Regional Joint Ventures, holding an aggregate of 1,900,000
shares of Vista Common Stock, have agreed to grant irrevocable proxies to
Vista's Board of Director's expiring in each instance approximately five
years after the Regional Joint Venture has completed a planned initial
public offering of its securities: Vista Laser Centers of the Northeast,
Inc. -- 450,000 shares; Vista Laser Centers of the Northwest,
Inc. -- 500,000 shares; Vista Laser Centers of the Pacific, Inc. -- 500,000
shares; and Vista Laser Centers of the Southwest, Inc. -- 250,000 shares.
All other rights of beneficial ownership are retained by the respective
Regional Joint Venture including the power to dispose of the shares in a
bona fide sale transaction free of the proxy restrictions. Shares held by
Vista Laser Centers of the Northwest, Inc. and Vista Laser Centers of the
Southwest, Inc. are included in the beneficial ownership shown elsewhere in
the table for Dr. Johnson and Dr. Casebeer, respectively (see Notes 4 and 5
above).
(9) Includes shares described in Notes 4 through 8 above plus 25,000 shares
issuable upon exercise of stock options held directly by one other
executive officer that are exercisable within 60 days after September 30,
1996.
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(10) Includes 3,360,000 shares of Common Stock and fully exercisable stock
options to purchase 50,000 shares expiring on September 30, 1996 owned by
Pharma Patch PLC. These securities are also included in the table under
beneficial ownership of Murray D. Watson (see Note 7 above). The ownership
of Pharma Patch PLC shown in the table does not include: (i) 500,000 Class
C Warrants owned by Pharma Patch PLC which are exercisable during the month
of February 1997 and/or the month of February 1998, and expire thereafter
to the extent not exercised; or (ii) shares owned by Regional Joint
Ventures for which Vista's Board of Directors holds irrevocable voting
proxies (see Note 8 above).
(11) Includes 520,000 shares beneficially owned by Refractive Services-800,
Inc., a Panama corporation reportedly owned and controlled by Marcel Jouby,
a Dutch citizen, Kerry Lynne O'Rourke, a South African citizen residing in
The Netherlands, and Sukumal Chintagavongse, a Thailand citizen.
(12) Includes 450,000 shares beneficially owned by Vista Laser Centers of the
Northeast, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Note 8 above).
(13) Includes 500,000 shares beneficially owned by Vista Laser Centers of the
Northwest, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Notes 5 and 8 above).
(14) Includes 500,000 shares beneficially owned by Vista Laser Centers of the
Pacific, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Note 8 above).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH THE COMPANY FOR EQUITY FINANCING AND CHANGE IN CONTROL
The Company sold its operating assets and proprietary transdermal patch and
penetration enhancer business in November 1995 in exchange for 786,214 shares of
common stock in Technical & Chemical Products, Inc. ("TCPI") and the
satisfaction of approximately $5,000,000 of Company indebtedness by TCPI. TCPI
is a publicly-traded company engaged primarily in the design, development,
manufacture and marketing of medical diagnostic products for use in physician
offices, at home and at other point-of-care locations, and the research,
development and commercialization of transdermal and mucosal drug delivery
systems and skin permeation enhancers.
Vista's Board on February 6, 1996 authorized the negotiation of equity
financing agreements with the Company. On February 15, 1996, the Company
publicly announced its board of directors had approved the acquisition of a
controlling interest in Vista subject to negotiation of definitive agreements.
Definitive agreements negotiated between Vista and the Company were executed on
March 1 and March 4, 1996 and were closed on or prior to March 31, 1996. Vista's
financing transactions and agreements with the Company are summarized as
follows:
STOCK PURCHASE AGREEMENT FOR $500,000 (200,000 VISTA COMMON SHARES)
On March 1, 1996, Vista and the Company executed a Stock Purchase Agreement
providing for the first stage of financing transactions. The Stock Purchase
Agreement provided for 200,000 newly issued shares of Vista common stock to be
sold to the Company for a cash price of $500,000, or $2.50 per share. These
funds were received by Vista in March 1996.
EXCHANGE OF NOTE AND TCPI SECURITIES FOR $5,150,000 (2,060,000 VISTA COMMON
SHARES) AND EXERCISE OF STOCK OPTION
On March 4, 1996, Vista and the Company executed an Agreement (the
"Exchange Agreement") that was closed on March 31, 1996. Under the Exchange
Agreement, Vista delivered to the Company 2,060,000 newly issued shares of Vista
common stock at a stated value of $5,150,000, or $2.50 per Vista share, plus
500,000 Vista Class C common stock purchase warrants ("Class C Warrants"). In
exchange, Vista received from the Company: (i) an interest-free note due in six
months from the Company in the principal amount of $750,000, which was fully
paid by the Company on May 3, 1996; and (ii) 200,000 restricted shares of
Technical Chemicals and Products, Inc. ("TCPI") common stock to be transferred
from the Company to
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Vista at a stated value of $2,662,500, or $13.31 per TCPI share. At the time
this transaction was completed and at March 31, 1996, shares of TCPI acquired by
the Vista were restricted to resale under the federal securities laws and were
valued at both dates for financial statement purposes at a 25% discount from the
public market price. On March 21, 1996, the date the Company and Vista concluded
the transactions provided for the Exchange Agreement, the closing prices for
TCPI common stock were $16.50 on March 31, 1996 and $ on September ,
1996.
As additional consideration for these transactions, the Exchange Agreement
granted the Company an option exercisable at any time on or before September 30,
1996 to purchase up to an additional 250,000 newly issued shares of the
Company's common stock at an option exercise price of $2.50 per share in cash
(the "Six Month Option"). On July 18, 1996, the Company exercised 200,000 shares
subject to the Six Month Option at an exercise price of $500,000.
DESCRIPTION OF CLASS C WARRANTS
The 500,000 Class C Warrants issued to the Company under the Exchange
Agreement each represent the right to purchase one (1) share of Vista's common
stock during the month of February 1997 and/or the month of February 1998, and
expire thereafter to the extent not exercised. In each instance, the exercise
price per share will be determined by the average of the quoted closing prices
for Vista's common stock in the over-the-counter market during the month of
January immediately preceding the date Class C Warrants or any portion thereof
are exercised, except that the Class C Warrant exercise price per share in any
event will not exceed $10.00 per share. The exercise price and number of shares
issuable on exercise of Class C Warrants are subject to adjustment in certain
events to prevent dilution in the event of any subsequent stock split, stock
dividend, reclassification or recapitalization affecting the outstanding common
stock as a class.
EXCHANGE OF 900,000 VISTA COMMON SHARES BY CERTAIN STOCKHOLDERS
At the time Vista negotiated and concluded its agreements with the Company,
Vista was advised that three Vista stockholders, including Therapeutic Patch
Research N.V. ("TPR"), Saliva Research Limited ("SRL") and Westcliff Partners
Inc. ("WPI"), exchanged a total of 900,000 shares of Vista's outstanding common
stock for newly issued securities of the Company in a privately-negotiated
transaction. Those securities had been acquired by TPR, SRL and WPI in December
1995 as a result of prior transactions financing the operations of Vista through
December 1995. See "Issuance of Shares for Expenses from June Through December
1995" below.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, the Company acquired a
controlling interest in Vista during March 1996. At March 31, 1996, Vista had
5,256,104 common shares outstanding, including the 2,260,000 Vista shares issued
to the Company under the Stock Purchase Agreement and the Exchange Agreement,
but excluding common stock reserved for outstanding stock options, warrants,
conversion or exchange of debt obligations or reserved for investments in
certain Regional Joint Ventures. The Company's total ownership of 3,160,000
Vista common shares represented approximately 60.1% of the total Vista common
stock outstanding at March 31, 1996 and approximately 46.4% of 6,806,112 shares
of Vista common stock outstanding at July 15, 1996. Vista and the Company both
recognized in March 1996 that the Company's percentage ownership of the Company
may fluctuate in the future as a result of continuing changes in Vista's
capitalization, the right of Vista to exercise its Six Month Option for 250,000
Vista common shares expiring on September 30, 1996 and/or 500,000 Class C
Warrants exercisable in February 1997 and February 1998, described above, or as
a result of a future decision by Pharma Patch to sell or otherwise dispose of
all or a portion of its investment in Vista.
Vista entered into a registration rights agreement with the Company upon
closing the Exchange Agreement. Subject to certain limitations, this agreement
grants the Company two "piggy-back" registration rights in the event Vista files
registration statements covering offerings of its securities under the
Securities Act of 1933. In addition, the Company will have the right on three
occasions after March 31, 1997 and until
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July 31, 2006 to demand that all or a portion of Vista's common stock held by
the Company and issuable upon exercise of Class C Warrants and the Six Month
Option be registered under the Securities Act of 1933. Any such registrations of
Vista common stock for the account of Pharma Patch will be at Vista's expense.
Murray D. Watson, a director of Vista since January 31, 1994, has served
since July 1993 as Chairman of the Board, Chief Executive Officer and a director
of the Company. On February 16, 1996, Mr. Watson was elected Vista's Vice
Chairman of the Board and Kenneth G. Howling, Vice President and Chief Financial
Officer of the Company, was elected Vista's Treasurer and Chief Financial
Officer. In each case, their election as Vista officers was subject to a
condition that definitive agreements for the contemplated transactions between
Vista and the Company be executed. These agreements were executed on March 1,
1996 and completed on March 21, 1996.
Transactions contemplated by the Stock Purchase Agreement and the Exchange
Agreement were authorized and approved by Vista's board of directors ("Board")
at a Board meeting held on February 6, 1996 attended by all three of Vista's
then directors. Vista's Board approved the Stock Purchase Agreement and Exchange
Agreement transactions with knowledge and disclosure of the proposed exchange by
TPR, SRL and WPI of 900,000 shares of Vista common stock with the Company. Mr.
Watson, a Vista director, abstained from voting on the proposed transactions due
to his position as the Chief Executive Officer and a director of Pharma Patch.
Messrs. Jac. J. Lam and Malcolm J. Rowe, Vista's other two directors at that
time, voted in favor of approving the transactions. Mr. Rowe also served at the
time as a member of Pharma Patch's board of directors.
PURCHASE OF CERTAIN ASSETS FROM REFRACTIVE SERVICES-800, INC.
From July 1995 through June 1996 date, a foreign corporate investor named
Refractive Services-800, Inc. invested $520,000 in cash in five Regional Joint
Ventures sponsored by the Company. In exchange for that investment, and in view
of the high risks associated with making the initial investment in start-up
enterprises that had yet to negotiate any agreements for proposed business
operations, Refractive Services-800, Inc. received shares of a 10% Series A
convertible preferred issue of the five Regional Joint Ventures with a
liquidation preference equal to five times its cash investment (six times its
cash investment in the case of VLC-Northeast). Vista has been advised that
Refractive Services-800, Inc. is a Panama corporation owned and controlled by
Marcel Jouby, a Dutch citizen, Kerry Lynne O'Rourke, a South African citizen
residing in The Netherlands, and Sukumal Chintagavongse, a Thailand citizen.
Vista negotiated an agreement on July 18, 1996 to acquire all Series A
Preferred Shares in five Regional Joint Ventures originally purchased by
Refractive Services-800, Inc. for $520,000. In exchange, Vista has agreed to
issue to Refractive Services-800, Inc. a total of 520,000 shares of Vista common
stock. Vista also agreed to purchase for $50,000 in cash all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800")
organized by Refractive Services-800, Inc. in 1995 to acquire rights to certain
800 and 900 telephone numbers for telemarketing purposes at the election of
Regional Joint Ventures.
OFFSHORE SALES OF COMMON STOCK UNDER REGULATION S
On March 29, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of the Company's common stock at $2.125 per share under a
Regulation S offshore private placement transaction with one foreign investor,
Corundum B.V. The quoted closing market price for Vista's common stock on March
29, 1996 was $2.625 per share. No fees or commissions to third parties were paid
in connection with this offering.
On June 13, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of Vista's common stock at $2.125 per share under a separate
Regulation S offshore private placement transaction with two foreign investors,
Solar Ventures Limited as to 50,000 shares and Armilla Holdings Limited as to
50,000 shares. The quoted closing market price for Vista's common stock on June
13, 1996 was $3.25 per share. No fees or commissions to third parties were paid
in connection with this offering. On August 14, 1996, Vista received $212,500 in
proceeds from the sale of 100,000 shares of Vista's common stock at $2.125 per
share under a Regulation S offshore private placement transaction with one
foreign investor, Paget Trading Ltd. The quoted closing market price for Vista's
common stock on August 9, 1996, the date of the agreement, was $2.875 per share.
No fees or commissions to third parties were paid in connection with this
offering.
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PURCHASE OF LASER EQUIPMENT FROM AFFILIATE OF A DIRECTOR
On February 1, 1996, Vista entered into an asset purchase and lease
assumption agreement with a corporate affiliate of Dr. J. Charles Casebeer
providing for the purchase by Vista of an excimer laser system. The purchase
price for the equipment was $75,000 in cash, a $96,591 promissory note with
interest at 8% per annum originally due May 31, 1996, and the assumption of
outstanding obligations under an existing lease of the laser including future
lease payments not to exceed $328,409. Dr. Casebeer was subsequently elected a
director of Vista on February 16, 1996. Vista later determined to replace its
intended use of this equipment with newer technology, resulting in a charge to
earnings in the amount of $446,636 for the impairment of an idle asset. As of
July 12, 1996, the note to Dr. Casebeer's corporate affiliate remained unpaid
and is expected to be paid by Vista later in the current fiscal year ending
March 31, 1997.
ISSUANCE OF SHARES FOR EXPENSES FROM JUNE THROUGH DECEMBER 1995
During the period from June to December 1995, certain clients of Vista's
then acting President, Jac. J. Lam, invested approximately $1,470,000 to sustain
Vista's corporate operations during that period. These advances included
approximately $700,000 for travel by Vista's officers and consultants and
corporate office expenses in New York and Europe, approximately $100,000 in
out-of-pocket advances for various expenses, and $670,000 in compensation paid
for personnel assigned to support Vista's corporate activities and its program
to establish various Regional Joint Ventures in North America under the "Vista
Laser Centers" name. The $670,000 figure for personnel included $200,000 paid or
payable to Vista's then acting President, Jac. J. Lam, and $60,000 accrued for
its then acting Treasurer and Chief Financial Officer, Theodore J. Mayer.
Vista's Board of Directors agreed these charges should be billed at a flat
negotiated rate of $1,470,000 and in December 1995 authorized the issuance of
925,000 shares of Vista's common stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V. (300,000
shares), Saliva Research Ltd. (325,000 shares) and Westcliff Partners Inc.
(300,000 shares). Mr. Lam acted at the time as a managing director for Saliva
Research Ltd. and Westcliff Partners Inc., but disclaimed any beneficial
interest in the securities held by those entities.
REPURCHASE OF SHARES FROM SEMERA AB
In June 1994, Vista formed a subsidiary in Sweden, Vista Vision Scandinavia
AB ("Vista-Sweden"). Under an agreement dated June 1, 1994, Vista-Sweden
purchased certain assets of a PRK surgical center clinic in Stockholm, Sweden,
from Semera AB, an unaffiliated company. The price paid for the assets was
approximately $100,000 in cash, 28,600 shares of Vista common stock and 28,600
Class A Warrants. Vista-Sweden concurrently engaged the services of Professor
Bjorn Tengroth, a noted authority in PRK procedures. All of the capital stock of
Vista-Sweden is owned by Convista Vision BV, an inactive Dutch company
("Convista") purchased by Vista in April 1994 as a subsidiary to administer
financing and management of Vista's international operations.
As part of the negotiated agreement with Semera AB, 20% of Convista's
capital stock was sold to Professor Tengroth for $3,000 and Vista-Sweden
advanced a loan of approximately $134,000 to Professor Tengroth. Exercising an
option granted in June 1994, Convista subsequently repurchased Professor
Tengroth's 20% interest in Convista for SEK 1,250,000 (approximately $167,000),
and his loan was repaid from the proceeds. In June 1995, the Company repurchased
25,640 shares of Vista common stock and 25,640 Class A Warrants from Semera AB
for the sum of $277,777 pursuant to a commitment made in June 1994.
The funds required for the $277,777 payment to Semera AB in June 1995 were
obtained by the Company from proceeds of 12% convertible promissory notes issued
by Vista in June 1995. These 12% notes were issued and sold to G. Lennart
Perlhagen ($177,777), then a director of the Company, and Quintillion B.V., an
affiliate of Jac. J. Lam (who was elected a director and acting President of the
Company in June 1995). The 12% notes are due on June 15, 1998 and are
convertible into shares of Vista common stock at $5.00 per share. Payment
obligations on the 12% notes are collateralized by the pledge of 51% of the
outstanding shares of Vista-Sweden. In consideration of these loans,
Vista-Sweden is obligated to pay the noteholders a royalty of
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$100 for each Incremental PRK procedure performed by Vista-Sweden during the
three years ending May 31, 1996, 1997 and 1998. Incremental PRK procedures for
this purpose are generally defined as the number of PRK procedures performed by
Vista-Sweden in excess of its first 800 PRK procedures for the twelve months
ended May 31, 1996, and the number of PRK procedures in each following 12 month
period that exceed PRK procedures performed for the prior 12 month period.
ABANDONMENT OF OPERATIONS BY VISTA VISION INTERNATIONAL LTD. (UNITED KINGDOM)
Vista Vision International Ltd. ("Vista-UK"), formed in July 1992, owned a
50% interest in Precision Laser Eye Centres Ltd., a joint venture with Optika
Holdings Limited formed in June 1993, which owned and operated an excimer laser
eye surgical clinic in London, England. G. Lennart Perlhagen, President and
Chief Executive Officer of Vista from February 1994 to January 15, 1995, served
as the managing director of Vista-UK since its organization. Vista purchased all
of the capital stock of Vista-UK and advances to Vista-UK of approximately
24,000 British pounds from an unaffiliated third party under an agreement dated
March 31, 1994. The consideration paid by the Company included $134,000 in cash
(U.S. funds) and 250,000 shares of Vista's common stock issued to the seller,
Laser Technologies (Jersey) Ltd.
In June 1995, Vista closed the operations of Vista-UK and Precision Laser
Eye Centres Ltd. due to their unprofitable history, a change in business
strategy of the joint venture partner and extremely competitive market
conditions in London.
ABANDONMENT OF PROPOSED ACQUISITION OF MEDICAL DEVELOPMENT RESOURCES, INC.
Medical Development Resources, Inc. ("MDRI") is a privately-held Delaware
corporation engaged in research and development of a proprietary production
process for the manufacture of scalpels and other cutting instruments from
natural obsidian and/or an obsidian formulation. MDRI owned 100% of two
operating subsidiaries, KMI I, Inc. ("KMI") which designs, manufactures and
markets precision surgical instruments and related products, and Micra
Instruments Limited ("Micra"), a company was formed by MDRI in July 1993 to
purchase the assets of a business involved in design, development, manufacturing
and marketing of titanium microsurgical instruments for ophthalmology and
neurosurgery.
As previously reported in Vista's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1995 and Reports on Form 10-QSB for the quarterly
periods ended June 30, 1995 and September 30, 1995, Vista engaged in a series of
transactions and proposed transactions relating to investments in MDRI and its
subsidiaries from April 1994 through June 1995. Vista wrote-off all of its
investment in MDRI and loans advanced for MDRI's account, aggregating
$5,643,000, as of March 31, 1995.
INITIAL INVESTMENT BY VISTA IN MDRI. On April 1, 1994, Vista entered into
an agreement with Obsidian Research N.V., an unaffiliated partnership, to
acquire 715,563 shares of MDRI common stock and warrants to purchase up to
601,073 shares of MDRI common stock exercisable at $6.60 per share until
December 31, 1996. The purchase price paid by Vista for these MDRI securities
consisted of 200,000 shares of Vista Common Stock and 200,000 Vista Class A
Warrants. The MDRI common stock and warrants were originally acquired by
Obsidian Research N.V. at a cost of $1,125,000 in February 1993. Vista's purpose
in acquiring this interest in MDRI was to establish a long-term relationship
with the KMI subsidiary for future access to U.S. ophthalmologists.
ADDITIONAL MDRI INVESTMENTS IN MAY 1994. On May 5, 1994, Vista entered into
a Stock Purchase Agreement (the "May 1994 Stock Agreement") with six individuals
who were principal stockholders of MDRI and included certain members of MDRI and
KMI's management (the "MDRI Management Stockholders"). Under the May 1994 Stock
Agreement, Vista purchased 1,000,000 newly issued shares of MDRI common stock
from MDRI on May 6, 1994 for $1,250,000 in cash and acquired 1,000,000 shares of
MDRI common stock from the MDRI Management Stockholders in exchange for $2
million in principal amount of noninterest bearing promissory notes due on
December 31, 1994. At the time of this investment, MDRI's management projected
MDRI would generate net income for fiscal 1994 of at least $900,000 and there
was proposed an initial public offering of MDRI securities in which Vista would
participate as a selling stockholder.
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Concurrent with the closing of the May 1994 Stock Agreement, seven foreign
private investors purchased an additional 1,000,000 shares of MDRI common stock
from the MDRI Management Stockholders for $2 million in non-interest bearing
promissory notes due in ten equal bi-weekly installments from July 5, 1994
through November 9, 1994. Under separate agreements on May 24, 1994, Vista
acquired these 1,000,000 MDRI shares from the seven foreign investors in
exchange for 200,000 shares of Vista common stock and 100,000 Vista Class A
Warrants (all of which Vista shares and warrants were subsequently cancelled, as
described below). With the consent of the MDRI Management Stockholders, Vista
common stock issued to the seven foreign investors were substituted as a
collateral pledge to secure obligations of the foreign investors on their
non-interest bearing notes to the MDRI Management Stockholders.
In July 1994, Vista was advised that the seven foreign investors were
unable at that time to make payment of the installments due on their $2 million
in notes to the MDRI Management Stockholders. As an accommodation to the MDRI
Management Stockholders, during July and August 1994 Vista prepaid $600,000 in
principal amount of Vista's $2 million note obligations otherwise maturing on
December 31, 1994 to the MDRI Management Stockholders.
EXCHANGES WITH TNC MEDIA, INC. FOR MDRI SECURITIES. Under an agreement
dated October 11, 1994, MDRI transferred shares of common stock in TNC Media,
Inc. ("TNC") to TNC in exchange for the forgiveness of $450,000 in principal and
$56,140 of accrued interest due from MDRI and KMI to TNC and for the
cancellation of 155,000 shares of MDRI common stock then held by TNC. As a
consequence of the cancellation of these shares, Vista's then percentage
ownership of MDRI capital stock increased from 52.41% to approximately 53.48%.
In consideration of this increase in Vista's ownership of MDRI, TNC received
from Vista redeemable Class B warrants to purchase up to 31,000 shares of Vista
common stock exercisable at $10.00 per share at any time through October 11,
1999 unless earlier called for redemption. Vista has the optional right of
calling the Class B warrants for redemption if the Vista common stock issuable
upon exercise of Class B Warrants have been registered for sale under the
Securities Act of 1933 and if Vista common stock is traded in the NASDAQ
over-the-counter market or on a national securities exchange and the closing
sale price is $22.50 per share or more for at least 20 consecutive trading days
on the date Class B Warrants are called for redemption.
During December 1994, Vista acquired 778,777 shares of MDRI common stock
(representing approximately 11.2% of the MDRI shares then outstanding) from TNC
in exchange for 155,755 shares of Vista common stock in order to increase its
voting position in MDRI. Vista demanded that MDRI call an annual meeting of its
stockholders to elect directors, but this demand was ignored by MDRI.
As a result of the above transactions, Vista owned 4,809,340 shares of MDRI
capital stock, or approximately 69.13% of the total then outstanding, at
December 31, 1994. The MDRI Management Stockholders continued to manage MDRI and
its subsidiaries and controlled the policies and operations of MDRI and its
subsidiaries.
DECEMBER 1994 REORGANIZATION AGREEMENT WITH MDRI. In order to resolve
certain disputes which arose between MDRI Management Stockholders and the seven
foreign investors, on the one hand, and between MDRI Management Stockholders and
Vista on the other hand, and in an effort to obtain control over the operating
policies and management of MDRI and its subsidiaries, Vista entered into an
Agreement and Plan of Reorganization with MDRI and the MDRI Management
Stockholders dated as of December 15, 1994 (the "Reorganization Agreement") and
amended in January and March 1995. In order to obtain access to historical
financial records retained by independent public accountants for MDRI, Vista
further agreed that upon the closing of the Reorganization Agreement Vista would
assume $70,000 of MDRI's indebtedness to its independent public accountants and
would guarantee an additional $70,000 of such indebtedness assumed by KMI. Vista
advanced $40,000 of the funds contemplated by these obligations prior to closing
the Reorganization Agreement as an accommodation to MDRI and KMI.
Due to numerous problems observed by Vista during its due diligence review
of the operations and reported financial condition of MDRI and its subsidiaries,
the original closing contemplated by the Reorganization Agreement was postponed
pending a renegotiation of certain terms and provisions of the Reorganization
Agreement. Vista also extended an exchange offer to the holders of certain MDRI
notes and
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warrants as required by the Reorganization Agreement, subject to the closing of
the Reorganization Agreement. The Reorganization Agreement further provided for
a proposed merger later in 1995 of MDRI with a wholly-owned subsidiary of Vista.
EXCHANGE AGREEMENT FOR LOAN TO MICRA. In June 1995, Quintillion B.V., an
affiliate of Vista's then acting President, Jac. J. Lam, advanced the sum of
$100,000 to Micra Instruments Ltd. for working capital to sustain Micra's
operations in exchange for a 15% debenture issued by Micra. The 15% debenture
was for a term of six months and payable thereafter on three months written
notice and secured by a fixed and floating charge on the assets of Micra. In
consideration of this financial accommodation, Vista entered into an Exchange
Agreement with Quintillion B.V. which grants Quintillion the right to exchange
the 15% Micra debenture for shares of the Company's common stock at an exchange
price of $1.25 per share of Vista common stock.
TERMINATION AND RESCISSION OF AGREEMENTS RELATING TO MDRI. Following the
failure of MDRI and the MDRI Management Stockholders to comply with conditions
set forth in the Reorganization Agreement and the inadequacy of MDRI's financial
records, Vista elected on July 7, 1995 to terminate all obligations on its part
under the Reorganization Agreement and advised MDRI and the MDRI Management
Stockholders that Vista was further rescinding all transactions with the MDRI
Management Stockholders contemplated by the May 1994 Purchase Agreement
including all obligations under promissory notes previously issued by Vista. The
reasons given by Vista for these actions included Vista's allegations of fraud,
intentional misconduct and breach of fiduciary duties on the part of the MDRI
Management Stockholders, misrepresentations of material facts by the MDRI
Management Stockholders and MDRI, and failures in the timely performance of
conditions precedent to Vista's obligations. Vista further demanded that the
MDRI Management Stockholders make full restitution to Vista of $600,000 in cash
previously paid by Vista to the MDRI Management Stockholders under notes issued
pursuant to the May 1994 Stock Purchase Agreement.
As a result of this action, all shares issued by Vista under the
Reorganization Agreement and to seven foreign investors in exchange for Vista
securities were cancelled and Vista returned to the MDRI Management Stockholders
all certificates representing shares of MDRI common stock previously received by
Vista except for 2,794,340 MDRI shares, believed to represent approximately 40%
of MDRI's outstanding common stock, paid for in cash by Vista. Vista wrote-off
all of its investment in MDRI and loans advanced for MDRI's account, aggregating
$5,643,000 as of March 31, 1995.
TRANSACTIONS WITH FORMER OFFICERS AND DIRECTORS
In June 1994, Vista engaged the services of Drago A. Cerchiari to render
consulting services relating to financial and accounting matters, including
identification of suitable candidates for the position of the Company's Chief
Financial Officer. Vista issued 7,000 Class A Warrants in consideration of this
agreement, and agreed to repurchase all or any portion of these Class A Warrants
at the price of $5.00 per warrant. Mr. Cerchiari exercised his put option and
the 7,000 Class A Warrants were cancelled in June 1995.
Vista previously had employment agreements with Robert L. Ferrara, who
resigned as Vista's Chief Financial Officer on April 14, 1995; Drago A.
Cerchiari, who resigned as Vista's President, Chief Executive Officer and a
director on June 1, 1995; and G. Lennart Perlhagen, who resigned as Vista's
Chairman on June 1, 1995 and as a director on July 4, 1995.
Under an agreement dated as of July 5, 1995, Vista issued 16,000 shares of
its common stock to Mr. Perlhagen in payment of $80,000 of unreimbursed business
expenses.
Under an agreement dated as of June 1, 1995, Vista paid Mr. Cerchiari
$8,740 in cash and issued 4,000 shares of common stock for reimbursement of a
total of $29,000 of unreimbursed business expenses. Vista agreed that Mr.
Cerchiari had a put option right to sell the 4,000 shares of common stock to
Vista after January 31, 1996 at a price equal to $20,260 plus interest from June
1, 1995 at the rate of 1% per month. Mr. Cerchiari exercised that option on
February 1, 1996. Vista also issued 5,000 shares of common stock to
89
<PAGE> 94
Mr. Cerchiari under the June 1, 1995 agreement as a negotiated settlement for a
one-time hiring bonus in his original employment agreement dated as of January
15, 1995.
CHANGES IN ACCOUNTANTS
Vista changed its independent accountants in May 1996. The accounting firm
of A J. Robbins, PC acted as principal independent public accountants to audit
the consolidated financial statements of Vista for its fiscal year ended March
31, 1995, the transition period of three months ended March 31, 1994, the fiscal
year ended December 31, 1993 and the fiscal period from Vista's inception on
June 15, 1992 to December 31, 1992. On May 8, Vista's Board of Directors elected
to change its independent accountants and dismissed A J. Robbins, PC as Vista's
independent certifying public accountant. Vista's Board of Directors
participated in and approved the decision to change independent accountants.
The reports of A J. Robbins, PC on the consolidated financial statements of
Vista for the fiscal year ended March 31, 1995, the transition period of three
months ended March 31, 1994 and the fiscal year ended December 31, 1993 did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified as
to uncertainty, audit scope, or accounting principles, except as follows: The
report of A J. Robbins, PC dated May 24, 1995 on Vista's consolidated financial
statements for its fiscal year ended March 31, 1995 contained a paragraph
expressing certain doubts about Vista's ability to continue as a going concern.
In connection with its audit for the fiscal year ended December 31, 1993,
the transition period of three months ended March 31, 1994, the fiscal year
ended March 31, 1995 and thereafter through May 8, 1996, there have been no
disagreements of Vista with A J. Robbins, PC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of A J.
Robbins, PC would have caused them to make reference thereto in their report on
the financial statements for such year. During the periods described above and
through May 8, 1996, there have been no reportable events as that term is
defined in Regulation S-K, Item 304(a)(1)(v) promulgated by the Securities and
Exchange Commission.
Vista requested that A J. Robbins, PC furnish Vista with a letter addressed
to the Securities and Exchange Commission stating whether or not A J. Robbins,
PC agrees with the above statements. A copy of such letter was filed with the
Securities and Exchange Commission.
On May 9, 1996, Vista engaged the services of the independent public
accounting firm of KPMG Peat Marwick LLP to act as the principal independent
accountants as to Vista's consolidated financial statements for its most recent
fiscal year ended March 31, 1996. Prior to engaging KPMG Peat Marwick LLP, Vista
did not consult its new independent public accountants as to the application of
accounting principles to a specified transaction, either completed or proposed,
or as to the type of audit opinion that might be rendered on Vista's financial
statements.
LEGAL MATTERS
The validity of the Ace Common Stock to be distributed to Company
shareholders in connection with the liquidation of the Company will be passed
upon by Appleby, Spurling & Kempe, Hamilton, Bermuda.
EXPERTS
The balance sheet of Atlantic Central Enterprises Limited as of August 7,
1996, has been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and in the Registration Statement, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of February 29,
1996 and for the year then ended have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and in the
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.
90
<PAGE> 95
The consolidated financial statements of the Company as of February 28,
1995 and for the years ended February 28, 1995 and 1994 appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young
(Chartered Accountants) as set forth in their report thereon included elsewhere
herein and are included in reliance upon such report given on the authority of
said firm as experts in accounting and auditing.
The financial statements of Vista Technologies, Inc., included in this
Prospectus have been audited as of March 31, 1996 and for the year then ended by
KPMG Peat Marwick LLP, and as of March 31, 1995 and for the year ended March 31,
1995 by A.J. Robbins, PC, independent certified public accountants as stated in
their reports appearing herein and are included in reliance on their reports
given an authority of said firms as experts on accounting and auditing.
By Order of the Board of Directors of
PHARMA PATCH PUBLIC LIMITED
COMPANY
Murray D. Watson
Chairman of the Board of Directors,
Chief Executive Officer and President
91
<PAGE> 96
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS -- PROXY STATEMENT AND IF GIVEN OR MADE MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ACE. THIS PROSPECTUS -- PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFERING TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS -- PROXY STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
CIRCUMSTANCES OF ACE OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................ 2
Summary............................... 3
Risk Factors.......................... 5
Description of Ace.................... 9
Selected Financial Information........ 10
Unaudited Pro Forma Condensed
Consolidated Statements of
Operations.......................... 11
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 15
Certain United States Federal Income
Tax Considerations.................. 17
Reasons for the Reorganization of the
Company............................. 21
Dissolution Process Under Irish Law... 22
Comparison of Bermuda Law to Irish
Law................................. 24
Price Range of the Company's ADRs..... 31
Business of the Company............... 32
Management of the Company............. 33
Principal Shareholders................ 37
Executive Compensation................ 37
Certain Transactions.................. 39
Description of Property............... 43
Legal Proceedings..................... 43
Dividend Policy....................... 44
Changes in Accountants................ 44
Description of the Warrants........... 45
Business of Vista..................... 47
Legal Matters......................... 90
Experts............................... 90
Financial Statements.................. F-1
</TABLE>
- --------------------------------------------
- --------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
ATLANTIC CENTRAL
ENTERPRISES
LIMITED
1,811,681
SHARES OF
COMMON STOCK
PROSPECTUS -- PROXY
STATEMENT
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 97
ANNEX A
PLAN OF REORGANIZATION
OF PHARMA PATCH PUBLIC LIMITED COMPANY
This plan of reorganization (the "Plan") of Pharma Patch Public Limited
Company, an Irish corporation (the "Company") has the purpose of reorganizing
the business operations of the Company into Atlantic Central Enterprises
Limited, a newly incorporated Bermuda corporation ("Ace") by (1) having the
Company transfer to Ace all of its assets, and having Ace assume all of the
Company's liabilities, in exchange for Ace shares, (2) as soon as possible after
the transfer, commencing a voluntary liquidation or winding up of the Company,
(3) having the Company distribute the Ace shares to its shareholders. The Plan
is intended to constitute a series of integrated steps that qualifies as a
reorganization under section 368 (a) of the Internal Revenue Code of 1986, as
amended, and will be carried out in accordance with Part VI of the Companies
Act, 1963 as amended, pursuant to the following steps:
1. The Plan shall be and become effective following the approval of
the Plan by the Board of Directors of the Company, and the approval of the
Plan and the liquidator of the Company by its shareholders.
2. Shortly thereafter, the Company shall transfer all of its assets to
Ace and Ace will assume all of the Company's liabilities, in exchange for
17,254,605 shares of Ace common stock, constituting all of the issued and
outstanding shares of Ace.
3. As soon as possible after the transfer in 2. above, the Board of
Directors of the Company shall adopt a resolution commencing, and shall
commence, a voluntary liquidation or winding up of the Company.
4. As soon as reasonably practical, the winding up of Ace shall be
completed, and, pursuant to the winding up of the Company, the liquidator
shall distribute the Ace shares to the Company shareholders and all shares
issued and outstanding in the Company shall be cancelled.
5. The Boards of Directors and officers of each of the Company and Ace
shall each carry out and consummate this Plan, and shall have the power to
adopt all resolutions, execute all documents, file all papers, pay such
expenses, and take any other actions they may deem necessary or desirable
for the purposes of implementing this Plan.
A-1
<PAGE> 98
PHARMA PATCH P.L.C.
FORM OF PROXY -- EXTRAORDINARY GENERAL MEETING
I/We the undersigned, being a Member of the Company
Signature______________________________________________________________________
Name in full___________________________________________________________________
Address________________________________________________________________________
________________________________________________________________________
Date___________________________________________________________________________
HEREBY APPOINT the duly appointed Chairman of the Meeting or (see note 1)
of
as my/our proxy to vote for me/us on my/our behalf at the Extraordinary General
Meeting of the Company to be held at on the of
199 and at any adjournment thereof.
SPECIAL BUSINESS
<TABLE>
<S> <C> <C>
For Against
1. To consider and vote upon a proposal to reorganize the Company in
accordance with the terms of that certain Plan of Reorganization
which was adopted by the Company's Board of Directors on
, 1996, pursuant to which, among other things, the Company will
transfer to Atlantic Central Enterprises Limited, a wholly-owned
subsidiary of the Company incorporated in Bermuda ("Ace"), all of
its assets and liabilities in exchange for shares of Ace common
stock ("Ace Shares") and thereafter, the Company will be wound up
voluntarily as a members voluntary winding up and distribute the Ace
Shares to its shareholders; and / / / /
2. Appoint Peter H. Beamish as the Liquidator of the Company for the
purposes of such winding up. / / / /
</TABLE>
NOTES
1. If you desire to appoint a proxy other than the Chairman of the meeting
please insert his name and address, delete "the duly appointed Chairman of
the meeting or", and initial the alteration.
2. To be effective, this form must be lodged at the [ ], together
with any authorisation under which it is signed, not later than on
[ ] 1996.
3. In the case of a corporation, the form must be executed either under its
common seal or under the hand of an officer or attorney duly authorised.
4. If this form is signed and returned but without any indication as to how the
person appointed proxy shall vote, he will exercise his discretion as to how
he votes and whether or not he abstains from voting.
A-2
<PAGE> 99
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 3, 1996
33,023 COMMON SHARES
ATLANTIC CENTRAL ENTERPRISES LIMITED
OFFER TO EXCHANGE
UP TO 33,023 SHARES OF COMMON STOCK
OF ATLANTIC CENTRAL ENTERPRISES LIMITED FOR
CLASS A, CLASS B, CLASS C AND/OR CLASS D WARRANTS
OF
PHARMA PATCH PUBLIC LIMITED COMPANY
Atlantic Central Enterprise Limited, a Bermuda corporation ("Ace") and a
wholly-owned subsidiary of Pharma Patch Public Limited Company, an Irish
corporation ("Pharma") hereby offers to the holders of Pharma's outstanding
Class A, Class B, Class C and/or Class D Warrants (collectively sometime
hereinafter referred to as the "Warrants"), the opportunity to exchange, upon
the terms and subject to the conditions contained in this Prospectus and the
accompanying Letters of Transmittal (which together constitute the "Exchange
Offer") up to 33,023 shares of the common stock of Ace, par value $1.00 ("Ace
Shares"), at a rate of one Ace Share for (i) each 100 Class A Warrants, (ii)
each 100 Class B Warrants, (iii) each 100 Class C Warrants, and (iv) each 100
Class D Warrants or any continuation thereof equaling 100 Warrants. The
procedures for tendering the Warrants are described in "The Exchange
Offer -- Procedure for Tender."
THIS EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, , 1996, UNLESS EXTENDED (THE "EXPIRATION
DATE"). WARRANTS TENDERED FOR EXCHANGE MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION
DATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996.
<PAGE> 100
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
THE EXCHANGE OFFER
EXPIRATION.................... 12:00 Midnight, New York City time on ,
, 1996, unless extended (the
"Expiration Date").
TERMS OF EXCHANGE............. One share of Ace common stock for each (i) 100
Class A Warrant, (ii) 100 Class B Warrant,
(iii) 100 Class C Warrant and (iv) 100 Class D
Warrant or any continuation thereof equaling
100 Warrants.
FRACTIONAL SHARES............. No fractional shares of Ace will be issued. See
"No Fractional Shares."
NUMBER OF WARRANTS............ Ace will accept all Warrants validly tendered
and not withdrawn prior to the Expiration Date.
MARKET FOR ACE COMMON STOCK... The shares of Ace common stock will be quoted
on the Nasdaq SmallCap Market under the symbol
" ."
TENDER PROCEDURES............. Enclosed with this Prospectus are four colored
Letter of Transmittal to be used as follows:
GREEN -- The Green Letter of Transmittal is to
be used ONLY for Class A Warrants.
RED -- The Red Letter of Transmittal is to be
used ONLY for Class B Warrants.
BLUE -- The Blue Letter of Transmittal is to be
used ONLY for Class C Warrants.
ORANGE -- The Orange Letter of Transmittal is
to be used ONLY for Class D Warrants.
WARRANTHOLDERS ARE URGED TO TAKE SPECIAL CARE
TO ENSURE THAT THEY ARE USING THE CORRECT FORM
OF LETTER OF TRANSMITTAL.
If a warrantholder holds Warrants in book-entry
form, such stockholder may participate in the
Exchange Offer by complying with the procedures
for book-entry transfer set forth under "The
Exchange Offer -- Procedure for Tender." A
warrantholder may also request his or her
broker, dealer, commercial bank, trust company
or other nominee to effect the transaction for
him or her. A warrantholder having shares
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
must contact that broker, dealer, commercial
bank, trust company or other nominee if he
tenders shares.
Warrantholders who certificates are not
immediately available or who cannot deliver the
Letter of Transmittal or other documents
required to be delivered to the Exchange Agent
prior to the expiration of the Exchange Offer
may nevertheless tender Warrants in accordance
with the guaranteed delivery procedures
described herein. See "The Exchange
Offer -- Procedure for Tender."
TAX CONSEQUENCES.............. Company Warrantholders are urged to consult
their own tax advisors as to the specific tax
consequences to them of the
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<PAGE> 101
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
Exchange Offer. See "Certain U.S. Federal
Income Tax Considerations."
WITHDRAWAL RIGHTS............. Tenders may be withdrawn prior to the
Expiration Date. To be effective, a written,
telegraphic or facsimile notice of withdrawal
must be received in a timely manner by the
Exchange Agent. See "The Exchange
Offer -- Withdrawal of Tendered Common Shares."
EXCHANGE AGENT................ The Bank of New York is the exchange agent (the
"Exchange Agent") for the Exchange Offer.
INFORMATION AGENT............. The Bank of New York is the information agent
(the "Information Agent") for the Exchange
Offer.
QUESTIONS..................... Any questions regarding the Exchange Offer,
including the procedure for tendering shares in
the Exchange Offer should be directed to the
Information Agent at (800) .
FAILURE TO PARTICIPATE IN
EXCHANGE OFFER................ Holders of the Warrants who do not exchange
their Warrants for Ace Shares will be entitled
to receive Ace Shares upon exercise of the
Company's Warrants upon the same terms and
conditions as are contained in the Warrants.
NO RIGHTS OF DISSENTING
WARRANTHOLDERS.............. Warrantholders of the Company will not have the
right under Irish law to seek an appraisal of
their Warrants in connection with the Exchange
Offer.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
THAT WARRANTHOLDERS TENDER OR REFRAIN FROM TENDERING THEIR WARRANTS, AND NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION ON BEHALF OF THE COMPANY.
THIS IS A MATTER FOR EACH WARRANTHOLDER TO DETERMINE AFTER CONSULTATION WITH HIS
OR HER ADVISORS, INCLUDING TAX COUNSEL, ON THE BASIS OF HIS OR HER OWN FINANCIAL
POSITION AND REQUIREMENTS. SEE "CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS."
-2-
<PAGE> 102
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
THE EXCHANGE OFFER
Upon the terms and subject to the conditions described herein and in the
Letters of Transmittal, Ace hereby offers to exchange one Ace Share for each (i)
100 Class A Warrant, (ii) 100 Class B Warrant, (iii) 100 Class C Warrant and
(iv) 100 Class D Warrant or any combination thereof aggregating 100 Warrants.
Ace reserves the right, in its sole discretion, to increase the number of Ace
Shares offered in the Exchange Offer, subject to compliance with applicable
securities regulations.
THIS EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, , 1996, UNLESS EXTENDED. WARRANTS TENDERED FOR EXCHANGE
MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Any questions regarding the Exchange Offer, including the procedure for
tendering shares in the Exchange Offer, should be directed to the Information
Agent at (800) .
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
THAT WARRANTHOLDERS TENDER OR REFRAIN FROM TENDERING THEIR WARRANTS, AND NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION ON BEHALF OF THE COMPANY.
THIS IS A MATTER FOR EACH WARRANTHOLDER TO DETERMINE AFTER CONSULTATION WITH HIS
OR HER ADVISORS, INCLUDING TAX COUNSEL, ON THE BASIS OF HIS OR HER OWN FINANCIAL
POSITION AND REQUIREMENTS. SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
For further information on the Warrants and the Ace Shares, see
"Description of Warrants" and "Description of Ace Common Stock."
TERMS OF THE EXCHANGE OFFER
Ace is offering to exchange up to 320,230 shares of its Common Stock ("Ace
Shares") upon the terms and subject to the conditions set forth herein and in
the related Letters of Transmittal (which together constitute the Exchange
Offer) for Warrants at a rate of one Ace Share for each (i) 10 Class A Warrants,
(ii) 10 Class B Warrants; (iii) 10 Class C Warrants and (iv) 10 Class D Warrant
or any combination thereof aggregating ten Warrants tendered prior to the
Expiration Date and not withdrawn as described under the caption, "Withdrawal of
Tendered Common Stock" below. The term "Expiration Date" shall mean 12:00
Midnight, New York City time, on , , 1996, unless and until Ace
shall have extended the period of time for which the Exchange Offer is open, in
which event "Expiration Date" shall mean the latest time and date on which the
Exchange Offer, as so extended by the Company, shall expire.
Tendering warrantholders will not be obligated to pay brokerage
commissions, solicitation fees or, subject to the instructions to the Letters of
Transmittal, stock transfer taxes on the exchange of Warrants pursuant to the
Exchange Offer. Ace will pay all charges and expenses of the Exchange Agent and
the Information Agent in connection with the Exchange Offer. Ace will not pay
any commission or other remuneration to any broker, dealer, salesman or other
person for soliciting tenders of Warrants.
Ace expressly reserves the right in its sole discretion at any time or from
time to time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance for exchange of, or exchange of any Warrants,
by giving oral or written notice of such extension to the Exchange Agent.
The Exchange Offer, the Letters of Transmittal and other relevant materials
are being mailed to record holders of Warrants and furnished to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the stockholder list or, if applicable,
who are listed as participants in a clearing agency's security position listing,
for subsequent transmittal to beneficial owners of Warrants.
If the Company makes a material change in the terms of the Exchange Offer
or the information concerning the Exchange Offer, or if it waives a material
condition of the Exchange Offer, the Company will extend the Exchange Offer
consistent with Rule 13e-4 under the Exchange Act. The Commission has taken the
position that the minimum period during which an offer must remain open
following material changes in
-3-
<PAGE> 103
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
the terms of the offer or information concerning the offer (other than a change
in price or a change of more than two percent in percentage of securities sought
for which an extension of ten business days is required) will depend upon the
facts and circumstances, including the relative materiality of the terms or
information. For purposes of the Exchange Offer, a "business day" means any day
other than a Saturday, Sunday or federal holiday, and consists of the time
period from 12:01 A.M. through 12:00 Midnight, New York City time.
The Company also expressly reserves the right (i) to delay acceptance for
exchange of or exchange for any Warrants to be exchanged by it pursuant to the
Exchange Offer, regardless of whether such Warrants were theretofore accepted
for exchange, and (ii) at any time, or from time to time, to amend the Exchange
Offer in any manner which would not adversely affect the holders of the
Warrants. Ace's reservation of the right to delay exchange of Warrants which it
has accepted for payment is limited by Rule 13e-4 under the Exchange Act, which
requires that a bidder must pay the consideration offered or return the
securities deposited by or on behalf of security holders promptly after the
termination or withdrawal of any exchange offer. Any extension, delay in
payment, or amendment will be followed as promptly as practicable by public
announcement thereof, such announcement in the case of an extension to be issued
no later than 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date Without limiting the manner in which Ace
may choose to make any public announcement, Ace will have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by issuing a release to the Dow Jones News Service.
PROCEDURE FOR TENDER
Enclosed with this Prospectus are four colored Letters of Transmittal to be
used as follows:
STOCKHOLDERS ARE URGED TO TAKE SPECIAL CARE TO ENSURE THAT THEY ARE USING
THE CORRECT FORM OF LETTER OF TRANSMITTAL.
In order to participate in the Exchange Offer, warrantholders should, prior
to the expiration of the Exchange Offer, promptly deliver to the Exchange Agent
at its address indicated elsewhere herein, the proper form of Letter of
Transmittal (or facsimile thereof) properly completed and duly executed with any
required signature guarantees and any other documents required in the Letter of
Transmittal in the prescribed form enclosed herewith any other required
documents and either (i) (a) Warrant certificates must be received by the
Exchange Agent at one of the addresses set forth herein or (b) if Warrants are
held in book-entry form such Warrants must be tendered pursuant to the
procedures for book-entry transfer set forth below (and a book-entry
confirmation of receipt for such tender received), or (ii) the guaranteed
delivery procedure set forth below must be complied with. Delivery may be made
by hand or by mail so as to be received by the Exchange Agent on or before the
date on which the Exchange Offer terminates. Warrantholders who wish to
participate in the Exchange Offer should clearly complete the proper form of
Letter of Transmittal and indicate thereon the number of Warrants that are being
tendered pursuant to the Exchange Offer.
The Exchange Agent will establish accounts with respect to the Warrants at
The Depository Trust Company ("DTC") for purposes of the Exchange Offer within
two business days after the date of this Exchange Offer and any financial
institution that is a participant in DTC may make book-entry delivery of the
Warrants be causing DTC to transfer such Warrants into the Exchange Agent's
account in accordance with DTC's procedure for such transfer. However, although
deliver of Warrants may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to any received by the Exchange
Agent at its address set forth in this Exchange Offer prior to the Expiration
Date, or the guaranteed delivery procedure described below must be complied with
prior to the Expiration Date. Delivery of documents to DTC in accordance with
its procedures does not constitute delivery to the Exchange Agent.
No signature guarantee is required (i) if the Letter of Transmittal is
signed by the registered holder of the Warrants tendered therewith and the Ace
Shares are to be delivered directly to such registered holder or (ii) if
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<PAGE> 104
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
such Warrants are tendered for the account of an Eligible Institution (as
defined below). In all other cases all signatures on Letters of Transmittal must
be guaranteed by an Eligible Institution. An "Eligible Institution" is a firm or
other entity identified in Rule 17Ad-15 under the Exchange Act, including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities dealer, municipal securities broker, governmental securities dealer
and governmental securities broker; (iii) a credit union; (iv) a national
securities exchange, a registered securities association or clearing agency; or
(v) a savings institution that is a participant in a Securities Transfer
Association recognized program. See the Instructions to the Letter of
Transmittal.
If a stockholder desires to tender Warrants pursuant to the Exchange Offer
and certificates deemed to evidence such Warrants are not immediately available
or time will not permit all required documents to reach the Exchange Agent on or
prior to the desired date of tender, or the procedure for book-entry tender
cannot be completed on a timely basis, tender may be effected if all the
following conditions are met: (i) such tender is made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company is received by the
Exchange Agent, as provided below, prior to the desired date of tender, and
(iii) Warrant certificates (or a confirmation of the book-entry transfer of such
Warrant into the Exchange Agent's account at DTC as described above ("Book-Entry
Confirmation")), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) in the proper form and any required signature
guarantee and any other documents required by the proper Letter of Transmittal,
are received by the Exchange Agent within five NYSE trading days after the date
of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the Exchange
Agent or transmitted by telegram, telex, facsimile transmission or letter to the
Exchange Agent and must include a guarantee by an Eligible Institution in the
form set forth in such Notice and a representation that the Warrant on whose
behalf the tender is being made is deemed to own the Warrants being tendered
within the meaning of Rule 10b-4 under the Exchange Act.
Notwithstanding any other provision hereof, Ace Shares will be exchanged
for Warrants tendered and accepted for exchange pursuant to the Exchange Offer
only after timely receipt by the Exchange Agent of warrant certificates deemed
to evidence such warrants, a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other required documents.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES
REPRESENTING WARRANTS, IS AT THE ELECTION AND RISK OF THE TENDERING
WARRANTHOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THE LETTER OF TRANSMITTAL,
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED AND SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
The valid tender of Warrants pursuant to one of the procedures described
above will constitute an agreement between the tendering warrantholder and Ace
upon the terms and subject to the conditions of the Exchange Offer.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Warrants and all questions
as to the interpretation of the terms and conditions of the Exchange Offer will
be determined by Ace in its sole discretion, which determination will be final
and binding. Ace reserves the absolute right to reject any or all tenders not in
proper form or the acceptance for exchange of which may, in the opinion of
counsel, be unlawful. Ace also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Warrant. None of Ace, the Exchange Agent, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
information.
Any questions regarding the Exchange Offer, including the procedure for
tendering Warrants, should be directed to the Information Agent at (800) .
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EXCHANGE AGENT
All correspondence in connection with the Exchange Offer and Letter of
Transmittal should be addressed to the Exchange Agent, as follows:
BANK OF NEW YORK
<TABLE>
<S> <C> <C> <C>
By Hand: By Mail: By Facsimile By Telex
Transmission: (Information Only):
</TABLE>
WITHDRAWAL OF TENDERED WARRANTS
Warrants tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. For a withdrawal to be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be timely
received by the Exchange Agent at its addresses set forth above. Any such notice
of withdrawal must specify the name of the person who tendered the Warrant to be
withdrawn, the number of Warrants tendered, the number of Warrants to be
withdrawn and the name of the registered holder, if different from that of the
person who tendered such shares. If Warrants have been delivered or otherwise
identified to the Exchange Agent, prior to the delivery of Ace Shares in place
of such Warrant certificates or the release of such Ace Shares, the serial
numbers of the particular certificates evidencing the Warrants to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution, except in the case of Warrants tendered for the account of an
Eligible Institution, must also be furnished to the Exchange Agent as described
above. If Warrants have been delivered pursuant to the procedures for book-entry
transfer as set forth under the caption, "Procedure for Tender," any notice of
withdrawal must also specify the name and number of the account at DTC to be
credited with the withdrawn shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Ace in its sole discretion, which
determination will be final and binding. None of the Company, the Exchange
Agent, the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. Any Warrants
withdrawn will be deemed to be not validly tendered for purposes of the Exchange
Offer. However, tendered withdrawn pursuant to the withdrawal rights described
above may be retendered by again following one of the procedures described under
the caption, "Procedure for Tender" at any time on or prior to the Expiration
Date.
If Ace extends the Exchange Offer, is delayed in its acceptance of Warrants
for exchange or is unable to accept Warrants for any reason, then, without
prejudice to Ace's rights under the Exchange Offer, tendered Warrants Stock may
be retained by the Exchange Agent on behalf of Ace and may not be withdrawn
except to the extent that tendered stockholders are entitled to withdrawal
rights as set forth in this section.
DELIVERY OF CERTIFICATES REPRESENTING ACE SHARES
Delivery of certificates representing Ace Shares to exchanging holders of
Warrants will be made promptly after the Expiration Date. All deliveries will be
made through the Exchange Agent. If any tendered Warrants are not accepted for
exchange pursuant to the Exchange Offer for any reason, or if certificates
representing more than are tendered are delivered to the Exchange Agent, Ace
Share certificates representing such unaccepted or untendered Warrants will be
sent without expense to the tendering warrantholder (or, in the case of shares
tendered by book-entry transfer with DTC as permitted by "Procedure for Tender,"
such Warrants will be credited to an account maintained with DTC) as promptly as
practicable following the expiration, termination or withdrawal of the Exchange
Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is conditioned on (i) the approval of the Plan of
Reorganization by shareholders of the Company and (ii) that no statute, rule,
regulation, injunction or court order having been enacted or
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[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
imposed against Act that, in the sole judgment of Ace, would prohibit, restrict
or delay consummation of the Exchange Offer.
NO FRACTIONAL SHARES
Warrantholders will not receive any fractional Ace Shares. All fractions of
Ace Shares which warrantholders would otherwise be entitled to receive will be
rounded to the next lowest whole number if the first decimal place is less than
five and rounded up to the next highest whole number if the first decimal is
five or higher.
NO RIGHTS OF DISSENTING STOCKHOLDERS
Warrantholders of the Company will not have the right under Irish law to
seek an appraisal of their Warrants in connection with the Exchange Offer.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER AND DOES NOT
CONSIDER ALL POTENTIAL TAX EFFECTS OF THE EXCHANGE OFFER OR THE TAX CONSEQUENCES
TO A PARTICULAR HOLDER OF WARRANTS IN LIGHT OF SUCH HOLDER'S PERSONAL
CIRCUMSTANCES. THIS DISCUSSION ALSO DOES NOT ADDRESS THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS OF WARRANTS (AND UNDERLYING COMPANY ORDINARY SHARES) NOT
HELD AS CAPITAL ASSETS OR TO HOLDERS SUBJECT TO SPECIAL TREATMENT, SUCH AS
NON-U.S. PERSONS, DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, HOLDERS OWNING AT LEAST 10% OF THE VOTING POWER OF THE COMPANY
AND HOLDERS OF WARRANTS WHO ACQUIRED THEIR INTERESTS PURSUANT TO THE EXERCISE OF
OPTIONS OR SIMILAR DERIVATIVE SECURITIES OR OTHERWISE AS COMPENSATION, NOR
PROVIDE AN ANALYSIS OF ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCALITY, OR FOREIGN JURISDICTION. THIS DISCUSSION IS BASED ON CURRENT
PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"),
CURRENT AND PROPOSED TREASURY REGULATIONS PROMULGATED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL DECISIONS AS OF THE DATE HEREOF, ALL OF WHICH ARE
SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. ACCORDINGLY, HOLDERS OF
WARRANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
EXCHANGE OFFER TO THEM.
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of Warrants that is (i) a citizen or resident
(as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a
corporation organized under the laws of the United States or any political
subdivision thereof or therein, or (iii) an estate or trust, the income of which
is subject to U.S. federal income tax regardless of the source (a "U.S.
Holder").
Although not free from doubt, an exchange of Warrants for Ace Shares
pursuant to the Exchange Offer likely will constitute a taxable sale or exchange
for U.S. federal income tax purposes. Accordingly, subject to the discussion
below under the caption -- "Passive Foreign Investment Company Considerations",
a U.S. Holder will generally recognize capital gain or loss in an amount equal
to the difference between the fair market value of the Ace Shares received in
the exchange and such U.S. Holder's basis in the Warrants. Such gain or loss
will be long-term capital gain or loss if the U.S. Holder has a holding period
of more than one year at the time of the exchange. Gain realized by a U.S.
Holder on the exchange generally will be treated as United States source income
for foreign tax credit purposes. Under current law, the source of any loss on
the exchange of Warrants is uncertain. Under proposed regulations (which may be
retroactive), however, a loss on
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<PAGE> 107
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
the exchange of Warrants generally would be foreign source passive income or, in
the case of a financial services entity, foreign source financial services
income.
Any Warrant which is not exchanged for Ace Shares in the Exchange Offer
will be assumed by Ace and will be exercisable for Ace Shares (an "Ace Warrant")
on the same terms and conditions as the Warrant. The U.S. federal income tax
consequences of such assumption, however, are unclear. If such assumption is
treated as a sale or exchange for U.S. federal income tax purposes, a U.S.
Holder will generally recognize capital gain or loss -- taxable in the manner
described above -- in an amount equal to the difference between the fair market
value of the Ace Warrant and such U.S. Holder's basis in the Warrant exchanged.
If such assumption is not treated as a sale or exchange for U.S. federal income
tax purposes, then (i) no gain or loss will be recognized by a U.S. Holder of
Warrants by reason of such assumption, (ii) the tax basis of the Ace Warrant
will be the same as the tax basis of the Warrant exchanged and (iii) the holding
period of the Ace Warrant will include the period during which the Warrant was
held. If the Company were a Passive Foreign Investment Company (see discussion
below under the caption "Passive Foreign Investment Company Considerations"),
Warrant holders whose Warrants are assumed by Ace may be required to file Form
8621 with their U.S. federal income tax returns, that, among other things,
describes the assumption of Warrants and indicates why no gain would be required
to be recognized.
CONSIDERATIONS RELEVANT TO ACE WARRANTS
For U.S. federal income tax purposes, no gain or loss will be recognized
upon the exercise of an Ace Warrant and the tax basis of the Ace Shares received
upon exercise of an Ace Warrant will equal the sum of the U.S. Holder's basis in
the Ace Warrant exercised and the exercise price of the Ace Warrant. The holding
period of such Ace Shares for purposes of determining whether gain or loss from
a subsequent sale would be short-term or long-term will begin on the day after
the date the Ace Warrant is exercised (or, possibly the date of exercise of the
Ace Warrant) and, accordingly, will not include the period during which the Ace
Warrant was held.
In general, the sale or exchange of an Ace Warrant by a U.S. Holder will
result in the recognition of gain or loss for U.S. federal income tax purposes
in an amount equal to the difference between the amount realized and the
holder's basis in the Ace Warrant. Except possibly in the case of a repurchase
of the Ace Warrant by Ace and subject to the discussion below under the caption
- -- "Special U.S. Tax Considerations", and -- "Passive Foreign Investment Company
Considerations", if the Ace Warrant is a capital asset and the Ace Shares would
be capital assets in the hands of the U.S. Holder of the Ace Warrant, any gain
or loss realized on such sale or exchange will be capital gain or loss, and will
be long-term capital gain or loss if the Ace Warrant was held for more than one
year. Gain or loss recognized by a U.S. Holder of an Ace Warrant upon the
repurchase of an Ace Warrant by Ace would be capital gain or loss only if (i)
the Ace Warrant is a capital asset and the Ace Shares would be capital assets in
the hands of the U.S. Holder, and (ii) the repurchase is considered to be a
"sale or exchange" of the Ace Warrant for U.S. federal income tax purposes. The
Internal Revenue Service (the "IRS") may assert that such a repurchase does not
constitute a sale or exchange so that any gain or loss recognized on such
repurchase would be ordinary income or loss. Gain realized by a U.S. Holder on a
sale, exchange or other disposition of an Ace Warrant generally will be treated
as United States source income for U.S. foreign tax credit purposes. Under
current law, the source of any loss on the sale, exchange or other disposition
of Ace Warrants is uncertain. Under proposed regulations (which may be
retroactive, however, a loss on the sale of an Ace Warrant generally would be
foreign source passive income or, in the case of a financial services entity,
foreign source financial services income.
Loss on the expiration of an Ace Warrant that if sold by a U.S. Holder
would have resulted in capital gain or loss, will be a capital loss to the
holder equal to his or her basis in the Ace Warrant and will be long-term
capital loss if the Ace Warrant was held for more than one year at the time of
its lapse.
Adjustments in the exercise price of the Ace Warrants made pursuant to the
antidilution provisions of the Ace Warrants may result in constructive
distributions which could be taxable to the U.S. Holders of the Ace Warrants
under Section 305 of the Code.
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<PAGE> 108
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
A foreign corporation, such as the Company or Ace, would be a passive
foreign investment company (a "PFIC") for U.S. federal income tax purposes, if
75% or more of its gross income (including the pro rata share of the gross
income of any company (U.S. or foreign) in which the Company or Ace is
considered to own 25% or more of the shares by value) in a taxable year is
passive income. Alternatively, the Company or Ace would be considered to be a
PFIC if at least 50% of the assets (averaged over the year and generally
determined based upon fair market value) of the Company or Ace (including the
pro rata share of the assets of any company of which the Company or Ace is
considered to own 25% or more of the shares by value) in a taxable year are held
for the production of, or produce, passive income.
If the Company has been or is a PFIC, each U.S. Holder of Warrants who is a
U.S. person and who was a holder of Warrants at any time during which the
Company was a PFIC may, in the absence of an election by such U.S. Holder to
treat the Company as a "qualified electing fund" ("QEF"), as discussed below,
upon a taxable exchange of the Warrants that results in a gain, be liable to pay
tax at the then prevailing U.S. federal income tax rates on ordinary income, as
if the gain had been recognized ratably over the holder's holding period for the
Warrants, plus interest on the tax on such gain allocated to each year in such
holder's holding period (other than the current year) that the Company was
classified as PFIC. The tax consequences discussed in this paragraph also may be
applicable to a U.S. Holder of Ace Warrants who received them in exchange for
Warrants that were not taxable for U.S. federal income tax purposes; however,
they would not be applicable to an exchange of Warrants that results in a loss.
If Ace has been or is a PFIC, each U.S. Holder of Ace Warrants or Ace
Shares who is a U.S. person and who was a holder of Ace Warrants at any time
during which Ace was a PFIC may, in the absence of an election by such U.S.
Holder to treat Ace as a QEF upon a taxable sale, disposition or exchange of the
Ace Warrants or Ace Shares that results in a gain, be liable to pay tax at the
then prevailing U.S. federal income tax rates on ordinary income, as if the gain
had been recognized ratably over the holder's holding period for the Ace
Warrants and/or Ace Shares, plus interest on the tax on such gain allocated to
each year in such holder's holding period (other than the current year) that Ace
was classified as a PFIC. The tax consequences discussed in this paragraph would
not be applicable to a disposition or exchange of Ace Warrants or Ace Shares
that results in a loss.
The Company believes that it may have been a PFIC in the past, that it may
currently be a PFIC and/or that it may continue to be or become a PFIC in the
future. The Company can give no assurance that it will have timely knowledge of
its status as PFIC.
Ace believes that it may currently be a PFIC or that it may become a PFIC
in the future. Ace can give no assurance that it will have timely knowledge of
its status as a PFIC.
If a U.S. Holder has made a QEF election for all taxable years that such
holder has held the Warrants or the Ace Warrants and/or the Ace Shares and the
Company or Ace was a PFIC, recognized gain will not be deemed to have been
recognized ratably over the taxpayer's holding period or subject to an interest
charge and instead will be characterized as capital gain. A holder of a QEF is
required for each taxable year to include in income for U.S. federal income tax
purposes its pro rata shares of the ordinary earnings of the QEF as ordinary
income and of the net capital gain of the QEF as long-term capital gain,
regardless of whether the QEF has distributed such earnings or gain.
Ace does not assume any obligation to make timely disclosure with respect
to its PFIC status. Moreover, Ace does not undertake to provide U.S. Holders
with the necessary information to make a QEF election. Consequently, as a
practical matter, U.S. Holders should assume that they will not be able to make
a QEF election.
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<PAGE> 109
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
TAXATION OF ACE SHARES
Dividends
A U.S. Holder generally will be required to include in gross income as
ordinary dividend income the amount of any distributions paid on the Ace Shares
(including the amount of any Bermuda taxes withheld therefrom) to the extent
that such distributions are paid out of the Ace's current or accumulated
earnings and profits as determined for U.S. federal income tax purposes.
Distributions in excess of such earnings and profits will be applied against and
will reduce the U.S. Holder's tax basis in the Ace Shares and, to the extent in
excess of such tax basis, will be treated as gain from a sale or exchange of Ace
Shares. Dividends generally will not qualify for the dividends-received
deduction available to corporations. The amount of any cash distribution paid in
Bermuda Dollars will equal the U.S. dollar value of the distribution, calculated
by reference to the exchange rate in effect on the date on which payment is
includible in gross income. U.S. Holders should consult their own tax advisors
regarding the treatment of foreign currency gain or loss, if any, on any Bermuda
Dollars received which are converted into U.S. dollars on a date subsequent to
receipt.
Generally, U.S. Holders will have the option of claiming the amount of any
Bermuda income taxes withheld at source either as a deduction from gross income
or as a dollar-for-dollar credit against their U.S. federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of the Bermuda
income taxes withheld, but such amount may be claimed as a credit against the
individual's U.S. federal income tax liability. The amount of foreign income
taxes which may be claimed as a credit in any year is subject to certain complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. The limitations set out in the Code include, among others,
rules which limit foreign tax credits allowable with respect to specific classes
of income to the U.S. federal income taxes otherwise payable with respect to
each such class of income. Dividends paid by the Ace generally will be foreign
source "passive income" for United States foreign tax credit purposes or, in the
case of a financial services entity, "financial services income." Foreign income
taxes exceeding a shareholder's credit limitation for the year of payment or
accrual of such tax can be carried back for two taxable years and forward for
five taxable years, subject to the credit limitation applicable in each of such
years. U.S. Holders claiming a deduction for foreign income taxes in a
particular tax year must deduct, and cannot claim a credit for, any foreign
taxes for that year. Additionally, the foreign tax credit in any taxable year
may not offset more than 90% of a shareholder's liability for United States
individual or corporate alternative minimum tax.
Disposition of Ace Shares
Except to the extent discussed under -- "Passive Foreign Investment Company
Considerations" above and -- "Special U.S. Tax Considerations," below upon the
sale, exchange or other disposition of Ace Shares, a U.S. Holder generally will
recognize capital gain or loss for an amount equal to the differences between
such U.S. Holder's basis in the Ace Shares and the amount realized on the
disposition. The gain or loss realized on the sale, exchange or disposition of
Ace Shares will be long-term capital gain or loss if the U.S. Holder has a
holding period of more than one year at the time of disposition. Gain realized
by a U.S. Holder on a sale, exchange or other disposition of Ace Shares
generally will be treated as United States source income for United States
foreign tax credit purposes. Under current law, the source of any loss on the
sale, exchange or other disposition of Ace Shares is uncertain. Under proposed
regulations (which may be retroactive) a loss on the sale, exchange or other
disposition of Ace Shares would be foreign source passive income or, in the case
of a financial services entity, foreign source financial services income. U.S.
Holders should consult their own tax advisors regarding other treatment of any
foreign currency gain or loss on any Bermuda Dollars received in respect of the
sale, exchange or other disposition of Ace Shares.
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<PAGE> 110
[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
Special U.S. Tax Considerations
U.S. Holders of Ace Shares may be subject to one or more of the special
anti-deferral regimes pertaining to foreign corporations. Various provisions
contained in the Code impose special taxes in certain circumstances -- including
sales of stock -- on non-United States corporations and their shareholders. In
addition, U.S. Holders who own an interest in a foreign corporation may be
required to file Form 5471 with the IRS.
NON-U.S. HOLDERS OF ACE WARRANTS AND ACE SHARES
Except as described in -- "Information Reporting and Backup Withholding"
below, a Non-U.S. Holder of Ace Warrants or Ace Shares will not be subject to
U.S. federal income or withholding tax on the payment of dividends on, and the
proceeds from the disposition of, Ace Shares or Ace Warrants, unless (i) such
item is effectively connected with the conduct by the Non-U.S. Holder of a trade
or business in the United States and, in the case of a resident of a country
which has a treaty with the United States, such item is attributable to a
permanent establishment (or, in the case of an individual, a fixed place of
business) in the United States or (ii) in the case of gain realized by an
individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States
for 183 days or more in the taxable year of the sale and certain other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders are generally subject to information reporting requirements
with respect to dividends paid on Ace Shares. Under existing regulations, such
dividends are not subject to back-up withholding (currently imposed at a rate of
31%). However, under proposed regulations such dividends paid in the United
States would be subject to back-up withholding. Non-U.S. Holders will not be
subject to information reporting or back-up withholding with respect to
dividends on Ace Shares unless payment is made through a paying agent (or
office) in the United States. Non-U.S. Holders generally will be subject to
information reporting (and, under proposed regulations, could be subject to
back-up withholding at a rate of 31%) with respect to the payment within the
United States of dividends on Ace Shares, unless the holder provides a taxpayer
identification number, certifies to its foreign status, or otherwise establishes
an exemption.
U.S. Holders generally will be subject to information reporting and back-up
withholding on proceeds paid on the disposition of Ace Warrants or Ace Shares,
unless the U.S. Holder provides a W-9, a taxpayer identification number, or
otherwise establishes an exemption. Non-U.S. Holders generally will be subject
to information reporting and back-up withholding on the payment to or through
the United States office of a broker, whether domestic or foreign, of proceeds
from the disposition of Ace Warrants or Ace Shares, unless the holder provides a
taxpayer identification number, certifies to its foreign status or otherwise
establishes an exemption. Non-U.S. Holders will not be subject to information
reporting or back-up withholding with respect to the payment by a foreign office
of a broker of proceeds from the disposition of Ace Warrants or Ace Shares;
provided, however, that, if the broker is a U.S. person or "U.S. related
person," information reporting (but not back-up withholding) will apply, unless
the broker has documentary evidence in its records of the Non-U.S. Holder's
foreign status or the Non-U.S. Holder certifies to its foreign status under
penalties of perjury or otherwise establishes an exemption. For this purpose, a
"U.S. related person" is a broker or other intermediary that is a controlled
foreign corporation for United States federal income tax purposes or that is a
person 50% or more of the gross income from all sources of which, over a
specified three year period, is effectively connected with the conduct of a
United States trade or business. The amount of any back-up withholding will be
allowed as a credit against such holder's U.S. federal income tax liability and
may entitle such holder to a refund, provided the required information is
furnished to the IRS.
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[ALTERNATIVE PAGE FOR EXCHANGE PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND IF GIVEN OR MADE MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ACE. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING TO SELL OR A SOLICITATION OF ANY OFFER TO BUY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE CIRCUMSTANCES OF ACE OR THE FACTS HEREIN SET FORTH SINCE
THE DATE HEREOF.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ATLANTIC CENTRAL ENTERPRISES
LIMITED
33,023
SHARES OF
COMMON STOCK
PROSPECTUS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 112
PHARMA PATCH PUBLIC LIMITED COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PHARMA PATCH PUBLIC LIMITED COMPANY
Independent Auditors' Report -- KPMG Peat Marwick LLP.......................... F-1
Independent Auditors' Report -- Ernst & Young.................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheet -- February 29, 1996 and February 28, 1995....... F-3
Consolidated Statements of Earnings and Loss and Deficit -- Years ended
February 29, 1996 and February 28, 1995 and 1994........................... F-4
Consolidated Statements of Cash Flows -- Years ended February 29, 1996 and
February 28, 1995 and 1994................................................. F-5
Notes to Consolidated Financial Statements.................................. F-6-17
Unaudited Consolidated Balance Sheet -- May 31, 1996........................ F-18
Unaudited Consolidated Statement of Operations -- Period ended
May 31, 1996 and 1995..................................................... F-19
Unaudited Consolidated Statements of Cash Flows -- Period ended
May 31, 1996 and 1995..................................................... F-20
Unaudited Statement of Changes in Shareholders' Equity...................... F-21
Unaudited Notes to Consolidated Financial Statements........................ F-22-24
VISTA TECHNOLOGIES, INC.
Independent Auditors' Report -- KPMG Peat Marwick LLP.......................... F-25
Independent Auditors' Report -- A.J. Robbins, P.C.............................. F-26
Consolidated Financial Statements:
Consolidated Balance Sheet -- March 31, 1996................................ F-27
Consolidated Statements of Operations -- For the years ended March 31, 1996
and 1995................................................................... F-28
Consolidated Statements of Stockholders' Equity -- For the years ended March
31, 1996 and 1995.......................................................... F-29
Consolidated Statements of Cash Flows -- For the years ended March 31, 1996
and 1995................................................................... F-30
Notes to Consolidated Financial Statements -- March 31, 1996 and 1995....... F-31-48
Unaudited Consolidated Balance Sheet........................................ F-49
Unaudited Statements of Operations.......................................... F-50
Unaudited Consolidated Statements of Cash Flows............................. F-51
Unaudited Consolidated Statement of Changes in Stockholders' Equity......... F-52
Notes to Unaudited Consolidated Financial Statements........................ F-53-58
ATLANTIC CENTRAL ENTERPRISES LIMITED
Independent Auditors' Report -- KPMG Peat Marwick LLP.......................... F-59
Balance Sheet -- August 7, 1996................................................ F-60
Notes to Balance Sheet......................................................... F-61
</TABLE>
All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the respective financial
statements or notes thereto.
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Pharma Patch Public Limited Company:
We have audited the accompanying consolidated balance sheet of Pharma Patch
Public Limited Company and subsidiaries as of February 29, 1996 and the related
consolidated statements of earnings and loss and deficit and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pharma Patch Public
Limited Company and subsidiaries as of February 29, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 9, 1996
F-1
<PAGE> 114
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Pharma Patch Plc
We have audited the accompanying consolidated balance sheet of Pharma Patch Plc
as of February 28, 1995 and the related statements of earnings and loss and
deficit and cash flows for the years ended February 28, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pharma Patch Plc as
of February 28, 1995, and the results of its operations and the changes in its
financial position for the years ended February 28, 1995 and 1994, in conformity
with accounting principles generally accepted in the United States.
Dublin, Ireland
May 25, 1995
(except for note 1(e) which
is as of May 9, 1996)
ERNST & YOUNG
Chartered Accountants
F-2
<PAGE> 115
PHARMA PATCH PUBLIC LIMITED COMPANY
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(EXPRESSED IN U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 668,822 638,745
Accounts receivable............................................. 22,690 41,600
Due from Vista (note 13)........................................ 251,500 --
Prepaid expenses and deposits................................... -- 47,298
Investment in TCPI -- available for sale, at market price....... 16,805,320 --
----------- -----------
Total current assets.................................... 17,748,332 727,643
Fixed assets (note 3)............................................. -- 900,378
----------- -----------
Total assets............................................ $17,748,332 1,628,021
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................................ 683,269 688,544
Accrued expenses................................................ 773,553 647,699
Deferred tax liability.......................................... 1,710,212 --
----------- -----------
Total current liabilities............................... 3,167,034 1,336,243
----------- -----------
Notes payable (note 4)............................................ -- 5,000,000
Shareholders' equity (deficiency):
Capital stock, authorized 52,046,576 ordinary shares; issued and
outstanding 11,410,633 and 5,740,253 ordinary shares in 1996
and 1995, respectively, at par value (note 7)................ 2,256,756 2,183,643
Premium in excess of par value.................................. 15,404,580 11,448,439
Deficit......................................................... (6,249,628) (18,340,304)
Cumulative translation adjustment............................... (6,518)
Unrealized appreciation on equity securities available for sale
(net of deferred taxes of $1,710,212)........................ 3,176,108 --
----------- -----------
Total shareholders' equity (deficiency)................. 14,581,298 (4,708,222)
----------- -----------
Commitments (note 10)............................................. $17,748,332 1,628,021
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 116
PHARMA PATCH PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
AND LOSS AND DEFICIT
YEARS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
RESTATED RESTATED
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Revenues............................................ $ -- -- --
------------ ----------- ----------
Expenses:
Administration.................................... 1,798,524 1,141,301 1,348,112
Foreign exchange loss (gain)...................... 2,285 (52,253) --
Write-off of Cangene acquisition costs (note 8)... -- 514,791 --
Loss on disposal of Cangene investment (note 8)... -- 478,052 --
------------ ----------- ----------
Loss from operations...................... 1,800,809 2,081,891 1,348,112
Other income........................................ (76,019) (42,800) (40,440)
Other expenses...................................... 3,893 -- --
------------ ----------- ----------
Loss from continuing operations........... 1,728,683 2,039,091 1,307,672
------------ ----------- ----------
Discontinued operations (note 3):
Loss from operations.............................. (2,593,468) (11,698,353) (1,919,752)
Gain on sale...................................... 16,412,827 --
------------ ----------- ----------
Gain (loss) on discontinued operations.... 13,819,359 (11,698,353) (1,919,752)
------------ ----------- ----------
Net earnings (loss)....................... 12,090,676 (13,737,444) (3,227,424)
Deficit, beginning of year.......................... (18,340,304) (4,602,860) (1,375,436)
------------ ----------- ----------
Deficit, end of year................................ (6,249,628) (18,340,304) (4,602,860)
=========== ========== =========
Per share of common stock:
Loss from continuing operations................... $ -- (.38) (.38)
Discontinued operations........................... .70 (2.18) (.55)
------------ ----------- ----------
Net earnings (loss)....................... .70 (2.56) (.93)
=========== ========== =========
Weighted average number of ordinary shares
outstanding....................................... 19,677,650 5,368,298 3,453,874
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 117
PHARMA PATCH PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year...................... $ 12,090,676 (13,737,444) (3,227,424)
Add noncash items:
Depreciation and amortization...................... 253,958 813,740 365,936
Stock compensation................................. -- -- 867,381
Write-down of fixed assets......................... 9,900 892,271 --
Write-off of Cangene acquisition costs (note 8).... -- 514,791 --
Loss on disposal of Cangene investment (note 8).... -- 478,052 --
Write-off of capitalized technology................ -- 4,460,852 --
Write-off of cumulative translation adjustment..... -- 408,162 --
Gain on sale of business (note 1(e))............... (16,412,827) -- --
Noncash payment of expenses........................ 1,842,478 -- --
Net change in noncash working capital items (note
11)................................................ 361,272 1,528,131 473,129
------------ ----------- ----------
Net cash used in operating activities.............. (1,854,543) (4,641,445) (1,520,978)
------------ ----------- ----------
Cash flows from investing activities:
Purchase of fixed assets.............................. (50,658) (467,369) (665,450)
Advances to Vista (note 13)........................... (251,500) -- --
Purchase of technology................................ -- -- 447,775
Proceeds of sale of technology........................ -- 1,250,000 --
Proceeds on sale of Cangene shares (note 8)........... -- 657,422 --
------------ ----------- ----------
Net cash (used in) provided by investing
activities.................................. (302,158) 1,440,053 (1,113,225)
------------ ----------- ----------
Cash flows from financing activities -- issue of shares,
net income (note 7)................................... 2,186,778 2,590,947 3,651,676
------------ ----------- ----------
Effect of exchange rate changes on cash and cash
equivalents........................................... -- (3,275) (75,305)
------------ ----------- ----------
Net increase (decreased) in cash and cash
equivalents for the year.................... 30,077 (613,720) 942,168
Cash and cash equivalents, beginning of year............ 638,745 1,252,465 310,297
------------ ----------- ----------
Cash and cash equivalents, end of year.................. $ 668,822 638,745 1,252,465
============ =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 118
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
(1) THE COMPANY AND BASIS OF PRESENTATION
Pharma Patch Public Limited Company (Pharma Patch or the Company) was
incorporated under the laws of the Republic of Ireland in January 1992. Prior to
July 1993, Pharma Patch had no significant assets or operations.
(a) In July 1993, Pharma Patch acquired an exclusive, perpetual,
royalty-free license on all skin penetration enhancement technology held by
Therapeutic Patch Research N.V. (TPR), a Netherlands Antilles company. Pharma
Patch paid cash of $300,000 and issued 600,000 Units (a Unit comprised one
Ordinary Share, one-half Class A Warrant and one quarter Class B Warrant),
2,400,000 Class C Warrants and 500,000 Class D Warrants as consideration for the
license. Concurrently, Pharma Patch issued 1,250,000 Units for cash proceeds of
$4,387,500 to certain investors.
(b) On July 30, 1993, Pharma Patch entered into a share exchange with the
shareholders of Medipro Sciences Limited (Medipro), whereby 2,309,432 Ordinary
Shares of Pharma Patch were exchanged for all of the issued and outstanding
common and Class A shares of Medipro. The exchange of shares were accounted for
as a reverse acquisition of Pharma Patch by Medipro as the former shareholders
of Medipro held a majority of the voting shares of Pharma Patch following the
exchange. All the assets of Pharma Patch at the time of the exchange, consisting
primarily of the technology acquired from TPR and the cash from the issue of the
1,250,000 Units described in note 1(a), were recorded at their estimated fair
market value. There was no excess of the purchase price over the carrying value
of the assets.
(c) On June 30, 1994, the Company acquired substantially all of the assets
and assumed certain specified liabilities arising after June 30, 1994 of
Pharmetrix Corporation (Pharmetrix). The assets related to patents and the
research and development of (i) passive transdermal systems, (ii) a periodontal
delivery system and (iii) a buccal system, each for the systemic delivery to
humans of therapeutic drugs and compounds. In exchange for the Pharmetrix
assets, the Company issued a convertible promissory note in the amount of
$5,000,000 (note 6). These assets are held by PP Holdings Inc., a wholly-owned
subsidiary of Pharma Patch incorporated in the State of California. PP Holdings
Inc.'s results of operations are included in the Company's consolidated results
from July 1, 1994.
This acquisition was accounted for under the purchase method of accounting
whereby the purchase price for the Pharmetrix assets was allocated to fixed
assets at fair market value assumed by the Company. The difference between the
purchase price and fair market value of fixed assets was assigned to acquired
pharmaceutical technology in the amount of $4,025,000. A portion of this
technology was resold to a third party for $1,250,000 and the remaining balance
of approximately $2,775,000 (acquired research and development with no
alternative non-pharmaceutical uses) was charged to the Company's consolidated
statement of earnings and loss and deficit in fiscal 1995.
F-6
<PAGE> 119
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
A summary of the unaudited pro forma consolidated statements of earnings
and loss and deficit are set out below to give the pro forma effect to the
Pharmetrix acquisition as if Pharmetrix had been included in the consolidated
statements of earnings and loss and deficit throughout the year ended February
28, 1995 (before the effect of discontinued operations).
<TABLE>
<CAPTION>
PRO FORMA
1995
------------
(UNAUDITED)
<S> <C>
Revenues....................................................... $ --
Expenses....................................................... 14,642,977
------------
Net loss for the year................................ (14,642,977)
Deficit, beginning of year..................................... (8,473,352)
------------
Deficit, end of year........................................... $(23,116,329)
============
Loss per ordinary share........................................ $ (2.73)
============
Weighted average number of Ordinary Shares outstanding......... 5,368,298
============
</TABLE>
(d) The acquisition of the Pharmetrix assets and leased facilities
initially increased the Company's annual cash requirements. The acquisition
created a duplication of research staff, facilities and equipment. Pharma Patch
restructured its operations resulting in the centralization of all research and
development activities at the Pharmetrix facility in Menlo Park, California, a
reduction of 22 staff positions and termination of lease commitments entered
into by the Company for prototype patch manufacturing equipment. In January
1995, the Company ceased operations of its Canadian subsidiary, Medipro. A
charge of $1,492,070 was incurred in fiscal 1995 in connection with this
restructuring, primarily consisting of a write-off of production equipment,
capital lease equipment, employee termination and lease costs. Employee
termination costs of approximately $105,000 were paid and expensed during fiscal
1995. Of the total $1,492,070 expense, approximately $83,000 was accrued at the
end of fiscal 1995 in connection with lease costs. All accrued amounts were paid
out during fiscal 1996.
In fiscal 1995, the Company had acquired a 50% interest in the issued and
outstanding shares of Drug Delivery Research Inc. (DDRI) for a nominal amount
with the intention of using DDRI to perform the research and development work
previously being done by Medipro.
As a result of the Pharmetrix acquisition and the relocation of research
and development activities, DDRI has remained inactive.
(e) On November 15, 1995, the Company sold substantially all of the
operating assets to Technical Chemicals and Products, Inc. (TCPI) for a gain of
approximately $16.4 million. These assets included 11 U.S. patents relating to
transdermal drug delivery and skin permeation technology, license rights to skin
penetration enhancers and electronically assisted drug delivery, proprietary
information and trade secrets related thereto, certain licensing and product
feasibility agreements entered into by the Company and all of PP Holdings,
Inc.'s fixed assets. TCPI also assumed the sublease of the research facility
occupied by PP Holdings, Inc.
In consideration for the purchased assets, TCPI issued an aggregate of
786,214 shares of its common stock with a fair value of $11,919,000 and
satisfied the $5,000,000 promissory note previously issued by the Company to
Flora, Inc. (Flora) (see note 6). As a result of this transaction, the Company
owned 9.9% of TCPI's outstanding common shares. In addition, as of November 15,
1995, the Company had ceased to perform research and development work and other
operations in the areas of skin penetration enhancers and drug delivery systems.
F-7
<PAGE> 120
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
On January 16, 1996, the Company entered into a supplemental agreement with
TCPI which amended certain provisions of the November 1995 asset purchase
agreement. TCPI has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares (Offering). Pursuant to the terms of the supplemental agreement,
the Company executed a lock-up letter with the representative of the TCPI
Underwriters providing that it would not sell or otherwise dispose of any of its
shares of common stock for a period to expire 180 days following the closing
date of the Offering without their prior consent. As consideration for the
execution of the lock-up agreement, TCPI (i) terminated an existing lock-up
agreement covering TCPI common stock owned by the Company, executed in
connection with the asset purchase agreement; (ii) effective as of the closing
date of the Offering, terminated the voting trust agreements, shareholders'
agreement and irrevocable proxy, executed in connection with the asset purchase
agreement which, among other things, limited the Company's ability to vote or
dispose of its shares of common stock; (iii) allowed the Company to offer for
sale 100,000 shares of this common stock in the Offering (plus up to an
additional 110,000 if the Underwriters over-allotment option is exercised); (iv)
effective as of the closing date of the Offering, issued to the Company a
two-year warrant to purchase 100,000 shares of common stock at an exercise price
equal to the per share Offering price; and (v) filed a Registration Statement on
Form S-3 to register all of the remaining shares of common stock owned by the
Company after the Offering.
(f) In March 1996, the Company completed the acquisition of approximately
61% of the voting interest of Vista Technologies Inc. (Vista). Vista provides
photo refractive keratectomy (PRK) and other laser vision connection (LVC)
facilities and services to the health care industry (see note 13).
As a result of the TCPI transaction, the Company had an accumulated deficit
of $6,249,628 as of February 29, 1996, had total assets of $17,748,332 and total
shareholders' equity of $14,581,298. The Company, including Vista, has not yet
achieved profitable operations and there is no assurance that profitable
operations, if achieved, could be sustained on a continuing basis. Further, the
Company's future operations are dependent on the success of the
commercialization efforts and market acceptability of the Vista business plan
and other potential business ventures of the Company, together with the value
derived from the TCPI investment securities.
(2) SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Pharma Patch
and its wholly-owned subsidiaries in Canada and in the United States. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Fixed Assets
Fixed assets are recorded at acquisition cost. The Company provides
depreciation and amortization at rates which are expected to charge operations
with the cost of the assets over their estimated useful lives using a rate of
20% declining balance. Estimated useful lives are as follows (see note 3
regarding the TCPI purchase of substantially all of the Company's operating
assets):
<TABLE>
<S> <C>
Equipment................................... 5 years
Furniture and office equipment.............. 5 years
Leasehold improvements...................... over the term of the lease
======================
</TABLE>
F-8
<PAGE> 121
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
Research and Development Expenditures
Research and development expenditures are charged to expense as incurred.
Any investment tax credits (ITCs) earned as a result of incurring scientific
research and experimental development expenditures in Canada (SRED) are recorded
as a reduction of the related current period expense. No ITCs were recognized in
1996 or 1995 ($141,433 were recognized in 1994).
Investment Securities
Investment securities at February 29, 1996 consist of equity securities.
The Company's equity securities are classified as available-for-sale securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's equity securities are recorded at fair value based on quoted market
prices.
The carrying amount of other financial instruments approximates fair value
generally due to the short-term maturity of these instruments.
Technological Assets
Licenses purchased from third parties for non-pharmaceutical uses are
recorded at acquisition cost and are amortized over their expected useful lives
of five years. Non-pharmaceutical licenses are charged to expense when future
recovery becomes uncertain. Pharmaceutical patents acquired by the Company are
charged to expense in the related current period. Costs associated with the
investigation and processing of patents for technologies developed by the
Company are considered development costs and, accordingly, are charged to
expense as incurred.
During 1995, the Company wrote off its capitalized non-pharmaceutical
technology to reflect the uncertainty of cost recovery through future revenue.
The resources required to further develop this technology were otherwise
utilized in the Pharmetrix acquisition. Accordingly, the remaining net book
value of $1,685,516 was charged to the consolidated statement of earnings and
loss and deficit in fiscal 1995.
Stock Compensation
Stock options issued by the Company which are exercisable at a value below
the market price of the common stock at the date the option is granted or date
options vest, if applicable, gives rise to compensation expense for the excess
of such market value over the option price. In addition, shares may be issued at
nominal value to certain directors and officers as remuneration, of which
certain shares are subject to achieving certain performance criteria. From the
time the options are granted and until the performance criteria are satisfied,
compensation expense results from the difference between the underlying share
price at such time and the exercise price.
Foreign Currency Translation
The acquisition of the Pharmetrix assets and termination of operations of
Medipro resulted in a change in functional currency during fiscal 1995 from
Canadian dollars to U.S. dollars.
Prior to fiscal 1995, the Company's functional currency was Canadian
dollars. As the Company's operating activities are now principally in the United
States, the Company also changed its reporting currency to U.S. dollars in
fiscal 1995. The fiscal 1994 financial results have been restated to reflect
this change.
Assets and liabilities stated in functional currencies other than the U.S.
dollar are translated at the year-end exchange rate and revenues and expenses at
the average rate of exchange for the year. Foreign exchange gains and losses
from transactions in currencies other than the applicable functional currency
are reflected in
F-9
<PAGE> 122
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
income during the year. Gains or losses arising on the translation of financial
statements give rise to a cumulative translation adjustment which is included as
a component of shareholders' deficiency. In fiscal 1995, the Company ceased
carrying on business in Canada and accordingly charged the cumulative
translation adjustment to expense. The following is a continuity schedule of the
cumulative translation adjustment included in shareholders' deficit for fiscal
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Balance, beginning of year.................... $ 346,326 $ 86,941
Translation adjustments arising during the
year........................................ 61,836 259,385
Write-off..................................... (408,162) --
--------- --------
Balance, end of year.......................... $ -- $346,326
========= ========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
(3) DISCONTINUED OPERATIONS
The November 1995 sale of substantially all of the Company's operating
assets (see note 1(e)) has been accounted for as discontinued operations.
Accordingly, the 1996 consolidated financial statements exclude amounts for
discontinued operations from captions applicable to continuing operations. The
1995 and 1994 consolidated statements of earnings and loss and deficit have been
restated to conform with the 1996 presentation.
The discontinued business had revenues of $469,055 in 1996, none in 1995
and $129,421 in 1994. There were no tax benefits associated with the losses from
operations of the discontinued business in 1996, 1995 and 1994 and the gain from
the disposition had no tax expense associated with it as a result of the tax
basis of the assets involved. Interest expense on the $5 million note payable to
Flora, which was satisfied by TCPI, totaling $337,667, $333,333 and none in
1996, 1995 and 1994 respectively, is included in discontinued operations.
The 1995 loss from operations of the discontinued business includes the
following unusual items:
- Acquired technology write-off of $2,775,336 (see note 1(c)).
- Write-off of capitalized technology of $1,685,516 (see note 2).
- Medipro restructuring costs of $1,492,070 (see note 1(d)).
- Write-off of cumulative translation adjustment attributable to
Medipro of $408,162 (see note 2).
(4) INVESTMENT SECURITIES
Investment securities at February 29, 1996, consisted of equity shares
acquired by the Company in the TCPI asset purchase agreement (see note 1(e)). On
November 15, 1995, the Company acquired 786,214 common shares of TCPI with a
fair value of $11,919,000 or $15.16 per share. As of February 29, 1996, the TCPI
stock was trading at $21.375 per share; therefore, the Company recorded an
unrealized gain, net of deferred income taxes of $1,710,212, on the TCPI shares
of $3,176,000 in a separate component of shareholders' equity. In April 1996,
the Company sold 210,000 TCPI shares for net proceeds of $2,928,697 and recorded
a loss of $254,100. As of May 9, 1996, the TCPI stock had a market value of
$14.25 which eliminates the unrealized gain on the remaining securities recorded
at February 29, 1996.
F-10
<PAGE> 123
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
(5) FIXED ASSETS
Fixed assets consisted of the following at February 28, 1995 (none at
February 29, 1996 as a result of the TCPI transaction (see notes 1(e) and 3)):
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION/ NET BOOK
COST AMORTIZATION VALUE
---------- ------------- --------
<S> <C> <C> <C>
Equipment............................... $ 858,735 195,861 662,874
Furniture and office equipment.......... 66,780 14,759 52,021
Leasehold improvements.................. 232,650 47,167 185,483
---------- ------- -------
$1,158,165 257,787 900,378
========== ======= =======
</TABLE>
(6) NOTE PAYABLE
In 1995, the Company issued a $5,000,000 senior secured convertible
promissory note (note 1(c)). The promissory note bore interest at the rate of
10% per annum, payable semiannually. The principal amount of the note was
originally due and payable in full on June 30, 1996.
As collateral for the promissory note, the Company pledged substantially
all of the assets acquired from Pharmetrix being held in the Company's
subsidiary, PP Holdings Inc. The note was satisfied by TCPI (see notes 1(c),
1(e) and 3).
F-11
<PAGE> 124
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
(7) CAPITAL STOCK
(a) Pharma Patch Capital Stock
The authorized and issued Ordinary Shares of Pharma Patch for the 1996 and
1995 fiscal years were as follows:
AUTHORIZED
The Company has authorized 52,046,576 Ordinary Shares of IR pounds
sterling 0.01 representing an aggregate value of IR pounds sterling 520,466.
<TABLE>
<CAPTION>
PREMIUM IN
NUMBER OF PAR EXCESS OF
SHARES VALUE PAR VALUE TOTAL
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, July 30, 1993 prior to exchange
(note 7(b))............................. $ -- 1,878,789 255,821 2,134,610
Issued for cash prior to July 31, 1993.... 212,500 2,763 -- 2,763
Impact of the acquisition of Medipro
including the exchange of shares (i):
Elimination of Medipro equity........... -- 255,821 (255,821) --
Creation of Pharma Patch equity......... 2,309,432 -- -- --
Issued in exchange for technology license,
July 30, 1993(ii)....................... 600,000 8,290 2,097,711 2,106,001
Issued for cash July 30, 1993(iii)........ 1,250,000 17,269 4,370,231 4,387,500
Share issue expenses...................... -- -- (211,713) (211,713)
Stock compensation(iv).................... -- -- 867,381 867,381
----------- --------- ---------- ----------
Balance, February 28, 1994................ 4,371,932 2,162,932 7,123,610 9,286,542
----------- --------- ---------- ----------
Issued for cash, March 7, 1994(v)......... 600,000 8,828 3,706,172 3,715,000
Share issue expenses(v)................... -- -- (1,633,990) (1,633,990)
Issued in exchange for Cangene
shares(vi).............................. 439,999 6,720 1,764,276 1,770,996
Issued in payment of professional
fees(vii)............................... 328,322 5,163 488,371 493,534
----------- --------- ---------- ----------
Balance, February 28, 1995................ 5,740,253 2,183,643 11,448,439 13,632,082
----------- --------- ---------- ----------
Issued for cash(viii)..................... 3,249,400 37,713 2,399,085 2,436,798
Share issued costs(viii).................. -- -- (250,022) (250,022)
Payment of accrued salaries(ix)........... 804,044 10,848 488,475 499,323
Payment of professional fees(x)........... 690,373 9,912 591,993 601,905
Officers and directors(xi)................ 926,563 14,640 726,610 741,250
----------- --------- ---------- ----------
Subtotal for fiscal 1996.................. 5,670,380 73,113 3,956,141 4,029,254
----------- --------- ---------- ----------
Balance at February 29, 1996.............. $11,410,633 2,256,756 15,404,580 17,661,336
=========== ========= ========== ==========
</TABLE>
- ---------------
(i) Issued in connection with the share exchange with the shareholders of
Medipro described in note 1(b).
(ii) Issued in connection with the Units issued for the royalty-free licensing
agreement described in note 1(a).
(iii) On July 30, 1993, the Company issued 1,250,000 Units for cash of
$4,387,500.
(iv) Accounted for as described in note 2.
(v) On March 7, 1994, the Company completed an initial public offering for
600,000 American Depository Shares, 575,000 Class B Warrants and 575,000
Class C Warrants of the Company. The securities are
F-12
<PAGE> 125
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
traded on the NASDAQ exchange. Gross proceeds from the offering were
$3,715,000, issue costs were $1,633,990 and net proceeds were $2,081,010.
(vi) Issued in connection with the private acquisition of 1,319,996 common
shares of Cangene Corporation (note 8).
(vii) Equivalent estimated value of stock issued to various professionals in
lieu of cash payments totaling $493,534 for services rendered.
(viii) During the year the Company completed private placements to issue
3,249,400 Ordinary Shares for gross proceeds of $2,399,085, issue costs
of $250,022 and net proceeds of $2,149,063.
(ix) In May 1995, the Company declared bonuses totaling $261,250 pursuant to
employment agreements for key executive employees. One-third of each bonus
was paid in cash and the balance of $174,167 was paid in Ordinary Shares
valued at $1.00 (174,167 shares). In the year ended February 29, 1996,
423,627 Ordinary Shares were issued in lieu of cash salaries of $222,031.
In addition, 206,250 shares at an estimated fair value of $103,125 were
awarded in the fourth quarter to senior management in lieu of a consulting
fee.
(x) During the year the Company issued 690,373 shares in lieu of cash payments
of $601,905 to various professionals for services rendered and billed to
the Company.
(xi) In June 1995, the Company's Board of Directors authorized the issuance of
926,563 Ordinary Shares to certain officers and directors or their
affiliates at a share price of $0.80. Each person or entity executed a
promissory note which was secured by a pledge of the shares as payment for
the shares received. Effective November 15, 1995 all outstanding
management and employment agreements were terminated. In connection with
the termination of these agreements, as consideration for contractual
obligations not met by the Company, services rendered and severance pay,
the obligations of the officers and directors or their affiliates under
promissory notes totaling $741,250 were deemed to be paid in full. A
charge for this amount is included in administrative expense in the
accompanying fiscal 1996 statement of earnings and loss and deficit.
As of February 29, 1996, approximately 1.6 million Ordinary Shares related
to a private placement (see (iv) above) and the 206,250 shares awarded to
management in lieu of a consulting fee have not been actually issued. However,
the shares are reflected as outstanding in the accompanying balance sheet and
for purposes of the earnings per share calculation on the date the shares were
awarded/sold. In March 1996, the Company finalized a private placement for
2,150,000 Ordinary Shares for net proceeds of $1,075,000 (which includes the 1.6
million shares noted above).
(b) Medipro Capital Stock
As more fully described in note 1(b), the capital structure was reorganized
upon the exchange of shares with Pharma Patch on July 30, 1993. The basis for
exchange was approximately 0.59 and 0.45 Pharma Patch Ordinary Shares for each
Medipro common shares and Class A share, respectively. The capital stock of
Medipro for the periods ending July 30, 1993 is summarized below.
<TABLE>
<CAPTION>
COMMON SHARES CLASS A SHARES
---------------------- --------------------------------
NUMBER TOTAL
OF STATED NUMBER STATED STATED
SHARES VALUE OF SHARES VALUE VALUE
--------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1993............... 2,565,753 $1,061,119 1,652,466 $817,670 1,878,789
</TABLE>
In addition to capital stock, Medipro has contributed surplus, which for
comparative purposes, has been classified as premium in excess of par value, of
$255,821 at July 30, 1993.
F-13
<PAGE> 126
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
(c) Warrants
The details of outstanding warrants at February 29, 1996 are as follows:
Class A Warrants -- 897,000 outstanding (1995 -- 925,000)
Each Class A Warrant entitles the holder to purchase one Ordinary Share and
one Class B Warrant at an exercise price of $2.66 commencing on May 29, 1994
until February 28, 1999. The warrants are redeemable by the Company at a price
of $0.10 if certain stock price conditions exist.
Class B Warrants -- 1,015,425 outstanding (1995 -- 1,037,500)
Each Class B Warrant entitles the holder to purchase one Ordinary Share at
an exercise price of $3.19 commencing on May 29, 1994 until February 28, 1999.
The warrants are redeemable by the Company at a price of $0.10 if certain stock
price conditions exist.
Class C Warrants -- 2,939,875 outstanding (1995 -- 2,975,000)
Each Class C Warrants are exercisable to purchase one Unit consisting of
one Ordinary Share, one-half of a Class A Warrant and one-quarter of a Class B
Warrant at an exercise price of $5.31 per Unit. The Class C Warrants are not
exercisable until (i) the Company generates revenues in excess of $10,000,000 in
any one fiscal year or the Units, or the sum of their components (ii) trade at a
price equal to 200% of the Initial Public Offering (IPO) price of $6.00. The
Class C Warrants are exchangeable at the option of the warrant holders for Units
of the Company on a formula basis, reflecting the spread between the exercise
price of the warrants and the fair market value price of the Units (or the sum
of their component parts) at the time when the exchange is requested by the
warrant holders. These warrants expire on February 28, 1999.
Class D Warrants -- 500,000 outstanding
The Class D Warrants are exercisable, commencing on May 29, 1994, to
purchase one Unit consisting of one Ordinary Share, one-half of a Class A
Warrant and one-quarter of a Class B Warrant. The exercise price per Class D
Warrant is $2.12 and the warrants expire on July 30, 1997.
The Class D Warrants are exchangeable at the option of the warrant holders
for Units of the Company on a formula basis, reflecting the spread between the
exercise price of the warrants and the fair market price of the Units (or the
sum of their component parts) at the time when the exchange is requested by the
warrant holders.
The exercise prices of the Class A, B, C and D Warrants were initially
determined by the Board of Directors and were either equal to or exceeded the
fair market value of the Company's share price at the date the warrants were
granted. Exercise prices are subsequently adjusted, in accordance with the
formula stipulated in the Warrant Agreement, if the Company issues or sells
shares for consideration less than the greater of the initial public offering
price or market price.
(d) Stock Option Plan
The Company has adopted stock option plans which allows an aggregate
maximum of 700,000 Ordinary Shares of the Company to be available for awards to
employees, officers and directors. The exercise price of these options is
determined by the Compensation Committee of the Board of Directors but will be
at least 100% of the fair market value of the options at the date the option is
granted. Additionally, these options shall terminate in the event of a sale or
transfer of all or substantially all of the Company's assets. Effective November
15, 1995, all outstanding management and employment agreements were terminated.
In connec-
F-14
<PAGE> 127
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
tion with the termination of these agreements, the Company required outstanding
options to be exercised by December 15, 1995. No options were exercised and all
outstanding options thus expired on such date.
Changes to issued options are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Number of options exercisable, beginning of year....... 685,000 550,000
New options granted.................................... -- 265,000
Options expired........................................ (685,000) (130,000)
-------- --------
Number of options exercisable, end of year............. -- 685,000
======== ========
</TABLE>
In March 1996, 700,000 options at an exercise price of $.50 per share to
purchase Ordinary Shares were issued to certain individuals and entities who
perform services for the Company, all of which have terms of five years. These
options shall vest only in the event that the closing price of the Company's
stock price equals or exceeds $2.00 in any 21-day trading period (whether or not
consecutive) prior to February 28, 1997. Upon such vesting, administrative
expense will be recorded on 350,000 of such options. The Company intends to
record an expense of $175,000 upon the issuance of the remaining 350,000 options
to a consultant in accordance with the provisions of Financial Accounting
Standards Board Statement No. 123.
(e) Earnings (Loss) Per Share
The net loss per share calculations for the fiscal years ended 1995 and
1994 are based on the weighted average number of shares outstanding during the
respective years. In addition, the earnings (loss) per share calculations have
taken into account the shares, options and warrants issued at prices below the
Company's IPO price in the 12-month period prior to the initial filing of the
IPO. These have been treated as outstanding during all the periods presented
prior to March 7, 1994. The Company has used the treasury stock method of
determining the dilutive effect of all options and warrants for the period March
7, 1994 to February 28, 1995.
The net earnings per share calculation for the fiscal year ended 1996 is
based on the modified treasury stock method.
(8) CANGENE ACQUISITION AND DISPOSAL
On June 13, 1994, the Company completed a private acquisition of 1,319,996
Common Shares in the capital of Cangene Corporation (Cangene) from ARCA
Investments Inc. (ARCA). In payment for these shares, the Company issued a total
of 439,999 of its Ordinary Shares, on the basis of one Ordinary Share for each
three shares of Cangene or ARCA. This acquisition was part of a take-over bid to
acquire all of the outstanding Common Shares of Cangene. The bid was
subsequently withdrawn. The Company incurred acquisition costs of approximately
$515,000, substantially all of which were paid for with Cangene shares.
Certain of the Cangene shares were sold resulting in net cash proceeds of
approximately $657,000 and the balance was used to settle outstanding
professional fees totaling approximately $630,000. The Company incurred a loss
on disposition of the Cangene shares of approximately $478,000.
(9) INCOME TAXES
Prior to July 30, 1993, Medipro was a Canadian Controlled Private
Corporation, as defined under the Income Tax Act (Canada) and, accordingly, was
entitled to receive a refund on a portion of its ITCs earned on eligible SRED.
These refundable ITCs, which are similar to government grants provided for
performing qualifying research activities, were recorded in income as earned. As
a result of the change in the ownership of Medipro in fiscal 1994, the ITCs are
earned subsequently at the rate of 20% of eligible SRED, will no longer be
refundable and will only be available to reduce income taxes payable in Canada.
F-15
<PAGE> 128
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
The Financial Accounting Standards Board has issued Financial Accounting
Standards No. 109, "Accounting for Income Taxes" which was effective for the
Company's February 28, 1994 fiscal year. As of February 29, 1996, February 28,
1995 and 1994, Medipro had research and development expenses not claimed for
income tax purposes of approximately $2,870,000, $2,831,000 and $1,743,000,
respectively, available to reduce taxable income of Medipro in future years. Due
to the significant uncertainty relating to the Company's ability to utilize
these expenses to offset taxable income, valuation allowances are recognized to
offset all of the deferred tax assets relating to these expenses. These
unclaimed research and development expenses may be carried forward indefinitely
for income tax purposes.
At February 29, 1996, the Company also had unused operating loss
carryforwards amounting to approximately $6,500,000 available to reduce future
taxable income. A valuation allowance has been set up to offset the deferred tax
benefit of these loss carryforwards. These losses expire as follows:
<TABLE>
<S> <C>
2001............................. $1,448,000
2002............................. 1,205,000
2010............................. 3,477,000
2011............................. 370,000
==========
</TABLE>
Deferred income taxes have been provided in timing differences as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward...................... $ 2,600,000 5,400,000
Capitalized research and development expense..... -- 492,000
Purchase research and development expense........ -- 1,110,000
Start-up costs associated with PP Holdings....... -- 136,000
Interest expense................................. -- 133,000
Tax benefit of research and development.......... 1,148,000 1,269,000
Other............................................ 59,000 65,000
----------- ----------
Total tax assets......................... 3,807,000 8,605,000
Valuation allowance...................... (3,807,000) (8,605,000)
----------- ----------
Adjusted tax assets...................... $ -- --
=========== ==========
Deferred tax liabilities -- unrealized appreciation
on equity securities............................. (1,710,212) --
----------- ----------
Total deferred tax liabilities........... $(1,710,212) --
=========== ==========
</TABLE>
(10) COMMITMENTS
As a result of the transaction with TCPI, the Company no longer has any
commitments under operating leases requiring any future minimum annual payments.
In February 1996, the Company entered into two consulting agreements, each
for a term of three years with aggregate annual payments of $350,000, plus a
bonus at the discretion of the board of directors. These agreements provide
management to the Company.
F-16
<PAGE> 129
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
(11) CONSOLIDATED STATEMENTS OF CASH FLOWS
The net change in noncash working capital balances for each of the fiscal
years are noted below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- -------
<S> <C> <C> <C>
Sources (uses) of cash:
Accounts receivable....................... $ 18,910 27,305 (37,736)
Investment tax credits receivable......... -- 136,937 141,109
Prepaid expenses and deposits............. 47,298 (6,238) (38,719)
Accounts payable.......................... (5,275) 439,763 186,082
Accrued expenses.......................... 296,854 374,996 253,907
Other..................................... 3,485 555,368 (31,514)
-------- --------- -------
$361,272 1,528,131 473,129
======== ========= =======
</TABLE>
During the year ended February 29, 1996, the amounts of cash interest paid
was $250,000 (1995 -- $250,000, 1994 -- none). No income taxes were paid during
1996, 1995 or 1994.
All short-term, highly liquid investments with maturities of three months
or less at the date of purchase are considered to be cash equivalents.
(12) RELATED-PARTY TRANSACTIONS
In 1993, the Company entered into an agreement, which expires on December
31, 2011, with a shareholder whereby the Company has granted the licensee
certain production and distribution rights to a technology that the Company
still maintains after the TCPI transaction, but which is not expected to be
pursued for commercialization. No fee revenue was recognized in fiscal 1996 and
1995.
(13) SUBSEQUENT EVENT
In March 1996, the Company executed agreements which provided the Company
with a controlling interest in Vista. The Company had previously made certain
working capital advances to Vista before the consummation of this transaction.
Such amounts totaled $251,500 at February 29, 1996.
The Company executed a stock purchase agreement for 200,000 newly issued
shares of Vista common stock for a cash price of $500,000. The Company and Vista
executed an additional agreement under which Vista provided 2,060,000 newly
issued shares of its common stock to the Company at a value of $5,150,000 plus
500,000 Vista Class C common stock purchase warrants. In exchange, Vista
received a $750,000 interest-free note due six months after the transaction date
and 200,000 restricted shares of TCPI common stock previously held by the
Company with a fair value on the date of the transaction of $3,550,000 (original
cost basis to the Company of $3,032,000).
The Company also has an option to purchase up to an additional 250,000
newly issued shares of Vista common stock at an option price of $2.50 in cash.
This option is exercisable at any time up to September 30, 1996.
In addition, in a separate transaction, the Company agreed to provide
4,500,000 newly issued Ordinary Shares in exchange for a total of 900,000 shares
of Vista's outstanding common stock owned by three shareholders.
F-17
<PAGE> 130
PHARMA PATCH PUBLIC LIMITED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS)
As a result of these transactions, the Company acquired approximately 61%
of the voting interest in Vista. The acquisition will be accounted for utilizing
the purchase accounting method in fiscal 1997. A summary of the consideration
for both components of the Vista transaction include the following:
<TABLE>
<S> <C>
Cash............................................................. $ 500,000
Note payable..................................................... 750,000
TCPI investment (200,000 shares)................................. 3,032,000
Pharma Patch plc common stock (4,500,000 shares)................. 2,250,000
----------
$6,532,000
</TABLE>
The cost in excess of net assets acquired of approximately $4.5 million was
calculated utilizing the original carrying value of the TCPI investment ($15.16
per share). The Company is currently amortizing such cost in excess of net
assets acquired over a 15 year period (final allocation of purchase price not
yet complete).
F-18
<PAGE> 131
PHARMA PATCH PLC
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
AS AT
MAY 31, 1996
------------
<S> <C>
Current Assets
Cash and cash equivalents..................................................... 3,626,593
Accounts receivable........................................................... 307,810
Due from Vista................................................................ --
Investment in TCPI -- available for sale, at market price..................... 6,698,488
Prepaids & other assets....................................................... 263,380
----------
Total Current Assets.................................................. 10,896,271
Fixed assets.................................................................. 1,126,375
Investments in subsidiaries................................................... 2,149,818
Long term receivables......................................................... 191,571
Goodwill...................................................................... 4,534,874
----------
Total Assets.......................................................... 18,898,909
==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable.............................................................. 1,950,100
Accrued expenses.............................................................. 1,180,240
Deferred tax liability........................................................ --
----------
Total Current Liabilities............................................. 3,130,340
----------
Long Term Debt.................................................................. 660,196
----------
Total Liabilities..................................................... 3,890,536
----------
Minority Interest............................................................... 3,025,306
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock
Authorized
52,046,576 Ordinary Shares Issued and outstanding [16,915,211 at May 31,
1996; 11,410,633 at February 29, 1996]
Ordinary Shares, at par value................................................. 2,343,678
Premium in excess of par value................................................ 18,387,064
Deficit....................................................................... (6,979,820)
Cumulative translation adjustment............................................. 369,057
Unrealized gain (loss) on securities available for sale (net of deferred taxes
of $1,710,212 at February 29, 1996......................................... (2,036,912)
----------
Total shareholders' equity (deficiency)............................... 12,083,067
----------
18,898,909
==========
</TABLE>
F-19
<PAGE> 132
PHARMA PATCH PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MAY 31
--------------------------
1996 1995
---------- -----------
UNAUDITED
<S> <C> <C>
Revenues........................................................... 482,732 --
Expenses
Administration..................................................... 871,526 180,786
Depreciation and amortization...................................... 149,788 --
Foreign exchange (gain) loss....................................... 567 --
Interest income.................................................... (2,894) --
---------- -----------
1,018,987 180,786
---------- -----------
Loss from operations..................................... 536,255 180,786
---------- -----------
Loss on sale of investment......................................... 254,903 --
Equity investee loss............................................... 7,468 --
Minority interest loss for period.................................. (68,434) --
Other income....................................................... -- (5,884)
---------- -----------
Loss from continuing operations.......................... 730,192 174,902
---------- -----------
Discontinued Operations
Loss from discontinued operations.................................. -- (703,444)
Gain on sale of business segment......................... -- --
---------- -----------
Gain (loss) on discontinued operations................... -- (703,444)
---------- -----------
Net Earnings (Loss) For The Period................................. (730,192) (878,346)
Deficit, beginning of Period....................................... (6,249,628) (18,340,304)
---------- -----------
DEFICIT, END OF PERIOD................................... (6,979,820) (19,218,650)
========== ===========
Per share of common stock
Loss from continuing operations.................................. (.05) (.04)
Discontinued operations.......................................... 0 (.14)
Net earnings (loss).............................................. (.05) (.18)
---------- -----------
Weighted average number of Ordinary Shares outstanding............. 15,580,315 4,960,425
========== ===========
</TABLE>
F-20
<PAGE> 133
PHARMA PATCH PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
FOR THE THREE MONTHS
ENDED MAY 31
----------------------
1996 1995
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) for the year...................................... (730,192) (878,346)
Add non-cash items
Depreciation and amortization....................................... 149,788 91,941
Write-down of fixed assets.......................................... -- --
Gain on sale of business............................................ -- --
Non cash payment of expense......................................... -- --
Loss on sale of investment.......................................... 254,903 --
Non cash payment of expenses........................................ 208,690 --
Other cash payments................................................. 13,975 --
Net change in non-cash working capital items.......................... 570,617 38,354
--------- --------
467,781 (748,051)
--------- --------
INVESTING ACTIVITIES
Purchase of fixed assets.............................................. (5,412) (30,312)
Net proceeds of sale of investment.................................... 2,928,696 --
Investment in Vista, net of cash acquired............................. (710,188) --
--------- --------
2,213,096 (30,312)
--------- --------
FINANCING ACTIVITIES
Issue of shares, net.................................................. 276,894 832,700
--------- --------
Net increase (decrease) in cash and cash equivalents for the period... 2,957,771 54,337
Cash and cash equivalents, beginning of period........................ 668,822 638,745
--------- --------
Cash and cash equivalents, end of period.............................. 3,626,593 693,082
========= ========
</TABLE>
F-21
<PAGE> 134
PHARMA PATCH PLC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1995 AND 1996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED TOTAL
PREMIUM IN CUMULATIVE GAIN (LOSS) SHAREHOLDER
NUMBER OF EXCESS OF ACCUMULATED TRANSLATION EQUITY EQUITY
SHARES PAR VALUE PAR VALUE DEFICIT ADJUSTMENT SECURITIES (DEFICIENCY)
---------- --------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance on February 28,
1995........................ 5,740,253 2,183,643 11,448,439 (18,340,304) -- -- (4,708,222)
Issuance of Stock-(Unaudited)
Payment of Professional
Fees..................... 21,500 254 20,027 -- -- -- 20,281
Payment of Accrued
Salaries................. 174,167 2,525 171,642 -- -- -- 174,167
Private Placement
Share Issuance Costs........ -- -- (80,748) -- -- -- (80,748)
Net Income (Loss) May 31, 1995
(unaudited)................. -- -- -- (878,346) -- -- (878,346)
---------- --------- ---------- ----------- ------- ---------- ----------
Balance May 31, 1995
(Unaudited)................. 6,654,920 2,196,848 12,267,934 (19,218,650) -- -- (4,753,868)
========== ========= ========== =========== ======= ========== ==========
Balance on February 29,
1996........................ 11,410,633 2,256,756 15,404,580 (6,249,628) (6,518) 3,176,108 14,581,298
Issuance of Stock (Unaudited)
Payment of Professional
Fees..................... 404,578 6,350 202,340 -- -- 208,690
Shares issued to acquire
900,000 of Vista's
outstanding common
stock.................... 4,500,000 71,100 2,178,900 250,000 -- -- --
Private Placement........... 600,000 9,472 285,528 -- -- 295,000
Share Issuance Costs..... -- -- (18,106) -- -- (18,106)
Unrealized gain on capital
issued by Vista
Technologies, Inc........ -- -- 333,822 -- -- 333,822
Cumulative translation
adjustment related to
Vista.................... -- -- -- -- 375,575 375,575
Unrealized gain (Loss) on
Equity Securities for the
Period................... -- -- -- -- -- (5,213,020) (5,213,020)
Net Loss May 31, 1996
(Unaudited)................. -- -- -- (730,192) -- (730,912)
---------- --------- ---------- ----------- ------- ---------- ----------
Balance May 31, 1996
(Unaudited)................. 16,915,211 2,343,678 18,387,064 (6,979,820) 369,057 (2,038,912) 12,083,067
========== ========= ========== =========== ======= ========== ==========
</TABLE>
F-22
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
All information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition, Results of Operations and
Financial Statements and Notes to Financial Statements included in the Company's
Annual Report on Form 10KSB for the year ended February 29, 1996. Operating
results for the three month period ending May 31, 1996 are not necessarily
indicative of the results that may be obtained for the entire year.
1. ORGANIZATION
Pharma Patch Plc ("Pharma Patch") or ("the Company") is currently engaged,
through its subsidiary Vista Technologies, Inc., in providing photorefractive
keratectomy ("PRK") and other laser vision correction ("LVC") facilities and
services to the health care industry. The Company was incorporated under the
laws of the Republic of Ireland in January, 1992. Prior to July, 1993, Pharma
Patch had no significant assets or operations.
On November 15, 1995, the Company sold substantially all of the operating
assets to Technical Chemicals and Products, Inc. (TCPI) for a gain of
approximately $16.4 million. These assets included 11 U.S. patents relating to
transdermal drug delivery and skin permeation technology, license rights to skin
penetration enhancers and electronically assisted drug delivery, proprietary
information and trade secrets related thereto, certain licensing and product
feasibility agreements entered into by the Company and one of its subsidiaries
fixed assets. In consideration for the purchased assets, TCPI issued an
aggregate of 786,214 shares of its common stock with a fair value of $11,919,000
and satisfied the $5,000,000 promissory note previously issued by the Company to
Flora, Inc. (Flora). As a result of this transaction, the Company owned 9.9% of
TCPI's outstanding common shares.
On January 16, 1996, the Company entered into a supplemental agreement with
TCPI which amended certain provisions of the November 1995 asset purchase
agreement. TCPI has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares (Offering). Pursuant to the terms of the supplemental agreement,
the Company executed a lock-up letter with the representative of the TCPI
Underwriters providing that it would not sell or otherwise dispose of any of its
shares of common stock for a period to expire 180 days following the closing
date of the Offering (April 30, 1996) without their prior consent. As
consideration for the execution of the lock-up agreement, TCPI (i) terminated an
existing lock-up agreement covering TCPI common stock owned by the Company,
executed in connection with the asset purchase agreement; (ii) effective as of
closing date of the Offering, terminated the voting trust agreements,
shareholders' agreement and irrevocable proxy, executed in connection with the
asset purchase agreement which, among other things, limited the Company's
ability to vote or dispose of its shares of common stock; (iii) allowed the
Company to offer for sale 100,000 shares of this common stock in the Offering
(plus up to an additional 110,000 if the Underwriters over-allotment option is
exercised); (iv) effective as of the closing date of the Offering, issued to the
Company a two-year warrant to purchase 100,000 shares of common stock at an
exercise price equal to the per share Offering price; and (v) file a
Registration Statement on Form S-3 to register all of the remaining shares of
common stock owned by the Company after the Offering. On April 30, 1996, TCPI
completed the offering whereby Pharma Patch sold 210,000 of its TCPI stock for
net proceeds of approximately $2.9 million.
On March 21, 1996, the Company completed the acquisition of 61.3% of the
voting interest of Vista Technologies, Inc. ("Vista"). Vista provides photo
refractive keratectomy (PRK) and other laser vision correction ("LVC")
facilities and services to the health care industry.
The Company executed a stock purchase agreement for 200,000 newly issued
shares of Vista common stock for a cash price of $500,000. The Company and Vista
executed an additional agreement under which Vista provided 2,060,000 newly
issued shares of its common stock to the Company plus 500,000 Vista Class C
common stock purchase warrants. In exchange, Vista received a $750,000
interest-free note due six months after the transaction date and 200,000
restricted shares of TCPI common stock previously held by the Company with a
fair value on the date of the transaction of $3,550,000 (original cost basis to
the Company of $3,032,000). The Company repaid the $750,000 note in full during
the first quarter of fiscal 1997. The Company also received an option to acquire
250,000 Vista shares at $2.50 per share. In a separate transaction,
F-23
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
the Company agreed to provide 4,500,000 newly issued Ordinary Shares in exchange
for a total of 900,000 shares of Vista's outstanding common stock owned by three
shareholders. A summary of the consideration for both components of the Vista
transaction include the following:
<TABLE>
<S> <C>
Cash............................................................. $ 500,000
Note payable..................................................... 750,000
TCPI investment (200,000 shares)................................. 3,032,000
Pharma Patch plc common stock (4,500,000 shares)................. 2,250,000
----------
$6,532,000
</TABLE>
The cost in excess of net assets acquired of approximately $4.5 million was
calculated utilizing the original carrying value of the TCPI investment ($15.16
per share). The Company is currently amortizing such cost in excess of net
assets acquired over a 15 year period (final allocation of purchase price not
yet complete).
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated condensed financial statements include all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the consolidated results of
operations and financial position for the interim periods presented. The
consolidated condensed financial statements have been prepared in accordance
with the requirements for Form 10-Q and, therefore, do not include all
disclosures of financial information required by generally accepted accounting
principles. These consolidated condensed financial statements should be read in
conjunction with the Company's February 29, 1996 consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K.
The results of operations for the interim period ended May 31, 1996 are not
necessarily indicative of the operating results for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of Pharma Patch
and its wholly-owned subsidiaries. The Company owned 47.1% (see Minority
Interest note) of Vista's issued and outstanding common shares on May 31, 1996,
and these accounts are also included in the consolidated financial statements
(since the acquisition at the end of March 1996). All significant intercompany
balances and transactions have been eliminated on consolidation. Investments in
subsidiaries represent Vista's investments in companies in which Vista's
ownership interests range from 20 to 50 percent. Such investments are accounted
for using the equity method.
Fixed Assets
Fixed Assets are recorded at acquisition cost. The Company provides
depreciation and amortization at rates which are expected to charge operations
with the cost of the assets over their estimated useful lives ranging from 3 to
10 years.
Revenue Recognition
Revenues are recognized when services are performed. Product development
fees included in discontinued operations represent charges to third parties for
research and development work performed by the Company and are recorded in the
period the fees are earned.
Research and Development Expenditures
Research and development expenditures included in discontinued operations
are charged to expense as incurred.
Foreign Currency Translation
Assets and liabilities stated in functional currencies other than the U.S.
dollar are translated at the year-end exchange rate and revenues and expenses at
the average rate of exchange for the year. Foreign exchange
F-24
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
gains and losses from transactions in currencies other than the applicable
functional currency are reflected in income during the year. Gains or losses
arising on the translation of financial statements give rise to a cumulative
translation adjustment which is included as a component of shareholders'
deficiency.
As a result of the Company's transaction and consolidation of Vista's
financial statements at May 31, 1996, a balance of $369,057 relating to foreign
currency adjustment at quarter end exists. This amount arises from Vista's
European subsidiaries.
Fixed Assets
Fixed assets consist of the following at May 31, 1996:
<TABLE>
<S> <C>
Eximer laser and other technical equipment........................ 1,084,735
Other furniture and equipment..................................... 41,640
---------
1,126,375
=========
</TABLE>
Goodwill
Goodwill on the Company's Consolidated Balance Sheet represents the excess
purchase price paid for Vista after allocating the purchase price to the net
assets. Goodwill is being amortized on over 15 years on a straight-line method,
pending final review of the allocation of the purchase price by the Company's
management. At each balance sheet date, the Company evaluates the realizability
of acquisition-related intangible assets based on expectations of
nondiscontinued cash flows of the acquired entity. Based upon its most recent
analysis, the Company believes that no impairment of acquisition-related
intangible assets exists at May 31, 1996. Goodwill at May 31, 1996 is as
follows:
<TABLE>
<S> <C>
Goodwill.......................................................... 4,585,828
Less: Accumulated amortization.................................... (50,954)
---------
4,534,874
=========
</TABLE>
Minority Interest
On March 21, 1996, the Company acquired 61.3% on the issued and outstanding
common stock on Vista. In May 1996, Vista issued 1,450,000 shares of its common
stock to acquire interests in three developmental stage companies involved in
providing PRK and other LVC facilities and services to the health care industry.
The shares issued by Vista reduced the Company's ownership in Vista from 61.3%
to 47.1% at May 31, 1996. The results of Vista have been included in the
consolidated financial statements of the Company as the Company continues to
have control of Vista through its Board of Directors representation as well as
the active roles the Company's officers have over the day-to-day operations of
Vista. Additionally, in July the Company increased its ownership in Vista from
47.1% to 48.7% by exercising 200,000 of its 250,000 existing rights to acquire
Vista common stock.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investment Securities Available for Sale
Equity securities that are purchased which might be sold in order to
support the Company's investment strategies and liquidity needs are classified
as investment securities available for sale and are carried at fair market
value. Unrealized holding gains and losses are excluded from earnings and
reported as a net amount in a separate component of stockholders equity. At May
31, 1996 Investment Securities available for sale consist of 576,214 shares of
common stock in TCPI.
F-25
<PAGE> 138
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Vista Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
July 12, 1996
F-26
<PAGE> 139
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Vista Technologies, Inc. and Subsidiaries
Sunnyvale, California
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended March 31,
1995, of Vista Technologies, Inc. and subsidiaries. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of its operation and cash
flows for the year ended March 31, 1995, of Vista Technologies, Inc. and
subsidiaries in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred significant operating losses from inception
totaling $11,432,110, has substantial commitments and contingencies relating to
the rescission of an incomplete acquisition, recognized a permanent impairment
of goodwill incurred in the acquisitions of subsidiaries in the amount of
$3,825,990 and the Company is a party in a lawsuit more fully discussed at note
7. These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding these matters are to abandon its UK
operations, complete a private placement of common stock, attempt to generate
revenues from other European operations and establish laser centers in the
United States. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
AJ. Robbins, P.C.
Certified Public Accountants
and Consultants
Denver, Colorado
May 24, 1995
F-27
<PAGE> 140
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash......................................................................... $ 288,312
Accounts receivable:
Trade..................................................................... 29,515
VAT....................................................................... 41,434
Related parties........................................................... 214,454
Stock subscriptions receivable (notes 1, 2 and 17)........................... 962,500
Prepaid expenses and other................................................... 256,081
------------
Total current assets................................................. 1,792,296
Investment securities (note 5):
Available for sale........................................................... 2,475,000
Held-to-maturity............................................................. 115,468
Long-term VAT receivables...................................................... 191,571
Property and equipment, net (note 4)........................................... 1,219,798
Investment in equity investees (note 1)........................................ 468,350
Other assets................................................................... 7,299
------------
$ 6,269,782
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade...................................................... $ 520,825
Accounts payable, officers................................................... 29,535
Accrued expenses (note 7).................................................... 833,206
Current portion of notes payable (note 10)................................... 96,591
Current portion of long-term debt (note 11).................................. 137,351
Current portion of obligation under capital lease (note 12).................. 67,588
------------
Total current liabilities............................................ 1,685,096
Notes payable, net of current portion (note 10)................................ 277,777
Long-term debt, net of current portion (note 11)............................... 463,240
Obligation under capital lease, net of current portion (note 12)............... 196,956
------------
937,973
Minority interest (note 2)..................................................... 653,306
------------
Commitments and contingencies (notes 7, 10, 12 and 17)
Total liabilities.................................................... 3,276,375
------------
Stockholders' equity (notes 7, 8, 9 and 17):
Preferred stock, $.001 par value; 15,000,000 shares authorized; none
issued.................................................................... --
Common stock, $.005 par value; 15,000,000 shares authorized; 5,256,106 shares
issued and outstanding.................................................... 26,281
Additional paid-in capital................................................... 18,026,096
Unrealized loss on securities available for sale............................. (187,500)
Accumulated deficit.......................................................... (15,247,045)
Foreign currency translation adjustments..................................... 375,575
------------
Total stockholders' equity........................................... 2,993,407
------------
$ 6,269,782
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 141
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Revenues.......................................................... $ 2,130,073 1,209,673
Costs and expenses:
General and administrative...................................... 4,624,630 2,773,390
Depreciation and amortization................................... 467,509 580,870
----------- ------------
Other (income) expense:
Foreign currency exchange loss............................... 695 28,887
Unrealized (gains) loss on trading securities................ -- (116,707)
Realized loss (gains) on trading securities.................. 148,005 (129,621)
Impairment of idle equipment (note 3)........................ 446,636 --
Legal judgment (note 7)...................................... -- 186,055
Impairment of goodwill (note 1).............................. -- 3,825,990
Write off of note receivable, stockholder (note 1)........... -- 125,000
Interest..................................................... 63,645 9,781
Loss on sale of equipment.................................... -- 1,053
Loss on closure of UK clinic (note 1)........................ 135,097 --
Other........................................................ 49,405 (75,758)
----------- ------------
Net other (income) expense.............................. 843,483 3,854,680
----------- ------------
Loss from operations.................................... (3,805,549) (5,999,267)
Equity investees (loss) income (note 1 and 6)..................... (11,202) 28,132
----------- ------------
Loss before income taxes, minority interest and
extraordinary loss.................................... (3,816,751) (5,971,135)
Income taxes (note 13)............................................ -- --
----------- ------------
Loss before minority interest and extraordinary loss.... (3,816,751) (5,971,135)
Minority interest................................................. 1,816 193,842
----------- ------------
Net loss before extraordinary loss...................... (3,814,935) (5,777,293)
Extraordinary loss (note 1)....................................... -- (5,642,887)
----------- ------------
Net loss................................................ $(3,814,935) (11,420,180)
=========== ============
Loss per common share:
Before extraordinary loss....................................... $ (1.92) (4.88)
Extraordinary loss.............................................. -- (4.76)
----------- ------------
Net loss per common share............................... $ (1.92) (9.64)
=========== ============
Weighted average number of common shares outstanding.............. 1,985,675 1,184,976
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 142
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK SUBSCRIBED STOCK ADDITIONAL FOREIGN TOTAL
------------------- --------------------- PAID-IN UNREALIZED ACCUMULATED CURRENCY STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL LOSS DEFICIT ADJUSTMENTS EQUITY
--------- ------- -------- ---------- ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31,
1994...... 712,613 $ 3,564 125,000 $ 1,132,152 $ 5,310,161 $ -- $ (11,930) $ (1,962) $ 6,431,985
Common stock
issued for
cash
proceeds,
net of
offering
costs of
$471,991
(note 8).... 335,000 1,675 (125,000) (1,132,152) 2,876,334 -- -- -- 1,745,857
Common stock
issued in
exchange
for
Medical
Development
Resources
Inc.
(MDRI)
(note 1)
stock and
warrants... 200,000 1,000 -- -- 1,999,000 -- -- -- 2,000,000
Private
placement
issued in
exchange
for the
assets of
Klara
Clinic.... 2,960 15 -- -- 8,208 -- -- -- 8,223
Common stock
adjustment
for Vista-
Italy
acquisition
(note 1)... 2,381 11 -- -- 23,807 -- -- -- 23,818
Common stock
issued to
acquire
MORI stock
from TNC
Media,
Inc....... 155,756 779 -- -- 1,556,775 -- -- -- 1,557,554
Foreign
currency
adjustment... -- -- -- -- -- -- -- 234,327 234,327
Net (loss)
for the
period.... -- -- -- -- -- -- (11,420,180) -- (11,420,180)
--------- ------- -------- ----------- ----------- --------- ------------ -------- ------------
Balance,
March 31,
1995...... 1,408,710 7,044 -- -- 11,774,285 -- (11,432,110) 232,365 581,584
Common
stock,
issued for
services
and cash
advances,
net of
repur-
chases
(note 3) 1,021,000 5,105 -- -- 1,632,395 -- -- -- 1,637,500
Common stock
issued to
Pharma
Patch Plc.
(note 1).. 2,260,000 11,300 -- -- 3,901,200 -- -- -- 3,912,500
Common stock
issued to
Vista
Laser
Centers of
Michigan,
Inc. (VLC-
Michigan)
in
exchange
for
200,000
shares of
Series B
preferred
stock of
VLC-Michigan
(note 1).. 200,000 1,000 -- -- 216,600 -- -- -- 217,600
Common stock
issued to
Vista
Laser
Centers of
Southwest,
Inc. (VLC-
Southwest)
in
exchange
for
350,000
shares of
Series B
preferred
stock of
VLC-Southwest
(note 1)... 250,000 1,250 -- -- 270,500 -- -- -- 271,750
Common stock
issued for
stock
subscriptions
receivable
(note 2)... 100,000 500 -- -- 212,000 -- -- -- 212,500
Common stock
issued in
exchange
for Vista
Vision SpA
stock..... 16,396 82 -- -- 8,116 -- -- -- 8,198
Unrealized
loss on
securities
available
for
sale...... -- -- -- -- -- (187,500) -- -- (187,500)
Compensation
expense
for non
employee
stock
options... -- -- -- -- 11,000 -- -- -- 11,000
Foreign
currency
adjustment... -- -- -- -- -- -- -- 143,210 143,210
Net loss.... -- -- -- -- -- -- (3,814,935) -- (3,814,935)
--------- ------- -------- ----------- ----------- --------- ------------ -------- -------------
Balance,
March 31,
1996...... 5,256,106 $26,281 -- $ -- $18,026,096 $ (187,500) $(15,247,045) $ 375,575 $ 2,993,407
========= ======= ======== =========== =========== ========== ============ ========= =============
</TABLE>
F-30
<PAGE> 143
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows used by operating activities:
Net loss.............................................................................. $(3,814,935) (11,420,180)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization....................................................... 467,509 580,870
Extraordinary loss from advanced funds for incomplete acquisition................... -- 5,642,887
Write off of impaired and abandoned assets, net..................................... 453,467 --
Impairment of goodwill.............................................................. -- 3,825,990
Legal judgment...................................................................... -- 186,055
Write off of note receivable, stockholder........................................... -- 125,000
Loss on sale of equipment........................................................... -- 1,053
Unrealized loss (gain) on trading securities........................................ -- (116,707)
Realized loss (gain) on trading securities.......................................... 148,005 (129,621)
Minority interest................................................................... (1,816) (193,842)
Interest income received in common stock............................................ -- (50,000)
Foreign currency translation on operating assets and liabilities.................... 146,656 (39,462)
Equity investees loss (income), net................................................. 11,202 (28,132)
Stock issued for services........................................................... 1,637,500 --
Compensation related to stock options issued to non-employees....................... 11,000 --
Proceeds from sales of trading securities........................................... 417,652 432,859
Purchase of trading securities...................................................... (162,531) (589,657)
Changes in operating assets and liabilities, net of foreign currency translation:
Accounts receivable:
Trade........................................................................... 41,326 (70,841)
VAT............................................................................. 99,142 (140,576)
Related parties................................................................. 99,293 (482,132)
Prepaid expenses.................................................................. 6,864 (5,401)
Other current assets.............................................................. (179,250) 70,800
Other assets...................................................................... (16,793) 109,774
Bank overdraft protection......................................................... (86,913) 86,913
Accounts payable, trade........................................................... 73,484 371,560
Accounts payable, officers........................................................ (99,516) 129,051
Accrued expenses.................................................................. 309,909 (38,526)
Other liabilities................................................................. 145,234 --
----------- -----------
Net cash used by operating activities........................................... (293,511) (1,742,265)
----------- -----------
Cash flows used by investing activities:
Repayment of notes receivable......................................................... -- 753,526
Repayment of capital lease obligation................................................. (10,501) --
Proceeds from sale of equipment....................................................... -- 7,656
Redemption of equity investment in partnership........................................ -- 595,313
Issuance of notes receivable.......................................................... -- (254,870)
Purchase of property and equipment.................................................... (302,121) (95,557)
Sale purchase of investment -- held to maturity....................................... 11,875 (145,215)
Purchase of investment, at cost....................................................... -- (1,850,000)
Loss on investment -- held to maturity................................................ 29,813 --
Purchase of equity investment......................................................... -- (419,675)
Foreign currency translation.......................................................... -- 11,749
Purchase of Klara Clinic assets....................................................... -- (102,225)
Purchase of ConVista.................................................................. -- (163,597)
Advances to investee companies........................................................ (214,454) --
----------- -----------
Net cash used by investing activities........................................... (485,388) (1,662,895)
----------- -----------
Cash flows from financing activities:
Payment of note payable............................................................... -- (90,876)
Payment of long-term debt............................................................. (107,497) (190,410)
Sale of common stock.................................................................. 500,000 3,350,000
Payment of offering costs............................................................. -- (864,488)
Issuance of notes payable............................................................. 302,777 --
Redeemed stock of subsidiary.......................................................... (277,777) --
----------- -----------
Net cash provided by financing activities....................................... 417,503 2,204,226
----------- -----------
Net increase (decrease) in cash......................................................... (361,396) (1,200,934)
Cash, beginning of period............................................................... 649,708 1,850,642
----------- -----------
Cash, end of period..................................................................... $ 288,312 649,708
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information: See note 15.
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 144
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Vista Technologies, Inc. (the Company), formerly Mercury Acquisitions,
Inc., was organized under the laws of the State of Nevada on June 15, 1992.
Since inception, the Company has devoted its efforts to raising capital,
locating merger and acquisition candidates and establishing excimer laser
clinics throughout Europe and North America to provide facilities and support
services for photorefractive keratectomy (PRK) and other laser surgical
procedures. On February 23, 1994 the Company changed its name from Mercury
Acquisitions, Inc. and amended certain provisions relating to its authorized and
unissued preferred stock. The Company was in the development stage as defined by
Financial Accounting Standards Board Statement Number 7, until March 31, 1994,
at which date it acquired operating subsidiaries. During March 1994 the Company
changed its year end from December 31 to March 31.
(a) Vista Vision SpA
On March 31, 1994 the Company acquired 61.83% of the common stock of Vista
Vision, SpA (Vista-Italy) for cash of approximately $625,000 and 262,760 shares
of the Company's common stock.
As the result of a default judgment entered against the Company which
terminates and rescinds the provisions of the agreement between Vista-Italy and
Laser Vision Centers, Inc. (LVCI) (note 7 (c)), the Company's ownership interest
in Vista-Italy increased to 69.87% as of March 31, 1995. During fiscal year
1996, the Company's ownership interest was increased to 73.57%.
The acquisition of Vista-Italy was recorded using the purchase method of
accounting resulting in goodwill of $2,997,506 which was being amortized over 10
years using the straight-line method. At March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $2,761,506 (note 2). The Company wrote-off the asset after
it determined that the amortization of the asset's balance over its remaining
life could not be recovered through projected future discounted cash flows.
(b) Vista Vision International Ltd.
On March 31, 1994 the Company acquired all of the outstanding common stock
of Vista Vision International Ltd. (Vista-UK) from Laser-Jersey for $134,000 in
cash and 50,000 shares of the Company's common stock.
The acquisition of Vista-UK was recorded using the purchase method of
accounting resulting in goodwill of $703,159 which was being amortized over ten
years using the straight-line method. As of March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $633,159 (note 2). The Company wrote-off the asset after
it determined that the amortization of the asset's balance over its remaining
life could not be recovered through projected future discounted cash flows.
Effective June 1, 1995, the Company abandoned its Vista-UK operations.
Vista-UK owned 50% of Precision Laser Eye Centers Limited (PLEC), a joint
venture that leased laser equipment, which was recorded using the equity method
of accounting. The Company's proportionate share of the loss from its equity
investment in the joint venture was $147,506 for the year ended March 31, 1995.
(c) ConVista Vision BV
During April 1994, the Company acquired 100% of Pawnee Finance B.V., an
inactive company in the Netherlands, since renamed ConVista Vision B.V.
(ConVista), to serve as a future vehicle for financing and management of its
international operations. The Company acquired ConVista for approximately
$20,986 and subsequently contributed additional capital of $163,597 for a total
investment of approximately $184,583. The acquisition of ConVista was recorded
using the purchase method of accounting resulting in goodwill of $163,597 which
was being amortized using the straight-line method over ten years beginning May
1, 1994. At March 31, 1995, the Company's management determined that the
goodwill was impaired. As a result, the Company wrote off goodwill of $149,597
(note 2). The Company wrote-off the asset after it determined that the
amortization of the asset's balance over its remaining life could not be
recovered through projected future discounted cash flows.
F-32
<PAGE> 145
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
ConVista's results of operations from the date of acquisition are included
in the statement of operations for the year ended March 31, 1995.
During June 1994 ConVista acquired 100% of Vista-Sweden for $6,494. On June
1, 1994 Vista-Sweden acquired the assets of a PRK surgical center in Sweden for
cash and a note payable totaling $383,000.
Vista-Sweden's investment resulted in goodwill of $324,211 which was being
amortized over three years using the straight-line method. At March 31, 1995,
the Company's management determined that goodwill was impaired. As a result, the
Company write off goodwill of $281,728 (note 2).
(d) Medical Development Resources, Inc.
During 1995, the Company was unsuccessful in its attempt to acquire a
controlling interest in MDRI and its subsidiaries due to the failure of MDRI and
its principal stockholders to satisfy certain conditions of the acquisition.
Therefore, the Company rescinded and terminated the acquisition agreements
entered into with MDRI and its principal stockholders. MDRI and its wholly-owned
subsidiaries are engaged in the design, development, manufacture and marketing
of surgical instruments and related products for ophthalmology and neurosurgery.
On July 7, 1995, the Company notified MDRI, the MDRI principal stockholders
and the MDRI 8% promissory noteholders that it rescinded all transactions
contemplated by the MDRI Stock Agreement and the MDRI Agreement among the
Company, MDRI and the MDRI principal stockholders. The Company's reasons for
rescinding the MDRI Stock Agreement and the MDRI Agreement include alleged
fraud, intentional misconduct, breach of fiduciary duties, misrepresentation of
material facts and failure of MDRI and its principal stockholders to satisfy
conditions to the obligations of the Company under the MDRI Agreement. As a
result, the Company canceled 1) the 200,000 shares of its common stock and the
100,000 Class A Warrants issued to the foreign investors; 2) the promissory
notes totaling $1,400,000 issued to the MDRI stockholders; 3) the 67,800 shares
of its common stock issued to terminate employment and consulting agreements; 4)
the obligation to issue 67,617 shares of its common stock upon completion of the
exchange stage of the MDRI agreement; 5) the obligation to issue 60,000 shares
of its common stock to secure certain MDRI indebtedness; and 6) the Company's 8%
convertible promissory note and Class A Warrants issued under the Exchange
Offer. However, a contingent liability may exist relating to the cancellation of
the above items.
As a result of the rescission, the Company owns 2,794,340 shares of MDRI
common stock, or a 40.1% ownership interest, which was acquired for
consideration valued at $5,407,554, which was comprised of $1,850,000 in cash
and $3,557,554 ($10.00 per share) in the Company's common stock.
Because the Company never had the ability to influence the financial and
operating activities of MDRI, the Company's 40.1% investment in MDRI was
recorded using the cost method of accounting. In addition, the Company made
advances totaling $235,333 to fund the operations of MDRI and its subsidiaries
during 1995.
As of March 31, 1995, the Company's investment in MDRI of $5,407,554 and
advances made to MDRI and its subsidiaries of $235,333 have been written off to
reflect a permanent impairment due to the deterioration of MDRI's financial
condition. As a result, the Company recorded an extraordinary loss of $5,642,887
for the misappropriation of advances made to MDRI and the investment in MDRI for
the year ended March 31, 1995.
During 1995, the Company advanced $125,000 to a stockholder subject to a
promissory note due December 31, 1995, bearing interest at 10% per annum,
payable upon maturity. The note was collateralized by not less than 100,000
shares of the Company's common stock issued to the stockholder as part of the
MDRI
F-33
<PAGE> 146
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
acquisition. As a result of the rescission of the MDRI Agreement, a majority of
the shares of the Company's common stock pledged as collateral have been
canceled. As of March 31, 1995, the note receivable has been written off as
collection is doubtful.
(e) Agreements with Pharma Patch Plc
In March 1996, the Company executed Agreements with Pharma Patch Plc (PP
Plc) which resulted in PP Plc acquiring approximately 60% of the voting interest
of the Company.
Under these Agreements, the Company issued to PP Plc: (a) 2,260,000 shares
of new common stock; (b) 500,000 Class C common stock purchase warrants (note
8); and, (c) an option to purchase an additional 250,000 shares of new common
stock for cash, on or before September 30, 1996, at an exercise price of $2.50
per share (note 17). In return, the Company received (a) $500,000 cash; (b) a
$750,000 subscription note, which was subsequently paid in May, 1996; and, (c)
200,000 shares of Technical Chemicals and Products, Inc. (TCPI) restricted stock
previously held by PP Plc, valued at $2,662,550. The value of the TCPI stock was
based on the trading value of unrestricted TCPI stock on the date of the closing
of the transaction after making appropriate adjustments for the restrictions
placed on the TCPI stock received by the Company.
In a separate transaction, PP Plc agreed to provide 4,500,000 newly issued
PP Plc Common Shares to three Company shareholders in exchange for a total of
900,000 shares of the Company's outstanding common stock.
(f) Regional Joint Ventures
The Company's business strategy is to expand in North America by organizing
and sponsoring independently financed regional enterprises (Regional Joint
Ventures) in which the Company will obtain a significant equity interest and
long-term fee-based consulting arrangements. As of March 31, 1996, two such
Regional Joint Ventures, Vista Laser Centers of Michigan, Inc. and Vista Laser
Centers of the Southwest, Inc. had been formed. Subsequent to March 31, 1996
several more Regional Joint Ventures were formed (note 17).
Investment in Vista Laser Centers of Michigan, Inc.
In November 1995, the Company issued 200,000 shares of its common
stock in exchange for 200,000 shares of 5% Series B convertible preferred
stock in Vista Laser Centers of Michigan, Inc. (VLC-Michigan). VLC-Michigan
is a development stage enterprise organized on June 30, 1995 to establish,
own and manage laser vision correction centers in Southern Ontario and
Michigan.
To date, the activities of VLC-Michigan have consisted primarily of
market research, seeking affiliation and negotiating agreements with
experienced vision care professionals in the United States and Canada, and
negotiating to acquire equipment for establishing a laser vision correction
center in Windsor, Ontario after an initial public offering on its
securities has been completed. VLC-Michigan is also negotiating to enter
into a joint venture arrangement with a group of physicians in Michigan
following completion of a pending initial public offering by VLC-Michigan.
VLC-Michigan has filed a registration statement with the Securities and
Exchange Commission for a proposed initial public offering of 800,000
shares of its 10% Series A cumulative convertible preferred stock at $5.00
per share. There can be no assurance that VLC-Michigan will successfully
complete an initial public offering of its securities, failing which it
will not have sufficient capital to engage in business operations.
F-34
<PAGE> 147
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
The Company entered into a consulting services agreement to provide
certain consulting services to VLC-Michigan in exchange for 5% of
VLC-Michigan's revenues attributable to its charges to health care
professionals for the use of equipment and laser vision correction (LVC)
services, less a credit to VLC-Michigan of $5,000 per month. The consulting
services agreement is for a term of ten years from the date of an initial
public offering by VLC-Michigan, and is automatically renewed thereafter
for periods of five years unless either party provides six months prior
notice of an intent not to extend the term.
Certain directors of the Company have been elected to serve as
directors of VLC-Michigan. The Company has assigned the voting rights for
its shares of VLC-Michigan Series B convertible preferred stock to local
affiliates of VLC-Michigan.
The Company's initial investment in VLC-Michigan represented an
approximate 61% ownership interest. Such interest is expected to be reduced
to approximately 21% upon completion of VLC-Michigan's initial public
offering. The Company does not have voting rights related to its ownership
interest but does have the ability to exercise significant influence
through its Board representation. Accordingly, the Company accounts for
this investment using the equity method of accounting. The initial value of
the investment of $217,600 was determined based upon an independent
appraisal.
As of March 31, 1996, the Company had advanced approximately $176,000
to VLC-Michigan.
Investment in Vista Center of the Southwest, Inc.
In March, 1996, the Company issued 250,000 shares of its common stock
in exchange for 350,000 shares of 5% Series B convertible preferred stock
in Vista Laser Centers of the Southwest, Inc. (VLC-Southwest).
VLC-Southwest is a development stage enterprise organized on January 30,
1996 to establish, own and manage laser vision correction centers in
Arizona, New Mexico, Texas and Nevada. The Company intends to assign the
voting rights for its shares of VLC-Southwest Series B convertible
preferred stock to local affiliates of VLC-Southwest while retaining the
right to representation on VLC-Southwest Board of Directors.
The Company has granted VLC-Southwest the use of their service mark
and has entered into a consulting agreement with VLC-Southwest. Under this
agreement, the Company has agreed to provide advice and assistance to
VLC-Southwest for the development of their business in consideration for 5%
of VLC-Southwest's revenues from wholly-owned subsidiaries of VLC-Southwest
and 2.5% of revenues from non-majority owned subsidiaries, less $5,000 per
month. The Company has agreed to establish and maintain a Medical Advisory
Board and adopt a stock option program for the members of such board. This
consulting services agreement will be effective with the successful
completion of VLC-Southwest's initial public offering and shall continue
for a period of ten years. If the initial public offering has not been
successfully completed on or before August 31, 1996, the Company may
terminate the agreement at its discretion with 30 days written notice.
The Company's initial investment in VLC-Southwest was valued at
$271,750 and represented an approximate 72% ownership interest. Such
interest is expected to be reduced to approximately 20% upon completion of
VLC-Southwest's initial public offering. The Company will not have voting
rights related to its ownership interest but will have the ability to
exercise significant influence through its Board representation.
Accordingly, the Company accounts for this investment using the equity
method of accounting.
F-35
<PAGE> 148
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
The Company has a commitment to pay an officer of the Company a bonus
of $75,000 in connection with the initial public offering of VLC-Southwest.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include accounts of the Company, and
all wholly-owned and majority-owned subsidiaries. Investments in companies in
which the Company's ownership interests range from 20 to 50 percent, and in
which the Company exercises significant influence over operating and financial
policies, are accounted for using the equity method. Investments in companies in
which the Company's ownership interest is currently in excess of 50% but for
which majority interest is considered only temporary and investments in
companies in which the Company's financial interest exceeds 20 percent and in
which the Company has the ability to exercise significant influence but in which
the Company may have limited or no voting rights are accounted for using the
equity method. Other investments are accounted for using the cost method. All
significant intercompany accounts and transactions have been eliminated. The
Company's subsidiaries in Italy, United Kingdom, Sweden and the Netherlands have
been consolidated at March 31, 1996 using the subsidiaries' respective fiscal
year ends, which were December 31, 1995; and have been consolidated at March 31,
1995 using December 31, 1994 for the Company's subsidiary in Italy and March 31,
1995 for the Company's subsidiaries in Sweden, the Netherlands and the United
Kingdom. The three month period ending March 31, 1995 for the Company's
subsidiaries in Sweden and the Netherlands have been included in the results of
operations for the years ended March 31, 1996 and 1995.
(b) Foreign Currency Translation
Financial statements of international subsidiaries are translated into US
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholders'
equity.
The balance sheet and income statement data for the foreign subsidiaries
have been translated from their respective foreign currency to U.S. dollars
using the following exchange rates:
<TABLE>
<CAPTION>
AVERAGE RATE AVERAGE RATE
FOR THE FOR THE
FOREIGN MARCH 31, 1996 YEAR ENDED YEAR ENDED
SUBSIDIARY CURRENCY SPOT RATE MARCH 31, 1996 MARCH 31, 1995
- ------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Vista-UK Pounds Sterling 1.527 1.563 1.565
Vista-Italy Lira .001 .001 .001
ConVista Gilders .606 .624 .577
Vista-Sweden Krona .150 .144 .133
</TABLE>
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straightline method over the estimated useful lives of
the assets ranging from three to ten years.
(d) Intangible Assets
The Company determined that the goodwill resulting from the acquisitions of
its subsidiaries was impaired on March 31, 1995. As a result, the Company wrote
off goodwill of $3,825,990, resulting in zero
F-36
<PAGE> 149
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
value of goodwill. Amortization expense was $-0- and $374,900 for the years
ended March 31, 1996 and 1995, respectively.
The Company assesses the recoverability of intangible assets by determining
whether the amortization of the asset's balance over its remaining life can be
recovered through projected future discounted cash flows.
(e) Revenue Recognition
Revenues for medical services are recognized when services are performed.
Revenues related to consulting services to Regional Joint Ventures are
recognized as the Regional Joint Venture earns its revenue and amounts become
due to the Company.
(f) Minority Interest
Minority interest represents the minority stockholders' proportionate share
of the equity in Vista-Italy. At March 31, 1996, the Company owned 73.57% of the
capital stock of Vista-Italy.
(g) Loss Per Common Share
Loss per common share is based on the weighted average number of common
shares outstanding. Common equivalent shares relating to stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
(h) Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
the use of the asset and liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. A valuation allowance is required to the extent it is more likely than
not that a deferred tax asset will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.
(k) Stock Subscriptions Receivable
The Company has recorded stock subscriptions receivable as a current asset
as of March 31, 1996, because all such receivables were paid before the issuance
of the Company's financial statements.
F-37
<PAGE> 150
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) Investment Securities
The Company accounts for investment securities under the provisions of SFAS
No. 115. This standard requires that individual debt and equity securities be
classified into one of three categories: trading, held-to-maturity or
available-for-sale.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those securities
in which the Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading securities and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Realized gains and losses from the sale
of securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to earnings and a
new cost basis for the security is established. Premiums and discounts are
amortized or accreted over the life of the related held-to-maturity security as
an adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned.
(m) Offering Costs
Costs associated with public and private offerings by the Company of its
stock have been charged against the proceeds of the offering.
(n) Newly Issued Accounting Standards
In October 1995, Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation (SFAS 123) was issued. SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing
to remain with the accounting in Opinion 25 must make proforma disclosures of
net income and, if presented, earnings per share, as if the fair value based
method of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. The Company
currently accounts for its equity instruments using the accounting prescribed by
Opinion 25. The Company does not currently expect to adopt the accounting
prescribed by SFAS 123; however, the Company will include the disclosures
required by SFAS 123 as required in future consolidated financial statements
included in Form 10-KSB.
(o) Reclassification
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
F-38
<PAGE> 151
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are disclosed in the
following:
On February 1, 1996, the Company entered into an asset purchase and
lease assumption agreement with a related party for an excimer laser
system. The purchase price for the asset was $75,000 in cash, a $96,591
promissory note with annual interest at 8% originally due May 31, 1996, and
the assumption of outstanding obligations under the existing lease on the
laser, including future lease payments not to exceed $328,409. Subsequent
to February 1, 1996, the Company replaced this laser with newer technology
resulting to a charge to the statement of operations in the amount of
$446,636 for the impairment of an idle asset. As of July 12, 1996, the note
payable for $96,591 had not been paid. The Company expects to pay the note
in fiscal year 1997.
During the period from June to December 1995, certain clients of the
Company's then acting president invested approximately $1,470,000 to
sustain the Company's corporate operations during that period. These
advances included approximately $700,000 for travel by the Company's
officers and consultants and corporate office expenses in New York and
Europe, approximately $100,000 in out-of-pocket advances for various
expenses, and $670,000 in compensation paid for personnel assigned to
support the Company's corporate activities and its program to establish
various Regional Joint Ventures in North America. The $670,000 figure for
personnel included $200,000 paid or payable to the Company's then acting
president, and $60,000 accrued for its then acting treasurer and chief
financial officer. The Company's Board of Directors agreed these charges
should be billed at a flat negotiated rate of $1,470,000 and in December
1995 authorized the issuance of 925,000 shares of the Company's common
stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V. (300,000
shares), Saliva Research Ltd. (325,000 shares) and Westcliff Partners Inc.
(300,000 shares). The Company's then acting president acted at the time as
a managing director for Saliva Research Ltd. and Westcliff Partners Inc.,
but disclaimed any beneficial interest in the securities held by those
entities.
Under an agreement dated July 5, 1995, the Company issued 16,000
shares of its common stock to a former chairman of the Company in payment
of $80,000 of unreimbursed business expenses.
Under an agreement dated as of June 1, 1995, the Company paid a former
president of the Company $8,740 in cash and issued 4,000 shares of common
stock for reimbursement of a total of $29,000 of unreimbursed business
expenses. The Company agreed that the former president had a put option
right to sell the 4,000 shares of common stock to the Company after January
31, 1996 at a price equal to $20,260 plus interest from June 1, 1995 at the
rate of 1% per month. The former president exercised that option on
February 1, 1996. The Company also issued 5,000 shares of common stock to
the former president under the June 1, 1995 agreement as a negotiated
settlement for a one-time hiring bonus in his original employment agreement
dated as of January 15, 1995.
In December, 1995 the Company issued 25,000 shares of common stock to
each of its then three directors in exchange for services performed.
During fiscal year 1995, the Company advanced $125,000 to a
stockholder subject to a promissory note due December 31, 1995, bearing
interest at 10% per annum, payable upon maturity in connection with the
Company's attempt to acquire MDRI. At March 31, 1995 the note receivable
had been written off as collection is doubtful.
Certain relationships existed from inception of the Company through
March 31, 1995 between the Company's original management, their affiliates
and the Company. Original management had other interest including business
interest to which they devoted their primary attention.
F-39
<PAGE> 152
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
Effective January 15, 1995 the Company hired a new chief executive
officer and president who was also made a member of the Company's board of
directors. The Company paid $84,000 to the new chief executive officer and
president of the company for consulting services provided prior to his
employment with the Company.
During the fiscal year ended March 31, 1995, the Company paid
SEK100,000 (approximately $13,630) to the managing director of Vista-Sweden
for consulting prior to his employment with Vista-Sweden.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Excimer lasers and other technical equipment..................... $1,896,394
Office furniture and equipment................................... 67,385
----------
1,963,779
Less accumulated depreciation and amortization................... (743,981)
----------
$1,219,798
==========
</TABLE>
Depreciation and amortization expense was $467,509 and $205,600 for the
years ended March 31, 1996 and 1995, respectively.
(5) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale and held-to-maturity
securities by major security type and class of security at March 31, 1996, were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities................... $2,662,500 -- (187,500) 2,475,000
Held-to-maturity:
8.75% Italian bonds................. 115,468 -- (5,343) 110,125
</TABLE>
The 8.75% Italian bonds mature in 1997.
Proceeds from sales of trading securities were $417,652 and $432,859,
resulting in gross realized losses of $152,431 in the year ended March 31, 1996
and gross realized gains of $129,621, for the year ended March 31, 1995
respectively.
(6) EQUITY INVESTMENT IN PARTNERSHIP
During July 1994, the Company acquired a 36% ownership interest in Keech
One Partnership (Partnership) for $419,675. During December 1994 the Partnership
was liquidated. The Company's proportionate share of the income from its equity
investment in the partnership was $175,638 for the year ended March 31, 1995.
F-40
<PAGE> 153
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
The Company has employment agreements with its executive officers, the
terms of which expire at various times through January 15, 1999. Such agreements
provide for minimum salary levels, as well as for incentive bonuses which are
payable if specified management and operational goals are attained.
(b) Exchange Agreement
In order to induce a stockholder to advance $100,000 under a deed of
debenture to MICRA (a wholly owned subsidiary of MDRI), the Company entered into
an exchange agreement on June 28, 1995 with the stockholder. The exchange
agreement provides the stockholder with the option of exchanging the unpaid
principal and interest of the debenture for fully paid and nonassessable shares
of the Company's common stock issued under Regulation S at a conversion price of
$1.25 per share at any time prior to repayment of the debenture by MICRA. As of
March 31, 1996, the stockholder has not exercised this option.
(c) Legal Judgment
In 1991 and 1993, Vista-Italy and LVCI entered into agreements to license
trademarks and develop territorial marketing strategies. The companies exchanged
shares of their respective common stock as consideration under the agreements.
In 1993, LVCI filed suit for termination of these agreements and a default
judgment was entered into their favor. In connection with this judgment,
Vista-Italy canceled the shares of the common stock they had issued to LVCI,
returned the shares of LVCI which they held and recorded a note payable for
$175,000 plus related legal fees. Vista-Italy filed a motion to vacate the
judgment which was denied by the trial court; the trial court's decision was
recently affirmed on appeal. Vista-Italy intends to apply for a rehearing by the
appellate court, or in the alternative, to petition for an appeal to the
Missouri Supreme Court.
(d) Insurance and Indemnification
Use of laser systems by health care professionals using laser equipment and
other LVC services may give rise to claims against the Company or its affiliates
by persons alleging injury. The Company's subsidiaries generally do not
currently have malpractice liability insurance due to limited capital resources.
The Company believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that the Company and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can be
no assurance that laser suppliers will carry product liability insurance or that
any such insurance will be adequate to protect the Company.
Generally speaking, the policy of the Company's operating subsidiaries and
regional joint ventures is to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
(e) Physician Commitments
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by the Company has been advised by a third
party that it contends the physician breached commitments or obligations to the
third party by the physician's decision to associate with one of the Company's
Regional Joint Ventures. In one of these matters, the third party contends that
its plan of operations to enter the business of providing access to LVC
equipment in association with the physician has been damaged. In the other, the
F-41
<PAGE> 154
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
third party contends that the physician breached fiduciary duties to the third
party and misappropriated client lists and data, and the claimant also has
threatened to hold the Company and certain other parties responsible as well as
the physician. To date, neither dispute has resulted in the filing of legal
proceedings although legal proceedings have been threatened. Based on
information currently known to the Company, the Company believes these claims
are without merit and will not result in material liability to either of the
Regional Joint Ventures involved or to the Company.
(8) COMMON STOCK
(a) Stock Offerings
During fiscal 1996, the Company issued 1,021,000 shares of common stock in
exchange for services and cash advances (note 3), 2,260,000 shares to Pharma
Patch Plc in exchange for cash, a subscription note and tradable equity
securities (note 1(e)), 450,000 shares of common stock in exchange for interests
in two Regional Joint Ventures (note 1(f)), 100,000 shares of common stock in
exchange for a $212,500 note which was paid subsequent to the Company's March
31, 1996 year end and 16,393 shares of common stock in exchange for an
additional approximate 5% interest in Vista Vision SpA.
During May 1994, the Company's Board of Directors authorized an offering of
units (Foreign "B" Units) consisting of 5,000 shares of the Company's common
stock and 2,500 Class A Warrants for $50,000 per Foreign "B" Unit. As of March
31, 1995, the offering of Foreign "B" Units was completed and the Company
received and accepted subscriptions totaling $1,250,000 for 25 units to
qualified foreign investors representing 125,000 shares of the Company's common
stock and 62,500 Class A Warrants. As of March 31, 1995, the Company received
proceeds of $1,051,192 (net of offering costs of $198,808) for the sale of 25
Foreign "B" Units. The Company has agreed to register the Class A Warrants.
During May 1994, the Company's Board of Directors authorized an offering of
units (U.S. "B" Units) consisting of 5,000 shares of the Company's common stock
and 5,000 Class A Warrants for $50,000 per U.S. "B" Unit. As of March 31, 1995,
the Company had received and accepted subscriptions totaling $850,000 for 17
U.S. "B" Units to accredited investors representing 85,000 shares of the
Company's common stock and 85,000 Class A Warrants. As of March 31, 1995 the
Company received proceeds of $714,690 (net of offering costs of $135,310) from
the sale of 17 U.S. "B" Units. The Company has agreed to register the Class A
Warrants.
In connection with the above offerings, the Company also issued 90,000
Class A Warrants to the placement agent.
(b) Class A Warrants
As of March 31, 1996, 677,960 Class A Warrants were issued and outstanding.
Each Class A Warrant represents the right to purchase one share of the Company's
common stock with an exercise price of $15.00 per share at any time between June
30, 1994 through December 31, 1998, unless earlier called for redemption by the
Company. The Company has the option to call the rights for redemption if the
warrants have been registered for sale under the Securities Act of 1933 and if
the Company's common stock is trading in the NASDAQ over the counter market or
on a national securities exchange and the closing sale price is $22.50 per share
for at least 20 consecutive trading days on the date the warrants are called for
redemption.
No warrants have been exercised to date.
F-42
<PAGE> 155
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(8) COMMON STOCK -- (CONTINUED)
(c) Class B Warrants
As of March 31, 1996, 31,000 Class B Warrants were issued and outstanding.
Each Class B Warrant represents the right to purchase one share of the Company's
common stock with an exercise price of $11.00 per share, expiring October 11,
1999 unless earlier called for redemption by the Company. The Company has the
option to call the rights for redemption if the warrants have been registered
for sale under the Securities Act of 1933 and if the Company's common stock is
trading in the NASDAQ over the counter market or on a national securities
exchange and the closing sale price is $22.50 per share for at least 20
consecutive trading days on the date the warrants are called for redemption.
No warrants have been exercised to date.
(d) Class C Warrants
As of March 31, 1996, 500,000 Class C Warrants were issued and outstanding.
The Class C Warrants represent the right to purchase one share of the Company's
common stock during the month of February 1997 and/or the month of February 1998
and expire thereafter if not exercised. The exercise price per share will be
determined by the average of the quoted closing prices for the Company's common
stock in the over the counter market during the month of January immediately
preceding the date of exercise. In no event will the exercise price per share
exceed $10 per share.
No warrants have been exercised to date.
(e) Reservation of Common Stock
At March 31, 1996, the Company designated 3,000,000 shares of its common
stock for sale in future private placements to finance the Company's operations
in 1996 and to acquire equity interests in additional laser vision correction
centers sponsored by the Company.
(f) Reverse Stock Split
Effective March 15, 1996, the Company completed a one share for five shares
reverse stock split of its common stock. All shares and per share amounts have
been restated retroactively as a result of this reverse split. As a result, any
fractional shares will be rounded up to the nearest full share.
(9) STOCK OPTION AND STOCK COMPENSATION PLANS
(a) The 1994 Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the 1994 stock option plan (the 1994 Plan).
The 1994 Plan provides that options granted thereunder may be either
incentive stock options or nonqualified stock options. The 1994 Plan provides
that incentive stock options must be granted at a option price which is not less
than the fair market value of the common stock on the date of grant and that
nonqualified options must be granted at an option price which is not less than
50% of the fair market value of the common stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the exercise price of any
incentive stock option under the 1994 Plan must be not less than 110% of the
fair market value on the date of grant. The options shall expire within ten
years from the date of the grant, except for options granted to optionees owning
more than 10% of the voting stock of the Company for which the options shall
expire within five years from
F-43
<PAGE> 156
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS -- (CONTINUED)
the date of grant. In the event of termination of employment, the optionee's
option will terminate and may be exercised during a three month period after
termination to the extent the option was exercisable on the date of termination.
A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------- PRICE
RESERVED GRANTED PER
SHARES SHARES SHARE
--------- --------- ------
<S> <C> <C> <C>
Reserved, February 3, 1994............................ 80,000 -- $ --
Granted............................................. -- 56,000 10.00
--------- ---------
Balance, March 31, 1994............................... 80,000 56,000
Reserved............................................ 70,000 -- --
Granted............................................. -- 44,000 10.00
--------- ---------
Balance, March 31, 1995............................... 150,000 100,000
--------- ---------
Reserved............................................ 1,750,000 -- --
Granted............................................. -- 1,467,000 2.50
--------- ---------
Balance, March 31, 1996............................... 1,900,000 1,567,000
========= =========
</TABLE>
At March 31, 1996, options for 47,000 shares were exercisable and options
for 333,000 shares were available for future grants under the 1994 Plan. To
date, no options have been exercised under the 1994 Plan.
A portion of the options granted during fiscal year 1996 will vest and may
be exercised after the 30th trading day (whether or not consecutive) following
the date of grant on which the closing price for the Company's common stock
price equals or exceeds $10.00 per share or five years after the date of grant,
whichever occurs sooner. The remaining options will vest and may be exercised in
12 equal quarter-annual installments commencing on May 15, 1996 subject to the
optionee's continued employment by, or active service as a director or
consultant for, the Company at the time each installment vests. Each option is
for a term of five years subject to possible earlier termination in accordance
with provisions of the 1994 Plan.
(b) The Restricted Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the restricted stock option plan (the Restricted Plan)
under which shares of the Company's common stock were reserved for issuance to
senior management at prices the lesser of $.50 per share or 10% of the fair
market value of the Company's common stock on the date of grant. The options
expire within ten years from the date of grant or to the extent exercisable
within 12 months after termination. The options may not be exercised until the
optionee has remained in continuous employment as a senior executive officer or
as a director of the Company for a period of at least two years from the date of
grant.
F-44
<PAGE> 157
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS -- (CONTINUED)
A summary of stock option activities under the Restricted Plan is as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------- PRICE
RESERVED GRANTED PER
SHARES SHARES SHARE
-------- ------- -----
<S> <C> <C> <C>
Reserved, February 3, 1994............................... 20,000 -- $ --
Granted................................................ -- 20,000 .50
------ -------
Balance, March 31, 1994.................................. 20,000 20,000
Reserved............................................... 30,000 -- --
Granted................................................ -- 12,000 .50
------ -------
Balance, March 31, 1995.................................. 50,000 32,000
------ -------
Canceled............................................... -- (24,000) .50
------ -------
Balance, March 31, 1996.................................. 50,000 8,000
====== =======
</TABLE>
As of March 31, 1996, 42,000 shares were available for future grants under
the Restricted Plan. To date no options have been exercised under the Restricted
Plan.
(c) The 1996 Stock Compensation Plan
On February 6, 1996, the Company's Board of Directors adopted a 1996 Stock
Compensation Plan (the Stock Plan) subject to approval of the Stock Plan within
one year thereafter by stockholders of the Company. The purpose of the Stock
Plan is to permit the Board or a Committee of the Board the flexibility of
issuing shares of the Company's common stock in lieu of cash to compensate
officers, directors, employees and other individuals acting as professionals,
consultants and/or advisers to the Company for services rendered to the Company
and its subsidiaries.
Subject to approval of the Stock Plan by Vista stockholders, 250,000 shares
of common stock will be available for payment of compensation under the Stock
Plan. No compensation awards under the Stock Plan have been made.
(10) NOTES PAYABLE
Notes payable consist of the following at March 31, 1996:
<TABLE>
<S> <C>
12% convertible promissory notes due to related parties; maturing June
15, 1998............................................................... $ 277,777
8% note payable to a related party under an asset purchase and lease
assumption agreement due May 31, 1996 (note 3)......................... 96,591
---------
374,368
Less current portion..................................................... (96,591)
---------
$ 277,777
=========
</TABLE>
The 12% notes are convertible, at the option of the holder, to convert the
principal amount and accrued interest on the notes into shares of the Company's
common stock at a conversion price of $5.00 per share. The notes are
collateralized by 51% of the issued and outstanding shares of Vista-Sweden
common stock. Vista-Sweden has also signed a royalty agreement with each
noteholder expiring on May 31, 1998. Under the royalty agreements, VistaSweden
will pay royalties to each noteholder for each incremental PRK procedure
performed by Vista-Sweden during the three years ended May 31, 1996, 1997 and
1998.
F-45
<PAGE> 158
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(11) LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 1996:
<TABLE>
<S> <C>
Note payable with interest accrued monthly at 10%; payments due quarterly
of approximately $22,003; maturing January 10, 1999; collateralized by
laser equipment........................................................ $ 361,167
Note payable with interest accrued monthly at 10%; payments of $6,789 due
monthly; maturing June 30, 1999; collateralized by laser equipment..... 239,424
---------
600,591
Less current portion..................................................... (137,351)
---------
$ 463,240
=========
</TABLE>
Future maturities of long-term debt are as follows for the years ended
March 31:
<TABLE>
<S> <C>
1997..................................................................... $ 137,351
1998..................................................................... 151,903
1999..................................................................... 167,809
2000..................................................................... 143,528
---------
$ 600,591
=========
</TABLE>
(12) LEASES
The Company leases equipment, vehicles and office space under noncancelable
operating leases and leases certain equipment under capital leases.
As of March 31, 1996, future minimum lease payments under the operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING
--------------------------
VEHICLES LASER
AND EQUIPMENT CENTERS CAPITAL TOTAL
------------- -------- -------- --------
<S> <C> <C> <C> <C>
1997........................................... $24,360 $ 73,226 $ 95,696 $193,282
1998........................................... 24,360 76,362 95,696 196,418
1999........................................... -- 73,362 129,748 203,110
2000........................................... -- 57,645 -- 57,645
------------- -------- -------- --------
Total minimum lease payments................... $48,720 $280,595 $321,140 $650,455
=========== ======== ========
Less amount representing interest (12%)........ (56,596)
--------
Present value of net minimum lease payments.... 264,544
Less current portion........................... (67,588)
--------
Total................................ $196,956
========
</TABLE>
Rent expense relating to operating leases totaled approximately $161,000
and $125,000 for the years ended March 31, 1996 and 1995, respectively.
(13) INCOME TAXES
The Company is obligated to file U.S. federal income tax returns and
separate tax returns in Italy, United Kingdom, Netherlands and Sweden.
F-46
<PAGE> 159
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(13) INCOME TAXES -- (CONTINUED)
As of March 31, 1996, the Company has not recorded any deferred tax assets
or liabilities. The Company's income tax net operating loss carryforwards, if
any, were not determinable at March 31, 1996. The annual use of income tax loss
carryovers may be limited by Section 382 of the Internal Revenue Code.
(14) FOREIGN SEGMENT OPERATIONS
The Company's operations are in a single industry, providing PRK treatments
and laser surgical procedures to patients through the establishment and
operation of eye clinics.
The Company's headquarters are located in the United States, however, all
of the Company's operating assets are located in Italy, Sweden and the
Netherlands.
Revenue by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic................................................. $ -- $ --
Foreign (Western Europe)................................. 2,130,073 1,209,673
----------- ------------
$ 2,130,073 $ 1,209,673
=========== ============
</TABLE>
Net loss by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic................................................. $(3,428,987) $(10,238,767)
Foreign.................................................. (385,948) (1,181,413)
----------- ------------
$(3,814,935) $(11,420,180)
=========== ============
</TABLE>
Identifiable assets by geographic areas are as follows:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Domestic............................................................... $ 4,216,830
Foreign................................................................ 2,052,952
------------
$ 6,269,782
============
</TABLE>
F-47
<PAGE> 160
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(15) SUPPLEMENTAL CASH FLOWS INFORMATION FOR NONCASH INVESTING AND FINANCING
ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Common stock issued in exchange for Vista Vision SpA
stock..................................................... $ 8,198 $ --
========== ==========
Issuance of common stock for investment in VLC-Michigan..... $ 217,600 $ --
========== ==========
Issuance of common stock for investment in VLC-Southwest.... $ 271,750 $ --
========== ==========
Issuance of common stock for investment in TCPI stock
received from PP Plc...................................... $2,662,500 $ --
========== ==========
Issuance of common stock for stock subscriptions
receivable................................................ $ 962,500 $ --
========== ==========
Note payable issued to acquire equipment.................... $ 96,591 $ --
========== ==========
Capital lease assumed to acquire equipment.................. $ 275,045 $ --
========== ==========
Long-term debt issued to acquire laser equipment............ $ -- $ 901,112
========== ==========
Common stock issued to acquire MDRI......................... $ -- $3,557,554
========== ==========
Note payable to acquire assets of Klara Clinic.............. $ -- $ 286,000
========== ==========
Common stock issued to retire note payable issued to acquire
assets of Klara Clinic.................................... $ -- $ 286,000
========== ==========
Rescission and cancellation of stock issued to acquire
investment in LVCI........................................ $ -- $ 968,907
========== ==========
Note payable issued to LVCI for legal settlement............ $ -- $ 175,618
========== ==========
Cash paid during the period for interest.................... $ 61,415 $ 9,781
========== ==========
</TABLE>
(16) FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company recorded the following
year-end adjustments which it believes are material to the results of that
quarter:
<TABLE>
<S> <C>
Extraordinary loss from advanced funds for incomplete acquisition........ $5,642,887
Impairment of goodwill................................................... 3,825,990
Accrual of payroll and payroll taxes..................................... 113,836
----------
$9,582,713
==========
</TABLE>
(17) SUBSEQUENT EVENTS
(a) Cash Received
Subsequent to March 31, 1996 the Company received $1,675,000 in cash
related to the following:
(i) In May 1996, payment was received for the $962,500 of stock
subscriptions receivable reflected in the Company's financial
statements as of March 31, 1996.
(ii) In June 1996, the Company completed the sale of 100,000 shares of
its common stock on a Regulation S basis for cash proceeds of
$212,500.
F-48
<PAGE> 161
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(17) SUBSEQUENT EVENTS -- (CONTINUED)
(iii) In July 1996, PP Plc exercised options to purchase 200,000 shares of
the Company's common stock resulting in proceeds to the Company of
$500,000.
(b) Rental Agreements
In June 1996, the Company entered into two rental agreements with Summit
Technologies, Inc. to rent two Summit Apex excimer lasers. The term of each
rental agreement commences upon installation of the equipment and shall continue
for a period of 27 months. After the first three months of operation, each
equipment lease provides for a minimum monthly rental fee of $6,500. The Company
anticipates installing these lasers at one or more of its Regional Joint
Ventures under a sublease arrangement.
In June 1996, the Company entered into a five year lease agreement for
additional office space. The lease provides for a base rental of $2,084 per
month which will be adjusted at the end of each year for changes in the consumer
price index and in any event not less than three percent increase per year.
(c) Establishment of Regional Joint Ventures
In May 1996, the Company issued 450,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of New York, Inc. (VLC-New York). At March 31, 1996, the Company
had advanced VLC-New York approximately $38,000.
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of the Northwest, Inc. (VLC-Northwest).
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of the Pacific, Inc. (VLC-Pacific).
VLC-New York, VLC-Northwest and VLC-Pacific have been organized to
establish, own and manage laser vision correction centers.
The Company does not exercise control over any of the Regional Joint
Ventures insofar as it has granted or has committed to grant to one or more
local affiliates of each of the Regional Joint Ventures an irrevocable five year
proxy to vote the Series A and Series B preferred shares owned by the Company.
(d) Agreement to Acquire Refractive Services-800 (unaudited)
From July 1995 through June 1996, a foreign corporate investor named
Refractive Services-800, Inc. provided at least $100,000 in initial seed capital
to each of five Regional Joint Ventures (for an aggregate investment of $520,00)
to finance initial organizational expenses and costs of negotiating agreements
with vision care professionals and seeking additional financing. In exchange for
that investment, and in view of the high risks associated with a start-up
enterprise, Refractive Services-800, Inc. received shares of a 10% Series A
convertible preferred issue of the Regional Joint Venture with a liquidation
preference equal to five times its cash investment in four Regional Joint
Ventures and six times its cash investment in one other Regional Joint Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by Refractive Services-800, Inc. in
all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and 900
telephone numbers for telemarketing purposes at the election of Regional Joint
Ventures.
F-49
<PAGE> 162
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1996
------------
<S> <C>
Current assets:
Cash......................................................................... $ 576,350
Accounts receivable:
Trade..................................................................... 75,612
VAT....................................................................... 2,973
Related parties........................................................... 768,231
Stock subscriptions receivable............................................... 500,000
Prepaid expenses and other................................................... 219,628
------------
Total current assets...................................................... 2,142,794
Investment securities:
Available for sale........................................................... 2,850,000
Held to maturity............................................................. 116,450
Long-term VAT receivables...................................................... 193,200
Property and equipment, net.................................................... 1,178,281
Investment in equity investees................................................. 1,388,185
Other assets................................................................... 3,220
------------
Total Assets................................................................... $ 7,872,131
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade...................................................... $ 419,791
Accounts payable, officers................................................... --
Accrued expenses............................................................. 735,238
Current portion of notes payable............................................. 371,591
Current portion of long-term debt............................................ 138,362
Current portion of obligations under capital leases.......................... 67,588
------------
Total current liabilities................................................. 1,732,570
------------
Long-term liabilities:
Notes payable, net of current portion........................................ 277,777
Long-term debt, net of current portion....................................... 471,228
Obligations under capital leases, net of current portion..................... 155,241
------------
Total long-term liabilities............................................... 904,246
------------
Minority Interest.............................................................. 705,563
------------
Commitments and Contingencies
Total liabilities......................................................... 3,342,379
------------
Stockholders' Equity:
Preferred stock, $.001 par value, 15,000,000 shares authorized, none issued
or outstanding............................................................ --
Common stock, $.005 par value; 15,000,000 shares authorized, issued and
outstanding, 7,006,105 shares at June 30, 1996 and 5,256,105 shares at
March 31, 1996............................................................ 35,032
Additional paid-in capital................................................... 20,122,346
Unrealized loss on securities available for sale............................. 187,500
Accumulated deficit.......................................................... (16,051,073)
Foreign currency translation adjustments..................................... 235,947
------------
Total stockholders' equity................................................ 4,529,752
------------
Total Liabilities and Stockholders' Equity..................................... $ 7,872,131
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE> 163
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---------- -----------
<S> <C> <C>
REVENUES........................................................... $ 786,075 $ 471,973
---------- -----------
COSTS AND EXPENSES:
General and administrative....................................... 1,004,567 1,133,457
Depreciation and amortization.................................... 56,654 45,857
---------- -----------
Total costs and expenses................................. 1,061,221 1,179,314
---------- -----------
OTHER (INCOME) EXPENSES:
Foreign currency exchange loss................................... (4,480) --
Realized loss (gains) on trading securities...................... -- 152,496
Interest......................................................... 8,439 --
Other............................................................ -- 223,684
---------- -----------
Net other (income) expense............................... 3,959 376,180
---------- -----------
LOSS FROM OPERATIONS..................................... (279,105) (1,083,521)
EQUITY INVESTEES INCOME (LOSS)..................................... (472,665) --
---------- -----------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY LOSS..................................... (751,770) (1,083,521)
INCOME TAXES....................................................... -- --
---------- -----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY LOSS..... (751,770) (1,083,521)
MINORITY INTEREST.................................................. (52,257) (563)
---------- -----------
NET LOSS BEFORE EXTRAORDINARY LOSS....................... (804,027) (1,084,084)
EXTRAORDINARY LOSS................................................. -- --
---------- -----------
NET LOSS................................................. $ (804,027) $(1,084,084)
========== ===========
NET LOSS PER COMMON SHARE:
Before extraordinary loss................................ $ (0.12) $ (0.77)
Extraordinary loss....................................... -- --
---------- -----------
Net loss per common share................................ $ (0.12) $ (0.77)
========== ===========
Weighted average number of common shares outstanding............... 6,778,160 1,411,523
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE> 164
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................................... $ (804,027) $(1,084,084)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................... 56,654 45,857
Write off of impaired and abandoned assets, net................. -- --
Realized (gain) loss on trading securities...................... -- 152,496
Minority interest............................................... 52,257 563
Equity investees (income) loss, net............................. -- --
Stock issued for services....................................... -- --
Compensation related to issued non-employee stock options....... -- --
Changes in operating assets and liabilities, net of foreign
currency translation:
Accounts receivable:
Trade...................................................... (46,097) 134,562
VAT........................................................ 38,461
Related parties............................................ (553,777)
Prepaid expenses............................................. 36,453 8,786
Other current assets......................................... -- (17,787)
Other assets................................................. 4,079 (7,746)
Bank overdraft protection.................................... -- 36,983
Accounts payable, trade...................................... (101,034) 237,359
Accounts payable, officers................................... (29,535) --
Accrued expenses............................................. 102,032 44,894
Other liabilities............................................ 39,672 --
----------- -----------
Net Cash Provided By (Used By) Operating Activities............... (1,204,863) (448,117)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of trading securities......................... -- 250,630
Repayment of capital lease obligations............................ -- --
Purchase of trading securities.................................... -- --
Purchase of property and equipment................................ (15,137) (73,608)
Loss on investment -- held to maturity............................ -- (5,596)
Purchase of investment -- held to maturity........................ (919,835) --
----------- -----------
Net Cash Provided By (Used By) Investing Activities............... (934,972) 171,426
----------- -----------
FINANCING ACTIVITIES:
Issuance of notes payable......................................... -- 115,315
Payment of long-term debt......................................... -- --
Sale of common stock.............................................. 2,567,501 --
Redeemed stock of subsidiary...................................... -- (277,777)
----------- -----------
Net Cash Provided By (Used By) Financing Activities............... 2,567,501 (162,462)
----------- -----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH................... (139,628) 12,639
----------- -----------
NET INCREASE (DECREASE) IN CASH................................... 288,038 (426,514)
Cash at beginning of period....................................... 288,312 649,708
----------- -----------
CASH AT END OF PERIOD............................................. $ 576,350 $ 223,194
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest..................................................... $ 24,655 $ 23,548
Income taxes................................................. -- --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-52
<PAGE> 165
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL FOREIGN TOTAL
------------------ PAID-IN UNREALIZED ACCUMULATED CURRENCY STOCKHOLDERS'
SHARES AMOUNT CAPITAL LOSS DEFICIT ADJUSTMENTS EQUITY
-------- ------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996...... 5,256,105 $26,281 $18,026,096 $ (187,500) $(15,247,045) $375,575 $2,993,407
Common stock issued for cash in
private placement............ 100,000 500 212,000 -- -- -- 212,500
Common stock issued to Vista
Laser Centers of the Pacific
Inc. in exchange for 500,000
shares of series B preferred
stock of VLC-Pacific......... 500,000 2,500 485,350 -- -- -- 487,850
Common stock issued to Vista
Laser Centers of the
Northeast Inc. in exchange
for 675,000 shares of series
B preferred stock of
VLC-Northeast................ 450,000 2,250 443,250 -- -- -- 445,500
Common stock issued to Vista
Laser Centers of the
Northwest Inc. in exchange
for 500,000 shares of series
B preferred stock of
VLC-Northwest................ 500,000 2,500 492,000 -- -- -- 494,500
Exercise of stock option by
Pharma Patch................. 200,000 1,000 499,000 -- -- -- 500,000
Adjustment for investment in
VLC-Southwest................ -- -- (35,350) -- -- -- (35,350)
Foreign currency adjustments... -- -- -- 375,000 -- (139,628) 235,372
Net loss for the three months
ended June 30, 1996.......... -- -- -- -- (804,027) -- (804,027)
--------- ------- ----------- --------- ------------ -------- ----------
Balance at June 30, 1996....... 7,006,105 $35,032 $20,122,346 $ 187,500 $(16,051,073) $235,947 $4,529,752
========= ======= =========== ========= ============ ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 166
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements of Vista
Technologies Inc., a Nevada corporation (the "Company" or "Vista") at June 30,
1996, and for the three months periods ended June 30, 1996 and 1995 have been
prepared by the Company pursuant to the rules of the Securities and Exchange
Commission (the "Commission"). In the opinion of the Company's management, such
unaudited financial statements include all adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods covered by such statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the Commission's rules. Reference is made to Note 1 of the Notes to
Consolidated Financial Statements contained in the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1996 for a summary of
significant accounting policies utilized by the Company. It is suggested that
the financial statements at June 30, 1996 be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-KSB.
Results of operations for the three months ended June 30, 1996 and 1995 may
not necessarily be indicative of results for the full fiscal year.
NOTE 2 -- PRINCIPLES OF CONSOLIDATION; FOREIGN CURRENCY TRANSLATION;
INTEREST IN CONSOLIDATED SUBSIDIARIES
(a) Principles of Consolidation
The consolidated financial statements include accounts of the Company, and
all wholly-owned and majority-owned subsidiaries. Investments in companies in
which the Company's ownership interests range from 20 to 50 percent, and in
which the Company exercises influence over operating and financial policies, are
accounted for using the equity method. Investments in companies in which the
Company's ownership interest is currently in excess of 50% but for which
majority interest is considered only temporary and investments in companies in
which the Company's financial interest exceeds 20 percent and in which the
Company has the ability to exercise significant influence but in which the
Company may have limited or no voting rights are accounted for using the equity
method. Other investments are accounted for using the cost method. All
significant intercompany accounts and transactions have been eliminated. The
Company's subsidiaries in Italy, Sweden and the Netherlands have been
consolidated at June 30, 1996 using the subsidiaries' respective fiscal quarters
ended March 31, 1996 and have been consolidated at June 30, 1995 using their
respective fiscal quarters ended March 31, 1995.
(b) Foreign Currency Translation
Financial statements of international subsidiaries are translated into US
dollars using the exchange rate at each balance sheet date for assets and
liabilities and an average exchange rate for each period for revenues, expenses,
gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholders'
equity.
F-54
<PAGE> 167
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
The balance sheet and income statement data for the foreign subsidiaries
have been translated from their respective foreign currency to U.S. dollars
using the following exchange rates:
<TABLE>
<CAPTION>
AVERAGE RATE AVERAGE RATE
FOR THE FOR THE
THREE MONTHS THREE MONTHS
JUNE 30, ENDED ENDED
FOREIGN 1996 JUNE 30, JUNE 30,
SUBSIDIARY CURRENCY SPOT RATE 1996 1995
--------------------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vista-UK Pounds Sterling n/a n/a $1.598
Vista-Italy Lira $0.001 $0.001 0.001
ConVista Gilders 0.585 0.614 0.647
Vista-Sweden Krona 0.149 0.144 0.138
</TABLE>
(c) Minority Interest
Minority interest represents the minority stockholders' proportionate share
of the equity in Vista-Italy. At June 30, 1996, the Company owned 73.57% of the
capital stock of Vista-Italy.
NOTE 3 -- LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of common
shares outstanding. Common equivalent shares relating to stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
NOTE 4 -- CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
NOTE 5 -- STOCK SUBSCRIPTIONS RECEIVABLE
The Company has recorded stock subscriptions receivable as a current asset
as of March 31, 1996 and June 30, 1996, because all such receivables were paid
before the issuance of the Company's financial statements.
NOTE 6 -- INVESTMENT SECURITIES
The Company accounts for investment securities under the provisions of SFAS
No. 115. This standard requires that individual debt and equity securities be
classified into one of three categories: trading, held-to-maturity or
available-for-sale.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those securities
in which the Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading securities and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Realized gains and losses from the sale
of securities are determined on a specific identification basis.
F-55
<PAGE> 168
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to earnings and a
new cost basis for the security is established. Premiums and discounts are
amortized or accreted over the life of the related held-to-maturity security as
an adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned.
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale and held-to-maturity
securities by major security type and class of security at June 30, 1996, were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities........................ $2,662,500 $ 187,500 $ -- $2.850,000
Held-to-maturity:
8.75% Italian bonds...................... 115,468 -- (5,343) 110,125
</TABLE>
The 8.75% Italian bonds mature in 1997.
NOTE 7 -- RECLASSIFICATION
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
NOTE 8 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1996 and March
31, 1996:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
---------- ----------
<S> <C> <C>
Excimer lasers and other technical equipment................ $1,896,394 $1,896,394
Office furniture and equipment.............................. 82,522 67,385
---------- ----------
1,978,916 1,963,779
Less accumulated depreciation............................... (800,635) (743,981)
---------- ----------
$1,178,281 $1,219,798
========== ==========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
The Company has employment agreements with its executive officers, the
terms of which expire at various times through January 15, 1999. Such agreements
provide for minimum salary levels, as well as for incentive bonuses which are
payable if specified management and operational goals are attained.
(b) Exchange Agreement
In order to induce a stockholder to advance $100,000 under a deed of
debenture to MICRA Instruments Limited (a wholly owned subsidiary of Medical
Development and Research, Inc.), the Company entered into an exchange agreement
on June 28, 1995 with the stockholder. The exchange agreement provides the
stockholder with the option of exchanging the unpaid principal and interest of
the debenture for fully paid and nonassessable shares of the Company's common
stock issued under Regulation S at a conversion price of
F-56
<PAGE> 169
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
$1.25 per share at any time prior to repayment of the debenture by MICRA. As of
June 30, 1996, the stockholder has not exercised this option.
(c) Legal Judgment
In 1991 and 1993, Vista-Italy and Laser Vision Centers, Inc. ("LVCI")
entered into agreements to license trademarks and develop territorial marketing
strategies. The companies exchanged shares of their respective common stock as
consideration under the agreements.
In 1993, LVCI filed suit for termination of these agreements and a default
judgment was entered in LVCI's favor rescinding all prior agreements among the
parties. In connection with this judgment, Vista-Italy recorded the cancellation
of Vista-Italy shares of common stock it had issued to LVCI, a return of LVCI
shares previously delivered to Vista-Italy and a note payable for $175,000 plus
related legal fees. Vista-Italy filed a motion to vacate the judgment which was
denied by the trial court; the trial court's decision was recently affirmed on
appeal and the appellate court denied Vista-Italy's application for a rehearing
by the appellate court. Vista-Italy plans to petition for an appeal to the
Missouri Supreme Court.
(d) Insurance and Indemnification
Use of laser systems by health care professionals using laser equipment and
other laser vision correction ("LVC") services may give rise to claims against
the Company or its affiliates by persons alleging injury. The Company's
subsidiaries generally do not currently have malpractice liability insurance.
The Company believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that the Company and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can be
no assurance that laser suppliers will carry product liability insurance or that
any such insurance will be adequate to protect the Company.
Generally speaking, the policy of the Company's operating subsidiaries and
regional joint ventures is to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
(e) Physician Commitments
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by the Company has been advised by a third
party that it contends the physician breached commitments or obligations to the
third party by the physician's decision to associate with one of the Company's
Regional Joint Ventures.
In one of these matters, the third party contends that its plan of
operations to enter the business of providing access to LVC equipment in
association with a physician in Hawaii has been damaged due to that physician's
decision to affiliate with a Regional Joint Venture sponsored by Vista. The
third party recently filed a civil action in the state court of Hawaii seeking
injunctive relief and damages which names two physicians and the Company as
defendants. On the date the action was filed, at a hearing not attended by the
defendants, the court issued an ex parte temporary restraining order expiring on
September 6, 1996 which prohibits the defendants from using confidential
information, if any, obtained by them from the plaintiff. Although discovery has
not yet commenced, the Company does not believe that any of the defendants
received confidential information from the plaintiff. The terms of the temporary
restraining order do not prohibit either physician from affiliating with
Regional Joint Ventures sponsored by Vista, and the Company believes the
plaintiff's claims are without merit and will not result in material liability
to the Company or its Regional Joint Venture affiliate.
F-57
<PAGE> 170
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
In the other dispute, the third party contends that a physician breached
fiduciary duties to the third party and misappropriated client lists and data,
and the claimant also has threatened to hold the Company and certain other
parties responsible as well as the physician. To date, this dispute has resulted
in the filing of legal proceedings. Based on information currently known to the
Company, the Company believes these claims are without merit.
NOTE 10 -- ESTABLISHMENT OF ADDITIONAL REGIONAL JOINT VENTURES
The Company's business strategy is to expand in North America by organizing
and sponsoring independently financed regional enterprises ("Regional Joint
Ventures") in which the Company will obtain a significant equity interest and
long-term fee-based consulting arrangements. As of March 31, 1996, two such
Regional Joint Ventures, Vista Laser Centers of Michigan, Inc. and Vista Laser
Centers of the Southwest, Inc. had been formed.
During the current fiscal period, the Company made additional investments
in Regional Joint Ventures as follows:
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of the Pacific, Inc. (VLC-Pacific). Based on an
independent appraisal of the value of the stock received the Company
recorded equity of $487,858 (approximately $.98 per share of common stock
issued).
In May 1996, the Company issued 450,000 shares of its common stock in
exchange for 675,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of the Northeast, Inc. (VLC-Northeast). In recording
the transaction the Company used an estimated value of approximately $.99
per share of common stock issued. An independent appraisal will be
performed, and to the extent it results in a different value, the financial
statements will be adjusted.
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in
Vista Laser Centers of the Northwest, Inc. VLC-Northwest). In recording the
transaction the Company used an estimated value of approximately $.99 per
share of common stock issued. An independent appraisal will be performed,
and to the extent it results in a different value, the financial statements
will be adjusted.
VLC-Northeast, VLC-Northwest and VLC-Pacific have been organized to
establish, own and manage laser vision correction centers.
The Company does not exercise control over any of the Regional Joint
Ventures insofar as it has granted or has committed to grant to one or more
local affiliates of each of the Regional Joint Ventures an irrevocable five year
proxy to vote the Series A and Series B preferred shares owned by the Company.
However, the Company has or will retain the right to have representation on the
Board of Directors of each of the Regional Joint Ventures.
NOTE 11-- SUBSEQUENT EVENTS
(a) Cash Received
Subsequent to June 30, 1996 the Company received $1,512,500 in cash related
to the following:
(i) In July 1996, Pharma Patch PLC exercised options to purchase
200,000 shares of the Company's common stock resulting in proceeds to the
Company of $500,000.
(ii) In August, the Company completed the sale of 100,000 shares of
its common stock on a Regulation S basis for cash proceeds of $212,500.
F-58
<PAGE> 171
VISTA TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(iii) In August, the Company received $800,000 from the sale of an 8%
promissory note to Pharma Patch PLC. The Company has pledged 200,000 shares
of Technical Chemical and Products, Inc. common stock as collateral to
secure the promissory note due on December 31, 1996, but the maturity date
may be extended by Vista up to two times for an additional six months each
so long as Vista is not in default on its loan obligations.
(b) Agreement With Refractive Services-800, Inc.
From July 1995 through June 1996, a foreign corporate investor named
Refractive Services-800, Inc. provided at least $100,000 in initial seed capital
to each of five Regional Joint Ventures (for an aggregate investment of $520,00)
to finance initial organizational expenses and costs of negotiating agreements
with vision care professionals and seeking additional financing. In exchange for
that investment, and in view of the high risks associated with a start-up
enterprise, Refractive Services-800, Inc. received shares of a 10% Series A
convertible preferred issue of the Regional Joint Venture with a liquidation
preference equal to five times its cash investment in four Regional Joint
Ventures and six times its cash investment in one other Regional Joint Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by Refractive Services-800, Inc. in
all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and 900
telephone numbers for telemarketing purposes at the election of Regional Joint
Ventures.
(c) Conversion of Interests in Regional Joint Ventures from Preferred to
Common Stock
The Company has agreed to convert shares of Series A and Series B preferred
stock held by the Company in certain Regional Joint Ventures (VLC-Michigan,
VLC-Northeast, VLC-Northwest, VLC-Pacific and VLC-Southwest) into shares of
common stock of the Regional Joint Ventures, in each instance at a one-for-one
conversion ratio.
F-59
<PAGE> 172
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Atlantic Central Enterprises Limited:
We have audited the accompanying balance sheet of Atlantic Central
Enterprises Limited as of August 7, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above present(s) fairly, in
all material respects, the financial position of Atlantic Central Enterprises
Limited as of August 7, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
August 7, 1996
F-60
<PAGE> 173
ATLANTIC CENTRAL ENTERPRISES LIMITED
BALANCE SHEET
AUGUST 7, 1996
ASSETS
<TABLE>
<S> <C>
Current assets -- cash............................................. $12,000
-------
Total assets....................................................... $12,000
-------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 50,000,000 shares; issued
and outstanding 1,200,000 shares................................. $12,000
-------
Total shareholder's equity......................................... $12,000
-------
</TABLE>
See accompanying notes to balance sheet.
F-61
<PAGE> 174
ATLANTIC CENTRAL ENTERPRISES LIMITED
NOTES TO BALANCE SHEET
AUGUST 7, 1996
(1) ORGANIZATION
Atlantic Central Enterprises Limited (the Company or Ace) was incorporated
on February 2, 1996 in Bermuda under the name Bamburgh Limited. On April 2,
1996, the name was changed to Atlantic Central Enterprises Limited. The Company
has not heretofore conducted any business other than in connection with the
proposed reorganization with Pharma Patch Public Limited Company (Pharma Patch).
Upon consummation of the proposed transaction, the business of Pharma Patch will
be conducted by the Company. Pharma Patch currently owns all the outstanding
common stock of the Company. Such ownership will be transferred to current
Pharma Patch shareholders upon consummation of the reorganization. The
consummation of the transaction contemplated is subject to satisfaction of
certain conditions, including shareholder and regulatory approvals.
(2) PLAN OF REORGANIZATION
The plan of reorganization (the Plan) of Pharma Patch has the purpose of
reorganizing the business operations of Pharma Patch into Atlantic Central
Enterprises Limited by (a) having Pharma Patch transfer to the Company all of
its assets, and having the Company assume all of Pharma Patch's liabilities, in
exchange for the Company shares, (b) as soon as possible after the transfer,
commencing a voluntary liquidation of winding up of Pharma Patch, (c) having
Pharma Patch distribute the Company shares to its shareholders. The Plan is
intended to constitute a series of integrated steps that qualifies as a
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended.
(3) STOCK OPTIONS
On February 2, 1996, the Board of Directors of Ace adopted its 1996 Stock
Option Plan. The plan is administered by a Compensation Committee designated by
the Board of Directors of Ace which is comprised of outside directors. The
aggregate number of common shares reserved for issuance under the Plan is
3,500,000. On February 3, 1996, the following options to purchase common shares
of Ace were issued to the persons or entities below (other than with respect to
Mr. Hutchison who received his options on June 30, 1996), at the estimated
equivalent fair value per share of Pharma Patch, all of which have a five year
term:
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE PRICE
NAME SUBJECT TO OPTION PER SHARE
------------------------------------------------ ----------------- --------------
<S> <C> <C>
Trident Management, Inc......................... 150,000 $ 0.50
Pinnacle Financial Corporation.................. 75,000 $ 0.50
William G. Hutchison............................ 20,000 $ 0.50
Kevin J. Quinn.................................. 10,000 $ 0.50
Paul E. Heney................................... 10,000 $ 0.50
</TABLE>
The option of Trident Management, Inc. will be valued in accordance with
the provisions of Financial Accounting Standards Board Statement No. 123
regarding option grants to consultants upon the successful completion of the
proposed reorganization. The remaining options are considered issued to
employees or directors.
F-62
<PAGE> 175
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of Registrant provide that every director, officer of
Registrant and member of a committee shall be indemnified out of the funds of
Registrant against all civil liabilities, loss, damage or expense (including but
not limited to liabilities under contract, tort and statute or any applicable
foreign law or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by him as such director, officer or
committee member and the indemnity contained in this Bye-Law shall extend to any
person acting as a director, officer or committee member in the reasonable
belief that he has been so appointed or elected notwithstanding any defect in
such appointment or election. The indemnity contained in the Bye-Laws shall not
extend to any matter which would render it void pursuant to the Companies Acts.
Further, every Director, officer and member of a committee of Registrant
shall be indemnified out of the funds of the company against all liabilities
incurred by him as such director, officer or committee member in defending any
proceedings, whether civil or criminal, in which judgment is given in his
favour, or in which he is acquitted, or in connection with any application under
the Companies Acts in which relief from liability is granted to him by the
court.
To the extent that any director, officer or member of a committee is
entitled to claim an indemnity pursuant to these Bye-Laws in respect of amounts
paid or discharged by him, the relative indemnity shall take effect as an
obligation of Registrant to reimburse the person making such payment or
effecting such discharge.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
The following exhibits were delivered with this Registration Statement or
will be delivered by Amendment, for filing:
<TABLE>
<S> <C>
2.1 Plan of Reorganization*
3.1 Memorandum of Organization, as amended
3.2 By-Laws of Registrant, as amended
4.1 1996 Stock Option Plan*
10.1 Management and Consulting Agreement between Pharma Patch PLC and Trident
Management, Inc.
10.2 Management and Consulting Agreement between Pharma Patch PLC and Pinnacle
Financial Corporation
10.3 Form of Letter of Transmittal
23.1 Consent of Appleby, Spurling & Kempe*
23.2 Consent of Ernst & Young
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of AJ. Robbins
23.6 Consent of KPMG Peat Marwick LLP
</TABLE>
- ---------------
* Previously filed.
II-1
<PAGE> 176
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrants has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 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 whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hamilton, Bermuda, on
October 3, 1996.
ATLANTIC CENTRAL ENTERPRISES
LIMITED
By: /s/ Murray D. Watson
------------------------------------
Murray D. Watson
Chairman of the Board and
Chief Executive Officer
We the undersigned, directors and officers of Atlantic Central Enterprises
Limited, do hereby constitute and appoint Murray Watson and Kevin J. Quinn, or
either of them, acting individually, as our true and lawful attorneys and agents
to do any and all acts and things in our name and on behalf, in our capacities
indicated below which said attorneys and agents, or any one of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
and Exchange Commission, in connection with this Registration Statement, or
amendment thereto, including specifically, but without limitation, power and
authority to sign for us or any of us in our names and in our capacities
indicated below, any and all amendments (including post-effective amendments)
hereof and we do hereby ratify and confirm all that the said attorneys and
agents, or any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- --------------------------- -----------------
<S> <C> <C>
/s/ Murray D. Watson Chairman of the Board, October 3, 1996
- ----------------------------------------------- Chief Executive Officer,
Murray D. Watson President and Director
(Principal Executive
Officer)
/s/ Kenneth Howling Vice President-Finance October 3, 1996
- ----------------------------------------------- (Chief Accounting Officer)
Kenneth Howling
/s/ William G. Hutchison Director October 3, 1996
- -----------------------------------------------
William G. Hutchison
/s/ Peter Bubenzer Director October 3, 1996
- -----------------------------------------------
Peter Bubenzer
/s/ Judith Collis Director October 3, 1996
- -----------------------------------------------
Judith Collis
</TABLE>
II-3
<PAGE> 178
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Memorandum of Organization, as amended
3.2 By-Laws of Registrant, as amended
10.1 Management and Consulting Agreement between Pharma Patch PLC and
Trident Management, Inc.
10.2 Management and Consulting Agreement between Pharma Patch PLC and
Pinnacle Financial Corporation
10.3 Form of Letter of Transmittal
23.2 Consent of Ernst & Young
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of A.J. Robbins
23.6 Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE> 1
EXHIBIT 3.1
FORM NO. 6 Registration No. EC21618
[LOGO]
Bermuda
CERTIFICATE OF INCORPORATION
----------------------------
I hereby in accordance with the provisions of section 14 of the Companies Act
1981, of Bermuda issue this Certificate of Incorporation and do certify that on
the 2ND day of FEBRUARY 1996
BAMBURGH LIMITED
was registered by me in the Register maintained by me under the provisions of
the said section and that the status of the said company is that of an EXEMPTED
company.
Given under my hand this 19TH day of FEBRUARY, 1996.
[SEAL]
[SIG]
---------------------------
for REGISTRAR OF COMPANIES
<PAGE> 2
FORM NO. 3a Registration No. 21618
[LOGO]
BERMUDA
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
I HEREBY CERTIFY that in accordance with section 10 of THE COMPANIES ACT
1981 BAMBURGH LIMITED by resolution and with the approval of the Registrar of
Companies has changed its name and was registered as ATLANTIC CENTRAL
ENTERPRISES LIMITED on the 22ND day of APRIL, 1996.
Given under my hand and the Seal of the
REGISTRAR OF COMPANIES this 7TH day of
MAY, 1996.
[SEAL]
[SIG]
---------------------------
for REGISTRAR OF COMPANIES
<PAGE> 3
FORM NO. 5
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
CERTIFICATE OF DEPOSIT OF
MEMORANDUM OF ASSOCIATION
AND CONSENT GRANTED BY THE MINISTER
THIS IS TO CERTIFY THAT A MEMORANDUM OF ASSOCIATION
OF
BAMBURGH LIMITED
and the consent granted by the Minister under section 6(1) of the Act were
delivered to the Office of the Registrar of Companies on the 2nd day of
February, 1996 in accordance with the provisions of section 14(2) of the Act.
IN WITNESS WHEREOF I have
hereto set my hand this 19th day of
February, 1996.
[sig]
-------------------------
for REGISTRAR OF COMPANIES
Minimum Capital of the Company: US$12,000.00
------------
Authorised Capital of the Company: US$12,000.00
------------
<PAGE> 4
FORM NO. 2
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
BAMBURGH LIMITED
- -------------------------------------------------------------------------------
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(YES/NO) SUBSCRIBED
<S> <C> <C> <C>
Judith Collis
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Ruby L. Rawlins
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Marcia De Couto
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Stacy L. Robinson
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
</TABLE>
do hereby respectively agree to take such number of shares of the
Company as may be allotted to us respectively by the provisional
directors of the Company, not exceeding the number of shares for which
we have respectively subscribed, and to satisfy such calls as may be
made by the directors, provisional directors or promoters of the Company
in respect of the shares allotted to us respectively.
<PAGE> 5
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situate in Bermuda not exceeding in
including the following parcels --
5. The authorised share capital of the Company is $12,000.00 divided into
shares of US$.0001 each. The minimum subscribed share capital of the
Company is $12,000.00 in United States currency.
6. The objects for which the Company is formed and incorporated are --
As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to The Companies Act 1981.
7. The Company has the powers set out in the Schedule annexed hereto.
<PAGE> 6
THE COMPANIES ACT 1981
SECOND SCHEDULE
(Section 11(2))
A company may by reference include in its memorandum any of the
following objects that is to say the business of --
(a) insurance and re-insurance of all kinds;
(b) packaging of goods of all kinds;
(c) buying, selling and dealing in goods of all kinds;
(d) designing and manufacturing of goods of all kinds;
(e) mining and quarrying and exploration for metals, minerals, fossil fuels
and precious stones of all kinds and their preparation for sale or use;
(f) exploring for, the drilling for, the moving, transporting and refining
petroleum and hydro carbon products including oil and oil products;
(g) scientific research including the improvement, discovery and development
of processes, inventions, patents and designs and the construction,
maintenance and operation of laboratories and research centres;
(h) land, sea and air undertakings including the land, ship and air carriage
of passengers, mails and goods of all kinds;
(i) ships and aircraft owners, managers, operators, agents, builders and
repairers;
(j) acquiring, owning, selling, chartering, repairing or dealing in ships
and aircraft;
(k) travel agents, freight contractors and forwarding agents;
(l) dock owners, wharfingers, warehousemen;
(m) ship chandlers and dealing in rope, canvas oil and ship stores of all
kinds;
(n) all forms of engineering;
(o) developing, operating, advising or acting as technical consultants to
any other enterprise or business;
(p) farmers, livestock breeders and keepers, graziers, butchers, tanners and
processors of and dealers in all kinds of live and dead stock, wool,
hides, tallow, grain, vegetables and other produce;
(q) acquiring by purchase or otherwise and holding as an investment
inventions, patents, trade marks, trade names, trade secrets,
designs and the like;
(r) buying, selling, hiring, letting and dealing in conveyances of any sort;
(s) employing, providing, hiring out and acting as agent for artists,
actors, entertainers of all sorts, authors, composers, producers,
directors, engineers and experts or specialists of any kind;
(t) to acquire by purchase or otherwise hold, sell, dispose of and deal in
real property situated outside Bermuda and in personal property of all
kinds wheresoever situated; and
(u) to enter into any guarantee, contract of indemnity or suretyship and to
assure, support or secure with or without consideration or benefit the
performance of any obligations of any person or persons and to guarantee
the fidelity of individuals filling or about to fill situations of trust
or confidence.
<PAGE> 7
7. The Company has the powers set out in The Schedule annexed hereto.
Signed by each subscriber in the presence of at least one witness attesting
the signature thereof -
/s/ JUDITH COLLIS [sig]
- ------------------------------ ------------------------------
/s/ RUBY L. RAWLINS [sig]
- ------------------------------ ------------------------------
/s/ MARCIA DE COUTO [sig]
- ------------------------------ ------------------------------
/s/ STACY L. ROBINSON [sig]
- ------------------------------ ------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 26th day of January, 1996
<PAGE> 8
STAMP DUTY (To be affixed)
<PAGE> 9
THE SCHEDULE
(referred to in Clause 7 of the Memorandum of Association)
(a) To borrow and raise money in any currency or currencies and to secure or
discharge any debt or obligation in any matter and in particular
(without prejudice to the generality of the foregoing) by mortgages of
or charges upon all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company or by the
creation and issue of securities.
(b) To enter into any guarantee, contract of indemnity or suretyship and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled
capital of the Company or both such methods or in any other manner, the
performance of any obligations or commitments, of, and the repayment or
payment of the principal amounts of and any premiums, interest,
dividends and other moneys payable on or in respect of any securities or
liabilities of, any person including (without prejudice to the
generality of the foregoing) any company which is for the time being a
subsidiary or a holding company of the Company or another subsidiary or
a holding company of the Company or otherwise associated with the
Company.
(c) To accept, draw, make, create, issue, execute, discount, endorse,
negotiate bills of exchange, promissory notes, and other instruments and
securities, whether negotiable or otherwise.
(d) To sell, exchange, mortgage, charge, let on rent, share of profit,
royalty or otherwise, grant licences, easements, options, servitudes and
other rights over, and in any other manner deal with or dispose of, all
or any part of the undertaking, property and assets (present and future)
of the Company for any consideration and in particular (without
prejudice to the generality of the foregoing) for any securities.
(e) To issue and allot securities of the Company for cash or in payment or
part payment for any real or personal property purchased or otherwise
acquired by the Company or any services rendered to the Company or as
security for any obligation or amount (even if less than the nominal
amount of such securities) or for any other purpose.
(f) To grant pensions, annuities, or other allowances, including allowances
on death, to any directors, officers or employees or former directors,
officers or employees of the Company or any company which at any time is
or was a subsidiary or a holding company or another subsidiary of a
holding company of the Company or otherwise associated with the Company
or of any predecessor in business of any of them, and to the relations,
<PAGE> 10
connections or dependents of any such persons, and to other persons
whose service or services have directly or indirectly been of benefit to
the Company or whom the Company considers have any moral claim on the
Company or to their relations, connections or dependants, and to
establish or support any associations, institutions, clubs, schools,
building and housing schemes, funds and trusts, and to make payments
toward insurance or another arrangements likely to benefit any such
persons or otherwise advance the interests of the Company or of its
Members, and to subscribe, guarantee or pay money for any purpose
likely, directly or indirectly to further the interests of the Company
or of its Members or for any national, charitable, benevolent,
educational, social, public, general or useful object.
(g) Subject to the provisions of Section 42 of the Companies Act 1981, to
issue preference shares which at the option of the holders thereof are
to be liable to be redeemed.
(h) To purchase its own shares in accordance with the provisions of Section
42A of the Companies Act 1981.
<PAGE> 11
THE COMPANIES ACT 1981
FIRST SCHEDULE
(Section 11(1))
A company limited by shares may exercise all or any of the following
powers subject to any provision of the law or its memorandum -
1. (Deleted) 404
2. to acquire or undertake the whole or any part of the business, property and
liabilities of any person carrying on any business that the company is
authorized to carry on;
3. to apply for register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade marks, formulae, licences, inventions, processes, distinctive marks
and similar rights;
4. to enter into partnership or into any arrangement for sharing of profits,
union of interests, co-operation, joint venture, reciprocal concession or
otherwise with any person carrying on or engaged in or about to carry on or
engage in any business or transaction that the company is authorized to
carry on or engage in or any business or transaction capable of being
conducted so as to benefit the company;
5. to take or otherwise acquire and hold securities in any other body
corporate having objects altogether or in part similar to those of the
company or carrying on any business capable of being conducted so as to
benefit the company;
6. subject to section 96 to lend money to any employee or to any person having
dealings with the company or with whom the company proposes to have
dealings or to any other body corporate any of whose shares are held by the
company;
7. to apply for, secure or acquire by grant, legislative enactment,
assignment, transfer, purchase or otherwise and to exercise, carry out and
enjoy any charter, licence, power authority, franchise, concession, right
or privilege, that any government or authority or any body corporate or
other public body may be empowered to
<PAGE> 12
-2-
grant, and pay for aid in and contribute toward carrying it into effect
and to assume any liabilities or obligations incidental thereto;
8. to establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of employees
or former employees of the company or its predecessors, or the
dependents or connections of such employees or former employees, and
grant pensions and allowances, and make payments towards insurance or
for any object similar to those set forth in this paragraph, and to
subscribe or guarantee money for charitable, benevolent, educational or
religious objects or for any exhibition or for any public, general or
useful objects;
9. to promote any company for the purpose of acquiring or taking over any
of the property and liabilities of the company or for any other purpose
that may benefit the company;
10. to purchase, lease, take in exchange, hire or otherwise acquire any
personal property and any rights or privileges that the company
considers necessary or convenient for the purposes of its business;
11. to construct, maintain, alter, renovate and demolish any buildings or
works necessary or convenient for its objects;
12. to take land in Bermuda by way of lease or letting agreement for a term
not exceeding twenty-one years, being land "bonafide" required for the
purposes of the business of the company and with the consent of the
Minister granted in his discretion to take land in Bermuda by way of
lease or letting agreement for a similar period in order to provide
accommodation or recreational facilities for its officers and employees
and when no longer necessary for any of the above purposes to terminate
or transfer the lease or letting agreement;
13. except to the extent, if any, as may be otherwise expressly provided in
its incorporation Act or memorandum and subject to the provisions of
this Act every company shall have power to invest the moneys of the
Company by way of mortgage of real or personal property of every
description in Bermuda or elsewhere and to sell, exchange, vary, or
dispose of such
<PAGE> 13
-3-
mortgage as the company shall from time to time determine;
14. to construct, improve, maintain, work, manage, carry out or control any
roads, ways, tramways, branches or sidings, bridges, reservoirs,
watercourses, wharves, factories, warehouses, electric works, shops,
stores and other works and conveniences that may advance the interests
of the company and contribute to, subsidize or otherwise assist or take
part in the construction, improvement, maintenance, working, management,
carrying out or control thereof;
15. to raise and assist in raising money for, and aid by way of bonus, loan,
promise, endorsement, guarantee or otherwise, any person and guarantee
the performance or fulfilment of any contracts or obligations of any
person, and in particular guarantee the payment of the principal of and
interest on the debt obligations of any such person;
16. to borrow or raise or secure the payment of money in such manner as the
company may think fit;
17. to draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other
negotiable or transferable instruments;
18. when properly authorized to do so, to sell, lease, exchange or otherwise
dispose of the undertaking of the company or any part thereof as an
entirety or substantially as an entirety for such consideration as the
company thinks fit;
19. to sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the company in the
ordinary course of its business;
20. to adopt such means of making known the products of the company as may
seem expedient, and in particular by advertising, by purchase and
exhibition of works of art or interest, by publication of books and
periodicals and by granting prizes and rewards and making donations;
<PAGE> 14
- 4 -
21. to cause the company to be registered and recognized in any foreign
jurisdiction, and designate persons therein according to the laws of
that foreign jurisdiction or to represent the company and to accept
service for and on behalf of the company of any process or suit;
22. to allot and issue fully-paid shares of the company in payment or part
payment of any property purchased or otherwise acquired by the company
or for any past services performed for the company;
23. to distribute among the members of the company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or any other
manner considered advisable, any property of the company, but not so as
to decrease the capital of the company unless the distribution is made
for the purpose of enabling the company to be dissolved or the
distribution, apart from this paragraph, would be otherwise lawful;
24. to establish agencies and branches;
25. to take or hold mortgages, hypothecs, liens and charges to secure
payment of the purchase price, or of any unpaid balance of the purchase
price, of any part of the property of the company of whatsoever kind
sold by the company, or for any money due to the company from purchasers
and others and to sell or otherwise dispose of any such mortgage,
hypothec, lien or charge;
26. to pay all costs and expenses of or incidental to the incorporation and
organization of the company;
27. to invest and deal with the moneys of the company not immediately
required for the objects of the company in such manner as may be
determined;
28. to do any of the things authorized by this subsection and all things
authorized by its memorandum as principals, agents, contractors,
trustees or otherwise, and either alone or in conjunction with others;
29. to do all such other things as are incidental or conducive to the
attainment of the objects and the exercise of the powers of the company.
Every company may exercise its powers beyond the boundaries of Bermuda
to the extent to which the laws in force where the powers are sought to be
exercised permit.
<PAGE> 15
FORM NO. 1a
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
CONSENT
PURSUANT TO SECTION 6 (1)
In exercise of the powers conferred upon him by section 6(1) of the Companies
Act 1981, the Minister of Finance hereby gives his consent to
BAMBURGH LIMITED
to be registered AS AN EXEMPTED Company under the Companies Act 1981, subject
to the provisions of the said Act.
Dated this 1st day of Feb. 1996
[sig]
MINISTER OF FINANCE
RC2 E.L.
<PAGE> 16
FORM NO. 7a REGISTRATION NO. EC 21618
[LOGO]
BERMUDA
CERTIFICATE OF DEPOSIT OF
MEMORANDUM OF INCREASE OF SHARE CAPITAL
THIS IS TO CERTIFY that a Memorandum of Increase of Share Capital
of
ATLANTIC CENTRAL ENTERPRISES LIMITED
------------------------------------
was delivered to the Registrar of Companies on the 16TH day of AUGUST, 1996 in
accordance with section 45(3) of THE COMPANIES ACT 1981 ("the Act").
Given under my hand this 23RD
day of AUGUST, 1996.
[SIG]
-----------------------------
ACTING REGISTRAR OF COMPANIES
Capital prior to increase: US$ 12,000.00
-------------
Amount of increase: US$488,000.00
-------------
Present Capital: US$500,000.00
-------------
<PAGE> 1
EXHIBIT 3.2
B Y E - L A W S
of
BAMBURGH LIMITED
I HEREBY CERTIFY that the within-written
Bye-Laws are a true copy of the Bye-Laws of
BAMBURGH LIMITED
as subscribed by the subscribers to the
Memorandum of Association and approved at the
Statutory Meeting of the above Company on the
2nd day of February, 1996.
/s/
--------------------
Director
[SEAL]
Prepared by
Messrs. Appleby, Spurling & Kempe
Cedar House
41 Cedar Avenue
Hamilton, Bermuda
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Bye-Law Subject Page
- ------- ------- ----
<S> <C> <C>
1 Interpretation 1-3
2 Registered Office 3
3,4 Share Rights 3,4
5,6 Modification of Rights 4,5
7-9 Shares 5
10-12 Certificates 6
13-15 Lien 7,8
16-21 Calls on Shares 8-10
22-28 Forfeiture of Shares 10-12
29 Register of Shareholders 12,13
30 Register of Directors and Officers 13
31-34 Transfer of Shares 13-15
35-38 Transmission of Shares 15-17
39-41 Increase of Capital 17
42,43 Alteration of Capital 17-19
44,45 Reduction of Capital 19
46 General Meetings and Written Resolutions 20,21
47,48 Notice of General Meetings 21-23
49-55 Proceedings at General Meetings 23-25
56-67 Voting 25-29
68-73 Proxies and Corporate Representatives 29-31
74-76 Appointment and Removal of Directors 32
77 Resignation and Disqualification of
Directors 33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
78-80 Alternate Directors 33-35
81 Directors' Fees and Additional
Remuneration and Expenses 35
82 Directors' Interests 36,37
83-87 Powers and Duties of the Board 38-40
88-90 Delegation of the Board's Powers 40,41
91-99 Proceedings of the Board 41-44
100 Officers 44,45
101 Minutes 45
102,103 Secretary 45,46
104 The Seal 46
105-111 Dividends and Other Payments 47-49
112 Reserves 50
113,114 Capitalization of Profits 50,51
115 Record Dates 52
116-118 Accounting Records 52,53
119 Audit 53
120-122 Service of Notices and Other Documents 53-55
123 Winding Up 55
124-126 Indemnity 55-57
127 Alteration of Bye-Laws 57
</TABLE>
<PAGE> 4
BYE-LAWS
of
BAMBURGH LIMITED
INTERPRETATION
1. In these Bye-Laws unless the context otherwise requires --
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company or the Directors
present at a meeting of Directors at which there is a quorum;
"the Companies Acts" means every Bermuda statute from time to time in
force concerning companies insofar as the same applies to the Company;
"Company" means the company incorporated in Bermuda under the name of
BAMBURGH LIMITED
on the 2nd day of February, 1996;
"paid up" means paid up or credited as paid up;
"Register" means the Register of Shareholders of the Company;
"Registered Office" means the registered office for the time being of
the Company;
"Resolution" means a resolution of the Shareholders or, where required,
of a separate class or separate classes of Shareholders, adopted either in
general meeting or by
<PAGE> 5
- 2 -
written resolution, in accordance with the provisions of these Bye-Laws;
"Seal" means the common seal of the Company and includes any duplicate
thereof;
"Secretary" includes a temporary or assistant Secretary and any person
appointed by the Board to perform any of the duties of the Secretary;
"Shareholder" means a shareholder or member of the Company;
"these Bye-Laws" means these Bye-Laws in their present form or as from
time to time amended;
for the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to the
Companies Acts is present;
words importing only the singular number include the plural number and
vice versa;
words importing only the masculine gender include the feminine and
neuter genders respectively;
word importing persons include companies or associations or bodies of
persons, whether corporate or unincorporate;
reference to writing shall include typewriting, printing, lithography,
photography and other modes of representing or reproducing words in a legible
and nontransitory form;
<PAGE> 6
- 3 -
any words or expressions defined in the Companies Acts in force at the date when
these Bye-Laws or any part thereof are adopted shall bear the same meaning in
these Bye-Laws or such part (as the case may be).
REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board shall
from time to time appoint.
SHARE RIGHTS
3. Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have attached
thereto such preferred, deferred, qualified or other special rights or such
restrictions, whether in regard to dividend, voting, return of capital or
otherwise, as the Company may by Resolution determine or, if there has not been
any such determination or so far as the same shall not make specific provision,
as the Board may determine.
4. Subject to the Companies Acts, any preference shares may, with the sanction
of a Resolution, be issued on terms:
(a) that they are to be redeemed on the happening of a specified event
or on a given date; and/or,
(b) that they are liable to be redeemed at the option of the Company;
and/or,
(c) if authorised by the memorandum/Incorporating Act of the Company,
that they are liable to be redeemed at the option of the holder.
<PAGE> 7
- 4 -
The terms and manner of redemption shall be provided for by way of
amendment of these Bye-Laws.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued may from
time to time (whether or not the Company is being wound up) be altered or
abrogated with the consent in writing of the holders of not less than seventy
five percent of the issued shares of that class or with the sanction of a
resolution passed at a separate general meeting of the holders of such shares
voting in person or by proxy. To any such separate general meeting, all the
provisions of these Bye-Laws as to general meetings of the Company shall
mutatis mutandis apply, but so that the necessary quorum shall be two or more
persons holding or representing by proxy any of the shares of the relevant
class, that every holder of shares of the relevant class shall be entitled on a
poll to one vote for every such share held by him and that any holder of
shares of the relevant class present in person or by proxy may demand a poll;
provided, however, that if the Company or a class of Shareholders shall have
only one Shareholder present in person or by proxy, one Shareholder shall
constitute the necessary quorum.
6. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise
<PAGE> 8
- 5 -
expressly provided in the rights attaching to or the terms of issue of such
shares, be deemed to be altered by the creation or issued of further shares
ranking pari passu therewith.
SHARES
7. Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased capital)
shall be at the disposal of the Board, which may offer, allot, grant options
over or otherwise dispose of them to such persons, at such times and for such
consideration and upon such terms and conditions as the Board amy determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
9. Except as ordered by a court of competent jurisdiction or as required
by law, no person shall be recognised by the Company as holding any share upon
trust and the Company shall not be bound by or required in any way to recognise
(even when having notice thereof) any equitable, contingent, future or partial
interest in any share or any interest in any fractional part of a share or
(except only as otherwise provided in these Bye-Laws or by law) any other right
in respect of any share except an absolute right to the entirety thereof in the
registered holder.
<PAGE> 9
-6-
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed
by the Companies Acts. In the case of a share held jointly by several persons,
delivery of a certificate to one of several joint holders shall be sufficient
delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in investigating
such evidence and preparing such indemnity as the Board may think fit and, in
case of defacement, on delivery of the old certificate to the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for the
time being relating thereto otherwise provide, be issued under the Seal. The
Board may by resolution determine, either generally or in any particular case,
that any signatures on any such certificates need not be autographic but may be
affixed to such certificates by some mechanical means or may be printed
thereon or that such certificates need not be signed by any persons.
<PAGE> 10
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LIEN
----
13. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys, whether presently payable or not,
called or payable, at a date fixed by or in accordance with the terms of issue
of such share in respect of such share, and the Company shall also have a
first and paramount lien on every share (other than a fully paid share)
standing registered in the name of a Shareholder, whether singly or jointly
with any other person, for all the debts and liabilities of such Shareholder or
his estate to the Company, whether the same shall have been incurred before or
after notice to the Company of any interest of any person other than such
Shareholder, and whether the time for the payment or discharge of the same
shall have actually arrived or not, and notwithstanding that the same are joint
debts or liabilities of such Shareholder or his estate and any other person,
whether a Shareholder or not. The Company's lien on a share shall extend to all
dividends payable thereon. The Board may at any time, either generally or in
any particular case, waive any lien that has arisen or declare any share to be
wholly or in part exempt from the provisions of this Bye-Law.
14. The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum in
respect of which the
<PAGE> 11
- 8 -
lien exists is presently payable nor until the expiration of fourteen days
after a notice in writing, stating and demanding payment of the sum presently
payable and giving notice of the intention to sell in default of such payment,
has been served on the holder for the time being of the share.
15. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is presently
payable, and any residue shall (subject to a like lien for debts or liabilities
not presently payable as existed upon the share prior to the sale) be paid to
the holder of the share immediately before such sale. For giving effect to any
such sale the Board may authorise some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of the share
and he shall not be bound to see to the application of the purchase money, nor
shall his title to the share be affected by any irregularity or invalidity in
the proceedings relating to the sale.
CALLS ON SHARES
---------------
16. The Board may from time to time make calls upon the Shareholders in
respect of any moneys unpaid on their shares (whether on account of the par
value of the shares or by way of premium) and not by the terms of issue thereof
made
<PAGE> 12
- 9 -
payable at a date fixed by or in accordance with such terms of issue, and each
Shareholder shall (subject to the Company serving upon him at least fourteen
days notice specifying the time or times and place of payment) pay to the
Company at the time or times and place so specified the amount called on his
shares. A call may be revoked or postponed as the Board may determine.
17. A call may be made payable by instalments and shall be deemed to have been
made at the time when the resolution of the Board authorizing the call was
passed.
18. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
19. If a sum called in respect of the shares shall not be paid before or on the
day appointed for payment thereof the person from whom the sum is due shall pay
interest on the sum from the day appointed for the payment thereof to the time
of actual payment at such rate as the Board may determine, but the Board shall
be at liberty to waive payment of such interest wholly or in part.
20. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of issue,
whether on account of the nominal amount of the share or by way of premium,
shall for all the purposes of these Bye-Laws be deemed to be a call duly made,
notified and payable on the date on which, by the terms of issue, the same
becomes payable and, in case
<PAGE> 13
- 10 -
of non-payment, all the relevant provisions of these Bye-Laws as to payment of
interest, forfeiture or otherwise shall apply as if such sum had become payable
by virtue of a call duly made and notified.
21. The Board may on the issue of shares differentiate between the allottees or
holders as to the amount of calls to be paid and the times of payment.
FORFEITURE OF SHARES
22. If a Shareholder fails to pay any call or instalment of a call on the day
appointed for payment thereof, the Board may at any time thereafter during such
time as any part of such call or instalment remains unpaid serve a notice on
him requiring payment of so much of the call or instalment as is unpaid,
together with any interest which may have accrued.
23. The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of
non-payment on or before the day and at the place appointed, the shares in
respect of which such call is made or instalment is payable will be liable to
be forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
24. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which such notice
<PAGE> 14
- 11 -
has been given may at any time thereafter, before payment of all calls or
instalments and interest due in respect thereof has been made, be forfeited by
a resolution of the Board to that effect. Such forfeiture shall include all
dividends declared in respect of the forfeited shares and not actually paid
before the forfeiture.
25. When any share has been forfeited, notice of the forfeiture shall be
served upon the person who was before forfeiture the holder of the share; but
no forfeiture shall be in any manner invalidated by any omission or neglect to
give such notice as aforesaid.
26. A forfeited share shall be deemed to be the property of the Company and
may be sold, re-offered or otherwise disposed of either to the person who was,
before forfeiture, the holder thereof or entitled thereto or to any other
person upon such terms and in such manner as the Board shall think fit, and at
any time before a sale, re-allotment or disposition the forfeiture may be
cancelled on such terms as the Board may think fit.
27. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall, notwithstanding the
forfeiture, remain liable to pay to the Company all moneys which at the date of
forfeiture were presently payable by him to the Company in respect of the
shares with interest thereon at such rate as the Board may determine from the
date of
<PAGE> 15
- 12 -
forfeiture until payment, and the Company may enforce payment without being
under any obligation to make any allowance for the value of the shares
forfeited.
28. An affidavit in writing that the deponent is a Director or the Secretary
and that a share has been duly forfeited on the date stated in the affidavit
shall be conclusive evidence of the facts therein stated as against all persons
claiming to be entitled to the share. The Company may receive the consideration
(if any) given for the share on the sale, re-allotment or disposition thereof
and the Board may authorise some person to transfer the share to the person to
whom the same is sold, re-allotted or disposed of, and he shall thereupon be
registered as the holder of the share and shall not be bound to see to the
application of the purchase money (if any) nor shall his title to the share be
affected by any irregularity or invalidity in the proceedings relating to the
forfeiture, sale, re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
29. The Secretary shall establish and maintain the Register of Shareholders at
the Registered Office in the manner prescribed by the Companies Acts. Unless
the Board otherwise determines, the Register of Shareholders shall be open to
inspection in the manner prescribed by the Companies Acts between 10.00 a.m.
and 12.00 noon on every working day. Unless the Board so determines, no
Shareholder or intending
<PAGE> 16
- 13 -
Shareholder shall be entitled to have entered in the Register any indication of
any trust or any equitable, contingent, future or partial interest in any share
or any interest in any fractional part of a share and if any such entry exists
or is permitted by the Board it shall not be deemed to abrogate any of the
provisions of Bye-Law 9.
REGISTER OF DIRECTORS AND OFFICERS
30. The Secretary shall establish and maintain a register of the Directors and
Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed by
the Companies Acts between 10:00 a.m. and 12:00 noon on every working day.
TRANSFER OF SHARES
31. Subject to the Companies Acts and to such of the restrictions contained in
these Bye-Laws as may be applicable, any Shareholder may transfer all or any of
his shares by an instrument of transfer in the usual common form or in any
other form which the Board may approve.
32. The instrument of transfer of a share shall be signed by or on behalf of
the transferor and where any share is not fully-paid the transferee, and the
transferor shall be deemed to remain the holder of the share until the name of
the transferee is entered in the Register in respect thereof. All instruments
of transfer when registered may be retained by the Company. The Board may, in
its absolute
<PAGE> 17
- 14 -
discretion and without assigning any reason therefor, decline to register any
transfer of any share which is not a fully-paid share.
The Board may also decline to register any transfer unless:
(a) the instrument of transfer is duly stamped and lodged with the
Company, accompanied by the certificate for the shares to which it
relates, and such other evidence as the Board may reasonably
require to show the right of the transferor to make the transfer,
(b) the instrument of transfer is in respect of only one class of
share,
(c) where applicable, the permission of the Bermuda Monetary Authority
with respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under this
Bye-Law and Bye-Laws 31 and 33.
33. If the Board declines to register a transfer it shall, within three months
after the date on which the instrument of transfer was lodged, send to the
transferee notice of such refusal.
34. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power of
attorney, distringas or stop notice, order of court or other
<PAGE> 18
- 15 -
instrument relating to or affecting the title to any share, or otherwise making
an entry in the Register relating to any share.
TRANSMISSION OF SHARES
----------------------
35. In the case of the death of a Shareholder, the survivor or survivors,
where the deceased was a joint holder, and the estate representative, where he
was sole holder, shall be the only person recognised by the Company as having
any title to his shares; but nothing herein contained shall release the estate
of a deceased holder (whether the sole or joint) from any liability in respect
of any share held by him solely or jointly with other persons. For the purpose
of this Bye-Law, estate representative means the person to whom probate or
letters of administration has or have been granted in Bermuda or, failing any
such person, such other person as the Board may in its absolute discretion
determine to be the person recognised by the Company for the purpose of this
Bye-Law.
36. Any person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law may, subject as
hereafter provided and upon such evidence being produced as may from time to
time be required by the Board as to his entitlement, either be registered
himself as the holder of the share or elect to have some person nominated by
him registered as the transferee thereof. If the person so becoming entitled
<PAGE> 19
-16-
elects to be registered himself, he shall deliver or send to the Company a
notice in writing signed by him stating that he so elects. If he shall elect to
have his nominee registered, he shall signify his election by signing an
instrument of transfer of such share in favour of his nominee. All the
limitations, restrictions and provisions of these Bye-Laws relating to the right
to transfer and the registration of transfer of shares shall be applicable to
any such notice or instrument of transfer as aforesaid as if the death of the
Shareholder or other event giving rise to the transmission had not occurred and
the notice or instrument of transfer was an instrument of transfer signed by
such Shareholder.
37. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board as to
his entitlement) be entitled to receive and may give a discharge for any
dividends or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or vote at
general meetings of the Company or, save as aforesaid, to exercise in respect of
the share any of the rights or privileges of a Shareholder until he shall have
become registered as the holder thereof. The Board may at any time give notice
requiring such person to elect either to be registered
<PAGE> 20
-17-
himself or to transfer the share and if the notice is not complied with within
sixty days the Board may thereafter withhold payment of all dividends and other
moneys payable in respect of the shares until the requirements of the notice
have been complied with.
38. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-Laws
35, 36 and 37.
INCREASE OF CAPITAL
39. The Company may from time to time increase its capital by such sum to be
divided into shares of such par value as the Company by Resolution shall
prescribe.
40. The Company may, by the Resolution increasing the capital, direct that the
new shares or any of them shall be offered in the first instance either at par
or at a premium or (subject to the provisions of the Companies Act) at a
discount to all the holders for the time being of shares of any class or classes
in proportion to the number of such shares held by them respectively or make any
other provision as to the issue of the new shares.
41. The new shares shall be subject to all the provisions of these Bye-Laws
with reference to lien, the payment of calls, forfeiture, transfer, transmission
and otherwise.
ALTERATION OF CAPITAL
42. The Company may from time to time by Resolution:--
(a) divide its shares into several classes and attach
<PAGE> 21
-18-
thereto respectively any preferential, deferred, qualified or
special rights, privileges or conditions;
(b) consolidate and divide all or any of its share capital into
shares of larger par value than its existing shares;
(c) sub-divide its shares or any of them into shares of smaller par
value than is fixed by its memorandum, so, however, that in the
sub-division the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same
as it was in the case of the share from which the reduced share
is derived;
(d) make provision for the issue and allotment of shares which do
not carry any voting rights;
(e) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled; and
(f) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or
sub-division under this Bye-Law, the Board may settle the same as it thinks
expedient and, in particular, may arrange for the sale of the shares
<PAGE> 22
- 19 -
representing fractions and the distribution of the net proceeds of sale in due
proportion amongst the Shareholders who would have been entitled to the
fractions, and for this purpose the Board may authorise some person to transfer
the shares representing fractions to the purchaser thereof, who shall not be
bound to see to the application of the purchase money nor shall his title to
the shares be affected by any irregularity or invalidity in the proceedings
relating to the sale.
43. Subject to the Companies Acts and to any confirmation or consent required
by law or these Bye-Laws, the Company may by Resolution from time to time
convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
--------------------
44. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to time by
Resolution authorise the reduction of its issued share capital or any capital
redemption reserve fund or any share premium or contributed surplus account in
any manner.
45. In relation to any such reduction, the Company may by Resolution determine
the terms upon which such reduction is to be effected including in the case of
a reduction of part only of a class of shares, those shares to be affected.
<PAGE> 23
-20-
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
----------------------------------------
46. (a) The Board shall convene and the Company shall hold general meetings
as Annual General Meetings in accordance with the requirements of
the Companies Acts at such times and places as the Board shall
appoint. The Board may, whenever it thinks fit, and shall, when
required by the Companies Acts, convene general meetings other than
Annual General Meetings which shall be called Special General
Meetings.
(b) Except in the case of the removal of auditors and Directors,
anything which may be done by resolution of the Company in general
meeting or by resolution of a meeting of any class of the
Shareholders of the Company may, without a meeting and without any
previous notice being required, be done by resolution in writing,
signed by all of the Shareholders or their proxies, or in the case
of a Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts) on behalf of such
Shareholder, being all of the Shareholders of the Company who at
the date of the resolution in writing would be entitled to attend a
meeting and vote on the resolution. Such resolution in writing may
be signed by, or in the case of a Shareholder that is a corporation
<PAGE> 24
-21-
(whether or not a company within the meaning of the Companies
Acts), on behalf of, all the Shareholders of the Company, or any
class thereof, in as many counterparts as may be necessary.
(c) For the purposes of this Bye-Law, the date of the resolution in
writing is the date when the resolution is signed by, or in the
case of a Shareholder that is a corporation (whether or not a
company within the meaning of the Companies Acts), on behalf of,
the last Shareholder to sign and any reference in any enactment to
the date of passing of a resolution is, in relation to a resolution
in writing made in accordance with this section, a reference to
such date.
(d) A resolution in writing made in accordance with this Bye-Law is as
valid as if it had been passed by the Company in general meeting
or, if applicable, by a meeting of the relevant class of
Shareholders of the Company, as the case may be. A resolution in
writing made in accordance with this section shall constitute
minutes for the purposes of the Companies Acts and these Bye-Laws.
NOTICE OF GENERAL MEETINGS
--------------------------
47. An Annual General Meeting shall be called by not less than five days
notice in writing and a Special General Meeting shall be called by not less
than five days notice
<PAGE> 25
-22-
in writing. The notice shall be exclusive of the day on which it is served or
deemed to be served and of the day for which it is given, and shall specify the
place, day and time of the meeting, and, in the case of a Special General
Meeting, the general nature of the business to be considered. Notice of every
general meeting shall be given in any manner permitted by Bye-Laws 120 and 121
to all Shareholders other than such as, under the provisions of these Bye-Laws
or the terms of issue of the shares they hold, are not entitled to receive such
notice from the Company.
Notwithstanding that a meeting of the Company is called by shorter notice than
that specified in this Bye-Law, it shall be deemed to have been duly called if
it is so agreed:-
(a) in the case of a meeting called as an Annual General Meeting, by
all the Shareholders entitled to attend and vote thereat;
(b) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting,
being a majority together holding not less than 95 percent in
nominal value of the shares giving that right.
48. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission to
send such instrument of proxy to, or the non-receipt of notice of a meeting or
such
<PAGE> 26
- 23 -
instrument of proxy by, any person entitled to receive such notice shall not
invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
-------------------------------
49. No business shall be transacted at any general meeting unless a quorum
is present when the meeting proceeds to business, but the absence of a quorum
shall not preclude the appointment, choice or election of a chairman which shall
not be treated as part of the business of the meeting. Save as otherwise
provided by these Bye-Laws, at least two Shareholders present in person or by
proxy and entitled to vote shall be a quorum for all purposes; provided,
however, that if the Company shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
50. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the meeting, a
quorum is not present, the meeting, if convened on the requisition of
Shareholders, shall be dissolved. In any other case, it shall stand adjourned
to such other day and such other time and place as the chairman of the meeting
may determine and at such adjourned meeting two Shareholders present in person
or by proxy (whatever the number of shares held by them) shall be a quorum
provided that if the Company shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum. The
Company shall
<PAGE> 27
- 24 -
give not less than five days notice of any meeting adjourned through want of a
quorum and such notice shall state that the sole Shareholder or, if more than
one, two Shareholders present in person or by proxy (whatever the number of
shares held by them) shall be a quorum.
51. A meeting of the Shareholders or any class thereof may be held by means
of such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
52. Each Director shall be entitled to attend and speak at any general
meeting of the Company.
53. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every general meeting. If there is no such
Chairman or President, or if at any meeting neither the Chairman nor the
President is present within five minutes after the time appointed for holding
the meeting, or if neither of them is willing to act as chairman, the Directors
present shall choose one of their number to act or if one Director only is
present he shall preside as chairman if willing to act. If no Director is
present, or if each of the Directors present declines to take the chair, the
persons present and entitled to vote on a poll shall elect one of their number
to be chairman.
<PAGE> 28
- 25 -
54. The chairman of the meeting may, with the consent of any meeting at
which a quorum is present (and shall if so directed by the meeting), adjourn the
meeting from time to time and from place to place but no business shall be
transacted at any adjourned meeting except business which might lawfully have
been transacted at the meeting from which the adjournment took place. When a
meeting is adjourned for three months or more, notice of the adjourned meeting
shall be given as in the case of an original meeting.
55. Save as expressly provided by these Bye-Laws, it shall not be necessary
to give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
VOTING
------
56. Save where a greater majority is required by the Companies Acts or
these Bye-Laws, any question proposed for consideration at any general meeting
shall be decided on by a simple majority of votes cast.
57. At any general meeting, a resolution put to the vote of the meeting
shall be decided on a show of hands unless (before or on the declaration of the
result of the show of hands or on the withdrawal of any other demand for a poll)
a poll is demanded by:-
(a) the chairman of the meeting; or
(b) at least three Shareholders present in person or represented by
proxy; or
<PAGE> 29
- 26 -
(c) any Shareholder or Shareholders present in person or represented
by proxy and holding between them not less than one tenth of the
total voting rights of all the Shareholders having the right to
vote at such meeting; or
(d) a Shareholder or Shareholders present in person or represented
by proxy holding shares conferring the right to vote at such
meeting, being shares on which an aggregate sum has been paid up
equal to not less than one tenth of the total sum paid up on all
such shares conferring such right.
Unless a poll is so demanded and the demand is not withdrawn, a declaration by
the chairman that a resolution has, on a show of hands, been carried or carried
unanimously or by a particular majority or not carried by a particular majority
or lost shall be final and conclusive, and an entry to that effect in the
minute book of the Company shall be conclusive evidence of the fact without
proof of the number of votes recorded for or against such resolution.
58. If a poll is duly demanded, the result of the poll shall be deemed to
be the resolution of the meeting at which the poll is demanded.
59. A poll demanded on the election of a chairman, or on question of
adjournment, shall be taken forthwith. A poll demanded on any other question
shall be taken in such manner and either forthwith or at such time (being not
later than
<PAGE> 30
-27-
three months after the date of the demand) and place as the chairman shall
direct. It shall not be necessary (unless the chairman otherwise directs) for
notice to be given of a poll.
60. The demand for a poll shall not prevent the continuance of a meeting
for the transaction of any business other than the question on which the poll
has been demanded and it may be withdrawn at any time before the close of the
meeting or the taking of the poll, whichever is the earlier.
61. On a poll, votes may be case either personally or by proxy.
62. A person entitled to more than one vote on a poll need not use all his
votes or cast all the votes he uses in the same way.
63. In the case of an equality of votes at a general meeting, whether on a
show of hands or on a poll, the chairman of such meeting shall not be entitled
to a second or casting vote.
64. In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the
Register in respect of the joint holding.
65. A Shareholder who is a patient for any purpose of any statute or
applicable law relating to mental health or in
<PAGE> 31
-28-
respect of whom an order has been made by any Court having jurisdiction for the
protection or management of the affairs of persons incapable of managing their
own affairs may vote, whether on a show of hands or on a poll, by his receiver,
committee, curator bonis or other person in the nature of a receiver, committee
or curator bonis appointed by such Court and such receiver, committee, curator
bonis or other person may vote on a poll by proxy, and may otherwise act and be
treated as such Shareholder for the purpose of general meetings.
66. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums
presently payable by him in respect of shares in the Company have been paid.
67. If (i) any objection shall be raised to the qualification of any voter
or (ii) any votes have been counted which ought not have been counted or which
might have been rejected or (iii) any votes are not counted which ought to have
been counted, the objection or error shall not vitiate the decision of the
meeting or adjourned meeting on any resolution unless the same is raised or
pointed out at the meeting or, as the case may be, the adjourned meeting at
which the vote objected to is given or tendered or at which the error occurs.
Any objection or error shall be referred to the chairman of the meeting and
shall only vitiate the decision of the meeting on any resolution if the chairman
<PAGE> 32
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decides that the same may have affected the decision of the meeting. The
decision of the chairman on such matters shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
-------------------------------------
68. The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney authorised by him in writing or, if the
appointor is a corporation, either under its seal or under the hand of an
officer, attorney or other person authorised to sign the same.
69. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office a proxy or (if a
corporation) an authorisation and such proxy or authorisation shall be valid
for all general meetings and adjournments thereof or, resolutions in writing,
as the case may be, until notice of revocation is received at the Registered
Office. Where a standing proxy or authorisation exists, its operation shall be
deemed to have been suspended at any general meeting or adjournment thereof at
which the Shareholder is present or in respect to which the Shareholder has
specially appointed a proxy or representative. The Board may from time to time
require such evidence as it shall deem necessary as to the due execution and
continuing validity of any such standing proxy or authorisation and the
operation of any such standing proxy or authorisation shall be deemed to be
suspended until such
<PAGE> 33
-30-
time as the Board determines that it has received the requested evidence or
other evidence satisfactory to it.
70. Subject to Bye-Law 69, the instrument appointing a proxy together with
such other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place as may
be specified in the notice convening the meeting or in any notice of any
adjournment or, in either case or the case of a written resolution, in any
document sent therewith) prior to the holding of the relevant meeting or
adjourned meeting at which the person named in the instrument proposes to vote
or, in the case of a poll taken subsequently to the date of a meeting or
adjourned meeting, before the time appointed for the taking of the poll, or, in
the case of a written resolution, prior to the effective date of the written
resolution and in default the instrument of proxy shall not be treated as valid.
71. Instruments of proxy shall be in any common form or in such other form
as the Board may approve and the Board may, if it thinks fit, send out with the
notice of any meeting or any written resolution forms of instruments of proxy
for use at that meeting or in connection with that written resolution. The
instrument of proxy shall be deemed to confer authority to demand or join in
demanding a poll and to vote on any amendment of a written resolution or
amendment of a resolution put to the meeting for which it is
<PAGE> 34
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given as the proxy thinks fit. The instrument of proxy shall unless the
contrary is stated therein be valid as well for any adjournment of the meeting
as for the meeting to which it relates.
72. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the principal,
or revocation of the instrument of proxy or of the authority under which it was
executed, provided that no intimation in writing of such death, insanity or
revocation shall have been received by the Company at the Registered Office (or
such other place as may be specified for the delivery of instruments of proxy
in the notice convening the meeting or other documents sent therewith) one hour
at least before the commencement of the meeting or adjourned meeting, or the
taking of the poll, or the day before the effective date of any written
resolution at which the instrument of proxy is used.
73. Subject to the Companies Acts, the Board may at its discretion waive
any of the provisions of these Bye-Laws related to proxies or authorizations
and, in particular, may accept such verbal or other assurances as it thinks fit
as to the right of any person to attend and vote on behalf of any Shareholder
at general meetings or to sign written resolutions.
<PAGE> 35
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APPOINTMENT AND REMOVAL OF DIRECTORS
------------------------------------
74. The number of Directors shall be such number not less than two as the
Company by Resolution may from time to time determine and, subject to the
Companies Acts and these Bye-Laws, shall serve until re-elected or their
successors are appointed at the next Annual General Meeting.
75. The Company shall at the Annual General Meeting and may by Resolution
determine the minimum and the maximum number of Directors and may by Resolution
determine that one or more vacancies in the Board shall be deemed casual
vacancies for the purposes of these Bye-Laws. Without prejudice to the power of
the Company by Resolution in pursuance of any of the provisions of these
Bye-Laws to appoint any person to be a Director, the Board, so long as a quorum
of Directors remains in office, shall have power at any time and from time to
time to appoint any individual to be a Director so as to fill a casual vacancy.
76. The Company may in a Special General Meeting called for that purpose
remove a Director provided notice of any such meeting shall be served upon the
Director concerned not less than 14 days before the meeting and he shall be
entitled to be heard at that meeting. Any vacancy created by the removal of a
Director at a Special General Meeting may be filled at the Meeting by the
election of another Director in his place or, in the absence of any such
election, by the Board.
<PAGE> 36
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RESIGNATION AND DISQUALIFICATION OF DIRECTORS
---------------------------------------------
77. The office of a Director shall be vacated upon the happening of any of
the following events:
(a) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(b) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he ceases to be a Director by virtue of the Companies Acts or is
removed from office pursuant to these Bye-Laws.
ALTERNATE DIRECTORS
-------------------
78. The Company may by Resolution elect any person or persons to act as
Directors in the alternative to any of the Directors or may authorise the Board
to appoint such Alternate Directors and a Director may appoint and remove his
own Alternate Director. Any appointment or removal of an Alternate Director by
a Director shall be effected by depositing a notice of appointment or removal
with the Secretary at the Registered Office, signed by such Director, and such
appointment or removal shall become effective on
<PAGE> 37
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the date of receipt by the Secretary. Any Alternate Director may be removed by
Resolution of the Company and, if appointed by the Board, may be removed by the
Board. Subject as aforesaid, the office of Alternate Director shall continue
until the next annual election of Directors or, if earlier, the date on which
the relevant Director ceases to be a Director. An Alternate Director may also
be a Director in his own right and may act as alternate to more than one
Director.
79. An Alternate Director shall be entitled to receive notices of all
meetings of Directors, to attend, be counted in the quorum and vote at any such
meeting at which any Director to whom he is alternate is not personally
present, and generally to perform all the functions of any Director to whom he
is alternate in his absence.
80. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all respects to
the provisions of these Bye-Laws relating to Directors and shall alone be
responsible to the Company for his acts and defaults and shall not be deemed to
be the agent of or for any Director for whom he is alternate. An Alternate
Director may be paid expenses and shall be entitled to be indemnified by the
Company to the same extent mutatis mutandis as if he were a Director. Every
person acting as an Alternate Director shall have one vote for each Director
for whom he acts as
<PAGE> 38
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alternate (in addition to his own vote if he is also a Director). The
signature of an Alternate Director to any resolution in writing of the Board or
a committee of the Board shall, unless the terms of his appointment provides to
the contrary, be as effective as the signature of the Director or Directors to
whom he is alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
--------------------------------------------------------
81. The amount, if any, of Directors' fees shall from time to time be
determined by the Company by Resolution and in the absence of a determination
to the contrary in general meeting, such fees shall be deemed to accrue from
day to day. Each Director may be paid his reasonable travelling, hotel and
incidental expenses in attending and returning from meetings of the Board or
committees constituted pursuant to these Bye-Laws or general meetings and shall
be paid all expenses properly and reasonably incurred by him in the conduct of
the Company's business or in the discharge of his duties as a Director. Any
Director who, by request, goes or resides abroad for any purposes of the
Company or who performs services which in the opinion of the Board go beyond
the ordinary duties of a Director may be paid such extra remuneration (whether
by way of salary, commission, participation in profits or otherwise) as the
Board may determine, and such extra remuneration shall be in addition to any
remuneration provided for by or pursuant to any other Bye-Law.
<PAGE> 39
-36-
DIRECTORS' INTERESTS
--------------------
82. (a) A Director may hold any other office or place of profit with the
Company (except that of auditor) in conjunction with his office of Director for
such period and upon such terms as the Board may determine, and may be paid
such extra remuneration therefor (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration provided for by or
pursuant to any other Bye-Law.
(b) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he or his firm shall be
entitled to remuneration for professional services as if he were not a Director.
(c) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in, any
transaction or arrangement with the Company or in which the Company is
otherwise interested; and be a Director or other officer of, or employed by, or
a party to any transaction or arrangement with, or otherwise interested in, any
body corporate promoted by the Company or in which the Company is interested.
The Board may also cause the voting power conferred by the shares in any other
company held or owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the
<PAGE> 40
-37-
exercise thereof in favour of any resolution appointing the Directors or any of
them to be directors or officers of such other company, or voting or providing
for the payment of remuneration to the directors or officers of such other
company.
(d) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by writing to
the Directors as required by the Companies Acts, a Director shall not by reason
of his office be accountable to the Company for any benefit which he derives
from any office or employment to which these Bye-Laws allow him to be appointed
or from any transaction or arrangement in which these Bye-Laws allow him to be
interested, and no such transaction or arrangement shall be liable to be
avoided on the ground of any interest or benefit.
(e) Subject to the Companies Acts and any further disclosure required
thereby, a general notice to the Directors by a Director or officer declaring
that he is a director or officer or has an interest in a person and is to be
regarded as interested in any transaction or arrangement made with that person,
shall be a sufficient declaration of interest in relation to any transaction or
arrangement so made.
<PAGE> 41
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POWERS AND DUTIES OF THE BOARD
------------------------------
83. Subject to the provisions of the Companies Acts and these Bye-Laws and
to any directions given by the Company by Resolution, the Board shall manage
the business of the Company and may pay all expenses incurred in promoting and
incorporating the Company and may exercise all the powers of the Company. No
alteration of these Bye-Laws and no such direction shall invalidate any prior
act of the Board which would have been valid if that alteration had not been
made or that direction had not been given. The powers given by this Bye-Law
shall not be limited by any special power given to the Board by these Bye-Laws
and a meeting of the Board at which a quorum is present shall be competent to
exercise all the powers, authorities and discretions for the time being vested
in or exercisable by the Board.
84. The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of the undertaking, property and
assets (present and future) and uncalled capital of the Company and to issue
debentures and other securities, whether outright or as collateral security for
any debt, liability or obligation of the Company or of any other persons.
85. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts for
money paid to the Company shall be signed, drawn, accepted, endorsed or
<PAGE> 42
- 39 -
otherwise executed, as the case may be, in such manner as the Board shall from
time to time by resolution determine.
86. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any person including any
Director or former Director who has held any executive office or employment
with the Company or with any body corporate which is or has been a subsidiary
or affiliate of the Company or a predecessor in the business of the Company or
of any such subsidiary or affiliate, and to any member of his family or any
person who is or was dependent on him, and may contribute to any fund and pay
premiums for the purchase or provision of any such gratuity, pension or other
benefit, or for the insurance of any such person.
87. The Board may from time to time appoint one or more of its body to be a
managing director, joint managing director or an assistant managing director or
to hold any other employment or executive office with the Company for such
period and upon such terms as the Board may determine and may revoke or
terminate any such appointments. Any such revocation or termination as
aforesaid shall be without prejudice to any claim for damages that such
Director may have against the Company or the Company may have against such
Director for any breach of any contract of service between him and the Company
which may be involved in such revocation or termination. Any person so
appointed shall
<PAGE> 43
- 40 -
receive such remuneration (if any) (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and either
in addition to or in lieu of his remuneration as a Director.
DELEGATION OF THE BOARD'S POWERS
--------------------------------
88. The Board may by power of attorney appoint any company, firm or person
or any fluctuating body of persons, whether nominated directly or indirectly by
the Board, to be the attorney or attorneys of the Company for such purposes and
with such powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Bye-Laws) and for such period and subject
to such conditions as it may think fit, and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney and of such attorney as the Board may think fit, and may
also authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
89. The Board may entrust to and confer upon any Director or officer any of
the powers exercisable by it upon such terms and conditions with such
restrictions as it thinks fit, and either collaterally with, or to the
exclusion of, its own powers, and may from time to time revoke or vary all or
any of such powers but no person dealing in good faith and without notice of
such revocation or variation shall be affected thereby.
<PAGE> 44
-41-
90. The Board may delegate any of its powers, authorities and discretions
to committees, consisting of such person or persons (whether a member or
members of its body or not) as it thinks fit. Any committee so formed shall, in
the exercise of the powers, authorities and discretions so delegated, conform
to any regulations which may be imposed upon it by the Board.
PROCEEDINGS OF THE BOARD
------------------------
91. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting shall
be determined by a majority of votes. In the case of an equality of votes the
motion shall be deemed to have been lost. A Director may, and the Secretary on
the requisition of a Director shall, at any time summon a meeting of the Board.
92. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to him by
post, cable, telex, telecopier or other mode of representing or reproducing
words in a legible and non-transitory form at his last known address or any
other address given by him to the Company for this purpose. A Director may
waive notice of any meeting either prospectively or retrospectively.
93. (a) The quorum necessary for the transaction of the business of the
Board may be fixed by the Board and, unless so fixed at any other number, shall
be two individuals. Any
<PAGE> 45
- 42 -
Director who ceases to be a Director at a meeting of the Board may continue to
be present and to act as a Director and be counted in the quorum until the
termination of the meeting if no other Director objects and if otherwise a
quorum of Directors would not be present.
(b) A Director who to his knowledge is in any way, whether directly
or indirectly, interested in a contract or proposed contract, transaction or
arrangement with the Company and has complied with the provisions of the
Companies Acts and these Bye-Laws with regard to disclosure of his interest
shall be entitled to vote in respect of any contract, transaction or
arrangement in which he is so interested and if he shall do so his vote shall
be counted, and he shall be taken into account in ascertaining whether a quorum
is present.
94. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no such
quorum remains, the continuing Directors or a sole continuing Director may act
only for the purpose of calling a general meeting.
95. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every meeting of the Board. If there is no such
Chairman or President, or if at any meeting the Chairman or the President is
not present within five minutes after the time appointed for holding the
meeting, or is not willing to act as chairman, the Directors
<PAGE> 46
- 43 -
present may choose one of their number to be chairman of the meeting.
96. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
applicable and are not superseded by any regulations imposed by the Board.
97. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members of a
committee for the time being shall be as valid and effectual as a resolution
passed at a meeting of the Board or, as the case may be, of such committee duly
called and constituted. Such resolution may be contained in one document or in
several documents in the like form each signed by one or more of the Directors
or members of the committee concerned.
98. A meeting of the Board or a committee appointed by the Board may be
held by means of such telephone, electronic or other communication facilities
as permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a meeting
shall constitute presence in person at such meeting.
99. All acts done by the Board or by any committee or by any person acting
as a Director or member of a committee or
<PAGE> 47
-44-
any person duly authorized by the Board or any committee, shall,
notwithstanding that it is afterwards discovered that there was some defect in
the appointment of any member of the Board or such committee or person acting
as aforesaid or that they or any of them were disqualified or had vacated their
office, be as valid as if every such person had been duly appointed and was
qualified and had continued to be a Director, member of such committee or
person so authorized.
OFFICERS
--------
100. The officers of the Company shall include a President and a
Vice-President or a Chairman and a Deputy Chairman who shall be Directors and
shall be elected by the Board as soon as possible after the statutory meeting
and each Annual General Meeting. In addition, the Board may appoint any person
whether or not he is a Director to hold such office as the Board may from time
to time determine. Any person elected or appointed pursuant to this Bye-Law
shall hold office for such period and upon such terms as the Board may
determine and the Board may revoke or terminate any such election or
appointment. Any such revocation or termination shall be without prejudice to
any claim for damages that such officer may have against the Company or the
Company may have against such officer for any breach of any contract of service
between him and the Company which may be involved in such revocation or
termination. Save as provided in the Companies Acts or these Bye-Laws, the
powers and duties of
<PAGE> 48
-45-
the officers of the Company shall be such (if any) as are determined from time
to time by the Board.
MINUTES
-------
101. The Directors shall cause minutes to be made and books kept for the
purpose of recording --
(a) all appointments of officers made by the Directors;
(b) the names of the Directors and other persons (if any) present at
each meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the holders of
any class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
SECRETARY
---------
102. The Secretary shall be appointed by the Board at such remuneration (if
any) and upon such terms as it may think fit and any Secretary so appointed may
be removed by the Board.
The duties of the Secretary shall be those prescribed by the Companies Acts
together with such other duties as shall from time to time be prescribed by the
Board.
103. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall not
be satisfied by its being done by or to the same person acting both as Director
<PAGE> 49
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and as, or in the place of, the Secretary.
THE SEAL
--------
104. (a) The Seal shall consist of a circular metal device with the name of
the Company around the outer margin thereof and the country and year of
incorporation across the centre thereof. Should the Seal not have been received
at the Registered Office in such form at the date of adoption of this Bye-Law
then, pending such receipt, any document requiring to be sealed with the Seal
shall be sealed by affixing a red wafer seal to the document with the name of
the Company, and the country and year of incorporation type written across the
centre thereof.
(b) The Board shall provide for the custody of every Seal. A Seal
shall only be used by authority of the Board or of a committee constituted by
the Board. Subject to these Bye-laws, any instrument to which a Seal is affixed
shall be signed by two Directors or the Secretary and one Director, or by any
two persons whether or not Directors or the Secretary, who have been authorised
either generally or specifically to attest to the use of a Seal; provided that
the Secretary or a Director may affix a Seal attested with his signature only
to authenticate copies of these Bye-Laws, the minutes of any meeting or any
other documents requiring authentication.
<PAGE> 50
- 47 -
DIVIDENDS AND OTHER PAYMENTS
----------------------------
105. The Board may from time to time declare cash dividends or distributions
out of contributed surplus to be paid to the Shareholders according to their
rights and interests including such interim dividends as appear to the Board to
be justified by the position of the Company. The Board may also pay any fixed
cash dividend which is payable on any shares of the Company half yearly or on
such other dates, whenever the position of the Company, in the opinion of the
Board, justifies such payment.
106. Except insofar as the rights attaching to, or the terms of issue of,
any share otherwise provide:-
(a) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid up on the shares
in respect of which the dividend or distribution is paid, and an
amount paid up on a share in advance of calls may be treated for
the purpose of this Bye-Law as paid-up on the share;
(b) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up
on the shares during any portion or portions of the period in
respect of which the dividend or distribution is paid.
<PAGE> 51
- 48 -
107. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all sums
of money (if any) presently payable by him to the Company on account of calls
or otherwise in respect of shares of the Company.
108. No dividend, distribution or other moneys payable by the Company on or
in respect of any share shall bear interest against the Company.
109. Any dividend, distribution, interest or other sum payable in cash to
the holder of shares may be paid by cheque or warrant sent through the post
addressed to the holder at his address in the Register or, in the case of joint
holders, addressed to the holder whose name stands first in the Register in
respect of the shares at his registered address as appearing in the Register or
addressed to such person at such address as the holder or joint holders may in
writing direct. Every such cheque or warrant shall, unless the holder or joint
holders otherwise direct, be made payable to the order of the holder or, in the
case of joint holders, to the order of the holder whose name stands first in
the Register in respect of such shares, and shall be sent at his or their risk
and payment of the cheque or warrant by the bank on which it is drawn shall
constitute a good discharge to the Company. Any one of two or more joint
holders may give effectual receipts for any dividends, distributions or other
moneys payable or property
<PAGE> 52
- 49 -
distributable in respect of the shares held by such joint holders.
110. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the payment
by the Board of any unclaimed dividend, distribution, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
111. With the sanction of a Resolution the Board may direct payment or
satisfaction of any dividend or distribution out of contributed surplus wholly
or in part by the distribution of specific assets, and in particular of paid-up
shares or debentures of any other company, and where any difficulty arises in
regard to such distribution or dividend the Board may settle it as it thinks
expedient, and in particular, may authorise any person to sell and transfer any
fractions or may ignore fractions altogether, and may fix the value for
distribution or dividend purposes of any such specific assets and may determine
that cash payments shall be made to any Shareholders upon the footing of the
values so fixed in order to secure equality of distribution and may vest any
such specific assets in trustees as may seem expedient to the Board.
<PAGE> 53
- 50 -
RESERVES
--------
112. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks
proper as reserves which shall, at the discretion of the Board, be applicable
for any purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
CAPITALIZATION OF PROFITS
-------------------------
113. The Company may, upon the recommendation of the Board, at any time and
from time to time pass a Resolution to the effect that it is desirable to
capitalize all or any part of any amount for the time being standing to the
credit of any reserve or fund which is available for distribution or to the
credit of any share premium account or any capital redemption reserve fund and
accordingly that such amount be set free for distribution amongst the
Shareholders or any class of Shareholders who would be entitled thereto if
distributed by way of dividend and in the same proportions, on the footing that
the same be not paid in cash but be applied either in or towards paying up
amounts for the time being unpaid on any shares in the Company held by such
Shareholders respectively or in payment up in full of
<PAGE> 54
-51-
unissued shares, debentures or other obligations of the Company, to be allotted
and distributed credited as fully paid amongst such Shareholders, or partly in
one way and partly in the other, and the Board shall give effect to such
Resolution, provided that for the purpose of this Bye-Law, a share premium
account and a capital redemption reserve fund may be applied only in paying up
of unissued shares to be issued to such Shareholders credited as fully paid and
provided further that any sum standing to the credit of a share premium account
may only be applied in crediting as fully paid shares of the same class as that
from which the relevant share premium was derived.
114. Where any difficulty arises in regard to any distribution under the
last preceding Bye-Law, the Board may settle the same as it thinks expedient
and, in particular, may authorise any person to sell and transfer any fractions
or may resolve that the distribution should be as nearly as may be practicable
in the correct proportion but not exactly so or may ignore fractions
altogether, and may determine that cash payments should be made to any
Shareholders in order to adjust the rights of all parties, as may seem
expedient to the Board. The Board may appoint any person to sign on behalf of
the persons entitled to participate in the distribution any contract necessary
or desirable for giving effect thereto and such appointment shall be effective
and binding upon the Shareholders.
<PAGE> 55
-52-
RECORD DATES
------------
115. Notwithstanding any other provisions of these Bye-Laws, the Company may
by Resolution or the Board may fix any date as the record date for any dividend,
distribution, allotment or issue and for the purpose of identifying the persons
entitled to receive notices of general meetings. Any such record date may be on
or at any time before or after any date on which such dividend, distribution,
allotment or issue is declared, paid or made or such notice is despatched.
ACCOUNTING RECORDS
------------------
116. The Board shall cause to be kept accounting records sufficient to give
a true and fair view of the state of the Company's affairs and to show and
explain its transactions, in accordance with the Companies Acts.
117. The records of account shall be kept at the Registered Office or at
such other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors; PROVIDED that if the records of account
are kept at some place outside Bermuda, there shall be kept at an office of the
Company in Bermuda such records as will enable the Directors to ascertain with
reasonable accuracy the financial position of the Company at the end of each
three month period. No Shareholder (other than an officer of the Company) shall
have any right to inspect any accounting record or book or document of the
Company except as
<PAGE> 56
-53-
conferred by law or authorised by the Board or by Resolution.
118. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to be
laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in accordance
with the requirements of the Companies Acts.
AUDIT
-----
119. Save and to the extent that an audit is waived in the manner permitted
by the Companies Acts, auditors shall be appointed and their duties regulated
in accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from
time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
--------------------------------------
120. Any notice or other document (including a share certificate) may be
served on or delivered to any Shareholder by the Company either personally or
by sending it through the post (by airmail where applicable) in a prepaid
letter addressed to such Shareholder at his address as appearing in the
Register or by delivering it to or leaving it at such registered address. In
the case of joint holders of a share, service or delivery of any notice or
other document on or to one of the joint holders shall for all purposes be
deemed as sufficient service on or delivery to
<PAGE> 57
-54-
all the joint holders. Any notice or other document if sent by post shall be
deemed to have been served or delivered seven days after it was put in the
post, and in proving such service or delivery, it shall be sufficient to prove
that the notice or document was properly addressed, stamped and put in the post.
121. Any notice of a general meeting of the Company shall be deemed to be
duly given to a Shareholder if it is sent to him by cable, telex, telecopier or
other mode of representing or reproducing words in a legible and non-transitory
form at his address as appearing in the Register or any other address given by
him to the Company for this purpose. Any such notice shall be deemed to have
been served twenty-four hours after its despatch.
122. Any notice or other document delivered, sent or given to a Shareholder
in any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred, and
whether or not the Company has notice of the death or bankruptcy or other
event, be deemed to have been duly served or delivered in respect of any share
registered in the name of such Shareholder as sole or joint holder unless his
name shall, at the time of the service or delivery of the notice or document,
have been removed from the Register as the holder of the share, and such
service or delivery shall for all purposes be deemed as sufficient service or
delivery of such
<PAGE> 58
- 55 -
notice or document on all persons interested (whether jointly with or as
claiming through or under him) in the share.
WINDING UP
----------
123. If the Company shall be wound up, the liquidator may, with the sanction
of a Resolution of the Company and any other sanction required by the Companies
Acts, divide amongst the Shareholders in specie or kind the whole or any part of
the assets of the Company (whether they shall consist of property of the same
kind or not) and may for such purposes set such values as he deems fair upon
any property to be divided as aforesaid and may determine how such division
shall be carried out as between the Shareholders or different classes of
Shareholders. The liquidator may, with the like sanction, vest the whole or
any part of such assets in trustees upon such trust for the benefit of the
contributories as the liquidator, with the like sanction, shall think fit, but
so that no Shareholder shall be compelled to accept any shares or other assets
upon which there is any liability.
INDEMNITY
---------
124. Subject to the proviso below, every Director, officer of the Company
and member of a committee constituted under Bye-Law 90 shall be indemnified
out of the funds of the Company against all civil liabilities, loss, damage or
expense (including but not limited to liabilities under
<PAGE> 59
- 56 -
contract, tort and statute or any applicable foreign law or regulation and all
reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such Director, officer or committee member and the indemnity
contained in this Bye-Law shall extend to any person acting as a Director,
officer or committee member in the reasonable belief that he has been so
appointed or elected notwithstanding any defect in such appointment or election
PROVIDED ALWAYS that the indemnity contained in this Bye-Law shall not extend
to any matter which would render it void pursuant to the Companies Acts.
125. Every Director, officer and member of a committee duly constituted
under Bye-Law 90 of the Company shall be indemnified out of the funds of the
Company against all liabilities incurred by him as such Director, officer or
committee member in defending any proceedings, whether civil or criminal, in
which judgment is given in his favour, or in which he is acquitted, or in
connection with any application under the Companies Acts in which relief from
liability is granted to him by the court.
126. To the extent that any Director, officer or member of a committee duly
constituted under Bye-Law 90 is entitled to claim an indemnity pursuant to
these Bye-Laws in respect of amounts paid or discharged by him, the relative
indemnity shall take effect as an obligation of the Company to reimburse the
person making such payment or effecting such
<PAGE> 60
- 57 -
discharge.
ALTERATION OF BYE-LAWS
----------------------
127. These Bye-Laws may be amended from time to time in the manner provided
for in the Companies Acts.
<PAGE> 61
B Y E - L A W S
OF
BAMBURGH LIMITED
We, being the subscribers to the Memorandum of Association of the above company
hereby subscribe to the above written Bye-Laws pursuant to section 13(4) of the
Companies Act 1981.
NAME SIGNATURE
- ---- ---------
Judith Collis /s/ JUDITH COLLIS
- ---------------------------- ----------------------------
Ruby L. Rawlins /s/ RUBY L. RAWLINS
- ---------------------------- ----------------------------
Marcia De Couto /s/ MARCIA DE COUTO
- ---------------------------- ----------------------------
Stacy L. Robinson /s/ STACY L. ROBINSON
- ---------------------------- ----------------------------
Dated this 2nd day of February, 1996
<PAGE> 1
EXHIBIT 10.1
MANAGEMENT AND CONSULTING AGREEMENT
-----------------------------------
Executed after but dated with effect as of and from the 16th
day of November, 1995.
BETWEEN:
PHARMA PATCH PLC. incorporated under the laws of the
Republic of Ireland
(hereinafter referred to as "PP")
OF THE FIRST PART;
-and-
TRIDENT MANAGEMENT INC.
(hereinafter referred to as "Trident")
OF THE SECOND PART;
WHEREAS:
1. PP has recently completed the sale of substantially all of its
operating assets and business operations and will either
continue as a going concern with new business activities or
will be dissolved upon the approval of the shareholders of PP,
and PP is desirous of retaining the expertise and services of
Trident on the terms and conditions all as hereinafter
described and set forth; and
2. Trident, represented by Murray Watson, has developed expertise
in the management and operation of businesses and their
affairs generally.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
covenants and agreements hereinafter contained and exchanged as well as for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto covenant and agree as follows:
1. ENGAGEMENT
1.1 PP hereby engages Trident to provide general supervision of the
day-to-day operations as well as to provide consulting services, all with
respect to the world-wide business and affairs of PP, and its subsidiary and
associated corporations now in existence and hereinafter established
(collectively hereinafter sometimes called the "Business") from the offices of
PP in Dublin, Ireland and elsewhere around the world upon the terms and
conditions hereinafter set forth, all of which are hereby agreed to and
accepted by Trident.
1.2 Without limiting any of the foregoing, Trident shall be responsible
for the management, direction and control of the operations, business and
affairs of PP and the Business and shall provide advice thereto to the best of
its ability in accordance with reasonable business standards.
1.3 Trident agrees to serve PP and the Business and provide the services
herein described and contemplated and to exercise the powers and duties in
connection therewith as well as to perform
<PAGE> 2
2
such other services and exercise such other powers and duties as may be
determined from time to time by the board of directors of PP or of the relevant
subsidiary or associated corporation forming part of the Business, as the case
may be, consistent with the provisions hereof.
1.4
a) In implementation of the discharge of its responsibilities
hereunder, Trident shall and does hereby designate Murray D.
Watson to serve PP as its Chairman of the Board and Chief
Executive Officer and of each of the subsidiaries and
associated corporations of the Business. PP agrees to appoint
Murray D. Watson to occupy the office of Chairman of the Board
and Chief Executive Officer of PP and to cause him to be so
appointed for each of the subsidiaries and associated
corporations of the Business during the term of this
agreement.
b) It is agreed that the powers and duties of the Chairman of the
Board and Chief Executive Officer shall include presiding over
all meetings of the board of directors and shareholders of PP
and of the relevant subsidiaries and associated corporations
and all official or informal committees or working groups
thereof, as well as having the responsibility for and the
general supervision of the business and affairs thereof in
their entirety and shall be indemnified and saved harmless by
PP for any and all proper and lawful acts in the discharge of
such powers and duties. It is agreed by PP that all relevant
articles, charter or other constating documents or the by-laws
or resolutions of PP and the relevant subsidiaries and
corporations shall be consistent with the foregoing powers and
duties, as the case may be.
1.5 Trident shall also be entitled in the exercise of its powers and the
performance of its duties hereunder to enter into directly or to cause its
designated nominee management consultant to enter into separate and independent
management and consulting contracts with any subsidiary or associated
corporation of PP for such purposes and on such terms and provisions as are
considered by the contracting parties appropriate but nevertheless consistent
with the terms and provisions hereof.
1.6 Trident shall report to the board of directors of PP through the
Chairman of the Board and Chief Executive Officer who shall report fully on the
management, operations and business and affairs of PP and the Business.
1.7 Trident agrees to use its best efforts to promote the world-wide
interests and goodwill of PP and the Business and in so doing accepts the
responsibility for world-wide travel as may be required.
2. REMUNERATION
------------
2.1 PP shall pay Trident for services rendered hereunder a gross annual
base remuneration commencing with the first year of the term hereof of Two
Hundred and Twenty Five Thousand Dollars ($225,000) U.S., payable monthly at
the rate of Eighteen Thousand, Seven Hundred and Fifty Dollars
($18,750) U.S. on the first day of each month during the first year, exclusive
of bonuses, stock options, benefits and other compensation and exclusive of
reimbursement of all disbursements and costs.
2.2 It is agreed that the gross annual base remuneration payable to
Trident hereunder after the first year of the term hereof shall be increased
annually thereafter by a minimum of ten percent (10%) of the amount paid
therefor during the immediately preceding year of the term hereof,
<PAGE> 3
3
payable monthly at the increased rate on the first day of each month during
each succeeding year of the term hereof.
2.3 It is further agreed that the gross annual base remuneration otherwise
payable hereunder to Trident by PP shall be reduced by an equivalent amount
paid with respect to or for and on behalf of PP by any subsidiary or associated
corporation of PP to Trident or to its designated nominee management
consultant which enters into a separate and independent management and
consulting contract with any such subsidiary or associated corporation of PP.
2.4 Each of Trident and the Chairman of the Board and Chief Executive
Officer shall be entitled to be promptly reimbursed by PP for or to have paid
directly by PP out-of-pocket costs, charges, expenses and disbursements
including without limiting the foregoing travel, entertainment and
accommodation actually and properly incurred from time to time in carrying out
their respective duties hereunder against production of invoices or statements.
2.5 In addition to the annual base remuneration, bonuses, stock options
and benefits payable hereunder to Trident and the Chairman of the Board and
Chief Executive Officer, Trident shall be entitled to receive an annual
performance bonus payable in cash or, by mutual agreement, by equivalent
equity:
(i) with respect to the first year of the term hereof, an amount equal
to one hundred percent (100%) of the gross annual base remuneration
payable for the first year of the term hereof under Section 2.1
above, to be paid only in the event that the closing price of PP's
American Depositary Shares, or equivalent, in any 21 trading day
period (whether or not consecutive) immediately preceding February 28,
1997 equals or exceeds US$2.00, to be paid on or before March 31,
1997, provided that in the event there occurs at any time during the
term hereof a change of control of PP as described in subsection (iii)
below, the foregoing performance bonus amount shall become due and
payable in full;
(ii) with respect to each other year of the term hereof thereafter, an
amount to be agreed upon with the compensation committee of board of
directors of PP before the end of the year of the term hereof in
respect of which the annual performance bonus relates, payable
immediately upon the occurrence of a change of control, or payable
otherwise within thirty (30) days of the end of the year of the term
hereof, as the case may be; and
(iii) a change of control of PP shall mean the acquisition of the
ownership of securities, whether convertible into, exchangeable for or
respecting the right to acquire shares of PP and/or shares of PP which
results in a new person or group of persons or persons acting alone or
jointly or in concert or with others which are associated or
affiliated for such purposes therewith and which or who are not at the
effective date holders of such securities or shares in PP,
beneficially acquiring and owning such securities or shares which
would entitle the holders thereof to cast more than fifty per cent
(50%) of the votes attaching to all such securities and shares in the
capital of PP that may be cast to elect directors of PP.
2.6 In addition to the foregoing, Trident shall be entitled to receive
such number of stock options and upon such terms as determined by the Board of
Directors from time to time, provided that all unexercised options granted
shall not terminate or expire but shall immediately become exercisable in the
event there occurs at any time during the initial term hereof a change of
control of PP, as such term is defined in paragraph 2.5(iii) above.
<PAGE> 4
4
2.7 PP agrees to provide to and to allow either Trident or the Chairman of
the Board and Chief Executive Officer of PP and of each subsidiary or
associated corporation, as the case may be, to participate in all additional
benefits determined by the compensation committee thereof to be provided by
such corporation from time to time to senior executives or consultants or
advisors. In particular, PP shall provide, or shall be required to pay
Trident's costs of providing reasonable life, health, dental and long-term
disability insurance to Mr. Watson.
3. TERM
----
3.1 The term of engagement hereunder shall be for an original term of
three (3) years determined from the effective date hereof unless earlier
terminated as hereinafter provided. Upon the expiry of the original term
hereof, and on each second anniversary of such date following thereafter,
subject to mutual agreement being reached in writing within three (3) months of
the relevant expiry date, the term of this agreement may be extended for
successive renewals each for a further term of two (2) additional years on the
same terms and conditions except as to gross base annual remuneration which
shall be mutually agreed upon at the time.
4. TERMINATION
-----------
4.1 PP may terminate this agreement with Trident without notice or further
compensation, subject to a full and complete accounting for all obligations and
commitments due and payable hereunder to the effective date of termination, for
the following causes:
a) if Trident or the Chairman of the Board and Chief Executive
Officer is convicted of a criminal offence involving fraud or
dishonesty;
b) if the Chairman of the Board and Chief Executive Officer dies;
c) if the Chairman of the Board and Chief Executive Officer
becomes permanently disabled and prevented from performing his
duties as an officer for six (6) continuous months;
d) if Trident fails to substantially remedy the failure within a
reasonable period of time after receiving written notice from
PP with reasonable particularity, provided the same is capable
of being remedied within a reasonable period, that Trident
fundamentally and repeatedly has demonstrated its failure to
perform its material duties hereunder in a reasonably
competent manner; or
e) if Trident fails to make Murray D. Watson available as
Chairman of the Board and Chief Executive Officer.
4.2 During the original term hereof, PP may terminate this agreement on no
less than six (6) months' prior written notice without cause upon payment to
each of Trident and the Chairman of the Board and Chief Executive Officer, as
the case may be, of an amount on account of all payments provided for
hereunder, and whether paid or payable by PP directly or otherwise, equal in
the aggregate to the worth of such payments calculated from the effective date
of termination at the then applicable rate or amounts for the greater period
of: a) the number of years or part thereof remaining for the balance of the
original term hereof; and b) 12 months.
4.3 During any renewal term, PP may terminate this agreement on no less
than six (6) months'
<PAGE> 5
5
prior written notice without cause upon payment to each of Trident and the
Chairman of the Board and Chief Executive Officer of an amount on account of
all payments provided for hereunder, and whether paid or payable by PP directly
or otherwise, equal to the worth of such payments calculated from the effective
date of termination at the then applicable rate or amounts for twelve (12)
months.
4.4 It is agreed that in no event shall the amounts payable to each of
Trident and the Chairman of the Board and Chief Executive Officer under
Sections 4.2 and 4.3 above exceed the amounts otherwise payable had Trident
performed its obligations hereunder for the balance of the original term or the
renewed term whichever is applicable.
4.5 It is agreed that instead of giving no less than twelve (12) months'
notice of termination hereof as contemplated in Sections 4.2 and 4.3 above and
making the payments during such notice period, PP may make payment by lump sum
to each of Trident and the Chairman of the Board and Chief Executive Officer of
all amounts otherwise provided for hereunder during the applicable notice
period at the then applicable rate or amounts.
4.6 Trident shall be entitled to terminate this agreement on six (6)
months' prior written notice for any reason, with or without cause, in which
event PP shall be excused from all further liability from and after the
effective date of such termination with respect to further payments thereafter
otherwise due and payable hereunder but for such termination, to or for the
benefit of Trident and the Chairman of the Board and Chief Executive Officer,
subject to an accounting and payment of all amounts due and owing therefor to
the effective date of such termination.
4.7 Upon termination hereof in accordance with its terms, Trident shall
cause the Chairman of the Board and Chief Executive Officer of PP and of any
subsidiary or associated corporation if nominated by or at the instance of PP
in exercise of its rights hereunder, to resign from office effective the same
date failing with PP shall be entitled to remove him or cause him to be
removed from each such office held, provided all payments and reimbursements
to be made hereunder have been made and accounted for in full to the
satisfaction of Trident.
5. PP COVENANTS
------------
5.1 PP shall provide or cause to be provided as its sole cost and expense
to Trident and any designated nominee management consultant to the Business and
to the Chairman of the Board and Chief Executive Officer thereof suitable
offices together with all necessary administrative assistance and support
staff and equipment at its place of business in the City of Dublin, in the
Republic of Ireland, and elsewhere in the world where PP permanently or
temporarily carries on business or the Business is carried on as are suitable
to enable Trident, its designated nominee management consultant and Chairman of
the Board and Chief Executive Officer to fulfill their respective duties and
obligations hereunder.
5.2 PP covenants and agrees to take and diligently prosecute all such
steps, actions and proceedings to qualify the shares of PP which may be subject
to options granted hereunder to Trident to be registered for public trading in
the United States of America.
5.3 Whether PP is successful in obtaining all necessary approvals with
respect to qualifying the shares of PP to trade publicly as contemplated
hereunder, nonetheless PP agrees to issue and deliver to Trident or its
designated nominee certificates for all such shares of PP as fully paid and
non-assessable which are subject to the stock options granted hereunder to
Trident or its designated nominee once exercised in accordance with the terms
hereof and to authorize and direct the
<PAGE> 6
6
registration of such certificate(s) to be properly recorded in the books and
records of PP.
5.4 PP covenants and agrees to use its best efforts to obtain all
necessary covenants and approvals as may be required or necessary and whether
from third parties or its shareholders or board of directors or those of the
Business or otherwise to give full effect and carry out all of the terms and
provisions hereof.
6. TRIDENT COVENANTS.
-----------------
6.1 Trident acknowledges and agrees that:
(a) in the course of performing its duties and obligations hereunder,
Trident will have access to and will be entrusted with detailed
confidential information, data and business or trade secrets and
intellectual property covering the present and future products,
services, operations, marketing and sales techniques and procedures of
PP and the Business, including information pertaining to existing or
potential customers and suppliers and participants with PP or the
Business in strategic alliances (collectively "Trade Secrets"), the
disclosure of any which to competitors of PP or the Business would be
detrimental to PP and the Business;
(b) in the course of performing its duties and obligations hereunder,
Trident will be a representative of PP and the Business to customers,
suppliers and strategic alliance parties and as such will have
responsibility for maintaining and enhancing the goodwill of PP and
the Business;
(c) Trident will have fiduciary duties to PP and the Business
including the duty to act in the best interest thereof; and
(d) the right to maintain the confidentiality of the Trade Secrets,
the right to preserve the goodwill of PP and the Business and the
right to benefit of relationships developed with customers, suppliers
and strategic alliance parties relating to PP and the Business by
virtue of contractual relationships established hereby, constitute
proprietary rights of PP which PP is entitled to protect.
In acknowledgement of the matters described immediately above, and in
consideration of payments to be received by Trident hereunder, Trident agrees
that neither Trident nor any of its designated nominees will during the period
commencing on the effective date hereof and ending two (2) years following the
expiration of the term hereof, whether original or as the same may be renewed
and whether earlier terminated, disclose to any person or in any way make use
of the Trade Secrets inconsistent with the purposes herein set forth in any
manner, any of the Trade Secrets save and except for such information otherwise
forming part of the Trade Secrets that is or becomes generally available to the
public other than as a result of disclosure by Trident.
7. GENERAL
-------
7.1 This agreement shall not be construed to be in any respect an
employment arrangement or a partnership between PP or the Business and Trident
or its designated nominees the agent of PP or of the Business, as the case may
be, and Trident and its designated nominees shall each be conclusively deemed
for all purposes, whether in law or equity, to be an independent contractor.
<PAGE> 7
7
7.2 Each of the parties hereto covenants and agrees to be bound by,
observe and perform, and to take all actions, steps, proceedings and execute
such further and other assurances, documents and agreements, whether under
corporate seal or otherwise, as are reasonably necessary or required to fully
implement and give effect to all of the terms and provisions hereof.
7.3 Any notice, demand, request, declaration or other communication
required or permitted to be given or made hereunder shall be in writing,
addressed to the recipient and either delivered by hand or mailed by prepaid
registered mail at the address indicated below. At any time other than due to a
disruption in the service of the mail which has or is likely to delay the
mailing and receipt of such a notice, a notice so mailed shall be deemed to
have been received fourteen (14) business days after its postmarked date
thereof or, if delivered by hand, shall be deemed to have been received at the
time of physical delivery. In lieu thereof, notice may be sent by telex or
facsimile or like message as indicated below, in which case it shall be deemed
to have been received on the next business day immediately following the day of
being sent subject to confirmation of sending and receipt thereof being
obtained. Either party hereto may in the manner above provided from time to
time give notice of a change of address or number to which a notice is
thereafter to be sent. Any notice given as aforesaid shall be considered
sufficient notice hereunder.
Pharma Patch plc.
15-16 Fitzwilliam Place
Dublin 2, Ireland
Fax No. 353-1-668-7144
Trident Management Inc.
P.O.Box 62, Leward Highway
Providenciales, Turks and Caicos Islands,
British West Indies.
Fax No. (809) 941-5988
7.4 In the event of a translation of this agreement into any language
other than English, the English version shall govern.
7.5 In the event any clause, paragraph, term or provision of this
agreement, in whole or in part, including the breadth or scope thereof, shall
be held by any court of competent jurisdiction to be invalid or unenforceable
for any reason whatsoever, such invalidity or unenforceability shall not affect
the validity or enforceability of the remainder thereof or of the rest of this
agreement, all of which shall remain valid and enforceable.
7.6 This agreement contains the whole of the agreement between the parties
hereto relating to the subject matter hereof and there are no collateral or
precedent representations, agreements or conditions not specifically set forth
herein, and no modification, amendment, variation or further agreement with
respect hereto shall be effective or binding upon the parties hereto unless
agreed to in writing beforehand.
7.7 The parties hereto hereby covenant and agree that this agreement shall
be binding upon and enure to the benefit of the parties hereto, their
successors, nominees and permitted assigns.
7.8 The parties hereto hereby covenant and agree that this agreement may
not be assigned in
<PAGE> 8
8
whole or in part by either of the parties hereto except in the case of PP, upon
the contemplation of a corporate re-structuring, and in the case of Trident, to
a related or affiliated corporation provided such related or affiliated
corporation can demonstrate to the reasonable satisfaction of PP that Murray D.
Watson is under contract to such related or affiliated party to provide
consulting and management services thereto.
7.9 Notwithstanding anything else contained herein, all communications,
documents, data and information, whether written or oral, regarding the
business or affairs of either party hereto (collectively, "Information"),
obtained or received in any capacity by the other party hereto and whether done
formally or informally or directly or indirectly and for whatever purpose or
reason including the performance or administration or enforcement of the terms
and provisions hereof, and whether pursuant to the provisions hereof or
otherwise, shall be kept private and confidential and in strict confidence and,
except as may be required by a court, governmental or regulatory authority of
competent jurisdiction, or otherwise by law, shall not be released to any other
party without the express prior written approval of the parties hereto. In the
event of any release, filing or disclosure of information required as
aforesaid, the party hereto so compelled hereby covenants and agrees
notwithstanding to promptly take all such actions, steps and proceedings in the
circumstance to assert and maintain a claim for privacy and confidentiality to
the maximum extent permissible at law or equity, it being acknowledged and
agreed by the parties hereto that this agreement is a contract of uberrimae
fides and imposes an obligation on each of the most abundant and uttermost good
faith.
7.10 The parties hereto hereby each column and agree that the covenants and
restrictions contained herein regarding non-disclosure and confidentiality are
reasonable, valid and are given for valuable consideration and each party
hereto covenants and agrees to be bound hereby and that the terms and
provisions hereof may be pleaded as an estoppel in actions or proceedings to
contest the validity of the foregoing and that all defenses to the strict
enforcement hereof are hereby waived. Each party hereto further acknowledges
and agrees that the other would suffer irreparable injury in the event of any
breach of such covenant or restriction and accordingly, that damages therefor
would be inadequate as a complete remedy at law and as a result that each party
hereto which has suffered the injury shall entitled to temporary and injunctive
relief enjoining the defaulting party from any such breach.
7.11 The parties hereto hereby agree to arbitrate any dispute or
disagreement arising out of or relating to this agreement, whether during the
term hereof or after, which touches upon the validity, construction, meaning,
performance or effect hereof or the rights and liabilities of the parties
hereto or any other matter arising out of or connected herewith shall be
referred to final and binding arbitration to a panel of two (2) arbitrators,
one (1) selected by each of the parties hereto, whose decision shall be final
and binding as between the parties hereto and shall not be subject to review or
appeal by any process or law. The arbitrators may determine all questions of
law and procedure and after hearing any evidence and representations of the
parties, shall make an award and reduce the same to writing together with
reasons therefor in reasonable particularity. It is agreed that the arbitrators
shall not be bound by any formal rules of evidence. The cost of the arbitration
shall be borne by the parties hereto as may be specified in such determination.
7.12 It is further agreed that the terms and provisions of Section 6.1,
7.9, 7.10, 7.11 and this Section 7.12 shall survive the termination of this
agreement.
7.13 The parties hereto hereby confirm and acknowledge the truth in
substance and fact of the recitals contained herein.
<PAGE> 9
9
7.14 This agreement may be executed simultaneously in counterparts, and
evidenced by facsimile, each of which shall be an original but both of which
when taken together, shall constitute one and the same instrument.
7.15 IN WITNESS WHEREOF the parties hereto have hereunto signed this
agreement with effect as of the date first above written.
PHARMA PATCH PLC
Per: [SIG]
-----------------------------
TRIDENT MANAGEMENT, INC.
Per: [SIG]
-----------------------------
<PAGE> 1
EXHIBIT 10.2
MANAGEMENT AND CONSULTING AGREEMENT
-----------------------------------
Executed after but dated with effect as of and from the 16th
day of November, 1995.
B E T W E E N:
PHARMA PATCH PLC. incorporated under the laws of the
Republic of Ireland
(hereinafter referred to as "PP")
OF THE FIRST PART;
- and -
PINNACLE FINANCIAL CORPORATION, (formerly known as
1141238 Ontario Limited)
(hereinafter referred to as "Pinnacle")
OF THE SECOND PART;
WHEREAS:
1. PP has recently completed the sale of substantially all of its
operating assets and business operations and will either
continue as a going concern with new business activities or
will be dissolved upon the approval of the shareholders of PP,
and PP is desirous of retaining the expertise and services of
Pinnacle on the terms and conditions all as hereinafter
described and set forth; and
2. Pinnacle, represented by Kenneth G. Howling, has developed
expertise in the fields of financial management and the
operation of businesses and their affairs generally.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
covenants and agreements hereinafter contained and exchanged as well as for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto covenant and agree as follows:
1. ENGAGEMENT
----------
1.1 PP hereby engages to provide financial consulting services, all with
respect to the world-wide business and affairs of PP, and its subsidiary and
associated corporations now in existence and hereinafter established
(collectively hereinafter sometimes called the "Business") from the offices of
PP in Dublin, Ireland and elsewhere around the world upon the terms and
conditions hereinafter set forth, all of which are hereby agreed to and
accepted by Pinnacle.
1.2 Without limiting any of the foregoing, Pinnacle shall be responsible
for the management and direction of the financial controls and reporting
systems of PP and the Business and shall provide advice thereto to the best of
its ability in accordance with reasonable business standards.
1.3 Pinnacle agrees to serve PP and the Business and provide the services
herein described and contemplated and to exercise the powers and duties in
connection therewith as well as to
<PAGE> 2
2
perform such other services and exercise such other powers and duties as may be
determined from time to time by the board of directors of PP or of the relevant
subsidiary or associated corporation forming part of the Business, as the case
may be, consistent with the provisions hereof.
1.4
a) In implementation of the discharge of its responsibilities
hereunder, Pinnacle shall and does hereby designate Kenneth G.
Howling to serve PP as its Vice President, Finance and Chief
Financial Officer and of each of the subsidiaries and
associated corporations of the Business. PP agrees to appoint
Kenneth G. Howling to occupy the office of Vice President,
Finance and Chief Financial Officer of PP and to cause him to
be so appointed for each of the subsidiaries and associated
corporations of the Business during the term of this
agreement.
b) It is agreed that the powers and duties of the Vice President,
Finance and Chief Financial Officer of PP shall include
presiding over all matters of a financial, and accounting
nature involving PP and of the relevant subsidiaries and
associated corporations and shall be indemnified and saved
harmless by PP for any and all proper and lawful acts in the
discharge of such powers and duties. It is agreed by PP that
all relevant articles, charter or other constating documents
or the by-laws or resolutions of PP and the relevant
subsidiaries and corporations shall be consistent with the
foregoing powers and duties, as the case may be.
1.5 Pinnacle shall also be entitled in the exercise of its powers and the
performance of its duties hereunder to enter into directly or to cause its
designated nominee management consultant to enter into separate and independent
management and consulting contracts with any subsidiary or associated
corporation of PP for such purposes and on such terms and provisions as are
considered by the contracting parties appropriate but nevertheless consistent
with the terms and provisions hereof.
1.6 Pinnacle shall report to the Chairman of the Board and Chief Executive
Officer and shall report fully on the financial management, operations and
business and affairs of PP and the Business.
1.7 Pinnacle agrees to use its best efforts to promote the world-wide
interests and goodwill of PP and the Business and in so doing accepts the
responsibility for world-wide travel as may be required.
2. REMUNERATION
------------
2.1 PP shall pay Pinnacle for services rendered hereunder a gross annual
base remuneration commencing with the first year of the term hereof of One
Hundred and Twenty Five Thousand Dollars ($125,000) U.S., payable monthly at
the rate of Ten Thousand Four Hundred and Seventeen Dollars ($10,417.00) U.S.
on the first day of each month during the first year, exclusive of bonuses,
stock options, benefits and other compensation and exclusive of reimbursement
of all disbursements and costs.
2.2 It is agreed that the gross annual base remuneration payable to
Pinnacle hereunder after the first year of the term hereof shall be increased
annually thereafter by a minimum of ten percent (10%) of the amount paid
therefor during the immediately preceding year of the term hereof, payable
monthly at the increased rate on the first day of each month during each
succeeding year of the term hereof.
<PAGE> 3
3
2.3 It is further agreed that the gross annual base remuneration otherwise
payable hereunder to Pinnacle by PP shall be reduced by an equivalent amount
paid with respect to or for and on behalf of PP by any subsidiary or associated
corporation of PP to Pinnacle or to its designated nominee management
consultant which enters into a separate and independent management and
consulting contract with any such subsidiary or associated corporation of PP.
2.4 Each of Pinnacle and the Vice President, Finance and Chief Financial
Officer shall be entitled to be promptly reimbursed by PP for or to have paid
directly by PP out-of-pocket costs, charges, expenses and disbursements
including without limiting the foregoing travel, entertainment and
accommodation actually and property incurred from time to time in carrying out
their respective duties hereunder against production of invoices or statements.
2.5 In addition to the annual base remuneration, bonuses, stock options and
benefits payable hereunder to Pinnacle and the Vice President, Finance and
Chief Financial, Pinnacle shall be entitled to receive an annual performance
bonus payable in cash or, by mutual agreement, by equivalent equity:
(i) with respect to the first year of the term hereof, an amount
equal to one hundred percent (100%) of the gross annual base
remuneration payable for the first year of the term hereof under
Section 2.1 above, to be paid only in the event that the closing price
of PP's American Depositary Shares, or equivalent, in any 21 trading
day period (whether or not consecutive) immediately preceding February
28, 1997 equals or exceeds US$2.00, to be paid on or before March 31,
1997 provided that in the event there occurs at any time during
the term hereof a change of control of PP as described in subsection
(iii) below, the foregoing performance bonus amount shall become due
and payable in full;
(ii) with respect to each other year of the term hereof thereafter,
an amount to be agreed upon with the compensation committee of the
board of directors of PP before the end of the year of the term hereof
in respect of which the annual performance bonus relates, payable
immediately upon the occurrence of a change of control, or payable
otherwise within thirty (30) days of the end of the year of the term
hereof, as the case may be; and
(iii) a change of control of PP shall mean the acquisition of the
ownership of securities, whether convertible into, exchangeable for or
respecting the right to acquire shares of PP and/or shares of PP which
results in a new person or group of persons or persons acting alone or
jointly or in concert or with others which are associated or
affiliated for such purposes therewith and which or who are not at the
effective date holders of such securities or shares in PP,
beneficially acquiring and owning such securities or shares which
would entitle the holders thereof to cast more than fifty per cent
(50%) of the votes attaching to all such securities and shares in the
capital of PP that may be cast to elect directors of PP.
2.6 In addition to the foregoing, Pinnacle shall be entitled to receive
such number of stock options and upon such terms as determined by the Board of
Directors from time to time, provided that all unexercised options granted
shall not terminate or expire but shall immediately become exercisable in the
event there occurs at any time during the initial term hereof a change of
control of PP, as such term is defined in paragraph 2.5(iii) above.
<PAGE> 4
4
2.7 PP agrees to provide to and to allow either Pinnacle or Vice President
Finance and Chief Financial Officer of PP and of each subsidiary or associated
corporation, as the case may be, to participate in all additional benefits
determined by the compensation committee thereof to be provided by such
corporation from time to time to senior executives or consultants or advisors.
In particular, PP shall provide, or shall be required to pay Pinnacle's costs
of providing reasonable life, health, dental and long-term disability insurance
to Mr. Howling.
3. TERM
----
3.1 The term of engagement hereunder shall be for an original term of
three (3) years determined from the effective date hereof unless earlier
terminated as hereinafter provided. Upon the expiry of the original term
hereof, and on each second anniversary of such date following thereafter,
subject to mutual agreement being reached in writing within three (3) months of
the relevant expiry date, the term of this agreement may be extended for
successive renewals each for a further term of two (2) additional years on the
same terms and conditions except as to gross base annual remuneration which
shall be mutually agreed upon at the time.
4. TERMINATION
-----------
4.1 PP may terminate this agreement with Pinnacle without notice or
further compensation, subject to a full and complete accounting for all
obligations and commitments due and payable hereunder to the effective date of
termination, for the following causes:
a) If Pinnacle or the Vice President, Finance and Chief Financial
Officer is convicted of a criminal offence involving fraud or
dishonesty;
b) if the Vice President, Finance and Chief Financial Officer
dies;
c) if the Vice President, Finance and Chief Financial Officer
becomes permanently disabled and prevented from performing his
duties as an officer for six (6) continuous months;
d) if Pinnacle fails to substantially remedy the failure within a
reasonable period of time after receiving written notice from
PP with reasonable particularity, provided the same is capable
of being remedied within a reasonable period, that Pinnacle
fundamentally and repeatedly has demonstrated its failure to
perform its material duties hereunder in a reasonably
competent manner; or
e) if Pinnacle fails to make Kenneth G. Howling available as Vice
President, Finance and Chief Financial Officer.
4.2 During the original term hereof, PP may terminate this agreement on no
less than six (6) months' prior written notice without cause upon payment to
each of Pinnacle and the Vice President, Finance and Chief Financial Officer,
as the case may be, of an amount on account of all payments provided for
hereunder, and whether paid or payable by PP directly or otherwise, equal in
the aggregate to the worth of such payments calculated from the effective date
of termination at the then applicable rate or amounts for the greater period
of: a) the number of years or part thereof remaining for the balance of the
Original term hereof; and b) 12 months.
4.3 During any renewal term, PP may terminate this agreement on no less
than six (6) months'
<PAGE> 5
5
prior written notice without cause upon payment to each of Pinnacle and the
Vice President, Finance and Chief Financial Officer of an amount on account of
all payments provided for hereunder, and whether paid or payable by PP directly
or otherwise, equal to the worth of such payments calculated from the effective
date of termination at the then applicable rate or amounts for twelve (12)
months.
4.4 It is agreed that in no event shall the amounts payable to each of
Pinnacle and the Vice President Finance, and Chief Financial Officer under
Sections 4.2 and 4.3 above exceed the amounts otherwise payable had Pinnacle
performed its obligations hereunder for the balance of the original term or the
renewed term whichever is applicable.
4.5 It is agreed that instead of giving no less than twelve (12) months'
notice of termination hereof as contemplated in Sections 4.2 and 4.3 above and
making the payments during such notice period, PP may make payment by lump sum
to each of Pinnacle and the Vice President Finance, and Chief Financial Officer
of all amounts otherwise provided for hereunder during the applicable notice
period at the then applicable rate or amounts.
4.6 Pinnacle shall be entitled to terminate this agreement on six (6)
months' prior written notice for any reason, with or without cause, in which
event PP shall be excused from all further liability from and after the
effective date of such termination with respect to further payments thereafter
otherwise due and payable hereunder but for such termination, to or for the
benefit of Pinnacle and the Vice President Finance, and Chief Financial
Officer, subject to an accounting and payment of all amounts due and owing
therefor to the effective date of such termination.
4.7 Upon termination hereof in accordance with its terms, Pinnacle shall
cause the Vice President Finance, and Chief Financial Officer of PP and of any
subsidiary or associated corporation if nominated by or at the instance of PP
in exercise of its rights hereunder, to resign from office effective the same
date failing which PP shall be entitled to remove him or cause him to be
removed from each such office held, provided all payments and reimbursements to
be made hereunder have been made and accounted for in full to the satisfaction
of Pinnacle.
5. PP Covenants
------------
5.1 PP shall provide or cause to be provided at its sole cost and expense
to Pinnacle and any designated nominee management consultant to the Business
and to the Chairman of the Board and Chief Executive Officer thereof suitable
offices together with all necessary administrative assistance and support staff
and equipment at its place of business in the City of Dublin, in the Republic
of Ireland, and elsewhere in the world where PP permanently or temporarily
carries on business or the Business is carried on as are suitable to enable
Pinnacle, its designated nominee management consultant and Vice President
Finance, and Chief Financial Officer to fulfil their respective duties and
obligations hereunder.
5.2 PP covenants and agrees to take and diligently prosecute all such
steps, actions and proceedings to qualify the shares of PP which may be subject
to options granted hereunder to Pinnacle to be registered for public trading in
the United States of America.
5.3 Whether PP is successful in obtaining all necessary approvals with
respect to qualifying the shares of PP to trade publicly as contemplated
hereunder, nonetheless PP agrees to issue and deliver to Pinnacle or its
designated nominee certificates for all such shares of PP as fully paid and
non-assessable which are subject to the stock options granted hereunder to
Pinnacle or its designated nominee once exercised in accordance with the terms
hereof and to authorize and direct
<PAGE> 6
6
the registration of such certificate(s) to be properly recorded in the books
and records of PP.
5.4 PP covenants and agrees to use its best efforts to obtain all
necessary covenants and approvals as may be required or necessary and whether
from third parties or its shareholders or board of directors or those of the
Business or otherwise to give full effect and carry out all of the terms and
provisions hereof.
6. Pinnacle Covenants
------------------
6.1 Pinnacle acknowledges and agrees that
(a) in the course of performing its duties and obligations
hereunder, Pinnacle will have access to and will be entrusted with
detailed confidential information, data and business or trade secrets
and intellectual property covering the present and future products,
services, operations, marketing and sales techniques and procedures of
PP and the Business, including information pertaining to existing or
potential customers and suppliers and participants with PP or the
Business in strategic alliances (collectively "Trade Secrets"), the
disclosure of any of which to competitors of PP or the Business would
be detrimental to PP and the Business;
(b) in the course of performing its duties and obligations
hereunder, Pinnacle will be a representative of PP and the Business to
customers, suppliers and strategic alliance parties and as such will
have responsibility for maintaining and enhancing the goodwill of PP
and the Business;
(c) Pinnacle will have fiduciary duties to PP and the Business
including the duty to act in the best interests thereof; and
(d) the right to maintain the confidentiality of the Trade
Secrets, the right to preserve the goodwill of PP and the Business and
the right to the benefit of relationships developed with customers,
suppliers and strategic alliance parties relating to PP and the
Business by virtue of contractual relationships established hereby,
constitute proprietary rights of PP which PP is entitled to protect.
In acknowledgement of the matters described immediately above, and in
consideration of the payments to be received by Pinnacle hereunder, Pinnacle
agrees that neither Pinnacle nor any of its designated nominees will during
the period commencing on the effective date hereof and ending two (2) years
following the expiration of the term hereof, whether original or as the same
may be renewed and whether earlier terminated, disclose to any person or in
any way make use of the Trade Secrets inconsistent with the purposes herein
set forth in any manner, any of the Trade Secrets save and except for such
information otherwise forming part of the Trade Secrets that is or becomes
generally available to the public other than as a result of disclosure by
Pinnacle.
7. General
-------
7.1 This agreement shall not be construed to be in any respect an
employment arrangement or a partnership between PP or the Business and Pinnacle
or its designated nominees the agent of PP or of the Business, as the case may
be, and Pinnacle and its designated nominees shall each be conclusively deemed
for all purposes, whether in law or equity, to be an independent contractor.
<PAGE> 7
7
7.2 Each of the parties hereto covenants and agrees to be bound by,
observe and perform, and to take all actions, steps, proceedings and execute
such further and other assurances, documents and agreements, whether under
corporate seal or otherwise, as are reasonably necessary or required to fully
implement and give effect to all of the terms and provisions hereof.
7.3 Any notice, demand, request, declaration or other communication
required or permitted to be given or made hereunder shall be in writing,
addressed to the recipient and either delivered by hand or mailed by prepaid
registered mail at the address indicated below. At any time other than due to
a disruption in the service of the mail which has or is likely to delay the
mailing and receipt of such a notice, a notice so mailed shall be deemed to
have been received fourteen (14) business days after its postmarked date
thereof or, if delivered by hand, shall be deemed to have been received at the
time of physical delivery. In lieu thereof, notice may be sent by telex or
facsimile or like message as indicated below, in which case it shall be deemed
to have been received on the next business day immediately following the day of
being sent subject to confirmation of sending and receipt thereof being
obtained. Either party hereto may in the manner above provided from time to
time give notice of a change of address or number to which a notice is
thereafter to be sent. Any notice given as aforesaid shall be considered
sufficient notice hereunder.
Pharma Patch plc.
15-16 Fitzwilliam Place
Dublin 2, Ireland
Fax No. 353-1-668-7144
Pinnacle Financial Corporation
43 Parkhurst Blvd.
Toronto, Ontario
M4G 2C8
7.4 In the event of a translation of this agreement into any language
other than English, the English version shall govern.
7.5 In the event any clause, paragraph,term or provision of this agreement,
in whole or in part, including the breadth or scope thereof, shall be held by
any court of competent jurisdiction to be invalid or unenforceable for any
reason whatsoever, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder thereof or of the rest of this
agreement, all of which shall remain valid and enforceable.
7.6 This agreement contains the whole of the agreement between the parties
hereto relating to the subject matter hereof and there are no collateral or
precedent representations, agreements or conditions not specifically set forth
herein, and no modification, amendment, variation or further agreement with
respect hereto shall be effective or binding upon the parties hereto unless
agreed to in writing beforehand.
7.7 The parties hereto hereby covenant and agree that this agreement shall
be binding upon and enure to the benefit of the parties hereto, their
successors, nominees and permitted assigns.
7.8 The parties hereto hereby covenant and agree that this agreement may
not be assigned in whole or in part by either of the parties hereto except
in the case of PP, upon the completion of a corporate re-structuring, and in
the case of Pinnacle, to a related or affiliated corporation provided
<PAGE> 8
8
such related or affiliated corporation can demonstrate to the reasonable
satisfaction of PP that Kenneth G. Howling is under contract to such related
or affiliated party to provide consulting and management services thereto.
7.9 Notwithstanding anything else contained herein, all communications,
documents, data and information, whether written or oral, regarding the
business or affairs of either party hereto (collectively, "Information"),
obtained or received in any capacity by the other party hereto and whether done
formally or informally or directly or indirectly and for whatever purpose or
reason including the performance or administration or enforcement of the terms
and provisions hereof, and whether pursuant to the provisions hereof or
otherwise, shall be kept private and confidential and in strict confidence and,
except as may be required by a court, governmental or regulatory authority of
competent jurisdiction, or otherwise by law, shall not be released to any other
party without the express prior written approval of the parties hereto. In the
event of any release, filing or disclosure of information required as
aforesaid, the party hereto so compelled hereby covenants and agrees
notwithstanding to promptly take all such actions, steps and proceedings in the
circumstances to assert and maintain a claim for privacy and confidentiality to
the maximum extent permissible at law or equity, it being acknowledged and
agreed by the parties hereto that this agreement is a contract of uberrimae
fides and imposes an obligation on each of the most abundant and uttermost good
faith.
7.10 The parties hereto hereby each confirm and agree that the covenants
and restrictions contained herein regarding non-disclosure and confidentiality
are reasonable, valid and are given for valuable consideration and each party
hereto covenants and agrees to be bound hereby and that the terms and
provisions hereof may be pleaded as an estoppel in actions or proceedings to
contest the validity of the foregoing and that all defences to the strict
enforcement hereof are hereby waived. Each party hereto further acknowledges
and agrees that the other would suffer irreparable injury in the event of any
breach of any such covenant or restriction and accordingly, that damages
therefor would be inadequate as a complete remedy at law and as a result that
each party hereto which has suffered the injury shall be entitled to temporary
and injunctive relief enjoining the defaulting party from any such breach.
7.11 The parties hereto hereby agree to arbitrate any dispute or
disagreement arising out of or relating to this agreement, whether during the
term hereof or after, which touches upon the validity, construction, meaning,
performance or effect hereof or the rights and liabilities of the parties
hereto or any other matter arising out of or connected herewith shall be
referred to final and binding arbitration to a panel of two (2) arbitrators,
one (1) selected by each of the parties hereto, whose decision shall be final
and binding as between the parties hereto and shall not be subject to review or
appeal by any process or law. The arbitrators may determine all questions of
law and procedure and after hearing any evidence and representations of the
parties, shall make an award and reduce the same to writing together with
reasons therefor in reasonable particularity. It is agreed that the
arbitrators shall not be bound by any formal rules of evidence. The cost of
the arbitration shall be borne by the parties hereto as may be specified in
such determination.
7.12 It is further agreed that the terms and provisions of Sections 6.1,
7.9, 7.10, 7.11 and this Section 7.12 shall survive the termination of this
agreement.
7.13 The parties hereto hereby confirm and acknowledge the truth in
substance and fact of the recitals contained herein.
7.14 This agreement may be executed simultaneously in counterparts, and
evidenced by
<PAGE> 9
9
facsimile, each of which shall be an original but both of which when taken
together, shall constitute one and the same instrument.
7.15 IN WITNESS WHEREOF the parties hereto have hereunto signed this
agreement with effect as of the date first above written.
PHARMA PATCH PLC
[SIG]
Per:--------------------------
PINNACLE FINANCIAL CORPORATION
/s/ KENNETH G. HOWLING
Per:--------------------------
<PAGE> 1
LETTER OF TRANSMITTAL
To Surrender Certificates Formerly Representing
Class A Warrants of Pharma Patch Public Limited Company
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
Name & Address of Registered Holder(s) Please enter number
(as they appear on the Certificate(s) of Certificate(s)
and the Warrant Records) Surrendered
-----------------------
PPP Class A Warrant
Certificate Numbers
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total Shares represented by certificates
- -------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE FILL IN CERTIFICATE(S) SURRENDERED (ATTACH SEPARATE SCHEDULE IF
NECESSARY)
/ / CHECK HERE IF ALL OR PART OF YOUR WARRANTS ARE LOST.
On November , 1996, at an Extraordinary General Meeting of Shareholders of
Pharma Patch Public Limited Company ("PPP"), the shareholders of PPP approved a
proposal to reorganize and liquidate PPP in accordance with the terms of a Plan
of Reorganization ("Plan") previously adopted by the Board of Directors of PPP.
Under the terms of the Plan, up to 33,023 shares of the Common Stock of Atlantic
Central Enterprises Limited ("Ace Shares") will be exchanged at a rate of one
Ace Share for (i) each 100 Class A Warrants of PPP, (ii) each 100 Class B
Warrants of PPP, (iii) each 100 Class C Warrants of PPP, and (iv) each 100 Class
D Warrants of PPP or any combination thereof equaling 100 Warrants. Warrant
holders will not receive any fractional Ace Shares. All fractions of Ace Shares
which Warrantholders would otherwise be entitled to receive, will be rounded up
to the next lowest whole number if the first decimal place is less than five and
rounded up to the next highest whole number if the first decimal place is five
or higher. The Bank of New York has been appointed Exchange Agent with respect
to this transaction.
To receive certificates representing Ace Shares, each warrantholder must deliver
this Letter of Transmittal (or a copy) duly executed, together with his or her
Warrant certificates. Warrant certificates are considered received by the
Exchange Agent only when they have actually been delivered to the Exchange Agent
and any defects or irregularities have been cured by the holder or waived by Ace
or the Exchange Agent.
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS SPECIAL ISSUANCE INSTRUCTIONS
(PLEASE SEE INSTRUCTIONS 2, 3 AND 4 (PLEASE SEE INSTRUCTIONS 2, 3 AND 4
ON REVERSE HEREOF) ON REVERSE HEREOF)
To be completed ONLY if the new To be completed ONLY if the new
certificate for Ace Shares is certificate for Ace Shares is to be
issued to the registered holder(s) issued and delivered to other than
but delivered to other than the registered holder(s). Mail the
registered holder(s). Mail the certificate to:
certificate to:
Name Name
--------------------------------- ---------------------------------
(Please Print) (Please Print)
Address Address
------------------------------ ------------------------------
------------------------------------- -------------------------------------
(Zip Code) (Zip Code)
- -------------------------------------------------------------------------------
Signature of Owner(s) Guaranteed by:
-------------------------------------
(SIGNATURE OF OWNER)
- --------------------------------------- -------------------------------------
(SIGNATURE OF OWNER)
<PAGE> 2
- --------------------------------------------------------------------------------
Payer: The Bank of New York
(See reverse of transmittal letter for instructions)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SUBSTITUTE Part I -- PLEASE PROVIDE YOUR TIN IN Social Security Number
FORM W-9 THE BOX AT THE RIGHT AND CERTIFY BY OR ---------------------------------
Department of the SIGNING AND DATING BELOW. Taxpayer Identification Number
Treasury Internal
Revenue Service
--------------------------------------------------------------------------------
Part 2 -- Check the box if you are NOT subject to backup withholding under the
provisions of Section 3406(a)(1)(c) of the Internal Revenue Code because (1)
you have not been notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or (2) the
Payer's Request for Internal Revenue Service has notified you that you are no longer subject to
Taxpayer backup withholdings. / /
Identification Number
(TIN) --------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I Part 3 --
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS Awaiting TIN
TRUE, CORRECT AND COMPLETE / /
SIGNATURE ________________________ DATE ________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU RELATING TO YOUR
OWNERSHIP OF ACE SHARES.
</TABLE>
<PAGE> 3
INSTRUCTIONS
(Forming a part of the Terms and Conditions of the transaction)
1. DO NOT ENDORSE YOUR CERTIFICATE(S) OR ACCOMPANY IT WITH ANY STOCK POWER
OTHER THAN THIS LETTER OF TRANSMITTAL IF YOUR WARRANTS ARE REGISTERED IN THE
NAME(S) OF THE PERSON(S) EXECUTING THE LETTER OF TRANSMITTAL AND NO SPECIAL
ISSUANCE INSTRUCTIONS ARE PROVIDED.
If you wish your Ace Shares to be issued in the name of the registered
holder(s) but delivered to someone other than the registered holder(s), complete
the box marked "Special Delivery Instructions." If you wish your Ace Shares to
be issued and delivered to someone other than the registered holder(s), complete
the box marked "Special Issuance Instructions." If both of these boxes are left
blank, the check will be issued in the name of, and delivered to, the registered
holder(s).
Note: If you have given special issuance instructions, please read
instruction 3 below.
3. If (i) your Warrants are not registered in the name of the person(s)
executing this Letter of Transmittal or other written instructions or (ii) the
Ace Shares are to be issued to a person(s) other than the registered owner(s) of
the Warrants, the Warrants must be accompanied by a stock power or other
appropriate instruments of transfer and payment for, or evidence of payment of,
any applicable transfer taxes, with the signature(s) thereon or on this Letter
of Transmittal guaranteed by a financial institution that is a member of the
Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange
Medallion Program (SEMP) or the New York Stock Exchange, Inc. Medallion
Signature Program (MSP). The signature(s) on the Letter of Transmittal must
conform exactly with the name(s) on the instrument of transfer.
4. The signature(s) required on the Letter of Transmittal must be the
signature(s) of the stock warrant holder or warrant holder exactly as his name
or their names appear on the Warrants, or, if the Warrant(s) has been assigned,
the signature(s) must be the signature(s) of the assignee(s), exactly as such
assignee's name appears on the instrument of assignment. If any signature is
made by a corporation or a person acting as executor, administrator, guardian,
trustee or attorney-in-fact or in any other fiduciary or representative
capacity, appropriate evidence of the authority of such person to assign, sell
or transfer must be forwarded with the surrendered Warrants.
5. When the Letter of Transmittal has been properly filled in, dated and
signed, either mail it together with the certificate(s) to: The Bank of New
York, Exchange Agent, P.O. Box 11248, Church Street Station, New York, New York
10286-1248 or deliver it by hand to The Bank of New York, Exchange Agent, 101
Barclay Street, Receive and Deliver Window - Street Level, New York, New York
10286. For information call (800) 507-9357. A return envelope for mailing is
enclosed. If sent by mail, and insurance are recommended for the replacement
cost of approximately % at the current market value of the Ace Shares, you are
entitled to receive under the surrender of your PPP Warrants. The method of
delivery of the certificate(s) is at the option and risk of the owner thereof.
6. If your certificate(s) is/are lost, stolen or destroyed, please check
the box under your name on the Letter of Transmittal. The Bank of New York will
place a stop on the certificate(s) and will send you the appropriate documents
to be completed in order to replace the certificate(s). You will have to
purchase a surety bond of approximately 2% of the current market value of the
Ace Shares you are entitled to receive under the surrender of your PPP Warrant
certificates.
You may have been notified that you are subject to backup withholding under
section 3406(a)(1)(C) of the Internal Revenue Code because you have
underreported interest or dividends or you were required to but failed to file a
return which would have included a reportable interest or dividend payment. If
you have been so notified, then you must strike out Part 2 on the Substitute
Form W-9.
Exempt holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements and should so indicate on Subject Form W-9 by writing "Exempt"
above the signature. In order to qualify as an exempt recipient, a foreign
individual must submit a statement attesting to that individual's exempt status.
Forms of such statements and Instructions of Certification of Taxpayer
Identification Number, which contain additional instructions, can be obtained
from the Exchange Agent.
The shareholder is required to give the social security number or employer
identification number of the record owner of the PPP Warrants. If "Special
Issuance Instructions" have been completed, the shareholder named therein will
be considered the record owner for this purpose.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 25, 1995, (except for note 1(e) which is as of
May 9, 1996) in the Pre-Effective Amendment No. 1 to Registration Statement
(Form S-4 No. 333-10263) and related Prospectus of Atlantic Central Enterprises
Limited for the registration of 17,254,605 Common Shares.
Ernst & Young
Dublin, Ireland
October 3, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Vista Technologies, Inc.
We consent to the use of our report on Vista Technologies, Inc. included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
KPMG Peat Marwick LLP
San Francisco, California
October 3, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Pharma Patch Public Limited Company
We consent to the use of our report on Pharma Patch Public Limited Company
included herein and to the reference to our firm under the heading "Experts" in
the Prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 3, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Vista Technologies, Inc.
We consent to the use of our report on Vista Technologies, Inc. included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
A.J. Robbins
Denver, Colorado
October 3, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Atlantic Central Enterprises Limited
We consent to the use of our report on Atlantic Central Enterprises Limited
included herein and to the reference to our firm under the heading "Experts" in
the Prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 3, 1996
