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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Veridien Corporation
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(Name of Small Business Issuer in its charter)
Delaware 59-3020382
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11800 28th Street North, St. Petersburg, Florida 33716
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (727) 572-5500
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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(Title of class)
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 Description of Business 5
Item 2 Management's Discussion and Analysis or Plan of Operation 13
Item 3 Description of Property 17
Item 4 Security Ownership of Certain Beneficial Owners
and Management 19
Item 5 Directors, Executive Officers, Promoters and Control Persons 20
Item 6 Executive Compensation 24
Item 7 Certain Relationships and Related Transactions 26
Item 8 Description of Securities 27
PART II
Item 1 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters 35
Item 2 Legal Proceedings 36
Item 3 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 37
Item 4 Recent Sales of Unregistered Securities 37
Item 5 Indemnification of Directors and Officers 40
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FINANCIAL STATEMENTS
See attached Financial Statements
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EXHIBIT INDEX
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No. Description of Exhibit
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*3.1 Certificate of Incorporation of VCT Acquisitions II, Inc. - Dated
June 4, 1991
*3.2 Restated Certificate of Incorporation of VCT Acquisitions II, Inc. -
Dated September 13, 1991
*3.3 Certificate of Amendment of Restated Certificate of Incorporation -
November 6, 1991
*3.4 Bylaws of Veridien Corporation - 1998 as amended to date
*3.5 Certificate of the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of Series B Convertible Preferred Stock -
Dated September 11, 1998
*3.6 Certificate of Designation - Dated April 3, 1995
*3.7 Certificate of Amendment to the Certificate of Incorporation - Dated
February 16, 1996
*4.1 Debenture Sample
*4.2 General Security Agreement between Veridien Corp. and Dunvegan Mortgage
Corp. - Dated October 19, 1995
*4.3 Loan and Security Agreement between Veridien Corp. and Dunvegan Mortgage
Corp. - Dated October 19, 1995
*4.4 General Security Pledge between Veridien Corp. and Dunvegan Mortgage
Corp. - Dated October 19, 1995
*4.5 Warrant Agreement regarding Warrants to purchase Common Stock of Veridien
Corporation-Series I - Dated October 19, 1995
*4.6 Warrant Agreement regarding Warrants to purchase Common Stock of Veridien
Corporation-Series II - Dated October 19, 1995
*4.7 Warrant to purchase Common Stock Series I and Series II - Dated
December 12, 1995
*4.8 Common Stock Purchase Warrant: $0.135 per share - Dated June 10, 1998
*10.1 Building Lease
*10.2 Canadian Licensing Agreement - Dated February 28, 1998
*10.3 Contract Fill and Sub-lease Agreement with Horizon Pharmaceuticals, Inc.
- Dated August 1, 1998
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*10.4 Trademark - Virahol
*10.5 Trademark - Viraguard
*10.6 Trademark - Viragel
*10.7 Trademark - Vira- CD7
*10.8 Australian Patent No. 667,930/Sterihol
*10.9 Australian Patent No. 628,932/Virahol
*10.10 Canadian Patent No. 1,337,329/Virahol
*10.11 Mexican Patent No. 185,884/Virahol
*10.12 U.K. Patent No. 2,294,639/Virahol
*10.13 U.K. Patent No. 2,245,171/Virahol
*10.14 U.S. Patent No. 5,405,602/Sterihol
*10.15 U.S. Patent No. 5,145,663/Virahol
*10.16 U.S. Patent No. 5,441,723/Virahol
*10.17 U.S. Patent No. 5,637,307/Method of Immersion Sterilization & Organic
Cold Chemical Sterilant
*10.18 New Zealand Patent No. 269,419/Virahol
10.19 Employment Agreement with Paul L. Simmons
10.20 Employment Agreement with Andrew T. Libby, Jr.
*21.1 Subsidiaries
*27 Financial Data Schedule
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*Exhibit filed with Form 10-sb dated March 12, 1999, File No. 000-25555.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION/HISTORICAL BACKGROUND
We were incorporated in Delaware on June 4, 1991 as "VCT Acquisitions II, Inc.".
We then acquired all of the assets of another Delaware corporation called Viral
Control Technology, Inc. On September 13, 1991, we changed our name to Viral
Control Technology, Inc. On November 8, 1991, we again changed our name and
became Veridien Corporation.
The "Viral Control Technology, Inc." from which we acquired our assets was
created on August 3, 1989 by a reverse acquisition of a public shell called
Valencia Enterprises, Inc. by a private company named Viral Control Technology,
Inc. The original Viral Control Technology, Inc. was organized in Delaware on
August 10, 1988 while Valencia Enterprises was organized in Utah on February 10,
1984. Valencia, which had changed its name to Viral Control Technology, Inc.
after the reorganization, was redomesticated in Delaware on December 14, 1990.
The original private company called Viral Control Technology, Inc. was organized
by Paul L. Simmons and his wife. Mr. Simmons continues to be a director and a
substantial stockholder.
BUSINESS
We were founded to develop, manufacture, distribute and sell disinfectants,
antiseptics, and sterilants which are inherently non-toxic, posing no hazard to
people who use them and which are environmentally friendly, decomposing into
harmless naturally occurring organic molecules. To this end, we have developed
and patented a hard surface disinfectant, VIRAHOL (R), which has been registered
with the Environmental Protection Agency (EPA) , and an antiseptic hand gel
sanitizer made in accordance with the applicable Food and Drug Administration
(FDA) Monograph, containing the patented VIRAHOL(R) composition. In April 1998,
we added a First Aid Antiseptic Spray containing the VIRAHOL(R) composition made
in accordance with the applicable FDA Monograph, to our product line. Our
products are manufactured in a leased 38,000 square foot facility located in St.
Petersburg, Florida, under Good Manufacturing Practices (GMP).
We operate both a microbiological and chemical laboratory operating under Good
Laboratory Practices (GLP) and perform directly or contract out our research and
development activities (R&D). R&D activities currently underway include
development of a unique, fast acting, cold chemical sterilant for medical and
dental instruments, various medical and dental devices (some of which employ the
VIRAHOL(R) product), and on different applications for our existing technology.
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CORPORATE FINANCE AND CAPITAL STRUCTURE
In October 1995 the Company entered into a Loan and Security Agreement with
Dunvegan Mortgage Corporation. Dunvegan is a company of which the Company's
current President and CEO (since June 1998) is an officer and director, but at
the time of the transaction there was no affiliation. Under the terms of the
Loan and Security Agreement, the lender was issued Common Stock Purchase
Warrants which guaranteed the lender could maintain a 51% ownership interest in
the Company so long as the debt was outstanding. Under the Loan and Security
Agreement, Dunvegan loaned the Company $2,500,000 and received a 10% Convertible
Senior Secured Promissory Note as evidence thereof.
In late 1997 it was noted that if all outstanding convertible securities were
converted and all outstanding common stock purchase warrants were exercised the
total number of shares issued and outstanding would exceed the then authorized
100,000,000 shares of Common Stock. Accordingly, on December 15, 1997 the
Company's Board of Directors approved a capital-restructuring plan whereby
preferred stock warrants would be issued in lieu of certain common stock
warrants. So far, only the Dunvegan portion of the capital-restructuring plan
has been implemented. On September 14, 1998 the Company designated the Series B
Convertible Preferred Stock and authorized the Series B Convertible Preferred
Stock Purchase Warrants. Thereupon, the total number of Common Stock Purchase
Warrants held by Dunvegan was reduced by the Common Stock equivalent of the
Preferred Stock Purchase Warrants issued.
That same day, Dunvegan elected to exercise a portion of its common stock and
preferred stock warrants and used $1,575,166 of the $2,500,000 indebtedness in
payment of the warrant exercise prices. At that time, based on a calculation of
51% of the Company's equity ownership, Dunvegan exercised 33,530,973 Common
Stock Purchase Warrants and 154,163 Preferred Stock Purchase Warrants and
received 33,530,973 shares of the Company's Common Stock and 154,163 shares of
the Company's Series B Preferred Stock. Since the 154,163 shares of the
Company's Series B Preferred Stock are convertible into 3,089,449 shares of the
Company's Common Stock, the calculated exercise price per share of Common Stock
was $.043. The remaining loan balance of $924,834 was assigned to another
lender.
At the Annual Meeting of Stockholders held November 6, 1998 the number of shares
of Common Stock authorized was increased from 100,000,000 to 200,000,000.
PRODUCTS
Our products are designed for use both in health care delivery environments and
for consumer and commercial applications where disinfectants and antiseptics are
sought. The patented VIRAHOL(R) composition is the basic infection control
ingredient used in the majority of our products. Our disinfectant products are
sold ready to use, not requiring dilution, and accomplish their germicidal
effects without the need for inherently toxic compounds, such as quaternary
ammonium compounds, phenols, iodophors, and chlorine, which may leave sublethal
toxic films
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that can exert genetic pressure on pathogens to alter themselves to more
resistant forms.
VIRAHOL(R) has been acknowledged by the United States Department of Agriculture
(USDA) as acceptable as an antimicrobial agent for surfaces requiring a water
rinse and requires no mask and/or gloves for application.
VIRAHOL(R) usage eliminates the need to use toxic chemicals, however, dilute
they may be, as disinfectants and antiseptics in the home, hospital, dental
office, restaurant, and any other environment where people are exposed to
pathogens.
Our products include the following under our own trademarks or as private label
products.
VIRAHOL(R) - Non-toxic, ready to use, hard surface
disinfectant/cleaner, tuberculocide, bactericide, virucide, and
fungicide packaged in sizes ranging from 1.2 oz. Pump sprays to 55
gallon drums. No aerosols, which may harm the environment, are employed
in any of our packaging. VIRAHOL(R) can be sprayed or wiped onto
surfaces such as toilet seats, door handles, public telephones, counter
tops, etc. Because of its wide range of materials compatibility, it can
be used full strength on bedspreads and all types of fabrics. Because
VIRAHOL(R) is not water-based, it is a cleaner and disinfectant product
for all types of electronic equipment, including computer keyboards and
monitors.
VIRAGEL(R) - Waterless, antiseptic hand sanitizer packaged in sizes
ranging from a 1/2 oz. Packet or purse container to 800 ml wall mounted
commercial sized dispensers with sealed replacement bags supplying over
1,000 applications. VIRAGEL(R) is to be used to supplement routine hand
washing for the family or for the person on the job when no water is
available, to kill a wide variety of pathogens fast. VIRAGEL(R)
contains a moisturizing formula and will not dry out the hands.
VIRAGEL(R) employs a premium grade thickener, insuring long product
stability and the right feel in the hands. Among the many pathogens
killed in 30 seconds or less with VIRAGEL(R) are bacteria know to cause
intestinal disorders, such as Salmonella and E.coli, and secondary
infections such as Staphylococcus, including strains of genetically
altered pathogens resistant to certain antibiotics.
VIRAGUARD(R) First Aid Antiseptic Spray - Packaged in a 3 oz. Pump
spray size. VIRAGUARD(R) First Aid Antiseptic Spray contains the
patented VIRAHOL(R) composition. A special no-sting formula is featured
with lidocaine.
VIRAHOL(R) products are also marketed in several different kit assemblies
designed for sales through various customer market segments. Different kits are
available for catalog sales, direct TV and radio sales, multi-level marketing,
fund raising sales, and the travel and hospitality industry.
THE COMPETITION AND VIRAHOL(R)
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We have many competitors in our major product categories; (i) hard surface
disinfectants, (ii) waterless antiseptic hand sanitizers, and (iii) first aid
antiseptic sprays. The competitors, which include such companies as Johnson &
Johnson, Proctor & Gamble, Clorox, Quest, Inc., Betco, and Gojo Industries, have
recognized national brands that include Clorox, Lysol, First Medic, Quest,
Sporidicin, Metricide, and Purell. The competitors' products are based primarily
on an aqueous solution. Many of these products contain ingredients from one of
the following four families of ingredients: ammonium, phenol, chlorine, and/or
glutaraldehyde. One of the common characteristics of these types of active
ingredients is that they are toxic skin penetrants. Our product line, containing
the patented VIRAHOL(R) composition, has as the basic underlying characteristic
that the products are non-toxic and no-skin penetrating. The products are
non-aqueous based with the primary active ingredient being isopropyl alcohol.
Other active ingredients in our composition are propylene glycol and citrus
oils. Propylene glycol is a wetting agent that retards evaporation and aids in
the penetration of cell walls as well as lowers flammability. Isopropyl alcohol
and propylene glycol combine to create a synergistic action that makes the
formulation more effective than alcohol without other ingredients.
To the best of our knowledge, no competitive products have the inherently
non-toxic feature of the patented VIRAHOL(R) composition, complete
biodegradability and efficacy against a broad range of pathogens. It has been
easier and cheaper for our competition to-date and to employ toxic materials,
diluted with water, as disinfectants than to find how to create an inherently
non-toxic formulation. That is why we have a proliferation of products
containing chlorine, ammonia, and pine oil. Government and environmental
agencies are starting to focus on the negative aspects of toxicity in
disinfectants and may prohibit the use of such products in the market place.
Many of our competitors, recognizing an untapped market potential in changing
consumer awareness in disease transmission, are expanding the market through
various marketing campaigns. This market expansion is deemed to be of great
importance to us as increased market growth of the market base (due to increased
awareness) will allow for an easier penetration by our products.
COMPANY SALES AND PRICING STRATEGIES
Our sales and management personnel serve the consumer markets along with key
specialty agents. The Company's "key specialty agents" are independent sales
representatives which market our products to focused groups of consumers, such
as the multi-level sales force of Nutrition For Life International, Inc. (home
sales) and the niche marketer, Duty Free Shops (the traveling public). In the
commercial market segments, multi-line industry segment distributors and
manufacturers' representatives are guided by Company sales personnel. Our
management and sales personnel provide distributor support and sales training.
Although the VIRAHOL(R) composition is inherently more expensive than the raw
materials of the competitive products, our pricing strategy is to remain as
close as possible to competitors' pricing to emphasize the clear price/value
comparison.
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AVAILABILITY OF RAW MATERIALS
The largest ingredients by weight for the VIRAHOL(R) composition are isopropyl
alcohol and propylene glycol. Both of these chemicals are readily available from
a wide variety of sources nationally and internationally, at competitive prices.
Although we prefer to use isopropyl alcohol as the monohydric alcohol and
propylene glycol as the polyhydric alcohol, our patent covers the full range of
both of these alcohol's so that a wide variety of choices are available should a
shortage in one or more chemicals occur. Substantial numbers of companies
produce both the plastic and corrugated packaging used by the Company. Trade
secret ingredients are employed for fragrances used in the Company's products
but are available from several sources.
MARKETING STRATEGY AND KEY MARKET SEGMENT
We have elected to pursue domestic marketing activities as a niche marketer,
recognizing that the large competitors, many of whom are part of large,
national, and multinational companies, pose formidable threats in head-to-head
marketing strategies at either the consumer or commercial user level. By
developing carefully crafted niche strategies in bother the consumer and
commercial markets, avoiding the most traditional levels of distribution, we
expect results that might only be expected through costly advertising and
promotional campaigns. Within the consumer market segment, the following niche
markets have been targeted: (i) multi-level marketing sales, (ii) direct
marketing through short form radio and TV infomercials, (iii) potential direct
marketing through Home Shopping Network ("HSN"), (iv) catalog sales, (v) fund
raising sales, and (vi) travel and hospitality sales. For the commercial
markets: (i) dental office sales, (ii) medical offices and clinics, (iii)
specialty hospital sales, (iv) schools and office buildings, (v) restaurant/fast
food sales, and (vi) emergency medical, police, and fire.
Currently we are selling the VIRAHOL(R) product line under the Enviro Defense
System label to the 100,000 distributors of Nutrition for Life International,
the Houston-based, NASDAQ multi-level marketing company (MLM). We plan to expand
the sales of our products through several different private labels to at least
two additional MLMs during 1999.
Our product has been featured in the Healthy Home Catalog (affiliated with
Aetna/U.S. Health Care) for the sale of kits of VIRAHOL(R) to consumers through
more than 4 million catalogs. Additional marketing activities are underway for
the major introduction of fund-raising product sales through a variety of
schools and the travel and hospitality market, as well as sourcing direct
marketing with outside resources.
We are expecting growth in our consumer marketing, with distributors from coast
to coast. Additionally, we are expecting growth in our dental and medical
markets with increasing sales of the waterless antiseptic hand sanitizer.
GOVERNMENTAL REGULATION
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Those who develop products to control pests are subject to regulation under
several Federal Laws. However, only certain pest control products are subject to
registration. The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) and
Federal Food, Drug, and Cosmetic Act (FFDCA) As Amended by the Food Quality
Protection Act (FQPA) of August 3, 1996, requires that before any person in any
state or foreign country can sell or distribute any pesticide in the United
States, they must obtain a registration from the U. S. Environmental Protection
Agency (EPA). The term "pesticide," as defined in FIFRA section 2 (u), means any
substance or mixture of substances intended for preventing, destroying,
repelling, or mitigating any pest, virus, bacteria, or other micro-organism
(except viruses, bacteria, or other micro-organism on or in living man or other
living animals). Pesticides include fungicides, disinfectants, sanitizers, and
germicides. After the registration process and submission of required data, an
accepted label is stamped accepted and returned to the registrant for the
registered product. Annual Pesticide Maintenance Fees are required for
registered products. Anyone who sells/distributes a pesticide (including
antimicrobial products such as disinfectants, sanitizers, and germicides) must
register that product in every state and pay a registration fee. As of this
date, Alaska does not require a registration fee but does require registration.
In order to "produce," defined to mean "to manufacture, prepare, propagate,
compound, or process any pesticide... or to repackage or otherwise change the
container of any pesticide.. " the plant(s) and/or facility must be
registered. Upon registration an establishment number is assigned. The label
and/or container must bear the registration number as well as the establishment
number. Annual reports are required to be submitted to the US EPA indicating the
amount produced, repackaged/relabeled for the past year, amount sold/distributed
for the past year US and Foreign, and amount to be produced/repackaged/relabeled
for the current year.
The Company currently has two products registered with the United States
Environmental Protection Agency. They are as follows:
A. VIRAHOL(R) Hospital Disinfectant/Cleaner & Instrument Presoak, assigned EPA
Registration No. 60142-1, and has an EPA accepted label, is designed for
effective disinfecting, cleaning and deodorizing of hard inanimate surfaces
such as walls, sink tops, tables, chairs, telephones and bed frames.
B. VIRAHOL(R) Hospital Surface Disinfectant Towelette, assigned EPA
Registration No. 60142-3, and has an EPA accepted label, is designed for
effective cleaning, disinfecting and deodorizing of hard non-porous,
inanimate surfaces such as walls, sink tops, tables, chairs, telephones and
bed frames.
The Company facility in which the product(s) is produced is registered and
assigned EPA Establishment No. 60142-FL-1.
In addition, the Company manufactures and distributes Antiseptic Drug Products
per 21 CFR Parts 333 and 369 and respective monographs, Topical Antimicrobial
Drug Products for Over-the-Counter Human Use. Veridien Corporation's
establishment is registered and a Labeler Code
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Number was assigned. Per Title 21, Part 207 of the Code of Federal Regulations
(CFR), the products are drug listed with the Food and Drug Administration (FDA).
All regulated products, EPA and FDA, are manufactured in compliance with Good
Manufacturing Practices (GMPs).
CANADIAN LICENSING
We have entered into an agreement with Backcourt Industries, Inc. (BII),
Toronto, Canada, licensing BII to produce and market the VIRAHOL(R) line in
Canada. BII has completed product registrations with Health Canada and plans to
market VIRAHOL(R) under the VIRAGUARD(R) trade name primarily through retail
distribution channels in specialty and mass merchandisers in Canada. The product
has received strong preliminary acceptance in Canada and aggressive sales are
forecast.
RESEARCH AND DEVELOPMENT
Research and development for 1998 was $377,344. this was an increase of $131,940
or 53% compared with expenditures of $245,404 in 1997. the increase can be
attributed primarily to increased activity associated with development of
Sterihol((R) Part of the additional costs were incurred in patent application.
COMPLIANCE WITH ENVIRONMENTAL LAWS
We have had no need to spend monies on compliance with local, state and federal
laws. We are current for our annual filing of the Pesticide Registration
Maintenance Fee Filing Form for 1999, and our annual filing of the Pesticide
Report for Pesticide-Producing Establishments. The Company is in receipt of the
certificates of approval from all states that the registered product is
currently sold and/or distributed.
NUMBER OF EMPLOYEES
We employ nineteen persons, all of whom are full-time employees.
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Management & Finance 3
Sales 3
R&D 3
Production & Administration 10
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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains some forward-looking statements. "Forward-looking
statements" describe
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our current expectations or forecasts of future events. These statements do not
relate strictly to historical or current facts. In particular, these include
statements relating to future actions, prospective products, future performance
or results of current and anticipated products, sales, efforts, the outcome of
contingencies and financial results. Any or all of the forward-looking
statements we make may turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown risks and uncertainties. Many
factors, such as product acceptance, competition and marketing capabilities,
will be important in determining future results. Consequently, no
forward-looking statements can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in our 10-QSB, 8-KSB, and 10-KSB reports to the SEC.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.
RISKS OF OUR BUSINESS
We are a small and relatively new company. To date, we have expended much of our
efforts and funds on development of products. We have only recently begun
concerted sales and marketing efforts. We are uncertain about the market
acceptance of our products.
As a small company, we are highly dependent upon the efforts and abilities of
our management. The loss of the services of any of them could have a substantial
adverse effect on us. We have not purchased "key man" insurance policies on any
of them.
To date the Company has not had significant sales. We expect the growth in our
sales to come primarily from others, such as independent manufacturer's
representatives and accessing existing distribution and fulfillment systems. We
cannot be certain about our ability to attract and retain representatives until
we have had greater experience with these groups and organizations. We are also
uncertain about their sales effectiveness for our products.
We have expended substantial capital on developing our products and beginning
sales and marketing. Until we are cashflow-positive from sales, we will need
additional financing to fund our growth. We are uncertain about our ability to
secure the financing. We are also uncertain about the costs of any financing
which we may obtain. We have many competitors in our major product categories.
We are uncertain about our ability to compete effectively.
We must be able to manage our expected growth. This means we must increase our
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manufacturing capacity, expand and improve our timely management of orders, and
secure sufficient, reliable shipping. We must also have the systems to handle
ordering of raw materials and packaging supplies, as well as managing our
inventories.
Our current product line depends upon VIRAHOL(R), which is patented. If
VIRAHOL(R) were to become subject to a problem, such as loss of patent
protection, regulatory proceedings, or pressure from a directly competitive
product, the impact on our revenues could be significant.
RISKS OF OUR PRODUCTS
Our products, disinfectants and antiseptics, are subject to regulation by
various governmental agencies. Typically, they must be tested before they can be
introduced into the market. Our VIRAHOL(R) product is approved. We are uncertain
about approvals of future products.
Any failure of our products to fulfill their stated purpose could result in
lawsuits for product liability or breech of contract. We currently maintain
product liability insurance. A successful claim against us in excess of our
insurance coverage could have a material adverse effect on our result of
operations, financial condition or business. Even unsuccessful claims would
result in expenditure of funds in litigation, as well as diversion of management
time and resources.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes contained elsewhere in this document. The
discussion contained herein relates to the financial statements, which have been
prepared in accordance with GAAP.
OVERVIEW
We are organized as a Delaware corporation to engage in the development,
manufacture, distribution and sale of disinfectants, antiseptics, and sterilants
which are inherently non-toxic, posing no hazard to people who use them, and
which are environmentally friendly, decomposing into harmless, naturally
occurring organic molecules. To this end, we have developed and patented a hard
surface disinfectant, VIRAHOL(R), which has been registered with the
Environmental Protection Agency (EPA), and an antiseptic hand gel sanitizer,
made in accordance with the applicable FDA Monograph, to our product line. We
have incurred losses since our incorporation. At December 31, 1998, we had an
accumulated deficit of $27,589,451. We have financed our ongoing research
program and business activities through a combination of sales, equity
financing, and debt.
RESULT OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
Consolidated revenues decreased by $49,254 or 5.6% to $820,065 compared with
$869,319 in
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1997. The decrease in revenue was primarily due to discontinuance of one line of
product previously sold to the hospitality industry. Product was returned by
hospitality customers.
During 1998, a license agreement was granted to a Canadian company for an
initial license fee payment of $345,000 Canadian, of which $87,418 US has been
recorded as deferred revenue on the 1998 statements.
Interest income for 1998 decreased by 53% to $2,899 compared with $6,213 in
1997.
Rental income for 1998 increased by 1500% to $51,290 compared with $3,459 in
1997. A major portion of the company's leased 38,000 square foot manufacturing
facility is subleased to a contract filler which manufactures Veridien's
products which relocated to our facility during August 1998. This space is
leased for an annual base amount of approximating $100,000 per annum.
The cost of goods sold for 1998 increased by 2% to $601,037 compared with
$589,215 in 1997. The increase in the cost of goods ratio as a percentage of
sales was 73% in 1998 compared to 68% in 1997. The increase in the cost of sales
resulted primarily from the increased labor of certain overhead items during the
transition to contract fill operator fulfilling production within the plant
facility.
General, selling, and administrative expenses for 1998 were $1,385,851 compared
with $1,627,518 in 1997. Increases that affected general and administrative
costs were associated with professional fees for 1998 that increased by 36% to
$361,878 compared with $264,927 in 1997. During 1998, sales expense decreased
by 70% to $212,177 compared with $697,496, primarily due to discontinued
direct operations in Nevada which had been set up to sell to the hospitality
industry. These direct operations were abandoned during 1997 in favor of
servicing this market through alternative means.
Research and development for 1998 increased by $131,940 or 53% compared with
expenditures of $245,404 in 1997. The increase can be attributed primarily to
increased activity associated with development of Sterihol(R). Part of the
additional costs was incurred in patent application.
Interest expense for 1998 increased by 21% to $500,872 compared with $413,882 in
1997. The increase in interest expense was due primarily to the issuance during
1997 of $1,566,273 in Convertible Debentures bearing interest at the rate of
eleven percent compounded semi-annually due at maturity which has been extended
to June 30, 2000.
Operating losses decreased from $1,973,074 in 1997 to $1,883,554 in 1998. This
represented a 4.5% decrease, or $89,521 in the loss between the two years. This
1998 decrease was a result of constant sales accompanied by decreases in selling
expenses, including the closing of the Las Vegas, Nevada distribution center.
YEAR ENDED DECEMBER 31, 1998, VS. YEAR ENDED DECEMBER 31, 1997
14
<PAGE> 15
<TABLE>
<CAPTION>
Year Ended Percentage of
December 31 net revenue
1997 1998 1997 1998
(In thousands)
<S> <C> <C> <C> <C>
Net Sales $ 869 $ 820 100% 100%
Cost of Goods Sold 589 601 68% 73%
Gross Profit 280 219 32% 27%
Operating Expenses
General & Administrative 1627 1386 187% 169%
Research & Development 245 377 28% 46%
(Loss) from Operations (1592) (1544) (183)% (188)%
Other Income (Expense) Net (380) (339) (44)% (41)%
Net (Loss) Before Taxes (1972) (1883) (227)% (229)%
Income Taxes 0 0 0% 0%
Net (Loss) (1972) (1883) (227)% (229)%
</TABLE>
LIQUIDITY AND WORKING CAPITAL
Historically, our principal source of financing for our research & development
and business activities has been through sales, equity offerings, and debt. As
of December 31, 1998, and December 31, 1997, we had working capital deficits of
approximately $2,219,479 and $3,373,547, respectively. Our independent certified
public accountants stated in their reports on the 1998 and 1997 consolidated
financial statements that due to losses from operations and a working capital
deficit, there is substantial doubt about the Company's ability to continue as a
going concern. We believe that we are addressing the going concern issue in
virtually every aspect of our operation. We have seen sales in the dental and
the network marketing arenas increase from 36.1 and 31.5 per cent of the total
Company sales, respectively, in 1997 to 38.8 and 33.8 percent of total Company
sales, respectively, in 1998. By contracting a major distributor in the dental
market, we anticipate sales to reflect an even greater percentage share of total
sales in future years. We have cut operating expenses and have signed two major
distribution agreements, which we believe will provide improved profit margins.
Because of our significant losses incurred since inception, we have become
substantially dependent on loans from officers, directors, third parties and
from private placements of our securities to fund operations. These financings
and equity placements are included in the following paragraphs.
During 1998, we received proceeds from the sale of preferred and common stock in
the amount of $687,036. We received funds in the amounts of: $470,050 through
the sale of common stock under a Form 504 offering; $50,000 as proceeds from a
private placement; $123,800 in services for which we issued common stock;
$29,500 by the conversion of debt to equity; and $13,686 in payment of a warrant
exercise price.
During 1998, we issued 450,000 common shares in exchange for a note receivable
in the amount of $22,500.
15
<PAGE> 16
During 1997, we issued convertible debentures in the amount of $1,566,273 and
during 1998 in the amount of $585,333 to three investment companies in exchange
for cash received. The convertible debentures carry interest at a rate of
10% - 11% which has been accrued through December 31, 1998. The convertible
debentures maturing on December 31, 1997, were extended to June 30, 2000, and in
consideration for the extension, the conversion rate was reduced to the lower of
the existing conversion rate or $.15 to August 31, 1999, thereafter reverting to
the original conversion price which ranges from $.1851 to $.3868 per share.
During 1997 and 1998 we also issued 9,563,677 warrants for additional common
shares in connection with the convertible debentures. The warrants are
exercisable at 100%-105% of the conversion price of the common shares associated
with the convertible debentures. The warrants expire five years from the
original issue date of the convertible debentures.
During 1998, we received net borrowings of $86,979 from various sources at zero
interest rate. We have classified all such debt outstanding at December 31,
1998, as a currently liability.
During 1997, we received $250,000 through the issuance of 1,000,000 shares of
common stock. We received an additional $956 and issued an additional 95,646
shares through the exercise of warrants.
During 1998, we decreased inventory by 59% to $92,549 compared with $227,978 in
1997. The decrease resulted primarily from bartering a substantial amount of
obsolete inventory in exchange for purchase credits which the company
anticipates utilizing beginning in 1999.
We plan to utilize our current debt financing arrangements and pursue additional
equity and debt financing while managing cash flow in an effort to provide funds
to increase revenues to support operation, research and development activities.
We believe that our long-term success depends on revenues from operations from
product sales and ongoing royalties from technologies. If such sources of funds
are not adequate, we may seek to obtain financing to meet operating and research
expenses from other sources including, but not limited to, future equity or debt
financings.
As of March 1999, we have cash of approximately $124,000 and during March we
expect cash flow of $80,000 from operating activities. This level of liquidity
is sufficient to operate the Company for 60 days. The Company anticipates the
continuation of increasing sales, reduced operating expenses, and additional
private placement funding will contribute to continuous operations of the
Company.
At the present time the Company does not have any material commitments for
capital expenditures other than the acquisition of computer hardware and
software to comply with the Year 2000 issues, for an estimated cost of less
than $50,000. We also anticipate being able to enter into a five-year
lease/purchase agreement whereby we will require a cash commitment of
approximately $1,000 per month. We envision generating sufficient cash from
operations to provide for these payments.
16
<PAGE> 17
YEAR 2000 COMPLIANCE
We have analyzed our internal requirements and methods of complying with the
Year 2000 issue concerning computer software and operating equipment utilized in
both R&D functions and general operations. A competent computer software company
has performed a systems analysis and a recommended course of action has been
defined. We find that our accounting computer system is not as yet Year 2000
compliant.
We have developed our reporting criteria and are now selecting, and will
purchase by August 31, 1999, appropriate computer equipment and accounting
software to provide for full Year 2000 compliance and the adequate protection
of company assets and information. We expect the cost of obtaining and
installing new computer equipment and accounting software to be less than
$50,000. We anticipate installing and testing the software during August and
September 1999. We anticipate a short period of time will be necessary to
upgrade and test a to be selected accounting system. In the unlikely event that
we are not successful in implementing our plans for upgrading our accounting
software, we have identified an accounting firm that could produce computerized
financial statements for our company. We anticipate identifying by September
30, 1999, an additional contract fill manufacturer capable of providing
finished product ready for sale to our distributors. We do not anticipate any
material increase in cost of goods by retaining such an additional
manufacturer.
We find that laboratory systems utilized in R&D and general operations of
equipment are not date sensitive, therefore, the Year 2000 issue is not expected
to require any changes to these existing operations.
We have material relationships with our two contract fill manufacturers who
produce all of our product for distribution. We have begun the process of
discussing their responses concerning their readiness with regards to Year 2000
issues. At this juncture, we have obtained information that leads us to believe
their production equipment is not time/date sensitive and they believe
production can continue as usual. However, they cannot confirm that all of their
raw material suppliers will be in compliance with Year 2000 issues in a timely
manner. The availability of product for distribution is a material issue to our
company. We expect to complete our discovery by July 31, 1999.
If disruptions occur in third party vendors that supply raw materials to our
contract fill manufacturers, we may experience the inability to have product
inventory for sale to our customers. Such events could have material adverse
effect on Veridien to compete effectively in the marketplace. While we believe
our existing contract fill manufacturers will be successful in locating
alternative sources of our commonly available raw materials and converting these
into finished products, we have begun a search for an additional contract fill
manufacturer who can assure us of the timely production of products. We
anticipate having selected such a manufacturer by September 30, 1999.
ITEM 3. DESCRIPTION OF PROPERTY
17
<PAGE> 18
At present, we lease a 38,000 square foot facility that integrates offices,
warehouse space, manufacturing space and research and development space, located
at 11800 28th Street North, St. Petersburg, Florida 33716. We are currently on a
renewal option year of the lease that ends on August 31, 1999. The rent is
$19,237.53 a month. We have successive options to renew year-to-year at the same
rental. These premises should suffice for our administrative office for the
foreseeable future.
In addition, we own full commercial chemical and microbiological research
laboratories. We have a lease-to-buy on our phone system for $277.89 per month
and currently lease a postage meter and copier. We own all of the equipment and
furniture currently at the premises, which consists of computers, computer
accessories, office furniture, file cabinets, and miscellaneous equipment.
PATENTS AND TRADEMARKS
Our VIRAHOL(R) composition is covered under U.S. patens 5,145,664 and 5,441,723.
These patents have been assigned by the inventor to us. In addition, the
VIRAHOL(R) composition is patented in Great Britain, Canada, Australia, New
Zealand, and Mexico, and pending in Japan. We have additional patents in the
U.S. and the European Economic Community for various formulations and medical
devices, which remain under development. (See "Property of the Company".)
The Company also has numerous trade names registered in the U.S. The Company has
patents for VIRAHOL(R) (Disinfectant) DSI, composition and usage are covered
under U.S. Patent No. 5,145,663 issued September 8, 1992 and U.S. Patent No.
5,441,723 issued August 15, 1995. VIRAHOL(R) is also patented in Australia (SI),
United Kingdom (DSI), Great Britain (DSII), Canada (DSI), New Zealand (DSII),
Mexico (DSII); Patents pending in Japan DSI (S.N. P2-503111), Australia DSII
(S.N. 73298/94), Canada DSII (S.N. 2166810). The company also holds patents for
STERIHOL(R) (Cold Chemical) (CCSII) U.S. Patent No. 5,405,602 issued April 11,
1995 and METHOD (Sterilant) (CCSS) U.S. Patent No. 5,637,307 issued June 10,
1997. The Company has a U.S. Patent pending for a Cold Chemical Sterilant-UREA,
S.N. 109/186,432. STERIHOL(R) is also patented in Australia (CCSII); Patent
pending EPO (CCSII). The Company has U.S. Patents pending for a Method and
Accessory Adapter Apparatus of Disinfecting Medical and Dental Instruments, S.N.
08/814,613, a Diagnostic Syringe Actuator Device, S.N. 08/882,570, a 911 Medical
Diagnostic Console, S.N. 60,020,625, and an Umbilical Surgical Scissors, S.N.
08/882,180. The Company has Trademarks for the following brands: VIRAHOL(R)
(USA) registered September 24, 1991, Trademark number 1,657,969; VIRAGEL(R)
(USA) registered July 20, 1993, Trademark number 1,783,204; VIRAHOL(R) (Mexico)
registered September 27, 1994, Trademark number 474,986; VIRASONIC(R) (USA)
registered November 15, 1994, Trademark number 1,863,033; VIRASCRUB(R) (USA)
registered January 31, 1995, Trademark number 1,877,118; STERIHOL(R) (USA)
registered February 28, 1995, Trademark number 1,881,134; VERIDIEN registered
September 5, 1995, Trademark number 1,917,134; VIRAWASH(R) (USA) registered
March 12, 1996, Trademark number 1,962,158; STERIHOL(R)
18
<PAGE> 19
(USA) registered June 16, 1998, Trademark number 2,166,502; VIRASCRUB(R) (USA)
registered June 16, 1998, Trademark number 2,166,503; VIRASONIC(R) (USA)
registered June 16, 1998, Trademark number 2,166,504;VIRA-CD7(R) registered
January 6, 1998, Trademark number 2,127,866; VIRA-RD12(R) registered March 24,
1998, Trademark number 2,146,770; VIRA-GC18(R) registered May 12, 1998,
Trademark number 2,157,635; VIRALUBE(R) (USA) registered July 7, 1998, Trademark
number 2,171,823; and VIRAGUARD(R) (USA) registered September 1, 1998, Trademark
number 2,186,559.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 31, 1998, information regarding
the beneficial ownership of shares of Common Stock by each person known by the
Company to own five percent or more of the outstanding shares of Common Stock,
by each of the Officers, by each of the Directors, and by the Officers and
Directors as a group. At the close of business on December 31, 1998, there were
78,152,833 shares issued and outstanding of record, as well as 12,035,118 shares
issuable in the event of the conversion of the $2,494,198 of convertible
debentures outstanding and the $423,267 of interest thereon as of December 31,
1998.
<TABLE>
<CAPTION>
Shares of Percentage
Common As Of
Name and Address of Beneficial Owners Stock 12/31/98 (1)
- ------------------------------------- ----- ---------
<S> <C> <C>
Mark E. Schlussel 345,750 (2) 0.38%
100 Renaissance Center, 36th Floor
Detroit, MI 48243-1157
Sheldon C. Fenton 23,285,311 (3) 25.82%
160 Eglinton Avenue East, Suite 500
Toronto, Ontario M4P 3B5
Rene A. Gareau 0 --
4273 Boca Point Drive
Sarasota, Florida 34238
Dunvegan Mortgage Corporation 23,102,311 (4) 25.62%
222 Delaware Ave., PO Box 2306
Wilmington, Delaware 19899
Paul L. Simmons 3,087,000 3.42%
8825 Laurel Drive
Pinellas Park, Florida 33782
Russell Van Zandt 15,000 0.02%
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
1741 Brightwaters Blvd.
St. Petersburg, Florida 33704
Andrew T. Libby, Jr. 152,857 0.17%
806 South MacDill Avenue
Tampa, Florida 33609
Martin E. Kovnats 10,000 0.01%
Aird & Berlis
BCE Place, PO Box 754
181 Bay Street, Suite 1800
Toronto, Ontario M5J 2T9
Alfred A. Ritter 0 --
Rua Baronesa DeBeck
Malveira Da Serra
2750 Cascais Portugal
All Directors and Officers 26,895,918 29.82%
As a Group (8 persons)
</TABLE>
- ----------
(1) Based upon 78,152,833 shares issued and outstanding as of December 31,
1998, as well as 12,035,118 shares issuable on conversion of the
convertible debentures and interest thereon, for a total of 90,187,951.
(2) Does not include options to purchase 200,000 shares of Common Stock at an
exercise price of $.25 (see "Certain Relationships and Related
Transactions"). Also does not include options to purchase 200,000 shares of
Common Stock from Dunvegan Mortgage Corporation at an exercise price of
$.10.
(3) Includes Mr. Fenton's direct ownership of 183,000 shares, indirect
ownership of 20,610,551 shares owned by Dunvegan Mortgage Corporation, of
which Mr. Fenton is an officer and director, as well as 2,491,760 shares
issuable in the event of conversion of the $471,215 of convertible
debentures owned by Dunvegan Mortgage Corporation and the $58,169.42 of
interest thereon as of December 31, 1998. Does not include 2,236,264
convertible debentures owned by Dunvegan Mortgage Corporation. Also does
not include 25,174,039 Series I ($.499) and Series II ($.001) warrants
previously owned by Dunvegan Mortgage Corporation but assigned to 1192615
Ontario Limited, in which he disclaims any beneficial interest.
(4) Includes 2,491,760 shares issuable in the event of conversion of the
$471,215 of convertible debentures owned by Dunvegan Mortgage Corporation
and the $58,169.42 of interest thereon as of December 31, 1998. Does not
include 2,236,274 convertible debenture warrants or 154,163 shares of
Series B Preferred Stock or 90,515 Preferred Stock Warrants.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
DIRECTORS AND EXECUTIVE OFFICERS. The position(s) held by each of our executive
officers and Directors as of December 31, 1998 is shown in the following table.
Biographical information for each is set forth following the table. Our current
Directors were elected at the Annual Meeting Held on November 6, 1998. Each
Director serves for a one-year term and until a successor is elected and has
qualified. Currently, our Directors are not compensated for their services,
although their expenses in attending meetings are reimbursed.
20
<PAGE> 21
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark E. Schlussel 58 Chairman of the Board of Directors
Rene A. Gareau 57 Vice Chairman of the Board of Directors
Paul L. Simmons 70 Founder and Director
Sheldon C. Fenton 47 President and CEO/Director
Martin E. Kovnats 47 Director
Alfred A. Ritter 55 Director
Russell Van Zandt 58 Director
Andrew T. Libby, Jr. 50 Executive Vice President, COO & CFO,
Secretary/Director
</TABLE>
MARK E. SCHLUSSEL was the first named to the Board of Directors on April 3,
1995. Since January 1995 he has served Of Counsel to the law firm of Pepper
Hamilton & Scheetz in Detroit, Michigan. Previously, he was a partner at the law
firm of Miller Canfield in Detroit, Michigan.
Mr. Schlussel was appointed Chairman of Medi-I-Bank, Inc. in 1996 and CEO in
1998. He was a board member of the Great Lakes Health Plan from 1996 to 1998.
Currently, he is Trustee of Immerman and Embargement Foundations, and Chairman
of the Jewish Fund. Mr. Schlussel was graduated with a Bachelor of Arts from
Wayne State University in 1962 and a Juris Doctor from the University of
Michigan Law School in 1965. He was admitted to practice before the U.S. Supreme
Court in 1982.
RENE A. GAREAU was first named to the Board of Directors on March 13, 1996.
Since 1989, Mr. Gareau has been Chairman of the Board of Sarasota Quay, a real
estate management company located in Sarasota, Florida, specializing in property
and asset management for commercial properties. From 1982 to 1989, Mr. Gareau
was the Chairman of a private Canadian real estate development company involved
in the development and syndication of residential condominium and commercial
projects in a number of Canadian provinces. From 1981 to 1982 he was President
of Bank of America (Canada) with responsibilities for overseeing all retail and
mortgage banking operations in Canada. From 1974 to 1981 he was Senior Vice
President of Citicorp-Citibank in their International Division. He had
responsibilities in corporate and consumer banking with assignments in Asia,
Europe, South America, and the U.S.A.
PAUL L. SIMMONS has been a member of the Board of Directors since our
incorporation in 1991. He is a recognized authority by both the industry and the
FDA in plant manufacturing
21
<PAGE> 22
validation and certification, as well as manufacturing plant and process design
for the genetic, pharmaceutical, bulk pharmaceutical chemical, device and
diagnostic industries. Mr. Simmons (with his wife, Diane) is the founder of our
Company, commencing with one of our predecessors, ROST, Inc. founded in 1980.
Mr. Simmons served in a consulting capacity for manufacturing plant and process
design and regulatory compliance to more than 45 major biotech, pharmaceutical
and device firms, in 72 plant locations in the U.S., U.K., Europe and the Far
East. Mr. Simmons has formulated and designed many of the
qualification/validation programs and testing methods now in use in the
industry. He is a noted author, having written many technical papers for
national trade journals, as well as the writing and publication of a long list
of technical and procedural manuals. As a lecturer, Mr. Simmons has addressed
more than 55 trade and professional associations in 26 states and several
foreign countries, including the Parenteral Drug Association, Pharmaceutical
Manufacturer's Association, Association for Professionals In Infection Control,
Quality Control Managers Association, Philadelphia Academy of Pharmaceutical
Sciences, Biotech 84, Scale-up 84, Interphex and FDA Small Business Seminars.
Books published by Mr. Simmons include: Master Plan for Infection Control,
Hospital Engineering, Dry Heat Sterilization (1978 Technical Paper, Validation
of Steam Sterilizers (1079) Technical Paper, Pharmaceutical Lubrication Manual
(1980), Engineering Design and Construction Standards (1980) (Electrical,
Mechanical & Environmental), The Applications of the GMPs to the Genetic
Engineering and the Biotechnology Industry, The Impact of International GMPs on
the Drug, Device and Diagnostic Industries, The Impact of Good Manufacturing
Practice Regulations on the Manufacture of Bulk Pharmaceutical Chemicals, The
Impact of Good Manufacturing Practice Regulations on the Design and Manufacture
of Production Equipment (1987), The Design, Construction, Commissioning and
Compliance of a New Facility in Accordance with GMPs (1987).
On October 6, 1998, Mr. Simmons filed a Petition for Reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, docketed to Number 98-17181-8P1.
SHELDON C. FENTON is President and CEO. Mr Fenton was first named to the Board
of Directors on June 3, 1998. Since 1981 Mr. Fenton has been President and CEO
of Tanlon Corporate Holdings Ltd. (and predecessor corporations), located in
Toronto, Canada. Tanlon is privately owned, fully integrated management services
company. They are involved with another of private and public companies,
providing them with expertise and assistance, notably in the areas of
capitalization and management. The group also has knowledge and experience in
the areas of strategic acquisitions, real estate development and syndication,
financing for private and public ventures, as well as asset and property
management. They are regarded as specialists in the areas of structuring and
restructuring of investments and negotiation with lenders and other corporate
stakeholders.
Mr. Fenton is also an officer and director of Dunvegan Mortgage Corporation, a
company which
22
<PAGE> 23
has been a primary lender to the Company, as described under "Principal
Shareholders."
From 1979-1981 Mr. Fenton was employed by the Canadian Imperial Bank of Commerce
alternatively as Solicitor and Manager. In 1977-1978 he practiced corporate and
real estate law with the firm of Day Wilson & Campbell in Toronto, Canada and in
1976-1979 worked as a financial consultant for FF. Management in Toronto,
Canada.
Mr. Fenton was graduated with honors with a Bachelor of Science degree from the
University of Toronto in 1974 and was graduated from the Faculty of Law with an
L.L.B. degree from the University of Western Ontario, Canada.
MARTIN E. KOVNATS was first named to the Board of Directors on October 28, 1997.
Mr. Kovnats has been a partner with the Securities Law Group of the law firm of
Aird & Berlis in Toronto, Canada since 1995. He practices primarily in the area
of mergers and acquisitions and debt and equity financings. Previously, he
practiced law for sixteen years with the law firm of Goodman and Carr, also
located in Toronto. Mr. Kovnats is a past president of the Securities Advisory
Committee, appointed by the Ontario Securities Commission. Mr. Kovnats was
graduated with a Bachelor of Science from the University of Manitoba in 1972 and
an L.L. B. from the University of Manitoba in 1975. Mr. Kovnats has lectured on
securities, commercial law and border issues, and has published articles on
equity investments, acquisitions and securities law. Since 1979, he has been a
member of the Canadian Bar Association and the Law Society of Upper Canada.
ANDREW T. LIBBY, JR. was named Executive Vice President, COO, CFO, and Corporate
Secretary on July 31, 1998. From November 1994 until joining the Company, he was
the owner of Financial Management Consultants, Inc., a management and consulting
firm specializing in helping manufacturing and distribution companies. From June
1994 to November 1994 he served as CFO and Corporate Secretary of Veridien
Corporation. Previously, he held a series of positions with different companies
and governmental agencies in the area of finance and accounting. From 1987 to
1994 he served as Director of Finance and Accounting at University Medical
Service Association, Inc., and Medical Services Support Corporation. Mr. Libby
was graduated from the University of Tampa with an MBA in 1981 and was graduated
from the University of South Florida with a Bachelor of Arts in Management in
1971 and a Bachelor of Arts in Accounting in 1976. He holds licenses as a CPA, a
Certified Internal Auditor (CIA) and is a licensed mortgage broker.
ALFRED A. RITTER was first named to the board of Directors on March 26, 1993.
Mr. Ritter has been the co-owner and director of EXPORATLAS, Lisbon, Portugal
since 1981. The company is an import/export firm involved in the paper and pulp
industry. Since 1996, Mr. Ritter has been the owner and director of TEOTONIO
INVESTMENTS, a commercial real estate and project development company based in
Vaduz, Liechtenstein. Additionally, since 1996, Mr. Ritter has been owner and
director of EUROVENTOS, which is developing alternative energy sources in
Portugal. Mr. Ritter has held positions with Credit Suisse in Zurich,
Switzerland, the Bank of London and South America, in London, England, and
Lloyd's Bank Ltd. in New York
23
<PAGE> 24
City. He currently operates a securities private placement and investment
management company in Lisbon, Portugal, and Vaduz, Liechtenstein.
RUSSELL D. VAN ZANDT was first named to the Board of Directors on October 28,
1997. Mr. Van Zandt was graduated in 1972 with a BA in Mathematics from St.
Michael's College in Vermont, and was graduated in 1973 with an MBA from Florida
Atlantic University in Florida. He also completed course work in 1975 for a
doctorate in Business Administration from George Washington University in
Washington, DC.
Since July 1992, Mr. Van Zandt has been a corporate Vice President at Datascope
Corp., a NASDAQ listed company engaged in the health care and medical device
products industry. On behalf of Datascope Corp., he has alternately headed two
divisions as President. From July 1992 through September 1996, he was President
of the Intervascular, Inc. Division. This division is responsible for
manufacturing and marketing vascular grafts and patches on a worldwide basis.
Since 1996, he has been President of the Cardiac Assist Division which
manufactures and Markets intro-aortic balloon pumps and catheters. From November
1969 until August 1992, Mr. Van Zandt worked with C.R. Bard, Inc., a health care
and medical device company listed on the New York Stock Exchange. He started as
personnel director at a division level and rose through the company's ranks to
reach, in 1992, the position of President of Bard Vascular Systems Division and
serve at the corporate headquarters of C.R. Bard, Inc.
ITEM 6. EXECUTIVE COMPENSATION
Currently, our Directors are not compensated for their services, although their
expenses in attending meetings are reimbursed.
COMPENSATION OF MANAGEMENT
We have entered into a series of employment agreements with Paul Simmons. He has
a written employment agreement under which he is paid $36,000.00 annually
personally for management services. Moreover ICT, Inc. (a company owned by Paul
Simmons) receives a 3%-5% sales commission for the service of procuring and
managing accounts initiated by ICT, Inc. We have also entered into an employment
agreement with Andrew T. Libby, Jr., our Executive Vice President, COO, CFO, and
Corporate Secretary, under which he is to be paid $130,000 annually, although he
will receive only $90,000, with the balance accrued, until such time as we have
sufficient cash flow to make payment of the accruals and the full salary.
The following table sets forth the compensation paid to our Chief Executive
Officer or such other officer who fulfilled the duties of the Chief Executive
Officer for the periods indicated. Except for the individuals named, no
executive officers had a total annual salary and bonus of $100,000 or more.
<TABLE>
<CAPTION>
Name & Principal
- ---------------- Other
Position Year Salary Bonus Compensation
- -------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
John Priest, CEO(1) 1/96-12/96 $184,967 -0- -0-
John Priest, CEO(1) 1/97-5/97 $ 56,250 -0- $32,000
Rene Gareau, CEO 11/27/96-10/21/96 -0- -0- -0-
Robert M. Morrow, COO(2) 1996 $162,500 -0- -0-
Vic Conant, CEO 10/1/97-6/3/98 -0- -0- -0-
Robert M. Morrow, COO 1/97-10/97 $135,000 -0- -0-
Michael B. Whiteman, COO(3) 11/97-12/97 $ 14,000 -0- -0-
Michael B. Whiteman, COO 1/98-7/98 $ 42,000 -0- -0-
Sheldon C. Fenton, President & CEO 7/98-Present -0- -0- -0-
Andrew T. Libby, Jr., COO(4) 8/98-Present $130,000 -0- -0-
</TABLE>
None of the named persons has received stock options or other such non-cash
compensation.
- -----------
(1) John Priest had an annual salary of $250,000. He received 250,000 common
shares (restricted) upon termination. The Company assumed liability for
$32,000 obligation of Mr. Priest to a Company Director.
(2) Robert Morrow had an annual salary of $165,000.
(3) Michael B. Whiteman had an annual salary of $84,000.
(4) Andrew T. Libby, Jr. has an annual salary of $130,000; however, he is paid
at the rate of $90,000 per year with $40,000 accrued to be paid when we have
sufficient cash flow.
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the named officers during 1998. None of these options were exercised
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Name Number of Securities Exercise Price Expiration
Underlying Options/ ($/Share) Date
SARs Granted (#)
<S> <C> <C> <C>
Andrew T. Libby, Jr. 100,000 $0.20 August 10, 2003
Andrew T. Libby, Jr. 250,000 $0.10 August 10, 2003
</TABLE>
EMPLOYMENT AGREEMENTS
In October 1995, we entered into an employment agreement with Mr. Simmons, the
Founder of our company, which has an indefinite term, providing that our company
or Mr. Simmons may terminate the agreement upon six months notice. Mr. Simmons
is to be paid an annual salary of $ 36,000. Additionally, Mr. Simmons will be
paid sales commissions of 6% of New Product Gross Margin of certain sales as may
be obtained by Mr. Simmons.
In August 1998, we entered into an employment agreement with Mr. Libby that
continues until December 31, 2001, unless terminated earlier by us, either for
cause, death, or other specified
25
<PAGE> 26
circumstances. Under the terms of the employment agreement, Mr. Libby is to be
paid an annual salary of $130,000. However, Mr. Libby will be paid at the rate
of only $90,000 per year with $40,000 accrued to be paid when we have
sufficient cash flow. Concurrent with the execution of the employment agreement,
Mr. Libby was granted options to purchase two hundred fifty thousand (250,000)
shares of the Company's common stock @ $0.10 per share, the bid price on the
effective date of the agreement. Additional options to purchase one-hundred
thousand (100,000) shares of common stock @ $0.20 per share vested upon
continued employment to December 31, 1998, and options to purchase a maximum of
two hundred fifty thousand (250,000) shares of common stock @ $0.20 per share,
with one-twelfth vesting each calendar month, contingent upon continued
employment to December 31, 1999. Mr. Libby shall be granted additional options
to purchase up to four-hundred thousand (400,000) shares of common stock @ $0.20
per share upon achievement by the Company of certain definable events such as
completion of acquisitions, mergers, and other events as may be agreed upon by
the Company and Mr. Libby.
Item 7. Certain Relationships and Related Transactions
We have entered into financing transactions with Dunvegan Mortgage Corporation,
a corporation of which Sheldon C. Fenton, the Company's President/CEO and a
director, is an officer and a director. These transactions include:
1. On or about October 19, 1995, Dunvegan Mortgage Corporation agreed to loan
us $2,500,000 represented by a Master Promissory Note collateralized by a
Security Interest on all of our assets and our subsidiaries. We have drawn
down the entire amount. As a part of the loan transaction, we agreed to
issue Dunvegan Mortgage Corporation its assigns and its loan participants
(collectively "Dunvegan") warrants such that after exercise of all such
warrants Dunvegan could own 51% of the total number of shares then issued
and outstanding, on a fully diluted basis. For full description of the
terms of the transaction see Item 8 DESCRIPTION OF SECURITIES - Loan and
Security Agreement Warrants.
2. Subsequent to the Loan and Security Agreement being fully drawn down,
Dunvegan Mortgage Corporation has loaned us funds under Convertible
Debentures. In total Dunvegan Mortgage Corporation has advanced $471,215
(in 6 different advances between June 1997 and June 1998) by way of
debenture. These Debentures are convertible into common stock and had
2,236,264 warrants attached thereto. For full description of the debentures
see Item 8 DESCRIPTION OF SECURITIES - Convertible Debentures.
On September 14, 1998 Dunvegan Mortgage Corporation and loan participants
converted $1,575,166 principal of their loan under the Loan and Security
Agreement of October 19, 1995 to 33,530,973 shares of Common Stock and 154,163
shares of Series B Cumulative Preferred Stock. Dunvegan retained 20,610,551
shares of the Common Stock and distributed the balance to its loan syndicate
participants.
On June 30, 1998, the Company purchased certain inventory for $120,000 (in
promissory notes)
26
<PAGE> 27
from International Center for Technology Transfer, Inc., a corporation owned by
Paul L. Simmons, a director.
In June, 1998, Mark E. Schlussel, Chairman of the Board, converted $24,500 owed
to him by the Company for consulting fees, to 122,500 shares of the Company's
Common Stock, a conversion price of $.20 per share.
Options to purchase 200,000 shares of the Company's Common Stock at a price of
$.50 per share held by Mark Schlussel, Chairman of the Board, would have expired
on October 17, 1998 but were extended to October 17, 1999 with an adjustment of
the exercise price to $.25 per share.
ITEM 8. DESCRIPTION OF SECURITIES
CAPITAL STRUCTURE OF THE COMPANY
Our authorized capital structure consists of Convertible Debentures, shares of
Preferred Stock and Common Stock, both having a par value of $.001, and
Preferred Stock Purchase Warrants and Common Stock Purchase Warrants and
Options, all of which are described below following the table. The authorized
classes, and the amount or number of each which are authorized and outstanding
as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Authorized Outstanding
---------- -----------
<S> <C> <C>
Convertible Debentures $ -- (1) $ 2,494,198 (1)
$10 Conv. Red. Pref. Stock 100,000 shrs 6,000 shrs
Series B Pref. Stock 244,678 shrs 154,163 shrs
Common Stock 200,000,000 shrs 78,152,833 (2) shrs
Pref. Stock Purchase Warrants 21,250,000 shrs 4,125,000 (3) shrs
Common Share Warrants
Conv. Deb. Wts. (LSA) 2,236,264 2,236,264
Conv. Deb. Wts. (PTC) 465,357 465,357
Conv. Deb. Wts. (Wardeb) 2,705,465 2,705,465
Consultant Series 4,825,000 (4) 200,000 (4)
Series $0.01 6,177,478 (5) 110,000
Series B. Dunvegan 245,344 90,515
Series C-1 Wardeb 115,184 115,184
Series C-11 Wardeb 41,893 41,893
Series D. Dunvegan 890 890
Loan and Security Agreement Warrants
Series I ($.499) -- -- (6)
Series II ($.001) -- --
Options 1,100,000 200,000 (7)
</TABLE>
- ------------
(1) The authorized value of the Company's Convertible Debentures varies. The
Board of Directors specifically authorizes each issuance. The $2,494,198
represents the principal sum issued and outstanding on December 31, 1998.
27
<PAGE> 28
(2) This represents the actual total shares issued and outstanding of record as
of December 31, 1998.
(3) This represents the vested Warrants issued and outstanding as of December
31, 1998, having a $.20 to $.25 exercise price. Up to an additional 4,375,000
Warrants are issuable if and when they vest having exercise prices from $.20 to
$.25. See "Preferred Stock Warrants".
(4) Warrants exercisable to purchase 100,000 shares expire January 31, 1999 and
Warrants exercisable to purchase 100,000 shares expire January 31, 2000.
(5) The total number of Warrants authorized was dependent upon a formula; this
represents the actual number originally issued. Warrants for 6,067,478 shares
have been exercised.
(6) The number of Warrants and the prices at which they are exercisable are to
be determined by a formula, applied at the date(s) of exercise. See "Loan and
Security Agreement Warrants" for a description.
(7) Options held by the Chairman of the Board to purchase 200,000 shares at a
price of $0.25 per share are scheduled to expire October 17, 1999.
During 1998, the Company completed a previously authorized and approved capital
restructuring plan.
CONVERTIBLE DEBENTURES
To secure funds, the Company has issued Convertible Debentures. The Debentures
bear interest at the rate of eleven percent (11%) compounded semi-annually due
at maturity, originally six months after issuance but now extended to June 30,
2000. Each of the Debentures is convertible at $0.15 until August 31, 1999,
after which it is convertible at a price per share of Common Stock based upon
the closing bid price for the five trading days prior to the issuance of the
Debenture (the "Base Conversion Price"). As an inducement to the lenders, the
Company issued to each Debenture holder, as of the date of the issuance of the
Debenture, Common Stock Purchase Warrants entitling the holder to purchase that
number of shares of Common Stock equal to the number of shares obtainable upon
conversion of the Debenture at an exercise price equal to 105% of the Debenture
Base Conversion Price. For example, the Debentures issued on May 29, 1997 are
convertible to 176,622 shares of Common Stock at a Base Conversion Price of
$.3114, while the holder received warrants to purchase an equal number of
shares, 176,622, at an exercise price of $.327 per share.
The Company's Convertible Debentures have been issued at various times, in
various amounts with various conversion prices:
<TABLE>
<CAPTION>
Date of Issuance Principal Amount Base Conversion Price
---------------- ---------------- ---------------------
<S> <C> <C>
November 27, 1996 $115,000.00 .3534
December 12, 1996 35,000.00 .3629
December 13, 1996 76,270.00 .3699
December 27, 1996 116,322.00 .3562
January 15, 1997 125,000.00 .3195
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Date of Issuance Principal Amount Base Conversion Price
---------------- ---------------- ---------------------
<S> <C> <C>
January 30, 1997 30,364.00 .3419
February 4, 1997 73,488.00 .3251
February 13, 1997 82,000.00 .3171
February 26, 1997 104,414.00 .3002
March 3, 1997 49,125.00 .2996
March 7, 1997 180,000.00 .3868
May 7, 1997 40,000.00 .2871
May 20, 1997 20,000.00 .2824
May 29, 1997 25,000.00 .3114
May 29, 1997 30,000.00 .3114
June 2, 1997 12,000.00 .3040
June 5, 1997 88,000.00 .2949
June 16, 1997 75,000.00 .2729
June 30, 1997 232,881.84 .2553
July 28, 1997 20,000.00 .2144
July 29, 1997 20,000.00 .1996
August 7, 1997 30,000.00 .2324
August 15, 1997 30,000.00 .1851
August 27, 1997 58,000.00 .2500
August 29, 1997 83,000.00 .2500
September 15, 1997 39,000.00 .2500
September 16, 1997 21,000.00 .2500
September 24, 1997 50,000.00 .2500
September 29, 1997 35,000.00 .2500
October 6, 1997 13,000.00 .2500
March 16, 1998 50,000.00 .1800
April 8, 1998 50,000.00 .1800
April 29, 1998 75,000.00 .1800
May 27, 1998 40,000.00 .1800
June 4, 1998 23,333.00 .1800
June 10, 1998 50,000.00 .1350
June 26, 1998 60,000.00 .1200
July 14, 1998 30,000.00 .1050
July 28, 1998 80,000.00 .1600
August 12, 1998 35,000.00 .1200
August 21, 1998 25,000.00 .1150
August 26, 1998 67,000.00 .1240
-------------
$2,494,197.84
=============
</TABLE>
PREFERRED STOCK
The 25,000,000 shares of Preferred Stock having a par value of $.001 authorized
are undesignated as to preferences, privileges and restrictions. As the shares
are issued, the Board of
29
<PAGE> 30
Directors must establish a "series" of the shares to be issued and designate the
preferences, privileges and restrictions applicable to that series.
To date, the Board of Directors has designated two series, one called the $10
Convertible Redeemable Preferred Stock (considered to be the Series A Preferred
Stock), which consists of one hundred thousand shares, and one called the Class
B Preferred Stock, which consists of two hundred forty four thousand six hundred
seventy eight (244,678) shares.
The $10 Convertible Redeemable Preferred Stock series has been designated as
having a $10 per share par value, although the Certificate of Incorporation
originally set the par value at $.001 per share. Each share has a liquidating
preference of $10 per share plus all accrued and unpaid dividends. This series
is entitled to an annual dividend of 10% or $1.00 per share, to be paid prior to
the payment of any dividends on the Common stock. The dividends for the first
year, under the terms of the Offering Memorandum were to have been withheld from
the proceeds of the offering and paid into escrow for subsequent distribution.
The Company has not done that and legally may not do so because establishment of
the par value at the offering price of $10 prohibits any return of capital while
due to its lack of earnings and earned surplus the Company may not declare a
dividend. The series is non-voting. Each share of the series is convertible
prior to redemption into twenty shares of the Company's Common Stock at the
option of the holder. Each share of the series is redeemable by the Company at
any time at its option, at a redemption price of $10 plus all accrued and unpaid
dividends. No dividends may be declared on the Company's Common Stock until all
accrued and unpaid dividends on this series of the Preferred Stock have been
paid. Holders of the series have one-time demand registration rights and
continuing piggy-back registration rights.
The Series B Cumulative Preferred Stock was created on December 31, 1997 as a
concession to Dunvegan Mortgage Corporation to permit conversion of indebtedness
under the Loan and Security Agreement of October 19, 1995 by exercise of the
related Loan and Security Agreement Warrants without sacrificing the intent of
those warrants. See "Loan and Security Agreement Warrants" The Series B
Cumulative Preferred Stock has a par value of $.001 per share and an initial
stated capital of $10 per share, which is subject to adjustment. This Series is
senior to the Common Stock and is senior to all other classes and series except
that it is junior to the $10 Convertible Redeemable Preferred Stock with respect
to the payment of dividends. Each share has that number of votes equal to the
number of shares of Common Stock into which it is convertible on the record
date. Subject to adjustment in the event of certain future Common Stock or
convertible security issuances, each share is convertible into 20.04010695
shares of Common Stock. These Shares are entitled to receive an annual dividend
equal to the greater of:
- 10% of the stated value, as adjusted from time to time; and
- the actual dividend per share of Common Stock as declared by the
Company's Board of Directors times the number of shares of Common Stock
into which each share of Series B Convertible Preferred Stock is
convertible on the dividend record date.
30
<PAGE> 31
The dividend is cumulative, whether or not earned and, to the extent
not paid on a quarterly dividend payment date (commencing January 1,
1999), is added to the stated value.
COMMON STOCK
The authorized common equity of the Company consists of 100,000,000 shares of
Common Stock, with a $.001 par value, of which 78,152,833 shares of Common Stock
are issued and outstanding. Our shareholders approved, at our Annual Meeting of
November 6, 1998, an amendment increasing the authorized number of shares of
Common Stock to 200,000,000. We have not yet filed a Certificate of Amendment to
our Certificate of Incorporation to change the number of authorized shares of
Common Stock to 200,000,000 but are in the process of doing so. Shareholders (I)
have general ratable rights to dividends from funds legally available therefore,
when, as and if declared by the Board of Directors; (ii) are entitled to share
ratably in all assets of the Company available for distribution to shareholders
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters on which shareholders may vote at all
shareholder meetings. All shares of Common Stock now outstanding are fully paid
and nonassessable and all shares of Common Stock to be sold in this offering
will be fully paid and nonassessable when issued.
The Common Stock does not have cumulative voting rights, which means that the
holders of more than fifty percent of the Common Stock voting for election of
directors can elect one hundred percent of the directors of the Company if they
choose to do so. The Company, which has had no earnings, has not paid any
dividends on its Common Stock and it is not anticipated that any dividends will
be paid in the foreseeable future. Dividends upon Preferred shares must have
been paid in full for all past dividend periods before distribution can be made
to the holders of Common Stock. In the event of a voluntary or involuntary
liquidation, all assets and funds of the Company remaining after payments to the
holders of Preferred Stock will be divided and distributed among the holders of
Common Stock according to their respective shares.
COMMON STOCK PURCHASE WARRANTS
There are various types or series of warrants as described as follows:
Consultant Series
The Consultant Series Warrants were issued pursuant to certain consulting and
services agreements. Each such Warrant currently outstanding entitles the holder
to purchase one share of Common Stock at exercise prices ranging from $.20 to
$.25 per share. Future such Warrants, if and when issued upon vesting, will have
exercise prices ranging from $.20 to $.25 per share.
$.01 Warrants
The $.01 Warrants were issued as part of Units sold in a private placement in
1995. The number
31
<PAGE> 32
of $.01 Warrants in each Unit was set to provide the investor, who purchased a
Unit for a set price of $.50, with an averaged per share price equal to the
current market price on the date he invested. Each such Warrant entitles the
holder to purchase one share of Common Stock at an exercise price of $.01 per
share.
Convertible Debenture Warrants
The Convertible Debenture Warrants were issued to the lenders who purchased the
Company's Convertible Debentures. The Warrants, issued as of the date of
issuance of the related Convertible Debenture, entitle the holder to purchase
the same number of shares as the related Convertible Debenture would be
convertible into, at an exercise price of 105% of the related Convertible
Debenture's conversion price. The Warrants expire three (3) years after the date
of issuance.
RESTRUCTURING WARRANTS
The following described warrants are being issued as a result of the capital
restructuring plan. These warrants are referred to as "Preferred Stock"
Warrants. However, they are exercisable to purchase Common Stock, provided that
a sufficient number of shares of Common Stock remain authorized but unissued. If
the number of shares is inadequate, the Company may substitute shares of its 10%
Convertible Redeemable Preferred Stock (see description above) which are
convertible into twenty (20) shares of Common Stock. At the Annual Meeting of
Shareholders held on November 6, 1998, the shareholders approved an increase in
the authorized number of shares of Common Stock to 200,000,000. The Company is
presently amending its Certificate of Incorporation to increase its authorized
Common Stock, which would permit the Company to issue Common Stock upon
exercise.
Series B
These Warrants are being issued to Dunvegan Mortgage Corporation or assigns
based on a calculation retroactive to December 31, 1997. They are intended to
provide Dunvegan with the ability to acquire sufficient shares of Common Stock
in addition to the Loan and Security Agreement Warrants described below to
maintain the option to acquire 51% of the Company's then issued and outstanding
Common Stock, on a fully diluted basis. The Warrants are exercisable at a price
of $10 per share of a new series of Preferred Stock, each share of which would
be convertible into twenty shares of Common Stock.
Series C-I
These Warrants are being issued retroactive to December 31, 1997 to Wardeb
Investment Corporation, in exchange for previously issued Common Stock Purchase
Warrants which are being canceled. The Warrants are exercisable at a price of
$10 per share of Preferred Stock, each share of which would be convertible into
29.783 shares of Common Stock.
32
<PAGE> 33
Series C-II
These Warrants are being issued retroactive to December 31, 1997 to Wardeb
Investment Corporation, in exchange for previously issued Common Stock Purchase
Warrants which are being canceled. The Warrants are exercisable at a price of
$10 per share of Preferred Stock, each share of which would be convertible into
40.1176 shares of Common Stock.
Series D
These Warrants are being issued to Dunvegan Mortgage Corporation as a new
issuance for a new series of Preferred Stock, each share of which will have
25,000 votes per share. The intent of this issuance is to provide Dunvegan with
voting rights equivalent to the number of votes it has otherwise given up as a
result of waiving its rights to the delivery of certain common shares and
warrants.
LOAN AND SECURITY AGREEMENT WARRANTS
On or about October 19, 1995, Dunvegan Mortgage Corporation, a Delaware
corporation of which Sheldon Fenton, current CEO of Veridien, is also an officer
and a director, and loan participants agreed to loan us $2,500,000.00
represented by a Master Promissory Note collateralized by a Security Interest on
all of our assets and our subsidiaries. We have drawn down the entire amount. As
a part of the loan transaction, we agreed to issue Dunvegan Mortgage
Corporation, its assigns and its loan participants (collectively "Dunvegan") two
series of warrants, one series exercisable at $.001 per share and the other
series exercisable at $.499 per share. The warrants must be exercised in tandem
and the number of warrants of each series to be exercised is determined by a
formula.
The formula requires that Dunvegan be issued that number of warrants, each
warrant to purchase one (1) share of Common Stock, such that after exercise of
all such warrants, Dunvegan could own 51% of the total number of shares then
issued and outstanding, on a fully diluted basis. For example, the adjusted
(corrected) number of shares issued and outstanding on a fully diluted basis, on
July 31, 1998, excluding Dunvegan, was 61,587,238. However, Dunvegan had waived
its rights with respect to the issuance of 5,745,000 shares. Accordingly, if
Dunvegan were to have exercised on that date it would have received warrants to
purchase that number of shares which would equal 51% of the total shares issued
and outstanding after exercise of those Warrants, excluding the waived shares.
This would have been 58,121,513 shares. (As of December 31, 1998, this would be
61,794,461 shares of which the common share equivalent of 36,620,422 shares had
been exercised.)
The price of the warrants to be issued is also determined by the formula. The
combination of $.499 and $.001 Warrants to be exercised is calculated by (I)
dividing the $2,500,000 principal amount of the loan by the number of shares
needed to be acquired to achieve up to the 51% position so as to determine a per
share price and then (ii) calculating the number of $.499 shares and $.001
shares required to approximate that per share price as an average.
33
<PAGE> 34
On September 14, 1998 Dunvegan exercised warrants and converted $1,575,166
principal of its loan under the Loan and Security Agreement to 33,530,973 shares
of Common Stock and 154,163 shares of Series B Cumulative Preferred Stock.
Dunvegan itself retained all of the Series B Cumulative Preferred Stock and
20,610,551 shares of the Common Stock and distributed the balance of the Common
Stock to its loan syndicate participants. Following such exercise and
conversion, Dunvegan Mortgage Corporation assigned the balance of the loan
outstanding ($924,834.00) and the remaining Loan and Security Agreement Warrants
to 1192615 Ontario Limited, a company owned by Mr. Fenton's brother. Mr. Fenton
disclaims any beneficial interest in such loan balance or in the remaining Loan
and Security Agreement Warrants.
DIVIDEND POLICY.
We have never had net profits on operations and therefore are currently
proscribed under the Delaware General Corporation Law from declaring dividends.
We have not paid any cash dividends on our Common Stock or our Preferred Stock.
Moreover, our Board of Directors has no present intention of declaring any cash
dividends, as we expect to re-invest all profits in the business for additional
working capital for continuity and growth. The declaration and payment of
dividends in the future will be determined by our Board of Directors considering
the conditions then existing, including the Company's earnings, financial
condition, capital requirements, and other factors.
At present there is a series of 100,000 shares of Preferred Stock, created on
April 3, 1995, titled "10% Cumulative Convertible Redeemable Preferred Stock".
These shares are entitled to receive an annual dividend of $1.00 per share
before any dividend is paid to holders of the Common Stock. Any dividend not
declared and paid is accumulated and must be paid before any dividend or
distribution is made on our Common Stock. As of December 31, 1998 the
accumulated dividend is $30,995.
Also, at present there is a series of 244,678 shares of Preferred Stock created
on December 31, 1997, titled "Series B Convertible Preferred Stock". These
Shares are entitled to receive an annual dividend equal to the greater of:
- 10% of the stated value, as adjusted from time to time; and
- the actual dividend per share of Common Stock as declared by the
Company's Board of Directors times the number of shares of Common Stock
into which each share of Series B Convertible Preferred Stock is
convertible on the dividend record date. The dividend is cumulative,
whether or not earned and, to the extent not paid on a quarterly
dividend payment date (commencing January 1, 1999) is added to the
stated value.
PART II
34
<PAGE> 35
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Our Common Stock is traded on the NASDAQ Bulletin Board.
(b) Our Common Stock was listed on the NASDAQ Bulletin Board on
approximately December 20, 1993. The closing price on that date was
$0.87. Prior ot that date our stock was trading on the Pink Sheets.
(c) The Company's Common Stock is approved for trading on the NASDAQ
Bulletin Board, trading under the stock symbol "VRDE". The chart below
breaks down the high bid and the low bid prices for each of the last 8
quarters (as reported by NASDAQ Trading & Market Services) which
quotations reflect inter-dealer price, without retail mark-up,
mark-down or commission, and may not reflect actual transactions.
During 1997 and 1998, its high and low bid and asked prices were as
follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
------------- -------- -------
<S> <C> <C>
December 31, 1998 $.10 $.04
September 30, 1998 .17 .07
June 30, 1998 .24 .06
March 31, 1998 .45 .21
December 31, 1997 .50 .20
September 30, 1997 .62 .14
June 30, 1997 .44 .23
March 31, 1997 .45 .21
</TABLE>
On March 4, 1999 the closing prices of the Company's Common Stock were $0.125
bid and $0.133 asked, as quoted on the NASDAQ Bulletin Board.
To date no dividends have been declared or paid on the Common Stock. (See
part I, Item 8, "Dividend Policy")
Veridien Corporation was formed in June, 1991 under the laws of the State of
Delaware. We initially authorized the issuance of 50,000,000 shares of Common
Stock, and 25,000,000 shares of Preferred Stock, both having a par value of
$.001. On February 20, 1996 we filed a Certificate of Amendment to our Stock to
100,000,000 shares at a par value of $.001. Our shareholders approved, at our
Annual Meeting on November 6, 1998 , an amendment increasing the authorized
number of shares of Common Stock to 200,000,000.
There are approximately 1,862 holders of record of our Common Stock.
DIVIDEND. We have never had net profits on operations and therefore are
currently proscribed under the Delaware General Corporation Law from declaring
dividends. We have not paid any cash dividends on our Common Stock or our
Preferred Stock. Our Board of Directors has no present intention of declaring
any cash dividends, as we expect to re-invest all profits in the business for
additional working capital for continuity and growth. The declaration and
payment of dividends in the future will be determined by our Board of Directors
considering the conditions then existing, including the Company's earnings,
financial condition, capital
35
<PAGE> 36
requirements, and other factors.
At present there is a series of 100,000 shares of Preferred Stock, created on
April 3, 1995, titled "10% Cumulative Convertible Redeemable Preferred Stock".
These shares are entitled to receive an annual dividend of $1.00 per share
before any dividend is paid to holders of the Common Stock. Any dividend not
declared and paid is accumulated and must be paid before any dividend or
distribution is made on our Common Stock.
Also, at present there is a series of 244,678 shares of Preferred Stock created
on December 31, 1997, titled "Series B Convertible Preferred Stock". These
Shares are entitled to receive an annual dividend equal to the greater of:
- 10% of the stated value, as adjusted from time to time; and
- the actual dividend per share of Common Stock as declared by
the Company's Board of Directors times the number of shares of
Common Stock into which each share of Series B Convertible
Preferred Stock is convertible on the dividend record date.
The dividend is cumulative, whether or not earned and, to the extent not paid on
a quarterly dividend payment date (commencing January 1, 1999) is added to the
stated value.
ITEM 2. LEGAL PROCEEDINGS
Except for the two legal actions and FAA proposed penalty described below, we
are not a party to any pending legal proceedings. We are not aware of any legal
proceedings pending, threatened or contemplated, against any of our officers or
directors, respectively, in their capacities as such.
A lawsuit was filed against Veridien Corporation on November 4, 1997 by Michael
L. Childers as Trustee of the Money Purchase Plan and Michael L. Childers and
Deana F. Childers as Joint Tenants in the Circuit Court of the Sixth Judicial
Circuit in and for Pinellas County, Florida. The suit alleges that Veridien made
misleading statements including that the Food & Drug Administration (FDA) had
approved a new product developed by Veridien. Veridien is accused of publishing
"Misinformation and fail(ing) to disclose the material, negative information at
a time when it did not know whether the information was true or was false." The
Plaintiffs bought 5,900 shares of stock at $6.00 per share whose value has been
"dramatically" reduced to less then $.50 per share. Plaintiffs seek damages in
excess of $15,000 in a trial by jury. The Company is actively defending this law
suit.
Veridien Corporation is a defendant in an action brought by Creative
Technologies, Inc. ("CTI") of Greenville, South Carolina. In the action,
docketed to No. 98-CP-23-2521 in the Court of Common Pleas of Greenville County,
South Carolina, CTI seeks to recover $45,000 claimed to be due and owing as the
result of the settlement of a consulting contract. In addition, CTI claims
36
<PAGE> 37
actual damages, punitive damages, prejudgment interest and other remedies for
alleged false product representations which CTI relied upon in representing
Veridien to its clients. The Company has been actively defending this law suit
and the parties have entered into a settlement agreement.
On November 30, 1998, under Case No. 97-GL-76-0135 the Federal Aviation
Administration proposed to assess a civil penalty against the Company in the
amount of $60,000 for one incident which lead to alleged violations of various
Hazardous Material Regulations. This proposed civil penalty is based upon a
shipment made by a Company employee of product samples intended for use at a
trade show. It is proported that the samples were not marked as required under
the Hazardous Material Regulations nor was the shipment accompanied by a
"Shipper's Certification of Declaration of Dangerous Goods". The Company did not
direct or authorize the actions of the employee. The Company is actively
contesting the civil penalty and has retained a specialist in such matters
seeking to present facts and circumstances which do not warrant a civil penalty.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have selected Carter & Cartier P.A., CPA's with offices at 424 Central
Avenue, Suite 1000, St. Petersburg, Florida 33701, as our independent
accountants and auditors, for the audit of our financial statements for 1997 and
1998. We have included our audited financial statements for the fiscal years
ended December 31, 1997 and December 31, 1998, in this filing in reliance on the
report of that firm and upon the authority of that firm as expert in auditing
and accounting.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During 1995 the Company made a private placement under Section 4(2) of Units
consisting of shares of its 10% Convertible Redeemable Preferred Stock and its
$.01 Warrants.
1996
On March 19, 1996, an investor in the 1995 private placement converted 7,065
shares of the Preferred Stock to 141,300 shares of the Company's Common Stock
and exercised 402,162 Warrants to purchase 402,162 shares of the Company's
Common Stock. These issuances were considered exempt from registration by reason
of Sections 3(a)(9) and 4(2) of the Securities Act.
On June 27, 1996, another investor in the 1995 private placement converted 4,800
shares of the Preferred Stock to 96,000 shares of the Company's Common Stock and
exercised 304,000 Warrants to purchase 304,000 shares of the Company's Common
Stock. These issuances were considered exempt from registration by reason of
Sections 3(a)(9) and 4(2) of the Securities Act.
On or about August 1, 1996 the Company issued 250,000 shares of its Common Stock
to its terminated President/CEO as a severance payment in lieu of remaining
salary. This issuance was considered exempt from registration by reason of
Section 4(2) of the Securities Act.
37
<PAGE> 38
On August 8, 1996, another investor in the 1995 private placement converted
1,000 shares of the Preferred Stock to 20,000 shares of the Company's Common
Stock. This issuance was considered exempt from registration by reason of
Section 3(a)(9) of the Securities Act.
On or about September 1, 1996, various other investors in the 1995 private
placement converted 24,065 shares of the Preferred Stock to 481,300 shares of
the Company's Common Stock. These issuances were considered exempt from
registration by reason of Section 3(a)(9) of the Securities Act.
On or about September 1, 1996 the Company issued Warrants to purchase 100,000
shares of its Common Stock and 300,000 shares of its Common Stock respectively
to two companies as payment for services. These issuances were considered exempt
from registration by reason of Section 4(2) of the Securities Act.
On or about September 26, 1996 the Company issued 2,930 shares of its Common
Stock to an investor in the 1995 private placement to settle a disagreement
about the amount of funds invested and the shares to which the investor was
entitled. This issuance was considered exempt from registration by reason of
Section 4(2) of the Securities Act.
On or about September 1, 1996 another investor in the 1995 private placement
converted 250 shares of the Preferred Stock to 5,000 shares of the Company's
Common Stock and exercised 155,000 Warrants to purchase 155,000 shares of the
Company's Common Stock. These issuances were considered exempt from registration
by reason of Sections 3(a)(9) and 4(2) of the Securities Act.
At various times between November 27, 1996 and December 27, 1996 an investor
advanced funds totaling $342,592 and was issued Convertible Debentures for that
principal sum together with 954,610 Convertible Debenture Warrants. This
issuance was considered exempt from registration by reason of Section 4(2) of
the Securities Act.
1997
On January 31, 1997 the Company issued 100,000 Common Stock Purchase Warrants as
compensation for services of a company. This issuance was considered exempt from
registration by reason of Section 4(2) of the Securities Act.
On November 14, 1997 an investor in the 1995 private placement exercised 91,111
Warrants to purchase 91,111 shares of the Company's Common Stock. This issuance
was considered exempt from registration by reason of Section 4(2) of the
Securities Act.
On November 19, 1997 the Company issued 1,000,000 shares of its Common Stock to
an investor in a private placement. This issuance was considered exempt by
reason of Rule 506 of Regulation D and Section 4(2) of the Securities Act.
38
<PAGE> 39
On December 4, 1997 an investor in the 1995 private placement exercised 4,535
Warrants to purchase 4,535 shares of the Company's Common Stock. This issuance
was considered exempt from registration by reason of Section 4(2) of the
Securities Act.
At various times during 1997 various lenders advanced funds totaling $1,566,272
and were issued Convertible Debentures for that principal sum together with
5,534,138 Convertible Debenture Warrants. These issuances were considered exempt
from registration by reason of Section 4(2) of the Securities Act.
1998
On February 13, 1998 the entity to which the Company had previously issued
300,000 Common Stock Purchase Warrants for services in 1996 exercised such
Warrants. This issuance was considered exempt from registration by reason of
Section 4(2) of the Securities Act.
On February 13, 1998 the Company issued 231,667 shares of its Common Stock as
compensation for services. This issuance was considered exempt from registration
by reason of Section 4(2) of the Act.
On April 1, 1998 another investor in the 1995 private placement converted 5,000
shares of the Preferred Stock to 100,000 shares of the Company's Common Stock .
This issuance was considered exempt from registration by reason of Section
3(a)(9) of the Securities Act.
On April 1, 1998 the Company issued 450,000 shares of its Common Stock to an
investor in the 1995 private placement for a promissory note for $22,500 to
settle a dispute about the conversion ratio. This issuance was considered exempt
from registration by reason of Sections 3(a)(9) and 4(2) of the Securities Act.
On September 14, 1998 the Company issued 122,500 shares of its Common Stock to a
creditor upon conversion of existing indebtedness. This issuance was considered
exempt from registration by reason of Section 4(2) of the Securities Act.
On September 14, 1998 another investor in the 1995 private placement converted
10,000 shares of the Preferred Stock to 200,000 shares of the Company's Common
Stock and exercised 911,111 Warrants to purchase 911,111 shares of the Company's
Common Stock. In addition, in lieu of the accrued dividend on the Preferred
Stock the Company issued 73,059 shares of its Common Stock. These issuances were
considered exempt from registration by reason of Sections 3(a)(9) and 4(2) of
the Securities Act.
On September 14, 1998 investors under the Loan and Security Agreement were
issued 33,530,973 shares of the Company's Common Stock upon exercise of the Loan
and Security Agreement Warrants and received 154,163 shares of the Series B
Preferred Stock. These issuances were considered exempt from registration by
reason of Sections 3(a)(9) and 4(2) of the Securities Act.
39
<PAGE> 40
On November 24, 1998 the Company issued 221,055 shares of its Common Stock as
compensation for past services. This issuance was considered exempt from
registration by reason of Section 4(2) of the Securities Act.
On December 15, 1998 the Company issued 1,000,000 shares of its Common Stock to
an investor in a private placement. This issuance was considered exempt from
registration by reason of Section 4(2) of the Securities Act.
At various times after July 31, 1998 the Company issued 6,929,295 shares of its
Common Stock in an offering conducted under Rule 504 of Regulation D. These
issuances were considered exempt from registration by reason of Rule 504 of
Regulation D and Section 3(b) of the Securities Act.
At various times during 1998 various lenders advanced funds totaling $585,333
and were issued Convertible Debentures for that principal sum together with
4,029,540 Convertible Debenture Warrants. These issuances were considered exempt
from registration by reason of Section 4(2) of the Securities Act.
1999
At various times to February 28, 1999 the Company issued 3,866,226 shares of its
Common Stock for cash and 428,572 shares of its Common Stock for services in a
continuation of the offering conducted under Rule 504 of Regulation D. These
issuances were considered exempt from registration by reason of Rule 504 of
Regulation D and Section 3(b) of the Securities Act.
During the period to February 28, 1999 the Company issued 3,450,000 shares of
its Common Stock to eight investors in a private placement. This issuance was
considered exempt from registration by reason of Section 4(2) of the Securities
Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW
Section 145 of the Delaware General Corporation Law contains provisions
authorizing our indemnification of directors, officers, employees or agents
against certain liabilities and expenses which they may incur as directors,
officers employees or agents of the Company or of certain other entities. The
law also provides that such indemnification may include payment by the Company
of expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding upon receipt of an
undertaking by the person indemnified to repay such payment if he shall be
ultimately found not to be entitled to indemnification. Indemnification may be
provided even though the person to be indemnified is no longer a director,
officer, employee or agent of the Company or such other entities. Section 145(g)
also contains provisions authorizing the Company to obtain insurance on behalf
of any
40
<PAGE> 41
such director, officer employee or agent against liabilities, whether or
not the Company would have the power to indemnify such person against such
liabilities under the provisions of the Section.
The indemnification and advancement of expenses provided pursuant to Section
145(f) are not exclusive, and subject to certain conditions, we may make other
or further indemnification or advancement of expenses of any of our directors,
officers, employees or agents. Because our Articles of Incorporation, as
amended, do not otherwise provide, notwithstanding our failure to provide
indemnification and despite a contrary determination by the Board of Directors
or our shareholders in a specific case, a director, officer, employee or agent
of the Company who is or was a party to a proceeding may apply to a court of
competent jurisdiction for indemnification or advancement of expenses or both,
and the court may order indemnification and advancement of expenses, including
expenses if it determines that the petitioner is entitled to mandatory
indemnification pursuant to Section 145(c) because he has been successful on the
merits, or because the Company has the power to indemnify on a discretionary
basis pursuant to Section 145(b) or because the court determines that the
petitioner is fairly and reasonably entitles indemnification or advancement of
expenses or both in view of all the relevant circumstances.
ARTICLES OF INCORPORATION AND BY-LAWS
The Articles of Incorporation and By-laws of the Company, as amended, empower
the Company to indemnify our current or former directors, officers, employees or
agents of the Company or persons serving by our request of the Company in such
capacities in any other enterprise or persons who have served by our request of
the company in such capacities in any other enterprise to the full extent
permitted by the laws of the State of Delaware.
LIMITATION ON LIABILITY
Our Articles of Incorporation limit directors' and officers' liabilities to the
maximum permitted under Delaware law. Thus, even if such an officer or director
loses a lawsuit, it is possible, unless such an officer or director was guilty
of gross negligence or willful misconduct in the performance of his/her duties,
that we or our insurance carrier will pay the amount of such judgment or
settlement and reasonable legal fees.
OFFICERS AND DIRECTORS LIABILITY INSURANCE
At present, we maintain Officers and Directors Liability Insurance with
Executive Risk Indemnity, Inc. of Dover, Delaware.
INDEMNITY AGREEMENTS
At present, we do not have indemnity agreements in place with any of our current
officers or directors.
41
<PAGE> 42
SEC POSITION ON INDEMNIFICATION FOR SECURITY ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that is the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suite
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
42
<PAGE> 43
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Veridien Corporation
--------------------------------------------
(Registrant)
Date 7/20/99 By /s/ Andrew T. Libby, Jr.
------------------ -----------------------------------------
Andrew T. Libby, Jr., COO
By /s/ Sheldon C. Fenton
-----------------------------------------
Sheldon C. Fenton, CEO
43
<PAGE> 44
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
and Independent Auditors' Report
December 31, 1998 and 1997
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
[LOGO]
CARTIER and CARTIER P.A.
Certified Public Accountants
To the Board of Directors
Veridien Corporation
We have audited the accompanying consolidated balance sheets of Veridien
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related statements of operations, changes in deficit in
stockholders' equity for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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
the significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Veridien
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements, the Company, since its inception, has
sustained substantial losses, has a deficit in stockholders' equity, a deficit
in working capital, and is experiencing a continued cash flow deficiency. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are described in Note
B. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Carter and Cartier P.A.
Carter and Cartier, P.A.
February 24, 1999
Suite 1000, First Union Tower
424 Central Avenue
St. Petersburg, Florida 33701-3828
(813) 821-4900
Fax (813) 823-0558
<PAGE> 46
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 17,158 $ 88,045
Accounts receivable - trade
Less allowance for doubtful accounts
Of $6,096 and $24,231, respectively 203,148 59,382
Note receivable 22,500 --
Inventory 92,549 227,978
Prepaid expenses and other current assets 20,580 19,272
------------ ------------
Total current assets 355,935 394,677
Property and equipment:
Leasehold Improvements 83,806 83,806
Furniture and fixtures 372,697 356,490
------------ ------------
456,503 440,296
Less accumulated depreciation 414,333 399,778
------------ ------------
42,170 40,518
Other Assets:
Patents, less accumulated amortization of
$482,378 and $479,230, respectively 32,004 35,152
Loan costs, less accumulated amortization of
$49,633 and $33,541, respectively 28,160 44,251
Security deposits and other assets 40,389 40,389
------------ ------------
100,553 119,792
------------ ------------
$ 498,658 $ 554,987
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 47
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Liabilities and Deficit in Stockholders' Equity
Current liabilities:
Notes payable $ 1,066,273 $ 2,704,460
Accounts payable 244,343 353,611
Accrued compensation 39,000 12,483
Other accrued liabilities 949,059 673,513
Due to stockholders 189,321 24,157
Deferred revenue - licensing agreement 87,418 --
------------ ------------
Total current liabilities 2,575,414 3,768,224
Convertible debentures 2,494,198 1,908,865
Deficit in stockholders' equity:
Undesignated preferred stock, $.001
par value, 25,000,000 shares authorized
Convertible redeemable preferred stock, $10 par value, 100,000
authorized; 6,000 and 16,000 issued and outstanding
at December 31, 1998 and 1997 60,000 160,000
Series B Preferred Stock,
$.001 par value, 245,344 authorized,
154,163 and 0 issued and outstanding
at December 31, 1998 and 1997 154 --
Common stock - $.001 par value; 200,000,000 Shares authorized,
78,152,833 and 33,463,173 Shares issued and outstanding at
December 31, 1998 and 1997 78,154 33,464
Additional paid-in capital 22,858,790 17,796,043
Common stock warrants 26,399 2,599,288
Accumulated deficit (27,589,451) (25,705,897)
------------ ------------
(4,565,954) (5,117,102)
Stock subscriptions receivable (5,000) (5,000)
------------ ------------
Total stockholders' deficit (4,570,954) (5,122,102)
------------ ------------
$ 498,658 $554, 987
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 48
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 820,065 $ 869,319
Operating costs and expenses:
Cost of sales 601,037 589,215
General and administrative 1,399,251 1,627,518
Research and development 377,344 245,404
------------ ------------
2,377,632 2,462,137
------------ ------------
Loss from operations (1,557,567) (1,592,818)
Other Income (expense):
Interest expense (525,872) (413,882)
Rental income 51,290 3,459
Licensing fees 145,696 --
Miscellaneous -- 23,954
Interest income 2,899 6,213
------------ ------------
(325,987) (380,256)
Net loss $ (1,883,554) $ (1,973,074)
============ ============
Net loss per common share $ (.04) $ (.06)
============ ============
Weighted average share outstanding 48,299,890 32,549,756
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 49
VERIDIEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Convertible
Redeemable Series B Number Additional
Preferred Preferred Common Common Paid-in
Stock Stock Shares Stock Capital
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ 135,367 $ -- 32,367,527 $32,367 17,561,242
Exercise of stock warrants for notes -- -- 91,111 91 8,109
Exercise of stock warrants for cash -- -- 4,535 6 1,554
Issuance of stock warrants for cash -- -- 1,000,000 1,000 249,000
Amortization of preferred stock costs 24,633 -- -- -- (23,862)
Net (loss) -- -- -- -- --
--------- ---- ---------- ------- ------------
Balances at December 31, 1997 160,000 -- 33,463,173 33,464 17,796,043
Exercise of warrants conversion for services -- -- 300,000 300 (300)
Issuance of stock for services -- -- 452,722 453 123,347
Conversion of preferred shares to common
correction to prior conversion -- -- 100,000 100 (100)
Issuance of stock for note -- -- 450,000 450 22,050
Issuance of stock for debt conversion -- -- 742,500 743 178,757
Conversion of preferred shares to common (100,000) -- 200,000 200 99,800
Exercise of 1995 PPM Warrants -- -- 984,170 984 85,591
Conversion of partial loan/security agreement -- 154 33,530,973 33,531 4,041,481
Proceeds from Section 504 offering -- -- 6,929,295 6,929 463,121
Proceeds from Private Placement -- -- 1,000,000 1,000 49,000
Net (loss) -- -- -- -- --
--------- ---- ---------- ------- ------------
Balances at December 31, 1998 $ 60,000 $154 78,152,833 $78,154 $ 22,858,790
========= ==== ========== ======= ============
</TABLE>
<TABLE>
<CAPTION>
Stock Stockholders'
Stock Accumulated subscriptions equity
Warrants Deficit receivable (deficit)
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ 2,608,092 $(23,732,823) $(5,000) $(3,400,755)
Exercise of stock warrants for notes (7,289) -- -- 911
Exercise of stock warrants for cash (1,515) -- -- 45
Issuance of stock warrants for cash -- -- -- 250,000
Amortization of preferred stock costs -- -- -- 771
Net (loss) -- (1,973,074) -- (1,973,074)
----------- ------------ -------- -----------
Balances at December 31, 1997 2,599,288 (25,705,897) (5,000) (5,122,102)
Exercise of warrants conversion for services -- -- -- --
Issuance of stock for services -- -- -- 123,800
Conversion of preferred shares to common
correction to prior conversion -- -- -- --
Issuance of stock for note -- -- -- 22,500
Issuance of stock for debt conversion -- -- -- 179,500
Conversion of preferred shares to common --
Exercise of 1995 PPM Warrants (72,889) -- -- 13,686
Conversion of partial loan/security agreement (2,500,000) -- -- 1,575,166
Proceeds from Section 504 offering -- -- -- 470,050
Proceeds from Private Placement -- -- -- 50,000
Net (loss) -- (1,883,554) -- (1,883,554)
----------- ------------ ------- -----------
Balances at December 31, 1998 $ 26,399 $ 27,589,451 $(5,000) $(4,570,954)
=========== ============ ======= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 50
VERIDIEN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(1,883,554) $(1,973,074)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and amortization 33,794 61,500
(Increase) decrease in:
Accounts receivable (143,766) (4,223)
Prepaid and other current assets (1,308) (9,238)
Inventories 135,429 (134,837)
Increase (decrease) in:
Accounts payable and accrued expenses 192,795 274,364
Due to stockholders 165,164 (165,257)
Deferred revenue 87,418 --
----------- -----------
Net cash (used) by operating activities (1,414,028) (1,950,765)
Cash flow from investing activities:
Purchases of property and equipment (16,207) (3,949)
Patent development -- (20,283)
----------- -----------
Net cash (used) by investing activities (16,207) (24,232)
Cash flow from financing activities:
Proceeds from convertible debentures 585,333 1,566,273
Net proceeds from borrowings 86,979 129,757
Proceeds from sale of preferred and common stock 687,036 250,956
----------- -----------
Net cash provided by financing activities 1,359,348 1,946,986
----------- -----------
Net (decrease) in cash (70,887) (28,011)
Cash at beginning of year 88,045 116,056
----------- -----------
Cash at end of year $ 17,158 $ 88,045
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 51
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows.
1. Organization, Business and Control
On June 4, 1991, the Company was incorporated in Delaware as "VCT Acquisitions
II, Inc.". The Company then acquired all of the assets of another Delaware
corporation called Viral Control Technology, Inc. On September 13, 1991, the
Company changed its name to Viral Control Technology, Inc. Subsequently, on
November 8, 1991, the Company again changed its name and became Veridien
Corporation (the Company).
The "Viral Control Technology, Inc." from which the Company acquired its assets
was created on August 3, 1989, by a reverse acquisition of a public shell called
Valencia Enterprises, Inc., by a private company named Viral Control Technology,
Inc. The original Viral Control Technology, Inc., was organized in Delaware on
August 10, 1988, while Valencia Enterprises was organized in Utah on February
10, 1984. Valencia, which had changed its name to Viral Control Technology,
Inc., after the reorganization, was redomesticated in Delaware on December 14,
1990. The original private company called Viral Control Technology, Inc., was
organized by Paul L. Simmons and his wife.
The Company was founded to develop disinfectants and sterilants which will pose
no hazard to people who use them and will not harm the environment. To this end,
the Company has developed a hard surface disinfectant (VIRAHOL(R)), which has
been registered with the Environmental Protection Agency (EPA), and a cold
chemical sterilant (STERIHOL(R)), for which the Company is currently seeking
regulatory approval. The Company's research and development efforts are
currently focused on further development of infection control chemicals and on
devices, both medical and commercial, which utilize the Company's liquid
products and are in keeping with the corporate philosophy of environmentally
friendly products. In June 1996, the Company added Vira-RD12(TM) a heavy-duty
rotational disinfectant and Vira-CD7(TM) a detergent disinfectant for large
areas to its infection control line.
In October 1995, the Company entered into a 10% Convertible Senior Secured Term
Loan agreement to finance marketing efforts for its line of products, to fund
operating cash flow deficiencies, and to continue its research and development
activities.
<PAGE> 52
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
The agreement requires the Company to issue to the lender warrants, in
sufficient quantity, that at all times the loan agreement is in force the lender
can obtain 51% of all classes of outstanding stock for a $2,500,000 exercise
price. During 1998, $1,575,166 of the debt and the lender's warrants were
converted into 33,530,973 common shares. During 1998, the Company was authorized
to increase its capital structure to 200,000,000 authorized shares of common
stock.
2. Principles of Consolidation
The accompanying financial statements include the accounts of the Company and
its subsidiaries, each of which is wholly-owned. All intercompany balances and
transactions have been eliminated in consolidation.
3. Accounting Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. Accounts Receivable
The Company uses the allowance method of accounting for doubtful accounts. The
year-end balance is based on historical collections and management's review of
the current status of existing receivables and estimate as to their
collectibility.
5. Inventories
Inventories, consisting primarily of raw materials and finished goods, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method. At December 31, 1998, raw materials and finished goods
amounted to approximately $64,000 and $29,000, respectively. At December 31,
1997, raw materials and finished goods amounted to approximately $78,000 and
$150,000, respectively.
<PAGE> 53
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
6. Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over their estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized on
the straight-line method over the shorter of the lease term or estimated useful
life. Major renewals, betterments and replacements are capitalized. Maintenance
and repairs are charged to expense as incurred.
7. Patents
The Company capitalizes certain costs, primarily legal and other fees, related
to patents. Accumulated costs are amortized over the estimated lives of the
patents using the straight-line method, commencing at the time the patents are
issued.
8. Loan Costs
Loan costs are amortized by the straight-line method over the term of the
respective loans.
9. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
10. Reclassification
Certain reclassifications have been made to the 1997 financial statements to be
in conformity with the 1998 presentation.
<PAGE> 54
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
11. Net Loss per Share
Net loss per share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the period. Weighted average
number of common shares outstanding is calculated as the sum of the month-end
balances of shares outstanding, divided by the number of months. The weighted
average shares outstanding were 48,299,890 and 32,549,756 for the years ended
December 31, 1998 and 1997, respectively. Common stock equivalents (stock
options, warrants, convertible debentures and convertible redeemable preferred
stock) are not included in the weighted average number of common shares because
the effects would be anti-dilutive.
NOTE B - REALIZATION OF ASSETS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. Since inception, the Company has
incurred losses of approximately $27.6 million, resulting primarily from
research and development, sales and marketing, and administrative expenses being
substantially in excess of sales revenue. The Company has a deficit in
stockholders' equity of $4,631,108, a deficit in working capital of $2,219,479,
and is experiencing a continuing cash flow deficiency.
For the year ended December 31, 1998, the Company's operating activities
resulted in cash outflows of $1,414,028. In addition, the Company used $16,207
for patent development and equipment purchases. In order to fund these cash
outflows, the Company sold $687,036 of preferred and common stock and received
net proceeds of $672,312 from notes payable and convertible debentures. These
proceeds, together with the cash balance at the beginning of the year, did not
fund the Company's cash outflows, resulting in a net cash decrease of $70,887
for the year ended December 31, 1998.
The company plans to utilize its current debt financing arrangements and pursue
additional equity and debt financing while managing cash flow in an effort to
provide funds to increase revenues to support operations, research and
development activities. Management anticipates cash flow from product sales will
meet and exceed cash requirements in the Fall of 1999. The company plans to
pursue additional cash through sales of equity, through Rule 504 and 506
offering(s).
<PAGE> 55
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE B - REALIZATION OF ASSETS-CONTINUED
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon the continued operations of the
Company and that such operations will be profitable and provide adequate cash
flows. Further, the ability of the Company to continue its operations and
successfully defend itself against potential claims or assessments is dependent
on the ability to obtain additional debt and equity financing, employ cash
management techniques and aggressively market its products.
The consolidated financial statements do not contain any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
NOTE C - RELATED PARTY TRANSACTIONS
In March 1996, the Company entered into a repayment agreement with the principal
stockholder to reimburse for costs incurred in prior years for the development
of certain products. The agreement provides for the repayment of $169,000 from a
percentage of income derived from future product sales or earlier at the option
of the Company. The amount was charged to research and development expense for
the year ended December 31, 1996. During 1997, the Company exercised its option
and paid the balance due.
In June 1996, the Company entered into a settlement and general release
agreement with the then Chief Executive Officer and Chairman of the Board for
voluntary resignation of employment and resignation from the Board of Directors.
The agreement provides for the payment of $135,000 in twelve equal monthly
installments. In addition, the Company delivered 250,000 shares of common stock
and assumed an existing note payable to the principal stockholder in the amount
of $32,000. This obligation was satisfied in full during 1997.
At December 31, 1998 and 1997, the Company owed $189,321 and $24,157,
respectively to stockholders who have made advances of cash or material to the
Company.
During 1998, the Company purchased $104,444 of inventory from a company owned by
a shareholder and has recorded the advance in Due to stockholder. The Company
has the ability to convert the advances into Company common stock at $.20 per
share.
<PAGE> 56
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The Company has entered into numerous financing transactions with Dunvegan
Mortgage Corporation, a corporation of which the Company's President and CEO is
an officer and a director. These transactions are detailed elsewhere in these
footnotes.
NOTE D - NOTES RECEIVABLE
The Company issued 450,000 of common stock to a shareholder in exchange for a
note receivable in the amount of $22,500. The note is non-interest bearing, can
be satisfied in full by the return of the Company common stock, and is due in
full on December 31, 1999. At December 31, 1998, the 450,000 common shares had
an approximate market value of $27,000.
NOTE E - NOTES PAYABLE
In October 1995, the Company secured a 10% Convertible Senior Secured Term Loan
of up to $2,500,000 with a mortgage company. During 1998, the mortgage company
converted $1,575,166 of the $2,500,000 debt into 33,530,973 common shares. On
October 5, 1998, the remaining balance of $924,834 was assigned to another
lender. The maturity date and other terms remain the same.
The loan agreement grants the lender warrants to purchase 51% of the Company's
outstanding common and preferred stock. The note is collateralized by the assets
and intellectual properties of the Company and its subsidiaries and requires
semi-annual payments of interest only with the entire principal balance due in
November 2000. As of December 31, 1998, the Company was advanced $924,834 and
has accrued $308,995 of interest under the agreement. The Company has been in
technical default on the loan since March 1996 with respect to certain financial
criteria. Furthermore, the lender has not waived compliance regarding these
criteria and has continued to fund the monthly working capital needs of the
Company, as previously agreed. Accordingly, the accompanying consolidated
financial statements have presented the amounts advanced under the note as a
current liability.
During 1998, the original lender advanced $75,000 under a short-term bridge loan
at 0% stated interest rate.
The company has negotiated promissory notes with a leasing company at varying
terms and maturities. The remaining balance amounted to $66,439 and $54,460 at
December 31, 1998 and 1997, respectively. The Company renegotiated the loans
during April 1998. The note carries an interest rate of 9% per annum payable
monthly, with principal payments of $21,924 due on May 1, 1999, and 2000, with
the remaining principal due on May 1, 2001.
<PAGE> 57
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
The Company had borrowed funds from an individual in the amount of $150,000 at
December 31, 1997. Interest at 8% per annum is payable quarterly starting
September 20,1997. During the second quarter of 1998, the note and all accrued
interest thereon was converted by the holder to equity.
NOTE F - DEFERRED REVENUE/LICENSING FEES
During 1998, the Company entered into a marketing agreement with a Canadian
company and awarded exclusive sales rights in Canada for a period of five years.
The Company is entitled to minimum annual license fees and in 1998 received
$233,114 for year one. The initial period for determining sales subject to the
licensing agreement is February 28, 1998, through June 30, 1999. At December 31,
1998, $87,418 of this licensing fee has been deferred.
Minimum annual license fees have scheduled increases through approximately
$676,000 in year five. The licensing fees are based on 10% of sales as defined
in the agreement and are subject to a yearly minimum.
NOTE G - CONVERTIBLE DEBENTURES
During 1998 and 1997, the Company received $585,333 and $1,566,273, respectively
of proceeds from the sale of convertible debentures to various investment
companies. Interest is accrued at various rates from 10% - 11% per annum,
compounded in full at maturity of December 31, 1998. Prior to the retirement of
the debentures, the investment companies may convert any or all amounts owed
into common stock. The conversion price for each debenture ranges from $.1050 to
$.3868 per share. The conversion privilege terminates when all principal plus
interest due has been paid in full. In addition, the investment companies were
issued 10,518,287 warrants for additional common shares for 100 - 105% of the
convertible debentures per share conversion price. The additional warrants
expire five years from the original date of the debentures.
The expiration of the convertible debentures were extended to June 30, 2000, and
in consideration for the extension, the conversion rate was reduced to the lower
of the existing conversion rate or $.15 to August 31, 1999, thereafter reverting
to the original conversion price.
NOTE H - COMMITMENTS AND CONTINGENCIES
Claims and Litigation
The Company is being sued by a shareholder for a potential rescission of common
stock in the amount of $15,000 as defined above. The company is vigorously
defending the suit and believes it to be without merit.
<PAGE> 58
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE H - COMMITMENTS AND CONTINGENCIES-CONTINUED
The Company is involved in additional litigation arising in the normal course of
business. The Company has filed suit against a former Chairman and certain
former officers and directors seeking recovery of over $110,000 which the
Company alleges such persons misappropriated from the Company. Further, the
Company successfully defended itself in a suit by that former Chairman claiming
damages for alleged misrepresentations in the sale of Company stock which he
purchased. The former Chairman was seeking damages of at least $285,000. In
addition, the Company was awarded and received approximately $100,000 as
reimbursement for attorney fees and costs incurred in defense of the suit.
In 1997 the Federal Aviation Authority (FAA) notified the Company that it had
violated certain rules regarding the labeling and air transportation of one
shipment of product considered to be hazardous material. During 1998, the FAA
proposed a potential fine in the amount of $60,000. The Company is working with
an outside consultant to reduce or eliminate the proposed penalty.
Operating Leases
The company leases manufacturing and office facilities under a lease that
expires June 2001 with an additional five year option period. Rent expense was
approximately $214,000 and $209,000 in 1998 and 1997, respectively.
The following table reflects approximate future minimum annual rental expense
amounts:
Year Amount
----------- -------------
1999 $ 233,500
2000 238,900
2001 244,500
2002 123,700
NOTE I - CONVERTIBLE REDEEMABLE PREFERRED STOCK
In 1994, the Company prepared an Offering Circular to raise approximately
$1,000,000 of 10% Cumulative Convertible Redeemable Preferred Stock with a $10
par value. At the option of the Company, the shares can be redeemed after two
years at $10 per share plus accrued and unpaid dividends in aggregate amounts
not to exceed $250,000
<PAGE> 59
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note I- Convertible Redeemable Preferred Stock- Continued
annually. Each preferred share is convertible into twenty common shares.
Additionally, the Offering Circular provides for common stock purchase warrants
with an exercise price of $.01 per share. The number of warrants issued, when
exercised in combination with conversion of the preferred stock into common
stock, will result in an effective cost for each share of the common stock
equal to the closing bid price of the common stock, in the over-the-counter
market, on the day of the subscription to the Offering Circular. The warrants
may be redeemed for $.001, at the election of the Company, upon thirty days'
written notice after the bid price of the common stock in the then existing
public market has been $1.00 or more for thirty continuous days in which the
market is open for business. Through December 31, 1997, $622,000 of preferred
stock was issued for cash and $318,150 was issued in satisfaction of debt and
services at $10 per share. Preferred shareholders have converted 88,015 shares
of preferred stock into 1,760,300 shares of common stock. At December 31, 1998,
preferred stock dividends in arrears totaled approximately $24,000.
NOTE J - SERIES B CUMULATIVE PREFERRED STOCK
The Series B Cumulative Preferred Stock was created on December 31, 1997, as a
mechanism of permitting the conversion of part of the indebtedness under the
Loan and Security Agreement, without sacrificing the intent of the original Loan
and Security Agreement warrants. The Series B Cumulative Preferred Stock has a
par value of $.001 per share and an initial stated capital of $10 per share,
which is subject to adjustment. This Series is senior to the Common Stock and is
senior to all other classes and series except that it is junior to the
Convertible Redeemable Preferred Stock with respect to the payment of dividends.
Each share has that number of votes equal to the number of share of Common Stock
into which it is convertible on the record date. Subject to adjustment in the
event of certain future Common Stock or convertible security issuances, each
share is convertible into 20.04010695 shares of Common Stock. These shares are
entitled to receive an annual dividend equal to the greater of 10% of the stated
value and the actual dividend per share of common stock declared by the
Company's Board of Directors times the number shares of Common stock into which
each share of Series B is convertible on the dividend record date. The dividend
is cumulative, whether or not earned and, to the extent not paid on a quarterly
dividend payment date is added to the stated value.
NOTE K - STOCK OPTIONS
Options to acquire 200,000 shares were granted in 1995 to a director of the
Company in consideration of his efforts relating to business services. These
options remain in force at December 31, 1998 and expire on October 17, 1999.
<PAGE> 60
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE K - STOCK OPTIONS-CONTINUED
Non-qualified stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Shares Under Exercise
Option Price Range
------------ -------------
<S> <C> <C>
Outstanding at January 1, 1997 1,357,822 $ .01 - 3.00
1997 Granted -- N/A
Expired (257,822) .01 - 3.00
---------- ------------
Outstanding at December 31, 1997 1,100,000 .50 - 3.00
1998 Granted -- N/A
Expired (900,000) .50 - 3.00
---------- ------------
Outstanding at December 31, 1998 200,000 $ .25
========== ============
</TABLE>
NOTE L - STOCK WARRANTS
In 1998, as additional consideration for the convertible debentures, the Company
issued 4,029,539 warrants at exercise prices ranging from $.105 to $.180, 100%
of the debenture conversion price, and that expire five years from date of
issuance.
In 1997, as additional consideration for the convertible debentures, the Company
issued 4,338,138 warrants at exercise prices ranging from $.1944 to $.3590, 105%
of the debenture conversion price, and that expire five years from the date of
issuance.
In 1996, as additional consideration for the convertible debentures, the Company
issued 954,610 warrants at exercise prices ranging from $.3711 to $.3884, 105%
of the debenture conversion price, and that expire five years from the date of
issuance.
<PAGE> 61
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE L - STOCK WARRANTS-CONTINUED
In 1997, as additional consideration for a consulting agreement, the Company
issued 100,000 warrants. The warrants have an exercise price of $1.00 per share
and expire three years from the date of issuance.
In September 1993, the Company granted a stock purchase warrant to a foreign
private foundation in recognition of its purchases of over 1,000,000 shares of
common stock. The warrant entitles the holder to acquire up to 250,000 shares of
the Company's authorized common stock. The purchase price of each share is
$1.00, and the warrant was exercisable through October 31, 1998. During 1998,
the warrant expired.
As described in Note I, the Company offered $1,000,000 of 10% Cumulative
Convertible Redeemable Preferred Stock along with common stock purchase warrants
at $.01 per share. The number of warrants issued, when exercised in combination
with conversion of the preferred stock into common stock results in an effective
cost for each share of the common stock equal to the closing bid price of the
common stock, in the over-the-counter market, on the day of the subscription to
the Offering Circular. The warrants are recorded at their fair market value at
the time of issuance less the exercise price of $.01 and reported as a reduction
to preferred stock. The value assigned to the warrants is amortized over the
shorter of the life or the exercise of the warrant. Through December 31, 1998,
6,177,478 warrants were issued in connection with sales of the preferred stock,
701,595 warrants have been issued for services, and 1,606,134 were issued for
extinguishment of debt. At December 31, 1998, 110,000 of these warrants had not
been exercised.
As described in Note A, in October 1995, the Company entered into a 10%
Convertible Senior Secured Term Loan agreement. The agreement required the
Company to issue to the lender warrants, in sufficient quantity, that at all
times the loan agreement is in force the lender can obtain 51% of all classes of
outstanding stock for a $2,500,000 exercise price. On September 14, 1998, when
the lender converted a portion of the loan, the latest capital numbers available
were as at July 31, 1998. Effective July 31, 1998, the Company's fully diluted
capital position was equivalent to 55,842,238 common shares. Hence the lender
was entitled to 58,121,513 warrants at a cumulative exercise price of $2,500,000
in order to be able to obtain 51% under the terms of the loan agreement. This
equated to an effective cost of $0.0430133 per share. The lender on September
14, 1998, converted $1,575,166 of the debt and the lender's warrants were
exercised into 33,530,973 common shares and 154,163 Series B Preferred Shares
(convertible into
<PAGE> 62
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE L - STOCK WARRANTS-CONTINUED
3,089,449 common shares) at a combined cost of equivalent to $0.0430133 per
common share.
Warrants issued and exercised is summarized as follows:
<TABLE>
<CAPTION>
Exercise
Price
Common Stock Warrants Range
---------------------------------------- ---------- -----------
<S> <C> <C>
Outstanding at January 1, 1997 41,988,340 $.01 - 1.00
1997:
Granted 17,491,653 .01 - .406
Exercised (95,646) .01
Converted to preferred warrants (10,027,922) .25 - .34
----------- -----------
Outstanding at December 31, 1997 49,356,425 .01 - 1.00
1998:
Granted 14,712,853 .105 -.180
Exercised (1,211,111) .01 - .125
Expired (250,000) 1.00
Loan & Security Agreement Conversion (33,530,973) .001- .499
----------- -----------
Outstanding at December 31, 1998 29,077,194 $.01 - 1.00
=========== ===========
</TABLE>
Effective December 31, 1997, the Board of Directors created the Series B
Cumulative Preferred Stock (as discussed in Note J) and issued 245,344 warrants
for this Preferred Stock to the lender under the Loan and Security Agreement to
replace 4,916,720 common stock warrants already issued to them. The warrants
expire on November 18, 2000, and have a $10 exercise price. During 1998, 154,163
of these warrants were exercised by the holder and 666 warrants were cancelled
due to recalculation of the warrant entitlement.
Effective December 31, 1997, the Board of Directors created the Series CI
Preferred Stock and issued 115,184 warrants for this Preferred Stock to a
Convertible Debenture holder to replace 3,430,555 common stock warrants already
issued to them. The warrants expire on December 31, 2001, and have a $10
exercise price. No warrants have been exercised to date.
<PAGE> 63
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE L - STOCK WARRANTS-CONTINUED
Effective December 31, 1997, the Board of Directors created the Series CII
Preferred Stock and issued 41,893 warrants for this Preferred Stock to a
Convertible Debenture holder to replace 1,680,647 common stock warrants already
issued to them. The warrants expire on December 31, 2001, and have a $10
exercise price. No warrants have been exercised to date.
<TABLE>
<CAPTION>
Equivalent #
Common
Shares on Pref.
Pref. Share Exercise Share
Preferred Stock Warrants Price Conversion
- --------------------------------- -------- ------ -----------
<S> <C> <C> <C>
Outstanding at January 1, 1997 0 0
1997 Granted:
Series B 245,344 $10.00 4,916,720
Series CI 115,184 $10.00 3,430,555
Series CII 41,893 $10.00 1,680,647
-------- -----------
Outstanding at December 31, 1997 402,421 10,027,922
1998 Exercised:
Exercised Series B (154,163) $10.00 (3,089,443)
Cancelled Series B (665) (13,347)
-------- -----------
Outstanding at December 31, 1998 247,593 6,925,132
======== ===========
</TABLE>
NOTE M - INCOME TAXES
There is no income tax provision for the years ended December 31, 1998 and 1997
due to net operating losses for which no benefit is currently available. The
Company has net operating loss carryforwards of approximately $25,674,000 at
December 31, 1998, of which $14,954,000 are available to offset future taxable
income from 1999 through 2018.
<PAGE> 64
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE M - INCOME TAXES-CONTINUED
In October 1995, in connection with a loan and security agreement in the amount
of $2,500,000 (See Note E), the Company to outside lenders granted rights to
acquire up to 51% of the common stock of the Company. Under Internal Revenue
Code Section 382 and the Treasury Regulations promulgated thereunder, the
Internal Revenue Service might take the position that under all the facts and
circumstances the Company experienced a change in ownership that has the effect
of limiting the carryforward of net operating losses incurred since that date.
If the IRS were to take that position and a court of competent jurisdiction were
to agree with the IRS, the actual amount of net operating loss carry forward
that would be deductible each year for a maximum carryforward period of twenty
years, is based on the value of the Company at the date of the deemed change of
ownership, multiplied by the applicable tax-exempt long-term bond rate.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Net Operating loss carry forwards $ 9,628,000 $ 9,082,000
Less valuation allowance (9,628,000) (9,082,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
NOTE N - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest amounted to $4,435 and $11,291 for 1998 and 1997,
respectively.
During 1998, the Company issued 450,000 common shares in exchange for a note
receivable of $22,500. The Company issued 34,130,973 common shares in exchange
for debt conversion in the amount of $1,725,012. In 1998, $100,000 of preferred
stock and $72,889 of stock warrants (representing 911,111 warrants) were
converted into 1,184,170 shares of common stock.
<PAGE> 65
VERIDIEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
In 1997, common stock warrants of $7,289 were exercised for 91,111 shares of
common stock in exchange for a note receivable of $911. The Company recorded
warrant amortization of $23,862 to additional paid in capital upon the lapse of
time. The Company accepted services for the exercise of common stock warrants at
a value of $100,000.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments, none of which are held for trading
purposes. The Company estimates that the fair value of all financial instruments
at December 31, 1998 and 1997, do not differ materially from the aggregate
carrying value of its financial instruments recorded in the accompanying
consolidated balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
NOTE P - SUBSEQUENT EVENTS
(1) Deficit Funding
Subsequent to year-end, the Company received $351,800 in proceeds from
the remainder of the 504 offering. In addition, the Company received
$263,500 from private placement. These funds will be utilized to
partially fund operations.
(2) Computer Software
The Company is analyzing methods of complying with the year 2000 issue
concerning computer software. An initial systems analysis has been
performed by a competent computer software company and a recommended
course of action has been accepted. The Company anticipates implementing
upgrades to the software and hardware system prior to June 30, 1999. In
conjunction with this systems analysis, a review of all internal control
procedures will be done to verify that new system upgrades will provide
adequate protection for company assets and information. Management
expects that the cost of obtaining the upgraded software and network
support will be less than $50,000.
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT WITH
PAUL L. SIMMONS
This Employment Agreement (the "Agreement") is entered into as of the 1st day of
October, 1995 by and between the VERIDIEN CORPORATION, a Delaware corporation
("Company") whose address is Suite 800, Sarasota Quay, Sarasota, Florida 34236,
and PAUL L. SIMMONS ("Employee"), whose address is 6250 Kipps Colony Court, Unit
203, Gulfport, Florida 33707.
The following is a recital of facts underlying this Agreement:
A. Employee is currently employed as a sales commission representative and a
director of research and development for the Company under Agreements dated May
22, 1995 and May 1, 1991 (the "Prior Employment Agreements").
B. Company's business includes but is not limited to the manufacture and sale of
proprietary liquid disinfectants and other chemicals, technology and products
for use in the infection control sector of the healthcare industry and other
industries (the "Business").
C. The parties wish to terminate the Prior Employment Agreements, to enter into
this Agreement with a view to providing employment and protecting certain
payments to the Employee by the Company, the proprietary rights, going business
value, and goodwill of the Business.
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment.
a. Term of Employment. Employee shall be employed for an indefinite term,
beginning on the date of this Agreement.
b. Termination of Employment.
(i) Either party may terminate Employee's full-time employment for any reason
upon six months' prior written notice to the other party.
(ii) Company may terminate Employee's full-time employment at any time for
justifiable cause. The term "justifiable cause" shall include any material
breach by Employee of the performance of any of his duties pursuant to this
Agreement, any disclosure by Employee to any person, firm or corporation other
than the Company, its subsidiaries, and its and their directors, officers or
employees of any confidential information or trade secrets of the Company or any
of its subsidiaries, any attempt by Employee directly or indirectly to secure
any personal profit in connection with the Business of the Company or any of its
subsidiaries, any failure by Employee to properly perform his duties in the
conduct of company's Business, any failure by Employee to devote his full
business time to the affairs of the Company and its subsidiaries as set forth in
Section 2 of this Agreement, conviction of any felony, any conduct of Employee
involving willful misconduct, gross negligence, fraud, material breach of
<PAGE> 2
fiduciary duty or reckless disregard of Employee duties to Company and its
subsidiaries, conviction of a material violation of civil law pertaining to the
Company or its subsidiaries, actions taken in bad faith by Employee against the
company or any subsidiary, or Employee engaging in any business other than the
Business of the Company and its subsidiaries, except as herein provided. Whether
or not "justifiable cause" shall exist shall in each case be determined by a
majority vote of the Board of Directors of the Company acting reasonably in its
sole discretion. "Justifiable Cause" will exclude any sales, whether or not to
the Company, by Employee of inventory consisting of the so-called Fampak kits,
towelettes and 911 diagnostic consoles which Employee owns as of the date of
this Agreement.
c. Duties. Employee will perform research and development functions, at the
request of the Company will train Company salespeople in the performance and
function of Company products and provide such other services as the Company
requests. Employee's research and development responsibilities will be
supervised by the Management Committee of ROST, Inc., ("ROST"), a wholly owned
subsidiary of Veridien or by the Board of Directors of ROST. Employee's training
duties will be supervised and directed by a designee of the Company's Board of
Directors, initially the CEO of Company.
2. Full Time and Attention. Employee will devote not less than a majority of his
business time, attention, and energies during each month during the term of the
Agreement to the performance of his duties as set forth in Section 1 above.
3. Compensation.
a. As compensation for the services to be rendered by Employee hereunder,
including all services as a member of any management committee of the Company or
any subsidiary of Company, the Company agrees to pay or cause to be paid to
Employee an annual salary of Thirty-Six Thousand Dollars ($36,000), payable in
monthly installments of Three Thousand Dollars ($3,000) on the last day of each
month. In addition, Company shall pay Employee on the sixtieth day following the
end of each fiscal quarter commencing with the fiscal quarter ending December
31, 1995 6% of New Product Gross Margins of ROST and if applicable the Company
(to the extent it is a vendor of New Products) in excess of six Hundred Thousand
Dollars ($600,000) in any fiscal year, up to a maximum of Three Hundred Thousand
Dollars ($300,000) per New Product. "New Product Gross Margins" shall mean
realized "Net Sales" of "New Products" as shown on ROST's or the Company's (if
Company is the vendor) quarterly financial statements. "Net Sales" shall mean
the gross sales proceeds received by ROST or Company during the applicable
period for sales of "New Products", less discounts, returns, setoffs and the
like. "New Products" shall mean all products listed on Exhibit A attached
hereto, plus such other products developed with the direct assistance of Simmons
by ROST or Company after the date of this Agreement as determined by the ROST
Management Committee from time to time and as are added to Exhibit A by Company
and Employee. Any product arising from the "Technology" as defined in the letter
agreement dated as of October 19, 1995 between Company and Employee with respect
to the Sterix Cabinetry technology and other matters related to the Sterix
Cabinetry technology shall not be included as a New Product in determining
compensation herein. "Reimbursement Agreement" shall mean that Reimbursement
Agreement dated as of February 26, 1996 entered into between ROST Medical
Developments Inc. and Employee.
b. In any event, the aggregate compensation received by Employee under this
Agreement and under the note (the "Note") issued pursuant to the Repayment
<PAGE> 3
Agreement dated as of October 19, 1995, between Company and Employee shall be
limited as provided in this Section 3.b. If for any fiscal year Employee
receives payments (including payments for New Product Gross Margins for that
year but paid after the end of that fiscal year) in excess of six percent (6%)
of New Product Gross Margins as defined in Section 3.a., less the sum of (i)
$36,000 (Employees' annual salary under this Agreement) and (ii) the amount paid
to Employee in monthly installments, but excluding any sales percentage payments
on the Repayment Note, then Employee may elect to have this excess either
credited against compensation payable in that fiscal year under this Employment
Agreement or as a reduction of principal under the Note (to the extent principal
thereunder remains unpaid); however, if Employee fails to make such election,
the excess shall reduce the principal under the Note and, if the Note has been
paid in full, shall reduce compensation otherwise payable under this Employment
Agreement.
4. Benefits. Employee shall be provided employee benefits (including fringe
benefits, vacation, pension and profit sharing plan participation and life,
health accident and disability insurance) on the same basis as those benefits
are made available to senior executives of Company.
5. Employment as Consultant Upon Termination of Agreement. During the three year
period following the termination of Employee's employment for any reasons except
justifiable cause or death, the Employee shall have the duty of advising and
consulting on a part-time basis with the officers of the Company and its
subsidiaries with respect to the affairs of the Company and its subsidiaries in
response to requests for such advisory and consultative services by the Board of
Directors or officers of the Company or of its subsidiaries or by the Management
Committee of ROST, subject to the condition that (1) such services shall be
performed within the United States of America, (2) Employee shall not be
required to devote more than one day per week to such services, (3) Employee
shall not be required to perform such services during usual vacation periods and
reasonable periods of illness or other incapacitation. Company shall pay to
Employee and Employee shall accept from Company, for Employee's advisory and
consultative services as provided in this Agreement, compensation at the rate of
$1,000 per month, payable monthly at the end of the month. Company may at its
option terminate Employee's consulting and advisory services, without any
obligation to provide compensation after the date of termination.
6. Payments to Employee Upon Termination of this Agreement.
a. If Employee is terminated from his employment under this Agreement for
justifiable cause, Employee will not be entitled to any compensation payments of
any kind under this Agreement, but such termination shall not affect any
payments to which Employee may be entitled pursuant to other agreements with
Company or ROST.
b. If this Agreement is terminated for any other reason upon six months' notice
by either party (the "Notice Period"), during the Notice Period, Employee shall
cease to receive the $3,000 monthly salary, but shall continue to receive 6% of
New Product Gross Margins as set out in Section 3 above. If such termination
takes place before October 1, 1997, then in addition to the 6% of New Product
Gross margin during the Notice Period, Employee shall be entitled to 2% of New
Product Gross Margins for a period of three years commencing on the date of
termination, but subject to a maximum payment of $300,000 per product.
7. Covenant Not To Compete.
<PAGE> 4
a. Covenant. The Employee covenants and agrees that, (i) at no time during his
employment as an employee or as a consultant under this Agreement or (ii) during
the two year period thereafter Employee will not:
(1) directly or indirectly (i) engage (other than on behalf of the Company, at
the Company's request), in the design, development, engineering, testing,
manufacture, sale, marketing, or commercializing, of any disinfectant or
chemical used in the infection control sector of the healthcare industry or in
the infection control sector of any other industry, or any related or
complementary area (the "Restricted Business") or (ii) in any way compete with
the Restricted Business of the Company within the State of Florida or any other
state, country or territory or other geographic area where products of the
Company have been licensed, distributed, serviced or provided by the Company;
(2) directly or indirectly engage (other than on behalf of the Company, at the
Company's request) in or compete with the Restricted Business, by, for example,
selling products or services to, calling on, soliciting, taking away or
accepting as a client or customer, or attempting to sell products or services
to, call on, solicit take away or accept as a client or customer, either on
behalf of Employee or of any other person or entity, any person or entity with
whom Company is doing or has done any business, or that is on a list of
prospective clients or customers of the Company;
(3) directly or indirectly (i) engage (other than on behalf of the Company, at
the Company's request), in the design, development, engineering, testing,
manufacture, sale, marketing, or commercializing, of any product currently being
developed by the Company or any of its subsidiaries or being considered (i.e.
business plans or discussion papers of the Company at the time of departure) for
development by the Company or any of its subsidiaries;
(4) directly or indirectly induce employees of the Company or its affiliates to
engage in any activity hereby prohibited to the Employee or induce employees of
the Company to terminate their employment with the Company;
(5) directly or indirectly hire, solicit, or take away, or attempt to hire,
solicit or take away, either on behalf of the Employee or any other person, any
person that is or becomes, an employee of or consultant to the Company;
(6) directly or indirectly become employed by, furnish consulting services to,
or enter into or attempt to enter into, either alone or with any other person,
any business in any way competing with the Restricted Business; or
(7) directly or indirectly assist any other person or entity to take any of the
actions described in this Section.
b. Definition of "Directly or Indirectly". For the purposes of this Agreement,
the words "directly or indirectly", as they modify the terms "compete" or
"engage" shall include without limitation: (i) participating as an employee,
owner, officer, director, partner, limited partner, joint venturer, creditor,
investor (other than as a holder of less than three percent if Employee and his
Affiliates are passive investors or less than one percent of the outstanding
capital stock which capital stock is actively traded on a major national
securities exchange registered with the Securities and Exchange Commission and
other than as disclosed to Company in writing and approved specifically by
company in writing after the date of this Agreement), consultant, advisor,
agent, sales representative, or other participant to any person or entity that
in any way competes as defined above with the business of
<PAGE> 5
the Company; and (ii) using, or communicating to any such person or entity which
in any way competes, any Confidential Information (as defined in Section 8.a.),
including without limitation the name or address or any other information
concerning any past, present, or prospective client or customer of the Company,
or any proprietary information regarding any product or ongoing research and
development project of the Company.
c. Permitted Activities. Subject to Section 7.a. above, Employee, on his own
time, at his own expense, and using his own materials and supplies, may complete
the development of those non-medical residential home use products listed and
described on Exhibit B attached hereto. The list of products on Exhibit B may be
expanded from time to time by the prior written content of Company and Employee.
Employee agrees to give Company a right of first refusal to acquire, after
completion of the product's development, each such product and its underlying
technology, prior to any offer to any other person or entity, and Employee
agrees that any sale to any such third party will be on terms and conditions
more favorable to Employee as seller than those offered by Company.
d. Required Disclosure. In the event that (a) the Employee (i) leaves the employ
of the Company for any reason other than death, or (ii) the Agreement is
terminated for any reason, and (b) the Employee either directly or through an
engagement by any person or entity (the "Engaging Entity") whether as an
officer, director, proprietor, employee, partner, investor (other than as a
holder of less than three percent of the outstanding capital stock which capital
stock is actively traded on a major national securities exchange registered with
the Securities and Exchange Commission), consultant, advisor, agent, sales
representative or other participant, sells, distributes, licenses, services,
designs, engineers, develops, tests, manufactures, markets, or provides any kind
of advice with respect to (collectively, "Sells") products to any other person
or entity which is at that time or has been within the three years preceding the
giving of Notice as defined below a customer of the Company ("Customer"), the
Employee unconditionally agrees during the period set forth at the beginning of
Section 7.a. to provide a written statement (the "Notice") to the Company at
least 30 days prior to any engagement if the Engaging Entity then sells products
to a Customer, or 30 days prior to the Engaging Entity or the Employee entering
into an agreement that Sells (or in the future will do so) products to any
Customer. The Notice shall provide sufficient details so that the Company can
make a determination whether the Employee is complying with the obligations
contained in this Agreement. The Company may communicate with the Engaging
Entity if it has reason to believe that the proposed activity may violate the
terms of this Agreement.
8. Confidentiality.
a. Definition of Confidential Information. The Employee acknowledges that the
Company's trade secrets, information, data, or other non-public information
relating to customers, research and development programs, technology, costs,
marketing, sales activities, promotion, credit and financial data, manufacturing
processes, financing methods, plans, or the business or affairs of Company
generally (the "Confidential Information") are valuable, special and unique
assets of the Business, access to and knowledge of which have been gained by
virtue of Employee's position and involvement with the Company.
Confidential Information excludes that information exclusively relating to the
products listed on Exhibit B.
The following data and information, even though it may be designated as
Confidential Information and furnished to the Employee, shall be excluded from
<PAGE> 6
the definition of Confidential Information and not governed by this Agreement:
(a) any data and information which was in the public domain prior to the receipt
of the same by the Employee or which subsequently becomes part of the public
domain through no wrongful act or failure to act of the Employee or other person
with a duty of confidentiality, or wrongful act or failure to act of which the
Employee has actual knowledge, and (b) any data and information which was in the
possession of the Employee (and not subject to any obligation of
confidentiality) prior to receipt of the same from the Company or other person
with a duty of confidentiality, was not acquired directly or indirectly from the
Company or other person with a duty of confidentiality or was not developed
while in the Company's employ.
b. Non-Disclosure. The Employee unconditionally agrees that any Confidential
Information that may be furnished to the Employee or which the Employee
otherwise obtains will be kept strictly confidential and shall not be duplicated
or used in any manner for the benefit of the Employee or to the detriment of the
Company, except to the extent, if any, that it is necessary to use such
Confidential Information in order to perform the duties assigned to the Employee
by the Company. The Employee further agrees, both during and after the period of
the Employment Agreement, not to disclose or make any Confidential Information
available to any other person, group or entity for any purpose or reason
whatsoever, and he will not make use of any Confidential Information for his own
purposes or for the benefit of any person, group or entity (except the Company,
at the Company's request) under any circumstances. Upon termination of the
Employee's full time employment with the Company, the Employee agrees to return
promptly to the Company all software and copies thereof, reports, memoranda,
notes, work sheets, drawings and all other written, pictorial or electronically,
magnetically or otherwise stored material containing any of the Confidential
Information held or obtained by or furnished to the Employee, and to represent
to the company in writing that all such Confidential Information has been
returned to the Company. The Employee agrees that his obligations as set forth
herein with respect to the Confidential Information shall extend to such
comparable information belonging to customers and suppliers of the Company which
may have been disclosed to the Employee in connection with her status as an
employee of the Company or Seller.
c. Required Disclosure. In the event that the Employee becomes legally compelled
to disclose any of the Confidential Information, the Employee agrees to provide
the Company with prompt notice so that the Company may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of this
Agreement. In the event that such protective order or other remedy is not
obtained, or that the Company waives compliance with the provisions of this
Agreement, the Employee agrees that he will furnish only that portion of the
Confidential Information which is legally required and that the Employee will
cooperate with the Company counsel to obtain a protective order or other
reliable assurance that confidential treatment will be accorded such
Confidential Information.
9. Interpretation. It is expressly understood and agreed that, although the
Employee and the Company consider the restrictions contained in Sections 7 and 8
above reasonable for the purpose of preserving for the Company the Confidential
Information, going business value, proprietary rights and goodwill of the
Company, if a final judicial determination is made by a court having
jurisdiction that the time, scope or territory or any other restrictions
contained in Sections 7 or 8 is an unenforceable restriction against the
Employee, the provisions of Sections 7 or 8 shall not be rendered void, but
shall be deemed amended to apply as to such maximum time, scope and territory
<PAGE> 7
and to such other extent as such court may judicially determine to be
reasonable. Alternatively, if the court referred to in the preceding sentence
finds that any restriction contained in Sections 7 or 8 is unenforceable, and
such restriction cannot be amended so as to make it enforceable, such finding
shall not affect the enforceability of any of the other restrictions contained
therein.
10. Employee's Inventions.
a. Assignment to the Company. The Employee agrees to disclose fully and promptly
to the Company the existence of, and assign to the Company, all of his right,
title and interest in and to, all products, discoveries, designs, creations,
productions and marketing techniques, scientific or technical developments,
product concepts, inventions and improvements (collectively, the "Inventions"),
whether or not such Inventions are patentable or copyrightable, which are made,
conceived, or reduced to practice by Employee (either alone or with others)
during the period of his employment as an employee or consultant pursuant to
this Agreement, at the Company or elsewhere, and which are based upon
Confidential Information or which are related in any way to the Business of the
Company or the research and development of the Company or which directly or
indirectly result from the tasks assigned to the Employee by the Company, except
the term Inventions excludes the products listed on Exhibit B (but these
excluded products remain subject to the Company's right of first refusal set
forth in Section 6(c) of this Agreement). The foregoing disclosure and
assignment shall be made by the Employee without compensation in addition to the
Employee's compensation, except when a new product is designated as provided in
the penultimate sentence of Section 3.a. The Employee further agrees not to
disclose any such Invention to any party other than Company without the prior
written permission of the Company. The Inventions assigned to the Company
specifically include are not limited to the Sterix Cabinetry technology and
related products (including but not limited to Vira-Scrub, Vira-Lube and
Sterihol), the Spill Clean Up Kit, the Air Disinfectant and Injector, the Power
Needle, the Safety Shear, the Power Respirator*, the Toxic Water Disposal Unit,
and the Ultra Sound Power. In addition, Simmons hereby grants to Company and its
subsidiaries, affiliates, successors and assigns a worldwide royalty-free
license to use the FAM-PAK and ONGUARD tradenames and trademarks. Employee
agrees to change the name of the company, Fam-Pak Corp., a Delaware corporation,
within sixty days of the date of this Agreement, to assign the use of that
corporate name to the Company and never directly or indirectly, through
Affiliates or otherwise, use in whole or in conjunction with other words the
name FAM-PAK or derivatives thereof, and Veridien agrees to pay Employee up to
$500 upon receipt of appropriate documentation of actual costs incurred in
changing the name of the above-referenced corporation; it is the intention of
the parties to give to the Company the exclusive right to use the "FAM-PAK"
name, and the parties agree to take such additional actions at the Company's
expense as may be reasonably necessary to achieve this intention.
b. Cooperation. Both during and after the period of the Employment Agreement,
the Employee agrees to execute such documents and take such other actions at the
Company's expense as the company may reasonably request to enable the Company or
its nominee to (i) apply for patent, registered design, trademark, copyright,
mask work, or similar protection in the United States, Canada and elsewhere for
any Invention and (ii) be vested with such patent, registered design or similar
protection in the United States, Canada and elsewhere for any Invention. Company
agrees to pay Employee for his document and reasonable out-of-pocket expenses
arising under this Section 10(b).
<PAGE> 8
c. Prior Inventions. The Employee has attached to this Agreement as Exhibit C a
complete list of all Inventions, if any, owned by the Employee (either alone or
with others) that were conceived prior to the commencement of the Employment
Agreement and that are in any way related to the Company's Business or other
research and development of the Company, other than those purchased by and
assigned to the Company, or, if there are no such Inventions, the Employee has
indicated "none" on Exhibit C. The Company agrees that the Inventions on Exhibit
C shall not be subject to this Agreement. The Employee represents to the Company
that he has not made, conceived, or reduced to practice any Inventions related
to the Company's Business or other research and development of the Company other
than those set forth on Exhibit C, which have not been purchased by and/or
assigned to the Company, and the Employee understands that the Inventions listed
an Exhibit C are the only Inventions related to the Company's Business or other
research and development of the Company that are not subject to this Agreement.
11. Revocation of Prior Employment Agreements. Employee expressly agrees that
this Agreement supersedes and revokes any and all prior agreements, contracts,
or understandings between Employee and the Company, including but not limited to
the agreements listed on Exhibit D attached to this Agreement, but this
Agreement shall not in any way affect, supersede or terminate any of the
agreements set forth on Exhibit E.
* exceptions noted in the Reimbursement Agreement.
12. Release of all Claims Against Company. Employee expressly agrees that, as a
condition to entering into this Agreement and any other agreements and contracts
entered into in writing on or after October 1, 1995, with the exception of the
Notes entered into by Employee and Company under the Reimbursement Agreement and
Repayment Agreement, Employee will release any and all liens, claims, or rights
of any kind that Employee has filed or asserted against Company or any of its
subsidiaries or any of their property or assets. Except for any rights the
Employee may have resulting from suits which are in process predating October 1,
1995.
13. Representations of Employee. Employee represents that (i) he is familiar
with the covenants not to compete and not to solicit set forth in this
Agreement, (ii) he is fully aware of his obligations hereunder, including,
without limitation, the length of time, scope and geographic coverage of these
covenants, (iii) he finds that length of time, scope, and geographic coverage of
these covenants to be reasonable, (iv) he is receiving specific, bargained-for
consideration for his covenants not to compete and not to solicit, and (v) he
has been advised by independent counsel of his choice.
14. Miscellaneous.
a. Benefit and Assignability. This Agreement shall be binding upon the Employee
and his estate, heirs, executors, and legal representatives, and shall inure to
the benefit of and be enforceable by the Company and its successors and assigns.
The Employee may not assign his rights or obligations under this Agreement, but
in the event of Employee's death, his estate shall be entitled to any continuing
benefits hereunder. The Company may assign its rights under this Agreement to
any affiliate or successor.
b. Entire Agreement. This Agreement sets forth the entire understanding of the
parties hereto relating to the subject matter hereof and supersedes all
<PAGE> 9
prior agreements and understandings between the parties relating to the subject
matter hereof.
c. Notices. Any notice, report, or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed given on the date of
delivery, if delivered personally or by messenger, or five clays after mailing,
if mailed first-class mail, postage prepaid, to the addresses set forth at the
beginning of this Agreement or to such other address as a party provides to the
other.
d. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida (without giving effect to its
principles of conflicts of law).
e. Severability. If any provision of this Agreement, or the application of such
provision to any person or set of circumstances shall be determined to be
invalid, unlawful or unenforceable to any extent at any time after the date
hereof, the remainder of this Agreement, and the application at such provision
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful or unenforceable, shall not be affected and shall continue to
be enforceable to the fullest extent permitted by law.
f. Amendments. This Agreement may not be modified or amended except in a writing
signed by each of the parties hereto.
g. Effective Date. This Agreement shall become effective on the date set forth
at the beginning of this Agreement.
h. Attorneys' Fees. In the event of any legal action or proceeding to enforce or
interpret the provisions hereof, the prevailing party shall be entitled to
reasonable attorneys' fees, whether or not the proceeding results in a final
judgment.
i. Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute an original and all of which, when taken together, shall
constitute one agreement.
j. Effect of Headings. The section headings herein are for convenience only and
shall not affect the construction or interpretation of this Agreement.
k. Delays or Omissions. No delay or omission to exercise any right, power or,
remedy accruing to either party upon any breach or default of the other party
hereto shall impair any such right, power or remedy of such non-defaulting
party, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver, single breach or default be deemed a waiver of
any other breach or default theretofore or thereafter occurring.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
VERIDIEN CORPORATION
By:
Its:
<PAGE> 10
Witness:
Paul L. Simmons
Exhibit A
Employment Agreement Between
Veridien Corporation and Paul L. Simmons
NEW PRODUCTS
Hand Soap Dispenser
Ultra Sound Adapter
911 Diagnostic Console/Kit - subject to agreement
Air Treatment Solution/Disinfectant
Air Treatment Injector
Septi Shear
Power Syringe Retractor
Portable Resuscitator - subject to Reimbursement Agreement
Toxic Waste Disposal System
Spill Clean Up Kit
Biomedical Waste Grinder - in concept now, no development
Exhibit B
Employment Agreement Between
Veridien Corporation and Paul L. Simmons
PERMITTED NON-COMPANY PROJECTS
Any and all inventions not directly related to infection control.
See also Exhibit C.
Exhibit C
<PAGE> 11
Employment Agreement Between
Veridien Corporation and Paul L. Simmons
PRIOR INVENTIONS
Water System
Entry System
Garbage/Trash/Disposal/Recycle
Hair Care Console
Rain Forest/Shower
Fan Technology related to Exhaust
Drain System
Bolo Snare
Wheelchair Guide
HVAC Control Temp/Air
Nat. activated Cover Lights
Computerized Wardrobe
Temperature Controlled Shower
Indoor Handy Control System
Service Reels (Outdoor Water Air)
Pool Autochair System
Security Systems (Premises)
Driver Training Device
Exhibit D
Employment Agreement Between
Veridien Corporation and Paul L. Simmons
TERMINATED AGREEMENTS
Employment Agreement dated as of May 1, 1991 by and between Viral Control
Technology, Inc. and Paul L. Simmons.
<PAGE> 12
Sales Employment Agreement made and entered into on May 22, 1995 by and between
Veridien Corporation and Paul L. Simmons.
Exhibit E
Employment Agreement Between
Veridien Corporation and Paul L. Simmons
CONTINUING AGREEMENTS
Repayment Agreement dated as of October 19, 1995 between the Company and the
Employee and the note issued thereunder.
Reimbursement Agreement dated as of February 26, 1996 between Rost Medical
Developments Inc. and the Employee and the notes issued thereunder. Complete
with letter dated March 8, 1996.
Lease dated as of October __, 1995 between Employee and his spouse as Landlord
and the Company.
Letter Agreement dated as of October 19, 1995 between the Company and the
Employee with respect to Sterihol/Sterix Cabinetry technology.
Letter dated as of October 19, 1995 from the Employee addressed to the Company
concerning obligations of Company.
Letter agreement dated February 28, 1996 between Employer and a subsidiary of
the Company concerning the Sterix Cabinetry technology.
911 Inventory Purchase Agreement.
Fam-Pak Purchase Agreement.
PAUL L. SIMMONS
6223 Pasadena Pt. Blvd.
Gulfport, Florida 33707
October 19, 1995
Veridien Corporation
Suite 800, Sarasota Quay
Sarasota, FL 34236
Ladies and Gentlemen:
This letter confirms that, other than the obligations set forth in the
Employment Agreement between you and me, the Repayment Agreement between you and
me and the note contemplated therein, the Reimbursement Agreement between ROST,
Inc. and me and the notes contemplated therein, the Lease between ROST, Inc. as
tenant and my wife and me as Landlord, and the letter agreement with respect to
the Sterix Cabinetry technology between you and me, each dated as of the date
hereof and attached hereto, and obligations which arise from my ownership of
Common Stock of Veridien Corporation ("Veridien"), there are no liabilities,
<PAGE> 13
claims, advances, indebtedness, compensation, bonuses, benefits, incentives,
royalties, fees, rent, reimbursement obligations, expenses, payments or any
other obligations of any kind or nature (fixed or contingent, direct or
indirect, liquidated or unliquidated) of Veridien or any of its subsidiaries or
affiliates owed, owing or to be owed or paid in the future or otherwise existing
to me or any of my relatives or affiliates or to any other person to whom I or
any such relative or affiliate has assigned, transferred or otherwise disposed
of any such obligations. Save and except for any claims that may arise from
existing legal suits.
I understand that Dunvegan Mortgage Corporation is relying upon this letter in
agreeing to provide a loan facility to Veridien.
Sincerely yours,
Paul L. Simmons
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT WITH
ANDREW T. LIBBY, JR.
AGREEMENT, dated as of August 10, 1998, between Veridien Corporation, a
Delaware corporation, (the "Company"), and Andrew T. Libby, Jr., (the
"Employee").
WITNESSETH:
WHEREAS, the Company desires to offer the Employee employment upon the
terms and conditions set forth herein and the Employee desires to accept such
employment; and
WHEREAS, the Company is, or will be, engaged in the business of
manufacture and distribution of disinfectants and sterilants, infection control
and distribution of certain nutrients, throughout the United States; and
WHEREAS, Employee is a Certified Public Accountant who has experience
as the Chief Financial Officer and Director of corporations; and
WHEREAS, Company and Employee are desirous of entering into a contract
for the services of Employee in the capacities of Chief Operating Officer, and
that in such capacity Employee is enabled and will be enabled to perform such
duties as may be designated by and subject to the supervision of the Company's
Board of Directors and Chief Executive Officer, and shall serve in such
additional capacities appropriate to his responsibilities and skills as shall be
designated by the Company, through action of its Board of Directors.
NOW THEREFORE in consideration of the mutual benefits to be derived
from this Agreement, the Company and the Employee hereby agree as follows:
1. Term of Employment: Office and Duties
(a) During the Period of Employment (as hereafter defined), the Company
shall employ the Employee as a senior executive of the Company with the title of
Chief Operating Officer, and Director, if so elected, with the responsibilities
prescribed for such offices in the Bylaws of the Company, such responsibilities
to be carried out in accordance with policies and objectives established by the
Board of Directors.
(b) During the Period of Employment, the Employee shall devote
substantially all or this time to the business and affairs of the Company and
its subsidiaries, except for vacations of three (3) weeks per year, illness or
incapacity. The Employee shall not be entitled to receive additional
compensation for serving as a Director of the Company, if so elected.
2. Term: Period of Employment
Subject to extension or termination as hereinafter provided, the period
of employment hereunder shall be from the date hereof through December 31, 2001
(the "Period of Employment"), provided that the Period of Employment shall be
automatically renewed for successive two (2) year periods unless written notice
to the contrary is given by either party to the
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other party not less than six (6) months prior to the expiration of the initial
period in the Period of Employment and each successive two (2) year period in
the Period of Employment.
3. Compensation and Benefits
(a) Base Salary. The Company shall pay the Employee a fixed salary
("Base Salary") at a rate of One Hundred Thirty Thousand Dollars ($130,000) per
year. Initially, Employee will draw salary at the rate of $90,000 per year, with
the balance of $40,000 per year accruing as payable to employee until such time
as the Company achieves breakeven status or additional funding is received by
Company. Any arrearage shall be paid at the time additional funding is received.
The Board of Directors will periodically review, at least annually, the
Employee's Base Salary with a view to increasing it further if, in the sole
judgment of the Board of Directors, the earnings of the Company or the services
or the Employee merit such an increase. Annual increases in Base Salary, once
granted, shall not be subject to revocation and shall become a part of the Base
Salary. Base Salary will be payable in accordance with the customary payroll
practices of the Company, but in no event less frequently than monthly.
(b) Profitability Bonus. The Company shall pay the Employee a bonus if,
in the sole judgment of the Board of Directors, the earnings of the Company or
the services of the Employee merit such bonus.
(c) Fringe Benefits: Options.
(i) During the Period of Employment, Employee shall be entitled
to participate in fringe benefit, deferred compensation and stock
option plans or programs of the Company, if any, to the extent that
his position, tenure, salary, age, health and other qualifications
make him eligible to participate, subject to the rules and regulations
applicable thereto. Such additional benefits shall include, but not be
limited to, paid sick leave and individual health insurance, all in
accordance with the policies of the Company. Except as specifically
set forth herein, the terms of, and participation by Employee in, any
deferred compensation plan or program shall be determined by the
Company's Board of Directors in its sole discretion. The number of
option shares granted under this agreement will be adjusted
proportionally in the vent of any stock split or reverse split which
might occur after the date of this agreement and prior to the exercise
of the options.
(ii) Concurrently with the execution of this agreement, the
Company shall deliver to Employee an option to purchase one-hundred
fifty thousand (150,000) shares of the Company's common stock @ $0.10
per share, (the current bid price). All options shall have a term of
five years.
(iii) Additional options shall have a term of not less than five
(5) years, shall not terminate earlier for any reason other than the
Employee's termination pursuant to Section 7(a) and shall vest and
become exercisable with respect to a number of shares of Common Stock
equal to: (i) one-hundred thousand (100,000) shares of the Company's
common stock @ $0.20 per share upon continued employment to December
31, 1998; (ii) two hundred fifty thousand (250,000) shares of the
Company's common stock @ $0.20 per share upon continued employment to
December 31, 1999, one-twelfth of which are vested each calendar month
during 1999; and (iii) up to four hundred thousand (400,000) shares of
the Company's common stock @ $0.20 per share upon achievement by the
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Company of certain definable events such as identification and
completion of acquisitions, mergers and other events as may be agreed
upon by the Company and Employee. Concurrent with the signing of this
agreement, the Company shall issue to Employee, for having acquired a
contract fill manufacturer to occupy the Company's facility and
provide services to the Company, options to purchase an additional one
hundred thousand (100,000) shares of common stock @ $0.10 per share,
(current price).
(d) Perquisites. During the Period of Employment, the Company will
reimburse the Employee for continuing education expenses as shall be suitable to
the character of the Employee's position with the Company and adequate for the
performance of his duties hereunder, including maintenance of Certified Public
Accounting Certificate.
4. Business Expenses
The Company shall pay or reimburse the Employee for all reasonable
travel or other expenses incurred by the Employee in connection with the
performance of his duties under this Agreement in accordance with such
procedures as the Company may from time to time establish for senior officers
and as required to preserve any deductions for Federal income taxation purposes
to which the Company may be entitled.
5. Disability
The Company shall provide for the Employee a disability insurance
policy issued by an insurer as provided to other senior executives. In the event
of the Employee's disability, the Employee shall continue to be covered by all
of the Company's life, medical, health and dental plans, at the Company's
expense, as provided by the professional employer organization utilized by the
Company.
6. Death
The Company shall provide the Employee with a life insurance policy
issued by an insurer acceptable to the Employee. In the event of the Employee's
death, the Employee's family, if so elected by employee, shall continue to be
covered by all of the Company's life, medical, health and dental plans, at the
Company's expense for six months, as provided by the professional employer
organization utilized by the Company.
7. Termination of Employment
Notwithstanding any other provision of this Agreement, the Period of
Employment may be terminated:
(a) By the Company for "just cause" by written notice to Employee
affective upon receipt. For purposes of this agreement, the term "just cause"
shall mean any of the following: (i) Employee's repeated willful misconduct or
gross negligence, (ii) Employee's repeated conscious disregard of his
obligations hereunder or of any other written duties reasonably assigned to him
by the Board of Directors, (iii) The Employee's repeated conscious violation of
any provision of the Company's by-laws or of its other stated policies,
standards, or regulations,
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(iv) the Employee's commission any act involving fraud or moral turpitude, or
(v) a determination that the Employee has demonstrated a dependence on any
addictive substance, including alcohol, controlled substances, narcotics or
barbiturates. Except for any accrued salary, benefits, or stock options, vested
and unpaid as of the date of any such termination, the Company shall be under no
further obligation to Employee.
(b) By the Company, other than for just cause, in its sole and absolute
discretion, provided that in such event the Company shall, as liquidated damages
or severance pay, or both, pay to the Employee in equal monthly instalments,
beginning the month following the month in which the employee is terminated, an
amount equal to four months aggregate Full Base Salary that would have been
payable during the next four month period.
(c) By the Employee, (i) if the Company's Board of Directors fails to
elect or reelect the Employee to, or removes the Employee from, the office of
Chief Operating Officer, provided that in such event the Company shall, as
liquidated damages or severance pay, or both, pay to the Employee in equal
monthly installments beginning the month following the month in which the
employee is terminated, an amount equal to four months aggregate Full Base
Salary that would have been payable during the next four months.
(d) By the Employee, before the expiration of the agreement term, by
giving the Company 60 days written notice of his intention to terminate such
employment. In event of such termination, the Employee shall be entitled to
receive any salary, benefits, and stock options accrued or vested and unpaid as
of the date of any such termination and any benefits to which the Employee may
be entitled under and in accordance with the terms of any employee benefit plan,
policy or program maintained by the Company.
8. Non-Competition
During the Period of Employment and any period during which the
Employee is receiving any payments pursuant to this Agreement, and for a period
of two years thereafter, the Employee shall not anywhere in the United States
and Canada (recognizing that Company and its subsidiaries have operations
throughout the United States and Canada), directly or indirectly engage in
activities or solicit any business in the surface disinfectant business, or such
other business carried out by the Company, which are or may reasonably be
expected to become competitive with the business of the Company (unless the
Board of Directors of the Company shall have authorized such activity and the
Company shall have consented thereto in writing), either as an individual on his
own account, as an investor (except for investments of less than 5% of the
securities of a corporation subject to the reporting requirements of Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended), or as a
partner or joint venturer, or as a consultant, employee, agent or salesman for
any other person, or as an officer or director of a corporation or otherwise.
9. Inventions and Confidential Information
The parties hereto recognize that a major need of the Company is to
preserve its specialized knowledge, trade secrets, and confidential information
concerning the disinfectant business, and other business conducted by the
Company. The strength and good will of the Company is derived from the
specialized knowledge, trade secrets, and confidential information generated
from experience with the activities undertaken by the Company and its
subsidiaries.
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The disclosure of this information and knowledge to competitors would be
beneficial to them and detrimental to the Company, as would the disclosure of
information about the marketing practices, pricing practices, costs, profit
margins, design specifications, analytical techniques, and similar items of the
Company and its subsidiaries. By reason of his being a senior executive of the
Company, Employee has or will have access to, and has obtained or will obtain,
specialized knowledge, trade secrets and confidential information about the
Company's operations and the operations of its subsidiaries, which operations
extend through the United States and Canada. Therefore, Employee hereby agrees
as follows, recognizing that the Company is relying on these agreements in
entering into this Agreement:
(i) During and after the term of this Agreement, Employee will not use,
disclose to others, or publish any inventions or any confidential
business information about the affairs of the Company, including but
not limited to confidential information concerning the Company's
products, methods, engineering, designs and standards, analytical
techniques, technical information, customer information, employee
information, and other confidential information acquired by him in the
course of this past or future services for the Company. Employee
agrees to hold as the Company's property all memoranda, books, papers,
letters, formulas and other data, and all copies thereof and
therefrom, in any way relating to the Company's business and affairs,
whether made by him or otherwise coming into his possession, and on
termination of his employment, or on demand of the Company, at any
time, to deliver the same to the Company within twenty four hours of
such termination or demand.
(ii) During the term of this Agreement and for one year thereafter,
Employee will not induce any employee of the Company to leave the
Company's employ or hire any such employee (unless the Board of
Directors of the Company shall have authorized such employment and the
Company shall have consented thereto in writing).
10. Indemnification
The Company will indemnify the Employee (and his legal representatives
or other successors) to the fullest extent permitted by the laws of the States
of Florida, as in effect at the time of the subject act or omission, or on the
effective date of this Agreement, whichever affords or afforded greater
protection to the Employee, and the Employee shall be entitled to the protection
of any insurance policies the Company may elect to maintain generally for the
benefit of its directors and officers, against all costs, charges and expenses
whatsoever incurred or sustained by him or his legal representative in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of this being
or having been a director or officer of the Company or any of its subsidiaries.
11. Litigation Expenses
In the event of any litigation or other proceeding between the Company
and the Employee with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse the Employee
for all of his reasonable costs and expenses relating to such litigation or
other proceeding, including, without limitation, his reasonable attorney's fees
and expenses, provided that such litigation or proceeding results in any
(a) settlement requiring the Company to make a payment to the
Employee, or
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(b) final judgment or order in favor of the Employee.
In the event the Employer is victorious, Employee shall be required to reimburse
the Company for any of the costs and expenses relating to such litigation or
other proceeding.
12. Consolidation; Merger; Sale of Assets; Change of Control
(a) Nothing in this Agreement shall preclude the Company from
consolidating all of its assets to, or entering into a partnership or joint
venture with, another corporation or other entity, provided the corporation
resulting from or surviving such consolidation or merger, or to which such
assets are transferred, or such partnership or joint venture assumes this
Agreement and all obligations and undertakings of the Company hereunder. Upon
such a consolidation, merger, transfer of assets or entry into partnership or
joint venture, this Agreement shall inure to the benefit of, be assured by, and
be binding upon such resulting or surviving transferee corporation or such
partnership or joint venture, and the term, "Company", as used in this
Agreement, shall mean such corporation, partnership or joint venture, and this
Agreement shall continue in full force and effect and shall entitle the Employee
and his heirs, beneficiaries and representatives to exactly the same
compensation, benefits, perquisites, payments and other rights as would have
been their entitlement had such consolidation, merger, transfer of assets or
entry into partnership or joint venture not occurred.
(b) Notwithstanding any other provision of this Agreement, if the
Employee elects to terminate his employment within four months as a result of a
change in ownership or effective control of the Company as defined in Section
280G of the Internal Revenue Code and the regulations thereunder ("Change in
Control"), the Company shall pay to the Employee, within 120 days of the date
that the Company is notified by the Employee that such employment is being
terminated for such reason, an amount equal to the Employee's four months of
annual total compensation, including Base Salary and all benefits, perquisites,
incentives and bonuses. The Employee shall continue to be covered by all of the
Company's life, medical, health and dental plans, at the Company's expense as
provided by the professional employer organization utilized by the Company
during four month period following termination.
13. Survival of Obligations
The obligations of the Company under Section 10 and 11 shall survive
the termination for any reason of this Agreement (whether such termination is by
the Company, by the Employee, upon the expiration of this Agreement or
otherwise).
14. Severability
In any case any one or more of the provisions or part of the provision
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability shall be deemed not to affect any other jurisdiction or any
other provision or part of a provision of this Agreement, but this Agreement
shall be reformed and construed in such jurisdiction as if such provision or
part of a provision held to be invalid or illegal or unenforceable had never
been contained herein and such provision or part reformed so that it would be
valid, legal and enforceable in such jurisdiction to
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the maximum extent possible. In furtherance and not in limitation of the
foregoing, the Company and Employee each intend that the covenants contained in
Sections 8 and 9 shall be deemed to be a series of separate covenants, one for
each county of the State of Florida and one for each every other state,
territory or jurisdiction of the United States and any foreign country set forth
therein. If, in any judicial proceeding, a court shall refuse to enforce any of
such separate covenants, then such unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceedings to the
extent necessary to permit the remaining separate covenants to be enforced in
such proceedings. If, in any judicial proceeding, a court shall refuse to
enforce any one or more of such separate covenants because the total time
thereof is deemed to be excessive or unreasonable, then it is the intent of the
parties hereto that such covenants, which would otherwise be unenforceable due
to such excessive or unreasonable period of time, be enforced for such lesser
period of time as shall be deemed reasonable and not excessive by such court.
15. Entire Agreement: Amendment
This Agreement contains the entire agreement between the Company and
the Employee with respect to the subject matter thereof. This Agreement may not
be amended, waived, changed, modified or discharged except by an instrument in
writing executed by or on behalf of the party against whom any amendment,
waiver, change, modification or discharge is sought. Confidentiality shall
survive contract's end.
16. Notices
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have duly given if delivered or mailed,
postage prepaid, first class as follows:
(a) To the Company: (b) To the Employee:
VERIDIEN CORPORATION ANDREW T. LIBBY, JR.
11800 28TH AVENUE NORTH 806 SOUTH MACDILL AVENUE
ST. PETERSBURG, FL 33716 TAMPA, FL 33609
By: By:
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Sheldon C. Fenton Andrew T. Libby, Jr.
Witness: Witness:
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