SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
of the
Securities Exchange Act of 1934
Check the appropriate box:
[x] Preliminary Information Statement
[ ] Confidential,for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
BENTLEY INTERNATIONAL, INC.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies: Not
applicable.
2) Aggregate number of securities to which transaction applies: Not applicable.
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): Not applicable.
4) Proposed maximum aggregate value of transaction: Not applicable.
5) Total fee paid: None.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: Not applicable.
2) Form, Schedule or Registration Statement No.: Not applicable.
3) Filing Party: Not applicable.
4) Date Filed: Not applicable.
<PAGE>
BENTLEY INTERNATIONAL, INC.
9719 Conway Road
St. Louis, Missouri 63124
September 7, 1999
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Notice of Annual Meeting of
Shareholders to be Held September 27, 1999
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The Annual Meeting of Shareholders of Bentley International, Inc. (the
"Company") will be held on Monday, September 27, 1999 at 10:00 A.M., local time,
at the offices of Riezman & Blitz, P.C., 7700 Bonhomme, 7th Floor, St. Louis,
Missouri 63105. The items of business are:
1. To elect one (1) Director to serve until the 2000 Annual Meeting and
until his successor is elected and qualified.
2. To ratify the appointment of Rubin, Brown, Gornstein & Co. LLP as the
Company's independent public accountants.
3. To approve the Bentley International, Inc. 1999 Stock Option Plan.
4. To amend Article Six of the Articles of Incorporation of the Company to
provide that the number of directors to constitute the Board of
Directors shall not be less than one (1) nor more than eleven (11), and
shall be fixed by, or in the manner provided in, the By-Laws of the
corporation.
5. To authorize the Board of Directors, in its complete discretion, to
take any and all actions necessary to effect all of the following
actions, upon such terms and conditions as the Board of Directors shall
deem appropriate and pursuant to the General Business Corporations Law
of Missouri: (i) to pay off or establish a reserve to pay off all
legally enforceable liabilities of the Corporation and to use those
assets remaining after making such payments to distribute assets to the
shareholders in complete or partial liquidation of all of the assets of
the Company and to redeem and cancel all of the outstanding shares of
common stock of the Company or, in the alternative, (ii) to dissolve
and terminate the corporate existence of the Company, as well as to
liquidate all of the assets of the Company as described in (i) above,
and, in addition, (iii) to revoke any decision of the Board of
Directors to take any of the foregoing actions pursuant to clause (i)
or (ii).
6. To transact such other matters as may properly come before the meeting.
These items are more fully described in the following Information Statement,
which is hereby made a part of this Notice. Only Shareholders of record at the
close of business on August 23, 1999 are entitled to notice of and to vote at
the meeting.
We are not asking you for a proxy and you are not requested to send us a proxy.
You may vote in person if you attend the Annual Meeting. Please note, however,
that if your shares are held of record by a broker, bank, or other nominee and
you wish to vote at the Annual Meeting, you must bring to the Annual Meeting a
letter from the broker, bank or other nominee confirming your beneficial
ownership of the shares and, additionally, a proxy from the record holder issued
in your name.
By order of the Board of Directors,
LLOYD R. ABRAMS
President and Chief Executive Officer
<PAGE>
Note: This Information Statement contains certain forward looking statements of
the type described in the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The results of management's plans are beyond
the ability of the Company to control. Results could materially differ from
those planned by management.
INFORMATION STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
SEPTEMBER 27, 1999
We are not asking you for a proxy and you are not requested to send us a
proxy. You may vote in person if you attend the Annual Meeting. Please note,
however, that if your shares are held of record by a broker, bank, or other
nominee and you wish to vote at the Annual Meeting, you must bring to the Annual
Meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares and, additionally, a proxy from the record
holder issued in your name.
GENERAL INFORMATION
This Information Statement is furnished to the Shareholders of Bentley
International, Inc., (the "Company" or the "Registrant") in connection with the
1999 Annual Meeting of Shareholders (the "Annual Meeting") to be held on
September 27, 1999 for the purposes set forth in the accompanying Notice of
Annual Meeting. Votes will be counted by inspectors appointed by the Company,
who may be employees of the Company. No proxies have been sent. Shareholders may
prepare their own proxies or attend the meeting to vote.
The complete mailing address of the Company's principal executive offices is
9719 Conway Road, St. Louis, Missouri 63124. The approximate date on which this
Information Statement for the Annual Meeting is first being sent or given to
Shareholders is September 7, 1999.
Only Shareholders of record at the close of business on August 23, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of August 23, 1999
there were 3,083,285 shares of Common Stock, $.18 par value ("Common Stock"), of
the Company outstanding, and each share is entitled to one vote on each matter
submitted to the Shareholders. Shares subject to abstentions will be treated as
shares that are present at the Annual Meeting for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the base number
of shares voting on a particular proposal. If a broker or other nominee holder
indicates on a proxy that it does not have discretionary authority to vote the
shares it holds of record on a proposal, those shares will not be considered
voted for purposes of determining the approval of the Shareholders on a
particular proposal.
If you hold Common Stock of the Registrant through a bank, broker or other
nominee (in "street name"), please request a letter from your bank, broker or
nominee identifying you as a holder of Common Stock of the Registrant and
indicating the number of shares you held as of August 23, 1999. This letter or a
recent brokerage statement indicating this information will identify you at the
Annual Meeting. Additionally, if you wish to vote at the Annual Meeting, you
must obtain a proxy from the record holder issued in your name.
If you would like to attend the Annual Meeting of Shareholders, please
contact the Company at its principal executive office, 9719 Conway Road, St.
Louis, Missouri 63124, facsimile number (314) 569-1512. Prior notice to the
Company will speed your registration at the Annual Meeting. Attendance at the
Annual Meeting will be based on the availability of seating.
ELECTION OF DIRECTORS
One of the purposes of the meeting is to elect one individual as Director of
the Company to serve until the 2000 Annual Meeting and until his successor is
elected and qualified. The Company's Board of Directors has nominated Lloyd R.
Abrams to be elected as Director. Mr. Abrams is currently serving as a Director.
The Articles of Incorporation have been proposed to be amended to provide that
there may be only one (1) Director of the Corporation, as described in the
section entitled, "Amendment of Articles of Incorporation" below.
<PAGE>
The nominee for election as Director receiving the largest number of votes of
the shares entitled to vote and represented in person or by proxy prepared by
the Shareholder of record at the Annual Meeting will be elected. Cumulative
voting does not apply in the election of Directors. The Board of Directors
recommends a vote "FOR" the election of Lloyd R. Abrams as Director.
INFORMATION ABOUT DIRECTORS
The name, age, principal occupation or position and other directorships with
respect to the Directors and Executive Officers of the Company are set forth
below. Lloyd R. Abrams has been nominated for election to an additional term.
Nominated Director
Lloyd R. Abrams, 45, has served as President, Chief Executive Officer and
Director of the Company since July 1995 and as Assistant Secretary since
September 1997. From November, 1993 until July, 1998 he served as sole Director
of Windsor Art, Inc. ("Windsor"), a former subsidiary of the Company. From
November 1993 until September, 1997, he served as President of Windsor, and from
August 1997 to July 1998 as Assistant Secretary. For more than one year prior to
joining Windsor, he was President of Abrams, Rothman & Company, a real estate
development firm. Mr. Abrams has a Bachelors of Science in Civil Engineering, a
Masters of Business Administration and a Juris Doctorate.
Outgoing Directors
Janet L. Salk, 41, served as a Director of the Company since July 1995. Ms.
Salk principally has engaged in family, civic and charitable activities for more
than the past five years. Ms. Salk is the spouse of Lloyd R. Abrams. Ms. Salk
has Bachelor of Arts, Masters in Social Work and Masters in Counseling degrees.
Ramakant Agarwal, 43, was appointed to the Board of the Company on January
15, 1998, and has served as Chief Financial Officer and Vice President of the
Company since January 1997, and Secretary since September 1997. Mr. Agarwal has
not been nominated for reelection as a director. Mr. Agarwal has served as Chief
Financial Officer and Vice President of Windsor since January 1997, and
Secretary since August 1997. From April 1996 to July 1996, Mr. Agarwal served as
a consultant to Retix, Inc., an Internet hardware, software and
telecommunications company. From January 1993 to February 1996, Mr. Agarwal
served as Vice President of Finance and Corporate Planning for Sun West Mortgage
Company, Inc., a non-supervised mortgage company.
Mr. Agarwal is a CPA.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation of the named executive of the
Company for each of the last three years:
Summary Compensation Table
<TABLE>
Annual Compensation Long-Term Compensation
Name & Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Position ($) ($) Compensation Stock Underlying Payouts Compensation
($) Awards Options/ ($)
($) SARs (#)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lloyd R. Abrams (1) 1998 193,385 --
President and Chief
Executive Officer 1997 284,423 10,000
1996 265,000 -- -- -- -- --
Ramakant Agarwal 1998 60,193 233,500 28,000
(2)(3)
Chief Financial
Officer, Vice
President and
Secretary 1997 101,923 20,000
1996
</TABLE>
- - --------------------
(1)Mr. Abrams became an executive officer of the Company in July 1995.
(2)Mr. Agarwal became an executive officer of the Company in January 1997.
(3)Mr. Agarwal received a cash bonus of $233,500 in lieu of the bonus of cash
and securities of Interiors, Inc. described in the Summary of Unwritten Bonus
Agreement between the Company and Mr. Agarwal which was described in the
Company's Form 10-QSB for September 30, 1998.
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Aggregate Option/SAR Exercises in
FY-98 and FY-98 Option/SAR Values
<TABLE>
# of Securities Value of
Underlying Unexercised In-the-
Unexercised Money
Shares Acquired Options/SARs at Options/SARs at
Name on Exercise ($) Value Realized($) FY-End FY-End
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ramakant Agarwal 0 N/A 28,000(options) None
</TABLE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the beneficial ownership of shares of the
Company's Common Stock as of August 23, 1999 held by: (i) each person who is
known to the Company to beneficially own more than 5% of the outstanding shares
of the Company's Common Stock; (ii) each person who is a Director or named
Executive Officer; and (iii) all the Company's Directors and officers as a
group. Unless otherwise indicated, all shares are held with sole voting and
investment power.
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<PAGE>
<TABLE>
Principal Holders of Voting Securities
Name and Address Shares Owned(1) Percent of Class(1)
<S> <C> <C>
Group comprised of Lloyd R. Abrams, Richard B.
Rothman and Leo M. Rogers (the "Voting
Trust Group")
9719 Conway Road
St. Louis, Missouri 63124........ 2,117,500 (2) 68.68%
Lloyd R. Abrams as Voting Trustee of the Voting
Trust, dated July 17, 1995
9719 Conway Road
St. Louis, Missouri 63124........ 2,117,500 (2)(3) 68.68
Lloyd R. Abrams
9719 Conway Road
St. Louis, Missouri 63124........ 1,321,000 (2)(3) 42.84
Richard B. Rothman
7700 Bonhomme, 7th Floor
St. Louis, Missouri 63105........ 423,500 (4) 13.74
Leo M. Rodgers
7167 Westmoreland Drive
St. Louis, Missouri 63130........ 448,915 (4)(5) 14.56
Janet L. Salk
9719 Conway Road
St. Louis, Missouri 63124........ -- --
Ramakant Agarwal
4444 Ayers Avenue
Vernon, California 90023......... 25,000 (6),000 0.81
All Directors and executive officers as a group
2,193,000 71.13%
</TABLE>
- - -----------------------
(1) Each beneficial owner's percentage ownership is based upon 3,083,285 shares
of the Company's Common Stock issued and outstanding as of August 23, 1999.
(2) In a Statement on Schedule 13D (the "Schedule 13D") filed with the
Securities and Exchange Commission (the "SEC") by the Voting Trust Group and its
members, the Voting Trust Group has reported that 2,117,500 shares of the
Company's Common Stock were issued to the Voting Trustee under the Voting Trust
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<PAGE>
Agreement. Under the Voting Trust Agreement, Mr. Abrams retains voting power
over shares of the Company's Common Stock deposited therein.
(3) In a Form 4 dated January 11, 1999, Mr. Abrams reported that he acquired
40,000 shares of Company Common Stock and a warrant for 300,000 shares of
Company Common Stock with an exercise price of $10 per share and which is
presently exercisable. In a Form 5 dated January 27, 1997, Mr. Abrams reported
that certain shares of the Company's Common Stock attributed to him are
beneficially owned by him as trustee of each of The Abrams Family Trust, The
Stacey, Kevin and Meredith Trust dated 12/1/91 and The Janet L. Salk Children's
Trust in the amounts of 847,000 shares, 222,250 shares and 211,750 shares,
respectively. Mr. Abrams has sole investment power over all such shares of the
Company's Common Stock.
(4) In the Schedule 13D, Mr. Rothman and Mr. Rodgers reported that 423,500
shares each of the Company's Common Stock that are attributable to Mr. Rothman
and Mr. Rodgers were issued in the name of the Voting Trustee. Under the Voting
Trust Agreement, the Voting Trustee retains voting power of shares of the
Company's Common Stock deposited therein. Mr. Rothman and Mr. Rodgers retain
investment power with regard to the number of shares of the Company's Common
Stock attributed to each of them.
(5) In a Form 5 dated February 14, 1997, Mr. Rodgers reported that he
beneficially owns 448,915 shares of the Company's Common Stock.
(6) Mr. Agarwal also has an option for 28,000 shares of the Company's Common
Stock which is presently exercisable.
BOARD OF DIRECTORS AND COMMITTEES
During 1998, there were eight (8) meetings of the Board of Directors and six
(6) actions by Consent of the Directors. No Director attended fewer than 75% of
the aggregate of the total number of 1998 board meetings.
The Board of Directors has a standing Stock Option Committee comprised of
Janet L. Salk, which met once in 1998.
DIRECTORS' FEES
No Directors receive compensation in the capacity of Director, including
Directors who also are Officers or consultants of the Company.
COMPENSATION
The Company's executive compensation program is administered under the
direction of the Board of Directors. Mr. Abrams and Mr. Agarwal are currently
members of the Board of Directors and serve as Executive Officers of the
Company.
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<PAGE>
INSIDER PARTICIPATION
Janco Designs, Inc., a former subsidiary of the Company, borrowed money from
certain trusts of which Mr. Abrams, Richard B. Rothman and his spouse, Patricia
Rothman are trustees. The borrowings were guaranteed by Bentley and Windsor. As
of March 13, 1998, the Company repaid all such borrowings in the aggregate
amount of $450,000.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of the
Company's outstanding stock ("Reporting Persons") to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. During
1998, to the best of the Company's knowledge, all Section 16(a) filing
requirements applicable to Reporting Persons were complied with.
APPOINTMENT OF AUDITORS
Rubin, Brown, Gornstein & Co. LLP served as the Company's independent public
accountants for 1998 and have been selected by the Board of Directors to
continue in such capacity during 1999. The Board of Directors anticipates that
representatives of Rubin, Brown, Gornstein & Co. LLP will be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so.
Representatives of such firm also will be available to respond to appropriate
questions from Shareholders.
1999 STOCK OPTION PLAN
General Description
The Board of Directors has recommended to the Shareholders the adoption of
the Bentley International, Inc. 1999 Stock Option Plan (the "Plan"). Certain
provisions of the Plan are summarized below. This summary is not a complete
description of the Plan. A copy of the Plan text will be furnished to any
shareholder upon request to the Company at its address: 9719 Conway Road, St.
Louis, Missouri 63124.
Under the Plan, 2,000,000 shares of Company common stock, $.18 par value,
shall be reserved for issue upon the exercise of options granted under the Plan
("Options"). The Company will have the authority to grant both incentive stock
options as defined in Section 422 of the Internal Revenue Code and stock options
which do not so qualify.
The Plan shall be administered by a Stock Option Committee consisting of two
directors who within one year prior to appointment have not received any Options
under the Plan. Options shall be granted at the discretion of the Stock Option
Committee, the Board of Directors or the Shareholders to persons for whom
compensation with
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<PAGE>
stock options is deemed advantageous to the Company. Options may be granted
which are vested, not vested or partially vested. No incentive stock option may
be granted until the Plan is approved by the Shareholders.
The option price of shares of common stock purchased pursuant to each
incentive stock option must be at least 100% of the fair market value of the
common stock of the Company at the time of the grant of such Option, provided
that the purchase price for shares of common stock pursuant to each incentive
stock option granted to any shareholder who holds 10% or more of the common
stock must be at least 110% of the fair market value of the common stock of the
Company at the time of the grant. The purchase price of the common stock subject
to each Option which does not qualify as an incentive stock option may be a
price designated by the Stock Option Committee which is less than the fair
market value of the common stock subject to such an Option. The minimum purchase
price under each option granted under the Plan is $1.00. The purchase price paid
on exercise of an Option may be paid in cash, or, subject to the discretion of
the Stock Option Committee, the surrender of common stock in the Company.
The aggregate fair market value, determined as of the time an Option is
granted, of the common stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year, under
all plans of the Company and its subsidiaries, shall not exceed $100,000.
As of August 20, 1999, the common stock of the Company is trading at
approximately $1.25 per share on the OTC Bulletin Board.
The Plan shall terminate on May 23, 2009, and no Option shall be granted
after said date. An Option granted may have a term of not more than 10 years
from the date of the grant, provided that the term for an incentive stock option
held by holders of 10% or more of the common stock of the Company shall be no
more than 5 years.
Options may be granted under the Plan to all employees of the Company or any
of its subsidiaries, to all directors of the Company or any of its subsidiaries
and to persons providing management or comprehensive consulting services to the
Company or any of its subsidiaries under a contract or other arrangement,
provided that only employees of the Company and its subsidiaries may receive an
incentive stock option. Currently approximately 25 persons qualify for receipt
of Options, among them approximately 20 employees and approximately 5 directors
and consultants.
Subject to approval by the Stock Option committee, an option which is not an
incentive stock option may be transferred to one or more members of Optionee's
immediate family, a qualified trust, or a charitable organization.
The Board of Directors of the Company may suspend, discontinue or terminate
the Plan at any time, and may from time to time make changes in the Plan;
provided, however, that the Board of Directors may not, without approval by the
shareholders of the Company, change (a) the maximum number of shares for which
Options may be granted under the Plan, (b) the minimum option price for shares
issued pursuant to an incentive stock option, (c) the maximum periods during
which Options may be granted or exercised, (d) the provisions relating to the
eligibility of persons to whom Options may be granted or (e) the provisions
relating to the eligibility of members of the Committee.
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<PAGE>
In the event of any stock dividend or any similar capital adjustment, then
corresponding adjustments to the class and number of shares covered by each
Option and the purchase price under each Option shall be made, such that each
Option holder's proportionate interest shall be maintained without change in the
total purchase price applicable to said Option.
In the event of the acquisition of 25% or more beneficial ownership by a
party, a change in control of the Board of Directors, a business combination, a
liquidation or dissolution of the Company, or a sale of substantially all of the
assets of the Company, the exercise rights in connection with Options may be
altered.
Tax Consequences
Nonstatutory Stock Options.
A nonstatutory stock option ("NSO") is an employee stock option that does not
qualify as an incentive stock option or an employee stock purchase plan. The
taxation of NSOs is governed by Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code").
Tax Treatment to Recipient of NSO
At the time of Grant. In general, the value of an NSO is not included in
the option recipient's income at the time of grant unless the option has a
readily ascertainable fair market value at the date of grant. Only options that
are traded on an established market, or in the limited situations where the
option has a fair market value that can be measured with reasonable accuracy,
have a readily ascertainable fair market value. An option which is not actively
traded on an established market will have a readily ascertainable fair market
value if: (1) the option is transferable by the optionee; (2) the option is
exercisable in full by the optionee; (3) the option or the option stock is not
subject to any restrictions which would effect the value of the stock; and (4)
the fair market value of the option privilege is ascertainable.
In addition, the grantee of an NSO may elect to immediately recognize
compensation income on the grant of an NSO pursuant to Section 83(b) of the Code
and avoid being taxed upon compensation income with respect to the NSO upon the
exercise of the NSO. Any subsequent appreciation would not be taxed until the
grantee disposes of the property (i.e. the stock received under the NSO), and
such appreciation would be taxed at capital gain rates. The requirements of
Section 83(b), including the existence of a readily ascertainable fair market
value for the NSO, must be satisfied for such an election to be effective.
At the time of Exercise. Unless there was earlier taxation at the grant of
the NSO under the "readily ascertainable fair market value" standard described
above or because the option recipient has made a Section 83(b) election, the
difference between the exercise price of the NSO and the fair market value of
the stock received at exercise will be recognized as compensation income. There
are no specific alternative minimum tax ("AMT") consequences triggered by the
exercise of an NSO. At the subsequent sale of the stock received through the
exercise of the NSO, all the gain on the sale of such stock will be subject to
capital gains treatment.
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<PAGE>
Tax Treatment to Employer.
An employer receives a compensation deduction for its taxable year with or
within which the employee recognizes compensation income with respect to the
NSO. This deduction is equal to the difference between the fair market value of
the NSO stock and the exercise price of the option. The employee's year of
income recognition generally will be the employee's taxable year of option
exercise, other than where the NSO is found to have a readily ascertainable fair
market value at the date of grant.
Incentive Stock Options.
For a stock option to qualify as an Incentive Stock Option ("ISO"), it must
meet the requirements of Section 422 of the Code (and the treasury regulations
promulgated thereunder) at all times beginning from the grant of the ISO until
its exercise.
Tax Treatment to Employee.
At the time of Grant. An employee does not recognize any taxable income at
the time of the grant of an ISO since there is no transfer of property to the
employee at the time of the grant. The basis of the ISO option itself in the
hands of the employee is the amount that the employee has paid for the option
(which is typically zero).
At the time of Exercise or Disposition. The primary tax benefit of an ISO
is that the employee does not recognize income on the exercise of such ISO. If,
however, the ISO is exercised more than three months after the employee has left
the employ of the company granting the option (the time period is extended from
three months to 12 months in the case of disability, and waived in the case of
the death), this favorable tax treatment is not available. In that case, the
employee will recognize taxable income equal to the difference between the fair
market value of the stock received under the ISO and the sum of such employee's
basis in the ISO (if any) plus any consideration paid by such employee upon
option exercise. As an ISO, by its terms, cannot be transferred except upon the
death of an employee, if an employee attempts a lifetime transfer, the option
ceases to be an ISO and such employee must recognize taxable income equal to the
amount such employee received upon the transfer (assuming for this discussion
that such employee's basis in the option is zero). If the employer canceled the
option, the employee must recognize taxable income in an amount equal to the
amount, if any, that the employer paid to such employee to cancel the option. If
an employee never acquires any basis in the option, never exercises the option
and has it lapse at the end of its term, such employee recognizes no loss on the
lapse, even if the stock's fair market value exceeds the option price.
The basis of the option stock to the employee will be the amount the
employee paid upon exercise of the ISO. However, if the employee disposes of the
stock before expiration of the holding period, the stock's basis is increased by
an amount equal to the amount included in gross income as compensation due to
the disqualifying disposition.
The tax treatment of the disposition of option stock depends upon whether
the stock was disposed of within the statutory holding period for ISO stock. The
ISO holding period (which is waived for stock transferred
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<PAGE>
by a decedent) is the later of two years from the date of the granting of the
ISO to the employee or one year from the date that the shares were transferred
to such employee upon exercise. The date an option is granted is the date on
which all corporate action necessary for the offer of the option is completed.
Consequently, if the option grant was contingent on the individual entering into
an employment agreement with the issuing company, the option will be considered
granted when the employment agreement is entered into. However, if the employer
puts restrictions on when the employee can exercise the option (such as a
vesting schedule), the option grant date will not be when the restrictions on
exercise lapse but rather when the initial grant was made by such employer. The
transfer of ISO stock to the employee upon exercise of an option occurs upon the
transfer of substantially all the rights of ownership of the stock.
A disposition of ISO stock generally means any sale, exchange, gift or
transfer of legal title of the stock, subject to the exceptions set forth in
Section 424(c) of the Code (and the treasury regulations promulgated
thereunder). When the employee disposes of ISO stock after completion of the
holding period (i.e., after the stock has been held to a date that is both two
years after the grant of the option and one year after its exercise), such
employee will recognize as capital gains income the difference between the
amount received in such disposition over such employee's basis in the option
stock.
If an employee disposes of ISO stock before the holding period expires, it
is considered a disqualifying disposition. The effect of a disqualifying
disposition on an employee is that such employee must recognize as compensation
income the gain on the disposition. For this purpose, the gain is equal to the
difference between the option's exercise price and the stock's fair market value
at the time of option exercise (the "bargain purchase element"). The employee
must recognize this income in the year of the disqualifying disposition. This
compensation income will be added to the option stock's basis for purposes of
determining the gain on the disposition of the ISO stock. For purposes of
determining whether there has been a disqualifying disposition, all shares of
ISO stock will be considered separately so that the disqualifying disposition of
one share of ISO stock will not result in the taxation of all other ISO grants
or exercises by the individual. If the price that the ISO holder received on the
ISO stock in the disqualifying disposition would result in a loss to the
individual if the tax rules regarding disqualifying dispositions were applied,
then the amount of compensation income that the ISO holder would recognize is
the excess, if any, of the amount realized on the sale over the basis of the ISO
stock.
AMT Implications. While the exercise of an ISO does not result in current
taxable income, there are AMT implications. When calculating income for AMT
purposes, the favorable tax treatment of Section 421(a) of the Code is
disregarded and the bargain purchase element of the ISO will be considered as
part of AMT income. If, however, a disqualifying disposition occurs in the year
in which the option is exercised, the maximum amount that will be included as
AMT income is the gain on the disposition of the ISO stock. Should there be a
disqualifying disposition in a year other than the year of exercise, the income
on the disqualifying disposition will not be considered income for AMT purposes.
In addition, the basis of the ISO stock for determining gain or loss for AMT
purposes will be the exercise price for the ISO stock increased by the amount
that AMT income was increased due to the earlier exercise of the ISO.
Tax Treatment to Employer.
Just as the employee does not recognize any taxable income on the grant or
the exercise of an ISO, the employer is not entitled to a deduction on the
grant, assumption, or exercise of an ISO. The amount received by
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the employer as the exercise price will be considered the amount received by the
employer for the transfer of the ISO stock. Upon a disqualifying disposition of
the ISO stock, the employer may deduct from income in the year of the
disqualifying disposition an amount equal to the amount that the employee
recognizes as compensation income due to the disqualifying disposition.
AMENDMENT OF ARTICLES OF INCORPORATION
The Company has determined that, given the plans described below to liquidate
the Company, having one Director instead of three would be an adequate resource
for judgment about the operation of the Company and would reduce costs and
increase efficiency of management due to the ability of one Director to take
action without assembling the consents of multiple directors, often located in
different cities. Therefore, the Board of Directors has recommended approval by
the Shareholders of the following resolution:
To amend Article Six of the Articles of Incorporation of the Company to
provide that the number of directors to constitute the Board of Directors shall
not be less than one (1) nor more than eleven (11), and shall be fixed by, or in
the manner provided in, the By-Laws of the corporation.
LIQUIDATION OF THE COMPANY
The Board of Directors has determined that the active business of the
Company cannot be operated profitably, that no attractive merger or acquisitions
are available and known to management, and that the best way to maximize
shareholder value is to liquidate the Company. Due to rapid changes in the
mortgage industry and a significant decline in the number of mortgage
refinancings resulting from increased interest rates, the Company decided to
divest itself of the mortgage credit reporting subsidiary, which constitutes its
only active business. Over the past nine months, the Company's management has
investigated the acquisition of specialty marketing and information companies.
None of the opportunities presented to the Company were deemed to be attractive
to management, considering price, risk, growth potential and management
personnel. Management has concluded that companies Bentley could afford to
purchase without borrowing substantial additional funds do not have the depth of
management personnel that would be desirable, and Bentley's management is not
comfortable pursuing larger acquisitions that would require substantial
leverage, and the accompanying risk. Therefore, the Board of Directors has
recommended approval by the Shareholders of the following resolution:
To authorize the Board of Directors, in its complete discretion, to take any
and all actions necessary to effect all of the following actions, upon such
terms and conditions as the Board of Directors shall deem appropriate and
pursuant to the General Business Corporations Law of Missouri: (i) to pay off or
establish a reserve to pay off all legally enforceable liabilities of the
Corporation and to use those assets remaining after making such payments to
distribute assets to the shareholders in complete or partial liquidation of all
of the assets of the Company and to redeem and cancel all of the outstanding
shares of common stock of the Company or, in the alternative, (ii) to dissolve
and terminate the corporate existence of the Company, as well as to liquidate
all of the assets of the Company as described in (i) above, and, in addition,
(iii) to revoke any decision of the Board of Directors to take any of the
foregoing actions pursuant to clause (i) or (ii).
SHAREHOLDER PROPOSALS FOR 2000
Shareholders who intend to submit any proposals for the 2000 Annual Meeting
and who wish to have their proposals included in the Company's Information
Statement for that meeting must submit such proposals to the
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Company by May 10, 2000. Proposals should be sent to the Company at 9719 Conway
Road, St. Louis, Missouri 63124.
DISCRETIONARY AUTHORITY
The Board of Directors does not intend to present at the Annual Meeting any
business other than that referred to in the accompanying Notice of Annual
Meeting. The Board of Directors was not aware, a reasonable time before the
mailing of this Information Statement, of any other matters which may be
properly presented for action at the meeting.
Although the Board of Directors does not contemplate that the nominee for
Director named above will be unavailable for election, in the event of a death
or some other unexpected occurrence, it is intended that a substitute nominee
will be selected by the Board of Directors.
LLOYD R. ABRAMS
President and Chief Executive Officer
September 7, 1999
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BENTLEY INTERNATIONAL, INC.
SUPPLEMENTARY STATEMENT RE: STOCK OPTION
REGISTRATION OR EXEMPTION
The Company plans that, for the foreseeable future, stock options under the
Bentley International, Inc. 1999 Stock Option Plan will be granted only to
officers and directors of the Company who qualify as sophisticated investors for
an exemption from registration under Section 4(2) of the Securities Act of 1933.
If the Company in the future decides to grant options to persons who do not so
qualify, the Company will either complete a Form S-8 registration or comply with
the requirements of a Regulation D or other exemption from registration.
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APPENDIX
BENTLEY INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
1 PURPOSE OF THE PLAN.
The Bentley International, Inc. 1999 Stock Option Plan (herein called the
"Plan") of Bentley International, Inc. (herein called the "Company") and its
subsidiaries is designed and intended (a) to encourage ownership of the
Company's common stock by personnel employed by or providing services to the
Company and its subsidiaries, and to provide additional incentive for them to
promote the success of the business of the Company, and (b) to be helpful as a
further incentive in attracting personnel to enter the employ of the Company and
its subsidiaries. It is expected that the added interest of the Optionees under
this Plan, and their proprietary attitude toward the Company resulting from
their investment in the Company's common stock, will promote the future growth,
development and continued success of the Company.
2 DEFINITIONS.
2.1 "Act" means the Securities Exchange Act of 1934, as amended from time
to time.
2.2 "Approved Qualified Recipient" means a Qualified Recipient who has
been transferred a NonQualified Stock Option by an Optionee, and the Committee
has provided its written consent to such transfer, all in accordance with the
terms and provisions of paragraph 11.9.
2.3 "Base Price" means a price fixed by the Committee, which (except as
provided in the last sentence of paragraph 7 below) shall not be less than 100%
of the Fair Market Value of a share of Stock on the date of grant of such
Option.
2.4 "Board of Directors" means the Board of Directors of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
2.6 "Committee" means the Committee described in paragraph 4 hereof.
2.7 "Company" means Bentley International, Inc., a corporation organized
and existing under the laws of the State of Missouri.
2.8 "Employee" means an individual, including an officer, who has an
"employment relationship" with the Company or one or more of its subsidiaries as
defined in Section 1.421-7(h) of the treasury regulations promulgated pursuant
to the provisions of the Code.
2.9 "Fair Market Value," for all purposes hereunder, shall be the closing
price, or if the closing price is not reported, then the mean between the bid
and asked prices, of a share of Stock as reported on the OTC Bulletin Board, or
on any quotation forum, system or medium on which the Stock is listed that the
Committee may select on the appropriate valuation date.
2.10 "Incentive Stock Option" or "ISO" means an option to purchase Stock
granted pursuant to the Plan which is designated by the Committee as an
Incentive Stock Option and which is intended to qualify as an "incentive stock
option" under Section 422 of the Code.
2.11 "Non-Qualified Stock Option" means an option to purchase Stock
granted pursuant to the Plan which is designated by the Committee as a
Non-Qualified Stock Option.
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2.12 "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
2.13 "Optionee" means the person to whom an Option is granted.
2.14 "Option Agreement" means an Incentive Stock Option Agreement or a
Non-Qualified Stock Option Agreement, as applicable, which includes the terms to
which a particular Option is subject in addition to those terms provided in this
Plan which terms in this Plan are applicable to all Options granted hereunder.
2.15 "OTC Bulletin Board" means the OTC Bulletin Board or any successor
thereto on which the daily trading price or bid and asked prices of the Stock is
made publicly available.
2.16 "Plan" means the Bentley International, Inc. 1999 Stock Option Plan.
2.17 "Qualified Recipient" shall mean (i) one or more members of
Optionee's immediate family (i.e. Optionee's spouse, Optionee's parents, the
descendants of Optionee's parents, (ii) a Qualified Trust established for the
benefit of one or more immediate family members of Optionee, and/or (iii) a
charitable organization described in Section 170(c) of the Code.
2.18 "Qualified Trust" shall mean a trust which is irrevocable and which
trust meets the following criteria: (i) Optionee is not a beneficiary under such
trust; (ii) the trustee of such trust must be specifically prohibited from
paying Optionee, Optionee's executor or Optionee's personal representative any
income on account of Optionee's income tax liability attributable to the
exercise of the transferred Option(s); and (iii) the Optionee is precluded from
(a) voting any shares held by such trust, (b) exercising any power of
appointment with respect to such trust, and (c) exercising any powers described
in Sections 2036(a)(1) and 2038 of the Code with respect to such trust.
2.19 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Act, as such Rule may be amended from time to
time, or any successor rule.
2.20 "Stock" means authorized and unissued shares of the $.18 common stock
of the Company, or reacquired shares of the Company's $.18 common stock held in
its Treasury.
2.21 "Subsidiary" of the Company includes any "subsidiary corporation" as
defined in Section 424(f) of the Code.
2.22 "Ten Percent Shareholder" means any individual who at the time an
Option is granted owns directly or indirectly stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiary of the Company, taking into account the provisions of Section 424(d)
of the Code regarding attribution of ownership of stock.
2.23 "Withholding Election" means a written irrevocable election by an
Optionee for the withholding or delivery back of shares of Stock pursuant to
paragraph 17 below in consideration of the Company's payment of Withholding
Taxes.
2.24 "Withholding Taxes" means the total amount of Federal, state and
local income, employment and unemployment taxes which the Company is required to
withhold on account of the exercise by an Optionee of a Non-Qualified Stock
Option.
2.25 "Withholding Valuation Date" means the date as of which the Stock is
valued for the purpose of determining the Withholding Taxes, which is the
exercise date of the relevant Option.
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Generally, terms used herein shall have the meanings which they have under
Sections 421 through 424 of the Code and regulations thereunder and, except to
the extent contrary to such Sections of the Code or regulations thereunder in
connection with Incentive Stock Options, under Rule 16b-3.
3 STOCK SUBJECT TO THE PLAN.
Two Million (2,000,000) shares of Stock shall be reserved for issue upon
the exercise of Options granted under the Plan. Such shares may, as the Board of
Directors in its sole discretion from time to time determines, include whole or
fractional shares. In the event an Option is exercised, the Company may use
authorized but unissued shares or shares held in treasury in lieu thereof to
satisfy the Company's obligations with respect to such exercised Option. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject to such Option
shall again be available for the purposes of the Plan. If the Committee permits
an Optionee to exercise an Option by tendering shares as provided in paragraph
11.2, then for purposes of determining the number of shares which remain
available for the purposes of this Plan such Option shall be deemed to have
expired without exercise to the extent of the number of shares so tendered in
exercise thereof, and shares equal to the number of shares so tendered shall be
available for the purposes of the Plan. If and to the extent the Committee
grants a request pursuant to paragraph 11.3, the Option shall be deemed to have
been exercised and shall be canceled, and the shares of Stock subject to such
Option shall not be subject to the grant of any further Options.
4 ADMINISTRATION OF THE PLAN.
4.1 The Plan shall be administered by a Stock Option Committee of
person(s) (herein called the "Committee") consisting of not less two members who
may be, but shall not be required to be, an officer of the Company or a
subsidiary of the Company. Each member of the Committee shall meet each of the
following requirements: (a) at the time of appointment and during his or her
service on the Committee, the person shall be a director of the Company; and (b)
within one year prior to appointment the person has not received an Option under
this Plan. From the time of appointment, and during his or her service on the
Committee, the person shall be ineligible for selection to receive Options under
the Plan. Appointment to and service on the Committee shall not invalidate or
otherwise affect the exercisability of any Option granted to the person more
than one year prior to such appointment.
4.2 The Committee shall be appointed by the Board of Directors of the
Company. The Board of Directors of the Company may, within the limits herein
provided, from time to time in its discretion, fix and change the number of
members of the Committee, remove members of the Committee, appoint members of
the Committee in substitution for or in addition to members previously
appointed, and fill vacancies however caused in the Committee.
4.3 The Committee shall select one of its members as its chairman, and
shall hold its meetings at such time and places as it may determine. Meetings
may be attended in person, conducted by conference telecommunications where each
member is able to communicate with each other member, or conducted using a
combination of attendance and conference telecommunications. A majority of its
members shall constitute a quorum, and all actions of the Committee shall be
taken unanimously at a meeting where a quorum is present. Any action, decision
or determination reduced to writing and signed by all of the members of the
Committee shall be fully as effective as if it had been done or made by a
unanimous vote of a quorum of the members at a meeting duly called and held. The
Committee may appoint a secretary, and shall keep minutes of its meetings and
actions, and shall make such rules and regulations for the conduct of the
business of the Committee as it deems advisable. The secretary may be, but need
not be, an Employee. Serving as secretary of the Committee shall not disqualify
a person from receiving an Option under the Plan.
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4.4 Subject to the express provision of the Plan, the Committee shall have
plenary authority, in its sole discretion, to determine the individuals to whom
Options shall be granted, the number of shares subject to each Option, and the
time or times at which Options shall be granted. Subject to the express
provisions of the Plan, the Committee shall also have plenary authority, in its
discretion, to construe and interpret the Plan, to make determinations in
administration of the Plan, to make, amend and rescind rules and regulations
regarding the Plan and its administration, to determine the terms and provisions
of each Option Agreement (which need not be identical to any Option Agreement),
and to take whatever action is necessary to carry out the purposes of the Plan.
Subject to paragraph 4.5, the Committee's actions and determinations on matters
referred to in paragraph 4 shall be conclusive on all persons whomsoever. No act
or failure to act on the part of the Committee, or on the part of any member
thereof, shall result in any liability whatsoever if taken in good faith.
4.5 Notwithstanding anything in this Plan to the contrary, no Options may
be granted to any officers or directors of the Company and/or its subsidiaries
unless a "Section 4.5 Event" occurs. A "Section 4.5 Event" means any of the
following: (i) the Board of Directors of the Company has given its prior
approval to the granting of such Option, (ii) a committee of the Board of the
Directors of the Company consisting solely of two or more Non-Employee Directors
(as such term is defined in Rule 16b-3) has given its prior approval to the
granting of such Option, or (iii) the shareholders of the Company holding a
majority of the outstanding shares of the Company have given their prior
approval to the granting of such Option.
5 TYPE OF OPTION GRANTED BY THE PLAN.
The Committee shall have authority to grant Options which qualify as
Incentive Stock Options as defined in Section 422 of the Code, and to grant
Options which do not qualify as Incentive Stock Options (subject to the
provisions of paragraph 4.5 above); provided, however, that each Option
Agreement shall identify the type of Option to which it relates; and further
provided, however, that no Incentive Stock Option shall be granted until such
time, if any, as the Plan is submitted to and approved by the Company's
shareholders.
6 ELIGIBILITY TO RECEIVE OPTIONS UNDER THE PLAN.
6.1 Options may be granted under the Plan to all Employees and to all
directors of the Company or of any of its subsidiaries, and to persons providing
management or comprehensive consulting services to the Company or any of its
subsidiaries under a contract or other arrangement. However, a person who is not
an Employee shall not be eligible to receive an Incentive Stock Option under the
Plan. A person who has been granted an Option under the Plan may be granted an
additional Option or Options hereunder at any time, if otherwise eligible under
the provisions of the Plan. An Option may be granted to an individual upon the
condition that such individual will become an Employee, provided however, that
such a conditional Option shall be deemed to be granted only on the date such
individual becomes an Employee.
6.2 In making a determination as to persons to whom Options shall be
granted under the Plan, and the number of shares to be covered by such Options,
the Committee shall take into consideration the nature of the service rendered
or to be rendered by the person, the person's present and potential
contributions to the success of the Company, and such other factors as the
Committee shall deem relevant in accomplishing the purposes of the Plan. Any and
all determinations made by the Committee pursuant to this paragraph 6 (or by the
parties granting their approval or disapproval pursuant to paragraph 4.5, if
paragraph 4.5 is applicable) shall be binding upon all persons whomsoever, and
no person eligible to receive an Option under the Plan shall have any legal
right to complain as to any determination which shall be made by the Committee
hereunder (or by the parties granting their approval or disapproval pursuant to
paragraph 4.5, if paragraph 4.5 is applicable) as to such person.
6.3 Nothing contained in this Plan shall be construed to limit the right
of the Company to grant options otherwise than under the Plan in connection with
(a) the employment of any person, (b) the acquisition of any corporation,
partnership, limited liability company, firm, association, or other entity, or
the business or assets
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thereof, including options granted to employees thereof who become employees of
the Company or a subsidiary of the Company, or (c) any other proper corporate
purposes.
7 OPTION PRICE.
The purchase price of the Stock subject to each Incentive Stock Option
granted hereunder shall be equal to at least 100% of the Fair Market Value of
the Stock at the time of the grant of the Option. The purchase price of the
Stock subject to an Incentive Stock Option granted to a Ten Percent Shareholder
shall be equal to at least 110% of the Fair Market Value of the Stock at the
time of the grant of the Option. In no event shall the purchase price per share
under any Option be less than the par value of such Stock subject to the Option.
The purchase price of the Stock subject to each Non-Qualified Stock Option
granted hereunder shall be equal to at least 100% of the Fair Market Value of
the Stock at the time of the grant of such Option, unless the Committee
designates a purchase price in the Non-Qualified Stock Option Agreement which is
less than the Fair Market Value of the Stock at the time of such grant in which
cases all references to the "Base Price" of such Stock at the time of grant
instead shall refer to such purchase price of such Stock at the time of the
grant of such Option.
Notwithstanding anything in this Plan to the contrary, the purchase price
for each share of Stock under each Option granted pursuant to the Plan shall be
the greater of (i) the purchase price of such share of Stock as set forth above
and (ii) One Dollar ($1.00) per share of Stock.
8 TERM OF OPTIONS
8.1 The term of each Option granted pursuant to the Plan shall be not more
than ten (10) years from the date of granting thereof, provided however that the
term of an Incentive Stock Option granted to a Ten Percent Shareholder shall not
be more than five (5) years from the date of granting thereof. Within such ten
year (or five year) limit, Options will be exercisable only at such time or
times, and subject to the restrictions of paragraphs 11, 12 and 13, and any
other restrictions and conditions, as the Committee shall in each instance
provide in the Option Agreement, which need not be uniform for all individuals
to whom Options are granted.
8.2 Except as provided otherwise in this Plan, no Incentive Stock Option
may be exercised at any time unless the Optionee is then an Employee and has
been such continuously since the granting of such Option.
9 DATE OF GRANT OF OPTION.
The grant of an Option under the Plan shall take place on or as of the
date the Committee grants an Employee a particular Option; provided, however,
that if the resolution or other written determination of the Committee specifies
that an Option is to be granted as of and at some future date, the date of grant
shall be such future date.
10 OPTION AMOUNT.
The aggregate Fair Market Value (determined as of the time the Option is
granted) of the Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company and its subsidiaries) shall not exceed $100,000. To the
extent Options which first become exercisable during a calendar year with
respect to an Optionee exceed $100,000, such Options shall be deemed
Non-Qualified Stock Options.
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11 EXERCISE OF OPTION
11.1 Except as provided in paragraphs 12 and 13 and unless otherwise
provided in the Option Agreement, each Option shall be exercisable in whole or
in part during the term of the Option at any time and from time to time,
provided that no Option may be exercised within six months after the date such
Option is granted.
11.2 To the extent that the right to purchase shares under an Option
granted under the Plan is exercisable, the right may be exercised from time to
time by written notice to the Company stating the number and identity of shares
with respect to which the Option is being exercised, accompanied by payment
either (a) in cash, (b) in the discretion of the Committee, by tender of shares
of the Stock which (i) are owned by the Optionee (or by the Approved Qualified
Recipient, as the case may be), (ii) are registered in the Optionee's name (or
in the Approved Qualified Recipient's name, as the case may be), (iii) are not
shares which were acquired by the Optionee within the prior two years by
exercise of an Incentive Stock Option, and (iv) have a Fair Market Value equal
to the cash exercise price of the Option being exercised, or (c) in the
discretion of the Committee, by any combination of (a) and (b) above.
11.3 An Optionee (but not an Approved Qualified Recipient) may, instead of
exercising an Option as provided in paragraph 11.2, request that the Committee
authorize the payment to such Optionee of the difference between (a) the Fair
Market Value of part or all of the Stock which is the subject of the Option and
(b) the exercise price of the Option, such difference to be determined as of the
date the Committee receives the request from the Optionee. Subject to the
provisions of paragraph 11.4, the Committee in its sole discretion may grant or
deny such a request from an Optionee with respect to part or all of the shares
of Stock as to which the Option is then exercisable and, to the extent granted,
shall direct the Company to make payment to the Optionee either in cash or in
Stock of the Company or in any combination thereof, provided however, that any
Stock of the Company shall be distributed based upon its Fair Market Value as of
the date the Committee received the request from the Optionee, and provided
further that any cash distribution shall be subject to applicable federal, state
and local laws relating to the withholding of income taxes.
11.4 The Committee shall not authorize payment to an Optionee of the
difference between the Fair Market Value of part or all of the Stock which is
the subject of any Option and the exercise price of such Option as provided in
paragraph 11.3 above unless (a) the Company has been subject to the reporting
requirements of Section 13 of the Act for at least one year prior to the
submission of the request to receive such payment; (b) the Company has filed all
reports and statements required to be filed under Section 13 of the Act during
the year prior to the submission of such request; (c) the Company regularly
releases for publication quarterly and annual summaries of earnings; (d) such
request to receive payment on the related Option is not made in the first six
months of the term of such Option except in the case of death or disability of
the Optionee during such six-month period; and (e) the election to submit such
request to receive payment by the Optionee is made during a period beginning on
the third business day following the date of release to the public of the
Company's quarterly or annual financial information and ending on the twelfth
business day following such release.
11.5 The proceeds received by the Company upon exercise of an Option shall
be added to (a) the capital stock account of the Company to the extent of the
par value of the shares and (b) the excess to the account reflecting capital in
excess of par. In the case of payments made in shares of stock of the Company,
such shares evidencing payment shall be added to the common stock of the Company
held in its treasury and used for corporate purposes as the Board of Directors
shall determine, with appropriate credits to the capital stock accounts of the
Company.
11.6 After the exercise of an Option, as provided above, the Company shall
within a reasonable time deliver to the person exercising the Option a
certificate or certificates issued in the name of the person who exercised the
Option and such additional name, or names, if any, as may be requested (subject
to the general
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policy of the Company as to registration of shares), for the appropriate number
of shares, without liability to the person exercising the Option for any
transfer or issue tax, state or Federal, then payable. Each Option granted under
the Plan shall be subject to the requirement that, if at any time the Board of
Directors of the Company shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to such Option upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable, as a
condition of, or in connection with, the granting of such Option or the issue or
purchase of shares thereunder, no such Option may be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board of Directors.
11.7 An Optionee (or an Approved Qualified Recipient) under an Option
granted under the Plan shall have no rights as a shareholder with respect to any
shares covered by an Option except to the extent that one or more certificates
for shares shall have been delivered to such person upon due exercise of an
Option as above provided.
11.8 Except with respect to a Non-Qualified Stock Option which is
transferred by an Optionee to an Approved Qualified Recipient in accordance with
the terms and provisions of paragraph 11.9 below, any Option granted under the
Plan shall be non-transferable by the Optionee other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee, unless the Optionee is under a legal disability,
in which case it may be exercised by the Optionee's duly appointed legal
representative.
11.9 If (i) an Optionee is granted a Non-Qualified Stock Option under the
Plan, (ii) such Optionee provides written notice to the Committee stating such
Optionee is requesting the Committee's consent for Optionee to transfer such
Option without consideration to a Qualified Recipient (Optionee shall provide in
such notice the number of shares subject to the Option and the name, address,
taxpayer identification number and relationship to the Optionee of such
Qualified Recipient (if such Qualified Recipient is a trust, a copy of the
executed trust must be attached to such notice)), and (iii) the Committee
provides its written consent to such transfer, then such Option may be
transferrable by Optionee to such Approved Qualified Recipient and in such event
shall be exercisable during such Approved Qualified Recipient's lifetime (or in
the case of a trust, during the existence thereof) only by such Approved
Qualified Recipient, unless such Approved Qualified Recipient is an individual
who is under a legal disability, in which case it may be exercised by such
Approved Qualified Recipient's duly appointed legal representative. Prior to
granting its consent, the Committee may request, and Optionee shall deliver to
the Committee, any and all documents and/or information reasonably requested by
the Committee in order to make its determination on whether such consent should
be given. Notwithstanding anything in this Agreement to the contrary, each
Option transferred by Optionee to an Approved Qualified Recipient pursuant to
this paragraph 11.9 will remain subject after transfer to the provisions of the
Plan (e.g. if Optionee transfers its Options to an Approved Qualified Recipient
pursuant to this paragraph 11.9, and after the date of transfer, Optionee ceases
to be an Employee because Optionee is terminated for cause, all Options
transferred to such Approved Qualified Recipient which are not unconditionally
vested shall terminate and expire concurrently with the termination of the
Optionee's relationship with the Company or a subsidiary of the Company and
shall not thereafter be exercisable to any extent).
12 TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
12.1 If an Optionee under an Option granted under the Plan ceases to be an
Employee, director or independent contractor of the Company or a subsidiary, as
the case may be, other than by reason of the death of such Optionee (as
discussed in paragraph 13 below) or disability of such Optionee, the shares
which the Optionee was unconditionally entitled to purchase at the time of such
cessation may be purchased under the Option or Options at any time after such
cessation by the Optionee at any time prior to the earlier of (i) the expiration
date specified in the Option Agreement or (ii) one year, provided however, that
if a termination of employment of an Employee is (a) for cause, (b) voluntary on
the part of the Optionee and without the written consent of the
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Company, or a subsidiary, or (c) is in violation of any employment or other
contract with the Company or a subsidiary, then all Options granted to such
Employee under the Plan for shares of Stock which such Optionee was not
unconditionally entitled to purchase as the time of such cessation shall
terminate and expire concurrently with the termination of the Optionee's
relationship with the Company or a subsidiary and shall not thereafter be
exercisable to any extent. In order to have Section 421(a) of the Code apply
with respect to the transfer of a share of Stock to Optionee pursuant to such
Optionee's exercise of an Incentive Stock Option, (i) except as provided below,
the Optionee must be continuously employed with the Company (or its parent or
subsidiary or their qualified successors) beginning on the date of the grant of
such Option until at least the day three months before the date of the exercise
of such Incentive Stock Option (the reference to three months above shall be
changed to twelve months if the Optionee is disabled); and (ii) no disposition
of such share of Stock shall be made by Optionee within two (2) years from the
date of the granting of such Option nor within one (1) year after the transfer
of such share of Stock to Optionee. Notwithstanding the foregoing, both the
three month requirement and the twelve month requirement (in case of Optionee's
disability) referenced in clause (i) above shall be waived in the case of the
Optionee's death.
12.2 The transfer of an Employee from one corporation to another among the
Company and its subsidiaries, or a leave of absence with the written consent of
the Company or a subsidiary, shall not be a termination of employment for the
purposes of the Plan to the extent provided in Section 1.421-7(h)(2) of the
treasury regulations promulgated under the Code.
13 DEATH OF OPTIONEE.
13.1 If an Optionee dies before the expiration of an Option granted under
the Plan, then the shares which the Optionee was unconditionally entitled to
purchase on the date of such Optionee's death may (unless otherwise provided in
the Option) be purchased under the Option or Options at any time after the
Optionee's death by the person or persons to whom said right under the Option or
Options shall have passed by the Optionee's will, or by the applicable laws of
descent and distribution, provided however that no Option may be exercised after
the expiration date specified in the Option Agreement.
13.2 In addition, if an Optionee dies before the expiration of a
Non-Qualified Stock Option granted under the Plan, and prior to such Optionee's
death, such Option was transferred by Optionee to an Approved Qualified
Recipient pursuant to the terms and provisions of paragraph 11.9, then the
shares which such Approved Qualified Recipient was unconditionally entitled to
purchase on the date of such Optionee's death may (unless otherwise provided in
the Option) be purchased under the Option or Options at any time after the
Optionee's death by such Approved Qualified Recipient, provided however that no
Option may be exercised after the expiration date specified in the Option
Agreement.
14 EFFECT OF MERGER, CHANGE IN CAPITALIZATION, ETC.
14.1 In the event of any reclassification or increase or decrease in the
number of the issued shares of Stock of the Company by reason of the payment of
a stock dividend, a split up or consolidation of shares, a recapitalization, a
combination or exchange of shares or any like capital adjustment, then (a) the
aggregate number, and the class, of shares reserved under the Plan shall be as
though the shares reserved had been outstanding prior to any adjustment as
aforesaid, and (b) as to any outstanding unexercised Options theretofore granted
under the Plan, there shall be a corresponding adjustment as to the class and
number of shares covered by each Option, and as to the purchase price under each
Option, to the end that the Option holder's proportionate interest shall be
maintained as before the occurrence of such event without change in the total
purchase price applicable to said Option.
14.2 In the event the Company shall approve a plan of reorganization or of
merger with or into or consolidation with any other corporation, and appropriate
provision is made for the resulting corporation's
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assumption of the Plan under terms whereby the unexercised portion of each
Option then outstanding under the Plan shall thereafter apply to such number and
kind of securities as would have been issuable by reason of such reorganization,
merger or consolidation to a holder of the number of shares which were subject
to the Option immediately prior to such reorganization, merger or consolidation,
without change in the total purchase price applicable to said Option, then such
Options shall continue under the Plan.
14.3 In the event the Company shall approve a plan of reorganization or of
merger with or into or consolidation with any other corporation, and appropriate
provision is not made for the assumption of the Plan by the resulting
corporation as provided above in paragraph 14.2, or in the event the Company
shall approve a plan of dissolution, liquidation or sale of substantially all of
its assets (other than in the ordinary course of business) having a value of
more than 50% of the total consolidated assets of the Company and its
subsidiaries as of the end of the Company's most recent fiscal year ending prior
to the time the determination is being made, then in any such event, the
unexercised portion of each Option then outstanding under the Plan shall
terminate. The Committee shall fix a date for the termination of the unexercised
portion of any Option which is then outstanding and vested, subject to approval
of such date by the Board of Directors of the Company, which date shall be on or
before the effective date of such reorganization, merger, consolidation,
dissolution, liquidation or sale and not less than thirty days after written
notice of such date is delivered to each Optionee and each Approved Qualified
Recipient (if any), and any such Option shall, with the consent of the
Committee, (i) be accelerated and (ii) may be exercised in whole or in part
before the termination date so fixed.
14.4 In the event the Company shall issue additional capital stock of any
class for cash or other consideration, there shall be no adjustment in the
number of shares covered by outstanding Options under the Plan, and no
adjustment in the purchase price under such Options.
15 SUCCESSIVE OPTION GRANTS.
Successive Option grants may be made to any holder of Options under the
Plan.
16 TERMINATION AND AMENDMENT OF THE PLAN.
16.1 This Plan shall terminate on May 23, 2009, and no Option shall be
granted hereunder after said date, but such termination shall not affect any
Option theretofore granted. The Board of Directors of the Company may suspend,
discontinue or terminate the Plan at any time, and may from time to time make
such changes in and additions to the Plan as the Board of Directors shall deem
advisable; provided, however, that the Board of Directors may not, without
approval by the shareholders of the Company, change (a) the maximum number of
shares for which Options may be granted under the Plan, (b) the minimum Option
price for shares issued pursuant to an Incentive Stock Option, (c) the maximum
periods during which Options may be granted or exercised, (d) the provisions
relating to the eligibility of persons to whom Options may be granted or (e) the
provisions relating to the eligibility of members of the Committee.
16.2 Subject to the other provisions of the Plan, no termination or
amendment of the Plan may, without the consent of the Optionee (or an Approved
Qualified Recipient, as the case may be) under an Option then outstanding,
terminate such Option or materially and adversely affect the rights of the
Optionee thereunder.
17 TAX WITHHOLDING.
When a Non-Qualified Stock Option is exercised, the Optionee (or the
Optionee's estate, as the case may be) shall pay to the Company promptly after
the Withholding Valuation Date, in cash, the amount of any Withholding Taxes
which the Company is required to withhold, unless, subject to the conditions set
forth below, the Optionee files with the Company a Withholding Election (the
Optionee's estate shall be ineligible to file a
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Withholding Election) and the Company provides its written consent to such
Withholding Election. If an Optionee files a Withholding Election and provided
that the Company grants its written consent to such Withholding Election, then
in connection with the exercise of an Option to which such Withholding Election
relates the Company shall withhold from the Optionee shares of Stock having a
Fair Market Value on the Withholding Valuation Date equal to the amount of
Withholding Taxes due, and shall pay to the appropriate taxing authorities cash
equal to such Withholding Taxes. If fractional shares are involved in connection
with the withholding or delivery back of shares, such fractional shares shall be
settled in cash as the Committee by rule or practice may require.
18 CHANGE OF CONTROL.
18.1 Notwithstanding any other provision of this Plan and any terms of an
agreement (other than those terms recited in Section 18.1(b) below) under which
the Committee has granted an Option under this Plan, upon a "Change of Control"
(as defined in paragraph 18.2 below), holders of Options granted under this Plan
shall have the following two additional rights:
(a) Any outstanding and unexercised Option shall become immediately
and fully exercisable, and shall remain exercisable until it would otherwise
expire by reason of lapse of time.
(b) During the six month and seven day period from and after a
Change of Control (the "Exercise Period"), unless the Committee shall determine
otherwise at the time of grant, a holder of an Option (whether the Optionee or
the Approved Qualified Recipient of such Optionee, as the case may be) shall
have the right, in lieu of exercising such Option by making payment of the Base
Price for the shares of Stock subject to the Option, to elect to surrender all
or part of the Option to the Company in exchange for cash as described below in
this Section 18.1(b). The holder of an Option may make such election by giving
written notice of such election to the Committee during the Exercise Period.
Within 30 days of receipt of such notice, the Company shall pay in cash the
amount by which the Change in Control Price per share of Stock exceeds the Base
Price per share of Stock under the Option multiplied by the number of shares of
Stock to which the election properly has been made. The foregoing provisions of
this Section 18.1(b) notwithstanding, holders of Options who are officers or
directors of the Company or any of its subsidiaries or Ten Percent Shareholders
or any of their respective Approved Qualified Recipients shall have the right to
make such election only if the Option with respect to which the election has
been made shall have been granted more than six (6) months before the Change of
Control. "Change in Control Price" shall mean the higher of (i)(A) the highest
quoted closing price per share of Stock on any quotation forum, system or medium
on which closing prices per share of Stock are listed averaged over the 60-day
period prior to and ending on the date of the Change of Control; (B) if the
Stock is not so quoted, the highest average of the high bid and low asked prices
per share of Stock averaged over the 60-day period prior to and ending on the
date of the Change of Control; or (C) in the event neither (i)(A) nor (i)(B)
above shall be applicable, the fair market value per share of Stock as
determined by a nationally recognized investment banking firm selected by the
Board of Directors, averaged over the 60-day period prior to and ending on the
date of the Change of Control and (ii) if the Change of Control is the result of
a transaction or series of transactions described in subparagraphs 18.2(a) or
(c), the highest price per share of the Stock paid in such transaction or series
of transactions (which in the case of subparagraph (a) shall be the highest
price per share of the Stock as reflected in a Schedule 13D by the person having
made the acquisition); provided, however, that with respect to any Incentive
Stock Option, the Change of Control Price shall not exceed the market price of a
share of Stock (to the extent required pursuant to Section 422 of the Code) on
the date of surrender thereof.
18.2 For purposes of this Plan, unless the phrase "Change of Control" (or
words of similar effect or meaning ) has a different definition or meaning
pursuant to an Option Agreement between a specific Optionee and the Company or
pursuant to a written agreement between such Optionee and the Company, in which
case such definition or meaning shall govern and control, the phrase "Change of
Control" shall mean the following:
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(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a "Person"), other than any
of the "Excluded Parties" (as defined in paragraph 18.3 below), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 25% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities"),
provided however, that the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of securities in the Corporation as of the date
of the Plan owned by any of the Excluded Parties shall not constitute a Change
of Control for purposes of this clause. Notwithstanding the foregoing, the
following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its affiliated companies, or (D) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subparagraph 18.2(b) are
satisfied; or
(b) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or of the corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 25% or more of the Outstanding Company Common Stock or Outstanding
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such reorganization,
merger or consolidation were members of the Board of Directors of the Company at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(c) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company not in the ordinary
course of business, other than to a corporation, with respect to which,
following such sale or other disposition, (A) more than 75% of, respectively,
the then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or of such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition, 25% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) then beneficially owns, directly or indirectly,
25% or more of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors, and (C) at least a majority of the members
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of the board of directors of such corporation were members of the Board of
Directors of the Company at the time of the execution of the initial agreement
or action of the Board providing for such sale or other disposition of assets of
the Company.
18.3 For purposes of this Plan, "Excluded Parties" shall mean any of the
following: (i) Lloyd R. Abrams, Janet L. Salk, John Nelligan, Richard B.
Rothman, Leo M. Rodgers III; (ii) the Voting Trust ("Voting Trust") established
by the Voting Trust Agreement dated as of July 17, 1995 by and among Lloyd R.
Abrams as voting trustee ("Voting Trustee"), Leo M. Rodgers III; Richard B.
Rothman, the Abrams Family Trust, the Stacey, Kevin & Merideth Trust dated
December 1, 1991 (iii) the estate of any of the individuals listed or described
above; and/or (iv) Conroad Associates, L.P.
19 SHAREHOLDER APPROVAL.
Anything herein to the contrary notwithstanding, no Incentive Stock Option
shall be granted under this Plan until this Plan is approved by the shareholders
holding a majority of the outstanding shares of the Company, which approval must
occur within the twelve month period after the date this Plan is adopted by the
Board of Directors of the Company. In the event such shareholder approval is not
forthcoming within the time specified, this Plan shall continue in full force
and effect but no Incentive Stock Options shall be granted hereunder.
20 MISCELLANEOUS.
20.1 Nothing in the Plan or in any Option grant shall confer upon an
Employee the right to continue in the employ of the Company or any subsidiary of
the Company.
20.2 The adoption of the Plan shall not affect any other Option or other
compensation plan in effect for the Company or any of its subsidiaries.
Furthermore, the Plan shall not preclude the Company from establishing any other
form of incentive or other compensation arrangement for Employee.
20.3 The Plan shall be binding upon the successors and assigns of the
Company.
20.4 Whenever used herein, nouns in the singular shall include the plural
and the masculine pronouns shall include the feminine gender.
ADOPTED BY THE BOARD OF DIRECTORS ON May 24, 1999
APPROVED BY THE SHAREHOLDERS ON ______________
1998 ANNUAL REPORT
BENTLEY INTERNATIONAL, INC.
DESCRIPTION OF BUSINESS
Business
Bentley International, Inc. (formerly Megacards, Inc.), a Missouri
corporation ("Bentley," the "Registrant" or the "Company"), through its
operating subsidiary, Residential Mortgage Credit Reporting, Inc. f/k/a Bentley
Information Services, Inc., a Missouri corporation incorporated in 1998
("RMCR"), operates a credit reporting service which provides mortgage lenders
with consolidated credit reports drawn from reports generated by several
single-source credit reporting bureaus. In 1998, RMCR had sales representatives
in Arizona, California, Missouri, Illinois and Florida. RMCR's headquarters is
in Phoenix, Arizona. RMCR acquired substantially all of the assets of a
consolidated credit reporting bureau located in Arizona in March 1999.
Products
RMCR operates a credit reporting service which provides mortgage lenders
with consolidated credit reports drawn from reports generated by several
single-source credit reporting bureaus.
Marketing and Distribution
RMCR markets its products through employee sales representatives who
travel throughout their territories.
New Services
The consolidated residential mortgage credit reporting business is a new
line of business for Bentley.
Note: This report contains certain forward looking statements of the type
described in the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995 ("PSLR Act of 1995"). The results of
management's plans are beyond the ability of the Company to control.
Economic conditions, service demand, competitive pricing and other factors
could cause materially different results from those planned by management.
Additional discussions of certain forward looking statements can be found
at the end of the sections entitled "Description of Business," "Legal
Proceedings" and "Management's Discussion and Analysis or Plan of
Operation."
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Competition
RMCR faces substantial competition. Little capital is needed to enter the
industry, the needed software is readily available and reports from several
single-source credit reporting bureaus are readily available.
Sources of Supply
RMCR generates consolidated credit reports from single-source credit
reports. Management believes that RMCR has good relationships with its
suppliers. Violation of agreements with suppliers could, however, even if
inadvertent, result in cancellation of vendor agreements.
Customers
RMCR provides its services to residential mortgage lenders. Six customers
account for forty percent (40%) of the business of RMCR.
Licenses
RMCR has software licenses from Innovative Software Solutions and
Synergistic Software. The license agreement with Synergistic Software provides
for transaction fees. The Company and its subsidiary have no trademarks,
franchises, labor contracts or royalty agreements. Technology relating to the
consolidated residential mortgage credit reporting business is rapidly changing.
RMCR's investment in software could become obsolete in a very short time.
Government Approvals and Regulations
No government approvals are needed for the operation of the Company's
businesses. The Company's credit reporting business is subject to the Fair
Credit Reporting Act (the "FCRA") and the regulations promulgated thereunder.
The Company believes that neither the FCRA nor any other government regulations
now materially adversely affect the business of Bentley and its subsidiary. It
is possible, however, that law changes, either in the FCRA or other laws, could
require changes in the credit reporting business of the Company that could
materially adversely affect the Company.
Environmental Costs and Compliance
The businesses of Bentley and its subsidiary do not have any environmental
costs and are not subject to any environmental regulation requirements.
Employees
As of March 11, 1999, the Company employed approximately twenty (20)
persons on a full-time basis. There are no collective bargaining agreements with
employees. The Company believes that its relations with the RMCR employees are
good.
History
RMCR, under its former name, Bentley Information Services, Inc., was
formed on May 27, 1998 to acquire the assets of a Florida credit reporting
service. RMCR merged with a former Bentley subsidiary, an Arizona corporation
which was also called Residential Mortgage Credit Reporting, Inc., on February
10, 1999. Pursuant to the merger, the Missouri corporation, RMCR, was the
surviving corporation and took the name of the Arizona corporation. The Arizona
corporation had been acquired by Bentley on November 12, 1998.
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On July 30, 1998, the Company sold its Windsor Art, Inc. subsidiary, a
Missouri corporation ("Windsor"), which was incorporated in 1993 and which
operated a framed art and mirror business. This business began in November,
1993, when Windsor purchased certain assets of Windsor Art Products, Inc., a
Delaware corporation, which was then subject to a bankruptcy proceeding. In a
business combination in July, 1995 the Company, which was incorporated in 1983
with the name Megacards, Inc., acquired Windsor in a reverse acquisition.
The other businesses of the Company have been discontinued. The other
businesses consisted of a sports picture card business, which had been in
business since 1984 and operated under the name "Megacards," and the framed art
and mirror business of Janco Designs, Inc., a Missouri corporation which was
incorporated in 1990 ("Janco"), which also was acquired in the reverse
acquisition. Janco was administratively dissolved in 1997. The sports picture
card business was liquidated in 1996 and the remaining assets contributed to a
joint venture, Legends, L.P., a New York limited partnership organized in 1996
("Legends"), with Quality Baseball Cards, Inc.("Quality"). The Company is a
limited partner in Legends, and owns 30% of the limited partnership. Janco was
the subject of an involuntary bankruptcy petition brought in January, 1997 by
three creditors. All claims of the bankruptcy trustee against the Company and
Windsor were settled with the bankruptcy trustee in January, 1998 and a final
judgment approving the settlement was entered on February 27, 1998.
The Company's business now consists of the RMCR credit reporting business
and the 30% limited partnership interest in Legends.
Forward Looking Statements
Certain of the foregoing statements in the "Description of Business" above
make references to plans, beliefs and expectations of management. These
statements are forward looking statements of the type governed by the PSLR Act
of 1995. There can be no assurance that results will be what management plans,
believes or expects. General economic conditions, demand for credit reporting
services and industry specific competitive conditions, which include the small
amount of capital needed to enter the consolidated credit reporting industry and
the availability of needed software and one source credit reports, could produce
results materially different from those expected by management.
PROPERTIES
The Company's subsidiary RMCR leases an office in Phoenix, Arizona for its
headquarters. This lease expires in December, 2001.
LEGAL PROCEEDINGS
On June 29, 1998, Leo M. Rodgers, III, a shareholder of the Company,
delivered notice to the Company of his intent to preserve his "dissenter's
rights," as provided by Mo.Rev.Stat. 351.405, in connection with the sale of
Windsor Art, Inc. ("Windsor"), a wholly owned subsidiary of the Company. Section
351.405 requires the Company to purchase the shares of any shareholder who, at
or prior to the meeting at which the sale of substantially all of the assets of
the Company was approved, filed with the Company written objection to the sale,
did not vote in favor of the sale, and subsequently made a timely demand for
purchase of such shares by the Company. In the absence of an agreement between
the shareholder and the Company, Section 351.405 provides that the price that
the Company must pay for the shares shall be the "fair value" of the shares on
the day before the shareholder vote, as determined by the court. The day before
the shareholder vote was July 1, 1998, upon which day the Company's shares
traded for approximately $1.50 per share. Mr. Rodgers allegedly owns 30,420
shares of the Company individually and is the beneficial owner of 423,500 shares
under a voting trust agreement, dated July 17, 1995 (the "Voting Trust"), of
which Lloyd Abrams is the trustee.
Mr. Rodgers filed an action in the Circuit Court of St. Louis County,
Missouri on September 29, 1998, alleging that the Company is obligated to
purchase both blocks of shares for their "fair value" as of July 1, 1998. The
Company's management believes that the Company has no obligation to purchase the
block of shares owned by the Voting Trust, since the Voting Trust expressly
authorized the trustee to vote such shares in favor of the sale
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of Windsor, and the shares were, in fact, voted in favor of the sale of Windsor,
had to be voted in favor of the sale to receive the approval of the two-thirds
of the outstanding shares of the Company necessary to authorize the sale, and
were required by the terms of the Voting Trust to be voted in the same fashion
as all shares owned by the Voting Trust.
Andrew Wolfson, a former director of the Company, and Stephen Juskewycz, a
former officer and director of the Company, also filed an action on September
29, 1998 in the Circuit Court of St. Louis County, Missouri to require the
Company to repurchase their shares, allegedly 98,115 and 86,335 shares,
respectively, for the "fair value" of the shares, pursuant to Mo.Rev.Stat.
351.405. The Company's management believes that the Wolfson and Juskewycz action
was motivated, in part, by prior events.
In July, 1995, when Lloyd Abrams assumed voting control of the Company as
trustee of the Voting Trust and the position of President and Chief Executive
Officer, the Company was in violation of loan covenants, delinquent in the
payment of rent at its primary, 125,000 square foot manufacturing facility, and
had been losing substantial sums of money from operations. As a condition of the
transaction in which Windsor was acquired by the Company and Mr. Abrams assumed
control of the Company, Mr. Wolfson was required to resign as a director of the
Company, and the partnership, in which Messrs. Wolfson and Juskewycz were
partners, which leased to the Company its primary manufacturing facility, was
required to forgive $250,000 in back rent due the partnership and to reduce the
annual rental on the property by approximately $175,000 per year. Ultimately,
the Company compelled Mr. Wolfson's and Mr. Juskewycz's partnership to release
the Company from all obligations under such lease, and the partnership property
was sold for only slightly more than the outstanding debt against the property.
Additionally, after the acquisition of Windsor, the Company terminated the
employment of Mr. Juskewycz. Also, Mr. Juskewycz resigned from the board of
directors in exchange for the Company entering into a settlement agreement with
Mr. Juskewycz.
In addition, on approximately August 31, 1998, the Company terminated a
sublease with Jeanandy, Inc. ("Jeanandy"), a company in which Mr. Wolfson was
involved, for a retail store located in a shopping center in St. Louis County,
Missouri. The Company was the subleasor of the store and was able to terminate
the sublease as a result of Jeanandy's failure to exercise its option to extend
its sublease in a timely fashion. In addition, the Company was able to negotiate
a release from its contingent liability, exceeding $200,000, under the primary
lease at no cost to the Company. This event resulted in Jeanandy being required
to vacate the subleased premises on 30 days notice.
The Company's management believes that Mr. Juskewycz complied with the
conditions of Section 351.405, and thus is entitled to receive the "fair value"
of his shares as of July 1, 1998. Mr. Wolfson's notice of objection to the sale
of Windsor, however, was not received by the Company until after the meeting at
which the sale of Windsor was approved; and, therefore, such notice was not
delivered in a timely fashion, as required by Section 351.405. It is the opinion
of the Company's management that the Company is not legally obligated to
purchase Mr. Wolfson's shares as a result of the delinquent delivery of his
notice, and that it is not in the best interest of the Company, or its
shareholders, to purchase Mr. Wolfson's shares, except on terms deemed desirable
by the Company's board of directors.
As part of the same action, Messrs. Wolfson and Juskewycz also brought a
shareholders' derivative action against the three directors of the Company, Mr.
Abrams, Ramakant Agarwal, and Janet Salk. They claim the Directors breached
their fiduciary obligations to the shareholders, including the plaintiffs, by
causing the Company to repay notes of Janco Designs, Inc. ("Janco"), a
subsidiary of the Company, in the amount of $450,000 to certain trusts of which
Mr. Abrams, Richard B. Rothman and Patricia Rothman are trustees. The plaintiffs
also claim that the trusts were unjustly enriched by the repayment of the notes
and that it would be inequitable for the trusts to retain the $450,000 repaid to
them. The derivative action demands that the $450,000 be returned to the
Company. The monies subject to the claim were lent to Janco by the trusts
controlled by Mr. Abrams, Mr. Rothman, and Mrs. Rothman to provide working
capital to continue its operations. The Company's management believes that the
notes were properly repaid because they were guaranteed by the Company and
Windsor, secured by the assets of Windsor, such acts were approved by the
Company's board of directors, including its outside director and Chairman of the
Board, Mr. Robert L. Wolfson, the father of complainant Andrew Wolfson, as well
as approved by
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the United States Bankruptcy Court in connection with the bankruptcy of Janco.
In the event that the complainants were to prevail in their action against the
trusts, the amount of any judgment would be awarded to the Company and not to
Messrs. Wolfson and Juskewycz.
Messrs. Wolfson and Juskewycz's action also alleges a derivative claim
that Mr. Abrams breached a fiduciary duty to the shareholders in connection with
the sale of the Company's wholly owned subsidiary, Windsor, to Interiors, Inc.
("Interiors") by entering into a consulting agreement with Windsor and
Interiors. The derivative action demands that payments made under the consulting
agreement be paid over to the Company. The consulting agreement is described in
detail in the Company's Form 8-K, dated July 30, 1998, which is hereby
incorporated by reference. As of the date of the consulting agreement with
Windsor and Interiors, the amount of Mr. Abrams' salary paid by the Company was
reduced by the equivalent amount paid to Mr. Abrams by Windsor and Interiors.
Consequently, Mr. Abrams was not enriched by the existence of the employment
agreement, and the Company's financial commitment was diminished. In the event
that the complainants were to prevail in their action against Mr. Abrams, the
amount of any judgment would be awarded to the Company and not to Messrs.
Wolfson and Juskewycz.
Messrs. Wolfson and Juskewycz amended their action on January 21, 1999,
and alleged that salary and benefits paid to Mr. Abrams from the Company totaled
$265,000 in 1996, and $284,423 in 1997, that in addition to these amounts Mr.
Abrams received over $50,000 per year in additional benefits from the Company,
and that this compensation was excessive. The action demands that such salary
and benefits be repaid to the Company. The Company's management believes that
the consideration Mr. Abrams received in 1996 and 1997 was a reasonable payment
in exchange for the services which Mr. Abrams provided to the Company as
President and Chief Executive Officer. In the event Messrs. Wolfson and
Juskewycz were to prevail in their action, the amount of any judgment would be
awarded to the Company and not to Messrs. Wolfson and Juskewycz.
The Wolfson and Juskewycz amended action further alleges that bonuses in
the amount of $1,000,000 were paid or will be paid improperly to officers and
employees of Windsor in connection with the sale of Windsor and demands that
these monies be repaid to the Company. The Company's management notes that the
sole director of Windsor, Lloyd R. Abrams, was not paid any bonus as a result of
the sale of Windsor. The Company's management believes that any and all bonuses
paid in connection with the sale of Windsor were paid properly for past services
and for the future benefit of the Company. The agreements to pay bonuses to
officers of Windsor primarily represented participations in the notes and shares
of stock of Interiors the Company anticipated receiving in connection with the
sale of Windsor and were conditioned upon those officers remaining employed by
Windsor. The Company's management believed that it was in the Company's best
interest to create such an incentive to induce the officers of Windsor to remain
in the employment of Windsor, to exert the necessary effort to assure that
Interiors would be able to pay its notes to the Company, and to protect the
value of Windsor, the stock of which was security for payment of the notes. The
Windsor officers only received their participations in the value of the notes
and Interiors stock after the Company negotiated an early repayment of the
Interiors notes and the repurchase of the Interiors stock. As part of the
negotiated early repayment, Interiors also satisfied the Company's obligation to
pay the President of Windsor 100,000 shares of Interiors Class A common stock
and 110,000 shares of the Company's common stock, which the Company had
previously agreed to pay to the President of Windsor as part of the President's
bonus. The total cost to the Company after taxes of these bonuses was
approximately $360,000. In the event Messrs. Wolfson and Juskewycz were to
prevail in their action, the amount of any judgment would be awarded to the
Company and not to Messrs. Wolfson and Juskewycz.
Finally, the amended action of Messrs. Wolfson and Juskewycz alleges that
the conduct of the directors and control persons of Bentley in managing the
Company supports a claim for judicial dissolution of the Company pursuant to Mo.
Rev. Stat. Section 351.494, which provides in paragraph (b) that a company may
be dissolved if its directors have acted, are acting, or will act in a manner
that is illegal, oppressive, or fraudulent. Messrs. Wolfson and Juskewycz allege
that the conduct of the directors and control persons of the Company satisfies
this test, due to the actions alleged in the previously described counts of the
action, and a claim that professional fees, alleged to be $150,000, paid by
Bentley in connection with the sale of Windsor were excessive, and demand that
the Company be judicially liquidated and dissolved, with Bentley's assets
converted to cash and distributed to the shareholders on a pro rata basis after
adjustment for the claims previously alleged, and that a receiver be appointed
for the
6
<PAGE>
Company. The Company's management believes that this claim is totally
unsupported by the facts for the reasons recited in the preceding paragraphs in
relation to the other claims in the action and believes that any professional
service payments made in connection with the sale of Windsor were reasonable
given the services provided. The Company will defend vigorously the Company's
position in court.
The Company's management believes that the Wolfson and Juskewycz
derivative action was filed with the intent of coercing the Company to
repurchase the shares in a negotiated settlement for a higher price than "fair
value," prior to the Circuit Court's determination of the "fair value" of their
shares and prior to the Court's determination of whether Mr. Wolfson properly
exercised his right to compel the Company to purchase his shares. The Company
intends to defend vigorously its positions in court, unless, in the opinion of
the Board of Directors, the shares can be repurchased at a price advantageous to
the Company and its shareholders.
Currently, the Company is not a party to any other legal proceedings,
other than routine proceedings in the ordinary course of business. The ordinary
course proceedings are not anticipated to have a material adverse effect on the
Company's results of operation or financial condition.
Forward Looking Statements
The beliefs and expectations of management recited above in regard to
"Legal Proceedings" are forward looking statements of the type described in the
PSLR Act of 1995. The ultimate resolutions of the legal actions are not within
the Company's control. The court's decision with regard to the validity of the
claims made by the three shareholders and the valuation of their claims could
cause materially different results from those believed likely by management.
INFORMATION ABOUT NOMINATED DIRECTOR
The Board of Directors of the Company has unanimously nominated and
recommended for election at the Shareholders Meeting to the position of Director
the following individual:
Lloyd R. Abrams, 45, has served as President, Chief Executive Officer and
Director of the Company since July 1995 and as Assistant Secretary since
September 1997. From November, 1993 until July, 1998 he served as sole Director
of Windsor, from November 1993 until September, 1997, he served as President of
Windsor, and from August 1997 to July 1998 as Assistant Secretary. For more than
one year prior to joining Windsor, he was President of Abrams, Rothman &
Company, a real estate development firm. Mr. Abrams has a Bachelors of Science
in Civil Engineering, a Masters of Business Administration and a Juris
Doctorate.
OUTGOING DIRECTORS
Janet L. Salk, 41, served as a Director of the Company since July 1995. Ms.
Salk principally has engaged in family, civic and charitable activities for more
than the past five years. Ms. Salk is the spouse of Lloyd R. Abrams. Ms. Salk
has Bachelor of Arts, Masters in Social Work and Masters in Counseling degrees.
Ramakant Agarwal, 43, was appointed to the Board of the Company on January
15, 1998, and has served as Chief Financial Officer and Vice President of the
Company since January 1997, and Secretary since September 1997. Mr. Agarwal has
not been nominated for reelection as a director. Mr. Agarwal has served as Chief
Financial Officer and Vice President of Windsor since January 1997, and
Secretary since August 1997. From April 1996 to July 1996, Mr. Agarwal served as
a consultant to Retix, Inc., an Internet hardware, software and
telecommunications company. From January 1993 to February 1996, Mr. Agarwal
served as Vice President of Finance and Corporate Planning for Sun West Mortgage
Company, Inc., a non-supervised mortgage company.
Mr. Agarwal is a CPA.
7
<PAGE>
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year
ended December 31, 1998 to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
In July, 1996, the Company's name was changed to Bentley International,
Inc. from Megacards, Inc. and the Company's common stock symbol was changed to
"BNTL" from "MEGX". The Company's Common Stock is traded on the OTC Bulletin
Board. As of January 13, 1999, the number of shareholders of Common Stock was
approximately 470. Set forth below are the high and low transaction prices as
reported by the OTC Bulletin Board. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
8
<PAGE>
<TABLE>
Year Ended December 31,
1998 1997
---------------------------- ---------------------------
High(1) Low(1) High(1) Low(1)
<S> <C> <C> <C> <C>
First Quarter............ $2.38 $0.88 $0.50 $0.16
Second Quarter........... 2.13 1.25 0.50 0.16
Third Quarter............ 1.56 0.75 0.75 0.25
Fourth Quarter........... 1.25 0.75 1.25 0.70
</TABLE>
- - ------------------
(1) Share prices have been adjusted to reflect a four-for-one stock dividend
payable October 22, 1997 to shareholders of record on September 24, 1997.
There are no restrictions on dividends in the Company's corporate
authority documents or any loan or other contractual agreements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Bentley has pursued a transition from the framed art and mirror business
to the marketing and information services businesses, of which the credit
reporting business is one. The Company continues to be in a strong liquidity
position, with no debt other than trade credit and no preferred stock
outstanding.
In December 1998 RMCR replaced its old computer hardware and software with
new hardware and software. In March 1999, RMCR acquired substantially all of the
assets of a consolidated credit reporting business located in Arizona.
Currently, RMCR has sales representatives in Arizona, California, Illinois,
Missouri and Florida.
Management plans to expand the business nationwide.
Management expects these acquisitions and the expansion of the current
businesses to produce a trend toward increased net sales, revenue and income and
that there will be a high return on the Company's capital.
On July 30, 1998, the Company sold its framed art and mirror business,
Windsor Art, Inc. ("Windsor"), which represented substantially all of its
assets, to Interiors, Inc. ("Interiors"). On December 1, 1998, Bentley entered
into a Repurchase Agreement and Mutual General Release with Interiors, Inc.,
Windsor Art, Inc., Lloyd R. Abrams and Max Munn, which is attached as Exhibit 2
to Bentley's Form 8-K dated December 1, 1998. The transactions between Interiors
and Bentley are more fully described in the following prior securities filings
of Bentley and the portions of the following documents that pertain to the
transactions with Interiors, Inc. are hereby incorporated by reference: Form 8-K
dated December 1, 1998, Form 10-QSB dated September 30, 1998, Form 8-K dated
July 30, 1998 and Form 10-QSB dated June 30, 1998.
The Board of Directors of Bentley has also approved a repurchase program
with respect to the Company's common stock, which currently trades on the OTC
Bulletin Board. The company will repurchase no more than 100,000 shares in the
open market over a period of no more than twelve months, subject to the further
limitation that the number of shareholders will not be decreased below 300. The
price for the common stock was $1.00 per share as of March 11, 1999. The book
value of such stock as of December 31, 1998, was $2.17 per share.
9
<PAGE>
On September 29, 1998, Bentley was sued by three shareholders. One of the
shareholders was an officer of Janco Designs, Inc., the subsidiary of the
Company which was the subject of an involuntary bankruptcy proceeding and has
now been dissolved. The other two shareholders are former officers and directors
of the Company who acted as such when the Company's sole business consisted of
the sports picture card business known as Megacards. That business segment was
discontinued in 1996. The litigation is described in more detail above under
"Legal Proceedings" and in footnote 9 to the financial statements below. It is
currently not possible to give a reasonable estimate of the Company's exposure
in these legal actions. The Company anticipates that any share repurchase
required as a result of the legal actions will be satisfied out of a
non-material portion of the proceeds of the sale of Windsor. Management does not
believe that the legal actions will significantly interfere with its plans to
expand the credit reporting business or with its liquidity, net sales, revenue
or income.
Forward Looking Statements
Certain of the foregoing statements in this "Overview" make references to
plans, beliefs and expectations of management. These statements are forward
looking statements of the type governed by the PSLR Act of 1995. There can be no
assurance that results will be what management plans, believes or expects.
General economic conditions, demand for credit reporting services and industry
specific competitive conditions, which include the small amount of capital
needed to enter the consolidated credit reporting industry and the availability
of needed software and one source credit reports, could produce results
materially different from those expected by management. With regard to the legal
proceedings, management's beliefs and expectations are also forward looking
statements of the type described in the PSLR Act of 1995. The ultimate
resolutions of the legal proceedings, however, are not within the Company's
control. The court's decision with regard to the validity of the claims made by
the three shareholders and the valuation of their claims could cause materially
different results from those believed likely by management.
Results of Operations
On July 30, 1998 the Company sold its main operating subsidiary, Windsor
Art, Inc., which represented substantially all of the operations of the Company,
for a combination of cash and two promissory notes to Interiors, Inc.
("Interiors"). On the same date, in a related transaction, the Company sold
150,000 shares of common stock of the Company to Interiors for 750,000 shares of
Interiors common stock and also sold to Interiors a warrant to purchase 300,000
shares of common stock of the Company for an additional 750,000 shares of
Interiors common stock. On September 30, 1998, Interiors paid off one of the
promissory notes. On December 1, 1998, the Company, Interiors, Windsor, Lloyd R.
Abrams, the President of Bentley, and Max Munn, the President of Interiors,
entered into a Repurchase Agreement and Mutual General Release (the "Repurchase
Agreement"). As more fully described in the Company's Form 10-QSB/A dated March
31, 1999, pursuant to the Repurchase Agreement Interiors acquired the second
promissory note and its stock from the Company in exchange for a cash payment
and other consideration. The aggregate cash ultimately generated from the sale
of Windsor was $6,481,000. All of Windsor's operations have been presented as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.
Continuing Operations
Continuing operations consist of the activities of the credit-reporting
business segment.
Two subsidiaries of the Company merged subsequent to the close of the
fiscal year; consequently, their revenues are reported separately below. These
subsidiaries were RMCR under its former name, Bentley Information Services,
Inc., a Missouri corporation, and an Arizona corporation named Residential
Mortgage Credit Reporting, Inc. which merged into RMCR. RMCR was acquired May
27, 1998 and revenues for the year ended December 31, 1998 were $79,800. RMCR
was not part of the Company in 1997. Residential Mortgage Credit Reporting,
Inc., an Arizona corporation, was acquired October 31, 1998 and revenues for the
two months ended December 31, 1998 were $135,639. The Arizona corporation was
not part of the Company in 1997.
10
<PAGE>
Operating expenses increased from $266,860 to $790,724 for the year ended
December 31, 1998 as compared to the same period in 1997. This increase was due
to the acquisitions in 1998 of the credit reporting businesses which did not
exist in 1997 and increases in professional fees and costs associated with the
potential acquisitions of other business.
Other income increased for the year ended December 31, 1998 as compared to
the same period in 1997 due to investment earnings from the proceeds of the sale
of Windsor and the reduction of liabilities related to a canceled lease
obligation.
Discontinued Operations
Income from discontinued operations decreased for the year ended December
31, 1998 as compared to the same periods in 1997. This decrease was caused since
1998 activity ended on July 30, 1998, the date of the sale of Windsor.
Discontinued operations also include, for 1998, a gain on the sale of Windsor,
after expenses and income taxes, of $3,075,481.
Liquidity and Capital Resources
As a result of the sale of Windsor, the Company's cash and cash
equivalents on December 31, 1998 totaled $6,350,884. Cash generated from the
sale of Windsor was $6,481,000. In addition, cash generated from all operations
decreased from $1,251,145 to $222,084 for the year ended December 31, 1998 as
compared to the same time period in 1997. This decrease was caused by
significant increases in inventories and accounts receivable of the Company's
discontinued operations at July 30, 1998 as compared to December 31, 1997.
Derivatives
The Company does not invest in any derivative securities.
Year 2000
Bentley has taken steps to investigate whether it has a "Year 2000
Problem," that is, whether any of the computer software and hardware that affect
its business can use only the last two digits to refer to a year, which
limitation causes inability to recognize properly a year that begins with "20"
instead of "19," which in turn could result in applications failures or
erroneous results. In order to determine whether the Company has no Year 2000
Problem (is "Year 2000 Compliant;" is in "Year 2000 Compliance"), Bentley is (i)
in the process of investigating whether its hardware and software are Year 2000
Compliant; (ii) contacting suppliers and customers regarding any possible Year
2000 Problems at their facilities that might affect the Company; (iii) analyzing
the costs of Year 2000 Compliance; and (iv) exploring the possible worst case
scenarios and contingency plans if there were to be a Year 2000 Problem that
affected the Company's business. In evaluating the Company's business, it is
important to recognize that the credit reporting business of its subsidiary,
RMCR, is a computer based business that could be seriously adversely affected by
a Year 2000 Problem, either at RMCR's facility or at its suppliers' or major
customers' facilities. The Company has no control over whether its suppliers and
customers remedy a Year 2000 Problem or whether its vendors of hardware,
software and Year 2000 Compliance testing software accurately represent the Year
2000 Compliance status of their products.
The Company has taken the following steps with respect to its own computer
hardware and software to determine whether such hardware and software is Year
2000 compliant: (i) purchased new computer hardware and software late in 1998
and early in 1999 which the Company believes to be Year 2000 Compliant; (ii) is
in the process of testing this hardware with Year 2000 Compliance software to
verify that it is Year 2000 Compliant; and (iii) is in the process of verifying
with vendors of its software for processing credit reports, accounting, record
keeping and word processing and of its phone system that these systems are Year
2000 Compliant.
Bentley has contacted its suppliers of single source credit reports to
determine whether they might have Year 2000 Problems that could affect the
Company, has had some preliminary responses and is in the process of keeping
11
<PAGE>
in touch with all credit report suppliers on an ongoing basis to evaluate the
Year 2000 Compliance of such suppliers. The Company has sent out letters to its
customers to query whether they are Year 2000 Compliant.
The Company has not incurred any material costs in addressing the Year
2000 Problem. The new hardware and software referenced above was purchased for
business reasons separate from Year 2000 Compliance issues. The Company does not
anticipate that it will incur any material costs in testing software and
hardware and communicating with suppliers and customers.
The worst case scenario of a Year 2000 Problem would be a failure of
RMCR's credit reporting software or its hardware, which could shut down the
business, resulting in lost revenues and possibly lost customers. The
contingency plan that the Company has developed to address the possible worst
case scenario is to obtain a "patch" for the Year 2000 Problem from the vendor
of the affected hardware or software or to obtain hardware or software from
another vendor. Going to another vendor of credit reporting software would
require converting the customers' systems to be compatible with such new
software. The possible lost revenue, if such a worst case scenario were to
occur, has not been estimated. The Company would draw on its strong liquidity
position to enable it to withstand such a worst case scenario.
Forward Looking Statements
Certain of the foregoing statements in the discussion of the Year 2000
Problem make references to plans, beliefs and expectations of management,
including, without limitation, that the RMCR hardware will be Year 2000
Compliant. These statements are forward looking statements of the type governed
by the PSLR Act of 1995. There can be no assurance that results will be what
management plans, believes or expects. The steps taken by such vendors,
suppliers and customers as well as by the Company could produce results
materially different from those expected by management.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[Remainder of page intentionally left blank]
12
<PAGE>
Independent Auditors' Report
Board of Directors
Bentley International, Inc.
St. Louis, Missouri
We have audited the accompanying consolidated balance sheet of Bentley
International, Inc. and subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bentley
International, Inc. and subsidiaries as of December 31, 1998 and the results of
their operations and their cash flows for the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
April 12, 1999
13
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
Assets
<S> <C>
Current Assets
Cash and cash equivalents $ 6,350,884
Accounts receivable 136,644
Other current assets 46,978
-----------------
Total Current Assets 6,534,506
Furniture And Equipment (Net Of Accumulated
Depreciation Of $393,112) 127,014
Goodwill (Net Of Accumulated Amortization Of $8,120) 479,050
Investment 300,028
Other Assets 74,900
-----------------
$ 7,515,498
=================
Liabilities And Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 828,117
---------------
Stockholders' Equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized,
none issued or outstanding --
Common stock, $0.18 par value; 10,000,000 shares authorized;
3,083,285 shares issued and outstanding 554,991
Additional paid-in capital 2,656,578
Retained earnings 3,475,812
----------------
Total Stockholders' Equity 6,687,381
----------------
$ 7,515,498
================
</TABLE>
See the accompanying notes to consolidated financial statements.
14
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998 And 1997
<TABLE>
Total
Additional Retained Stockholders'
Common Stock Paid-In Earnings Equity
--------------------------------
Shares Amount Capital (Deficit) (Deficit)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 562,624 $ 101,272 $1,905,297 $(2,835,611) $ (829,042)
Common Stock Dividend 2,250,661 405,119 (405,119) -- --
Net Income -- -- -- 2,427,146 2,427,146
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 2,813,285 506,391 1,500,178 (408,465) 1,598,104
Issuance Of Common Stock 270,000 48,600 1,156,400 -- 1,205,000
Net Income -- -- -- 3,884,277 3,884,277
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 3,083,285 $ 554,991 $2,656,578 $ 3,475,812 $ 6,687,381
=================================================================================================================================
</TABLE>
See the accompanying notes to consolidated financial statements.
15
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
- - ---------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
For The Years
Ended December 31,
-----------------------------------------------
1998 1997
-----------------------------------------------
<S> <C> <C>
Net Sales $ 215,443 --
Cost Of Sales 52,183 --
-----------------------------------------------
Gross Margin 163,260 --
Selling, General And Administrative
Expenses 790,724 266,860
-----------------------------------------------
Loss From Operations (627,464) (266,860)
Interest Income (Expense) 136,748 (49,628)
Other Income 177,824 42,974
-----------------------------------------------
Loss From Continuing Operations (312,892) (273,514)
Discontinued Operations (Note 3)
Income from discontinued operations 1,121,688 1,526,611
Gain on sale of discontinued
segment (net of tax of $63,884) 3,075,481 --
Gain on extinguishment of debt -- 1,174,049
-----------------------------------------------
Net Income $ 3,884,277 $ 2,427,146
===============================================
Earnings (Loss) Per Common Share
- - - Basic (Note 10)
Continuing operations $ (0.11) $ (0.10)
Discontinued operations 1.46 0.97
-----------------------------------------------
$ 1.35 $ 0.87
===============================================
Earnings (Loss) Per Common Share
- - - Assuming Dilution (Note 10)
Continuing operations $ (0.11) $ (0.10)
Discontinued operations 1.44 0.95
-----------------------------------------------
$ 1.33 $ 0.85
===============================================
</TABLE>
See the accompanying notes to consolidated financial statements.
16
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
For The Years
Ended December 31,
---------------------------------------------
1998 1997
---------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 3,884,277 $ 2,427,146
Adjustments to reconcile net income to net cash
used in operating activities of continuing operations:
Income from discontinued operations (1,121,688) (1,526,611)
Gain on sale of discontinued segment (3,075,481) --
Gain on extinguishment of debt -- (1,174,049)
Depreciation and amortization 83,351 --
Net changes in assets and liabilities:
(Increase) decrease in accounts receivable (136,644) 48,175
(Increase) decrease in other current assets (46,978) 50,505
(Increase) decrease in accounts payable and accrued
expenses (240,312) 101,954
---------------------------------------------
Net Cash Used In Operating Activities Of Continuing
Operations (653,475) (72,880)
Net cash provided by discontinued operations 503,264 1,324,025
---------------------------------------------
Net Cash Provided By (Used In) Operating Activities (150,211) 1,251,145
---------------------------------------------
Cash Flows From Investing Activities
Purchase of investments (300,028) --
Capital expenditures (66,422) --
Proceeds from notes receivable -- 110,000
Payments for acquisition of subsidiaries (362,772) --
Proceeds from sale of discontinued segment 6,481,000 --
Net cash used in investing activities of discontinued operations (114,545) (55,352)
Proceeds from repurchase of investment in common stock (Note 3) 905,000 --
---------------------------------------------
Net Cash Provided By Investing Activities 6,542,233 54,648
---------------------------------------------
Cash Flows From Financing Activities
Net proceeds from (payments on) lines of credit - discontinued
operations 269,535 (1,164,435)
Repayments of long-term debt - discontinued operations -- (66,867)
Payments on notes payable (320,005) (158,061)
---------------------------------------------
Net Cash Used In Financing Activities (50,470) (1,389,363)
---------------------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents 6,341,552 (83,570)
Cash And Cash Equivalents - Beginning Of Year 9,332 92,902
---------------------------------------------
Cash And Cash Equivalents - End Of Year $ 6,350,884 $ 9,332
=============================================
\Supplemental Disclosure Of Cash Flow Information
Interest paid $ 64,833 $ 170,039
---------------------------------------------
Noncash investing and financing activities (Note 8)
</TABLE>
See the accompanying notes to consolidated financial statements.
17
<PAGE>
BENTLEY INTERNATIONAL, INC. AND SUBSIDIARIES
- - ----------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 And 1997
1. Summary Of Significant Accounting Policies Basis Of Consolidation
The consolidated financial statements include the accounts
of Bentley International, Inc. (the "Company") and its wholly
owned subsidiaries, Windsor Art, Inc. ("Windsor"), Janco Designs,
Inc. ("Janco") (see Note 3), Bentley Information Services, Inc.
("BIS") and Residential Mortgage Credit Reporting, Inc. ("RMCR").
All significant intercompany transactions have been eliminated
from the consolidated financial statements.
Use Of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. The reported amounts of
revenues and expenses during the reporting period may also be
affected by the estimates and assumptions management is required to
make. Actual results may differ from those estimates.
Cash And Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
Company's cash accounts are primarily held at one bank.
Accounts Receivable
The Company follows the practice of writing off uncollectible
accounts as they are incurred. There is no allowance for
uncollectible accounts reflected in the balance sheet. Company
management is of the opinion that no allowance is necessary.
Furniture And Equipment
Furniture and equipment are carried at cost, less accumulated
depreciation and amortization computed using the straight-line and
accelerated methods. The assets are depreciated over periods ranging
from five to seven years.
Investment
Investment consists of a municipal bond. The investment is stated at
cost, which approximates the market value. The investment is
classified as available for sale and matures in February 2015.
Investment In Partnership
The Company has a 30% interest in Legends, L.P., a New York limited
partnership. The investment is accounted for using the equity method
and carried at cost adjusted for a permanent impairment and the
Company's share of undistributed earnings or losses.
Goodwill
Excess of cost over acquired assets in connection with the
acquisition of RMCR is treated as goodwill and is amortized on the
straight-line basis over ten years.
18
<PAGE>
Income Taxes
Deferred tax assets and liabilities are recorded for the
expected future tax consequences of events that have been
included in either the financial statements or tax returns
of the Company. Under this asset and liability approach,
deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and
tax bases of assets and liabilities by applying enacted
statutory tax rates applicable to future years in which the
differences are expected to reverse. As more fully
discussed in Note 6, the Company has established a full
valuation allowance for its net deferred tax assets.
Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants
and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share
and includes the dilutive effects of options, warrants and
convertible securities by making the assumption that all of these
options, warrants and convertible securities had been exercised. All
earnings per share amounts for all periods have been presented and,
where appropriate, restated to conform to the Statement 128
requirements.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), in 1996.
Under the provisions of SFAS 123, companies can elect to account for
stock-based compensation plans using a fair-value based method or
continue measuring compensation expense for those plans using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related Interpretations. The Company elected to continue using the
intrinsic value method to account for the stock-based compensation
plan. SFAS 123 requires companies electing to continue to use the
intrinsic value method to make certain pro forma disclosures (see
Note 11).
2. Operations Nature Of Operations
Bentley International, Inc., ("Bentley"), formerly
Megacards, Inc., designed, repackaged and marketed sports
picture cards produced by major sports picture card
manufacturers and marketed sports picture card accessories.
Megacards, Inc. became Bentley in June 1996 as the Board of
Directors believed that the change of the Corporate name
would better reflect the broadening of the scope of the
businesses of the Company.
Windsor manufactured and distributed decorative mirrors and framed
prints to furniture stores, mass merchants, hotels and designers
throughout the United States. During 1996, the Company discontinued
its Janco product line and sold its sports picture card business
segment in order to reduce costs and to improve its liquidity
position. On July 30, 1998, the Company sold all of the outstanding
shares of stock of Windsor (see Note 3).
The Company, through its operating subsidiaries acquired in 1998,
operates a credit reporting service which provides mortgage lenders
with consolidated credit reports drawn from reports generated by
several single-source credit reporting bureaus.
Business Combinations
Pursuant to an agreement dated May 28, 1998, the Company purchased
certain assets of a credit reporting company for $75,000 and formed
Bentley Information Services, Inc. The acquisition was accounted for
as a purchase.
Pursuant to an agreement dated November 12, 1998, the Company
acquired all the outstanding shares of Residential Mortgage Credit
Reporting, Inc., a credit reporting company, for $300,000 in cash,
plus 120,000 shares of Bentley's common stock. The acquisition was
accounted for as a purchase. Subsequent to the balance sheet date,
BIS and RMCR merged. Pursuant to the merger, BIS was the surviving
corporation and changed its name to RMCR.
19
<PAGE>
Stock Dividend
On September 3, 1997, the Company's Board of Directors authorized a
four-for-one stock dividend, to be distributed October 22, 1997, to
shareholders of record as of September 24, 1997, which had the effect
of a five-for- one stock split, except that the par value remained
$0.18 per share. All share and per share amounts have been adjusted
retroactively to reflect the stock dividend.
3. Discontinued Operations
On December 27, 1996, Janco discontinued its operations due to
historical losses and in an effort to reduce costs and improve
overall liquidity of the Company. Certain assets of Janco, consisting
of inventory and equipment, were sold to a third party prior to
December 31, 1996.
On January 24, 1997, an involuntary bankruptcy case was filed against
Janco, and on February 18, 1997, Janco consented to the involuntary
filing, as a Chapter 7 debtor. As reported on Form 8-K, filed by the
Company January 26, 1998, the Bankruptcy Trustee, Bentley, certain
shareholders who held promissory notes of which Janco was the maker
(and Bentley and Windsor were the guarantors) ("Noteholders") and
other parties related to such shareholders entered into a stipulation
for settlement agreement pursuant to which Bentley agreed to pay,
subject to court approval of the stipulation agreement to the
bankruptcy estate, $85,000 in exchange for a full release of Bentley,
Windsor, certain of Bentley's shareholders and certain present and
past officers and directors from all claims of the Trustee. In
addition, the bankruptcy estate agreed to pay to the Noteholders
one-half of the proceeds from the liquidation of certain assets of
Janco, approximately $45,000. The court approved the stipulation
agreement on February 27, 1998. The release of liability of the
Company by the Trustee resulted in a $1,258,838 reduction of the
Company's general liabilities. As a result of the reduction in
liabilities and the elimination of the reserves established to cover
potential liability resulting from the termination of Janco, an
extraordinary gain was recognized at December 31, 1997.
On July 30, 1998, the Company sold its Windsor subsidiary to
Interiors, Inc. ("Interiors"). Accordingly, Windsor's and Janco's
decorative mirror and framed art business segment are accounted for
as discontinued operations in the accompanying consolidated financial
statements.
Windsor revenues were $8,262,934 and $12,713,313 for the year ended
December 31, 1998 and 1997, respectively. Revenues for Windsor for
the year ended December 31, 1998 include activity through the date of
sale of July 30, 1998. Janco had no operating activity in the
aforementioned periods.
The net operating activity of Windsor after the measurement date
through July 30, 1998 was not significant.
Originally, the consideration for the stock of Windsor was: a)
$1,700,000 in cash, b) a $2,000,000 secured promissory note, payable
over four years with interest at 8% per annum, and a discount of
$500,000 if paid by September 30, 1998, and c) a $3,300,000 secured,
short-term promissory note, due September 30, 1998 with interest at
8% per annum. The short-term note required a $300,000 payment on July
30, 1998. The short-term note was repaid as scheduled on September
30, 1998.
In connection with the purchase of Windsor, Interiors also purchased
150,000 shares of common stock of the Company for 750,000 shares of
its common stock and purchased a warrant to purchase 300,000 shares
of common stock of the Company for an additional 750,000 shares of
its common stock. If certain events occurred prior to December 31,
1998, Interiors had the option, but not the obligation, to reacquire
its shares from the Company for $1,625,000 by December 31, 1998. In
addition, if prior to December 31, 1998, Interiors consummated an
underwritten public offering of Interiors stock pursuant to a
registration statement declared effective under the Securities Act of
1933, as amended, in which the aggregate gross proceeds (before
underwriting fees, commissions and discounts) were at least
$15,000,000, then Interiors had the obligation, and not the option,
to repurchase the shares of Interiors for $1,625,000.
On December 1, 1998, the Company, Interiors, Windsor, Lloyd R.
Abrams, President of Bentley ("Mr. Abrams") and Max Munn, President
of Interiors ("Mr. Munn") entered into a Repurchase Agreement and
Mutual General Release (the "Repurchase Agreement") with respect to
(i) certain rights and obligations arising under the Stock Purchase
Agreement dated July 7, 1998 between Bentley and Interiors (the
"Stock Purchase
20
<PAGE>
Agreement") and all related documents executed in connection with the
sale of Windsor by Bentley to Interiors and (ii) rights and
obligations pertaining to stock of Bentley and of Interiors pursuant
to a Securities Purchase and Registration Rights Agreement dated July
30, 1998 (the "Securities Purchase Agreement"). Pursuant to the
Repurchase Agreement, Interiors, Windsor and Munn released Bentley
and Abrams and Bentley and Abrams released Interiors, Windsor and Mr.
Munn from any claims other than with respect to the rights and
obligations arising under the Repurchase Agreement.
Pursuant to the Repurchase Agreement Bentley released from a voting
trust and pledge agreement all of the capital stock of Windsor to
Interiors, canceled and delivered to Interiors the $2,000,000 note
made by Interiors in favor of Bentley on July 30, 1998 (the "Note"),
paid Windsor $100.00 in connection with the purchase by Bentley from
Windsor of certain furnishings and furniture and transferred to
Windsor 1,500,000 shares of Interiors Class A Common Stock (the
"Interiors Shares") previously acquired from Interiors pursuant to
the Securities Purchase Agreement, which shares had been subject to
an escrow agreement among Interiors, Bentley and U.S. Bank Trust
dated July 30, 1998 (the "Escrow Agreement") to secure certain
warranties and representations Bentley had made to Interiors in
connection with the sale of Windsor. In exchange Interiors paid to
Bentley $2,440,000 in cash plus interest from November 29, 1998 at
13% per annum, agreed to transfer 110,000 shares of Bentley Common
Stock to the President of Windsor and unconditionally assumed the
obligation of Bentley to convey 100,000 shares of Interiors Class A
Common Stock to the President of Windsor in satisfaction of certain
obligations Bentley had incurred to the President of Windsor pursuant
to a bonus agreement.
Pursuant to the Repurchase Agreement Mr. Abrams also agreed to cancel
his future rights and was released from his obligations under the
Consulting Agreement. In exchange for the cancellation and release
Mr. Abrams received from Interiors $125,000.00 in cash plus interest
from November 29, 1998 at 13% per annum, 40,000 shares of Bentley
Common Stock and the warrant for up to 300,000 shares of Bentley
Common Stock, which warrant Interiors had purchased from Bentley
pursuant to the Securities Purchase Agreement.
4. Investment In Partnership
In September 1996, as part of the Company's plan to restructure its
sports picture card business, Bentley transferred certain net assets
of Megacards to Legends, L.P., a newly-organized New York limited
partnership ("Legends"). Such transfer was partly a sale and partly a
contribution to capital. As partial consideration for the transfer,
Bentley received a 30% limited partnership interest. This investment
is accounted for on the equity method of accounting.
The investment was originally recorded at $286,936. At December 31,
1996, the asset was considered to be permanently impaired due to the
financial position of Legends. The impairment was estimated to be
$236,936 based on an estimate of net realizable value, less
disposition costs. Unaudited condensed financial information of
Legends, L.P. is as follows:
CONDENSED BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
Current assets $ 1,695,693
Fixed assets (net of accumulated depreciation) 236,951
Other long-term assets 13,260
-------------------------
$ 1,945,904
Current liabilities $ 758,162
Long-term debt 648,631
Partners' capital 539,111
-------------------------
$ 1,945,904
</TABLE>
21
<PAGE>
CONDENSED STATEMENT OF INCOME
For The Year Ended December 31, 1998
<TABLE>
<S> <C>
Net sales $ 3,555,413
Cost of sales 2,075,952
-------------------------
Gross profit 1,479,461
General and administrative expenses 1,336,144
-------------------------
Income from operations 143,317
Other expenses 106,384
-------------------------
Net income $ 36,933
=========================
</TABLE>
The investment in Legends has not been adjusted for its share of
income since the amounts are insignificant.
The investment in Legends, amounting to $50,000 at December 31, 1998,
is included in other assets on the consolidated balance sheet.
5. Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of those instruments.
Investments
The fair value of an investment in a municipal bond is estimated
based on quoted market prices for those or similar investments. The
carrying amount approximates fair value.
Investment In Partnership
The Company owns a 30% interest in a limited partnership. There is no
market for the partnership interest. Because of the financial
position of the partnership, the investment is carried at original
cost less a permanent impairment to reflect its fair value. The fair
value was based upon an estimate of the investment's net realizable
value.
6. Income Taxes
As discussed more fully below, the Company was in a net operating
loss position at December 31, 1997 and had established a full
valuation allowance for any net operating loss carryforward benefits,
as well as any other net deferred tax assets. Consequently, there was
no provision for income taxes for 1997. Deferred income taxes
represented the effect of temporary differences between the tax basis
of assets and liabilities and the amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes
also include the value of net operating loss carryforwards.
Management had determined that based on the Company's history of
prior operations and its expectations for the future, the net
deferred tax assets of the Company may not be realizable, and
consequently, a valuation allowance has been recognized to offset the
otherwise recognizable net deferred tax assets. As a result of the
sale of Windsor, there are no temporary differences which give rise
to a significant portion of deferred tax assets and liabilities and
the corresponding valuation allowance at December 31, 1998 except for
the net operating loss carryforward discussed below. The deferred tax
asset related to this is $358,000 and a valuation allowance for the
full amount has been provided.
22
<PAGE>
At December 31, 1998, the Company used its available net operating
loss carryforwards of approximately $4,326,000 to reduce taxable
income. Certain of the available net operating loss carryforwards
relate to operations prior to a business combination in 1995 and are
limited as to their use by the separate return limitation
regulations. As of December 31, 1998, approximately $895,000 of net
operating loss carryforwards are limited by such regulations. As a
result of the ownership change in connection with the business
combination, these net operating loss carryforwards are also limited
in their use on an annual basis pursuant to section 382 of the
Internal Revenue Code of 1986, as amended.
7. Related Party Transactions
Sublease Retail Space
The Company leased retail space under an operating lease which
expires on February 28, 2001. In October 1995, the Company sold its
inventory related to this retail store operation and entered into a
sublease for the space with a corporation whose stockholders include
a family member of a former Director of the Company. The sublease ran
from January 1, 1996 through June 30, 1998 and all rents were paid
directly to the lessor by the sublessee. The lease obligation was
canceled during the third quarter of 1998 and the remaining liability
was taken into income.
Other
Prior to the sale of Windsor, the Company paid a trust, of which a
stockholder/officer is a trustee, $2,000 per month, beginning
December 1996, for use of a condominium located in Newport Beach,
California, within a short drive from Windsor's production facility,
by certain company employees, customers and sales representatives.
The arrangement was terminated upon the sale of Windsor.
8. Supplemental Statement Of Cash Flow Information
During 1998, the Company acquired the stock of RMCR for cash of
$282,000 and the issuance of 120,000 shares of common stock valued at
$300,000. Also in 1998, the Company issued 150,000 shares of common
stock, in exchange for 750,000 shares of common stock of the
acquiring company of Windsor. The Company received an additional
750,000 shares of the acquiring company's common stock for the
issuance of warrants to purchase 300,000 shares of common stock of
the Company. The 1.5 million shares of the acquiring company's common
stock was valued at $905,000.
The Company had no significant noncash investing or financing
activities for the year ended December 31, 1997.
9. Commitments And Contingencies
Lease Commitments
The Company leases office space under an operating lease which
expires on December 31, 2001. The Company also leased office,
production facility, showroom facility and retail space under
operating leases which were transferred upon the sale of Windsor.
Total rent expense under all operating leases was $248,198 in 1998
and $419,311 in 1997.
The future minimum annual rentals under the remaining lease is as
follows:
<TABLE>
Total Lease
Year Commitments
- - ------------------------------------------------------------------
<S> <C>
1999 $ 21,600
2000 28,800
2001 28,800
</TABLE>
Legal Proceedings
23
<PAGE>
On September 29, 1998, Bentley was sued by three shareholders. One of the
shareholders was an officer of Janco Designs, Inc., the subsidiary of the
Company which was the subject of an involuntary bankruptcy proceeding and has
now been dissolved. The other two shareholders are former officers and directors
of the Company who acted as such when the Company's sole business consisted of
the sports picture card business known as Megacards. That business segment was
discontinued in 1996.
Leo M. Rodgers, III, a shareholder of the Company, filed a lawsuit against
the Company on September 29, 1998 in the Circuit Court of St. Louis County,
Missouri, asking for a judgement in his favor against the Company in the amount
of the "fair value" as of July 1, 1998, of 30,420 shares allegedly owned
individually by Mr. Rodgers and 423,500 shares allegedly held in the name of
Lloyd R. Abrams, Trustee under a Voting Trust Agreement dated July 17, 1995 (the
"Voting Trust"), of which Mr. Rodgers alleges he is the beneficial owner. Mr.
Rodgers alleges that he is entitled to such a judgement pursuant to Mo. Rev.
Stat. ss.351.405 in connection with the sale of the Company's subsidiary,
Windsor Art, Inc. ("Windsor"), which represented substantially all of the assets
of the Company. The sale of Windsor was approved at the annual meeting of the
Company's shareholders on July 2, 1998. Section 351.405 requires a company to
purchase the shares of any shareholder who, at or prior to the meeting at which
the sale of substantially all of the assets of the company was approved, filed
with the company written objection to the sale, did not vote in favor of the
sale and subsequently made a timely demand for purchase of such shares by the
company. Management of the Company believes that the Company is not required to
purchase the 423,500 shares allegedly held in the Voting Trust because such
shares were voted in favor of the sale. The Company will defend vigorously the
Company's position in court.
Two other shareholders, Andrew Wolfson and Stephan Juskewycz, also filed
suit against Bentley on September 29, 1998 in the Circuit Court of St. Louis
County, Missouri, to require the Company to purchase their shares for the "fair
value" of the shares in connection with the sale of Windsor under ss.351.405,
alleging that they own 98,115 and 86,335 shares, respectively. The Company
believes that the respective claims of the two shareholders are separate and
distinct. The notice required by ss.351.405 objecting to the sale with respect
to Mr. Wolfson's alleged 98,115 shares was not received until after the meeting
at which the vote on the sale of Windsor was held. Therefore, management
believes that the Company is not required to repurchase Mr. Wolfson's shares and
will defend vigorously the Company's position in court.
As part of the same suit, Messrs. Wolfson and Juskewycz also brought a
shareholders' derivative suit against the three directors of the Company, Mr.
Abrams, Ramakant Agarwal and Janet L. Salk. The plaintiffs claim that the
Directors breached their fiduciary obligations to the shareholders, including
the plaintiffs, by causing the Company to repay notes of Janco Designs, Inc., a
subsidiary of the Company, in the amount of $450,000 to certain trusts of which
Mr. Abrams, Richard B. Rothman and Patricia Rothman are trustees. The plaintiffs
also claim that the trusts were unjustly enriched by the repayment of the notes
and that it would be inequitable for the trusts to retain the $450,000 repaid to
them. The derivative suit demands that the $450,000 be returned to the Company.
Management of the Company believes that the notes were properly repaid because
they were secured by Windsor's assets and guaranteed by Windsor and the Company.
The Company will defend vigorously the Company's position in court.
Messrs. Wolfson and Juskewycz's suit also alleges a derivative claim that
Mr. Abrams breached a fiduciary duty to the shareholders in connection with the
sale of the Company's wholly owned subsidiary, Windsor, to Interiors by entering
into a consulting agreement with Windsor and Interiors. The derivative suit
demands that the payments made under the consulting agreement be paid over to
the Company. Management believes that the consideration Mr. Abrams is entitled
to receive pursuant to the terms of the consulting agreement is appropriate in
exchange for the services which Mr. Abrams has agreed to provide to both Windsor
and Interiors and for the covenants regarding noncompetition and other matters
made by Mr. Abrams in the agreement. The Company will defend vigorously the
Company's position in court.
Messrs. Wolfson and Juskewycz's amended their suit on January 21, 1999. As
amended, the suit further alleges that salary and benefits paid to Mr. Abrams
from the Company was $265,000 in 1996 and $284,423 in 1997, that in addition to
these amounts Mr. Abrams also received over $50,000 per year in additional
benefits from the Company, and that this compensation was excessive. The suit
demands that such salary and benefits be repaid to Bentley. Management believes
that the consideration Mr. Abrams received in 1996 and 1997 was
24
<PAGE>
a reasonable payment in exchange for the services which Mr. Abrams provided to
the Company as President and Chief Executive Officer. The Company will defend
vigorously the Company's position in court.
The Wolfson and Juskewycz amended suit further alleges that bonuses in the
amount of $1,000,000 were paid or will be paid improperly in connection with the
sale of Windsor to Windsor employees and directors by the Company and demands
that these moneys be repaid to the Company. Management notes that the sole
director of Windsor, Lloyd R. Abrams, was not paid any bonus as a result of the
sale of Windsor. Management believes that any and all bonuses paid in connection
with the sale of Windsor were paid properly for past services and for the future
benefit of the Company. The Company will defend vigorously the Company's
position in court.
Finally, the amended suit of Messrs. Wolfson and Juskewycz alleges that the
conduct of the directors and control persons of Bentley in managing the Company
supports a claim for judicial dissolution of the Company pursuant to Mo. Rev.
Stat. ss.351.494, which provides in paragraph (b) that a company may be
dissolved if its directors have acted, are acting, or will act in a manner that
is illegal, oppressive, or fraudulent. Messrs. Wolfson and Juskewycz allege that
the conduct of the directors and control persons of the Company satisfies this
test, due to the actions alleged in the previously described counts of the
lawsuit, and a claim that professional fees, alleged to be $150,000, paid by
Bentley in connection with the Windsor transactions were excessive, and demand
that the Company be judicially liquidated and dissolved, with Bentley's assets
converted to cash and distributed to the shareholders on a pro rata basis after
adjustment for the claims previously alleged, and that a receiver be appointed
for the Company. Management believes that this claim is totally unsupported by
the facts, as discussed in relation to the other claims in the lawsuit that are
discussed in the preceding paragraphs, and believes that any professional
service payments made in connection with the Windsor transactions were
reasonable given the services provided. The Company will defend vigorously the
Company's position in court.
The ultimate resolutions of the lawsuits are not within the Company's
control. The court's decision with regard to the validity of the claims made by
the three shareholders and the valuation of their claims could cause materially
different results from those believed likely by management.
The Company is not currently a party to any other legal proceedings, other
than routine proceedings in the ordinary course of business. The ordinary course
proceedings are not anticipated to have a material adverse effect on the
Company's results of operation or financial condition.
10. Earnings Per Common Share
For 1998 and 1997, the computation of basic and diluted earnings per
common share is as follows:
<TABLE>
1998 1997
----------------------------------------------
<S> <C> <C>
Numerator for basic and diluted earnings
per share - income available
to common shareholders $ 3,884,277 $ 2,427,146
==============================================
Denominator:
Weighted average number of common
shares used in basic EPS 2,876,162 2,813,285
Effect of dilutive securities:
Common stock options 29,345 41,169
---------------------------------------------
Weighted number of common shares and
dilutive potential common stock used
in diluted EPS 2,905,507 2,854,454
=============================================
</TABLE>
25
<PAGE>
For additional disclosures regarding stock options, see Note 11.
11. Stock Option Plans
The Company's 1991 Stock Option Plan (the "1991 Plan") provides for
granting to eligible employees, officers and consultants of the
Company, options to purchase a maximum of 87,500 shares of the
Company's common stock. The Plan provides for the granting of options
which qualify as incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, as well as the granting of
nonqualified stock options. All options granted under the Plan must
have an exercise price of not less than 100% of the fair market value
of the common stock on the date of grant and a maximum term of ten
years.
The Board of Directors of the Company may, in its sole discretion,
amend or terminate the Plan at any time, provided, however, that it
may not, without stockholder approval, change (a) the maximum number
of shares for which options may be granted under the Plan; (b) the
minimum option price; (c) the maximum period during which an option
may be granted or exercised; or (d) the eligibility provisions
regarding employees to whom options may be granted.
The Company also has a non-qualified stock option plan (the "1995
Plan") which provides for granting to eligible employees of the
Company or its subsidiaries, options to purchase a maximum of 300,000
shares of the Company's common stock. The purchase price of the stock
subject to each option granted should not be less than the par value
of such stock subject to the option. The term of each option granted
pursuant to the 1995 Plan shall not be more than ten years from the
date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Option Plans. Accordingly, no compensation cost
has been recognized. Had compensation cost been determined based on
the fair value at the grant dates for awards under the Plans,
consistent with the alternative method set forth under SFAS 123, the
Company's net income (loss) and net income (loss) per common and
common equivalent share would have been reduced. The pro forma
amounts are indicated below:
<TABLE>
1998 1997
----------------------------------------------
<S> <C> <C>
Net Income
As reported $ 3,884,277 $ 2,427,146
Pro forma $ 3,837,531 $ 2,348,690
Net Income Per Common Share
As reported $ 1.35 $ 0.87
Pro forma $ 1.33 $ 0.84
Net Income Per Common Share -
Assuming Dilution
As reported $ 1.33 $ 0.85
Proforma $ 1.31 $ 0.82
</TABLE>
The weighted-average fair value of options granted was $0.39 and $0.16 for the
years ended December 31, 1998 and 1997, respectively. The fair value of each
option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
[Remainder of page intentionally left blank.]
26
<PAGE>
<TABLE>
1998 1997
----------------------------------------------
<S> <C> <C>
Expected life 3.0 3.0
Interest rate 8.5% 8.5%
Volatility 144.46% 194.38%
Dividend yield 0 0
</TABLE>
A summary of stock option activity for 1998 and 1997 is as follows:
<TABLE>
Weighted
Average
Number Price Exercise
Of Shares Per Share Price
----------------------------------------------------------
<S> <C> <C> <C>
Balance - January 1, 1997 161,940 $0.25 - $2.40 $0.64
Granted 68,000 $0.25 - $0.30 $0.30
Forfeited/expired (28,607) $0.60 - $2.40 $1.35
----------------------------------------------------------
Balance - December 31, 1997 201,333 $0.25 - $1.20 $0.42
Granted 20,000 $0.90 $0.90
Forfeited/expired (150,000) $0.25 - $0.90 $0.31
----------------------------------------------------------
Balance - December 31, 1998 71,333 $0.30 - $1.20 $0.80
==========================================================
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
Weighted
Number of Average
Options Remaining Weighted
Range Of Outstanding And Years Of Average
Exercise Prices Exercisable Contractual Life Exercise Price
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.30 - $1.20 71,333 5 $0.80
=====================================================================================================================
</TABLE>
12. Significant Customers And Suppliers
During 1997, sales to one customer approximated 21% of total
consolidated net sales. Accounts receivable from the customer
amounted to approximately $251,000 at December 31, 1997. Purchases
from two suppliers represented 26% of total purchases and accounts
payable to the two suppliers amounted to $42,397 at December 31,
1997.
There were no significant customers or suppliers for 1998.
13. Subsequent Events
Pursuant to an agreement dated February 23, 1999, RMCR acquired
substantially all of the assets of Mortgage Credit Service
("M.C.S."), a credit reporting company for $76,000. RMCR signed a
promissory note for $36,000, to be paid at the rate of 10% per month
of the collected monthly billings from existing customers of M.C.S.
The remainder of the purchase price was paid in cash.
27
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants during the
1997 and 1998 fiscal years.
The Company will provide without charge to any shareholder upon
written request a copy of the Company's annual report on Form 10-KSB. Requests
should be addressed to Bentley International, Inc., 9719 Conway Road, St.
Louis, MO 63124.
September 7, 1999
BENTLEY INTERNATIONAL, INC.
Lloyd R. Abrams, President
and Chief Executive Officer
28
