As filed with the Securities and Exchange Commission on August 17, 1999
Registration No. 333-________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SFBC INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 8731
(State or jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
59-2407464
(I.R.S. Employer Identification No.)
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Address and telephone number of principal executive offices)
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Address of principal place of business or intended principal place of business)
MR. ARNOLD HANTMAN
11190 BISCAYNE BLVD.
N. MIAMI, FL 33181
(305) 895-0304
(Name, address and telephone number of agent for service)
PLEASE SEND A COPY OF ALL COMMUNICATIONS TO:
Michael D. Harris, Esq. Gerald L. Fishman, Esq.
Beth J. Harris, Esq. Barton J. Springer, Esq.
Peter A. Savarese, Esq. Adam D. Fishman, Esq.
MICHAEL HARRIS, P.A. WOLIN & ROSEN, LTD.
1645 Palm Beach Lakes Boulevard, Suite 550 2 N. La Salle Street
West Palm Beach, FL 33401 Suite 1776
(561) 478-7077 Chicago, IL 60602
Facsimile: (561) 478-1817 (312) 346-3600
Facsimile: (312) 346-0464
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional shares for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ] . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] . . . . . . . . . .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box
[ ] . . . . . . . . . .
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ii
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to Be Price Offering Registration
Securities To Be Registered Registered Per Security(1)(2) Price Fee
- --------------------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value (3) 1,322,500 $ 6.50 $8,596,250 $ 2,389.76
Underwriter's Warrants 115,000 $ 0 $115 $ 0
Common Stock, $.001 par value, 115,000 $ 7.80(5) $897,000 $ 249.37
Total Registration Fee $ 2,639.13
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Estimated to be between $5.50 to $6.50 per share. However, for the purpose
of calculating the registration fee, we have assumed the highest price per
share.
(3) Includes (i) 1,150,000 shares initially offered and (ii) 172,500 shares
issuable pursuant to the underwriter's over-allotment option.
(4) Pursuant to Rule 416, we are also registering such additional shares as
may be required for issuance pursuant to the anti-dilution provisions of
the underwriter's warrants.
(5) Equal to 120% of the proposed initial offering price of the common stock.
iii
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBERS AND CAPTION HEADING IN PROSPECTUS
<S> <C> <C>
1. Front of the Registration Statement
and Outside Front Cover of Prospectus.................... Cover Page of Form SB-2 and of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors....................... Prospectus Summary and Risk Factors
4. Use of Proceeds............................................ Use of Proceeds
5. Determination of Offering Price............................ Cover Page of Prospectus and Risk Factors
6. Dilution................................................... Dilution
7. Selling Security Holders................................... Not applicable
8. Plan of Distribution....................................... Cover Page of Prospectus and Underwriting
9. Legal Proceedings.......................................... Not Applicable
10. Directors, Promoters, Executive Officers, Promoters
and Control Persons....................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................................... Principal Stockholders
12. Description of Securities.................................. Description of Securities
13. Interest of Named Experts and Counsel...................... Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................................. Part II
15. Organization Within Last Five Years........................ Related Party Transactions
16. Description of Business.................................... Risk Factors and Business
iv
<PAGE>
FORM SB-2 ITEM NUMBERS AND CAPTION HEADING IN PROSPECTUS
17. Management's Discussion and Analysis or
Plan of Operation........................................ Management's Discussion and Analysis of Results
of Operations and Financial Condition
18. Description of Property.................................... Business
19. Certain Relationships and Related Transactions............. Related Party Transactions
20. Market for Common Equity and Related
Stockholder Matters...................................... Not Applicable
21. Executive Compensation..................................... Management
22. Financial Statements....................................... Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................... Not Applicable
</TABLE>
v
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 17, 1999
PROSPECTUS
1,150,000 SHARES OF COMMON STOCK
SFBC INTERNATIONAL, INC.
This is an initial public offering of shares of common stock of SFBC
International, Inc.
We are a contract research organization located in the metropolitan
Miami, Florida area which conducts clinical research and provides drug
development services for clients in the pharmaceutical and biotechnology
industries. We plan to list our common stock on the Nasdaq SmallCap Market under
the symbol "SFBI".
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE ___.
=========================================================================
PER SHARE TOTAL
- -------------------------------------------------------------------------
Public offering price $ $
- -------------------------------------------------------------------------
Underwriting discounts $ $
- -------------------------------------------------------------------------
Proceeds to SFBC International, Inc. $ $
=========================================================================
Our underwriters have a 45 day option from SFBC International to purchase up to
172,500 additional shares to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We anticipate the initial public offering price for the shares we are offering
will be between $5.50 - $6.50 per share. The initial public offering price may
not reflect the market price after the offering. The underwriters expect to
deliver the common stock on , 1999.
SCHNEIDER SECURITIES, INC.
_________________, 1999
The Information in This Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
-1-
<PAGE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
See the section of this prospectus entitled "Risk Factors" for a
discussion on certain factors that you should consider before investing in the
common stock offered in this prospectus.
Until ____________, 1999, all dealers selling shares of our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUMMARY
The information in this prospectus includes statements and statistical
data regarding the health care industry and the pharmaceutical and biotechnology
market. We obtained this data from industry publications, articles and reports
which we believe to be reliable sources; however, we cannot guarantee the
accuracy or completeness of this information. We have not independently verified
the data or sought the consent of the organizations to refer to their reports in
this prospectus.
In order to make it easier for you to understand this prospectus, we
have defined certain terms that are used in this prospectus.
"We" or "our" refers to SFBC International, Inc., a Delaware
corporation, which is offering its common stock for sale to the public. Unless
otherwise clear from the context, these terms also refer to us, together with
our wholly-owned subsidiary, South Florida Kinetics, Inc., and our predecessor,
Bio Clinic Management Company. We acquired our subsidiary on June 7, 1999. All
of the financial information contained in this prospectus prior to that date is
that of our subsidiary.
We are assuming that the initial public offering price will be $6.00
per share in calculating:
o information in the "Dilution" section of this prospectus,
o the number of shares of common stock we will have outstanding
after this offering,
o the number of shares of common stock we will issue upon
conversion of our convertible notes,
o the number and exercise price of warrants we will issue upon
conversion of our convertible notes, and
o the amount of net proceeds we will receive and working capital
we will have available.
This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, all information contained in
this prospectus assumes that the underwriter will not exercise its
over-allotment option. This prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
- 2 -
<PAGE>
The Company
Our Business...We are a contract research organization which conducts clinical
research and provides drug development services for clients in
the pharmaceutical and biotechnology industries. We believe that
our recent growth over the last 12 months reflects industry
recognition of the high quality and cost-effective services we
provide our clients.
Approximately 85% of our revenues currently come from Phase I and
Phase II clinical trial services. We believe that with over 250
beds we are one of the largest single site Phase I and Phase II
clinical trials facilities in the United States. We offer our
clients the ability to reduce their own research expenses and
save time in developing drugs. Phases I, II, III and IV refer to
the stages of drug development commencing with human testing as
outlined by the United States Food and Drug Administration
regulations. Commencing at page ___ of this prospectus under the
section called "Business - The Drug Development Process", we
explain what occurs at each of these four phases.
We provide a wide range of clinical research and drug development
services in Phases I, II, III and IV. We :
o recruit participants and doctors for all phases;
o conduct clinical trials;
o provide clinical monitoring and management;
o assist in writing protocols which are the blueprints that tell
how to conduct a clinical trial;
o provide clinical data management and medical writing; and
o provide consulting services to our clients concerning United
States Food and Drug Administration procedures and their new
drug submissions.
Our base of approximately 60 clients includes 23 of the top 25
leading pharmaceutical companies including:
o Abbott Laboratories,
o Bristol-Myers Squibb Co.,
o Glaxo Wellcome Inc.,
o Merck & Co., Inc. ,
o Pfizer, Inc., and
o Johnson & Johnson.
In 1998, six clients including three of these companies accounted
for approximately 70% of our revenues. Industry information
indicates that pharmaceutical and biotechnology companies are
increasing their spending to develop new drugs. We and other
contract research organizations are benefiting from this increase
in research spending. Last year, UBS Securities LLC, a large
stockbrokerage firm, projected the following annual revenues for
our industry:
1997 $3.14 billion
1998 $3.69 billion estimated
1999 $4.33 billion estimated
2000 $5.09 billion estimated
Our Strategy...We believe our recent growth is partly because our industry is
expanding. Pharmaceutical and biotechnology companies are relying
on companies like ours, which provide high- quality services on a
timely basis and expedite the process of bringing drugs to the
public market. Our objectives are to continue to enhance our
reputation as a high-quality provider of clinical trial services
and to expand the range of services we provide our clients. Our
strategy consists of the following key elements:
o We want to offer our clients a full range of services in the
clinical research process.
o We will continue to complement our clients' research and drug
development departments.
o We intend to continue to increase the industry's recognition of
us as a provider of high quality services.
o We want to acquire other companies to expand our geographic
presence and increase our clinical research capabilities.
o We want to buy or start a clinical laboratory.
About SFBC.....Our offices and clinic are currently located at
SFBC International, Inc.
11190 Biscayne Boulevard
N. Miami, Florida 33181
(305) 895-0304
Our website address is www.sfbci.com. Information contained on
our website is not part of this prospectus.
The Offering
Common stock offered..... 1,150,000 shares.
Common stock outstanding
Before offering......... 2,080,000 shares.
After offering.......... 3,474,956 shares including 244,956 shares issuable
upon conversion of our outstanding convertible notes
that automatically convert upon the closing of this
offering.
Use of proceeds......... We will repay indebtedness, move to a larger
facility, expand our marketing, add to our working
capital, buy additional equipment and have funds for
potential acquisitions.
<PAGE>
Summary Financial Data
Statement of Operations Data
<TABLE>
<CAPTION>
(Unaudited)
Year ended December 31, Six months ended June 30
-------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ............................................................. $ 4,261,505 $ 5,869,987 $ 2,045,273 $ 3,944,523
Operating income (loss) ............................................... 76,957 707,300 (25,067) 660,278
Provision for income taxes ............................................ -- -- -- 241,000
Net income (loss) ..................................................... $ (162,750) $ 507,716 $ (120,833) $ 317,001
=========== =========== =========== ===========
Pro forma data (unaudited) (1):
Income (loss) before provision for income taxes ....................... $ (162,750) $ 507,716 $ (120,833) $ 558,001
Provision (benefit) for income taxes (2) .............................. (61,000) 191,000 (45,000) 210,000
----------- ----------- ----------- -----------
Pro forma net income (loss) ........................................... $ (101,750) $ 316,716 $ (75,833) $ 348,001
=========== =========== =========== ===========
===========
Shares used in computation of pro forma net income (loss) per share (3) 3,474,956 3,474,956 3,474,956 3,474,956
=========== =========== =========== ===========
Pro forma net income (loss) per share (3) ............................. $ (.03) $ .09 $ (.02) $ .10
=========== =========== =========== ===========
</TABLE>
(1) The unaudited pro forma statements of income data have been adjusted
for income taxes which would have been recorded had our subsidiary not
been an S corporation, based on the tax laws in effect during the
periods presented. Pro forma deferred income taxes relate primarily to
temporary differences between financial and income tax reporting for
the cash basis to accrual basis adjustments and depreciation expense.
The net effect of these and other temporary differences has not been
reflected in the financial statements since our subsidiary was an S
corporation prior to June 7, 1999.
(2) From inception through June 7, 1999, our subsidiary elected to be taxed
as an S corporation under the Internal Revenue Code. Accordingly,
taxable income or loss passed directly to the shareholders, and the
financial statements through that date did not provide for income
taxes. The S corporation election was terminated effective June 7,
1999. In connection with this termination, our subsidiary recorded
deferred taxes of $204,000.
(3) Net income (loss) per share of common stock has been computed using the
number of shares of common stock that will be outstanding immediately
after the offering.
The following balance sheet data is presented:
o on a historical basis; and
o on a pro forma as adjusted basis to reflect also our receipt
of the net proceeds from the sale of 1,150,000 shares of
common stock in this offering at an assumed $6.00 per share
after deducting underwriting discounts and estimated offering
expenses, the use of a portion of the net proceeds to pay all
debt and accrued interest and the automatic conversion of our
convertible notes.
Balance Sheet Data (Unaudited)
At June 30, 1999
----------------------------
Pro Forma as
Actual Adjusted
----------- -----------
Cash $ 452,502 $5,371,785
Working capital 578,108 6,088,108
Total assets 2,447,815 7,367,098
Short term debt and accrued interest 590,717 --
Long-term debt, less current portion 1,575,899 --
Total stockholders' equity (603,036) $ 6,482,863
RISK FACTORS
An investment in our common stock involves a high degree of risk, and
you should purchase our common stock only if you can afford a complete loss. You
should consider carefully information about these risks, and all information
contained in this prospectus, before you buy our common stock.
We rely on a limited number of clients for a large percentage of our revenues
which means that we face a greater risk of loss of revenues if we lose clients
During 1998, six companies accounted for approximately 70% of our
revenues. We generated more than 10% of our revenues from each of four of these
clients. These clients accounted for approximately 17%, 15%, 14%, and 12% of our
revenues in 1998. In 1997, three clients accounted for approximately 52% of our
revenues, individually generating approximately 22%, 16% and 14% of our
revenues. Our largest clients vary from year to year. We believe that this kind
of client concentration in the contract research organization industry is common
and expect it to continue. The loss of any client could have a material adverse
effect on our business and future results of operations.
If we cannot effectively manage our growth, we may not continue to operate at
the same levels of profitability
We have grown rapidly starting in July 1998. Any future growth is
likely to place substantial strain on our administrative, operational and
financial resources. To manage this growth, we must establish efficient systems
and train and manage our employees. We have limited management depth and we will
have to employ experienced executives and key employees capable of providing the
necessary support. We can not assure you that our management will be able to
manage our growth effectively or successfully. Our failure to meet these
challenges could have a material adverse effect on our business and future
profitability.
Because we are significantly smaller than the majority of our competitors, we
may lack the financial resources needed to increase our market share.
There are a large number of contract research organizations ranging in
size from one person consulting firms to full service, global drug development
corporations. It is easy for a new company to enter our industry. This
competition may lead to price and other forms of competition that could
adversely affect our business. Many of our competitors have substantially
greater size and other resources than we do. For this reason, we may lack the
financial resources needed to increase our market share.
Our clients may cancel or delay our contracts which could reduce our future
revenues and profits
Our clients may cancel or delay our contracts at any time for no
reason. They may also cancel a clinical trial for a variety of reasons
including:
o inadequate patient enrollment;
o manufacturing problems resulting in a shortage of the
potential product;
o a decision by a client to de-emphasize or cancel the
development of a potential product;
o adverse patient reaction to a potential product;
o unexpected results; and
o United States Food and Drug Administration request.
The loss or delay of a large project or contract or the loss or delay of
multiple small contracts could have a material adverse effect on our business
and future results of operations.
We have only limited experience in providing phase iii and phase iv clinical
trials and may not successfully expand this aspect of our business
As part of our strategy, we plan to expand our Phase III and Phase IV
clinical trials business. The Phase III and Phase IV business is substantially
different than the Phase I and Phase II business. The Phase III and Phase IV
business is widely scattered and involves research performed by individual
physicians who may be located throughout the United States. Our lack of
experience in managing Phase III and Phase IV clinical trials conducted at
multiple sites may handicap us if we expand this part of our business.
We may not be able to carry out our growth strategy if we cannot make future
acquisitions
Following this offering we plan to acquire Phase III and Phase IV
clinical trials businesses as part of our growth strategy. We may also buy or
start a clinical laboratory. Although we are currently exploring potential
acquisitions, we are not engaged in any negotiations. We may not be successful
in acquiring any business. Additionally, we have no experience in making
acquisitions.
Acquisitions may disrupt or have a negative impact on our business.
If we make an acquisition, we could have difficulty integrating that
company's personnel and operations with our own. In addition, the key personnel
of the acquired business may not be willing to work for us. We cannot predict
the effect expansion may have on our core business of Phase I and Phase II
clinical trials. Regardless of whether we are successful in making an
acquisition, the negotiations could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our future
results of operations.
We have broad discretion to use the offering proceeds which may increase the
risk that they will not be used effectively
Our management will have broad discretion to spend the proceeds of this
offering without having to seek the approval of our stockholders. This means you
are relying on our management to use our funds properly. We may use a portion of
the proceeds to make acquisitions. Changes in our business plans, new needs or
opportunities and industry trends may cause our management to spend our funds
for uses that we cannot predict at this time.
Fluctuations in our operating results may cause our stock price to fall
Our revenues have been higher in the second half of the year. These
fluctuations are usually due to the level of new business authorizations in a
particular quarter or year and the timing of the initiation, progress, or
cancellation of significant projects. We anticipate that this seasonality may
continue as long as our revenues are derived mostly from Phase I and Phase II
clinical trials. Our varying quarterly results may result in the drop of our
common stock price.
We face a risk of liability from our disposal of medical wastes
Our clinical trials activities involve the controlled disposal of
medical wastes which are considered hazardous materials. We believe that our
safety procedures for handling the disposal of these medical wastes comply with
all state and federal environmental regulations. However, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
If this occurs, we could be held liable for damages, face significant fines, and
face the permanent or temporary shutdown of our operations.
We risk potential liability when conducting clinical trials
Our clinical trials involve administering drugs to humans in order to
determine the effects of the drugs. By doing so we are subject to the general
risks of liability to these persons which include:
o adverse side effects and reactions resulting from the
administration of these drugs to a clinical trial participant,
o improper administration of the new drug, or
o potential professional malpractice of our employees including
physicians.
To protect ourselves, our contracts generally have indemnification agreements in
which our clients agree to indemnify us in the event of adverse consequences to
our participants caused by their products. We also carry liability insurance.
However, if there were a damage claim not covered by insurance or the
indemnification agreement and our client was insolvent, any resulting award
against us could have a material adverse effect on our business and financial
condition.
Our chief executive officer will benefit from this offering which creates a
conflict of interest
From the proceeds of this offering, we are repaying debt including
$191,500 owed to Mr. Arnold Hantman, our chief executive officer. Mr. Hantman
guaranteed payment of $500,000 of the debt we are repaying.
We are controlled by our management who may have a conflict of interest
After this offering, Dr. Lisa Krinsky and Mr. Arnold Hantman combined
will beneficially own approximately 43.8% of our outstanding common stock after
the automatic conversion of our outstanding convertible notes into common stock.
As a result, they will probably be able to exercise control over all matters
requiring stockholder approval including the election of directors and approval
of significant corporate transactions. Their voting control could have the
effect of delaying or preventing a change of control which might benefit our
stockholders.
A change in government regulation could reduce our business
The market for our services is based on strict government regulation of
the drug development process. The general trend in the United States is for
increased regulation. However, in Europe the regulatory process is more relaxed.
The United States could change its regulatory structure. This could reduce our
clients' needs for our services.
We are dependent on the research and development expenditures of the
pharmaceutical and biotechnology industries
Our continued business and expansion is dependent on the research and
development expenditures of our clients. Our business could be materially
adversely affected by any economic downturn, any decrease in our clients'
research and development expenditures or a change in the regulatory environment
in which these companies operate.
Our clients and suppliers' systems may not be year 2000 compliant
The Year 2000 problem is the inability of some computer software to
determine whether "00" means 1900 or 2000. This may result in computer failures
or the failure of the computer to produce accurate information. We have recently
upgraded our computer systems and determined that they are Year 2000 compliant.
We are in the process of verifying that our clients and suppliers are Year 2000
complaint. Our business and our cash flow may suffer if the computer systems of
our clients and third party suppliers are not Year 2000 compliant.
We may issue preferred stock without approval of our stockholders which could
make it more difficult for a third-party to acquire us
We have the authority to issue preferred stock without a vote of our
stockholders. In the future, our board of directors may issue one or more series
of preferred stock that has more than one vote per share. This could permit our
board of directors to issue such stock to investors who support our management
and give effective control of our business to our management. Furthermore, under
some circumstances issuing preferred stock may violate the rules of the Nasdaq
Stock Market, which could result in our common stock being delisted from that
market. The delisting of our common stock from the Nasdaq SmallCap Market could
result in both a drop in the stock price and decline in interest in the stock
which could make it more difficult for stockholders to sell their shares.
There has never been a trading market for our common stock and we
cannot predict the extent to which a market will develop
There has not been a public market for our common stock, and we cannot
predict whether a trading market will develop after this offering. We negotiated
the initial public offering price with Schneider Securities, Inc., the
underwriter. This price is not based on our book value, earnings or future
prospects. It is possible that after this offering there will not be a market
for our common stock and that the initial public offering price may be greater
than the prices that will prevail in the trading market.
2,324,956, or 66.9% of our total outstanding shares are restricted from
immediate resale but may be publicly sold after 13 months. This could cause the
market price of our common stock to drop significantly, even if our business is
doing well.
After this offering, we will have outstanding 3,474,956 shares of
common stock. This includes the 1,150,000 we are selling in this offering, which
may be resold in the public market immediately. The remaining 66.9%, or
2,324,956 shares, of our total outstanding shares will become available for
resale in the public market 13 months from the date of this prospectus, due to
an agreement these stockholders have with our underwriters. However, the
underwriters can waive this restriction at any time and allow these stockholders
to sell their shares earlier.
As restrictions on resale end, the market price could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, our expectations with regard to the pharmaceutical market, the
future of health care and new drug development, the continued expansion of our
clinical trials facility and our ability to acquire other businesses operating
within our industry. In addition to these statements, trend analysis and other
information including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect," "intend" and other similar expressions are forward looking
statements. These statements may be found in the sections of this prospectus
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." We anticipate that some or
all of the results will not occur because of various factors including, but not
limited to all of the risks discussed in "Risk Factors" and elsewhere in this
prospectus.
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately
$5,910,000, or $6,841,500 if the underwriter exercises its over-allotment option
in full. These amounts are after the payment of underwriting discounts and
estimated expenses of this offering. The following table represents our best
estimates of how we will use the net proceeds of this offering:
<TABLE>
<CAPTION>
Approximate
Net Proceeds % of Total
---------- -------
<S> <C> <C>
Acquisitions $2,500,000 42.3%
Repayment of debt 784,000 13.3%
Buy computer hardware and software and medical equipment 500,000 8.5%
Expand our marketing program including hiring additional personnel 500,000 8.5%
Payment of interest on minority stockholder debt 262,000 4.4%
New facility leasehold improvements and moving expenses 400,000 6.8%
Working capital 964,000 16.2%
---------- -----
TOTAL $5,910,000 100%
========== =====
</TABLE>
We may use a portion of the net proceeds to acquire additional clinical
research businesses and buy or start our own clinical laboratory. We are not
currently engaged in any negotiations. We are not sure that we will make any
acquisitions and, if we do, whether we will pay cash or issue our securities.
Our management will have broad discretion in how we spend these net proceeds.
We are repaying $784,000 of debt. We do not have to pay interest on
$500,000 of this debt if we pay it by December 31, 1999. We must pay it from the
proceeds of this offering or in $20,000 monthly installments commencing January
1, 2000 with 8% interest. Our subsidiary incurred this debt in 1995. We recently
issued approximately $1,176,000 of three-year convertible notes to our minority
stockholders in exchange for their past due notes. When we close this offering,
the convertible notes automatically convert into shares of our common stock at
the rate of $4.80 per share. Minority stockholders owning approximately $284,000
of notes did not elect to exchange their original notes for the convertible
notes. We are also repaying these notes from the proceeds of this offering. From
the proceeds of this offering, we are paying accrued interest at the rate of 10%
per year on all minority stockholder notes, including the convertible notes.
Interest on the convertible notes has been accruing since January 1, 1999.
Interest on the notes held by the stockholders who did not convert has been
accruing for over two years. The amount in the table estimates a November 1,
1999 closing date.
We anticipate that the net proceeds we receive from this offering will
be sufficient to satisfy our cash needs for at least 12 months. However, our
current plans may change due to unanticipated events. Thus, we may need
additional financing in the future. We cannot assure you that any needed
additional financing on acceptable terms. If that occurs, our future results of
operations may be adversely affected.
Pending our use of the proceeds, we intend to invest them in
interest-bearing, investment-grade instruments, certificates of deposit or
direct or guaranteed obligations of the United States.
CAPITALIZATION
Our capitalization is presented:
o on an actual basis; and
o on an adjusted basis to give effect to:
o our repayment of debt including a note held by Mr.
Arnold Hantman, our chief executive officer;
o the conversion of our outstanding convertible notes
into common stock; and
o our receipt of the net proceeds of this offering.
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999
----------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
Short-term debt:
Secured notes $ 100,000 -0-
Minority stockholder notes and accrued interest 490,717 -0-
Long-term debt 1,575,899 -0-
=========== =====
Stockholders' equity (deficiency in assets):
Preferred stock, par value $.10 per share;
5,000,000 shares authorized, no shares issued or outstanding -0- -0-
Common stock, par value $.001 per share, 20,000,000
shares authorized, 2,080,000 shares issued and outstanding
as of June 30, 1999 and 3,474.956 shares issued and
outstanding as adjusted 2,080 3,475
Paid-in capital 425,623 7,510,127
Retained earnings (deficit) (1,030,739) (1,030,739)
----------- -----------
Stockholders' equity (603,036) 6,482,863
----------- -----------
Total capitalization $ 1,563,580 $ 6,482,863
=========== ===========
</TABLE>
The outstanding shares of common stock do not include:
o 700,000 shares of common stock issuable under our 1999 stock
option plan, of which we have granted options to purchase
596,000 shares;
o 172,500 shares of common stock which may be issued if the
underwriter exercises its over-allotment option;
o 115,000 shares of common stock which may be issued pursuant to
the underwriter's warrants; and
o 244,956 shares of common stock issuable upon exercise of the
warrants to be issued to minority stockholders who recently
received our convertible notes in exchange for their old
notes. We offered the warrants to induce the noteholders to
forbear from collecting on past-due notes and receive our
notes convertible into common stock at 80% of our public
offering price. The warrants are exercisable over a three year
period commencing with the closing of this offering.
We will have two classes of warrants outstanding following this offering:
o minority stockholder warrants to purchase 244,956 shares of
common stock exercisable at $7.20 per share; and
o underwriter's warrants to purchase 115,000 shares of common
stock exercisable at $7.20 per share.
<PAGE>
DILUTION
As of June 30, 1999, the pro forma net tangible book value of our
common stock was $572,863, or approximately $.25 per share. Since our
convertible notes automatically convert into common stock upon completion of
this offering, in computing net tangible book value per share we have treated
these notes as having been converted on June 30, 1999. The pro forma net
tangible book value per share represents the amount of our tangible assets less
our liabilities divided by 2,324,956, which is the number of shares of our
common stock currently outstanding plus the shares issuable upon conversion of
the convertible notes. The net tangible book value, as adjusted for this
offering, does not reflect any change in our net book value which may result
from our operations subsequent to June 30, 1999.
After selling the 1,150,000 shares of common stock that are offered by
this prospectus at an assumed price of $6.00 per share, deducting the
underwriter's discount and the estimated expenses of this offering, our pro
forma net tangible book value would have been $6,482,863 or $1.87 per share.
This change in pro forma net tangible book value represents an immediate
increase in net tangible book value per share of approximately $1.62 to our
present stockholders and an immediate dilution (the difference between the
offering price of the shares and the pro forma net tangible book value per share
after the offering) per share of approximately $4.13 to investors buying our
common stock in this offering.
The following table illustrates the dilution of one share of common
stock as of June 30, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $6.00
Pro forma net tangible book value per share at June 30, 1999 $ .25
Increase per share attributable to investors in this offering $1.62
-----
Pro forma net tangible book value per share after this offering $1.87(1)
-----
Dilution to public investors in this offering $4.13(1)
=====
</TABLE>
(1) If Schneider Securities, Inc. exercises its over-allotment option to
purchase 172,500 additional shares of our common stock this will result
in an increase in the net tangible book value per share of $.15 and
dilution to investors in this offering of $3.98 per share.
The following table summarizes on a pro-forma basis as of June 30, 1999
the total consideration and average purchase price paid by our present
stockholders, after giving effect to the conversion of our convertible notes,
and by the investors who purchase common stock in this offering, based on an
assumed initial public offering price of $6.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
-------------------- --------------------- Price
Number Percent Amount Percent Per Share
---------- ----- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Present stockholders 2,324,956 66.9% $1,276,899 15.6% $ .55
New investors 1,150,000 33.1% $6,900,000 84.4% $6.00
---------- ----- ---------- ----- -----
Total 3,474,956 100.0% $8,176,899 100.0% $2.35
========== ===== ========== ===== =====
</TABLE>
<PAGE>
Selected Financial Data
We derived the selected financial data presented below from our
historical financial statements and related notes included in another part of
this prospectus. You should read the selected financial data together with our
historical financial statements and the section of the prospectus entitled
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
Kaufman, Rossin & Co., independent certified public accountants,
audited our historical financial statements for the years ended December 31,1998
and December 31, 1997. These financial statements represent our results of
operations for the following periods:
Statement of Operations Data
<TABLE>
<CAPTION>
(Unaudited)
Year ended December 31, Six months ended June 30,
---------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 4,261,505 $ 5,869,987 $ 2,045,273 $ 3,944,523
Cost of sales 2,801,192 3,838,923 1,367,950 2,379,293
Gross profit 1,460,313 2,031,064 667,323 1,565,230
General and administrative expenses 1,383,356 1,323,764 702,390 904,952
Income (loss) from operations 76,957 707,300 (25,067) 660,278
Interest expense 239,707 199,584 95,766 102,277
Income (loss) before income taxes (162,750) 507,716 (120,833) 558,001
Provision (benefit) for income taxes -- -- -- 241,000
Net income (loss) $ (162,750) $ 507,716 $ (120,833) $ 317,001
=========== =========== =========== ===========
Pro forma (unaudited): (1)
Income (loss) as reported before provision
for income taxes $ (162,750) $ 507,716 $ (120,833) $ 558,001
Provision (benefit) for income taxes (2) (61,000) 191,000 (45,000) 210,000
----------- ----------- ----------- -----------
Pro forma net income (loss) $ (101,750) $ 316,716 $ (75,833) $ 348,001
=========== =========== =========== ===========
Shares used in computation of pro forma
net income (loss) per share (3) 3,474,956 3,474,956 3,474,956 3,474,956
=========== =========== =========== ===========
Pro forma net income (loss)per share (3) $ (.03) .09 (.02) .10
=========== =========== =========== ===========
</TABLE>
(1) The unaudited pro forma statements of income data have been adjusted
for income taxes which would have been recorded had our subsidiary not
been an S corporation, based on the tax laws in effect during the
periods presented. Pro forma deferred income taxes relate primarily to
temporary differences between financial and income tax reporting for
the cash basis to accrual basis adjustments and depreciation expense.
The net effect of these and other temporary differences has not been
reflected in the financial statements since our subsidiary was an S
corporation prior to June 7, 1999.
(2) From inception through June 7, 1999 our subsidiary elected to be taxed
as an S corporation under the Internal Revenue Code. Accordingly,
taxable income or loss passed directly to the shareholders, and the
financial statements through that date did not provide for income
taxes. The S corporation election was terminated effective June 7,
1999. In connection with this termination, our subsidiary recorded
deferred taxes of $204,000.
(3) Net income (loss) per share of common stock has been computed using the
number of shares of common stock that will be outstanding immediately
after the offering.
The following balance sheet data is presented:
o on a historical basis; and
o on a pro forma as adjusted basis to reflect also the net
proceeds from the sale of 1,150,000 shares of common stock in
this offering at an assumed price of $6.00 per share after
deducting underwriting discounts and estimated offering
expenses, and the repayment and conversion of our debt and
automatic conversion of our convertible notes.
Balance Sheet Data (Unaudited) As of June 30, 1999
----------------------------
Pro Forma
Actual as Adjusted
----------- -----------
Cash $ 452,502 $ 5,371,785
Working capital 578,108 6,088,108
Total assets 2,447,815 7,367,098
Short-term debt and accrued interest 590,717 --
Long-term debt, less current portion 1,575,899 --
Total stockholders' equity $ (603,036) $ 6,482,863
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes included in another part of the prospectus and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those contained in
other sections of this prospectus.
Overview
As permitted by accounting rules, all historical financial information
reflects the financial statements of our subsidiary. As long as our primary
revenues are derived from Phase I and II clinical trials, we anticipate we will
generate higher revenue in the second half of each year.
Six months ended June 30, 1998 and June 30, 1999
The following table reflects our results of operations for the six
months ended June 30, 1998 and 1999.
(Unaudited)Six months ended June 30,
----------------------------
1998 1999
----------- -----------
Net sales $ 2,045,273 $ 3,944,523
Cost of sales 1,367,950 2,379,293
Gross profit 667,323 1,565,230
General and administrative expenses 702,390 904,952
Income (loss) from operations (25,067) 660,278
Interest expense 95,766 102,277
Income (loss) before income taxes (120,833) 558,001
Provision for income taxes -- 241,000
----------- -----------
Net income (loss) $ (120,833) $ 317,001
=========== ===========
Net sales for the first six months of 1999 increased by $1,899,250 or
approximately 92.9% over the same period for 1998. Compared to the last half of
1998, our sales slightly increased by $119,809 or approximately 3.1%. Because of
the seasonality of our business, our net sales for the balance of 1999 may
exceed the first half. While it is difficult to pinpoint the reasons for our
recent growth, we believe it is a combination of an increase in outsourcing to
contract research organizations and a growing recognition of the high-quality
services we provide to our clients.
Our gross profit margin for the six months ended June 30, 1999
increased to 39.7% from 32.6% during the same period in 1998. We believe this
increase is a direct result of the increase in revenues since our cost of sales
is relatively fixed. Historically, we required annual revenues of approximately
$4.2 million to breakeven from operations. Once we are public, we expect we will
need annual revenues of approximately $4.6 million to breakeven from operations.
Selling, general and administrative expenses increased by $202,562 or
approximately 28.8% over the first six months of 1998. The major increases came
from increased facility expenses of $90,000, consulting and professional fees of
$47,000 and payroll and payroll taxes of $42,000.
Interest expense increased by approximately 7% during the first six
months of 1999. Our total indebtedness declined by $324,000 in late May 1999
when our subsidiary restructured its indebtedness. We will eliminate interest
expense upon the closing of this offering when our convertible notes
automatically convert into common stock and we repay the balance of our debt.
Year ended December 31, 1997 and December 31, 1998
During 1998 we worked to reduce overhead and improve efficiencies in
all areas of operations. The following table shows our results of operations for
each of the past two fiscal years:
Year ended December 31,
----------------------------
1997 1998
----------- -----------
Net sales $ 4,261,505 $ 5,869,987
Cost of sales 2,801,192 3,838,923
Gross profit 1,460,313 2,031,064
Selling, general and administrative expenses 1,383,356 1,323,764
Income from operations 76,957 707,300
Interest expense 239,707 199,584
Net income (loss) $ (162,750) $ 507,716
For 1998, our net sales increased by $1,608,482 or approximately 37.7%
over 1997. The reasons for this increase are the same as those for the increase
for the first six months. Our gross profit margins increased slightly to
approximately 34.6% in 1998 from approximately 34.3% in 1997. However, the
significant increase in revenues provided us with net income for 1998 in
contrast to a loss for 1997. Selling, general and administrative expenses for
1998 decreased by $59,592 or approximately 4.3% compared to 1997. Interest
expense decreased by $40,123 or approximately 16.7% in 1998 over the prior year
principally due to interest paid to the Internal Revenue Service in 1997.
Liquidity and Capital Resources
In 1995 and 1996, our subsidiary financed its operations with
borrowings from its former stockholders. As a result of our June 1999
acquisition of our subsidiary, our balance sheet at June 30, 1999 includes
approximately $1,667,000 owed to our subsidiary's former stockholders who are
now our minority stockholders. In August 1999, most of our minority stockholders
agreed to accept our three-year convertible notes in exchange for their old
notes. We recently issued approximately $1,175,899 in convertible notes. These
convertible notes are treated as long-term debt. At the closing of this
offering, our convertible notes automatically convert into a total of 244,956
shares of our common stock at a 20% discount from our assumed initial public
offering price or at $4.80 per share. We also agreed to issue warrants to each
convertible noteholder. The number of warrants is equal to the number of shares
of common stock issuable upon conversion of each note. The exercise price of the
warrants is at a 20% premium over our assumed initial public offering price or
$7.20 per share during the three year term of the warrants. We will issue a
total of 244,956 warrants when we close this offering.
Net cash provided by operating activities was $471,823 for the six
months ended June 30, 1999 and $46,536 for the year ended December 31, 1998. For
the six months ended June 30, 1998, operating activities used $19,739 of net
cash flow. For the year ended December 31, 1997, operating activities provided
$88,734 in net cash flow. Because our subsidiary reduced its interest payments
on its outstanding debt, this improved our cash flow from operations in the six
months ended June 30, 1999. Higher accounts receivable at June 30, 1998
contributed to a reduction in the negative cash flow from operations for 1998.
Despite our subsidiary's net income in 1998, cash flows from operations were
significantly less because of a substantial increase in accounts receivable
arising in the second half of the year when operations became profitable. For
1997, cash flows from operations were positive because our subsidiary was slow
in paying trade liabilities and failed to pay interest on its debt.
We used net cash in investing activities of $33,743 for the six months
ended June 30, 1999, $28,750 for the six months ended June 30, 1998, $118,410
for 1998 and $9,318 in 1997. We used this cash to purchase property and
equipment and also in 1998 to advance $92,965 to our principal stockholder, Lisa
Krinsky, M.D. She has agreed to repay this loan in three years with annual
interest payments of 6%.
Net cash used in financing activities was $41,329 for the six months
ended June 30, 1999, $54,571 for the six months ended June 30, 1998, $7,145 for
1998 and $58,882 for 1997. The higher amounts used for the six months ended June
30th each year reflect the fact our subsidiary finances its insurance premiums
in the second half of each year. The remaining net cash used in financing
activities consist of our subsidiary's payments of principal on its debt,
primarily in 1997.
At December 31, 1998, we had a working capital deficit of $1,631,096.
This arose from the classification of our subsidiary's outstanding secured debt
and its minority stockholder debt as short-term debt. With the restructuring of
the secured debt, and our recent issuance of approximately $1,175,899 in
convertible notes in exchange for the notes of our subsidiary, our working
capital improved substantially.
At June 30, 1999, we had approximately $578,108 in working capital
including approximately $452,000 in cash. Until we complete this offering, we
anticipate spending up to $400,000 for leasehold improvements and moving
expenses if we enter into a lease for a new facility. We also expect to pay an
additional $______ in expenses related to this offering. We will use our
existing working capital to pay these expenses.
We believe that the net proceeds from this offering will be sufficient
to meet our anticipated working capital and expansion plans for the next 12
months. Following that period, we may require additional financing. If
additional financing is raised by selling equity securities, our existing
stockholders may experience significant dilution. Furthermore, additional
financing may not be available or if available, it may not be on favorable
terms. If additional financing is not available on acceptable terms, it could
have a material adverse effect on our business, financial condition or results
of operations.
Year 2000 Compliance
The Year 2000 problem is the inability of some software, hardware and
systems to determine the correct century. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
determine whether "00" means 1900 or 2000, which may result in computer failures
or the failure of the computer to produce accurate information. Our cash flow
could be adversely affected if our computer systems, those of our clients and
third party suppliers are not Year 2000 compliant.
We have made an assessment of the Year 2000 readiness of our internal
software and hardware systems. Our assessment plan included:
o contacting third party vendors from whom we purchase or
license our hardware, software, services and supplies;
o assessing repair, upgrade or replacement requirements and
implementing repair, upgrade or replacement;
o testing certain internal and third party, hardware, software
and systems; and
o contacting our clients.
Based on the results of this assessment we recently upgraded our
computer systems and have determined that our software, hardware and computer
systems are Year 2000 compliant. In 1999 we spent approximately $30,000 to
upgrade our computer systems. These expenses were related to time spent by
employees and consultants in the evaluation process as well as any needed
repair, upgrade or replacement.
We are in the process of verifying that our clients and suppliers are
Year 2000 compliant.
If our clients and suppliers are not Year 2000 compliant, it could
result in:
o a decrease in our net revenues;
o an increase in the allocation of our resources to address Year
2000 problems; and
o an increase in litigation costs as a result of the failure of
our clients to pay us or suppliers to provide services on a
timely basis.
Furthermore, the purchasing patterns of our clients may be affected by Year 2000
issues as companies expend significant resources to correct their current
systems. These expenditures may result in reduced funds available for clinical
trials and the other services we provide our clients which could materially and
adversely harm our business condition and future results of operations.
We are not currently aware of any Year 2000 compliance problems
relating to our systems that would have a material adverse effect on our
business, results of operations, or financial condition.
<PAGE>
BUSINESS
We have been operating a high quality clinical trials facility for the
past 15 years. Over the last 12 months, our business has rapidly grown. With the
recent addition of Dr. Gregory Holmes, we have strengthened our management team
and thereby further increased our ability to grow.
We are known as a contract research organization. The name is derived
from the growing tendency of pharmaceutical and biotechnology companies to
"contract with" outside companies to conduct research for products they are
developing.
We primarily conduct Phase I and Phase II clinical trials for
pharmaceutical and biotechnology companies. However, we provide a full range of
other clinical services for short-term studies and more complex long-term Phase
I and Phase II studies, including:
o protocol design;
o data management;
o electronic data transfer;
o report writing; and
o Institutional Review Board services.
Since 1995 our clients have included 23 of the 25 leading pharmaceutical
companies according to a ranking compiled by MedAd News in September 1998. Our
client base includes:
o Abbott Laboratories,
o Bristol- Myers Squibb Co.
o Glaxo Wellcome Inc.,
o Merck & Co., Inc.,
o Pfizer, Inc., and
o Johnson & Johnson.
The mix of our clients and revenues generated from individual clients varies
from year to year.
Trends Affecting the Contract Research Industry
We believe that outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase. The Association of Clinical Research Professionals reported that:
o Outsourcing to contract research organizations is undergoing
rapid growth.
o It cited UBS Securities as estimating the following industry
revenues:
YEAR AMOUNT
---- -----------------------
1997 $3.14 billion
1998 $3.69 billion estimated
1999 $4.33 billion estimated
2000 $5.09 billion estimated
o Pharmaceutical companies increased their utilization of
contract research organizations from 28% in 1993 to 60% in
1997.
The contract research organization industry, by specializing in
clinical trials management, is often able to perform the needed services with a
higher level of expertise or specialization and recruit participants more
quickly and at a lower cost than pharmaceutical and biotechnology companies can
do themselves.
The trends listed below have contributed to the growth of our industry
and provide a growing market for our services.
Our Clients Face Pressure to Reduce Their Costs.
Faced with the need to reduce costs, pharmaceutical and biotechnology
companies are increasingly relying on outsourcing to contract research
organizations. For a fixed fee budgeted in advance, these companies can contract
for required services. This reduces their financial uncertainties and the number
of full-time highly specialized clinical personnel they must employ.
As startup biotechnology companies have matured, they have developed a
demand for the expertise and specialized services provided by outside sources,
including contract research organizations. Instead of having to employ all the
various specialists required to develop a product and maintain the numerous
facilities necessary to complete the lengthy testing period, the companies can
contract for them on an "as-needed" basis.
There Is a Need for More Rapid Drug Development.
Pharmaceutical and biotechnology companies are trying to reduce the
amount of time it takes to develop and bring a new drug to market. One way to do
this is to outsource drug testing to contract research organizations that
provide multiple services required to develop and obtain approval of a new drug
instead of using a different research organization for each phase of clinical
trials.
There Is an Increasing Focus on Chronic Diseases.
Worldwide research and development expenditures are increasing for new
medicines due to increasing pressure to develop medication for the treatment of
chronic illnesses and life threatening diseases.
Pharmaceutical and Biotechnology Companies Are Conserving Internal
Resources.
Pharmaceutical and biotechnology companies are trying to conserve their
internal resources for the technical development of new drugs. They are using
contract research organizations to design, manage and conduct clinical studies
and trials.
Who We Are and What We Do
We were founded in 1984 and have been providing contract research
services for the pharmaceutical industry and more recently the biotechnology
industry primarily in Phase I and Phase II clinical trials. We also conduct a
limited number of Phase III and Phase IV clinical trials at our facility. We
conduct these trials efficiently, accurately and with a commitment to service
and quality that has allowed us to retain existing clients and expand our client
base. We have a full time on site medical director. We specialize in clinical
trials that require special populations such as geriatrics, pediatrics,
diabetics, post menopausal women, people with kidney and liver diseases and
persons with HIV. Based upon input from our clients, we have been told that we
have a reputation for rapidly commencing our clinical trials and enrolling a
very high percentage of volunteers based upon the number required.
The Drug Development Process
Clinical trials are either conducted internally by pharmaceutical and
biotechnology companies or they are outsourced to contract research
organizations like ours. When outsourced to us, our clients pay us for
conducting clinical trials and performing other services.
Outsourcing is the contracting by pharmaceutical and biotechnology
companies with outside companies for the purpose of performing specific services
on behalf of the pharmaceutical or biotechnology company.
Protocols
Before starting human clinical trials, a drug's sponsor must submit an
investigational new drug application to the Food and Drug Administration. The
application contains what is known in the industry as a protocol. A protocol is
the blueprint for each drug study. The protocol tells us:
o who we must recruit as qualified participants;
o how often to administer the product;
o what tests to perform on the participants; and
o what dosage of the product to give to the participants.
Institutional Review Board
An Institutional Review Board is an independent committee of
professionals and lay persons which reviews clinical research trials involving
human beings and is required to adhere to guidelines issued by the Food and Drug
Administration. However, its members are not appointed by the Food and Drug
Administration. All clinical trials must be approved by an Institutional Review
Board. The Institutional Review Board's role is to protect the rights of our
participants. It approves the protocols we use, the advertisements we use to
recruit participants and the form of consent which our participants sign.
The government sets very specific requirements which must be followed
in order to market a new drug in the United States. Drug products generally
require approval by the Food and Drug Administration before marketing to the
public.
Human clinical trials or testing of a potential product are done in
three, and sometimes four, stages known as Phase I through Phase IV testing. The
names of the phases are derived from the regulations of the Food and Drug
Administration. Generally, there are multiple trials conducted in each phase.
Phase I
Phase I trials involve testing a drug or product on a limited number of
healthy participants, typically 24 to 100 people at a time. Phase I trials
determine a drug's basic safety and how the drug is absorbed by and eliminated
from the body. This phase lasts an average of six months to a year. We give our
participants free medical examinations which may include physical exams, blood
and urine tests, electrocardiograms and bone scans. For women, we often give
them pap smears and mammograms. We pay our participants a fee for participating
in our clinical trials. We provide them free room and board in our clinic as
necessary.
Phase II
Phase II trials involve testing up to 200 participants at a time who
may suffer from the targeted disease or condition. Phase II testing typically
lasts an average of one to two years. In Phase II, the drug is tested to
determine its safety and effectiveness for treating a specific illness or
condition. Phase II testing also involves determining acceptable dosage levels.
In Phase II, we usually select participants who have the disease or condition
for which the drug may help. If Phase II tests show that a new drug has an
acceptable range of safety risks and probable effectiveness, a company will move
on to Phase III testing.
Phase III
Phase III trials involve testing large numbers of participants,
typically several hundred to several thousand persons. The purpose is to verify
effectiveness and long-term safety on a large scale. These trials generally last
two to three years. Like the other phases, Phase III requires the doctor
conducting the tests or a third party business like ours - to keep detailed
records of data collected and procedures performed.
Phase IV
The Food and Drug Administration may require that the sponsor conduct
additional clinical trials following new drug approval. The purpose of these
trials, known as Phase IV trials, is to monitor long-term risks and benefits,
study different dosage levels or evaluate safety and effectiveness. In recent
years, the Food and Drug Administration has increased its reliance on these
trials. Phase IV trials usually involve thousands of participants. Phase IV
trials also may be initiated by the pharmaceutical companies to gain broader
market value for an approved drug. For example, large-scale trials may also used
to prove effectiveness and safety of new forms of drug delivery for approved
drugs. Examples may be using an inhalation spray versus taking tablets or a
sustained- release form of medication versus capsules taken multiple times per
day.
New Product Approval
When the sponsor of a potential product in the United States believes
it has sufficient information to support the safety and effectiveness of its
product, it submits an application to the Food and Drug Administration
requesting that the product be approved for marketing. The application is a
comprehensive, multi-volume filing that includes the results of all clinical
studies, information about the drug's composition and the sponsor's plans for
producing, packaging and labeling the product. The Food and Drug
Administration's review of an application can take a few months to many years,
with the average review lasting 18 months. Once approved, drugs and other
products may be marketed in the United States, subject to any conditions imposed
by the Food and Drug Administration.
Our Strategies
Our objectives are to build on our current reputation as a provider of
high quality Phase I and Phase II testing, to expand the range of services we
provide to our clients and to acquire complementary businesses.
Our general strategies consist of the following:
We Want to Make Key Acquisitions.
We intend to supplement our internal growth through expanding our
geographic presence throughout the United States, by acquiring or creating
strategic alliances with Phase III and Phase IV clinical trials management
businesses and increasing our clinical research capabilities.
To date, we have conducted Phase III and Phase IV clinical trials
primarily at our facility. We have limited experience in managing Phase III and
Phase IV clinical trials conducted at multiple sites. With regard to private
medical practices that specialize in Phase III and Phase IV testing, we intend
to acquire only the clinical research portion of a practice, not the medical
care portion of the practice.
We are also exploring buying a clinical laboratory since we are
required to use their services. We rely on outside clinical laboratories to test
our participants' blood and urine. In 1999, we expect to pay approximately
$500,000 to outside clinical laboratories. We believe our clinic's profit
margins will increase if we have our own clinical laboratory. Since the
laboratory will also provide services to outside doctors, we believe it can
assist us in expanding our Phase III and Phase IV business by fostering
relationships with doctors who conduct Phase III and Phase IV trials but do not
want the paperwork burdens.
We Intend to Expand our Database of "Special Population" Participants
in order to Meet the Increasing Requirements of our Clients.
"Special population" refers to the need of our clients in Phase I and
Phase II clinical trials to test products on participants who have those
specific diseases or conditions. The special population and therapeutic areas
which we specialize in generally are cardiology, geriatrics, pediatrics,
post-menopausal females, diabetics, persons with kidney and liver diseases, HIV,
allergy and asthma. We believe we are one of the leading United States companies
in recruiting of participants for special population clinical trials. This is
particularly important since medications require extensive testing in many
special populations. We intend to expand our database by networking with our
existing participants, increasing our presence with support groups and
establishing relationships with additional doctors.
We Intend to Continue with the Training and Professionalization of our
Employees.
Employees are a key to our success. Many of our employees have been
working for us for more than 10 years. We have an in-house training program, and
we regularly bring in outside instructors to upgrade our employees' skills. We
will seek to maintain the employee satisfaction that in the past has kept our
employee turnover rate low. The satisfaction of our employees is a resource we
believe we can draw on to find and hire additional qualified employees.
We Intend to Expand our Marketing to our Clients and Potential Clients.
We will continue to build our name recognition within the
pharmaceutical and biotechnology industries through the use of direct mail,
presence at professional trade shows and display advertisements in generally
accepted pharmacology magazines. Our marketing staff maintains a regular
schedule of personal visits to our existing customers and new contacts. With the
proceeds we receive from this offering, we intend to hire additional experienced
marketing executives with industry-wide contacts.
Potential Health Care Reform
The federal and state governments have recently undertaken efforts to
control growing health care costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical, biotechnology and
medical device companies. The intent of recent comprehensive health care reform
proposals introduced in the United States Congress was to generally expand
health care coverage for the uninsured and reduce the growth of total health
care costs. Although none of these proposals have been adopted, it is highly
likely that health care reform will again be addressed by the United States
Congress. The result of such potential reform would increase cost containment
pressures which in turn could reduce research and development expenditures by
pharmaceutical and biotechnology companies. This could decrease our business
opportunities. We are unable to predict whether or when this type of legislation
will be enacted into law, or what effect this reform might have on our future
business.
Our Employees
We currently have approximately 40 full-time employees including our
executive officers. We also have approximately 10 persons we employ on an
as-needed basis. We employ two physicians including an on-site medical director,
a pharmacist, a certified dietician and other healthcare professionals. All of
our employees are required to complete a formal in-house training program which
includes an orientation, review of our standard operating procedure manual, CPR,
seminars in updated and new medical techniques and information, and regular
performance reviews. We do not have any agreements with labor unions, and we
consider our relationships with our employees and independent contractors to be
excellent based on our historically low employee turnover rate.
Our Facility
We are located in greater Miami, Florida. The metropolitan area
provides us with access to over 5,000,000 people from which we recruit our
testing participants. We conduct trials in our 250 bed inpatient/outpatient
facility using advanced equipment. We believe we have one of the largest single
site facilities in the United States.
Our medical technology and equipment includes cardiac telemetry,
computerized electrocardiograms, holter monitors, intravenous infusion pumps,
exercise treadmills, ambulatory blood pressure monitors and synchronized digital
clocks. Meals for our participants are prepared on-site under the supervision of
a certified dietician. Our food service system allows us to offer special diets
when required by the guidelines set by our clients and also to perform food
effects studies. Throughout our clinic, security is maintained by the use of a
limited access magnetic card system.
We are currently negotiating a lease in order to move to a
state-of-the-art facility located near our current clinic. This five-story
facility was a hospital. Its location and improved physical appearance will
enhance our visibility with our clients. Although we do not intend to initially
increase our bed capacity, this facility will provide us the space to expand and
increase our services. With our new facility, we will be in a position to expand
our business by opening a Phase III and Phase IV clinic and a clinical
laboratory. Until we expand our use of this new facility, we intend to sublet
the ground floor to healthcare providers and related businesses. We cannot
assure you we will sign this lease.
Our Competitors
The clinical research industry is highly fragmented and made up of a
number of large, full-service contract clinical research organizations and many
small contract clinical research organizations and limited service providers.
Our major competitors in this industry include the research departments of
pharmaceutical and biotechnology companies and other contract research
organizations. We compete in this market on the basis of our ability to provide
high quality personalized service and our ability to very quickly fill a
client's need for particular types of participants allowing our clients to
complete the research necessary in Phases I and II to quickly move on to further
development of a new drug.
However, many of our competitors have substantially greater size and
financial and other resources than we do. Moreover, the decision of a client as
to whether or not to outsource its research places us in competition with a
client's in-house development group. Once that decision to outsource research is
made, not only do we compete with other private companies, but to a lesser
extent we also compete with universities and teaching hospitals. Generally
contract research organizations compete on the basis of:
o experience,
o medical and scientific expertise in specific therapeutic areas
that clients are interested in,
o the quality of their clinical research,
o the range of services they provide,
o their ability to organize and manage large-scale trials,
o their ability to manage large and complex medical databases,
o their ability to recruit doctors and participants, and
o their financial stability.
Our principal competitors include Quintiles Transnational, Covance, PPD, Inc.,
and Phoenix International.
The general trend toward contract research organization consolidation
has resulted in increased competition for clients. Consolidation within the
pharmaceutical industry as well as the trend by the pharmaceutical industry to
limit outsourcing to fewer rather than more contract research organizations has
also heightened competition for contracts from that industry.
Potential Liability and Insurance
Clinical research involves the testing of new drugs and other products
on humans according to guidelines set by our clients and approved by the Food
and Drug Administration. This testing can expose us to the risk of liability for
personal injury or death to our participants resulting from many things,
including unforeseen adverse side effects or failure to follow the guidelines we
are given. In addition to our doctors who supervise our clinical trials, we also
contract with outside doctors to provide medical services. For this reason we
also face potential liability for a doctor's malpractice. We attempt to reduce
these risks by requiring our clients to indemnify us for any product liability
we might incur while performing services for those clients. These
indemnification provisions are subject to negotiation with our clients and often
vary. Generally, our contracts do not protect us if we are negligent or if the
doctor is negligent. Most of our clients are large, well capitalized companies
but there is always a risk that a client may not have the financial ability to
fulfill its obligation to indemnify us. Additionally, all clinical trial
participants sign an informed consent form approved by an Institutional Review
Board. As required by the Food and Drug Administration, we explain the risks of
a trial to our participants. We believe the informed consents reduce our risk of
liability.
We also maintain liability insurance to further protect us and staff
doctors against these risks. We also will require our doctors to maintain
malpractice insurance. Additional insurance beyond our current coverage might
not be available to us on commercially reasonable terms or available at any
price.
We could be materially and adversely affected if we were required to
pay damages or defense costs in connection with a claim that is beyond the scope
of an indemnification provision or level of insurance where our client does not
fulfill its indemnification obligation or for negligence and malpractice that is
not covered by insurance.
Government Regulation
Once we begin a clinical trial, all phases of that test are governed by
extensive Food and Drug Administration regulations. Our clients are responsible
for selecting qualified doctors, providing those doctors with protocols and any
other necessary information, monitoring the testing and reporting any changes or
modification of the clinical trials to the Food and Drug Administration and
reporting any serious and unexpected adverse reaction to the new drug to the
Food and Drug Administration. When we perform any of these functions on behalf
of our clients, we must comply with these requirements.
The purpose of the Food and Drug Administration regulations is to
assure that the products are safe and effective before offered for sale to the
public. Our services are subject to various regulatory requirements designed to
ensure the quality and integrity of the testing process. The industry standard
for conducting clinical research and development studies is contained in
regulations established for good clinical practice. As a practical matter, the
Food and Drug Administration requires the test results submitted to it based on
studies that are conducted according to these regulations. The regulations cover
subject matters including:
o complying with regulations governing the selection of
qualified doctors;
o obtaining specific written commitments from the doctors;
o verifying that informed consent is obtained from participants;
o monitoring the validity and accuracy of data;
o verifying that we account for the drugs provided to us by our
clients; and
o instructing doctors to maintain records and reports.
Failure to comply with these regulations can result in the entire
disqualification of all data collected during the clinical trials. We are
subject to regulatory action for failure to comply with these rules.
Additionally, because as a matter of course we frequently deal with
what is referred to as contaminated or hazardous medical waste material, we must
properly comply with environmental regulations maintained by the federal, state
and county governments regarding disposal of these waste materials. As is
standard in the industry, we contract with an outside licensed company to handle
this waste disposal and rely on their compliance with the rules for proper
disposal.
Because we use narcotic drugs and other controlled substances in some
of our clinical trials, we are required to have a license from the United States
Drug Enforcement Administration. We must also use special care and security
procedures to safeguard and account for all controlled substances.
We believe we have an outstanding record of regulatory compliance
relating to our clinical trials. We also believe we are in material compliance
with all other federal, state and local regulations.
Legal Proceedings
We are not a party to any material legal proceedings.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our
directors and executive officers.
Lisa Krinsky, M.D. 36 President, chief operating officer, secretary,
and chairman of the board of directors
Arnold Hantman 63 Chief executive officer, chief financial and
chief accounting officer, treasurer and director
Dr. Gregory B. Holmes 43 Executive vice president of clinical operations
Jack Levine, C.P.A. 48 Director
Dr. Leonard I. Weinstein 54 Director
Lisa Krinsky, M.D. founded our operating subsidiary in 1995. Since that
time, Dr. Krinsky has been our subsidiary's president and chief executive
officer, secretary, treasurer and chairman of its board of directors. Since June
1999, Dr. Krinsky has been our president and chief operating officer, secretary
and chairman of our board of directors. Prior to 1995, she worked in various
research positions with us and Baxter HealthCare Corporation. Dr. Krinsky has 13
years of experience in research and development of new pharmaceutical products.
Dr. Krinsky's accomplishments include developing and implementing new services,
strategic planning, increasing revenues, and establishing a solid relationship
of confidence and respect with our growing client base. Dr. Krinsky has overseen
approximately 300 clinical trials at our subsidiary. She received her M.D.
degree from Spartan Health Sciences University School of Medicine in 1990.
Arnold Hantman is one of our founders. Mr. Hantman has been our chief
executive officer since 1993. Previously, he served as a member of the board of
directors of Amerifirst Bank, Miami, Florida. Mr. Hantman received a Bachelor of
Business Administration degree from City College of New York in accounting in
1956, and a Juris Doctor degree from the University of Miami School of Law in
1962. Mr. Hantman is a licensed attorney in Florida and a member of the American
and Florida Institutes of Certified Public Accountants. His license as a
certified public accountant in the State of Florida is inactive.
<PAGE>
Dr. Gregory Holmes became executive vice president of clinical
operations of our subsidiary in February 1999. From January 1997 through
February 1999, Dr. Holmes was president of clinical research for Phoenix
International Life Sciences in Cincinnati, Ohio . From May 1988 to January 1997,
Dr. Holmes was employed by Pharmaco International in Austin, Texas. While
employed by Pharmaco, he held various vice president offices listed below:
August - October 1994 vice president of strategic planning
October 1994 - May 1995 vice president of clinical research, bioanalytic
laboratories and toxicology services
June 1995 - January 1997 vice president of international business
Phoenix International, the parent of Phoenix International Life
Sciences, and Pharmaco, now known as PPD, Inc., are two of our leading
competitors. Dr. Holmes received a Doctorate in Pharmacy from the University of
Minnesota College of Pharmacy and is board certified in pharmacology.
Jack Levine, C.P.A., joined our board of directors in August 1999. Mr.
Levine is a certified public accountant in the State of Florida and president of
Jack Levine, P.A., a certified public accounting firm located in North Miami
Beach, Florida, where he has been employed since 1984. Most of his firm's
accounting practice consists of representing health care corporations, managed
care companies and large physician groups. From March 1996 through November
1998, Mr. Levine was a director of Bankers Savings Bank of Coral Gables, Florida
when it was acquired by Republic Bank, Inc. Mr. Levine is a member of the
American Institute of Certified Public Accountants, the Florida Institute of
Certified Public Accountants and New York Society of Certified Public
Accountants.
Dr. Leonard I. Weinstein, has been a director of our company since June
1999 and of our subsidiary since May 1995. Dr. Weinstein specializes in
providing consulting and mergers and acquisition services to the health care
industry including physicians. Since June 1994, he has been president of
Tropical Healthcare, Inc. Dr. Weinstein received a doctorate of public
administration in health care administration from Nova Southeastern University
in 1982.
Key Employees
Wayne W. Hutman, M.D., has been our medical director since January
1996. Dr. Hutman was employed as medical director of the Miami Shores, Florida
office of the Greater Miami Medical Center in Miami, Florida from September 1993
through July 1995. Prior to joining us, Dr. Hutman traveled abroad after leaving
the Greater Miami Medical Center. He is a member of the American Academy of
Pharmaceutical Physicians. Dr. Hutman is board certified in internal medicine.
Dr. Hutman received his M.D. degree from Ross University School of Medicine,
Domonica, British West Indies.
Maria E. Quant is vice president of regulatory affairs of our
subsidiary. She has worked for us since 1989. She is a certified English-Spanish
translator.
James F. Schomann has been our subsidiary's vice president of business
development since August 1995. From December 1993 through July 1995, Mr.
Schomann was employed by Pharma Kinetics Laboratories, Inc. as a senior account
executive. Mr. Schomann oversees our sales and promotional programs and
supervises our business development staff.
Committees of the Board of Directors
Our board of directors currently has audit and compensation committees.
At least a majority of the audit and compensation committees will be independent
directors. The audit committee will review the scope of our audit, recommend to
the board the engagement of our independent auditors, review the financial
statements and review any transactions between us and any of our officers,
directors or other related parties. Our compensation committee will evaluate our
compensation policies, approve executive compensation and executive employment
contracts and administer our stock option plan. Messrs. Hantman, Levine and
Weinstein are members of the audit committee. Dr. Krinsky, Mr. Levine and Dr.
Weinstein are members of the compensation committee. We intend to pay our
independent directors a fee of $500 for each board and committee meeting which
they attend. We also granted each independent director non-qualified options to
purchase 15,000 shares of common stock. The options are exercisable at $6.00 per
share over a 10-year period subject to vesting. The options will vest each June
30 and December 31, commencing December 31, 1999 over a three-year period,
subject to the director remaining on our board of directors as of each vesting
date.
Our certificate of incorporation eliminates the liability of our
directors for monetary damages to the fullest extent possible. However, our
directors remain liable for:
o for any breach of the director's duty of loyalty to us or our
stockholders,
o for acts or omission not in good faith or that involve
intentional misconduct or a knowing violation of law,
o for payments of dividends or approval of stock repurchases or
redemptions that are prohibited by the Delaware law, or
o for any transaction from which the director derives an
improper personal benefit.
These provisions do not affect any liability any director may have
under federal and state securities laws.
Executive Compensation
Set forth below is information with respect to compensation paid by us
for 1998, 1997 and 1996 to our chief executive officer and chief operating
officer who are the only executive officers whose compensation exceeded $100,000
for 1998.
<PAGE>
Annual Compensation
-------------------
(b) (c) (e) (i)
Other
Annual All other
Name and Principal Position Year Salary($) Compensation Compensation($)
- --------------------------- ---- --------- ------------ ---------------
Arnold Hantman, 1998 $120,000 0 0
chief executive officer 1997 120,000 0 0
1996 103,846 53,000(1) 0
Lisa Krinsky, M.D., 1998 $250,000 21,902(2) 0(3)
president and chief 1997 $200,000 19,806(2) 0
operating officer 1996 $163,462 0 0
(1) Consists of consulting fees paid by our subsidiary.
(2) Consists of automobile allowance and insurance payments.
(3) Does not include $92,965 of personal expenses our subsidiary paid for
Dr. Krinsky in 1998. In June 1999, Dr. Krinsky issued our subsidiary a
three year 6% promissory note providing for annual payments of interest
only.
In August 1999, we entered into three year written employment
agreements with Dr. Krinsky and Mr. Hantman. Dr. Krinsky receives an annual
salary of $250,000, which will be reduced to $199,000 upon the closing of this
offering. Mr. Hantman receives an annual salary of $120,000. Dr. Krinsky shall
receive an annual bonus of $25,000 if we have annual pre-tax income of at least
$1,000,000, an additional $25,000 if we have pre-tax income of at least
$1,250,000 and another $25,000 if we have pre-tax income of at least $1,500,000.
Additionally, Dr. Krinsky receives an automobile allowance of $1,334 per month
and Mr. Hantman receives a monthly automobile allowance of $650 per month. We
also pay the costs of their automobile insurance. We also pay the premiums for a
life and a disability policy for Dr. Krinsky. Our monthly cost is $330. Dr.
Krinsky and Mr. Hantman may terminate their employment agreements if: (i) their
duties are substantially modified, (ii) we materially breach the terms of their
employment agreements or (iii) if any entity or person who is not currently an
executive officer or shareholder of ours becomes individually or as part of a
group the owner of more than 30% of our common stock. If this occurs, each may
chose to receive full compensation and benefits provided for in her or his
employment agreement for the remainder of the term of the agreement or a release
from the non-competition provisions of the employment agreement. These
provisions may discourage a hostile takeover even if the takeover is in the best
interest of all of our other stockholders.
In February 1999, our subsidiary entered into an employment agreement
with Dr. Holmes employing him for a one year term as executive vice president of
clinical operations at an annual salary of $120,000 per year. The agreement is
automatically renewable each year unless either party gives notice of
termination within 90 days of the expiration of the term. Our subsidiary
reimbursed Dr. Holmes for his moving expenses from Kentucky and provides him
with an automobile allowance of $650 per month. Subject to a maximum of $3,600
per year, our subsidiary will reimburse Dr. Holmes one trip per month to
Cincinnati, Ohio. We also paid for a temporary apartment in South Florida at a
monthly cost of $1,700 through September 1999.
In August 1999, our subsidiary renewed Mr. James Schomann's one-year
employment agreement with as vice president of business development. Mr.
Schomann receives a base salary of $102,000 annually and a commission based upon
sales.
Stock Option Plan
In June 1999, we adopted our 1999 stock option plan. We may issue
incentive stock options, as defined in the Internal Revenue Code of 1986, or
non-qualified stock options to purchase up to 700,000 shares of common stock
under the plan. We have issued stock options to purchase an aggregate of 596,000
shares of common stock to 34 employees and two independent contractors
including:
Employee No. of Options Exercise Price
------------------ -------------- --------------
Dr. Gregory Holmes 200,000 $1.00
Dr. Lisa Krinsky 100,000 $6.00
Arnold Hantman 50,000 $6.00
James Schomann 35,000 $6.00
Dr. Wayne Hutman 30,000 $6.00
Maria Quant 15,000 $6.00
Of the options we granted to Dr. Holmes, 50,000 options are currently vested and
the balance vest in 50,000 share increments on March 15th of each year in 2000
through 2002. These options replaced the February 1999 grant to Dr. Holmes by
our subsidiary of the same number of options on the same terms and conditions.
We have also issued 15,000 options to each of our non-employee director
exercisable at $6.00 per share.
Except for Dr. Holmes, all options vest in increments of one-sixth, on
June 30 and December 31 each year, commencing on December 31, 1999, provided
that the option holder is employed by us, providing services to us or acting as
a director on such vesting date. The options expire in 2009, except that, in the
event of the death or termination of employment, all options terminate one year
from the date of death or the person's relationship with us or three months
after any other termination of the person's relationship with us. If the option
holder's relationship with us is terminated for cause, the options terminate
immediately.
RELATED PARTY TRANSACTIONS
In May 1999, we issued $500,000 of secured notes in exchange for
cancellation of approximately $824,000 of past-due secured notes. Of this May
1999 debt, Mr. Arnold Hantman, our chief executive officer, holds a note of
$191,500. All notes are due without interest upon the closing of this offering
or in installments with 8% interest if this offering does not close by December
31, 1999. Mr. Hantman guaranteed payment of the May 1999 notes.
Lisa Krinsky, M.D. organized our subsidiary and is considered to be our
founder together with Mr. Hantman. As part of the acquisition of our subsidiary,
Dr. Krinsky received 1,014,487 shares of our common stock in exchange for her
shares of the common stock of our subsidiary. In 1998, we paid $92,965 of
personal expenses on behalf of Dr. Krinsky. In August 1999, Dr. Krinsky issued
us a three-year 6% $92,965 note providing for annual payments of interest only.
The note is due in August 2002.
We provide the use of four offices consisting of approximately 1,000
square feet to Lam Pharmaceuticals Corp. Lam, based in Toronto, Ontario,
develops drug compounds. We have charged Lam no rent. Effective October 1, 1999,
we intend to charge Lam rent of $1,250 per month. Mr. Hantman and Dr. Krinsky
together own approximately 14% of Lam's common stock.
PRINCIPAL STOCKHOLDERS
The following table provides certain information as of July 31, 1999
and as adjusted to give effect to the sale of 1,150,000 shares of common stock
in this offering, concerning the beneficial ownership of our common stock by
each director; each person known by us to be the beneficial owner of at least 5%
of our common stock; and all executive officers and directors as a group. For
the purpose of computing the number of shares of common stock issuable upon
conversion of our convertible notes, we have used an assumed initial public
offering price of $6.00 per share. The number of shares shown in the table
assumes conversion of these notes.
Number of Percentage of
Shares of Common Stock
Common Stock ------------------
Name and Address of Beneficially Prior to After
Beneficial Owner Owned(1) Offering Offering
- ------------------------ ------------ -------- --------
Lisa Krinsky, M.D
11190 Biscayne Boulevard
N. Miami, FL 33181 1,014,487 48.8% 29.2%
Arnold Hantman
11190 Biscayne Boulevard
N. Miami, FL 33181 507,244 24.4% 14.6%
Dr. Gregory Holmes(2)
11190 Biscayne Boulevard
N. Miami, FL 33181 50,000 2.3% 1.4%
Jack Levine, C.P.A
16855 N.E. 2nd Avenue
N. Miami Beach, FL 33162 0 0 0
Dr. Leonard I. Weinstein
3423 N. 31st Terrace
Hollywood, FL 33021 10,000 * *
All executive officers and
directors as a group (five persons)(2) 1,581,731 74.2% 44.9%
(1) Beneficial ownership exists when a person has either the power to vote
or sell our common stock. Unless otherwise indicated, we believe that
all persons named in the table have sole voting and investment power
with respect to all securities beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date whether upon the exercise of
options or otherwise.
(2) Represents or includes 50,000 shares of common stock issuable upon
exercise of vested options.
Escrowed Shares
Of the outstanding 2,080,000 shares of common stock prior to this
offering, four of our stockholders have placed into escrow a total of 100,000
shares of common stock. These shares must remain in escrow and may not be sold
assignable or transferred, but may be voted, until such time, if ever, as they
are released from escrow in accordance with the terms of an escrow agreement,
dated __________, 1999. ________________ is acting as the escrow agent. These
shares held in escrow are beneficially owned by the following people:
NAME NO. OF SHARES
----------------------------- -------------
Lisa Krinsky, M.D. 64,166
Arnold Hantman 30,833
Michael D. and Beth J. Harris 5,000
The shares of common stock held in escrow may be released upon the
earlier of the following times:
o we have pre-tax net income of $3,000,000 in 2000;
o we have pre-tax net income of $5,000,000 in 2001;
o seven years from the date of this prospectus the shares of common stock
will be released from escrow even if either of the two above tests are
not met.
DESCRIPTION OF CAPITAL STOCK
The following summary of the material terms of our capital stock. It is
not complete and is subject in all respects to applicable Delaware law and to
the provisions of our certificate of incorporation. A copy has been filed as an
exhibit to the registration statement containing this prospectus.
Our authorized capital stock consists of 20,000,000 shares of common
stock, par value $.001 per share and 5,000,000 shares of preferred stock, $.10
par value.
Common Stock
Each holder of common stock outstanding is entitled to one vote per
share on all matters submitted to a vote of our stockholders including the
election of directors. Holders do not have cumulative voting rights.
In the event we dissolve or liquidate or wind up our business, whether
voluntary or involuntary, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of our liabilities and any
preferences on outstanding preferred stock.
Each share of common stock has an equal right to receive dividends when
and if our board of directors decides to declare a dividend. We do not
anticipate paying cash dividends in the foreseeable future. The holders of our
common stock are not entitled to preemptive rights.
Preferred Stock
We currently have no shares of preferred stock issued or outstanding.
The board of directors is authorized to fix the following rights and
preferences of the preferred stock:
o The rate of dividends and whether such dividends shall be
cumulative.
o The price at and the terms and conditions on which shares may
be redeemed.
o The amount payable in the event of voluntary or involuntary
liquidation.
o Whether or not a sinking fund shall be provided for the
redemption or purchase of shares.
o The terms and conditions on which shares may be converted.
o Whether, and in what proportion to any series, another series
shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per
share.
We have no plans, agreements or understandings with respect to the issuance of
any shares of preferred stock.
Certain Anti-Takeover Effects of Delaware Law
Following this offering, we will be subject to the "business
combination" provisions of Section 203 of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly-held Delaware corporation from
engaging in various "business combination" transactions such as a merger with
any "interested stockholder" which includes, a stockholder owning 15% of a
corporation's outstanding voting securities, for a period of three years after
the date in which the person became an interested stockholder, unless:
o the transaction is approved by the corporation's board of
directors prior to the date the stockholder became an
interested stockholder;
o upon closing of the transaction which resulted in the
stockholder becoming an interested stockholder, the
stockholder owned at least 85% of the shares of stock entitled
to vote generally in the election of directors of the
corporation outstanding excluding those shares owned by
persons who are both directors and officers and specified
types of employee stock plans; or
o on or after such date, the business combination is approved by
the board of directors and at least 66 2/3% of outstanding
voting stock not owned by the interested stockholder.
Indemnification and Liability of Our Directors and Officers
Section 145 of the Delaware General Corporation Law provides a
corporation with the power to indemnify any officer or director acting in his
capacity as our representative who is or is threatened to be made a party to any
lawsuit or other proceeding for expenses, judgment and amounts paid in
settlement in connection with such lawsuit or proceeding. The indemnity
provisions apply whether the action was instituted by a third party or was filed
by one of our stockholders. The Delaware General Corporation Law provides that
Section 145 is not exclusive of other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise. We have provided for this
indemnification in our certificate of incorporation because we believe that it
is important to attract qualified directors and officers. We have also entered
into indemnification agreements with our directors and officers which agreements
are designed to indemnify them to the fullest extent permissible by law, subject
to one limitation described in the next sentence. We have further provided in
our certificate of incorporation that no indemnification shall be available,
whether pursuant to our certificate of incorporation or otherwise, arising from
any lawsuit or proceeding in which we assert a direct claim, as opposed to a
stockholders' derivative action, against any directors and officers. This
limitation is designed to insure that if we sue a director or officer we do not
have to pay for his defense. We have been advised that the Securities and
Exchange Commission believes it is against public policy for us to indemnify our
directors and officers for violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Accordingly, we have agreed that unless our
attorneys advise us that the courts have ultimately decided whether the SEC is
correct, we will let a court determine whether we can indemnify our directors
and officers under such laws.
Transfer Agent
American Stock Transfer & Trust Co., New York , New York, is the
transfer agent for our common stock.
Stock Market Listing
We have applied for listing of our common stock on the Nasdaq SmallCap
Market under the symbol SFBI. We do not know if our application will be
approved. Even if it is approved, an active trading market for our common stock
may not develop.
Dividend Policy
Our board of directors does not intend to pay dividends on our common
stock in the future. Instead, we intend to retain future income, if any, to
finance the growth of our business.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market
following this offering could adversely affect our ability to raise capital at a
time when we need it or on terms favorable to us. Following this offering, we
will have 3,474,956 shares of common stock outstanding assuming that the
underwriter does not exercise its over-allotment option to sell up to an
additional 172,500 shares.
None of our shares of common stock outstanding may be publicly sold for
13 months following the date of this prospectus. Following the expiration of
this period, the shares of common stock may be publicly sold under Rule 144
under the Securities Act of 1933.
In general, Rule 144, as currently in effect, provides that, commencing
90 days after the date of this prospectus, any person who has held restricted
common stock for at least one year, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares or, the average weekly trading volume during the
four calendar weeks preceding the filing of a notice of sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current and public information about us. A person who
has not been an affiliate of for at least three months immediately preceding the
sale and who has owned such shares of common stock for at least two years is
entitled to sell the shares under Rule 144(k) without regard to any of the
limitations described above.
Following 13 months from the date of this prospectus, all of our
outstanding shares will be eligible for sale under Rule 144. Upon exercise of
the 244,956 warrants we will issue at the time of closing of this offering to
our minority stockholders, the shares of common stock issued upon exercise of
the warrants will be restricted and may only be sold under Rule 144 after a
one-year holding period. In addition, at the time of the closing of this
offering, we will issue Schneider Securities, Inc. warrants to purchase 115,000
shares of common stock exercisable at $7.20 per share commencing one year
following the date of this prospectus. The warrants to be issued to Schneider
Securities contain certain provisions requiring us to register the shares of
common stock in the future once they become exercisable.
In addition, under our 1999 stock option plan, we have issued options
to purchase a total of 396,000 shares of our common stock exercisable at $6.00
per share and 200,000 shares exercisable at $1.00 per share. We intend to
register the shares of common stock issuable under our stock option plan as soon
as practicable following the date of this prospectus. The option holders have
agreed not to publicly sell the shares of common stock issuable upon exercise of
the options for a period of 13 months following the date of this prospectus.
Generally these options vest over a three year period provided that the holders
are working for us or are serving as directors on the vesting dates.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for which Schneider Securities, Inc. is acting as the
underwriter's representative, have agreed to purchase from us the shares of
common stock set forth opposite their names and will purchase the shares of
common stock at the price to the public less the underwriting discounts
contained on the cover page of this prospectus.
Underwriter Number of Shares
Schneider Securities, Inc. ........ ________
Total.............................. 1,150,000
=========
The underwriting agreement provides that the underwriters' obligations
are subject to a number of conditions and that the underwriters are committed to
purchase all 1,150,000 shares of common stock offered in this prospectus if the
underwriters purchase any shares of common stock. The representative has advised
us that the underwriters propose to offer the shares of common stock directly to
the public at the price to public contained on the cover page of this prospectus
and that they may allow to certain dealers which are members of NASD Regulation,
Inc., concessions not in excess of $______. After the initial public
distribution of the common stock is completed, the price of the common stock may
change as a result of market conditions. No change in such terms will change the
amount of proceeds to be received by us. The representative has further advised
us that the underwriters do not intend to confirm sales to any accounts over
which any of them exercises discretionary authority.
We have agreed to pay the representative a nonaccountable expense
allowance of 3% of the total public offering price of the shares of common stock
offered by this prospectus, including shares of common stock sold on exercise of
the over-allotment option. We have already paid the representative $50,000. We
have also agreed to pay all expenses in connection with qualifying the shares of
common stock offered for sale under the laws of such states as the
representative may designate.
We have granted the underwriters an option, exercisable for 45 days
after the date of this prospectus, to purchase up to 172,500 additional shares
of common stock at the same price as the initial shares of common stock offered.
The underwriters may purchase the shares of common stock solely to cover
over-allotments, if any, in connection with the sale of the shares of common
stock offered by this prospectus. If the over-allotment option is exercised in
full, the total public offering price will be $____________, the underwriting
discounts will be $____________, the nonaccountable expense allowance will be
$____________ and the proceeds to us will be $____________ .
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934. Over-allotment
involves syndicate sales in excess of the offering size, which create a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the shares of
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member when the shares of
common stock originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of such transactions.
Neither we nor the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor any
of the underwriters makes any representation that the underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The representative has required that the shares of common stock owned
by officers, directors and the current stockholders and option holders may not
be sold until at least 13 months after the date of this prospectus without the
prior written consent of the representative. The representative has no present
intention to waive or shorten this 13 month period.
In connection with this offering, we will sell to the representative
for a total purchase price of $115, the representative's warrants entitling the
representative or its assigns to purchase 115,000 shares of our common stock at
an exercise price of 120% of the public offering price listed on the cover of
this prospectus for five years from the date of this prospectus. The
representative's warrants will contain customary anti-dilution provisions and
provide for the cashless exercise of the representative's warrants utilizing our
securities which will reduce the number of shares of common stock we will have
to issue. We will at all times have available a sufficient number of shares of
common stock to be issued upon exercise of the representative's warrants. The
representative's warrants and underlying shares of common stock will be
restricted from sale, transfer, assignment or hypothecation for a period of one
year after the date of this prospectus, except to officers of the
representative, co-underwriters, selling group members and their officers or
partners. Thereafter, the representative's warrants and underlying shares of
common stock will be transferable provided such transfer is in accordance with
the provisions of the Securities Act of 1933. Subject to certain limitations and
exclusions, we have agreed, at the request of the representative and at our
cost, to register the warrants and the shares of common stock issuable upon
exercise of the representative's warrants under the Securities Act.
Additionally, if during the next seven years we file a new registration
statement, we will offer at our cost to register the shares of common stock
issuable upon exercise of the warrants on two occasions at our expense.
For the next five years, the representative has the right to have an
observer attend meetings of our board of directors and receive the same cash
compensation and expenses we pay to our directors.
Prior to this offering, there has not been a public market for our
common stock. The public offering price of the common stock has been determined
by arms-length negotiation between us and the representative. There is no direct
relation between the offering price of the common stock and our assets, book
value or net worth. Among the factors we and the representative considered in
pricing the common stock were our results of operations, our current financial
condition and future prospects, the experience of our management, the amount of
ownership to be retained by our present stockholders, the general condition of
the economy and the securities markets and the demand for securities of
companies considered comparable to us.
In connection with this offering, we and the underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act, and if such indemnification is unavailable or insufficient,
we and the underwriters have agreed to damage contribution arrangements based
upon relative benefits received from this offering and relative fault resulting
in such damage.
The underwriting agreement also requires us within 90 days after the
date of this prospectus, to obtain key man life insurance in the amount of
$1,000,000 each on the lives of Arnold Hantman and Lisa Krinsky, M.D., our chief
executive and chief operating officers.
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus
will be passed upon for us by Michael Harris, P.A., West Palm Beach, Florida.
Employees of this law firm own 76,635 shares of common stock. Certain legal
matters will be passed upon for the underwriter by Wolin & Rosen, Ltd., Chicago,
IL 60602.
EXPERTS
The financial statements of our subsidiary for the years ended December
31, 1997 and 1998 appearing in this prospectus and registration statement have
been audited by Kaufman, Rossin & Co., independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We will file annual, quarterly, and special reports, proxy statements
and other information with the Securities and Exchange Commission. These
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the SEC, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices located at 7 World Trade Center, New York, New York 10048 and Northwest
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
SEC Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The SEC maintains a website that contains all information
filed by us. The address of the SEC website is www.sec.gov.
This prospectus constitutes a part of a registration statement on Form
SB-2 filed by us with the SEC under the Securities Act of 1933 with respect to
the common stock offered by this prospectus. This prospectus does not contain
all the information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the SEC. Please refer to the registration statement and to the exhibits in the
registration statement for further information with respect to us and the common
stock offered in this prospectus. Copies of the registration statement are on
file at the offices of the SEC and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the SEC described above. Statements contained in this prospectus
concerning the provisions of documents are necessarily summaries of the material
provision of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the SEC.
REPORTS TO STOCKHOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available to our stockholders other
information as we deem appropriate.
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Operations and Deficit F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
South Florida Kinetics, Inc.
Miami, Florida
We have audited the accompanying balance sheet of South Florida Kinetics, Inc.
as of December 31, 1998 and the related statements of operations and deficit and
cash flows for each of the two years in the period ended December 31, 1998.
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 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 financial statements referred to above present fairly, in
all material respects, the financial position of South Florida Kinetics, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
Kaufman, Rossin & Co.
Miami, Florida
April 2, 1999 (except for Note 8, as to which the date is June 9, 1999)
F-2
<PAGE>
SOUTH FLORIDA KINETICS, INC.
BALANCE SHEET
DECEMBER 31, 1998
================================================================================
ASSETS
================================================================================
CURRENT ASSETS
Cash $ 55,751
Accounts receivable (Notes 2 and 3) 1,410,287
Prepaid expenses 60,074
- --------------------------------------------------------------------------------
Total current assets 1,526,112
LOAN RECEIVABLE FROM STOCKHOLDER (NOTE 4) 92,965
PROPERTY AND EQUIPMENT (NOTE 5) 213,891
OTHER ASSETS 77,500
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 1,910,468
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
CURRENT LIABILITIES
Accounts payable $ 360,135
Notes payable (Note 6) 1,924,154
Accrued liabilities 303,312
Accrued interest (Note 6) 508,152
Advance billings (Note 3) 61,455
- --------------------------------------------------------------------------------
Total current liabilities 3,157,208
- --------------------------------------------------------------------------------
COMMITMENTS (NOTES 7 AND 8)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 10,000 shares authorized,
issued and outstanding 1,000
Additional paid-in capital 100,000
Deficit (1,347,740)
- --------------------------------------------------------------------------------
Total stockholders' equity (1,246,740)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,910,468
================================================================================
See accompanying notes.
F-3
<PAGE>
SOUTH FLORIDA KINETICS, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
========================================================================================================
1998 1997
========================================================================================================
<S> <C> <C>
NET SALES $ 5,869,987 $ 4,261,505
COST OF SALES 3,838,923 2,801,192
- --------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,031,064 1,460,313
GENERAL AND ADMINISTRATIVE EXPENSES 1,323,764 1,383,356
- --------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 707,300 76,957
INTEREST EXPENSE 199,584 239,707
- --------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 507,716 (162,750)
DEFICIT - BEGINNING (1,855,456) (1,692,706)
- --------------------------------------------------------------------------------------------------------
DEFICIT - ENDING $(1,347,740) $(1,855,456)
========================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Basic and Diluted) 10,000 10,000
========================================================================================================
NET INCOME (LOSS) PER COMMON SHARE (Basic and Diluted) $ 50.77 $ (16.28)
========================================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
SOUTH FLORIDA KINETICS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
======================================================================================================
1998 1997
======================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 507,716 $(162,750)
- ------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 56,945 54,047
Provision for bad debts 14,066 30,372
Accrued interest on notes payable - purchase of assets 35,297 32,270
Changes in operating assets and liabilities:
Accounts receivable (752,950) (113,146)
Prepaid expenses 1,829 6,039
Other assets (6,225) (7,281)
Accounts payable 47,631 12,254
Accrued liabilities (11,591) 113,123
Accrued interest 118,363 120,601
Advance billings 35,455 3,205
- ------------------------------------------------------------------------------------------------------
Total adjustments (461,180) 251,484
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,536 88,734
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,445) (9,318)
Loans to stockholder (92,965) --
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (118,410) (9,318)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable - insurance (3,242) (4,341)
Principal payments on notes payable - stockholders -- (46,715)
Principal payments on notes payable - purchase of assets (3,903) (7,826)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (7,145) (58,882)
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (79,019) 20,534
CASH AT BEGINNING OF PERIOD 134,770 114,236
- ------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 55,751 $ 134,770
======================================================================================================
Supplemental Disclosures:
- ------------------------------------------------------------------------------------------------------
Interest paid $ 81,221 $ 119,106
======================================================================================================
Income taxes paid $ -- $ --
======================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
SOUTH FLORIDA KINETICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
South Florida Kinetics, Inc., d/b/a South Florida Bioavailability Clinic (the
"Company"), was incorporated in 1995 in the State of Florida. The Company is a
contract research organization located in Miami, Florida, that provides clinical
research and drug development services to pharmaceutical and biotechnology
companies.
REVENUE AND COST RECOGNITION
Revenues from contracts are recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on the contracts.
Contract costs include all direct costs related to contract performance.
Selling, general and administrative costs are charged to expense as incurred.
Provisions for estimated losses, if any, on uncompleted contracts are made in
the period in which losses are determined. Changes in job performance and
estimated profitability may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Due to the
inherent uncertainties in estimating costs, it is at least reasonably possible
that the estimates used will change in the near term and the change could be
material. Revenue recognized on contracts in progress at December 31, 1998
amounted to approximately $1,600,000.
Included in accounts receivable are unbilled amounts, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
CASH
The Company, from time to time, maintains cash balances with financial
institutions in amounts that exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major betterments
and additions are charged to the asset accounts while replacements, maintenance
and repairs which do not improve or extend the lives of the respective assets
are charged to expense currently.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the assets. The range of useful lives is as follows:
Furniture and fixtures 7 years
Machinery and equipment 5 - 7 years
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 revenues and expenses during the respective reporting
period. Actual results could differ from those estimates.
The allowance for changes in contracts is an estimate established through
reductions to sales while the allowance for doubtful accounts is an estimate
established through charges to general and administrative expenses. Management's
judgment in determining the adequacy of the allowances is based upon several
factors which include, but are not limited to, analysis of subsequent changes to
contracts, analysis of delinquent accounts, the nature and volume of the
accounts, the payment histories of the accounts and management's judgment with
respect to current economic conditions. Given the nature of accounts receivable,
it is reasonably possible the Company's estimate of the allowances will change
in the near term.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company performs services and
extends credit based on an evaluation of the customers' financial condition
without requiring collateral. Exposure to losses on receivables is expected to
vary by customer due to the financial condition of each customer. The Company
monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances.
INCOME TAXES
No provision for income taxes has been made in the accompanying financial
statements as the Company has elected, with the consent of the stockholders, to
be taxed under S Corporation provisions of the Internal Revenue Code. Under
these provisions, the taxable income of the Company is reflected by the
stockholders on their personal income tax returns.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the proposed initial public offering of securities is successful (see Note
8), the Company's S Corporation status would terminate and accordingly, the
Company prospectively would pay income taxes on its taxable income. At December
31, 1998 the aggregate temporary differences was approximately $422,000 and
approximately $159,000 would have been recorded as a deferred tax liability if
the Company was a "C" corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, loan receivable from stockholder and accrued
liabilities approximate their fair values due to the short-term maturity of
these instruments.
The fair value of the accrued interest and notes payable are discussed in Note
6.
NET INCOME (LOSS) PER SHARE
The Company applies Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128). FAS 128 requires dual presentation of net income
per share; Basic and Diluted. Net income per share - Basic excludes dilution and
is computed by dividing net income by the weighted average number of common
shares outstanding during the reported period. Net income per share - Diluted
reflects the potential dilution that could occur if stock options and warrants
were exercised. As there is no potential dilution, net income per share - Basic
and net income per share - Diluted are the same for the years ended December 31,
1998 and 1997.
IMPACT OF THE "YEAR 2000" COMPUTER ISSUE
Because computers frequently use only two digits to recognize years, on January
1, 2000, many computer systems, as well as equipment that uses embedded computer
chips, may be unable to distinguish between the years 1900 and 2000. If not
remediated, this problem could create system errors and failures resulting in
the disruption of normal business operations. In the event the Company fails to
identify or correct a material Year 2000 problem, there could be disruptions in
normal business operations, which could have a material adverse effect on the
Company's results of operations, liquidity or financial condition. Further,
there may be some third parties, such as governmental agencies, utilities,
telecommunication companies, vendors, suppliers and customers who may not be
able to continue business with the Company due to their own year 2000 problems.
There can be no assurance that any efforts made will fully mitigate the effect
of Year 2000 issues.
NOTE 2. MAJOR CUSTOMERS
During the year ended December 31, 1998, sales to four customers amounted to
approximately 58% of net sales. At December 31, 1998, four customers accounted
for approximately 61% of accounts receivable.
During the year ended December 31, 1997, sales to three customers accounted for
approximately 52% of net sales.
F-8
<PAGE>
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1998:
Accounts receivable - billed $ 870,205
Accounts receivable - unbilled 726,520
Less allowance for changes in contracts (142,000)
Less allowance for doubtful accounts (44,438)
- -------------------------------------------------------
$ 1,410,287
=======================================================
Accounts receivable are billed when certain milestones defined in customer
contracts are achieved. All unbilled accounts receivable are expected to be
billed and collected within one year.
Advance billings at December 31, 1998 amounted to $61,455.
NOTE 4. LOAN RECEIVABLE FROM STOCKHOLDER
Loan receivable from stockholder consists of certain expenses paid by the
Company on behalf of its majority stockholder. The loan is non-interest bearing
and due on demand.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Furniture and fixtures $ 31,866
Machinery and equipment 377,378
- ------------------------------------------
409,244
Less accumulated depreciation 195,353
- ------------------------------------------
$213,891
==========================================
Depreciation of property and equipment for the years ended December 31, 1998 and
1997 amounted to $56,945 and $54,047, respectively.
F-9
<PAGE>
NOTE 6. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1998:
Notes payable - stockholders $1,083,863
Notes payable - purchase of assets 798,962
Notes payable - insurance 41,329
- -----------------------------------------------------------------------------
$1,924,154
=============================================================================
NOTES PAYABLE - STOCKHOLDERS
During 1995 and 1996, the Company issued notes payable and shares of common
stock to private investors. These notes are unsecured and bear interest at 10%
per annum, with principal and interest due one year from the date of the note.
No interest and minimal principal payments have been made through December 31,
1998. The present value of the notes at December 31, 1998, at an imputed
interest rate of approximately 14% per annum, was $1,083,863 plus accrued
interest of $508,152. The difference between the present value of the notes and
the cash received represents the consideration received for the stock, and is
included in additional paid-in-capital in the accompanying financial statements.
As described in Note 8, subsequent to year-end, the Company offered these note
holders the option to convert the principal balances and accrued interest into
common stock.
NOTES PAYABLE - PURCHASE OF ASSETS
In connection with a purchase of assets in 1995, the Company entered into
promissory notes for $298,471 and $650,000. The $298,471 promissory note bears
interest at 9% per annum and is secured by all of the assets of the Company with
principal and interest payable monthly. The $650,000 promissory note is
non-interest bearing and is secured with payments due monthly based on the net
sales of the Company. The Company imputed interest on this note at a rate of 9%
per annum. Actual payments have not been in accordance with the terms of the
notes. At December 31, 1998, the balance of the notes, including accrued
interest was $798,962.
Based on borrowing rates currently available to the Company for loans with
similar terms and maturities, the fair value of notes payable approximates
carrying value.
Interest expense on all indebtedness amounted to $199,584 and $239,707, for the
years ended December 31, 1998 and 1997, respectively.
F-10
<PAGE>
NOTE 7. COMMITMENTS
FACILITIES LEASE
The company leases its facilities on a month-to-month basis. Rent expense under
this lease agreement amounted to $270,706 and $238,512 for the years ended
December 31, 1998 and 1997, respectively.
LEASE COMMITMENTS
The Company is obligated under two operating leases on equipment expiring from
2001 through 2003. The approximate minimum annual lease commitments on these
leases are $7,000 per year for 1999 through 2001 and $4,000 per year for 2002
and 2003.
NOTE 8. SUBSEQUENT EVENTS
RECAPITALIZATION - RESTRUCTURING OF DEBT
In June 1999, the Company entered into an Agreement and Plan of Merger with a
newly formed wholly-owned subsidiary of SFBC International, Inc. (SFBC), a
non-operating company that is the creditor with respect to the notes payable -
purchase of assets discussed in Note 6. The agreement provides for, among other
things, that SFBC acquire all of the common stock of the Company. The resulting
ownership of SFBC is 54% by the former majority stockholder of the Company, 19%
by the former minority stockholders of the Company and 27% by the former sole
stockholder of SFBC. In connection with the merger, SFBC entered into a letter
of intent regarding a proposed initial public offering of securities.
Concurrent with the merger, approximately $300,000 of the notes payable -
purchase of assets was extinguished and the original notes were replaced with
three new notes aggregating $500,000. These notes bear interest at 8% per annum,
are secured by all of the assets of the Company and are personally guaranteed by
an officer of the Company. The notes are due upon the closing of the registered
initial public offering of securities of SFBC. If the offering is not completed
by December 31, 1999 the notes are payable in aggregate monthly installments of
$20,000 plus interest, starting January 1, 2000.
STOCKHOLDER NOTES
In April 1999, the Company offered the holders of the notes payable -
stockholders, the option to convert their note balances and accrued interest
into new three year, 10% convertible notes. Upon the closing of the registered
initial public offering of securities of SFBC, these new notes would be required
to be converted into common stock of SFBC. In the conversion, the note holders
would receive shares of SFBC at a 20% discount off the initial public offering
price and one warrant for each share of stock issued. The warrants would be
exercisable at 120% of the initial public offering price and have a three-year
life.
F-11
<PAGE>
NOTE 8. SUBSEQUENT EVENTS (CONTINUED)
EMPLOYMENT CONTRACT
In February 1999, in contemplation of the recapitalization discussed above, the
Company entered into a one-year employment agreement with the Executive Vice
President of Clinical Operations. This agreement automatically renews annually
and may be terminated without cause by either party with 90-day notice. Pursuant
to the agreement, the employee received an option to purchase 200,000 shares of
common stock of SFBC at an exercise price of $1.00 per share. The option is
exercisable in four equal annual installments of 50,000 shares each, commencing
on March 15, 1999. No options had been exercised through June 9, 1999.
F-12
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================
ASSETS
=====================================================================================
<S> <C>
CURRENT ASSETS
Cash $ 452,502
Accounts receivable, net of allowances of $199,438 1,510,280
Prepaid expenses 90,278
- -------------------------------------------------------------------------------------
Total current assets 2,053,060
LOAN RECEIVABLE FROM STOCKHOLDER 92,965
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $226,091 219,290
OTHER ASSETS 82,500
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,447,815
=====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=====================================================================================
CURRENT LIABILITIES
Accounts payable $ 366,133
Notes payable-shareholders 283,996
Accrued liabilities 310,338
Accrued interest 206,721
Advance billings 3,764
Current portion of long-term debt 100,000
Deferred tax liability 204,000
- -------------------------------------------------------------------------------------
Total current liabilities 1,474,952
- -------------------------------------------------------------------------------------
LONG-TERM DEBT 1,575,899
- -------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 5,000,000 shares authorized,
zero shares issued and outstanding --
Common stock, $.001 par value, 20,000,000 shares authorized,
2,080,000 shares issued and outstanding 2,080
Additional paid-in capital 425,623
Deficit (1,030,739)
- -------------------------------------------------------------------------------------
Total stockholders' equity (603,036)
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,447,815
=====================================================================================
</TABLE>
See accompanying notes.
F-13
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
====================================================================
June 30, 1999 June 30, 1998
====================================================================
NET SALES $ 3,944,523 $ 2,045,273
COST OF SALES 2,379,293 1,367,950
- --------------------------------------------------------------------
GROSS PROFIT 1,565,230 667,323
GENERAL AND ADMINISTRATIVE EXPENSES 904,952 702,390
- --------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 660,278 (25,067)
INTEREST EXPENSE 102,277 95,766
- --------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 558,001 (120,833)
INCOME TAXES 241,000 --
- --------------------------------------------------------------------
NET INCOME (LOSS) $ 317,001 $ (120,833)
====================================================================
See accompanying notes.
F-14
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock, $.001 par
value; 20,000,000
shares authorized Additional
------------------------- Paid-In
Shares Par Value Capital Deficit Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCES - JANUARY 1, 1999 1,520,000 $ 1,520 $ 99,480 $(1,347,740) $(1,246,740)
Acquisition of assets of SFBC International, Inc. 560,000 560 326,143 -- 326,703
Net income -- -- -- 317,001 317,001
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES - JUNE 30, 1999 2,080,000 $ 2,080 $ 425,623 $(1,030,739) $ (603,036)
====================================================================================================================================
</TABLE>
See accompanying notes.
F-15
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
============================================================================================
June 30, 1999 June 30, 1998
============================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 317,001 $(120,833)
- ------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 30,738 26,982
Provision for bad debts - -- 10,066
Accrued interest on notes payable - purchase of assets 25,347 35,195
Changes in operating assets and liabilities:
Accounts receivable (99,993) 89,302
Prepaid expenses (30,204) 37,837
Other assets (5,000) (30,000)
Accounts payable 5,998 (78,267)
Accrued liabilities 7,026 (23,214)
Accrued interest 74,601 59,193
Advance billings (57,691) (26,000)
Deferred tax liability 204,000 --
Total adjustments 154,822 101,094
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 471,823 (19,739)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (36,137) (14,786)
Loans to stockholder -- (13,964)
Cash balance of Company acquired 2,394 --
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (33,743) (28,750)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable - insurance (41,329) (44,571)
Principal payments on notes payable - purchase of assets -- (10,000)
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (41,329) (54,571)
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 396,751 (103,060)
CASH AT BEGINNING OF PERIOD 55,751 134,770
- ------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 452,502 $ 31,710
==========================================================================================
Supplemental Disclosures:
- ------------------------------------------------------------------------------------------
Interest paid $ 27,676 $ 36,573
==========================================================================================
Income taxes paid $ -- $ --
==========================================================================================
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- ------------------------------------------------------------------------------------------
In June 1999, the Company reduced long-term debt by $324,309 through the
issuance of common stock.
In June 1999, the Company converted $376,032 of accrued interest to long-term
debt.
</TABLE>
See accompanying notes.
F-16
<PAGE>
SFBC INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements do not include all of the disclosures made
in South Florida Kinetics, Inc. balance sheet as of December 31, 1998 and the
related statements of operations and deficit and cash flows for each of the two
years in the period ended December 31, 1998, which should be read in conjunction
with these statements. The financial information included herein has not been
audited. However, in the opinion of management, the statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of the periods presented. The results for the
periods presented is not necessarily indicative of the results for the full
fiscal years.
The consolidated financial statements include the accounts of SFBC
International, Inc. a Delaware corporation and its subsidiary, South Florida
Kinetics, Inc. a Florida corporation. SFBC owns 100% of the subsidiary. All
material intercompany balances and transactions have been eliminated in
consolidation.
NOTE 2. OTHER EVENTS
RECAPITALIZATION
On June 7, 1999, all of the outstanding stock of the subsidiary was acquired by
SFBC. For accounting purposes, the acquisition has been treated as an
acquisition of the assets of SFBC by the subsidiary and as a recapitalization of
the subsidiary. The historical financial statements prior to June 7, 1999 are
those of the subsidiary.
STOCK SPLIT
In June 1999, SFBC effected a four-for-five reverse stock split. All stock data
and per share amounts in the consolidated financial statements have been
restated to give effect to the stock split.
INCOME TAXES
Through June 7, 1999, our subsidiary had elected, with the consent of the
stockholders, to be taxed under S Corporation provisions of the Internal Revenue
Code. Under these provisions, the taxable income of our subsidiary is reflected
by the stockholders on their personal income tax returns. Effective June 8,
1999, our subsidiary terminated its S Corporation status and in connection
therewith, it recorded a deferred tax liability of $204,000, through a charge to
the statement of operations. In addition, our subsidiary recorded a current
income tax liability of $37,000 related to taxable income for the period from
June 8, 1999 through June 30, 1999.
F-17
<PAGE>
NOTE 2. OTHER EVENTS (Continued)
LONG-TERM DEBT
In August 1999, certain holders of the notes payable - stockholders, converted
their note balances and accrued interest in the aggregate amount of $1,175,899
into new three year, 10% convertible notes. Upon the closing of the registered
initial public offering of securities of SFBC, these new notes would be required
to be converted into common stock of SFBC. In the conversion, the note holders
would receive shares of SFBC at a 20% discount off the initial public offering
price and one warrant for each share of stock issued. The warrants would be
exercisable at 120% of the initial public offering price and have a three-year
life.
LOAN RECEIVABLE FROM STOCKHOLDER
Loan receivable from stockholder consists of a promissory note providing for
annual payments of interest at a rate of 6% per annum, with principal due in
August 2002.
F-18
<PAGE>
[LOGO]
1,150,000
Shares of Common Stock
SFBC INTERNATIONAL, INC.
PROSPECTUS
SCHNEIDER SECURITIES, INC.
_____________________, 1999
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in states and other jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
TABLE OF CONTENTS Page
Prospectus Summary
Risk Factors
Forward-Looking Statements
Use of Proceeds
Capitalization
Dilution
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Management
Related Party Transactions
Principal Stockholders
Description of Capital Stock
Shares Eligible for Future Sale
Underwriting
Experts
Legal Matters
Additional Information
Reports to Stockholders
Index to Financial Statements F-1
Until __________ 1999, all dealers selling shares of the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation
provides that we shall indemnify our officers and directors, employees and
agents and former officers, directors, employees and agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
arising out of his or her services on behalf of us subject to the qualifications
contained in Delaware law as it now exists. We also cannot indemnify our
officers and directors when we assert a direct claim against them. We have
entered into indemnification agreements with our officers and directors
providing for indemnification and containing an advancement of expenses
provision. Delaware law generally provides that a corporation shall have such
power to indemnify such persons to the extent they acted in good faith in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the conduct was unlawful. In the event any such
person shall be judged liable such indemnification shall apply only if approved
by the court in which the action was brought. Any other indemnification shall be
made by a majority vote of the board of directors (excluding any directors who
were party to such action), or by a committee of directors designated by
majority vote of the board of directors or by independent legal counsel in a
written opinion, or by a majority vote of stockholders (excluding any
stockholders who were parties to such action).
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING SFBC INTERNATIONAL, INC. PURSUANT TO THE FOREGOING PROVISIONS, WE
HAVE BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
ACT AND IS THEREFORE UNENFORCEABLE.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance and
distribution of the securities being registered hereby (except for the
underwriting discounts and commissions) will be borne by SFBC and are estimated
to be as follows:
Registration Fee ................................ $ 2,436.11
Nasdaq Listing Fee .............................. 10,000.00
NASD Filing Fee ................................. 1,450.00
Transfer Agent Fee .............................. *
Printing Costs .................................. *
Legal Fees and Expenses ......................... *
Accounting Fees and Expenses .................... *
Blue Sky Fees and Expenses ...................... *
Underwriters' Non-Accountable Expense Allowance *
Miscellaneous ................................... *
------------
Total ........................................... $ *
============
* To be supplied by Amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following persons and entities
acquired shares of stock and other securities from us as set forth in the table
below. The number of shares of our common stock have been adjusted by our
four-for-five reverse stock split.
We sold the securities listed below in reliance upon exemptions from
registration pursuant to Section 4(2) of the Securities Act of 1933. Each person
listed below, except for Mr. Arnold Hantman, our chief executive officer
exchanged his or her common stock of our subsidiary for our common stock when we
acquired our subsidiary on June 7, 1999. The convertible notes were offered to
the South Florida Kinetics minority stockholders at the time they voted on the
merger in exchange for their cancellation of South Florida Kinetics notes but
not issued until August 4, 1999.
<TABLE>
<CAPTION>
Class Amount of
Stockholder of Securities Securities Sold Consideration Received(1)
- ----------------------------------- ---------------- ------------- -----------------------------------------
<S> <C> <C> <C>
Jay W. Atkins common stock 11,106 shares common stock
Maurice L. Baldwin c/o Maurice L convertible note $ 18,943.08 cancellation of note and accrued interest
and Mary L. Baldwin Family Trust common stock 2,563 shares common stock
Donald E. Birzer common stock 6,835 shares common stock
Robert P. Bisaillon convertible note $ 16,108.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Roland W. Boone convertible note $ 25,588.34 cancellation of note and accrued interest
common stock 8,543 shares common stock
Keith C. Carini, M.D convertible note $ 8,629.17 cancellation of note and accrued interest
common stock 2,478 shares common stock
Harold and Marilyn F. Chalmers convertible note $ 74,129.17 cancellation of note and accrued interest
common stock 21,358 shares common stock
Norman Cloutier convertible note $ 7,690.37 cancellation of note and accrued interest
common stock 2,136 shares common stock
Hilda S. Davis convertible note $ 18,943.08 cancellation of note and accrued interest
common stock 2,563 shares common stock
Patricia DeLovely common stock 9,398 shares common stock
Robert L. Dible convertible note $ 24,000.00 cancellation of note and accrued interest
common stock 12,815 shares common stock
II-2
<PAGE>
Rudolph Dickson convertible note $ 18,722.92 cancellation of note and accrued interest
common stock 8,971 shares common stock
Robert Dudley convertible note $ 15,937.57 cancellation of note and accrued interest
common stock 2,136 shares common stock
Howard L. Foglesong convertible note $ 7,974.63 cancellation of note and accrued interest
common stock 2,136 shares common stock
Curtis L. Franz common stock 3,845 shares common stock
Edmond W. and Georgia Gardiner convertible note $ 7,246.47 cancellation of note and accrued interest
common stock 2,136 shares common stock
Raymond L. Gehris common stock 17,087 shares common stock
Harold T., Ruth B. George, Trustees convertible note $ 16,197.92 cancellation of note andaccrued interest
U.D.T., dated February 18, 1984 common stock 2,136 shares common stock
Dennis D. Glass convertible note $ 31,265.30 cancellation of note and accrued interest
common stock 4,272 shares common stock
Joseph J. and E. Lenore Goetz common stock 2,648 shares common stock
Margaret K. Greene convertible note $ 12,185.33 cancellation of note and accrued interest
common stock 1,709 shares common stock
Dale and Sandra Halverstadt common stock 8,543 shares common stock
William and Helen A. Havel convertible note $ 16,250.00 cancellation of note and accrued interest
common stock 2,136 shares common stock
Dennis Hieronymus convertible note $ 12,738.44 cancellation of note and accrued interest
common stock 3,417 shares common stock
Frank L. Jenkins convertible note $ 6,896.00 cancellation of note and accrued interest
common stock 8,543 shares common stock
Kurt H. Knecht convertible note $ 65,852.52 cancellation of note and accrued interest
common stock 8,543 shares common stock
II-3
<PAGE>
David M. Kushner, M.D. convertible note $ 25,003.20 cancellation of note and accrued interest
common stock 34,173 shares common stock
Philip A. Linda C. Magyar convertible note $ 16,262.07 cancellation of note and accrued interest
common stock 2,136 shares common stock
Edith L. Marion convertible note $ 22,137.91 cancellation of note and accrued interest
common stock 3,076 shares common stock
Edith L. Marion convertible note $ 10,760.09 cancellation of note and accrued interest
common stock 2,562 shares common stock
George L. and Linda J. May convertible note $ 8,241.67 cancellation of note and accrued interest
common stock 1,111 shares common stock
Joanne B. May convertible note $ 18,585.83 cancellation of note and accrued interest
common stock 2,563 shares common stock
Robert I. and Debbie Miller common stock 2,136 shares common stock
Miller Trust, MargaretAnn Miller, convertible note $ 43,076.33 cancellation of note and accrued interest
Trustee common stock 14,523 shares common stock
Patrick Murphy, M.D convertible note 62,365.57 cancellation of note and accrued interest
common stock 11,790 shares common stock
Jerry Nash convertible note $ 20,023.39 cancellation of note and accrued interest
common stock 2,990 shares common stock
Howard Nunn, Jr., M.D. convertible note $ 16,056.33 cancellation of note and accrued interest
common stock 2,136 shares common stock
Jay L. Rentzel convertible note $ 93,849.58 cancellation of note and accrued interest
common stock 29,902 shares common stock
Integrity Associates convertible note $ 21,935.83 cancellation of note and accrued interest
common stock 2,990 shares common stock
II-4
<PAGE>
Roscoe M. Smith convertible note $ 15,344.32 cancellation of note and accrued interest
common stock 4,272 shares common stock
Howard W. Stacey common stock 3,076 shares common stock
John and Mary Sviatek convertible note $ 56,625.00 cancellation of note and accrued interest
common stock 8,543 shares common stock
Carl J. Wallace convertible note $ 15,685.33 cancellation of note and accrued interest
common stock 4,689 shares common stock
Leo Watkins convertible note $ 34,521.32 cancellation of note and accrued interest
common stock 8,885 shares common stock
Robert K. Wawrousek, Trustee convertible note $ 137,694.33 cancellation of note and accrued interest
common stock 59,804 shares common stock
Joseph E. Webb convertible note $ 25,526.91 cancellation of note and accrued interest
common stock 4,357 shares common stock
Gordon Wilbur convertible note $ 18,161.84 cancellation of note and accrued interest
common stock 2,392 shares common stock
James R. and Mildred H. Williams convertible note $ 72,350.00 cancellation of note and accrued interest
common stock 25,630 shares common stock
Raymond F. Zuczuski convertible note $ 15,605.00 cancellation of note and accrued interest
common stock 2,136 shares common stock
Jerry Frost convertible note $ 20,788.53 cancellation of note and accrued interest
common stock 3,930 shares common stock
Lisa Krinsky, M.D common stock 1,014,487 shares common stock
Arnold Hantman common stock 507,244 shares common stock
Michael D. and Beth J. Harris common stock 76,635 shares common stock
C.L.R. Associates, Inc. common stock 71,635 shares common stock
Dr. Leonard Weinstein common stock 10,000 shares common stock
</TABLE>
(1) We issued our shares of common stock in exchange for shares of our
subsidiary except for Mr. Hantman who exchanged shares of our
predecessor. The convertible notes we issued were exchanged for our
subsidiary's notes.
II-5
<PAGE>
Item 27. Exhibits.
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Selected Dealer's Agreement
1.3 -- Form of Underwriter's Warrants
2 -- Agreement and Plan of Merger
3.1 -- Certificate of Incorporation
3.2 -- First Amendment to Certificate of Incorporation
3.3 -- Bylaws
4.1 -- Form of Common Stock Certificate
5. -- Opinion of Michael Harris, P.A.
10.1 -- Employment Agreement of Arnold Hantman (1)
10.2 -- Employment Agreement of Lisa Krinsky, M.D. (1)
10.3 -- Employment Agreement of Dr. Gregory Holmes
10.4 -- 1999 Stock Option Plan
10.5 -- Form of Convertible Note
10.6 -- $383,000 Secured Note
10.7 -- $100,000 Secured Note
10.8 -- $17,000 Secured Note
21 -- Subsidiaries
23.1 -- Consent of Kaufman, Rossin & Co.
23.2 -- Consent of Michael Harris, P.A (2)
_______________________________
(1) To be filed by amendment
(2) Contained in Opinion of Michael Harris, P.A.
II-6
<PAGE>
Item 28. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, we have been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of SFBC International, Inc. 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, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, in North Miami, State
of Florida, on the 16th day of August, 1999.
SFBC International, Inc.
By: /s/ Arnold Hantman
-----------------------------
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ----------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ Lisa Krinsky, M.D.
Lisa Krinsky, M.D. Chairman of the Board of Directors August 16, 1999
/s/ Arnold Hantman August 16, 1999
Arnold Hantman Director and Principal Financial Officer
and Accounting Officer
/s/ Jack Levine August 16, 1999
Jack Levine Director
/s/ Dr. Leonard Weinstein August 16, 1999
Dr. Leonard Weinstein Director
</TABLE>
II-8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SFBC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Selected Dealer's Agreement
1.3 -- Form of Underwriter's Warrants
2 -- Agreement and Plan of Merger
3.1 -- Certificate of Incorporation
3.2 -- First Amendment to Certificate of Incorporation
3.3 -- Bylaws
4.1 -- Form of Common Stock Certificate
5. -- Opinion of Michael Harris, P.A.
10.1 -- Employment Agreement of Arnold Hantman (1)
10.2 -- Employment Agreement of Lisa Krinsky, M.D. (1)
10.3 -- Employment Agreement of Dr. Gregory Holmes
10.4 -- 1999 Stock Option Plan
10.5 -- Form of Convertible Note
10.6 -- $383,000 Secured Note
10.7 -- $100,000 Secured Note
10.8 -- $17,000 Secured Note
21 -- Subsidiaries
23.1 -- Consent of Kaufman, Rossin & Co.
23.2 -- Consent of Michael Harris, P.A (2)
(1) To be filed by Amendment
(2) Contained in Opinion of Michael Harris, P.A.
II-9
EXHIBIT 1.1
_________________ SHARES OF COMMON STOCK
----------------------------------------
UNDERWRITING AGREEMENT
__________________, 1999
Schneider Securities, Inc.
1120 Lincoln Street
Suite 900
Denver, Colorado 80203
Dear Sirs:
SFBC International, Inc., a Delaware corporation (the "Company") hereby
confirms its agreement with you (who are sometimes hereinafter referred to as
the "Representative") and with the other members of the underwriting group (the
"Underwriters") named on Schedule 1 hereto as follows:
1. INTRODUCTORY. Subject to the terms and conditions contained herein,
the Company proposes to issue and sell to the Underwriters 1,150,000 shares of
common stock (the "Common Stock"). In addition, solely for the purpose of
covering over-allotments, the Company grants to the Representative the option to
purchase up to an additional 172,500 shares of Common Stock equal to 15% of the
number of shares sold in the offering (the "Additional Shares"), which option to
purchase shall be exercisable, in whole or in part, from time to time during the
forty-five (45) day period commencing on the date on which the Registration
Statement (as hereinafter defined) is initially declared effective (the
"Effective Date") by the Securities and Exchange Commission (the "Commission").
Unless otherwise noted, the Common Stock, together with the Additional Shares
issuable on exercise of the over-allotment option, is referred to hereinafter as
the "Common Stock".
The Common Stock and Additional Shares are more fully described in the
Prospectus referred to below. All references to the Company below shall be
deemed to include, where appropriate, the Company's subsidiaries, if any.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
<PAGE>
a. The Company has filed with the Commission a registration
statement, and may have filed one or more amendments thereto, on Form
SB-2 (Registration No. 333-______) including in such registration
statement and each such amendment a facing sheet, the information
called for by Part I, audited consolidated financial statements for the
past two fiscal years or such other period as may be appropriate, the
information called for by Part II, the undertakings to deliver
certificates, file reports and file post-effective amendments, the
required signatures, consents of experts, exhibits, a related
preliminary prospectus (a "Preliminary Prospectus") and any other
information or documents which are required for the registration of the
Common Stock, the purchase warrants referred to in Section 5(p) (the
"Representative's Warrants"), and the shares referred to in Section
5(q) underlying the Representative's Warrants, under the Securities Act
of 1933, as amended (the "Act"). As used in this Agreement, the term
"Registration Statement" means such registration statement, including
incorporated documents, all exhibits and consolidated financial
statements and schedules thereto, as amended, when it becomes
effective, and shall include information with respect to the Common
Stock, the Representative's Warrants, and the shares underlying the
Representative's Warrants and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A of the General Rules and Regulations promulgated
under the Act (the "Regulations"), which information is deemed to be
included therein when it becomes effective as provided by Rule 430A;
the term "Preliminary Prospectus" means each prospectus included in the
Registration Statement, or any amendments thereto, before it becomes
effective under the Act and any prospectus filed by the Company with
the consent of the Representative pursuant to Rule 424(a) of the
Regulations; and the term "Prospectus" means the final prospectus
included as part of the Registration Statement, except that if the
prospectus relating to the securities covered by the Registration
Statement in the form first filed on behalf of the Company with the
Commission pursuant to Rule 424(b) of the Regulations shall differ from
such final prospectus, the term "Prospectus" shall mean the prospectus
as filed pursuant to Rule 424(b) from and after the date on which it
shall have first been used.
b. When the Registration Statement becomes effective, and at
all times subsequent thereto, to and including the Closing Date (as
defined in Section 3) and each Additional Closing Date (as defined in
Section 3), and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Representative
or any dealer, and during such longer period until any post-effective
amendment thereto shall become effective, the Registration Statement
(and any post-effective amendment thereto) and the Prospectus (as
amended or as
- 2 -
<PAGE>
supplemented if the Company shall have filed with the Commission any
amendment or supplement to the Registration Statement or the
Prospectus) will contain all statements which are required to be stated
therein in accordance with the Act and the Regulations, will comply
with the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not then been set forth in such
an amendment or supplement; and no Preliminary Prospectus, as of the
date filed with the Commission, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; except that no representation or warranty is made in this
Section 2(b) with respect to statements or omissions made in reliance
upon and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to the Underwriters by
or on behalf of the Underwriters expressly for inclusion in any
Preliminary Prospectus, the Registration Statement, or the Prospectus,
or any amendment or supplement thereto.
c. Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction have issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto,
refusing to permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Common Stock, the
Representative's Warrants or the shares underlying the Representative's
Warrants, nor has any of such authorities instituted or threatened to
institute any proceedings with respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to or has been incorporated as an exhibit by
reference into the Registration Statement.
e. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal,
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<PAGE>
state, local, and other governmental authorities and all courts and
other tribunals, to own, lease, license, and use its properties and
assets and to carry on the business in the manner described in the
Prospectus. The Company is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business
makes such qualifications necessary. The Company has no subsidiaries
except as disclosed in the Prospectus.
f. The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 2,080,000 shares of Common
Stock are issued and outstanding, 200,000 shares of Common Stock are
reserved for issuance upon the exercise of currently outstanding
options held by one individual under the Company's option plan,
244,956 shares of Common Stock are reserved for issuance upon
conversion of the Company's outstanding convertible notes, 244,956
shares of Common Stock are reserved for issuance upon exercise of
warrants issued to the holder(s) of the convertible notes, 104,000
shares of Common Stock are reserved for issuance upon the exercise of
the remaining options authorized under the Company's option plans, and
115,000 shares of Common Stock are reserved for issuance upon the
exercise of the Representative's Warrants. Each outstanding share of
Common Stock is validly authorized, or when issued will be authorized,
validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and has not been issued
and is not owned or held in violation of any preemptive rights of
stockholders. There is no commitment, plan, or arrangement to issue,
and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any security
or other instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company, except as set
forth above, and as may be properly described in the Prospectus.
g. The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present with respect to the Company the consolidated financial
position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles, except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
consistently applied throughout the periods involved, are correct and
complete, and are in
- 4 -
<PAGE>
accordance with the books and records of the Company. The accountants
whose report on the audited consolidated financial statements is filed
with the Commission as a part of the Registration Statement are, and
during the periods covered by their report(s) included in the
Registration Statement and the Prospectus were, independent certified
public accountants with respect to the Company within the meaning of
the Act and the Regulations. Except as set forth therein, no other
financial statements are required by Form SB-2 or otherwise to be
included in the Registration Statement or the Prospectus, audited or
unaudited. At no time has there been a material adverse change in the
consolidated financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company
from the latest information set forth in the Registration Statement or
the Prospectus, except as may be properly described in the Prospectus.
h. There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, or, to
the knowledge of the Company, threatened, or in prospect with respect
to the Company or any of its operations, businesses, properties, or
assets, except as is properly described in the Prospectus or such as
individually or in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company. The Company is not in violation
of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or
default.
i. The Company has good and marketable title in fee simple
absolute to all real properties and good title to all other properties
and assets which the Prospectus indicates are owned by it, free and
clear of all liens, security interests, pledges, charges, encumbrances,
and mortgages except as may be properly described in the Prospectus or
such as in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business,
properties, or assets of the Company. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use, or building
code restrictions which would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal property
exists or will exist which would prevent, the continued effective
ownership, leasing, licensing, or use of such real property in the
business of the Company as presently conducted or
- 5 -
<PAGE>
as the Prospectus indicates it contemplates conducting, except as may
be properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect
upon the operations, business, properties, or assets of the Company.
j. Neither the Company nor any other party is now or is
expected by the Company to be in violation or breach of, or in default
with respect to complying with, any material provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company, and each such contract, agreement,
instrument, lease, license, arrangement, and understanding is in full
force and is the legal, valid, and binding obligation of the parties
thereto and is enforceable as to them in accordance with its terms. The
Company enjoys peaceful and undisturbed possession under all leases and
licenses under which it is operating. The Company is not a party to or
bound by any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or other
restriction, which has had or may in the future have a material adverse
effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company.
The Company is not in violation or breach of, or in default with
respect to, any term of its Certificate of Incorporation (or other
charter document) or by-laws.
k. All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
technology, know-how and other intangible properties and assets (all of
the foregoing being herein called "Intangibles") that the Company owns
or has pending, or under which it is licensed, are in good standing and
uncontested. Except as otherwise disclosed in the Registration
Statement, the Intangibles are owned by the Company, free and clear of
all liens, security interests, pledges, and encumbrances. There is no
right under any Intangible necessary to the business of the Company as
presently conducted or as the Prospectus indicates it contemplates
conducting (except as may be so designated in the Prospectus). The
Company has not infringed, is not infringing, and has not received
notice of infringement with respect to asserted Intangibles of others.
To the knowledge of the Company, there is no infringement by others of
Intangibles of the Company. To the knowledge of the Company, there is
no Intangible of others which has had or may in the future have a
materially adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future
prospects of the Company.
- 6 -
<PAGE>
l. Neither the Company nor any director, officer, agent,
employee, or other person associated with or acting on behalf of the
Company has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment. The Company has not accepted any material
advertising allowances or marketing allowances from suppliers to the
Company and, to the extent any advertising allowance has been accepted,
the Company has provided proper documentation to the supplier with
respect to advertising as to which the advertising allowance has been
granted.
m. The Company has all requisite power and authority to
execute and deliver, and to perform thereunder each of this Agreement
and the Representative's Warrants. All necessary corporate proceedings
of the Company have been duly taken to authorize the execution and
delivery, and performance thereunder by the Company of this Agreement
and the Representative's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is a legal, valid,
and binding obligation of the Company, and is enforceable as to the
Company in accordance with its terms. The Representative's Warrants
have been duly authorized by the Company and, when executed and
delivered by the Company, will be a legal, valid, and binding
obligation of the Company, and will be enforceable against the Company
in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority
or any court or other tribunal is required by the Company for the
execution and delivery, or performance thereunder by the Company of
this Agreement and the Representative's Warrants except filings under
the Act which have been or will be made before the Closing Date and
such consents consisting only of consents under "blue sky" or
securities laws which are required in connection with the transactions
contemplated by this Agreement and which have been obtained at or prior
to the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to
which the Company is a party, or to which any of its properties or
assets are subject, is required for the execution or delivery, or
performance thereunder of this Agreement and the Representative's
Warrants; and the execution and delivery, and performance thereunder of
this Agreement and the Representative's Warrants will not violate,
result in a breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to terminate
or call a default
- 7 -
<PAGE>
under any such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate or result in a breach of any
term of the Certificate of Incorporation or by-laws of the Company, or
violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on the Company or to
which any of its operations, businesses, properties, or assets are
subject.
n. The Common Stock, when issued and delivered in accordance
with this Agreement, and the shares of Common Stock underlying the
Representative's Warrants, when issued and delivered upon exercise of
the Representative's Warrants, upon payment of the exercise price
therefor, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders. The Underwriters will receive good title to the Common
Stock purchased, and the Representative will receive good title to the
Representative's Warrants and, upon exercise, the shares of Common
Stock underlying the Representative's Warrants. All such title shall be
free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
o. The Common Stock, the Representative's Warrants and the
common stock underlying the Representative's Warrants conform to all
statements relating thereto contained in the Registration Statement and
the Prospectus.
p. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as may otherwise be properly described in the Prospectus, the Company
has not (i) issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money, (ii) entered
into any transaction not in the ordinary course of business, or (iii)
declared or paid any dividend on its capital stock.
q. Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the distribution of
securities contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or
which has caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of the Common Stock.
- 8 -
<PAGE>
r. The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement.
s. The Company has obtained from each officer, director and
person who beneficially owns shares of the Company's capital stock or
derivative securities convertible into shares of the Company's capital
stock his or her enforceable written agreement that for a period of 13
months from the Effective Date, he or she will not, without the
Representative's prior written consent, offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of capital stock or any security or
other instrument which by its terms is convertible into, exercisable
for, or exchangeable for shares of Common Stock (except that, subject
to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock in a private
transaction, provided that any such transferee shall agree, as a
condition to such transfer, to be bound by the restrictions set forth
in this Agreement and further provided that the transferor, except in
the case of the transferor's death, shall continue to be deemed the
beneficial owner of such shares in accordance with Regulation 13d-(3)
of the Exchange Act). For a period of three (3) years, commencing 13
months from the Effective Date, all public sales by officers, directors
and stockholders of the Company prior to the Effective Date shall be
effected through or with the Representative on an exclusive basis,
provided that the Representative offers the best price reasonably
available to the selling stockholders, and, provided the Representative
accepts the obligation to sell such shares within one (1) business day
after receipt of a notice containing such selling securities holder's
intention to sell. In addition, for a period of three (3) years
commencing 13 months from the Effective Date in the case of private
transactions in the Company's Common Stock, each such selling security
holder specified above shall offer the Representative the exclusive
opportunity to purchase or sell the securities on terms at least as
favorable as the selling security holder can obtain elsewhere. If the
Representative fails to accept in writing any such proposal for sale by
the selling security holders within three (3) business days after
receipt of a notice containing such proposal, then the Representative
shall have no claim or right with respect to any such sales contained
in such notice. If, thereafter, such proposal is modified in any
material respect, the selling security holders shall adopt the same
procedure as with respect to the original proposal. An appropriate
legend shall be marked on the face of stock certificates representing
all of such securities. Public or private sales of Common Stock by such
persons shall not include gifts, intra-family transfers or transfers
for estate planning purposes, which shall be exempt from the foregoing
provisions. The Company, on
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<PAGE>
behalf of itself, and all officers, directors and holders of five
percent or more of the Common Stock of the Company, have provided the
Representative their enforceable written agreements not to sell,
transfer, or hypothecate capital stock or derivative securities of the
Company (i) through a "Regulation S" transaction for a minimum period
of 24 months from the Effective Date without the prior written consent
of the Representative, or (ii) through a "Regulation D" transaction for
a minimum period of 24 months from the Effective Date.
t. Except as otherwise provided in the Registration Statement,
no person or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement.
u. The Company is eligible to use Form SB-2 for registration
of the Common Stock, the Representative's Warrants and the shares of
common stock underlying the Representative's Warrants.
v. No unregistered securities of the Company, of an affiliate
of the Company or of a predecessor of the Company have been sold within
three years prior to the date hereof, except as described in the
Registration Statement.
w. Except as set forth in the Registration Statement, there is
and at the Closing Date there will be no action, suit or proceeding
before any court, arbitration tribunal or governmental agency,
authority or body pending or, to the knowledge of the Company,
threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in
any material adverse change in the condition (financial or otherwise),
the business or the prospects of the Company or would materially affect
the properties or assets of the Company.
x. The Company has filed all federal and state tax returns
which are required to be filed by it and has paid all taxes shown on
such returns and all assessments received by it to the extent such
taxes have become due. All taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover
any such unpaid taxes.
y. Except as set forth in the Registration Statement:
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<PAGE>
i. The Company has obtained all permits, licenses and
other authorizations which are required under the Food and
Drug Laws and Medical Laws for the Company's business and its
ownership, use and operation of each location operated or
leased by the Company (the "Property"), all such permits,
licenses and authorizations are in effect, no appeal nor any
other action is pending to revoke any such permit, license or
authorization, and the Company is in full compliance with all
terms and conditions of all such permits, licenses and
authorizations.
ii. The Company and the Property are in compliance
with all Environmental Laws including, without limitation, all
restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in
any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge
of the Company's executive officers, no other person has,
released, placed, stored, buried, dumped or otherwise
improperly disposed of any Medical Wastes, Hazardous
Substances, Oils, Pollutants or Contaminants or any other
wastes produced by, or resulting from, any business,
commercial, or industrial activities, operations, or
processes, at, on, beneath, or adjacent to the Property or any
property formerly owned, operated or leased by the Company
except for inventories of such substances to be used, and
wastes generated therefrom, in the ordinary course of business
of the Company (which inventories and wastes, if any, were and
are stored or disposed of in accordance with applicable laws
and regulations and in a manner such that there has been no
release of any such substances into the environment).
iv. Except as provided to the Representative, there
exists no written or tangible report, synopsis or summary of
any asbestos, toxic waste or Hazardous Substances, Oils,
Pollutants or Contaminants investigation made with respect to
all or any portion of the assets of the Company (whether or
not prepared by experts and whether or not in the possession
of the executive officers of the Company).
v. Definitions: As used herein:
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<PAGE>
(1) ENVIRONMENTAL LAWS means all federal,
state and local laws, regulations, rules and
ordinances relating to pollution or protection of the
environment, including, without limitation, laws
relating to Releases or threatened Releases of
Hazardous Substances, Oils, Pollutants or
Contaminants into the indoor or outdoor environment
(including, without limitation, ambient air, surface
water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants.
(2) FOOD AND DRUG LAWS means the applicable
provisions and requirements of the Federal Food, Drug
and Cosmetic Act, as amended, 21 USC ss.301 ET SEq.,
and ss.355 ET Seq., and the rules and regulations
promulgated thereunder, as well as all state and
local laws, regulations, rules and ordinances
relating thereto.
(3) HAZARDOUS SUBSTANCES, OILS, POLLUTANTS
OR CONTAMINANTS means all substances defined as such
in the National Oil and Hazardous Substances
Pollutant Contingency Plan, 40 C.F.R. ss.300.6, or
defined as such under any Environmental Law.
(4) MEDICAL LAWS means all federal, state
and local laws, regulations, rules and ordinances
relating to providing medical treatment, testing, and
patient care, including without limitation, any
medical licensing required for the Company to conduct
its business.
(5) MEDICAL WASTE means all substances as
defined in 42 USC ss.6903(40) including without
limitation "any solid waste which is generated in the
diagnosis, treatment, or immunization of human beings
or animals, in research pertaining thereto, or in the
production or testing of biologicals, " and all
substances defined as "hazardous waste" in
(ss.6903(5)) which means "a solid waste, or
combination of solid wastes, which because of its
quantity, concentration, or physical, chemical, or
infectious characteristics may -
(A) cause or significantly
contribute to an increase
in mortality or an increase
in serious
- 12 -
<PAGE>
irreversible, or
incapacitating reversible,
illness; or
(B) pose a substantial present
or potential hazard to
human health or the
environment when improperly
treated, stored,
transported or disposed of,
or otherwise managed."
(6) RELEASE means any release, spill,
emission, discharge, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environmental
(including, without limitation, ambient air, surface
water, groundwater, and surface or subsurface strata)
or into or out of any property, including the
movement of Hazardous Substances, Oils, Pollutants or
Contaminants through or in the air, soil, surface
water, groundwater or any property.
z. Any pro forma financial or other information and related
notes included in the Registration Statement, each Preliminary
Prospectus and the Prospectus comply (or, if the Prospectus has not
been filed with the Commission, as to the Prospectus, will comply) in
all material respects with the requirements of the Act and the rules
and regulations of the Commission thereunder and present fairly the pro
forma information shown, as of the dates and for the periods covered by
such pro forma information. Such pro forma information, including any
related notes and schedules, has been prepared on a basis consistent
with the historical financial statements and other historical
information, as applicable, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus, except for the pro forma
adjustments specified therein, and give effect to assumptions made on a
reasonable basis to give effect to historical and, if applicable,
proposed transactions described in the Registration Statement, each
Preliminary Prospectus and the Prospectus.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. PURCHASE, SALE, AND DELIVERY OF THE COMMON STOCK. On the basis of
the representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly,
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<PAGE>
agree to purchase from the Company the number of shares of Common Stock set
forth opposite the Underwriters' names in Schedule 1 hereto.
The purchase price per share of Common Stock to be paid by the
Underwriters shall be $____. The initial public offering price of the Common
Stock shall be $____.
Payment for the Common Stock by the Underwriters shall be made by
certified or official bank check in clearing house funds, payable to the order
of the Company at the offices of Schneider Securities, Inc., 1120 Lincoln
Street, Suite 900, Denver, Colorado 80203, or at such other place in Denver,
Colorado as the Representative shall determine and advise the Company by at
least two full days' notice in writing, upon delivery of the Common Stock to the
Representative. Such delivery and payment shall be made at 10:00 a.m., Mountain
Time, on the third business day following the time of the initial public
offering, as defined in Section 10(a). The time and date of such delivery and
payment are herein called the "Closing Date."
In addition, the Company hereby grants to the Representative the option
to purchase all or a portion of the Additional Shares as may be necessary to
cover over-allotments, at the same purchase price per Additional Share as the
price per share of Common Stock provided for in this Section 3. The
Representative may purchase Common Stock when exercising such option, in its
sole discretion. This option may be exercised by the Representative on the basis
of the representations, warranties, covenants, and agreements of the Company
herein contained, but subject to the terms and conditions herein set forth, at
any time and from time to time on or before the 45th day following the Effective
Date of the Registration Statement, by written notice by the Representative to
the Company. Such notice shall set forth the aggregate number of Additional
Shares as to which the option is being exercised, and the time and date, as
determined by the Representative, when such Additional Shares are to be
delivered (such time and date are herein called an "Additional Closing Date");
provided, however, that no Additional Closing Date shall be earlier than the
Closing Date nor earlier than the third business day after the date on which the
notice of the exercise of the option shall have been given nor later than the
eighth business day after the date on which such notice shall have been given;
and further provided, that not more than two Additional Closings shall be
noticed and held following purchase of Additional Shares by the Representative.
Payment for the Additional Shares shall be made by certified or
official bank check in clearing house funds payable to the order of the Company
at the offices of Schneider Securities, Inc., 1120 Lincoln Street, Suite 900,
Denver, Colorado, or at such other place in Denver, Colorado as you shall
determine and advise the Company by at least two full
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days' notice in writing, upon delivery of certificates representing the
Additional Shares to you.
Certificates for the Common Stock and any Additional Shares purchased
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Closing Date or Additional Closing Date, as applicable. The Company shall permit
you to examine and package such certificates for delivery at least one full
business day prior to any such closing with respect thereto.
If for any reason one or more Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 10 hereof) to purchase and pay for the
number of shares of Common Stock agreed to be purchased by such Underwriter, the
Company shall immediately give notice thereof to the Representative, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by the Representative of such notice, to purchase or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon among
the Representative and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, the Common Stock which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such Common Stock, the number of
shares of Common Stock which each non-defaulting Underwriter is otherwise
obligated to purchase under the Agreement shall be automatically increased pro
rata to absorb the remaining Common Stock which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Common Stock which the
defaulting Underwriter or Underwriters agreed to purchase in excess of 10% of
the total number of shares of Common Stock which such non-defaulting Underwriter
agreed to purchase hereunder, and provided further that the non-defaulting
Underwriters shall not be obligated to purchase any Common Stock which the
defaulting Underwriter or Underwriters agreed to purchase if such additional
purchase would cause the Underwriter to be in violation of the net capital rule
of the Commission or other applicable law. If the total number of Common Stock
which the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to the Representative for the purchase of such Common Stock on the
terms herein set forth. In any such case, either the Representative or the
Company shall have the right to postpone the Closing for not more than seven
business days after the date originally fixed as the Closing in order that any
necessary changes in the Registration Statement, the
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Prospectus or any other documents or arrangements may be made. If neither the
non-defaulting Underwriters nor the Company shall make arrangements within the
24-hour periods stated above for the purchase of all the Common Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company any non-defaulting Underwriter, except the
Company shall be liable for actual expenses incurred by the Representative as
provided in Section 10 hereof, and without any liability on the part of any
non-defaulting Underwriter to the Company.
Nothing contained herein shall relieve any defaulting Underwriter of
its liability, if any, to the Company or to the remaining Underwriters for
damages occasioned by its default hereunder.
4. OFFERING. The Underwriters are to make a public offering of the
Common Stock as soon, on or after the effective date of the Registration
Statement, as the Representative deems it advisable so to do. The Common Stock
is to be initially offered to the public at the initial public offering price as
provided for in Section 3 (such prices being herein called the "public offering
price"). After the initial public offering, you may from time to time increase
or decrease the prices of the Common Stock, in your sole discretion, by reason
of changes in general market conditions or otherwise.
5. COVENANTS OF THE COMPANY. The Company covenants that it will:
a. Use its best efforts to cause the Registration Statement to
become effective as promptly as possible. If the Registration Statement
has become or becomes effective with a form of Prospectus omitting
certain information pursuant to Rule 430A of the Regulations, or filing
of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus, properly completed, pursuant to Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to you of such timely filing.
b. Notify you immediately, and confirm such notice in writing,
(i) when the Registration Statement and any post-effective amendment
thereto become effective, (ii) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any
jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement
thereto, and (iii) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding with
respect to a Stop Order. The
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Company will use its best efforts to prevent the issuance of any Stop
Order and, if any Stop Order is issued, to obtain the lifting thereof
as promptly as possible.
c. During the time when a prospectus relating to the Common
Stock or the Additional Shares is required to be delivered hereunder or
under the Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and as
hereafter amended, and by the Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or
dealings in the Common Stock and Additional Shares in accordance with
the provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Common Stock or Additional Shares is
required to be delivered hereunder or under the Act or the Regulations,
any event shall have occurred as a result of which, in the reasonable
opinion of counsel for the Company or counsel for the Representative,
the Registration Statement or the Prospectus, as then amended or
supplemented, contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or if, in the opinion of
either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with
the Act or the Regulations, the Company will immediately notify you and
promptly prepare and file with the Commission an appropriate amendment
or supplement (in form and substance satisfactory to you) which will
correct such statement or omission or which will effect such compliance
and will use its best efforts to have any such amendment declared
effective as soon as possible.
d. Deliver without charge to you such number of copies of each
Preliminary Prospectus as you may reasonably request and, as soon as
the Registration Statement or any amendment thereto becomes effective
or a supplement is filed, deliver without charge to you two signed
copies of the Registration Statement or such amendment thereto, as the
case may be, including exhibits, and two copies of any supplement
thereto, and deliver without charge to you such number of copies of the
Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as you may reasonably request for
the purposes contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Common Stock and Additional Shares for offering and sale
under the "blue sky" or securities laws of such jurisdictions as you
may designate; provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the
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Company would be subject to service of general process or to taxation
as a foreign corporation doing business in such jurisdiction to which
it is not then subject. In each jurisdiction where such qualification
shall be effected, the Company will, unless you agree in writing that
such action is not at the time necessary or advisable, file and make
such statements or reports at such times as are or may be required by
the laws of such jurisdiction.
f. Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its security holders as soon
as practicable, but not later than fifteen (15) months after the date
of the Prospectus, an earnings statement (which need not be certified
by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration Statement
and will provide you and your counsel with copies thereof and
satisfactory proof of having done so.
g. For a period of 12 months after the date of the Prospectus,
not, without your prior written consent, offer, issue, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security or
other instrument which by its terms is convertible into, exercisable
for, or exchangeable for shares of Common Stock) except as provided in
Section 3 and except for (i) the issuance of shares of Common Stock
underlying options outstanding on the date hereof which are properly
described in the Prospectus, (ii) the issuance of Representative's
Warrants, or (iii) the grant of options pursuant to the Company's
existing stock option plans, or (iv) the issuance of capital stock in
connection with any acquisitions undertaken by the Company.
h. For a period of five years after the Effective Date of the
Registration Statement, furnish you, without charge, the following:
i. Within 90 days after the end of each fiscal year,
three copies of consolidated financial statements certified by
independent certified public accountants, including a balance
sheet, statement of operations, and statement of cash flows of
the Company and its then existing subsidiaries, with
supporting schedules, prepared in accordance with generally
accepted accounting principles, at the end of such fiscal year
and for the 12 months then ended;
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ii. As soon as practicable after they have been sent
to stockholders of the Company or filed with the Commission,
three copies of each annual and interim financial and other
report or communication sent by the Company to its
stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company;
iv. Notice of any regular quarterly or special
meeting of the Company's Board of Directors concurrently with
the sending of such notice to the Company's directors; and
v. Such additional documents and information with
respect to the Company and its affairs and the affairs of any
of its subsidiaries as you may from time to time reasonably
request.
i. Designate an Audit Committee and a Compensation Committee,
the members of which shall be subject to your reasonable approval,
which will generally supervise the financial affairs of the Company and
review executive compensation, respectively.
j. Furnish to you as early as practicable prior to the Closing
Date and any Additional Closing Date, as the case may be, but not less
than two full business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements of the
Company which have been read by the Company's independent certified
public accountants, as stated in their letters to be furnished pursuant
to Section 7(e).
k. File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the
Effective Date of the Registration Statement, unless such filing shall
comply with the Act and the Regulations and unless you shall previously
have been advised of such filing and furnished with a copy thereof, and
you and counsel for the Representative shall have approved such filing
in writing within a reasonable time of receipt thereof.
l. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company
as a result of the
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Company's registration under the Exchange Act on a Registration
Statement on Form 8-A .
m. Comply with all provisions of all undertakings contained in
the Registration Statement.
n. Prior to the Closing Date or any Additional Closing Date,
as the case may be, issue no press release or other communication,
directly or indirectly, and hold no press conference and grant no
interviews with respect to the Company, the financial condition,
results of operations, business, properties, assets, or liabilities of
the Company, or this offering, without your prior written consent.
o. File timely with the Commission and the National
Association of Securities Dealers, Inc. (the "NASD"), if required, a
report on Form 10-C in accordance with the Rules and Regulations of the
Commission under the Exchange Act.
p. On or prior to the Closing Date, sell to the Representative
for a total purchase price of $115.00, Representative's Warrants
entitling the Representative or its assigns to purchase (i) 115,000
shares of Common Stock at a price equal to 120% of the public offering
price of the Common Stock, with the terms of the Representative's
Warrants, including exercise period, anti-dilution provisions, exercise
price, exercise provisions, transferability, and registration rights,
to be in the form filed as an exhibit to the Registration Statement.
q. Until expiration of the Representative's Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise
of the Representative's Warrants.
r. If the Representative, any employee of the Representative
or any company controlled by or under control of the Representative
acts as the introducing broker or finder during the five year period
commencing on the Effective Date with regard to (i) the sale of all or
substantially all of the assets and properties of the Company, (ii) the
merger or consolidation of the Company (other than a merger or
consolidation effected for the purpose of changing the Company's
domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is
thereafter consummated during such five-year period or within one year
of expiration of such five-year period, pay to the Representative or
such person(s) as the Representative may designate an amount
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equal to 5% of the first $1,000,000 or portion thereof in value or
consideration received or paid by the Company, 4% of the second
$1,000,000 or portion thereof in value or consideration received or
paid by the Company and 3% of such value or consideration received by
the Company in excess of the first $2,000,000 of such value or
consideration received or paid by the Company. The fee payable to the
Representative will be in the same form of consideration as that paid
by or to the Company, as the case may be, in any such transaction. It
is understood that the designation of the Representative to act as a
finder is not exclusive and that the Representative shall not be
entitled to the foregoing amounts unless it participates in the
introduction.
s. Within three months of the Closing Date, engage a financial
public relations firm reasonably acceptable to you to assist the
Company in preparing regular announcements and disseminating such
information to the financial community, such engagement to extend for a
period of at least one year from the date of retention of such firm.
t. Shareholders owning Common Stock outstanding prior to the
public offering will place in an escrow account at
________________________ an aggregate of 100,000 shares of Common Stock
at or prior to the Effective Date. Such shares will be subject to
release from escrow of the earlier to occur of (i) the Company
achieving pre-tax net income (but excluding extraordinary items) of
$5,000,000 in the calendar year 2000, (ii) the Company achieving
pre-tax income (but excluding extraordinary items) of $6,000,000 in the
calendar year 2001, or (iii) seven years from the Effective Date.
u. Adopt procedures for the application of the net proceeds it
receives from the sale of the Common Stock and apply the net proceeds
from the sale of the Common Stock substantially in the manner set forth
in the Registration Statement, which does not contemplate repayment of
debt to officers, directors, stockholders or affiliates of the Company,
unless any deviation from such application is in accordance with the
Registration Statement and occurs only after approval by the Board of
Directors of the Company and then only after the Board of Directors has
obtained the written opinion of recognized legal counsel experienced in
federal and state securities laws as to the propriety of any such
deviation.
v. Within the time period which the Prospectus is required to
be delivered under the Act, comply, at its own expense, with all
requirements imposed upon it by the Act, as now or hereafter amended,
by the Rules and Regulations, as
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<PAGE>
from time to time may be enforced, and by any order of the Commission,
so far as necessary to permit the continuance of sales or dealing in
the Common Stock.
w. At the Closing, deliver to the Representative true and
correct copies of the Certificate of Incorporation of the Company and
all amendments thereto, all such copies to be certified by the
Secretary of the Company; true and correct copies of the by-laws of the
Company and of the minutes of all meetings of the directors and
stockholders of the Company held prior to the Closing which in any way
relate to the subject matter of this Agreement or the Registration
Statement.
x. Use all reasonable efforts to comply or cause to be
complied with the conditions precedent to the several obligations of
the Underwriters in Section 7 hereof.
y. File with the Commission all required information
concerning use of proceeds of the Public Offering in Forms 10-QSB and
10-KSB in accordance with the provisions of the Act and to provide a
copy of such reports to the Representative and its counsel.
z. Supply to the Representative and the Representative's
counsel at the Company's cost, four bound volumes each containing
material documents relating to the offering of the Common Stock within
a reasonable time after the Closing, not to exceed 90 days.
aa. As soon as possible prior to the Effective Date, and as a
condition of the Underwriter's obligations hereunder, (i) have the
Company listed on an accelerated basis, and to maintain such listing
for not less than ten years from the Closing Date, in Standard & Poor's
Standard Corporation Records; and (ii) have the Common Stock quoted on
The Nasdaq SmallCap Market as of the Effective Date, on the Closing
Date, on the Additional Closing Date and thereafter for at least ten
years provided the Company is in compliance with The Nasdaq SmallCap
Market maintenance requirements.
bb. At such time as the Company qualifies for listing on the
Nasdaq National Market, the American Stock Exchange or New York Stock
Exchange, the Company shall take all steps necessary to have the
Company's Common Stock to the extent eligible, listed on the Nasdaq
National Market, the American Stock Exchange or New York Stock
Exchange.
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<PAGE>
cc. Continue, for a period of at least five years following
the Effective Date of the Registration Statement, to appoint such
auditors as are reasonably acceptable to the Representative, which
auditors shall (i) prepare consolidated financial statements in
accordance with Regulation S-B or, if applicable, Regulation S-X under
the General Rules and Regulations of the Act and (ii) examine (but not
audit) the Company's consolidated financial statements for each of the
first four (4) fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-QSB quarterly
report and the mailing of quarterly financial information to security
holders. Kaufman Rossin & Co., a member of the SEC Practice Section of
the AICPA, is acceptable to the Representative.
dd. Prior to the Effective Date, enter into employment
agreements with its key management employees with the terms thereof
including the term and the compensation of each person subject to the
reasonable approval of the Representative as long as such compensation
is within industry standards.
ee. Within 90 days of the Effective Date of the Registration
Statement, obtain a "key man" life insurance policy in the amount of
$1,000,000 each on the lives of Dr. Lisa Krinsky and Mr. Arnold
Hantman, with the Company designated as the beneficiary of such policy,
and pay the annual premiums thereon for a period of not less than five
years from the Effective Date of the Registration Statement.
ff. Appoint American Stock Transfer and Trust Company, New
York, as its stock transfer and warrant agent ("Transfer Agent") and
cause its Transfer Agent to furnish the Representative a duplicate copy
of the daily transfer sheets prepared by the transfer agent during the
six-month period commencing on the Effective Date of the Registration
Statement and instruct the Transfer Agent to timely provide, upon the
request of the Representative, duplicate copies of such transfer sheets
and/or a duplicate copy of a list of stockholders, all at the Company's
expense, for a period of 4 1/2 years after such six-month period.
gg. Refrain from filing a Form S-8 Registration Statement for
a period of 18 months from the Effective Date of the Registration
Statement without the Representative's prior written consent. The
Company will also obtain from each holder of options to acquire Common
Stock of the Company such person's written enforceable agreement not to
sell shares of Common Stock pursuant to the exemption afforded by Rule
701 under the 1933 Act for a minimum period of 13 months from the
Effective Date without the prior written consent of the representative.
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<PAGE>
hh. Afford the Representative the right, but not the
obligation, commencing on the Effective Date and surviving for a period
of five years, to designate an observer to attend meetings of the Board
of Directors. The designee, if any, and the Representative will receive
notice of each meeting of the Board of Directors in accordance with
Delaware law, of which no less than four in-person meetings will be
held each year. Any such designee will receive reimbursement for all
reasonable costs and expenses incurred in attending meetings of the
Board of Directors, including but not limited to, food, lodging and
transportation, together with such other fee or compensation as is paid
by the Company to other members of the Board of Directors. Moreover, to
the extent permitted by law, the Representative and its designee shall
be indemnified for the actions of such designee as an observer to the
Board of Directors and in the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and/or
directors, to the extent permitted under such policy, each of the
Representative and its designee shall be an insured under such policy.
ii. The Company, on behalf of itself and on behalf of its
officers and directors, hereby grants and covenants to provide the
Representative a non-assignable right of first refusal, which right of
first refusal shall extend for a period of four years after the
Effective Date. The right of first refusal shall entitle the
Representative to purchase for its account, or to sell for the account
of the Company, any of the Company's subsidiaries or any selling
security holders or officers, directors or affiliates of such persons,
any debt or equity securities of the Company or common stock owned by
such selling security holders with respect to which the Company, any of
its subsidiaries or successors (other than a successor entity which has
acquired the Company and in which the stockholders of the Company own
less than 30% of the outstanding shares) or selling security holders
may seek to offer and sell pursuant to a registration statement under
the Act or in a private transaction other than with a lending
institution. The Company, its subsidiaries and any selling security
holders will consult with the Representative with regard to any such
offering and will offer the Representative the opportunity to purchase
or sell any such securities on terms not more favorable to the Company
than it can secure elsewhere. If the Representative fails to accept in
writing such proposal for financing made by the Company, its
subsidiaries or such selling security holders within 30 days after the
receipt by the Representative of a notice containing such proposal,
then the Representative shall have no further claim or right with
respect to the financing proposal contained in such notice. If
thereafter such proposal is modified, the Company, its subsidiaries or
affiliates shall adopt the same procedure as with respect to the
original proposal, except that upon re-presentation, such term
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for response by the Representative shall be 15 days. Should the
Representative not avail itself of such opportunity, the right of first
refusal shall not be affected thereby, and the right of first refusal
shall continue in effect for the remaining period thereof. The Company
further agrees that any breach by the Company of the Representative's
right of first refusal shall be enforceable through injunctive relief.
The offer or sale by the Company of equity securities in connection
with acquisitions or mergers shall be exempted from the foregoing right
of first refusal.
jj. In the event the NASD Committee on, or Department of,
Corporate Financing shall determine that any Company stock or stock
options issued to, or financial consulting or other agreements of the
Company, with any person or persons who are unaffiliated with the
Representative are nevertheless considered underwriting compensation,
the Company will take such action as the NASD may require to prevent
such stock options or agreements from having any adverse effect on the
Representative's allowable compensation. In the event that the NASD
still deems the Representative's compensation to be unacceptable, the
Representative shall, in its sole discretion, make such further
adjustments to the form of its compensation as it deems necessary to
obtain NASD clearance, so long as such compensation adjustments do not
increase the amount of total compensation provided for in this
Agreement.
kk. Common Stock certificates shall be first submitted to the
Representative for approval prior to printing. The Company shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Common Stock and have Common
Stock eligible for closing through Depository Trust Company.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(subject to the last sentence of this Section 6) in connection with the
offering, including but not limited to (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the Prospectus,
including NASD, SEC, Nasdaq, state "blue sky" filing and/or application fees,
and the printing, filing, distribution, and mailing of this Agreement, any
Agreement Among Underwriters, Selected Dealers Agreement, preliminary and final
Blue Sky Memorandums, material to be circulated to the Underwriters by you and
other incidental or related documents, including the cost of all copies thereof
and of the Preliminary Prospectuses and of the Prospectus, and any amendments or
supplements thereto, supplied to the Representative in quantities as herein
above stated, (b) the issuance, sale, transfer, and delivery of the Common
Stock, the Additional Shares, the Representative's Warrants and the shares of
common stock underlying the Representative's
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Warrants, including, without limitation, any original issue, transfer or other
taxes payable thereon and the costs of preparation, printing and delivery of
certificates representing such securities, as applicable, (c) the qualification
of the Common Stock, Additional Shares, Representative's Warrants and shares of
Common Stock underlying the Representative's Warrants under state or foreign
"blue sky" or securities laws, (d) the fees and disbursements of counsel
(including "blue sky" counsel) for the Company and the accountants for the
Company, (e) the listing of the Common Stock on The Nasdaq SmallCap Market, and
(f) the Representative's non-accountable expense allowance equal to 3% of the
aggregate gross proceeds from the sale of the Common Stock and the Additional
Shares. Prior to or immediately following the Closing Date, the Company shall
bear the costs of tombstone announcements not to exceed $5,000, if requested to
do so by the Representative. As an incentive for the Representative to assist
the Company in managing its costs and to minimize the time of its management
personnel in traveling to road shows, the Representative agrees to limit such
road show meetings to not more than four meetings for the Representative's
branch offices and underwriting syndicate members and, in consideration of such
limited road show schedule, the Company shall, upon receipt of an invoice from
the Representative, reimburse the Representative for any direct accountable
expenses incurred by the Representative and its personnel in presenting and/or
attending such meetings subject to a maximum of such accountable expenses of
$15,000. Except as herein above provided, the Company and the Representative
shall pay their own expenses incurred in connection with any road shows.
The Company has previously remitted to the Representative the sum of
$25,000, which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The Underwriters'
obligation to purchase and pay for the Common Stock and the Additional Shares,
as provided herein, shall be subject to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
you, as of the date hereof and as of the Closing Date (or the Additional Closing
Date, as the case may be), to the performance by the Company of its obligations
hereunder, and to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., Mountain time, on the date of this Agreement or
such later date and time as shall be consented to in writing by you.
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b. At the Closing Date and any additional Closing Date, you
shall have received the favorable opinion of Michael Harris, P.A.,
counsel for the Company, dated the date of delivery, addressed to you,
and in form and scope satisfactory to your counsel, to the effect that:
i. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full power and authority, and all
necessary consents, authorizations, approvals, orders,
certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals,
to own, lease, license, and use its properties and assets and
to conduct its business in the manner described in the
Prospectus. The Company is duly qualified to do business and
is in good standing in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification
necessary;
ii. The authorized capital stock of the Company as of
the date of this Agreement consisted of 20,000,000 shares of
Common Stock, of which 2,080,000 shares of Common Stock are
issued and outstanding, 200,000 shares of Common Stock are
reserved for issuance upon the exercise of outstanding options
held by one individual under the Company's option plans,
244,956 shares of Common Stock are reserved for issuance upon
conversion of the Company's outstanding convertible notes,
244,956 shares of Common Stock are reserved for issuance upon
exercise of warrants issued to the holder(s) of the
convertible notes, 104,000 shares of Common Stock are reserved
for issuance upon the exercise of the remaining options
authorized under the Company's option plans, and 115,000
shares of Common Stock are reserved for issuance upon the
issuance of the Representative's Warrants; and there have been
no changes in the authorized and outstanding capital stock of
the Company since the date of this Agreement, except as
contemplated by the Registration Statement and the Prospectus.
Each outstanding share of capital stock is validly authorized,
or when issued will be authorized, validly issued, fully paid,
and nonassessable, with no personal liability attaching to the
ownership thereof, has not been issued and is not owned or
held in violation of any preemptive right of stockholders.
There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for
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capital stock of the Company, except as set forth above, and
except as is properly described in the Prospectus. There is
outstanding no security or other instrument which by its terms
is convertible into or exchangeable for capital stock of the
Company, except as described in the Prospectus;
iii. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its
respective operations, businesses, properties, or assets,
except as may be properly described in the Prospectus or such
as individually or in the aggregate do not now have and will
not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company.
The Company is not in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such
as in the aggregate have been disclosed to the Representative
and do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or
assets of the Company; nor is the Company required to take any
action in order to avoid any such violation or default;
iv. Neither the Company nor any other party is now or
is expected by the Company to be in violation or breach of, or
in default with respect to, complying with any material
provision of any contract, agreement, instrument, lease,
license, arrangement, or understanding which is material to
the Company;
v. The Company is not in violation or breach of, or
in default with respect to, any term of its Certificate of
Incorporation or by-laws;
vi. The Company has all requisite power and authority
to execute and deliver and to perform thereunder this
Agreement and the Representative's Warrants. All necessary
corporate proceedings of the Company have been taken to
authorize the execution and delivery and performance
thereunder by the Company of this Agreement and the
Representative's Warrants. This Agreement and the
Representative's Warrants have been duly authorized, executed
and delivered by the Company, and is a legal, valid, and
binding obligation of the Company, and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforce
ability of creditors' rights generally) enforceable as to the
Company
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<PAGE>
in accordance with its respective terms. No consent,
authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution or
delivery, or performance thereunder by the Company of this
Agreement and the Representative's Warrants (except filings
under the Act which have been made prior to the Closing Date
and consents consisting only of consents under "blue sky" or
securities laws which are required in connection with the
transactions contemplated by this Agreement, and which have
been obtained on or prior to the date the Registration
Statement becomes effective under the Act). No consent of any
party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party,
or to which any of its properties or assets are subject, is
required for the execution or delivery, or performance
thereunder of this Agreement and the Representative's
Warrants; and the execution and delivery and performance
thereunder of this Agreement and the Representative's Warrants
will not violate, result in a breach of, conflict with, or
(with or without the giving of notice or the passage of time
or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or violate or result
in a breach of any term of the Certificate of Incorporation or
by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject;
vii. The shares of Common Stock are, and the shares
of common stock underlying the Representative's Warrants will
be upon exercise of the Representative's Warrants, validly
authorized, validly issued, fully paid, and nonassessable and
are not issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title to
the Common Stock and Additional Shares purchased by them from
the Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts; upon payment for the Common Stock and the
Representative's Warrants, the holders thereof will receive
good title to such securities, free and clear of all liens,
security interests, pledges, charges, encumbrances,
stockholders' agreement and voting trusts. The Common Stock
and the Representative's Warrants conform to all statements
relating thereto contained in the Registration Statement or
the Prospectus;
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viii. The Representative's Warrants have been duly
and validly reserved for issuance pursuant to the terms of the
Representative's Warrant and shares of Common Stock underlying
the Representative's Warrants have been duly and validly
reserved for issuance pursuant to the terms of the
Representative's Warrants;
ix. Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract, agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration
Statement;
x. Insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws,
rules, regulations, orders, judgments, decrees, contracts,
agreements, instruments, leases, or licenses, such statements
have been prepared or reviewed by such counsel and accurately
reflect the status of such litigation and provisions purported
to be summarized and are correct in all material respects;
xi. Except as provided in the Registration Statement,
no person or entity has the right to require registration of
shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement;
xii. The Registration Statement has become effective
under the Act. No Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
xiii. The Registration Statement and the Prospectus,
and any amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Act and the
Regulations;
xiv. Such counsel has no reason to believe that
either the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement
of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading (except that no opinion need be
expressed as to the
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consolidated financial statements and other financial data and
schedules which are or should be contained therein);
xv. Since the Effective Date of the Registration
Statement, any event which has occurred which should have been
set forth in an amendment or supplement to the Registration
Statement or the Prospectus has been set forth in such an
amendment or supplement;
xvi. The Company is not currently offering any
securities for sale except as described in the Registration
Statement;
xvii. Such counsel has no knowledge of any promoter,
affiliate, parent or subsidiaries of the Company except as are
described in the Registration Statement;
xviii. The Company has no subsidiaries except as
described in the Registration Statement;
xix. The Company owns or possesses, free and clear of
all liens or encumbrances and rights thereto or therein by
third parties, the requisite licenses or other rights to use
all trademarks, copyrights, service marks, service names,
trade names and licenses necessary to conduct its business
(including without limitation, any such licenses or rights
described in the Registration Statement as being owned or
possessed by the Company or any subsidiary) (all of which are
collectively referred to herein as the "Intellectual
Property"); there is no actual or pending, or threatened
claim, proceeding or action by any person pertaining to or
which challenges the exclusive rights of the Company with
respect to any of the Company's Intellectual Property; based
on a review of all the Company's products, proposed products
and Intellectual Property, such products, proposed products or
Intellectual Property do not and will not infringe on any
trademarks, copyrights, service marks, service names, trade
names or valid patents or patents pending held by third
parties known to the Company and such counsel;
xx. The Company is not a party to any agreement
giving rise to any obligation by the Company or any subsidiary
to pay any third-party royalties or fees of any kind
whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any subsidiary, other than
is disclosed in the Prospectus;
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xxi. The Common Stock is eligible for quotation on
The Nasdaq SmallCap Market;
xxii. All issued and outstanding shares of Common
Stock and all other securities issued and sold or exchanged by
the Company or its subsidiaries have been issued and sold or
exchanged in compliance with all applicable state and federal
securities laws and regulations; and
xxiii. The Company and all of its Property are in
compliance with all applicable Food and Drug, Medical and
Environmental Laws and the Company is in full compliance with
all permits, licenses and authorizations relating to Food and
Drug, Medical and Environmental Laws, including but not
limited to matters relating to Hazardous Substances, Oils,
Pollutants or Contaminants or to Medical Wastes.
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws other than the laws
of the United States and the laws of the State of Delaware, to the
extent counsel for the Company deems proper and to the extent specified
in such opinion, upon an opinion or opinions (in form and substance
satisfactory to counsel for the Representative) of other counsel,
acceptable to counsel for the Representative, familiar with the
applicable laws, in which case the opinion of counsel for the Company
shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company
and that reliance thereon by counsel for the Company is reasonable; (B)
as to matters of fact, to the extent the Representative deems proper,
on certificates of responsible officers of the Company; and (C) to the
extent they deem proper, upon written statements or certificates of
officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates
shall be delivered to counsel for the Representative.
c. On or prior to the Closing Date and any Additional Closing
Date, as the case may be, you shall have been furnished such
information, documents, certificates, and opinions as you may
reasonably require for the purpose of enabling you to review the
matters referred to in Sections 7(b) and (c), and in order to evidence
the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
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<PAGE>
d. At the Closing Date and any Additional Closing Date, as the
case may be, you shall have received a certificate of the chief
executive officer and of the chief financial officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect that the conditions set forth in Section 7(a) have
been satisfied, that as of the date of this Agreement and as of the
Closing Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and
are accurate, and that as of the Closing Date or such Additional
Closing Date, as the case may be, the obligations to be performed by
the Company hereunder on or prior thereto have been fully performed.
e. At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall
have received a letter from Kaufman, Rossin & Co., Certified Public
Accountants, addressed to you and dated the date of this Agreement or
of delivery, as the case may be, but covering a period within three
business days of such date, in form and substance satisfactory to you.
f. All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Common Stock and the Additional
Shares shall be satisfactory in form and substance to you and to
counsel for the Representative, and you shall have received a favorable
opinion from counsel to the Company, dated as of the Closing Date or
the Additional Closing Date, as the case may be, with respect to such
of the matters set forth under Sections 7(b) and 7(c), respectively,
and with respect to such other related matters, as you may reasonably
request.
g. The NASD, upon review of the terms of the public offering
of the Common Stock and the Additional Shares, shall not have objected
to your participation in such offering.
h. The Company shall have received notice that the Common
Stock will be quoted on The Nasdaq SmallCap Market as of the Effective
Date. Any certificate or other document signed by any officer of the
Company and delivered to you or to counsel for the Representative shall
be deemed a representation and warranty by such officer individually
and by the Company hereunder to the Representative as to the statements
made therein. If any condition to your obligations hereunder to be
fulfilled prior to or at the Closing Date or any Additional Closing
Date, as the case may be, is not so fulfilled, you may terminate this
Agreement or, if you so elect, in
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<PAGE>
writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
a. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriters, the
Representative, and each of their officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls
the Representative or any one of the Underwriters within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any
and all loss, liability, claim, damage, and expense whatsoever (which
shall include, for all purposes of this Section 8, but not be limited
to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any
untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or (B) in any
application or other document or communication (in this Section 8
collectively called an "application") in any jurisdiction in order to
qualify the Common Stock and Additional Shares under the "blue sky" or
securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this
Agreement. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have, including liabilities
arising under this Agreement; however, the Company shall have no
liability under this Section 8 if such statement or omission was made
in reliance upon and in conformity with written information furnished
to the Company as stated in Section 8(b) with respect to the
Underwriters by or on behalf of the Underwriters expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or
the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be.
If any action is brought against the Underwriters, the
Representative or any of their officers, directors, partners,
employees, agents, or counsel, or any controlling persons of an
Underwriter or the Representative (an "indemnified party") in respect
of which indemnity may be sought against the Company pursuant to the
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<PAGE>
foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but
the failure so to notify shall not relieve the Company from any
liability it may have other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not
have promptly employed counsel satisfactory to such indemnified party
or parties to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses
shall be borne by the Company. Anything in this paragraph to the
contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written
consent. The Company agrees promptly to notify the Underwriters and the
Representative of the commencement of any litigation or proceedings
against the Company or against any of its officers or directors in
connection with the sale of the Common Stock or the Additional Shares,
any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or any application.
b. The Underwriters agree to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who
shall have signed the Registration Statement, each other person, if
any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Underwriters in Section
8(a), but only with respect to statements or omissions, if any, made in
any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance
upon and in conformity with written information furnished to the
Company as stated in this Section 8(b) with respect to the Underwriters
by or on behalf of the Underwriters expressly for inclusion in any
Preliminary Prospectus, the Registration Statement, or the Prospectus,
or any amendment or supplement thereto, or in any application, as the
case may be; provided, however, that the obligation of the Underwriters
to provide indemnity under the provisions of this Section 8(b) shall be
limited to the amount
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<PAGE>
which represents the product of the number of shares of Common Stock
and Additional Shares sold hereunder and the initial public offering
price per share of Common Stock set forth on the cover page of the
Prospectus. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus, the
information under "Underwriting" and the identification of counsel to
the Representative under "Legal Matters" constitute the only
information furnished in writing by or on behalf of the Underwriters
expressly for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended or
supplemented), or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or any application, and in respect of
which indemnity may be sought against the Underwriters pursuant to this
Section 8(b), the Underwriters shall have the rights and duties given
to the Company, and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by
the provisions of Section 8(a).
c. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this
Section 8 is for any reason held to be unavailable to the Underwriters
or the Company, then the Company shall contribute to the damages paid
by the several Underwriters, and the several Underwriters shall
contribute to the damages paid by the Company; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. In
determining the amount of contribution to which the respective parties
are entitled, there shall be considered the relative benefits received
by each party from the sale of the Common Stock and Additional Shares
(taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the total public offering price of the Common
Stock and Additional Shares purchased by such Underwriter under this
Agreement, less the
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aggregate amount of any damages which such Underwriter and its
controlling persons have otherwise been required to pay in respect of
the same or any substantially similar claim. The Underwriters'
obligations to contribute hereunder are several in proportion to their
respective underwriting obligations and not joint. For purposes of this
Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of
Section 15 of the Act, shall have the same rights to contribution as
the Company. Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written
consent. This Section 8(c) is intended to supersede any right to
contribution under the Act, the Exchange Act, or otherwise.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Representative, the Underwriters or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall survive
termination of this Agreement or the delivery of the Common Stock and the
Additional Shares to the Underwriters for a period equal to the statute of
limitations for claims related hereto, but not to exceed an aggregate of three
years from the date hereof. In addition, the provisions of Sections 5(a), 6, 8,
9, 10, and 12 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
a. This Agreement shall be executed within 24 hours of the
Effective Date of the Registration Statement and shall become effective
on the Effective Date or at the time of the initial public offering of
the Common Stock, whichever is earlier. The time of the initial public
offering shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating
to the Common Stock or the time, after the Registration Statement
becomes
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effective, when the Common Stock is first released by the
Representative for offering by dealers by letter or telegram, whichever
shall first occur. The Representative or the Company may prevent this
Agreement from becoming effective without liability of any party to any
other party, except as noted below in this Section 10, by giving the
notice indicated in Section 10(c) before the time this Agreement
becomes effective.
b. The Representative shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Additional
Closing Date, as the case may be, by giving notice to the Company if
there shall have been a general suspension of, or a general limitation
on prices for, trading in securities on the New York Stock Exchange or
the American Stock Exchange or in the over-the-counter market; or if
there shall have been an outbreak of major hostilities or other
national or international calamity; or if a banking moratorium has been
declared by a state or federal authority; or if a moratorium in foreign
exchange trading by major international banks or persons has been
declared; or if there shall have been a material interruption in the
mail service or other means of communication within the United States;
or if the Company shall have sustained a material or substantial loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage, or
other calamity or malicious act which, whether or not such loss shall
have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale, or delivery of the
Common Stock or the Additional Shares, as the case may be; or if there
shall have been such material and adverse change in the market for
securities in general so as to make it inadvisable to proceed with the
offering, sale, and delivery of the Common Stock or the Additional
Shares, as the case may be, on the terms contemplated by the Prospectus
due to the impaired investment quality of the Common Stock or the
Additional Shares; or if the Dow Jones Industrial Average shall have
fallen by 15% or more from its closing price on the day immediately
preceding the date that the Registration Statement is declared
effective by the Commission.
c. If the Representative elects to prevent this Agreement from
becoming effective as provided in this Section 10, or to terminate this
Agreement, it shall notify the Company promptly by telephone, facsimile
transmission, or telegram, confirmed by letter. If, as so provided, the
Company elects to prevent this agreement from becoming effective, the
Company shall notify the Representative promptly by telephone, telex,
or telegram, confirmed by letter.
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<PAGE>
d. Anything in this Agreement to the contrary notwithstanding
other than Section 10(e), if this Agreement shall not become effective
by reason of an election pursuant to this Section 10 or if this
Agreement shall terminate or shall otherwise not be carried out prior
to October 31, 1999 because (i) of any reason solely within the control
of the Company or its stockholders and not due to the breach of any
representation, warranty or covenant or bad faith of the
Representative, (ii) the Company unilaterally withdraws the proposed
Public Offering from the Representative in favor of another
underwriter, (iii) the Company does not permit the Registration
Statement to become effective for any reason other than if the Common
Stock is proposed to be priced at less than $6.00 per share, in which
event this provision will not apply, (iv) of any material discrepancy
in any representation by the Company and/or its officers, directors,
stockholders, agents, advisers or representatives, made in writing,
including but not limited to the Registration Statement, to the
Representative, (v) the Company is, directly and/or indirectly,
negotiating with other persons or entities of whatsoever nature
relating to a possible Public Offering of its securities, or (vi) of
any failure on the part of the Company to perform any covenant or
agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, then, in any of such events, the Company shall
be obligated to reimburse the Representative for its out-of-pocket
expenses on an accountable basis. Should the Representative be required
to account for "out-of pocket" expenses, any expense incurred by the
Representative shall be deemed to be reasonable and unobjectionable
upon a reasonable showing by the Representative that such expenses were
incurred, directly or indirectly, in connection with the proposed
transaction and/or relationship of the parties hereto, as described
herein. In no event will the Representative be entitled to
reimbursement of accountable expenses exceeding $50,000, inclusive of
the $25,000 advanced against the non-accountable expense allowance. The
Representative will return to the Company any portion of the $50,000
payment previously received that is not used in the payment of
accountable expenses.
e. Notwithstanding any election hereunder or any termination
of this agreement, and whether or not this Agreement is otherwise
carried out, the provisions of Sections 5(a), 6, 8, 9, and 10 shall not
be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
f. Anything in this Agreement to the contrary notwithstanding
other than Sections 10(d) and (e), if this Agreement shall not be
carried out within the time specified herein for any reason other than
as set forth in Section 10(d), the Company
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<PAGE>
shall have no liability to the Representative other than for the
Representative's accountable expenses up to a maximum aggregate amount
of $50,000, which amount has been paid in advance in accordance with
Section 6 hereof. The Representative will return to the Company any
portion of the $50,000 payment previously received that is not used in
the payment of accountable expenses.
11. REPRESENTATIVE'S RESPONSIBILITY FOR AFTERMARKET SUPPORT. As a
matter of policy, the Representative sponsors its underwriting clients with
regular research, follow-up and other aftermarket activities to ensure that its
customers, other members of the investing public, and the various segments of
the financial community will be kept abreast of developments relating to the
Company and its industry. The Representative intends to make a market in the
Company's securities after the Public Offering but will not be obligated to do
so, and will use its best efforts to interest other investment banking firms and
research analysts in following the Company.
12. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or sent by facsimile transmission
and confirmed by original letter, to Schneider Securities, Inc., 1120 Lincoln
Street, Suite 900, Denver, Colorado 80203, Attention: Keith Koch, with a copy to
Gerald L. Fishman, Wolin & Rosen, Ltd., Two North LaSalle Street, Suite 1776,
Chicago, Illinois 60602; or if sent to the Company shall be mailed, delivered,
or telexed or telegraphed and confirmed by letter, to SFBC International, Inc.,
11190 Biscayne Boulevard, North Miami, Florida 33181, Attention: Arnold Hantman,
with a copy to Michael D. Harris, Esq., Michael Harris, P.A., 1645 Palm Beach
Lakes Boulevard, West Palm Beach, Florida 33401. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters, the Company, and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Common Stock or the
Additional Shares) and no other person shall have or be construed to have any
legal or equitable right, remedy, or claim under or in respect of or by virtue
of this Agreement or any provision herein contained.
14. CONSTRUCTION. This Agreement shall be construed in accordance
with the laws of the State of Delaware, without giving effect to conflict of
laws principles. Time is of the essence in this Agreement. The parties
acknowledge that this Agreement was initially prepared by the Representative,
and that all parties have read and negotiated the language
- 40 -
<PAGE>
used in this Agreement. The parties agree that, because all parties participated
in negotiating and drafting this Agreement, no rule of construction shall apply
to this Agreement which construes ambiguous language in favor of or against any
party by reason of that party's role in drafting this Agreement.
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
SFBC INTERNATIONAL, INC.
By:_____________________________________
Arnold Hantman
Chief Executive Officer
Accepted as of the date first above written.
Denver, Colorado
SCHNEIDER SECURITIES, INC.
for itself
By:_________________________________
Thomas J. O'Rourke, President
- 41 -
<PAGE>
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in
the Underwriting Agreement and the number of shares of Common Stock to be sold
by the Company.
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
Schneider Securities, Inc.
Total ____________
2849/6032/undwragr
- 42 -
EXHIBIT 1.2
SELECTED DEALERS AGREEMENT
PUBLIC OFFERING OF
1,150,000 SHARES OF COMMON STOCK
OFFERING PRICE OF $______ PER SHARE
SFBC INTERNATIONAL, INC.
_______________, 1999
Schneider Securities, Inc., on behalf of itself and other underwriters
(the "Underwriters") for which it is the representative (the "Representative"),
has severally agreed with SFBC International, Inc., a Delaware corporation (the
"Company"), to purchase 1,150,000 shares (the "Firm Shares") of common stock
(the "Common Stock") of the Company, and the Representative has been granted the
right to purchase up to an additional 172,500 shares (the "Additional Shares")
at its option for the sole purpose of covering over-allotments in the sale of
the Firm Shares (the Firm Shares and Additional Shares being collectively
referred to as the "Shares" or a "Share"). The Underwriters are offering the
Shares to the public at an offering price of certain other capitalized terms
used herein are defined in the Underwriting Agreement and are used herein as
therein defined.
The Representative is offering the Shares to certain selected dealers
(the "Selected Dealers"), when, as and if accepted by the Representative and
subject to withdrawal, cancellation or modification of the offer without notice
and further subject to the terms of (i) the Company's current Prospectus, (ii)
the Underwriting Agreement, (iii) this Agreement, and (iv) the Representative's
instructions which may be forwarded to the Selected Dealer from time to time. A
copy of the Underwriting Agreement will be delivered to you forthwith for
inspection or copying or both, upon your request therefor. This invitation is
made by the Representative only if the Shares may be offered lawfully to dealers
in your state.
The further terms and conditions of this invitation are as follows:
1. ACCEPTANCE OF ORDERS. Orders received by the Representative from the
Selected Dealer will be accepted only at the price, in the amounts and on the
terms which are set forth in the Company's current Prospectus, subject to
allotment in the Representative's uncontrolled discretion. The Representative
reserves the right to reject any orders, in whole or in part.
<PAGE>
2. SELLING CONCESSION. As a Selected Dealer, you will be allowed on all
Shares purchased by you, which the Underwriters have not repurchased or
contracted to repurchase prior to termination of this Agreement at or below the
public offering price, a concession of ______% of the full ______% Underwriting
discount, i.e., $________ per Share as shown in the Company's current
Prospectus. No selling concession will be allowed to any domestic broker-dealer
who is not a member of the National Association of Securities Dealers, Inc. (the
"Association"), or to any foreign broker-dealer eligible for membership in the
Association who is not a member of the Association. Payment of such selling
concession to you will be made only as provided in Section 4 hereof. After the
Shares are released for sale to the public, the Representative is authorized to,
and may, change the public offering price and the selling concession.
3. REOFFER OF SHARES. Shares purchased by you are to be bona fide
reoffered by you in conformity with this Agreement and the terms of offering set
forth in the Prospectus. You agree that you will not bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Shares except
as contemplated by this Agreement and except as a broker pursuant to unsolicited
orders. You confirm that you have complied and agree that you will at all times
comply with the provisions of Regulation M of the Securities Exchange Act of
1934, as amended (the "Exchange Act") applicable to this offering. In respect of
Shares sold by you and thereafter purchased by the Representative at or below
the public offering price prior to the termination of this Agreement as
described hereinafter (or such longer period as may be necessary to cover any
short position with respect to the offering), you agree at the Representative's
option either to repurchase the Shares at a price equal to the cost thereof to
the Representative, including commissions and transfer taxes on redelivery, or
to repay the Representative such part of your Selected Dealers' concessions on
such Shares as the Representative designates.
4. PAYMENT FOR SHARES. Payment for the Shares purchased by you is to be
made at the net Selected Dealer's price of $________ per Share, at the offices
of Schneider Securities, Inc., Suite 900, 1120 Lincoln Street, Denver, Colorado
80203, Attention: Syndicate Department, at such time and on such date as the
Representative may designate, by certified or official bank check, payable in
clearing house funds to the order of the Representative, against delivery of
certificates for the Shares so purchased. If such payment is not made at such
time and on such date, you agree to pay the Representative interest on such
funds at the current interest rates. The Representative may in its discretion
deliver the Securities purchased by you through the facilities of the Depository
Trust Company or, if you are not a member, through your ordinary correspondent
who is a member unless you promptly give the Representative written instructions
otherwise.
-2-
<PAGE>
5. OFFERING REPRESENTATIONS. The Representative has been informed that
a Registration Statement in respect of the Shares is expected to become
effective under the Securities Act of 1933, as amended (the "Act"). You are not
authorized to give any information or to make any representations other than
those contained in the Prospectus or to act as agent for the Company or for the
undersigned when offering the Shares to the public or otherwise.
6. BLUE SKY. Neither the Representative nor the Underwriters assume any
responsibility or obligations as to your right to sell the Shares in any
jurisdiction, notwithstanding any information furnished in that connection. The
Selected Dealer shall report in writing to the Representative the number of
Shares which have been sold by it in each state and the number of transactions
made in each such state. This state report shall be submitted to the
Representative as soon as possible after completion of billing, but in any event
not more than three days after the closing.
7. DEALER UNDERTAKINGS. By accepting this Agreement, the Selected
Dealer in offering and selling the Shares in the Public Offering (i)
acknowledges its understanding of (a) the Conduct Rules (the "Rules") of the
Association and the interpretations of such Rules promulgated by the Board of
Governors of the Association (the "Interpretations") including, but not limited
to the Rule and Interpretation with respect to "Free-Riding and Withholding"
defined therein, (b) Rule 174 of the rules and regulations promulgated under the
Act, (c) Regulation M promulgated under the Exchange Act, (d) Release No. 3907
under the Act, (e) Release No. 4150 under the Act, and (f) Sections 2730, 2740,
2420 and 2750 of the Rules and Interpretations thereunder, and (ii) represents,
warrants, covenants and agrees that it shall comply with all applicable
requirements of the Act and the Exchange Act in addition to the specific
provisions cited in subparagraph (i) above and that it shall not violate,
directly or indirectly, any provision of applicable law in connection with its
participation in the Public Offering of the Shares.
8. CONDITIONS OF PUBLIC OFFERING. All sales shall be subject to
delivery by the Company of certificates evidencing the Shares against payment
therefore.
9. FAILURE OF ORDER. If an order is rejected or if a payment is
received which proves insufficient or worthless, any compensation paid to the
Selected Dealer shall be returned by (i) restoration by the Representative to
the Selected Dealer of the latter's remittance or (ii) a charge against the
account of the Selected Dealer with the Representative, as the latter may elect
without notice being given of such election.
-3-
<PAGE>
10. ADDITIONAL REPRESENTATIONS, COVENANTS AND WARRANTIES OF SELECTED
DEALER. By accepting this Agreement, the Selected Dealer represents that it is
registered as a broker-dealer under the Exchange Act; is qualified to act as a
dealer in the states or the jurisdictions in which it shall offer the Shares; is
a member in good standing of the Association; and shall maintain such
registrations, qualifications and membership in full force and effect and in
good standing throughout the term of this Agreement. If the Selected Dealer is
not a member of the Association, it represents that it is a foreign dealer not
registered under the Exchange Act and agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein, and in making any sales to comply with the
Association's Rules and Interpretations with respect to Free-Riding and
Withholding. Further, the Selected Dealer agrees to comply with all applicable
federal laws including, but not limited to, the Act and Exchange Act and the
rules and regulations of the Commission thereunder; the laws of the states or
other jurisdictions in which Shares may be offered or sold by it; and the
Constitution, Bylaws, and rules of the Association. Further, the Selected Dealer
agrees that it will not offer or sell the Shares in any state or jurisdiction
except those in which the Shares have been qualified or qualification is not
required. The Selected Dealer acknowledges its understanding that it shall not
be entitled to any compensation hereunder for any period during which it has
been suspended or expelled from membership in the Association.
11. EMPLOYEES AND OTHER AGENTS OF THE SELECTED DEALER. By accepting
this Agreement, the Selected Dealer assumes full responsibility for thorough and
proper training of its employees and other agents and representatives concerning
the selling methods to be used in connection with the Public Offering of the
Shares, giving special emphasis to the principles of full and fair disclosure to
prospective investors and the prohibitions against "Free-Riding and Withholding"
as set forth in Section 2110 of the Rules and the Interpretations thereunder.
12. INDEMNIFICATION BY THE COMPANY. The Company has agreed in Section 8
of the Underwriting Agreement to indemnify and hold harmless the Underwriters,
the Representative and each person if any, who controls the Representative or
any one of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of Section
8 of the Underwriting Agreement, but not be limited to, attorneys' fees and any
and all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement,
-4-
<PAGE>
or the Prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or (B) in any application or other document or
communication (in the Underwriting Agreement collectively called an
"application") in any jurisdiction in order to qualify the Shares under the
"blue sky" or securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) any breach of any representation, warranty, covenant, or
agreement of the Company contained in the Underwriting Agreement. The
Representative has agreed to give the Company an opportunity and the right to
participate in the defense or preparation of the defense of any action brought
against the Representative, any Underwriter or any controlling person thereof to
enforce any such loss, claim, demand, liability or expense. The agreement of the
Company under this indemnity is conditioned upon notice of any such action
having been promptly given by the indemnified party to the Company. Failure to
notify the Company as provided in the Underwriting Agreement shall not relieve
the Company of its liability which it may have to the Representative, the
Underwriters, or any controlling person thereof other than pursuant to Section
8(a) of the Underwriting Agreement. This agreement is subject in all respects,
especially insofar as the foregoing description of the indemnification
provisions set forth in the Underwriting Agreement is concerned, to the terms
and provisions of the Underwriting Agreement, a copy of which will be made
available for inspection or copying or both to the Selected Dealer upon written
request to the Representative therefor. The Selected Dealer acknowledges and
confirms that, by signing a counterpart of this Agreement, it shall be deemed an
agent of the Underwriters or a "Representative" for all purposes of Section 8 of
the Underwriting Agreement, as expressly set forth therein.
13. INDEMNIFICATION BY THE SELECTED DEALER. The Selected Dealer shall
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
indemnity from the Company to the Underwriters in Section 8(a) of the
Underwriting Agreement, but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with information furnished to the Representative or the Company with respect to
the Selected Dealer by or on behalf of the Selected Dealer expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or are based upon alleged misrepresentations or omissions to
state material facts in connection with statements made by the Selected Dealer
or the Selected
-5-
<PAGE>
Dealer's employees or other agents to the Company or the Representative orally
or by any other means; provided, however, that the obligation of the Selected
Dealer to provide indemnity hereunder shall be limited to the amount which
represents the product of the number of Shares sold and the initial public
offering price per Share set forth on the cover page of the Prospectus. if any
action shall be brought against the Company or any other person so indemnified
in respect of which indemnity may be sought against the Selected Dealer pursuant
to this provision, the Selected Dealer shall have the rights and duties given to
the Company in the Underwriting Agreement, and the Company and each other person
so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(a) of the Underwriting Agreement; and
the Selected Dealer shall reimburse the Company and the Representative for any
legal or other expenses reasonably incurred by them in connection with the
investigation of or the defense of any such action or claim. The Representative
shall, after receiving the first summons or other legal process disclosing the
nature of the action being brought against it or the Company in any proceeding
with respect to which indemnity may be sought by the Company or the
Representative hereunder, notify promptly the Selected Dealer in writing of the
commencement thereof; and the Selected Dealer shall be entitled to participate
in (and, to the extent the Selected Dealer shall wish, to direct) the defense
thereof at the expense of the Selected Dealer, but such defense shall be
conducted by counsel satisfactory to the Company and the Representative. If the
Selected Dealer shall fail to provide such defense, the Company or the
Representative may defend such action at the cost and expense of the Selected
Dealer. The Selected Dealer's obligation under this Section 13 shall survive any
termination of this Agreement, the Underwriting Agreement and the delivery of
and payment for the Shares under the Underwriting Agreement, and shall remain in
full force and effect regardless of the investigation made by or on behalf of
any Representative within the meaning of Section 15 of the Act.
14. NO AUTHORITY TO ACT AS PARTNER OR AGENT. Nothing herein shall
constitute the Selected Dealers as an association or other separate entity or
partners with or agents of the Representative or with each other, but each
Selected Dealer shall be responsible for its pro rata share of any liability or
expense based upon any claims to the contrary. The Representative shall not be
under any liability for or in respect of the value, validity or form of the
Shares, or the delivery of certificates for the Shares or the performance by any
person of any agreement on its part, or the qualification of the Shares for sale
under the laws of any jurisdiction, or for or in respect of any matter in
connection with this Agreement, except for lack of good faith and for
obligations expressly assumed by the Representative in this Agreement.
-6-
<PAGE>
15. EXPENSES. No expenses incurred in connection with offers and sales
of the Shares under the Public Offering will be chargeable to the Selected
Dealers. A single transfer tax, if any, on the sale of Shares by the Selected
Dealer to its customers will be paid when such Shares are delivered to the
Selected Dealer for delivery to its customers. Notwithstanding the foregoing,
the Selected Dealer shall pay its proportionate share of any transfer tax or any
other tax (other than the single transfer tax described above) if any such tax
shall at any time be assessed against the Representative and other Selected
Dealers.
16. NOTICES. All notices, demands or requests required or authorized
hereunder shall be deemed given sufficiently if in writing and sent by
registered or certified mail, return receipt requested and postage prepaid, or
by tested telex, telegram, cable or facsimile to, in the case of the
Representative, the address set forth above directed to the attention of the
President of the Representative, and in the case of the Selected Dealer, to the
address provided below by the Selected Dealer, directed to the attention of the
President.
17. TERMINATION. This Agreement may be terminated by the Representative
with or without cause upon written notice to Selected Dealer to such effect; and
such notice having been given, this Agreement shall terminate at the time
specified therein. Additionally, this Agreement shall terminate upon the earlier
of the termination of the Underwriting Agreement, or at the close of business
thirty days after the Shares are released by the Representative for sale to the
public.
18. GENERAL PROVISIONS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Colorado. This
Agreement embodies the entire agreement and understanding between the
Representative and the Selected Dealer and supersedes all prior agreements and
understandings related to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment, modification,
waiver or discharge is sought to be enforced. All the terms of this Agreement,
whether so expressed or not, shall be binding upon, and shall inure to the
benefit of, the respective successors, legal representatives and assigns of the
parties hereto; provided, however, that none of the parties hereto can assign
this Agreement or any of its rights hereunder without the prior written consent
of the other party hereto, and any such attempted assignment or transfer without
the other party's prior written consent shall be void and without force or
effect. The headings of this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
-7-
<PAGE>
If the foregoing correctly sets forth the terms and conditions of your
agreement to purchase the Shares allotted to you, please indicate your
acceptance thereof by signing and returning to Schneider Securities, Inc. the
duplicate copy of this Agreement, whereupon this letter and your acceptance
shall become and evidence a binding contract between you and the Representative.
SCHNEIDER SECURITIES, INC.
By:
---------------------------------
Title:______________________________
-8-
<PAGE>
Gentlemen:
The undersigned confirms its agreement to purchase ____________ shares
of Common Stock of _____________________________, upon the terms and subject to
the conditions of the foregoing Selected Dealers Agreement, and further agrees
that any agreement by it to purchase additional Shares during the life of such
Agreement will be upon the same terms and subject to the same conditions. The
undersigned acknowledges receipt of the Prospectus relating to the public
offering of the Shares and confirms that in agreeing to purchase such Shares it
has relied on such Prospectus and not on any other statement whatsoever written
or oral.
Firm Name:_________________________________________
(Print or Type name of Firm)
By:________________________________________________
(Authorized Agent)
___________________________________________________
(Print or Type Name and Title of Authorized Agent)
Address:____________________________________________
____________________________________________________
Telephone Number:___________________________________
IRS Employer Identification No.:________________________
Dated:________________________________________, 19___
-9-
EXHIBIT 1.3
THIS PURCHASE WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED PRIOR TO
______________, 2000. THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS
ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS
PURCHASE WARRANT PRIOR TO THAT DATE OTHER THAN TO AN OFFICER OR PARTNER OF SUCH
HOLDER.
NOT EXERCISABLE PRIOR TO ________, 2000. VOID AFTER 5:00 P.M.
MOUNTAIN TIME, ________, 2004.
PURCHASE WARRANT
FOR THE PURCHASE OF UP TO 115,000 SHARES
OF
SFBC INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
THIS CERTIFIES THAT, in consideration of $115.00 aggregate purchase
price duly paid by Schneider Securities, Inc., its successors or assigns as
provided herein (the "Holder"), as registered owner of this Purchase Warrant, to
SFBC International, Inc. (the "Company"), is entitled to at any time or from
time to time at or after ________, 2000 and at or before 5:00 p.m. Mountain
Time, ________, 2004 ("Termination Date"), but not thereafter, to subscribe for,
purchase and receive up to 115,000 Shares ("Shares") of common stock, par value
$.001 per share ("Common Shares") of the Company. This Purchase Warrant is
exercisable at $_____ per Share so purchased ("the Exercise Price"), upon
presentation and surrender of this Purchase Warrant and upon payment of the
Exercise Price for such of the Shares at the principal office of the Company;
provided, however, that upon the occurrence of any of the events specified in
the Statement of Rights of Purchase Warrant, a copy of which is attached as
Annex I hereto and by this reference made a part hereof, the rights granted by
this Purchase Warrant, including the number of Shares to be received upon such
exercise, shall be adjusted as therein specified. If the Termination Date is a
day on which banking institutions are authorized by law to close, then this
Purchase Warrant may be exercised in accordance with the terms herein on the
next succeeding day which is not such a day on which banking institutions are
authorized by law to close. During the period ending on the Termination Date,
the Company agrees not to take any action that would terminate the Purchase
Warrant.
The Exercise Price may be paid in cash, by check or by the surrender to
the Company of that number of the Shares which is calculated by multiplying (i)
the total number of Shares by (ii) the Exercise Price and (iii) dividing the
product by the then-current inside
<PAGE>
offer, on the date of exercise, of the underlying securities (the "Cashless
Exercise Price"). The Cashless Exercise Price may be tendered pro rata by the
holder or holders of less than all the Shares hereunder as the case may be.
Upon exercise of this Purchase Warrant, the form of election attached
hereto must be duly executed and the instructions for registration of the Shares
acquired by such exercise must be completed. If the subscription rights
represented hereby shall not be exercised at or before 5:00 p.m., Eastern Time,
on the Termination Date, then, from and after such date and time, this Purchase
Warrant shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
The registered Holder of this Purchase Warrant, by its acceptance
hereof, agrees that it will not sell, transfer or assign or hypothecate this
Purchase Warrant prior to ________, 2000 to anyone other than an officer or
partner of such Holder or other firm(s) which shall have participated in the
public offering of the Company's securities (SEC File No. 333-_____) to which
this Purchase Warrant relates. Subsequent to that date, this Purchase Warrant
may be assigned by the Holder in whole or in part by execution by the Holder of
the form of assignment, a copy of which is attached hereto, to certain persons,
including dealers or their officers or partners. In the event of any assignment
made as aforesaid, the Company, upon request and surrender of this Purchase
Warrant by the Holder at the principal office of the Company accompanied by
payment of all transfer taxes, if any, payable in connection therewith, shall
transfer this Purchase Warrant on the books of the Company and shall execute and
deliver a new Purchase Warrant or Purchase Warrants of like tenor to the
appropriate assignee expressly evidencing the right to purchase the aggregate
number of Shares purchasable hereunder or such portion of such aggregate number
as shall be contemplated by any such agreement.
Notwithstanding anything herein to the contrary, each certificate for
securities purchased under this Purchase Warrant shall bear a legend as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("the Act"). The securities
may not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act, or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company."
The Purchase Warrant Holder agrees for itself and all subsequent
owners, that before any disposition is made of any securities purchased pursuant
to the Purchase Warrant, the owner shall give written notice to the Company
describing briefly the manner of any such proposed disposition. The securities
shall not be transferred unless and until (i) the
2
<PAGE>
Company has received the opinion of counsel for such owners that the securities
may be sold pursuant to an exemption from registration under the Securities Act
of 1933, as amended (the "1933 Act"), or (ii) a Registration Statement relating
to such securities has been filed by the Company and made effective by the
Securities and Exchange Commission (the "Commission").
Subject to the above, this Purchase Warrant may be exercised or
assigned in whole or in part. In the event of the exercise or assignment hereof
in part only, upon surrender of this Purchase Warrant for cancellation, together
with the duly executed exercise or assignment and funds sufficient to pay any
transfer tax, the Company shall cause to be delivered to the Holder without
charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name
of the Holder evidencing the right of the Holder to purchase the number of
Common Shares purchasable hereunder as to which this Purchase Warrant has not
been exercised or assigned.
Upon receipt of the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Purchase Warrant and of reasonably
satisfactory indemnification, the Company shall execute and deliver a new
Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed
and delivered as a result of such loss, theft, mutilation or destruction shall
constitute an additional contractual obligation on the part of the Company.
The Company upon request, and subject to the availability of audited
financial statements which would comply with Regulation S-B or S-X under the
1933 Act, agrees to register expeditiously on one separate occasion the Purchase
Warrant and the securities underlying the Purchase Warrant and will file on such
occasion a registration statement, or Notification under Form 1-A, under the
1933 Act, covering such Purchase Warrant or the securities underlying the
Purchase Warrant within twenty business days after receipt of each such request.
Such request must be made at any time during a period of four years beginning
one year from the effective date of the offering. In connection with the request
the Company shall bear all expenses, one time only, attendant to registering the
securities. The Company agrees to use its best efforts to cause the filing
required herein to become effective to qualify or register the Purchase Warrant
and/or the securities underlying the Purchase Warrant. In addition, for a period
of six years beginning one year after the effective date of the offering, the
holders of the Purchase Warrant shall have the right to include such securities
as part of any other registration of securities, other than on Forms S-4, S-8 or
other inappropriate form, filed by the Company and the Company agrees to give
the holders thereof not less than forty (40) days written notice thereof,
including any terms or conditions, prior to the filing of any such registration
statement with the Commission.
3
<PAGE>
The Company will also cooperate with the then Holder(s) of the Purchase
Warrant or securities issued upon the exercise of the Purchase Warrant in
preparing and signing any Registration Statement or Notification, in addition to
the registration rights hereinabove provided, required in order to sell or
transfer the Common Shares underlying this Purchase Warrant and will supply all
information required therefor; but such additional Registration or Notification
shall be at the then Holder(s) cost and expense. The Company's agreements with
respect to registration of the securities will continue in effect regardless of
the exercise or surrender of this Purchase Warrant.
In no event shall this Purchase Warrant (or the securities issuable
upon full or partial exercise hereof) be offered or sold except in conformity
with the 1933 Act.
This Purchase Warrant shall be governed by, and construed in accordance
with, the laws of the State of Colorado, without regard to its conflicts of laws
principles.
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be
signed by its duly authorized officers and to be sealed with the seal of the
Company as of this ____day of _________________, 1999.
SFBC INTERNATIONAL, INC.
By:
---------------------------------
Lisa Krinsky, President
( S E A L )
ATTEST:
-----------------------------
Secretary
4
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ANNEX I
SFBC INTERNATIONAL, INC.
STATEMENT OF RIGHTS OF PURCHASE WARRANT
(a) In the event, prior to the expiration of the Purchase Warrant to
which this Statement of Rights is attached ("Warrant") by exercise or by its
terms, the Company shall issue any of its Common Shares as a share dividend or
shall subdivide the number of outstanding Common Shares into a greater number of
shares, then, in either of such events, the then applicable Exercise Price per
share of Common Stock purchasable pursuant to this Warrant in effect at the time
of such action shall be reduced proportionately and the number of shares of the
Common Shares at that time purchasable pursuant to this Warrant shall be
increased proportionately; and, conversely, in the event that the Company shall
reduce the number of outstanding Common Shares by combining such shares into a
smaller number of shares, then, in such event, the then applicable Exercise
Price per Share purchasable pursuant to this Warrant in effect at the time of
such action shall be increased proportionately and the number of Common Shares
at that time purchasable pursuant to this Warrant proportionately shall be
decreased. Any dividend paid or distributed upon the Common Shares in shares of
any other class of the Company or securities convertible into Common Shares
shall be treated as a dividend paid in Common Shares to the extent that the
Common Shares are issuable upon the conversion thereof.
(b) In the event, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall be recapitalized by reclassifying its
outstanding Common Shares (other than into shares with a different par value, or
by changing its outstanding Common Shares to Shares without par value), or in
the event the Company or a successor corporation shall consolidate or merge with
or convey all or substantially all of its, or of any successor corporation's,
property and assets to any other corporation or corporations (any such other
corporation being included within the meaning of the term "successor
corporation" hereinbefore used in the context of any consolidation or merger of
any other corporation with, or the sale of all or substantially all of the
property of any such other corporation to, another corporation or corporations),
or in the event of any other material change in the capital structure of the
Company or of any successor corporation by reason of any reclassification,
reorganization, recapitalization, consolidation, merger, conveyance or
otherwise, then, as a condition of any such reclassification, reorganization,
recapitalization, consolidation, merger or conveyance, a prompt, proportionate,
equitable, lawful and
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adequate provision shall be made whereby the Holder of this Warrant shall
thereafter have the right to purchase, upon the basis and the terms and
conditions specified in this Warrant, in lieu of the securities of the Company
theretofore purchasable upon the exercise of this Warrant, such shares,
securities or assets as may be issued or payable with respect to or in exchange
for the number of securities of the Company theretofore purchasable upon the
exercise of this Warrant had such reclassification, reorganization,
recapitalization, consolidation, merger or conveyance not taken place; and in
any such event, the rights of the Holder of this Warrant to any adjustment in
the number of Common Shares or Warrants purchasable upon exercise of this
Warrant, as hereinbefore provided, shall continue and be preserved in respect of
any shares, securities or assets which the Holder becomes entitled to purchase.
Notwithstanding anything herein to the contrary, the provisions of this
paragraph (b) shall not apply to a merger with a subsidiary provided the Company
is the continuing corporation and provided further such merger does not result
in any reclassification, capital reorganization or other change of the
securities issuable under this Warrant. The foregoing provisions of this
paragraph (b) shall apply to successive reclassifications, capital
reorganizations and changes of securities and to successive consolidation,
mergers, sales or conveyances.
(c) In the event the Company, at any time while this Warrant shall
remain unexpired and unexercised, shall sell all or substantially all of its
property, or dissolves, liquidates, or winds up its affairs, prompt,
proportionate, equitable, lawful and adequate provision shall be made as part of
the terms of any such sale, dissolution, liquidation, or winding up such that
the Holder of this Warrant may thereafter receive, upon exercise hereof, in lieu
of the securities of the Company which it would have been entitled to receive,
the same kind and amount of any shares, securities or assets as may be issuable,
distributable or payable upon any such sale, dissolution, liquidation or winding
up with respect to each Common Share of the Company; provided, however, that in
the event of any such sale, dissolution, liquidation or winding up, the right to
exercise this Warrant shall terminate on a date fixed by the Company, such date
so fixed to be not earlier than 5:00 p.m., Mountain Time, on the 45th day next
succeeding the date on which notice of such termination of the right to exercise
this Warrant has been given by mail to the Holder of this Warrant at such
Holder's address as it appears on the books of the Company.
(d) If the Company should at any time or from time to time hereafter
issue or sell any Common Shares (other than the Common Shares which may be
purchased under this Warrant) without consideration or for a consideration per
share less than the portion of the Exercise Price allocable per Common Share
therein in effect immediately prior to the time of such issue or sale, then
forthwith upon such issue or sale, the Exercise Price shall be adjusted to a
price (computed to the nearest cent) determined by dividing the sum of (i) the
number of Common Shares outstanding immediately prior to such issue or sale
multiplied
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by the portion of the Exercise Price attributable to a Common Share in effect
immediately prior to such issue or sale, and (ii) the consideration, if any,
received by the Company upon such issue or sale, by the total number of Common
Shares outstanding immediately after such issue or sale. For purposes of this
paragraph (d), the following provisions (1) to (5) shall also be applicable.
(1) In case at any time hereafter the Company shall in any
manner grant any right to subscribe for or to purchase, any option for
the purchase of Common Shares or any stock or other securities
convertible into or exchangeable for Common Shares (such convertible or
exchangeable stock or securities being hereinafter referred to as
"Convertible Securities") other than those comprising a portion of this
Warrant, and the minimum price per share for the Common Shares,
pursuant to such rights or option or upon conversion or exchange of
such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration
for the granting of such rights or options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange thereof,
by (ii) the total maximum number of Common Shares issuable pursuant to
such rights or options or upon the conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the Exercise
Price in effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of Common Shares
issuable pursuant to such rights or options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights and options shall (as of the
date of granting of such rights or options) be deemed to be outstanding
and to have been issued for said price per share as so determined;
PROVIDED, that no further adjustment of the Exercise Price shall be
made upon the actual issue of Common Shares so deemed to have been
issued; and FURTHER PROVIDED, that, upon the expiration of such rights
(including rights to convert or exchange) or options, (A) the number of
Common Shares deemed to have been issued and outstanding by reason of
the fact that they were issuable pursuant to such rights or options
(including rights to convert or exchange) were not exercised, shall no
longer be deemed to be issued and outstanding; and (B) the Exercise
Price shall forthwith be adjusted to the price which would have
prevailed had all adjustments been made on the basis of the issue only
of the Common Shares actually issued upon the exercise of such rights
or options or upon conversion or exchange of such Convertible
Securities.
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(2) In case the Company shall in any manner issue or sell any
Convertible Securities, and the minimum price per share for which such
Common Shares are issuable upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange of all such Convertible
Securities by (ii) the total maximum number of Common Shares issuable
upon the conversion or exchange of all such Convertible Securities)
shall be less than the Exercise Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of Common
Shares issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been
issued for said price per share as so determined; PROVIDED, that no
further adjustment of the Exercise Price shall be made upon the actual
issue of Common Shares so deemed to have been issued; and, FURTHER
PROVIDED, that if any such issue or sale of such Convertible Securities
is made upon exercise of any right to subscribe for or to purchase or
any option to purchase any such Convertible Securities for which an
adjustment of the Exercise Price has been or is to be made pursuant to
other provisions of this paragraph (d) no further adjustment of the
Exercise Price shall be made by reason of such issue or sale; and,
FURTHER PROVIDED, that, upon the termination of the right to convert or
to exchange such Convertible Securities for Common Shares, (A) the
number of Common Shares deemed to have been issued and outstanding by
reason of the fact that they were issuable upon conversion or exchange
of any such Convertible Securities, which were not so converted or
exchanged, shall no longer be deemed to be issued and outstanding, and
(B) the Exercise Price shall forthwith be adjusted to the price which
would have prevailed had all adjustments been made on the basis of the
issue only of the number of Common Shares actually issued upon
conversion or exchange of such Convertible Securities.
(3) In case any Common Shares or Convertible Securities or any
rights or options to purchase any such stock or securities shall be
issued solely for cash, the consideration received therefor, after
deducting therefrom any commission or other expenses paid or incurred
by the Company for any underwriting of, or otherwise in connection
with, the issuance thereof, shall be deemed to be the amount received
by the Company therefor. In case any Common Shares or Convertible
Securities or any rights or options to purchase any such stock or
securities shall be issued for a consideration part or all of which
shall be other than cash, then, for the purpose of this paragraph (d),
the Board of Directors of the Company shall determine the fair value of
such consideration, which is not cash, irrespective of accounting
treatment,
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and such Common Shares, Convertible Securities, rights or options shall
be deemed to have been issued for an amount of cash equal to the value
of such consideration other than cash so determined by the Board of
Directors plus any cash received therefor. The reclassification of
securities other than Common Shares into securities including Common
Shares shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to the close of
business on the date fixed for the determination of security holders
entitled to receive such Common Shares. In case any Common Shares or
Convertible Securities or any rights or options to purchase any such
stock or other securities shall be issued together with other stock or
securities or other assets of the Company for a consideration which
includes both, the Board of Directors of the Company shall determine
what part of the consideration so received is to be deemed to be
consideration for the issue of such Common Shares, Convertible
Securities, rights or options.
(4) For purposes of paragraphs (a) and (d), in case the
Company shall take a record of the holders of any Common Shares for the
purpose of entitling them (i) to receive a dividend or other
distribution payable in Common Shares or in Convertible Securities, or
(ii) to subscribe for or purchase Common Shares or Convertible
Securities, then such record date shall be deemed to be the date of the
issue or sale of the Common Shares deemed to have been issued or sold
upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(5) For the purpose of this paragraph (d), Common Shares at
any relevant time owned or held by, or for the account of, the Company
shall not be deemed outstanding.
Anything in this paragraph (d) or paragraph (a), above, to the contrary
notwithstanding, the Company shall not be required to give effect to any
adjustment in the Exercise Price of less than one cent, but when the cumulative
net effect of more than one adjustment so determined shall be to change the
actual Exercise Price by at least one cent, such change in the Exercise Price
shall thereupon be given effect.
(e) Upon any exercise of this Warrant by the Holder, the Company shall
not be required to deliver fractions of any securities; but prompt,
proportionate, equitable, lawful and adequate adjustment in the Exercise Price
payable by the Holder shall be made in respect of any such fraction of any
securities on the basis of the Exercise Price per Unit then applicable upon the
exercise of this Warrant.
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(f) In the event, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall determine to take a record of its securities
holders for the purpose of determining securities holders entitled to receive
any share dividend, distribution or other right which will cause any change or
adjustment in the number, amount, price or nature of the Common Shares or other
shares, securities or assets deliverable upon the exercise of this Warrant
pursuant to the foregoing provisions, the Company shall specify the date as of
which such record is to be taken; the purpose for which such record is to be
taken; and the number, amount, price and nature of the Common Shares or other
shares, securities or assets which will be deliverable upon exercise of this
Warrant after the action for which such record will be taken has been
consummated.
(g) The Company may deem and treat the registered Holder of this
Warrant at any time as the absolute owner hereof for all purposes, and the
Company shall not be affected by any notice to the contrary.
(h) Whenever the Exercise Price shall be adjusted as required by the
provisions of paragraphs (a) or (d) hereof, the Company shall forthwith file in
the custody of its Secretary or Assistant Secretary at its principal office, and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
the Holder and the Company shall, forthwith after each such adjustment, deliver
a copy of such certificate to the Holder. Such certificate shall be conclusive
as to the correctness of such adjustment.
(i) This Warrant shall not entitle the Holder hereof to any of the
rights of shareholders or to any dividend declared upon the Common Shares unless
the Holder shall have exercised this Warrant and purchased the Common Shares
prior to the record date fixed by the Board of Directors of the Company for the
determination of holders of Common Shares entitled to such dividend or other
right.
(j) This Warrant is subject in all respects to the terms and provisions
of that certain Underwriting Agreement dated _________, 1999, by and between the
Company and Schneider Securities, Inc., the Representative of the several
underwriters therein and the initial Holder hereof, relating to a public
offering of the Company's shares of Common Stock and Common Stock Purchase
Warrants.
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FORM TO BE USED TO EXERCISE WARRANT:
SFBC INTERNATIONAL, INC.
11190 BISCAYNE BOULEVARD
NORTH MIAMI, FLORIDA 33181
Date:___________________, ______
The Undersigned hereby elects irrevocably to exercise that
certain Purchase Warrant dated ________________, 1999 and to purchase __________
Shares of SFBC International, Inc. called for thereby, and hereby makes payment
of $________________ (at the rate of $__________ per Unit) in payment of the
Exercise Price pursuant thereto or the surrender herewith of the Purchase
Warrant to purchase _______ Shares in consideration of the Cashless Exercise
Price pursuant thereto, as the case may be. Please issue the Shares as to which
this Warrant is exercised in accordance with the instructions given below.
----------------------------------
Signature
-----------------------------------
Signature Guaranteed
INSTRUCTIONS FOR REGISTRATION OF COMMON SHARES
Name________________________________________________________
(Print in Block Letters)
Address______________________________________________________
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FORM TO BE USED TO ASSIGN WARRANT:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Warrant:)
FOR VALUE RECEIVED,_________________________________ does
hereby sell, assign and transfer unto______________________________ the right to
purchase ____________ Shares of SFBC International, Inc. evidenced by that
certain Purchase Warrant dated ________________________ and does hereby
irrevocably constitute and appoint ____________________________ attorney to
transfer such right on the books of such Company with full power of substitution
in the premises.
Dated: ________________, _____.
---------------------------
Signature
---------------------------
Signature Guaranteed
NOTICE: The signature to the form to exercise or form to assign must
correspond with the name as written upon the face of the within Warrant in every
particular without alteration or enlargement or any change whatsoever, and must
be guaranteed by a bank, other than a savings bank, or by a trust company or by
a firm having membership on a registered national securities exchange.
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made as of this
2nd day of June, 1999, by and between Bio Clinic Management Company (the
"Target"), a Florida corporation, and SFBC International, Inc. (the "Surviving
Corporation"), a Delaware corporation (collectively the "Parties") .
WHEREAS, the respective board of directors of the Parties deem it
advisable and the directors of the Target recommend to its sole shareholder that
the Target be merged with and into the Surviving Corporation under the laws of
Delaware and Florida in the manner provided therefor pursuant to Section 252 of
the Delaware General Corporation Law (the "DGCL") and Section 607.1107 of the
Florida Business Corporation Act;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the Parties have agreed, and do hereby agree, that
the Target shall merge into the Surviving Corporation upon the terms and
conditions below stated.
1. ADOPTION OF AGREEMENT. The directors and sole shareholder of the
Target by unanimous written consent on June 2, 1999 approved this Agreement. The
directors of the Surviving Corporation have adopted and approved this Agreement
by unanimous written consent on June 2, 1999.
2. AGREEMENT TO MERGE. The Parties hereby agree that the Target shall
be merged with and into the Surviving Corporation and the Target's existence
shall cease on the Effective Date, as defined below.
3. EFFECTIVE DATE. The merger of the undersigned corporations shall
become effective upon the filing of the Articles of Merger with the Florida
Secretary of State (the "Effective Date").
4. AGREEMENT. The executed Agreement is on file at the principal place
of business of the Surviving Corporation located at 11190 Biscayne Blvd., N.
Miami, FL 33181.
5. MANNER AND BASIS FOR CONVERSION OF SHARES. The manner and basis of
converting the shares of common stock of the Target into shares of the Surviving
Corporation shall be as follows:
(a) Seven-Hundred Seventy shares of the Target's common stock held by
Mr. Arnold Hantman, the Target's sole shareholder, constituting all of the
shares outstanding on the Effective Date, shall be converted into 700,000 shares
of common stock of the Surviving Corporation;
(b) Upon tender of the certificates evidencing ownership of 770 shares
of the outstanding common stock of the Target, the Surviving Corporation shall
deliver 700,000 shares of fully paid and non-assessable common stock of the
Surviving Corporation to Mr. Hantman.
<PAGE>
9. CERTIFICATION OF BOARD APPROVAL. The undersigned secretary of the
Target hereby certifies that the board of directors of the Target adopted the
Agreement by unanimous written consent as of June 2, 1999. The undersigned
secretary of the Surviving Corporation hereby certifies that the board of
directors of the Surviving Corporation adopted and approved the Agreement by
unanimous written consent as of June 2, 1999 pursuant to Section 251(f) of the
DGCL, and that no shares of stock of the Surviving Corporation were outstanding
prior to the adoption of the Agreement.
10. SHAREHOLDER APPROVAL. The undersigned secretary of the Target
hereby certifies that the sole shareholder approved the Agreement on June 2,
1999.
WE, THE UNDERSIGNED, HEREBY ACKNOWLEDGE that we have read the foregoing
Agreement and Plan of Merger and affirm and acknowledge under penalty of perjury
that the instrument is the act and deed of the corporation, and that all facts
contained herein are true and correct.
BIO CLINIC MANAGEMENT COMPANY, a Florida corporation
----------------------------------------------------
By: Arnold Hantman, President
----------------------------------------------------
By: Arnold Hantman, Secretary
SFBC INTERNATIONAL, INC., a Delaware corporation
----------------------------------------------------
By: Arnold Hantman, Chief Executive Officer
----------------------------------------------------
By: Lisa Krinsky, M.D., Secretary
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SFBC INTERNATIONAL,INC.
1. The name of the corporation is SFBC International, Inc.(the
"Company").
2. The address of its registered office in the State of Delaware,
County of New Castle, is 1013 Centre Road, Wilmington, Delaware 19805-1297. The
name of its registered agent at such address is Corporation Service Company.
3. The nature of the business or purposes to be conducted or promoted
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
4. The total number of shares of stock of all classes and series the
Company shall have authority to issue is 25,000,000 shares, consisting of (i)
20,000,000 shares of common stock, par value $0.001 per share, and (ii)
5,000,000 shares of preferred stock, par value $0.10.
5. The name and mailing address of the incorporator is as follows:
Peter A. Savarese
1645 Palm Beach Lakes Blvd., Suite 550
West Palm Beach, Florida 33401
6. The name and mailing address of each person who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:
NAME MAILING ADDRESS
Dr. Lisa Krinsky 11190 Biscayne Blvd.
Miami, Florida 33181
Dr. Leonard I. Weinstein 11190 Biscayne Blvd.
Miami, Florida 33181
Arnold Hantman 11190 Biscayne Blvd.
Miami, Florida 33181
7. The corporation is to have perpetual existence.
<PAGE>
8. The Company reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. No director of this Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director. Nothing in this Section 9 shall serve to eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
this Company or its stockholders, (b) for acts or omissions not in good faith or
which involves intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law, or (d) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after approval by the stockholders to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
10. (a) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding
(except as provided in Section 10(f)) whether civil, criminal or administrative,
(a "Proceeding"), or is contacted by any governmental or regulatory body in
connection with any investigation or inquiry (an "Investigation"), by reason of
the fact that he or she is or was a director or executive officer (as such term
is utilized pursuant to interpretations under Section 16 of the Securities
Exchange Act of 1934) of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (an "Indemnitee"), whether the basis of such
Proceeding or Investigation is alleged action in an official capacity or in any
other capacity as set forth above shall be indemnified and held harmless by the
Company to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law permitted the Company to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith and such indemnification shall continue as to
an
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Indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the Indemnitee's heirs, executors and
administrators. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such Proceeding in advance of its final
disposition (an "Advancement of Expenses"); provided, however, that such
Advancement of Expenses shall be made only upon delivery to the Company of an
undertaking, by or on behalf of such Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such Indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise (an
"Undertaking").
(b) If a claim under Section 10(a) is not paid in full by the
Company within 60 days after a written claim has been received by the Company,
except in the case of a claim for an Advancement of Expenses, in which case the
applicable period shall be 20 days, the Indemnitee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit or in a suit brought by the
Company to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the Indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In
(i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an Advancement of Expenses)
it shall be a defense that, and
(ii) any suit by the Company to recover an Advancement of
Expenses pursuant to the terms of an Undertaking the Company
shall be entitled to recover such expenses upon a final
adjudication that,
the Indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Company (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that indemnification
of the Indemnitee is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Company (including its board of
directors, independent legal counsel, or its stockholders) that the Indemnitee
has not met such applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right hereunder, or by the Company to recover an
Advancement of Expenses pursuant to the terms of an undertaking, the burden of
proving that the Indemnitee is not entitled to be indemnified or
<PAGE>
to such Advancement of Expenses under this Section or otherwise shall be on the
Company.
(c) The rights to indemnification and to the Advancement of
Expenses conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
(e) The Company may, to the extent authorized from time to
time by the board of directors, grant rights to indemnification and to the
Advancement of Expenses, to any employee or agent of the Company to the fullest
extent of the provisions of this Section with respect to the indemnification and
Advancement of Expenses of directors, and executive officers of the Company.
(f) Notwithstanding the indemnification provided for by this
Section 10, the Company's bylaws, or any written agreement, such indemnity shall
not include any expenses, liabilities or losses incurred by such Indemnitees
relating to or arising from any Proceeding in which the Company asserts a direct
claim (as opposed to a stockholders' derivative action) against the Indemnitees,
whether such claim by the Company is termed a complaint, counterclaim,
crossclaim, third-party complaint or otherwise.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, do make this certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly have hereunto
set my hand this 22nd day of March, 1999.
/s/ PETER A. SAVARESE
-------------------------------
Peter A. Savarese, Incorporator
EXHIBIT 3.2
FIRST AMENDMENT TO CERTIFICATE OF INCORPORATION
OF
SFBC INTERNATIONAL, INC.
This First Amendment to the Certificate of Incorporation of SFBC
International, Inc. (the "Company") is made pursuant to Sections 228 and 242 of
the Delaware General Corporation Law (the "DGCL"). This First Amendment has been
adopted by the unanimous written consent of the Company's directors and the
written consent of stockholders representing a majority of the Company's
outstanding stock entitled to vote.
1. Section 4 of the Certificate of Incorporation is amended in its
entirety to read as follows:
4. The total number of shares of stock of all classes and
series the Company shall have authority to issue is 25,000,000 shares,
consisting of (i) 20,000,000 shares of common stock, par value $0.001
per share, and (ii) 5,000,000 shares of preferred stock, par value
$0.10.
(a) Effective upon the filing of the First Amendment
to Certificate of Incorporation, the outstanding shares of
common stock shall be combined in a four-for-five reverse
stock split where every five shares of the Company's common
stock outstanding shall be combined into four shares of the
same class. No fractional shares shall be issued. In lieu of
fractional shares, each fractional share shall receive the
fair value of the fractional share in cash or as otherwise
provided for in section 155 of the DGCL.
I, THE UNDERSIGNED, HEREBY ACKNOWLEDGE that I have read the foregoing
First Amendment to the Certificate of Incorporation and affirm and acknowledge
under penalty of perjury that the instrument is the act and deed of the Company,
and that all facts contained therein are true and correct.
Dated: June __, 1999 SFBC International, Inc.
By:
---------------------------------------
Arnold Hantman, Chief Executive Officer
EXHIBIT 3.3
BYLAWS
OF
SFBC INTERNATIONAL, INC.
As Adopted on
May 24, 1999
ARTICLE I. MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
this Corporation shall be held at the time and place designated by the Board of
Directors of the Corporation. Business transacted at the annual meeting shall
include the election of directors of the Corporation.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders shall
be held when directed by the Board of Directors, or when requested in writing by
the holders of not less than 10 percent of all the shares entitled to vote at
the meeting.
SECTION 3. PLACE. Meetings of stockholders may be held within or
without the State of Delaware.
SECTION 4. NOTICE. Written notice stating the place, day and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 10 nor more than
60 days before the meeting, either personally or by first class mail, by or at
the direction of the president, the secretary, or the officer or persons calling
the meeting to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation, with postage there on prepaid. The
provisions of Section 229 of the Delaware General Corporation Law (the "DGCL")
as to waiver of notice are applicable.
<PAGE>
SECTION 5. NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. If, however, after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of
adjourned meeting, shall be given as provided in this section to each
stockholder of record on the new record date entitled to vote at such meeting.
SECTION 6. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of stockholders for
any other purpose, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not to exceed, in any case, 60
days. If the stock transfer books shall be closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least 10 days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for the determination of stockholders,
such date in any case to be not more than 60 days and, in case of a meeting of
stockholders, not less than 10 days prior to the date on which the particular
action requiring such determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice or to vote at a meeting
of stockholders, or stockholders entitled
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<PAGE>
to receive payment of a dividend, the day preceding the day on which notice of
the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
SECTION 7. STOCKHOLDER QUORUM AND VOTING. A majority of the outstanding
shares of each class or series of voting stock then entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. When a specified item of business is required to be voted on by a
class or series of stock, a majority of the outstanding shares of such class or
series shall constitute a quorum for the transaction of such item of business by
that class or series.
If a quorum is present, the affirmative vote of the majority of those
shares present at the meeting in person or by proxy of each class or series of
voting stock and entitled to vote on the subject matter shall be the act of the
stockholders unless otherwise provided however that the directors of the
Corporation shall be elected by a plurality of such shares.
After a quorum has been established at a stockholders' meeting, the
subsequent withdrawal of stockholders, so as to reduce the number of
stockholders entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
SECTION 8. VOTING OF SHARES. Each outstanding share,
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<PAGE>
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders.
Treasury shares, shares of stock of this Corporation owned by another
corporation, the majority of the voting stock of which is owned or controlled by
this Corporation, and shares of stock of this Corporation, held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
A stockholder may vote either in person or by proxy executed in writing
by the stockholder or his duly authorized attorney-in-fact.
At each election for directors every stockholder entitled to vote at
such election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent, or proxy designated by the bylaws
of the corporate stockholder; or, in the absence of any applicable bylaw, by
such person as the Board of Directors of the corporate stockholder may
designate. Proof of such designation may be made by presentation of a certified
copy of the bylaws or other instrument of the corporate stockholder. In the
absence of any such designation, or in case of conflicting designation by the
corporate stockholder, the chairman of the board, president, any vice president,
secretary and treasurer of the corporate stockholder shall be presumed to
possess, in that order, authority to vote such shares.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy,
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<PAGE>
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
On and after the date on which written notice of redemption of
redeemable shares has been mailed to the holders thereof and a sum sufficient to
redeem such shares has been deposited with a bank or trust company with
irrevocable instruction and authority to pay the redemption price to the holders
thereof upon surrender of certificates therefor, such shares shall not be
entitled to vote on any matter and shall not be deemed to be outstanding shares.
SECTION 9. PROXIES. Every stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting of a
stockholders' duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney in-fact.
No proxy shall be valid after the expiration of three years from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except as otherwise provided by
law.
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<PAGE>
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the stockholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of stockholders.
If a proxy for the same shares confers authority upon two or more
persons and does not otherwise provide, a majority of them present at the
meeting, or if only one is present then that one, may exercise all the powers
conferred by the proxy; but if the proxy holders present at the meeting are
equally divided as to the right and manner of voting in any particular case, the
voting of such shares shall be prorated.
If a proxy expressly provides, any proxy holder may appoint in writing
a substitute to act in his place.
SECTION 10. ACTION BY STOCKHOLDERS WITHOUT A MEETING. Any action
required by law, these bylaws, or the certificate of incorporation of this
Corporation to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. If
any class of shares is entitled to vote thereon as a class, such written consent
shall be required of the holders of a majority of the shares of each class of
shares entitled to vote as a class thereon and of the total shares entitled to
vote thereon.
Promptly after obtaining such authorization by written
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<PAGE>
consent, notice shall be given to those stockholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action, and, if the action be a merger or consolidation for which
appraisal rights are provided under the DGCL, be given in accordance with
Section 262(d)(2) of the Act, as amended.
ARTICLE II. DIRECTORS
SECTION 1. FUNCTION. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
SECTION 2. QUALIFICATION. Directors need not be residents of this state
or stockholders of this Corporation.
SECTION 3. COMPENSATION. The Board of Directors shall have authority to
fix the compensation of directors.
SECTION 4. DUTIES OF DIRECTORS. A director shall perform his duties as
a director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the Corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) one or more officers or employees of the Corporation whom
the director reasonably believes to be reliable and competent in the matters
presented,
7
<PAGE>
(b) counsel, public accountants or other persons as to matters
which the director reasonably believes to be within such person's professional
or expert competence, or
(c) a committee of the board upon which he does not serve,
duly designated in accordance with a provision of the certificate of
incorporation or the bylaws, as to matters within its designated authority,
which committee the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall
have no liability by reason of being or having been a director of the
Corporation.
SECTION 5. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of its Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless he
votes against such action or abstains from voting in respect thereto because of
an asserted conflict of interest.
SECTION 6. NUMBER. This Corporation shall have no less than three nor
greater than nine directors. The number of directors may be established from
time to time by resolution of the Board of Directors, but no decrease shall have
the effect of shortening the terms of any incumbent director.
SECTION 7. ELECTION AND TERM. Each person named in the certificate of
incorporation as a member of the initial Board of Directors and all other
directors appointed by the Board of Directors to fill vacancies thereof shall
hold office until the first annual meeting of stockholders, and until his
successor
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<PAGE>
shall have been elected and qualified or until his earlier resignation, removal
from office or death.
At the first annual meeting of stockholders and at each annual meeting
thereafter the stockholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the stockholders.
SECTION 9. REMOVAL OF DIRECTORS. At a meeting of the stockholders
called expressly for that purpose, any director or the entire Board of Directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares of each class or series of voting stock, present in person or by
proxy, then entitled to vote at an election of directors.
SECTION 10. QUORUM AND VOTING. A majority of the number of directors
fixed by these bylaws shall constitute a quorum for the transaction of business.
The act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 11. DIRECTOR CONFLICTS OF INTEREST. No contract or other
transaction between this Corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable
9
<PAGE>
because of such relationship or interest or because such director or directors
are present at the meeting of the Board of Directors or a committee thereof
which authorizes, approves or ratifies such contract or transaction or because
his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient for the
purpose without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or
known to the stockholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable as to
the Corporation at the time it is authorized by the board, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
SECTION 12. PLACE OF MEETING. Regular and special meetings by the Board
of Directors may be held within or without the State of Delaware.
SECTION 13. TIME, NOTICE AND CALL OF MEETINGS. Regular meetings of the
Board of Directors shall be held without notice on the second Tuesday of
September of each year. Written notice of the time and place of special meetings
of the Board of Directors shall be given to each director by either personal
delivery, first class mail, facsimile transmission, or telegram at least two
days before the meeting.
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<PAGE>
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all obligations to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
Meetings of the Board of Directors may be called by the president of
the Corporation or by any director.
Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
SECTION 14. ACTION WITHOUT A MEETING. Any action required to be taken
at a meeting of the directors of the Corporation, or any action which may be
taken at a meeting of the directors, may be taken without a meeting if a consent
in writing, setting forth
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<PAGE>
the action to be taken, signed by all of the directors, is filed in the minutes
of the proceedings of the Board. Such consent shall have the same effect as a
unanimous vote.
SECTION 15. COMMITTEES. The Board of Directors may designate from among
its members such committees it deems prudent, such as, but not limited to, an
executive committee, audit committee, compensation committee, finance committee
and a litigation committee.
ARTICLE III. OFFICERS
SECTION 1. OFFICERS. The officers of this Corporation shall consist of
a chief executive officer, president, vice president of finance and any other
vice presidents designated by the Board of Directors, secretary, and treasurer,
and such other officers as may be designated by the Board of Directors, each of
whom shall be elected by the Board of Directors from time to time. Any two or
more offices may be held by the same person. The failure to elect any of the
above officers shall not affect the existence of this Corporation.
SECTION 2. DUTIES. The officers of this Corporation shall have the
following duties and such other duties as delegated by the president.
The chief executive officer of the Corporation shall have general and
active management of the business and affairs of the Corporation subject to the
directions of the Board of Directors.
The president shall be the chief operating officer of the Corporation,
and shall act whenever the Chief Executive Officer shall be unavailable.
The vice president of finance shall be the chief financial and chief
accounting officer. He shall keep correct and complete
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<PAGE>
records of account, showing accurately at all times the financial condition of
the corporation. He shall furnish at meetings of the Board of Directors, or
whenever requested, a statement of the financial condition of the Corporation
and shall perform such other duties as the bylaws provide or the Board of
Directors may prescribe.
Any other vice president(s) shall perform such duties as may be
prescribed by the Board of Directors or the president and shall act whenever the
president shall be unavailable.
The secretary shall have custody of and maintain all of the corporate
records except the financial records, shall record the minutes of all meetings
of the stockholders and whenever else required by the Board of Directors or the
president, and shall perform such other duties as may be prescribed by the Board
of Directors.
The treasurer shall be the legal custodian of all monies, notes,
securities and other valuables that may from time to time come into the
possession of the Corporation. He shall immediately deposit all funds of the
Corporation coming into his hands in some reliable bank or other depositary to
be designated by the Board of Directors and shall keep this bank account in the
name of the Corporation.
SECTION 3. REMOVAL OF OFFICERS. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board whenever in its
judgment the best interests of the Corporation will be served thereby.
Any officer or agent elected by the stockholders may be removed only by
vote of the stockholders, unless the stockholders shall have authorized the
directors to remove such officer or agent.
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<PAGE>
Any vacancy, however, occurring, in any office may be filled by the
Board of Directors, unless the bylaws shall have expressly reserved such power
to the stockholders.
Removal of any officer shall be without prejudice to the contract
rights, if any, of the person so removed; however, election or appointment of an
officer or agent shall not of itself create contract rights.
ARTICLE IV. STOCK CERTIFICATES
SECTION 1. ISSUANCE. Every holder of shares in this Corporation shall
be entitled to have a certificate, representing all shares to which he is
entitled. No certificate shall be issued for any share until such share is fully
paid.
SECTION 2. FORM. Certificates representing shares in this Corporation
shall be signed by the president or vice president and the secretary or an
assistant secretary or treasurer or assistant treasurer and may be sealed with
the seal of this Corporation or a facsimile thereof. The signature of the
president or vice president and the secretary or assistant secretary or
treasurer or assistant treasurer may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issuance.
Every certificate representing shares issued by this Corporation shall
set forth or fairly summarize upon the face or back of the certificate, or shall
state that the Corporation will furnish to any stockholder upon request and
without charge a full statement of, the designations, preferences, limitations
and
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relative rights of the shares of each class or series authorized to be issued,
and the variations in the relative rights and preferences between the shares of
each series so far as the same have been fixed and determined, and the authority
of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series.
Every certificate representing shares which are restricted as to the
sale, disposition, or other transfer of such shares shall state that such shares
are restricted as to transfer and shall set forth or fairly summarize upon the
certificate, or shall state that the Corporation will furnish to any stockholder
upon request and without charge a full statement of, such restrictions.
Each certificate representing shares shall state upon its face: the
name of the Corporation; that the Corporation is organized under the laws of
this state; the name of the person or persons to whom issued; the number and
class of shares, and the designation of the series, if any, which such
certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value.
SECTION 3. TRANSFER OF STOCK. Except as provided in Section 4 of this
Article, the Corporation shall register a stock certificate presented to it for
transfer if the certificate is properly endorsed by the holder of record or by
his duly authorized attorney, and the signature of such person has been
guaranteed by a commercial bank or trust company or by a member of the New York
or American Stock Exchange.
SECTION 4. OFF-SHORE OFFERINGS. In all offerings of equity securities
pursuant to Regulation S of the Securities Act of 1933 (the "Act"), the
Corporation shall require that its stock transfer agent refuse to register any
transfer of securities not made in accordance with the provisions of Regulation
S, pursuant to registration under the Act or an available exemption under the
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Act.
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
shall issue a new stock certificate in the place of any certificate previously
issued if the holder of record of the certificate (a) makes proof in affidavit
form that it has been lost, destroyed or wrongfully taken; (b) requests the
issuance of a new certificate before the Corporation has notice that the
certificate has been acquired by a purchaser for value in good faith and without
notice of any adverse claim; (c) gives bond in such form as the Corporation may
direct, to indemnify the Corporation, the transfer agent, and registrar against
any claim that may be made on account of the alleged loss, destruction, or theft
of a certificate; and (d) satisfies any other reasonable requirements imposed by
the Corporation.
ARTICLE V. BOOKS AND RECORDS
SECTION 1. BOOKS AND RECORDS. This Corporation shall keep correct and
complete records and books of account and shall keep minutes of the proceedings
of its stockholders, Board of Directors and committees of directors.
This Corporation shall keep at its registered office or principal place
of business, or at the office of its transfer agent or registrar, a record of
its stockholders, giving the names and addresses of all stockholders, and the
number, class and series, if any, of the shares held by each.
Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
Any person who shall have been a holder of record of shares or of
voting trust certificates therefor at least six months immediately preceding his
demand or shall be the holder of record
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of, or the holder of record of voting trust certificates for, at least five
percent of the outstanding shares of any class or series of the Corporation,
upon written demand stating the purpose thereof, shall have the right to
examine, in person or by agent or attorney, at any reasonable time or times, for
any proper purpose its relevant books and records of accounts, minutes and
records of stockholders and to make extracts therefrom.
SECTION 3. FINANCIAL INFORMATION. Not later than three months after the
close of each fiscal year, this Corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the Corporation as of
the close of its fiscal year, and a profit and loss statement showing the
results of the operations of the Corporation during its fiscal year.
Upon the written request of any stockholder or holder of voting trust
certificates for shares of the Corporation, the Corporation shall mail to such
stockholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement.
The balance sheets and profit and loss statements shall be filed in the
registered office of the Corporation in this state, shall be kept for at least
five years, and shall be subject to inspection during business hours by any
stockholder or holder of voting trust certificates, in person or by agent.
ARTICLE VI. DIVIDENDS
The Board of Directors of this Corporation may, from time to time,
declare and the Corporation may pay dividends on its shares in cash, property or
its own shares, except when the Corporation is insolvent or when the payment
thereof would render the Corporation insolvent or when the declaration or
payment thereof would be contrary to any restrictions contained in the
certificate of incorporation, subject to the following provisions:
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(a) Dividends in cash or property may be declared and paid,
except as otherwise provided in this section, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
howsoever arising but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share paid
from such surplus shall be disclosed to the stockholders receiving the same
concurrently with the distribution.
(b) Dividends may be declared and paid in the Corporation's
own treasury shares.
(c) Dividends may be declared and paid in the Corporation's
own authorized but unissued shares out of any unreserved and unrestricted
surplus of the Corporation upon the following conditions:
(1) If a dividend is payable in shares having a par
value, such shares shall be issued at not less than the par value thereof and
there shall be transferred to stated capital at the time such dividend is paid
an amount of surplus equal to the aggregate par value of the shares to be issued
as a dividend.
(2) If a dividend is payable in shares without a par
value, such shares shall be issued at such stated value as shall be fixed by the
Board of Directors by resolution adopted at the time such dividend is declared,
and there shall be transferred to stated capital at the time such dividend is
paid an amount of surplus equal to the aggregate stated value so fixed in
respect of such shares; and the amount per share so transferred to stated
capital shall be disclosed to the stockholders receiving such dividend
concurrently with the payment thereof.
(d) No dividend payable in shares of any class shall be paid
to the holders of shares of any other class unless the
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certificate of incorporation so provide or such payment is authorized by the
affirmative vote or the written consent of the holders of at least a majority of
the outstanding shares of the class in which the payment is to be made.
(e) A split-up or division of the issued shares of any class
into a greater number of shares of the same class without increasing the stated
capital of the Corporation shall not be construed to be a share dividend within
the meaning of this section.
ARTICLE VII. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the following:
ARTICLE VIII. AMENDMENT
These bylaws may be repealed or amended, and new bylaws maybe adopted,
by the Board of Directors.
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EXHIBIT 4.1
- -------------------------- -----------------------------------------------------
Number Incorporated Under the Laws of Shares
Florida
- -------------------------- -----------------------------------------------------
SFBC INTERNATIONAL, INC..
This Certifies that _____________________________________________________ is the
registered Holder of __________________________________ Shares of the Capital
Stock of
SFBC INTERNATIONAL, INC..
fully-paid and non-assessable transferable only on the books of the Corporation
by the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereto
affixed this _______________ day of _________________________ A.D. 19___.
________________________________ _______________________________________
Secretary President
- -------------------------- -----------------------------------------------------
EXHIBIT 5
[MICHAEL HARRIS, P.A. LETTERHEAD]
August 12, 1999
SFBC International, Inc.
11190 Biscayne Blvd.
Miami, FL 33181
Attention: Lisa Krinsky, M.D.
RE: SFBC INTERNATIONAL, INC.
Dear Dr. Krinsky:
You have advised us that SFBC International, Inc. (the "Company") is
filing with the United States Securities and Exchange Commission a Registration
Statement on Form SB-2 with respect to 1,322,500 shares of common stock, $.001
par value, offered for sale by the Company.
In connection with the filing of this Registration Statement, you have
requested us to furnish you with our opinion as to the legality of (i) such of
the Company's shares of common stock as are presently outstanding; and (ii) such
securities as shall be offered by the Company itself pursuant to the Prospectus
which is part of the Registration Statement.
You have advised us that as of August 6, 1999, the Company's authorized
capital consists of 20,000,000 shares of common stock, $.001 par value per
share, of which 2,080,000 shares are issued and outstanding and 5,000,000 shares
of preferred stock $.10 par value, of which no shares are issued and
outstanding. You have further advised us that the Company has received valid
consideration for the issuance of these issued and outstanding shares.
After having examined the Company's Certificate of Incorporation, as
amended, bylaws, minutes, and the financial statements contained in the
Prospectus, we are of the opinion that 1,322,500 shares of common stock to be
offered by the Company will be when offered and sold and valid consideration
received, fully paid and nonassessable, duly authorized and validly issued.
We consent to the use of our name in the Prospectus under the caption
"Legal Matters".
Very truly yours,
Michael Harris, P.A.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This AGREEMENT is dated the 24 day of FEBRUARY, 1999, between SOUTH
FLORIDA KINETICS, INC., a Florida corporation doing business as SOUTH FLORIDA
BIOAVAILABILITY CLINIC (the "Company") and GREGORY B. HOLMES an individual
residing at 976 Winding Way, Kenton Hills, Kentucky 41011976 Winding Way, Kenton
Hills, Kentucky 41011 (the "Employee").
WHEREAS, the Company and the Employee desire that the Employee be
employed by the Company on the terms as hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
RECITALS
The foregoing recitals are true and correct and incorporated herein as
if restated in their entirety.
ARTICLE II
EMPLOYMENT
2.1 EMPLOYMENT. The Company hereby employs the Employee as Executive
Vice President of Clinical Operations or in such other capacity
as the Company's board of directors may from time to time
determine. The Employee shall engage in such activities and
perform such reasonable duties as may be assigned him from time
to time by the Company's President. Employee hereby accepts such
employment and agrees to devote his full working time and best
efforts to the Company's business and affairs. During the term
hereof, the Employee shall not engage in or be connected with any
other business pursuits unless authorized in writing by the
President of the Company, except for passive investment
activities which do not inhibit or interfere with the performance
of the Employee's duties hereunder. *EXCEPTIONS [ILLEGIBLE]
2.1.1 CORPORATE DIRECTOR. Commencing subsequent to the company
completing an IPO, Employee shall be nominated to the Board of
Directors of the subsidiary Corporation (New South Florida
Kinetics, Inc.)
2.2 SALARY. During the continuance of employment hereunder the Company
shall pay to the Employee for his services hereunder a salary, payable in
accordance with Company's normal payroll cycle, at the annual rate of $120,000,
plus such additional amounts as may be determined by the board of directors of
the Company.
2.3 FRINGE BENEFITS AND OTHER COMPENSATION. The Employee will be
entitled to receive
<PAGE>
during his employment hereunder the following fringe benefits:
2.3.1 VACATION AND SICK LEAVE. The Employee shall be entitled to paid
vacation annually to be taken at such times during the year as
may be approved by the Company on reasonable notice and which do
not unduly interfere with the business of the Company. The
Employee shall be entitled to sick leave each year. Annual
vacation and sick leave days are comparable to other executives
such as Arnold Hantman or Dr. Lisa Krinsky.
2.3.2 HEALTH INSURANCE. The Employee will receive individual health
insurance benefits under the Company's comparable executive
plans. Employer may continue funding existing COBRA plan until
it's expiration.
2.3.3 MOVING EXPENSES. The Company will reimburse the Employee for
reasonable and necessary expenses of moving himself, his
immediate family and their possessions from Kentucky to Florida.
2.3.4 AUTOMOBILE ALLOWANCE. The company will provide employee with an
automobile allowance in the amount of $300 per bi-weekly pay
period.
2.3.5 TRAVEL TO CINCINNATI. The company will reimburse employee for one
round trip per month to Cincinnati but not to exceed $300.
2.3.6 TEMPORARY APARTMENT. The company will provide employee with a 2
bedroom apartment for up two 6 months or longer in the discretion
of the Board of Directors.
2.3.7 PROFESSIONAL DUES. The company will reimburse employee for
reasonable costs of professional licenses and dues.
2.4 COMPANY STOCK OPTION. Upon execution of this Agreement, the Company
shall grant to the Employee a non-qualified stock option to purchase 200,000
shares of the common shares of beneficial interest in the Company at an exercise
price of one ($1.00) dollar per share. This option shall be exercisable in four
equal annual installments of 50,000 shares each, commencing on 3/15/99. Upon
termination of this Agreement by either party, the Employee's rights hereunder
shall terminate, except if the Company should terminate the Employee's
employment for any reason (including the expiration of the Term of Employment by
notice given pursuant to Article III, below) other than for cause (as defined
below), then all excersible shares under the option shall remain exercisable for
at least twelve months following the effective date of termination.
ARTICLE III
PERIOD OF EMPLOYMENT
This Agreement shall become effective, and the employment hereunder
shall be for a period of one year, commencing upon the date first above written
(the "Effective Date"); provided, that commencing on the first anniversary of
the Effective Date and on each subsequent anniversary, the Term of this
Agreement shall automatically be extended for an additional year, unless, no
later than ninety (90) days before each such anniversary, either party provide
notice to the other party of an intention not to extend, and provided further,
that this Agreement may be sooner terminated pursuant to Article IV hereto.
<PAGE>
ARTICLE IV
TERMINATION OF THE AGREEMENT
4.1 DEATH OR PERMANENT DISABILITY. This Agreement shall automatically
terminate, without act by any party, upon the death or Permanent Disability of
the Employee. The term "Permanent Disability" refers to the Employee being
unable, for a period of 45 continuous days or 90 days in any twelve month
period, to perform his customary duties hereunder due to physical or mental
incapacity.
4.2 TERMINATION FOR CAUSE. This Agreement may at any time be terminated
by the Company for cause, which for the purposes of this Agreement shall mean
one or more of the following:
4.2.1 dishonesty, in any material respect;
4.2.2 personal misuse of alcohol or drugs;
4.2.3 material deficiency in the performance of duties or gross
insubordination;
4.2.4 any other material breach by Employee of any provision of this
Agreement.
4.3 TERMINATION WITHOUT CAUSE. This Agreement may be terminated by
either party without cause upon 90 days written notice provided to the other in
accordance with the terms of this Agreement. In the event notice of termination
without cause is given to the Employee by the Company, the Company may elect to
terminate immediately and pay the Employee three months severance within thirty
(30) days of termination. In the event notice of termination without cause is
given to the Company by the Employee within the first three months of the
initial term, within thirty (30) days of termination, the Employee shall pay to
the Company an amount equal to fifty (50%) of the moving expenses previously
paid by the Company to or for the benefit of the Employee.
4.4 EFFECT OF TERMINATIQN. Upon the termination of this Agreement
pursuant to this Article IV, except as otherwise provided, all salary, bonuses,
other compensation or rights hereunder shall cease to accrue as of the date of
termination, but the Company shall remain responsible for any salary which shall
have accrued pursuant to Article II above to the date of termination. The
parties agree that the mounts paid under this provision or the preceding
provision are in full and complete satisfaction of all obligations due to the
Employee by the Company and, accordingly, the Company may demand a general
release before disbursing the amount payable under this provision or the
preceding provision.
ARTICLE V
NON-DISCLOSURE AND NON-COMPETITION COVENANTS
5.1 COVENANTS OF EMPLOYEE. The Employee acknowledges that his duties
will require him to have constant access to confidential information and
material belonging to the Company, including without limitation the Company's
operating procedures, business plans, trade secrets, and marketing tactics and
its lists of customers, vendors, referral sources and patients. As an
<PAGE>
inducement to, an in consideration of, the Company entering into this Agreement,
and in recognition of the fact that the failure of the Employee to abide by the
restrictive covenants set forth herein will result in irreparable harm to the
Company, the Employee agrees as follows:
5.1.1 Employee shall not at any time utilize or divulge such
information and material, except on behalf of Company in a duly
authorized manner.
5.1.2 Employee shall not, during the continuance of this Agreement and
for a period of one year thereafter (without regard to the nature
or cause of the termination of this Agreement), directly or
indirectly, in any way for his own account, as employee, officer,
stockholder, proprietor, partner or otherwise, or for the account
of any other person, firm, corporation or enterprise:
(i) Engage anywhere in Dade, Monroe, Broward or Palm Beach
Counties of Florida, in any, similar business to that
conducted by the Company.
(ii) Solicit customers or referral sources which are or were
customers or referral sources of the Company during any
period of his employment with a view toward inducing any
such customer or referral source to obtain services or
engage in any business activity of the nature of that
offered or engaged in by the Company; or
(iii) Offer employment to any employee of the Company in any
capacity whatsoever or attempt to induce or cooperate with
any other firm in an attempt to induce any employee of
Company to leave the employ of Company.
5.1.3 Employee agrees that any ideas, designs, inventions, discoveries,
improvements, or the like, relating in any way to Company's
business, whether patentable or not, developed or made by him
during the term hereof, whether during or after working hours,
whether alone or with others, shall be the sole property of and
are hereby assigned to the Company, and Employee undertakes to
promptly make full disclosure thereof to Company, and to execute
such instruments during the term hereof and thereafter as may be
required, and to take all other steps necessary, to vest whatever
right, title and interest therein Employee would otherwise have
had, solely in Company. Without limiting the Company's rights
hereunder, any idea, design, invention, discovery or improvement
made or developed by Employee within one (1) year after
termination of Employee's employment with the Company shall be
presumptively deemed to have been made, discovered, developed or
otherwise conceived by Employee during Employee's period of
employment with the Company; provided that nothing herein shall
prevent the Employee from otherwise establishing that such idea,
design, invention, discovery or improvement was made and
developed by the Employee following the termination of the
Employee's employment with the Company. Employee further
acknowledges that there are no ideas, designs, inventions,
discoveries, improvements or the like relating in any way to the
Company's businesses
<PAGE>
developed or made prior to the date hereof by the Employee,
except such thereof, which are owned by the Company.
5.1.4 Employee agrees that any work of authorship, relating in any way
to Company's business, prepared by him during the term hereof,
shall be a "work made for hire", and Company shall be the sole
author of such work and the owner of all of the rights comprised
in the copyright of such work. Employee undertakes to execute
such instruments during the term hereof and thereafter as may be
required, and to take all other steps necessary, to confirm that
all such rights are vested solely in Company.
5.2 MATERIAL OWNED BY THE COMPANY. The Employee shall, upon termination
of this Agreement for any reason, return to the Company all lists, books,
records, computer discs, credit cards, equipment, sales materials and other
documents and properties, and all copies thereof, pertaining to the business of
the Company, all of which the Employee acknowledges are owned by the Company.
5.3 EQUITABLE RELIEF. The Employee acknowledges that any breach of this
Article V would cause irreparable damage to the Company, incapable of
compensation by the award of money damages. The Employee therefore consents to
the entering of equitable relief with respect to any such breach, without the
necessity of proving actual damages.
5.4 CONSTRUCTION. In the event any provision of this Article V shall be
held to be invalid and unenforceable for any reason, including without
limitation the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement
(including this Article V), and this Article V shall be construed as if such
invalid or unenforceable provision had been more narrowly drawn so as not to be
invalid or unenforceable.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices or other communications to be given under this
Agreement shall be in writing and shall be deemed given when personally
delivered to the Employee or three days after mailing with adequate postage by
certified mail, return receipt requested, to the Employee or the Company, as the
case may be, at the following addresses:
If to the Company:
South Florida Bioavailability Clinic
11190 Biscayne Blvd.
Miami, FL 33181
If to the Employee:
Gregory B. Holmes
976 Winding Way
Kenton Hills, Kentucky 41011
or to such other address as the person to be notified shall have specified in
the manner indicated in
<PAGE>
this Paragraph 6.1.
6.2 SURVIVAL OF CERTAIN PROVISIONS. The restrictive covenants contained
in Article V above, and any provisions of this Agreement pertaining to such
covenants, shall survive the termination of this Agreement.
6.3 BINDING EFFECT; ETC. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, and their respective heirs, personal
representatives, successors and assigns; except that it shall not be assignable
by the Employee. This Agreement and the terms and provisions hereof shall be
construed in accordance with the laws of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and date first above written.
SOUTH FLORIDA KINETICS, INC., a Florida
corporation doing business as
SOUTH FLORIDA BIOAVAILABILITY CLINIC
By: /s/ LISA KRINSKY
----------------------------------
LISA KRINSKY, President
Attest:
/s/ LISA KRINSKY
- --------------------------------------
Secretary
Witnesses:
/s/ GREGORY B. HOLMES 2/27/99
- --------------------------------------
GREGORY B. HOLMES
EXHIBIT 10.4
SFBC INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
1. PURPOSE AND ELIGIBILITY. This Stock Option Plan (the "Plan") is
intended to advance the interests of SFBC International, Inc. (the "Company"),
and its Related Corporations, as defined below, by enhancing the ability of the
Company to attract and retain qualified employees, consultants, officers and
directors by creating incentives and rewards for their contributions to the
success of the Company. This Plan will provide to: (a) officers and other
employees of the Company and its Related Corporations opportunities to purchase
stock in the Company pursuant to options granted hereunder which qualify as
incentive stock options ("ISOs") under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code") and (b) directors, officers, employees and
consultants of the Company and Related Corporations opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not qualify
as ISOs ("Non-Qualified Options"). ISOs and Non-Qualified Options are referred
to hereafter as "Options".
For purposes of the Plan, the term "Related Corporations" shall mean a
corporation which is a subsidiary corporation with respect to the Company within
the meaning of Section 424(f) of the Code.
This Plan is intended to comply in all respects with Rule 16b-3 and its
successor rules as promulgated under Section 16(b) of the Securities Exchange
Act of 1934 ("Rule 16b-3") for participants who are subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). To the extent any
provision of the Plan or action by the Plan administrators fails to so comply,
it shall be deemed null and void to the extent permitted by law and deemed
advisable by the Plan administrators. Provided, however, such exercise of
discretion by the Plan administrators shall not interfere with the contract
rights of any participant. In the event that any interpretation or construction
of this Plan is required, it shall be interpreted and construed in order to
insure, to the maximum extent permissible by law, that such participant does not
violate the short-swing profit provisions of Section 16(b) of the Exchange Act
and that any exemption available under Rule 16b-3 is available.
2. STOCK. The stock subject to Options shall be authorized but unissued
shares of common stock (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares of
Common Stock which may be issued pursuant to the Plan is 700,000, subject to
adjustment as provided in Section 14. Any such shares may be issued as ISOs or
Non-Qualified Options so long as the number of shares so issued does not exceed
the limitations in this Section. If any Options granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part the unexercised
shares subject to such Options shall again be available for grants of Options
under the Plan.
3. ADMINISTRATION OF THE PLAN.
a. The Plan may be administered by the entire board of
directors of the
<PAGE>
Company (the "Board") or by a committee composed solely of two or more
Non-Employee Directors as that term is defined by Rule 16b-3(b)(3) of the
Exchange Act, or the Company shall otherwise act in accordance with the
permissible interpretations of Rule 16b-3 (the "Committee"). Once appointed,
such Committee shall continue to serve until otherwise directed by the Board. A
majority of the members of any such Committee shall constitute a quorum, and all
determinations of the Committee shall be made by the majority of its members
present at a meeting. Any determination of the Committee under the Plan may be
made without notice or meeting of the Committee by a writing signed by all of
the Committee members. Subject to ratification of the grant by the Board (but
only if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees of
the Company and Related Corporations (from among the class of employees eligible
under Section 3 to receive ISOs) to whom ISOs may be granted, and to determine
(from among the class of individuals and entities eligible under Section 3 to
receive Non-Qualified Options) to whom Non-Qualified Options may be granted;
(ii) determine the time or times at which Options may be granted; (iii)
determine the exercise price of shares subject to each Option which price for
any ISO shall not be less than the minimum price specified in Section 7; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to Section 8) the time or times when each Option, except
for non-discretionary Options, shall become exercisable, the duration of the
exercise period and when each Option shall vest; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject to
Options and the nature of such restrictions, if any, and (vii) interpret the
Plan and promulgate and rescind rules and regulations relating to it. Such
determination, whether made by the Committee or the Board shall be made in
advance of a grant and may be ratified after the fact only by the Company's
stockholders at or before the next annual meeting of stockholders held
subsequent to the grant. The interpretation and construction by the Committee of
any provisions of the Plan or of any Options granted under it shall be final,
binding and conclusive unless otherwise determined by the Board. The Committee
may from time to time adopt such rules and regulations for carrying out the Plan
as it may deem appropriate.
No members of the Committee or the Board shall be liable for any action
or determination made in good faith with respect to the Plan or any Options
granted under it. No member of the Committee or the Board shall be liable for
any act or omission of any other member of the Committee or the Board or for any
act or omission on his own part, including but not limited to the exercise of
any power and discretion given to him under the Plan, except those resulting
from his own gross negligence or willful misconduct.
(b) The Committee may select one of its members as its
chairman and shall hold meetings at such time and places as it may determine.
All references in this Plan to the Committee shall mean the Board if no
Committee has been appointed. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused or remove all members of the Committee and thereafter directly
administer the Plan.
(c) Options may be granted to members of the Board, whether
such grants are in their capacity as directors, employees or consultants.
Members of the Board who are either (i) eligible for Options pursuant to the
Plan or (ii) have been granted Options may vote on any matters
2
<PAGE>
affecting the administration of the Plan or the grant of any Options pursuant to
the Plan.
(d) Notwithstanding any other provision of Section 2, any
discretionary grants to a person who is a member of the Board shall be made only
by the Committee. The requirements imposed by this Section 2(d) shall also apply
with respect to grants to officers who are also directors.
(e) In addition to such other rights of indemnification as he
may have as a member of the Board, and with respect to administration of the
Plan and the granting of Options under it, each member of the Board and of the
Committee (the "Indemnitee") shall be entitled without further act on the
Indemnitees part to indemnification from the Company for all expenses (including
advances of litigation expenses, the amount of judgment and the amount of
approved settlements made with a view to the curtailment of costs of litigation)
reasonably incurred by the Indemnitee in connection with or arising out of any
action, suit or proceeding, including any appeal thereof, with respect to the
administration of the Plan or the granting of Options under it in which the
Indemnitee may be involved by reason of the Indemnitee being or having been a
member of the Board or the Committee, whether or not the Indemnitee continues to
be such member of the Board or the Committee at the time of the incurring of
such expenses; provided, however, that such indemnity shall not include any
expenses incurred by the Indemnitee (i) in respect of matters as to which the
Indemnitee shall be finally adjudged in such action, suit or proceeding to have
been guilty of or liable for gross negligence or willful misconduct in the
performance of his duties as a member of the Board or the Committee; (ii) in
respect of any matter in which any settlement is effected to an amount in excess
of the amount approved by the Company on the advice of its legal counsel or
(iii) arising from any action in which the Indemnitee asserts a claim against
the Company whether such claim is termed a complaint, counterclaim, crossclaim,
third party complaint or otherwise and, provided further, that no right of
indemnification under the provisions set forth herein shall be available to any
such member of the Board or the Committee unless within 10 days after
institution of any such action, suit or proceeding the Indemnitee shall have
offered the Company in writing the opportunity to handle and defend such action,
suit or proceeding at its own expense. The foregoing right of indemnification
shall inure to the benefit of the heirs, executors or administrators of each
such Indemnitee and shall be in addition to all other rights to which such
Indemnitee would be entitled to as a matter of law, contract or otherwise.
Provided, however, the exception in Section 3 (e) (iii) shall not apply to an
action for indemnification under circumstances where the Company has failed to
provide indemnification to the Indemnitee which indemnification is required by
this Plan.
(e) Notwithstanding the indemnification provided for by this
Section 3, the Company's bylaws, or any written agreement, such indemnity shall
not include any expenses, liabilities or losses incurred by such Indemnitees
relating to or arising from any Proceeding in which the Company asserts a direct
claim (as opposed to a stockholders' derivative action) against the Indemnitees,
whether such claim by the Company is termed a complaint, counterclaim,
crossclaim, third-party complaint or otherwise.
4. ELIGIBLE EMPLOYEES AND OTHERS.
3
<PAGE>
(a) ISOs may be granted to any employee of the Company or any
Related Corporation. Those officers and directors of the Company who
are not employees may not be granted ISOs under the Plan unless they
are employees of the Company or any Related Corporation. Subject to
compliance with Rule 16b-3 and other applicable securities laws,
Non-Qualified Options may be granted to any director (whether or not an
employee), officer, employee or consultant of the Company or any
Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant an
ISO or a Non-Qualified Option. Granting of any Option to any individual
or entity shall neither entitle that individual or entity to, nor
disqualify him from participation in any other grant.
(b) All directors of the Company who are not employees of the
Company or Related Corporations shall automatically receive grants of
10,000 Non-Qualified Options (i) at the time this Plan is adopted by
the Board; (ii) upon election or appointment to the Board if not a
member of the Board at the time this Plan is adopted by the Board; and
(iii) after all Options previously granted have vested.
(1) The exercise price of all Options shall be fair
market value on the date of grant as defined by Section 7.
(2) The Options shall vest in six equal increments of
1,666 Options per director on June 30 and December 31 of the
first and second year and 1,667 in the third year following
such grant, provided that the director is still serving as a
director of the Company. To the extent that any Options which
have not been exercised do not vest, the Options shall lapse.
(c) All Options shall be exercisable for a period of 10 years
from the date of grant, except where a shorter period is required by
the Code for certain ISOs or where the board or committee selects a
shorter period at the time of any discretionary grant.
5. GRANTING OF OPTIONS.
(a) Options may be granted under the Plan at any time on and
after February 5, 1999, provided, however, that no ISO shall be granted
more than 10 years after the effective date of this Plan. The date of
grant of Options under the Plan will be the date specified by the
Committee at the time it grants the Options; provided, however, that
such date shall not be prior to the date on which the Committee acts to
approve the grant. The Committee shall have the right, with the consent
of the optionee, to convert ISOs granted under the Plan to
Non-Qualified Options pursuant to Section 15.
(b) The Board or Committee shall grant Options to participants
that it, in its sole discretion, selects. Options shall be granted on
such terms as the Board or Committee shall determine except that ISOs
shall be granted on terms that comply with the Code and regulations
thereunder.
4
<PAGE>
(c) Notwithstanding any provision of this Plan, the Board or
the Committee may impose conditions and restrictions on any grant of
Options including forfeiture of vested Options, cancellation of Common
Stock acquired upon exercise of Options and forfeiture of profits from
the sale of Common Stock.
6. SALE OF SHARES ACQUIRED UPON EXERCISE OF OPTIONS. Any shares of the
Company's Common Stock acquired pursuant to Options granted hereunder as set
forth herein, cannot be sold by any officer, director or other person, subject
to Section 16 of the Exchange Act, until at least six months elapse from the
date of grant of the Options or unless the grant is otherwise exempt under Rule
16b-3 and the Board permits the sale. Nothing in this Section 6 shall be deemed
to reduce the holding period set forth under the applicable securities laws.
7. ISO MINIMUM OPTION PRICE AND OTHER LIMITATIONS.
(a) The exercise price per share of all Options granted under
the Plan shall not be less than the fair market value per share of
Common Stock on the date of such grant. For purposes of determining the
exercise price grants of ISOs, the date of the grant shall be the later
of (i) the date of approval by the Committee or the Board or (ii) the
date the recipient becomes an employee of the Company. In the case of
ISOs to be granted to an employee owning stock which represents more
than 10 percent of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share
shall not be less than 110 percent of the fair market value per share
of Common Stock on the date of grant and such ISOs shall not be
exercisable after the expiration of five years from the date of grant.
(b) In no event shall the aggregate fair market value
(determined at the time any ISOs are granted) of Common Stock for which
ISOs granted to any employee are exercisable for the first time by such
employee during any calendar year (under all stock option plans of the
Company and any Related Corporation) exceed $100,000.
(c) If, at the time Options are granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last trading day prior to the date such Options
are granted and shall mean:
(1) the closing price of the Company's Common Stock
appearing on a national securities exchange if the principal
market for the common stock is such an exchange, or, if not
listed or not the principal market, the closing price on The
Nasdaq Stock Market ("Nasdaq").
(2) if the Company's shares are not listed on Nasdaq,
then the closing price for its Common Stock as listed on the
National Association of Securities Dealers Regulation, Inc.'s
electronic bulletin board; or
(3) if the Company's Common Stock is not listed on
the electronic
5
<PAGE>
bulletin board, then the average bid and asked price for the
Company's shares as listed in the National Quotation Bureau's
"pink sheets"; or
(4) if there are no listed bid and asked prices
published in the pink sheets, then the fair market value shall
be based upon the average closing bid and asked price as
determined following a polling of all dealers making a market
in the Company's Common Stock.
8. DURATION OF OPTIONS. Subject to earlier termination as provided in
Sections 5, 9 and 10, all Options shall expire on the date specified in the
original grant of such Options (except with respect to any ISOs that are
converted into Non-Qualified Options pursuant to Section 17) provided, however,
that such grant must comply with Section 422 of the Code with regard to ISOs and
Rule 16b-3 with regard to all Options granted pursuant to this Plan to officers,
directors and 10% stockholders of the Company. For the purpose of this Plan, the
term "officer" shall have the same meaning as defined in Rule 16a-1(f)
promulgated under the Exchange Act.
9. EXERCISE OF OPTIONS. Subject to the provisions of Sections 4(b) and
9 through 13, all Options granted under the Plan shall be exercisable as
follows:
(a) The Options shall either be fully vested and exercisable
from the date of grant or shall become vested and exercisable in such
installments as the Committee may specify.
(b) Once an installment becomes exercisable, it shall remain
exercisable until expiration or termination of the Options, unless
otherwise specified by the Committee.
(c) All Options, once exercisable and vested, may be exercised
at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which they are then exercisable.
(d) The Committee shall have the right to accelerate the
vesting date to allow exercise of any installment of any Options;
provided that the Committee shall not accelerate the vesting and
exercisability date of any installment of any Options granted to any
employee as an ISO (and not previously converted into Non-Qualified
Options pursuant to Section 17) if such acceleration would violate the
annual vesting limitation contained in Section 422 of the Code as
described in Section 6(b).
(e) The vesting date of all Options shall accelerate in the
event of any of the following: (i) the Company is to merge or
consolidate with or into any other corporation or entity except a
transaction where the Company is the surviving corporation or a change
of domicile merger or similar transaction exempt from registration
under the Securities Act of 1933, (ii) the sale of all or substantially
all of the Company's assets, (iii) the sale of at least 90% of the
outstanding Common Stock of the Company to a third party (subsections
(i), (ii) and (iii) collectively referred to as an "Acquisition"); or
(iv) the Company is dissolved. Upon a minimum of 20 days prior written
notice to the optionees, the exercisability of such
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Options shall commence two business days prior to the earlier of (A)
the scheduled closing of an Acquisition or proposed dissolution or (B)
the actual closing of an Acquisition or proposed dissolution.
10. TERMINATION OF EMPLOYMENT. Subject to any greater restrictions or
limitations as may be imposed by the Committee upon the granting of any ISOs, if
an ISO optionee ceases to be employed by the Company and all Related
Corporations other than by reason of death or disability as defined in Section
11, no further installments of such ISOs shall become exercisable, and such ISOs
shall terminate on the day three months after the day of the termination of
employment, but in no event later than on their specified expiration dates,
except to the extent that such ISOs (or unexercised installments thereof) have
been converted into Non-Qualified Options pursuant to Section 17. Employment
shall be considered as continuing uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed
three months or, if longer, any period during which such optionee's right to
re-employment is guaranteed by statute. A leave of absence with the written
approval of the Company's Board shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporations so long as the optionee continues to be an employee of
the Company or any Related Corporation.
11. DEATH; DISABILITY. Subject to any greater restrictions or
limitations as may be imposed by the Committee upon the granting of any ISOs:
(a) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of death, such person's ISOs may
be exercised to the extent of the number of shares with respect to
which he could have exercised it on the date of his death, by his
estate, personal representative or beneficiary who has acquired the ISO
by will or by the laws of descent and distribution, at any time prior
to the earlier of the ISO's specified expiration date or three months
from the date of the optionee's death.
(b) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have
the right to exercise any ISOs held by him on the date of termination
of employment until the earlier of (i) the ISOs' specified expiration
date or (ii) one year from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code, as amended, or successor statute.
12. ASSIGNMENT, TRANSFER OR SALE.
(a) No ISOs and no Options granted to an employee who is an
officer, director or beneficial owner of 10% or more of the Company's
Common Stock ("10% Owner") shall be assignable or transferable by the
grantee except as provided below or by will or by the laws of descent
and distribution, and during the lifetime of the grantee, each Option
shall be
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exercisable only by him, his guardian or legal representative. The
shares underlying the ISOs cannot be assigned, transferred or sold
until at least two years from the date of the granting of the ISOs and
one year after the transfer of such shares to the optionee.
(b) No ISOs shall be assignable or transferable by the
grantee.
(c) Provided however, any officer, director or 10% Owner may
transfer Non-Qualified Options to members of his or her immediate
family (I.E. children, grandchildren or spouse), to trusts for the
immediate benefit of such family members and to partnerships in which
such family members are the only partners, upon approval of the
Committee so long as no consideration is received for the transfer.
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(d) Notwithstanding the terms of this Section 12, subject to
approval by the Committee, any executive officer, director or 10% Owner
may transfer Non-Qualified Options, granted under circumstances where
the exemption provided by Rule 16b-3 promulgated under the Exchange Act
is not applicable, to a spouse or former spouse if such transfer is
made in connection with a divorce proceeding and the specific terms of
the transfer are incorporated into a final divorce decree. The shares
of Common Stock underlying such Options may not be sold prior to the
entry of the divorce decree.
13. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 7 through 12 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Options and forfeiture provisions. In granting any Non-Qualified
Options, the Committee may specify that such Non-Qualified Options shall be
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on one
or more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
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<PAGE>
14. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Options:
(a) If the shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if the Company
shall issue any shares of its Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend. Provided, however, no
adjustment shall occur upon (i) the merger of the Company with College
Directory Publishing Corporation, (ii) the stock dividend of 15,149
shares of Common Stock to be paid on each share of Common Stock
resulting in 1,515,000 shares of Common Stock being outstanding, or
(iii) the conversion of any series of preferred stock of the Company as
the result of an initial public offering or merger or similar
transaction with a public company.
(b) If the Company is to be consolidated with or acquired by
another entity pursuant to an Acquisition, the Committee or the board
of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board") shall, as to outstanding Options not
exercised pursuant to Section 10, either (i) make appropriate provision
for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the consideration
payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market
value of the shares subject to such Options over the exercise price
thereof.
(c) In the event of a recapitalization or reorganization of
the Company (other than a transaction described in Section 14(b) above)
pursuant to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common Stock, an
optionee upon exercising Options shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Options prior to such recapitalization
or reorganization.
(d) Notwithstanding the foregoing, any adjustments made
pursuant to Section 14(a), (b) or (c) with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h)
of the Code) or would cause any adverse tax consequences for the
holders of such ISOs. If the Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs
it may refrain from making such adjustments.
(e) Except as expressly provided herein, no issuance by the
Company of shares of Common Stock of any class or securities
convertible into shares of Common Stock of any class shall affect, and
no adjustment by reason thereof shall be made with respect to, the
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number or price of shares subject to Options. No adjustments shall be
made for dividends or other distributions paid in cash or in property
other than securities of the Company.
(f) No fractional shares shall be issued under the Plan and
the optionees shall receive from the Company cash in lieu of such
fractional shares.
(g) Upon the happening of any of the foregoing events
described in Section 14(a), (b) or (c) above, the class and aggregate
number of shares set forth in Section 14 hereof that are subject to
Options which previously have been or subsequently may be granted under
the Plan shall also be appropriately adjusted to reflect the events
described therein. The Committee or the Successor Board shall determine
the specific adjustments to be made under this Section 14 and, subject
to Section 3, its determination shall be conclusive. If any person or
entity owning restricted Common Stock obtained by exercise of Options
made hereunder receives securities or cash in connection with a
corporate transaction described in Section 14(a), (b) or (c) above as a
result of owning such restricted Common Stock, such securities or cash
shall be subject to all of the conditions and restrictions applicable
to the restricted Common Stock with respect to which such securities or
cash were issued, unless otherwise determined by the Committee or the
Successor Board.
15. MEANS OF EXERCISING OPTIONS.
(a) An Option (or any part or installment thereof) shall be
exercised by giving written notice to the Company at its principal
office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being
exercised, accompanied by full payment of the purchase or exercise
price therefor either (i) in United States dollars in cash or by check;
(ii) at the discretion of the Committee, through delivery of shares of
Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option; (iii) at the
discretion of the Committee, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no
less than 100% of the lowest applicable federal rate, as defined in
Section 1274(d) of the Code; (iv) at the discretion of the Committee,
by delivery of a letter from the grantee to his broker and the Company
directing his broker to send all proceeds of the sale of his securities
to the Company so the Company can deduct the exercise price and
withholding taxes prior to disbursement of the remaining proceeds to
grantee; or (v) at the discretion of the Committee, by any combination
of (i), (ii), (iii) and (iv) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means
of the methods set forth in clauses (ii), (iii), (iv) or (v) of the
preceding sentence, such discretion shall be exercised in writing
anytime prior to exercise of the ISO in question. The holder of an
Option shall not have the rights of a stockholder with respect to the
shares covered by his Option until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above
in Section 14 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is
issued.
(b) Each notice of exercise shall, unless the Common Stock
underlying the
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Options (the "Option Shares") are covered by a then current
registration statement under the Securities Act of 1933, as amended
(the "Act"), contain the optionee's acknowledgment in form and
substance satisfactory to the Company that (i) such Option Shares are
being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of counsel
to the Company, may be made without violating the registration
provisions of the Act), (ii) the optionee has been advised and
understands that (1) the Option Shares have not been registered under
the Act and are "restricted securities" within the meaning of Rule 144
under the Act and are subject to restrictions on transfer, and (2) the
Company is under no obligation to register the Option Shares under the
Act or to take any action which would make available to the optionee
any exemption from such registration, and (iii) such Option Shares may
not be transferred without compliance with all applicable federal and
state securities laws. Notwithstanding the above, should the Company be
advised by counsel that issuance of Option Shares should be delayed
pending registration under federal or state securities laws or the
receipt of an opinion that an appropriate exemption therefrom is
available, the Company may defer exercise of any Options granted
hereunder until either such event has occurred.
16. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board and
the sole stockholder on February 4, 1999. This Plan shall have no expiration
date, provided however that no ISOs shall be granted more than 10 years after
the Plan's effective date. The Board may terminate or amend the Plan in any
respect at any time. If stockholder approval is required by any national
securities exchange or Nasdaq, such approval must be obtained in accordance with
the appropriate rules requiring approval which may include: (a) increase of the
total number of shares that may be issued under the Plan (except by adjustment
pursuant to Section 14); and (b) modification of the provisions of Section 3
regarding eligibility for grants of ISOs. Except as provided herein or as
specified in the original instrument granting such Options, no action of the
Board or stockholders may alter or impair the rights of a grantee, without his
consent, under any Options previously granted to him.
17. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISOs that have not been
exercised at the time of such termination.
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18. APPLICATION OF FUNDS. The proceeds received by the Company from the
exercise of Options granted under the Plan shall be used for general corporate
purposes.
19. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver shares of Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of
Non-Qualified Options or the making of a Disqualifying Disposition (as defined
in Section 21) the Company, in accordance with Section 3402(a) of the Code may
require the optionee to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition the exercise of Options on the
payment of such withholding taxes.
To the extent that the Company is required to withhold taxes for
federal income tax purposes in connection with the exercise of any Options, the
Company shall have the discretion to determine if any optionee may elect to
satisfy such withholding requirement by (i) paying the amount of the required
withholding tax to the Company; (ii) delivering to the Company shares of its
Common Stock previously owned by the optionee; or (iii) having the Company
retain a portion of the Option Shares. If permitted by the Company, the number
of shares to be delivered to or withheld by the Company times the fair market
value of such shares shall equal the cash required to be withheld. To the extent
that the participant is authorized to either deliver or have withheld shares of
the Company's Common Stock, the Board, or the Committee, may require him to make
such election only during a certain period of time as may be necessary to comply
with appropriate exemptive procedures regarding the "short-swing" profit
provisions of Section 16(b) of the Exchange Act or to meet certain Code
requirements.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives ISOs must agree to notify the Company in writing immediately after the
employee makes a Disqualifying Disposition of any Common Stock acquired pursuant
to the exercise of such ISOs. A Disqualifying Disposition is any disposition
(including any sale) of such Common Stock before the later of (i) two years
after the date of employee was granted the ISOs, or (ii) one year after the date
the employee acquired Common Stock by exercising the ISO. If the employee has
died before such Common Stock is sold, these holding period requirements do not
apply and no Disqualifying Disposition can occur thereafter.
22. CONTINUED EMPLOYMENT. The grant of Options pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Related Corporation to
retain the optionee as an employee of the Company or a Related Corporation, as a
member of the Company's Board or in any other capacity, whichever the case may
be.
23. BONUSES OR LOANS TO EXERCISE OPTIONS. If requested by any person to
whom a grant of Options has been made, the Company or any Related Corporation
may, upon full Board approval, loan such person, guarantee a bank loan, or pay
such person additional compensation of
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the amount of money necessary to pay the federal income taxes incurred as a
result of the exercise of any Non-Qualified Options, assuming that such person
is in the maximum federal income tax bracket and assuming that such person has
no deductions which would reduce the amount of such tax owed. The tax loan shall
be made or tax offset bonus paid on or after April 15th of the year following
the year in which the tax is incurred and any loan shall be made on such terms
as the Company or lending bank determines.
24. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Options shall be governed by the laws of the
State of Delaware. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
the context otherwise requires.
14
EXHIBIT 10.5
CONVERTIBLE NOTE
$[[Amount]] June 7, 1999
FOR VALUE RECEIVED, SFBC International, Inc. (the "Company"), a
Delaware corporation, hereby promises to pay to the order of [[Name]] (the
"Holder"), at [[Address]], or at such other place as Holder designates in
writing to the Company, the principal sum of $[[Amount]] together with interest
thereon accruing as of January 1, 1999 computed at the annual rate of 10%.
Principal and interest shall be due and payable on June 7, 2002 unless
previously converted. While in default, this Note shall bear interest at the
rate of 18% per annum or such lower maximum rate of interest allowable under the
laws of the State of Delaware. Payments shall be made in lawful money of the
United States.
1. CONVERSION TO COMMON STOCK. At the time the Company completes an
initial public offering of its common stock ("IPO"), this Note shall convert
into shares of common stock of the Company at 80% of the IPO price (the
"Conversion Price") which is a 20% discount from the IPO Price. The number of
shares of common stock issuable upon conversion shall be determined by dividing
the Conversion Price into the face amount of this Note. No fractional shares
shall be issued. The Company shall pay the Holder the interest accrued from
January 1, 1999 and the difference between the face amount of this Note and the
product of (i) the number of shares issued times (ii) the Conversion Price. No
effect shall be given to the inclusion of any warrants contained in any units
consisting of common stock and warrants.
2. ISSUANCE OF WARRANT. At the time this Note is converted into shares
of common stock, the Company shall issue to the Holders a Warrant to purchase an
equal number of shares of common stock, exercisable at 120% of the IPO price.
3. OWNERSHIP OF SOUTH FLORIDA KINETICS, INC. The Company represents and
warrants to the Holder that it owns 100% of the outstanding stock of South
Florida Kinetics, Inc., a Florida corporation.
4. REPLACEMENT OF SOUTH FLORIDA KINETICS, INC. This Note replaces a
note of South Florida Kinetics, Inc. payable to the Holder (the "Kinetics Note")
and is in an amount equal to the outstanding principal and accrued interest of
the Kinetics Note as of December 31, 1998.
5. DIVIDENDS. In the event that the Company shall pay a dividend
consisting of the securities of any other entity or in cash or other property,
upon conversion of this Note, the Holder shall receive the securities, cash, or
property which the Holder would have been entitled to if the Holder had
converted this Note immediately prior to the record date of such dividend.
6. EVENT OF DEFAULT. In the event the Company shall commence any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it as bankrupt or insolvent, or seeking
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reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to its debts, or seeking appointment of
a receiver, custodian, trustee or other similar official for it or for all or
any substantial part of its assets; or there shall be commenced against the
Company, any case, proceeding or other action which results in the entry of an
order for relief or any such adjudication or appointment remains undismissed,
undischarged or unbounded for a period of 30 days; or there shall be commenced
against the Company, any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, restraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 10 days from the entry thereof; or the Company
shall make an assignment for the benefit of creditors; or the Company shall be
unable to, or shall admit in writing the inability to, pay its debts as they
become due; or the Company shall take any action indicating its consent to,
approval of, or acquiescence in, or in furtherance of, any of the foregoing;
then, or any time thereafter during the continuance of any of such events, the
entire unpaid balance of this Note then outstanding, together with accrued
interest thereon, if any, shall be and become immediately due and payable
without notice of demand by Holder.
7. INVESTMENT INTENT. The Holder, by acceptance of this Note, warrants
and represents that he is acquiring this Note, the Warrant and the shares of
common stock issuable upon conversion and exercise for his own account, for
investment and not with a view to, or for resale in connection with, the
distribution thereof. The Holder has no present intention of reselling or
distributing them after any period of time. The acquisition of the securities
for investment is consistent with the Holder's financial needs.
8. MISCELLANEOUS.
(a) All makers and endorsers now or hereafter becoming parties
hereto jointly and severally waive demand, presentment, notice of
non-payment and protest and, if this Note becomes in default and an
action is filed to collect the Note, the prevailing party shall be
entitled to an award of reasonable attorney's fees and all other costs
incurred in connection with such collection.
(b) This Note may not be changed or terminated orally, but
only with an agreement in writing, signed by the parties against whom
enforcement of any waiver, change, modification, or discharge is sought
with such agreement being effective and binding only upon attachment
hereto.
(c) This Note and the rights and obligations of the Holder and
of the undersigned shall be governed and construed in accordance with
the laws of the State of Delaware.
9. AGREEMENT TO BE BOUND BY UNDERWRITER'S LOCK-UP. The Holder by his
acceptance of delivery of this Note, agrees to execute any lock-up agreement
requested by the underwriter or the managing underwriter of the Company's IPO as
long as such lock-up agreement is applied to all other officers and directors of
the Company.
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IN WITNESS WHEREOF, the Company has caused this Note to be executed as
of the date aforesaid.
SFBC INTERNATIONAL, INC.
By:
---------------------------------------
Arnold Hantman, Chief Executive Officer
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RESTRICTIVE LEGEND
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH LAWS AS MAY BE APPLICABLE OR, AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM SUCH APPLICABLE
LAWS EXIST.
4
EXHIBIT 10.6
SOUTH FLORIDA KINETICS, INC.
8% JUNIOR SUBORDINATED SECURED PROMISSORY NOTE
Dated May 24, 1999
Miami, Florida 33181
FOR VALUE RECEIVED, South Florida Kinetics, Inc., a Florida
corporation, formerly know as BioPharm Clinical Testing, Inc. (the "Borrower"),
hereby covenants and promises to pay to the order of Bio Clinic Management
Company, formerly known as South Florida Bioavailability Clinic, Inc., (the
"Holder"), Three Hundred Eighty-Three Thousand Dollars ($383,000) in lawful
money of the United States of America, together with interest thereon to accrue
from January 1, 2000 at the rate of eight percent per annum. All principal,
interest and other costs hereunder shall be due and payable to the Holder of
this Junior Subordinated Secured Promissory Note (the "Note") on the closing of
a registered initial public offering of the common stock of the Holder (the
"IPO"). If the Holder has not completed a registered IPO by December 31, 1999,
this Note shall be payable in installments as provided in the next sentence.
Payments of principal and interest shall be made in legal tender of the United
States of America at the rate of Twenty Thousand and NO/100 Dollars ($20,000)
per month on the first day of each month commencing upon payment of a $100,000
Senior Secured Promissory Note delivered to the Holder and a $17,000
Subordinated Secured Promissory Note delivered to the Holder (collectively the
"Secured Notes"). Provided, however, if the Borrower completes an IPO subsequent
to December 31, 1999, all remaining installments of principal and interest shall
be due and payable upon the closing of the IPO. All payments made pursuant to
this Note shall include both principal and interest.
This Note shall be secured by the collateral listed in the Security
Agreement attached hereto
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as Exhibit A and a UCC-1 Financing Statement attached hereto as Exhibit B.
This Note is one of the three notes issued pursuant to the Agreement to
Restructure Debt between the Borrower and the Holder (the "Agreement"), and is
subordinate to the repayment of Borrower's obligations to the Holder under the
Secured Notes. After the Secured Notes in the amounts of $100,000 and $17,000,
described in the preceding sentence, including accrued interest are paid in
full, all subsequent payments to the Holder shall be applied to outstanding
obligations to this Note.
Notwithstanding anything in this Note to the contrary, the entire
unpaid principal amount of this Note, together with all accrued but unpaid
interest thereon and other unpaid charges hereunder, shall become immediately
all due and payable without further notice at the option of the Holder upon any
of the following: (i) the Borrower fails to timely make any payment hereunder
when such payment becomes first due and such failure continues for a period of
10 days after written notice from the Holder to Borrower, (ii) the occurrence of
an "Event of Default" under any agreement entered into by the Borrower including
the Secured Notes and such default continues unremedied for a period of 30 days
after written notice to the Borrower by any party to such agreement; (iii) the
Borrower ceases to carry on business on a regular basis or enters into an
agreement to sell substantially all of its assets or an agreement whereby it
merges into, consolidates with or is acquired by any other business entity; or
(iv) the Borrower makes any assignment for the benefit of its creditors, makes
any election to wind up or dissolve or becomes unable to pay its debts as they
mature, insolvent or the subject of any proceeding under any bankruptcy,
insolvency or debtor's
2
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relief law.
If any amount payable to the Holder under this Note is not received by
the Holder on or before the due date, then such amount shall bear interest from
and after the due date until paid at an annual rate of interest equal to 15%.
All rights, remedies, and undertakings, obligations, options,
covenants, conditions and agreements contained in this Note are cumulative and
no one of them will be exclusive of any other. This Note may be assigned by the
Holder, and the assignee shall have all of the rights and responsibilities of
the Holder.
The Borrower for itself and its legal representatives, successors and
assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of nonpayment, notice of maturity, notice of protest, presentment for the
purpose of accelerating maturity, and diligence in collection, and consents that
the Holder may extend the time for payment or otherwise modify the terms of the
payment or any part or the whole of the debt evidenced hereby. To the fullest
extent permitted by law, the Borrower waives the statute of limitations in any
action brought by the Holder in connection with this Note and the right to a
trial by jury.
This Note shall be interpreted in accordance with Florida law,
including all matters of construction, validity, performance and enforcement,
without giving effect to any principles of conflict of laws. The prevailing
party in any action shall be entitled to its reasonable attorneys' fees
3
<PAGE>
and costs. This Note may not be changed, modified, amended or terminated orally.
The holding of any provision of this Note to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provisions and the other provisions of this Note shall remain in full force and
effect.
SOUTH FLORIDA KINETICS, INC.
By:
-------------------------------------
Lisa Krinsky, President
4
EXHIBIT 10.7
SOUTH FLORIDA KINETICS, INC.
8% SENIOR SECURED PROMISSORY NOTE
Dated May 24, 1999
Miami, Florida 33181
FOR VALUE RECEIVED, South Florida Kinetics, Inc., a Florida
corporation, formerly know as BioPharm Clinical Testing, Inc. (the "Borrower"),
hereby covenants and promises to pay to the order of Bio Clinic Management
Company, formerly known as South Florida Bioavailability Clinic, Inc., (the
"Holder"), One Hundred Thousand and NO/100 Dollars ($100,000) in lawful money of
the United States of America, together with interest thereon to accrue from
January 1, 2000 at the rate of eight percent per annum. All principal, interest
and other costs hereunder shall be due and payable to the Holder of this Senior
Secured Promissory Note (the "Note") on the closing of a registered initial
public offering of the common stock of the Holder (the "IPO"). If the Holder has
not completed a registered IPO by December 31, 1999, this Note shall be payable
in installments as provided in the next sentence. Payments of principal and
interest shall be made in legal tender of the United States of America at the
rate of twenty thousand dollars ($20,000) per month on the first day of each
month commencing January 1, 2000, for five months and the balance of the
principal and accrued interest shall be paid on June 1, 2000. Provided, however,
if the Borrower completes an IPO subsequent to December 31, 1999, all remaining
installments of principal and interest shall be due and payable upon the closing
of the IPO. All payments made pursuant to this note shall include both principal
and interest.
This Note shall be secured by the collateral listed in the Security
Agreement attached hereto as Exhibit A and a UCC-1 Financing Statement attached
hereto as Exhibit B.
1
<PAGE>
This Note is one of the three notes issued pursuant to the Agreement to
Restructure Debt between the Borrower and the Holder (the "Agreement"), and is
senior to the repayment of Borrower's obligations to the Holder under the two
Subordinated Secured Notes in the amounts of (i) $17,000 and (ii) $383,000
issued as part of the Agreement. All payments to the Holder shall first be
applied to outstanding obligations to this Note.
Notwithstanding anything in this Note to the contrary, the entire
unpaid principal amount of this Note, together with all accrued but unpaid
interest thereon and other unpaid charges hereunder, shall become immediately
all due and payable without further notice at the option of the Holder upon any
of the following: (i) the Borrower fails to timely make any payment hereunder
when such payment becomes first due and such failure continues for a period of
10 days after written notice from the Holder to Borrower, (ii) the occurrence of
an "Event of Default" under any agreement entered into by the Borrower and such
default continues unremedied for a period of 30 days after written notice to the
Borrower by any party to such agreement; (iii) the Borrower ceases to carry on
business on a regular basis or enters into an agreement to sell substantially
all of its assets or an agreement whereby it merges into, consolidates with or
is acquired by any other business entity; or (iv) the Borrower makes any
assignment for the benefit of its creditors, makes any election to wind up or
dissolve or becomes unable to pay its debts as they mature, insolvent or the
subject of any proceeding under any bankruptcy, insolvency or debtor's relief
law.
If any amount payable to the Holder under this Note is not received by
the Holder on or
2
<PAGE>
before the due date, then such amount shall bear interest from and after the due
date until paid at an annual rate of interest equal to 15%.
All rights, remedies, and undertakings, obligations, options,
covenants, conditions and agreements contained in this Note are cumulative and
no one of them will be exclusive of any other. This Note may be assigned by the
Holder, and the assignee shall have all of the rights and responsibilities of
the Holder.
The Borrower for itself and its legal representatives, successors and
assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of nonpayment, notice of maturity, notice of protest, presentment for the
purpose of accelerating maturity, and diligence in collection, and consents that
the Holder may extend the time for payment or otherwise modify the terms of the
payment or any part or the whole of the debt evidenced hereby. To the fullest
extent permitted by law, the Borrower waives the statute of limitations in any
action brought by the Holder in connection with this Note and the right to a
trial by jury.
This Note shall be interpreted in accordance with Florida law,
including all matters of construction, validity, performance and enforcement,
without giving effect to any principles of conflict of laws. The prevailing
party in any action shall be entitled to its reasonable attorneys' fees and
costs. This Note may not be changed, modified, amended or terminated orally.
The holding of any provision of this Note to be invalid or
unenforceable by a court of
3
<PAGE>
competent jurisdiction shall not affect any other provisions and the other
provisions of this Note shall remain in full force and effect.
SOUTH FLORIDA KINETICS, INC.
By:
------------------------------------------
Lisa Krinsky, President
4
EXHIBIT 10.8
SOUTH FLORIDA KINETICS, INC.
8% SUBORDINATED SECURED PROMISSORY NOTE
Dated May 24, 1999
Miami, Florida 33181
FOR VALUE RECEIVED, South Florida Kinetics, Inc., a Florida
corporation, formerly know as BioPharm Clinical Testing, Inc. (the "Borrower"),
hereby covenants and promises to pay to the order of Bio Clinic Management
Company, formerly known as South Florida Bioavailability Clinic, Inc., (the
"Holder"), Seventeen Thousand and NO/100 Dollars ($17,000) in lawful money of
the United States of America, together with interest thereon to accrue from
January 1, 2000 at the rate of eight percent per annum. All principal, interest
and other costs hereunder shall be due and payable to the Holder of this
Subordinated Secured Promissory Note (the "Note") on the closing of a registered
initial public offering of the common stock of the Holder (the "IPO"). If the
Holder has not completed a registered IPO by December 31, 1999, this Note shall
be payable in installments as provided in the next sentence. Payments of
principal and interest shall be made in legal tender of the United States of
America at the rate of Twenty Thousand and NO/100 Dollars ($20,000) per month on
the first day of each month commencing upon payment of a $100,000 Senior Secured
Promissory Note delivered to the Holder (the "Secured Note"). Provided, however,
if the Borrower completes an IPO subsequent to December 31, 1999, all remaining
installments of principal and interest shall be due and payable upon the closing
of the IPO. All payments made pursuant to this Note shall include both principal
and interest.
This Note shall be secured by the collateral listed in the Security
Agreement attached hereto as Exhibit A and a UCC-1 Financing Statement attached
hereto as Exhibit B.
1
<PAGE>
This Note is one of the three notes issued pursuant to the Agreement to
Restructure Debt between the Borrower and the Holder (the "Agreement"), and is
subordinate to the repayment of Borrower's obligations to the Holder under the
Secured Note in the amount of $100,000 and senior to the Junior Subordinated
Secured Note in the amount of $383,000 issued as part of the Agreement. After
the Secured Note in the amount of $100,000 plus accrued interest is paid in
full, all subsequent payments to the Holder shall first be applied to
outstanding obligations to this Note.
Notwithstanding anything in this Note to the contrary, the entire
unpaid principal amount of this Note, together with all accrued but unpaid
interest thereon and other unpaid charges hereunder, shall become immediately
all due and payable without further notice at the option of the Holder upon any
of the following: (i) the Borrower fails to timely make any payment hereunder
when such payment becomes first due and such failure continues for a period of
10 days after written notice from the Holder to Borrower, (ii) the occurrence of
an "Event of Default" under any agreement entered into by the Borrower including
the Secured Note and such default continues unremedied for a period of 30 days
after written notice to the Borrower by any party to the agreement; (iii) the
Borrower ceases to carry on business on a regular basis or enters into an
agreement to sell substantially all of its assets or an agreement whereby it
merges into, consolidates with or is acquired by any other business entity; or
(iv) the Borrower makes any assignment for the benefit of its creditors, makes
any election to wind up or dissolve or becomes unable to pay its debts as they
mature, insolvent or the subject of any proceeding under any bankruptcy,
insolvency or debtor's relief law.
2
<PAGE>
If any amount payable to the Holder under this Note is not received by
the Holder on or before the due date, then such amount shall bear interest from
and after the due date until paid at an annual rate of interest equal to 15%.
All rights, remedies, and undertakings, obligations, options,
covenants, conditions and agreements contained in this Note are cumulative and
no one of them will be exclusive of any other. This Note may be assigned by the
Holder, and the assignee shall have all of the rights and responsibilities of
the Holder.
The Borrower for itself and its legal representatives, successors and
assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of nonpayment, notice of maturity, notice of protest, presentment for the
purpose of accelerating maturity, and diligence in collection, and consents that
the Holder may extend the time for payment or otherwise modify the terms of the
payment or any part or the whole of the debt evidenced hereby. To the fullest
extent permitted by law, the Borrower waives the statute of limitations in any
action brought by the Holder in connection with this Note and the right to a
trial by jury.
This Note shall be interpreted in accordance with Florida law,
including all matters of construction, validity, performance and enforcement,
without giving effect to any principles of conflict of laws. The prevailing
party in any action shall be entitled to its reasonable attorneys' fees and
costs. This Note may not be changed, modified, amended or terminated orally.
3
<PAGE>
The holding of any provision of this Note to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provisions and the other provisions of this Note shall remain in full force and
effect.
SOUTH FLORIDA KINETICS, INC.
By:
--------------------------------
Lisa Krinsky, President
4
EXHIBIT 21
SFBC INTERNATIONAL, INC. SUBSIDIATRIES
South Florida Kinetics, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated April 2, 1999, relating to the financial statements of South
Florida Kinetics, Inc., and to the reference to our Form under the caption
"Experts" in the Prospectus.
/s/ KAUFMAN, ROSSIN & CO.
Miami, Florida
August 16, 1999
