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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3
(17 CFR Section 240.13e-3) thereunder)
[Amendment No. ______]
COOPER DEVELOPMENT COMPANY
(Name of the Issuer)
COOPER DEVELOPMENT COMPANY
(Name of Person(s) Filing Statement)
Common Stock, $0.10 par value
(Title of Class of Securities)
###-##-####
(CUSIP Number of Class of Securities)
Parker Montgomery
President
Cooper Development Company
16160 Caputo Drive
Morgan Hill, California 95037
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
[x] a. The filing of solicitation materials or an information statement to
Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17 CFR
240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S) 240.13e-3(c)] under
the Securities Exchange Act of 1934.
[_] b. The filing of a registration statement under the Securities Act
of 1933.
[_] c. A tender offer.
[_] d. None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [x]
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CALCULATION OF FILING FEE
Transaction
valuation*: $385,713 Amount of filing fee: $77
*Calculated based on the maximum aggregate number of fractional shares of common
stock to be exchanged for a payment of $1.50 in connection with the reverse
stock split, at a valuation of $1.50 per fractional share, the price to be paid
for such fractional shares as described in the attached filing.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid__________________________________
Form or Registration No.:_______________________________
Filing Party: __________________________________________
Date Filed: ____________________________________________
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CROSS-REFERENCES
The information required to be contained in this Schedule 13e-3 is incorporated
herein by reference from the attached Information Statement. The following
cross-references indicate where the information called for by each item of this
Schedule 13e-3 is contained in the enclosed Information Statement.
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) Cover page of the Information Statement. outside cover page
(b) Cover page of the Information Statement. outside cover page
(c) Special Factors - Fairness of the Reverse Stock Split--Factors Considered 18-19
in Fairness Determination--Current and Historical Market Prices for the
Common Stock.
(d) Special Factors - Fairness of the Reverse Stock Split--Factors Considered 18-19
in Fairness Determination--Current and Historical Market Prices for the
Common Stock.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
Cover page of the Information Statement. outside cover page
(a)-(g) Not applicable.
ITEM 3. PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS.
(a) Not applicable.
(b) Not applicable.
ITEM 4. TERMS OF THE TRANSACTION
(a) Special Factors - The Reverse Stock Split; --Exchange of Stock 15
Certificates; Cash Payments in Lieu of Fractional Shares.
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) Special Factors - The Company - Possible Dispositions of the Company's 9
Assets and/or Businesses.
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(i)
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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(c) Not applicable.
(d) Special Factors - Financing of the Reverse Stock Split 16
(e) Special Factors - The Company - Possible Dispositions of the Company's 9
Assets and/or Businesses.
(f)-(g) Special Factors - Conduct of the Company's Business After the Reverse
Stock Split - Termination of Reporting Company Status.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Special Factors - Financing of the Reverse Stock Split. 16
(b) Special Factors - Financing of the Reverse Stock Split. 16
(c) Special Factors - Financing of the Reverse Stock Split. 16
(d) Not applicable.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) Special Factors - Reasons for the Reverse Stock Split. 11
(b) Special Factors - Reasons for the Reverse Stock Split--Form of 12
Transaction.
(c) Special Factors - Reasons for the Reverse Stock Split--Transaction to 11,12
Become a Non-Reporting Company; and--Form of Transaction.
(d) Special Factors - Reasons for the Reverse Stock Split; Conduct of the 11,13,15,23,24
Company's Business after the Reverse Stock Split;-- Exchange of Stock
Certificates; Cash Payments in Lieu of Fractional Shares; --Fairness of
the Reverse Stock Split--Potential Conflicts of Interest;--Certain
Federal Income Tax Consequences.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) Special Factors - Fairness of the Reverse Stock Split. 17
(b) Special Factors - Fairness of the Reverse Stock Split--Factors Considered 17
in Fairness Determination.
(c) Special Factors - Further Stockholder Approval Not Required. 14
(d) Special Factors - Fairness of the Reverse Stock Split--Analysis of Van 21
Kasper & Company
(e) Special Factors - Fairness of the Reverse Stock Split--Potential 23
Conflicts of Interest.
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(ii)
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) Special Factors - Fairness of the Reverse Stock Split--Analysis of Van 21
Kasper & Company.
(b) Special Factors - Fairness of the Reverse Stock Split--Analysis of Van 21
Kasper & Company.
(c) Not applicable.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) Special Factors - Security Ownership of Certain Beneficial Owners and 25
Management.
(b) Special Factors - Fairness of the Reverse Stock Split--Absence of Firm 22
Offers for Alternative Transactions.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES
Special Factors - Fairness of the Reverse Stock Split--Potential 23
Conflicts of Interest.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH RESPECT TO
THE TRANSACTION.
(a) Special Factors - Fairness of the Reverse Stock Split--Potential 23
Conflicts of Interest.
(b) Special Factors - Fairness of the Reverse Stock Split--Potential 23
Conflicts of Interest.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Special Factors - Lack of Appraisal Rights. 14
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION
(a) Incorporated by reference to the Issuer's Annual Report on Form 10-K for 27
the year ended December 31, 1995 and its Quarterly Reports on Form 10-Q
for the quarters ended March 31 and June 30,1996.
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(iii)
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ITEM SECTION TITLE(S) IN INFORMATION STATEMENT PAGE(S)
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(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Special Factors - Financing of the Reverse Stock Split. 15
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
Not applicable.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) 1. Note and Warrant Purchase Agreement dated May 22, 1996 between Cooper
Development Company (the "Company") and Theodore H. Kruttschnitt and
Parker G. Montgomery incorporated by reference to Exhibit 8 to the
Company's Report on Form 8-K dated May 22, 1996.
2. Security Agreement dated May 22, 1996 between the Company and
Theodore H. Kruttschnitt and Parker G. Montgomery dated May 22, 1996
incorporated by reference to Exhibit 9 to the Company's Report on Form
8-K dated May 22, 1996.
(b) Not applicable.
(c) Not applicable.
(d) Form of Information Statement and Letter of Transmittal to be sent to the
Company's stockholders (enclosed herewith).
(e) Not applicable.
(f) Not applicable.
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(iv)
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Dated August 21, 1996
COOPER DEVELOPMENT COMPANY
By /s/ PARKER G. MONTGOMERY
-------------------------
Parker G. Montgomery
Chairman and President
(v)
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Stockholders Should Carefully Read This Information Statement
and the Accompanying Materials in their Entirety.
INFORMATION STATEMENT
REGARDING THE PROPOSED
ONE-FOR-500 REVERSE STOCK SPLIT
AND RELATED TRANSACTIONS
BY
COOPER DEVELOPMENT COMPANY
This Information Statement and the accompanying materials are being
provided by Cooper Development Company (the "Company") to its stockholders in
connection with a one-for-500 reverse stock split approved by the Company's
Board of Directors on May 24, 1996. This Information Statement and such
accompanying materials were first sent or given to stockholders on or about
September__, 1996 to stockholders of record as of September__, 1996. As of June
13, 1996, there were 3,629,376 shares of common stock issued and outstanding
held by approximately 7,560 stockholders of record. The Company expects that the
reverse stock split will be effective on or about October __, 1996 (the
"Effective Date").
The Company will bear all of the costs of the preparation and dissemination
of this Information Statement and the accompanying materials, which are
estimated to be approximately $130,000. No consideration has been or will be
paid to any officer, director, or employee of the Company in connection with the
reverse stock split or the preparation and dissemination of this Information
Statement and the accompanying materials or otherwise in connection with the
reverse stock split.
Correspondence with respect to the reverse stock split should be addressed
to the Secretary of the Company at the Company's principal executive office at
16160 Caputo Drive, Morgan Hill, CA 95037.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
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TABLE OF CONTENTS
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Page
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SUMMARY............................................................. 3
SPECIAL FACTORS..................................................... 8
The Company..................................................... 8
The Reverse Stock Split......................................... 10
Reasons for the Reverse Stock Split............................. 11
Conduct of the Company's Business
after the Reverse Stock Split................................. 13
Further Stockholder Approval Not Required....................... 14
Lack of Appraisal Rights........................................ 15
Postponement or Abandonment..................................... 15
Effective Time.................................................. 15
Exchange of Stock Certificates;
Cash Payments in Lieu of Fractional Shares.................... 15
Financing of the Reverse Stock Split............................ 16
Fairness of the Reverse Stock Split............................. 17
Certain Federal Income Tax Consequences......................... 24
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................................. 25
FINANCIAL INFORMATION............................................... 27
OTHER INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE............................... 27
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
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SUMMARY
The following summary is intended only to highlight certain information
contained in this Information Statement. This summary is not complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Information Statement and its exhibits. Stockholders
are urged to read this Information Statement and its exhibits in their entirety.
THE COMPANY
Cooper Development Company (the "Company") is primarily engaged in the
development, manufacture and sale of skin care and corrective cosmetic products
under the Cabot(R), Cabot(R) Vitamin E, and Clear Perfection(TM) trademarks
through its wholly owned subsidiary, Cabot Laboratories, Inc. ("Cabot"). Cabot's
products are sold directly to drug store chains and mass volume retailers by its
own regional key account managers in the United States and to exclusive
distributors outside the United States.
The Company, through its wholly owned distributor, Difa Cooper, S.p.A.
("DIFA"), an Italian corporation, manufactures and sells an antiviral product
under an exclusive worldwide license to distributors outside the United States
under various trademarks. DIFA also distributes skin care products, including a
line of products developed by a dermatologist, which are sold under the
Cosmetici Magistrali(TM) trademark. The Company also develops skin care products
through its wholly owned subsidiary, Cooper Cosmetics, S.A. ("CCSA"), a Swiss
corporation. CCSA develops skin care products which it licenses to independent
licensees principally in Europe under the Tokalon(R) trademark. The Company,
through its wholly owned subsidiary, Cooper Development S.A. ("CDSA"), a Swiss
corporation, owns undeveloped real estate in Mougins, France. See "Special
Factors - The Company - United States Business Operations" and "European
Operations".
1995-1996 Restructuring of Cabot
In 1995 and 1996, the Company implemented plans to reduce its costs and
improve productivity. The Company consolidated all of its United States offices
and manufacturing facilities into one leased facility in Morgan Hill, California
and reduced the number of employees. The Company incurred $1,395,000 of pre tax
charges relating to relocations, separations and related costs of the
restructuring program, including $475,000 paid in fiscal 1995. The Company
expects the balance of such payments to be completed by the end of the third
quarter in 1996. There can be no assurance that the restructuring of Cabot will
result in profitable operations. See "Special Factors - The Company - 1995-1996
Restructuring".
Possible Dispositions of the Company's Assets and/or Businesses
The Company has historically invested heavily in its operating subsidiaries to
grow their businesses and relied primarily on the sales of such businesses as
they grew to finance their operations. Since December 31, 1994, the Company has
incurred over $12,000,000 in losses. The Company is currently focusing its
efforts on developing its principal subsidiary, Cabot, and considering possible
transactions which may involve the sale or disposition of one or more of its
operating subsidiaries, product lines or assets to finance the continued growth
of Cabot and to increase its focus on developing its core skin care business.
Although the Company has had discussions to sell some or all of the capital
stock of DIFA, there are currently no discussions regarding such sale. The
Company, through its subsidiary, CDSA, is engaged in efforts to sell four lots
of undeveloped land in Mougins, France. In addition, the Company is actively
considering the disposition by sale or joint venture with one or more of its
suppliers of its Cabot(R) Clear Perfection(R) corrective cosmetics product line.
While the Company has discussed possible transactions with third parties, it has
not received any firm offers with respect to any of such possible transactions,
except with respect to two undeveloped lots of real property, and there can be
no assurance that the Company will be able to negotiate any of such possible
transactions on terms favorable to the Company or develop Cabot into a
profitable business. See "Special Factors - The Company - Possible Dispositions
of the Company's Assets and/or Businesses".
3
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THE REVERSE STOCK SPLIT
The Standing Special Committee of the Company's Board of Directors comprised
of James Gilleran and Jackson Schultz, both of whom are non employee directors
and who together constitute a majority of the non-employee directors (the
"Special Committee") and the Company's Board of Directors approved a proposal on
May 24, 1996 and revised it on August 15, 1996 authorizing: (i) an amendment to
the Company's Certificate of Incorporation effecting a one-for-500 reverse stock
split of the Company's existing common stock, $0.10 par value per share ("Old
Common Stock"), reducing the authorized number of shares of common stock from
10,000,000 shares to 20,000 shares, $50.00 par value ("New Common Stock"); and
(ii) the payment of cash in the amount of $1.50 per share of Old Common Stock in
lieu of the issuance of and the fractional shares of New Common Stock to persons
who otherwise would hold fractions of a share of New Common Stock after the
reverse stock split (collectively, the "Reverse Stock Split").
REASONS FOR THE REVERSE STOCK SPLIT
The Special Committee and the Board of Directors authorized the Reverse Stock
Split in connection with the Company's ongoing efforts to reduce costs and
improve productivity. Reducing the number of its stockholders of record to less
than 300 would permit the Company to discontinue the registration of its common
stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Termination of the Company's status as a public reporting company under
federal securities laws would allow the Company to achieve additional reductions
in costs by reducing the general and administrative costs incurred in connection
with maintaining such status.
The Special Committee and Board of Directors believe that neither the Company
nor its stockholders derive any material benefit from the continued registration
of the Company's common stock under the Exchange Act. The Company incurs
significant direct and indirect costs, however, as a result of the requirement
that it comply with the filing and reporting requirements applicable to public
companies. The Special Committee and Board of Directors believe that the
expense and burden to the Company of continued registration, including the
requirement to file annual and quarterly reports, proxy statements and other
documents with the Securities and Exchange Commission (the "SEC") significantly
outweigh any benefits to the Company or its stockholders as a result of such
registration. The Company expects to achieve annual cost savings of at least
$500,000 as a result of the Reverse Stock Split. The Company's inability to
raise significant amounts of capital from stockholders other than Theodore H.
Kruttschnitt and Parker G. Montgomery (the "Major Stockholders") in its 1993
rights offering (the "Rights Offering") and its current financial condition
indicate that the Company is not likely in the near term to be able to raise
capital in a public offering of its securities. The Special Committee and Board
of Directors have determined that the Reverse Stock Split is the most cost-
effective method of changing the Company's status from that of a publicly held
reporting company to that of a privately held non-reporting company.
In making this determination, the Special Committee and Board of Directors
considered other means of achieving this result, such as making privately or
publicly negotiated purchases of outstanding shares of its common stock,
including making a public tender offer for shares, but rejected these
alternatives because they believed that the Reverse Stock Split would be simpler
and more-cost effective, and would allow all existing stockholders an
opportunity to remain stockholders of the Company.
Stockholders who would otherwise hold less than one share of New Common
Stock after the Reverse Stock Split may remain as stockholders of the Company by
purchasing additional shares of Old Common Stock on the open market prior to the
Effective Date to result in their holding at least one whole share of New Common
Stock following the Reverse Stock Split. See "Special Factors--Exchange of
Stock Certificates; Cash Payments in Lieu of Shares". Because stockholders may
purchase additional shares on the open market prior to the Effective Date, there
can be no assurance that, even if the Reverse Stock Split is effected, the
Company will reduce the number of stockholders following the Reverse Stock Split
to less than 300 stockholders of record. If the Company fails to reduce the
number of stockholders of record to below 300, the Company will still be a
reporting company for purposes of the Exchange Act and will not realize the
anticipated cost-savings that would result from ceasing to be a public reporting
company. See "Special Factors--Reasons for the Reverse Stock Split."
4
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TERMINATION OF REPORTING COMPANY STATUS
If the Reverse Stock Split is effected, the Company expects to cease to be a
reporting company under the Exchange Act and would no longer be required to file
annual and quarterly reports, proxy statements and other documents with the SEC.
In addition, the Company would no longer be required to comply with the proxy
rules of Regulation 14A promulgated under Section 14 of the Exchange Act, and
its officers, directors, and 10% or greater stockholders would no longer be
subject to the reporting requirements and "short-swing" insider trading
restrictions under Section 16 of the Exchange Act. Continuing stockholders
would no longer be entitled to receive annual reports and proxy statements
required by the Exchange Act and most likely would no longer have the benefit of
a public market for their shares of the Company's common stock. See "Special
Factors--Conduct of the Company's Business after the Reverse Stock Split."
FURTHER STOCKHOLDER APPROVAL NOT REQUIRED
The Reverse Stock Split has been approved by the written consent of the Major
Stockholders, the Company's majority stockholders, dated August __, 1996. Such
consent is sufficient to approve the Reverse Stock Split under the Delaware
General Corporation Law, and no other vote or consent of stockholders, including
the vote or consent of a majority of the unaffiliated stockholders, is required
or will be sought in connection with the Reverse Stock Split. ACCORDINGLY, THE
COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND THE
COMPANY A PROXY.
LACK OF APPRAISAL RIGHTS
Pursuant to the Delaware General Corporation Law, dissenting stockholders
will not have appraisal rights if the Reverse Stock Split is effected.
Stockholders who believe that they may be aggrieved by the Reverse Stock Split
may have other rights under federal law or common law, such as rights relating
to the fairness of the Reverse Stock Split and arising from possible breaches of
the fiduciary responsibilities of corporate officers, directors and
stockholders. The nature and extent of such rights, if any, may vary depending
upon the facts and circumstances.
EXCHANGE OF STOCK CERTIFICATES; CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES
If the Reverse Stock Split is effected, the stock certificates formerly
representing shares of Old Common Stock will represent the right to receive
shares of New Common Stock into which they have been converted, and/or the right
to receive a cash payment in lieu of shares, as the case may be, as described
below. Enclosed is a Letter of Transmittal for use in exchanging stock
certificates of Old Common Stock for stock certificates of New Common Stock
and/or a cash payment. Stockholders should not send Letters of Transmittal to
the Company, but to The First National Bank of Boston, the transfer agent and
registrar for Old Common Stock.
Each stockholder of record who holds shares of Old Common Stock should use the
enclosed Letter of Transmittal to surrender his old stock certificate(s) and the
shares of Old Common Stock represented thereby for a new stock certificate
representing one share of New Common Stock for each 500 shares of Old Common
Stock, if any, and/or a cash payment in an amount equivalent to $1.50 per share
for such number of shares of Old Common Stock not divisible by 500 into a whole
share of New Common Stock. Stockholders who wish to purchase additional shares
of Old Common Stock may do so on the open market prior to the Effective Date.
See "Special Factors--Exchange of Stock Certificates; Cash Payments in Lieu of
Fractional Shares."
PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE TRANSFER AGENT SHOULD BE
DULY ENDORSED FOR TRANSFER TO THE COMPANY.
5
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FINANCING OF THE REVERSE STOCK SPLIT
The Company estimates that it will incur transactional expenses of
approximately $130,000 in connection with the Reverse Stock Split. In addition,
equity will be reduced by aggregate cash payments in lieu of fractional shares
of New Common Stock of approximately $385,000. The Company intends to finance
such costs from its working capital and borrowings from the Major Stockholders
under a $2,000,000 line of credit provided by the Major Stockholders pursuant to
a Note and Warrant Purchase Agreement dated May 22, 1996 (the "May Purchase
Agreement"). If necessary, the Company may finance such costs from up to
$1,000,000 of additional borrowings on the same terms as the May Purchase
Agreement which have been authorized by the Company's Board of Directors and
Special Committee. See "Special Factors--Financing of the Reverse Stock Split."
POTENTIAL CONFLICTS OF INTEREST
The directors of the Company are Parker G. Montgomery, the Company's President
and Chairman of the Board of Directors, Theodore H. Kruttschnitt, James Gilleran
and Jackson Schultz. Each of the Major Stockholders owns or controls
approximately 30% of the outstanding shares of common stock. Each Director,
including the Major Stockholders, has advised the Company that he intends to
retain all whole shares of New Common Stock after the Reverse Stock Split. In
addition each of the Major Stockholders has the right to acquire an additional
728,370 shares of the Company's common stock upon the conversion of $1,479,049
principal amount of the Company's promissory notes held by each of them (the
"Notes") and the right to acquire 1,571,714 shares of common stock upon the
exercise of warrants issued pursuant to that certain Note and Warrant Purchase
Agreement dated November 10, 1995 between the Company and the Major Stockholders
(the "November Purchase Agreement") and the May Purchase Agreement. The
warrants issued under the November Purchase Agreement and the May Purchase
Agreement are referred to herein as the "Prior Warrants" and the "New Warrants",
respectively, and collectively as the "Warrants". If they were to convert the
Notes and exercise the Warrants, Mr. Kruttschnitt and Mr. Montgomery would then
own 3,389,233 shares (41.18%) and 3,389,232 shares (41.18%), respectively, of
the Company's outstanding common stock. If the Company were to borrow the
additional $1,000,000 authorized for borrowing from the Major Stockholders on
the same terms as under the May Purchase Agreement and, after the foregoing
conversions and exercises, the Major Stockholders were to exercise the resulting
additional warrants, Mr. Kruttschnitt and Mr. Montgomery would then own
3,675,090 shares (41.76%) and 3,675,089 shares (41.76%), respectively, of the
Company's outstanding common stock.
The Special Committee retained an investment bank, Van Kasper & Company (the
"Advisor"), to analyze the effect of the May Purchase Agreement and the Reverse
Stock Split on the Company, the Company's stockholders and the Major
Stockholders. At meetings of the Special Committee and the Board of Directors
on May 24, 1996, the Advisor discussed the transaction contemplated by the May
Purchase Agreement and certain aspects of the Reverse Stock Split; namely: (i)
the Advisor's analysis and review of the recent trading history of the Company's
common stock, (ii) other reverse stock split transactions, prevailing prices and
prices paid for fractional shares in such transactions, (iii) alternatives to
the one-for-500 reverse stock split, (iv) brokerage transaction costs and (v)
the relatively minor incremental investment needed by stockholders of the
Company who wish to remain as stockholders of the Company to purchase additional
shares of Old Common Stock so that they can own at least 500 shares of Old
Common Stock prior to the Reverse Stock Split. The Advisor was not asked to
render and did not render a verbal or written report or opinion as to the
fairness of the May Purchase Agreement or the Reverse Stock Split from a
financial point of view to the stockholders of the Company.
Neither the Special Committee nor the Board of Directors retained an
unaffiliated representative to act solely on the behalf of the unaffiliated
stockholders of the Company for the purposes of negotiating the terms of the
Reverse Stock Split. See "Special Factors--Fairness of the Reverse Stock
Split".
6
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FAIRNESS OF THE REVERSE STOCK SPLIT
The Special Committee and the Board of Directors have reviewed and considered
the terms and conditions of the Reverse Stock Split and have unanimously
determined that the Reverse Stock Split, taken as a whole, is fair to, and in
the best interests of, the Company and its stockholders.
The Special Committee and Board of Directors believe that the payment of cash
in the amount of $1.50 per share of Old Common Stock in lieu of the issuance of
fractional shares of New Common Stock to persons who would hold fractional
shares of New Common Stock after the Reverse Stock Split, will enable such
stockholders to liquidate their shares easily and at a fair price which is at a
premium to recent prevailing market prices of the Company's common stock.
Depending upon a particular stockholder's tax basis in his shares of common
stock, such stockholder may obtain a tax benefit by recognizing a loss for
federal income tax purposes. See "Special Factors--Certain Federal Income Tax
Consequences." In addition, by having shares of Old Common Stock exchanged for
cash by the Company, a stockholder will be able to liquidate his investment, or
fraction thereof, in the Company without incurring brokerage costs which, in the
case of a holder of a small quantity of Old Common Stock, could materially
reduce or eliminate the actual net proceeds of sale to the stockholder.
The Special Committee and the Board of Directors also believe that the Reverse
Stock Split is fair to the Company and to stockholders who remain as
stockholders of the Company following the consummation of the Reverse Stock
Split because, as described above, the Special Committee and the Board of
Directors believe that the price to be paid to stockholders who receive cash in
lieu of fractional shares of New Common Stock, which is at a premium to recent
prevailing market prices, is fair in light of all the circumstances and that the
Company will realize cost savings if, as a result of the Reverse Stock Split, it
ceases to be a reporting company under the Exchange Act.
Stockholders who would otherwise hold less than one full share of New Common
Stock after the Reverse Stock Split may remain as stockholders of the Company by
purchasing additional shares of Old Common Stock on the open market prior to the
Effective Date to hold at least 500 shares of Old Common Stock on the Effective
Date. The Special Committee and the Board of Directors believes that
structuring the Reverse Stock Split to provide stockholders the opportunity to
remain as stockholders of the Company by purchasing additional shares of Old
Common Stock on the open market prior to the Effective Date is fairer to
stockholders than structuring the reverse stock split as a one-for-10,000 (or
higher) split to ensure that the Reverse Stock Split would achieve the Company's
objective of terminating its obligations under the Exchange Act. See "Special
Factors--Fairness of the Reverse Stock Split."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Reverse Stock Split is not expected to have any material federal income
tax consequence to the Company or to stockholders who receive shares of New
Common Stock in exchange for shares of Old Common Stock. In general, for
federal income tax purposes stockholders who receive cash in exchange for their
shares of Old Common Stock will recognize taxable capital gain or loss as a
result of the transaction, provided they hold their Old Common Stock as a
capital asset on the date of exchange. Any such capital gain or loss will be
long-term capital gain or loss if the Old Common Stock had been held for more
than one year and otherwise will be short-term capital gain or loss. THE
COMPANY HAS NOT SOUGHT, AND DOES NOT INTEND TO SEEK, A RULING OF THE INTERNAL
REVENUE SERVICE OR AN OPINION OF COUNSEL AS TO ANY TAX CONSEQUENCES OF THE
REVERSE STOCK SPLIT. EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
AS TO THE LIKELY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN THAT
STOCKHOLDER'S PARTICULAR CIRCUMSTANCES. See "Special Factors--Certain Federal
Income Tax Consequences."
POSTPONEMENT OR ABANDONMENT OF THE REVERSE STOCK SPLIT
The Company's Board of Directors may postpone, revise or abandon the Reverse
Stock Split at any time prior to its consummation, for any reason, including,
without limitation, if, in the Directors' sole judgment, consummation of the
Reverse Stock Split would unduly deplete the Company's working capital or would
render the Reverse Stock Split unfair to the Company and its continuiing
stockholders due to an adverse change in the Company's financial condition.
7
<PAGE>
SPECIAL FACTORS
THE COMPANY
The Company is primarily engaged in the development, manufacture and sale of
skin care and corrective cosmetic products under the Cabot(R), Cabot(R) Vitamin
E, and Clear Perfection(TM) trademarks.
The Company was a wholly owned subsidiary of Cooper Laboratories, Inc. prior
to the consummation of an initial public offering of its common stock in August
1983. Pursuant to a plan of liquidation, Cooper Laboratories, Inc. distributed
its shares of the Company's common stock to its stockholders in June 1985. The
Company is a Delaware corporation and was incorporated in April 1980.
United States Operations
The Company, through its wholly owned subsidiary, Cabot, develops,
manufactures and sells skin care and corrective cosmetic products. Cabot's
products are sold directly to drug store chains and mass volume retailers by its
own regional key account managers in the United States and to exclusive
distributors outside the United States. Cabot employed 66 full time permanent
and 24 full time temporary employees at May 31, 1996, at its facility in Morgan
Hill, California.
Cabot was one of the first companies to incorporate vitamin E in its skin care
product lines. Cabot offers one of the most extensive lines of vitamin E skin
care products in the industry. Use of vitamin E on the skin is of increasing
interest because ongoing medical and academic studies continue to support
fortifying the upper layers of the skin with vitamin E. Vitamin E continues to
be used topically to help neutralize free radicals formed in the environment by
sunlight which may cause premature aging of the skin.
Cabot has introduced Avalon(TM), a new clear oatmeal, into its line of skin
care products. The Avalon line will include anti-itch bath soaks and body sprays
and sensitive skin cleansing bars and body washes. Cabot also markets Seban(R)
Solution which controls the secretion of facial oil.
Cabot is a leader in the sales of single use skin care pacs. The Cabot
Vitamin E Anti-Stress line includes face pacs, bath soaks and foot pacs. Cabot
also markets hair care pacs under the Cabot and Salon Series(R) lines. Cabot
plans to market additional products under the Nature(R) trademark.
Cabot also markets Clear Perfection(R) corrective cosmetics. Cabot is one of
the leading distributors of corrective cosmetics in the chain drug store and
mass volume retail channels of trade. Clear Perfection products are enriched
with vitamin E and designed to cover up blemishes and scars. Cabot recently
introduced its Tools of the Trade(TM)
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<PAGE>
collection under the Clear Perfection trademark. This new collection enhances
the line by providing contouring and spot coverage products in compacts and
pencil forms. Other product forms include Corrective Cover Cream, Retouch
Concealer, Cover Stick, Finishing Powder, Cover Cream Light, cream to powder
make-up in a mirrored compact, and Total Cover Liquid Make-up, a full coverage
liquid with AHA.
European Operations
The Company, through DIFA, manufactures and sells an antiviral product under
an exclusive worldwide license to distributors outside the United States under
various trademarks. Under the terms of the license, the Company pays a 5%
royalty on sales of its antiviral product for use in the treatment of herpes
zoster and tabes dorsalis and a 1.5% royalty on sales for all other uses. DIFA
also distributes skin care products, including a line of products developed by a
dermatologist, which are sold under the Cosmetici Magistrali(TM) trademark.
The Company also develops skin care products through CCSA which develops skin
care products for license to independent licensees principally in Europe under
the "Tokalon" trademark. The Company, through CDSA, owns undeveloped real estate
in Mougins, France.
1995-1996 Restructuring of Cabot
In 1995 and 1996, the Company implemented plans to reduce its costs and
improve productivity. The Company consolidated all of its United States offices
and manufacturing facilities into one leased facility in Morgan Hill, California
and reduced the number of employees. The closing of the Company's Islip, New
York facilities was completed by December 31, 1995. The Company has also sublet
its former offices in New York City. The Company incurred $1,395,000 of pre tax
charges relating to relocations, separations and related costs of the
restructuring program, including $810,000 for the severance costs of 71
employees working in manufacturing, distribution and administration at the
Company's Islip facilities and $585,000 related to facility leases, close down
costs, and asset retirements. The Company paid $475,000 for its restructuring
program in 1995 and expects such payments to be completed by the end of the
third quarter in 1996. There can be no assurance that the restructuring of Cabot
will result in profitable operations.
Possible Dispositions of the Company's Assets and/or Businesses
The Company has historically invested heavily in its operating subsidiaries to
grow their businesses and relied primarily on the sales of such businesses as
they grew to finance their operations. Since December 31, 1994, the Company has
incurred over $12,000,000 in losses. The Company is currently focusing its
efforts on developing its principal subsidiary, Cabot, and is considering
possible transactions which may involve the sale or disposition of one or more
of its operating subsidiaries, product lines or assets to finance the continued
growth of Cabot and to increase its focus on developing its core
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<PAGE>
skin care business. While the Company has discussed possible transactions with
third parties, it has not received any firm offers with respect to any of such
possible transactions, except with respect to certain real property as described
below, and there can be no assurance that the Company will be able to negotiate
any of such possible transactions on terms favorable to the Company or develop
Cabot into a profitable business.
Although the Company has had discussions to sell some or all of the capital
stock of DIFA, there are currently no discussions regarding such sale. The going
concern value of DIFA's business is dependent on DIFA's ability to obtain at
least a 30 month extension of the regulatory approvals required in Italy to
continue to market DIFA's anti-viral product.
The Company, through its subsidiary, CDSA, is engaged in efforts to sell four
lots of undeveloped land in Mougins, France. The Company currently has two lots
under contract and expects to realize $250,000 and $100,000, respectively, in
net proceeds from the sale of these lots. While the Company expects to close
the sales within the next six months, the sale of one lot is contingent upon the
receipt of a building permit and there can be no assurance that the Company will
be able to sell any of the four lots on terms favorable to the Company.
The Company is actively considering the disposition by sale or joint venture
with one or more of its suppliers of its Clear Perfection(R) corrective
cosmetics product line. No firm offers for such disposition have been received
or are under consideration and the Company is not able to estimate the value of
this product line to a third party.
Further Information.
For further information with respect to the Company and its business and
operations, see the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and its Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1996, copies of which are enclosed for your reference,
and which are incorporated herein by reference.
THE REVERSE STOCK SPLIT
The Special Committee and the Board of Directors approved the Reverse Stock
Split by authorizing: (i) an amendment to the Company's Certificate of
Incorporation effecting a one-for-500 reverse stock split of the Company's Old
Common Stock, reducing the authorized number of shares of common stock from
10,000,000 shares to 20,000 shares, $50.00 par value per share; and (ii) the
payment of cash in the amount of $1.50 per share of Old Common Stock in lieu of
the issuance of fractional shares of New Common Stock to persons who would
otherwise hold fractions of a share of New Common Stock after the Reverse Stock
Split.
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<PAGE>
REASONS FOR THE REVERSE STOCK SPLIT
Transaction to Become a Non-Reporting Company.
The Board of Directors and the Special Committee authorized the Reverse Stock
Split in connection with the Company's ongoing efforts to reduce costs and
improve productivity. Reducing the number of its stockholders of record to less
than 300 would permit the Company to discontinue the registration of its common
stock under the Exchange Act. Termination of the Company's status as a public
reporting company under federal securities laws would allow the Company to
achieve additional reductions in costs by reducing the general and
administrative costs incurred in connection with maintaining such status.
The Special Committee and the Board of Directors believe that neither the
Company nor its stockholders derive any material benefit from the continued
registration of the Company's common stock under the Exchange Act. The Company
incurs significant direct and indirect costs, however, as a result of the
requirement that it comply with the filing and reporting requirements applicable
to public companies. The Company annually incurs direct costs, including legal
and accounting expenses of approximately $70,000 in years in which the minimum
filings with the SEC are required. The Company also incurs indirect costs as a
result of management time required to prepare and review such filings. The
Company expects to achieve annual cost savings of at least $500,000 as a result
of the Reverse Stock Split, resulting from anticipated reductions in personnel,
directors' and officers' liability insurance premiums, fees paid to outside
directors, outside accounting and legal fees, transfer agent fees, and in
printing and mailing costs.
The Special Committee and the Board of Directors believe that the expense and
burden to the Company of continued registration, including the requirement to
file annual and quarterly reports, proxy statements and other documents with the
SEC significantly outweigh any benefits to the Company or its stockholders as a
result of such registration. The Company does not presently intend to raise
capital in the public securities markets, to use registered stock to effect
acquisitions, or to avail itself of other advantages of being a public reporting
company. The Company's inability to raise significant amounts of capital from
stockholders other than the Major Stockholders in the Rights Offering, and its
current financial condition, indicate that the Company would not likely be able
to raise capital in the near term in the public securities market. The
Company's common stock has been delisted by NASDAQ and is traded on the over-
the-counter market.
The Company is undertaking the Reverse Stock Split now to allow the Company to
cease to incur public reporting company expenses as quickly as possible and to
allow stockholders who receive cash in lieu of fractional shares of New Common
Stock to receive, and be able to reinvest or make use of, such cash payments.
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<PAGE>
Form of Transaction.
The Special Committee and the Board of Directors have determined that the
Reverse Stock Split is the most cost-effective method of changing the Company's
status from that of a publicly held reporting company to that of a privately
held non-reporting company. In making this determination, the Special Committee
and the Board of Directors considered other means of achieving this result, but
rejected these alternatives because they believed that the Reverse Stock Split
would be simpler and more-cost effective. In addition, the Reverse Stock Split
would allow existing stockholders who would otherwise hold less than one share
of New Common Stock after the Reverse Stock Split to remain stockholders of the
Company by purchasing additional shares of Old Common Stock on the open market
prior to the Effective Date. The Special Committee and the Board of Directors
considered other means of achieving this result, such as effecting a reverse
stock split that would effect a greater reduction in the number of stockholders
or making privately or publicly negotiated purchases of outstanding shares of
its common stock, including making a public tender offer for such shares, or
effecting a merger in which the Company's public stockholders would receive cash
instead of stock in the surviving corporation. The Special Committee and the
Board of Directors rejected these alternatives as impracticable in light of the
Company's current financial condition and Cabot's capital requirements, and
because the Board of Directors believed that the Reverse Stock Split would be
simpler and less expensive to effect and because the Reverse Stock Split would
allow existing stockholders to remain stockholders after the Reverse Stock Split
by purchasing additional shares of Old Common Stock. In addition, the Special
Committee and the Board of Directors considered that, in the case of a merger,
the Delaware General Corporation Law would afford dissenting stockholders
appraisal rights that they would not be entitled to in the case of the Reverse
Stock Split. The Special Committee and the Board of Directors believe that the
availability of appraisal rights could unduly increase the complexity and
potential cost of becoming a non-reporting company without materially benefiting
any dissenting stockholders.
Potential Benefits of Transaction to Become a Non-Reporting Company May Not Be
Realized
Stockholders who would otherwise hold less than one share of New Common
Stock after the Reverse Stock Split may remain as stockholders of the Company by
purchasing additional shares of Old Common Stock on the open market to hold at
least 500 shares of Old Common Stock on the Effective Date. See "Special
Factors--Exchange of Stock Certificates; Cash Payments in Lieu of Fractional
Shares". Because stockholders may purchase additional shares on the open market
prior to the Effective Date, there can be no assurance that, even if the Reverse
Stock Split is effected, the Company will reduce the number of record
stockholders following the Reverse Stock Split to less than 300 stockholders of
record. If the Company fails to reduce the number of stockholders of record to
below 300, the Company will still be a reporting company for purposes of the
Exchange Act and will not realize the anticipated cost savings that would result
from ceasing to be a public reporting company.
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<PAGE>
Rule 13e-3 Transaction Statement.
In connection with the Reverse Stock Split, the Company has filed with the SEC
a Rule 13e-3 Transaction Statement on Schedule 13e-3. See "Other information;
Documents Incorporated by Reference".
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE REVERSE STOCK SPLIT
No Effect on Continuing Business and Operations.
The Company believes that the Reverse Stock Split will not have any effect on
its business and operations and expects to continue to conduct such business and
operations as they are currently being conducted. The Company will continue to
explore ways of raising working capital through the sale of assets and/or
businesses, including, but not limited to, (i) the possible sale of the
Company's French real estate, (ii) the possible sale or disposition of DIFA, and
(iii) a possible sale or disposition of the Cabot(R) Clear Perfection(R)
corrective cosmetics product line. If the Reverse Stock Split is effected,
stockholders holding less than 500 shares of Old Common Stock on the Effective
Date will receive cash payments in lieu of fractional shares of New Common Stock
and will not remain as stockholders of the Company and therefore will not
participate in any future earnings or growth of the Company or in the sale or
disposition of any of its businesses or assets. Stockholders holding at least
500 shares of Old Common Stock on the Effective Date will remain as stockholders
and will retain all of the rights and benefits possessed by stockholders prior
to the Reverse Stock Split except those resulting from the Company's status as a
publicly held reporting company under the Exchange Act.
Termination of Reporting Company Status.
If the Reverse Stock Split is effected, the Company expects to cease to be a
reporting company under the Exchange Act. As a result, the Company would no
longer file annual and quarterly reports, proxy statements, and other documents
with the SEC. In addition, the Company would no longer be required to comply
with the proxy rules of Regulation 14A promulgated under Section 14 of the
Exchange Act, and its officers, directors and 10%-or-greater stockholders would
no longer be subject to the reporting requirements and "short-swing" insider
trading restrictions under Section 16 of the Exchange Act. Continuing
stockholders would no longer be entitled to receive annual reports and proxy
statements required by the Exchange Act and would most likely no longer have the
benefit of a public market for their shares of the Company's common stock.
Changes to Authorized Capital Stock; Terms of Stock Unchanged.
If the Reverse Stock Split is effected, the number of authorized shares of the
Company's common stock will be reduced from 10,000,000 shares, $0.10 par value,
to 20,000 shares, $50.00 par value. Apart from such changes, the terms of the
New Common Stock will remain the same as those of the Old Common Stock.
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<PAGE>
Changes in Proportionate Stock Ownership and Share Values.
Stockholders who remain stockholders of the Company after the Reverse Stock
Split are likely to experience a slight increase in their percentage stock
ownership in the Company as a result of the exchange of shares of Old Common
Stock for a cash payment of $1.50 per share of Old Common Stock in lieu of the
issuance of fractional shares of New Common Stock. The extent of such increase
will depend on the number of such shares exchanged and the number of such
shares, if any, that are purchased by other stockholders on the open market
prior to the Effective Date. The use of Company funds to pay for fractional
shares of New Common Stock and to pay the transactional costs of the Reverse
Stock Split will cause a decrease in the Company's assets of approximately
$515,000 if no stockholders purchase additional shares of Old Common Stock on
the open market prior to the Effective Date.
Possible Extraordinary Transactions.
Other than as described in this Information Statement with respect to (i) the
possible sale of the Company's French real estate, (ii) the possible sale or
disposition of DIFA, (iii) a possible sale or disposition of the Cabot(R) Clear
Perfection(R) corrective cosmetics product line, and (iv) the possible borrowing
of $1,000,000 from the Major Stockholders, the Company has no current plan to
effect any extraordinary corporate transaction, such as a merger,
reorganization, liquidation, sale or transfer of a material amount of assets,
change in its present Board of Directors or management, or change in dividend
rate or policy, indebtedness, or capitalization, or otherwise to effect any
material change in its corporate structure or business. The Company also has no
current plans to engage in any public offering of shares of common stock or
other securities. There is no assurance, however, that the Company will not
form an intention to engage in any of the foregoing transactions in the future
or that it will be able to negotiate any or all of the contemplated transactions
on terms favorable to the Company. Stockholders holding less than 500 shares of
Old Common Stock on the Effective Date will not continue as stockholders of the
Company and will not participate in the benefits of any such transactions or in
any future growth of the Company.
FURTHER STOCKHOLDER APPROVAL NOT REQUIRED
The Reverse Stock Split has been approved by the written consent of the Major
Stockholders. Such consent is sufficient to approve the Reverse Stock Split
under the Delaware General Corporation Law, and no other vote or consent of
stockholders is required or will be sought in connection with the Reverse Stock
Split. ACCORDINGLY, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND THE COMPANY A PROXY.
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<PAGE>
LACK OF APPRAISAL RIGHTS
Pursuant to the Delaware General Corporation Law, dissenting stockholders will
not have appraisal rights if the Reverse Stock Split is effected. Stockholders
who believe that they may be aggrieved by the Reverse Stock Split may have other
rights under federal law or common law, such as rights relating to the fairness
of the Reverse Stock Split and arising from possible breaches of the fiduciary
responsibilities of corporate officers, directors, and stockholders. The nature
and extent of such rights, if any, may vary depending upon the facts and
circumstances.
POSTPONEMENT OR ABANDONMENT
The Company's Board of Directors may postpone, revise or abandon the Reverse
Stock Split at any time prior to its consummation, for any reason, including,
without limitation, if, in the Directors' sole judgment, consummation of the
Reverse Stock Split would unduly deplete the Company's working capital or would
render the reverse Stock Split unfair to the Company and its continuing
stockholders due to an adverse change in the Company's financial condition.
EFFECTIVE TIME
Subject to the rights of the Board of Directors to postpone or abandon the
Reverse Stock Split, the Reverse Stock Split will be effected by filing an
amendment to the Company's Certificate of Incorporation with the Delaware
Secretary of State and will be effective upon such filing. The form of the
proposed amendment to the Company's Certificate of Incorporation is set forth as
Exhibit A to this Information Statement. The Company intends to file the
amendment to its Certificate of Incorporation on or about October__, 1996, the
Effective Date.
EXCHANGE OF STOCK CERTIFICATES; CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES
Letter of Transmittal.
If the Reverse Stock Split is effected, the stock certificates formerly
representing shares of Old Common Stock will represent the right to receive the
shares of New Common Stock into which they have been converted, and/or the right
to receive a cash payment in lieu of fractional shares of New Common Stock, as
the case may be, as described below. Enclosed is a Letter of Transmittal for use
in exchanging stock certificates of Old Common Stock for stock certificates of
New Common Stock and/or a cash payment. Stockholders should not send Letters of
Transmittal to the Company, but to The First National Bank of Boston, the
transfer agent and registrar for Old Common Stock.
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<PAGE>
Each stockholder of record who holds shares of Old Common Stock should use the
enclosed Letter of Transmittal to surrender his old stock certificate(s) and the
shares of Old Common Stock represented thereby for a new stock certificate
representing one share of New Common Stock for each 500 shares of Old Common
Stock, if any, and/or a cash payment in an amount equivalent to $1.50 per share
for such number of shares of Old Common Stock not divisible by 500 into a whole
share of New Common Stock. Stockholders who wish to purchase additional shares
of Old Common Stock may do so on the open market prior to the Effective Date.
PLEASE NOTE THAT ALL STOCK CERTIFICATES SENT TO THE TRANSFER AGENT SHOULD BE
DULY ENDORSED FOR TRANSFER TO THE COMPANY.
FINANCING OF THE REVERSE STOCK SPLIT
The Company estimates that it will incur transactional expenses of
approximately $130,000 in connection with the Reverse Stock Split (consisting
primarily of legal and accounting fees of approximately $30,000, investment
banking fees of $10,000, printing and mailing expenses of approximately $20,000,
transfer agent fees of approximately $60,000 and miscellaneous expenses of
approximately $10,000, including SEC filing fees of approximately $77). In
addition, equity will be reduced by aggregate cash payments in lieu of
fractional shares of New Common Stock of approximately $385,000. Such cash
payments in lieu of fractional shares of New Common Stock have been estimated
based on the assumption that all stockholders holding less than 500 shares of
Old Common Stock will elect to receive cash rather than purchase prior to the
Effective Date additional shares of Old Common Stock on the open market to
remain stockholders after the Reverse Stock Split. The Major Stockholders and
the other Directors have advised the Company that they intend to retain all
shares of New Common Stock to be owned or controlled by them. To the extent
that stockholders increase their holdings of Old Common Stock to become holders
of New Common Stock after the Reverse Stock Split, the reduction in the
Company's equity would be reduced. The Company intends to finance such costs
from its working capital and through borrowings from the Major Stockholders. The
Company's Board of Directors may, however, postpone, revise or abandon the
Reverse Stock Split at any time prior to its consummation, for any reason,
including, without limitation, if, in the Directors' sole judgment, consummation
of the Reverse Stock Split would unduly deplete the Company's working capital or
would render the Reverse Stock Split unfair to the Company and it continuing
Stockholders due to an adverse change in the Company's financial condition.
Since 1993, the Company has been dependent on the sale of assets and
borrowings from the Major Stockholders for working capital. On May 22, 1996,
the Company entered the May Purchase Agreement with the Major Stockholders,
which provides for the establishment of a $2,000,000 line of credit in favor of
the Company. Of the line of credit, $1,000,000 can be drawn down by the Company
from each Major Stockholder in $500,000 increments. Amounts drawn down are due
on December 31, 2000 and bear interest at the rate of 12% per annum.
As consideration for the establishment of the line of credit, the Company issued
warrants to each of the Major Stockholders to purchase
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<PAGE>
285,714 shares of common stock of the Company. In addition, for each $1,000
borrowed by the Company from a Major Stockholder under the line of credit, the
Company agreed to issue to such lender warrants to purchase an additional 286
shares of common stock. The exercise price of the warrants is $1.75 per share.
The line of credit is secured by a pledge of all of the issued and outstanding
capital stock of Cabot.
The transactions covered by the May Purchase Agreement were negotiated and
approved by the Special Committee, with the assistance of the Advisor. The
Company has used amounts drawn under the lines of credit to repay existing
accounts payable and for working capital. As of September __, 1996, the Company
had drawn $2,000,000 under the line of credit and had issued warrants to
purchase 286,000 shares of its common stock to each of the Major Stockholders.
In addition, the Special Committee has authorized up to an additional $1,000,000
of borrowings from the Major Stockholders on the same terms and conditions as
the borrowings under the May Purchase Agreement. The Company has no present
plans to repay the line of credit provided under the May Purchase Agreement
other than as provided by its terms.
FAIRNESS OF THE REVERSE STOCK SPLIT
The Special Committee and the Board of Directors have reviewed and considered
the terms and conditions of the Reverse Stock Split and have unanimously
determined that the Reverse Stock Split, taken as a whole, is fair to, and in
the best interests of, the Company and its stockholders.
Fairness of Cash Payments in Lieu of Fractional Shares.
The Special Committee and the Board of Directors believe that the payment of
cash in the amount of $1.50 per share of Old Common Stock in lieu of the
issuance of fractional shares of New Common Stock to persons who do not hold a
whole number of shares of New Common Stock after the Reverse Stock Split, will
enable stockholders to liquidate such shares easily and at a fair price which is
at a premium to recent prevailing market prices of the Company's common stock.
Depending upon a particular stockholder's tax basis in his shares of common
stock, such stockholder may obtain a tax benefit by recognizing a loss for
federal income tax purposes. See "Special Factors--Certain Federal Income Tax
Consequences." In addition, by having shares of Old Common Stock exchanged for
cash by the Company, a stockholder will be able to liquidate his investment, or
fraction thereof, in the Company without incurring brokerage costs which, in the
case of a holder of a small quantity of Old Common Stock, could materially
reduce or eliminate the actual net proceeds of sale to the stockholder.
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<PAGE>
Fairness to the Company and Continuing Stockholders.
The Special Committee and the Board of Directors also believe that the Reverse
Stock Split is fair to the Company and to stockholders who remain as
stockholders of the Company following the consummation of the Reverse Stock
Split because, as described above, the Board of Directors believes that the
price to be paid to stockholders who receive cash in lieu of shares of New
Common Stock is fair in light of all the circumstances and that the Company will
realize cost savings if, as a result of the Reverse Stock Split, it ceases to be
a reporting company under the Exchange Act.
Stockholders' Option.
Stockholders who would otherwise hold less than one full share of New Common
Stock after the Reverse Stock Split may remain as stockholders of the Company by
purchasing additional shares of Old Common Stock on the open market prior to the
Effective Date to hold at least 500 shares of Old Common Stock on the Effective
Date. The Board of Directors believes that structuring the Reverse Stock Split
to provide stockholders the option to remain as stockholders of the Company is
fairer to stockholders than structuring the reverse stock split as a one-for-
10,000 (or higher) split to ensure that the reverse stock split would achieve
the Company's objective of terminating its obligations under the Exchange Act.
Factors Considered in Fairness Determination.
The Board of Directors and the Special Committee considered many factors in
reaching their determinations that the Reverse Stock Split is fair to the
Company and its stockholders. The Board of Directors and the Special Committee
considered, among other things, each director's knowledge of, and familiarity
with, the Company's businesses and assets, its financial condition, operating
results, cash flows, liabilities and prospects, as well as general economic,
industry, and market conditions. The Special Committee and the Board of
Directors also considered the recent and historical trading ranges of the
Company's common stock on the over-the-counter market; the opportunity that the
Reverse Stock Split would afford stockholders of less than 500 shares of Old
Common Stock to liquidate their investments in the Company while avoiding
brokerage costs; the future cost-savings that the Company and its continuing
stockholders will enjoy if, as a result of the Reverse Stock Split, the Company
ceases to be a reporting company under the Exchange Act; and each director's
experiences determining the fairness of previous transactions between the
Company and the Major Stockholders. Given the wide variety of factors
considered in reaching its conclusion as to fairness (including those described
below), the Board of Directors and the Special Committee did not deem it
practicable to assign precise relative weights to the factors considered, and
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all factors were considered as a totality except that information regarding the
current and historical market prices for the common stock was given greater
weight than the other factors.
In addition to the foregoing, other factors considered by the Board of
Directors in making its determination included the following:
Current and Historical Market Prices for the Common Stock. The Company's common
- ---------------------------------------------------------
stock is not currently listed on any stock exchange or quoted in the National
Association of Securities Dealers Automated Quotation (NASDAQ) system and is
traded on the over-the-counter market. The Company has never paid any dividends
on its common stock and is precluded from doing so until it has repaid all of
its indebtedness to the Major Stockholders under the May Purchase Agreement, the
November Purchase Agreement and the Notes. The following table sets forth
information about the range of prices of the Company's common stock on the
NASDAQ National Market System, the NASDAQ Small Cap Market and the over-the-
counter market for the last two calendar years through August 16, 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
Common Stock price range:
High $ 3 1/4 $2.25 $ 1.50
Low $ 1 1/2 $1 1/2 $ 1.00
1995
Common Stock price range:
High $ 3 1/8 $3 1/2 $ 3 1/2 $ 3 1/4
Low $ 2 1/4 $2 1/2 $ 2 1/2 $1 31/32
1994
Common Stock price range:
High $ 3 1/2 $3 1/4 $ 2 3/4 $ 4 1/4
Low $1 11/16 $2 1/2 $ 2 1/2 $ 2 1/4
</TABLE>
The Board of Directors and the Special Committee considered their experience
in determining the fairness of establishing (i) the conversion prices per share
of common stock issuable upon conversion of the Notes issued to the Major
Stockholders in 1992 and 1993, (ii) the exercise price of the Prior Warrants
issued to the Major Stockholders in November, 1995 in connection with the
provision of a $4,000,000 line of credit and (iii) the exercise price of the New
Warrants issued to the Major Stockholders in May, 1996, all at conversion or
exercise prices at or above the then current market prices of the Company's
common stock. In view of the premium above the recent prevailing trading range
of the Company's common stock in the over-the-counter market and the foregoing
factors, the Special Committee and the Board of Directors assigned greater
19
<PAGE>
foregoing factors, the Special Committee and the Board of Directors assigned
greater weight to this factor in determining the fairness of the Reverse Stock
Split than to other factors.
Net Book Value. As of March 31, 1996, the Company had a negative net value book
- --------------
per share of common stock was approximately $(1.29). The audit report of the
Company's independent public accountants, KPMG Peat Marwick LLP, with respect to
the Company's financial statements included in its Annual Report on Form 10-K
for the year ended December 31, 1995 contained an unqualified opinion with an
explanatory paragraph addressing the uncertainty about the Company's ability to
continue as a going concern for a reasonable period of time. The Company's
financial statements have been prepared on the assumption that the Company will
continue as a going concern; that it will realize its assets and liquidate its
liabilities in the normal course of business. Since the Company has suffered
losses of over $12,000,000 since December 31, 1994 and expects to require
additional cash to fund its operations, the Company's independent public
accountants have stated that there is substantial doubt as to the Company's
ability to continue as a going concern.
Given this substantial doubt and the negative book value of the Company, the
Special Committee and the Board of Directors do not believe that book value,
which is computed on the assumption that the Company will continue as a going
concern, provides a reliable measure of the fair value of the common stock.
Accordingly, the Special Committee and the Board of Directors did not assign any
material weight to this factor in determining the fairness of the Reverse Stock
Split.
Going-Concern Value. The Special Committee and the Board of Directors do not
- -------------------
believe that going concern value provides a reliable measure of the fair value
of the common stock. Accordingly, the Special Committee and the Board of
Directors did not assign any material weight to this factor in determining the
fairness of the Reverse Stock Split.
Liquidation Value. The Company has no current plans to effect any liquidation
- -----------------
of the Company or its assets other than (i) the possible sale of the Company's
French real estate, (ii) the possible sale or disposition of DIFA, and (iii) a
possible sale or disposition of the Cabot(R) Clear Perfection(R) corrective
cosmetics product line. See "Special Factors--Conduct of the Company's Business
after the Reverse Stock Split--Possible Extraordinary Transactions." The
Company's primary asset consists of the business of Cabot. The Special
Committee and the Board of Directors believe that the Company would not be able
to realize the full value of all of its assets through liquidation, because it
is unlikely that any buyer would purchase Cabot except at a substantial
discount, and that to realize the full value of Cabot it would be necessary to
continue to grow the business. Accordingly, the Special Committee and the Board
of Directors did not assign any material weight to this factor in determining
the fairness of the Reverse Stock Split.
20
<PAGE>
Analysis of Van Kasper & Company.
The Company did not receive any written report, opinion, or appraisal from any
outside party that is materially related to the Reverse Stock Split. The
Special Committee retained the Advisor to analyze the effect of the May Purchase
Agreement and the Reverse Stock Split on the Company, the Company's stockholders
and the Major Stockholders. The Advisor is a full service West Coast regional
investment banking firm, which provides a full range of investment banking
services, including public and private financings and other corporate financial
services, which include merger and acquisition advisory services and fairness
opinions. The Advisor's research department covers a variety of industries,
including healthcare. The Advisor has experience in providing financial
structuring analysis and advice on corporate transactions of this nature. The
Advisor had previously provided analysis to the Special Committee with respect
to other transactions between the Company and the Major Stockholders and was
selected on the basis of its familiarity with, and knowledge of, the Company and
its businesses. The Advisor will be paid a fee of $10,000 in connection with
its analysis of the May Purchase Agreement and the Reverse Stock Split. The
amount of such fee was determined by the Advisor. In connection with its prior
engagements with the Company in the past two years, the Advisor received
$10,000.
At the meetings of the Special Committee and the Board of Directors on May 24,
1996, the Advisor discussed the transaction contemplated by the May Purchase
Agreement and certain aspects of the Reverse Stock Split; namely: (i) the
Advisor's analysis and review of the recent trading history of the Company's
common stock, (ii) other reverse stock split transactions, prevailing prices and
prices paid for fractional shares in such transactions, (iii) alternatives to
the one-for-500 reverse stock split, (iv) brokerage transaction costs and (v)
the relatively minor incremental investment needed by stockholders of the
Company who wish to remain as stockholders of the Company to purchase additional
shares of Old Common Stock so that they can own at least 500 shares of Old
Common Stock prior to the Reverse Stock Split. The Advisor was not asked to
render and did not render a verbal or written report or opinion as to the
fairness of the May Purchase Agreement or the Reverse Stock Split from a
financial point of view to the stockholders of the Company. In preparing its
analysis, the Advisor assumed that the Company would liquidate all of its assets
which are not related to its Cabot and skin care business and that the resultant
business would attain an estimated gross fair value of $25,000,000 in two years.
The Advisor believed that the discounted present value of such a valuation and
the uncertainties inherent in the Company's ability to develop its Cabot skin
care business, supported the $1.75 exercise price of the warrants issued in
connection with the May Purchase Agreement negotiated with the Major
Stockholders. The exercise price of warrants are often set at a premium to the
prevailing market price of the underlying security. The exercise price of those
warrants represents a 17% premium over the $1.50 payment for fractional shares.
During 1996 through August 14, the weighted average (weighted by weekly trading
volume) of the weekly closing prices for the Company's common stock was $1.52.
The payment for fractional shares approximates this weighted average and
represents a significant 50% premium over the prevailing closing prices for the
Common Stock since mid-July 1996. Additionally, the Advisor determined that the
transactional costs associated with selling less than 500 shares of the Common
Stock through a typical brokerage transaction would be significant as measured
against the net proceeds, while the Reverse Stock Split would provide holders of
less than 500 shares of Common Stock with a sale free of transaction costs.
21
<PAGE>
The Special Committee did not consider it necessary to retain an unaffiliated
representative to act solely on behalf of the unaffiliated stockholders of the
Company for the purposes of negotiating the terms of the Reverse Stock Split or
to retain the Advisor to render a report or opinion concerning the fairness of
the Reverse Stock Split. The primary factors considered by the Special
Committee in determining not to retain the services of such an unaffiliated
representative or the Advisor to render a report or opinion were (i) its belief
that the cost of such services would be excessive relative to the size of the
transaction and the potential benefits to the Company and its stockholders and
was not justified in light of its discussions with the Advisor and (ii) its
experience with prior transactions involving a valuation of the Company's
securities. Although the Special Committee retained independent counsel to
advise it with respect to determining the fairness of establishing (i) the
conversion prices per share of common stock issuable upon conversion of
convertible notes issued to the Major Stockholders in 1992 and 1993 and (ii) the
exercise price of the Prior Warrants issued to the Major Stockholders pursuant
to the November Purchase Agreement, all at conversion or exercise prices at or
above the then current prevailing market prices of the Company's common stock,
the Special Committee believed that its familiarity with the legal and other
considerations in determining the fairness of these prior transactions coupled
with the expense of hiring special counsel did not warrant the hiring of special
counsel to advise it with respect to the Reverse Stock Split.
Absence of Firm Offers for Alternative Transactions.
The Company is not aware of any firm offers made by any unaffiliated persons
during the preceding eighteen months for the merger or consolidation of the
Company with or into such person or of such person with the Company or for the
sale or other transfer of all or any substantial portion of the Company's
assets.
Each of the Major Stockholders has held approximately 30% of the Company's
outstanding common stock since 1993, giving them the ability to exercise voting
control of the Company. In addition, each of the Major Stockholders has held
$1,474,049 principal amount of Notes convertible into 728,370 shares of common
stock since 1993. In the last eighteen months, the Company entered into the
November Purchase Agreement and the May Purchase Agreement with the Major
Stockholders pursuant to which the Company received lines of credit of
$4,000,000 and $2,000,000. In consideration for the provision of each of the
lines of credit and for advances made by the Major Stockholders under such lines
of credit, the Company has issued warrants to purchase 1,571,714 shares of
common stock to each of the Major Stockholders. If the Company borrows the
additional $1,000,000 authorized for borrowing from the Major Stockholders on
the same terms as the May Purchase Agreement, the Company would issue additional
warrants to purchase 285,857 shares of common stock to each of the
22
<PAGE>
Major Stockholders. The outstanding principal of the Notes held by the Major
Stockholders is convertible into shares of the Company's common stock at $2.00
and $2 1/16 per share. The Prior Warrants and the New Warrants are exercisable
at $1.75 per share. If the Major Stockholders were to convert such Notes and
exercise the Warrants, each would own more than 41% of the outstanding capital
stock of the Company. Because the Major Stockholders already own a majority of
the Company's outstanding common stock and can already effect the approval of
most corporate transactions under the Delaware General Corporation Law by
written consent, the acquisition of any of such securities would not enable the
Major Stockholders to exercise more control of the Company than they may
currently exercise.
The Company is aware that during the spring of 1996, the Major Stockholders
discussed the possibility of effecting a merger of the Company with and into a
corporation to be created and controlled by the Major Stockholders as a possible
means of effecting a transaction to become a non-reporting company and
eliminating the costs related to the Company's status as a public reporting
company. Under the scenario discussed by the Major Stockholders, all of the
Company's other stockholders would have received a cash payment in exchange for
their shares of the Company's common stock. Following the March 18, 1996
meeting of the Board of Directors, the Major Stockholders discussed with the
other directors the possibility that they might consider effecting such a
transaction and were encouraged by the other directors to explore this
possibility further. The Major Stockholders retained independent counsel to
assist in such explorations but concluded that such a transaction was too costly
and not the most efficient means of eliminating the costs related to the
Company's status as a public reporting company. The Company did not receive any
firm proposal from the Major Stockholders.
Potential Conflicts of Interest.
The directors of the Company are Parker G. Montgomery, the Company's President
and Chairman of the Board of Directors, Theodore H. Kruttschnitt, James Gilleran
and Jackson Schultz. The Reverse Stock Split has been approved by all of the
non-employee directors. None of the Directors has made an individual
recommendation with respect to the Reverse Stock Split. Each of the Major
Stockholders owns or controls approximately 30% of the outstanding shares of
common stock, giving them effective voting control of the Company. Each
Director, including the Major Stockholders, has advised the Company that he
intends to retain all such whole shares of New Common Stock after the Reverse
Stock Split. In addition each of the Major Stockholders has the right to acquire
an additional 2,300,084 shares of the Company's common stock upon the conversion
of the Notes and upon the exercise of the Warrants. If they were to convert the
Notes and exercise the Warrants, Mr. Kruttschnitt and Mr. Montgomery would then
own 3,389,233 shares (41.18%) and 3,389,232 shares (41.18%), respectively, of
the Company's outstanding common stock. If the Company were to borrow the
additional $1,000,000 authorized for borrowing from the Major Stockholders on
the same terms as under the May Purchase Agreement and, after the foregoing
23
<PAGE>
conversions and exercises, the Major Stockholders were to exercise the resulting
additional warrants, Mr. Kruttschnitt and Mr. Montgomery would then own
3,675,090 shares (41.76%) and 3,675,089 shares (41.76%), respectively, of the
Company's outstanding common stock.
The Major Stockholders have loaned the Company an aggregate of $8,948,098
pursuant to the May Purchase Agreement, the November Purchase Agreement and the
Notes, which indebtedness is secured by a pledge of all of the issued and
outstanding capital stock of Cabot.
As discussed above, the Major Stockholders considered the possibility of
effecting a merger of the Company with and into a corporation to be created and
controlled by the Major Stockholders as a possible means of effecting a
transaction to become a non-reporting company and eliminating the costs related
to the Company's status as a public reporting company. Under the scenario
discussed by the Major Stockholders, all of the Company's other stockholders
would have received a cash payment in exchange for their shares of the Company's
common stock. While the Major Stockholders have indicated that they are no
longer contemplating such a transaction, the Major Stockholders have voting
control of the Company and, therefore, could effect such a transaction in the
future. If the Major Stockholders were to effect such a merger transaction,
dissenting stockholders would have dissenter's rights under the current Delaware
General Corporation Law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE COMPANY HAS NOT SOUGHT, AND DOES NOT INTEND TO SEEK A RULING FROM THE
INTERNAL REVENUE SERVICE OR AN OPINION OF COUNSEL AS TO ANY TAX CONSEQUENCES OF
THE REVERSE STOCK SPLIT. THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN FEDERAL
INCOME TAX CONSEQUENCES THAT THE COMPANY BELIEVES WOULD RESULT TO STOCKHOLDERS
WHO ARE RESIDENTS OF THE UNITED STATES AS A CONSEQUENCE OF THE REVERSE STOCK
SPLIT. THIS DISCUSSION IS BASED ON CURRENT LAW AS OF THE DATE OF THIS
INFORMATION STATEMENT AND DOES NOT TAKE INTO ACCOUNT ANY SPECIAL RULES THAT MAY
AFFECT THE TREATMENT OF PARTICULAR STOCKHOLDERS, SUCH AS DEALERS IN SECURITIES,
TAX-EXEMPT ENTITIES, NON-RESIDENT ALIENS OR FOREIGN CORPORATIONS. THIS
DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY, WITHOUT REFERENCE TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF ANY SPECIFIC STOCKHOLDER. EACH STOCKHOLDER
SHOULD CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES IN HIS OWN CIRCUMSTANCES, AND WITH RESPECT TO THE EFFECTS OF
APPLICABLE STATE, LOCAL AND FOREIGN TAX LAWS AS TO WHICH NO INFORMATION IS
PROVIDED HERE.
Tax Consequences to the Company.
The Reverse Stock Split is intended to qualify for federal income tax purposes
as a tax-free reorganization of the Company pursuant to Section 368(a) of the
Internal Revenue
24
<PAGE>
Code of 1986, as amended (the "Code"). Accordingly, the Company does not expect
that it will experience any tax consequences as a result of the Reverse Stock
Split.
Tax Consequences to Stockholders.
The following discussion assumes each stockholder holds his shares of Old
Common Stock as a capital asset.
Exchange of Old Common Stock for New Common Stock. A stockholder who exchanges
- -------------------------------------------------
all of his Old Common Stock solely for New Common Stock will not recognize any
gain or loss on the exchange. The aggregate tax basis of the New Common Stock
received will be equal to the aggregate tax basis of the Old Common Stock
exchanged, and the holding period of the New Common Stock received will include
the holding period of the Old Common Stock exchanged.
Exchange of Old Common Stock for Cash. A stockholder who exchanges all of his
- -------------------------------------
Old Common Stock (or shares of Old Common Stock exchanged in lieu of fractional
shares of New Common Stock as a result of the Reverse Stock Split) for cash
will, assuming he is not treated as owning any other New Common Stock
immediately after the Reverse Stock Split, recognize capital gain or loss equal
to the difference between the basis of the Old Common Stock surrendered and the
cash received. Such capital gain or loss will be long-term capital gain or loss
if the stockholder's holding period for his Old Common Stock exceeds one year,
and otherwise will be short-term capital gain or loss.
Backup Withholding. Each stockholder who receives cash in lieu of fractional
- ------------------
shares of New Common Stock will be required to provide the Company with a
correct Taxpayer Identification Number on the Form W-9 or substitute Form W-9
included with the Letter of Transmittal and to certify that he is not subject to
backup withholding. FAILURE TO PROVIDE THE INFORMATION AND CERTIFICATION ON THE
FORM W-9 (OR SUBSTITUTE FORM W-9) MAY SUBJECT THE STOCKHOLDER TO 31% FEDERAL
INCOME TAX BACKUP WITHHOLDING WITH RESPECT TO ANY CASH PAYMENT FOR THE
STOCKHOLDER'S SHARES OF NEW COMMON STOCK.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial
ownership of shares of Old Common Stock as of June 30, 1996 by (i) each person
or group who is known by the Company to own beneficially more than 5% of the
issued and outstanding shares of common stock as of that date, (ii) each
director and each executive officer of the Company, and (iii) all directors and
executive officers of the Company, as a group. Except as otherwise indicated
below, to the best of the Company's knowledge each person listed below has sole
voting and investment power with respect to his shares of common stock, except
to the extent that such power may be with his or her spouse under applicable
law.
25
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------
<S> <C> <C>
Name Number Percent of Class
- ------------------------------------ --------- ----------------
Theodore H. Kruttschnitt 3,389,233 41.18%/(1)/
1350 Bayshore Highway, Suite 850
Burlingame, California 94010
Parker G. Montgomery 3,389,232 41.18%/(1)/
16160 Caputo Drive
Morgan Hill, California 95037
Michael J. Braden - 0 - - 0 -
16160 Caputo Drive
Morgan Hill, California 95037
James E. Gilleran 5,000 /(2)/
16160 Caputo Drive
Morgan Hill, California 95037
Jackson L. Schultz 5,000 /(2)/
16160 Caputo Drive
Morgan Hill, California 95037
--------- -------------
All directors and executive 6,788,405 82.4%/(3)/
officers, as a group (5 persons)
========= =============
</TABLE>
- --------------------
/(1)/Includes 728,370 shares of the Company's common stock issuable upon
the conversion of an aggregate of $1,474,049 principal amount of Notes,
1,000,000 shares of common stock issuable upon the exercise of the Prior
Warrants and 571,714 shares of common stock issuable upon exercise of the New
Warrants.
/(2)/Less than 1%.
/(3)/Includes 1,456,740 shares of the Company's common stock issuable upon
the conversion of an aggregate of $2,948,098 principal amount of Notes,
2,000,000 shares of common stock issuable upon the exercise of the Prior
Warrants and 1,143,428 shares of common stock issuable upon exercise of the New
Warrants.
26
<PAGE>
FINANCIAL INFORMATION
The financial information required herein is hereby incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended December 31,
1995, and its Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1996, copies of which are enclosed herewith.
OTHER INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to the Exchange Act, the Company files with the SEC periodic reports
and other documents relating to its business, financial condition, and other
matters. In connection with the Reverse Stock Split, the Company has filed with
the SEC a Rule 13e-3 Transaction Statement on Schedule 13e-3. The Schedule 13e-
3, including exhibits, and other filings made by the Company as described above,
may be inspected without charge, and copies may be obtained at prescribed rates
at the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Schedule 13e-3 is
also available for inspection and copying during normal business hours at the
principal executive offices of the Company at 16160 Caputo Drive, Morgan Hill,
California 95037.
27
<PAGE>
EXHIBIT A
COOPER DEVELOPMENT COMPANY
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
----------------------------
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Cooper Development Company, a corporation organized and existing under the
General Corporation Law of the State of Delaware, (the "Corporation") does
hereby certify as follows:
1. The Certificate of Incorporation of the Corporation is hereby amended
by causing paragraph (a) of Article 4 thereof to read in its entirety as
follows:
(a) Number of shares. The total number of shares of classes of stock which
----------------
the corporation shall have authority to issue is 120,000, consisting of 20,000
shares of Stock ("Common Stock"), each share having a par value of $50.00 and
100,000 shares of Preferred Stock ("Preferred Stock"), each share having a par
value of $0.10. Upon the effective date of this amendment, each outstanding
share of Common Stock, $0.10 par value, shall be combined and reconstituted as
one-five-hundredth (0.002) of one share of this Corporation's Common Stock,
$50.00 par value. In lieu of any fractional share resulting from the
combination and reconstitution to which a stockholder would otherwise be
entitled, the Corporation shall pay such stockholder the cash value of such
fractional share based on a value of $750 per share (after taking into account
the combination and reconstitution described herein). The Preferred Stock
consists of one series, of which 100,000 shares have been designated as Series A
Junior Participating Preferred Stock.
2. Such Amendment to the Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware. The Board of Directors of the
Corporation adopted a resolution setting forth this Amendment, declaring its
A-1
<PAGE>
advisability and calling for submission of such Amendment to the stockholders of
the Corporation for vote by written consent. The stockholders approved the
adoption of such Amendment by written consent on August __, 1996.
IN WITNESS THEREOF, COOPER DEVELOPMENT COMPANY has caused this Certificate
of Amendment to be signed by Parker G. Montgomery, President, and attested to by
Michael J. Braden, Secretary, this _______ day of ______, 1996.
COOPER DEVELOPMENT COMPANY
--------------------------------------------------
Parker G. Montgomery, President
ATTEST:
- ------------------------------
Michael J. Braden, Secretary
A-2
<PAGE>
Exhibit B
LETTER OF TRANSMITTAL
To Accompany Certificates Representing Shares
of the Old Common Stock of Cooper Development Company
to be Exchanged for Certificates representing Shares
of New Common Stock or Cash Payments in Lieu of Shares
STOCKHOLDERS: PLEASE READ CAREFULLY THE IMPORTANT INSTRUCTIONS
ON THE LAST PAGE OF THIS LETTER OF TRANSMITTAL.
List of Certificates Enclosed
Name and Address and Number of Shares
of Registered Owner of Old Common Stock
- ------------------- Represented by Each Certificate
-------------------------------
Cert. No. No. Shares
--------- ----------
To: Bank of Boston
Shareholder Services
Mail Stop; 45-02-16
P.O. Box 1865
Boston, Massachusetts 02105-1865
B-1
<PAGE>
Pursuant to the Information Statement dated August , 1996, of Cooper
--
Development Company (the "Company") with respect to the one-for-500 Reverse
Stock Split described therein enclosed are the above-listed stock certificates,
to be exchanged for stock certificates representing shares of New Common Stock
or cash payments in lieu of such shares, in accordance with the following.
PART I STOCKHOLDERS OF RECORD AS OF THE EFFECTIVE DATE OF SEPTEMBER , 1996, OF
--
LESS THAN 500 SHARES OF OLD COMMON STOCK, PLEASE COMPLETE THE FOLLOWING,
AND DO NOT COMPLETE PART II BELOW:
I, the undersigned stockholder of the Company, holding of record as of the
Effective Date of September , 1996 less than 500 shares of the Old Common Stock
--
of the Company, hereby irrevocably elect as follows (check one box only):
[_] To surrender my old stock certificate(s) and the shares of Old Common Stock
represented thereby for a cash payment in an amount equivalent to $1.50 per
share of Old Common Stock represented by such certificates. (Note: To avoid
backup withholding for federal income tax purposes, you must also enclose a
Form W-9 or substitute Form W-9.)
[_] I have purchased additional shares of Old Common Stock in the open market
on or before the Effective Date of September , 1996, in an amount that,
--
when added to my current stockholdings of record, equals at least 500
shares of Old Common Stock (equivalent to one whole share of New Common
Stock), and I am herewith surrendering the certificate(s) representing my
Old Common Stock for a new stock certificate representing at least one
whole share of New Common Stock and a cash payment in an amount equivalent
to $1.50 for each share of Old Common Stock not exchanged into a whole
share of New Common Stock.
PART II STOCKHOLDERS OF RECORD AS OF THE EFFECTIVE DATE OF SEPTEMBER , 1996 OF
--
AT LEAST 500 SHARES OF OLD COMMON STOCK, PLEASE COMPLETE THE FOLLOWING,
AND DO NOT COMPLETE PART I ABOVE:
I, the undersigned stockholder of the Company, holding of record as of the
Effective Date of September , 1996 at least 500 shares of the Old Common Stock
--
of the Company, hereby irrevocably elect as follows (check one box only):
B-2
<PAGE>
[_] To exchange my old stock certificate(s) for a new certificate representing
the shares of New Common Stock into which the shares of Old Common Stock
represented by my old stock certificate(s) are converted pursuant to the
Reverse Stock Split and a cash payment in an amount equivalent to $1.50 for
each share of Old Common Stock not exchanged into a whole share of New
Common Stock.
Please sign below exactly as your name appears on your stock
certificate(s), if acting as attorney, executor, trustee, or in other
representative capacity, please give full title as such. If stock is held
jointly, both owners should sign.
Dated: , 1996
----------------------------- ----------------------------------
(Signature)
Print Name:
Dated: , 1996
----------------------------- ----------------------------------
(Signature of joint owner, if any)
Print Name:
B-3
<PAGE>
STOCKHOLDER: PLEASE NOTE THE FOLLOWING IMPORTANT INSTRUCTIONS:
* ALL STOCK CERTIFICATES SUBMITTED SHOULD BE DULY ENDORSED FOR TRANSFER TO THE
COMPANY.
* THE COMPANY'S BOARD OF DIRECTORS MAY POSTPONE OR ABANDON THE PROPOSED REVERSE
STOCK SPLIT AT ANY TIME PRIOR TO ITS CONSUMMATION, FOR ANY REASON, INCLUDING,
WITHOUT LIMITATION, IF, IN THE DIRECTORS' SOLE JUDGMENT, CONSUMMATION OF THE
REVERSE STOCK SPLIT WOULD UNDULY DEPLETE THE COMPANY'S WORKING CAPITAL. IN
SUCH EVENT, YOUR ENCLOSED STOCK CERTIFICATE(S) WILL BE RETURNED TO YOU.
* TO AVOID BACK-UP WITHHOLDING WITH RESPECT TO ANY CASH PAYMENT IN LIEU OF
SHARES OF NEW COMMON STOCK, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED FORM W-9 OR SUBSTITUTE FORM W-9.
B-4
