AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1996
REGISTRATION NO. 33-65125
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
BENTLEY PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 2834 59-1513162
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation Classification Code Number) Identification No.)
or Organization)
</TABLE>
ONE URBAN CENTRE
SUITE 550
4830 WEST KENNEDY BLVD.
TAMPA, FLORIDA 33609
(813) 286-4401
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
-------------------
MR. JAMES R. MURPHY
BENTLEY PHARMACEUTICALS, INC.
ONE URBAN CENTRE
SUITE 550
4830 WEST KENNEDY BLVD.
TAMPA, FLORIDA 33609
(813) 286-4401
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
-------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MARK S. HIRSCH, ESQ. BRUCE A. RICH, ESQ. BARRY B. FEINER, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP REID & PRIEST LLP 745 FIFTH AVENUE, SUITE 1701
1211 AVENUE OF THE AMERICAS 40 WEST 57TH STREET NEW YORK, NEW YORK 10151
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10019 TELEPHONE: (212) 223-1856
TELEPHONE: (212) 704-6105 TELEPHONE: (212) 603-6780 TELECOPY: (212) 688-3043
TELECOPY: (212) 704-6288 TELECOPY: (212) 603-2298
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. X
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
(Facing page continued on the following page)
<PAGE>
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
EACH CLASS OF AMOUNT OFFERING AGGREGATE
SECURITIES TO TO BE PRICE OFFERING AMOUNT OF
BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units(2)..................... 6,900 Units(3) $1,000 $6,900,000 $1,380
Debentures included in the
Units........................ 6,900 Debentures(3)
Redeemable Class A Warrants 6,900,000
included in the Units........ Warrants(3)
Common Stock, $.02 par
value(4)(5).................. 2,760,000 Shares(3) $2.50 $6,900,000 $1,380
Common Stock, $.02 par value
and Class B Warrants(5)(6)... 6,900,000 Shares(3) $3.00 $20,700,000 $4,140
Common Stock, $.02 par
value(5)(7).................. 3,450,000 Shares(3) $5.00 $17,250,000 $3,450
Underwriter Warrants......... 600 Warrants $.001 $0.60 $0
Underwriter's Units(8)....... 600 Units $1,200 $720,000 $144
Debentures included in the
Units........................ 600 Debentures
Redeemable Class A Warrants
included in the Units........ 600,000 Warrants
Common Stock, $.02 par
value(5)(9) 240,000 Shares $2.50 $600,000 $120
Common Stock, $.02 par value
and Class B Warrants(5)(10).. 600,000 Shares $3.00 $1,800,000 $360
Common Stock, $.02 par
value(5)(11)................. 300,000 Shares $5.00 $1,500,000 $300
Common Stock, $.02 par
value(12).................... 491,250 Shares $2.44 $1,198,650 $240
Common Stock, $.02 par
value(13).................. 102,250 Shares $2.38 $243,355 $84
Total........................ $11,598(14)
</TABLE>
(1) Calculated solely on the basis of the proposed offering price of the Units
in accordance with Rule 457(i).
(2) An aggregate of 6,000 $1,000 Principal Amount Convertible Senior
Subordinated Debentures Due February , 2006 and 6,000,000 Class A
Redeemable Warrants each to purchase one share of Common Stock and one
Class B Redeemable Warrant will be offered in 6,000 Units, each Unit to
consist of one Debenture and 1,000 Class A Redeemable Warrants.
(3) Includes 900 additional Units which the Underwriter has the option to
purchase to cover over-allotments.
(4) Issuable upon conversion of the Debentures contained in the Units.
(5) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, this Registration Statement covers such indeterminable additional
shares of Common Stock as may become issuable as a result of any future
anti-dilution adjustment in accordance with the terms of the Debentures and
the Redeemable Warrants as described in the Prospectus.
(6) Issuable upon exercise of the Class A Redeemable Warrants contained in the
Units.
(7) Issuable upon exercise of the Class B Redeemable Warrants contained in the
Class A Redeemable Warrants.
(8) Issuable upon exercise of the Underwriter Warrants.
(9) Issuable upon conversion of the Debentures included in the Units issuable
upon exercise of the Underwriter Warrants.
(10) Issuable upon exercise of the Class A Redeemable Warrants included in the
Units issuable upon exercise of the Underwriter Warrants.
(11) Issuable upon exercise of the Class B Redeemable Warrants contained in the
Class A Redeemable Warrants included in the Units issuable upon exercise of
the Underwriter Warrants.
(12) Shares of Common Stock to be sold by Selling Stockholders. Calculated on
the basis of a share price of $2.44 per share, the closing price of the
Common Stock on the American Stock Exchange on December 14, 1995.
(13) Shares of Common Stock to be sold by Selling Stockholders. Calculated on
the basis of a share price of $2.38 per share, the closing price of the
Common Stock on the American Stock Exchange on January 26, 1996.
(14) $11,514 of the fee has already been paid. An additional $84 is being paid
concurrently with the filing of this Amendment No. 1.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
REFERENCING ITEMS IN PART I OF FORM S-1 TO THE PROSPECTUS
<TABLE><CAPTION>
ITEM OF FORM S-1 LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the RegistrationStatement and
Outside Front Cover Page of Prospectus..... Facing Sheet of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Available Information; Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Underwriting
6. Dilution................................... *
7. Selling Security Holders................... Selling Shareholders and Plan of
Distribution (alternate pages for Selling
Shareholder Prospectus)
8. Plan of Distribution....................... Underwriting; Selling Shareholders and Plan
of Distribution (alternate pages for
Selling Shareholder Prospectus)
9. Description of Securities to be
Registered................................. Description of Securities; Description of
Debentures; Certain Federal Income Tax
Considerations
10. Interests of Named Experts and Counsel..... *
11. Information With Respect to the
Registrant................................. Business; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Legal Proceedings;
Management; Principal Stockholders
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
</TABLE>
- ------------
* Item is omitted because it is inapplicable or answer is negative.
<PAGE>
Subject to Completion, Dated January 30, 1996
PROSPECTUS
[LOGO]
BENTLEY PHARMACEUTICALS, INC.
6,000 Units
Each Consisting of One Thousand Dollars ($1,000) Principal
Amount 12% Convertible Senior Subordinated Debenture Due February , 2006
and
1,000 Class A Redeemable Warrants each to Purchase
One Share of Common Stock and One Class B Redeemable Warrant
-------------------
The Debentures, which are unsecured, are convertible prior to maturity,
unless previously redeemed, at any time commencing twelve months after the date
hereof (the "Anniversary Date") or immediately following a notice of redemption
(as discussed below), into shares of the common stock of Bentley
Pharmaceuticals, Inc., formerly Belmac Corporation (the "Company"), par value
$.02 per share (the "Common Stock"), at a conversion price per share of the
lesser of $2.50 or 80% of the average closing price of the Common Stock on the
American Stock Exchange for the 20 consecutive trading days immediately
preceding the Anniversary Date or earlier upon a notice of redemption. Interest
is payable quarterly. Commencing six months after the date hereof, the Company
may, on 30 days prior written notice redeem the Debentures, in whole or in part,
if the closing price of the Common Stock on the American Stock Exchange for each
of the 20 consecutive trading days immediately preceding the record date for
redemption equals or exceeds $7.00 per share. The redemption price will be 105%
of the principal amount of the Debentures or $1,050 per Debenture plus accrued
interest through the date of redemption and the conversion price per share
during the period following the notice of redemption, if prior to the
Anniversary Date, will be the lesser of $2.50 or 80% of the average closing
price of the Common Stock on the American Stock Exchange for the 20 consecutive
trading days immediately preceding the record date for redemption. See
"Description of Debentures."
Each Class A Redeemable Warrant entitles the holder, for a period of three
years, to purchase one share of Common Stock and one Class B Redeemable Warrant
at a price of $3.00 per share. On 30 days prior written notice, the Company may
redeem all of the Class A Redeemable Warrants for $.05 per Warrant if the per
share closing price for the underlying Common Stock on the American Stock
Exchange for each of the 20 consecutive trading days immediately preceding the
record date for redemption equals or exceeds 150% of the then exercise price.
Two Class B Redeemable Warrants, together, entitle a holder, for a period
commencing upon issuance thereof and terminating five years after the date
hereof, to purchase one share of Common Stock at a price of $5.00 per share. On
30 days prior written notice, the Company may redeem all of the Class B
Redeemable Warrants for $.05 per Warrant if the per share closing price for the
underlying Common Stock on the American Stock Exchange for each of the 20
consecutive trading days immediately preceding the record date for redemption
equals or exceeds 130% of the then exercise price. See "Description of
Securities--Redeemable Warrants."
The conversion price of the Debentures and the exercise price of the
Redeemable Warrants are subject to adjustment under certain circumstances. The
Debentures and the Redeemable Warrants may not be detached for six months after
their issuance without the prior written consent of Coleman and Company
Securities, Inc. (the "Underwriter") after which the Debentures and the
Redeemable Warrants shall be separately transferable. Of the Unit purchase price
of $1,000, the consideration allocated to the Debentures is $931 per Debenture
and to the Class A Warrants is $69 per 1,000 warrants. None of the Unit purchase
price is allocated to the Class B Warrants.
Concurrently with this offering (the "Offering"), the Company is registering
593,500 shares of Common Stock for concurrent or future sales by certain
shareholders of the Company. See "Concurrent Offering."
Prior to this Offering there has been no public market for the Units,
Debentures or Redeemable Warrants and there is no assurance that one will
develop. Applications have been made to list the Units, Debentures and Class A
Redeemable Warrants on the American Stock Exchange and the Pacific Stock
Exchange under the symbol "BNTA." There can be no assurance that such
applications will be approved. Once a sufficient number of Class B Redeemable
Warrants are outstanding, it is anticipated that they will be listed on the
American Stock Exchange and the Pacific Stock Exchange under the symbols "BNTU,"
"BNTD" and "BNTB," respectively. If such applications are not approved, the
market for such securities may be limited. See "Prospectus Summary--The
Offering," and "Risk Factors--No Assurance of Public Market."
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "BNT." The last reported sale price of the Company's Common Stock on the
American Stock Exchange on January 26, 1996 was $2.38 per share. See "Price
Range of Common Stock and Dividend Policy." The Company has applied for its
Common stock to be listed on the Pacific Stock Exchange, of which there is no
assurance.
-------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE PURCHASERS
SHOULD CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION "RISK
FACTORS" LOCATED ON PAGE 9 OF THIS PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------
<TABLE><CAPTION>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO THE
TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
---------- ---------------------- ---------------
<S> <C> <C> <C>
Per Unit............................................. $ 1,000 $ 100 $ 900
Total(3)............................................. $6,000,000 $600,000 $ 5,400,000
</TABLE>
(1) Does not include additional compensation to the Underwriter in the form of a
non-accountable expense allowance. The Company has agreed to indemnify the
Underwriter against certain civil liabilities including liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of this Offering, estimated at $250,000, which are
payable by the Company.
(3) The Company has granted the Underwriter an option exercisable for a period
of 45 days from the date hereof to purchase up to an additional 900 Units to
cover over-allotments, if any. Unless otherwise indicated, the information
contained in this Prospectus assumes that this option will not be exercised.
If all of the Units covered by the option are sold to the Underwriter, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $6,900,000, $690,000 and $6,210,000, respectively.
See "Underwriting."
-------------------
The Units, Debentures and Warrants are offered subject to prior sale, when,
as and if issued to and accepted by the Underwriter, subject to approval of
certain legal matters by counsel for the Underwriter, and subject to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the Offering and to reject any order, in whole or in part. It is expected
that delivery of the Units will be made in New York, New York against payment
therefor on or about February , 1996.
-------------------
COLEMAN AND COMPANY SECURITIES, INC.
The date of this Prospectus is February , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information can also be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006 on which the
Company's Common Stock is listed.
This Prospectus does not contain all the information set forth in the Form
S-1 Registration Statement (No. 33-65125) (the "Registration Statement") of
which this Prospectus is a part, including exhibits relating thereto, which has
been filed with the Commission in Washington, D.C. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance reference is hereby made to the copy
of the contract or other document filed as an exhibit to the Registration
Statement for a full statement of the provisions thereof, and each such
statement in this Prospectus is qualified in all respects by such reference.
Copies of the Registration Statement and the exhibits thereto may be obtained,
upon payment of the fee prescribed by the Commission, or may be examined without
charge, at the office of the Commission.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document incorporated by reference in this Prospectus
(other than exhibits unless such exhibits are expressly incorporated by
reference in such documents). Requests should be directed to Bentley
Pharmaceuticals, Inc., One Urban Centre, Suite 550, 4830 West Kennedy Boulevard,
Tampa, Florida 33609, (813) 286-4401, Attention: Michael D. Price, Chief
Financial Officer.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AND THE
UNDERLYING SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus is based on the assumption that the Underwriter's
option to purchase Units from the Company to cover over-allotments is not
exercised and that all share and per share information has been adjusted to give
retroactive effect to a one-for-ten reverse stock split of the Company's Common
Stock effected on July 25, 1995 and an increase in the number of authorized
shares of Common Stock from 5,000,000 to 20,000,000 effected on January 1, 1996.
As used in this Prospectus, the terms "Company" and "Bentley" refer to Bentley
Pharmaceuticals, Inc. unless otherwise indicated by the context.
THE COMPANY
The Company is an international pharmaceutical and health care company
engaged primarily in the manufacturing, marketing and distribution of
pharmaceutical products in France and Spain, with limited distribution of health
care products and research and development activities in the United States. The
Company's operations in France consist of the brokerage of fine chemicals and
the marketing of the drug Ceredase, manufactured by Genzyme Corporation and used
in the treatment of Gaucher's Disease, under contracts of limited duration with
Genzyme Corporation, the most recent of which terminates on March 31, 1996. In
Spain, the Company manufactures, packages and distributes both its own and other
companies' pharmaceutical products and has recently begun to emphasize the
manufacture of pharmaceuticals under contract. In the United States, the Company
markets disposable linens to emergency health services which are manufactured
under contract. The percentage of the Company's total revenues for the nine
months ended September 30, 1995 which are attributable to its operations in
France, Spain and the United States are approximately 82%, 17% and 1%,
respectively. Limited research and development activities are conducted both in
the United States and Europe and the Company has several products under
development. The Company's chemical and pharmaceutical operations in France and
Spain are a result of its 1991 acquisition of Chimos S.A. and the establishment
of a pharmaceutical subsidiary in France, Laboratoires Belmac S.A. (these two
entities in France have since been merged into one entity named and referred to
herein as Chimos/LBF S.A.) and the 1992 acquisition of Rimafar S.A.
(subsequently renamed and referred to herein as Laboratorios Belmac S.A.),
respectively.
The strategic focus of the Company has shifted in response to the evolution
of the global health care environment. The Company has moved from a research and
development-oriented pharmaceutical company, developing products from the
chemistry laboratory through marketing, to a company seeking to acquire
late-stage development compounds that can be marketed within one or two years,
and currently marketed products. As a result of this transition, the Company has
decreased its research and development expenses dramatically over the past few
years as well as implemented cost-cutting measures throughout the Company's
operations. The Company emphasizes product distribution in France and Spain,
strategic alliances and product acquisitions, which management of the Company
expects will move the Company closer to profitability in the near future.
Throughout its history, the Company has experienced negative cash flows from
operations, which have been reduced in the past three years as a result of the
shift in the Company's strategic focus. The Company has funded its operations
primarily from financing activities and the sale of rights to certain of its
pharmaceutical products. In October 1995 the Company completed private
placements of debt and equity securities, of which $1,770,000 of the debt must
be repaid from the proceeds of this Offering. A portion of the proceeds of this
Offering will be utilized for such payment.
3
<PAGE>
The address and telephone number of the Company's principal executive
offices are 4830 West Kennedy Boulevard, One Urban Centre, Suite 550, Tampa,
Florida 33609, (813) 286-4401. The Company was organized under the laws of the
State of Florida in February 1974.
CONCURRENT OFFERING
Concurrent with the Offering hereby, the Company has registered for
concurrent or future sale by certain selling shareholders 593,500 shares of
Common Stock pursuant to a separate prospectus. 240,000 of such shares are
issuable upon conversion of notes sold in a private placement conducted by the
Company in October 1995, to the extent such notes have been converted to Common
Stock prior to their repayment upon application of a portion of the proceeds of
this Offering. The notes were issued in two private placements in October 1995.
In the first placement, the Company received proceeds of $720,000 for the
issuance of 120,000 shares of Common Stock and 12% convertible promissory notes
in an aggregate principal amount of $720,000 due on the earlier of July 31, 1996
or the closing of this Offering. In the second placement, the Company received
proceeds of $1,050,000 for the issuance of 131,250 shares of Common Stock and
12% convertible promissory notes in an aggregate principal amount of $1,050,000
due on the earlier of September 30, 1996 or the closing of this Offering. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Private Placements,"
and "Underwriting--Private Placements." 102,250 of such shares of Common Stock
have been registered upon exercise of various "piggy back" registration rights
granted to Baytree Associates, Inc. and Martin E. Janis & Co., Inc. See
"Concurrent Offering."
RISK FACTORS
Investment in the Company involves certain risks.Risk factors include, among
others, the following: (i) the Company has a history of operating losses and
accumulated operating deficits; (ii) the Company has a negative cash flow from
operating activities and may not be able to fund current operations; (iii) the
Company is engaged in an extremely competitive business with many well
recognized and financed companies; and (iv) these matters may indicate that
there is substantial doubt about the Company's ability to continue as a going
concern. See "Risk Factors."
USE OF PROCEEDS
It is anticipated that the net proceeds of this Offering will be used for
retirement of debt, possible acquisitions, research and development and working
capital.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company..... 6,000 Units
Offering Price per Unit............... $1,000
Units Comprising 12% Convertible
Senior Subordinated $1,000 Principal
Amount Unsecured Ten Year Debenture
due February , 2006............... 6,000
Class A Redeemable Warrants........... 6,000,000
Class B Redeemable Warrants........... 6,000,000
Allocation of Consideration........... Of the Unit purchase price of $1,000, the
consideration allocated to the Debentures is $931
per Debenture and to the Class A Warrants is $69
per 1,000 warrants. No consideration has been
allocated to the Class B Warrants.
Debenture Interest Payment Dates...... Quarterly on January 1, April 1, July 1, and
October 1, commencing April 1, 1996.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Debenture Covenants................... Restrictions on cash dividends and other cash
distributions to stockholders as well as
limitations on certain dealings with its officers
and directors under certain circumstances.
Debenture Conversion Rights........... Commencing twelve months after the date hereof or
earlier upon a notice of redemption (as discussed
below) at the lesser of $2.50 per share of Common
Stock or 80% of the average closing price of the
Common Stock on the American Stock Exchange for the
20 consecutive trading days immediately preceding
the first anniversary of the issuance of the
Debentures.
Debenture Redemption.................. Commencing six months after the date hereof, the
Company may, on 30 days prior written notice,
redeem the Debentures, in whole or in part, if the
closing price of the Common Stock on the American
Stock Exchange for each of the 20 consecutive
trading days immediately preceding the record date
for redemption equals or exceeds $7.00 per share.
The redemption price will be 105% plus accrued
interest through the date of redemption. If the
redemption date is prior to the Anniversary Date,
the conversion price per share during the period
following the notice of redemption will be the
lesser of $2.50 or 80% of the average closing price
of the Common Stock on the American Stock Exchange
for the 20 consecutive trading days immediately
preceding the record date for redemption.
Debenture Subordination; No Sinking
Fund, Other Security or Guarantees.... Subordinated to all Senior Debt, as defined in the
Indenture, which as of September 30, 1995
aggregated $1,220,000. Senior or pari passu with
all other series of debentures. Debenture holders
may recover less ratably than holders of Senior
Debt. The Debentures will not be secured by a
sinking fund or otherwise and will not be
guaranteed. The Indenture does not limit the amount
the Company may borrow. The Indenture prohibits
subsidiaries of the Company from placing any
limitations on paying their profits or making loans
to the Company.
Debenture Original Issue Discount..... Interest on Debentures is taxable as ordinary
income when received or accrued. A portion of
original issue discount must be included in income
each year regardless of the cash payment of such
interest at an effective interest rate of 13.3%.
See "Certain Federal Income Tax Considerations--The
Debentures."
Redeemable Warrant Exercise Rights.... For Class A Redeemable Warrants, commencing
immediately for three years from the date hereof at
$3.00 per share, subject to change under certain
conditions. For Class B Redeemable Warrants,
commencing upon issuance thereof for five years
from the date hereof at $5.00 per share, subject to
change under certain conditions. See "Risk
Factors--Determination of Warrant Exercise Price."
Redeemable Warrant Redemption......... The Company may, on 30 days prior written notice
redeem all of the Class A or Class B Redeemable
Warrants for $.05 per Warrant if the per share
closing price of the underlying Common Stock on the
American Stock Exchange for each of the 20
consecutive trading days immediately preceding the
record date for redemption equals or exceeds 150%
or 130%, respectively, of the then respective
exercise prices.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Estimated Net Proceeds to the Company
(1)................................... $4,970,000
Percentage of Proceeds to be Used to
Repay Indebtedness.................... 35.6%
Percentage of Proceeds to be Used to
Repay Related Party Debt.............. None
Affiliate Participation............... The aggregate of all purchases by the Company's
officers, directors or affiliates in this Offering
shall not exceed 5% of the Offering.
Common Stock Outstanding Prior to the
Offering.............................. 3,330,472
Common Stock Outstanding After the
Offering(2)........................... 3,330,472
Trading Symbol
for Common Stock.................... BNT
for Units........................... BNTU
for Debentures...................... BNTD
for Class A Redeemable Warrants..... BNTA
for Class B Redeemable
Warrants(3)........................ BNTB
</TABLE>
- ------------
(1) After deducting $1,030,000 for underwriting discounts and the other expenses
of this Offering payable by the Company, including the non-accountable
expense allowance payable to the Underwriter. See "Use of Proceeds" and
"Underwriting."
(2) Excludes (i) an aggregate of 14,210,000 shares of Common Stock reserved for
issuance upon conversion or exercise of the securities issuable in the
Offering (including the Underwriter's overallotment option), consisting of
2,760,000 shares issuable upon conversion of the Debentures (which would be
increased to 3,689,840 shares, if the average closing price of the Common
Stock during the twenty-day period prior to the Anniversary Date was equal
to $2.34, the average closing price of the Common Stock during the
twenty-day period ended January 26, 1996), 10,350,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants and 1,140,000 shares of
Common Stock issuable upon exercise of the securities underlying the
warrants granted by the Company to the Underwriter (the "Underwriter
Warrants") to purchase 600 Units (or such number of shares of Common Stock
into which such Units are convertible) at a price of $.001 per Underwriter
Warrant; (ii) 576,841 shares of Common Stock reserved for issuance upon
exercise of outstanding stock purchase warrants; (iii) 260,542 shares of
Common Stock reserved for issuance upon exercise of stock options; (iv)
240,000 shares of Common Stock reserved for issuance upon conversion of
certain notes payable issued in a private placement in October 1995 (see
"Concurrent Offering"); (v) 14,960 shares of Common Stock reserved for
issuance upon conversion of the Series A Preferred Stock or upon conversion
of 9% Convertible Debentures due 2016 into which the Series A Preferred
Stock is exchangeable; and (vi) 3,183 shares of Common Stock reserved for
issuance to current or former members of the Board of Directors of the
Company and others as compensation. See Note 12 of Notes to Consolidated
Financial Statements, "Management--Executive Compensation," "Principal
Stockholders," "Description of Debentures--Conversion" and "Description of
Securities--Redeemable Warrants."
(3) The Class B Redeemable Warrants will not be listed on the American Stock
Exchange until a sufficient number of Class A Redeemable Warrants have been
exercised.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial information for the fiscal year ended
June 30, 1992, the six month period ended December 31, 1992, the fiscal years
ended December 31, 1993 and 1994 and the nine month period ended September 30,
1995 set forth below is derived from and should be read in conjunction with the
Company's consolidated financial statements and accompanying notes appearing
elsewhere in this Prospectus. The data for the nine month period ended September
30, 1994 are derived from and qualified by reference to the Company's
consolidated financial statements appearing elsewhere herein and, in the opinion
of management of the Company, includes all adjustments that are of a normal
recurring nature and necessary for a fair presentation. The statement of
operations data for the nine month periods ended September 30, 1994 and 1995 are
not necessarily indicative of results for a full year.
STATEMENT OF OPERATIONS DATA
<TABLE><CAPTION>
FOR THE SIX FOR THE FOR THE
FOR THE YEAR MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
ENDED JUNE 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
-------------- ------------ ------------------ -----------------
1992 1992 1993 1994 1994 1995
-------------- ------------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales...................... $ 13,138 $ 9,708 $ 19,849 $26,284 $19,676 $23,583
Cost of Sales.................. 8,871 5,899 15,100 21,464 15,940 19,523
Operating Expenses............. 14,758 23,493(1) 14,722(2) 9,050 7,413 6,265
Operating Income (Loss)........ (10,491) (19,684) (9,973) (4,230) (3,677) (2,205)
Other (Income) Expense, Net.... 320 (153) 263 (652)(3) (26) (686)(3)
Net Income (Loss).............. (10,811) (19,531) (10,236) (3,578) (3,651) (1,519)
Net Income (Loss) Per Common
Share.......................... (11.12) (16.60) (6.32) (1.56) (1.67) (.55)
Weighted Average Shares of
Common Stock Outstanding....... 997 1,203 1,655 2,395 2,257 2,978
BALANCE SHEET DATA
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1995
------------------ -------------------------
1993 1994 ACTUAL AS ADJUSTED(4)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Working Capital.................................... $ 2,043 $ 1,928 $ 1,779 $ 8,277
Non-Current Assets................................. 5,937 5,644 5,960 7,275
Total Assets....................................... 16,160 16,332 16,170 21,983
Non-Current Liabilities less Current Portion....... 2,821 336 500 6,086
Redeemable Preferred Stock......................... 2,218 2,256 2,374 2,374
Common Stockholders' Equity........................ 2,941 4,980 4,865 5,092
</TABLE>
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings are inadequate to cover fixed charges. The resultant deficiency was
$2,493,000, $2,476,000, $10,468,000, $19,531,000, $10,236,000, $3,578,000, and
$1,519,000 for the years ended June 30, 1990, 1991, and 1992, for the six month
period ended December 31, 1992, for the years ended December 31, 1993 and 1994,
and for the nine month period ended September 30, 1995, respectively.
If the Debentures included in this Offering had been outstanding since
January 1, 1994, the result would have been an increase in the Company's net
loss of approximately $823,000 and $617,000 for the year ended December 31, 1994
and for the nine month period ended September 30, 1995, respectively.
Consequently, on a pro forma basis, the resultant deficiency, for the year ended
December 31, 1994 and for the nine month period ended September 30, 1995, would
have been $4,401,000 and $2,136,000, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
- ------------
(1) The Company changed its fiscal year end to December 31 effective December
31, 1992 and sold its French marketing rights to Amodex(R) on January 20,
1993. The six months ended December 31, 1992 include other non-recurring
charges totaling $9,321,000. See Note 4 of Notes to Consolidated Financial
Statements.
(2) Includes $2,241,000 related to the write-off of capitalized costs with
respect to the sachet formulation of Biolid(R) and related costs and
$1,000,000 related to settlement of litigation. See Notes 8 and 12 of Notes
to Consolidated Financial Statements.
(3) The Company sold its Spanish marketing rights to its ciprofloxacin
antibiotic, Belmacina(R), in 1994 and included the gain thereon
(approximately $884,000) in Other (Income) Expense in the year ended
December 31, 1994 and recorded the anticipated gain on sale of the related
trademark of $380,000 as deferred revenue as of December 31, 1994. Such
deferred revenue was recognized as income in the nine month period ended
September 30, 1995. See Note 8 of Notes to Consolidated Financial
Statements.
(4) Adjusted to give effect to the receipt of proceeds from private placements
in October 1995 and the sale of the 6,000 Units offered hereby and the use
of the estimated net proceeds thereof. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a substantial
degree of risk. Prior to making an investment decision, prospective investors
should give careful consideration to, among other items, the following factors:
FINANCIAL RISKS
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
FINANCIAL RESULTS. As of September 30, 1995, the Company had a cumulative
deficit of approximately $63,441,000. The Company has realized significant
losses in the past and could have quarterly and annual losses in the future. The
Company has not generated any profits from operations. The Company has realized
quarter to quarter fluctuations in its results in the past and, although such
fluctuations have been minimal in recent quarters, they may be significant in
the future. Consequently, the Company may continue to operate at a loss for the
foreseeable future and there can be no assurance that the Company's business
will operate on a profitable basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEGATIVE CASH FLOW FROM OPERATING ACTIVITIES. The Company is experiencing
negative cash flow from operations resulting in the need to fund ongoing
operations from financing activities. In October 1995 the Company completed two
private placements resulting in net proceeds to the Company of approximately
$1,590,000, all of which is being used for working capital purposes. A
substantial portion of the proceeds of this Offering will be used to repay the
debt incurred in the private placements to the extent such debt has not been
converted to equity by the holders thereof. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Private Placements" and "Concurrent
Offering." The future existence and profitability of the Company is dependent
upon its ability to obtain additional funds such as the net proceeds of this
Offering to finance operations and expand operations in an effort to achieve
profitability from operations. No assurance can be given that the Company's
business will ultimately generate sufficient revenue to fund the Company's
operations on a continuing basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LIMITED REVENUES. Although the Company was founded in 1974, it has only
generated revenue from product-related sales since August 1991. The Company has
used cash from financing activities to fund its operations. The Company has made
progress toward commercialization of specific products and has commenced
commercialization of others. The Company is now generating revenues from sales
of products of its subsidiaries Chimos/LBF, S.A., a company based in France
which distributes specialty pharmaceutical products and chemicals in France
("Chimos"), and Laboratorios Belmac, S.A., a pharmaceutical manufacturer located
in Spain ("Laboratorios Belmac"). Chimos and Laboratorios Belmac were acquired
by the Company in August 1991 and February 1992, respectively. Substantial
amounts of time and financial and other resources will be required to complete
the development and clinical testing of the Company's products currently under
development. Although over the last several months the Company has continued its
existing limited research and development program, due to its limited cash
resources, it has suspended additional research and development activities
during such period pending the selection of strategic partners for development
and marketing. There is no assurance that the Company will receive additional
funding necessary to continue research and development activities or that it
will otherwise succeed in developing any additional products with commercially
valuable applications.
9
<PAGE>
ADDITIONAL FINANCING REQUIREMENTS. The Company believes that its emphasis on
product distribution in France and Spain, strategic alliances and product
acquisitions together with careful management of its research and development
activities and the net proceeds from this Offering, should provide sufficient
liquidity to enable it to conduct its existing operations through the end of
1996, of which there can be no assurance. However, the Company's pharmaceutical
products being developed and which may be developed will require the investment
of substantial additional time as well as financial and other resources in order
to become commercially successful. Following the development period, the
Company's products will generally be required to go through lengthy governmental
approval processes, including extensive clinical testing, followed by market
development. The Company's operating revenues and cash resources may not be
sufficient over the next several years for the commercialization by itself of
any of the products currently in development. Consequently, the Company may
require additional licensees or partners and/or additional financing. There can
be no assurance, however, that the Company can conclude such commercial
arrangements or obtain additional capital when needed on acceptable terms, if at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
INDEPENDENT AUDITORS' REPORT. The report of the Company's independent
auditors with respect to the audited consolidated financial statements of the
Company included elsewhere herein expresses an unqualified opinion that includes
an explanatory paragraph referring to the Company's recurring losses from
operations as well as negative operating cash flows, which raise substantial
doubt about the Company's ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and the
notes thereto and the Report of Independent Auditors included herein.
POSSIBLE RESTRICTION ON ABILITY TO UTILIZE NET OPERATING LOSS CARRY FORWARDS
RESULTING FROM CHANGE IN EQUITY OWNERSHIP. At December 31, 1994 and September
30, 1995, the Company had net operating loss ("NOL") carry forwards of
approximately $34,000,000 and $35,000,000, respectively, available to offset
United States taxable income. The NOL carry forwards will expire in tax years
1996 through 2010. The amount of these loss carry forwards which can be used to
reduce future taxable income, if any, may be reduced by, among other things,
future changes in the ownership of the Company's Common Stock. Internal Revenue
Code Section 382 would limit the amount of future taxable income, if any, that
could be offset by the NOL carry forwards if, at any time, the percentage of the
stock of the Company owned by one or more 5% shareholders increases by more than
50% over the lowest percent of the Company's stock owned by such shareholders
during the preceding three year period. The Company's subsidiaries in France and
Spain have NOL carry forwards of approximately $14,000,000 and $3,000,000,
respectively. These will expire in various years ending in 1999. See Note 13 of
Notes to Consolidated Financial Statements.
BUSINESS RISKS
NO ASSURANCE OF SUCCESSFUL AND TIMELY DEVELOPMENT OF NEW PRODUCTS. Although
the Company has a limited number of products in various stages of development,
including pre-clinical testing and clinical trials, the Company has not yet
substantially marketed any of these products other than Biolid(R) (the Company's
macrolide antibiotic) in France, the marketing of which has since been
suspended. During a periodic review of the dossier of Biolid by France's
Ministry of Health in 1993 which was completed shortly after the Company had
negotiated the sale of its rights to the sachet formulation of Biolid in France,
the Ministry required the suspension of marketing of Biolid pending provision by
the Company of additional clinical data regarding the mechanisms for the
comparatively enhanced absorption of the Biolid sachet. The suspension was
unrelated to safety or efficacy issues, but has not been lifted since the
Company has not had sufficient resources to conduct the study required. See
10
<PAGE>
"Dependency on Regulatory Approvals" below, "Business--Products under
Development--Biolid(R)" and Notes 4 and 8 of the Notes to Consolidated Financial
Statements. There can be no assurance that the Company will be able to develop
large scale production of any particular product for clinical trials or eventual
commercial production. The marketing of certain of the Company's products could
be adversely affected by delays in developing large-scale production processes,
developing or acquiring production facilities or obtaining regulatory approval
for such processes or facilities.
RISKS INHERENT IN PHARMACEUTICAL DEVELOPMENT; DEPENDENCE ON REGULATORY
APPROVALS. The process of creating, scaling-up, manufacturing and marketing any
new human pharmaceutical product is inherently risky. There can be no assurance
that any drug under development will be safe and effective. Moreover,
pharmaceutical products are subject to significant regulation. Any human
pharmaceutical product developed by the Company would require clearance by
Spain's Ministry of Health for sales in Spain, France's Ministry of Health for
sales in France, the U.S. Food and Drug Administration ("FDA") for sales in the
United States and similar agencies in other countries. The process of obtaining
these approvals is costly and time-consuming, and there can be no assurance that
such approvals will be granted. In general, only a small percentage of new
pharmaceutical products achieve commercial success. Such governmental regulation
may prevent or substantially delay the marketing of the Company's products and
may cause the Company to undertake costly procedures with respect to its
research and development and clinical testing operations which may furnish a
competitive advantage to more substantially capitalized companies which compete
with the Company. In addition, the Company is required, in connection with its
activities, to comply with good manufacturing practices (GMPs) and local, state
and federal regulations. Non-compliance with these regulations could have a
material adverse effect on the Company and/or prevent the commercialization of
the Company's products. See "Business--Regulation."
DEPENDENCY ON OTHERS; POSSIBLE DISCONTINUATION OF CERTAIN MARKETING
ACTIVITIES. The Company relies on outside contractors for manufacturing of the
products it distributes in France, including Ceredase, a drug used in the
treatment of Gaucher's Disease, which currently represents approximately 60% of
the Company's revenues. The Company also relies on sales of Ceredase and other
products by Chimos to Pharmacie Centrale des Hopitaux, which accounted for
approximately 30% and 26% of the Company's sales for the year ended December 31,
1994 and for the nine months ended September 30, 1995, respectively. Chimos, a
distributor authorized by France's Ministry of Health, distributes Ceredase
pursuant to an agreement of limited duration with Genzyme Corporation, the
manufacturer of Ceredase. The most recent extension of this agreement terminates
on March 31, 1996. There can be no assurance that the relationship between
Genzyme and Chimos will continue. The Company continues to assess the importance
of Ceredase to its operation since, notwithstanding the relative significance of
its sales volume, its gross margins as a percentage of sales are minimal. A
termination of the Company's marketing of Ceredase would likely reduce the
Company's net income by approximately $300,000 annually; however, due to the
extended payment terms granted to customers for this product, management of the
Company expects that such a termination would have a positive short-term effect
on the Company's cash flow. See "Business--Product Lines--Pharmaceutical
Marketing and Sales in France."
UNCERTAINTY OF PHARMACEUTICAL PRICING, PROFITABILITY AND RELATED
MATTERS. The levels of revenues and profitability of pharmaceutical companies
may be affected by the continuing efforts of governmental and third party payers
to contain or reduce the costs of health care through various means. For
example, in certain foreign markets, including Spain and France, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the United States, there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted, the adoption of such
proposals could have a material adverse effect
11
<PAGE>
on the Company s business, financial condition and profitability. In addition,
sales of prescription pharmaceuticals are dependent in part on the availability
of reimbursement to the consumer from third party payers, such as government and
private insurance plans. Third party payers are increasingly challenging the
prices charged for medical products and services. If the Company succeeds in
bringing one or more products to the market, there can be no assurance that
these products will be considered cost effective and that reimbursement to the
consumer will be available or will be sufficient to allow the Company to sell
its products on a competitive basis. See "Business--Sales and Marketing."
UNPREDICTABILITY OF PATENT PROTECTION; PROPRIETARY TECHNOLOGY. The Company
has filed numerous patent applications and has been granted a number of patents.
However, there can be no assurance that its pending applications will be issued
as patents or that any of its issued patents will afford adequate protection to
the Company or its licensees. Other private and public entities have also filed
applications for, or have been issued, patents and are expected to obtain
patents and other proprietary rights to technology which may be harmful to the
commercialization of the Company's products. The ultimate scope and validity of
patents which are now owned by or may be granted to third parties in the future,
the extent to which the Company may wish or be required to acquire rights under
such patents, and the cost or availability of such rights cannot be determined
by the Company at this time. In addition, the Company also relies on unpatented
proprietary technology in the development and commercialization of its products.
There is no assurance that others may not independently develop the same or
similar technology or obtain access to the Company's proprietary technology.
The Company also relies upon trade secrets, unpatented proprietary know-how
and continuing technological innovations to develop its competitive position.
All of the Company's employees with access to the Company's proprietary
information have entered into confidentiality agreements and have agreed to
assign to the Company any inventions relating to the Company's business made by
them while in the Company's employ. However, there can be no assurance that
others may not acquire or independently develop similar technology or, if
patents in all major countries are not issued with respect to the Company's
products, that the Company will be able to maintain information pertinent to
such research as proprietary technology or trade secrets.
RAPID TECHNOLOGICAL CHANGE. The pharmaceutical industry has undergone rapid
and significant technological change. The Company expects the technology to
continue to develop rapidly, and the Company's success will depend significantly
on its ability to maintain a competitive position. The Company has recently
shifted its strategic focus so that it does not rely on research and development
of pharmaceuticals from concept through marketing. Instead, it seeks to acquire
late-stage development compounds that can be marketed within one or two years
and currently-marketed products. Rapid technological development may result in
actual and proposed products or processes becoming obsolete before the Company
recoups a significant portion of related research and development, acquisition
and commercialization costs. See "Business--Products Under Development."
COMPETITION. The Company is in competition with other pharmaceutical
companies, biotechnology firms and chemical companies, many of which have
substantially greater financial, marketing and human resources than those of the
Company (including, in some cases, substantially greater experience in clinical
testing, production and marketing of pharmaceutical products). The Company also
experiences competition in the development of its products and processes from
individual scientists, hospitals, universities and other research institutions
and, in some instances, competes with others in acquiring technology from these
sources. See "Business--Competition."
UNCERTAINTY OF ORPHAN DRUG DESIGNATION. An Orphan Drug is a product or
products used to treat a rare disease or condition, which, as defined under
United States law, is a disease or condition that affects populations of less
than 200,000 individuals or, if victims of a disease number more than
12
<PAGE>
200,000, the sponsor establishes that it does not realistically anticipate its
product sales will be sufficient to recover its costs. If a product is
designated an Orphan Drug, then the sponsor is entitled to receive certain
incentives to undertake the development and marketing of the product. In Spain,
Orphan Drugs are given a preference in the pharmaceutical review process by
Spain's Ministry of Health if it can be shown that the product is an important
therapeutic agent and there is unequivocal data supporting its efficacy. The
Ministry of Health has the authority to require pharmaceutical manufacturers to
continue to produce products which are Orphan Drugs regardless of their
commercial potential. As required by the Ministry of Health, Laboratorios Belmac
currently manufactures and distributes one Orphan Drug, Anacalcit, which is used
in the treatment of nephrolithiasis. In France, Orphan Drug status is granted by
France's Ministry of Health. Chimos does not currently own in its portfolio any
Orphan Drugs, but does act as a distributor for other companies who have Orphan
Drug status in France, such as Ceredase, an Orphan Drug produced by Genzyme
Corporation. The Company does not currently market any Orphan Drugs in the
United States. See "Business--Regulation."
ATTRACTION AND RETENTION OF KEY PERSONNEL. The Company believes that it has
been successful in attracting skilled and experienced management and scientific
personnel. There can be no assurance, however, that the Company will continue to
attract and retain personnel of high caliber. Since 1992, five individuals have
served as the Company's chief executive officer. This instability in the
Company's management in the recent past has hampered the Company's growth. While
the Company believes that it has assembled an effective management team, the
loss of several individuals who are considered key management or scientific
personnel of the Company could have an adverse impact on the Company. Although
all discoveries and research of each employee made during employment remains the
property of the Company, the Company has not entered into noncompetition
agreements with its key employees and such employees would therefore be able to
leave and compete with the Company.
RISK OF PRODUCT LIABILITY. The Company faces an inherent business risk of
exposure to product liability claims in the event that the use of its technology
or prospective products is alleged to have resulted in adverse effects. While
the Company has taken, and will continue to take, what it believes are
appropriate precautions, there can be no assurance that it will avoid
significant liability exposure. The Company maintains product liability
insurance in the amount of $5 million. However, there is no assurance that this
coverage will be adequate in terms and scope to protect the Company in the event
of a product liability claim. In connection with the Company's clinical testing
activities, the Company may, in the ordinary course of business, be subject to
substantial claims by, and liability to, subjects who participate in its
studies.
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $1,700,000
(34.2%) of the estimated net proceeds from this Offering has been allocated to
working capital. Accordingly, the Company's management will have broad
discretion as to the application of such proceeds.
RISK OF DOING BUSINESS OUTSIDE THE UNITED STATES. Nearly all of the
Company's revenues during 1994 and the first nine months of 1995 have been
generated outside the United States, from the Company's subsidiaries in France
and Spain. There are risks in operation outside the United States, including,
among others, the difficulty of administering businesses abroad, exposure to
foreign currency fluctuations and devaluations or restrictions on money
supplies, foreign and domestic export law and regulations, taxation, tariffs,
import quotas and restrictions and other political and economic events beyond
the Company's control. The Company has not experienced any material effects of
these risks as of yet, however there can be no assurance that they will not have
such an effect in the future.
CERTAIN FLORIDA LEGISLATION. The State of Florida has enacted legislation
that may deter or frustrate takeovers of Florida corporations. The Florida
Control Share Act generally provides that shares acquired in excess of certain
specified thresholds will not possess any voting rights unless such
13
<PAGE>
voting rights are approved by a majority vote of a corporation's disinterested
shareholders. The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates). Florida law
also authorizes the Company to indemnify the Company's directors, officers,
employees and agents. The Company has adopted a by-law with such an indemnity.
MARKET RISKS
RISK OF LOSS OF ENTIRE INVESTMENT. Because of the Company's history of
losses and negative cash flow from operations as well as the other risk factors
referred to in this section and elsewhere in this Prospectus, a prospective
investor should not purchase Units unless he is prepared to risk the loss of his
entire investment.
NO ASSURANCE OF PUBLIC MARKET. Prior to this Offering, there has been no
public trading market for the Units, the Debentures or the Redeemable Warrants.
Although applications have been made to list the Units, Debentures and
Redeemable Warrants on the American Stock Exchange and the Pacific Stock
Exchange, there is no assurance that such Securities will be listed, a regular
trading market will develop after this Offering or that, if developed, it will
be sustained. Since the Class B Redeemable Warrants will not be outstanding
until the Class A Redeemable Warrants are exercised, they will not be publicly
traded until a sufficient number are outstanding, thereby limiting the ability
of a holder to sell them. Since the Company will not issue fractional shares,
holders will only be permitted to trade the Class B Redeemable Warrants in
multiples of two.
If the Units, Debentures or Redeemable Warrants are not listed, they may be
traded from time to time on the over-the-counter market. As trading volume in
such market is not expected to be high, there can be no assurance that investors
will be able to readily sell such securities.
VOLATILITY OF SHARE PRICE. The market price of the Company's shares since
its initial public offering in February 1988 has been volatile. In July 1995 the
Company effected a one-for-ten reverse stock split. As recently as the first
quarter of 1993, the market price of the Company's Common Stock was $63.75
(giving retroactive effect to the reverse stock split). Factors such as
announcements of technological innovations or new commercial products by the
Company or its competitors, the results of clinical testing, patent or
proprietary rights, developments or other matters may have a significant impact
on the market price of the Common Stock. See "Price Range of Common Stock and
Dividend Policy."
POSSIBLE DELISTING OF COMMON STOCK FROM AMERICAN STOCK EXCHANGE. The Company
currently does not satisfy some of the American Stock Exchange's financial
guidelines for continued listing of its Common Stock. While there can be no
assurance that listing on the American Stock Exchange will be continued,
management of the Company believes that the Company's business prospects are
improving and that the Company will be able to maintain continued listing. See
"Description of Securities-- Listing on AMEX." If the Common Stock were
delisted, an investor could find it more difficult to dispose of or to obtain
accurate quotations as to the price of the Common Stock, the Units, the
Debentures, and the Redeemable Warrants. If the Common Stock is listed on the
Pacific Stock Exchange and then delisted on the American Stock Exchange, it is
likely to be delisted by the Pacific Stock Exchange.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of Incorporation
authorize the issuance of 2,000,000 shares of "blank check" preferred stock (the
"Preferred Stock") with such designations, rights and preferences as may be
determined from time to time by the Board of Directors.
14
<PAGE>
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Preferred Stock with dividend, liquidation, conversion or other rights
which could adversely affect the voting power or other rights of the holders of
the Common Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change of control of the Company. There are currently 60,000 shares
of Series A Convertible Exchangeable Preferred Stock outstanding. The Company
has no current plans to issue any additional shares of Preferred Stock; however,
there can be no assurance that the Company's Board of Directors will not do so
at some time in the future. See "Description of Securities--Preferred Stock."
UNDERWRITER WARRANTS AND OUTSTANDING CONVERTIBLE SECURITIES. The Company
will sell to the Underwriter, for nominal consideration, warrants to purchase up
to 600 Units (or such number of shares of Common Stock into which such Units are
convertible) exercisable for a period of four years, commencing one year from
the date hereof, at an exercise price of $1,200 per Unit. The Company currently
has outstanding 837,383 options and warrants to purchase Common Stock at
exercise prices ranging from $2.50 to $177.50. The holders of the Underwriter
Warrants and of the warrants and options are likely to exercise or convert them
at a time when the Company would be able to obtain additional equity capital on
terms more favorable than those provided by such warrants, options and
Underwriter Warrants. The Underwriter Warrants and certain other warrants and
options also grant to the holders certain demand registration rights and "piggy
back" registration rights. These obligations may hinder the Company's ability to
obtain future financing. See "Underwriting."
DISCOUNT ON CONVERSION OF DEBENTURES. The Debentures are convertible into
Common Stock at a conversion price per share equal to the lesser of $2.50 or 80%
of the market price of the Common Stock during the twenty-day period ending one
year from the date of this Prospectus. This feature has a built in premium for
the Debenture holders upon conversion of the Debentures which remains constant
regardless of the market price of the Company's securities. A conversion of the
Debentures would dilute the interests of holders of Common Stock and may
adversely affect the market price for the Common Stock and any other traded
securities of the Company.
SUBORDINATION OF DEBENTURES. The Debentures are subordinated to all existing
and future Senior Debt (as defined in the Indenture) of the Company and will be
effectively subordinated to all indebtedness and other liabilities of any
subsidiaries of the Company that may subsequently be formed. Moreover, the
Indenture governing the Debentures does not restrict the ability to incur Senior
Debt or other indebtedness by the Company. As a result of such subordination,
Debenture holders will be dependent upon the Company's ability to generate
sufficient revenue from operations to satisfy all of its obligations, including
the Senior Debt and the payments related to the Debentures. Most of the
Company's revenues are derived from its foreign subsidiaries. Any restrictions
on the subsidiaries to make payments to the Company would affect its ability to
pay interest. Moreover, in the event of insolvency of the Company, holders of
Senior Debt will be entitled to be paid in full prior to any payment to the
holders of the Debentures, and other creditors of the Company, including trade
creditors of the Company's subsidiaries, also may recover more, ratably, than
the holders of the Debentures. In addition, an event of default under the
Indenture governing the Debentures may trigger defaults under Senior Debt of the
Company, in which case the holders of such Senior Debt will have the power to
demand payment in full and to be paid prior to any payment to the holders of the
Debentures. In addition, the absence of limitations in the Indenture on the
issuance of Senior Debt could increase the risk that sufficient funds will not
be available to pay holders of the Debentures after payment of amounts due to
the holders of Senior Debt. There can be no assurance that the Company will be
able to service the Debentures in accordance with their terms. In addition, if a
default were to occur, there is no assurance that Debenture holders would be
able to obtain repayment of the sums then due under their Debentures. See
"Description of Debentures--Subordination of Debentures."
15
<PAGE>
CURRENT PROSPECTUS AND STATE SECURITIES LAW QUALIFICATION REQUIRED TO
EXERCISE THE REDEEMABLE WARRANTS. A purchaser of Units will have the right to
exercise the Redeemable Warrants included therein only if a current prospectus
relating to the underlying shares is then in effect and such shares are
qualified for sale or exempt from such qualification under the securities laws
of the state in which he resides. The Company has registered these shares
together with the Units offered hereby, and has qualified them in the states
where it plans to sell the Units unless such qualification has not been
required. It has also filed an undertaking with the Commission to maintain a
current prospectus relating to such shares until the expiration of the Warrants.
However, there is no assurance that it will be able to satisfy this undertaking.
Accordingly, the Warrants may be deprived of any value if a current prospectus
is not kept effective or if such shares are not qualified or exempt in the
states in which exercising Warrant holders reside. See "Description of
Securities--Redeemable Warrants."
POTENTIAL ADVERSE EFFECT OF WARRANT REDEMPTION. The Company may, on 30 days
prior written notice, redeem all of the Class A or Class B Redeemable Warrants
for $.05 per Warrant if the per share closing price of the underlying Common
Stock for each of the 20 consecutive trading days immediately preceding the
record date for redemption equals or exceeds 150% or 130%, respectively, of the
then exercise price. If the Company calls for such redemption, then all of such
class of Redeemable Warrants remaining unexercised at the end of the redemption
period must be redeemed. Accordingly, to the extent that such class of
Redeemable Warrants are redeemed, the Warrant holders will lose their rights to
purchase Common Stock pursuant to such Warrants. Furthermore, the threat of
redemption could force the Warrant holders to exercise the Warrants at a time
when it may be disadvantageous for them to do so, to sell the Warrants at the
then current market price when they might otherwise wish to hold them, or to
accept the redemption price which will be substantially less than the market
value of the Warrants at the time of redemption. See "Description of
Securities--Redeemable Warrants."
DETERMINATION OF WARRANT EXERCISE PRICE AND ALLOCATION OF CONSIDERATION. Of
the Unit purchase price of $1,000, the consideration allocated to the Debentures
is $931 per Debenture and to the Class A Warrants is $69 per 1,000 warrants. No
consideration was allocated to the Class B Warrants. The exercise price of each
class of Redeemable Warrants was determined by negotiation between the Company
and the Underwriter and bears no relationship to the Company's net worth, book
value, results of operations or any other recognized criteria of value.
Accordingly, there is no assurance that the Warrants will have any value.
LACK OF DIVIDENDS; INABILITY TO FUND DIVIDEND PAYMENTS. The Company has not
paid dividends on its Common Stock since its inception and does not intend to
pay any dividends on its Common Stock in the foreseeable future. The holders of
the Company's outstanding Series A Preferred Stock have been entitled to receive
cumulative dividends, payable annually on October 15, since 1992, out of funds
legally available therefor at the rate of $2.25 per year on each share of Series
A Preferred Stock. The Company exercised its right to adjust the conversion
ratio of the Series A Preferred Stock rather than pay the dividend payments due
on October 15, 1992 and 1993 and has not paid dividends of an aggregate of
approximately $270,000 to holders of Series A Preferred Stock which were due on
October 15, 1994 and 1995. These arrearages currently have the effect of
limiting the payment of cash dividends to holders of Common Stock and giving the
Preferred Stockholders, as a class, the right to designate two directors. There
can be no assurance that cash flow from the future operations of the Company
will be sufficient to meet these obligations. Under the terms of the Indenture,
the Company is restricted from paying cash dividends on its capital stock. See
"Price Range of Common Stock and Dividend Policy" and "Description of
Securities--Preferred Stock."
16
<PAGE>
USE OF PROCEEDS
The estimated net proceeds to the Company, after deducting underwriting
commissions and the other expenses of this Offering, will be approximately
$4,970,000 (or $5,960,000 if the Underwriter's over-allotment option is
exercised in full). The Company expects to apply these proceeds approximately as
follows:
<TABLE><CAPTION>
APPLICATION AMOUNT PERCENTAGE
- ---------------------------------------------------- ---------- ----------
<S> <C> <C>
Repayment of working capital indebtedness (1)....... $1,770,000 35.6%
Acquisition of complementary products, technologies
and/or businesses (2)............................... 1,000,000 20.1
Research and development (3)........................ 500,000 10.1
Working capital..................................... 1,700,000 34.2
---------- -----
$4,970,000 100.0%
---------- -----
---------- -----
</TABLE>
(1) The indebtedness was incurred in October 1995 and bears interest at
the rate of 12% per annum. Of this amount, $720,000 is due on July 31 and
$1,050,000 is due on September 30, 1996, or upon consummation of a public
offering such as the Offering. The debt was incurred for general working
capital purposes and was incurred in private placements placed by the
Underwriter. Purchasers of this debt may use their debt to purchase the
Units offered hereby, causing a reduction in the cash net proceeds to the
Company and an equivalent reduction in the amount to be repaid to them. To
the extent any holders of the debt convert their debt to equity prior to the
date hereof, the proceeds will be reallocated to acquisitions. Concurrent
with this payment, the Company will pay holders all accrued and unpaid
interest, which amount is not expected to be material. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Private Placements," "Underwriting--Private
Placements" and "Concurrent Offering."
(2) The Company intends to seek to acquire products, technologies and/or
businesses which complement the Company's current activities, are consistent
with the Company's strategic focus and contribute toward making the Company
profitable.
(3) Includes additional work to complete the clinical trials of the
tablet formulation of Biolid. See "Business --Products under
Development--Biolid."
The foregoing represents the Company's best estimate of its allocation of
the proceeds of this Offering based upon its current plans and certain
assumptions regarding general economic and industry conditions, market factors
and the Company's future revenues and expenditures. If any of these factors
change, the Company may find it necessary or advisable to reallocate some of the
proceeds within the above-described categories or to use portions thereof for
other purposes. Management believes that the net proceeds of this Offering,
together with any internally generated funds, should be sufficient to finance
the Company's intended level of operations as set forth herein through the end
of 1996. There can be no assurance that additional funds will not be required
earlier than anticipated or that the Company will be able to obtain such funds,
if at all, on a basis deemed acceptable to it. The Company currently has no
commitments to obtain any such financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The proceeds, if any, from the exercise of the Underwriter's over-allotment
option and the Redeemable Warrants will be used for the acquisition of
complementary products, technologies and/or businesses, and/or general working
capital purposes.
17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
On July 31, 1990, the Company's Common Stock began trading on the American
Stock Exchange. It is traded under the symbol BNT. The following table sets
forth the high and low sales prices for the Common Stock as reported on the
American Stock Exchange for the Company's last two fiscal years ended December
31, 1993 and December 31, 1994, respectively, and for the interim period
indicated. All prices for the period prior to July 25, 1995 have been restated
to reflect the one-for-ten reverse stock split.
<TABLE><CAPTION>
HIGH SALES PRICE LOW SALES PRICE
---------------- ---------------
<S> <C> <C>
1994
First Quarter............................... $28.75 $ 16.25
Second Quarter.............................. 18.75 9.38
Third Quarter............................... 11.88 10.63
Fourth Quarter.............................. 9.38 5.00
1995
First Quarter............................... 7.50 3.13
Second Quarter.............................. 9.38 3.75
Third Quarter............................... 8.63 4.13
Fourth Quarter.............................. 4.63 2.06
1996
First Quarter (through January 26, 1996).... 2.75 2.06
</TABLE>
As of January 26, 1996 there were 2,270 holders of record of the Common
Stock. The closing price of the Company's Common Stock on January 26, 1996 was
$2.38 per share.
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock. The current
policy of the Board of Directors is to retain earnings to finance the operation
of the Company's business. Accordingly, it is anticipated that no cash dividends
will be paid to the holders of the Common Stock in the foreseeable future. Under
the terms of the Series A Preferred Stock, the Company is restricted from paying
dividends on its Common Stock so long as there are arrearages on dividend
payments on the Series A Preferred Stock. There currently are such arrearages.
Under the terms of the Debentures, the Company is subject to certain
restrictions which prohibit the payment of cash dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995 and as adjusted to give effect to the sale of the Units
offered hereby and the application of the estimated net proceeds (in thousands
except share data):
<TABLE><CAPTION>
AS OF SEPTEMBER 30, 1995
---------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
Accounts payable and accrued expenses........................... $ 7,211 $ 7,211
Short-term borrowings........................................... 1,216 1,216
Current portion of long-term debt............................... 4 4
Non-current liabilities, less current portion................... 500 500
12% Convertible Debentures...................................... -- 5,586(2)
------- --------------
Total non-current liabilities................................. 500 6,086
Redeemable preferred stock, $1.00 par value; authorized
2,000,000 shares; Series A issued and outstanding 70,000
shares.......................................................... 2,374 2,374
Common Stockholders' Equity:
Common Stock, $.02 par value; authorized 5,000,000 shares(3);
issued and outstanding 2,978,000 shares(4)...................... 60 65
Stock Purchase Warrants....................................... -- 414
Paid in capital in excess of par value........................ 69,009 69,393
Stock subscriptions receivable................................ (105) (105)
Retained earnings (deficit)................................... (63,441) (64,017)
Cumulative foreign currency translation adjustment............ (658) (658)
------- --------------
Total Common Stockholder's Equity........................... 4,865 5,092
------- --------------
Total Liabilities and Capitalization........................ $16,170 $ 21,983
------- --------------
------- --------------
</TABLE>
- ------------
(1) Adjustments include the effect of accounting for receipt of proceeds from
private placements in October 1995 and the application of the proceeds from
this Offering to pay the debt incurred in such private placements.
(2) An allocation of the proceeds between the Debentures and the Redeemable
Warrants will be made on the basis of their respective market values after
the date of issuance. The Debentures are shown net of a discount of
$414,000. The face value of the Debentures is $1,000 and the effective
interest rate is 13.3%.
(3) Effective January 1, 1996, the Company increased its authorized shares of
Common Stock from 5,000,000 to 20,000,000.
(4) Excludes (i) an aggregate of 14,210,000 shares of Common Stock reserved for
issuance upon conversion or exercise of the securities issuable in the
Offering (including the Underwriter's overallotment option), consisting of
2,760,000 shares issuable upon conversion of the Debentures (which would be
increased to 3,689,840 shares, if the average closing price of the Common
Stock during the twenty-day period prior to the Anniversary Date was equal
to $2.34, the average closing price of the Common Stock during the
twenty-day period ended January 26, 1996), 10,350,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants and 1,140,000 shares of
Common Stock issuable upon exercise of the securities underlying the
Underwriter Warrants; (ii) 576,841 shares of Common Stock reserved for
issuance upon exercise of outstanding stock purchase warrants; (iii) 260,542
shares of Common Stock reserved for issuance upon exercise of stock options;
(iv) 240,000 shares of Common Stock reserved for issuance upon conversion of
certain notes payable issued in a private placement in October 1995 (see
"Concurrent Offering"); (v) 14,960 shares of Common Stock reserved for
issuance upon conversion of the Series A Preferred Stock or upon conversion
of 9% Convertible Debentures due 2016 into which the Series A Preferred
Stock is exchangeable; (vi) 3,183 shares of Common Stock reserved for
issuance to current or former members of the Board of Directors of the
Company and others as compensation; and (vii) 349,500 shares of Common Stock
issued subsequent to September 30, 1995. See Note 12 of Notes to
Consolidated Financial Statements, "Management--Executive Compensation,"
"Principal Stockholders," "Description of Debentures--Conversion" and
"Description of Securities-- Redeemable Warrants."
19
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial information for the fiscal years ended
June 30, 1990, 1991 and 1992, the six month period ended December 31, 1992, the
fiscal years ended December 31, 1993 and 1994 and the nine month period ended
September 30, 1995 set forth below is derived from and should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes appearing elsewhere in this Prospectus. The data for the nine
month period ended September 30, 1994 are derived from and qualified by
reference to the Company's consolidated financial statements appearing elsewhere
herein and, in the opinion of management of the Company includes all adjustments
that are of a normal recurring nature and necessary for a fair presentation. The
statement of operations data for the nine month period ended September 30, 1994
and 1995 are not necessarily indicative of results for a full year.
STATEMENT OF OPERATIONS DATA
<TABLE><CAPTION>
FOR THE FOR THE FOR THE
FOR THE FISCAL YEAR SIX MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30 DECEMBER 31 DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------- ------------------ -----------------
1990 1991 1992(1) 1992(2) 1993(3) 1994(4) 1994 1995(4)
------- ------- -------- ----------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 21 $ -- $ 13,138 $ 9,708 $ 19,849 $26,284 $19,676 $23,583
Cost of sales............................ 7 -- 8,871 5,899 15,100 21,464 15,940 19,523
------- ------- -------- ----------- -------- ------- ------- -------
Gross margin............................. 14 -- 4,267 3,809 4,749 4,820 3,736 4,060
Operating expenses....................... 2,529 2,506 14,758 23,493 14,722 9,050 7,413 6,265
------- ------- -------- ----------- -------- ------- ------- -------
Operating income (loss).................. (2,515) (2,506) (10,491) (19,684) (9,973) (4,230) (3,677) (2,205)
Other (income) expense................... (22) (30) 320 (153) 263 (652) (26) (686)
------- ------- -------- ----------- -------- ------- ------- -------
Net income (loss)........................ $(2,493) $(2,476) $(10,811) $ (19,531) $(10,236) $(3,578) $(3,651) $(1,519)
------- ------- -------- ----------- -------- ------- ------- -------
------- ------- -------- ----------- -------- ------- ------- -------
Net income (loss) per Common Share....... $ (5.07) $ (3.56) $ (11.12) $ (16.60) $ (6.32) $ (1.56) $ (1.67) $ (.55)
------- ------- -------- ----------- -------- ------- ------- -------
------- ------- -------- ----------- -------- ------- ------- -------
Weighted average number of Common Shares
outstanding.............................. 492 695 997 1,203 1,655 2,395 2,257 2,978
------- ------- -------- ----------- -------- ------- ------- -------
------- ------- -------- ----------- -------- ------- ------- -------
<CAPTION>
BALANCE SHEET INFORMATION
AT JUNE 30, AT DECEMBER 31,
--------------------------- ----------------------------- AT SEPTEMBER
1990 1991 1992(1) 1992(2) 1993(3) 1994(4) 30, 1995
------ ------ ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)............. $1,202 $ (631) $ 8,449 $(3,842) $ 2,043 $ 1,928 $ 1,779
Non-current assets....................... 596 2,955 18,643 13,497 5,937 5,644 5,960
Total assets............................. 2,216 3,244 38,753 21,953 16,160 16,332 16,170
Long term obligations.................... 25 93 2,626 2,349 2,821 336 500
Redeemable Preferred Stock............... -- -- 7,164 7,401 2,218 2,256 2,374
Common Stockholders' equity (deficit).... 1,773 2,231 17,352 (95) 2,941 4,980 4,865
</TABLE>
- ------------
(1) The Company acquired 100% of the shares of Chimos in August 1991 and,
accordingly, for accounting purposes, was no longer considered in the
development stage of operations. The Company also acquired 100% of the
shares of Laboratorios Belmac in February 1992, as well as Amodex(R)
trademark and licensing rights in France in December 1991. See Notes 3 and 8
of Notes to Consolidated Financial Statements.
(2) The Company changed its fiscal year end to December 31 effective December
31, 1992 and sold its marketing rights in France to Amodex(R) on January 20,
1993. The six months ended December 31, 1992 include other non-recurring
charges totaling $9,321,000. See Note 4 of Notes to Consolidated Financial
Statements.
(3) The year ended December 31, 1993 includes the effects of writing off
capitalized costs with respect to the sachet formulation of Biolid, its
noncrystalline form of erythromycin and a charge to earnings for the
settlement of class action litigation. See Notes 8 and 12 of Notes to
Consolidated Financial Statements.
(4) The Company sold its Spanish marketing rights to its ciprofloxacin
antibiotic, Belmacina(R), in 1994 and included the gain thereon
(approximately $884,000) in Other (Income) Expense in the year ended
December 31, 1994 and recorded the anticipated gain on sale of the related
trademark of $380,000 as deferred revenue as of December 31, 1994 which was
recognized in the nine months ended September 30, 1995. Other (Income)
Expense for the nine months ended September 30, 1995 also includes the
recognition of income of $360,000 from the commercialization of a certain
drug provided by the Company's former Chairman and Chief Executive Officer,
$533,000 of expense related to the settlement of litigation with the
Company's former Chief Financial Officer and income of $368,000 due to the
reversal of an overaccrual for a liability. See Notes 8, 12, 15 and 17 of
Notes to Consolidated Financial Statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an international pharmaceutical and health care company with
its primary focus on the development and marketing of pharmaceutical and health
care products. Substantially all of its revenues have come from its operations
in France and Spain; however, the Company began limited marketing of health care
products in the United States in 1994.
Effective December 31, 1992, the Company changed its fiscal year end from
June 30 to December 31. The Company incurred a net loss of $3,578,000 and
$1,519,000 for the year ended December 31, 1994 and the nine months ended
September 30, 1995, respectively. The Company intends to continue to focus its
efforts on business activities which management believes should result in
operating profits in the future, of which there can be no assurance. To improve
its results, the Company's management will focus on increasing higher margin
pharmaceutical and health care product sales, controlling expenses through its
austerity program, careful prioritization of research and development projects
resulting in continued low overall research and development expenditures, and
potentially acquiring marketable products or profitable companies in the United
States or Europe that are compatible with the Company's strategy for growth. See
"--Liquidity and Capital Resources." Currently, the profit margins for the
products sold by the Company's subsidiary in Spain are significantly higher than
those generated by the Company's subsidiary in France. For business segment
information on the Company's operations outside the United States, see Note 14
of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1994
The Company reported revenues of $23,583,000 and a net loss of $1,519,000 or
$.55 per share for the nine months ended September 30, 1995 compared to revenues
of $19,676,000 and a net loss of $3,651,000 or $1.67 per share for the same
period in the prior year.
Sales and Cost of Sales. The 20% increase in revenues is primarily
attributable to an increase in sales by the Company's subsidiary in France,
Chimos/LBF S.A., which distributes specialty pharmaceutical products and fine
chemicals in France. Consolidated gross margins for the nine months ended
September 30, 1995 remained consistent at 19% when compared to the comparable
period of the prior year, excluding the effect of the $423,000 charge to cost of
sales in the third quarter of 1995, representing an increase in the Company's
reserves for slow moving or obsolete inventory in Spain. The Company's
distribution operations in France (Chimos/LBF S.A.) generate relatively low
gross margins as opposed to the Company's Spanish subsidiary, Laboratorios
Belmac S.A., which is experiencing substantially higher margins.
Operating Expenses. Selling, general and administrative expenses were
$5,516,000 for the nine months ended September 30, 1995 compared to $6,428,000
for the same period in the prior year. The 14% decrease is primarily
attributable to cost control measures implemented by the Company. The Company
intends to continue its efforts to control general and administrative expenses
as part of its austerity program in its effort to reach and maintain
profitability.
Research and development expenses were $341,000 for the nine months ended
September 30, 1995 compared to $608,000 for the same period of the prior year.
The 44% decrease reflects the results of a thorough review of all research and
development activities and the establishment of priorities based upon both
technical and commercial criteria. During this period, the Company did not
commence any new research and development programs. The Company intends to
continue to carefully manage its research and development expenditures in the
future in view of its limited resources.
21
<PAGE>
Other Income/Expense. Interest expense was $215,000 for the nine months
ended September 30, 1995 compared to $140,000 for the same period in the prior
year. The 54% increase reflects interest cost on higher average outstanding
balances on revolving lines of credit, which are used to finance working capital
needs. Other income/expense of $686,000 for the nine months ended September 30,
1995 is primarily comprised of $360,000 related to a settlement of litigation
(see Notes 15 and 17 of Notes to Consolidated Financial Statements) and the
$380,000 gain recognized upon the sale of the Company's Belmacina trademark in
Spain, which was previously reflected in the Company's consolidated financial
statements as deferred revenue as of December 31, 1994. The Company has since
transferred the trademark to the purchaser and collected the balance of the
related receivable in the fourth quarter of 1995. Also included, is income from
the Company's contract manufacturing arrangements with several pharmaceutical
concerns, offset by a charge for cancellation of the stock subscription
receivable and related interest from a former officer of the Company. One-half
of the loss (approximately $37,000) incurred by Maximed Pharmaceuticals, the
Company's partnership with Maximed Corporation, is also included in other
income/expense in the nine months ended September 30, 1995. Although the Company
is in a dispute with, and has filed an action against, its partner, and has
ceased funding the partnership's activities until such dispute is resolved,
appropriate operating costs have been accrued and charged to operations during
the nine months ended September 30, 1995. See "Legal Proceedings".
FISCAL YEAR ENDED DECEMBER 31, 1994 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1993
The Company reported sales of $26,284,000 and a net loss of $3,578,000 or
$1.56 per share for the fiscal year ended December 31, 1994, compared to sales
of $19,849,000 and a net loss of $10,236,000 or $6.32 per share for the prior
year.
Sales and Cost of Sales. The 32% increase in sales is primarily a result of
increased sales by the Company's subsidiary in France, Chimos/LBF. Gross margins
for the year ended December 31, 1994 averaged 18% compared with 24% in the prior
year. The lower margins are primarily a result of the lower gross margins
experienced by Chimos/LBF's distribution operations, whose sales accounted for
approximately 77% of revenues, compared with 68% in the prior year. The lower
gross margins experienced by the Company in France were only partially offset in
Spain, where Laboratorios Belmac is experiencing margins substantially higher
than those in France.
Operating Expenses. Selling, general and administrative expenses were
$7,716,000 for the year ended December 31, 1994 compared with $9,170,000 for the
prior year. The 16% decrease is primarily attributable to cost control measures
implemented by the Company and reduced marketing costs in France due to the
suspension of marketing of Biolid during the fourth quarter of 1993.
Notwithstanding these efforts, selling and marketing costs continue to be
significant and necessary expenses in connection with the Company's plans to
increase market share in Spain. To the extent practical, however, the Company
intends to continue its efforts to control general and administration expenses
as part of its austerity program.
Research and development expenses were $759,000 for the year ended December
31, 1994 compared to $1,555,000 in the prior year. The 51% decrease reflects the
results of a thorough review of all research and development activities and the
establishment of priorities based upon both technical and commercial criteria.
During 1994, the Company did not commence any new research and development
programs. It did, however, continue certain programs already in progress,
including a Biolid pharmacokinetics trial. The Company intends to continue to
carefully manage its research and development expenditures in the future in view
of its limited resources.
Depreciation and amortization expenses were $575,000 for the year ended
December 31, 1994 compared to $756,000 for the prior year. The 24% decrease is
primarily attributable to the write-off of Drug Licenses and Product Rights as
of December 31, 1993, and the 1994 sale of its Spanish ciprofloxacin antibiotic,
Belmacina(R), resulting in reduced amortization charges.
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<PAGE>
Other Income/Expense. Other income/expense for the year ended December 31,
1994 included the gain recognized upon the 1994 sale of the Company's Spanish
rights to its ciprofloxacin antibiotic, Belmacina(R), of approximately $884,000.
FISCAL YEAR ENDED DECEMBER 31, 1993 VERSUS TWELVE MONTHS ENDED DECEMBER 31, 1992
The Company reported revenues of $19,849,000 and a net loss of $10,236,000
or $6.32 per share for the year ended December 31, 1993, compared to revenues of
$19,217,000 and a net loss of $27,023,000 or $23.70 per share for the same
period in the prior year.
Sales and Cost of Sales. While 1993 revenues increased slightly, their
composition changed significantly. Sharply reduced sales at Laboratoires Belmac
due to its divestiture of Amodex(R) and decreased promotion and the resulting
reduction in sales of its sachet formulation of Biolid were more than offset by
increases in sales generated by Chimos. Gross margins for the year ended
December 31, 1993 averaged 24% compared to 37% in the comparable period of the
prior year. The lower margins were primarily a result of the lower gross margins
experienced by Chimos' distribution operations, whose sales accounted for
approximately 68% of revenues, as compared to 52% in the comparable period of
the prior year and to low gross margin contributions from Laboratoires Belmac's
sales due to the fact that Amodex(R) and Biolid inventories were adjusted
downward to net realizable value as of December 31, 1992. The lower gross
margins experienced by the Company in France were only partially offset in
Spain, where Laboratorios Belmac experienced margins substantially higher than
those in France.
Operating Expenses. Selling, general and administrative expenses were
$9,170,000 for the year ended December 31, 1993 compared to $15,724,000 for the
same period in the prior year. The decrease was primarily attributable to cost
control measures implemented by the Company and reduced marketing costs in
France due to the divestiture of Amodex(R) and the decreased promotion of its
sachet formulation of Biolid.
Research and development expenses were $1,555,000 for the year ended
December 31, 1993 compared to $7,339,000 in the comparable period of the prior
year. The decrease reflected the results of a thorough review of all research
and development activities, and the establishment of priorities based upon both
technical and commercial criteria. Biolid (tablet formulation) was the primary
focus in research and development.
Depreciation and amortization expenses were $756,000 for the year ended
December 31, 1993 compared to $1,497,000 for the same period in the prior year.
The decrease was primarily attributable to the write-down of drug licenses and
product rights and to the divestiture of Amodex(R).
As a result of the decision to withdraw the sachet formulation of Biolid
from the French market, the Company recorded an expense of $2,241,000 in the
fourth quarter of 1993, reflecting the write-off of the capitalized costs with
respect to the sachet formulation of Biolid, Biolid sachet inventories, and
costs associated with refunding certain costs to the potential buyer of these
rights. See "Business--Products--Biolid(R)."
The Company agreed in 1993 to issue to plaintiffs in class action
litigation, shares of its Common Stock with a market value of $1,000,000. The
Company accrued this amount as a non-current liability as of December 31, 1993.
Other Income/Expense. The provision for income taxes of $343,000 for the
twelve months ended December 31, 1992 was a result of foreign taxes on profits
generated by Chimos in 1992. Chimos was not eligible to file a consolidated
income tax return with Laboratoires Belmac in France until 1993; therefore, the
Laboratoires Belmac losses were not available to offset Chimos' taxable profits
in 1992. No such provision was required for the year ended December 31, 1993.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased from $16,332,000 at December 31, 1994 to $16,170,000
at September 30, 1995, while Common Stockholders' Equity decreased from
$4,980,000 at December 31, 1994 to $4,865,000 at September 30, 1995. The
decrease in Common Stockholders' Equity reflects primarily the loss incurred by
the Company for the period which was partially offset by $562,000 received from
a stock subscription receivable and fluctuation in the exchange rates of
European currencies compared to the U.S. Dollar.
The Company's working capital decreased from $1,928,000 at December 31, 1994
to $1,779,000 at September 30, 1995. Receivables increased from $7,609,000 at
December 31, 1994 to $8,268,000 at September 30, 1995 due primarily to the
continued growth in sales volume at the Company's subsidiary in France,
Chimos/LBF. A significant portion of the Company's trade receivables arise from
sales of pharmaceutical and healthcare products to the French government.
Payment terms for such sales are typically 90 to 100 days. The Company has not
experienced any material delinquent accounts. During the period, the Company
collected approximately $922,000 of the $1,140,000 receivable due at December
31, 1994 from the sale of its ciprofloxacin antibiotic, Belmacina, in Spain.
Inventories decreased from $1,247,000 at December 31, 1994 to $1,000,000 at
September 30, 1995 primarily due to an increase in the Company's reserves for
slow-moving or obsolete inventory in Spain of $423,000. The combined total of
accounts payable and accrued expenses also remained relatively unchanged at
September 30, 1995 as compared to December 31, 1994, decreasing $445,000 or less
than 6%. Short term borrowings increased from $663,000 at December 31, 1994 to
$1,216,000 at September 30, 1995 due to higher balances used for working capital
purposes (primarily the purchase of inventories in France and Spain, and
short-term borrowings used to finance factory renovations in Spain).
Investing activities, including the collection of approximately $922,000
from the 1994 sale of Belmacina, proceeds from the sale of investments available
for sale of $214,000, an investment in the Company's Spanish manufacturing
facilities of approximately $507,000 and in the Belmac/Maximed Partnership (see
"Legal Proceedings") of $13,000, provided net cash of $616,000 during the nine
months ended September 30, 1995. Financing activities (primarily collection of a
stock subscription receivable and proceeds from borrowings on lines of credit)
provided net proceeds of $925,000 for the nine months ended September 30, 1995.
Operating activities for the nine months ended September 30, 1995 required net
cash of $2,422,000.
Total assets increased from $16,160,000 at December 31, 1993 to $16,332,000
at December 31, 1994, while Common Stockholders' Equity increased from
$2,941,000 at December 31, 1993 to $4,980,000 at December 31, 1994. The increase
in Common Stockholders' Equity is primarily a result of net proceeds of
approximately $3,384,000 received from private placements of Common Stock and
warrants and approximately $693,000 received from stock subscriptions
receivable, offset by losses incurred by the Company for the period. Common
Stockholders' Equity also increased by $1,000,000 as a result of the issuance of
the Common Stock to settle a class action litigation.
The Company's working capital was $1,928,000 at December 31, 1994 compared
to $2,043,000 at December 31, 1993. Marketable securities were liquidated during
1994 to satisfy liabilities of the Company. Receivables increased as a result of
the growth in the Company's business as well as including the $1,140,000
receivable from the sale in Spain of its ciprofloxacin antibiotic, Belmacina(R),
which has been received subsequent to year end. Accounts payable increased in
part due to the increased level of business and in part due to the Company's
careful management of its limited liquid resources.
Investing activities provided net cash of $134,000 for the year ended
December 31, 1994, including proceeds from the sale of the Company's
ciprofloxacin antibiotic, Belmacina(R) in Spain, which was sold for $1,556,000
and generated a gain of $884,000. See Note 8 of Notes to Consolidated Financial
Statements. The Company also sold certain investments during 1994 generating
proceeds of
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<PAGE>
$1,040,000. The Company invested $648,000 in its partnership with Maximed
Corporation (named Maximed Pharmaceuticals) for development of hydrogel based
feminine health care products. Management believes that it is possible to
introduce its first product to the market in 1996 if a dispute with its partner
can be resolved and product development progresses as planned. Investing
activities also included a repayment to Evans Medical S.A. of $793,000 for
amounts due relating to the cancellation of the proposed sale of the marketing
rights to the sachet formulation of Biolid in France in 1993.
Financing activities (primarily receipt of proceeds from private placements
and from stock subscriptions receivable) provided net proceeds of $3,439,000 for
the year ended December 31, 1994, while operating activities for the year ended
December 31, 1994 required net cash of $3,415,000.
The Company continues to experience negative cash flows from operating
activities, and completed private placements of its securities totaling
$1,770,000 during October 1995 in order to fund its operations and is pursuing
this Offering to provide further liquidity. See "--Private Placements" below and
Note 17 of Notes to Consolidated Financial Statements. The Company may seek to
enter into a partnership or other collaborative funding arrangement with respect
to future clinical trials of its products under development. The Company,
however, continues to explore alternative sources for financing its business. In
appropriate situations, that will be strategically determined, the Company may
seek financial assistance from other sources, including contribution by others
to joint ventures and other collaborative or licensing arrangements for the
development, testing, manufacturing and marketing of products and the sale of a
minority interest in, or certain of the assets of, one or more of its
subsidiaries. Management expects that by carefully prioritizing research and
development activities and continuing its austerity program, upon consummation
of this Offering, the Company should have sufficient liquidity to fund
operations through the end of 1996.
Seasonality. In the past, the Company has experienced lower sales in the
fourth calendar quarter of each year. Should the Company begin large sales of a
pharmaceutical product whose sales are seasonal, seasonality of its sales may
become more significant.
Currency. A substantial amount of the Company's business is conducted in
France and Spain and is therefore influenced by the extent to which there are
fluctuations in the dollar's value against such countries' currencies. The
effect of foreign currency fluctuations on long lived assets for the nine months
ended September 30, 1995 and for the year ended December 31, 1994 was an
increase of $443,000 and $289,000, respectively, and the cumulative historical
effect at September 30, 1995 and December 31, 1994 was a decrease of $658,000
and $1,101,000, respectively, as reflected in the Company's Consolidated Balance
Sheets in the "Liabilities and Stockholders' Equity" section. Although exchange
rates fluctuated significantly in recent months, the Company does not believe
that the effect of foreign currency fluctuation is material to the Company's
results of operations as the expenses related to much of the Company's foreign
currency revenues are in the same currency as such revenues. The Company relies
primarily upon financing activities to fund the operations of the Company in the
United States and has not transferred significant amounts into or out of the
United States in the recent past. In the event that the Company is required to
fund United States operations with funds generated in France or Spain, currency
rate fluctuations in the future could have a significant impact on the Company.
However, at the present time, the Company does not anticipate altering its
business plans and practices to compensate for future currency fluctuations.
Private Placements. To finance its operations, in October 1995 the Company
conducted two private placements of its securities. In the first placement, the
Company sold to certain purchasers for an aggregate purchase price of $720,000,
120,000 shares of the Company's Common Stock and 12% promissory notes in the
aggregate principal amount of $720,000 (the "Notes") which become payable in
full upon the earlier of July 31, 1996 or the closing of a public offering of
the Company's securities (a "Public Offering"). The Notes are convertible into
shares of Common Stock, at the option of the holders thereof, at a conversion
price of $3.00 per share, for an aggregate of 240,000 shares of Common Stock,
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<PAGE>
subject to anti-dilution provisions. The Notes are subject to mandatory
conversion at a conversion price of $3.00 per share if no Public Offering is
completed by July 31, 1996.
In the second placement, the Company sold to certain purchasers for an
aggregate purchase price of $1,050,000, 131,250 shares of Common Stock and 12%
promissory notes in the aggregate principal amount of $1,050,000 (the "A Notes")
which become payable in full upon the earlier of September 30, 1996 or the
completion of a Public Offering. The A Notes are subject to mandatory
conversion, at a conversion price equal to the average closing price for the
Common Stock quoted on the American Stock Exchange for the five trading days
immediately preceding September 30, 1996, if no Public Offering is completed by
September 30, 1996.
As required by the terms of the placements, the Company will utilize a
portion of the proceeds of this Offering to repay the Notes and the A Notes. See
"Use of Proceeds." The Underwriter served as placement agent for the placements.
See "Underwriting--Private Placements." The shares of Common Stock sold in the
placements and the shares of Common Stock issuable upon conversion of the Notes
which have been converted prior to the date hereof and, consequently, will not
be repaid, have been registered for resale. See "Concurrent Offering."
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<PAGE>
BUSINESS
GENERAL
The Company is an international pharmaceutical and health care company
engaged primarily in the manufacturing, marketing and distribution of
pharmaceutical products in France and Spain, with limited distribution of health
care products and research and development activities in the United States. The
Company's operations in France consist of the brokerage of fine chemicals and
the marketing of the drug Ceredase, manufactured by Genzyme Corporation and used
in the treatment of Gaucher's Disease. In Spain, the Company manufactures,
packages and distributes both its own and other companies' pharmaceutical
products and has recently begun to emphasize the manufacture of pharmaceuticals
under contract. In the United States, the Company markets disposable linens to
emergency health services which are manufactured under contract. The percentage
of the Company's total revenues for the nine months ended September 30, 1995
which are attributable to its operations in France, Spain and the United States
are approximately 82%, 17% and 1%, respectively. Limited research and
development activities are conducted both in the United States and Europe and
the Company has several products under development. The Company's chemical and
pharmaceutical operations in France and Spain are a result of its 1991
acquisition of Chimos S.A. and the establishment of a pharmaceutical subsidiary
in France, Laboratoires Belmac S.A. (these two entities in France have since
been merged into one entity named and referred to herein as Chimos/LBF S.A.) and
the 1992 acquisition of Rimafar S.A. (subsequently renamed and referred to
herein as Laboratorios Belmac S.A.), respectively.
The strategic focus of the Company has shifted in response to the evolution
of the global health care environment. The Company has moved from a research and
development-oriented pharmaceutical company, developing products from the
chemistry laboratory through marketing to a company seeking to acquire
late-stage development compounds that can be marketed within one or two years,
and currently marketed products. As a result of this transition, the Company has
decreased its research and development expenses dramatically over the past few
years as well as implemented cost-cutting measures throughout the Company's
operations. The Company emphasizes product distribution in France and Spain,
strategic alliances and product acquisitions, which management of the Company
expects will move the Company closer to profitability in the near future.
The Company's sales by its primary product lines are as follows (in
thousands):
<TABLE><CAPTION>
FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
------------------ ------------------
1993 1994 1994 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Pharmaceutical and consumer health care products...... $19,483 $26,100 $19,560 $23,429
Disposable linen products............................. 56 184 116 154
Other................................................. 310 -- -- --
------- ------- ------- -------
Total........................................... $19,849 $26,284 $19,676 $23,583
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
PRODUCT LINES
The Company currently manufactures, markets and sells pharmaceutical
products in Spain, distributes pharmaceutical and biotechnology products and
brokers fine chemicals in France, and markets and sells disposable linens in the
United States.
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PHARMACEUTICAL MANUFACTURING AND MARKETING IN SPAIN
Laboratorios Belmac S.A., the Company's subsidiary in Spain ("Laboratorios
Belmac"), manufactures, markets and sells pharmaceutical products whose four
primary categories are cardiovascular, neurological, gastrointestinal and
antibiotic. The Company manufactures over 30 types of pharmaceuticals in its
facility in Zaragoza, Spain both for its own sales and, on occasion, under
contract for others. The manufacturing facility was recently renovated and
brought into full compliance with European Union Good Manufacturing Practices
(GMPs). Among the products Laboratorios Belmac manufactures, each of which is
registered with Spain's Ministry of Health, are:
Controlvas(R). Controlvas, whose generic name is enalapril, is an
angiotensin converting enzyme inhibitor useful in the treatment of
hypertension and congestive heart failure. Enalapril is marketed in the
United States by Merck & Company.
Belmazol(R). Belmazol, whose generic name is omeprazole, is used
primarily for hyperacidity problems related to ulcers and, secondarily, for
the treatment of gastroesophageal reflux disease. Omeprozole is a proton
pump inhibitor which inhibits the hydrogen/potassium ATPase enzyme system at
the secretory surface of the gastric parietal cell. Because this enzyme
system is regarded as an acid pump within the gastric mucosa, it has been
characterized as a gastric acid pump inhibitor in that it blocks the final
step of acid production. This compound has been used in combination with
antibiotics for the treatment of ulcers when it is suspected that
Helicobacter pylori, a bacteria, is the etiologic agent.
Lopermida(R). Lopermida, whose generic name is loperamide hydrochloride,
a product launched by the Company in Spain in March 1995, is a compound that
inhibits gastrointestinal motility and is useful in the treatment of
diarrheal conditions and colitis. Loperamide hydrochloride is marketed in
the United States by several drug companies, including McNeil, Proctor &
Gamble, Novo Pharm and Geneva.
Ergodavur(R), Neurodavur(R) and Neurodavur Plus(R). Ergodavur,
Neurodavur and Neurodavur Plus are compounds used for the enhancement of
activity in the central and peripheral nervous systems.
Diflamil(R). Diflamil is an anti-inflammatory analgesic used in the
treatment of arthritis.
Resorborina(R). Resorborina is a compound that has local anesthetic and
anti-inflammatory properties for the treatment of pharyngitis and mouth
infections.
Onico-Fitex(R) and Fitex E(R). Onico-Fitex and Fitex E are compounds
used to treat local fungal infections, especially around the nails.
Otogen(R). Otogen is a product used for the treatment of ear infections
and ear pain.
Spirometon(R). Spirometon is a combination of spironolactone and
bendroflumethazide useful in the treatment of congestive heart failure,
hypertension and edema. (Spirometon is a diuretic that preserves the body's
supply of potassium).
Anacalcit(R). Anacalcit is a calcium binding product used for the
treatment of kidney stones. The Spanish government has specifically
requested that Laboratorios Belmac continue to manufacture this product, as
Laboratorios Belmac is the only supplier of this type of product in Spain.
Biolid(R). Biolid is a non-crystalline form of erythromycin with a
potential for enhanced bioavailability. Plans are underway for developing
manufacturing capabilities for Biolid in Spain. Laboratorios Belmac will
perform an additional clinical study in Spain once the production of the
sachet formulation has been completed and prior to the commencement of
marketing. See "--Products under Development--Biolid--Spain."
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Belmacina(R). Belmacina is a ciprofloxacin antibiotic. The Company sold
its Spanish marketing rights to Belmacina to CEPA, a Spanish company, in
1994 for 200 million Spanish Pesetas (approximately $1,556,000) and the
related trademark to CEPA for 50 million Spanish Pesetas (approximately
$380,000) in 1995. The Company maintains the right to manufacture and export
this product. Belmacina was acquired by the Company in September 1992 for
approximately $577,000. The gain on sale of the marketing rights
(approximately $884,000) was included in the Company's income for the year
ended December 31, 1994. The Company recorded the gain on the sale of the
related trademark (approximately $380,000) as deferred revenue in its
consolidated financial statements for the year ended December 31, 1994, and
recognized such revenue in 1995. See Note 8 of Notes to Consolidated
Financial Statements.
Rimafungol(R). Rimafungol is the Company's form of cyclopiroxolamine, a
broad-spectrum antifungal product for treating fungal infections of the skin
and vagina.
Rofanten(R). Rofanten is the Company's formulation of naproxen sodium,
an anti-inflammatory/analgesic.
Generic Antibiotics. Laboratorios Belmac produces directly or by
contract to others, various other types of generic antibiotics for which
patent protection no longer exists, such as amoxicillin, ampicillin
(Bactosone Retard(R)) and injectable forms of penicillin.
Controlvas and Belmazol, together, represent approximately 70% of the sales
of Laboratorios Belmac.
As the Spanish government did not provide any patent protection for
pharmaceutical products until 1992, the Company, while owning the right to
manufacture the drugs described above as well as other pharmaceuticals, will
often be one of several companies which has the right to manufacture and sell
substantially similar products. The Spanish regulatory authorities specify the
amounts each company can charge for its products. Therefore, the Company's
competitors may sell similar products at the same, higher or lower prices. Many
of these competitors are larger, better capitalized and have more developed
sales networks than the Company.
The Company maintains an internal marketing and sales staff of approximately
54, including 32 employees and 22 independent sales representatives working on
commission in Spain to market the pharmaceuticals it produces. The Company's
sales force competes by emphasizing highly individualized customer service.
In 1995, the Company commenced the export of pharmaceuticals manufactured by
Laboratorios Belmac outside Spain through local distributors, particularly in
Eastern Europe and South America.
CONTRACT MANUFACTURING. Since Laboratorios Belmac currently utilizes less
than 100% of its plant capacity to manufacture its own products, Laboratorios
Belmac has begun to act as a contract manufacturer of pharmaceuticals owned by
other companies such as Rhone-Poulenc's subsidiary Natterman S.A., Ciba Geigy's
subsidiary Zyma, Fournier, Italpharmaco, Beijing Pharmaceutical, Instituto
Llorente and Laboratorios Juventus, S.A. Other contracts are contemplated in the
near future. The Company manufactures these pharmaceuticals to its customers'
specifications, packaging them with the customers labels. Occasionally, to
assure product uniformity and quality, employees of these customers will work at
the Company's manufacturing facility.
As a result of Spain's entry into the European Union, Spain implemented new
pharmaceutical manufacturing standards and the Company was required to modify
its facility to comply with these regulations. Such renovations were
accomplished by Laboratorios Belmac without interruption of sales or
distribution. After an inspection, in July 1995 the operating parts of the
facility were determined to be in compliance with European Good Manufacturing
Practices ("GMPs") by Spain's Ministry of Health.
29
<PAGE>
PHARMACEUTICAL MARKETING AND SALES IN FRANCE
Chimos/LBF S.A., the Company's subsidiary in France ("Chimos"), is engaged
in the import and distribution of specialty pharmaceutical products to hospitals
and others in France. Chimos concentrates on the sale of "orphan drugs" (drugs
used for the treatment of rare diseases). The Company markets, throughout
France, over 26 pharmaceutical products from Europe and the United States.
Among the products Chimos currently markets are Ceredase, a drug used in the
treatment of Gaucher's Disease, and Dysport, a drug used to treat certain muscle
disorders. Chimos has been marketing Ceredase in France since the drug became
available, approximately five years ago. Chimos is able to market these drugs
because it has been authorized as a distributor by France's Ministry of Health.
The primary customer of Chimos is Pharmacie Centrale des Hopitaux, which
purchases Ceredase from Chimos. Since Ceredase treats a rare disease, this
hospital buys and controls distribution of this product to other hospitals in
France. Ceredase is manufactured by Genzyme Corporation of Boston,
Massachusetts, which contracts with Chimos to distribute it in France. The
contracts with Genzyme have recently had limited terms; the most recent
three-month extension terminates on March 31, 1996. There can be no assurance
that Chimos will continue to market Ceredase or that the relationship between
Chimos and Genzyme will continue. The Company continues to assess the importance
of Ceredase to its operation because, notwithstanding the relative significance
of its sales volume, its gross margins as a percentage of sales are minimal.
Chimos, as one of the authorized distributors of Orphan Drugs in France, is
occasionally contacted by manufacturers of such products outside of France to
act as their distributor. In addition, the Company from time to time supplies
Chimos with a list of Orphan Drugs approved by the FDA in the United States and
Chimos contacts their manufacturers to seek becoming their distributor in
France.
CHEMICAL BROKERAGE. Chimos is engaged in the import and supply in France of
approximately 39 fine chemicals, such as furosemide, phenobarbital and
trihexyphenidyl HCl, used in the manufacture of pharmaceuticals, from countries
such as Japan, Taiwan, China, Pakistan and several European countries. The
brokerage of fine chemicals by Chimos provides a necessary link between the
manufacturer and end-user. The manufacturer produces the chemicals to meet
product specifications and provides a certificate of analysis as to the purity
of the chemicals. The products are provided to the end-user, which generally
verifies the analysis with its own quality control procedures. Chimos generally
acts as agent for the manufacturer, arranging for shipping, import and customs
documentation, invoicing and collection of payments. Chimos also acts on
occasion on behalf of the end-user, which requests that Chimos source a
particular product from one of its sources or conduct a world-wide search for
the product.
MARKETING AND DISTRIBUTION OF DISPOSABLE LINENS IN THE UNITED STATES
The Company markets and distributes disposable linen products to the
emergency health care industry in the United States through Belmac Healthcare
Corporation, one of the Company's U.S. subsidiaries ("Healthcare"). These
disposable linens include products such as blankets, sheets and pillowcases.
Customers for these products include distributors to entities which are engaged
in the provision of emergency health care services, such as emergency rooms and
ambulance services, located primarily in the southwestern and northeastern
regions of the United States.
Healthcare receives orders for these products at the Company's headquarters
in Tampa, Florida. Healthcare subcontracts the manufacturing of the disposable
linens in accordance with Healthcare's specifications. The raw materials for
these products are provided by Healthcare and stored with one of the
manufacturers until needed. Once produced, the products are shipped directly to
the customer from the manufacturer or held in inventory in anticipation of
customer demand.
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<PAGE>
The supply of disposable linens to health care providers in the United
States is a highly competitive business. Large companies with significantly
greater resources than the Company, such as Kimberly-Clark Corporation,
Minnesota Mining & Mfg. Co., Johnson & Johnson, Owens & Minor Inc., General
Medical Corp. and Baxter International Inc., dominate the market. The Company
concentrates its marketing on the emergency services segment of the health care
market, an area which demands greater individual attention. Healthcare believes
that it competes on the basis of customer service.
Healthcare advertises this service nationwide through several mediums, such
as print advertisements, trade shows and direct mail (sales brochures). Sales
from disposable linens increased from $56,000 in 1993 to $184,000 in 1994 and to
$154,000 during the first nine months of 1995. The manufacture and sale of
disposable linens is subject to regulation by the FDA. The FDA monitors the
composition and labeling of health care products, such as disposable linens.
PRODUCTS UNDER DEVELOPMENT
Although the Company significantly reduced its research and development
activities when it implemented its austerity program in 1993, the Company has
maintained its rights to a number of selected products. There can be no
assurance that the Company will have the resources to bring any of these
products to market or, if such resources are available, that the products can be
successfully developed, manufactured or marketed.
Due to the expense and time commitment required to bring a pharmaceutical
product to market, the Company is seeking co-marketing, licensing and
promotional arrangements and other collaborations with other international or
national pharmaceutical companies. Generally, management believes that the
Company can compete more effectively in certain markets through collaborative
arrangements with companies that have an established presence in a particular
geographic area and greater resources than those of the Company. The Company is
currently seeking partners to assist in the further development and marketing of
Biolid and Alphanon(R).
BIOLID(R)
Biolid is a non-crystalline form of erythromycin with a potential for
enhanced bioavailability (quantity absorbed in blood over time compared to dose
received). Initially, Biolid was produced in Europe in a sachet formulation,
which is a powder formulation contained in a packet, which is mixed with water
prior to oral administration. This formulation for drugs is more popular in
Europe than in the United States, necessitating the Company's development of a
tablet formulation for marketing in the United States. The Company was granted a
United States patent for Biolid in June 1992. An international patent
application covering ten additional countries was granted in January 1994.
Regulatory approval is pending in Mexico. Regulatory approval was recently
received in Spain and an Investigational New Drug Application ("IND") is on file
with the FDA.
Initial Sachet Formulation Studies. Five double blind clinical studies of
Biolid, using its sachet formulation, were completed in 1992 in a total of 612
patients in France, Germany, Belgium and Holland. Four studies used
roxithromycin (Rulid, Hoescht-Roussel) as a reference drug, and Biolid showed
equal efficacy and tolerance in both lower and upper respiratory tract
infections in three of the four studies. In the fifth study, Biolid was compared
to a third generation oral cephalosporin, cefpodoxime (Cefodox,
Hoescht-Roussel), in upper respiratory tract infections, and again, equal
efficacy and tolerance were observed.
France. The Company began marketing the sachet formulation of Biolid in
France in 1992 after its approval by France's Ministry of Health. During a
periodic review of the dossier of Biolid by the Ministry in 1993 which was
completed shortly after the Company had negotiated the sale of the Company's
rights to the sachet formulation in France, the Ministry required the suspension
of
31
<PAGE>
marketing of Biolid pending the provision by the Company of additional clinical
data regarding the mechanisms for the comparatively enhanced absorption of the
Biolid sachet. This suspension was unrelated to its safety or efficacy issues.
The sale of the rights to Biolid did not occur. The Company believes that once
the additional technical information requested has been provided to the French
regulators, the regulators should agree to the continued marketing of the sachet
formulation. However, due to the cost of such a study, at this time the Company
will not fund additional clinical studies of the sachet formulation in France
without a collaborative partner. The Company believes that the likelihood of
obtaining a partner in France is currently remote. See Notes 4 and 8 of Notes to
Consolidated Financial Statements.
Spain. The Company received approval by Spain's Ministry of Health in 1994
for marketing the sachet formulation of Biolid in Spain at a price lower than
that requested by the Company. In 1995, the Ministry approved a higher price
level, pending delivery of the results of a further clinical study demonstrating
enhanced bioavailability of Biolid. In addition, once the initial production of
a quantity of Biolid has been produced by Laboratorios Belmac in Spain, which
will be done using raw materials supplied to Laboratorios Belmac from Chimos,
Laboratorios Belmac will use the same clinical study to demonstrate that the
manufacturing process used in Spain is substantially similar to that which was
successfully used in France and that the formulation produced in Spain yields a
final product which meets all regulatory standards. The Company currently
expects that the clinical study will be performed in two phases. First, a pilot
study of six persons will be performed and then, if the results of the pilot
study are positive, a larger population will be tested in compliance with the
requirements of the Ministry. There can be no assurance that either the pilot
study or, if the pilot study is successful, the full study will demonstrate
either enhanced bioavailability or substantial similarity. Management of the
Company does not have sufficient data to be able to accurately predict the
outcome of these studies at this time. These studies would be funded by the
operations of Laboratorios Belmac and a portion of the proceeds of this
Offering.
United States. The Company has determined to direct its marketing efforts
for Biolid in the United States to the twice-a-day tablet formulation rather
than the sachet formulation. The Company has performed several pilot studies
between 1992 and 1994, the most recent of which indicated that the tablet, given
with a high fat meal, had bioavailability which was approximately 25% better
when compared on a milligram for milligram basis with a competitive U.S. tablet
of erythromycin. These results did not achieve the same level of bioavailability
as the initial studies of the sachet formulation. Because of wide variations in
the data, an additional study with a larger number of subjects will be required
to definitively determine the relative bioavailability of the tablet formulation
as compared to standard erythromycin. A study plan was reviewed by the FDA.
There can be no assurance that this study will demonstrate enhanced
bioavailability. Management of the Company does not have sufficient data to be
able to accurately predict the outcome of the studies at this time. A portion of
the proceeds of this Offering may be used to fund this study. Should this study
be successful, the Company intends to seek collaborative partners to assist in
further development and marketing of this product.
ALPHANON(R)
Alphanon, the Company's original product, was designed for the systemic
treatment of hemorrhoids. The drug was originally developed as a liquid
formulation for intra-navel transdermal application. A double blind placebo
controlled study conducted in France in the late 1980's in 220 patients
demonstrated that Alphanon was effective in the treatment of hemorrhoids and
hemorrhoidal bleeding. This study was not conducted in complete compliance with
Good Clinical Practices.
A transdermal patch, a more convenient formulation, has been developed with
ALZA Corporation, and an IND is on file with the FDA. The Company satisfactorily
completed a Phase I clinical study in
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December 1992 and is evaluating its alternatives which include continuing
development, co-development or divestiture. The Company has discontinued all
sales and marketing efforts as well as further research and development related
to Alphanon pending a decision regarding such alternatives.
OTHER PRODUCTS
Azaquinone Analogues. The development of the original azaquinone compound
was discontinued by the Company in 1994, however, numerous analogues were
synthesized by the Company as part of the development process. Initial in vitro
screening showed promising activity against Mycobacterium avium complex (MAC).
The Company plans to continue limited additional research on these analogues.
The Kuzell Institute in San Francisco, California, under a grant from the
National Institutes of Health, is currently conducting research into the
efficacy of azaquinone. Should the results of this testing show that an
azaquinone analogue has enough unique qualities to distinguish it from other
similar products, the Company plans to apply for a patent, and ultimately sell
the rights to this compound.
Phenantramine Analogue. Phenantramine analogue is a pre-clinical stage
antimalarial which has shown effectiveness against sensitive and resistant
strains of Plasmodium falciparum. It is currently being reviewed for possible
co-development by an unrelated third party. The Company is planning no
additional in-house research and development activity at this time with respect
to this compound.
PARTNERSHIP VENTURE
In March 1994 the Company formed a partnership, through Healthcare's
wholly-owned subsidiary, Belmac Hygiene, Inc., with a wholly-owned subsidiary of
Maximed Corporation, which is headquartered in New York City, and planned to
market, through this partnership, a range of hydrogel based feminine health care
products, including a contraceptive, an antiseptic, an antifungal and an
antibacterial. In December 1994, the Company commenced litigation against its
partner claiming interference in the management of the partnership and
misrepresentation under the Partnership Agreement. On January 12, 1996 the
Company's claims as well as the counterclaims of its partner were dismissed.
Pending resolution of this dispute, the partnership is not actively engaged in
the development of any products. The Company believes that while introduction of
the first product, a contraceptive, is possible in 1996, such introduction is
dependent upon a prompt and favorable resolution of the Company's dispute with
its partner which would include the receipt by the Company of the rights to such
products. See "Legal Proceedings."
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases, in the ordinary course of business, necessary raw
materials and supplies essential to the Company's operations from numerous
suppliers. There have been no availability problems or supply shortages nor are
any anticipated.
PATENTS, TRADEMARKS, LICENSES AND REGISTRATIONS
Although few of the products currently being sold by the Company are
protected by patents owned by the Company, the Company believes that patent and
trademark protection of the results of the Company's research and development
efforts will be an essential component to the future success of the Company.
Accordingly, where possible, patents and trademarks will be sought and obtained
in the United States and in all countries of principal market interest to the
Company.
Patents for Biolid were granted in the U.S. in June 1992 and in the
following European countries in January 1994: Austria, Belgium, Italy,
Liechtenstein, Netherlands, Sweden, Switzerland, U.K., Germany and France. A
patent for Biolid in Venezuela was granted in September 1995. A U.S. patent for
Phenantramine was granted in October 1993. Trademarks for Biolid are currently
registered in France,
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Ireland, Portugal, Sweden and the U.K. Alphanon trademarks are currently
registered in the U.S. and Australia.
In addition, Laboratorios Belmac owns 50 trademarks for pharmaceutical
products and one patent for enalapril (which expires in 2005) which were granted
by Spain's Bureau of Patents and Trademarks. In Spain, patents expire after 20
years and trademarks expire after 10 years, but can be renewed. All prescription
pharmaceutical products marketed by Laboratorios Belmac in Spain have been
registered with and approved by Spain's Ministry of Health. To register a
pharmaceutical with the Ministry requires the submission of a registration
dossier which includes all pre-clinical, clinical and manufacturing information.
The registration process generally takes approximately two years. There can be
no assurance that a competitor has not or will not submit additional
registrations for products substantially similar to those marketed by
Laboratorios Belmac.
COMPETITION
All of the Company's current and future products face competition both from
existing drugs and products and from new drugs and products being developed by
others. This competition potentially includes national and multi-national
pharmaceutical and health care companies of all sizes. Many of these other
pharmaceutical and health care concerns have greater financial resources,
technical staffs and manufacturing and marketing capabilities than the Company.
Acceptance by hospitals, physicians and patients is crucial to the success of a
pharmaceutical or health care product.
The Company competes primarily in France and Spain, which are large,
developed population centers in Europe with populations of approximately
58,000,000 and 39,000,000 people, respectively. In addition, since both
countries are members of the European Union, the Company expects to be able to
target the European Union's larger population of approximately 442,000,000 as
integration eliminates the barriers between countries.
Laboratorios Belmac competes with both large multinational companies and
local companies which produce most of the products Laboratorios Belmac
manufactures on the basis of service and its concentration on select product
lines. For example, there are currently 23 companies which market and sell
omeprazole, such as Schering-Plough, S.A. Similarly, 20 companies currently sell
enalapril, with Merck, Sharp & Dome de Espana, S.A. being the product leader.
Others of the products sold by Laboratorios Belmac, such as Onico-Fitex, are
more unusual and have fewer competitors. The contract manufacturing performed by
Laboratorios Belmac has a number of competitors, including Tadec Meiji Farma,
Bama Geve, ReigJofre, Aristegui, and Fournier, S.A.
Chimos, as a distributor and broker of fine chemicals, pharmaceutical
intermediates and biotechnology products, competes with numerous multinational
companies as well as companies in France, resulting in low product margins
despite high volume. Competition in the supply and distribution of
pharmaceutical intermediates is particularly strong from a large number of small
companies located in Italy, India, Pakistan and China. Certain large
multinational companies also compete in the distribution of fine chemicals
including Abbott Laboratories--Chemicals Division, The UpJohn Co. and Bayer A.G.
The biotechnology industry is currently less competitive as many of such
products are Orphan Drugs with low volumes.
CUSTOMERS
The incidence of certain infectious diseases which occur at various times in
different areas of the world affects the demand for the Company's antibiotic
products when they are marketed in each area. Orders for the Company's products
are generally filled on a current basis, and no order backlog existed at
September 30, 1995 or December 31, 1994. Sales of approximately $6,024,000 and
$8,000,000 to Pharmacie Centrale des Hopitaux accounted for approximately 26%
and 30%, of the Company's sales
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for the nine months ended September 30, 1995 and for the year ended December 31,
1994, respectively. The Company expects that the loss of this customer would
have a material short-term adverse effect on the Company's business. No material
portion of the Company's business is subject to renegotiation of profits or
termination of contracts at the election of any governmental authority.
RESEARCH AND DEVELOPMENT
In addition to various executive and administrative functions, the Tampa,
Florida headquarters of the Company serves as a site for limited research and
development activities. Research and development activities have also been
performed, under contract, by various universities and consulting research
laboratories. The Company has a research and development portfolio of four
pharmaceutical products, with a primary focus on anti-infectives. See
"--Products under Development." These products are protected by two patents and
one patent application in the United States. Patent and patent applications have
also been filed in other countries of marketing interest to the Company. INDs
are on file with the FDA for the macrolide antibiotic, Biolid, and the
transdermal anti-hemorrhoidal patch, Alphanon.
The Company spent $341,000 in the nine months ended September 30, 1995,
$759,000 in the year ended December 31, 1994, $1,555,000 in the year ended
December 31, 1993, $3,599,000 in the six months ended December 31, 1992, and
$5,168,000 in the year ended June 30, 1992 on research and development to
discover and develop new products and processes and to improve existing products
and processes. Expenditures were concentrated in the development of products for
the treatment of infectious diseases. These decreases are a result of a thorough
review of research and development activities with the establishment of
priorities based on both technical and commercial criteria. The Company intends
to continue to carefully manage such expenditures in view of its limited
resources. A portion of the proceeds of this Offering is intended to be used for
further research and development activities. See "Use of Proceeds."
Laboratorios Belmac is engaged in limited research of drug delivery systems
("DDS"), such as sustained release and time release formulations, through a
collaborative venture with a customer. Laboratorios Belmac plans to commence
clinical studies of the drug Cisapride, a motility product used for the
treatment of gastrointestinal disorders, in collaboration with another entity
and a study of the sachet formulation of Biolid in the next year.
REGULATION
The development, manufacture, sale, and distribution of the Company's
products are subject to comprehensive government regulation, and the general
trend is toward more stringent regulation. Government regulation, which includes
detailed inspection of and controls over research laboratory procedures,
clinical investigations, and manufacturing, marketing, and distribution
practices by various federal, state, and local agencies, substantially increases
the time, difficulty and cost incurred in obtaining and maintaining the approval
to market newly developed and existing products.
United States. The steps required before a pharmaceutical agent may be
marketed in the United States include (i) preclinical laboratory and animal
tests, (ii) the submission to the FDA of an IND, which must become effective
before human clinical trials may commence, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the drug, (iv) the
submission of New Drug Application ("NDA") to the FDA, and (v) the FDA approval
of the NDA prior to any commercial sale or shipment of the drug. In addition to
obtaining FDA approval for each product, each domestic drug manufacturing
establishment must be registered with the FDA. Domestic manufacturing
establishments are subject to biennial inspections by the FDA and must comply
with current GMPs for drugs. To supply products for use in the United States,
foreign manufacturing establishments must comply with GMPs and are subject to
periodic inspection by the FDA or by regulatory authorities in such countries
under reciprocal agreements with the FDA.
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Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, excretion and clinical pharmacology. Phase II
involves studies in a limited patient population to determine the efficacy of
the pharmaceutical for specific targeted indications, to determine dosage
tolerance and optimal dosage and to identify possible adverse side effects and
safety risks. Once a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
evaluate clinical efficacy further and to further test for safety within an
expanded patient population at multiple clinical study sites. The FDA reviews
both the clinical plans and the results of the trials and may discontinue the
trials at any time if there are significant safety issues.
The results of the preclinical and clinical trials are submitted to the FDA
in the form of a NDA for marketing approval. The approval process is affected by
a number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review process and may delay marketing approval. After FDA approval for the
initial indications, further clinical trials would be necessary to gain approval
for the use of the product for any additional indications. The FDA may also
require post-marketing testing to monitor for adverse effects, which can involve
significant expense.
Under the Orphan Drug Act, the FDA may designate a product or products as
having Orphan Drug status to treat a "rare disease or condition," which is a
disease or condition that affects populations of less than 200,000 individuals
in the United States or, if victims of a disease number more than 200,000, the
sponsor establishes that it does not realistically anticipate its product sales
will be sufficient to recover its costs. If a product is designated an Orphan
Drug, then the sponsor is entitled to recover its costs and the sponsor is
entitled to receive certain incentives to undertake the development and
marketing of the product, including limited tax credits and high-priority FDA
review of an NDA. In addition, the sponsor that obtains the first marketing
approval for a designated Orphan Drug for a given indication is eligible to
receive marketing exclusivity for a period of seven years.
Spain. As a manufacturer in Spain, which is a member of the European Union,
Laboratorios Belmac is subject to the regulations enacted by the European Union.
Prior to Spain's entry into the European Union in 1993, the pharmaceutical
regulations in Spain were less stringent and Laboratorios Belmac, along with all
Spanish companies, have had to modify their procedures to adapt to the new
regulations, which are nearly identical to the regulations promulgated by the
United States Food & Drug Administration discussed above. In general, these
regulations are consistent with the FDA and require a manufacturer of a proposed
pharmaceutical to show efficacy and safety. The development process in Spain
goes through the same phases (e.g. I, II, III) as in the United States to assure
their safety and efficacy. A dossier on each pharmaceutical is prepared which
takes approximately two years for review by the Ministry of Health. They then
can only be sold to the public with a prescription from a medical doctor.
As most of the pharmaceuticals Laboratorios Belmac produces are subject to
this regulatory process, its business can be materially affected by any change
in existing regulations. Currently, Laboratorios Belmac has submitted two
products for regulatory review by the Spanish Ministry of Health, cisapride and
diclofenac, which will be marketed once approved. In addition, Laboratorios
Belmac markets 14 products and has two products which have been approved and are
in pre-marketing stages.
France. Most of the activities of Chimos are not regulated by France's
Ministry of Health, since pharmaceuticals in France are regulated at the level
of the manufacturer, as they produce the products, and pharmacists, as they
distribute the products to the public. Chimos' distribution activities are not
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<PAGE>
regulated. Chimos has had one regulatory submission at the Ministry of Health
for Biolid. See "--Products under Development--Biolid."
General. Continuing studies of the utilization, safety, and efficacy of
health care products and their components are being conducted by industry,
government agencies, and others. Such studies, which employ increasingly
sophisticated methods and techniques, can call into question the utilization,
safety, and efficacy of previously marketed products and in some cases have
resulted, and may in the future result, in the discontinuance of such products
and give rise to claims for damages from persons who believe they have been
injured as a result of their use. The Company has product liability insurance
for such potential claims, however, no such claims have ever been asserted
against the Company.
The cost of human health care continues to be a subject of investigation and
action by governmental agencies, legislative bodies, and private organizations.
In the United States, most states have enacted generic substitution legislation
requiring or permitting a dispensing pharmacist to substitute a different
manufacturer's version of a drug for the one prescribed. Federal and state
governments continue their efforts to reduce costs of subsidized heath care
programs, including restrictions on amounts agencies will reimburse for the use
of products. Efforts to reduce health care costs are also being made in the
private sector. Health care providers have responded by instituting various cost
reduction and containment measures of their own. It is not possible to predict
the extent to which the Company or the health care industry in general might be
affected by the matters discussed above.
Many countries, directly or indirectly through reimbursement limitations,
control the selling price of certain health care products. Furthermore, many
developing countries limit the importation of raw materials and finished
products. In western Europe, efforts are under way by the European Union to
harmonize technical standards for many products, including drugs and medical
devices, and to make more uniform the requirements for marketing approval from
the various ministries of health.
Although the Company recently began marketing disposable linen products in
the United States, the majority of the Company's sales are in France and Spain.
International operations are subject to certain additional risks inherent in
conducting business outside the United States, including price and currency
exchange controls, changes in currency exchange rates, limitations on foreign
participation in local enterprise, expropriation, nationalization, and other
governmental action.
To the best of its knowledge, the Company is presently in substantial
compliance with all existing applicable environmental laws and does not
anticipate that such compliance will have a material effect on its future
capital expenditures, earnings or competitive position with respect to any of
its operations.
EMPLOYEES
The Company and its subsidiaries employ approximately 83 people, 9 of whom
are employed in the United States, 5 in France and 69 in Spain as of January
30, 1996. Of such employees, approximately 29 are principally engaged in
manufacturing activities, 34 in sales and marketing, 2 in research and
development and 18 in management and administration. In general, the Company
considers its relations with its employees to be good.
FACILITIES
UNITED STATES
The Company's corporate headquarters are located in Tampa, Florida where the
Company leases approximately 14,000 square feet of office space, which leases
expire in 1998.
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SPAIN
Manufacturing is performed at the Company's facilities in Zaragoza, Spain.
These facilities have been renovated recently to comply with the requirements
for good manufacturing practices (GMPs). The facilities, which are owned by the
Company, consist of approximately 45,000 square feet located in a prime
industrial park and seated on sufficient acreage that would allow for future
expansion. The manufacturing facility is capable of producing tablets, capsules,
suppositories, creams, ointments, lotions, liquids and sachets, as well as
microgranulated and microencapsulated products. The facility also includes
analytical chemistry, quality control and quality assurance laboratories. The
GMPs certification allows the Company to undertake contract manufacturing for a
number of international pharmaceutical companies either engaged in or
contemplating emergence into the Spanish market. The Company's administrative
offices in Spain are located in Madrid in approximately 3,000 square feet of
newly renovated, leased offices which leases expire in 1998.
FRANCE
Chimos is located in Paris, France in leased office space of approximately
2,000 square feet which leases expire in 1998. Manufacturing is contracted out
to SPNE, a semiprivate/government organization, outside of Paris.
LEGAL PROCEEDINGS
Belmac Hygiene, Inc. ("Hygiene"), a subsidiary of the Company, filed an
action on December 9, 1994 in the United States District Court for the Southern
District of New York against Medstar, Inc. ("Medstar"), Maximed, Inc.
("Maximed") and Robert S. Cohen. The defendants are Hygiene's partners (or such
partner's control persons) in the Company's partnership with Maximed (the
"Partnership"), which was formed for the development and ultimate sale of
Maximed's intra-vaginal controlled release products. The action sought (i) to
enjoin the defendants from interfering with the management of the Partnership by
Hygiene's representatives, and (ii) to recover damages as a result of
defendants' misrepresentations and breach of warranty in the Partnership
agreement. The defendants filed a counterclaim against Hygiene. Medstar also
filed a separate action on May 4, 1995 in the United States District Court for
the Southern District of New York against the Company alleging that Hygiene
failed to fund the Partnership and seeking $10,000,000 from the Company pursuant
to its guaranty of Hygiene's obligations. The issues were tried, without a jury,
on August 21 through 23, 1995. Thereafter, post-trial briefs and proposed
findings of fact and conclusions of law were submitted, and argument was heard
on October 25, 1995. On January 12, 1996, the Court rendered its decision
dismissing all claims and counter-claims asserted by the parties. The Company is
assessing its options as to a possible appeal to the decision.
Michael M. Harshbarger, a former member of the Company's Board of Directors
and its former President and Chief Executive Officer, filed a suit against the
Company in November 1993 in the Circuit Court of the Thirteenth Judicial
Circuit, State of Florida, Hillsborough County Civil Division alleging wrongful
termination. The plaintiff is seeking monetary damages in excess of $1,400,000.
The Company views his claim as meritless and intends to vigorously oppose it.
The Company has filed a counterclaim against Harshbarger for wrongful conversion
and civil theft, fraud and deceit, and breach of contract, seeking the return of
corporate assets removed by Harshbarger and for restitution related to expenses
of a personal nature that he charged to the Company's accounts. The Company is
currently amending its counterclaim to include breach of fiduciary duty. The
Company is seeking damages from Harshbarger relating to its counterclaim in
excess of $1,000,000.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGERS
The directors, executive officers and key managers of the Company are as
follows:
<TABLE><CAPTION>
CLASS
POSITIONS WITH OF
NAME AGE THE COMPANY DIRECTOR*
- -------------------------------------- --- -------------------------------------- ---------
<S> <C> <C> <C>
James R. Murphy....................... 45 Chairman, President, Chief Executive
Officer and Director III
Robert M. Stote, M.D.................. 56 Senior Vice President, Chief Science
Officer and Director III
Michael D. Price...................... 38 Vice President, Chief Financial
Officer, Treasurer, Secretary and
Director II
Randolph W. Arnegger.................. 51 Director II
Charles L. Bolling.................... 72 Director II
Doris E. Wardell...................... 56 Director I
Denis Nicolas......................... 75 President of Chimos
Clemente Gonzalez Azpeitia............ 55 General Manager of Laboratorios Belmac
Jose M. Esteve Serrano................ 59 Controller of Laboratorios Belmac
</TABLE>
Set forth below is a biographical description of each executive officer,
director and key employee of the Company:
JAMES R. MURPHY became President and Chief Operating Officer of the Company
on September 7, 1994 and was named Chief Executive Officer effective January 1,
1995 and became Chairman of the Board on June 9, 1995. Prior to rejoining the
Company, Mr. Murphy served as Vice President of Business Development at
MacroChem Corporation, a publicly owned pharmaceutical company, from March 1993
through September 1994. From September 1992 until March 1993, Mr. Murphy served
as a Consultant to the pharmaceutical industry with his primary efforts directed
toward product licensing. Prior thereto, Mr. Murphy served as Director-Worldwide
Business Development and Strategic Planning of the Company from December 1991 to
September 1992. Mr. Murphy previously spent 14 years in basic pharmaceutical
research and product development with SmithKline Corporation and in business
development with contract research laboratories. Mr. Murphy received a B.A. in
Biology from Millersville University. He has been a Director of the Company
since 1993.
ROBERT M. STOTE, M.D. became Senior Vice President and Chief Science Officer
of the Company in March 1992. Prior to joining Bentley Pharmaceuticals, Inc.,
Dr. Stote was employed for 20 years by SmithKline Beecham Corporation serving as
Senior Vice President and Medical Director, Worldwide Medical Affairs from 1989
to 1992, and Vice President-Clinical Pharmacology-Worldwide from 1987 to 1989.
From 1984 to 1987 Dr. Stote was Vice President-Phase I Clinical Research, North
America. Dr. Stote was Chief of Nephrology at Presbyterian Medical Center of
Philadelphia from 1972 to 1989 and was Clinical Professor of Medicine at the
University of Pennsylvania. Dr. Stote received a B.S. in Pharmacy from the
Albany College of Pharmacy, an M.D. from Albany Medical College and is Board
Certified in Internal Medicine and Nephrology. He was a Fellow in Nephrology and
Internal Medicine at the Mayo Clinic and is currently a Fellow of the American
College of Physicians. He has been a Director of the Company since 1993.
MICHAEL D. PRICE became Chief Financial Officer, Vice President/Treasurer
and Secretary of the Company in October 1993, April 1993 and November 1992,
respectively. He has served the Company
- ------------
* The Company's Amended and Restated Articles of Incorporation and By-laws
provide for a classified Board of Directors. The Board is divided into three
classes designated Class I, Class II and Class III, with terms expiring at the
1997, 1998 and 1996 annual meeting of stockholders, respectively.
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in other capacities since March 1992. Prior to joining the Company, Mr. Price
was employed as a financial and management consultant with Carr Financial Group
in Tampa, Florida from March 1990 to March 1992. Prior thereto, he was employed
as Vice President of Finance with Premiere Group, Inc., a real estate developer
in Tampa, Florida from June 1988 to February 1990. Prior thereto, Mr. Price was
employed by Price Waterhouse in Tampa, Florida from January 1982 to June 1988
where his last position with that firm was as an Audit Manager. Mr. Price
received a B.S. in Business Administration with a concentration in Accounting
from Auburn University and an M.B.A. from Florida State University. Mr. Price is
a Certified Public Accountant in the State of Florida. He has been a Director of
the Company since January 1995.
RANDOLPH W. ARNEGGER is the President of Vantage Point Marketing, a
developer and producer of continuing medical education programs, medically
oriented direct mail programs, and medical convention programs, a position he
has held since 1986. Prior thereto, Mr. Arnegger served as Vice President of
Account Services for Curtin & Pease/Peneco, a national direct mail firm, and
Vice President for Pro Clinica, a medical advertising agency in New York. He has
been a Director of the Company since 1994.
CHARLES L. BOLLING served from 1968 to 1973 as Vice President of Product
Management and Promotion (U.S.), from 1973 to 1977 as Vice President of
Commercial Development and from 1977 to 1986 as Director of Business Development
(International) at Smith Kline & French Laboratories. Mr. Bolling has been
retired since 1986. He has been a Director of the Company since 1991.
DORIS E. WARDELL has been Assistant Professor/Clinical Services Coordinator
at the University of Utah College of Nursing since April 1994, and was
previously involved in Integrated Care special projects at Allegheny General
Hospital, serving as Acting Vice President of Nursing at Allegheny General
Hospital from September 1992 to June 1994 and Assistant Vice President of
Nursing from December 1989 to September 1992. Prior thereto, Mrs. Wardell served
as Vice President of Administration at Beaver Medical Center from April 1987 to
November 1989. From March 1980 to April 1987, she was employed by Chestnut Hill
Hospital as Vice President of Nursing and Director of Nursing Services from
August 1978 to March 1980. She has been a Director of the Company since 1994.
DENIS NICOLAS has been the President of Chimos since he was one of its
founders in 1964. Mr. Nicolas' expertise is in the sourcing of fine chemicals
and pharmaceutical raw materials from manufacturers around the world.
CLEMENTE GONZALEZ AZPEITIA has been the General Manager of Laboratorios
Belmac since 1993. From 1987 through 1992, Mr. Gonzalez was a business director
and then a sales director of CEPA, a pharmaceutical company in Spain. From 1969
to 1987, he was employed by the Berenguer-Beneyto Laboratory, first as head of
the research department and later as director of medicine and director of
marketing. Mr. Gonzalez received a medical degree from the University of Madrid.
JOSE M. ESTEVE SERRANO has been the Controller of Laboratorios Belmac since
April 1995. From 1986 through that time he was the financial director of Auto
Suture Espana S.A., the subsidiary in Spain of U.S. Surgical Corporation. From
1983 through 1986, Mr. Esteve was the Controller of Det Norske Veritas Spain, a
shipping services group in Madrid with headquarters in Norway. Prior thereto he
held a number of financial positions in businesses and banks in New York and
Madrid. Mr. Esteve has M.A. degrees in Law and in Economics from the University
of Madrid and an M.B.A. from New York University.
The Company is currently in arrears on two annual dividend payments on its
Series A Preferred Stock and therefore, the holders of the Series A Preferred
Stock have the right, as a class, to elect two additional members of the
Company's Board of Directors. As of the date hereof, the holders have not
exercised such right.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee recommends to the Board of Directors the appointment of
independent accountants to audit the Company's consolidated financial
statements, reviews the Company's internal control procedures and advises the
Company on tax and other matters connected with the growth of the Company. The
Audit Committee also reviews with management the annual audit and other work
performed by the independent accountants. The Company's Compensation Committee
administers the Company's 1991 Stock Option Plan and reviews and recommends to
the Board of Directors the nature and amount of compensation to be paid to the
Company's executive officers. The Audit Committee consists of Messrs. Arnegger,
Bolling and Price. The Compensation Committee consists of Mrs. Wardell and
Messrs. Arnegger and Bolling.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation paid or accrued by the
Company to or for the account of the current Chief Executive Officer and each
person who served as Chief Executive Officer during 1994, and the executive
officers at December 31, 1994 whose total cash compensation for the year ended
December 31, 1994 exceeded $100,000.
<TABLE><CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS
---------------------- PAYOUTS
SECURITIES -------
ANNUAL COMPENSATION OTHER RESTRICTED UNDERLYING LTIP ALL
-------------------------------- ANNUAL STOCK OPTIONS/ PAYOUTS OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) COMP($) AWARDS($) SARS(#) ($) COMP(2)
- -------------------------------------------- ----------- --------- -------- -------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James R. Murphy(3).......................... Y/E12/31/94 $55,903 $-- $-- $685 -- $-- $12,000
Chairman, President and Chief Executive
Officer
Robert M. Stote, M.D. (4)................... Y/E12/31/94 200,000 -- 27,000 -- -- -- --
Senior Vice President and Chief Science Y/E12/31/93 211,538 -- -- 2,375 20,000 --
Officer Six months --
ended -- -- -- --
12/31/92 100,000 -- -- 15,000 --
Y/E 6/30/92 66,667
Michael D. Price(5)......................... Y/E12/31/94 100,000 -- -- -- -- -- --
Vice President, Chief Financial Officer, Y/E12/31/93 90,525 -- -- 2,375 9,000 -- --
Treasurer and Secretary
Ranald Stewart, Jr.(6)...................... Y/E12/31/94 -- -- 162,000 157,500 20,000 -- --
Former Chairman of the Board, Former Chief Y/E12/31/93 -- -- 106,200 4,500 20,000 -- --
Executive Officer and Director
Donald E. Boultbee(7)....................... Y/E12/31/94 166,667 -- -- 333 -- -- --
Former President and Former Chief Executive Y/E12/31/93 83,333 -- -- -- 10,000 -- --
Officer
</TABLE>
- ------------
(1) The Company changed its fiscal year from June 30 to December 31 commencing
with the six month transition period ended December 31, 1992.
(2) The value of perquisites provided to the named executive officers did not
exceed 10% of total compensation in any case.
(3) Mr. Murphy, Chairman, President and Chief Executive Officer, has been
employed by the Company since September 1994. Mr. Murphy's annual salary is
currently $225,000. During the year ended December 31, 1994, Mr. Murphy was
reimbursed $12,000 for costs related to his relocation upon accepting
employment with the Company. During the nine months ended September 30,
1995, Mr. Murphy was awarded stock options to purchase 50,000 shares of
Common Stock at $3.75 per share, 50% of which vest on June 12, 1996 and the
balance of which vest on June 12, 1997. During the year ended December 31,
1994, Mr. Murphy was awarded stock options to purchase 2,000 shares of
Common Stock at $11.25 per share upon his election to the Board of
(Footnotes continued on following page)
41
<PAGE>
(Footnotes continued from preceding page)
Directors on June 9, 1994. Of these options, 1,000 options vested on June 9,
1995 and the remaining 1,000 options are scheduled to vest on June 9, 1996.
Compensation for services rendered in other capacities prior to becoming an
executive officer of the Company is excluded. Prior to becoming an executive
officer, in his capacity as an outside Director, Mr. Murphy was awarded 137
shares of Common Stock for services rendered in 1994 as a Committee Member
of the Board of Directors.
(4) Dr. Stote, Senior Vice President and Chief Science Officer, has been
employed by the Company since March 1992. Dr. Stote's annual salary is
currently $215,000. During the nine months ended September 30, 1995, Dr.
Stote was awarded stock options to purchase 37,500 shares of Common Stock at
$3.75 per share, 50% of which vest on June 12, 1996 and the balance of which
vest on June 12, 1997. During the year ended December 31, 1993, Dr. Stote
was awarded stock options to purchase 20,000 shares of Common Stock at
$20.00 per share, all of which are fully vested. Also during the year ended
December 31, 1993, Dr. Stote was awarded 100 shares of the Company's
restricted Common Stock. During the year ended June 30, 1992, Dr. Stote was
awarded stock options to purchase 15,000 shares of Common Stock at $142.50
per share, as to which 11,250 have vested and 3,750 are scheduled to vest on
March 2, 1996. Dr. Stote was reimbursed $22,340 during the six months ended
December 31, 1992 and $14,854 during the year ended December 31, 1993 for
costs related to his relocation upon accepting employment with the Company.
(5) Mr. Price, Vice President, Chief Financial Officer, Treasurer, and Secretary
has been employed by the Company since March 1992. Mr. Price's annual salary
is currently $115,000. During the nine months ended September 30, 1995, Mr.
Price was awarded stock options to purchase 22,500 shares of Common Stock at
$3.75 per share, 50% of which vest on June 12, 1996 and the balance of which
vest on June 12, 1997. During the year ended December 31, 1993, Mr. Price
was awarded stock options to purchase 9,000 shares of Common Stock at $20.00
per share, all of which are fully vested. Also during the year ended
December 31, 1993, Mr. Price was awarded 100 shares of the Company's
restricted Common Stock. During the year ended June 30, 1992, Mr. Price was
awarded stock options to purchase 1,000 shares of Common Stock at $145.00
per share, all of which are fully vested. Compensation for services rendered
in other capacities prior to becoming an executive officer of the Company is
excluded.
(6) Mr. Stewart was a Director of the Company from 1986 to June 1995 and served
as Chairman of the Board from February 26, 1993 until December 31, 1994. He
served in the capacity of interim Chief Executive Officer during the period
July 15, 1993 through September 1, 1993 (the date Mr. Boultbee was engaged
as President and Chief Executive Officer) and from September 1, 1994 (the
date of Mr. Boultbee's resignation) through December 31, 1994 (the date that
Mr. Murphy was named Chief Executive Officer). Mr. Stewart received a
Chairman's fee of $162,000 in 1994 and also received 6,000 shares of Common
Stock as compensation for services rendered in 1993. Mr. Stewart was also
awarded an additional 6,000 shares of Common Stock in December 1995 as
compensation for serving as Chairman in 1994. Mr. Stewart was also granted
stock options in 1994 to purchase 20,000 shares of Common Stock at $5.63 per
share. Mr. Stewart received a Chairman's fee of $106,200 in 1993. During the
year ended December 31, 1993, Mr. Stewart was granted stock options to
purchase 20,000 shares of Common Stock at $20.00 per share. In 1994, Mr.
Stewart also received a grant of 200 shares of Common Stock, as compensation
for serving on a Committee of the Company's Board of Directors. Outside
Director's fees prior to becoming an executive officer of the Company are
excluded.
(7) Mr. Boultbee served as President and Chief Executive Officer of the Company
from September 1, 1993 through August 31, 1994 at an annual salary of
$250,000 and as a Director from April 1994 through December 31, 1994. Mr.
Boultbee was granted stock options in 1993 to purchase 10,000 shares of
Common Stock at $19.38 per share which options expired unexercised. Mr.
Boultbee was awarded 67 shares of Common Stock for services rendered in 1994
as a Committee Member of the Board of Directors.
42
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the details of options granted to the
individuals listed in the Summary Compensation table during the year ended
December 31, 1994. No stock appreciation rights have been granted to date.
OPTION/SAR GRANTS IN THE YEAR ENDED DECEMBER 31, 1994
<TABLE><CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK
----------------------------------- PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS/SARS EXERCISE FOR OPTION
UNDERLYING GRANTED TO OR BASE TERMS
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------------- ---------- ------------ --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James R. Murphy(1)......................... 2,000 6.0% $ 11.25 06/09/04 -- $2,258
Robert M. Stote, M.D....................... -- -- -- -- -- --
Michael D. Price........................... -- -- -- -- -- --
Ranald Stewart, Jr.(2)..................... 20,000 59.5% 5.63 12/31/94 -- --
3,000 9.0% 11.25 06/09/04 -- 3,387
Donald E. Boultbee......................... -- -- -- -- -- --
</TABLE>
- ------------
(1) Mr. Murphy was granted ten-year options in 1994 to purchase 2,000 shares of
Common Stock at $11.25 per share under the 1991 Stock Option Plan (see Stock
Option Plans ), upon his election as an outside Director in June 1994 (prior
to becoming an executive officer). The options were granted at their fair
market value ($11.25) on the date of grant. Of these options, 1,000 options
vested on June 9, 1995 and the remaining 1,000 options are scheduled to vest
on June 9, 1996.
(2) Mr. Stewart was granted ten-year options in 1994 to purchase 20,000 shares
of Common Stock at $5.63 per share under the 1991 Stock Option Plan (see
"Stock Option Plans"). The options were granted at their fair market value
($5.63) on the date of grant. Mr. Stewart was also granted ten-year options
to purchase 3,000 shares of Common Stock at $11.25 per share under the 1991
Stock Option Plan upon his election as an outside Director in June 1994
(prior to becoming an executive officer). The options were granted at their
fair market value ($11.25) on the date of grant and expired unexercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning the number of
shares of Common Stock acquired upon the exercise of stock options during the
year ended December 31, 1994 by, and the number and value at December 31, 1994
of shares of Common Stock subject to unexercised options held by, the
individuals listed in the Summary Compensation Table.
<TABLE><CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (# SHARES) FY-END ($)
SHARES ----------------- -----------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
- ----------------------------------- --------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
James R. Murphy.................... -- -- 1,000 / 2,000 -0- / -0-
Robert M. Stote, M.D............... -- -- 21,250 / 13,750 -0- / -0-
Michael D. Price................... -- -- 5,500 / 4,500 -0- / -0-
Ranald Stewart, Jr................. -- -- 5,200 / 2,000 -0- / -0-
Donald E. Boultbee................. -- -- -0- / -0- -0- / -0-
</TABLE>
43
<PAGE>
- ------------
(1) Represents the closing price of the Company's Common Stock on the American
Stock Exchange on December 30, 1994 minus the respective exercise prices.
REMUNERATION OF CHAIRMAN OF THE BOARD AND NON-EMPLOYEE DIRECTORS
The Company pays non-employee Director fees equal to $12,000 per year for
attendance at meetings and reimburses expenses incurred in attending meetings.
Total non-employee Director fee payments during the year ended December 31, 1994
were $44,000 and expenses incurred by non-employee Directors in attending
meetings which were reimbursed by the Company totaled $5,060. Total Chairman's
fee paid to or accrued for the benefit of Ranald Stewart, Jr., former Chairman
of the Board and Chief Executive Officer of the Company during the year ended
December 31, 1994 was $162,000. Mr. Stewart, in his capacity as Chairman, was
also issued 6,000 shares of Common Stock in 1994, with a fair market value of
$127,500 for services provided in 1993 and has been awarded an additional 6,000
shares of Common Stock in 1995 with a fair market value of $33,750 for services
provided in 1994. During 1994, Mr. Stewart also received options to purchase
20,000 shares of Common Stock. In addition, options to purchase 1,000 shares of
Common Stock are automatically granted to each non-employee Director upon his or
her election or reelection to the Board for each year of the term for which he
or she is elected. The options vest as to 1,000 shares at the end of each year
of such term. During the year ended December 31, 1994, the Company granted to
the individuals who served as non-employee Directors during such fiscal year,
options to purchase an aggregate of 8,800 shares of Common Stock in recognition
of such services. The options which were granted pursuant to the 1991 Stock
Option Plan, are exercisable for ten years (commencing one year from the date of
the grant) at exercise prices ranging from $6.88 to $11.25 per share
(representing the fair market value of the Common Stock on the date of grant).
Non-employee Directors who serve on committees of the Company's Board of
Directors are awarded 200 shares of Common Stock annually. During the fiscal
year ended December 31, 1994, no such shares of Common Stock were granted to
non-employee Directors; however, 817 shares were granted in 1995 to such
individuals for services rendered during 1994.
EMPLOYMENT AGREEMENTS
Mr. James R. Murphy, Chairman of the Board, President and Chief Executive
Officer, entered into an employment agreement with the Company dated as of June
12, 1995 providing for an initial term which expires on June 12, 1998. Under the
terms of this agreement, Mr. Murphy's annual base salary is $225,000. The
agreement with Mr. Murphy also provides for bonuses at the recommendation and
discretion of the Compensation Committee of the Company's Board of Directors and
a severance payment equal to two years salary and immediate vesting of all
outstanding stock options upon termination following a change in control of the
Company. Pursuant to the agreement, if terminated without cause, Mr. Murphy will
be entitled to a severance payment equal to one year salary and immediate
vesting of all outstanding stock options.
Dr. Robert M. Stote, Senior Vice President and Chief Science Officer,
entered into an employment agreement with the Company dated as of June 12, 1995
providing for an initial term which expires on June 12, 1998. Under the terms of
this agreement, Dr. Stote's annual base salary is $215,000. The agreement with
Dr. Stote also provides for bonuses at the recommendation and discretion of the
Compensation Committee of the Company's Board of Directors and a severance
payment equal to two years salary and immediate vesting of all outstanding stock
options upon termination following a change in control of the Company. Pursuant
to the agreement, if terminated without cause, Dr. Stote will be entitled to a
severance payment equal to one year salary and immediate vesting of all
outstanding stock options.
44
<PAGE>
Mr. Michael D. Price, Vice President, Chief Financial Officer, Treasurer and
Secretary, entered into an employment agreement with the Company dated as of
June 12, 1995 providing for an initial term which expires on June 12, 1998.
Under the terms of this agreement, Mr. Price's annual base salary is $115,000.
The agreement with Mr. Price also provides for bonuses at the recommendation and
discretion of the Compensation Committee of the Company's Board of Directors and
a severance payment equal to two years salary and immediate vesting of all
outstanding stock options upon termination following a change in control of the
Company. Pursuant to the agreement, if terminated without cause, Mr. Price will
be entitled to a severance payment equal to one year salary and immediate
vesting of all outstanding stock options.
STOCK OPTION PLANS
The Company's Incentive Stock Option Plan and Non-Qualified Stock Option
Plan (the "Plans") were terminated by the Board of Directors pursuant to their
provisions on September 30, 1991. Although outstanding options were not affected
by such termination, options may no longer be granted thereunder. Options
granted under the Incentive Stock Option Plan to purchase shares of Common Stock
are intended to qualify as "incentive stock options" under Section 422A (now
Section 422) of the Internal Revenue Code of 1986, as amended (the "Code").
Participation in the Plans was limited to employees and Directors of the Company
selected by the Compensation Committee, which determined the number of shares
subject to any option, the option exercise price per share which could not be
less than 98% (in the case of the Non-Qualified Stock Option Plan) or 100% (in
the case of the Incentive Stock Option Plan) of the fair market value of the
Common Stock on the date of grant and the time period (which could not exceed
ten years from the date of grant) within which, and the conditions under which,
all or portions of each option could be exercised.
1991 STOCK OPTION PLAN
The Company's 1991 Stock Option Plan (the "1991 Plan") permits the grant of
up to an aggregate of 240,000 shares of Common Stock to promote the interests of
the Company in attracting and retaining employees (including officers) and
experienced and knowledgeable non-employee Directors for the Company and its
subsidiaries, by enabling them to acquire or increase a proprietary interest in
the Company, to benefit from appreciation in the value of the Company's Common
Stock and, thus, participate in the long-term growth of the Company. The 1991
Plan replaced the Plans (see "--Stock Option Plans") which terminated as to
future grants on September 30, 1991.
The 1991 Plan is administered by a committee of the Board of Directors of
not less than two Directors, each of whom must be "disinterested persons" within
the meaning of regulations promulgated by the Commission. The Board of Directors
has designated the Compensation Committee of the Board consisting of Mrs.
Wardell and Messrs. Arnegger and Bolling to administer the 1991 Plan. The
Compensation Committee has the authority under the 1991 Plan to determine the
terms of options granted under the 1991 Plan, including, among other things, the
individuals who shall receive options, the times when they shall receive them,
whether an incentive stock option and/or non-qualified option shall be granted,
the number of shares to be subject to each option, and the date or dates each
option shall become exercisable.
No options may be granted under the 1991 Plan after September 30, 2001. The
Board may amend, suspend or terminate the 1991 Plan or any portion thereof at
any time and from time to time in such respects as it deems necessary or
advisable (including without limitation to conform with applicable law or the
regulations or rulings thereunder), but may not without the approval of the
Company's shareholders make any alteration or amendment thereof which would (i)
change the class of those eligible to receive options, (ii) increase the maximum
number of shares for which options may be granted (except for anti-dilution
adjustments) or (iii) materially increase the benefits to participants under the
1991 Plan.
45
<PAGE>
During the fiscal year ended December 31, 1994, options to purchase 2,000,
23,000, and 28,600 shares of Common Stock, were granted to Mr. Murphy, Mr.
Stewart and all Executive Officers as a group, respectively. The options were
granted at prices ranging from $5.63 to $11.25, representing the fair market
value of the Common Stock on the dates of grant. The average exercise prices of
the options granted to Mr. Murphy, Mr. Stewart and all Executive Officers as a
group were $11.25, $6.38, and $7.20, respectively. Expiration dates of these
options range from June 9, 2004 to October 31, 2005.
Also during the fiscal year ended December 31, 1994, options to purchase
3,600 and 5,000 shares of Common Stock were granted to non-employee Directors of
the Company and to employees of the Company who are not executive officers,
respectively. Options granted to non-employee Directors were granted at prices
ranging from $6.88 to $11.25 per share, representing the fair market value on
the date of grant and expiration dates ranging from June 9, 2004 to October 31,
2005. Options granted to employees of the Company who are not Executive Officers
were granted at $5.00 per share, representing the fair market value of the
Common Stock on the date of grant. The expiration date of these options is
December 12, 2004.
As of December 1, 1995, although no options had been exercised, options to
purchase 194,100 shares held by 11 optionees were outstanding at a weighted
average per share exercise price of $28.39 and 45,900 shares are available for
future grants under the 1991 Plan.
401(K) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan (the "401(k) Plan") under
which eligible employees may contribute, on a pre-tax basis, between 1% to 15%
of their respective total annual income from the Company, subject to maximum
aggregate annual contribution imposed by the Internal Revenue Code of 1986, as
amended. All full-time employees who have worked for the Company for at least
six months are eligible to participate in the 401(k) Plan. All employee
contributions are allocated to the employee's individual account and are
invested in various investment options as directed by the employee. Cash
contributions are fully vested and nonforfeitable. The Company has elected to
make its first matching contributions to the 401(k) Plan for the 1995 fiscal
year in the amount of $19,000.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of December 31, 1995 as to (i)
each person (including any "group" as that term is used in Section 13(d)(3) of
the 1934 Act) who is known to the Company to be the beneficial owner of more
than five percent of the Company's Common Stock, its only class of voting
securities; (ii) each director; (iii) each executive officer named in the
Summary Compensation Table and (iv) the shares of the Company's Common Stock
beneficially owned by all current executive officers and directors of the
Company as a group.
<TABLE><CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS SHARES OWNED
(WHERE APPLICABLE) BEFORE PERCENTAGE
OF BENEFICIAL OWNER OFFERING(1) OF CLASS
- ------------------------------------------------------------------ ---------------- ----------
<S> <C> <C>
Shulmit Pritziker................................................. 453,020(2) 13.01%
50 Broad Street
New York, New York 10004
Ilya Margulis..................................................... 427,300(3) 12.53%
50 Broad Street
New York, New York 10004
Light Associates.................................................. 200,594(4) 6.02%
1031 Rosewood Way
Alameda, California 94501
Susquehanna Capital Group......................................... 177,843(5) 5.12%
42 Read's Way
New Castle, Delaware 19720
James R. Murphy................................................... 2,587(6) *
Chairman of the Board,
President, Chief Executive
Officer and Director
Robert M. Stote, M.D.............................................. 35,300(7) 1.05%
Senior Vice President, Chief
Science Officer and Director
Michael D. Price.................................................. 10,403(8) *
Vice President, Chief
Financial Officer, Treasurer,
Secretary and Director
Randolph W. Arnegger.............................................. 1,013(9) *
Director
Charles L. Bolling................................................ 4,800(10) *
Director
Doris E. Wardell.................................................. 1,112(11) *
Director
Ranald Stewart, Jr................................................ 59,175(12) 1.75%
Former Chairman of the Board, Former
Chief Executive Officer, and Former Director
Donald E. Boultbee................................................ 66 *
Former President, Former Chief
Executive Officer and Former Director
All current executive officers and directors as a group (6 51,615(13) 1.53%
persons)..........................................................
</TABLE>
- ------------
* Less than one percent.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options, warrants and convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by such person
(but not those held
(Footnotes continued on following page)
47
<PAGE>
(Footnotes continued from preceding page)
by any other person) and which are exercisable within 60 days of this
Prospectus have been exercised. Except as otherwise indicated, all shares
are beneficially owned, and sole investment and voting power is held, by
the persons named.
(2) Includes 150,904 shares of Common Stock which Shulmit Pritziker has the
right to acquire pursuant to presently exercisable stock purchase warrants.
(3) Includes 79,100 shares which Ilya Margulis has the right to acquire
pursuant to presently exercisable stock purchase warrants.
(4) As reported in the Light Associates Schedule 13-D (Amendment No. 5) dated
December 15, 1995.
(5) Includes 143,343 shares which Susquehanna Capital Group has the right to
acquire pursuant to presently exercisable stock purchase warrants and
34,500 shares of Common Stock which the Company believes continue to be
beneficially owned by Susquehanna Capital Group.
(6) Includes 2,000 shares of Common Stock which Mr. Murphy has the right to
acquire pursuant to presently exercisable stock options.
(7) Includes 35,000 shares of Common Stock which Dr. Stote has the right to
acquire pursuant to presently exercisable stock options.
(8) Includes 101 shares of Common Stock owned by Mr. Price's sons as to which
Mr. Price disclaims beneficial ownership. Also includes 10,000 shares of
Common Stock which Mr. Price has the right to acquire pursuant to presently
exercisable stock options.
(9) Includes 600 shares of Common Stock which Mr. Arnegger has the right to
acquire pursuant to presently exercisable stock options.
(10) Includes 100 shares of Common Stock owned by Mr. Bolling's wife as to which
Mr. Bolling disclaims beneficial ownership. Includes 4,000 shares of Common
Stock which Mr. Bolling has the right to acquire pursuant to presently
exercisable stock options.
(11) Includes 1,000 shares of Common Stock which Mrs. Wardell has the right to
acquire pursuant to presently exercisable stock options.
(12) Includes 4,775 shares of Common Stock owned by Mr. Stewart's wife, as to
which Mr. Stewart disclaims beneficial ownership. Also includes 42,200
shares of Common Stock which Mr. Stewart has the right to acquire pursuant
to presently exercisable stock options.
(13) Includes 50,600 shares of Common Stock which certain of such Executive
Officers and Directors have the right to acquire pursuant to presently
exercisable stock options.
48
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.02 per share. The holders of Common Stock are entitled to cast one vote
for each share held at all stockholder meetings for all purposes, including the
election of directors, and to share equally on a per share basis in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation or dissolution, each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to stockholders, after the payment of all
debts and other liabilities and any payments due to holders of shares of
Preferred Stock.
No holder of Common Stock has a preemptive or preferential right to purchase
or subscribe for any unissued or additional authorized stock or any securities
of the Company convertible into shares of its Common Stock.
The Common Stock does not have cumulative voting rights which means that the
holders of more than 50% of the Common Stock voting for the election of
directors can elect 100% of the directors of the Company if they choose to do
so. The By-Laws of the Company require that a majority of the issued and
outstanding shares of the Company be represented to constitute a quorum and
transact business at a stockholders' meeting.
In accordance with the Amended and Restated Articles of Incorporation of the
Company, as amended, the Board of Directors of the Company is divided into three
classes, with the classes as nearly equal in number as possible. The term of
each class of directors is three years, with the term of one class expiring each
year in rotation. The consent of the holders of 66 2/3% of all outstanding
shares is required to fill a vacancy on the Board of Directors created by death
or resignation or to remove a director, and then only for cause. These
provisions are designed to provide continuity of directors. In addition, a vote
of 66 2/3% of all outstanding shares is required to approve a merger, a sale of
substantially all of the Company's assets and similar transactions, or to amend
any provision of the Amended and Restated Articles of Incorporation relating to
officers and directors.
The Company effected a one-for-ten reverse stock split on July 25, 1995
which decreased the number of authorized shares of Common Stock from 50,000,000
to 5,000,000 without any change in the par value.
The stockholders of the Company approved a proposal to amend the Company's
Articles of Incorporation to increase the number of authorized shares of Common
Stock from 5,000,000 to 20,000,000 at a Special Meeting of Stockholders held on
December 8, 1995. An amendment to the Company's Articles of Incorporation
increasing its authorized shares was filed with the Department of State of the
State of Florida and became effective on January 1, 1996. The additional
15,000,000 shares are part of the existing class of Common Stock and have the
same rights and privileges as the shares of Common Stock presently issued and
outstanding.
UNITS
The Debentures and the Redeemable Warrants offered hereby are offered in
Units. Each Unit consists of a One Thousand Dollar ($1,000) principal amount 12%
Convertible Senior Subordinated Debenture Due February , 2006 and 1,000 Class
A Redeemable Warrants, each to purchase one share of Common Stock and one Class
B Redeemable Warrant. Of the Unit purchase price of $1,000, the consideration
allocated to the Debentures is $931 per Debenture and to the Class A Warrants is
$69 per 1,000 warrants. No consideration has been allocated to the Class B
Warrants. The Debentures and Class A Redeemable Warrants may not be detached for
six months after their issuance without the prior written consent of the
Underwriter, after which the Debentures and the Class A Redeemable Warrants will
be separately transferable. See "Description of Debentures."
49
<PAGE>
REDEEMABLE WARRANTS
The Redeemable Warrants will be issued in registered form under, governed
by, and subject to the terms of a warrant agreement (the "Warrant Agreement")
between the Company and American Stock Transfer and Trust Company of New York,
as warrant agent (the "Warrant Agent"). The following statements are brief
summaries of what management believes are all of the material provisions of the
Warrant Agreement and are subject to the detailed provisions thereof, to which
reference is made for a complete statement of such provisions. Copies of the
Warrant Agreement may be obtained from the Company or the Warrant Agent and have
been filed with the Commission as an exhibit to the Registration Statement of
which this Prospectus forms a part. See "Available Information."
Class A Redeemable Warrants. The Company has authorized the issuance of
7,500,000 Class A Redeemable Warrants to purchase an aggregate of 6,900,000
shares of Common Stock and 6,900,000 Class B Redeemable Warrants (including
900,000 shares of Common Stock and 900,000 Class B Redeemable Warrants
underlying the Class A Redeemable Warrants comprising part of the Units issuable
pursuant to the Underwriter's over-allotment option) and 600,000 shares of
Common Stock and 600,000 Class B Redeemable Warrants underlying the Class A
Redeemable Warrants comprising part of the Units issuable pursuant to the
Underwriter Warrants and has reserved an equivalent number of shares of Common
Stock for issuance upon exercise of such Warrants. Each Class A Redeemable
Warrant entitles the registered holder thereof to purchase, at any time for a
period of three years commencing on the date of this Prospectus, one share of
Common Stock at an exercise price of $3.00 and one Class B Redeemable Warrant.
The Warrant exercise price and the number of shares issuable upon exercise of
the Class A Redeemable Warrants are subject to adjustment as described below.
The Class A Redeemable Warrants are subject to redemption by the Company
upon not less than 30 days prior written notice at $.05 per Redeemable Warrant
if the closing price of the underlying Common Stock on the American Stock
Exchange for each of the 20 consecutive trading days within 10 days immediately
preceding the record date for redemption equals or exceeds 150% of the then
exercise price. Warrant holders will have the right to exercise their Warrants
until the close of business on the date fixed for redemption. If any of the
Redeemable Warrants are redeemed, then all of such Warrants remaining
unexercised at the end of the redemption period must be redeemed.
Class B Redeemable Warrants. The Company has authorized the issuance of
7,500,000 Class B Warrants to purchase an aggregate of 3,750,000 shares of
Common Stock (including 450,000 shares of Common Stock underlying the Class B
Redeemable Warrants comprising part of the Units issuable pursuant to the
Underwriter's over-allotment option) and 300,000 shares of Common Stock
underlying the Class B Redeemable Warrants comprising part of the Units issuable
pursuant to the Underwriter Warrants and has reserved an equivalent number of
shares of Common Stock for issuance upon exercise of such Warrants. Two Class B
Redeemable Warrants entitle the registered holder thereof to purchase, at any
time commencing on the date of issuance thereof and terminating five years after
the date of this Prospectus, one share of Common Stock at an exercise price of
$5.00 per share. The Warrant exercise price and the number of shares issuable
upon exercise of the Class B Redeemable Warrants are subject to adjustments as
described below. Holders will only be permitted to exercise or trade Class B
Warrants in multiples of two.
The Class B Redeemable Warrants are subject to redemption by the Company
upon not less than 30 days prior written notice at $.05 per Redeemable Warrant
if the closing price of the underlying Common Stock on the American Stock
Exchange for each of the 20 consecutive trading days within 10 days immediately
preceding the record date for redemption equals or exceeds 130% of the then
exercise price. Warrant holders will have the right to exercise their Warrants
until the close of business on the date fixed for redemption. If any of the
Redeemable Warrants are redeemed, then all of such Warrants remaining
unexercised at the end of the redemption period must be redeemed.
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Class A and Class B Redeemable Warrants. The Redeemable Warrants contain
provisions that protect the holders thereof against dilution by adjustment of
the exercise price and the number of shares issuable upon exercise in certain
events including, but not limited to, stock dividends, stock splits,
reclassifications, mergers, or a sale of substantially all of the Company's
assets. The Company does not intend to issue fractional shares of Common Stock.
Therefore, holders must exercise two Class B Redeemable Warrants simultaneously.
A Warrant holder will not possess any rights as a stockholder of the Company.
The shares of Common Stock, when issued upon the exercise of the Redeemable
Warrants in accordance with the terms thereof, will be fully paid and
non-assessable.
The Redeemable Warrants will be exchangeable and transferable on the books
of the Company at the principal office of the Warrant Agent. Each Class A
Redeemable Warrant or two Class B Redeemable Warrants may be exercised upon
surrender of a Warrant certificate on or prior to the close of business on
February , 1999 or February , 2001, respectively (or earlier
redemption date thereof), after which the Redeemable Warrants become wholly void
and of no value, at the offices of the Warrant Agent with the form of "Election
to Purchase" on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by payment of the full exercise price (by
cash, or by bank check, certified check or money order payable to the order of
the Warrant Agent) for the number of Redeemable Warrants being exercised.
Upon receipt of duly exercised Redeemable Warrants and payment of the
exercise price, the Company shall issue and cause to be delivered to, or upon
the written order of, the exercising Warrant holder, certificates representing
the number of shares of Common Stock so purchased. If less than all of the
Redeemable Warrants evidenced by a Warrant certificate are exercised, a new
Warrant certificate representing the remaining number of Redeemable Warrants
will be issued to the Warrant holder by the Warrant Agent. No amendment
adversely affecting the rights of the holders of the Redeemable Warrants may be
made without the approval of the holders of a majority of the then outstanding
Redeemable Warrants.
PREFERRED STOCK
The Company is authorized to issue an aggregate of 2,000,000 shares of
Preferred Stock, $1.00 par value. The Preferred Stock may be issued in series
from time to time with such designations, rights, preferences and limitations,
including but not limited to dividend rates and conversion features, as the
Board of Directors may determine. Accordingly, Preferred Stock may be issued
having dividend and liquidation preferences over the Common Stock without the
consent of the Common Stockholders. In addition, the ability of the Board to
issue Preferred Stock could also be used by the Company as a means of resisting
a change of control of the Company and, therefore, could be considered an
"anti-takeover" device.
During the year ended June 30, 1992, the Company issued 290,000 shares of $1
par value Series A Convertible Exchangeable Preferred Stock (the "Series A
Preferred Stock") and 340,000 shares of $1 par value Series B Convertible
Exchangeable Preferred Stock (the "Series B Preferred Stock") at $25 per share.
The issuance of these shares provided aggregate proceeds to the Company of
$15,750,000. All shares of the Series B Preferred Stock have been converted.
Since the Series A Preferred Stock meets the definition of Mandatorily
Redeemable Preferred Stock, it has been excluded from the Common Stockholders'
Equity section of the Consolidated Balance Sheets. As of September 30, 1995 and
December 31, 1994, 220,000 shares of the Series A Preferred Stock had been
converted into 48,100 shares of Common Stock.
The shares of Series A Preferred Stock are convertible at the option of the
holders into Common Stock at any time prior to the close of business on the date
fixed for redemption or exchange, at an initial conversion price of $115.00 per
share (at an initial conversion rate of approximately .21739 shares of Common
Stock). The conversion rates were adjusted by the Company, in lieu of paying
cumulative
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dividends of 9% per annum due in 1992 and 1993 to .25808. The Company has not
paid the holders the dividends due in 1994 or 1995. The dividend payment date
for Series A Preferred Stock is October 15. See Note 11 of Notes to Consolidated
Financial Statements.
The Series A Preferred Stock has a liquidation preference equal to $25.00
per share, plus accrued and unpaid dividends up to the liquidation date. The
Series A Preferred Stock are redeemable for cash at the option of the Company.
The Preferred Stock is also redeemable for cash at the option of the holder upon
certain major stock acquisitions or business combinations at $25.00 per share,
plus accrued and unpaid dividends through the redemption dates. The holders of
Preferred Stock have no voting rights except as required by applicable law and
except that if the equivalent of two full annual cash dividends shall be accrued
and unpaid, the holders of the Series A Preferred Stock have the right, as a
class, to elect two additional members of the Company's Board of Directors. As
of the date hereof, the holders of the Series A Preferred Stock are owed two
years arrears of dividends, aggregating approximately $270,000, but have not
exercised their right to appoint such directors.
The Series A Preferred Stock is exchangeable in whole, but not in part, at
the option of the Company on any dividend payment date beginning October 15,
1993, for 9% Convertible Subordinated Debentures of the Company due 2016.
Holders of Series A Preferred Stock will be entitled to $25 principal amount of
Debentures for each share of Series A Preferred Stock. The Series A Preferred
Stock is recorded at redemption value, which is $25.00 per share plus cumulative
dividends of 9% per annum. The following table summarizes activity of the Series
A Preferred Stock:
<TABLE><CAPTION>
SERIES A
-----------------
SHARES AMOUNTS
------ -------
(IN THOUSANDS)
<S> <C> <C>
Balance at June 30, 1992.................................................... 74 $1,882
Converted to Common Stock................................................. -- --
Accretion of discount and accrual of 9% dividends......................... -- 116
------ -------
Balance at December 31, 1992................................................ 74 1,998
Converted to Common Stock................................................. -- --
Accretion of discount and accrual of 9% dividends......................... -- 220
------ -------
Balance at December 31, 1993................................................ 74 2,218
Converted to Common Stock................................................. (4) (128 )
Accrual of 9% dividends................................................... -- 166
------ -------
Balance at December 31, 1994................................................ 70 2,256
Accrual of 9% dividends................................................... -- 118
------ -------
Balance at September 30, 1995............................................... 70 $2,374
------ -------
------ -------
</TABLE>
CERTAIN FLORIDA LEGISLATION
The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will not
possess any voting rights unless such voting rights are approved by a majority
vote of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law also authorizes the Company to indemnify the
Company's directors, officers, employees and agents.
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LISTING ON THE AMERICAN STOCK EXCHANGE
The Company currently does not satisfy some of the American Stock Exchange's
financial guidelines for continued listing of its Common Stock. While there can
be no assurance that listing on the American Stock Exchange will be continued,
management of the Company believes that its business prospects are improving and
that it will be able to maintain continued listing. If the Common Stock were
delisted, an investor could find it more difficult to dispose of or to obtain
accurate quotations as to the price of the Common Stock. If the Common Stock is
listed on the Pacific Stock Exchange and then delisted on the American Stock
Exchange, it is likely to be delisted by the Pacific Stock Exchange.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Redeemable Warrants and the Transfer Agent and Registrar for the Units,
Redeemable Warrants and Debentures is American Stock Transfer & Trust Company,
40 Wall Street, New York, New York 10005.
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DESCRIPTION OF DEBENTURES
GENERAL
The Debentures will be issued under an indenture (the "Indenture") to be
dated as of February , 1996, between the Company and American Stock Transfer &
Trust Company (the "Trustee"). A copy of the Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part. See "Available
Information." Neither the Indenture, the Trustee nor the Debentures will be
subject to the provisions of the Trust Indenture Act of 1939. Accordingly,
Debenture holders will not have the protections of that Act available to them.
The following summaries of what management believes are all of the material
provisions of the Indenture do not purport to be complete and are subject to and
qualified in their entirety by reference to all of the provisions of the
Indenture, including the definitions therein of certain terms. Whenever
particular provisions or defined terms of the Indenture are referred to, such
provisions or defined terms are incorporated herein by reference. Parenthetical
references set forth in this section are to sections in the Indenture or to
paragraphs in the form of Debenture which is appended to the Indenture as
Exhibit A.
The Debentures will (i) be limited to $7,500,000 aggregate principal amount
(including the $900,000 over-allotment option granted to the Underwriter and
$600,000 of Units issuable upon exercise of the Underwriter Warrants) (Debenture
paragraph 4); (ii) be unsecured obligations of the Company (Debenture paragraph
4); (iii) mature on February , 2006 (Face of Debenture); and (iv) bear
interest from the date of delivery at the rate per annum set forth on the cover
page of this Prospectus, payable quarterly on January 1, April 1, July 1 and
October 1 each year, commencing April 1, 1996, to the holders of record, with
certain exceptions, at the close of business on the 15th day of the month
preceding the payment date (Debenture paragraphs 1 and 2). Principal (and
premium, if any) and interest are to be payable and the Debentures will be
exchangeable and convertible and transfers thereof will be registrable at the
offices or agencies of the Company maintained for such purposes in the Borough
of Manhattan, City and State of New York, initially to the Trustee/American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005,
provided that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as it appears in the
Debenture register (Debenture paragraphs 2 and 3).
The Debentures will be issued only in fully registered form in denominations
of $1,000 or an integral multiple thereof. The Debentures are exchangeable and
transfers thereof will be registrable without charge therefor, but the Company
may require payment of a sum sufficient to cover tax or other governmental
charge payable in connection therewith (Debenture paragraph 9).
CONVERSION
The holders of the Debentures will be entitled at any time commencing at the
earlier of (i) twelve months after the date hereof or (ii) upon the Company
sending a notice of redemption, or (iii) such earlier date as may be designated
by the Company and the Underwriter, and from time to time up to the close of
business on February , 2006, subject to prior redemption, to convert the
Debentures or portions thereof (which are $1,000 or integral multiples thereof)
into shares of the Company's Common Stock at an initial conversion price, which
is subject to adjustment in certain circumstances as set forth below, of the
lesser of $2.50 per share or 80% of the average closing price on the American
Stock Exchange for the 20 consecutive trading days immediately preceding the
first anniversary of the issuance of the Debentures or the giving of the notice
of redemption, as applicable. (Debenture paragraph 7). No adjustment will be
made on conversion of any Debenture for interest accrued thereon or for
dividends on any Common Stock issued other than dividends payable in Common
Stock or Convertible Securities (as defined in the Indenture) (Article X:
Section 10.02). The Company is not required to issue fractional interests in the
Common Stock upon conversion of the Debentures and, in lieu thereof, will round
any fractional share to the nearest share (Article X: Section 10.03). In the
case
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<PAGE>
of Debentures called for redemption, conversion rights will expire at the close
of business on the business day prior to the redemption date (Article X: Section
10.02).
The conversion price is subject to downward adjustment in the event that the
Company issues shares of Common Stock (including shares issuable pursuant to a
stock dividend) and the per share consideration received by the Company upon
issuance of the Common Stock is less than the current conversion price (Article
X: Section 10.06). In case of a stock split or reverse stock split, a stock
dividend, a reclassification, the current conversion price shall be
proportionately decreased or increased (Article X: Section 10.05). No adjustment
in the current conversion price will be required unless such adjustment would
require a change of at least $.05; provided, however, that any adjustment that
would otherwise be required to be paid shall be carried forward and taken into
account in any subsequent adjustment (Article X: Section 10.10).
The Company may reduce the conversion price by any amount for any period of
time if the period is at least 20 consecutive trading days. Upon such reduction,
the Company shall mail a notice thereof to Debenture holders and publish an
announcement of the notice (Article X: Section 10.15).
In the event of a merger or consolidation of the Company with another
corporation, a capital reorganization or reclassification of the Company's
capital stock, or sale of all or substantially all of the Company's assets that
is effected in such a way that holders of the Common Stock are entitled to
receive stock, securities or assets (including, without limitation, cash) with
respect to or in exchange for Common Stock, then the holders of the outstanding
Debentures shall from such point onward have the right thereafter to convert
each such Debenture into the kind and amount of stock, securities or assets
received by a holder of the number of shares of Common Stock into which such
Debentures might have been converted immediately prior to such transaction
(Article X: Section 10.17).
It should be noted that, in the event of such a transaction, no subsequent
adjustment of the current conversion price is required. Thus, for example, if
the Company were to engage in a merger in which Common Stockholders received
cash in an amount less than the then current conversion price, exercise of the
conversion right would result in the Debenture holder receiving less than the
principal amount of such Debenture.
The shares of Common Stock, when issued upon the conversion of the
Debentures in accordance with the terms thereof, will be fully paid and
non-assessable.
SUBORDINATION OF DEBENTURES
The payment of the principal of (and premiums, if any) and interest on the
Debentures will be subordinated in right of payment to the extent set forth in
the Indenture to the prior payment in full of the principal of (and premiums, if
any) and interest on all Senior Debt of the Company (Article XI: Section 11.01).
Senior Debt is defined to include indebtedness for money borrowed outstanding on
the day of execution of the Indenture or thereafter, created for money borrowed
from banks, or other traditional long-term institutional lenders such as
insurance companies and pension funds, unless in the instrument creating or
evidencing such indebtedness it is provided that such Debt is not senior in
right of payment to the Debentures (Article XI: Section 11.02(c)). At September
30, 1995, Senior Debt aggregated $1,220,000. The Company expects from time to
time to make additional borrowings which will constitute Senior Debt.
The Company is not limited in the amount of additional indebtedness,
including Senior Debt, which it can create, incur, assume or guarantee.
Accordingly, the Debenture holders are not protected against highly leveraged or
other transactions involving the Company that may adversely affect them.
However, any additional indebtedness, other than Senior Debt, may not be senior
to the priority of the Debentures (Article XI: Section 11.13).
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<PAGE>
Upon any payment or distribution of the Company's assets to creditors on any
dissolution, winding up, total or partial liquidation, reorganization or
readjustment of the Company, whether voluntary or involuntary, or bankruptcy,
insolvency, receivership or other proceedings all principal of (and premiums, if
any) and interest due upon all Senior Debt must be paid in full before the
Debenture holders or the Trustee are entitled to receive or retain any assets so
paid or distributed in respect of the Debentures (Article XI: Section 11.03).
COVENANTS
The Company may not declare or pay any cash dividends or make any
distributions to holders of the capital stock, other than dividends or
distributions payable in such capital stock. The Company may not purchase,
redeem or otherwise acquire or retire for value any shares of its capital stock
or warrants or rights to acquire such stock if, at the time of such declaration,
payment, distribution, purchase, redemption, other acquisition or retirement, an
Event of Default shall have occurred and be continuing (Article IV: Section
4.04).
The Company may not (i) sell or lease any property or render any service to,
make any investment in, purchase any property or borrow any money from, or make
any payment for any service rendered by an Affiliate unless the Board of
Directors determines in good faith that the terms of such transaction are at
least as favorable to the Company as those which could be obtained in a similar
transaction with an independent third party; (ii) make any payment to any of its
officers, directors or employees, or agreement to do so, unless the Board of
Directors determines in good faith that the amount to be paid, or to be agreed
to be paid, for such service bears a reasonable relationship to the value of
such services to the Company; or (iii) make any sale to an Affiliate of any
capital stock or other securities or obligations of an Affiliate at a cash sale
price less than the original cost thereof to the Company or such Affiliate, as
the same may have been reduced from time to time by cash dividends or interest
payments thereon or payments of principal thereof received by the Company or
such Affiliate plus interest on such investment, as the same may have been
reduced from time to time at a rate not less than the rate borne by the
Debentures, but in no event less than current fair market value. (Article IV:
Section 4.05).
The Indenture provides that the Company will not, and will not permit any of
its subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any such subsidiary to (i) pay dividends or make any other distributions on its
capital stock or any other interest or participation in, or measured by, its
profits owned by, or pay any indebtedness owed to, the Company or a subsidiary
of the Company, or (ii) make loans or advances to the Company or a subsidiary of
the Company, or (iii) transfer any of its properties or assets to the Company
(Article IV: Section 4.04).
The Company is required to file with the Trustee copies of the reports it
files with the Commission and to provide to holders copies of all documents
furnished to stockholders of the Company (Article IV: Section 4.02). It is also
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, an Officers' Certificate stating whether or not the signers know of any
Default that occurred during the fiscal year. If they do, the Certificate shall
describe the Default and its status (Article IV: Section 4.03).
REDEMPTION
Commencing six months after the date hereof, the Company may, on at least 30
days prior written notice redeem the Debentures, in whole or in part, if the
closing price of the Common Stock on the American Stock Exchange (or other
principal trading market) for each of the 20 consecutive trading days
immediately preceding the record date for redemption equals or exceeds $7.00 per
share, as initially constituted. The redemption price will be 105% of the
principal amount of the Debentures plus accrued interest through the date of
redemption (Article III).
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MODIFICATION OF THE INDENTURE
With the consent of the holders of not less than 66 2/3% in principal amount
of outstanding Debentures, the Company and the Trustee may enter into an
indenture or indentures supplemental to the Indenture for the purpose of adding
any provisions to or changing in any manner or eliminating any provisions of the
Indenture or modifying in any manner the rights of the Debenture holders under
the Indenture, provided that no such supplemental indenture shall, without the
consent of the Debenture holders affected (a) reduce the rate of, or change the
time of payment of, interest on any Debenture; (b) reduce the principal (or
premium on), or change the fixed maturity of any Debenture; (c) impair the right
to institute suit for the enforcement of any such payment when due; (d) reduce
the above stated percentage of outstanding Debentures; (e) alter the provisions
of the Indenture so as to adversely affect the terms of conversion of the
Debentures into Common Stock; or (f) make any change in the subordination of the
Debentures in a manner that is materially adverse to the Holders (Article IX:
Section 9.02).
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of Default are defined in the Indenture as being (a) a default for 10
days in payment of any interest installment when due, and default in payment of
principal (or premium, if any) when due; (b) a default for 60 days after written
notice to the Company by the Trustee or by the holders of 25% in principal
amount of the outstanding Debentures in the performance of any other covenant of
the Company in the Indenture; (c) a default by the Company or any Subsidiary on
indebtedness in an aggregate principal amount of at least $250,000; and (d)
certain events of bankruptcy, insolvency and reorganization of the Company
(Article VI: Section 6.01). If an Event of Default shall occur and be
continuing, either the Trustee or the holders of 25% in principal amount of the
outstanding Debentures may declare the principal of all of the Debentures to be
due and payable (Article VI: Section 6.02).
The holders of a majority in principal amount of the outstanding Debentures
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any power of trust conferred on
the Trustee (Article VI: Section 6.05). The right of a Debenture holder to
institute a proceeding with respect to the Indenture is subject to certain
conditions precedent, including the provision of notice and indemnification for
the Trustee (Article VI; Section 6.06). The holders of a majority in principal
amount of the outstanding Debentures may, on behalf of the Debenture holders,
waive any past default and its consequences under the Indenture, except a
default in the payment of the principal of (or premium, if any) or interest on
any Debenture or a default in respect of the conversion right of Debenture
holders (Article VI: Section 6.04).
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company may terminate its obligations under the Indenture at any time by
delivering all outstanding Debentures to the Trustee for cancellation. After all
the Debentures have been called for redemption or mature in one year, the
Company may terminate all of its obligations under the Indenture, other than its
obligations to pay the principal of and interest on the Debentures and certain
other obligations, at any time, by depositing with the Trustee money or
non-callable U.S. Government obligations sufficient to pay all remaining
indebtedness on the Debentures (Article VIII).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Debentures in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any Debenture selected for redemption. Also, the Registrar
is not
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required to transfer or exchange any Debenture for a period of 15 days before a
selection of Debentures to be redeemed. The registered holder of a Debenture may
be treated as the owner of it for all purposes.
COMMUNICATIONS AMONG HOLDERS
Three or more Debenture holders who have owned their Debentures for at least
six months may request the Trustee to send copies of a proxy or other
communications to the other holders, upon payment by the requesting holders of
the reasonable expenses of such mailing and the Trustee determining that the
mailing would not be contrary to the best interests of all the holders nor in
violation of applicable law.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
The Indenture provides that in case an Event of Default shall occur (which shall
not be cured), the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
holders of the Debentures, unless they shall have offered to the Trustee
security and indemnity satisfactory to it.
CONSENT TO SERVICE
The Indenture provides that the Company will irrevocably designate the
Trustee as its authorized agent for service of process in any legal action or
proceeding arising out of or relating to the Indenture or the Debentures brought
in any Federal court or court of the State of New York and will irrevocably
submit to such jurisdiction.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Secretary of the Company, Bentley
Pharmaceuticals, Inc., 4830 West Kennedy Boulevard, One Urban Centre, Suite 550,
Tampa, Florida 33609.
GOVERNING LAW
The Indenture and Debentures will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax consequences
to purchasers of the Units. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated or proposed thereunder, positions of the Internal
Revenue Service ("IRS") and existing judicial decisions as of the date hereof,
all of which are subject to change at any time. Moreover, the effect of any such
change may be retroactive as well as prospective. Further, there can be no
assurance that the IRS will not take a contrary view to that set forth herein
which may be upheld by a court. No ruling from the IRS or opinion of counsel has
been or will be sought as to any of the matters discussed below.
This summary is for general information purposes only and applies only to
the initial purchasers who hold the Units (and each of its components and the
underlying Common Stock) as capital assets within the meaning of Section 1221 of
the Code. It does not purport to address all tax consequences that may be
relevant to particular investors (including, for example, foreign persons,
financial institutions, broker-dealers, insurance companies, tax-exempt
organizations and persons in special situations). In addition, the discussion
does not address any aspect of state, local or foreign taxation or other federal
taxes. This summary of certain U.S. federal tax consequences is based upon the
advice of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company.
PROSPECTIVE PURCHASERS OF THE UNITS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING OR
DISPOSING OF THE UNITS, THE DEBENTURES, THE WARRANTS AND THE UNDERLYING COMMON
STOCK, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS.
THE UNITS
Each Unit is comprised of a $1,000 Principal Amount 12% Convertible Senior
Debenture due February , 2006 and 1,000 Class A Redeemable Warrants, each
to purchase one share of Common Stock and one Class B Redeemable Warrant. Two
Class B Warrants may be exercised to purchase one additional share of Common
Stock.
The issue price of a Unit is equal to the initial offering price to the
public (excluding sales to bond houses, brokers and others acting in the
capacity as underwriters, placement agents or wholesalers) at which a
substantial amount of Units are sold. Such amount must then be allocated between
the Debenture and the Warrants in accordance with their relative fair market
values on the issue date. The Company intends to make such allocation based on
the respective trading prices for the Debentures and the Class A Warrants. No
assurance can be given, however, that the IRS will not challenge the Company's
determination.
The Company's allocation of the issue price of the Units is binding on a
holder, unless he discloses the use of a different allocation on the applicable
form attached to his federal income tax return for the year in which the
acquisition occurs. A holder who uses a different allocation than the Company
should consult with his tax advisors as to the consequences of such allocation,
including the effect of having acquired the Debenture for more or less than its
issue price.
THE DEBENTURES
The stated interest on the Debentures will be taxable as ordinary income
when received or accrued by the holder in accordance with his method of
accounting. In addition, a portion of the original issue discount ("OID") with
respect to the Debenture must be included in gross income each year based on an
economic accrual of interest, even if the holder has not received a cash payment
in respect of such
59
<PAGE>
OID. The amount of OID required to be included in gross income increases the
holder's basis in the Debentures. Proposed legislation, however, would defer the
Company's ability to deduct the OID until it is paid.
The OID with respect to a Debenture is equal to the excess, if any, of its
stated redemption price at maturity over the issue price of the Debenture (since
it will exceed the de minimis exception allowed where the OID would otherwise be
less than 1/4% multiplied by the number of full years to maturity of the
Debentures). Such amount could be increased if the IRS successfully challenges
the allocation of the issue price.
Upon the sale, exchange or retirement of a Debenture, the holder will
recognize gain or loss equal to the difference between the amount realized on
such sale, exchange or retirement and his tax basis in the Debenture. Such gain
or loss will be long-term capital gain or loss if the Debenture was held for
more than one year. Net capital gains of individuals are generally taxed at
lower rates than ordinary income. Proposed legislation would make such rates
even more favorable for both individuals and corporations. On the other hand,
there are limitations on the deductibility of capital losses.
Conversion of a Debenture (other than with respect to any accrued but unpaid
interest) into Common Stock pursuant to its terms is not taxable. The holder's
basis and holding period for the Common Stock will include his basis and holding
period in the Debenture.
THE WARRANTS
Upon a sale or exchange of a Warrant (including the receipt of cash in lieu
of a fractional share of Common Stock upon exercise of a Warrant), a holder will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale or exchange and the holder's basis in the Warrant (as
determined above). Such gain or loss will be long-term if, at the time of the
sale or exchange, the Warrant was held for more than one year. Adjustments to
the exercise price or conversion ratio, or the failure to make adjustments, may
result in the receipt of a constructive dividend by the holder.
Upon the exercise of a Warrant, a holder's tax basis in the interest
acquired upon such exercise will be equal to his tax basis in the Warrant plus
the exercise price of the Warrant. In the case of the exercise of a Class A
Warrant, such basis must be allocated between the Common Stock and the Class B
Warrant received in proportion to their relative fair market values. His holding
period with respect to such interest will commence on the date of exercise. If a
Warrant expires without being exercised, the holder will have a capital loss
equal to his tax basis in the Warrant as if the Warrant had been sold on such
date for no consideration.
COMMON STOCK
Distributions paid with respect to shares of Common Stock will be includible
in the gross income of the holder as ordinary income to the extent such
distributions are paid out of the Company's current or accumulated earnings and
profits (as computed for detail income tax purposes). To the extent that
distributions exceed such earnings and profits, they will be treated as a
non-taxable return of capital in an amount up to the holder's tax basis in such
Common Stock (which reduces such basis), and distributions in excess of such tax
basis is taxed as a capital gain from the sale of the Common Stock. Dividends
received by a corporate holder are generally eligible for the dividends received
deduction, subject to the limitations under Section 1059 of the Code relating to
extraordinary dividends. Proposed legislation would reduce the amount of the
available dividends received deduction and place additional limitations on it.
Upon the sale or exchange of the Common Stock, a holder will recognize
capital gain or loss equal to the difference between the amount realized on such
sale or exchange and the holder's tax basis in the Common Stock. Such gain or
loss will be long-term if the Common Stock was held for more than one
60
<PAGE>
year. An even more favorable tax rate may be available if the Common Stock sold
qualifies as "qualified small business stock" under Section 1202 of the Code.
BACKUP WITHHOLDING
A holder may be subject to backup withholding at the rate of 31% of the
interest paid on a Debenture, the dividends on the Common Stock and the proceeds
from the sale, exchange or redemption of a Unit, Debenture, Warrant or Common
Stock, unless (a) the holder is a corporation or other exempt recipient and,
when required, demonstrates such fact or (b) provides, when required, his
taxpayer identification number to the payor, certifies that he is not subject to
backup withholding and otherwise complies with the backup withholding rules.
Backup withholding is not an additional tax; any amount so withheld is
creditable against the holder's federal income tax liability. Failure to furnish
the holder's taxpayer identification number may also subject the holder to a
penalty.
REQUIREMENT FOR CURRENT REGISTRATION
The Company is required to have a current registration statement on file
with the Commission and to effect appropriate qualifications, except where
exemptions therefrom are available, under the laws and regulations of the states
in which the holders of the Redeemable Warrants reside in order to comply with
applicable laws in connection with the exercise of the Redeemable Warrants and
the resale of the Common Stock issued upon such exercise. The Company,
therefore, will be required to file post effective amendments to its
Registration Statement when subsequent events require such amendments in order
to continue the registration of the Common Stock underlying the Redeemable
Warrants and to take appropriate action under state securities laws. There can
be no assurance that the Company will be able to keep its Registration Statement
current or to effect appropriate action under applicable state securities laws,
the failure of which may cause the exercise of the Redeemable Warrants and
resale or other disposition of the underlying Common Stock to be effected under
circumstances which do not comply with applicable securities laws. See "Risk
Factors--Current Prospectus and State Securities Law Qualification Required to
Exercise the Redeemable Warrants."
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
between the Company and the Underwriter (the "Underwriting Agreement"), Coleman
and Company Securities, Inc. (the "Underwriter"), has agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriter, 6,000 Units,
at the initial offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
to pay for and accept delivery of the Units are subject to certain conditions
precedent, and that the Underwriter will purchase all of the Units if any of
such Units are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Units directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per Unit. The Underwriter may allow, and such
dealers may reallow, a concession not in excess of $ per Unit to certain
other dealers. After the initial public offering, the public offering price,
concession and re-allowance may be changed.
The Company has granted to the Underwriter an option exercisable during the
45-day period after the date of this Prospectus, to purchase up to an aggregate
of 900 additional Units at the initial public offering price set forth on the
cover page of the Prospectus, less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. The Underwriter may exercise
this option only to cover over-allotments, if any, made in connection with the
sale of the Units offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering, $50,000 of which
has already been paid to cover some of the underwriting costs and due diligence
expenses related to this Offering.
The Company has agreed to permit the Underwriter to have an observer attend
the meetings of the Company's Board of Directors for a period of three years
from the date hereof.
The Company and the Underwriter have agreed to indemnify each other against,
or to contribute to losses arising out of, certain civil liabilities in
connection with this Offering, including liabilities under the Securities Act.
Prior to this Offering there has been no public trading market for the
Company's Units, Debentures or Warrants. The initial public offering price of
the Units, and the terms of the Debentures and Warrants have been determined by
negotiation between the Company and the Underwriter. The factors considered in
determining the initial public offering price and such terms, in addition to
prevailing market conditions, were the history of and prospects for the industry
in which the Company competes, the market for the Company's Common Stock, an
assessment of the Company's management, the prospects of the Company, and the
demand for similar securities of comparable companies.
At the request of the Company, the Underwriter has reserved during the
period of the Offering up to 5% of the Units offered hereby for sale at the
public offering price to certain officers and other employees of the Company and
to certain other persons designated by the Company who are directly related to
the conduct of the Company's business. The number of Units available for sale to
the general public will be reduced to the extent these persons purchase reserved
Units. Any reserved Units not so purchased will be offered by the Underwriter to
the general public on the same terms as the other Units offered by this
Prospectus.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
62
<PAGE>
UNDERWRITER WARRANTS
The Company has agreed to sell to the Underwriter or its designees, for a
nominal consideration, the Underwriter Warrants to purchase an aggregate of 600
Units. The Units subject to the Underwriter Warrants will be in all respects
identical to Units offered to the public hereby except that the Underwriter
Warrants will be exercisable for a four-year period commencing one year after
their issuance at an exercise price equal to $1,200 per Unit. Pursuant to the
terms of the Underwriting Agreement, the Company is registering the shares of
Common Stock issuable upon conversion of the Debentures and upon exercise of the
Redeemable Warrants each as included in the Units issuable upon conversion of
the Underwriter Warrants in the Registration Statement of which this Prospectus
is a part. For the life of the Underwriter Warrants the holders thereof are
given the opportunity to profit from a rise in the market price of the Common
Stock, which may result in a dilution of the interests of other stockholders.
PRIVATE PLACEMENTS
In October 1995 the Underwriter served as placement agent for the issuance
and sale by the Company to certain purchasers in two private placements for an
aggregate purchase price of $1,770,000. The Underwriter received placement fees
of $177,000. Mr. Barry Blank, a representative of the Underwriter, participated
in placing the private placements and purchased Common Stock and Notes
aggregating $240,000 in the placements.
In the first placement, the Company sold to certain purchasers for an
aggregate purchase price of $720,000, 120,000 shares of the Company's Common
Stock and 12% promissory notes in the aggregate principal amount of $720,000
(the "Notes") which become payable in full upon the earlier of July 31, 1996 or
the closing of a public offering of the Company's securities (a "Public
Offering"). The Notes are convertible into shares of Common Stock, at the option
of the holders thereof, at a conversion price of $3.00 per share for an
aggregate of 240,000 shares of Common Stock, subject to anti-dilution
provisions. The Notes are subject to mandatory conversion at a conversion price
of $3.00 per share if no Public Offering is completed by July 31, 1996.
In the second placement, the Company sold to certain purchasers for an
aggregate purchase price of $1,050,000, 131,250 shares of Common Stock and 12%
promissory notes in the aggregate principal amount of $1,050,000 (the "A Notes")
which become payable in full upon the earlier of September 30, 1996 or the
completion of a Public Offering. The A Notes are subject to mandatory
conversion, at a conversion price equal to the average closing price for the
Common Stock quoted on the American Stock Exchange for the five trading days
immediately preceding September 30, 1996, if no Public Offering is completed by
September 30, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Private
Placements."
Purchasers of notes in the private placements who have not converted prior
to the date hereof may use their notes to purchase the Units offered hereby, so
long as they notify the Company of such intent in accordance with the notice
provisions set forth in their notes. Such exchange will be made based on
converting the outstanding principal balance of the notes for an equivalent
principal amount of Debentures, based on the price to public set forth on the
cover page of this Prospectus. Holders of the notes must deliver such notes to
the Underwriter for cancellation by the Company prior to the issuance of
Debentures. The Underwriter will receive commissions from such purchasers both
for the private placement, as stated in the immediately preceding paragraphs,
and from the purchase of the Units, in the amount stated on the cover page of
this Prospectus.
63
<PAGE>
CONCURRENT OFFERING
Concurrently with this Offering, the Company is registering 593,500 shares
of Common Stock for concurrent or future sales by certain selling shareholders.
Of such shares of Common Stock, 491,250 were issued either in connection with
private placements conducted by the Company in October 1995 or are issuable upon
conversion of notes sold in one of such placements (to the extent such notes are
converted to Common Stock prior to the application of a portion of the proceeds
of this Offering to repay such notes). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Private Placements" and "Underwriting--Private Placements." Of such
shares of Common Stock, 102,250 have been registered upon exercise of various
"piggy back" registration rights granted to Baytree Associates, Inc. and Martin
E. Janis & Co., Inc. in connection with their subscriptions of such shares.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, New York 10036. Reid & Priest LLP, 40 West 57th Street, New York, New York
10019 has acted as counsel for the Underwriter in connection with this Offering.
Parker Chapin Flattau & Klimpl, LLP has represented the Underwriter in
connection with other transactions.
EXPERTS
On June 6, 1994, Price Waterhouse declined to stand for re-election as the
Company's independent public accountant. There was no adverse opinion or
disclaimer of opinion, or modification as to uncertainty, audit scope or
accounting principles contained in the reports of Price Waterhouse for the
fiscal years ended June 30, 1992 and December 31, 1993 or the six month
transition period ended December 31, 1992, other than the inclusion in Price
Waterhouse's reports relating to the periods ended December 31, 1992 and 1993 of
a statement as to an uncertainty regarding the ability of the Company
to continue as a going concern.
During the Company's fiscal periods covered by Price Waterhouse's reports
and the subsequent interim period preceding Price Waterhouse's decision not to
stand for re-election on June 6, 1994, there were no disagreements with Price
Waterhouse on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Price Waterhouse, would have caused Price
Waterhouse to make reference in connection with its report concerning the
Company's financial statements to the subject matter of the disagreements other
than as set forth below.
For the fiscal year ended June 30, 1992, Price Waterhouse reported material
weaknesses indicating that during much of fiscal 1992, European financial
management personnel were not in place, uniform accounting policies and
reporting procedures were not clearly established and certain corporate
documents, such as Board of Directors meeting minutes, contractual agreements
and documents filed with the Securities and Exchange Commission, were not
contemporaneously available from management and signed copies of such documents
were not readily available. These items were discussed with the Audit Committee
of the Company's Board of Directors and, during the year ended December 31,
1993, were resolved to the satisfaction of Price Waterhouse. The Price
Waterhouse report to the Audit Committee for the year ended December 31, 1993
did not contain any material weaknesses. The Company authorized Price Waterhouse
to respond fully to the inquiries of a successor accountant concerning all
subject matters.
64
<PAGE>
The Audit Committee of the Board of Directors of the Company selected
Deloitte & Touche LLP to serve as the Company's independent auditors for the
year ended December 31, 1994 and for the year ending December 31, 1995.
The consolidated financial statements as of December 31, 1994 and for the
year then ended, and as of September 30, 1995 and for the nine months then
ended, included in this Prospectus and the related financial statement schedule
as of December 31, 1994 and for the year then ended, and as of September 30,
1995 and for the nine months then ended included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement (which reports express an unqualified opinion and include an
explanatory paragraph referring to the Company's recurring losses from
operations as well as negative operating cash flows which raise substantial
doubt about its ability to continue as a going concern), and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements with respect to the year ended June
30, 1992, the six months ended December 31, 1992 and the year ended December 31,
1993 included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been so included in
reliance on the report (which includes an explanatory paragraph relating to the
Company's ability to continue as a going concern as described in Note 1 of Notes
to Consolidated Financial Statements) of Price Waterhouse LLP, independent
accountants, given on authority of said firm as experts in auditing and
accounting.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE HEREIN
-----------
<S> <C>
Independent Auditors' Reports.................................................. F-2 to F-3
Consolidated Balance Sheets as of December 31, 1993 and 1994, and September 30,
1995........................................................................... F-4
Consolidated Statements of Operations for the year ended June 30, 1992, for the
six months ended December 31, 1992, for the years ended December 31, 1993 and
1994, and for the nine months ended September 30, 1994 (unaudited) and 1995.... F-5
Consolidated Statements of Changes in Common Stockholders' Equity for the year
ended June 30, 1992, for the six months ended December 31, 1992, for the
years ended December 31, 1993 and 1994, and for the nine months ended
September 30, 1995........................................................... F-6 to F-7
Consolidated Statements of Cash Flows for the year ended June 30, 1992, for the
six months ended December 31, 1992, for the years ended December 31, 1993 and
1994, and for the nine months ended September 30, 1994 (unaudited) and 1995.... F-8 to F-9
Notes to Consolidated Financial Statements..................................... F-10
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Bentley Pharmaceuticals, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheets of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation) and subsidiaries (the
"Company") as of December 31, 1994 and September 30, 1995, and the related
consolidated statements of operations, changes in common stockholders' equity,
and cash flows for the year ended December 31, 1994 and for the nine months
ended September 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1994
and September 30, 1995, and the results of its operations and its cash flows for
the periods then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has been experiencing recurring
losses from operations as well as negative operating cash flows. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Tampa, Florida
December 8, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Bentley Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in common stockholders'
equity, and of cash flows present fairly, in all material respects, the
financial position of Bentley Pharmaceuticals, Inc. (formerly Belmac
Corporation), and its subsidiaries at December 31, 1993, and the results of
their operations and their cash flows for the year ended June 30, 1992, the six
months ended December 31, 1992, and the year ended December 31, 1993 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation), for any period subsequent
to December 31, 1993.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
Tampa, Florida
March 30, 1994
F-3
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,552 $ 1,321 $ 580
Investments available for sale....................... 1,118 215 1
Receivables.......................................... 5,953 7,609 8,268
Inventories.......................................... 1,298 1,247 1,000
Prepaid expenses and other........................... 302 296 361
-------- -------- -------------
Total current assets................................ 10,223 10,688 10,210
-------- -------- -------------
Fixed assets, net..................................... 3,704 3,618 4,012
Drug licenses and related costs, net.................. 1,474 968 965
Other non-current assets, net......................... 759 1,058 983
-------- -------- -------------
$ 16,160 $ 16,332 $ 16,170
-------- -------- -------------
-------- -------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 4,466 $ 5,374 $ 5,067
Accrued expenses...................................... 2,445 2,282 2,144
Short term borrowings................................. 1,040 663 1,216
Current portion of long term debt..................... 229 61 4
Deferred revenue...................................... -- 380 --
-------- -------- -------------
Total current liabilities........................... 8,180 8,760 8,431
-------- -------- -------------
Long term debt........................................ 35 -- --
-------- -------- -------------
Other non-current liabilities......................... 2,786 336 500
-------- -------- -------------
Commitments and Contingencies (Notes 11, 15 and 16)
Redeemable preferred stock, $1.00 par value,
authorized 2,000 shares
Series A, issued and outstanding, 74 shares at
December 31, 1993, and 70 shares at December 31,
1994 and September 30, 1995............................. 2,218 2,256 2,374
-------- -------- -------------
Common Stockholders' Equity:
Common stock, $.02 par value, authorized 5,000 shares,
issued and outstanding, 2,070, 2,977 and 2,978 shares... 41 60 60
Stock purchase warrants (to purchase 156, 477 and 574
shares of common stock).................................
Paid-in capital in excess of par value................ 63,902 69,493 69,009
Stock subscriptions receivable........................ (1,268) (1,550) (105)
Accumulated deficit................................... (58,344) (61,922) (63,441)
Cumulative foreign currency translation adjustment.... (1,390) (1,101) (658)
-------- -------- -------------
2,941 4,980 4,865
-------- -------- -------------
$ 16,160 $ 16,332 $ 16,170
-------- -------- -------------
-------- -------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-4
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
FOR THE FOR THE SIX FOR THE YEAR FOR THE NINE
YEAR MONTHS ENDED MONTHS ENDED
ENDED ENDED DECEMBER 31, SEPTEMBER 30,
JUNE 30, DECEMBER 31, ------------------ ---------------------
1992 1992 1993 1994 1994 1995
-------- ------------ -------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Sales................................. $ 13,138 $ 9,708 $ 19,849 $26,284 $19,676 $23,583
Cost of sales......................... 8,871 5,899 15,100 21,464 15,940 19,523
-------- ------------ -------- ------- ----------- -------
Gross margin.......................... 4,267 3,809 4,749 4,820 3,736 4,060
-------- ------------ -------- ------- ----------- -------
Operating expenses:
Selling, general and
administrative........................ 8,665 9,830 9,170 7,716 6,428 5,516
Research and development............ 5,168 3,599 1,555 759 608 341
Depreciation and amortization....... 925 743 756 575 377 408
Write-off of Biolid and related
costs................................. -- -- 2,241 -- -- --
Settlement of class action
litigation............................ -- -- 1,000 -- -- --
Other non-recurring charges......... -- 9,321 -- -- -- --
-------- ------------ -------- ------- ----------- -------
Total operating expenses............ 14,758 23,493 14,722 9,050 7,413 6,265
-------- ------------ -------- ------- ----------- -------
Loss from operations.................. (10,491) (19,684) (9,973) (4,230) (3,677) (2,205)
Other (income) expenses:
Interest expense.................... 427 205 271 423 140 215
Interest income..................... (448) (256) (91) (123) (44) (1)
Other (income) expense.............. (2) (102) 83 (952) (122) (900)
-------- ------------ -------- ------- ----------- -------
Loss before income taxes.............. (10,468) (19,531) (10,236) (3,578) (3,651) (1,519)
Provision for income taxes............ 343 -- -- -- -- --
-------- ------------ -------- ------- ----------- -------
Net loss.............................. $(10,811) $(19,531) $(10,236) $(3,578) $(3,651) $(1,519)
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
Net loss per common share............. $(11.12) $(16.60) $(6.32) $(1.56) $(1.67) $(.55)
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
Weighted average common shares
outstanding........................... 997 1,203 1,655 2,395 2,257 2,978
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-5
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
$.02 PAR VALUE
COMMON STOCK ADDITIONAL OTHER
--------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT TRANSACTIONS TOTAL
------ ------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1991................. 751 $ 15 $ 19,252 $ (17,766) $ 730 $ 2,231
Private placement of common stock...... 94 2 8,445 -- -- 8,447
Stock subscriptions receivable......... -- -- -- -- (199) (199)
Conversion of redeemable preferred
stock.................................... 66 1 8,399 -- -- 8,400
Exercise of stock options.............. 42 1 2,056 -- -- 2,057
Conversion of stock purchase
warrants................................. 203 4 8,109 -- (1,392) 6,721
Issuance of shares relating to Chimos
acquisition.............................. 10 -- 612 -- -- 612
Repurchase of common stock............. (5 ) -- (495) -- -- (495)
Accretion/accrual of
dividends--preferred stock........... -- -- (277) -- -- (277)
Foreign currency translation
adjustment............................... -- -- -- -- 666 666
Net loss............................... -- -- -- (10,811) -- (10,811)
------ ------ ---------- ----------- ------------ --------
Balance at June 30, 1992................. 1,161 23 46,101 (28,577) (195) 17,352
Private placement of common stock...... 81 2 3,862 -- -- 3,864
Stock subscriptions receivable......... -- -- -- -- (1,700) (1,700)
Cancellation of stock subscriptions
receivable............................... -- -- -- -- 426 426
Conversion of redeemable preferred
stock.................................... 1 -- 201 -- -- 201
Exercise of stock options.............. 1 -- 60 -- -- 60
Issuance of common stock as
compensation............................. 17 -- 960 -- -- 960
Other equity transactions.............. -- -- 135 -- -- 135
Accretion/accrual of
dividends--preferred stock........... -- -- (439) -- -- (439)
Foreign currency translation
adjustment............................... -- -- -- -- (1,423) (1,423)
Net loss............................... -- -- -- (19,531) -- (19,531)
------ ------ ---------- ----------- ------------ --------
Balance at December 31, 1992............. 1,261 25 50,880 (48,108) (2,892) (95)
------ ------ ---------- ----------- ------------ --------
</TABLE>
(Continued)
F-6
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY (CONCLUDED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
$.02 PAR VALUE
COMMON STOCK ADDITIONAL OTHER
--------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT TRANSACTIONS TOTAL
------ ------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............. 1,261 $ 25 $ 50,880 $ (48,108) $ (2,892) $ (95)
Private placement of common stock...... 733 15 7,370 -- -- 7,385
Stock subscription receivable.......... -- -- -- -- (856) (856)
Stock subscription received............ -- -- -- -- 1,700 1,700
Conversion of redeemable preferred
stock.................................... 36 1 5,401 -- -- 5,402
Conversion of stock purchase
warrants................................. 9 -- 97 -- -- 97
Conversion of minority interest--
Pharmacin Corp........................... 10 -- -- -- -- --
Stock issued for termination
compensation............................. 15 -- 330 -- -- 330
Miscellaneous.......................... 6 -- 44 -- -- 44
Accretion/accrual of
dividends--preferred stock........... -- -- (220) -- -- (220)
Foreign currency translation
adjustment............................... -- -- -- -- (610) (610)
Net loss............................... -- -- -- (10,236) -- (10,236)
------ ------ ---------- ----------- ------------ --------
Balance at December 31, 1993............. 2,070 41 63,902 (58,344) (2,658) 2,941
Conversion of stock purchase
warrants................................. 2 -- 34 -- -- 34
Private placement of common stock,
net...................................... 826 17 4,776 -- -- 4,793
Stock subscriptions receivable......... -- -- -- -- (1,596) (1,596)
Stock subscriptions received........... -- -- -- -- 693 693
Conversion of redeemable preferred
stock.................................... 1 -- 129 -- -- 129
Repurchase of common stock............. (41 ) (1) (620) -- 621 --
Sale of treasury stock................. 42 1 294 -- -- 295
Issuance of common stock as
compensation............................. 7 -- 146 -- -- 146
Issuance of common stock to settle
litigation............................... 70 2 998 -- -- 1,000
Accrual of dividends--preferred
stock.................................... -- -- (166) -- -- (166)
Foreign currency translation
adjustment............................... -- -- -- -- 289 289
Net loss............................... -- -- -- (3,578) -- (3,578)
------ ------ ---------- ----------- ------------ --------
Balance at December 31, 1994............. 2,977 60 69,493 (61,922) (2,651) 4,980
Stock subscription received............ -- -- -- -- 562 562
Stock subscription
revaluation/cancellation................. -- -- (351) -- 883 532
Common stock issued as compensation.... 1 -- 3 -- -- 3
Accrual of dividends--preferred
stock.................................... -- -- (118) -- -- (118)
Miscellaneous.......................... -- -- (18) -- -- (18)
Foreign currency translation
adjustment............................... -- -- -- -- 443 443
Net loss............................... -- -- -- (1,519) -- (1,519)
------ ------ ---------- ----------- ------------ --------
Balance at September 30, 1995............ 2,978 $ 60 $ 69,009 $ (63,441) $ (763) $ 4,865
------ ------ ---------- ----------- ------------ --------
------ ------ ---------- ----------- ------------ --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-7
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE><CAPTION>
FOR THE
YEAR SIX MONTHS FOR THE FOR THE NINE
ENDED ENDED YEAR ENDED MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
-------- ------------ ------------------ ---------------------
1992 1992 1993 1994 1994 1995
-------- ------------ -------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(10,811) $(19,531) $(10,236) $(3,578) $(3,651) $(1,519)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 925 743 756 575 377 408
Gain on sale of Belmacina(R)....... -- -- -- (884) -- (380)
Other non-cash items............... (72) (50) (10) 108 120 117
Write-off of Biolid(R) and related
costs.................................. -- -- -- -- -- --
Settlement of class action
litigation............................. -- -- 1,000 -- -- --
Stock issued as compensation....... -- -- 375 146 -- --
Other non-recurring charges........ -- 9,321 -- -- -- --
Cancellation of Stock subscription
receivable............................. -- -- -- -- -- 533
Research and development charges... -- 250 -- -- -- --
(Increase) decrease in assets and
increase (decrease) in
liabilities net of effects of
acquisitions:
Receivables........................ (5,561) 2,886 (2,160) 124 1,361 (1,007)
Inventories........................ (2,815) 930 1,066 154 (698) 199
Prepaid expenses and other current
assets................................. (444) 279 (10) 20 (114) (44)
Other assets....................... (811) (165) 286 349 210 66
Accounts payable and accrued
expenses............................... 5,086 743 (2,936) 228 386 (795)
Other liabilities.................. -- -- -- (657) -- --
-------- ------------ -------- ------- ----------- -------
Net cash (used in) operating
activities............................. (14,503) (4,594) (9,628) (3,415) (2,009) (2,422)
-------- ------------ -------- ------- ----------- -------
Cash flows from investing activities:
Proceeds from sale of Belmacina(R)... -- -- -- 651 778 922
Proceeds from sale of investments.... 1,924 4,533 555 1,040 720 214
Purchase of investments.............. (5,479) (1,510) (1,118) (116) (116) --
Net change in fixed assets........... (795) (296) (133) -- -- (507)
Investment in partnership............ -- -- -- (648) (605) (13)
(Repayment to) received from Evans... -- -- 532 (793) (793) --
Proceeds from sale of Amodex(R)
rights................................. -- -- 3,260 -- -- --
Pharmaceutical license
acquisitions........................... (5,500) (459) -- -- -- --
Chimos acquisition, net of cash
acquired............................... (312) -- -- -- -- --
Other investments.................... -- (30) (20) -- -- --
Laboratorios Belmac acquisition, net
of cash acquired................... (2,759) -- -- -- -- --
-------- ------------ -------- ------- ----------- -------
Net cash provided by (used in)
investing activities................... (12,921) (2,238) 3,076 134 (16) 616
-------- ------------ -------- ------- ----------- -------
</TABLE>
(Continued)
F-8
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(IN THOUSANDS)
<TABLE><CAPTION>
FOR THE
YEAR SIX MONTHS FOR THE FOR THE NINE
ENDED ENDED YEAR ENDED MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
-------- ------------ ------------------ ---------------------
1992 1992 1993 1994 1994 1995
-------- ------------ -------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in short-term
borrowings............................. $ 242 $ (858) $ 391 $ (397) $ (242) $ 501
Proceeds from private placement:
Preferred stock.................... 15,750 -- -- -- -- --
Common stock....................... 10,120 2,386 8,711 3,761 2,903
Offering costs of private
placement.............................. (2,136) (217) (2,096) (377) (287) (56)
Collection of stock subscription
receivable............................. -- -- 1,700 693 457 562
Proceeds from exercise of stock
options................................ 2,057 60 -- -- -- --
Proceeds from exercise of stock
warrants............................... 6,522 -- 97 34 34 --
Other equity transactions............ -- 135 -- -- -- --
Repayments of long term debt......... (1,228) (1,632) (221) (203) (153) (57)
Payments on capital leases........... (36) (45) (81) (72) (55) (25)
-------- ------------ -------- ------- ----------- -------
Net cash provided by (used in)
financing activities................... 31,291 (171) 8,501 3,439 2,657 925
-------- ------------ -------- ------- ----------- -------
Effect of exchange rate changes on
cash................................... (425) (536) (997) (389) (9) 140
-------- ------------ -------- ------- ----------- -------
Net increase (decrease) in cash and
cash equivalents..................... 3,442 (3,063) 952 (231) 623 (741)
Cash and cash equivalents at beginning
of period............................ 221 3,663 600 1,552 1,552 1,321
-------- ------------ -------- ------- ----------- -------
Cash and cash equivalents at end of
period................................. $ 3,663 $ 600 $ 1,552 $ 1,321 $ 2,175 $ 580
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Registrant paid cash during the period for (in thousands):
Interest................... $ 267 $ 186 $ 309 $ 263 $ 172 $ 220
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
Taxes...................... $ 285 $ 428 $ 0 $ 6 $ 6 --
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
The Registrant has issued Common Stock in exchange for services, rights or in
settlement of litigation as follows (in thousands):
Shares Issued.............. -- 17 38 99 7 1
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
Amount..................... -- $ 960 $ 820 $ 1,290 $ 146 $ 3
-------- ------------ -------- ------- ----------- -------
-------- ------------ -------- ------- ----------- -------
</TABLE>
The accompanying Notes to Consolidated Statements
are an integral part of these financial statements.
F-9
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--HISTORY AND OPERATIONS
Bentley Pharmaceuticals, Inc. (formerly Belmac Corporation) (the "Company")
is an international pharmaceutical and health care company engaged primarily in
the manufacturing, marketing and distribution of pharmaceutical products in
France and Spain, with limited distribution of health care products and research
and development activities in the United States. The Company's operations in
France consist of the import and distribution of fine chemicals and the
marketing of specialty pharmaceutical products. In Spain, the Company
manufactures, packages and distributes both its own and other companies'
pharmaceutical products. In the United States, the Company markets disposable
linens to emergency health services which are manufactured under contract.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
consolidated financial statements, the Company has incurred significant net
losses as well as negative operating cash flows for all periods presented. These
losses, although decreasing, and other factors may indicate that the Company may
be unable to continue as a going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional financing as may
be required, and ultimately to attain profitable operations and positive cash
flows. Management has developed a comprehensive strategic plan which focuses on
short-term profitability and goals and includes plans to achieve continued
profitability on an ongoing basis. Additionally, management is exploring various
financing alternatives, including a public offering of its debt and/or equity
securities. Management plans include careful prioritization of research and
development activities and continuation of an austerity program that it
implemented in early 1993. Additionally, management is considering possible
joint ventures or other third party relationships for the continuing
development, licensing and marketing of certain drugs currently under
development.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN YEAR END
Effective December 31, 1992 the Company changed its fiscal year end from
June 30 to December 31.
PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: B.O.G. International Finance, Inc., Belmac
Jamaica, Ltd., Belmac Healthcare Corporation and its wholly owned subsidiary
Belmac Hygiene, Inc., Chimos/LBF S.A. (formerly known as the separate entities
of Laboratoires Belmac S.A. and Chimos S.A.) and its wholly owned subsidiary
Laboratorios Belmac S.A., and Belmac Holdings, Inc. (formerly known as Pharmacin
Holdings, Inc.), and its wholly owned subsidiary, Belmac A. I., Inc. (formerly
known as Pharmacin Corp.). Belmac Hygiene, Inc. entered into a 50/50 partnership
with Maximed Corporation of New York in March 1994. Belmac Hygiene's
participation in the partnership is accounted for using the equity method. All
significant intercompany balances have been eliminated in consolidation. The
financial position and
F-10
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
results of operations of the Company's foreign subsidiaries are measured using
local currency as the functional currency. Assets and liabilities of foreign
subsidiaries are translated at the rate of exchange in effect at the end of the
period. Revenues and expenses are translated at the average exchange rate for
the period. Foreign currency translation gains and losses not impacting cash
flows are credited to or charged against Stockholders' Equity. Foreign currency
translation gains and losses arising from cash transactions are credited to or
charged against current earnings.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents for purposes of
the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
Investments in securities which do not meet the definition of cash equivalents
are classified as investments available for sale in the Consolidated Balance
Sheets. A bank overdraft of approximately $30,000 at December 31, 1993 is
included in accounts payable as of that date and restricted cash of
approximately $300,000 at December 31, 1993 is included in investments available
for sale as of that date as well.
INVESTMENTS AVAILABLE FOR SALE
Investments available for sale are reported at approximate market value.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
on the first-in, first-out ("FIFO") method.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the following estimated economic lives of the assets:
<TABLE><CAPTION>
YEARS
-----
<S> <C>
Buildings............................................................ 30
Equipment............................................................ 5-7
Furniture and fixtures............................................... 5-7
Other................................................................ 5
</TABLE>
Leasehold improvements are depreciated over the life of the respective
lease.
Expenditures for replacements and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized, while
expenditures for maintenance and repairs are charged against operations as
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized currently.
DRUG LICENSES AND RELATED COSTS
Drug licenses and related costs incurred in connection with obtaining or
acquiring licenses, patents, and other proprietary rights related to the
Company's commercially developed products are capitalized. Capitalized drug
licenses and related costs are being amortized on a straight-line basis over
fifteen years
F-11
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
from the dates of acquisition. Costs of acquiring pharmaceuticals requiring
further development are expensed as purchased research and development. Carrying
values of such assets are reviewed annually by the Company and are adjusted for
any diminution in value.
INVESTMENT IN PARTNERSHIP
Belmac Hygiene, Inc., a wholly-owned subsidiary of the Company entered into
a 50/50 partnership in March 1994 with Maximed Corporation ("Maximed") to
develop and market feminine healthcare products. Maximed contributed the
hydrogel-based technology and the Company, through its subsidiary, is
responsible for providing financing and funding of the partnership's activities.
The investment in the partnership is accounted for using the equity method.
Belmac Hygiene, Inc. has become involved in a dispute with Maximed and filed
suit in December 1994 against Maximed (See Note 15). In the opinion of
management, the carrying value of its investment in the partnership, accounted
for using the equity method, of $501,000 and $513,000 as of December 31, 1994
and September 30, 1995, respectively, is not impaired and no reserve is
considered necessary.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
AMORTIZATION OF GOODWILL
Costs of investments in purchased companies in excess of the underlying fair
value of net identifiable assets at date of acquisition are recorded as goodwill
and included in other non-current assets which is amortized over fifteen years
on a straight line basis. Carrying values of such assets are reviewed annually
by the Company and are adjusted for any diminution in value.
REVENUE RECOGNITION
Sales of products are recognized by the Company when the products are
shipped to customers. The Company allows sales returns in certain situations,
but does not reserve for returns and allowances based upon the Company's
favorable historical experience.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS
109). SFAS 109 mandates the liability method in accounting for the effects of
income taxes for financial reporting purposes. The Company adopted SFAS 109
effective January 1, 1993. This statement did not have a material impact on the
Company's consolidated financial statements as a result of establishing a
valuation allowance equal to the deferred tax asset arising primarily from its
net operating loss carryforwards.
NET LOSS PER COMMON SHARE
Primary loss per common share is computed by dividing the net loss (less
accretion of discount and accrued dividends on mandatorily redeemable preferred
stock) by the weighted average number of shares of Common Stock outstanding
during each period. Common Stock equivalents were not included in the
calculation of primary loss per share as they were determined to be
antidilutive.
F-12
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company effected a one-for-ten reverse split of its Common Stock on July
25, 1995 as a result of an amendment to its Articles of Incorporation which was
approved by the stockholders at the Company's Annual Stockholders Meeting held
on June 9, 1995. All information with respect to per share data and number of
common shares has been retroactively adjusted to give effect to the reverse
stock split.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("FAS 121") effective for fiscal years beginning after December 15, 1995. FAS
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Management believes that the adoption of FAS 121 will not have a
material impact on the financial condition or the results of operations of the
Company.
In October 1995, FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") effective for
transactions entered into after December 15, 1995. FAS 123 provides alternatives
for the methods used by entities to record compensation expense associated with
its stock-based compensation plans. Additionally, FAS 123 provides further
guidance on the disclosure requirements relating to stock-based compensation
plans. Management believes that the adoption of FAS 123 will not have a material
impact on the financial condition or the results of operations of the Company.
UNAUDITED PERIOD
Amounts reported for the nine-month period ended September 30, 1994 are
unaudited and in the opinion of management of the Company include all
adjustments that are of a normal recurring nature and necessary for a fair
presentation.
NOTE 3--ACQUISITIONS
CHIMOS S.A.
In August 1991, the Company, through its 100% owned subsidiary, Laboratoires
Belmac S.A., purchased all of the outstanding shares of Chimos S.A., ("Chimos"),
a company with executive offices in Paris, France. The acquisition price
consisted of 3,000,000 French Francs (approximately $500,000) plus 10,000 shares
of the Company's Common Stock (approximate value of $613,000). This acquisition
has been accounted for by the purchase method and the excess of purchase price
over the fair market value of net assets acquired has been recorded as goodwill
(approximately $548,000) and included in other non-current assets. These two
entities were merged in 1994 into one surviving entity known as Chimos/LBF S.A.
Chimos/LBF S.A. is engaged in the distribution of specialty pharmaceutical
products and fine chemicals to pharmacies and hospitals in France.
RIMAFAR S.A.
In February 1992, the Company, through its wholly-owned subsidiary,
Laboratoires Belmac S.A., consummated the acquisition of all of the outstanding
shares of Rimafar S.A. (currently known as
F-13
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACQUISITIONS--(CONTINUED)
Laboratorios Belmac S.A.), a Spanish corporation. The Company paid a cash
purchase price of approximately $3,100,000 (including costs associated with the
acquisition) for 100% of the shares.
This acquisition was accounted for by the purchase method and the excess of
purchase price over the tangible net assets acquired was assigned to nine
different Spanish drug licenses held by the Company (See Note 8).
PRO FORMA FINANCIAL INFORMATION
The following pro forma Statement of Operations reflects the effect on the
Company's 1992 operations, as if the above described acquisitions had occurred
at the beginning of the Company's fiscal year ended June 30, 1992:
<TABLE><CAPTION>
PRO FORMA COMBINED (UNAUDITED)
------------------------------
<S> <C>
Net sales....................................... $ 17,249,000
Net loss........................................ $(11,145,000)
Loss per Common Share........................... $ (11.40)
</TABLE>
The above pro forma financial information relating to Chimos and
Laboratorios Belmac is presented in accordance with accounting rules relating to
business acquisitions and is not necessarily indicative either of the results of
operations that would have occurred had the acquisitions been effective at the
beginning of the fiscal year indicated or of future results of operations of the
combined companies.
NOTE 4--OTHER NON-RECURRING CHARGES
The aggregate amount of other non-recurring charges for the period ended
December 31, 1992 of $9,321,000 relates primarily to a 1992 realignment of the
Company and its products in the United States and in Europe by its management as
outlined below.
MANAGEMENT
On February 26, 1993, Jean-Francois Rossignol resigned as Chairman and Chief
Executive Officer of the Company. The Company agreed to forgive $271,000 of a
note receivable from Dr. Rossignol at the time of his resignation, the cost of
which has been included in the period ended December 31, 1992.
The Company decided in December 1992 to realign its pharmaceutical
operations in France by implementing a more cost effective marketing strategy
utilizing an outside marketing firm during certain times of the year in place of
its internal French management and sales force. Severance costs associated with
the displacement of the French employees totaling approximately $1,054,000 were
included in the period ended December 31, 1992.
As part of the realignment of French operations, the Company decided to
relocate its French offices from Sophia Antipolis to Paris. In conjunction with
this decision the Company wrote-off certain leasehold improvements and other
assets and expensed certain lease and other commitments aggregating $2,108,000
which was included in the period ended December 31, 1992.
On November 23, 1992 Michael M. Harshbarger was appointed President and
Chief Operating Officer of the Company. Under the terms of Harshbarger's
employment agreement 10,000 shares of the Company's Common Stock were granted to
him on December 16, 1992. The market value of the shares on the date of grant of
$575,000 was included in the period ended December 31, 1992.
F-14
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--OTHER NON-RECURRING CHARGES--(CONTINUED)
As an incentive to its employees in Spain, the Company's Board of Directors
on December 29, 1992 approved the issuance of 7,000 shares of Common Stock to
the employees of Laboratorios Belmac, resulting in a charge of $385,000 based on
the market price of the Company's Common Stock on the date of grant. These costs
were also included in the period ended December 31, 1992.
PRODUCTS
In January 1993, the Company sold its product rights and inventory of
Amodex(R) to a third party. Charges of $3,574,000 and $212,000 representing the
write-down of drug licenses and inventory, respectively, to net-realizable value
were included in the period ended December 31, 1992.
The Company decided to discontinue marketing its Biolid(R) infant and
pediatric formulations in France due to lower than expected sales volume and low
gross margins. Additionally, it was determined that excessive quantities of the
adult formulation of Biolid(R) existed, recognizing the Company's restructured
marketing efforts. Accordingly, inventory write-offs relating to Biolid(R)
totaling approximately $630,000 were reflected in the period ended December 31,
1992. The Company wrote-off certain capitalized costs related to the sachet
formulation of Biolid(R) as of December 31, 1993 (See Note 8).
The Company has decided to focus its product development efforts for
Alphanon(R) on a transdermal patch delivery system and accordingly $243,000 of
deferred product costs relating to the intra-navel transdermal technology were
written off in 1992. The inability to collect receivables for Alphanon(R) sales
amounting to $162,000 from a major customer outside the United States was
indicative of the limited market opportunity for the product in its
navel-transdermal delivery form. Accordingly, the Company also wrote-off
approximately $107,000 of inventory relating to Alphanon(R).
NOTE 5--RECEIVABLES
Receivables consist of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Trade receivables............................................. $5,163 $6,360 $ 7,479
Sale of Belmacina(R) (Note 8)................................. -- 1,140 243
Other (Notes 8 and 15)........................................ 840 233 645
------ ------ -------------
6,003 7,733 8,367
Less--allowance for doubtful accounts......................... (50) (124) (99)
------ ------ -------------
$5,953 $7,609 $ 8,268
------ ------ -------------
------ ------ -------------
NOTE 6--INVENTORIES
Inventories consist of the following (in Thousands):
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Raw materials................................................. $ 553 $ 149 $ 217
Work in progress.............................................. 3 3 1
Finished goods................................................ 742 1,343 1,453
------ ------ -------------
1,298 1,495 1,671
Less--allowance for slow-moving or obsolete inventory......... -- (248) (671)
------ ------ -------------
$1,298 $1,247 $ 1,000
------ ------ -------------
------ ------ -------------
</TABLE>
F-15
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--FIXED ASSETS
Fixed assets consist of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Land.......................................................... $1,033 $1,121 $ 1,195
Buildings..................................................... 1,667 1,810 2,477
Equipment..................................................... 845 916 964
Furniture and fixtures........................................ 603 675 653
Leasehold improvements........................................ 302 340 335
Equipment under capital lease................................. 181 221 138
------ ------ -------------
4,631 5,083 5,762
Less-accumulated depreciation................................. (927) (1,465) (1,750)
------ ------ -------------
$3,704 $3,618 $ 4,012
------ ------ -------------
------ ------ -------------
</TABLE>
Depreciation expense was $287,000, $173,000, $489,000, $434,000, $258,000
(unaudited) and $290,000 for the year ended June 30, 1992, for the six months
ended December 31, 1992, for the years ended December 31, 1993 and 1994, and for
the nine months ended September 30, 1994 and 1995, respectively.
NOTE 8--DRUG LICENSES AND RELATED COSTS, NET
Drug licenses and related costs consist of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Laboratorios Belmac's portfolio (Note 3)...................... $1,721 $1,259 $ 1,342
Less--accumulated amortization................................ (247) (291) (377)
------ ------ -------------
$1,474 $ 968 $ 965
------ ------ -------------
------ ------ -------------
</TABLE>
In September 1992, the Company, through its Spanish subsidiary Laboratorios
Belmac, acquired the Spanish license and product rights to Belmacina(R), a
ciprofloxacin antibiotic, for approximately $577,000. The Company sold its
Spanish license and product rights to Ciprofloxacin in 1994 for approximately
$1,556,000 and sold the related trademark for approximately $380,000 in 1995.
The Company received approximately $651,000 in cash, net of transaction costs
and a receivable of approximately $1,140,000, which includes amounts related to
the sale of the trademark. The gain on sale of the license and product rights of
approximately $884,000 was included in Other Income for the year ended December
31, 1994 and the gain on the sale of the related trademark was recorded as a
receivable and as deferred revenue as of December 31, 1994. The Company
recognized the gain on the sale of the related trademark upon the transfer of
the trademark to the buyer in 1995.
In December 1991, the Company, through its wholly-owned French subsidiary
Laboratoires Belmac S.A., acquired certain inventory and all French product
rights of Amodex(R). Amodex(R) is an amoxicillin-based antibiotic that has been
registered with the Ministry of Health in France and has been granted regulatory
approval for marketing in France. Pursuant to this agreement, Laboratoires
Belmac S.A. agreed to pay approximately $6,800,000, of which $5,500,000 was paid
at consummation and approximately $1,300,000 was agreed to be payable in three
installments in December 1993, 1994
F-16
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--DRUG LICENSES AND RELATED COSTS, NET--(CONTINUED)
and 1995. Subsequent to June 30, 1992, Laboratoires Belmac S.A. renegotiated the
terms of the agreement whereby one payment of approximately $882,000 was made in
lieu of the three installment payments. The related intangible asset and debt
were adjusted at June 30, 1992 to reflect the revised agreement.
In January 1993 the Company sold all of its French product rights and
inventory of Amodex(R) to a third party. At December 31, 1992 the cost
associated with the Amodex(R) product rights was reduced to $3,260,000 to
reflect its net realizable value (See Note 4).
In September 1993 the Company entered into an agreement to sell its rights
to the Biolid(R) sachet formulation in France and related inventories to Evans
Medical S.A. for approximately $2,245,000. The Company received approximately
$950,000 cash upon execution of the agreement including approximately $350,000
for promotion and marketing of the product. The Company recorded a receivable of
approximately $1,550,000 as of September 30, 1993, representing the balance of
the purchase price which was due upon transfer of the French AMM (license to
market the product) to Evans. This transaction was subject to approval, by a
French regulatory authority, of the transfer of the French AMM to Evans. The
French regulatory authority subsequently requested additional information prior
to approving this transfer and requested marketing of Biolid(R) be suspended
pending the additional data. The Company discontinued marketing this product,
which is a sachet formulation.
As a result of the regulatory action, the Company entered into an agreement
with Evans in March 1994 which canceled the previous sales agreement and the
Company agreed to refund approximately $532,000 deposited by Evans and an
additional $175,000 of the promotional costs paid by Evans. Accordingly, the
Company reversed the sale of the rights to the sachet formulation of Biolid(R)
and removed the previously recorded gain and receivable from its books,
effective December 31, 1993. As a result of the decision to withdraw the sachet
formulation of Biolid(R) from the French market and the subsequent agreement
with Evans, the Company recorded an expense of $2,241,000 in the fourth quarter
of 1993 reflecting the write-off of the sachet formulation of Biolid(R)
intangible asset, the Biolid(R) inventories and the reimbursement of Evans'
promotional costs.
The Company owns all rights, title and interest to Alphanon(R), a camphor
based anti-hemorrhoidal drug. In connection with the acquisition of Alphanon(R),
the Company agreed to pay for the longer of fifteen years from the first
marketing of Alphanon(R) in each country or the life of an Alphanon(R) patent in
each country, a royalty fee of 5% of the gross profit from the manufacture and
sale of the product and 5% of the net royalty payments received from any
licensing agreements of the product. Costs capitalized related to this drug
license included $262,000 for the value of Common Stock issued. In December 1992
the Company wrote-off all remaining unamortized Alphanon(R) license and related
costs reflecting the decision to discontinue further sales and marketing efforts
related to Alphanon(R) pending further development of the transdermal patch
technology (See Note 4).
Amortization expense for drug licenses and related costs was approximately
$553,000, $328,000, $227,000, $102,000, $89,000 (unaudited) and $86,000 for the
year ended June 30, 1992, for the six months ended December 31, 1992, for the
years ended December 31, 1993 and 1994, and for the nine months ended September
30, 1994 and 1995, respectively.
F-17
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--ACCRUED EXPENSES
Accrued expenses consist of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Accrued expenses.............................................. $ 774 $1,914 $ 1,669
Accrued payroll and severance benefits (Note 4)............... 964 368 475
Amount due to Evans (Note 8).................................. 707 -- --
------ ------ -------------
$2,445 $2,282 $ 2,144
------ ------ -------------
------ ------ -------------
</TABLE>
NOTE 10--DEBT
Short term borrowings consist of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1993 1994 1995
------- ----- -------------
<S> <C> <C> <C>
Trade receivables discounted (with a Spanish financial
institution), with recourse, effective interest rate on the
note is 13.9%................................................. $ 570 $ 463 $ 675
Short-term loan (with a French financial institution),
maturing in January 1994, average interest rate 4.5%........ 369 -- --
Short-term loan (with a French financial institution), matured
on February 2, 1994, interest rate 4.25%.................... 101 -- --
Short-term loan (with a French financial institution),
maturing in January 1995, average interest rate 7.3%........ -- 200 --
Short term loan (with a French financial institution) maturing
in December 1995, average interest rate 11.3%............... -- -- 304
Other......................................................... -- -- 237
------- ----- -------------
Total Short term borrowings................................. $ 1,040 $ 663 $ 1,216
------- ----- -------------
------- ----- -------------
</TABLE>
Long-term debt consists of the following (in Thousands):
<TABLE><CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1993 1994 1995
------ ---- -------------
<S> <C> <C> <C>
First mortgage loan, principal and interest of $35 quarterly
through February 1995, collateralized by land and buildings in
Spain. Interest is based on the Madrid Interbank Offering Rate
(MIBOR*) plus 1.45%.............................................. $ 175 $37 --$
Capital lease obligations, relating to various equipment used by
the Company.................................................... 89 24 4
------ ---- ---
264 61 4
Less current portion............................................. (229) (61 ) (4)
------ ---- ---
Total long-term debt........................................... $ 35 $ 0 $ 0
------ ---- ---
------ ---- ---
</TABLE>
- ------------
* MIBOR at December 31, 1993 and 1994, and September 30, 1995 was 9.5%, 8.65%
and 9.35%, respectively.
The weighted average interest rate on borrowings outstanding at December 31,
1994 and September 30, 1995 was 8.57% and 10.5%, respectively.
F-18
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--REDEEMABLE PREFERRED STOCK
During the year ended June 30, 1992, the Company issued 290,000 shares of $1
par value Series A Convertible Exchangeable Preferred Stock (the "Series A
Preferred Stock") and 340,000 shares of $1 par value Series B Convertible
Exchangeable Preferred Stock ("the Series B Preferred Stock") at $25 per share.
The issuance of these shares provided aggregate proceeds to the Company of
$15,750,000. Since the Series A and B Preferred Stock meet the definition of
Mandatorily Redeemable Preferred Stock, it has been excluded from the Common
Stockholders' Equity section of the Consolidated Balance Sheets. As of December
31, 1994 and September 30, 1995, 220,000 shares of the Series A Preferred Stock
and all shares of the Series B Preferred Stock had been converted into 56,100
and 48,100 shares, respectively, of Common Stock.
The shares of Series A and B Preferred Stock were convertible at the option
of the holders into Common Stock at any time prior to the close of business on
the date fixed for redemption or exchange, at an initial conversion price for
the Series A Preferred Stock of $115.00 per share (at an initial conversion rate
of approximately .21739 shares of Common Stock for each share of Series A
Preferred Stock) and for the Series B Preferred Stock of $160.00 per share (at
an initial conversion rate of .15625 shares of Common Stock for each share of
Series B Preferred Stock). The conversion rates were adjusted by the Company, in
lieu of paying cumulative dividends of 9% per annum to .25828 and .1703 for the
Series A and B Preferred Stock, respectively. The dividend payment date for
Series A Preferred Stock is October 15. The dividend payment date for Series B
Preferred Stock was February 1, 1993.
The Series A Preferred Stock has a liquidation preference equal to $25.00
per share, plus accrued and unpaid dividends up to the liquidation date. The
Series A Preferred Stock is redeemable for cash at the option of the Company.
The Preferred Stock is also redeemable for cash at the option of the holder upon
certain major stock acquisitions or business combinations at $25.00 per share,
plus accrued and unpaid dividends through the redemption dates. The holders of
Preferred Stock have no voting rights except as required by applicable law and
except that if the equivalent of two full annual cash dividends shall be accrued
and unpaid, the holders of the Series A Preferred Stock shall have the right, as
a class, to elect two additional members of the Company's Board of Directors. As
of the date hereof, the holders of the Series A Preferred Stock have not
exercised their right to appoint such directors.
The Series A Preferred Stock is exchangeable in whole, but not in part, at
the option of the Company on any dividend payment date beginning October 15,
1993, for 9% Convertible Subordinated Debentures of the Company due 2016.
Holders of Series A Preferred Stock will be entitled to $25 principal amount of
Debentures for each share of Series A Preferred Stock.
The Series A Preferred Stock is recorded at redemption value, which is
$25.00 per share plus cumulative dividends of 9% per annum. The following table
summarizes activity of the Series A and B Preferred Stock:
F-19
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--REDEEMABLE PREFERRED STOCK--(CONTINUED)
(In Thousands)
<TABLE><CAPTION>
SERIES A SERIES B
----------------- -----------------
<S> <C> <C> <C> <C>
SHARES AMOUNTS SHARES AMOUNTS
------ ------- ------ -------
Balance at December 31, 1992............................... 74 $1,998 212 $ 5,403
Converted to Common Stock................................ -- -- (212) (5,403)
Accretion of discount and accrual of 9% dividends........ -- 220 -- --
------ ------- ------ -------
Balance at December 31, 1993............................... 74 2,218 -- --
Converted to Common Stock................................ (4) (128 )
Accrual of 9% dividends.................................. -- 166 -- --
------ ------- ------ -------
Balance at December 31, 1994............................... 70 2,256 -- --
Accrual of 9% dividends.................................. -- 118 -- --
------ ------- ------ -------
Balance at September 30, 1995.............................. 70 $2,374 -- $ --
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
NOTE 12--COMMON STOCKHOLDERS' EQUITY
At December 31, 1994 and September 30, 1995 the Company had the following
Common Stock reserved for issuances under various plans and agreements:
<TABLE><CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
For conversion of Series A Preferred
Stock (Note 11)........................ 18,000 18,000
For stock purchase warrants.............. 476,500 574,000
For stock options........................ 382,500 260,500
For other................................ 7,500 8,500
-------- --------
884,500 861,000
-------- --------
-------- --------
</TABLE>
The Company has never paid any dividends on its Common Stock. The current
policy of the Board of Directors is to retain earnings to finance the operation
of the Company's business. Accordingly, it is anticipated that no cash dividends
will be paid to the holders of the Common Stock in the foreseeable future. Under
the terms of the Series A Preferred Stock, the Company is restricted from paying
dividends on its Common Stock so long as there are arrearages on dividend
payments on the Series A Preferred Stock. There currently are such arrearages.
STOCK PURCHASE WARRANTS
During the year ended June 30, 1992, stock purchase warrants were converted
into 203,300 shares of the Company's Common Stock at prices ranging from $31.00
to $105.00 per share. Such conversions yielded net proceeds of $6,721,000 to the
Company in the year ended June 30, 1992.
No warrants were converted into shares of the Company's Common Stock in the
six months ended December 31, 1992.
During the year ended December 31, 1993, stock purchase warrants were
converted into 8,700 shares of the Company's Common Stock at prices ranging from
$10.00 to $13.75 per share. Such conversions yielded net proceeds of $97,000 to
the Company in the year ended December 31, 1993.
F-20
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--COMMON STOCKHOLDERS' EQUITY--(CONTINUED)
During the year ended December 31, 1994, stock purchase warrants were
converted into 2,500 shares of the Company's Common Stock at $13.75 per share.
Such conversions yielded net proceeds of $34,000 to the Company in the year
ended December 31, 1994.
No warrants were converted into shares of the Company's Common Stock in the
nine months ended September 30, 1995.
At September 30, 1995, there were 574,000 warrants outstanding which were
exercisable at prices ranging from $2.50 to $120.00 per share, of which 241,000
warrants have an exercise price of $2.50 per share. The Warrants expire through
December 1998.
COMMON STOCK TRANSACTIONS
During the year ended June 30, 1992, the Company issued 94,100 shares of
Common Stock in two private placement transactions with total net proceeds of
$8,447,000 and purchased 5,400 shares of its outstanding Common Stock for
$495,000. Also during the year ended June 30, 1992, 336,000 shares of the
Company's Series A and B Preferred Stock were converted into 65,700 shares of
Common Stock at conversion prices ranging from $115.00 to $160.00 per share.
During the six months ended December 31, 1992, the Company issued 80,600
shares of Common Stock in a private placement transaction, with total net
proceeds of $3,864,000 ($1,700,000 of such proceeds were received subsequent to
December 31, 1992 and were recorded as stock subscriptions receivable in the
Common Stockholders' Equity section of the Consolidated Balance Sheets at
December 31, 1992). The Company also awarded 17,000 shares of Common Stock to
employees as incentive compensation in the six months ended December 31, 1992
and 8,000 shares of the Company's Series B Preferred Stock were converted into
1,300 shares of Common Stock at the conversion price of $160.00 per share during
this period.
During the year ended December 31, 1993, the Company issued 733,400 shares
of Common Stock in private placement transactions, with total net proceeds of
$7,385,000 ($770,000 of such proceeds were recorded as stock subscriptions
receivable in the Common Stockholders' Equity section of the Consolidated
Balance Sheets). Also, 212,000 shares of the Company's Series B Preferred Stock
were converted into 36,100 shares of Common Stock at the conversion price of
$160.00 per share. The Company also awarded 1,900 shares of Common Stock to
employees as incentive compensation and settled litigation with two former
officers of the Company by issuing to them an aggregate of 14,700 shares of
Common Stock in the year ended December 31, 1993.
During the year ended December 31, 1994, the Company issued 845,800 shares
of Common Stock in private placement transactions, with total net proceeds of
$4,944,000 ($1,596,000 of such proceeds were recorded as stock subscriptions
receivable in the Common Stockholders' Equity section of the Consolidated
Balance Sheets of which approximately $1,193,000 had been received as of
December 8, 1995). Also, 4,000 shares of the Company's Series A Preferred Stock
were converted into 1,100 shares of Common Stock at the conversion price of
$115.00 per share. The Company also awarded 7,000 shares of Common Stock to
Directors as compensation and settled litigation with shareholders of the
Company by issuing to them an aggregate of 70,200 shares of Common Stock in the
year ended December 31, 1994.
During the nine months ended September 30, 1995, the Company issued 817
shares of Common Stock to Directors as compensation.
F-21
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--COMMON STOCKHOLDERS' EQUITY--(CONTINUED)
STOCK SUBSCRIPTIONS RECEIVABLE
Stock subscriptions receivable at June 30, 1992 represent amounts owed to
the Company by two former officers of the Company (see explanation below).
Certain receivables from one of the former officers included in the June 30,
1992 balance were forgiven and are included in non-recurring charges for the six
months ended December 31, 1992. (See Notes 4, 15 and 16).
Stock subscriptions receivable at December 31, 1992 included $412,000 owed
to the Company by a former officer of the Company (see explanation below) and
$1,700,000 owed to the Company by a subscriber of 50,000 shares of Common Stock
which were issued in a private placement. The $1,700,000 was received in full in
February 1993.
Stock subscriptions receivable at December 31, 1993 included $498,000 owed
to the Company by a former officer of the Company (see explanation below).
Additionally, amounts owed to the Company by a subscriber of 50,000 shares of
Common Stock which were issued in a private placement total $770,000 and were
included in the December 31, 1993 balance. Of this amount $473,000 was received
in 1994.
Stock subscriptions receivable at December 31, 1994 include an amount owed
to the Company by a former officer and director of the Company for the exercise
of various warrants and options to purchase 6,570 shares of the Company's Common
Stock at prices ranging from $38.10 to $105.00 per share totaling $412,000. The
notes accrued interest at the rate of 8.5% per annum payable through the
issuance of additional promissory notes having the same terms as the
subscriptions receivable. Such accrued interest totaled $121,000 at December 31,
1994. The Company cancelled the promissory notes receivable together with
interest due on such notes aggregating approximately $533,000 in May 1995 as a
result of a jury verdict. See Note 15. Additionally, amounts owed to the Company
by subscribers of shares of Common Stock which were issued in private placements
total $1,017,000 and are included in the December 31, 1994 balance, however,
$561,000 of this balance was collected in the nine months ended September 30,
1995. The remaining subscriptions outstanding relate to a subscription agreement
whereby the subscriber has entered into a subscription agreement with the
Company and delivered promissory notes for the purchase of the shares. The
shares have been issued in the name of the individual but were pledged to the
Company to secure payment for such shares under the promissory notes. The shares
are released from the pledge as they are paid for. Under the terms of the
subscription agreement and the related promissory note, the purchase price for
the stock is set at the closing price for the Company's Common Stock on the date
that the subscriber makes the payment for shares to be delivered and payment is
made to the Company under the promissory notes. The stock subscription
receivable and additional paid in capital were reduced by $350,000 at September
30, 1995 to reflect the current trading price for the Company's Common Stock at
September 30, 1995.
STOCK OPTION PLANS
The Company has in effect Stock Option Plans (the "Plans"), pursuant to
which directors, officers, and employees of the Company who contribute
materially to the success and profitability of the Company are eligible to
receive grants of options for the Company's Common Stock. An aggregate of
380,500 shares of Common Stock have been reserved for issuance under the Plans,
of which 166,200 and 214,600 had been granted as of and December 31, 1994 and
September 30, 1995, respectively. Options may be granted for terms not exceeding
ten years from the date of grant except for stock options which are granted to
persons owning more than 10% of the total combined voting power of all classes
of stock of the Company. For these individuals, options may be granted for terms
not exceeding five years from the date of grant. Options may not be granted at a
price which is less than 100% of the fair market value on the date the options
are granted (110% in the case of persons owning more than 10% of the total
combined voting power of the Company).
F-22
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--COMMON STOCKHOLDERS' EQUITY--(CONTINUED)
During the year ended June 30, 1992, holders of stock options exercised
options acquiring 41,800 shares of the Company's Common Stock. Such exercises
provided proceeds to the Company of $2,057,000 in the year ended June 30, 1992.
Holders of stock options exercised no options during the year ended December
31, 1993 or 1994, or the nine months ended September 30, 1995; however, they
exercised options during the six months ended December 31, 1992, acquiring 1,100
shares of the Company's Common Stock at prices ranging from $50.00 to $66.88 per
share. Such exercises provided proceeds of $60,000 to the Company in the six
months ended December 31, 1992.
In addition, the Company has granted options and warrants outside of the
Plans in connection with private placements of its securities and as
consideration for various services. These options and warrants have been granted
for terms not exceeding six years from the date of grant. The table below
summarizes all activity for the year ended June 30, 1992, the six months ended
December 31, 1992, the years ended December 31, 1993 and 1994 and the nine
months ended September 30, 1995.
<TABLE><CAPTION>
NUMBER OF PRICE
COMMON SHARES PER SHARE
-------------
<S> <C> <C> <C> <C>
(IN
THOUSANDS)
Outstanding at June 30, 1991.............................. 278
Granted................................................. 142 $100.00 to $177.50
Exercised............................................... (245) $ 25.00 to $105.00
Canceled................................................ (4) $ 50.00 to $ 58.75
-----
Outstanding at June 30, 1992.............................. 171
Granted................................................. 88 $ 42.00 to $300.00
Exercised............................................... (1) $ 50.00 to $ 66.88
Canceled................................................ (14) $ 50.00 to $152.50
-----
Outstanding at December 31, 1992.......................... 244
Granted................................................. 171 $ 10.00 to $ 45.00
Exercised............................................... (9) $ 10.00 to $ 13.75
Canceled................................................ (110) $ 37.50 to $300.00
-----
Outstanding at December 31, 1993.......................... 296
Granted................................................. 359 $ 2.50 to $ 20.00
Exercised............................................... (2) $ 13.75
Canceled................................................ (10) $ 13.75 to $ 71.25
-----
Outstanding at December 31, 1994.......................... 643
Granted................................................. 180 $ 2.50 to $ 7.50
Exercised............................................... -- --
Canceled................................................ (34) $ 11.25 to $177.50
-----
Outstanding at September 30, 1995......................... 789
-----
-----
</TABLE>
Options and warrants outstanding include 574,000 warrants, all of which are
exercisable, and 215,000 options, of which 82,000 are vested and exercisable at
September 30, 1995.
F-23
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--PROVISION FOR INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes" effective
January 1, 1993, and began recognizing income tax benefits for net operating
loss carryforwards, credit carryforwards and certain temporary differences for
which tax benefits have not previously been recorded. As a result of the
adoption of SFAS 109, the Company has recognized approximately $18,000,000 as a
deferred tax asset; however, the Company has established a valuation allowance
equal to the full amount of the deferred tax asset, as future operating profits
cannot be assured. The Company expects to recognize the benefit of the asset
when financial reporting and taxable income is generated.
At December 31, 1994 and September 30, 1995, the Company has net operating
loss (the "NOL") carryforwards of approximately $34,000,000 and $35,000,000,
respectively, available to offset future U.S. taxable income. The Company
calculates that its use of the NOL may be limited to approximately $3,000,000
each year as a result of stock option and warrant issuances during prior fiscal
years resulting in an ownership change of more that 50% of the Company's
outstanding equity. If not offset against future taxable income, the NOL
carryforwards will expire in tax years 1996 through 2010.
In addition, Chimos/LBF S.A. and Laboratorios Belmac S.A. have NOL
carryforwards of approximately $14,000,000 and $3,000,000 available to offset
future taxable income for income tax purposes in France and Spain, respectively.
If not offset against taxable income, the NOL carryforwards will expire in
various years ending 1999.
The provision for income taxes of $343,000 for the year ended June 30, 1992
is the result of current French taxes on profits generated by Chimos S.A. in the
year ended June 30, 1992. Chimos was not eligible to file a French consolidated
income tax return with Laboratoires Belmac S.A. until fiscal year 1993.
Therefore, the Laboratoires Belmac losses were not available to offset Chimos'
taxable profits for the year ended June 30, 1992. For the six months ended
December 31, 1992, the years ended December 31, 1993 and 1994 and for the nine
months ended September 30, 1994 and 1995, no income tax provision is recorded
due to domestic losses and the consolidation of Chimos S.A. with Laboratoires
Belmac S.A. and subsequent merger of the two entities for French tax purposes.
NOTE 14--BUSINESS SEGMENT INFORMATION ON FOREIGN OPERATIONS
The following is a summary of the results of operations and identifiable
assets of the Company's wholly-owned foreign subsidiaries as of and for the year
ended June 30, 1992, as of and for the six months ended December 31, 1992, and
as of and for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1994 and 1995.
<TABLE><CAPTION>
(IN THOUSANDS)
YEAR ENDED JUNE 30, 1992
--------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
------- ------ ------- ------------
<S> <C> <C> <C> <C>
Revenue.............................................. $10,891 $2,247 $ -- $ 13,138
Net loss............................................. (5,168) (189) (5,454) (10,811)
Identifiable assets.................................. 26,452 7,781 4,520 38,753
<CAPTION>
(IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 1992
----------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
-------- ------- ------- ------------
<S> <C> <C> <C> <C>
Revenue............................................ $ 7,738 $ 1,970 $ -- $ 9,708
Net loss........................................... (11,808) (1,228) (6,495) (19,531)
Identifiable assets................................ 10,793 7,373 3,787 21,953
</TABLE>
F-24
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--BUSINESS SEGMENT INFORMATION ON FOREIGN OPERATIONS--(CONTINUED)
<TABLE><CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1993
--------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
------ ------- ------- ------------
<S> <C> <C> <C> <C>
Revenue.............................................. $15,155 $ 4,328 $ 366 $ 19,849
Net loss............................................. (811) (1,655) (7,770) (10,236)
Identifiable assets.................................. 7,023 6,873 2,264 16,160
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
------- ------ -------- ------------
<S> <C> <C> <C> <C>
Revenue............................................. $20,257 $5,843 $ 184 $ 26,284
Net income (loss)................................... 595 (405) (3,768) (3,578)
Identifiable assets................................. 6,476 7,833 2,023 16,332
<CAPTION>
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
--------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
------- ------ ------- ------------
<S> <C> <C> <C> <C>
Revenue.............................................. $15,499 $4,061 $ 116 $ 19,676
Net income (loss).................................... (65) (974) (2,612) (3,651)
Identifiable assets.................................. 7,316 7,404 2,180 16,900
<CAPTION>
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------
FRANCE SPAIN U.S. CONSOLIDATED
------- ------ ------- ------------
<S> <C> <C> <C> <C>
Revenue.............................................. $19,282 $4,147 $ 154 $ 23,583
Net income (loss).................................... 1,103 (352) (2,270) (1,519)
Identifiable assets.................................. 7,713 7,349 1,108 16,170
</TABLE>
Total liabilities attributable to foreign operations were $11,029,000,
$8,358,000, $8,428,000 and $6,649,000 at December 31, 1992, December 31, 1993,
December 31, 1994 and September 30, 1995, respectively. There were no dividends
from foreign subsidiaries, and net foreign currency gains (losses) reflected in
results of operations for the year ended June 30, 1992, the six months ended
December 31, 1992, the year ended December 31, 1993 and 1994 and the nine months
ended September 30, 1994 and 1995 were approximately $35,000, $40,000,
($133,000), $66,000, $30,000 (unaudited), and $2,000, respectively. Sales in
France for the years ended December 31, 1993 and 1994, and the nine months ended
September 30, 1994 and 1995 include approximately $4,500,000, $8,000,000,
$6,953,000 (unaudited) and $6,024,000, respectively, to Pharmacie Centrale des
Hopitaux. Sales in France for the six months ended December 31, 1992, include
approximately $1,900,000 to Pharmacie Centrale des Hopitaux and $2,500,000 to
Distraphar. Sales in France for the year ended June 30, 1992 include
approximately $3,000,000 and $1,400,000 to Pharmacie Centrale des Hopitaux and
Industrie Chemiche Farmaceutiche Italienne, respectively.
NOTE 15--COMMITMENTS AND CONTINGENCIES
On July 15, 1993, Michael M. Harshbarger was discharged for cause from the
Company as President and Chief Executive Officer. At the time of his discharge,
Harshbarger owed the Company approximately $121,000 as a result of expenses of a
personal nature which he charged to the Company's accounts and removal of
corporate assets for personal use. Harshbarger has sued the Company for
F-25
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
wrongful termination, seeking damages in excess of $1,400,000 and the Company
has countersued for wrongful conversion and civil theft, fraud and deceit, and
breach of contract, in an effort to recover the amounts owed by Harshbarger. The
Company is amending a counterclaim against Harshbarger for breach of fiduciary
duty and is seeking damages in excess of $1,000,000. In the opinion of current
management, the amounts are collectable and this litigation will have no
material effect on the financial position or results of operations of the
Company.
On November 30, 1992, Marc S. Ayers resigned as Chief Financial Officer of
the Company and effective December 17, 1992, resigned as a member of the Board
of Directors. At December 31, 1994 Ayers owed the Company $412,000 plus $121,000
accrued interest under two stock subscription notes receivable, both of which
had matured and remained unpaid. Ayers sued the Company alleging breach of
contract and the Company countersued Ayers. This matter was tried in 1994 and a
jury verdict rendered on August 18, 1994, found in favor of Ayers on one issue
and in favor of the Company on another issue. The judge ordered a new trial on
all issues and no judgement was entered in the case. After a jury trial in May
1995, the jury found no binding contract was made between the Company and Ayers
while awarding Ayers a recovery of approximately $27,000 for consulting services
rendered and cancellation of the promissory notes and interest thereon. The
cancellation of the promissory notes and related interest was charged to
expenses in the nine months ended September 30, 1995.
Belmac Hygiene, Inc. ("Hygiene"), a subsidiary of the Company, filed an
action on December 9, 1994 in the United States District Court for the Southern
District of New York against Medstar, Inc. ("Medstar"), Maximed, Inc.
("Maximed") and Robert S. Cohen. The defendants are Hygiene's partners (or such
partner's control persons) in the Company's partnership with Maximed (the
"Partnership"), which was formed for the development and ultimate sale of
Maximed's intravaginal controlled release products. The action seeks (i) to
enjoin the defendants from interfering with the management of the Partnership by
Hygiene's representatives, and (ii) to recover damages as a result of
defendants' misrepresentations and breach of warranty in the Partnership
agreement. The defendants have filed a counterclaim against Hygiene. Medstar
also filed a separate action on May 4, 1995 in the Untied States District Court
for the Southern District of New York against the Company alleging that Hygiene
failed to fund the Partnership and seeking $10,000,000 from the Company pursuant
to its guaranty of Hygiene's obligations. Management of the Company views both
Medstar's claim and the counterclaim of Medstar, Maximed and Robert S. Cohen to
be frivolous and entirely without merit and is vigorously pursuing the Company's
claims and defending both Medstar's action and the counterclaim. The issues were
tried, without a jury, on August 21-23, 1995. Thereafter, post-trial briefs and
proposed findings of fact and conclusions of law were submitted, and argument
was heard on October 25, 1995. However, a decision has not yet been rendered as
of December 8, 1995.
The Company has determined that it is exposed to certain contingencies with
respect to its operations in Spain totaling approximately $640,000 and has
accrued $120,000 for such contingencies that are considered probable and
included such amount in other non-current liabilities as of September 30, 1995.
The Company is also obligated to pay royalties on sales of the drug
Alphanon(R) (Notes 4 and 8).
The Company is entitled to payments of $360,000 related to the
commercialization of a certain drug provided to Jean-Francois Rossignol, its
former Chairman and Chief Executive Officer. On April 8, 1995, Rossignol filed a
Demand for Arbitration seeking to recover unspecified damages for the alleged
breach of a written agreement between Rossignol and the Company dated August 13,
1993. In April 1995, the Company commenced an action against Rossignol, Marc S.
Ayers and Romarc
F-26
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Laboratories, L.C., in the Circuit Court of the Thirteenth Judicial Circuit,
State of Florida, Hillsborough County Civil Division seeking, inter alia, a stay
of the arbitration commenced by Rossignol and $360,000 representing the
principal amount of a promissory note issued in connection with the August 13,
1993 agreement and damages. Under the terms of a settlement agreement entered
into on December 6, 1995 (the "Settlement Agreement"), Rossignol agreed to pay
to the Company the full amount of the promissory note in three installments, the
first of which ($160,000) was paid upon execution of the Settlement Agreement
and the remaining two ($100,000 each) are due in January and March 1996,
respectively. Consequently, the Company has included such amounts in Other
(Income) Expense for the nine months ended September 30, 1995.
The Company leases certain of its assets under noncancellable operating
leases. Total charges to operations under operating leases were approximately
$105,000, $204,000, $598,000, $360,000, $347,000 (unaudited) and $318,000, for
the year ended June 30, 1992, for the six months ended December 31, 1992, for
the years ended December 31, 1993 and 1994 and for the nine months ended
September 30, 1994 and 1995, respectively. Future minimum lease payments under
operating leases are as follows:
<TABLE><CAPTION>
(IN THOUSANDS)
PERIOD ENDING, DECEMBER 31
- -----------------------------------------------------------
<S> <C>
1995............................................... $ 133
1996............................................... 419
1997............................................... 321
1998............................................... 246
1999, and thereafter............................... -0-
</TABLE>
NOTE 16--RELATED PARTY TRANSACTIONS
See Note 12 for stock subscriptions receivable from former officers and Note
15 for additional disclosures related to former officers.
On May 30, 1991 Rossignol exercised options to purchase 11,120 shares of
Common Stock at an average exercise price of $38.30 per share and Ayers
exercised options to purchase 4,674 shares at an exercise price of $45.60 per
share. On September 6, 1991, Ayers exercised options to purchase 1,896 shares of
Common Stock at an exercise price of $105.00 per share. Rossignol and Ayers
exercised their options through the issuance of promissory notes (the "Notes")
in the principal amounts of $426,000 and $412,000, respectively, representing
the aggregate exercise prices for such options. Each of the Notes accrued
interest at the rate of 8.5% per annum which was payable through the issuance of
additional promissory notes having the same terms as the Notes. In November
1992, Rossignol prepaid his note down to $271,000 (including accrued interest)
through the offset of payments from the Company (see additional explanation
below). February 26, 1993, Rossignol resigned as Chief Executive Officer and
Chairman of the Board and the Company agreed to forgive $271,000 of his Note
balance (including accrued interest) due to the Company and to release his
Belmac Holdings, Inc. (formerly Pharmacin Holdings, Inc.) stock which was held
as collateral by the Company. This transaction has been included in other
non-recurring charges for the six months ended December 31, 1992. Ayers' notes
and accrued interest were cancelled in May 1995 as a result of litigation and
are included in Other (Income) Expense for the nine months ended September 30,
1995. See Note 15.
Healthcare Capital Investments ("Healthcare"), a registered broker-dealer
which is 80% owned by Harshbarger, a former Director and former President and
Chief Executive Officer of the Company and
F-27
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--RELATED PARTY TRANSACTIONS--(CONTINUED)
his wife, has acted as placement agent for the Company on private placements of
the Company's securities. In a $14,250,000 private placement completed in
October 1991 which Healthcare co-managed with Societe Generale Securities
Corporation ("Societe Generale"), Healthcare received a fee of $426,000. In a
$10,620,000 private placement completed in April 1992 which Healthcare also co-
managed with Societe Generale, Healthcare received a fee of $318,600. In
connection with a private placement completed in October 1992, Healthcare
received a fee of $244,500 and four-year warrants to purchase 2,391 shares of
Common Stock at an exercise price of $120.00 per share. In addition, in July
1992 Healthcare was granted five-year options to purchase 15,000 shares of
Common Stock at an exercise price of $116.25 per share for its advisory
services. Healthcare and its affiliates received fees during the year ended
December 31, 1993 totaling $242,000 and four- and five-year warrants to purchase
an aggregate of 9,600 shares of Common Stock at an exercise price of $22.00 per
share. Fees paid in connection with the above private placements have been
charged to additional-paid-in-capital.
Receivables at December 31, 1994 and September 30, 1995 include
approximately $121,000 owed by Harshbarger. See Note 15.
NOTE 17--SUBSEQUENT EVENTS
Private Placements. To finance its operations, in October 1995 the Company
conducted two private placements of its securities. In the first placement the
Company sold to certain purchasers for an aggregate purchase price of $720,000,
120,000 shares of the Company's Common Stock and 12% promissory notes in the
aggregate principal amount of $720,000 (the "Notes") which become payable in
full upon the earlier of July 31, 1996 or the closing of a public offering of
the Company's securities (a "Public Offering"). The Notes are convertible into
shares of Common Stock, at the option of the holders thereof, at a conversion
price of $3.00 per share, for an aggregate of 240,000 shares of Common Stock,
subject to anti-dilution provisions. The Notes are subject to mandatory
conversion at a conversion price of $3.00 per share if no Public Offering is
completed by July 31, 1996. The effective interest rate on the notes is 83%.
In the second placement, the Company sold to certain purchasers for an
aggregate purchase price of $1,050,000, 131,250 shares of Common Stock and 12%
promissory notes in the aggregate principal amount of $1,050,000 (the "A Notes")
which become payable in full upon the earlier of September 30, 1996 or the
completion of a Public Offering. The A Notes are subject to mandatory
conversion, at a conversion price equal to the average closing price for the
Common Stock quoted on the American Stock Exchange for the five trading days
immediately preceding September 30, 1996, if no Public Offering is completed by
September 30, 1996. The effective interest rate on the notes is 75%.
Settlement of Litigation. In December 1995, the Company entered into a
Settlement Agreement with Jean Francois Rossignol, Marc S. Ayers and Romark
Laboratories, L.C., whereby all parties agreed to settle all claims relative to
this matter and Rossignol agreed to pay to the Company the full amount of the
$360,000 promissory note dated August 13, 1993 due to the Company in three
installments. The first installment of $160,000 was paid upon execution of the
Settlement Agreement and the remaining two installments of $100,000 each are due
in January and March 1996, respectively. Consequently, the Company has included
such amounts in Other (Income) Expense for the nine months ended September 30,
1995. See Note 15.
Shareholders Meeting. At a Special Meeting of Shareholders held on December
8, 1995, the shareholders of the Company approved proposals to increase the
number of authorized shares of Common Stock from 5,000,000 to 20,000,000 and to
change the name of the Company to Bentley Pharmaceuticals, Inc.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
<S> <C>
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION 6,000 UNITS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE BY THIS [LOGO]
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE BENTLEY
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE PHARMACEUTICALS, INC.
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A Each Consisting of One Thousand Dollars
SOLICITATION OF AN OFFER TO BUY ANY OF THESE ($1,000) Principal Amount
SECURITIES IN ANY JURISDICTION TO ANY PERSON 12% Convertible Senior Subordinated
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR Debenture
SOLICITATION. EXCEPT WHERE OTHERWISE
INDICATED, THIS PROSPECTUS SPEAKS AS OF THE Due February , 2006
EFFECTIVE DATE OF THE REGISTRATION STATEMENT. and
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY 1,000 Class A Redeemable Warrants
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT Each to Purchase One Share
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF of Common Stock and
THE COMPANY SINCE THE DATE HEREOF. One Class B Redeemable
Warrant
Offering Price $1,000 per Unit
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 17 ---------------
Price Range of Common Stock and PROSPECTUS
Dividend Policy....................... 18 ---------------
Capitalization........................ 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Legal Proceedings..................... 38
Management............................ 39
Executive Compensation................ 41 COLEMAN AND COMPANY
Principal Stockholders................ 47 SECURITIES, INC.
Description of Securities............. 49
Description of Debentures............. 54
Certain Federal Income Tax
Considerations........................ 59
Requirement For Current
Registration.......................... 61
Underwriting.......................... 62
Concurrent Offering................... 63
Legal Matters......................... 64
Experts............................... 64
Index to Financial Statements......... F-1
February , 1996
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Alternate Page for Selling Shareholder Prospectus]
Subject to Completion, Dated January 30, 1996
PROSPECTUS
[LOGO]
BENTLEY PHARMACEUTICALS, INC.
593,500 Shares of Common Stock
-------------------
This Prospectus relates to 593,500 shares (the "Selling Shareholders'
Shares") of common stock, par value $.02 per share (the "Common Stock"), of
Bentley Pharmaceuticals, Inc. (the "Company"), which are being offered for sale
by certain selling shareholders (the "Selling Shareholders"). The Selling
Shareholders' Shares include (i) 120,000 shares of Common Stock issued by the
Company in an October 1995 private placement (the "First Placement"); (ii)
240,000 shares of Common Stock issuable upon conversion, at the option of the
holder thereof, of $720,000 principal amount convertible notes (the "Notes")
issued in the First Placement at a conversion price of $3.00 per share upon 15
days notice to the Company; (iii) 131,250 shares of Common Stock issued by the
Company in a subsequent October 1995 private placement (the "Second Placement");
(iv) 100,000 shares of Common Stock which may be issued by the Company upon
exercise of stock purchase warrants by Baytree Associates, Inc.; and (v) 2,250
shares of Common Stock issued to Martin E. Janis & Co., Inc. in connection with
consulting services rendered. See "Selling Shareholders and Plan of
Distribution." The Company will not receive any of the proceeds from the sales
of the Selling Shareholders' Shares by the Selling Shareholders.
The Selling Shareholders, their pledgees and/or their donees, may be deemed
to be "underwriters" as defined in the Securities Act of 1933. If any
broker-dealers are used by the Selling Shareholders, their pledgees and/or their
donees, any commissions paid to broker-dealers and, if broker-dealers purchase
any Selling Shareholders' Shares as principals, any profits received by such
broker-dealers on the resale of the Selling Shareholders' Shares may be deemed
to be underwriting discounts or commissions under the Securities Act of 1933. In
addition, any profits realized by the Selling Shareholders, their pledgees
and/or their donees, may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the Selling
Shareholders' Shares offered by Selling Shareholders will be borne by the
Company. Brokerage commission, if any, attributable to the sale of the Selling
Shareholders' Shares will be borne by the Selling Shareholders, their pledgees
and/or their donees.
The Selling Shareholders' Shares offered by this Prospectus may be sold from
time to time by the Selling Shareholders, their pledgees and/or their donees. No
underwriting arrangements have been entered into by the Selling Shareholders.
The distribution of the Selling Shareholders' Shares by the Selling
Shareholders, their pledgees and/or their donees, may be effected in one or more
transactions that may take place on the American Stock Exchange or the
over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such shares as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or negotiated prices.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the Selling Shareholders, their pledgees and/or their donees, in
connection with sales of the Selling Shareholders' Shares.
On the date of this Prospectus, a registration statement under the Securities
Act of 1933 with respect to an underwritten public offering of 6,000 Units
(without giving effect to the over-allotment option (the "Over-allotment
Option") granted to the Underwriters to purchase an additional 900 Units), with
each Unit consisting of one thousand dollar ($1,000) principal amount 12%
convertible senior subordinated debenture due February , 2006 ("Debentures")
and 1,000 class A redeemable warrants, with each redeemable warrant entitling
the holder to purchase one share of Common Stock and one class B redeemable
warrant (the "Units"), was declared effective by the Securities and Exchange
Commission. The Debentures are convertible into Common Stock at a conversion
price per share of the lesser of $2.50 or 80% of the average closing price of
the Common Stock on the American Stock Exchange for the 20 consecutive trading
days immediately preceding the date twelve months after the date of this
Prospectus (or earlier upon a notice of redemption). Upon conversion of all of
the Debentures, based on the conversion price of $2.50, the Company will issue
2,760,000 shares of Common Stock (which amount may be increased to 3,689,840
shares of Common Stock if the average closing price of the Common Stock during
the twenty-day period used for calculation of the conversion of the Debentures
was equal to $2.34, the average closing price of the Common Stock during the
twenty-day period ended January 26, 1996. 10,350,000 shares of Common Stock
would be issuable upon exercise of the Class A and Class B redeemable warrants.
In connection with the offering of the Units, the Company granted the
Underwriter a warrant to purchase 600 Units (the "Underwriter's Warrant").
1,140,000 shares of Common Stock would be issuable upon exercise of the
securities underlying the Underwriter Warrants.
-------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE PURCHASERS
SHOULD CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION
"RISK FACTORS" LOCATED ON PAGE 9 OF THIS PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is February , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
THE OFFERING
This Prospectus relates to the offering of 593,500 shares of Common Stock.
See "Description of Securities" and "Selling Shareholders and Plan of
Distribution."
RISK FACTORS
Investment in the Company involves certain risks. Risk factors include,
among others, the following: (i) the Company has a history of operating losses
and accumulated operating deficits; (ii) the Company has a negative cash flow
from operating activities and may not be able to fund current operations; and
(iii) these matters may indicate that there is substantial doubt about the
Company's ability to continue as a going concern. See "Risk Factors."
B
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued or may issue an aggregate of 593,500 shares of Common
Stock to the Selling Shareholders that are being offered pursuant to this
Prospectus. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Selling Shareholders have advised the Company that sales of the shares of
Common Stock may be effected from time to time by themselves, their pledgees
and/or their donees, in transactions (which may include block transactions) on
the American Stock Exchange, on the over-the-counter market, in negotiated
transactions, through the writing of options on the Common Stock or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Shareholders, their pledgees and/or their donees, may effect such
transactions by selling Common Stock directly to purchasers or through
broker-dealers that may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commission from
the Selling Shareholders and/or the purchasers of shares of Common Stock for
whom such broker-dealers may act as agents or to whom they sell as principals,
or both (which compensation as to a particular broker-dealer might be in excess
of customary commissions).
The Selling Shareholders, their pledgees and/or their donees, and any
broker-dealers that act in connection with the sale of the shares of Common
Stock as principals may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commissions received by them and any
profit on the resale of the shares of Common Stock as principals might be deemed
to be underwriting discounts and commissions under the Securities Act. The
Selling Shareholders, their pledgees and/or their donees, may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares of Common Stock against certain liabilities, including
liabilities arising under the Securities Act. The Company will not receive any
proceeds from the sales of the Selling Shareholders' Shares by the Selling
Shareholders. Sales to the Selling Shareholders' Shares by the Selling
Shareholders, or even the potential of such sales, would likely have an adverse
effect on the market price of the Common Stock.
The following table sets forth certain information with respect to persons
for whom the Company is registering the Selling Shareholders' Shares for resale
to the public. The Company will not receive any of the proceeds from the sale of
the Selling Shareholders' Shares. Beneficial ownership of the Selling
Shareholders' Shares by such Selling Shareholders after the offering will depend
on the number of Selling Shareholders' Shares sold by each Selling Shareholder.
The Selling Shareholders' Shares offered by the Selling Shareholders are not
being underwritten by the Underwriter.
C
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
<TABLE><CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP
OWNERSHIP AFTER OFFERING IF
PRIOR TO OFFERING MAXIMUM MAXIMUM IS SOLD
------------------ AMOUNT TO -----------------
SELLING SHAREHOLDER AMOUNT PERCENT BE SOLD AMOUNT PERCENT
- ------------------------------------------------ ------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Robert J. Alldredge(1).......................... 15,000 * 15,000 0 0
Thomas G. Babington(1).......................... 30,000 * 30,000 0 0
Barry Blank(1)(3)............................... 120,000 3.52% 120,000 0 0
Violet M. Blank(1).............................. 15,000 * 15,000 0 0
Joseph Giamanco(1).............................. 60,000 1.78% 60,000 0 0
John E. McConnaughy, Jr.(1)..................... 120,000 3.52% 120,000 0 0
Khin Aye(2)..................................... 7,500 * 7,500 0 0
Wilson Price Barranco Billingsly Keogh Plan,
John S. Price, Trustee Trustee, FBO Carl A.
Barranco(2)..................................... 3,750 * 3,750 0 0
Wilson Price Barranco Billingsly Keogh Plan,
John S. Price, Trustee Trustee, FBO William
Barranco(2)..................................... 3,750 * 3,750 0 0
Albert Brod(2).................................. 3,750 * 3,750 0 0
Thomas J. Carroll(2)............................ 7,500 * 7,500 0 0
Leo Denslow(2).................................. 7,500 * 7,500 0 0
James H. Friar(2)............................... 7,500 * 7,500 0 0
Barry Friedman(2)............................... 3,750 * 3,750 0 0
John N. Kapoor Trust DTD 9/20/89, John N. Kapoor
Trustee(2)...................................... 7,500 * 7,500 0 0
John Kiser (2).................................. 7,500 * 7,500 0 0
Willard J. Kiser Living Trust DTD 11/1/91(2).... 7,500 * 7,500 0 0
Alec G. Land(2)................................. 7,500 * 7,500 0 0
Richard M. Maser(2)............................. 15,000 * 15,000 0 0
Robert A. Mignatti(2)........................... 3,750 3,750 0 0
Kenneth W. Moore(2)............................. 7,500 * 7,500 0 0
Sara Parnum(2).................................. 3,750 * 3,750 0 0
Therold W. Perkins Trust U/A/D 7/1/90,
Therold W. Perkins Trustee(2)................. 7,500 * 7,500 0 0
Sam A. Phillips(2).............................. 7,500 * 7,500 0 0
JoAnn Timbanard(2).............................. 3,750 * 3,750 0 0
James R. Washburn(2)............................ 7,500 * 7,500 0 0
Baytree Associates, Inc.(4)..................... 100,000 2.92 100,000 0 0
Martin E. Janis & Co., Inc.(5).................. 2,250 * 2,250 0 0
</TABLE>
- ------------
* Less than one percent
(1) First Placement
(2) Second Placement
(3) Mr. Blank is an officer of Coleman & Company Securities, Inc. ("Coleman"),
the underwriter of the underwritten public offering referred to on the cover
page of this Prospectus. Coleman acted as the placement agent for the First
Placement and the Second Placement.
(4) Baytree Associates, Inc., which provides financial advisory services to the
Company, assisted the Company in raising private capital from foreign
sources during early 1993 and 1994.
(5) Martin E. Janis & Co., Inc. provided the Company with investor relations
services in 1994 and 1995.
D
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, New York 10036. Barry B. Feiner, Esq. has acted as counsel for the Selling
Shareholders in connection with this Offering. Parker Chapin Flattau & Klimpl,
LLP and Mr. Feiner have represented Coleman in connection with other
transactions.
EXPERTS
On June 6, 1994, Price Waterhouse declined to stand for re-election as the
Company's independent public accountant. There was no adverse opinion or
disclaimer of opinion, or modification as to uncertainty, audit scope or
accounting principles contained in the reports of Price Waterhouse for the
fiscal years ended June 30, 1992 and December 31, 1993 or the six month
transition period ended December 31, 1992, other than the inclusion in Price
Waterhouse's reports relating to the periods ended December 31, 1992 and 1993 of
a statement as to an uncertainty regarding the ability of the Company to
continue as a going concern.
During the Company's fiscal periods covered by Price Waterhouse's reports
and the subsequent interim period preceding Price Waterhouse's decision not to
stand for re-election on June 6, 1994, there were no disagreements with Price
Waterhouse on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Price Waterhouse, would have caused Price
Waterhouse to make reference in connection with its report concerning the
Company's financial statements to the subject matter of the disagreements other
than as set forth below.
For the fiscal year ended June 30, 1992, Price Waterhouse reported material
weaknesses indicating that during much of fiscal 1992, European financial
management personnel were not in place, uniform accounting policies and
reporting procedures were not clearly established and certain corporate
documents, such as Board of Directors meeting minutes, contractual agreements
and documents filed with the Securities and Exchange Commission, were not
contemporaneously available from management and signed copies of such documents
were not readily available. These items were discussed with the Audit Committee
of the Company's Board of Directors and, during the year ended December 31,
1993, were resolved to the satisfaction of Price Waterhouse. The Price
Waterhouse report to the Audit Committee for the year ended December 31, 1993
did not contain any material weaknesses. The Company authorized Price Waterhouse
to respond fully to the inquiries of a successor accountant concerning all
subject matters.
The Audit Committee of the Board of Directors of the Company selected
Deloitte & Touche LLP to serve as the Company's independent auditors for the
year ended December 31, 1994 and for the year ending December 31, 1995.
The consolidated financial statements as of December 31, 1994 and for the
year then ended, and as of September 30, 1995 and for the nine months then
ended, included in this Prospectus and the related financial statement schedule
as of December 31, 1994 and for the year then ended, and as of September 30,
1995 and for the nine months then ended included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement (which reports express an unqualified opinion and include an
explanatory paragraph referring to the Company's recurring losses from
operations as well as negative operating cash flows which raise substantial
doubt about its ability to continue as a going concern), and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
E
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
The consolidated financial statements with respect to the year ended June
30, 1992, the six months ended December 31, 1992 and the year ended December 31,
1993 included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been so included in
reliance on the report (which includes an explanatory paragraph relating to the
Company's ability to continue as a going concern as described in Note 1 of Notes
to Consolidated Financial Statements) of Price Waterhouse LLP, independent
accountants, given on authority of said firm as experts in auditing and
accounting.
F
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
<S> <C>
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE 593,500 SHARES
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE OF COMMON STOCK
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A [LOGO]
SOLICITATION OF AN OFFER TO BUY ANY OF THESE
SECURITIES IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. EXCEPT WHERE OTHERWISE
INDICATED, THIS PROSPECTUS SPEAKS AS OF THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT BENTLEY
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PHARMACEUTICALS, INC.
THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
Price Range of Common Stock and
Dividend Policy....................... 18
Capitalization........................ 19 ---------------
Selected Financial Data............... 20 PROSPECTUS
Management's Discussion and Analysis ---------------
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 39
Executive Compensation................ 41
Principal Stockholders................ 47
Description of Securities............. 49
Description of Debentures............. 54
Certain Federal Income Tax
Considerations........................ 59
Requirement For Current
Registration.......................... 61
Selling Shareholders and Plan of
Distribution.......................... C
Legal Matters......................... E
Experts............................... E-F
Index to Financial Statements......... F-1
February , 1996
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder. All of such expenses will be borne by the
Registrant.
Registration fee--Securities and Exchange Commission............ $ 11,598
Legal fees and expenses......................................... 100,000
Accounting fees and expenses.................................... 80,000
Blue sky fees and expenses (including counsel fees)............. 10,000
Printing expenses............................................... 35,000
Miscellaneous................................................... $ 13,402
--------
Total........................................................... $250,000
--------
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida 1989 Business Corporation Act is set forth
below:
Sec.607.0850 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS.
A corporation shall have the power to indemnify any person who was or is a party
to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
A. A corporation shall have power to indemnify any person, who was or is a
party to any proceeding by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interest of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
B. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (1) or subsection (2), or in
II-1
<PAGE>
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses actually and reasonably incurred by him in connection therewith.
C. Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsection (1) or
subsection (2). Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
(1) Selected by the board of directors prescribed in paragraph (a) or
the committee prescribed in paragraph (b); or
(2) If a quorum of the directors cannot be obtained for paragraph (a)
and the committee cannot be designated under paragraph (b), selected by
majority vote of the full board of directors (in which directors who are
parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such proceeding or, if no such quorum
is obtainable, by a majority vote of shareholders who were not parties to
such proceeding.
D. Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
E. Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
F. The indemnification and advancement of expenses provided pursuant to this
section are not exclusive, and a corporation may make any other or further
indemnification or advancement of expenses of any of its directors, officers,
employees, or agents, under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or agent
derived an improper personal benefit;
II-2
<PAGE>
(c) In the case of a director, a circumstance under which the liability
provisions of s. 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best interests
of the corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder.
G. Indemnification and advancement of expenses as provided in this section
shall continue as, unless otherwise provided when authorized or ratified, to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person, unless otherwise provided when authorized or ratified.
H. Unless the corporation's articles of incorporation provide otherwise,
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary determination of the board or of the shareholders in the
specific case, a director, officer, employee, or agent of the corporation who is
or was a party to a proceeding may apply for indemnification or advancement of
expenses, or both, to the court conducting the proceeding, to the circuit court,
or to another court of competent jurisdiction. On receipt of an application, the
court, after giving any notice that it considers necessary, may order
indemnification and advancement of expenses, including expenses incurred in
seeking court-ordered indemnification or advancement of expenses, if it
determines that:
(a) The director, officer, employee, or agent is entitled to mandatory
indemnification under subsection (3), in which case the court shall also
order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and reasonably
entitled to indemnification or advancement of expenses, or both, in view of
all the relevant circumstances, regardless of whether such person met the
standard of conduct set forth in subsection (1), subsection (2), or
subsection (7).
I. For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
J. For purposes of this section:
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to
any employee benefit plan), and expenses actually and reasonably incurred
with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or completed
action, suit, or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
II-3
<PAGE>
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes any
service as a director, officer, employee, or agent of the corporation that
imposes duties on such persons, including duties relating to an employee
benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner he
reasonably believes to be in the best interests of the participants and
beneficiaries of an employee benefit plan.
K. A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
* * * * *
Article IV of the Registrant's By-laws contains provisions for the
indemnification of officers, directors, employees and agents to the fullest
extent permitted by Section 607.0850.
There is in effect a directors and officers liability insurance policy with
Lexington Insurance Company. The policy insures the directors and officers of
the Registrant against loss arising from certain claim or claims made against
such directors or officers by reason of certain wrongful acts. The policy
provides combined limit of liability of $2,000,000 per policy year for both
directors' and officers' liability coverage at an annual premium of $113,400.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
A. On December 16, 1992 the Registrant granted to an officer 10,000 shares
of Common Stock in exchange for services rendered. Such grant was made in
reliance on the exemption provided by Section 4(2) of the Securities Act of
1933, as amended (the "Act").
B. On December 29, 1992 the Registrant granted to 70 employees of the
Registrant in Spain an aggregate of 7,000 shares of Common Stock for services
rendered. Such grant was made in reliance on the exemption provided by Section
4(2) of the Act.
C. On April 1, 1993 the Registrant granted to 19 employees of the Registrant
in Tampa, Florida an aggregate of 1,900 shares of Common Stock for services
rendered. Such grant was made in reliance on the exemption provided by Section
4(2) of the Act.
D. From April 19, 1993 through July 13, 1993 the Registrant conducted a
private placement to investors which are accredited investors as such term is
defined in Regulation D ("Regulation D") promulgated under the Act and to
investors who are not U.S. Persons, as such term is defined in Regulation S
("Regulation S") promulgated under the Act, of 547,335 shares of Common Stock
for aggregate proceeds of $5,725,000 and aggregate commissions and underwriter
discounts of $1,345,000. The placement agents for such sales were Global
Financial, Drake Capital, The Lion Group, Baytree Associates, Healthcare Capital
Group and Euro-Pacific Securities, Inc. Such sales were made in reliance upon
the exemptions provided by Regulation D and Regulation S.
E. On June 14, 1993 and December 31, 1993 the Registrant granted to two
former employees an aggregate of 14,667 shares of Common Stock in settlement of
litigation related to their termination. Such grant was made in reliance on the
exemption provided by Section 4(2) of the Act.
II-4
<PAGE>
F. On July 22, 1993 the Registrant issued to a former officer and director
10,000 shares of Common Stock upon conversion of such employee s minority
interest in a subsidiary of the Registrant. Such issuance was made in reliance
on the exemption provided by Section 4(2) of the Act.
G. From September 10, 1993 through September 28, 1993 the Registrant
conducted a private placement to investors which are accredited investors as
such term is defined in Regulation D of 66,000 shares of Common Stock for
aggregate proceeds of $841,000 and commissions of $11,000. The placement agent
for such sales was Phillipe Aransaenz. Such sales were made in reliance upon the
exemption provided by Regulation D.
H. On November 23, 1993 the Registrant conducted a private placement to
investors which are not U.S. Persons as such term is defined in Regulation S of
50,000 shares of Common Stock for aggregate proceeds of $618,000. The placement
agents for such sales were Euro-Pacific Securities, Inc. and Pacific
International. Such sales were made in reliance upon the exemption provided by
Regulation S.
I. On November 24, 1993 the Registrant conducted a private placement to
investors which are accredited investors as such term is defined in Regulation D
of 70,000 shares of Common Stock for aggregate proceeds of $1,700,000. The
placement agent for such sales was Healthcare Capital Group, which received
commissions of approximately $102,000. Such sales were made in reliance upon the
exemption provided by Regulation D.
J. From November 24, 1993 through February 4, 1994 the Registrant issued to
two holders of warrants an aggregate of 11,250 shares of Common Stock for
aggregate proceeds of $131,250. Such issuances were made in reliance upon the
exemptions provided by Regulation D and Regulation S.
K. On March 29, 1994 the Registrant conducted a private placement to an
investor who is an accredited investor as such term is defined in Regulation D
of 52,500 shares of Common Stock for aggregate proceeds of $577,000. The
placement agent for such sales was Baytree Associates, which received
commissions of $58,000. Such sale was made in reliance upon the exemption
provided by Regulation D.
L. On April 22, 1994 the Registrant conducted a private placement to an
investor who is not a U.S. Person as such term is defined in Regulation S of
20,000 shares of Common Stock for aggregate proceeds of $150,000. The placement
agent for such sales was Baytree Associates, which received commissions of
$15,000. Such issuance was made in reliance upon the exemption provided by
Regulation S.
M. On May 9, 1994 the Registrant issued to class members settling a class
action proceeding against the Registrant an aggregate of 70,176 shares of Common
Stock with an aggregate market value of $1,000,000. Such sale was made in
reliance on the exemption provided by Section 3(a)(10) of the Act.
N. On June 2, 1994 the Registrant issued to members of the Registrant s
board of directors an aggregate of 7,000 shares of Common Stock for services
rendered. Such sale was made in reliance on the exemption provided by Section
4(2) of the Act.
O. From June 16, 1994 through December 7, 1994 the Registrant conducted a
private placement to investors which are not U.S. Persons as such term is
defined in Regulation S of 723,316 shares of Common Stock for aggregate proceeds
of $3,868,000. The placement agents were Baytree Associates and American
Capital, which recieved commissions of $343,000. Such sales were made in
reliance upon the exemption provided by Regulation S.
II-5
<PAGE>
P. On October 14, 1994 the Registrant issued to a consultant 21,818 shares
of Common Stock for consulting services rendered. Such sale was made in reliance
upon the exemption provided by Regulation D.
Q. On December 19, 1994 the Registrant issued upon conversion of outstanding
shares of Series A Preferred Stock 1,152 shares of Common Stock. Such sale was
made in reliance upon the exemption provided by Regulation D.
R. On April 7, 1995 the Registrant issued to members of the Registrant s
board of directors an aggregate of 817 shares of Common Stock for services
rendered. Such sales were made in reliance on the exemption provided by Section
4(2) of the Act.
S. On October 5, 1995 the Registrant conducted a private placement to
investors who are accredited investors as such term is defined in Regulation D
of 12 Units each consisting of a 12% Convertible Subordinated Note and 10,000
shares of Common Stock for aggregate proceeds of $720,000. The placement agent
was Coleman and Company Securities, Inc. received commissions of $72,000. Such
sales were made in reliance upon the exemption provided by Regulation D.
T. On October 11, 1995 the Registrant issued upon conversion of outstanding
shares of Series A Preferred Stock 3,088 shares of Common Stock. Such issuance
was made in reliance upon the exemption provided by Regulation D.
U. On October 26, 1995 the Registrant conducted a private placement to
investors who are accredited investors as such term is defined in Regulation D
of 17.5 Units each consisting of a 12% Convertible Subordinated Note and 7,500
shares of Common Stock (or a proportional share thereof) for aggregate proceeds
of $1,050,000. The placement agent was Coleman and Company Securities, Inc.,
which received commissions of $105,000. Such sales were made in reliance upon
the exemption provided by Regulation D.
V. On December 8, 1995, the Registrant issued to its former Chairman 6,000
shares of Common Stock for services rendered. Such sale was made in reliance on
the exemption provided by Section 4(2) of the Act.
W. On December 8, 1995, the Registrant issued to a consultant 2,250 shares
of Common Stock for consulting services rendered. Such sale was made in reliance
upon the exemption provided by Regulation D.
X. On December 8, 1995, the Registrant issued to a holder of warrants an
aggregate of 90,000 shares of Common Stock for aggregate proceeds of $225,000.
Such issuance was made in reliance upon the exemption provided by Regulation S.
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
1.1(1) Underwriting Agreement.
3.1(1) Articles of Incorporation of the Registrant, as amended and restated.
3.2 By-Laws of the Registrant, as amended and restated. (Reference is made to Exhibit
3.2 to the Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581,
which exhibit is incorporated herein by reference.)
3.3 Amendment to By-Laws of the Registrant. (Reference is made to Exhibit 3.2(a) to the
Registrant's Amendment No. 1 on Form S-3 to Form S-1 Registration Statement,
Commission File No. 33-35941, which exhibit is incorporated herein by reference.)
4.1 Registrant's Incentive Stock Option Plan. (Reference is made to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-18, Commission File No. 33-17201,
which exhibit is incorporated herein by reference.)
4.2 Registrant's Non-Qualified Stock Option Plan. (Reference is made to Exhibit 4.4 to
the Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.3 Form of Incentive Stock Option Agreement under the Registrant's Incentive Stock
Option Plan. (Reference is made to Exhibit 4.6 to the Registrant's Form 10-K filed
June 30, 1989, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.4 Form of Director's Incentive Stock Option Agreement under the Registrant's
Incentive Stock Option Plan. (Reference is made to Exhibit 4.6(a) to the
Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.5 Form of Non-Qualified Stock Option Agreement under the Registrant's Non-Qualified
Stock Option Plan. (Reference is made to Exhibit 4.7(a) to the Registrant's Form
10-K filed June 30, 1989, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.6 Form of Director's Non-Qualified Stock Option Agreement under the Registrant's Non-
Qualified Stock Option Plan. (Reference is made to Exhibit 4.7(a) to the
Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.7 Form of Subscription Agreement between the Registrant and each purchaser in
connection with the Registrant's October 1991 sales of its $2.25 Convertible
Exchangeable Preferred Shares, Series A. (Reference is made to Exhibit 4.1 to the
Registrant's Form 8-K filed October 17, 1991, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.8 Indenture relating to the Registrant's 9% Convertible Subordinated Debentures due
2016 (with the Form of Debenture attached thereto as Exhibit A.) (Reference is made
to Exhibit 4.2 to the Registrant's Form 8-K filed October 17, 1991, Commission File
No. 1-10581, which exhibit is incorporated herein by reference.)
4.9 Specimen Certificate of the Registrant's $2.25 Convertible Exchangeable Preferred
Shares, Series A. (Reference is made to Exhibit 4.3 to the Registrant's Form 8-K
filed October 17, 1991, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.10 Registrant's 1991 Stock Option Plan. (Reference is made to Exhibit 4.6 to the
Registrant's Form 8-K filed October 17, 1991, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.11 Amendment to Registrant's 1991 Stock Option Plan. (Reference is made to Exhibit
4.17 to the Registrant's Form 10-K for the Transition Period Ended December 31,
1992, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.12 Amendment to Registrant's 1991 Stock Option Plan as approved by the shareholders on
June 9, 1994. (Reference is made to Exhibit 4.16 to the Registrant s Form 10-K for
the year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference).
</TABLE>
II-7
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
4.13 Form of Non-qualified Stock Option Agreement under the Registrant's 1991 Stock
Option Plan. (Reference is made to Exhibit 4.25 to the Registrant's Form 10-K dated
June 30, 1992, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.14 Subscription Agreement between the Registrant and Bodel Inc. dated November 23,
1993. (Reference is made to Exhibit 4.20 to the Registrant's Form 10-K filed
December 31, 1993, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.15 Subscription Agreement between the Registrant and E.C. Morgan, dated May 10, 1993.
(Reference is made to Exhibit 4.4 to the Registrant's Registration Statement on
Form S-3, Commission File No. 33-69946, which exhibit is incorporated herein by
reference.)
4.16 Form of Subscription Agreement between the Registrant and various subscribers to
its common stock entered into by each of the Selling Stockholders other than E.C.
Morgan, Rossignol, Ferraris, and Huguet. (Reference is made to Exhibit 4.5 to the
Registrant's Registration Statement on Form S-3, Commission File No. 33-69946,
which exhibit is incorporated herein by reference.)
4.17 Warrants issued by the Registrant to Grant Harshbarger, dated November 11, 1993 and
November 17, 1993, respectively. (Reference is made to Exhibit 4.8 to the
Registrant's Registration Statement on Form S-3, Commission File No. 33-69946,
which exhibit is incorporated herein by reference.)
4.18 Warrants issued by the Registrant to Healthcare Capital Investments, Inc., dated
November 11, 1993 and November 17, 1993, respectively. (Reference is made to
Exhibit 4.9 to the Registrant's Registration Statement on Form S-3, Commission File
No. 33-69946, which exhibit is incorporated herein by reference.)
4.19 Subscription Agreement between the Registrant and Western Slops, Ltd. dated March
29, 1994. (Reference is made to Exhibit 4.29 to the Registrant s Form 10-K for the
year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.20 Form of Subscription Agreement between the Registrant and various subscribers to
its Common Stock for the purchase of shares in a 1994 private placement. (Reference
is made to Exhibit 4.30 to the Registrant s Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.21 Form of Subscription Agreement between the Registrant and various subscribers to
its Common Stock for the purchase of units in a 1994 private placement. (Reference
is made to Exhibit 4.31 to the Registrant s Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.22 Subscription Agreement between the Registrant and Shulmit Pritziker dated December
7, 1994. (Reference is made to Exhibit 4.32 to the Registrant s Form 10-K for the
year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.23(2) Warrants issued by the Registrant to Baytree Associates, Inc. dated October 18,
1995.
4.24 Form of Subscription Agreement between the Registrant and various purchasers of
Units consisting of one note and 10,000 shares of Common Stock in an October 1995
private placement. (Reference is made to Exhibit 4.1 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.25 Form of Note dated September 30, 1995 issued by the Registrant to the purchasers of
Units in an October 1995 private placement. (Reference is made to Exhibit 4.2 to
the Registrant's Form 8-K filed November 29, 1995, Commission File No. 1-10581,
which exhibit is incorporated herein by reference.)
4.26 Form of Subscription Agreement between the Registrant and various purchasers of
Units consisting of one note and 7,500 shares of Common Stock in an October 1995
private placement. (Reference is made to Exhibit 4.3 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.27 Form of Note dated October 25, 1995 issued by the Registrant to the purchasers of
Units in an October 1995 private placement. (Reference is made to Exhibit 4.4 to
the
</TABLE>
II-8
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
Registrant's Form 8-K filed November 29, 1995, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
<S> <C>
4.28(1) Form of Indenture relating to the Registrant s $1,000 Principal Amount 12% Senior
Convertible Subordinated Debentures due February __, 2006 (with the Form of
Debenture attached thereto as Exhibit A.) (as revised)
4.29(1) Form of Warrant Agreement, including form of Class A and Class B Warrant.
4.30(3) Form of Underwriter Warrant.
5.1(1) Opinion and consent of Parker Chapin Flattau & Klimpl, LLP.
10.1(2) Employment Agreement dated as of June 12, 1995 between the Registrant and James R.
Murphy.
10.2(2) Employment Agreement dated as of June 12, 1995 between the Registrant and Robert M.
Stote, M.D.
10.3(2) Employment Agreement dated as of June 12, 1995 between the Registrant and Michael
D. Price.
10.4 Agreement between the Registrant and Jean-Francois Rossignol dated August 13, 1993.
(Reference is made to Exhibit 4.2 to the Registrant's Registration Statement on
Form S-3, Commission File No. 33-69946, which exhibit is incorporated herein by
reference.)
10.5 Partnership Agreement dated March 11, 1994 of Belmac/Maximed Partnership (Reference
is made to Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended March
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
10.6 Contract for Sale and Transfer of Belmacina(R) Know-How and Trademark between
Laboratorios Belmac S.A. and CEPA, together with English Summary. (Reference is
made to Exhibit 2.1 to the Registrant's Form 8-K dated February 1, 1995, Commission
File No. 1-10581, which exhibit is incorporated herein by reference.)
12.1(2) Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant. (Reference is made to Exhibit 21.1 to the
Registrant's Form 10-K for the year ended December 31, 1994, Commission File No.
1-10581, which exhibit is incorporated herein by reference.)
23.1(1) Consent of Deloitte & Touche LLP.
23.2(1) Consent of Price Waterhouse LLP.
23.3 Consent of Parker Chapin Flattau & Klimpl, LLP. (Included in Exhibit 5.1.)
25.1 Power of Attorney. (Included on page II-17 of the initial filing of the
Registrant's Registration Statement on Form S-1, Commission File No. 33-65125.)
</TABLE>
- ------------
(1) Filed herewith.
(2) Previously filed.
(3) To be filed by amendment.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ------------ ----------------------------------------------------------------- ------------
<S> <C> <C>
Reports of Independent Auditors' on Financial Statement
Schedule......................................................... S-1 and S-2
Schedule II Valuation and qualifying accounts and reserves................... S-3
</TABLE>
All other schedules have been omitted because they are inapplicable or are
not required, or the information is included elsewhere in the consolidated
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
II-9
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) that for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) that for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the Securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(A) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(C) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(5) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, State of Florida,
on the 30th day of January, 1996.
BENTLEY PHARMACEUTICALS, INC.
By /s/ JAMES R. MURPHY
...................................
James R. Murphy
Chairman of the Board,
President, Chief Executive Officer
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ----------------
<S> <C> <C>
/s/ JAMES R. MURPHY Chairman of the Board, President,
.................................... Chief Executive Officer and Director
James R. Murphy (Principal Executive Officer) January 30, 1996
* Senior Vice-President, Chief Science
.................................... Officer and Director
Robert M. Stote January 30, 1996
* Vice-President, Chief Financial
.................................... Officer, Treasurer, Secretary and
Michael D. Price Director (Principal Financial and January 30, 1996
Accounting Officer)
* Director
....................................
Randolph W. Arnegger January 30, 1996
* Director
....................................
Charles L. Bolling January 30, 1996
* Director
....................................
Doris E. Wardell January 30, 1996
</TABLE>
*By: /s/ James R. Murphy
...........................................................................
James R. Murphy
(attorney-in-fact)
II-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Bentley Pharmaceuticals, Inc.
Tampa, Florida
We have audited the consolidated financial statements of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation) and subsidiaries (the
"Company") as of December 31, 1994 and for the year then ended and as of
September 30, 1995 and for the nine months then ended, and have issued our
report thereon dated December 8, 1995, which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the Company's
recurring losses from operations as well as negative operating cash flows, which
raise substantial doubt about its ability to continue as a going concern; such
consolidated financial statements and report are included elsewhere in this
Amendment No. 1 to Registration Statement No. 33-65125 on Form S-1. Our audit
also included the financial statement schedule as of December 31, 1994 and for
the year then ended, and as of September 30, 1995 and for the nine months then
ended of the Company listed in Item 16. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Tampa, Florida
December 8, 1995
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Bentley Pharmaceuticals, Inc.
Our audits of the consolidated financial statements of Bentley Pharmaceuticals,
Inc. (previously Belmac Corporation) referred to in our report dated March 30,
1994 appearing elsewhere in this Registration Statement on Form S-1 also
included an audit of the Financial Statement Schedule listed in Item 16 of this
form. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Tampa, Florida
March 30, 1994
S-2
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE><CAPTION>
COLUMN C
-----------------------------
COLUMN B ADDITIONS
------------ ----------------------------- COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO ----------- -------------
- ------------------------------- BEGINNING OF COSTS AND OTHER ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ------------------------------- ------------ ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Drug licenses and related
costs:
For the year ended June 30,
1992........................... $162,000 $ 553,000 $ 715,000
For the six months ended
December 31, 1992.............. 715,000 328,000 $ 609,000(a) 434,000
For the year ended December 31,
1993........................... 434,000 227,000 414,000(b) 247,000
For the year ended December 31,
1994........................... 247,000 102,000 58,000(c) 291,000
For the nine months ended
September 30, 1994(e).......... 247,000 76,000 323,000
For the nine months ended
September 30, 1995............. 291,000 86,000 377,000
Goodwill:
For the year ended June 30,
1992........................... 0 48,000 48,000
For the six months ended
December 31, 1992.............. 48,000 20,000 68,000
For the year ended December 31,
1993........................... 68,000 40,000 108,000
For the year ended December 31,
1994........................... 108,000 40,000 148,000
For the nine months ended
September 30, 1994(e).......... 108,000 30,000 138,000
For the nine months ended
September 30, 1995............. 148,000 30,000 178,000
Reserve for inventory
obsolescence:
For the year ended December 31,
1994........................... 0 248,000 248,000
For the nine months ended
September 30, 1995............. 248,000 423,000 671,000
Other:
For the year ended June 30,
1992........................... 0 102,000 102,000
For the six months ended
December 31, 1992.............. 102,000 222,000 324,000(d) 0
</TABLE>
- ------------
(a) Due to the restructuring of the Registrant, capitalized costs relating to
Alphanon(R) were written off along with the corresponding accumulated
amortization of approximately $125,000. Also Amodex(R) was written down to
its net realizable value and the corresponding accumulated amortization of
approximately $484,000 was written off.
(b) Due to the Registrant's sale of its French marketing rights to Amodex(R),
the drug license and related accumulated amortization of approximately
$66,000 were removed from the accounts, and includes the effect of exchange
rate fluctuation. Due to the agreement with Evans dated March 25, 1994,
whereby the Registrant agreed to return to Evans the 25% deposit and
one-half of the promotion campaign monies paid and to release from escrow
the balance of the purchase price, the capitalized costs relating to
Biolid(R) and the related accumulated amortization of approximately $387,000
were written off, which includes the effect of exchange rate fluctuation.
(c) Due to the Registrant's sale of its Spanish marketing rights to
Belmacina(R), the drug license and related accumulated amortization of
approximately $81,000 were removed from the accounts and includes the effect
of exchange rate fluctuation.
(d) Other costs were written off and included in restructuring charges of the
Registrant for the six months ended December 31, 1992.
(e) Unaudited.
S-3
<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
1.1(1) Underwriting Agreement.
3.1(1) Articles of Incorporation of the Registrant, as amended and restated.
3.2 By-Laws of the Registrant, as amended and restated. (Reference is made to Exhibit
3.2 to the Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581,
which exhibit is incorporated herein by reference.)
3.3 Amendment to By-Laws of the Registrant. (Reference is made to Exhibit 3.2(a) to the
Registrant's Amendment No. 1 on Form S-3 to Form S-1 Registration Statement,
Commission File No. 33-35941, which exhibit is incorporated herein by reference.)
4.1 Registrant's Incentive Stock Option Plan. (Reference is made to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-18, Commission File No. 33-17201,
which exhibit is incorporated herein by reference.)
4.2 Registrant's Non-Qualified Stock Option Plan. (Reference is made to Exhibit 4.4 to
the Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.3 Form of Incentive Stock Option Agreement under the Registrant's Incentive Stock
Option Plan. (Reference is made to Exhibit 4.6 to the Registrant's Form 10-K filed
June 30, 1989, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.4 Form of Director's Incentive Stock Option Agreement under the Registrant's
Incentive Stock Option Plan. (Reference is made to Exhibit 4.6(a) to the
Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.5 Form of Non-Qualified Stock Option Agreement under the Registrant's Non-Qualified
Stock Option Plan. (Reference is made to Exhibit 4.7(a) to the Registrant's Form
10-K filed June 30, 1989, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.6 Form of Director's Non-Qualified Stock Option Agreement under the Registrant's Non-
Qualified Stock Option Plan. (Reference is made to Exhibit 4.7(a) to the
Registrant's Form 10-K filed June 30, 1989, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.7 Form of Subscription Agreement between the Registrant and each purchaser in
connection with the Registrant's October 1991 sales of its $2.25 Convertible
Exchangeable Preferred Shares, Series A. (Reference is made to Exhibit 4.1 to the
Registrant's Form 8-K filed October 17, 1991, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.8 Indenture relating to the Registrant's 9% Convertible Subordinated Debentures due
2016 (with the Form of Debenture attached thereto as Exhibit A.) (Reference is made
to Exhibit 4.2 to the Registrant's Form 8-K filed October 17, 1991, Commission File
No. 1-10581, which exhibit is incorporated herein by reference.)
4.9 Specimen Certificate of the Registrant's $2.25 Convertible Exchangeable Preferred
Shares, Series A. (Reference is made to Exhibit 4.3 to the Registrant's Form 8-K
filed October 17, 1991, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.10 Registrant's 1991 Stock Option Plan. (Reference is made to Exhibit 4.6 to the
Registrant's Form 8-K filed October 17, 1991, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.11 Amendment to Registrant's 1991 Stock Option Plan. (Reference is made to Exhibit
4.17 to the Registrant's Form 10-K for the Transition Period Ended December 31,
1992, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.12 Amendment to Registrant's 1991 Stock Option Plan as approved by the shareholders on
June 9, 1994. (Reference is made to Exhibit 4.16 to the Registrant s Form 10-K for
the year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ---------
<S> <C>
4.13 Form of Non-qualified Stock Option Agreement under the Registrant's 1991 Stock
Option Plan. (Reference is made to Exhibit 4.25 to the Registrant's Form 10-K dated
June 30, 1992, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.14 Subscription Agreement between the Registrant and Bodel Inc. dated November 23,
1993. (Reference is made to Exhibit 4.20 to the Registrant's Form 10-K filed
December 31, 1993, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.15 Subscription Agreement between the Registrant and E.C. Morgan, dated May 10, 1993.
(Reference is made to Exhibit 4.4 to the Registrant's Registration Statement on
Form S-3, Commission File No. 33-69946, which exhibit is incorporated herein by
reference.)
4.16 Form of Subscription Agreement between the Registrant and various subscribers to
its common stock entered into by each of the Selling Stockholders other than E.C.
Morgan, Rossignol, Ferraris, and Huguet. (Reference is made to Exhibit 4.5 to the
Registrant's Registration Statement on Form S-3, Commission File No. 33-69946,
which exhibit is incorporated herein by reference.)
4.17 Warrants issued by the Registrant to Grant Harshbarger, dated November 11, 1993 and
November 17, 1993, respectively. (Reference is made to Exhibit 4.8 to the
Registrant's Registration Statement on Form S-3, Commission File No. 33-69946,
which exhibit is incorporated herein by reference.)
4.18 Warrants issued by the Registrant to Healthcare Capital Investments, Inc., dated
November 11, 1993 and November 17, 1993, respectively. (Reference is made to
Exhibit 4.9 to the Registrant's Registration Statement on Form S-3, Commission File
No. 33-69946, which exhibit is incorporated herein by reference.)
4.19 Subscription Agreement between the Registrant and Western Slops, Ltd. dated March
29, 1994. (Reference is made to Exhibit 4.29 to the Registrant s Form 10-K for the
year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.20 Form of Subscription Agreement between the Registrant and various subscribers to
its Common Stock for the purchase of shares in a 1994 private placement. (Reference
is made to Exhibit 4.30 to the Registrant s Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.21 Form of Subscription Agreement between the Registrant and various subscribers to
its Common Stock for the purchase of units in a 1994 private placement. (Reference
is made to Exhibit 4.31 to the Registrant s Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.22 Subscription Agreement between the Registrant and Shulmit Pritziker dated December
7, 1994. (Reference is made to Exhibit 4.32 to the Registrant s Form 10-K for the
year ended December 31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.23(2) Warrants issued by the Registrant to Baytree Associates, Inc. dated October 18,
1995.
4.24 Form of Subscription Agreement between the Registrant and various purchasers of
Units consisting of one note and 10,000 shares of Common Stock in an October 1995
private placement. (Reference is made to Exhibit 4.1 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.25 Form of Note dated September 30, 1995 issued by the Registrant to the purchasers of
Units in an October 1995 private placement. (Reference is made to Exhibit 4.2 to
the Registrant's Form 8-K filed November 29, 1995, Commission File No. 1-10581,
which exhibit is incorporated herein by reference.)
4.26 Form of Subscription Agreement between the Registrant and various purchasers of
Units consisting of one note and 7,500 shares of Common Stock in an October 1995
private placement. (Reference is made to Exhibit 4.3 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.27 Form of Note dated October 25, 1995 issued by the Registrant to the purchasers of
Units in an October 1995 private placement. (Reference is made to Exhibit 4.4 to
the Registrant's Form 8-K filed November 29, 1995, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
4.28(1) Form of Indenture relating to the Registrant s $1,000 Principal Amount 12% Senior
Convertible Subordinated Debentures due February __, 2006 (with the Form of
Debenture attached thereto as Exhibit A.) (as revised)
4.29(1) Form of Warrant Agreement, including form of Class A and Class B Warrant.
4.30(3) Form of Underwriter Warrant.
5.1(1) Opinion and consent of Parker Chapin Flattau & Klimpl, LLP.
10.1(2) Employment Agreement dated as of June 12, 1995 between the Registrant and James R.
Murphy.
10.2(2) Employment Agreement dated as of June 12, 1995 between the Registrant and Robert M.
Stote, M.D.
10.3(2) Employment Agreement dated as of June 12, 1995 between the Registrant and Michael
D. Price.
10.4 Agreement between the Registrant and Jean-Francois Rossignol dated August 13, 1993.
(Reference is made to Exhibit 4.2 to the Registrant's Registration Statement on
Form S-3, Commission File No. 33-69946, which exhibit is incorporated herein by
reference.)
10.5 Partnership Agreement dated March 11, 1994 of Belmac/Maximed Partnership (Reference
is made to Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended March
31, 1994, Commission File No. 1-10581, which exhibit is incorporated herein by
reference.)
10.6 Contract for Sale and Transfer of Belmacina(R) Know-How and Trademark between
Laboratorios Belmac S.A. and CEPA, together with English Summary. (Reference is
made to Exhibit 2.1 to the Registrant's Form 8-K dated February 1, 1995, Commission
File No. 1-10581, which exhibit is incorporated herein by reference.)
12.1(2) Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant. (Reference is made to Exhibit 21.1 to the
Registrant's Form 10-K for the year ended December 31, 1994, Commission File No.
1-10581, which exhibit is incorporated herein by reference.)
23.1(1) Consent of Deloitte & Touche LLP.
23.2(1) Consent of Price Waterhouse LLP.
23.3 Consent of Parker Chapin Flattau & Klimpl, LLP. (Included in Exhibit 5.1.)
25.1 Power of Attorney. (Included on page II-17 of the initial filing of the
Registrant's Registration Statement on Form S-1, Commission File No. 33-65125.)
</TABLE>
BENTLEY PHARMACEUTICALS, INC.
6,000 Units
Each Consisting of one One Thousand Dollar ($1,000) Principal Amount
12% Convertible Senior Subordinated Debenture Due February ___, 2006
and
1,000 Class A Redeemable Warrants each to Purchase One Share of
Common Stock and One Class B Redeemable Warrant
UNDERWRITING AGREEMENT
___________ __, 1996
COLEMAN AND COMPANY SECURITIES, INC.
666 Fifth Avenue
New York, New York 10103
Dear Sirs or Madams:
Bentley Pharmaceuticals, Inc., a Florida corporation (the "Company"),
hereby confirms its agreement with Coleman and Company Securities, Inc. (the
"Underwriter") for the issuance of the Units described herein under the terms
and conditions contained herein.
The Company proposes to issue and sell to the Underwriter an aggregate of
6,000 Units ("Firm Units"), each consisting of one of the Company's $1,000
principal amount 12% Convertible Senior Subordinated Debentures due February __,
2006 (the "Debentures") and 1,000 Class A Redeemable Warrants (the "Class A
Warrants") each for the purchase of one share of the common stock of the
Company, par value $.02 per share (the "Common Stock"), and one Class B
Redeemable Warrant (the "Class B Warrants"). The Debentures, which are
unsecured, are convertible prior to maturity, unless previously redeemed, at any
time commencing twelve months after the date hereof (the "Anniversary Date") or
immediately following a notice of redemption (as defined in the Prospectus dated
February __, 1996) into shares of the Common Stock at a conversion price per
share of the lesser of $3.00 or 80% of the average closing price of the Common
Stock on the American Stock Exchange for the 20 consecutive trading days
immediately preceding the Anniversary Date, or earlier upon a notice of
redemption. Interest is payable quarterly. Commencing six months after the date
hereof and with the Underwriter's consent, the Company may, on 30 days prior
written notice, redeem the Debentures, in whole or in part, if the closing
<PAGE>
price of the Common Stock on the American Stock Exchange for each of the 20
consecutive trading days immediately preceding the record date for redemption
equals or exceeds $7.00 per share. The redemption price will be 105% of the
principal amount of the Debentures or $1,050 per Debenture plus accrued interest
through the date of redemption. The conversion price per share during the period
following the notice of redemption, if prior to the Anniversary Date, will be
the lesser of $3.00 or 80% of the average closing price of the Common Stock on
the American Stock Exchange for the 20 consecutive trading days immediately
preceding the record date for redemption.
Each Class A Warrant entitles the holder, for a period of three years, to
purchase one share of Common Stock and one Class B Warrant at a price of $3.00
per share. On 30 days prior written notice, the Company may redeem all of the
Class A Warrants for $.05 per Warrant if the per share closing price for the
underlying Common Stock on the American Stock Exchange for each of the 20
consecutive trading days immediately preceding the record date for redemption
equals or exceeds 150% of the then exercise price. Two Class B Warrants,
together, entitle a holder, for a period of five years, to purchase one share of
Common Stock at a price of $5.00 per share. On 30 days prior written notice, the
Company may redeem all of the Class B Warrants for $.05 per Warrant if the per
share closing price for the underlying Common Stock on the American Stock
Exchange for each of the 20 consecutive trading days immediately preceding the
record date for redemption equals or exceeds 130% of the then exercise price. As
used in this Agreement the term "Warrants" shall include the Class A Warrants
and the Class B Warrants.
The conversion price of the Debentures and the exercise prices of the
Warrants are subject to adjustment under certain circumstances. The Debentures
and the Warrants may not be detached for six months after their issuance without
the prior written consent of the Underwriter after which the Debentures and the
Warrants shall be separately transferable.
In addition, solely for the purpose of covering over-allotments, the
Company proposes to grant to the Underwriter an option to purchase up to 900
additional Units (the "Option Units"). As used in this Agreement, the term
"Units" shall include the Firm Units and Option Units.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents,
warrants to and agrees with the Underwriter that:
(a) A registration statement on Form S-1 (Reg. No. 33-65125) with
respect to the Units, including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations"), and one or more
amendments to that registration statement may have been so filed. Copies of such
registration statement and of each amendment heretofore filed by the Company
with the Commission have been delivered to the Underwriter. After the execution
of this Agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed,
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<PAGE>
in such amendment), with such changes or insertions as are required by Rule 430A
under the Act or permitted by Rule 424(b) under the Act, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus. As used in this Agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion filed with
that registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement at the
time it was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the Act
or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriter copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
the purpose. When each Preliminary Prospectus and each amendment and each
supplement thereto was filed with the Commission it (i) contained all statements
required to be stated therein in accordance with, and complied with the
requirements of, the Act and the Rules and Regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the Rules and Regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. When the
Prospectus and each amendment or supplement thereto is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement
is not required so to be filed, when the Registration Statement containing such
Prospectus or amendment or supplement thereto was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (as each such term is
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
therein. The Company has not distributed and will not distribute any offering
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<PAGE>
material in connection with the offering or sale of the Units other than the
Registration Statement, any Preliminary Prospectus, the Prospectus or other
materials, if any, permitted by the Act.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of Florida and is
duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction, both domestic and foreign, where the ownership or
leasing of its property or the conduct of its business requires such
qualification. The Company has full corporate power and authority to own or
lease its property and conduct its business as now being conducted and as
proposed to be conducted as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(d) The Company does not own, directly or indirectly, any capital
stock of any corporation, any interest in any partnership, joint venture or
limited liability Company or any other equity interest or participation in any
other person, other than as described in Exhibit 21.1 as incorporated in the
Registration Statement (each of which, a "Subsidiary"). Each Subsidiary has been
duly chartered and organized and is validly existing in good standing under the
laws of the jurisdiction of its formation, and has full corporate power and
authority to own or lease its property and conduct its business as now being
conducted and as proposed to be conducted as described in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). Each Subsidiary is duly qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction, both domestic or foreign, where the ownership or leasing of its
property or the conduct of its business requires such qualification. Complete
and correct copies (including translations into the English language for
documents not initially in the English language) of the certificate of
incorporation and the by-laws (or other charter documents) of the Company and
each of its Subsidiaries, and all amendments thereto, have been delivered to the
Underwriter, and no changes therein will be made subsequent to the date hereof
and prior to the Firm Closing Date or, if later, the Option Closing Date.
(e) The Company has full corporate power and authority to enter
into and perform its obligations under this Agreement. The execution and
delivery of this Agreement have been duly authorized by all necessary corporate
action on the part of the Company and this Agreement has been duly executed and
delivered by the Company and is a valid and binding Agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriter of the Units pursuant to this Agreement, the compliance by the
Company with the provisions of this Agreement and the consummation of the other
transactions contemplated in this Agreement do not (i) require the consent,
approval, authorization, registration or qualification of or with any court or
governmental or regulatory authority, except such as have been obtained, such as
may be required
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<PAGE>
under state securities or blue sky laws and, if the registration statement filed
with respect to the Units (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or (ii) result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company or any subsidiaries pursuant to the terms or provisions of, or conflict
with or result in a breach or violation of, or constitute a default under, any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any of its respective property is
bound or subject, or the certificate of incorporation (including the statement
of designations for the outstanding preferred stock (the "Preferred Stock") of
the Company) or by-laws of the Company or the charter of any Subsidiary, or any
statute or any rule, regulation, judgment, decree, or order of any court or
other governmental or regulatory authority or any arbitrator applicable to the
Company or any Subsidiary.
(f) The Company has an authorized, issued and outstanding capitali-
zation as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities or obligations convertible into
shares of its Common Stock or into debt securities other than as described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Units, Debentures and Warrants have been duly
authorized by all necessary corporate action on the part of the Company and,
when issued and delivered to and paid for by the Underwriter pursuant to this
Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights, and the Debentures and Warrants will constitute legal, valid
and binding obligations of the Company enforceable in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by equitable principles relating to the availability of
remedies. The Common Stock issuable upon conversion of the Debentures and upon
the exercise of the Warrants has been duly authorized and reserved by the
Company and, when issued, as provided for in the Debentures or the Warrants,
will be duly and validly issued, fully paid and nonassessable. No holder of
outstanding securities of the Company is entitled as such to any preemptive or
other right to subscribe for any of the Units. The Company has duly given notice
to all persons entitled to have securities registered by the Company under the
Registration Statement. The Company has reserved an aggregate of ________ shares
of Common Stock for issuance upon exercise or conversion, as applicable, of
outstanding options, warrants and convertible securities.
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), and the descriptions correctly state
the substance of the Debentures and Warrants as contemplated by the offering of
the Units. Since the inception of the Company in February of 1974, all issuances
of the equity and debt securities of the Company were effected pursuant to valid
private offerings exempt from registration pursuant to Section 4(2) of the Act
or registered for offer and sale
- 5 -
<PAGE>
under the Act. Since January 1, 1994, no compensation was paid to or on behalf
of any member of the National Association of Securities Dealers, Inc. ("NASD"),
or any affiliate or employee thereof, in connection with any such private
offering, except as previously disclosed in writing to the Underwriter.
(h) No consent, approval, authorization or order of, or any
filing or declaration with, any stockholder of the Company or any court or
governmental agency or body is required for the consummation by the Company of
the transactions on its part contemplated herein, except such as have been
obtained under the Act or the Rules and Regulations and such as may be required
under state securities or blue sky laws or the by-laws and rules of the NASD or
the American Stock Exchange.
(i) The consolidated financial statements of the Company included
in the Registration Statement and the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) fairly present the
consolidated financial position of the Company as of the dates indicated and the
consolidated results of operations of the Company for the periods specified.
Such financial statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied throughout the
period involved. The selected financial data set forth under the caption
"Selected Financial Data" and the summary financial data set forth under the
caption "Prospectus Summary - Summary Consolidated Financial Information" in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein. No other
financial statements or schedules are required to be in the Registration
Statement.
(j) Deloitte & Touche LLP and Price Waterhouse LLP (collectively,
the "Accountants"), each of which has certified certain financial statements of
the Company and delivered its respective report with respect to the financial
statements and schedules as specified and included in the Registration Statement
and the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder. The statements in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) pursuant to Items 304 and 509 of Regulation S-X of the Rules and
Regulations are true and correct in all material respects.
(k) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), results of operations or
prospects of the Company and its Subsidiaries considered as a whole, whether or
not arising in the ordinary course of business, (ii) except as otherwise stated
therein, there have been no transactions entered into by the Company and its
Subsidiaries and no commitments made by the Company and its Subsidiaries that,
individually or in the aggregate, are material with respect to the
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<PAGE>
Company and its Subsidiaries, (iii) there has not been any obligation, direct or
contingent, incurred by the Company or its Subsidiaries, except obligations in
the ordinary course of business, (iv) there has not been any change in the
capital stock or indebtedness of the Company, and (v) there has been no dividend
or distribution of any kind declared, paid or made by the Company or any of its
Subsidiaries in respect of any class of its capital stock.
(l) No legal or governmental proceedings, domestic or foreign
(including under any environmental laws), civil, administrative or criminal, are
pending to which the Company or any Subsidiary is a party or to which the
property of the Company or any Subsidiary or any of their respective officers is
subject and no such proceedings have been threatened against the Company or any
Subsidiary or with respect to any of its property, except as such are described
in the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document of the Company or any
Subsidiary is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to or incorporated in the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.
(m) Neither the Company nor any Subsidiary is (i) in violation of
its certificate of incorporation (or charter) or by-laws, (ii) in violation in
any material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to the Company or any Subsidiary, or (iii) in default in any material
respect in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of trust, loan
agreement, note, debenture, lease or other agreement or instrument to which the
Company or any Subsidiary is a party or by which it or any of its property may
be bound or subject.
(n) The Company and each Subsidiary owns or possesses adequate
rights to use all intellectual property, including all U.S. and foreign patents,
trademarks, service marks, trade names, copyrights, inventions, know-how, trade
secrets, proprietary technologies, processes and substances, or applications or
licenses therefor, that are described in the Prospectus (and if the Prospectus
is not in existence, the most recent Preliminary Prospectus), and any other
rights or interests in items of intellectual property as are necessary for the
conduct of the business now conducted or proposed to be conducted by it as
described in the Prospectus (or, such Preliminary Prospectus); and, neither the
Company nor any Subsidiary is aware of the granting of any patent rights to, or
the filing of applications therefor by, others, nor is the Company nor any
Subsidiary aware of, nor has the Company nor any Subsidiary received notice of,
infringement of or conflict with asserted rights of others with respect to any
of the foregoing. All such intellectual property rights and interests are (i)
valid and enforceable and (ii) to the best knowledge of the Company, not being
infringed by any third parties.
(o) The Company and each Subsidiary possesses adequate licenses,
orders, authorizations, approvals, certificates or permits issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
(including those related to enforcement of environmental laws)
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<PAGE>
necessary to conduct its business as described in the Registration Statement and
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and, except as disclosed in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), there
are no pending or, to the best knowledge of the Company, threatened, proceedings
relating to the revocation or modification of any such license, order,
authorization, approval, certificate or permit.
(p) The Company and each Subsidiary has good and marketable title
to all of the properties and assets reflected in the Company's consolidated
financial statements or as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind, except those reflected in such financial statements or
as described in the Registration Statement and the Prospectus (and such
Preliminary Prospectus). The Company and each Subsidiary occupies its leased
properties under valid and enforceable leases conforming to the description
thereof set forth in the Registration Statement and the Prospectus (and such
Preliminary Prospectus). The agreements to which the Company or any of its
Subsidiaries are parties described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) have been duly authorized, executed and delivered by the
Company or such Subsidiary, are valid and binding agreements, enforceable by the
Company and its Subsidiaries (as applicable), except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(q) The Company is not subject to registration as an "investment
Company" under the Investment Company Act of 1940.
(r) No labor dispute with the employees of the Company or any
Subsidiary exists, is threatened or, to the best of the Company's knowledge, is
imminent that could result in a material adverse change in the condition
(financial or otherwise), business, prospects, net worth or results of
operations of the Company or any Subsidiary.
(s) The Company and each of its Subsidiaries has filed all
necessary federal, state, local and foreign income, franchise sales, use,
employee withholding and other tax returns relating to the operations of the
Company and its Subsidiaries and all taxes shown as due thereon have been paid;
and the Company has no knowledge of any tax deficiency which has been or might
be asserted or threatened against the Company or any of its Subsidiaries which
could materially and adversely affect the Company and its Subsidiaries taken as
a whole or their business, properties, business prospects, condition (financial
or otherwise) or results of operations.
(t) All material transactions between any of the Company and its
Subsidiaries, on the one hand, and any of the officers, directors and key
employees of the Company and its Subsidiaries have been accurately and fully
disclosed in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
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<PAGE>
(u) The Company and each Subsidiary is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which it is engaged;
neither the Company nor any Subsidiary has been refused any insurance coverage
sought or applied for; and the Company has no reason to believe that it will not
be able to renew its and each Subsidiary's existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), business,
prospects, net worth or results of operations of the Company or any Subsidiary,
except as described in or contemplated by the Prospectus (and, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(v) The Common Stock is registered pursuant to Section 12(b) of the
Exchange Act and is listed on the American Stock Exchange, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or termination of
listing of the Common Stock on the American Stock Exchange, nor has the Company
received any notification that the Commission or the American Stock Exchange is
contemplating terminating such registration or listing except as set forth in
the Prospectus (and, if the Prospectus is not in existence, in the Preliminary
Prospectus). The Units, Debentures and Warrants are eligible for listing on the
American Stock Exchange, and will be so listed as of the effective date of the
Registration Statement.
(w) Neither the Company nor any of its Subsidiaries, nor, to the
Company's knowledge, any of their employees, officers, directors or agents, has
at any time during the last five (5) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(x) Neither the Company nor any of its officers or directors has
taken and will take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Units.
(y) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with United States generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
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<PAGE>
(z) No person has acted as a finder in connection with the tran-
sactions contemplated herein and the Company will indemnify the Underwriter with
respect to any claim for finder's fees in connection herewith. The Company has
no management or financial consulting agreements with anyone. No promoter,
officer, director or stockholder of the Company is, directly or indirectly,
associated with an NASD member, except as has been previously disclosed in
writing to the Underwriter.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriter was, or will be when made,
inaccurate, untrue or incorrect.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Units at a purchase
price of $900.00 per Firm Unit.
(b) One or more certificates in definitive form for the Firm Units
that the Underwriter has agreed to purchase hereunder, and in such denomination
or denominations and registered in such name or names as the Underwriter
requests upon notice to the Company at least 48 hours prior to the Firm Closing
Date, shall be delivered by or on behalf of the Company to the Underwriter for
the account of the Underwriter, against payment by or on behalf of the
Underwriter of the purchase price therefor by certified or official bank check
or checks drawn upon or by a New York Clearing House bank and payable in
next-day funds to the order of the Company. Such delivery of and payment for the
Firm Units shall be made at the offices of Reid & Priest LLP, 40 West 57th
Street, New York, New York at 9:30 A.M., New York time, on ____________, 1996 or
at such other place, time or date as the Company and the Underwriter may agree
upon, such time and date of delivery against payment being herein referred to as
the "Firm Closing Date." The Company will make such certificate or certificates
for the Firm Units available for checking and packaging at the offices in New
York, New York of the Company's transfer agent and registrar at least 24 hours
prior to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Units as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
any or all of the Option Units. The purchase price to be paid for any of the
Option Units shall be the same price per share as the price per share for the
Firm Units set forth above in paragraph (a) of this Section 2. The option
granted hereby may be exercised as to all or any part of the Option Units from
time to time within 45 days after the date of the Prospectus. The Underwriter
shall not be under any obligation to purchase any of the Option Units prior to
the exercise of such option. The Underwriter may from time to time exercise the
option granted hereby by giving notice in writing to the Company setting forth
the aggregate number of Option Units to be exercised and the date and time for
delivery of and payment for such Option
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<PAGE>
Units. Any such delivery date shall not be later than three business days after
such notice of exercise and, in any event, shall be no earlier than the Firm
Closing Date. The time and date set forth in such notice, or such other time on
such other date as the Underwriter and the Company may agree upon, is herein
called the "Option Closing Date" with respect to such Option Units. Upon
exercise of the option as provided herein, the Company shall become obligated to
sell to the Underwriter, and, subject to the terms and conditions herein set
forth, the Underwriter shall become obligated to purchase from the Company, the
Option Units as to which the Underwriter is then exercising its respective
option. The number of Option Units may be adjusted to avoid fractional shares.
If the option is exercised as to all or any portion of the Option Units, one or
more certificates in definitive form for such Option Units, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (b) of this Section 2,
except that reference therein to the Units and the Firm Closing Date shall be
deemed, for purposes of this paragraph (c), to refer to such Option Units and
Option Closing Date, respectively.
3. OFFERING BY THE UNDERWRITER. The Underwriter proposes to offer the Firm
Units for sale to the public upon the terms set forth in the Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Units is required to be delivered
under the Act, the Company (i) will comply with all requirements imposed upon it
by the Act and the Rules and Regulations of the Commission thereunder to the
extent necessary to permit the continuance of sales of or dealings in the Units
in accordance with the provisions hereof and of the Prospectus, as then amended
or supplemented, and (ii) will not file with the Commission any prospectus or
amendment referred to in the first sentence of Section 1(a) hereof, any
amendment or supplement to such prospectus or any amendment to the Registration
Statement as to which the Underwriter shall not previously have been advised and
furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Underwriter shall not have given its consent.
The Company will prepare and file with the Commission, in accordance with the
Rules and Regulations of the Commission, promptly upon request by the
Underwriter or counsel to the Underwriter, any amendments to the Registration
Statement or amendments or supplements to the Prospectus that may be necessary
or advisable in connection with the distribution of the Units by the
Underwriter, and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Underwriter, promptly after receiving
notice thereof, of the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any
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<PAGE>
amendment or supplement thereto has been filed and will provide evidence
satisfactory to the Underwriter of each such filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of the Units, Debentures or Warrants for
offering or sale in any jurisdiction, (iii) the institution, threat or
contemplation of any proceeding for any such purpose or (iv) any request made by
the Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company will use
its best efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Under-
writer, arrange for the qualification of the Units (including the Debentures and
Warrants) for offering and sale under the securities or blue sky laws of such
jurisdictions as the Underwriter may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Units. In each jurisdiction in which the Units, Debentures
and Warrants shall have qualified or are exempt from such qualification, the
Company will make and file such statements and reports in each year as are or
may be required by the laws of such jurisdiction.
(d) If, at any time when a prospectus relating to the Units is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
Rules or Regulations of the Commission thereunder, the Company will promptly
notify the Underwriter thereof and, subject to Section 4(a) hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide to the Underwriter
and to counsel for the Underwriter (i) as many signed copies of the Registration
Statement originally filed with respect to the Units and each amendment thereto
(in each case including exhibits thereto) as the Underwriter may reasonably
request, (ii) as many conformed copies of such Registration Statement and each
amendment thereto (in each case without exhibits thereto) as the Underwriter may
reasonably request and (iii) so long as a prospectus relating to the Units is
required to be delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Underwriter may reasonably request.
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<PAGE>
(f) The Company will apply the net proceeds from the sale of the
Units as set forth under "Use of Proceeds" in the Prospectus.
(g) If, at the time that the Registration Statement becomes effec-
tive, any information shall have been omitted therefrom in reliance upon Rule
430A under the Act, then immediately following the execution of this Agreement,
the Company will prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 424(b) under the Act, copies of the
Prospectus including the information omitted in reliance on Rule 430A, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(h) The Company will file with the American Stock Exchange all
documents and notices that are required, respectively, of companies with
securities that are listed on such Exchange. The Company will use its best
efforts to cause Units, Debentures and Class A Warrants to maintain their
listing on the American Stock Exchange under the symbols "BNTU," "BNTD" and
"BNTA," respectfully. Additionally, once a sufficient number of Class B Warrants
are outstanding, the Company anticipates, and will use its best efforts to
cause, such Warrants to be listed on the American Stock Exchange under the
symbol "BNTB."
(i) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Underwriter, at the Company's expense,
copies of (i) all periodic and special reports furnished to stockholders of the
Company and (ii) all information, documents and reports filed by the Company
with the Commission.
(j) Prior to the Firm Closing Date, the Company will deliver
to the Underwriter a reasonably detailed budget covering the period from the
Firm Closing Date to the end of the Company's first fiscal year following the
Firm Closing Date. In addition, during the next succeeding two fiscal years, the
Company will supply the Underwriter, not less than 30 days after the beginning
of each fiscal year, with a budget for such fiscal year. For each period covered
by a budget to be supplied to the Underwriter, the Company will also supply
financial statements prepared in sufficient detail so as to allow comparison to
the budgets.
(k) For a period of three years after the effective date of the
Registration Statement, the Company will continue to retain Deloitte & Touche
LLP or other nationally recognized independent certified public accountants
reasonably satisfactory to the Underwriter.
(l) The Company has appointed American Stock Transfer & Trust
Company as transfer agent for the Units, Debentures and Warrants and as trustee,
paying agent and conversion agent for the Debentures, subject to the Closing.
The Company will not change or terminate such appointments or the prior
appointment of Chemical Mellon Shareholder Services as the transfer agent and
registrar for the Common Stock for a period of three years from the Firm Closing
Date without first obtaining the written consent of the Underwriter, except it
may substitute American Stock Transfer & Trust Company as transfer agent and
registrar for the Common Stock.
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<PAGE>
For a period of five years after the Firm Closing Date, the Company shall cause
the respective transfer agents to deliver promptly to the Underwriter a
duplicate copy of the daily transfer sheets relating to trading, if any, of the
Units, Debentures, Warrants and Common Stock.
(m) The Company shall, prior to the Firm Closing Date, register the
Units, Debentures and Warrants under Section 12 of the Exchange Act.
(n) The Company shall cause Deloitte & Touche LLP to deliver
to the Underwriter, on the date the Registration Statement is declared effective
and at the closing(s) hereunder, the letter referred to in Section 6(d).
(o) If at any time after the Registration Statement becomes effec-
tive until the date the Underwriter advises the Company that the distribution of
the Units has been completed (which in the absence of express notice will be
deemed to be the Option Closing Date or the termination or expiration of the
over-allotment option), any rumor in any financial market or any publication or
event shall occur, in each case relating to or affecting the Company, as a
result of which in the opinion of the Underwriter the market price of the Common
Stock has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after written notice from the Underwriter
advising the Company to the effect set forth above, forthwith prepare, consult
with the Underwriter concerning the substance of and disseminate a press release
or other public statement, reasonably satisfactory to the Underwriter,
responding to or commenting on such rumor, publication or event.
(p) During the period of 180 days after the date of this Agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock to
facilitate the sale or resale of any of the Units, Debentures, Warrants or
Common Stock.
(q) For a period of three years following the Firm Closing Date,
the Company will permit a representative of the Underwriter to observe the
meetings of the Company's board of directors. The Company will reimburse that
representative for all expenses incurred in attending board meetings, including
but not limited to food, transportation and lodging, and shall pay that
representative $2,000 per meeting attended. During that three-year period, the
Company will hold no less than four formal and "in person" meetings of its board
of directors each year at which meetings and any other meetings of the board of
directors during such time period, the representative will be invited to attend
and minutes shall be taken. The Company shall provide to such representative
copies of all management reports, financial and operating information, draft and
final minutes of meetings, notices of meetings and other documents and
information as are provided to the board of directors in connection with any
meeting thereof or action by written consent thereof, concurrently with the
delivery of such information and documents to the directors.
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<PAGE>
(r) Prior to the 90th day after the Firm Closing Date, the
Company will provide the Underwriter and its designees with five bound volumes
of the transaction documents relating to the Registration Statement and the
closing(s) hereunder, in form and substance reasonably satisfactory to the
Underwriter.
5. EXPENSES.
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 9 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Units and any amendment thereto,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement, any selected dealer agreement and any other agreements
and documents governing the underwriting arrangements, and any blue sky
memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) the preparation, issuance and delivery to
the Underwriter of any certificates evidencing the Units, Debentures and
Warrants, including indenture trustee's, warrant agent's, transfer agent's and
registrar's fees or any transfer or other taxes payable thereon, (v) the
qualification of the Units, Debentures and Warrants under state securities and
blue sky laws, including filing fees and fees and disbursements of counsel for
the Underwriter relating thereto (such counsel fees not to exceed $ 15,000) and
any fees and disbursements of local counsel, if any, retained for such purpose,
(vi) the filing fees of the Commission, the NASD, and the American Stock
Exchange, (vii) the inclusion of the Units, Debentures, and Warrants on the
American Stock Exchange and, if requested by the Underwriter, in the Standard
and Poor's Corporation Descriptions Manual, (viii) any "road shows" or other
meetings with prospective investors in the Units, including transportation,
accommodation, meal, conference room, audio-visual presentation and similar
expenses of the Underwriter or its representatives or designees (other than as
shall have been specifically approved by the Underwriter to be paid for by the
Underwriter), (ix) the placing of "tombstone advertisements" in publications
selected by the Underwriter and the manufacture of prospectus memorabilia, (x)
all bank escrow fees, (xi) all postage and mailing expenses, (xii) all registrar
and transfer agent and transfer fees, and (xiii) issuance and transfer taxes, if
any. In addition to the foregoing, the Company shall reimburse the Underwriter
for its expenses on the basis of a non-accountable expense allowance in the
amount of 3% of the gross offering proceeds to be received by the Company,
$50,000 of which has been paid by the Company to the Underwriter. The
Underwriter hereby acknowledges receipt of such $50,000, which shall be credited
against the non-accountable expense allowance to be paid by the Company. The
unpaid portion of the expense allowance, based on the gross proceeds from the
sale of the Firm Units, shall be deducted from the funds to be paid by the
Underwriter in payment for the Firm Units, pursuant to Section 2 of this
Agreement, on the Firm Closing Date. To the extent any Option Units are sold,
any remaining non-accountable expense allowance based on the gross proceeds from
the sale of the Option Units shall be deducted from the funds to be paid
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<PAGE>
by the Underwriter in payment for the Option Units, pursuant to Section 2 of
this Agreement, on the Option Closing Date. The Company warrants, represents and
agrees that all such payments and reimbursements will be promptly and fully
made.
(b) Notwithstanding any other provision of this Agreement, if the
Company determines not to proceed with the offering of the Firm Units
contemplated hereby for any reason, or the Underwriter elects to terminate this
Agreement pursuant to Section 9 hereof, the Company agrees that, in addition to
the Company paying its own expenses as described in subparagraph (a) above, (i)
the Company shall reimburse the Underwriter for all of its out-of-pocket legal
expenses (in addition to blue sky legal fees and expenses referred to in
subparagraph (a) above), and (ii) the Underwriter shall be entitled to retain
the non-accountable expense allowance paid by the Company pursuant to
subparagraph (a) above; provided, however, that the amount retained pursuant to
this clause (ii) shall not exceed the Underwriter's expenses on an accountable
basis to the date of such cancellation and that all unaccounted for amounts
shall be refunded to the Company (excluding blue sky legal fees and expenses
referred to in subparagraph (a) above). Such expenses shall include, but are not
to be limited to, fees for the services and time of counsel for the Underwriter
to the extent not covered by clause (i) above, plus any additional expenses and
fees, including, but not limited to, travel and lodging expenses, postage
expenses, duplication expenses, long-distance telephone and facsimile expenses,
and other expenses incurred by the Underwriter in connection with the proposed
offering. If the Company shall fail to pay any portion of the expense allowance
set forth herein within five (5) days of receipt of a written request therefor,
the Company shall be liable to the Underwriter for attorneys' fees and costs
incurred in the collection of said amount.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Firm Units shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Registration Statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 11 A.M., New York time, on the date on which the amendment to such
Registration Statement containing information regarding the initial public
offering price of the Units has been filed with the Commission, or such later
time and date as shall have been consented to by the Underwriter; if required,
the Prospectus and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rule
424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be
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<PAGE>
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company, to
the effect that:
(1) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Florida and is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction, both domestic
and foreign, in which its ownership or leasing of any properties or the conduct
of its business requires such qualification. Each Subsidiary which has been
organized in the United States (the "U.S. Subsidiary") has been duly chartered
and organized and is existing in good standing under the laws of the
jurisdiction of its formation. To its knowledge, the Company does not have any
direct or indirect subsidiary other than the companies incorporated in Exhibit
21.1. The Company is the sole record and beneficial owner of all of the capital
stock of each of its Subsidiaries.
(2) The Company and each U.S. Subsidiary has full
corporate power and authority to own or lease its property and conduct its
business as now being conducted and as proposed to be conducted, in each case as
described in the Registration Statement and the Prospectus, and the Company has
full corporate power and authority to enter into this Agreement and to carry out
all the terms and provisions hereof to be carried out by it.
(3) All of the outstanding shares of the Company's
Common Stock and Preferred Stock have been duly authorized, validly issued,
fully paid and non assessable. There are no outstanding options, warrants or
other rights granted by the Company to purchase or convertible into shares of
its Common Stock or other securities of the Company other than as described in
the Prospectus. The Firm Units have been duly authorized by all necessary
corporate action on the part of the Company and, when issued and delivered to
and paid for by the Underwriter pursuant to this Agreement, the Firm Units
(including the underlying Debentures and Warrants) will be validly issued, fully
paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus, and the Debentures and Warrants will
constitute legal, valid and binding obligations of the Company enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally or by equitable principles relating to the
availability of remedies. The Common Stock issuable upon conversion of the
Debentures and upon the exercise of the Warrants has been duly authorized and
reserved by the Company and, when issued, as provided for in the Debentures or
the Warrants, will be duly and validly issued, fully paid and nonassessable and
will conform to the description thereof in the Prospectus. No holder of
outstanding securities of the Company is entitled as such to any preemptive or
other right to subscribe for any of the Units; and no person is entitled to have
securities registered by the Company
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<PAGE>
under the Registration Statement or otherwise under the Act other than as
described in the Prospectus.
(4) The execution and delivery of this Agreement have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement has been duly executed and delivered by the Company,
and is a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement may be limited by applicable law.
(5) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Registration Statement and the Prospectus.
The statements set forth under the headings "Description of Debentures" and
"Description of Securities -- Redeemable Warrants" in the Prospectus, insofar as
those statements purport to summarize the terms of the Firm Units (including the
underlying Debentures and Warrants) of the Company, provide a fair summary of
such terms. The statements in the Prospectus, insofar as those statements
constitute matters of law or legal conclusions, or summaries of the contracts
and agreements referred to therein, constitute a fair summary of those matters,
legal conclusions, contracts and agreements and include all material terms
thereof, as applicable.
(6) None of (A) the execution and delivery of this
Agreement, (B) the issuance, offering and sale by the Company to the Underwriter
of the Firm Units pursuant to this Agreement, nor (C) the compliance by the
Company with the other provisions of this Agreement and the consummation of the
transactions contemplated hereby, (i) requires the consent, approval,
authorization, registration or qualification of or with and stockholder of the
Company or any court or governmental authority, except such as have been
obtained under the Act and such as may be required under state securities or
blue sky laws or the American Stock Exchange, or (ii) conflicts with or results
in a breach or violation of, or constitutes a default under, any contract,
indenture, mortgage, deed of trust, loan agreement, note, debenture, lease or
other agreement or instrument to which the Company or any U.S. Subsidiary is a
party or by which the Company or any U.S. Subsidiary or any of its property is
bound or subject of which such counsel is aware after due inquiry, or the
certificate of incorporation, including the designation of the Preferred Stock,
or by-laws of the Company or of any U.S. Subsidiary, or any material statute or
any judgment, decree, order, rule or regulation of any court or other
governmental or regulatory authority applicable to the Company or any U.S.
Subsidiary.
(7) No legal or governmental proceedings, domestic or
foreign, civil, administrative or criminal, or, to the best of such counsel's
knowledge, threatened, are pending to which the Company or any Subsidiary is a
party or to which the property of the Company or any Subsidiary is subject and
no contract or other document is required to be described in the
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<PAGE>
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required.
(8) Counsel has reviewed all contracts, instruments or
other documents referred to in the Registration Statement and the Prospectus and
such contracts, instruments or other documents are fairly summarized or
disclosed therein in all material respects, and filed as exhibits thereto as
required, and counsel does not know of any contracts, instruments or other
documents required to be so summarized or disclosed or filed which have not been
so summarized or disclosed or filed.
(9) All descriptions in the Prospectus of laws,
statutes, licenses, rules, regulations and legal and governmental proceedings
are accurate and fairly present the information required to be shown in all
material respects, and, to the best of such counsel's knowledge, there is no
law, statute, license, rule or regulation required to be described in the
Registration Statement and the Prospectus which is not completely and accurately
described in all material respects.
(10) The Company and each U.S. Subsidiary possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal, state, local or foreign regulatory agencies
or bodies necessary to conduct its business as described in the Registration
Statement and the Prospectus, and, to the best of such counsel's knowledge after
due inquiry, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus.
(11) The Registration Statement is effective under the
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission.
(12) The registration statement originally filed with
respect to the Firm Units and each amendment thereto and the Prospectus (in each
case, other than the financial statements and schedules and other financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations of the Commission
thereunder.
(13) The Company is not subject to registration as an
"investment Company" under the Investment Company Act of 1940.
(14) The Units, Debentures and Warrants have been
approved for listing on the American Stock Exchange.
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<PAGE>
In addition, such counsel shall state that counsel has participated in
conferences with officials and other representatives of the Company, the
Underwriter, Underwriter's Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Firm Closing Date and on any later date on which Option Units are
to be purchased, as the case may be, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment), contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the Firm Closing Date or any later date on which the Option Units are to
be purchased, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of the laws of France and
Spain, as the case may be, shall rely on the opinions of ____________________
and ________________, special counsel to the Company, respectively, and shall
expressly authorize such reliance, and counsel to the Company shall expressly
state in their opinion that such counsel's and the Underwriter's reliance upon
such opinion is justified.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Underwriter shall have received the opinion, dated as of
the Firm Closing Date, of _____________, special counsel to the Company with
respect to French law, and of ______, special counsel to the Company with
respect to Spanish law, in form and substance satisfactory to counsel for the
Underwriter to the effect that:
(i) Each Subsidiary listed on Schedule I thereto was formed in
France or Spain (as the case maybe), is a wholly owned subsidiary of
the Company, has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization; and each has full corporate power and authority to own
its properties and conduct its business as described in the
Registration Statement and Prospectus.
(ii) No authorization, approval, consent or license of any French
or Spanish, as the case may be, governmental or regulatory body,
agency or
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<PAGE>
instrumentality is required in connection with the conduct of business
by the Subsidiaries, except as described in the Prospectus.
(iii) Each respective Subsidiary has obtained all licenses,
permits and other governmental authorizations necessary to conduct its
business as described in the Prospectus; such licenses, permits and
other governmental authorizations obtained are in full force and
effect, and each Subsidiary is in all material respects complying
therewith.
(iv) The Company owns all of the outstanding securities of each
respective Subsidiary; all of each Subsidiary's outstanding securities
have been duly authorized, are validly issued, fully paid and
non-assessable and have not been issued in violation of the preemptive
rights of any security holder.
(v) Each respective Subsidiary has good and marketable title to
its assets and properties, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind, except those reflected in the
financial statements included in the Prospectus.
(vi) Such counsel knows of no pending or threatened legal or
governmental proceedings to which the respective Subsidiary is a party
which could materially adversely affect the business, property,
financial condition or operations of the respective Subsidiary.
(vii) Such counsel is familiar with all contracts or other
agreements entered into by each respective Subsidiary with other
companies, individuals, research institutes, academic institutes or
governmental or quasi-governmental agencies referred to in the
Registration Statement and Prospectus, and all such agreements are
valid, binding and enforceable under the respective jurisdiction's
law, and to the knowledge of such counsel, is not in default under any
of the agreements;
(viii) Neither respective Subsidiary is in violation of or
default under its charter or by-laws, or, to the knowledge of such
counsel, in the performance or observance of any material obligation,
agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or
instrument to which the respective Subsidiary is a party or by which
it or any of its properties may be bound, or in violation of any
material order, rule, regulation, writ, injunction or decree of any
government or governmental instrumentality or court, or any law
governing the operations of its business.
(ix) No authorization, approval, consent or license of any
governmental or regulatory body, agency or instrumentality is required
in connection
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<PAGE>
with the transfer of funds, the advancement of funds, the making of
loans or otherwise incurring any indebtedness or the payment of
dividends either from the Company to the respective Subsidiary or from
the respective Subsidiary to the Company.
References to the Registration Statement and the Prospectus in this
paragraph (c) with respect to the letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(d) The Underwriter shall have received from Deloitte & Touche LLP
a letter dated the date the Registration Statement is declared effective and a
letter dated the Firm Closing Date, in form and substance satisfactory to the
Underwriter, to the effect that (i) they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations; (ii) in their opinion, the financial statements examined by
them and included in the Registration Statement and the Prospectus comply as to
form in all material respects with the applicable accounting requirements of the
Act and the applicable Rules and Regulations; (iii) based upon procedures set
forth in detail in such letter, nothing has come to their attention which causes
them to believe that (A) the financial information set forth under "Selected
Financial Data" in the Prospectus was not determined on a basis substantially
consistent with that used in determining the corresponding amounts in the
financial statements included in the Registration Statement or (B) at a
specified date not more than five days prior to the date of this Agreement,
there has been any change in the capital stock of the Company or any increase in
the long-term debt of the Company or any decrease in working capital or net
assets as compared with the amounts shown in the September 30, 1995 balance
sheet included in the Registration Statement or, during the period from October
1, 1995 to a specified date not more than five days prior to the date of this
Agreement, there were any decreases, as compared with the corresponding period
in the preceding quarter, in revenues, or any increase in certain specified
expense items of the Company, except in all instances for changes, increases or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur; and (iv) in addition to the examination referred to in
their opinions and the limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures, not constituting an audit,
with respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified by
the Underwriter, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and other
records of the Company identified in such letter.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to the letters referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Underwriter shall have received on the Firm Closing
Date a certificate of the Company, dated the Firm Closing Date as the case may
be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that:
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<PAGE>
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Firm
Closing Date, and the Company has complied with all the agreements and
covenants and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Firm Closing Date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act.
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations thereunder
and in all material respects conformed to the requirements of the Act
and the Rules and Regulations thereunder, the Registration Statement,
and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so
set forth, except that no representation need be made with respect to
information provided by or on behalf of the Underwriter for inclusion
in the Prospectus or Registration Statement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company and its Subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its Subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its Subsidiaries considered as one
enterprise, incurred by the Company or its Subsidiaries, except (A)
obligations incurred in the ordinary course of business or (B) as
disclosed in the Registration Statement and the Prospectus, (d) any
change in the capital stock or outstanding indebtedness of the Company
or any of its Subsidiaries, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its Subsidiaries, or (f) any loss or damage (whether or not
insured) to the property of the Company or any of its Subsidiaries
which has been sustained or will be sustained which has a material
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<PAGE>
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
Subsidiaries considered as one enterprise.
(f) The Units, Debentures, Warrants and Common Stock shall be
qualified in such jurisdictions as the Underwriter may reasonably request
pursuant to Section 4(c), and each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Firm Closing Date.
(g) On or before the Firm Closing Date, the Underwriter and counsel
for the Underwriter shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Underwriter and counsel for the Underwriter shall reasonably request.
Except as provided for in the following paragraph, the respective
obligations of the Underwriter to purchase and pay for any Option Units shall be
subject, in its discretion, to each of the foregoing conditions to purchase the
Units, except that all references to the Firm Units and the Firm Closing Date
shall be deemed to refer to such Option Units and the related Option Closing
Date, respectively.
At the Option Closing Date, Deloitte & Touche LLP shall have furnished to
the Underwriter a letter, dated the date of its delivery, which shall confirm,
on the basis of a review in accordance with the procedures set forth in the
letter from Deloitte & Touche LLP, that nothing has come to their attention
during the period from the date of the letter furnished in connection with the
Firm Closing Date, referred to in Section 6(d) hereof, and the Option Closing
Date which would require any change in their letter dated the date hereof if it
were required to be dated and delivered at the Firm Closing Date and the Option
Closing Date.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Under-
writer and each person, if any, who controls the Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act from and against any
losses, claims, damages, amounts paid in settlement or liabilities, joint or
several, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon:
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<PAGE>
(1) any breach of any representation or warranty of the
Company contained in Section 1 of this Agreement,
(2) any untrue statement or alleged untrue statement
of any material fact contained in (A) the registration statement originally
filed with respect to the Units or any amendment thereto, the Registration
Statement, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Units under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange (each an
"Application"), or
(3) the omission or alleged omission to state in such
registration statement or any amendment thereto, the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse, as incurred, the
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by the Underwriter or such controlling person in connection
with investigating, defending against or appearing as a third-party witness in
connection with any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Underwriter or any
person who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act, the Exchange Act
or otherwise, but only insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or (ii) the omission or the
alleged
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<PAGE>
omission to state therein a material fact required to be stated in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 7. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the
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<PAGE>
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Units or (ii) if the allocation provided by
the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof). The relative benefits received by the Company on the one hand and the
Underwriter on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriter. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriter, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and the other equitable considerations
appropriate in the circumstances. The Company and the Underwriter agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the first sentence
of this paragraph (d). Notwithstanding any other provision of this paragraph
(d), the Underwriter shall not be obligated to make contributions hereunder that
in the aggregate exceed the total public offering price of the Units purchased
by the Underwriter under this Agreement, less the aggregate amount of any
damages that the Underwriter has otherwise been required to pay in respect of
the same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act shall have the same rights to contribution as the
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
8. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in Section 7 hereof or (ii) delivery of and
payment for the Units. The respective agreements, covenants, indemnities and
other statements set forth in Sections 5 and 7 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
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<PAGE>
9. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Units or any Option Units in the sole discretion of the Underwriter by notice to
the Company given at or prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that:
(1) the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its Subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or the Prospectus, which in the sole judgment of the Underwriter, is material
and adverse;
(2) the Company or any Subsidiary sustains a loss
by reason of explosion, strike, fire, flood, accident or other calamity, which,
in the opinion of the Underwriter, substantially affects the value of the
properties of the Company and the Subsidiaries considered as one enterprise or
which materially interferes with the operation of the business of the Company
and the Subsidiaries considered as one enterprise regardless of whether such
loss shall have been insured; there shall have been any material adverse change,
or any development involving a prospective material adverse change (including,
without limitation, a change in management or control of the Company), in the
business, operations, condition (financial or otherwise), earnings or prospects
of the Company and the Subsidiaries considered as one enterprise, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(3) any material action, suit or proceeding shall
be threatened, instituted or pending, at law or in equity, by or against the
Company or any Subsidiary, by any person or by any federal, state, foreign or
other governmental or regulatory commission, board or agency;
(4) trading in the Common Stock or the Units shall
have been suspended by the Commission or the American Stock Exchange, or trading
in securities generally on the American Stock Exchange shall have been suspended
or minimum or maximum prices shall have been established on such exchange;
(5) a banking moratorium shall have been declared
by New York or United States authorities; or
(6) there shall have been (A) an outbreak of
hostilities between the United States and any foreign power (or, in the case of
any ongoing hostilities, a material escalation thereof), (B) an outbreak of any
other insurrection or armed conflict involving the United States or (C) any
other calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (6), or there shall have been a material disruption in the
market stabilization of the securities being sold hereunder,
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<PAGE>
which in the sole judgment of the Underwriter makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Firm
Units or the Option Units as contemplated by the Registration Statement
(b) Termination of this Agreement pursuant to this Section 9
shall be without liability of any party to any other party except as provided in
Section 5(b) and Section 7 hereof.
10. INFORMATION SUPPLIED BY THE UNDERWRITER. The statements set forth under
the heading "Underwriting" in any Preliminary Prospectus or the Prospectus (to
the extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes of
Sections 1(b) and 7(b) hereof. The Underwriter confirms that such statements (to
such extent) are correct.
11. NOTICES. All communications hereunder shall be in writing and, if sent
to the Underwriter, shall be mailed or delivered or telegraphed or faxed
(confirmed by letter) to Coleman and Company Securities, Inc, 666 Fifth Avenue,
New York, New York 10103, Attention: Corporate Finance Department; and if sent
to the Company, shall be mailed, delivered or telegraphed or faxed (confirmed by
letter) to the Company at Bentley Pharmaceuticals, Inc., One Urban Centre, Suite
550, 4830 West Kennedy Boulevard, Tampa, Florida 33609, Attention: Mr. James R.
Murphy, Chairman. Any such notice shall be effective only upon receipt.
12. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
binding upon the Underwriter, the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 7 of this Agreement shall also be for the benefit
of any person or persons who control the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities
of the Underwriter contained in Section 7 of this Agreement shall also be for
the benefit of the directors of the Company, the officers of the Company who
have signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Units from the Underwriter shall be deemed a
successor or assign because of such purchase.
13. APPLICABLE LAW. The validity and interpretation of this Agreement, and
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
14. INTERPRETATION. In case any provision in this Agreement shall be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Agreement sets forth the entire agreement between the
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<PAGE>
parties hereto as to the subject matter herein, and cannot be amended or
modified except by a writing executed by the parties hereto.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
BENTLEY PHARMACEUTICALS, INC.
By: _________________________
Name: James R. Murphy
Title: Chairman of the Board
The foregoing agreement is hereby confirmed and accepted as of the date first
above written
COLEMAN AND COMPANY SECURITIES, INC.
By: _______________________________
Name:
Title:
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RESTATED ARTICLES OF INCORPORATION
OF
BENTLEY PHARMACEUTICALS, INC.
Pursuant to Section 607.194 of the Florida Statutes, and having been duly
adopted by the Board of Directors of Belmac Corporation (the "Corporation"),
these Amended and Restated Articles of Incorporation (the "Restated Articles")
are hereby executed and acknowledged by the President and the Secretary of the
Corporation, who also certify that these Restated Articles meet the requirements
of Section 607.187 of the Florida Statutes regarding amendments to the Articles
of Incorporation, said amendments being specifically identified in the
Amendments to Articles of Incorporation of Belmac Corporation, attached hereto
as Exhibit A. By their execution and acknowledgment, the President and Secretary
of the Corporation further certify that there is no discrepancy between the
Corporation's Articles of Incorporation as previously amended and the provisions
of the Restated Articles set forth below, except for amendments filed
simultaneously herewith and the omission of certain matters of historical
interest.
ARTICLE I.
The name of this Corporation shall be BENTLEY PHARMACEUTICALS, INC.
ARTICLE II.
The general nature of the business to be transacted shall be:
(a) To conduct, carry on, operate, engage in and transact the
business of buying, selling, trading in and otherwise dealing in property of
every kind and description, real, personal or mixed, as retailers, wholesalers,
principals, factors, brokers, agents for others and in any other capacity
whatsoever and to do all other things subsidiary, necessary or convenient for
carrying out and into effect the main purposes and objects of the Corporation
and in respect thereto.
(b) To purchase or otherwise acquire letters, patents, copyrights,
trademarks, concessions, licenses, inventions, rights, franchises and
privileges, subject to royalty or otherwise and whether exclusive, non-exclusive
or limited, or any part interest in any of the above enumerated rights whether
in the United States or in any other part of the world; to sell, let or grant
any of said rights belonging to the Corporation, or which it may acquire, or any
interest in the same; and to register any patent or patents, for any invention
or inventions, or any copyrights or trademarks, or obtain exclusive or other
privileges in respect to the same, and to apply for exercise, use or otherwise
deal with or turn to account any patents rights, copyrights, or
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<PAGE>
trademarks, any concessions, monopolies, franchises or other rights or
privileges, either in the United States or in any part of the world.
(c) To manufacture, fabricate, process, deal in, install, store,
handle, transport, export, import or otherwise handle any and all goods,
materials, appurtenances, processes and agricultural goods and products useful
in and necessary for or convenient in the conducting of the business of the
Corporation or any subsidiary or agency thereof.
(d) To buy, sell, exchange and generally deal in real properties,
improved and unimproved, and buildings of every class and description; to
improve, manage, operate, sell, buy, mortgage, lease or otherwise acquire or
dispose of any property, real or personal and take mortgages and assignment or
mortgages upon the same; to make and obtain loans upon real estate, improved or
unimproved and upon personal property giving or taking evidences of indebtedness
and securing the payment therefor by mortgage, trust deed, pledge or otherwise;
to enter into contracts to buy or sell any property, real or personal; to buy
and sell mortgages, trust deeds, contracts and evidences of indebtedness; to
purchase or otherwise acquire for the purpose of holding or disposing of the
same, real or personal property of every kind and description, including the
good will, stock rights and property of any person, firm, association or
corporation, paying for the same in cash, stock or bonds of this Corporation; to
draw, make, accept, endorse, discount, execute and issue promissory notes, bills
of exchange, warrants, bonds, debentures, and other negotiable or transferrable
instruments or obligations without restriction or limit as to amount; to
purchase, acquire, hold, own, mortgage, sell, convey or otherwise dispose of
real and personal property of every class and description in any state,
district, territory, foreign country; and to act as agent or broker for any
other person, firm or corporation in doing any and all acts described herein.
(e) To purchase equities, mortgages, installment sales contracts,
notes, drafts, acceptances and commercial paper of every kind and description,
including accounts receivable of other persons, firms or corporations to hold,
collect and otherwise use the same for the benefit of the Corporation, and to
sell or otherwise dispose of the same.
(f) To operate, conduct and carry on other businesses which may be
purchased or otherwise acquired by the Corporation, or to lease or rent the same
or to any other person, firm or corporation, during such period of time as the
Corporation may own such business or businesses, in order to prevent
depreciation in the value of such business or businesses prior to sale or other
disposition of the same by the Corporation.
(g) To purchase, subscribe for, hold, pledge, transfer, sell or
otherwise dispose of or deal in, shares of capital stock of corporations,
including this Corporation, bonds, debentures, notes or other securities or
evidences of indebtedness of any private or public corporation, and to do any
other act or thing permitted by law for the preservation, protection,
improvement or enhancement of the value of such shares of stock, bonds,
debentures, notes or other securities
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<PAGE>
evidence of indebtedness, including the right to vote thereon and respecting any
of the enumerated items to exercise any and all rights and privileges of
ownership thereof.
(h) To transact the business of investing on behalf of itself or
others, any part of its capital and such additional funds as it may obtain, or
any interest therein in any and all ventures, so far as the same are permissible
by law, and selling or otherwise disposing of such investments, or any part
thereof, or interest therein.
(i) To engage in the brokerage business, on behalf of itself or
others, including but not limited to the business and professions of real
estate, securities, insurance and mortgages and to do any and all business which
may be delegated to agents or brokers by principals, and to conduct and operate
general agency and brokerage businesses of every kind and description.
(j) To carry on the business of mining, milling, concentrating,
converting, melting, treating, refining, preparing for market, manufacturing,
buying, selling, exchanging, and otherwise producing and dealing in uranium,
zinc, lead, gold, silver, copper, brass, iron, steel, coal, and in all kinds of
ores, metals and minerals, oils, petroleum, natural gas, hydrocarbons, acids,
and chemicals and in the products and by-products of every kind and description
and by whatever process the same can be or may hereafter be produced; to
purchase, lease, option, locate or otherwise acquire, own, exchange, sell or
otherwise dispose of, pledge, mortgage, deed in trust, hypothecate and deal in
mines, mining claims, mineral lands, coal lands, oil lands, timber lands, water
and water rights and other property both real and personal; and to carry on as
principals, agents, commission merchants or consignees the business of mining,
milling, concentrating, converting, smelting, treating, refining, buying,
selling exchanging, manufacturing and dealing in the above specified products or
any of them and of materials used in the manufacture of each, and any and all of
such articles and to carry on as such principals, agents, commission merchants
or consignees any other business which in the judgment of the Board of Directors
of the Corporation may be conveniently conducted in conjunction with any of the
matters aforesaid.
(k) To purchase and sell farms and to engage in the business of
farming and of producing, merchandising, processing and preserving all kind of
farm fruit, vegetables and garden products and of cultivating, growing,
harvesting, picking, cleaning, assorting, boxing, packing, shipping, buying and
selling at wholesale and retail all kinds of fruit, vegetable, farm and garden
products and to carry on all other business incident thereto or connected
therewith; and to carry on a general commission and brokerage business for any
or all of the foregoing produce.
(l) To engage in the manufacture and sale of any and all vegetable
oils and the by-products of same; to purchase and otherwise acquire, operate,
maintain, lease, sell and otherwise dispose of and deal in machinery, expellers,
grinders, presses, filters, cookers, tanks and other apparatus, raw materials,
equipment, utensils, supplies, parts and all other goods, wares and merchandise
related to the business of manufacturing, storing, processing, and selling
vegetable oils of any and all kinds; to purchase, acquire, own, operate, lease,
hypothecate, and sell shipping sites, factories, warehouses, wharves, piers,
docks, pipelines, and such other properties,
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franchises, rights and facilities as may be reasonably necessary for the due and
proper conduct of the business of the Corporation; and to act as agent, general
manager, factor, commission agent or other representative of other manufacturing
concerns of like kind and manufacturers, jobbers, and other dealers in the
machinery, apparatus, utensils, and equipment of oil manufacturing concerns.
(m) To do all things which are lawful under the laws of the United
States and of the State of Florida which are necessary, suitable, convenient or
proper for the accomplishment of any of the purposes or attainment of any or all
of the objects of the Corporation or incidental to the powers herein named,
which shall at any time appear conducive or expedient for the protection or
benefit of the Corporation either as holder of or interested in the property or
otherwise, with all the powers now or hereafter conferred by the laws of the
State of Florida upon corporations.
(n) To incur debts without limit and to raise, borrow and secure the
payment of money in any lawful manner for the accomplishment of any object in or
about the business of the Corporation.
(o) The powers specified herein shall be construed both as purposes
and powers and shall be in no way limited or restricted by reference to, or
inference from, the terms of any other clause in this or any other Article, but
the purpose and powers specified in each of the clauses herein shall be regarded
as independent purposes and powers, and the enumeration of specific purposes and
powers shall not be construed to limit or restrict in any manner the meaning of
general terms or of the general powers of the Corporation, nor shall the
expression of one thing be deemed to exclude another, although it be of like
nature not expressed.
ARTICLE III.
The total number of shares of all classes of stock which the Corporation has
authority to issue is Twenty Two Million (22,000,000), consisting of Twenty
Million (20,000,000) shares of Common Stock, par value $.02 per share (the
"Common Stock"), and Two Million (2,000,000) shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"). All or any part of the Common
Stock may be paid for in cash, in property, in formulas, copyrights, patents,
trade names, equipment, or in labor or services at a fair valuation to be fixed
by the incorporators or by the Board of Directors at a meeting called for said
purpose. All stock when issued shall be non-assessable. The shareholders of the
Corporation shall not, solely by virtue of being shareholders, have pre-emptive
rights to acquire the Corporation's stock, including unissued or treasury shares
of the Corporation or securities of the Corporation convertible into or carrying
a right to subscribe to or acquire shares of the Corporation's stock. The
Preferred Stock shall be issuable in series with such designations, terms,
limitations and relative rights and preferences as may be fixed from time to
time by the Board of Directors.
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<PAGE>
The designations, terms, limitations and relative rights and preferences of the
shares of Common Stock and Preferred Stock (unless otherwise fixed by the Board
of Directors) are as follows:
(a) COMMON STOCK
1. Dividends. Subject to the prior and superior right
of the Preferred Stock, the holders of outstanding shares of Common Stock
("Common Stock Holders") shall be entitled to receive dividends as, when and in
the amount declared by the Board of Directors, out of any funds legally
available therefor.
2. Liquidation, Dissolution and Winding Up. Subject
to the prior and superior right of the Preferred Stock, in the event of any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, the Common Stock Holders shall be entitled to
receive, out of the net assets of the Corporation, after payment or provision
for payment of the debts and other liabilities of the Corporation, that portion
of the remaining funds to be distributed. Such funds shall be paid to the Common
Stock Holders on the basis of the number of shares of Common Stock held by each
of them. Neither the consolidation nor merger of the Corporation into or with
any other corporation nor the sale or transfer by the Corporation of all or any
part of its assets shall be deemed a liquidation, dissolution or winding up of
the affairs of the Corporation within the meaning of the provisions of this
Section (a)(2).
3. Voting. Shares of Common Stock shall entitle the
holder thereof to one vote for each share held with respect to all matters voted
on by the shareholders of the Corporation.
(b) PREFERRED STOCK
1. Series. The shares of Preferred Stock may be
divided into and issued in one or more series, and each series shall be so
designated so as to distinguish the shares thereof from the shares of all other
series. All shares of Preferred Stock shall be identical except in respect of
particulars which may be fixed by the Board of Directors as hereinafter provided
pursuant to authority which is hereby expressly vested in the Board of
Directors. Each share of a series shall be identical in all respects with all
other shares of such series, except as to the date from which dividends are
cumulative. Shares of Preferred Stock of any series which have been retired in
any manner, including shares redeemed or reacquired by the Corporation and
shares which have been converted into or exchanged for shares of any other
class, or any series of the same or any other class shall have the status of
authorized but unissued shares of Preferred Stock and may be reissued as shares
of the series of which they were originally a part or may be issued as shares of
a new series or any other series of the same class.
2. Provisions. Before any shares of Preferred Stock
of any series shall be issued, the Board of Directors, pursuant to authority
hereby expressly vested in it, shall fix by resolution or resolutions the
following provisions in respect of the shares of each such series so
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far as the same are not inconsistent with the provisions of this Article III
applicable to all series of Preferred Stock:
(a) the distinctive designations of such
series and the number of shares which shall constitute such series, which number
may be increased (except where otherwise provided by the Board of Directors in
creating such series) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of Directors;
(b) the annual rate or amount of dividends,
if any, payable on shares of such series (which dividends would be payable in
preference to any dividends on Common Stock), whether such dividends shall be
cumulative or non-cumulative and the conditions upon which and/or the dates when
such dividends shall be payable;
(c) whether the shares of such series shall
be redeemable and, if so, the terms and conditions of such redemption, including
the time or times when the price or prices at which shares of such series may be
redeemed;
(d) the amount, if any, payable on shares
of such series in the event of liquidation, dissolution or winding up of the
affairs of the Corporation;
(e) whether the shares of such series shall
be convertible into or exchangeable for shares of any other class, or any series
of the same or any other class, and, if so, the terms and conditions thereof,
including the date or dates when such shares shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, the price or prices or the rate or rates at which shares of such
series shall be so convertible or exchangeable, and the adjustments which shall
be made, and the circumstances in which such adjustments shall be made, in such
conversion or exchange prices or rates; and
(f) whether such series shall have any
voting rights in addition to those prescribed by law, and, if so, the terms and
conditions of exercise of voting rights; and
(g) any other preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations and restrictions thereof.
ARTICLE IV.
This Corporation shall have perpetual existence unless sooner dissolved
according to law.
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ARTICLE V.
The initial place of business of this Corporation shall be at 4920 Ingraham
Street, Tampa, Florida 33616, with its mailing address at P.O. Box 20290, St.
Petersburg, Florida 33742, but it shall have the power to transact business in
other places, both within and without the State of Florida and throughout the
world.
It is contemplated that branch offices or agencies shall be established in other
places where it may be necessary or convenient to the operation of the business;
and these branch offices or agencies may be established in any place.
Meetings of the shareholders and Directors of this Corporation for any and all
purposes, may be held in places other than the principal office of the
Corporation, whether within or without the State of Florida, and the place or
places for the holding of such meetings may be specified in the By-Laws or by
the Board of Directors.
ARTICLE VI.
(a) The number of members of the Corporation's Board of Directors shall not be
less than one nor more than thirteen. All of the Directors shall be of full age
and at least one shall be a citizen of the United States. The presence of a
majority of all Directors shall be necessary at any meeting to constitute a
quorum for the transaction of business. Meetings of the Directors may be held
within or without the State of Florida. With the exception of the President of
this Corporation, Directors and Officers need not be shareholders of the
Corporation.
(b) There shall be three classes of Directors known as Class 1, Class 2, and
Class 3 respectively with each class having as equal a number of Directors as
possible. The names and post office addresses of the Directors until the first
annual meeting after adoption of this amendment and the class to which they
belong are as follows:
Class 1 - December 1987
NAME POST OFFICE ADDRESS
Ranald Stewart, Jr. 1501 Sheridan Forest
Tampa, Florida 33609
Walter L. Benson 2024 Beleair Road
Clearwater, Flroida 33546
F. Stuart Clemmons 1924 Michigan Avenue N.E.
St. Petersburg, Florida 33703
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Class 2 - December 1988
NAME POST OFFICE ADDRESS
P. Calvin Maybury 4102 Cypress Bayou Drive
Tampa, Florida 33624
Kenneth P. Darvin 3559 Manatee Drive S.E.
St. Petersburg, Florida 33705
Eldon Post 6604 11th Avenue West
Bradenton, Florida 33505
Edmund G. Vimood, Jr. 18 Timothy Lane
Bedminster, New Jersey 07921
Class 3 - December 1989
NAME POST OFFICE ADDRESS
Harold W. Huber 1700 West Bay Drive
Largo, Florida 33540
James C. Vesey 8800 Bardmoor Boulevard, 27W
Seminole, Florida 33543
John A. Macleod 2858 Sandpiper Place
Clearwater, Florida 33520
Arnold J. Winograd 1053 Indian Trial
Destin, Florida 32541
The term of office of the Class 1 Directors above named shall expire at the
first annual meeting after adoption of this amendment; the term of the Class 2
Directors shall expire at the second annual meeting after adoption of this
amendment and the term of the Class 3 Directors shall expire at the third annual
meeting after adoption of this amendment. Upon expiration of the terms of office
of the Directors classified above, their successors shall be elected for the
term of three years each, so that approximately one-third of the number of
Directors of the Corporation shall be elected annually.
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<PAGE>
(c) The shareholders may by affirmative vote of the holders of shares entitling
them to exercise 2/3 of the voting power of the Corporation fill any vacancy in
the office of Director created by death or resignation.
(d) No person, other than a Director retiring at the meeting or a person
recommended by the Directors for election, shall be eligible for election to the
office of Director at any general meeting unless not less than seventy-five days
before the day appointed for the meeting there shall have been left at the
office of the Corporation notice in writing signed by a shareholder duly
qualified to attend and vote at such meeting, of his intention to propose such
person for election, and also notice in writing signed by that person of his
willingness to be elected.
(e) If at any general meeting at which an election of Directors ought to take
place, the place of any retiring Director be not filled, such retiring Director
shall (unless a resolution for his re-election shall have been put to the
meeting and lost) continue in office until the annual general meeting in the
next year, and so on from time to time, until his place has been filled.
(f) A Director may only be removed for cause at a meeting of the shareholders
held for such purposes, by the affirmative vote of the holders of shares
entitling them to exercise 2/3 of the voting power of the Corporation on such
removal, provided that such Director prior to his removal shall have received a
copy of the charges against him, delivered to him personally or being mailed to
the address appearing upon the records of the Corporation at least 10 days prior
to such meeting and be given an opportunity to be heard on such charges at such
meeting.
ARTICLE VII
Special Charter Provisions
(a) Meetings of shareholders may be held within or without the State of Florida
and any shareholder may waive notice thereof either before or after the meeting.
(b) This Corporation shall have a Chief Executive Officer ("CEO"), Executive
Vice President, Secretary and Treasurer, and such other Officers in addition as
the Board of Directors or ByLaws may provide. Only the President need be a
Director. Any person may hold two or more offices, except that the President
shall not be a secretary or an Assistant Secretary of the Corporation. Officers
need not be shareholders. Officers other than the Directors shall be elected by
the Directors at the first meeting of the Directors next after the Annual
Meeting of the shareholders, or as soon thereafter as may be convenient. Each
Officer and each Director shall hold office until his successor shall be elected
and qualified. The CEO also may be President.
The duties, powers and functions of the CEO and other officers shall
be such as is and has been customary for such CEO and officers of the
Corporation. The duties, powers and functions of the CEO may not be changed
except at a meeting of the shareholders held for such purpose by
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<PAGE>
the affirmative vote of the holders of shares entitling them to exercise two
thirds of the voting power of the Corporation on such proposal.
(c) No contract, act or transaction of the Corporation with any person or
persons, firm or corporation, in the absence of fraud, shall be affected or
invalidated by the fact that any Officer or Officers, Director or Directors of
the Corporation is a party to or are parties to or interested in such contract,
act or transaction, or in any way connected with such person or persons, firm or
corporation and each and every person or persons, firm or corporation and each
and every person who may become a Director or an Officer of the Corporation is
hereby relieved from any liability that might otherwise exist from thus
contracting with the Corporation for the benefit of himself or any firm,
association or corporation, in which he may be in any wise interested.
(d) A lease, sale, exchange, transfer, or other disposition of all, or
substantially all, of the assets of the Corporation or any consolidation or
merger of the Corporation with or into another corporation may only be
authorized at a meeting of the shareholders held for such purpose, by the
affirmative vote of the holders of shares entitling them to exercise two thirds
of the voting power of the Corporation on such proposal. Notice of the meeting
of the shareholders shall be given to all shareholders entitled to vote at the
meeting. Such notice shall be accompanied by a copy or a summary of the terms of
such transaction. The Corporation, by the Directors, may abandon such
transaction, subject to the contract rights of other persons, if such power of
abandonment is conferred upon the Directors either by the terms of the
transaction or by the same vote of shareholders and at the same meeting of
shareholders as that referred to previously in this paragraph or at any
subsequent meeting.
ARTICLE VIII
Any ARTICLE or provision in the Articles of Incorporation which relates to
Directors and/or officers of the Corporation and/or requires an affirmative vote
of the holders of shares entitling them to exercise 2/3 of the voting power of
the Corporation may only be amended, altered, changed or revoked by such
shareholders by an affirmative vote of the holders of shares entitling them to
exercise 2/3 of the voting power of the Corporation at a meeting of the
shareholders held for such purpose.
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ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
BELMAC CORPORATION
-------------------------------------
Pursuant to Provisions of Section 607.047
of the Florida Business Corporation Act
-------------------------------------
Belmac Corporation (the "Corporation"), a corporation and organizing and
existing under the Florida Business Corporation Act, does hereby certify that,
pursuant to Section 607.131 of the Florida Business Corporation Act, the Board
of Directors of the Corporation adopted the following resolution, at a meeting
held September 30, 1991, which resolution is in full force and in effect as of
the day hereof:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations stated in the Certificate of Incorporation to fix by resolutions
the designation of each series of preferred stock, par value $1.00 ("Preferred
Stock") and powers, preferences and relative, participating, optional, or other
special rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such provisions as
may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Florida Business Corporation Act;
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series:
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such number
and series of Preferred Stock on the terms and with the provisions herein set
forth:
1. DESIGNATION OF THE SERIES. There shall be a series of Preferred Stock
designated as "$2.25 Convertible Exchangeable Preferred Shares, Series A". Each
share of such series shall be referred to herein as a "Series A Share." The
authorized number of such Series A Shares is 520,000 shares.
2. DIVIDENDS. For the purposes of this Section 2, the fifteenth day of
October on which any Series A Share shall be outstanding shall be deemed to be a
"Dividend Due Date"; provided, however, that the first Dividend Due Date shall
be October 15, 1992. The holders of Series A Shares shall be entitled to
receive, if, when and as declared by the Board of Directors out of funds legally
available therefor, cumulative dividends at the rate of $2.25 per year on each
Series A Share and no more, payable annually on each Dividend Due Date, with
respect to the year ending on such Dividend Due Date; provided, however, that as
to the first Dividend Due Date, dividends shall be payable for the period from
the date of first issuance of the Series A Shares through and including such
Dividend Due Date, computed on the basis of a 360-day year of twelve 30-day
months; and further provided, however, that as to the first and second Dividend
Due Dates, the Corporation shall have the option to pay dividends by increasing
the number of shares issuable upon conversion of each share of this Series to a
number equal to (i) $25.00 divided by $10.55 if such option is exercised with
respect to one of such Dividend Due Dates and (ii) $25.00 divided by $9.68 if
such option is exercised with respect to both of such Dividend Due Dates.
Dividends on the Series A Shares shall accrue and be cumulative from and after
the date of first issuance of the Series A Shares. The record date for the
payment of dividends shall, unless otherwise altered by the Corporation's Board
of Directors, be the first day of the October in which the relevant Dividend Due
Date occurs. The record date for the payment of dividends on the Series A Shares
shall in no event be more than sixty (60) nor less than ten (10) days prior to a
Dividend Due Date.
If at any time the Corporation has failed to pay in full accrued dividends
on any Series A Shares, the Corporation will not, unless all accrued and payable
but unpaid dividends on the Series A Shares have been or contemporaneously are
declared and paid in full or declared and a sum sufficient for payment of such
dividends has been set aside, (a) declare or pay any dividend on the common
stock, $.02 par value, of the Corporation ("Common Stock") or on any other class
or series of stock ranking junior to the Series A Shares as to the payment of
dividends or upon liquidation or make any payment on account of, or set apart
money for a sinking or other analogous fund for the purchase, redemption or
other retirement of, any Common Stock or any such junior stock or make any
distribution in respect thereof, either directly or indirectly and whether in
cash or property or in obligations or shares of the Corporation (other than in
shares of Common Stock of the Corporation and any class or series of stock which
is junior to the Series A Shares in respect of the payment of dividends and upon
liquidation (the Common Stock and any such other stock being herein collectively
called "Junior Stock") or rights to acquire any Junior Stock) or (b) permit any
corporation or other entity directly or indirectly controlled by the
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Corporation to purchase or otherwise acquire for consideration (other than in
shares of Junior Stock) any shares of Common Stock or any class or series of
stock ranking junior to the Series A Shares as to the payment of dividends or
upon liquidation or (c) redeem, purchase or otherwise acquire, or permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase or otherwise acquire, for consideration, shares of any class or
series of stock ranking on a parity with the Series A Shares as to the payment
of dividends and upon liquidation (except for a consideration payable in Junior
Stock, by a redemption of all Series A Shares and such parity stock then
outstanding or pursuant to an offer made on a pro rata basis on the same terms
to all holders of the Series A Shares and such parity stock then outstanding).
When dividends on the Series A Shares at the time outstanding have not been paid
in full, all dividends declared by the Corporation upon the Series A Shares or
any other class or series of stock ranking on a parity with the Series A Shares
as to the payment of dividends shall be declared pro rata with respect to all
Series A Shares and all such parity stock then outstanding so that the amounts
of any dividends declared on the Series A Shares and such other stock shall in
all cases bear to each other the same ratio that, at the time of such
declaration, all accrued dividends on the Series A Shares and such other stock,
respectively, bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series A Shares which may be in arrears.
3. VOTING
(a) General, Class and Series Voting Rights. Except as expressly
provided in this Section 3 and Section 4 hereof or as required by applicable
law, the Series A Shares shall not have any right to vote for the election of
directors or for any other purpose. So long as any Series A Shares are
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of at least a majority of the Series A Shares outstanding, voting
as a separate class: (i) amend, alter or repeal any provision of the Certificate
of Incorporation if such action would adversely affect the powers, preferences
or special rights of the Series A Shares; or (ii) create, authorize or issue any
class or series of stock, or any security convertible into stock of such class
or series, ranking prior to the Series A Shares in respect of the payment of
dividends or upon liquidation. The Series A Shares shall also be entitled to
vote as a class (the affirmative vote or consent of at least a majority of the
Series A Shares outstanding being required) on any matter with respect to which
a class vote by the Series A Shares shall be expressly required by Florida law
and on any other matter with respect to which the Corporation's Board of
Directors shall direct that the Series A Shares are to be voted as a separate
class. A class vote on the part of the Series A Shares shall, without
limitation, specifically be deemed not to be required (except as otherwise
required by law or resolution of the Corporation's Board of Directors) in
connection with (i) the authorization, issuance or increase in the authorized
amount of any shares of any other class or series of stock ranking on a parity
with or junior to the Series A Shares as to the payment of dividends and upon
liquidation; (ii) the merger or consolidation of the Corporation with or into
any other corporation in which the Certificate of Incorporation is amended,
altered or repealed if such action would not adversely affect the powers,
preferences or special rights of the Series A Shares, notwithstanding that
certain of the Series A Shares may be redeemed as hereinafter
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provided; or (iii) the authorization, issuance or increase in the amount of any
bonds, mortgages, debentures or other obligations of the Corporation.
The holders of the Series A Shares shall also be entitled to vote on
certain amendments to the form of Indenture relating to the 9% Subordinated
Debentures due October 15, 2016 of the Corporation, for which the Series A
Shares may be exchanged as described in Section 8 hereof.
4. DEFAULT VOTING RIGHTS.
(a) Default. Whenever and as often as the equivalent of two
annual dividends on the Series A Shares shall be in default (a "Default"), the
holders of the Series A Shares, voting as a class together with the holders of
parity dividend stock on which like rights have been conferred and are
exercisable, shall have the right, as set forth below, to vote for and to elect
two directors of the Corporation. The right of the holders of the Series A
Shares to vote for such directors, however, shall cease when all arrearages in
the payment of dividends on the Series A Shares shall have been cured (either
through payment or through being declared and set apart for payment) or no
Series A Shares are outstanding, whichever first occurs.
(b) Election of Directors. If, at any time, a Default shall
occur and continue to exist, then (i) the number of directors of the Corporation
shall be increased by two, effective as of the time of election of such
directors as hereinafter provided, and (ii) the holders of the Series A Shares
together with the holders of parity dividend stock on which like rights have
been conferred and are exercisable, voting as a class, shall be entitled to
elect two directors to fill the vacancy caused by so increasing the number of
directors. Such two directors shall not be classified. The right of the holders
of the Series A Shares so to vote for such directors may be exercised at any
time before the Default is cured. Effective as of such cure, (i) the holders of
the Series A Shares shall no longer have the right so to elect any directors and
(ii) the number of directors of the Corporation shall be reduced by two. Any
directors elected by such holders shall serve as directors until the Default is
cured and, in the event the Default continues, until their successors are
appointed and qualified in the manner described below.
If, prior to the end of the term of any director elected as aforesaid, a
vacancy in the office of such director shall occur by reason of death,
resignation or disability during the continuance of a default in dividends on
the Series A Shares, such vacancy shall be filled for the unexpired term by the
appointment by the remaining director elected as aforesaid of a new director for
the unexpired term of such former director.
The foregoing right of the holders of the Series A Shares with respect to
the election of two directors may be exercised at any annual meeting of
shareholders or, within the limitations hereinafter provided, at a special
meeting of shareholders held for such purpose. If a Default shall occur more
than one hundred twenty (120) days preceding the date established for the next
annual meeting of shareholders, the Chief Executive Officer or President of the
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Corporation shall, within twenty days after the date of such Default, call a
special meeting of the holders of the Series A Shares to be held within ninety
(90) days but not less than (45) days after the date of such Default for the
purpose of electing such additional directors to serve for the term provided in
the Certificate of Incorporation, the Bylaws and this Section 4.
The holders of the Series A Shares, voting as a separate class, shall have
the right to remove without cause at any time and to replace any directors such
holders have elected pur suant to this Section 4.
5. CONVERSION. The holders of Series A Shares shall have the right, at
their option, to convert all or any part of the Series A Shares into shares of
Common Stock at any time (except as described below) on and subject to the
following terms and conditions:
(a) Series A Shares shall be convertible at the office of any
transfer agent for such stock, at the Corporation's executive offices and at
such other place or places, if any, as the Board of Directors of the Corporation
may designate, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock. The number of
shares of Common Stock issuable upon conversion of each share of this Series
shall be equal to $25.00 divided by the conversion price in effect at the time
of conversion, determined as hereinafter provided. The price at which shares of
Common Stock shall be delivered upon conversion (herein called the "conversion
price"), shall be initially $11.50 per share of Common Stock. The conversion
price shall be subject to adjustment from time to time as provided in Section 2
and in certain other instances as hereinafter provided. The Corporation may at
any time reduce the conversion price by any amount it considers to be necessary
in order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of Common Stock;
provided, however, that the Corporation may not reduce the conversion price to
an amount less than the par value per share of Common Stock into which Series A
Shares are at the time convertible. If the Corporation calls for the redemption
or exchange of any Series A Shares, such right of conversion shall cease and
terminate, as to the shares designated for redemption or exchange, at the close
of business on the date immediately preceding the redemption or exchange date
therefor, unless the Corporation defaults in the payment of the redemption
price, in the issuance of Exchange Debentures (as hereinafter defined) in
exchange for Series A Shares or in the payment of the final dividend on the
exchange date. If the holder of any Series A Shares has elected to require the
Corporation to redeem any Series A Shares as a result of a business combination
or acquisition of shares referred to in Section 6(b) hereof, such right of
conversion shall cease and terminate, as to the shares designated for such
redemption, immediately prior to the effectiveness of such business combination
or within 45 days after such acquisition of shares, unless the Corporation
defaults in the payment of the redemption price. No fractional shares of Common
Stock will be issued upon conversion of shares of this series; an adjustment in
cash will be paid in lieu of any fractional share in an amount equal to the same
fraction of the closing price per share of the Common Stock (determined as
provided in Section 5(c)(iv) below) at the close of business on the trading day
which next precedes the day of
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<PAGE>
conversion. Only whole shares, and no fractions of a share, may be converted
pursuant to this Section 5.
(b) Before any holder of Series A Shares shall be entitled to
convert the same into Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed and assigned to the Corporation or in
blank, at the office of any transfer agent for such stock, at the Corporation's
executive offices, or at such other place or places, if any, as the Board of
Directors of the Corporation may have designated, and shall give written notice
to the Corporation at said office or place that he elects to convert the same
and shall state in writing therein the name or names (with addresses) in which
he wishes the certificate or certificates for Common Stock to be issued. No
payment or adjustment shall be made upon any conversion on account of any
dividend accrued on the Series A Shares surrendered for conversion or on account
of any dividends on the Common Stock issued upon conversion except that if a
Series A Share is so surrendered for conversion between a record date for the
payment of dividends on such Series A Share and the immediately following
Dividend Due Date, the person who was the holder of such Series A Share on such
record date shall be entitled to receive such dividend on such Dividend Due Date
(except in the case of a Series A Share which has been called for redemption on
a redemption date within such period on which no dividends will be paid on such
Dividend Due Date). The Corporation will, as soon as practicable thereafter,
issue and deliver at said office or place to such holder of Series A Shares, or
to his nominee or nominees, certificates for the number of full shares of Common
Stock to which he shall be entitled as aforesaid, together with cash in lieu of
any fraction of a share. If more than one certificate for Series A Shares shall
be surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of Series A Shares (or specified
portions thereof) so surrendered. In case any certificate for Series A Shares
shall be converted in part only, upon such conversion the Corporation will issue
to the holder a new certificate or certificates for the number of whole shares
not converted. Series A Shares shall be deemed to have been converted as of the
close of business on the date of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders or such Common Stock as of the close of business on such date.
(c) The conversion price in effect at any time shall be subject
to adjustments from time to time as follows:
(i) In case the Corporation shall (A) declare a dividend or
make a distribution payable in Common Stock on any class of
capital stock of the Corporation, (B) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of
shares, or (C) combine its outstanding shares of Common Stock
into a smaller number of shares, the conversion price in effect
at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or
reclassification shall be proportionately reduced in the
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case of any increase in the number of shares of Common Stock
outstanding, and increased in the case of any reduction in the
number of shares of Common Stock outstanding, so that the holder
of any Series A Share surrendered for conversion after such time
shall be entitled to receive the kind and amount of shares which
such holder would have owned or have been entitled to receive had
such Series A Share been converted into Common Stock immediately
prior to such time and had such Common Stock received such
dividend or other distribution or participated in such
subdivision, combination or reclassification. Such adjustment
shall be effective as of the record date for such dividend or
distribution or the effective date of such combination,
subdivision or reclassification and shall be made successively
whenever any event listed above shall occur.
(ii) In case the Corporation shall issue rights or warrants
to all holders of its Common Stock entitling them (for a period
expiring within 45 days of the date fixed for the determination
of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Common Stock (or securities
convertible into shares of Common Stock) at a price per share (or
having a conversion price per share) less than the Current Market
Price (as defined in paragraph (iv) below) of the Common Stock,
on the date fixed for the determination of stockholders entitled
to receive such rights or warrants, the conversion price at the
opening of business on the day following the date fixed for such
determination shall be reduced by multiplying the conversion
price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for
subscription or purchase (or the aggregate initial conversion
price of the convertible securities so offered) would purchase at
such Current Market Price of the Common Stock and the denominator
shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus
the number of shares of Common Stock so offered for subscription
or purchase (or into which the convertible securities so offered
are initially convertible), such reduction to become effective
prior to the opening of business on the day following the date
fixed for such determination. For purposes of determining under
this paragraph the number of shares of Common Stock outstanding
at any time, there shall be excluded all shares of Common Stock
held in the treasury of the Corporation. If any or all such
rights or warrants are not so issued or expire or terminate
before being exercised, the conversion price then in effect shall
be appropriately readjusted, but such readjustment shall not be
applied retroactively to any conversion of shares of this Series
effected prior to such readjustment.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock shares of stock other than Common
Stock, evidences of its indebtedness or
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assets (including securities, but excluding cash dividends or
cash distributions paid out of consolidated earnings or earned
surplus or a distribution referred to in paragraph (i) above) or
rights or warrants (excluding those referred to in paragraph (ii)
above), the conversion price shall be adjusted so that it shall
equal the price determined by multiplying the conversion price in
effect immediately prior to the close of business on the date
fixed for the determination of stockholders entitled to receive
such distribution by a fraction of which the numerator shall be
the Current Market Price per share of the Common Stock on the
date fixed for such determination less the then fair market value
(as determined by the Board of Directors of the Corporation, in
good faith and in the exercise of its reasonable business
judgment and described in a resolution of the Board of Directors)
of the portion of the shares of stock, assets, evidences of
indebtedness, rights or warrants so distributed applicable to one
share of Common Stock and the denominator shall be such Current
Market Price per share of the Common Stock. Such adjustment shall
become effective immediately prior to the opening of business on
the day following the date fixed for the determination of
stockholders entitled to receive such distribution; provided,
however, that if any such shares of stock, assets, evidences of
indebtedness, rights or warrants referred to in this paragraph
(iii) shall initially be treated as part of and trade together
with the Common Stock, but thereafter shall be separated from and
trade separately from the Common Stock, such adjustment shall
become effective, and the fair market value thereof shall be
determined, as of the time of such separation; and prior to such
separation, the holder of any Series A Shares surrendered for
conversion after the date fixed for determination of stockholders
entitled to receive a distribution of the type referred to in
this proviso shall be entitled to receive the number of shares of
Common Stock to which such holder would otherwise be entitled
upon such conversion, together with the shares of stock, assets,
evidences of indebtedness, rights or warrants which such holder
would have owned or be entitled to receive had such Series A
Shares been converted immediately prior to such date and had such
Common Stock received such distribution.
(iv) For the purpose of any computation under paragraphs
(ii) and (iii) above, the "Current Market Price" per share of
Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of Common Stock for 15 consecutive
trading days selected by the Corporation ending no more than five
nor less than two trading days before such date. The closing
price per share for each day shall be the last reported sales
price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way,
in either case on the American Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if it is not listed or
admitted to trading on any national securities exchange or no
such quotations are available, the last reported sale price, or
if not
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<PAGE>
so reported, the average of the closing bid and asked prices as
furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for that purpose, or, if no
such quotations are available, the fair market value as
determined in good faith in the exercise of their reasonable
business judgment by the Board of Directors of the Corporation.
(v) All calculations under this Section 5(c) shall be made
to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(vi) No adjustment in the conversion price shall be required
pursuant to the above paragraphs of this Section 5(c) unless such
adjustment (together with prior adjustments which by reason of
this paragraph (vi) were not required to be made at the time
otherwise required to be made at the time otherwise required by
the above paragraphs of this Section 5(c)) would require a change
of at least 1% in such price; provided, however, that any
adjustments which by reason of this paragraph (vi) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; and provided, further, that
if any adjustment (the "initial adjustment") is not made within
three years after it would have been made if not for the
provisions of this paragraph (vi), then, on the third anniversary
of the date such initial adjustment would have otherwise been
required, the conversion price shall be adjusted to reflect the
initial adjustment and other adjustments arising after the
initial adjustment, but before such third anniversary, that would
have been required to have been made pursuant to the above
paragraphs of this Section 5(c) if not for the preceding
provisions of this paragraph (vi).
(d) Whenever the conversion price is adjusted as herein provided
the Corporation shall, as soon as practicable after such conversion price is
adjusted, mail to the holders of record of the Series A Shares notice stating
that the conversion price has been adjusted and setting forth the adjusted
conversion price.
(e) (i) In case of any consolidation or merger of the Corpo-
ration with or into any other corporation (other than a merger which does not
result in any reclassification, conver sion, exchange or cancellation of
outstanding shares of Common Stock), or in case of any sale or transfer of all
or substantially all of the assets of the Corporation, or the reclassification
of the Common Stock into another form of capital stock of the Corporation,
whether in whole or in part, the holder of each Series A Share shall after such
consolidation, merger, sale or transfer or reclassification have the right to
convert such Series A Share into the kind and amount of shares of stock and
other securities and property or cash (including, if applicable, Common Stock)
which such holder would have been entitled to receive upon such consolidation,
merger, sale or transfer or reclassification if he had held the Common Stock
issuable upon the conversion of such Series A Share immediately prior to such
consolidation, merger, sale or transfer, or reclassification. Notwithstanding
the foregoing, if the holders of Common Stock in any such consolidation,
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<PAGE>
merger, sale, transfer or reclassification are afforded an election or are
otherwise permitted or required to exchange such shares for two or more
alternate forms of consideration, then the holder of each share of such Series A
Shares shall after such consolidation, merger, sale, transfer or
reclassification have the right to convert such Series A Share into the kind and
amount of shares of stock and other securities and property or cash (including,
if applicable, Common Stock) into or for which the Common Stock issuable upon
the conversion of such Series A Share would have been converted or exchanged as
a result of such consolidation, merger, sale, transfer or reclassification if
held by a holder of Common Stock who failed to exercise his rights of election
(provided that if the kind and amount of shares of stock and other securities
and property or cash receivable upon such consolidation, merger, sale, transfer
or reclassification is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this paragraph the kind and amount of shares of
stock and other securities and property or cash receivable upon such
consolidation, merger, sale, transfer or reclassification in respect of each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares).
(ii) If at any time, as a result of paragraph (i) above, the holder
of any Series A Share shall become entitled to receive any shares of stock and
other securities and property (including, if applicable, Common Stock),
thereafter the amount of such shares of stock and other securities and property
so receivable upon conversion of any Series A Shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
paragraphs (i) to (vi), inclusive, of Section 5(c) above, and the provisions of
said Section 5(c) with respect to the Common Stock shall apply on like terms to
any such shares of stock and other securities and property (including, if
applicable, Common Stock).
The above provisions of this paragraph (e) shall similarly apply to successive
consolidations, mergers, sales or transfers or reclassifications.
(f) In case:
(i) the Corporation shall authorize the distribution to all
holders of its Common Stock of assets (other than cash dividends
or other cash distributions paid out of consolidated earnings or
earned surplus); or
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights and warrants to subscribe
for or purchase any shares of capital stock of any class or
securities convertible into shares of capital stock of any class
or of any other rights or warrants; or
(iii) of any reclassification of the capital stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or
merger to which the Corporation is a party and for which
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<PAGE>
approval of any stockholders of the Corporation is required, or
of the sale or transfer of all or substantially all of the assets
of the Corporation; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in each case, the Corporation shall cause to be mailed, first class
postage prepaid, to the holders of record of the outstanding shares of the
Series A Shares, at least 10 days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property, deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
(g) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the Series A
Shares, the full number of shares of Common Stock then issuable upon the
conversion of all outstanding Series A Shares. For the purpose of this Section
5(g), the full number of shares of Common Stock issuable upon the conversion of
all outstanding Series A Shares shall be computed as if at the time of
computation of such number of shares of Common Stock all outstanding Series A
Shares were held by a single holder. The Corporation shall from time to time, in
accordance with applicable law, increase the authorized amount of its Common
Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all Series A Shares
at the time outstanding. If any shares of Common Stock required to be reserved
for issuance upon conversion of Series A Shares hereunder require registration
with or approval of any governmental authority under any Federal or State law
before such shares may be issued upon such conversion, the Corporation will in
good faith and as promptly as practicable endeavor to cause such shares to be so
registered or approved.
(h) The Corporation will pay any and all taxes that may be
payable in respect of the issue or delivery of shares of Common Stock on
conversion of Series A Shares pursuant hereto. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or transfer and delivery of shares of Common
Stock in a name other than that in which the Series A Shares so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax or has established to the satisfaction of the Corporation that such tax has
been paid. In no event shall the Corporation be required to pay or reimburse the
holder for any income tax payable by such holder as a result of such issuance.
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<PAGE>
(i) Whenever reference is made in this Section 5 to shares of
Common Stock, the term "Common Stock" shall include only shares of the class
designated as Common Stock, $.02 par value, of the Corporation at the date
hereof or shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which are not subject to
redemption by the Corporation; provided that if at any time there shall be more
than one such resulting class the shares of each such class then so deliverable
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
(j) Series A Shares converted as provided herein will be
restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to series.
6. OPTIONAL REDEMPTION.
(a) The Series A Shares may be redeemed in whole or in part, at
the option of the Corporation, at any time or from time to time, at the
redemption prices set forth below, if redeemed during the twelve-month period
beginning October 15 of the year indicated:
<TABLE>
<CAPTION>
Redemption Redemption
Price Price
Year Per Series A Share Year Per Series A Share
- ---- ------------------ ---- ------------------
<C> <C> <C> <C>
1991 $27.250 1996 $26.125
1992 27.025 1997 25.900
1993 26.800 1998 25.675
1994 26.575 1999 25.450
1995 26.350 2000 25.225
</TABLE>
and $25 per Series A Share if redeemed on or after October 15, 2001, plus in
each case dividends (whether or not declared or due) accrued and unpaid to the
date fixed for redemption; provided, however, the Series A Shares may not be
redeemed prior to October 15, 1993 unless the closing price of the Common Stock
(determined as provided in Section 5(c)(iv) hereof) has equaled or exceeded 150%
of the conversion price then in effect for at least 20 trading days within 30
consecutive trading days ending within five trading days before notice of
redemption (as provided for below) is mailed.
If less than all the outstanding Series A Shares are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If at any time the Corporation has failed to pay in full accrued dividends
on the Series A Shares, unless all accrued and payable but unpaid dividends on
the Series A Shares have been or contemporaneously are declared and paid in full
or declared and a sum sufficient for
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payment of such dividends has been set aside, the Corporation will not redeem,
and neither the Corporation nor any entity directly or indirectly controlled by
the Corporation may purchase or otherwise acquire for consideration, any Series
A Shares (except for a consideration payable in Junior Stock, by redemption of
all Series A Shares then outstanding or pursuant to an offer made on a pro rata
basis on the same terms to all holders of the Series A shares then outstanding).
Notice of any proposed redemption of Series A Shares shall be mailed by
means of first class mail, postage paid, addressed to the holders of record of
the Series A Shares to be redeemed, at their respective addresses then appearing
on the books of the Corporation, at least thirty (30) but not more than sixty
(60) days prior to the date fixed for such redemption (the "Redemption Date").
Each such notice shall specify (i) the Redemption Date, (ii) the Redemption
Price, (iii) the conversion price then in effect, (iv) the place for payment and
for delivering the stock certificate(s) and transfer instrument(s) in order to
collect the Redemption Price, (v) the Series A Shares to be redeemed, (vi) the
place for conversion of the Series A Shares if the holder wants to convert , and
(vii) that the Series A Shares called for redemption may be converted at any
time before the close of business on the date immediately preceding the
Redemption Date. Any notice mailed in such manner shall be conclusively deemed
to have been duly given whether or not such notice is in fact received.
The holder of any Series A Shares redeemed upon any exercise of the
Corporation's redemption right shall not be entitled to receive payment of the
Redemption Price for such Series A Shares until such holder shall cause to be
delivered to the place specified in the notice given with respect to such
redemption (i) the certificate(s) representing such Series A Shares and (ii)
transfer instrument(s) satisfactory to the Corporation and sufficient to
transfer such Series A Shares to the Corporation free of any adverse interest.
No interest shall accrue on the Redemption Price of any Series A Share after is
Redemption Date.
At the close of business on the Redemption Date for any Series A Share,
dividends will cease to accrue on such Series A Share and such share shall
(provided the Redemption Price of such share has been paid or properly provided
for) be deemed to cease to be outstanding and all rights of any person other
than the Corporation in such share shall be extinguished on the Redemption Date
for such share (including all rights to receive future dividends with respect to
such share) except for the right to receive the Redemption Price, without
interest, for such share in accordance with the provisions of this Section 6(a),
subject to applicable escheat and abandoned property laws.
Subject to Section 2 hereof and this Section 6(a), the Corporation shall
have the right to purchase Series A Shares in the public market, if any, at such
prices as may from time to time be available in the public market, if any, for
such Series A Shares and shall have the right at any time to acquire any Series
A Shares from the owner of such Series A Shares on such terms as may be
agreeable to such owner. Series A Shares may be acquired by the Corporation from
any shareholder pursuant to this paragraph without offering any other
shareholder an equal opportunity to sell his stock to the Corporation, and no
purchase by the Corporation from any
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shareholder pursuant to this paragraph shall be deemed to create any right on
the part of any other shareholder to sell any Series A Shares (or any other
stock) to the Corporation.
(b) In the event that (i) any person becomes the beneficial
owner of more than 50% of the Common Stock of the Corporation other than (x) in
a transaction or series of trans actions in which such person acquires at least
50% of the total securities of the Company beneficially owned by such person in
direct issuances from the Corporation or (y) by means of a merger of the
Corporation with or into a subsidiary or affiliate (as such term is defined in
the Securities Act of 1933, as amended) of such person (a "Share Acquisition"),
or (ii) the Corporation is a party to a business combination including a merger
or consolidation or the sale of all or substantially all of its assets and as a
result of such business combination the Series A Shares thereafter are not
convertible into Common Stock of the Corporation or of the ultimate parent of
the Corporation, which stock is traded on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System, each holder of
Series A Shares shall have the option, exercisable upon written notice within
thirty (30) days of such holder's receipt of notice of such event from the
Corporation, to require the Corporation to redeem the Series A Shares owned by
such holder tendered for redemption at $25 per share, plus accrued and unpaid
dividends to the date of redemption.
7. LIQUIDATION. In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (for the purposes of this Section
7, a "Liquidation"), before any distribution of assets shall be made to the
holders of Common Stock or the holders of any other stock that is junior to the
Series A Shares in respect of distributions upon the Liquidation of the
Corporation, the holder of each Series A Share then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, an amount equal to $25.00 plus all dividends
(whether or not declared or due) accrued and unpaid on such share to the date
fixed for the distribution of assets of the Corporation to the holders of Series
A Shares.
If upon any Liquidation of the Corporation, the assets available for
distribution to the holders of Series A Shares, and any other classes or series
of stock ranking on a parity with the Series A Shares upon liquidation which
shall then be outstanding (hereinafter in this paragraph called the "Total
Amount Available") shall be insufficient to pay the holders of all outstanding
Series A Shares and all such other stock the full amounts (including all
dividends accrued and unpaid) to which they shall be entitled by reason of such
Liquidation of the Corporation, then there shall be paid to the holders of the
Series A Shares in connection with such Liquidation of the Corporation, an
amount equal to the product derived by multiplying the Total Amount Available
times a fraction, the numerator of which shall be the full amount to which the
holders of the Series A Shares shall be entitled under the terms of the
preceding paragraph by reason of such Liquidation of the Corporation and the
denominator of which shall be the total amount which would have been distributed
by reason of such Liquidation of the Corporation with respect to the Series A
Shares and all such other stock ranking on a parity with the Series A Shares
then outstanding had the Corporation possessed sufficient assets to pay the
maximum amount which
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<PAGE>
the holders of the Series A Shares and all such other stock would have been
entitled to receive in connection with such Liquidation of the Corporation.
Neither a voluntary sale, conveyance, lease, exchange or transfer of all or
substantially all the property or assets of the Corporation for cash or
securities, not the merger or consolidation of the Corporation into or with any
other corporation, nor the merger of any other corporation into the Corporation,
nor any purchase or redemption of some or all of the shares of any class or
series of stock of the Corporation, shall be deemed to be a Liquidation of the
Corporation for the purpose of this Section 7.
The holder of any Series A Shares shall not be entitled to receive any
payment owed for such Shares under this Section 7 until such holder shall cause
to be delivered to the Cor poration: (i) the certificate(s) representing such
Series A Shares and (ii) transfer instrument(s) satisfactory to the Corporation
and sufficient to transfer such Series A Shares to the Corporation free of any
adverse interest. As in the case of the Redemption Price, no interest shall
accrue on any payment upon Liquidation after the due date thereof, provided that
the same has been paid or properly provided for.
After payment of the full amount of the liquidating distribution to which
they are entitled, the holders of the Series A Shares will not be entitled to
any further participation in any distribution of assets by the Corporation.
8. EXCHANGE. The Corporation shall be entitled, on any Dividend Due Date
on or after October 15, 1993, to exchange, in whole but not in part, a principal
amount of its 9% Subordinated Debentures due October 15, 2016 (the "Exchange
Debentures") equal to the number of outstanding Series A Shares multiplied by
$25.00 per share for all such outstanding Series A Shares.
The Exchange Debentures shall be issued pursuant to an indenture
substantially in the form of the form of indenture last filed as an Exhibit to
the Current Report on Form 8-K of Belmac Corporation filed with the Securities
and Exchange Commission with respect to the issuance of Series A Shares in
October 1991 (Commission File No. 0-16600), with the blank spaces therein being
appropriately completed and with such amendments and supplements thereto as may
be made consistently with the terms thereof except that prior to the execution
of such indenture (i) the affirmative vote or consent of the holders of at least
a majority of the Series A Shares shall be required to approve any amendment or
supplement that would have required the written consent of the holders of at
least a majority in principal amount of the Exchange Debentures pursuant to
Section 9.02 of the form of indenture; and (ii) the affirmative vote or con sent
of each of the holders of Series A Shares shall be required to effect any
amendment or supplement of any provision in the form of indenture having the
effects described in Section 9.02 of the form of indenture.
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The exchange of the Exchange Debentures for Series A Shares may not occur
unless full cumulative dividends on the Series A Shares through the Dividend Due
Date established as the exchange date have been paid or set aside for payment.
Any such exchange shall be effected in the same manner, and upon the same
notice, as a redemption of the Series A Shares, as aforesaid. Upon any such
exchange, the Series A Shares shall (provided such exchange is duly and properly
effected) be deemed to cease to be outstanding, as of the close of business on
the date established for such exchange, and all rights of any holder thereof
shall be extinguished, except the right to receive the Exchange Debentures in
exchange therefor and to receive accrued and unpaid dividends. As in the case of
a redemption of Series A Shares, holders of Series A Shares must surrender such
Series A Shares in order to receive the Exchange Debentures for which such
Series A Shares have been exchanged, but upon such surrender such holders will
be entitled to receive all interest accrued on Exchange Debentures from the date
of exchange at the time and in the manner that such interest would be paid in
the ordinary course. Dividends due on the Dividend Due Date on which the
exchange is effected will be mailed to holders in the regular course.
9. PAYMENTS. The Corporation may provide funds for any payment of the
Redemption Price for any Series A Shares pursuant to Section 6 or any amount
distributable with respect to any Series A Shares under Section 7 hereof by
depositing such funds with a bank or trust company selected by the Corporation
having a net worth of at least $50,000,000 and having its principal place of
business in New York, New York, in trust for the benefit of the holders of such
Series A Shares under arrangements providing irrevocably for payment upon
satisfaction of any conditions to such payment by the holders of such Series A
Shares which shall reasonably be required by the Corporation. The Corporation
shall be entitled to make any deposit of funds contemplated by this Section 9
under arrangements designed to permit such funds to generate interest or other
income for the Corporation, and the Corporation shall be entitled to receive all
interest and other income earned by any funds while they shall be deposited as
contemplated by this Section 9, provided that the Corporation shall maintain on
deposit funds sufficient to satisfy all payments which the deposit arrangement
shall have been established to satisfy. If the conditions precedent to the
disbursement of any funds deposited by the Corporation pursuant to this Section
9 shall not have been satisfied within two years after the establishment of the
trust for such funds, then (i) such funds shall be returned to the Corporation
upon its request; (ii) after such return, such funds shall be free of any trust
which shall have been impressed upon them; (iii) the person entitled to the
payment for which such funds shall have been originally intended shall have the
right to look only to the Corporation for such payment, subject to applicable
escheat and abandoned property laws; and (iv) the trustee which shall have held
such funds shall be relieved of any responsibility for such funds upon the
returns of such funds to the Corporation.
Any payment which may be owed for the payment of the Redemption Price for
any Series A Shares pursuant to Section 6 or the payment of any amount
distributable with respect to any Series A Shares under Section 7 shall be
deemed to have been "paid or properly provided for" upon the earlier to occur
of: (i) the date upon which funds sufficient to make such payment shall be
deposited in a manner contemplated by the preceding paragraph or (ii) the date
upon which a
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check payable to the person entitled to receive such payment shall be delivered
to such person or mailed to such person at either the address of such person
then appearing on the books of the Corporation or such other address as the
Corporation shall deem reasonable. The Corporation may deposit the Exchange
Debentures to be exchanged for Series A Shares in the manner described in clause
(i) above, but the interest accruing on such Debentures shall accrue to the
former holders of the Series A Shares entitled thereto.
10. STATUS OF REACQUIRED SERIES A SHARES. Series A Shares issued and
reacquired by the Corporation (including Series A Shares exchanged for the
Exchange Debentures or converted pursuant to Section 5 hereof) shall have the
status of authorized and unissued shares of Preferred Stock undesignated as to
series, subject to later issuance.
11. PREEMPTIVE RIGHTS. The Series A Shares are not entitled to any
preemptive or subscription rights in respect of any securities of the
Corporation.
12. STATED CAPITAL. Upon original issuance of any Series A Shares, the sum
of $1.00 per Series A Share shall be transferred on the books of the Corporation
from the Corporation's surplus to its stated capital account. The amount so
transferred shall be deemed stated capital in respect of the Series A Shares.
The stated capital of the Corporation in respect of the Series A Shares shall
not be eliminated or reduced in any way or for any reason except when Series A
Shares are reacquired by the Corporation and only to the extent of the stated
capital represented by such reacquired shares and only as permitted by law.
(D) The foregoing was authorized by the Board of Directors at a meeting
duly held.
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<PAGE>
IN WITNESS WHEREOF, Belmac Corporation has caused this certificate to be
made under the seal of the Corporation signed by its President and Secretary,
respectively, this 15th day of October, 1991.
/s/ Jean Francois Rossignol
President
/s/ Marc S. Ayers
Secretary
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<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
BELMAC CORPORATION
-------------------------------------
Pursuant to Provisions of Section 607.047
of the Florida Business Corporation Act
-------------------------------------
Belmac Corporation (the "Corporation"), a corporation and organizing and
existing under the Florida Business Corporation Act, does hereby certify that,
pursuant to Section 607.0602 of the Florida Business Corporation Act, the Board
of Directors of the Corporation adopted the following resolution, at a meeting
held February 5, 1992, which resolution is in full force and in effect as of the
day hereof:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations stated in the Certificate of Incorporation to fix by resolutions
the designation of each series of preferred stock, par value $1.00 ("Preferred
Stock") and powers, preferences and relative, participating, optional, or other
special rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such provisions as
may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the Florida Business Corporation Act;
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such number
and series of Preferred Stock on the terms and with the provisions herein set
forth:
1. DESIGNATION OF THE SERIES. There shall be a series of Preferred Stock
designated as "$2.25 Convertible Exchangeable Preferred Shares, Series B". Each
share of such series shall be referred to herein as a "Series B Share." The
authorized number of such Series B Shares is 400,000 shares.
<PAGE>
2. DIVIDENDS. For the purposes of this Section 2, the fifteenth day of
October on which any Series B Share shall be outstanding shall be deemed to be a
"Dividend Due Date"; provided, however, that the first Dividend Due Date shall
be February 1, 1993. The holders of Series B Shares shall be entitled to
receive, if, when and as declared by the Board of Directors out of funds legally
available therefor, cumulative dividends at the rate of $2.25 per year on each
Series B Share and no more, payable annually on each Dividend Due Date, with
respect to the year ending on such Dividend Due Date; provided, however, that as
to the first Dividend Due Date, dividends shall be payable for the period from
the date of first issuance of the Series B Shares through and including such
Dividend Due Date, computed on the basis of a 360-day year of twelve 30-day
months; and further provided, however, that as to the first and second Dividend
Due Dates, the Corporation shall have the option to pay dividends by increasing
the number of shares issuable upon conversion of each share of this Series to a
number equal to (i) $25.00 divided by $14.68 if such option is exercised with
respect to one of such Dividend Due Dates and (ii) $25.00 divided by $13.47 if
such option is exercised with respect to both of such Dividend Due Dates.
Dividends on the Series B Shares shall accrue and be cumulative from and after
the date of first issuance of the Series B Shares. The record date for the
payment of dividends shall, unless otherwise altered by the Corporation's Board
of Directors, be the first day of the February in which the relevant Dividend
Due Date occurs. The record date for the payment of dividends on the Series B
Shares shall in no event be more than sixty (60) nor less than ten (10) days
prior to a Dividend Due Date.
If at any time the Corporation has failed to pay in full accrued dividends
on any Series B Shares, the Corporation will not, unless all accrued and payable
but unpaid dividends on the Series B Shares have been or contemporaneously are
declared and paid in full or declared and a sum sufficient for payment of such
dividends has been set aside, (a) declare or pay any dividend on the common
stock, $.02 par value, of the Corporation ("Common Stock") or on any other class
or series of stock ranking junior to the Series B Shares as to the payment of
dividends or upon liquidation or make any payment on account of, or set apart
money for a sinking or other analogous fund for the purchase, redemption or
other retirement of, any Common Stock or any such junior stock or make any
distribution in respect thereof, either directly or indirectly and whether in
cash or property or in obligations or shares of the Corporation (other than in
shares of Common Stock of the Corporation and any class or series of stock which
is junior to the Series B Shares in respect of the payment of dividends and upon
liquidation (the Common Stock and any such other stock being herein collectively
called "Junior Stock") or rights to acquire any Junior Stock) or (b) permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase or otherwise acquire for consideration (other than in shares of
Junior Stock) any shares of Common Stock or any class or series of stock ranking
junior to the Series B Shares as to the payment of dividends or upon liquidation
or (c) redeem, purchase or otherwise acquire, or permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
otherwise acquire, for consideration, shares of any class or series of stock
ranking on a parity with the Series B Shares as to the payment of dividends and
upon liquidation (except for a consideration payable in Junior Stock, by a
redemption of all Series B Shares and such parity stock then outstanding or
pursuant to an offer made on a pro rata basis on
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<PAGE>
the same terms to all holders of the Series B Shares and such parity stock then
outstanding). When dividends on the Series B Shares at the time outstanding have
not been paid in full, all dividends declared by the Corporation upon the Series
B Shares or any other class or series of stock ranking on a parity with the
Series B Shares as to the payment of dividends shall be declared pro rata with
respect to all Series B Shares and all such parity stock then outstanding so
that the amounts of any dividends declared on the Series B Shares and such other
stock shall in all cases bear to each other the same ratio that, at the time of
such declaration, all accrued dividends on the Series B Shares and such other
stock, respectively, bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Shares which may be in arrears.
3. VOTING
(a) General, Class and Series Voting Rights. Except as expressly
provided in this Section 3 and Section 4 hereof or as required by applicable
law, the Series B Shares shall not have any right to vote for the election of
directors or for any other purpose. So long as any Series B Shares are
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of at least a majority of the Series B Shares outstanding, voting
as a separate class: (i) amend, alter or repeal any provision of the Certificate
of Incorporation if such action would adversely affect the powers, preferences
or special rights of the Series B Shares; or (ii) create, authorize or issue any
class or series of stock, or any security convertible into stock of such class
or series, ranking prior to the Series B Shares in respect of the payment of
dividends or upon liquidation. The Series B Shares shall also be entitled to
vote as a class (the affirmative vote or consent of at least a majority of the
Series B Shares outstanding being required) on any matter with respect to which
a class vote by the Series B Shares shall be expressly required by Florida law
and on any other matter with respect to which the Corporation's Board of
Directors shall direct that the Series B Shares are to be voted as a separate
class. A class vote on the part of the Series B Shares shall, without
limitation, specifically be deemed not to be required (except as otherwise
required by law or resolution of the Corporation's Board of Directors) in
connection with (i) the authorization, issuance or increase in the authorized
amount of any shares of any other class or series of stock ranking on a parity
with or junior to the Series B Shares as to the payment of dividends and upon
liquidation; (ii) the merger or consolidation of the Corporation with or into
any other corporation in which the Certificate of Incorporation is amended,
altered or repealed if such action would not adversely affect the powers,
preferences or special rights of the Series B Shares, notwithstanding that
certain of the Series B Shares may be redeemed as hereinafter provided; or (iii)
the authorization, issuance or increase in the amount of any bonds, mortgages,
debentures or other obligations of the Corporation.
The holders of the Series B Shares shall also be entitled to vote on
certain amendments to the form of Indenture relating to the 9% Subordinated
Debentures due February 1, 2017 of the Corporation, for which the Series B
Shares may be exchanged as described in Section 8 hereof.
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<PAGE>
4. DEFAULT VOTING RIGHTS.
(a) Default. Whenever and as often as the equivalent of two
annual dividends on the Series B Shares shall be in default (a "Default"), the
holders of the Series B Shares, voting as a class together with the holders of
parity dividend stock on which like rights have been conferred and are
exercisable, shall have the right, as set forth below, to vote for and to elect
two directors of the Corporation. The right of the holders of the Series B
Shares to vote for such directors, however, shall cease when all arrearages in
the payment of dividends on the Series B Shares shall have been cured (either
through payment or through being declared and set apart for payment) or no
Series B Shares are outstanding, whichever first occurs.
(b) Election of Directors. If, at any time, a Default shall
occur and continue to exist, then (i) the number of directors of the Corporation
shall be increased by two, effective as of the time of election of such
directors as hereinafter provided, and (ii) the holders of the Series B Shares
together with the holders of parity dividend stock on which like rights have
been conferred and are exercisable, voting as a class, shall be entitled to
elect two directors to fill the vacancy caused by so increasing the number of
directors. Such two directors shall not be classified. The right of the holders
of the Series B Shares so to vote for such directors may be exercised at any
time before the Default is cured. Effective as of such cure, (i) the holders of
the Series B Shares shall no longer have the right so to elect any directors and
(ii) the number of directors of the Corporation shall be reduced by two. Any
directors elected by such holders shall serve as directors until the Default is
cured and, in the event the Default continues, until their successors are
appointed and qualified in the manner described below.
If, prior to the end of the term of any director elected as aforesaid, a
vacancy in the office of such director shall occur by reason of death,
resignation or disability during the continuance of a default in dividends on
the Series B Shares, such vacancy shall be filled for the unexpired term by the
appointment by the remaining director elected as aforesaid of a new director for
the unexpired term of such former director.
The foregoing right of the holders of the Series B Shares with respect to
the election of two directors may be exercised at any annual meeting of
shareholders or, within the limitations hereinafter provided, at a special
meeting of shareholders held for such purpose. If a Default shall occur more
than one hundred twenty (120) days preceding the date established for the next
annual meeting of shareholders, the Chief Executive Officer or President of the
Corporation shall, within twenty days after the date of such Default, call a
special meeting of the holders of the Series B Shares to be held within ninety
(90) days but not less than (45) days after the date of such Default for the
purpose of electing such additional directors to serve for the term provided in
the Certificate of Incorporation, the Bylaws and this Section 4.
The holders of the Series B Shares, voting as a separate class, shall have
the right to remove without cause at any time and to replace any directors such
holders have elected pur suant to this Section 4.
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<PAGE>
5. CONVERSION. The holders of Series B Shares shall have the right, at
their option, to convert all or any part of the Series B Shares into shares of
Common Stock at any time (except as described below) on and subject to the
following terms and conditions:
(a) Series B Shares shall be convertible at the office of any
transfer agent for such stock, at the Corporation's executive offices and at
such other place or places, if any, as the Board of Directors of the Corporation
may designate, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock. The number of
shares of Common Stock issuable upon conversion of each share of this Series
shall be equal to $25.00 divided by the conversion price in effect at the time
of conversion, determined as hereinafter provided. The price at which shares of
Common Stock shall be delivered upon conversion (herein called the "conversion
price"), shall be initially $16.00 per share of Common Stock. The conversion
price shall be subject to adjustment from time to time as provided in Section 2
and in certain other instances as hereinafter provided. The Corporation may at
any time reduce the conversion price by any amount it considers to be necessary
in order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of Common Stock;
provided, however, that the Corporation may not reduce the conversion price to
an amount less than the par value per share of Common Stock into which Series B
Shares are at the time convertible. If the Corporation calls for the redemption
or exchange of any Series B Shares, such right of conversion shall cease and
terminate, as to the shares designated for redemption or exchange, at the close
of business on the date immediately preceding the redemption or exchange date
therefor, unless the Corporation defaults in the payment of the redemption
price, in the issuance of Exchange Debentures (as hereinafter defined) in
exchange for Series B Shares or in the payment of the final dividend on the
exchange date. If the holder of any Series B Shares has elected to require the
Corporation to redeem any Series B Shares as a result of a business combination
or acquisition of shares referred to in Section 6(b) hereof, such right of
conversion shall cease and terminate, as to the shares designated for such
redemption, immediately prior to the effectiveness of such business combination
or within 45 days after such acquisition of shares, unless the Corporation
defaults in the payment of the redemption price. No fractional shares of Common
Stock will be issued upon conversion of shares of this series; an adjustment in
cash will be paid in lieu of any fractional share in an amount equal to the same
fraction of the closing price per share of the Common Stock (determined as
provided in Section 5(c)(iv) below) at the close of business on the trading day
which next precedes the day of conversion. Only whole shares, and no fractions
of a share, may be converted pursuant to this Section 5.
(b) Before any holder of Series B Shares shall be entitled to
convert the same into Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed and assigned to the Corporation or in
blank, at the office of any transfer agent for such stock, at the Corporation's
executive offices, or at such other place or places, if any, as the Board of
Directors of the Corporation may have designated, and shall give written notice
to the Corporation at said office or place that he elects to convert the same
and shall state in writing therein the name or names (with addresses) in which
he wishes the certificate or certificates for
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<PAGE>
Common Stock to be issued. No payment or adjustment shall be made upon any
conversion on account of any dividend accrued on the Series B Shares surrendered
for conversion or on account of any dividends on the Common Stock issued upon
conversion except that if a Series B Share is so surrendered for conversion
between a record date for the payment of dividends on such Series B Share and
the immediately following Dividend Due Date, the person who was the holder of
such Series B Share on such record date shall be entitled to receive such
dividend on such Dividend Due Date (except in the case of a Series B Share which
has been called for redemption on a redemption date within such period on which
no dividends will be paid on such Dividend Due Date). The Corporation will, as
soon as practicable thereafter, issue and deliver at said office or place to
such holder of Series B Shares, or to his nominee or nominees, certificates for
the number of full shares of Common Stock to which he shall be entitled as
aforesaid, together with cash in lieu of any fraction of a share. If more than
one certificate for Series B Shares shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common Stock which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate number of Series B Shares (or specified portions thereof) so
surrendered. In case any certificate for Series B Shares shall be converted in
part only, upon such conversion the Corporation will issue to the holder a new
certificate or certificates for the number of whole shares not converted. Series
B Shares shall be deemed to have been converted as of the close of business on
the date of the surrender of such shares for conversion as provided above, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders or
such Common Stock as of the close of business on such date.
(c) The conversion price in effect at any time shall be subject
to adjustments from time to time as follows:
(i) In case the Corporation shall (A) declare a dividend or make
a distribution payable in Common Stock on any class of capital stock
of the Corporation, (B) subdivide or reclassify its outstanding shares
of Common Stock into a greater number of shares, or (C) combine its
outstanding shares of Common Stock into a smaller number of shares,
the conversion price in effect at the time of the record date for such
dividend or distribu tion or the effective date of such subdivision,
combination or reclassification shall be proportionately reduced in
the case of any increase in the number of shares of Common Stock
outstanding, and increased in the case of any reduction in the number
of shares of Common Stock outstanding, so that the holder of any
Series B Share surrendered for conversion after such time shall be
entitled to receive the kind and amount of shares which such holder
would have owned or have been entitled to receive had such Series B
Share been converted into Common Stock immediately prior to such time
and had such Common Stock received such dividend or other distribution
or participated in such subdivision, combination or reclassification.
Such adjustment shall be effective as of the
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<PAGE>
record date for such dividend or distribution or the effective date of
such combination, subdivision or reclassification and shall be made
successively whenever any event listed above shall occur.
(ii) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring
within 45 days of the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock (or securities convertible into shares
of Common Stock) at a price per share (or having a conversion price
per share) less than the Current Market Price (as defined in paragraph
(iv) below) of the Common Stock, on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants, the conversion price at the opening of business on the day
following the date fixed for such determination shall be reduced by
multiplying the conversion price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number
of shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for subscription
or purchase (or the aggregate initial conversion price of the
convertible securities so offered) would purchase at such Current
Market Price of the Common Stock and the denominator shall be the
number of shares of Common Stock outstanding at the close of business
on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase (or into which
the convertible securities so offered are initially convertible), such
reduction to become effective prior to the opening of business on the
day following the date fixed for such determination. For purposes of
determining under this paragraph the number of shares of Common Stock
outstanding at any time, there shall be excluded all shares of Common
Stock held in the treasury of the Corporation. If any or all such
rights or warrants are not so issued or expire or terminate before
being exercised, the conversion price then in effect shall be
appropriately readjusted, but such readjustment shall not be applied
retroactively to any conversion of shares of this Series effected
prior to such readjustment.
(iii) In case the Corporation shall distribute to all holders of
its Common Stock shares of stock other than Common Stock, evidences of
its indebtedness or assets (including securities, but excluding cash
dividends or cash distributions paid out of consolidated earnings or
earned surplus or a distribution referred to in paragraph (i) above)
or rights or warrants (excluding those referred to in paragraph (ii)
above), the conversion price shall be adjusted so that it shall equal
the price determined by multiplying
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<PAGE>
the conversion price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the
numerator shall be the Current Market Price per share of the Common
Stock on the date fixed for such determination less the then fair
market value (as determined by the Board of Directors of the
Corporation, in good faith and in the exercise of its reasonable
business judgment and described in a resolution of the Board of
Directors) of the portion of the shares of stock, assets, evidences of
indebtedness, rights or warrants so distributed applicable to one
share of Common Stock and the denominator shall be such Current Market
Price per share of the Common Stock. Such adjustment shall become
effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders
entitled to receive such distribution; provided, however, that if any
such shares of stock, assets, evidences of indebtedness, rights or
warrants referred to in this paragraph (iii) shall initially be
treated as part of and trade together with the Common Stock, but
thereafter shall be separated from and trade separately from the
Common Stock, such adjustment shall become effective, and the fair
market value thereof shall be determined, as of the time of such
separation; and prior to such separation, the holder of any Series B
Shares surrendered for conversion after the date fixed for
determination of stockholders entitled to receive a distribution of
the type referred to in this proviso shall be entitled to receive the
number of shares of Common Stock to which such holder would otherwise
be entitled upon such conversion, together with the shares of stock,
assets, evidences of indebtedness, rights or warrants which such
holder would have owned or be entitled to receive had such Series B
Shares been converted immediately prior to such date and had such
Common Stock received such distribution.
(iv) For the purpose of any computation under paragraphs (ii) and
(iii) above, the "Current Market Price" per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices
per share of Common Stock for 15 consecutive trading days selected by
the Corporation ending no more than five nor less than two trading
days before such date. The closing price per share for each day shall
be the last reported sales price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the American Stock Exchange, or,
if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or if it is not listed
or admitted to trading on any national securities exchange or no such
quotations are available, the last reported sale price, or if not so
reported, the average of the closing bid and
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<PAGE>
asked prices as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for that purpose, or, if
no such quotations are available, the fair market value as determined
in good faith in the exercise of their reasonable business judgment by
the Board of Directors of the Corporation.
(v) All calculations under this Section 5(c) shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case
may be.
(vi) No adjustment in the conversion price shall be required
pursuant to the above paragraphs of this Section 5(c) unless such
adjustment (together with prior adjustments which by reason of this
paragraph (vi) were not required to be made at the time otherwise
required to be made at the time otherwise required by the above
paragraphs of this Section 5(c)) would require a change of at least 1%
in such price; provided, however, that any adjustments which by reason
of this paragraph (vi) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; and
provided, further, that if any adjustment (the "initial adjustment")
is not made within three years after it would have been made if not
for the provisions of this paragraph (vi), then, on the third
anniversary of the date such initial adjustment would have otherwise
been required, the conversion price shall be adjusted to reflect the
initial adjustment and other adjustments arising after the initial
adjustment, but before such third anniversary, that would have been
required to have been made pursuant to the above paragraphs of this
Section 5(c) if not for the preceding provisions of this paragraph
(vi).
(d) Whenever the conversion price is adjusted as herein provided
the Corporation shall, as soon as practicable after such conversion price is
adjusted, mail to the holders of record of the Series B Shares notice stating
that the conversion price has been adjusted and setting forth the adjusted
conversion price.
(e) (i) In case of any consolidation or merger of the Corporation
with or into any other corporation (other than a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock), or in case of any sale or transfer of all or substantially all
of the assets of the Corporation, or the reclassification of the Common Stock
into another form of capital stock of the Corporation, whether in whole or in
part, the holder of each Series B Share shall after such consolidation, merger,
sale or transfer or reclassification have the right to convert such Series B
Share into the kind and amount of shares of stock and other securities and
property or cash (including, if applicable, Common Stock) which such holder
would have been entitled to receive upon such consolidation, merger, sale or
transfer or reclassification if he had held the Common Stock issuable upon the
conversion of such Series B Share immediately prior to such consolidation,
merger, sale or transfer, or reclassification.
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<PAGE>
Notwithstanding the foregoing, if the holders of Common Stock in any such
consolidation, merger, sale, transfer or reclassification are afforded an
election or are otherwise permitted or required to exchange such shares for two
or more alternate forms of consideration, then the holder of each share of such
Series B Shares shall after such consolidation, merger, sale, transfer or
reclassification have the right to convert such Series B Share into the kind and
amount of shares of stock and other securities and property or cash (including,
if applicable, Common Stock) into or for which the Common Stock issuable upon
the conversion of such Series B Share would have been converted or exchanged as
a result of such consolidation, merger, sale, transfer or reclassification if
held by a holder of Common Stock who failed to exercise his rights of election
(provided that if the kind and amount of shares of stock and other securities
and property or cash receivable upon such consolidation, merger, sale, transfer
or reclassification is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this paragraph the kind and amount of shares of
stock and other securities and property or cash receivable upon such
consolidation, merger, sale, transfer or reclassification in respect of each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares).
(ii) If at any time, as a result of paragraph (i) above, the
holder of any Series B Share shall become entitled to receive any shares of
stock and other securities and property (including, if applicable, Common
Stock), thereafter the amount of such shares of stock and other securities and
property so receivable upon conversion of any Series B Shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
paragraphs (i) to (vi), inclusive, of Section 5(c) above, and the provisions of
said Section 5(c) with respect to the Common Stock shall apply on like terms to
any such shares of stock and other securities and property (including, if
applicable, Common Stock).
The above provisions of this paragraph (e) shall similarly apply to successive
consolidations, mergers, sales or transfers or reclassifications.
(f) In case:
(i) the Corporation shall authorize the distribution to all
holders of its Common Stock of assets (other than cash dividends or
other cash distributions paid out of consolidated earnings or earned
surplus); or
(ii) the Corporation shall authorize the granting to the holders
of its Common Stock of rights and warrants to subscribe for or
purchase any shares of capital stock of any class or securities
convertible into shares of capital stock of any class or of any other
rights or warrants; or
(iii) of any reclassification of the capital stock of the
Corporation (other than a subdivision or combination of its
outstanding
-10-
<PAGE>
shares of Common Stock), or of any consolidation or merger to which
the Corporation is a party and for which approval of any stockholders
of the Corporation is required, or of the sale or transfer of all or
substantially all of the assets of the Corporation; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, in each case, the Corporation shall cause to be mailed, first class
postage prepaid, to the holders of record of the outstanding shares of the
Series B Shares, at least 10 days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property, deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
(g) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the Series B
Shares, the full number of shares of Common Stock then issuable upon the
conversion of all outstanding Series B Shares. For the purpose of this Section
5(g), the full number of shares of Common Stock issuable upon the conversion of
all outstanding Series B Shares shall be computed as if at the time of
computation of such number of shares of Common Stock all outstanding Series B
Shares were held by a single holder. The Corporation shall from time to time, in
accordance with applicable law, increase the authorized amount of its Common
Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all Series B Shares
at the time outstanding. If any shares of Common Stock required to be reserved
for issuance upon conversion of Series B Shares hereunder require registration
with or approval of any governmental authority under any Federal or State law
before such shares may be issued upon such conversion, the Corporation will in
good faith and as promptly as practicable endeavor to cause such shares to be so
registered or approved.
(h) The Corporation will pay any and all taxes that may be
payable in respect of the issue or delivery of shares of Common Stock on
conversion of Series B Shares pursuant hereto. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or transfer and delivery of shares of Common
Stock in a name other than that in which the Series B Shares so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax or has established to the satisfaction of the Corporation
-11-
<PAGE>
that such tax has been paid. In no event shall the Corporation be required to
pay or reimburse the holder for any income tax payable by such holder as a
result of such issuance.
(i) Whenever reference is made in this Section 5 to shares of
Common Stock, the term "Common Stock" shall include only shares of the class
designated as Common Stock, $.02 par value, of the Corporation at the date
hereof or shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which are not subject to
redemption by the Corporation; provided that if at any time there shall be more
than one such resulting class the shares of each such class then so deliverable
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
Series B Shares converted as provided herein will be restored to the status
of authorized but unissued shares of Preferred Stock, without designation as to
series.
6. OPTIONAL REDEMPTION.
(a) The Series B Shares may be redeemed in whole or in part, at
the option of the Corporation, at any time or from time to time, at the
redemption prices set forth below, if redeemed during the twelve-month period
beginning February 1 of the year indicated:
<TABLE>
<CAPTION>
Redemption Redemption
Price Price
Year Per Series B Share Year Per Series B Share
- ---- ------------------ ---- ------------------
<C> <C> <C> <C>
1992 $27.250 1997 $26.125
1993 27.025 1998 25.900
1994 26.800 1999 25.675
1995 26.575 2000 25.450
1996 26.350 2001 25.225
</TABLE>
and $25 per Series B Share if redeemed on or after February 1, 2002, plus in
each case dividends (whether or not declared or due) accrued and unpaid to the
date fixed for redemption; provided, however, the Series B Shares may not be
redeemed prior to February 1, 1994 unless the closing price of the Common Stock
(determined as provided in Section 5(c)(iv) hereof) has equaled or exceeded 150%
of the conversion price then in effect for at least 20 trading days within 30
consecutive trading days ending within five trading days before notice of
redemption (as provided for below) is mailed.
If less than all the outstanding Series B Shares are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method.
-12-
<PAGE>
If at any time the Corporation has failed to pay in full accrued dividends
on the Series B Shares, unless all accrued and payable but unpaid dividends on
the Series B Shares have been or contemporaneously are declared and paid in full
or declared and a sum sufficient for payment of such dividends has been set
aside, the Corporation will not redeem, and neither the Corporation nor any
entity directly or indirectly controlled by the Corporation may purchase or
otherwise acquire for consideration, any Series B Shares (except for a
consideration payable in Junior Stock, by redemption of all Series B Shares then
outstanding or pursuant to an offer made on a pro rata basis on the same terms
to all holders of the Series B shares then outstanding).
Notice of any proposed redemption of Series B Shares shall be mailed by
means of first class mail, postage paid, addressed to the holders of record of
the Series B Shares to be redeemed, at their respective addresses then appearing
on the books of the Corporation, at least thirty (30) but not more than sixty
(60) days prior to the date fixed for such redemption (the "Redemption Date").
Each such notice shall specify (i) the Redemption Date, (ii) the Redemption
Price, (iii) the conversion price then in effect, (iv) the place for payment and
for delivering the stock certificate(s) and transfer instrument(s) in order to
collect the Redemption Price, (v) the Series B Shares to be redeemed, (vi) the
place for conversion of the Series B Shares if the holder wants to convert , and
(vii) that the Series B Shares called for redemption may be converted at any
time before the close of business on the date immediately preceding the
Redemption Date. Any notice mailed in such manner shall be conclusively deemed
to have been duly given whether or not such notice is in fact received.
The holder of any Series B Shares redeemed upon any exercise of the
Corporation's redemption right shall not be entitled to receive payment of the
Redemption Price for such Series B Shares until such holder shall cause to be
delivered to the place specified in the notice given with respect to such
redemption (i) the certificate(s) representing such Series B Shares and (ii)
transfer instrument(s) satisfactory to the Corporation and sufficient to
transfer such Series B Shares to the Corporation free of any adverse interest.
No interest shall accrue on the Redemption Price of any Series B Share after is
Redemption Date.
At the close of business on the Redemption Date for any Series B Share,
dividends will cease to accrue on such Series B Share and such share shall
(provided the Redemption Price of such share has been paid or properly provided
for) be deemed to cease to be outstanding and all rights of any person other
than the Corporation in such share shall be extinguished on the Redemption Date
for such share (including all rights to receive future dividends with respect to
such share) except for the right to receive the Redemption Price, without
interest, for such share in accordance with the provisions of this Section 6(a),
subject to applicable escheat and abandoned property laws.
Subject to Section 2 hereof and this Section 6(a), the Corporation shall
have the right to purchase Series B Shares in the public market, if any, at such
prices as may from time to time be available in the public market, if any, for
such Series B Shares and shall have the right at any time to acquire any Series
B Shares from the owner of such Series B Shares on such terms as
-13-
<PAGE>
may be agreeable to such owner. Series B Shares may be acquired by the
Corporation from any shareholder pursuant to this paragraph without offering any
other shareholder an equal opportunity to sell his stock to the Corporation, and
no purchase by the Corporation from any shareholder pursuant to this paragraph
shall be deemed to create any right on the part of any other shareholder to sell
any Series B Shares (or any other stock) to the Corporation.
(b) In the event that (i) any person becomes the beneficia
owner of more than 50% of the Common Stock of the Corporation other than (x) in
a transaction or series of trans actions in which such person acquires at least
50% of the total securities of the Company beneficially owned by such person in
direct issuances from the Corporation or (y) by means of a merger of the
Corporation with or into a subsidiary or affiliate (as such term is defined in
the Securities Act of 1933, as amended) of such person (a "Share Acquisition"),
or (ii) the Corporation is a party to a business combination including a merger
or consolidation or the sale of all or substantially all of its assets and as a
result of such business combination the Series B Shares thereafter are not
convertible into Common Stock of the Corporation or of the ultimate parent of
the Corporation, which stock is traded on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System, each holder of
Series B Shares shall have the option, exercisable upon written notice within
thirty (30) days of such holder's receipt of notice of such event from the
Corporation, to require the Corporation to redeem the Series B Shares owned by
such holder tendered for redemption at $25 per share, plus accrued and unpaid
dividends to the date of redemption.
7. LIQUIDATION. In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (for the purposes of this Section
7, a "Liquidation"), before any distribution of assets shall be made to the
holders of Common Stock or the holders of any other stock that is junior to the
Series B Shares in respect of distributions upon the Liquidation of the
Corporation, the holder of each Series B Share then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, an amount equal to $25.00 plus all dividends
(whether or not declared or due) accrued and unpaid on such share to the date
fixed for the distribution of assets of the Corporation to the holders of Series
B Shares.
If upon any Liquidation of the Corporation, the assets available for
distribution to the holders of Series B Shares, and any other classes or series
of stock ranking on a parity with the Series B Shares upon liquidation which
shall then be outstanding (hereinafter in this paragraph called the "Total
Amount Available") shall be insufficient to pay the holders of all outstanding
Series B Shares and all such other stock the full amounts (including all
dividends accrued and unpaid) to which they shall be entitled by reason of such
Liquidation of the Corporation, then there shall be paid to the holders of the
Series B Shares in connection with such Liquidation of the Corporation, an
amount equal to the product derived by multiplying the Total Amount Available
times a fraction, the numerator of which shall be the full amount to which the
holders of the Series B Shares shall be entitled under the terms of the
preceding paragraph by reason of such Liquidation of the Corporation and the
denominator of which shall be the total amount which
-14-
<PAGE>
would have been distributed by reason of such Liquidation of the Corporation
with respect to the Series B Shares and all such other stock ranking on a parity
with the Series B Shares then outstanding had the Corporation possessed
sufficient assets to pay the maximum amount which the holders of the Series B
Shares and all such other stock would have been entitled to receive in
connection with such Liquidation of the Corporation.
Neither a voluntary sale, conveyance, lease, exchange or transfer of all or
substantially all the property or assets of the Corporation for cash or
securities, not the merger or consolidation of the Corporation into or with any
other corporation, nor the merger of any other corporation into the Corporation,
nor any purchase or redemption of some or all of the shares of any class or
series of stock of the Corporation, shall be deemed to be a Liquidation of the
Corporation for the purpose of this Section 7.
The holder of any Series B Shares shall not be entitled to receive any
payment owed for such Shares under this Section 7 until such holder shall cause
to be delivered to the Cor poration: (i) the certificate(s) representing such
Series B Shares and (ii) transfer instrument(s) satisfactory to the Corporation
and sufficient to transfer such Series B Shares to the Corporation free of any
adverse interest. As in the case of the Redemption Price, no interest shall
accrue on any payment upon Liquidation after the due date thereof, provided that
the same has been paid or properly provided for.
After payment of the full amount of the liquidating distribution to which
they are entitled, the holders of the Series B Shares will not be entitled to
any further participation in any distribution of assets by the Corporation.
8. EXCHANGE. The Corporation shall be entitled, on any Dividend Due Date on
or after February 1, 1994, to exchange, in whole but not in part, a principal
amount of its 9% Subordinated Debentures due February 1, 2017 (the "Exchange
Debentures") equal to the number of outstanding Series B Shares multiplied by
$25.00 per share for all such outstanding Series B Shares.
The Exchange Debentures shall be issued pursuant to an indenture
substantially in the form of the form of indenture last filed as an Exhibit to
the Current Report on Form 8-K of Belmac Corporation filed with the Securities
and Exchange Commission with respect to the issuance of Series B Shares in
February 1992 (Commission File No. 0-16600), with the blank spaces therein being
appropriately completed and with such amendments and supplements thereto as may
be made consistently with the terms thereof except that prior to the execution
of such indenture (i) the affirmative vote or consent of the holders of at least
a majority of the Series B Shares shall be required to approve any amendment or
supplement that would have required the written consent of the holders of at
least a majority in principal amount of the Exchange Debentures pursuant to
Section 9.02 of the form of indenture; and (ii) the affirmative vote or con sent
of each of the holders of Series B Shares shall be required to effect any
amendment or supplement of any provision in the form of indenture having the
effects described in Section 9.02
-15-
<PAGE>
of the form of indenture.
The exchange of the Exchange Debentures for Series B Shares may not occur
unless full cumulative dividends on the Series B Shares through the Dividend Due
Date established as the exchange date have been paid or set aside for payment.
Any such exchange shall be effected in the same manner, and upon the same
notice, as a redemption of the Series B Shares, as aforesaid. Upon any such
exchange, the Series B Shares shall (provided such exchange is duly and properly
effected) be deemed to cease to be outstanding, as of the close of business on
the date established for such exchange, and all rights of any holder thereof
shall be extinguished, except the right to receive the Exchange Debentures in
exchange therefor and to receive accrued and unpaid dividends. As in the case of
a redemption of Series B Shares, holders of Series B Shares must surrender such
Series B Shares in order to receive the Exchange Debentures for which such
Series B Shares have been exchanged, but upon such surrender such holders will
be entitled to receive all interest accrued on Exchange Debentures from the date
of exchange at the time and in the manner that such interest would be paid in
the ordinary course. Dividends due on the Dividend Due Date on which the
exchange is effected will be mailed to holders in the regular course.
9. PAYMENTS. The Corporation may provide funds for any payment of the
Redemption Price for any Series B Shares pursuant to Section 6 or any amount
distributable with respect to any Series B Shares under Section 7 hereof by
depositing such funds with a bank or trust company selected by the Corporation
having a net worth of at least $50,000,000 and having its principal place of
business in New York, New York, in trust for the benefit of the holders of such
Series B Shares under arrangements providing irrevocably for payment upon
satisfaction of any conditions to such payment by the holders of such Series B
Shares which shall reasonably be required by the Corporation. The Corporation
shall be entitled to make any deposit of funds contemplated by this Section 9
under arrangements designed to permit such funds to generate interest or other
income for the Corporation, and the Corporation shall be entitled to receive all
interest and other income earned by any funds while they shall be deposited as
contemplated by this Section 9, provided that the Corporation shall maintain on
deposit funds sufficient to satisfy all payments which the deposit arrangement
shall have been established to satisfy. If the conditions precedent to the
disbursement of any funds deposited by the Corporation pursuant to this Section
9 shall not have been satisfied within two years after the establishment of the
trust for such funds, then (i) such funds shall be returned to the Corporation
upon its request; (ii) after such return, such funds shall be free of any trust
which shall have been impressed upon them; (iii) the person entitled to the
payment for which such funds shall have been originally intended shall have the
right to look only to the Corporation for such payment, subject to applicable
escheat and abandoned property laws; and (iv) the trustee which shall have held
such funds shall be relieved of any responsibility for such funds upon the
returns of such funds to the Corporation.
Any payment which may be owed for the payment of the Redemption Price for
any Series B Shares pursuant to Section 6 or the payment of any amount
distributable with respect to
-16-
<PAGE>
any Series B Shares under Section 7 shall be deemed to have been "paid or
properly provided for" upon the earlier to occur of: (i) the date upon which
funds sufficient to make such payment shall be deposited in a manner
contemplated by the preceding paragraph or (ii) the date upon which a check
payable to the person entitled to receive such payment shall be delivered to
such person or mailed to such person at either the address of such person then
appearing on the books of the Corporation or such other address as the
Corporation shall deem reasonable. The Corporation may deposit the Exchange
Debentures to be exchanged for Series B Shares in the manner described in clause
(i) above, but the interest accruing on such Debentures shall accrue to the
former holders of the Series B Shares entitled thereto.
10. STATUS OF REACQUIRED Series B SHARES. Series B Shares issued and
reacquired by the Corporation (including Series B Shares exchanged for the
Exchange Debentures or converted pursuant to Section 5 hereof) shall have the
status of authorized and unissued shares of Preferred Stock undesignated as to
series, subject to later issuance.
11. PREEMPTIVE RIGHTS. The Series B Shares are not entitled to any
preemptive or subscription rights in respect of any securities of the
Corporation.
12. STATED CAPITAL. Upon original issuance of any Series B Shares, the sum
of $1.00 per Series B Share shall be transferred on the books of the Corporation
from the Corporation's surplus to its stated capital account. The amount so
transferred shall be deemed stated capital in respect of the Series B Shares.
The stated capital of the Corporation in respect of the Series B Shares shall
not be eliminated or reduced in any way or for any reason except when Series B
Shares are reacquired by the Corporation and only to the extent of the stated
capital represented by such reacquired shares and only as permitted by law.
(D) The foregoing was authorized by the Board of Directors at a meeting
duly held.
IN WITNESS WHEREOF, Belmac Corporation has caused this certificate to be
made under the seal of the Corporation signed by its President and Secretary,
respectively, this 12th day of February, 1992.
/s/ Jean-Francois Rossignol
---------------------------------
Jean-Francois Rossignol, President
/s/ Marc S. Ayers
---------------------------------
Marc S. Ayers, Secretary
-17-
BENTLEY PHARMACEUTICALS, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRUSTEE
INDENTURE
Dated as of February , 1996
$7,500,000
12% Convertible Senior Subordinated Debentures due February , 2006
<PAGE>
TABLE OF CONTENTS
Article Section Heading Page
DEFINITIONS AND RULES
OF CONSTRUCTION 1
1.01 Definitions 1
1.02 Other Definitions 3
1.03 Rules of Construction 3
II THE SECURITIES 3
2.01 Form and Dating 3
2.02 Execution and Authentication 3
2.03 Registrar, Paying Agent and
Conversion Agent 4
2.04 Paying Agent to Hold Money in Trust 4
2.05 Holder Lists 5
2.06 Transfer and Exchange 5
2.07 Replacement Securities 5
2.08 Outstanding Securities 5
2.09 Treasury Securities 6
2.10 Temporary Securities 6
2.11 Cancellation 6
2.12 Defaulted Interest 6
III REDEMPTION 7
3.01 Notices to Trustee 7
3.02 Selection of Securities to be Redeemed 7
3.03 Notice of Redemption 7
3.04 Effect of Notice of Redemption 7
3.05 Deposit of Redemption Price 8
3.06 Securities Redeemed in Part 8
IV COVENANTS 8
4.01 Payment of Securities 8
4.02 SEC Reports 8
4.03 Compliance Certificate 8
i
<PAGE>
4.04 Limitation on Dividends;
Stock Purchase and
Senior Debt 9
4.05 Certain Transactions With a
Parent and its Affiliates 9
4.06 Corporate Existence 10
4.07 Maintenance of Protection 10
4.08 Payment of Tasks and Other
Claims 10
V SUCCESSORS 11
5.01 When Company May Merge, etc. 11
5.02 Successor Corporation Substituted 11
VI DEFAULTS AND REMEDIES 12
6.01 Events of Default 12
6.02 Acceleration 13
6.03 Other Remedies 13
6.04 Waiver of Past Defaults 13
6.05 Control by Majority 13
6.06 Limitation on Suits 13
6.07 Rights of Holders to Receive Payment
or Convert Securities 14
6.08 Collection Suit by Trustee 14
6.09 Trustee May File Proofs of Claim 14
6.10 Priorities 14
6.11 Undertaking for Costs 15
VII TRUSTEE 15
7.01 Duties of Trustee 15
7.02 Rights of Trustee 16
7.03 Individual Rights of Trustee 16
7.04 Trustee's Disclaimer 16
7.05 Notice of Defaults 16
7.06 Reports by Trustee to Holders 16
7.07 Compensation and Indemnity 17
7.08 Replacement of Trustee 17
7.09 Successor Trustee by Merger, etc. 18
7.10 Eligibility; Disqualification 18
ii
<PAGE>
VIII DISCHARGE OF INDENTURE 19
8.01 Termination of Company's Obligations 19
8.02 Application of Trust Money 19
8.03 Repayment to Company 19
IX AMENDMENTS 20
9.01 Without Consent of Holders 20
9.02 With Consent of Holders 20
9.03 Revocation and Effect of Consents 20
9.04 Notation on or Exchange of Securities 21
9.05 Trustee to Sign Amendments, Etc. 21
X CONVERSION 21
10.01 Conversion Privilege 21
10.02 Conversion Procedure 21
10.03 Fractional Shares 22
10.04 Taxes on Conversion 22
10.05 Adjustment for Change in Capital Stock 22
10.06 Adjustment for Certain Issuances
of Common Stock 23
10.07 Subscription Offerings 23
10.08 Other Rights to Acquire Common Stock 24
10.09 Current Market Price 25
10.10 Minimum Adjustment 25
10.11 When Adjustment May Be Deferred 25
10.12 Number of Shares 25
10.13 When No Adjustment Required 26
10.14 Notice of Adjustment 26
10.15 Voluntary Reduction 26
10.16 Notice of Certain Transactions 26
10.17 Reorganization of Company 27
10.18 Company Determination Final 27
10.19 Trustee's Disclaimer 27
XI SUBORDINATION 27
11.01 Agreement to Subordinate 27
11.02 Certain Definitions 28
11.03 Liquidation, Dissolution, Bankruptcy 28
11.04 Default on Senior Debt 28
iii
<PAGE>
11.05 Acceleration of Securities 29
11.06 When Distribution Must be Paid Over 29
11.07 Notice by Company 29
11.08 Subrogation 29
11.09 Relative Rights 29
11.10 Subordination May Not Be Impaired
by Company 30
11.11 Distribution or Notice to Representative 30
11.12 Rights of Trustee and Paying Agent 30
11.13 Ranking of Securities 30
11.14 Application by Trustee of Monies
Deposited with It 30
XII MISCELLANEOUS 31
12.01 Notices 31
12.02 Communications by Holders with
Other Holders 32
12.03 Certificate and Opinion as to
Conditions Precedent 32
12.04 Statements Required in Certificate
or Opinion 32
12.05 Rules by Trustee and Agents 33
12.06 Legal Holidays 33
12.07 No Recourse Against Others 33
12.08 Duplicate Originals 33
12.09 Governing Law 33
12.10 Conflict with Trust Indenture Act 33
12.11 No Adverse Interpretation of
Other Document 34
SIGNATURES
EXHIBIT A - FORM OF SECURITY
iv
<PAGE>
INDENTURE dated as of February , 1996 between BENTLEY PHARMACEUTICALS, INC., a
Florida corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST
COMPANY, a [________________] corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's 12% Convertible Senior
Subordinated Debentures due February
, 2006 (the "Securities").
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01 Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or
unless the context otherwise requires:
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Capital Stock" means any class of capital stock of the Company as it
exists on the date of this Indenture or as it may be constituted from time to
time, and warrants, options and similar rights to acquire any such capital
stock.
"Company" means the party named as such above until a successor
replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Holder" means a person in whose name a Security is registered.
"Indenture" means this Indenture as amended or supplemented from time
to time.
1
<PAGE>
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers. See
Sections 12.03 and 12.04.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 12.03 and 12.04.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or other
legal entity or any government or agency or political subdivision thereof.
"Principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture.
"Subsidiary" means any entity of which at least a majority of the
capital stock having ordinary voting power for the election of directors or
other governing body of such entity (other than securities having such power
only by reason of the happening of a contingency) shall be owned by the Company
directly or indirectly through one or more of such Subsidiaries.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday other than any day on which securities are not traded on the exchange or
Nasdaq system which is the principal market for the Common Stock, as determined
by the Board of Directors of the Company.
"Trustee" means the party named as such above until a successor
replaces it and thereafter means the successor.
"Trust Indenture Act" means, as of any time, the Trust Indenture Act of
1939, or any successor statute, as in effect at such time.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
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Section 1.02 Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Bankruptcy Law" 6.01
"Common Stock" 10.01
"Conversion Agent" 2.03
"Conversion Price" 3.03
"Current Market Price" 10.09
"Custodian" 6.01
"Event of Default" 6.01
"Existing Conversion Price" 10.06
"Indebtedness" 11.02
"Legal Holiday" 12.06
"Paying Agent" 2.03
"Registrar" 2.03
"Representative" 11.02
"Senior Debt" 11.02
"U.S. Government Obligations" 8.01
</TABLE>
Section 1.03 Rules of Construction.
Unless the context otherwise requires (i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles; (iii) "or" is not
exclusive; (iv) words in the singular include the plural, and in the plural
include the singular; and (v) provisions apply to successive events and
transactions.
ARTICLE II
THE SECURITIES
Section 2.01 Form and Dating.
The Securities shall be in the form of Exhibit A, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
Section 2.02 Execution and Authentication
(a) Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security
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no longer holds that office at the time the Security is authenticated, the
Security shall be valid nevertheless.
(b) A Security shall not be valid until authenticated by the manual signature of
the Trustee. The Trustee shall authenticate the Securities executed by the
Company upon the receipt of the written request executed by one of the Officers
together with the Officers' Certificate and Opinion of Counsel pursuant to
Sections 12.03 and 12.04. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture. The Trustee shall
authenticate Securities for original issue in the aggregate principal amount of
up to $7,500,000 upon a written order of the Company signed by two Officers. The
aggregate principal amount of Securities outstanding at any time may not exceed
that amount except as provided in Section 2.07.
(c) The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
Section 2.03 Registrar, Paying Agent and Conversion Agent.
The Company shall maintain an office or agency in the Borough of Manhattan, the
City of New York, where Securities may be presented for registration of transfer
or for exchange (the "Registrar"), an office or agency where Securities may be
presented for payment (the "Paying Agent") and an office or agency where
Securities may be presented for conversion (the "Conversion Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents. The term
"Paying Agent" includes any additional conversion agent. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to maintain a Registrar, Paying Agent or
Conversion Agent, the Trustee shall act as such. The Trustee shall initially be
appointed as the Registrar, Paying Agent and Conversion Agent and serve as
authenticating agent.
Section 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the benefit of Holders or
the Trustee all money held by the Paying Agent for the payment of principal of
or interest on the Securities, and will notify the Trustee of any failure by the
Company in making any such payment. If the Company acts as Paying Agent, it
shall segregate the money and hold it as a separate trust fund. The Company at
any time may require a Paying Agent to pay all money held by it to the Trustee.
Upon doing so the Paying Agent shall have no further liability for the money.
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Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of Holders. The
Company shall furnish to the Trustee on or before each interest payment date and
at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Holders.
Section 2.06 Transfer and Exchange.
Where Securities are presented to the Registrar or a co-registrar with a request
to register transfer or to exchange them for an equal principal amount of
Securities the Trustee shall permit the Registrar or co-registrar to register
the transfer or make the exchange if its requirements for such transaction are
met. Securities issued upon any transfer or exchange for Securities will be
issued (i) in the same denominations as the Securities transferred or exchanged,
(ii) in denominations of $1,000 or any integral multiples of $1,000 if necessary
to effectuate the transfer or exchange, or (iii) such other denominations as may
be required to effect the provisions of paragraph 10 of the Securities or as may
be authorized by the Company. Whenever any Securities are surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive. The Company may charge a reasonable fee for any registration of
transfer or exchange but not for any exchange pursuant to Section 2.10, 3.06 or
10.02.
Section 2.07 Replacement Securities.
If the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security of the like tenor and principal amount and bearing a number
not written previously outstanding, if there shall be delivered to the Company
and the Trustee (i) evidence to their satisfaction of the ownership of and
destruction, loss or theft of such Security and (ii) an indemnity bond
sufficient in the judgment of both to protect the Company, the Trustee, any
Agent or any authenticating agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge for its expenses in replacing a
Security. Every replacement Security is an additional obligation of the Company.
Section 2.08 Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding. If a
Security is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. If Securities are considered paid under
Section 4.01, they cease to be outstanding and interest on them ceases to
accrue. A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
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Section 2.09 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which the Trustee knows are
so owned shall be so disregarded.
Section 2.10 Temporary Securities.
Until definitive Securities are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Securities in exchange for temporary Securities.
Section 2.11 Cancellation.
The Company at any time may deliver Securities to the Trustee for cancellation.
The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange,
payment or conversion. The Trustee shall cancel all Securities surrendered for
registration of transfer, exchange, payment, conversion or cancellation and
shall dispose of canceled Securities as the Company directs. The Company may not
issue new Securities to replace Securities that it has paid or delivered to the
Trustee for cancellation or that any Holder has converted pursuant to Article X.
Section 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it shall pay
the defaulted interest in any lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this Section,
such manner of payment shall be declared practicable by the Trustee. It may pay
the defaulted interest, plus any interest payable on the defaulted interest, to
the persons who are Holders on a subsequent special record date. The Company
shall fix the special record date and payment date. At least 15 days before the
special record date, the Company shall mail to Holders a notice that states the
special record date, payment date and amount of interest to be paid.
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ARTICLE III
REDEMPTION
Section 3.01 Notices to Trustee.
If the Company wants to redeem Securities pursuant to Paragraph 5 of the
Securities, it shall notify the Trustee in writing of the redemption date and
the principal amount of Securities to be redeemed at least 50 days before the
redemption date.
Section 3.02 Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot. The Trustee shall make the
selection not less than 30 days before the redemption date from Securities
outstanding not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them it selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
Section 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the Company
shall mail a notice of redemption to each Holder whose Securities are to be
redeemed. The notice shall identify the Securities to be redeemed and shall
state (i) the redemption date and redemption price; (ii) if less than all of the
Securities are to be redeemed, the portion of the principal amount of any
Security to be redeemed in part; (iii) the conversion price (the "Conversion
Price"); (iv) the name and address of the Paying Agent and Conversion Agent ;
(v) that Securities called for redemption may be converted at any time before
the close of business on the redemption date; (vi) that Holders who want to
convert Securities must satisfy the requirements in paragraph 7 of the
Securities; (vii) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price; and (viii) that interest on
Securities called for redemption ceases to accrue on and after the redemption
date. At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense.
Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption become due
and payable on the redemption date at the redemption price. Upon surrender to
the Paying Agent, such Securities shall be paid at the redemption price, plus
accrued interest to the redemption date.
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Section 3.05 Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Securities to be redeemed on that date. The Paying Agent shall return to the
Company any money not required for that purpose because of conversion of
Securities.
Section 3.06 Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall execute
and the Trustee shall authenticate for the Holder a new Security equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
Section 4.01 Payment of Securities.
The Company shall pay the principal of and interest on the Securities on the
dates and in the manner provided in the Securities. Principal and interest shall
be considered paid on the date due if the Paying Agent holds on that date money
sufficient to pay all principal and interest then due. The Company shall pay
interest on overdue principal at the rate borne by the Securities. It shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
Section 4.02 SEC Reports.
(a) The Company shall file with the Trustee within 15 days after it files them
with the SEC copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which the Company is required to file with
the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
(b) The Company, either directly or through the Trustee, shall contemporaneously
provide to all Holders copies of all documents furnished to stockholders of the
Company and copies of all documents filed with the Trustee pursuant to subpart
(a) of this Section 4.02.
Section 4.03 Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the end of each
fiscal year of the Company an Officers' Certificate stating whether or not the
signers know of any Default that occurred during the fiscal year. If they do,
the Certificate shall describe the Default and its status. The Certificate need
not comply with Section 12.04.
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Section 4.04 Limitation on Dividends; Stock Purchase and Senior Debt.
(a) The Company will not declare or pay any cash dividends on, or make any
distribution to the holders of, any shares of Capital Stock of the Company,
other than dividends or distributions payable in such Capital Stock. Neither the
Company nor any Subsidiary will purchase, redeem or otherwise acquire or retire
for value any shares of Capital Stock of the Company or warrants or rights to
acquire such capital stock if, at the time of such declaration, payment,
distribution, purchase, redemption, other acquisition or retirement, an Event of
Default shall have occurred and be continuing.
(b) The provisions of this Section 4.04 shall not prevent the retirement of any
shares of the Company's Capital stock in exchange for, or out of the proceeds of
the substantially concurrent sale (other than to a Subsidiary) of, other shares
if its Capital Stock (other than any preferred stock which by its terms must be
redeemed by the Company prior to the maturity date of the Securities), and
neither such retirement nor the proceeds of any such sale or exchange shall be
included in any computation made under this Section 4.04.
(c) The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to (i)
pay dividends or make any other distribution to the Company or any of its
Subsidiaries on its capital stock or with respect to any other interest or
participation in, or measured by, its profits; (ii) pay any indebtedness owed to
the Company or any of its Subsidiaries; (iii) make loans or advances to the
Company or any of its Subsidiaries; (iv) transfer any of its properties or
assets to the Company or any of its Subsidiaries; or (v) guarantee the
Securities or any renewals or refinancings thereof, except for such encumbrances
or restrictions existing under or by means of (A) existing indentures as in
effect on the date of this Indenture; (B) this Indenture and the Securities; (C)
any instrument governing Indebtedness of a Person acquired by the Company at the
time of such acquisition, which encumbrance or restriction is not applicable to
any Person other than the Person or the property of the Person so acquired,
provided that such Indebtedness was not incurred in anticipation of such
acquisition; and (D) applicable law.
Section 4.05 Certain Transactions With a Parent and its Affiliates.
The Company may not, and it may not permit any Subsidiary, directly or
indirectly, sell (by merger, exchange or otherwise) or lease any property to an
Affiliate, make any investment in, or render any service to an Affiliate, or
purchase (by merger, exchange or otherwise) or borrow any money from, or make
any payment for any service rendered by an Affiliate except (i) any sale or
lease of any property, or the rendering of any service to an Affiliate, or any
purchase or lease of any property, or any payment for any service rendered, or
the making of any agreement to do so, if (A) such transaction is effected in the
ordinary course of business and the Board of Directors determines in good faith
that the terms thereof are at least as favorable to the Company or its
Subsidiary as those which could be, or could reasonably be expected to be,
obtained in a similar transaction with an entity
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other than any of its Affiliates or (B) the terms of such transaction are at
least as favorable to the Company or its Subsidiary as those which could be
obtained in a similar transaction with an entity other than any of its
Affiliates; (ii) any borrowing of money, or the making of any agreement to do
so, if the Board of Directors determines in good faith that the terms of such
transaction are at least as favorable to the Company or its Subsidiary as those
which could be, or could reasonably be expected to be, obtained in a similar
transaction with an entity other than any of its Affiliates; (iii) any payment
by the Company or any of its Subsidiaries to any of its officers, directors or
employees or agreement to do so, if the Board of Directors determines in good
faith that the amount to be paid, or to be agreed to be paid, for such service
bears a reasonable relationship to the value of such services to the Company or
such Subsidiary; or (iv) any sale to an Affiliate by the Company or a Subsidiary
of any capital stock or other securities or other obligations of an Affiliate at
a cash sale price not less than the original cost thereof to the Company or such
an Affiliate or Subsidiary, as the same may have been reduced from time to time
by cash dividends or interest payments thereon or payments of principal thereof
received by the Company or such Subsidiary plus interest on such investment, as
the same may have been reduced from time to time at a rate not less than the
rate borne by the Debentures; but in no event less than current fair market
value.
Section 4.06 Corporate Existence.
Subject to Article IX, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
Section 4.07 Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
Section 4.08 Payment of Taxes and Other Claims.
The Company will pay or discharge or caused to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary, and (ii)
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all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
ARTICLE V
SUCCESSORS
Section 5.01 When Company May Merge, etc.
The Company shall not consolidate with or merge into (whether or not the Company
is the surviving corporation), or convey, sell, assign, transfer, lease or
otherwise dispose of, or permit any of its Subsidiaries to convey, sell, assign,
transfer, lease or otherwise dispose of, all or substantially all of its and its
Subsidiaries' properties or assets (determined on a consolidated basis for the
Company and its Subsidiaries taken as a whole) in one or more related
transactions, to another person unless (i) the person is a corporation organized
and existing under the laws of the United States of America, any State thereof,
or the District of Columbia; (ii) the corporation assumes by supplemental
indenture all the obligations of the Company under the Securities and this
Indenture, except that it need not assume the obligations of the Company as to
conversion of Securities if pursuant to Section 10.17 the Company or another
person enters into a supplemental indenture obligating it to deliver securities,
cash or other assets upon conversion of Securities; (iii) immediately after the
transaction no Default exists; (iv) immediately after the transaction, the
consolidated net worth of the resulting, surviving or transferee person is not
less than that of the Company immediately prior to the transaction; and (v) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each of which shall state that such consolidation, merger,
conveyance or other transfer or lease, and such supplemental indenture, complies
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
Section 5.02 Successor Corporation Substituted.
Upon any consolidation or merger or any conveyance, sale, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor corporation had been named as the Company
herein, and thereafter, except in the case of a lease, the predecessor
corporation shall be relieved of all obligations and covenants under this
Indenture and the Securities.
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ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
(a) An "Event of Default" occurs if (i) the Company Defaults in the payment of
interest on any Security when the same becomes due and payable and the Default
continues for a period of 10 days; (ii) the Company defaults in the payment of
the principal of any Security when the same becomes due and payable at maturity,
upon redemption or otherwise; (iii) the Company fails to comply with any of its
other covenants and agreements in the Securities or this Indenture and the
Default continues for the period and after the notice specified below; (iv) the
Company or any Subsidiary (A) has a material event of default under the
documentation for Indebtedness in the payment of any amounts due and payable in
respect of any of its respective Indebtedness (other than the Securities) in the
aggregate principal or like amount of $250,000 or more or (B) defaults in the
payment when due in the principal of, interest on, or other amounts payable in
respect of, or fails to perform or comply with any of its other agreements in
respect of, any such Indebtedness and such Indebtedness shall have been declared
to be due and payable immediately, and such acceleration shall not have been
rescinded or annulled, or such Indebtedness discharged, within the period and
after the notice specified below; (v) a final judgment or final judgments for
the payment of money are entered by a court of competent jurisdiction against
the Company or any Subsidiary which remains unpaid and unstayed for a period of
30 days after the date on which the right to appeal has expired, provided that
the aggregate of all such judgments exceeds $250,000; (vi) the Company pursuant
to or within the meaning of any Bankruptcy Law (A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an involuntary
case, (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or (D) makes a general assignment for the
benefit of its creditors; or (vii) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief against the
Company in an involuntary case, (B) appoints a Custodian of the Company or for
all or substantially all of its property, or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days.
(b) The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(c) A Default under clause 6.01 (a) (iii) above is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Company of the Default and the Company does not cure the Default
within 30 days after receipt of the notice. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
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Section 6.02 Acceleration.
If an Event of Default occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of the Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
interest on all the Securities to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately, anything in the
Securities or this Indenture to the contrary notwithstanding. The Holders of at
least a majority in principal amount of the Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture. The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All remedies are cumulative to the extent
permitted by law.
Section 6.04 Waiver of Past Defaults.
The Holders of at least a majority in principal amount of the Securities then
outstanding by notice to the Trustee may waive an existing Default and its
consequences except a Default in the payment of the principal of or interest in
any Security or a Default under Article X.
Section 6.05 Control by Majority.
The Holders of at least a majority in principal amount of the Securities then
outstanding may direct the time, method and place of conducting any proceeding
for and remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
another Holder or would involve the Trustee in personal liability.
Section 6.06 Limitation on Suits.
(a) A Holder may pursue a remedy with respect to this Indenture or the
Securities only if (i) the Holder gives to the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in principal
amount of the Securities make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against
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any loss, liability or expense; (iv) the Trustee does not comply with the
request within 60 days after receipt of the request and the offer of indemnity;
and (v) during such 60-day period the Holders of at least a majority in
principal amount of the Securities do not give the Trustee a direction
inconsistent with the request.
(b) A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.07 Rights of Holders to Receive Payment or Convert Securities.
(a) Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on his Securities, on or
after the respective due dates expressed in the Securities, or to bring suit for
the enforcement of any such payment on or after such respective due dates, shall
not be impaired or affected without the consent of the Holder.
(b) Notwithstanding any other provision of this Indenture, the right of any
Holder to bring suit for the enforcement of his right to convert his Securities
shall not be impaired or affected without the consent of the Holder.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in clauses 6.01 (a) (i) or (ii) above occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation and expenses of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out the
money in the following order: first to the Trustee for amounts due under Section
7.07; second to holders of Senior Debt to the extent required by Article XI;
third to Holders for amounts due and unpaid on the Securities for principal and
interest, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal and interest,
respectively; and fourth to the Company. The Trustee may fix a record date and
payment date for any payment to Holders.
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Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or
in any suit against the Trustee for any action taken or omitted by the Trustee,
a condition for the institution of such suit shall be the giving by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorney's fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
ARTICLE VII
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise its rights and powers and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
(b) Except during the continuance of an Event of Default (i) the Trustee need
perform only those duties that are specifically set forth in this Indenture and
no others; and (ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; provided, however,
that the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except that (i)
this paragraph does not limit the effect of Paragraph (b) of this Section; (ii)
the Trustee shall not be liable for any error of judgment made in good faith by
a Trust Officer, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the Trustee is
subject to Paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or power
unless it receives indemnity satisfactory to it against any loss, liability or
expense.
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(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required by
law.
Section 7.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers'
Certificate or an Opinion of Counsel. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on the Certificate or
Opinion.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in
good faith which it believes to be authorized or within its rights or powers.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or an affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 7.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its authentication.
Section 7.05 Notice of Defaults.
If a Default occurs and is continuing and if it is known to the Trustee, the
Trustee shall mail to Holders a notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment on any Security, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Holders.
Section 7.06 Reports by Trustee to Holders.
Within 60 days after March 31, 1996, the Trustee shall mail to Holders a brief
report dated as of such reporting date that contains the type of information
required by Section 313 (a) of the Trust Indenture
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Act of 1939. A copy of each report at the time of its mailing to Holders shall
be filed with each stock exchange on which the Securities are listed.
Section 7.07 Compensation and Indemnity.
(a) The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it. Such expenses shall include the reasonable compensation and
out-of-pocket expenses of the Trustee's agents and counsel.
(b) The Company shall indemnify the Trustee against any loss or liability
incurred by it. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity and the Company shall defend the claim. The Trustee
may have separate counsel but the fees and expenses of such counsel shall be
borne by the Trustee unless the Company shall not have promptly employed counsel
to assume the defense of the claim, in which event such fees and expenses shall
be borne by the Company. The Company shall have the right, in its sole
discretion, to satisfy or settle any claim for which indemnification has been
sought and is available hereunder as long as such satisfaction or settlement is
at no cost to the Trustee. The Company need not pay for any settlement made
without its consent or reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
(c) To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. When the Trustee incurs expenses or renders
services after an Event of Default specified in clauses 6.01 (a) (vi) or (vii)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section. The Trustee may resign by so notifying
the Company. The Holders of a majority in principal amount of the Securities may
remove the Trustee by so notifying the Trustee and the Company. The Company may
remove the Trustee if (i) the Trustee fails to comply with Section 7.10; (ii)
the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or public
officer takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
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(c) If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least l0% in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(d) If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Company. Thereupon, the resignation or removal of
the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Holders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Paragraph 7.07 (c).
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who shall at all times be a
corporation organized and doing business under the laws of the United States or
of any State or Territory or of the District of Columbia which is (i) authorized
under such laws to exercise corporate trust powers, and (ii) subject to
supervision or examination by Federal, State, Territorial, or District of
Columbia authority. The Trustee shall always have a combined capital and surplus
of at least $10,000,000 as set forth in its most recent published annual report
of condition. If the Trustee shall have or acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign in the manner and in the effect, and subject to
the conditions provided in the Trust Indenture Act and this Indenture. This
Indenture shall never have a Trustee that directly or indirectly controls or is
directly or indirectly controlled by or is under direct or indirect common
control with the Company.
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ARTICLE VIII
DISCHARGE OF INDENTURE
Section 8.01 Termination of Company's Obligations.
(a) The Company may terminate all of its obligations under this Indenture if (i)
the Securities mature within one year or all of them are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
giving the notice of redemption; and (ii) the Company irrevocably deposits in
trust with the Trustee money or U.S. Government Obligations sufficient to pay
principal and interest on the Securities to maturity or redemption, as the case
may be. The Company may make the deposit only during the one year period and
only if Article XI permits it. However, the Company's obligations in Sections
2.03, 2.04, 2.05, 2.06, 2.07, 3.03, 4.01, 7.07, 7.08, 8.02 and 8.03, and in
Article X, shall survive until the Securities are no longer outstanding.
Thereafter the Company's obligations in Section 7.07 and 8.03 shall survive.
(b) Upon receipt by the Trustee of an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein provided for relating
to the satisfaction and discharge of this Indenture have been complied with, the
Trustee upon request shall acknowledge in writing the discharge of the Company's
obligations under the Securities and this Indenture except for those surviving
obligations specified in Paragraph (a) above.
(c) In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. U.S. Government Obligations shall not be callable
at the issuer's option.
(d) "U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged.
Section 8.02 Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations deposited
with it pursuant to Section 8.01 above. It shall apply the deposited money and
the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities. Money and securities so held in trust are not subject to Article XI.
Section 8.03 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon request
any excess money or securities held by them at any time. The Trustee and the
Paying Agent shall pay to the
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Company upon request any money held by them for the payment of principal or
interest that remains unclaimed for two years. After payment to the Company,
Holders entitled to the money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another person.
ARTICLE IX
AMENDMENTS
Section 9.01 Without Consent of Holders.
The Company and the Trustee may enter into one or more indentures supplemental
hereto in form satisfactory to the Trustee to amend this Indenture or the
Securities without the consent of any Holder to (i) cure any ambiguity, defect
or inconsistency; (ii) comply with Sections 5.01 and 10.17; or (iii) make any
change that does not adversely affect the right of any Holder.
Section 9.02 With Consent of Holders.
(a) The Company and the Trustee may enter into one or more indentures
supplemental hereto in form satisfactory to the Trustee to amend this Indenture
or the Securities with the written consent of the Holders of at least 66-2/3% in
principal amount of the Securities. However, without the consent of each Holder
affected, an amendment under this Section may not: (i) reduce the amount of
Securities whose Holders must consent to an amendment; (ii) reduce the rate of
or change the time for payment of interest on any Security; (iii) reduce the
principal of or change the fixed maturity of any Security; (iv) make any
Security payable in money other than that stated in the Security; (v) make any
change in Sections 6.04 or 6.06 or the second sentence of Section 9.02; (vi)
make any change that adversely affects the right to convert any Security; or
(vii) make any change in Article XI that adversely affects the rights of any
Holder.
(b) An amendment under this Section may not make any change that adversely
affects the rights under Article XI of any holder of an issue of Senior Debt
unless the holders of the issue pursuant to its terms consent to the change.
(c) After an amendment under this Section becomes effective, the Company shall
mail to Holders a notice briefly describing the amendment.
Section 9.03 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder of a
Security is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is
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not made on any Security. However, any such Holder or subsequent Holder may
revoke the consent as to his Security or portion of a Security if the Trustee
receives the notice of revocation before the date the amendment or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
Section 9.04 Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or waiver on
any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.05 Trustee to Sign Amendments, Etc.
The Trustee shall sign any amendment or supplement or waiver authorized pursuant
to this Article if the amendment or supplement or waiver does not adversely
affect the rights of the Trustee. If it does adversely affect the rights of the
Trustee, the Trustee may but need not sign it. In signing such amendment or
supplement or waiver the Trustee shall be entitled to receive, and (subject to
Article VII) shall be fully protected in relying upon, an Opinion of Counsel
stating that such amendment or supplement or waiver is authorized or permitted
by and complies with this Indenture. The Company may not sign an amendment or
supplement until the Board of Directors approves it.
ARTICLE X
CONVERSION
Section 10.01 Conversion Privilege.
A Holder may convert his Security into Common Stock of the Company at any time
during the period stated in Paragraph 7 of the Securities. "Common Stock" means
Common Stock of the Company as it exists on the date this Indenture is
originally signed. The number of shares of Common Stock issuable upon conversion
of a Security shall be determined by dividing the principal amount converted by
the Conversion Price in effect on the conversion date. The initial Conversion
Price is as stated in Paragraph 7 of the Securities. The Conversion Price is
subject to adjustment. A Holder may convert a portion of a Security if the
portion is $1,000 or a whole multiple of $1,000. Provisions of this Indenture
that apply to conversion of all of a Security also apply to conversion of a
portion of it.
Section 10.02 Conversion Procedure.
To convert a Security a Holder must satisfy the requirements in Paragraph 7 of
the Securities. The date on which the Holder satisfies all those requirements is
the conversion date. As soon as practical,
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the Company shall deliver through the Conversion Agent a certificate for the
number of full shares of Common Stock issuable upon the conversion adjusted to
account for any fractional share as provided in Section 10.03 below. The person
in whose name the certificate is registered shall be treated as a stockholder of
record on and after the conversion date. No payment or adjustment will be made
for accrued interest on a converted Security. If a Holder converts more than one
Security at the same time, the number of full shares issuable upon the
conversion shall be based on the total principal amount of the Securities
converted. Upon surrender of a Security that is converted in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unconverted portion of the Security surrendered. If the last day on which a
Security may be converted is a Legal Holiday in a place where a Conversion Agent
is located, the Security may be surrendered to that Conversion Agent on the next
succeeding day that is not a Legal Holiday. The Company shall reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury enough
shares of Common Stock to permit the conversion of the Securities. The Company
shall from time to time, in accordance with applicable law, increase the
authorized amount of its Common Stock if at any time the authorized amount of
Common Stock remaining unissued shall not permit the conversion of all
Securities at the time outstanding. All shares of Common Stock which may be
issued upon conversion of the Securities shall be fully paid and non-assessable.
The Company will endeavor to comply with all securities laws regulating the
offer and delivery of shares of Common Stock upon conversion of Securities and
will endeavor to list such shares on each national securities exchange or
national securities system on which the Common Stock is then listed. If the
Company calls for the redemption of any Securities, such right of conversion
shall cease and terminate, as to the Securities designated for redemption, at
the close of business on the date immediately preceding the redemption date
therefor, unless the Company defaults in the payment of the redemption price.
Section 10.03 Fractional Shares.
The Company will not issue a fractional share of Common Stock upon conversion of
a Security. Instead the Company will round any fractional share to the nearest
share so that if the fraction is less than one-half, no share shall be issued
and if the fraction is one-half or higher the Company shall issue one full
share.
Section 10.04 Taxes on Conversion.
If a Holder converts his Security, the Company shall pay any documentary, stamp
or similar issue or transfer tax due on the issue of shares of Common Stock upon
the conversion. However, the Holder shall pay any such tax which is due because
the shares are issued in a name other than his.
Section 10.05 Adjustment for Change in Capital Stock.
Except as provided in Section 10.17, if the Company shall (i) declare a dividend
on its outstanding Common Stock in shares of its Capital Stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of
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its Capital Stock by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each such case the conversion
privilege and the Conversion Price in effect immediately prior to such action
shall be adjusted so that the Holder of a Security thereafter converted may
receive the number and kind of shares which he would have owned immediately
following such action if he had converted the Security immediately prior to such
action. Such adjustment shall be made successively whenever such event shall
occur. The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification. If after an
adjustment a Holder upon conversion of his Security may receive shares of two or
more classes of Capital Stock of the Company, the Company's Board of Directors
shall determine, in good faith, the allocation of the adjusted Conversion Price
between the classes of capital stock. After such allocation, the conversion
privilege and Conversion Price of each class of capital stock shall thereafter
be subject to adjustment on terms comparable to those applicable to Common Stock
in this Article.
Section 10.06 Adjustment for Certain Issuances of Common Stock.
If the Company shall at any time or from time to time issue any shares of Common
Stock (other than shares issued as a dividend or distribution as provided in
Section 10.05 above) for a consideration per share less than the Conversion
Price in effect on the date of such issue or less than the Current Market Price
per share of Common Stock, then, forthwith upon such issue, the Conversion Price
in effect immediately prior to such action (the "Existing Conversion Price")
shall be reduced by dividing the number of shares so issued by the total number
of shares outstanding after such issuance, multiplying the quotient by the
difference between the Existing Conversion Price and the price of the shares so
issued and subtracting the result from the Existing Conversion Price. In the
case of an issue of additional shares of Common Stock for cash, the
consideration received by the Company therefor shall be deemed to be the net
cash proceeds received for such shares, excluding cash received on account of
accrued interest or accrued dividends and after deducting therefrom any and all
commissions and expenses paid or incurred by the Company for any underwriting
of, or otherwise in connection with, the issue of such shares. The term "issue"
shall be deemed to include the sale or other disposition of shares held in the
Company's treasury. The number of shares outstanding at any given time shall not
include shares in the Company's treasury.
Section 10.07 Subscription Offerings.
In case the Company shall issue rights, options, or warrants entitling the
holders thereof to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) at a price per share (or
having a conversion price per share, in the case of a security convertible into
or exchangeable for Common Stock) less than the Existing Conversion Price or the
Current Market Price per share of Common Stock on the record date for the
determination of stockholders entitled to receive such rights or the granting
date if such holders are not stockholders, then in each such case the Conversion
Price shall be adjusted by multiplying Conversion Price in effect immediately
prior to such record or granting date by a fraction, of which the numerator
shall be the number of shares
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of Common Stock outstanding on such record or granting date plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so to be offered (or the aggregate initial Conversion
Price of the convertible securities so to be offered) would purchase at such
Existing Conversion Price or Current Market Price, as the case may be, and of
which the denominator shall be the number of shares of Common Stock outstanding
on such record or granting date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record or granting date; provided, however, that, to the extent the
shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Conversion Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
as to those Securities which are not converted after such expiration), to the
Conversion Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of delivery of only
the number of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Company's Board of Directors. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
Section 10.08 Other Rights to Acquire Common Stock.
In case the Company shall distribute to all holders of Common Stock (including
any such distribution made to the stockholders of the Company in connection with
a consolidation or merger in which the Company is the continuing corporation)
evidences of its indebtedness or assets (other than cash dividends or
distributions and dividends payable in shares of Common Stock), or options or
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
Section 10.07 above), then in each such case the Conversion Price shall be
adjusted by multiplying the Conversion Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, of which the numerator shall be the Current Market
Price per share of Common Stock on such record date, less the fair market value
(as determined in good faith by the Company's Board of Directors) of the portion
of the evidences of indebtedness or assets so to be distributed, or of such
subscription rights, options, or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, applicable to one share, and of which the denominator shall be such
Current Market Price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of such distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
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Section 10.09 Current Market Price.
For the purpose of any computation under Sections 10.06, 10.07 and 10.08 above,
the "Current Market Price" per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the 30 consecutive trading
days commencing no more than 45 trading days before such date. The closing price
for each day shall be the last reported sales price regular way or, in case no
such reported sale takes place on such day, the closing bid price regular way,
in either case on the American Stock Exchange, or if the Common Stock is not
listed or admitted to trading on such Exchange, on principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the highest reported bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar organization
if NASDAQ is no longer reporting such information, or by the National Daily
Quotation Bureau or similar organization if the Common Stock is not then quoted
on an inter-dealer quotation system. If on any such date the Common Stock is not
quoted by any such organization, the fair value of the Common Stock on such
date, as determined by the Company's Board of Directors, shall be used.
Section 10.10 Minimum Adjustment.
No adjustment in the Conversion Price shall be required if such adjustment is
less than $0.05; provided, however, that any adjustments which by reason of this
Section 10.10 are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article X
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
Section 10.11 When Adjustment May Be Deferred.
In any case in which this Article X shall require that an adjustment in the
Conversion Price be made effective as of a record date for a specified event, if
a Security shall have been converted after such record date the Company may
elect to defer until the occurrence of such event issuing to the Holder of such
Security the shares, if any, issuable upon such conversion over and above the
shares, if any, issuable upon such conversion on the basis of the Conversion
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
Section 10.12 Number of Shares.
Upon each adjustment of the Conversion Price as a result of the calculations
made in Sections 10.05 through 10.08 above, the Securities shall thereafter
evidence the right to purchase, at the adjusted Conversion Price, that number of
shares (calculated to the nearest thousandth) obtained by dividing (i) the
product obtained by multiplying the number of shares purchasable upon conversion
of the Securities prior to adjustment of the number of shares by the Conversion
Price in effect prior to
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adjustment of the Conversion Price by (ii) the Conversion Price in effect after
such adjustment of the Conversion Price.
Section 10.13 When No Adjustment Required.
No adjustment need be made for a transaction referred to in Sections 10.05
through 10.08 if Holders are permitted to participate in the transaction on a
basis no less favorable than any other party and at a level which would preserve
the Holders' percentage equity participation in the Common Stock upon conversion
of the Securities. No adjustment need be made for sales of Common Stock pursuant
to a Company plan for reinvestment of dividends or interest. No adjustment need
be made for a change in the par value or no par value of the Common Stock. If
the Securities become convertible solely into cash, no adjustment need be made
thereafter. Interest will not accrue on the cash.
Section 10.14 Notice of Adjustment.
Whenever the Conversion Price is adjusted, the Company shall promptly mail to
Holders a notice of the adjustment. The Company shall file with the Trustee a
certificate from the Company's independent public accountants briefly stating
the facts requiring the adjustment and the manner of computing it. The
certificates shall be evidence that the adjustment is correct.
Section 10.15 Voluntary Reduction.
The Company from time to time may reduce the Conversion Price by any amount for
any period of time if the period is at least 20 consecutive trading days and if
the reduction is irrevocable during the period. Whenever the Conversion Price is
reduced, the Company shall mail to Holders a notice of the reduction. The
Company shall mail the notice at least 15 days before the date the reduced
Conversion Price takes effect. The notice shall state the reduced Conversion
Price and the period it will be in effect. The Company shall also give notice of
the reduction of the Conversion Price, within the time period provided above, by
issuing a release to that effect to the Dow Jones News Service.
A reduction of the Conversion Price does not change or adjust the Conversion
Price otherwise in effect for purposes of Sections 10.05 through 10.08 above.
Section 10.16 Notice of Certain Transactions.
If (i) the Company takes any action that would require an adjustment in the
Conversion Price pursuant to this Article X; (ii) the Company takes any action
that would require a supplemental indenture pursuant to Section 10.17; or (iii)
there is a liquidation or dissolution of the Company, the Company shall mail to
Holders a notice stating the proposed record date for a distribution or
effective date of a reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall mail the notice at least 15 days
before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
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Section 10.17. Reorganization of Company.
If the Company is a party to a transaction subject to Section 5.01 or a merger
which reclassifies or changes its outstanding Common Stock, the person obligated
to deliver securities, cash or other assets upon conversion of Securities shall
enter into a supplemental indenture. If the issuer of securities deliverable
upon conversion of Securities is an affiliate of the surviving, transferee or
lessee corporation, that issuer shall join in the supplemental indenture. The
supplemental indenture shall provide that the Holder of a Security may convert
it into the kind and amount of securities, cash or other assets which he would
have owned immediately after the consolidation, merger, transfer or lease if he
had converted the Security immediately before the effective date of the
transaction. The supplemental indenture shall provide for adjustments which
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Article X. The successor company shall mail to Holders a notice
briefly describing the supplemental indenture. If this Section applies, Section
10.05 above does not apply.
Section 10.18 Company Determination Final.
Any determination that the Company or the Board of Directors must make pursuant
to this Article X shall be conclusive, absent manifest error.
Section 10.19 Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this Article X
should be made, how it should be made or what it should be. The Trustee has no
duty to determine whether any provisions of a supplemental indenture under
Section 10.17 are correct. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities. The Trustee shall not be responsible for the Company's failure to
comply with this Article X. Each Conversion Agent other than the Company shall
have the same protection under this Section 10.19 as the Trustee.
ARTICLE XI
SUBORDINATION
Section 11.01 Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Security agrees, that the
indebtedness evidenced by the Securities is subordinated in right of payment, to
the extent and in the manner provided in this Article XI, to the prior payment
in full of all Senior Debt, and that the subordination is for the benefit of the
holders of Senior Debt.
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Section 11.02 Certain Definitions.
(a) "Indebtedness" means any indebtedness, contingent or otherwise, in respect
of borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the borrower or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or representing
the balance deferred and unpaid of the purchase price of any property or
interest therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a balance
sheet of the borrower prepared on a consolidated basis in accordance with
generally accepted accounting principles.
(b) "Representative" means the indenture trustee or other trustee, agent or
representative for an issue of Senior Debt.
(c) "Senior Debt" means the principal of and premium, if any, and interest
(including post-petition interest, if any) on, and any other payment due
pursuant to the terms of instruments creating or evidencing Indebtedness of the
Company outstanding on the date of this Indenture or Indebtedness thereafter
created, incurred, assumed or guaranteed by the Company and all renewals,
extensions and refundings thereof, which is payable to banks or other
traditional long-term institutional lenders such as insurance companies and
pension funds, unless in the instrument creating or evidencing such
Indebtedness, it is provided that such Indebtedness is not senior in right of
payment to the Securities. Notwithstanding the foregoing, Senior Debt with
respect to the Company or any Subsidiary shall not include (i) any Indebtedness
of the Company to any Subsidiary for money borrowed or advanced from such
Subsidiary and (ii) any Indebtedness representing the redemption price of any
preferred stock.
(d) A distribution as referred to in this Article XI may consist of cash,
securities or other property.
Section 11.03 Liquidation, Dissolution, Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property (i)
holders of Senior Debt shall be entitled to receive payment in full in cash of
the principal of and interest to the date of payment on the Senior Debt before
Holders shall be entitled to receive any payment of principal of or interest on
Securities; and (ii) until the Senior Debt is paid in full in cash, any
distribution to which Holders would be entitled but for this Article XI shall be
made to holders of Senior Debt as their interest may appear, except that Holders
may receive securities that are subordinated to Senior Debt to at least the same
extent as the Securities.
Section 11.04 Default on Senior Debt.
The Company may not pay principal or interest on the Securities and may not
acquire any Securities for cash or property other than capital stock of the
Company if (i) a default on Senior Debt occurs
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and is continuing that permits holders of Senior Debt to accelerate its
maturity, and (ii) the default is the subject of judicial proceedings or the
Company receives a notice of the default from a person who may give it pursuant
to Section 11.12. The Company may resume payments on the Securities and may
require them when (A) the default is cured or waived, or (B) 120 days pass after
the notice is given if the default is not the subject of judicial proceedings,
if this Article XI otherwise permits the payment or acquisition at that time.
Section 11.05 Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the Securities when 120 days pass after the acceleration occurs
if this Article XI permits the payment at that time.
Section 11.06 When Distribution Must be Paid Over.
If a distribution is made to Holders that because of this Article XI should not
have been made to them, the Holders who receive the distribution shall hold it
in trust for holders of Senior Debt and pay it over to them as their interests
may appear.
Section 11.07 Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any facts
known to the Company that would cause a payment of principal or interest on the
Securities to violate this Article XI.
Section 11.08 Subrogation.
Subject to the payment in full of all Senior Debt, the Holders of the Securities
shall be subrogated to the rights of the holders of the Senior Debt to receive
payments or distributions of assets of the Company applicable to the Senior Debt
until all amounts owing on the Securities shall be paid in full, and for the
purpose of such subrogation no payments or distributions to the holders of the
Senior Debt by or on behalf of the Company or by or on behalf of the Holders of
the Securities by virtue of this Article XI which otherwise would have been made
to the Holders of the Securities shall, as between the Company and the Holders
of the Securities, be deemed to be payment by the Company to or on the account
of the Senior Debt, it being understood that the provisions of this Article XI
are and are intended solely for the purpose of defining the relative rights of
the Holders of the Securities, on the one hand, and the holder of the Senior, on
the other hand.
Section 11.09 Relative Rights.
This Article XI defines the relative rights of Holders and holders of Senior
Debt. Nothing in this Indenture shall (i) impair, as between the Company and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay principal and interest on the Securities in accordance with
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<PAGE>
their terms; (ii) affect the relative rights of Holders and creditors of the
Company other than holders of Senior Debt; or (iii) prevent the Trustee or any
Holder from exercising its available remedies upon a Default, subject to the
rights of holders of Senior Debt to receive distributions otherwise payable to
Holders. If the Company fails because of this Article XI to pay principal or
interest on a Security on the due date, the failure is still a Default.
Section 11.10 Subordination May Not be Impaired by Company.
No right of any current or future holder of any Senior Debt to enforce
subordination as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company, or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms of this Indenture, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with.
Section 11.11 Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Debt, the distribution may be made and the notice given to their Representative.
Section 11.12 Rights of Trustee and Paying Agent.
The Trustee or Paying Agent may continue to make payments on the Securities
until it receives notice satisfactory to it that payments may not be made under
this Article XI. The Company, an Agent, a Representative or a holder of Senior
Debt may give the notice. If an issue of Senior Debt has a Representative, only
the Representative may give the Notice. The Trustee in its individual or any
other capacity may hold Senior Debt with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights.
Section 11.13 Ranking of Securities.
The indebtedness evidenced by the Securities shall rank (i) senior to or pari
passu with all other indebtedness evidenced by securities of the Company issued
by the Company after the date of this Indenture and any other evidence of
Indebtedness of the Company, except as expressly provided for in Section 11.01;
and (ii) senior to the Capital Stock of the Company, including any rights or
warrants entitling holders thereof to subscribe for or purchase shares of
Capital Stock of the Company or any securities convertible into exchangeable for
Capital Stock of the Company issued by the Company after the date of this
Indenture.
Section 11.14 Application by Trustee of Monies Deposited with It.
Any deposit of monies by the Company with the Trustee or any Paying Agent
(whether or not in trust) for the payment of the principal or interest on any
Securities shall be subject to the provisions of Sections 11.01, 11.02, 11.03
and 11.04 except that, if prior to the close of business on the business
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<PAGE>
day immediately preceding the date on which by the terms of this Indenture any
such monies may become payable for any purpose (including, without limitation,
the payment of either the principal or the interest on any Security) the Trustee
or, in the case of any such deposit of monies with a Paying Agent, the Paying
Agent shall not have received with respect to such monies the notice provided
for in Section 11.07, then the Trustee or such Paying Agent, as the case may be,
shall have full power and authority to receive such monies and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date. In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior Debt to
participate in any payment or distribution pursuant to this Article XI, the
Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Debt held by such person,
the extent to which such person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such person under
this Article XI, and if such evidence is not furnished, the Trustee may defer
any payment to such person pending judicial determination as to the right of
such person to receive such payment. The Trustee, however, shall not be deemed
to owe any fiduciary duty to the holders of Senior Debt but shall have only such
obligations to such holders as are expressly set forth in this Article XI.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Notices.
(a) Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class mail
(or by facsimile transmission) to the other's address as follows:
The Company's address is: The Trustee's address is:
Bentley Pharmaceuticals, Inc. American Stock Transfer &
One Urban Centre, Suite 550 Trust Company
4830 West Kennedy Boulevard Trust Department
Tampa, Florida 33609-2517 40 Wall Street
Fax (813) 286-4402 New York, New York 10005
Fax
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
(b) Any notice or communication to a Holder shall be mailed by first-class
mail to his address shown on the register kept by the Registrar. Failure to mail
a notice or communication to a Holder
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<PAGE>
or any defect in it shall not affect its sufficiency with respect to other
Holders. If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it. If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.02 Communications by Holders with Other Holders.
The Trustee, within five business days after receipt of a written application by
any three or more Holders stating that they desire to communicate with other
Holders with respect to their rights under the Indenture or Securities, and
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, and by reasonable proof that each such applicant
has owned his Securities for a period of at least six months preceding the date
of such application, shall inform such applicants as to the approximate number
of Holders and the approximate cost of mailing to such Holders the form of proxy
or other communication, if any, specified in such application. The Trustee
shall, upon the written request of such applicants, mail to all Holders copies
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment of the reasonable expenses of such mailing, unless within
five days after such tender, the Trustee shall determine, in good faith, that
such mailing would be contrary to the best interests of the Holders or would be
in violation of applicable law.
Section 12.03 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee (i) an Officers'
Certificate stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and (ii) an Opinion of Counsel stating that in
the opinion of such counsel, all such conditions precedent have been complied
with.
Section 12.04 Statements Required in Certificate or Opinion.
Each Certificate or Opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include (i) a statement that the
person making such Certificate or Opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
Certificate or Opinion are based; (iii) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
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<PAGE>
Section 12.05 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of Holders. The
Registrar, Paying Agent or Conversion Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.06 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions
in the State of New York are not required to be open. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
Section 12.07 No Recourse Against Others.
All liability described in the Securities of any director, officer, employee or
stockholder, as such, of the Company is waived and released.
Section 12.08 Duplicate Originals.
The parties may sign any number of copies of this Indenture. One signed copy is
enough to prove this Indenture.
Section 12.09 Governing Law.
The laws of the State of New York shall govern this Indenture and the
Securities, without giving effect to principles of conflicts of law thereof.
Section 12.10 Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or controls or conflicts
with another provision hereof which is required to be included in this Indenture
by, or otherwise governed by, any provision of the Trust Indenture Act, such
other provision shall control.
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<PAGE>
Section 12.11 No Adverse Interpretation of Other Documents.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SIGNATURES
Dated: _________________ BENTLEY PHARMACEUTICALS, INC.
By ________________________________
James R. Murphy, President
Attest:
- -------------------------
Michael D. Price, Secretary [SEAL]
Dated: ___________________ AMERICAN STOCK TRANSFER &
TRUST COMPANY
By ________________________________
Attest:
- -------------------------
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<PAGE>
EXHIBIT A
No: ___ $ ____________
BENTLEY PHARMACEUTICALS, INC., a Florida corporation, promises to pay to
_________________ or registered assigns, the principal of
____________________________________ Dollars on ______________, 200__.
12% Convertible Senior Subordinated Debenture due February __, 2006
Interest Payment Dates: January 1, April 1, July 1 and October 1
Record Dates : December 15, March 15, June 15 and September 15
Dated: ________________
Authenticated
AMERICAN STOCK TRANSFER BENTLEY PHARMACEUTICALS, INC.
& TRUST COMPANY
By __________________________ By ___________________________
Authorized Officer Authorized Officer
[SEAL]
1
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
12% Convertible Senior Subordinated Debenture Due February , 2006
1. Interest. Bentley Pharmaceuticals, Inc. (the "Company"), a Florida
corporation, promises to pay interest on the principal amount of this Security
at the rate per annum shown above. The Company will pay interest quarterly on
January 1, April 1, July 1 and October 1 of each year commencing April 1, 1996.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the day of
delivery of the Debentures. Interest will be computed on the basis of a 360-day
year of twelve 30 day months.
2. Method of Payment. The Company will pay interest on the Securities (except
defaulted interest) to the persons who are registered holders of Securities (the
"Holders") at the close of business on the 15th day of the month next preceding
the interest payment date even though Securities are canceled after the record
date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for the payment of public and private debts. However, the
Company may pay principal and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address.
3. Paying Agent, Registrar, Conversion Agent. Initially, American Stock
Transfer & Trust Company (the "Trustee"), will act as Paying Agent, Registrar
and Conversion Agent. The Company may change any Paying Agent, Registrar,
Conversion Agent or co-registrar without notice. The Company may act as Paying
Agent, Registrar, Conversion Agent or co-registrar.
4. Indenture. The Company issued the Securities under an Indenture dated as of
February__, 1996 ("Indenture") between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture. The Securities are subject
to all such terms, and Holders are referred to the Indenture for a statement of
such terms. The Securities are unsecured general obligations of the Company
limited to $7,500,000 in aggregate principal amount.
5. Redemption. On or after August __, 1996, [SIX MONTHS AFTER DATE OF INDENTURE]
and from time to time thereafter, the Company may, with prior written consent of
Coleman & Company Securities, Inc., redeem all or part of the Securities from
time to time at 105% of principal amount, plus accrued interest to the
redemption date, if the closing price of the Common Stock for each of the
immediately preceding 20 consecutive trading days equal or exceeds $7.00 per
share, as initially constituted. The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale takes
place on such day, the closing bid price regular way, in either case on the
principal national securities exchange on which the Common Stock is listed
2
<PAGE>
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or similar organization if NASDAQ is no longer reporting such information, or by
the National Daily Quotation Bureau or similar organization if the Common Stock
is not then quoted on an inter-dealer quotation system.
6. Notice of Redemption. Notice of redemption (the "Notice of Redemption") will
be mailed at least 30 days but not more than 60 days before the redemption date
to each Holder of Securities to be redeemed at his registered address.
Securities in denominations larger than $1,000 may be redeemed in part but only
in whole multiples of $1,000. On and after the redemption date interest ceases
to accrue on Securities or portions of them called for redemption.
7. Conversion.
(a) A Holder may convert his Security into Common Stock of the Company
("Common Stock") at any time after the earlier of the date on which a Notice of
Redemption is mailed or ______________ __, 1996 (or earlier with the consent of
the Company and Coleman and Company Securities, Inc.) and before the close of
business on _______________ __, 2006. If the Security is called for redemption,
the Holder may convert it at any time before the close of business on the
redemption date. The initial Conversion Price, subject to adjustment in certain
events, is the lesser of (i) $2.50 per share; or (ii) 80% of the average last
sale price on the American Stock Exchange over the 20 trading days immediately
preceding the first anniversary of the issuance of the Debentures (the
"Anniversary Date") or the date of notice of redemption is given or other
earlier date, as applicable. In addition, the Company may from time to time
voluntarily reduce the Conversion Price. To determine the number of shares
issuable upon conversion of a Security, divide the principal amount converted by
the Conversion Price in effect on the conversion date. On conversion no payment
or adjustment for interest will be made. The Company will round to the nearest
share for any fractional share so that if the fraction is less than .5 no share
shall be issued and if the fraction is .5 or higher the Company shall issue one
full share.
(b) To convert a Security a Holder must (i) complete and sign the
conversion notice on the back of the Security; (ii) surrender the Security to a
Conversion Agent; (iii) furnish appropriate endorsements and transfer documents,
if required by the Registrar or Conversion Agent; and (iv) pay any transfer or
similar tax if required. A Holder may convert a portion of a Security if the
portion is $1,000 or a whole multiple of $1,000.
(c) The Conversion Price will be adjusted for dividends or
distributions on Common Stock payable in Company stock; subdivisions,
combinations or certain reclassifications of Common Stock; certain issuances of
Common Stock at less than the Conversion Price at the time of issuance;
3
<PAGE>
or distributions of assets or debt securities of the Company. However, no
adjustment will be made if Holders may participate in the transaction or in
certain other cases.
(d) If the Company is a party to a consolidation or merger or a
transfer or lease of all or substantially all of its assets, the right to
convert a Security into Common Stock may be changed into a right to convert it
into securities, cash or other assets of the Company or another entity.
8. Subordination. The Securities are subordinated to Senior Debt, which is the
principal of and premium, if any, and interest (including post-petition
interest, if any) on, and any other payment due pursuant to the terms of
instruments creating or evidencing Indebtedness of the Company outstanding on
the date of this Indenture or Indebtedness thereafter created, incurred, assumed
or guaranteed by the Company and all renewals, extensions and refundings
thereof, which is payable to banks or other traditional long-term institutional
lenders such as insurance companies and pension funds, unless in the instrument
creating or evidencing such Indebtedness, it is provided that such Indebtedness
is not senior in right of payment to the Securities. Notwithstanding the
foregoing, Senior Debt with respect to the Company or any Subsidiary shall not
include (i) any Indebtedness of the Company to any Subsidiary for money borrowed
or advanced from such Subsidiary and (ii) any Indebtedness representing the
redemption price of any preferred stock. "Indebtedness," as applied to any
entity means any indebtedness, contingent or otherwise, in respect of borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such entity or only to a portion thereof), or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if and to the
extent that such indebtedness would appear as a liability upon a balance sheet
of such entity prepared on a consolidated basis in accordance with generally
accepted accounting principles. The Securities shall rank senior or pari passu
to all indebtedness evidenced by securities of the Company and any other
indebtedness other than Senior Debt. To the extent provided in the Indenture,
Senior Debt must be paid before the Securities may be paid. The Company agrees
to the subordination and authorizes the Trustee to give it effect.
9. Denomination, Transfer and Exchange. The Securities are in registered form
without coupons in denominations of $1,000 and whole multiples of $1,000. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not exchange or register the transfer of any Securities for a period of 15
days before a selection of Securities to be redeemed.
10. Persons Deemed Owners. The registered holder of a Security may be treated
as its owner for all purposes.
4
<PAGE>
11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the
Securities may be amended with the consent of the Holders of at least 66-2/3% in
principal amount of the Securities. Without the consent of any Holder, the
Indenture or the Securities may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of Company obligations to Holders or to
make any change that does not adversely affect the rights of any Holders.
12. Defaults and Remedies. Each of the following occurrences constitutes an
Event of Default: (i) failure by the Company to pay interest on the Securities
for more than 10 days after the due date thereof; (ii) failure by the Company to
pay principal when due; (iii) failure by the Company for 60 days after notice to
comply with any of its other agreements in the Indenture or the Securities; (iv)
certain defaults under and accelerations prior to maturity of other
indebtedness; and (v) certain events of bankruptcy or insolvency. If an Event of
Default occurs and is continuing, the Trustee or the Holder of at least 25% in
principal amount of the Securities may declare all of the Securities to be due
and payable immediately. Holders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust power. The
Trustee may withhold from Holders notice of any continuing default (except a
default in the payment of principal or interest) if it determines that
withholding notice is in their interest. The Company must furnish an annual
compliance certificate to the Trustee.
13. Trustee Dealings with the Company. American Stock Transfer & Trust Company,
the Trustee under the Indenture, in its individual or any other capacity, may
make loans to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not Trustee.
14. No Recourse Against Others. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based thereon, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
15. Authentication. This Security shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent appointed by the
Trustee.
16. Abbreviations. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM ("tenants in common"), TEN ENT ("tenants by the
entireties"), JT TEN ("joint tenants with right of survivorship and not as
tenants in common"), CUST ("Custodian"), and U/G/M/A ("Uniform Gifts to Minors
Act").
5
<PAGE>
The Company will furnish to any Holder upon written request and without charge a
copy of the Indenture, which has in it the text of this Security in larger type.
Requests may be made to: Michael D. Price, Secretary, Bentley Pharmaceuticals,
Inc., One Urban Centre, Suite 550, 4830 West Kennedy Boulevard, Tampa, Florida
33609-2517.
6
<PAGE>
ASSIGNMENT FORM CONVERSION NOTICE
To assign this Security, fill To convert this Security into Common Stock in
the form below: of the Company, check the box: [ ]
I or we assign and transfer To convert only part of this Security, state
this Security to the amount:
(Insert assignee's soc. sec. $________________
or tax i.d. no.)
______________________________ If you want the stock certificate made out
in another person's name, fill in the form
______________________________ below:
______________________________ (Insert assignee's soc. sec. or tax i.d. no.)
(Print or type assignee's name,
address and zip code) _____________________________________________
and irrevocably appoint_______ _____________________________________________
______________agent to transfer
this Security on the books of _____________________________________________
the Company. This agent may (print or type assignee's name, address and
substitute another to act for zip code)
him.
-------------------------------------------------------
Date:________________ Your Signature_____________________________________
(Sign your name exactly as it appears on the other side of this Security)
7
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ___ day of ___________________________________,
1996, by and between BENTLEY PHARMACEUTICALS, INC., a Florida corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY ("the Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of up to 6,900 units
("the Units"), each Unit consisting of one $1,000 principal amount 12%
Convertible Senior Subordinated Debenture and 1,000 Class A Redeemable Warrants
(the "Class A Warrants"), each Class A Warrant exercisable for the purchase of
one share of common stock, par value $.02 per share (the "Common Stock"), of the
Company, and one Class B Redeemable Warrant (the "Class B Warrants"), each two
Class B Warrants exercisable for the purchase of one share of Common Stock,
pursuant to an Underwriting Agreement dated ___, 1996 (the "Underwriting
Agreement"), between the Company and Coleman and Company Securities, Inc.
("Coleman"), and (ii) the issuance to Coleman or its designees of Underwriter
Warrants to purchase an aggregate of 600 Units, the Company will issue up to
7,500,000 Class A Warrants and 7,500,000 Class B Warrants (the Class A Warrants
and the Class B Warrants, sometimes collectively, the "Warrants").
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
1.01 "Common Stock" shall mean stock of the Company of
any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage, which at the date of the closing of the
Underwriting Agreement consisted of shares of Common Stock, $.02 par value.
1.02 "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at 40
Wall Street, New York, New York, 10005.
1.03 "Exercise Date" shall mean, as to any Warrant,
the date on which the Warrant Agent shall have received both (i) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (ii) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
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1.04 "Initial Exercise Date" shall mean, the date of
issuance of the Class A Warrants or Class B Warrants, as applicable.
1.05 "Purchase Price" shall mean the purchase price to
be paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $3.00 as to each Class A Warrant and $5.00 as to each two Class B
Warrants, subject to adjustment from time to time pursuant to the provisions of
Section 9 hereof.
1.06 "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.05 per Class A or Class B Warrant, subject
to adjustment from time to time pursuant to the provisions of Section 9 hereof.
1.07 "Registered Holder" shall mean the person in
whose name any certificate representing Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6 hereof.
1.08 "Trading Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday other than any day on which securities are not
traded on the exchange or the Nasdaq system which is the principal market for
the Common Stock, as determined by the Board of Directors of the Company.
1.09 "Transfer Agent" shall mean Chemical Mellon
Shareholder Services of New York as the transfer agent for the Company's Common
Stock, or its authorized successor, as such.
1.10 "Warrant Expiration Date" shall mean 5:00 P.M.
(New York time) on ____________, 1999, with respect to the Class A Warrants, or
, 2001, with respect to the Class B Warrants, or in either case the Redemption
Date as defined in Section 8 hereof, whichever is earlier; provided, however,
that if such date shall in the State of New York be a holiday or a day on which
banks are authorized to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close. Notwithstanding the foregoing, as to the Warrants
subject to the Underwriter Warrants, the Expiration Date of the Class A Warrants
shall be the later of (i) ___________ 1999 or (ii) one year after the date of
exercise of the portion of the Underwriter Warrants pursuant to which such Class
A Warrants are issued and the Expiration Date of the Class B Warrants shall
instead be the later of (a) __________ 2001 or (b) two years after the date of
exercise of the portion of the Underwriter Warrants pursuant to which the Class
A Warrants are issued which may be exercised for Class B Warrants.
1.11 "Warrant Shares" shall mean the shares of Common
Stock or other securities pursuant to Section 9 hereof issuable upon exercise of
the Warrants.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
2.01 Each Class A Warrant shall initially entitle the
Registered Holder of such Class A Warrant Certificate representing such Warrant,
after the Initial Exercise Date, to purchase one share of Common Stock and one
Class B Warrant upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9 hereof.
2.02 Each two (2) Class B Warrants shall entitle the
Registered Holder of such Class B Warrant Certificates representing such
Warrants to purchase one share of Common Stock upon the exercise of two Class B
Warrants in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 9 hereof. Registered Holders will only be
permitted to exercise Class B Warrants in multiples of two.
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2.03 The Class A Warrants included in the offering of
Units will be detachable from the Debentures constituting part of such Units and
separately transferable therefrom after _____________, 1996 or sooner with the
consent of Coleman.
2.04 Upon execution of this Agreement, Warrant Certi-
ficates representing the number of Warrants sold pursuant to the Underwriting
Agreement shall be executed by the Company and delivered to the Warrant Agent.
Upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
2.05 From time to time, up to the respective Warrant
Expiration Dates, the Transfer Agent shall countersign and deliver stock
certificates in required whole number denominations representing up to an
aggregate of 11,250,000 shares of Common Stock, subject to adjustment as
described herein, upon the exercise of Warrants in accordance with this
Agreement.
2.06 From time to time, up to the applicable Warrant
Expiration Dates, the Warrant Agent shall countersign and deliver Warrant
Certificates in required whole number denominations to the persons entitled
thereto in connection with any transfer or exchange permitted under this
Agreement; provided, however, that no Warrant Certificates shall be issued
except (i) those initially issued hereunder, (ii) those issued on or after the
Initial Exercise Date, upon the exercise of fewer than all Warrants represented
by any Warrant Certificate, to evidence any unexercised Warrants held by the
exercising Registered Holder; (iii) those issued upon any transfer or exchange
pursuant to Section 6 hereof; (iv) those issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7 hereof; and
(v) at the option of the Company, in such form as may be approved by its Board
of Directors, to reflect any adjustment or change in the Purchase Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 9 hereof.
2.07 Pursuant to the terms of the Underwriter Warrants,
Coleman may purchase up to 600 additional Units, including up to 600,000 Class A
Warrants and 600,000 Class B Warrants, and with Warrant Expiration Dates as
specifically set forth in Section 1.10 hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
3.01 The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A as to the Class A Warrants and Exhibit B
as to the Class B Warrants (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange or national securities system on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letters AW on each Class A Warrant of all denominations and BW on each
Class B Warrant of all denominations.
3.02 Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, President or any Vice President and
by its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not
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be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued and delivered with the same force and effect as though
the person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
without further action by the Company, except as otherwise provided by Section 4
hereof.
SECTION 4. EXERCISE. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the applicable Initial Exercise Date, but not
after the applicable Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the applicable Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder upon exercise thereof as of the close of business on the applicable
Exercise Date. As soon as practicable on or after the applicable Exercise Date,
the Warrant Agent shall deposit the proceeds received from the exercise of a
Warrant and shall notify the Company in writing of such exercise. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of such investment banks and brokerage houses as the
Company shall approve in writing to the Warrant Agent, certificates shall
immediately be issued without prior notice to the Company or any delay. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant to the Company or as
the Company may direct in writing.
SECTION 5. RESERVATION OF SHARES: LISTING; PAYMENT OF TAXES; ETC.
5.01 The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, (other than those which the Company
shall promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange or included in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or included.
5.02 The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval. The
Company will use reasonable efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws. With respect to any such
securities; however, Warrants
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may not be exercised by, or shares of Common Stock issued to, any Registered
Holder in any state in which such exercise would be unlawful.
5.03 The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance, or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Warrant being exercised, then
no such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
5.04 The Warrant Agent is hereby irrevocably authorized
to requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent for shares of Common Stock
issuable upon exercise of the Warrants.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
6.01 Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
6.02 The Warrant Agent shall keep at its office books
in which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants,
as the case may be.
6.03 With respect to all Warrant Certificates presented
for registration or transfer, or for exchange or exercise, the subscription form
on the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
6.04 A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
6.05 All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent or pursuant to
applicable rule or regulation or with the prior written consent of Coleman
disposed of or destroyed, at the direction of the Company.
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6.06 Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent of
evidence satisfactory to them of the ownership of and loss, theft, destruction
or mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to them, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or the Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
SECTION 8. REDEMPTION.
8.01 Subject to the provisions of Section 2.07 hereof,
(i) the Class A Warrants may be redeemed at the Redemption Price per Class A
Warrant, if the closing price (as hereinafter defined) of the Common Stock for
each of the twenty (20) consecutive Trading Days equals or exceeds 150% of the
then Purchase Price and (ii) the Class B Warrants may be redeemed at the
Redemption Price per Class B Warrant if the closing price of the Common Stock
for each of the twenty (20) consecutive Trading Days equals or exceeds 130% of
the then Purchase Price. For the purpose of this Section 8, the closing price
for each Trading Day shall be the last reported sale, price regular way or, in
case no such reported sale takes place on such Trading Day, the closing bid
price regular way in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the highest reported bid price as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ (the "Nasdaq System") or similar
organization if NASDAQ is no longer reporting such information, or by the
National Daily Quotation Bureau or similar organization if the Common Stock is
not then quoted on an inter-dealer quotation system. All Warrants of a class,
except those comprising the Underwriter Warrants, must be redeemed if any of
that class are redeemed.
8.02 In case the Company shall desire to exercise its
right to redeem Class A or Class B Warrants, not later than ten (10) days
following the end of any twenty (20) consecutive Trading Day period in Section
8.01 above, it shall irrevocably request the Warrant Agent to mail a notice of
redemption to each of the Registered Holders of the class of Warrants to be
redeemed, first class, postage prepaid, not less than thirty (30) days before
the date fixed for redemption, at their last address as shall appear in the
records of the Warrant Agent. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. The Company shall also give notice of
election to redeem by issuing a release to that effect in the Dow Jones News
Service.
8.03 The notice of redemption referred to in Section
8.02 above shall specify (i) the redemption price, (ii) the date fixed for
redemption, (iii) the place where the Warrant Certificates shall be delivered
and the redemption price paid, and (iv) that the right to exercise the Warrant
shall terminate at 5:00 PM (New York time) on the business day immediately
preceding the date fixed for redemption. The date fixed for the redemption of
the Warrants shall be the Redemption Date. No failure to mail such notice nor
any
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defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was not
mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or
of the Secretary or an Assistant Secretary of the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
8.04 Any right to exercise the class of Warrants to be
redeemed shall terminate at 5:00 P.M. (New York time) on the business day
immediately preceding the Redemption Date. On and after the Redemption Date, the
Registered Holders shall have no further rights except to receive, upon
surrender of their Warrants, the Redemption Price.
8.05 From and after the Redemption Date, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder of one or more
of the class of Warrants to be redeemed, deliver or cause to be delivered to or
upon the written order of such Registered Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.
SECTION 9. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON
STOCK.
9.01 (a) The Purchase Price, the number of Warrant Shares
purchasable upon exercise of each class of Warrants and the number of each class
of Warrants outstanding are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 9. In the event the Company
shall, at any time or from time to time after the Initial Exercise Date, issue
any shares of Common Stock as a stock dividend to the holders of Common Stock,
or subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares the Purchase Price in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent) determined by multiplying the Purchase Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares. Such adjustment shall be made successively whenever such an issuance is
made.
(b) Upon each adjustment of the Purchase Price
pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each class of Warrant shall (subject to the
provisions contained in Section 9.02 hereof) be such number of shares calculated
to the nearest tenth purchasable at the Purchase Price in effect immediately
prior to such adjustment multiplied by a fraction, the numerator of which shall
be the Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
9.02 The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of each class of Warrants
outstanding, in lieu of the adjustment in the number of Shares purchasable upon
the exercise of each Warrant as hereinabove provided, so that each Class A or
Class B Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock in the case of the Class A Warrants and
one-half (1/2) share of Common Stock in the case of the Class B Warrants. Each
Class A and Class B Warrant held of record prior to such adjustment of the
number of Class A and Class B Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined
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by multiplying the number by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment of Warrant Certificates evidencing, subject to Section 10
hereof, the number of additional Warrants to which such Holder shall be entitled
as a result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Class A and Class B Warrants to which such Holder shall be entitled
after such adjustment.
9.03 In case of any reclassification, capital reorga-
nization or other change of outstanding shares of Common Stock, or in case of
any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/lease/back,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each Registered Holder shall have the right
thereafter, by exercising such class of Warrant, to purchase the kind and number
of shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such class of
Warrant immediately prior to such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9. The
Company shall not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to each Registered Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holders may be entitled to
purchase and the other obligations under this Agreement. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
9.04 (a) If at any time after the Initial Exercise Date
the Company shall issue any shares of Common Stock (other than shares issued as
a dividend or distribution as provided in Section 9.01(a) hereof) for a
consideration per share less than the Current Market Price per share, then,
forthwith upon such issue, the Purchase Price in effect immediately prior to
such issuance (the "Existing Purchase Price") shall be reduced by dividing the
number of shares of Common Stock so issued by the total number of shares
outstanding after such issuance, multiplying the quotient by the difference
between the Existing Purchase Price and the price of the shares so issued and
subtracting the result from the Existing Purchase Price. In the case of an issue
of additional shares of Common Stock for cash, the consideration received by the
Company therefor shall be deemed to be the net cash proceeds received for such
shares, excluding cash received on account of accrued interest or accrued
dividends and after deducting therefrom any and all commissions and expenses
paid or incurred by the Company for any underwriting of, or otherwise in
connection with, the issue of such shares. The term "issue" shall be deemed to
include the sale or other disposition of shares of Common Stock held in the
Company's treasury. The number of shares of Common Stock outstanding at any
given time shall not include shares in the Company's treasury or shares owned by
any majority-owned subsidiary of the Company.
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(b) If at any time after the Initial Exercise Date
the Company shall issue rights, options or warrants entitling the holders
thereof to subscribe for or purchase Common Stock (or securities convertible
into or exchangeable for Common Stock) at a price per share (or having a
conversion price per share, in the case of a security convertible into or
exchangeable for Common Stock) less than the Current Market Price per share of
Common Stock on the record date for the determination of stockholders entitled
to receive such rights or the granting date if such holders are not
stockholders, then in each such case the Purchase Price shall be adjusted by
multiplying the Purchase Price in effect immediately prior to such record or
granting date by a fraction, of which the numerator shall be the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Current Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding on such record or granting date plus the number of
additional shares of Common Stock to be offered for subscription or purchase (or
into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become effective
at the close of business on such record date; provided, however, that, to the
extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Purchase Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only as to those Warrants which are not exercised after such expiration),
to the Purchase Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part of all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Company's Board of Directors, whose
determination shall be conclusive. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
(c) If at any time after the Initial Exercise Date
the Company shall fix a record date for the making of a distribution to all
holders of its Common Stock of evidences of its indebtedness or assets
(excluding cash distributions made as a dividend payable out of earnings or
dividends payable in shares of Common Stock of the Company), or securities
convertible into Common Stock of the Company, then in each case the Purchase
Price in effect immediately prior to such record date shall be decreased to an
amount determined by multiplying such Purchase Price by a fraction, the
numerator of which shall be the Current Market Price on such record date less
the then fair market value per share of Common Stock (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
conclusive) of the assets or evidences of indebtedness so distributed, and the
denominator of which shall be the current Market Price on such date. The number
of shares of Common Stock purchasable on such record date shall be increased to
a number of shares equal to (i) the number of shares of Common Stock purchasable
on such record date multiplied by the Purchase Price in effect immediately prior
to the adjustment required by the preceding sentence, divided by (ii) the
adjusted Purchase Price computed pursuant to the immediately preceding sentence.
Such adjustments shall be made successively whenever such a record date is fixed
and, in the event that such distribution is not so made, the Purchase Price and
the number of Warrant Shares shall be adjusted to the Purchase Price and the
number of Warrant Shares which were in effect prior to such record date.
(d) For the purpose of any computation under this
Section 9.04, the "Current Market Price" per share of Common Stock on any date
shall be deemed to be the average of the daily closing price for the 30
consecutive trading days commencing 45 trading days before such date. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price as furnished by the Nasdaq System or similar
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<PAGE>
organization if Nasdaq is no longer reporting such information, or by the
National Daily Quotation Bureau or similar organization if the Common Stock is
not quoted on an inter-dealer quotation system. If on any such date the Common
Stock is not quoted by any such organization, the fair value of the Common Stock
on such date, as determined by the Company's Board of Directors, shall be used.
9.05 Irrespective of any adjustments or changes in the
Purchase Price or the number of Warrant Shares, the Warrant Certificates
theretofore and thereafter issued shall, unless the Company shall exercise its
option to issue new Warrant Certificates pursuant to Section 2.04 hereof,
continue to express the Purchase Price per share, the number of Warrant Shares
and the Redemption Price therefor as the Purchase Price per share and the number
of Warrant Shares and the Redemption Price therefore were expressed in the
Warrant Certificates when the same were originally issued.
9.06 After each adjustment of the Exercise Price
pursuant to this Section 9, the Company will promptly prepare a certificate
signed by the Chairman of the Board or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each class of Warrant after such
adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the Registered Holder of each class of
Warrant shall then be entitled, and any adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts as shall be necessary to
show the reason for and manner of computing such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
hereof to be sent by ordinary first class mail to each Registered Holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to a Registered
Holder (a) to whom notice was not mailed or (b) whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
9.07 For purposes of this Section 9, the following
shall also be applicable:
(a) The number of shares of Common Stock outstanding
at any given time shall not include shares of Common Stock owned or held by or
for the account of the Company, and the distribution of any such treasury shares
shall not be considered a Change of Shares for purposes of said Sections.
(b) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least $.05 in
such Price; provided, however, that any adjustments which by reason of this
clause (b) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.05 in the Purchase Price then in effect hereunder.
9.08 As used in this Section 9, the term "Common Stock"
means and includes the Common Stock authorized on the Initial Exercise Date and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that the Warrant Shares shall include only
shares of such class designated in the Company's Certificate of Incorporation as
Common Stock on the Initial Exercise Date or (i), in the case of any
reclassification change, consolidation, merger, sale or conveyance of the
character referred to in Section 9.03 hereof the stock, securities or property
provided for in such Section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon
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exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value, such shares of Common Stock as so reclassified or changed.
9.09 Any determination as to whether an adjustment in
the Purchase Price in effect hereunder is required pursuant to Section 9, or as
to the amount of any such adjustment, if required, shall be binding and
conclusive upon the Holders of the Warrants and the Company if made in good
faith by the Board of Directors of the Company (or the Board of Directors of any
corporation which is a successor as provided for in Section 9.03 hereof). The
Board of Directors shall have the power to resolve any ambiguity or correct any
error in this Section 9.
9.10 If and whenever the Company shall grant to the
holders of Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or carrying a right, warrant or option to
purchase Common Stock, the Company shall concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights, warrants or options to which each Registered
Holder would have been entitled if, on the record date used to determine the
stockholders entitled to the rights, warrants or options being granted by the
Company, the Registered Holder were the holder of record of the number of whole
shares of Common Stock then issuable upon exercise of his Warrants. Such grant
by the Company to the holders of the Warrants shall be in lieu of any adjustment
which otherwise might be called for pursuant to this Section 9.
9.11 The Company may, at its option, and subject to the
rules of the principal securities exchange or the Nasdaq System on which the
Common Stock may then be listed or included for trading at any time until the
Expiration Date, reduce the then current Purchase Price for either or both
classes of Warrants to any amount deemed appropriate by the Board of Directors
of the Company for any period of at least twenty (20) consecutive Trading Days
(as evidenced in a resolution adopted by such Board of Directors). The Company
shall mail, or cause to be mailed, a notice of the reduction in the Exercise
Price as provided in this Section to each of the Registered Holders of the
applicable class of Warrants first class, postage prepaid, not later than the
twentieth day before the commencement of such reduced Purchase Price, at their
last address as it shall appear on the records maintained pursuant to Section
6.02 hereof. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice. The Company shall also give notice of the reduction
in the Exercise Price within the time provided above, by issuing a release to
that effect to the Dow Jones News Service. A reduction in the Exercise Price
pursuant to this Section 9.11 does not cause any other adjustment pursuant to
this Section 9.
SECTION 10. FRACTIONAL WARRANT AND FRACTIONAL SHARES. If the number of shares of
Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant
to Section 9 hereof, the Company nevertheless shall not be required to issue
fractions of shares, upon exercise of the Warrants or otherwise, or to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall round
to the nearest share so that if the fraction is less than one-half (1/2) no
share shall be issued and if the fraction is one-half (1/2) or higher, the
Company shall issue one full share.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No Registered Holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon such Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting
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<PAGE>
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants. Any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
Holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of Warrant Shares in the manner provided in the Warrant Certificate and this
Agreement.
SECTION 13. AGREEMENT OF HOLDERS. Every Registered Holder of a Class A Warrant
or Class B Warrant, by his acceptance thereof, consents and agrees with the
Company, the Warrant Agent and every other Holder of a Warrant that:
(a) the Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) the Company and the Warrant Agent may deem and
treat the person in whose name the Warrant Certificate is registered as the
Registered Holder and as the absolute, true and lawful owner of the Warrants
represented thereby for all purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice or knowledge to the contrary, except as
otherwise expressly provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split-up, combination or exchange.
SECTION 15. CONCERNING THE WARRANT AGENT.
15.01 The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
15.02 The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making the
same. It shall not be (i) liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or
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other document or instrument believed by it in good faith to be genuine and to
have been signed or presented by the proper party or parties, (ii) responsible
for any failure on the part of the Company to comply with any of its covenants
and obligations contained in this Agreement or in any Warrant Certificate, or
(iii) liable for any act or omission in connection with this Agreement except
for its own negligence or willful misconduct.
15.03 The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
15.04 Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary, or Assistant Secretary (unless other evidence in respect thereof
is herein specifically prescribed). The warrant agent shall not be liable for
any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
15.05 The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder. It further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or willful misconduct.
15.06 The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or willful
misconduct), after giving thirty (30) days prior written notice to the Company.
At least fifteen (15) days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of resignation to
be mailed to each Registered Holder at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of fifteen (15) days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then any
Registered Holder may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000, or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to each Registered Holder.
15.07 Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant agent shall
be a party or any corporation succeeding to the trust business of the Warrant
Agent shall be a successor warrant agent under this Agreement without any
further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of Section 15.06
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<PAGE>
hereof. Any such successor warrant agent shall promptly cause notice of its
succession as Warrant Agent to be mailed to the Company and to each Registered
Holder.
15.08 The Warrant Agent, its subsidiaries and affiliates,
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not the
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement that
they (i) shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained, or (ii) may deem necessary or desirable and which shall not adversely
affect the interests of the Registered Holders of any class of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than 50% of that class of Warrants then outstanding; and provided, further, that
no change in the number or nature of the securities purchasable upon the
exercise of any class of Warrant, or the Purchase Price therefor, the
acceleration of the Warrant Expiration Date, or the Redemption Price shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such class of Warrants, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid if
to (i) a Registered Holder, at the address of such Holder as shown in the
registry books maintained by the Warrant Agent; (ii) the Company, at One Urban
Centre, Suite 550, 4830 West Kennedy Boulevard, Tampa, Florida 33609-2517,
attention: President, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and (iii) the Warrant Agent, at its
Corporate Office.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose upon any
other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate at the close of business
on the Expiration Date of all the Warrants or such earlier date upon which all
Warrants have been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
SECTION 21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
SECTION 22. CAPTIONS. The captions and sections in the Agreement are for
reference only and should have no substantive effect.
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<PAGE>
SECTION 23. AUTHORITY. Each party represents to the other that it has due and
proper authority to perform all duties and obligations set forth in and
contemplated by the Agreement, and that it has taken and will take all acts
required so that upon execution of the Agreement it shall be binding on such
party in accordance with its terms.
SECTION 24. ENTIRE AGREEMENT. The Agreement embodies the entire agreement
between the parties hereto and supersedes all other agreements between the
parties in connection with the matters dealt with herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
BENTLEY PHARMACEUTICALS, INC.
By:____________________________
James R. Murphy, President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:____________________________
Authorized Officer
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<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW
_____ Warrants
VOID AFTER ____________, 1999
CLASS A REDEEMABLE WARRANT
CERTIFICATE FOR PURCHASE OF COMMON STOCK
BENTLEY PHARMACEUTICALS, INC.
This certifies that FOR VALUE RECEIVED____________________________________
_______________________ or registered assigns (the "Registered Holder") is the
owner of ___________ ( ) Class A Redeemable Warrants (the "Class A Warrants").
Each Class A Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, par value $0.02 per share, of Bentley Pharmaceuticals,
Inc., a Florida corporation (the "Company") and one Class B Redeemable Warrant
("Class B Warrant") at any time after _________________, 1996 and prior to the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of American Stock Transfer & Trust Company as
Warrant agent, or its successor (the "Warrant Agent"), accompanied by payment of
$3.00 (the "Purchase Price") in lawful money of the United States of America in
cash or by official bank or certified check made payable to the Company.
This Warrant Certificate and each Class A Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
__________, 1996 by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Class A Warrant represented hereby are
subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common stock will be issued. In
the case of the exercise of less than all the Class A Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 PM (New York time) on
____________, 1999, or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 PM (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
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<PAGE>
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Class A Warrant unless a registration statement under the
Securities Act of 1933 with respect to such securities is effective. The Company
has covenanted and agreed that it will file a registration statement and will
use its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Class A Warrants are
outstanding. This Class A Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class A Warrants, each of such new Warrant Certificates to
represent such number of Class A Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Class A Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Class A Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
This Class A Warrant may be redeemed at the option of the Company, at a
redemption price of $0.05 per Warrant at any time, provided the closing price
(as defined in the Warrant Agreement) for the shares issuable upon exercise of
such Warrant for each of the twenty (20) consecutive Trading Days shall equal or
exceed 150% of the Purchase Price then in effect. Notice of redemption shall be
given not less than the thirtieth day before the day fixed for redemption, all
as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Class A Warrant except to receive the $0.05 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Class A Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
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<PAGE>
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
BENTLEY PHARMACEUTICALS, INC.
By: __________________________
[seal]
Attest:____________________________
Secretary
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: _______________________________
Authorized officer
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<PAGE>
[FORM OF REVERSE OF CLASS A WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class A Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise Class A
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
and be delivered to
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
Dated:______________________ X ______________________
______________________
______________________
Address
______________________
Taxpayer Identification Number
______________________
Signature Guaranteed
______________________
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<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Class A Warrants
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
_______________________________________ of the Class A Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints ______
_______________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________ X ________________________
Signature Guaranteed
________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS CLASS A
WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO THE SECURITIES AND EXCHANGE COMMISSION RULE 17Ad-15.
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Exhibit B
[FORM OF FACE OF WARRANT CERTIFICATE]
No. BW ______ Warrants
VOID AFTER _________, 2001
REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE FOR PURCHASE OF COMMON STOCK
BENTLEY PHARMACEUTICALS, INC.
This certifies that FOR VALUE RECEIVED ____________________
________________________________________________________________________________
or registered assigns (the "Registered Holder") is the owner of _______ (_____)
Class B Redeemable Common Stock Purchase Warrants (the "Class B Warrants"). Two
Class B Warrants entitle the Registered Holder to purchase, subject to the terms
and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $0.02 per share, of Bentley Pharmaceuticals, Inc., a Florida
corporation (the "Company"), at any time after _______, 1996 and prior to the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of American Stock Transfer & Trust Company as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$5.00 (the "Purchase Price") in lawful money of the United States of America in
cash or by official bank or certified check made payable to the Company.
This Warrant Certificate and each Class B Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of _____,
1996 by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Class B Warrant represented hereby are
subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Class B Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 PM (New York time) on _________,
2001, or such earlier date as the Class B Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 PM (New York time)
the next following day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Class B Warrant unless a registration, statement under, the
Securities Act of 1933 with respect to such securities is effective. The Company
has covenanted and agreed that it will file a registration
<PAGE>
statement and will use its best efforts to cause the same to become effective
and to keep such registration statement current while any of the Class B
Warrants are outstanding. This Class B Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class B Warrants, each of such new Warrant Certificates to
represent such number of Class B Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Class B Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Class B Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $0.05 per Warrant at any time, provided the closing price (as defined
in the Warrant Agreement) for the shares issuable upon exercise of such Warrant
for the immediately preceding twenty (20) consecutive trading days immediately
preceding the record date for redemption shall equal or exceed 130% of the
Purchase Price then in effect. Notice of redemption shall be given not less than
the thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Class B Warrant except to
receive the $0.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Class B Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers hereunto duly
authorized and a facsimile of its corporate seal to be imprinted thereon.
BENTLEY PHARMACEUTICALS, INC.
By: _________________________
[SEAL]
_____________________________
Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
By: _________________________
-3-
<PAGE>
[FORM OF REVERSE OF CLASS B WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class B Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise Class B
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and be delivered to
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
Dated:__________________ X _______________________________________
_______________________________________
_______________________________________
Address
_______________________________________
Taxpayer Identification Number
_______________________________________
Signature Guaranteed
_______________________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Class B Warrants
FOR VALUE RECEIVED, _________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
_______________________________________ of the Class B Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints ______
________________________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: ______________________ X ________________________
Signature Guaranteed
________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS CLASS B
WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO THE SECURITIES AND EXCHANGE COMMISSION RULE 17Ad-15.
[PARKER CHAPIN FLATTAU & KLIMPL LLP]
Letterhead
January 29, 1996
Bentley Pharmaceuticals, Inc.
4830 West Kennedy Boulevard
One Urban Centre, Suite 550
Tampa, Florida 33609
Re: Bentley Pharmaceuticals, Inc.
Gentlemen:
We have acted as counsel to Bentley Pharmaceuticals, Inc. (the
"Company") in connection with its filing of a registration statement on Form S-1
(File No. 33-65125, the "Registration Statement") covering (i) 6,900 units (the
"Units"), each consisting of one thousand dollars ($1,000) principal amount 12%
convertible senior subordinated debenture due in February 2006 (the
"Debentures") and 1,000 class A redeemable warrants (the "Class A Warrants"),
each to purchase one share of common stock, $.02 par value per share (the
"Common Stock") and one class B redeemable warrant (the "Class B Warrants"),
each two Class B Warrants to purchase one share of Common Stock, (including 900
additional Units to be sold by the Company to cover overallotments, if any (the
"Overallotment Units")) (ii) 6,900 Debentures contained in the Units (including
900 additional Debentures contained in the Overallotment Units (the
"Overallotment Debentures")); (iii) 6,900,000 Class A Warrants contained in the
Units (including 900,000 additional Class A Warrants contained in the
Overallotment Units (the "Overallotment Class A Warrants")); (iv) 2,300,000
shares of Common Stock issuable upon conversion of the Debentures contained in
the Units (the "Debenture Shares") (including 300,000 additional shares of
Common Stock issuable upon conversion of the Overallotment Debentures contained
in the Overallotment Units (the "Overallotment Debenture Shares")); (v)
6,900,000 shares of Common Stock issuable upon exercise of the Class A Warrants
contained in the Units (the "Class A Warrant Shares") (including 900,000
additional shares of Common Stock issuable upon exercise of the Overallotment
Class A Warrants contained in the Overallotment Units (the "Overallotment Class
A Warrant
<PAGE>
-2-
Shares")); (vi) 6,900,000 Class B Warrants issuable upon exercise of the Class A
Warrants contained in the Units (including 900,000 additional Class B Warrants
issuable upon exercise of the Overallotment Class A Warrants contained in the
Overallotment Units (the "Overallotment Class B Warrants")); (vii) 3,450,000
shares of Common Stock issuable upon exercise of the Class B Warrants issuable
upon exercise of the Class A Warrants contained in the Units (the "Class B
Warrant Shares") (including 450,000 additional shares of Common Stock issuable
upon exercise of the Overallotment Class B Warrants issuable upon exercise of
the Overallotment Class A Warrants contained in the Overallotment Units (the
"Overallotment Class B Warrant Shares")); (viii) 600 warrants (the "Underwriter
Warrants") issuable to Coleman and Company Securities, Inc. (the "Underwriter")
to purchase 600 additional Units; (ix) 600 Units issuable upon exercise of the
Underwriter Warrants (the "Underwriter Units"); (x) 600 Debentures contained in
the Underwriter Units (the "Underwriter Debentures"); (xi) 600,000 Class A
Warrants contained in the Underwriter Units (the "Underwriter Class A
Warrants"); (xii) 200,000 shares of Common Stock issuable upon conversion of the
Underwriter Debentures contained in the Underwriter Units (the "Underwriter
Debenture Shares"); (xiii) 600,000 shares of Common Stock issuable upon exercise
of the Underwriter Class A Warrants contained in the Underwriter Units (the
"Underwriter Class A Warrant Shares"); (xiv) 600,000 Class B Warrants issuable
upon exercise of the Underwriter Class A Warrants contained in the Underwriter
Units (the "Underwriter Class B Warrants"); (xv) 300,000 shares of Common Stock
issuable upon exercise of the Underwriter Class B Warrants issuable upon
exercise of the Underwriter Class A Warrants contained in the Underwriter Units
(the "Underwriter Class B Warrant Shares"); and (xvi) 491,250 shares of Common
Stock to be sold by selling shareholders (the "Selling Shareholder Shares"), all
as more particularly described in the Registration Statement.
In our capacity as counsel to the Company, we have examined the Company's
Amended and Restated Articles of Incorporation and By-laws, as amended to date,
and the minutes and other corporate proceedings of the Company, the Registration
Statement and the exhibits thereto.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signatures on all documents
submitted to us.
On the basis of the foregoing, we are of the opinion that:
(i) the Units, the Overallotment Units and the Underwriter Units have
been validly authorized and will, when issued, sold and paid for as
contemplated by the Registration Statement, the Indenture (as hereinafter
defined) and the Warrant Agreement (as hereinafter defined), constitute
legal, valid and binding obligations of the Company;
<PAGE>
-3-
(ii) the Debentures, the Overallotment Debentures and the Underwriter
Debentures have been validly authorized and will, when issued, sold and
paid for as contemplated by the Registration Statement and the indenture
between the Company and American Stock Transfer & Trust Company (the
"Indenture") , a form of which is filed as an exhibit to the Registration
Statement, constitute legal, valid and binding obligations of the Company;
(iii) the Class A Warrants, the Overallotment Class A Warrants and the
Underwriter Class A Warrants have been validly authorized and will, when
issued, sold and paid for as contemplated by the Registration Statement and
the warrant agreement between the Company and American Stock Transfer &
Trust Company (the "Warrant Agreement"), a form of which is filed as an
exhibit to the Registration Statement, constitute legal, valid and binding
obligations of the Company;
(iv) the Class B Warrants, the Overallotment Class B Warrants and the
Underwriter Class B Warrants have been validly authorized and will, when
issued, sold and paid for as contemplated by the Registration Statement and
the Warrant Agreement, constitute legal, valid and binding obligations of
the Company;
(v) the Debenture Shares, the Overallotment Debenture Shares, the
Underwriter Debenture Shares, the Class A Warrant Shares, the Overallotment
Class A Warrant Shares, the Underwriter Class A Warrant Shares, the Class B
Warrant Shares, the Overallotment Class B Warrant Shares and the
Underwriter Class B Warrant Shares have been validly authorized and will,
when issued, sold and paid for as contemplated by Registration Statement,
Indenture and Warrant Agreement, as applicable, be legally issued,
fully-paid and non-assessable; and
(vi) the Selling Shareholder Shares have been validly authorized and
legally issued and are fully-paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-65125 of Bentley Pharmaceuticals, Inc. (formerly Belmac Corporation) and
subsidiaries on Form S-1 of our report dated December 8, 1995 (which report
expresses an unqualified opinion and includes an explanatory paragraph referring
to the Company's recurring losses from operations as well as negative operating
cash flows, which raise substantial doubt about its ability to continue as a
going concern), appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated December 8, 1995 relating to the financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Tampa, Florida
January 26, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 30, 1994, relating
to the financial statements of Bentley Pharmaceuticals, Inc. (previously Belmac
Corporation), which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the year
ended December 31, 1993 listed under Item 16(b) of this Registration Statement
when such schedules are read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also included
these schedules. We also consent to the references to us under the headings
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Tampa, Florida
January 29, 1996
