AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1999
REGISTRATION NO. 333-81829
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIO-AQUA SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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FLORIDA _____________________ 65-0926223
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
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1900 GLADES ROAD, SUITE 351 1900 GLADES ROAD, SUITE 351
BOCA RATON, FLORIDA 33431 BOCA RATON, FLORIDA 33431
(561) 416-8930 (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR
(ADDRESS AND TELEPHONE NUMBER OF INTENDED PRINCIPAL PLACE OF BUSINESS)
PRINCIPAL EXECUTIVE OFFICES)
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DAVID MAYER
BIO-AQUA SYSTEMS, INC.
1900 GLADES ROAD, SUITE 351
BOCA RATON, FLORIDA 33431
(561) 416-8930
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies to:
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CHARLES B. PEARLMAN, ESQ. WALTER J. STANTON III, ESQ.
BRIAN A. PEARLMAN, ESQ. NANCY J. VAN SANT, ESQ.
ATLAS, PEARLMAN, TROP & BORKSON, P.A. SACHER, ZELMAN, STANTON, PAUL, BEILEY & VAN SANT, P.A.
200 EAST LAS OLAS BOULEVARD, SUITE 1900 1401 BRICKELL AVENUE, SUITE 700
FORT LAUDERDALE, FLORIDA 33301 MIAMI, FLORIDA 33131
TELEPHONE (954) 763-1200 TELEPHONE (305) 371-8797
FACSIMILE (954) 766-7800 FACSIMILE (305) 374-2605
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: /x/
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CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock................................. 1,380,000(2) $5.00 $6,900,000 $1,918.20
Warrants............................................. 1,380,000(3) $.125 $172,500 $47.96
Class A Common Stock issuable upon exercise of the
Warrants............................................. 1,380,000(4) $6.50 $8,970,000 $2,493.66
Representative's Warrants............................ 120,000(5) $0.001 $120 $.02
Class A Common Stock................................. 120,000(6) $8.25 $990,000 $275.22
Warrants issuable upon the exercise of the
Representative's Warrants............................ 120,000(7) $.206 $24,750 $6.89
Class A Common Stock issuable upon the exercise of
the Representative's Warrants........................ 120,000(8) $10.725 $1,287,000 $357.78
Total................................................ $18,344,370 $5,099.73(9)
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(footnotes on next page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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(footnotes from cover)
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 180,000 shares of class A voting common stock issuable pursuant to
the underwriter's over-allotment option.
(3) Includes 180,000 redeemable common stock purchase warrants issuable pursuant
to the over-allotment option.
(4) Represents shares of class A common stock issuable upon exercise of the
warrants registered hereby together with such additional indeterminate
number of shares as may be issued upon exercise of such warrants by reason
of the anti-dilution provisions contained therein.
(5) Includes 120,000 representative's purchase warrants.
(6) Represents shares of class A common stock issuable upon exercise of the
representative's warrants together with such additional indeterminate number
of shares of class A common stock as may be issued upon exercise of such
representative's warrants by reason of the anti-dilution provisions
contained therein.
(7) Represents warrants issuable upon exercise of the representative's warrants,
together with such additional indeterminate number of warrants as may be
issued by reason of the anti-dilution provisions contained therein.
(8) Represents shares of class A common stock issuable upon exercise of the
warrants included within the representative's warrants together with such
additional indeterminate number of shares of class A common stock as may be
issued upon exercise of such warrants by reason of the anti-dilution
provisions contained therein.
(9) Fee has been paid.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 27, 1999
BIO-AQUA SYSTEMS, INC.
1,200,000 SHARES OF CLASS A COMMON STOCK AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------
We are offering 1,200,000 shares of class A common stock, at $5.00 per
share and 1,200,000 redeemable common stock purchase warrants at $.125 per
warrant. Our class A common stock and our warrants are being offered separately
and not as units, and each is separately transferable. Each warrant entitles the
holder to purchase one share of class A common stock at $6.50 per share, subject
to adjustment, until 2004. We may redeem our warrants beginning
, 2000 for $.05 per warrant subject to prior exercise of the warrant, if
the closing bid price for our class A common stock has been at least $8.50 per
share for thirty consecutive trading days.
Prior to this offering, there has been no public market for our class A
common stock or our warrants. We have applied for the inclusion of our class A
common stock and our warrants on the National Association of Securities Dealers
Automated Quotation System SmallCap Market under the symbols "FISH," and
"FISHW," respectively.
INVESTING IN OUR CLASS A COMMON STOCK AND OUR WARRANTS INVOLVES CERTAIN
RISKS. SEE OUR RISK FACTORS ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
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<CAPTION>
PER SHARE OF CLASS A PER WARRANT OF CLASS A
COMMON STOCK COMMON STOCK TOTAL
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Public Offering Price........................... $ 5.00 $ 0.125 $ 5.125
Underwriting Discounts and
Commissions................................... $ 0.50 $ 0.0125 $0.5125
Proceeds to Bio-Aqua
Systems, Inc.................................. $ 4.50 $ 0.1125 $4.6125
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The underwriters may, under some circumstances, for 45 days after the date
of this prospectus, purchase up to an additional 180,000 shares of common stock
and 180,000 warrants from us at the public offering price, less underwriting
discounts and commissions.
------------------------
It is expected that delivery of our class A common stock and our warrants
will be made against payment at the offices of Nutmeg Securities, Ltd., 495 Post
Road East, West Point, Connecticut 06880 on or about , 1999.
NUTMEG SECURITIES, LTD. EMERSON BENNETT & ASSOCIATES, INC.
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Prospectus , 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 5
Use of Proceeds............................................................................................ 10
Dividend Policy............................................................................................ 11
Dilution................................................................................................... 11
Capitalization............................................................................................. 12
Exchange Rates............................................................................................. 13
Selected Financial Data.................................................................................... 14
Management's Discussion and Analysis of Financial Condition................................................ 15
Business................................................................................................... 19
Additional Information..................................................................................... 39
Management................................................................................................. 40
Certain Relationships and Related Transactions............................................................. 44
Bridge Financing........................................................................................... 45
Principal Shareholders..................................................................................... 45
Description of Securities.................................................................................. 47
Shares Eligible for Future Sale............................................................................ 49
Underwriting............................................................................................... 50
Legal Matters.............................................................................................. 52
Experts.................................................................................................... 53
Index to Financial Statements.............................................................................. F-1
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PROSPECTUS SUMMARY
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
(1) ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION, OUR WARRANTS, THE
REPRESENTATIVE'S WARRANTS, THE SECURITIES UNDERLYING THE REPRESENTATIVE'S
WARRANTS, OR THE ISSUANCE OF UP TO AN AGGREGATE OF 300,000 SHARES OF CLASS A
COMMON STOCK RESERVED FOR ISSUANCE UNDER OUR STOCK OPTION PLAN;
(2) ASSUMES A PUBLIC OFFERING PRICE OF $5.00 PER SHARE OF CLASS A COMMON
STOCK AND $.125 PER WARRANT;
(3) GIVES EFFECT AS OF THE CLOSING OF THIS OFFERING TO TWO STOCK PURCHASE
AGREEMENTS WHERE (A) FLAGSHIP IMPORT EXPORT CORPORATION WILL OWN 1,529,910
SHARES AND (B) ATIK S.A., A CHILEAN CORPORATION, WILL OWN 169,990 SHARES,
TOTALING 1,699,900 SHARES OF OUR CLASS B COMMON STOCK; AND (C) SIMULTANEOUSLY WE
SHALL PURCHASE FLAGSHIP IMPORT EXPORT CORPORATION'S AND ATIK'S COMBINED 99.9%
INTEREST IN TEPUAL S.A; AND
(4) GIVES EFFECT AS OF THE CLOSING OF THIS OFFERING TO THE ACQUISITION OF
THE INUAL(Trademark) AND TEPUAL(Trademark) BRANDS THROUGH THE PURCHASE OF ALL
ISSUED AND OUTSTANDING SHARES OF PROFEED, INC.
OUR COMPANY
OVERVIEW
Bio Aqua is an international broker of animal nutrition products and a
developer of commercial solutions for feed producers. Revenue is principally
generated through the sale of products for animal nutrition, including fish
meal, feather meal and krill meal under the Inual(Trademark) and
Tepual(Trademark) brands. These products are sold worldwide as a nutrient
additive principally for farmed fish and poultry raised for human consumption
with the recognition that there is a direct correlation between the health of
the animals raised for human consumption and the consumer.
By virtue of our relationships with our suppliers and customers, we have
identified specific problems relating to farmed fish and poultry. Together with
cooperative relationships with academic, private and government research
institutions, we have engaged in research and development programs to find
commercially viable solutions for feed and food producers as follows:
o automatic control for fish meal processing
o salmon and shrimp immune stimulants
o poultry vaccines
o red tide detection and cleansing equipment
OUR STRATEGY
Our strategy is to continue to expand as a niche participant in the
worldwide specialized animal feed and immunology market by capitalizing on the
commercialization of our research and development expertise.
OUR HISTORY AND STRUCTURE
We were incorporated in Florida in March 1999 as a holding company to
acquire a 99% interest in Tepual S.A., a Chilean corporation. At closing of this
offering we will purchase our interest in Tepual from its shareholders, Flagship
Import Export Corporation, a Bahamian company, and Atik, S.A., a Chilean
company. Flagship Import Export Corporation is wholly owned by Max Rutman, our
chief executive officer and president. Atik, S.A. is equally owned by Paulina
and Andrea Rutman, daughters of Max Rutman. We will acquire the rights to the
Inual(Trademark) and Tepual(Trademark) brands at closing by acquiring 100% of
the issued and outstanding stock of Profeed, Inc., a Bahamian company, which is
owned equally by Max Rutman, Paulina Rutman and Andrea Rutman. Our principal
executive offices are located at General Ekdhal 159, Santiago, Chile, and our
telephone number is 011 (562) 777-0262. Our U.S. offices are located at 1900
Glades Road, Suite 351, Boca Raton, Florida 33431, and our telephone number is
(561) 416-8930. Our fiscal year end is
3
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December 31. When we use the terms "Bio-Aqua," "Tepual," "we," "our" and similar
terms, this includes Bio-Aqua Systems, Inc. and Tepual S.A., our 99% subsidiary.
THE OFFERING
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Class A common stock offered.............. 1,200,000 shares
Warrants offered.......................... 1,200,000 warrants
Shares of class A common stock underlying
warrants................................ 1,200,000 shares
Class A common stock outstanding:
before the offering..................... 86,294
after the offering...................... 1,286,294
Class B common stock outstanding
before the offering..................... 1,700,000
after the offering...................... 1,700,000
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Our class B common stock is identical to our class A common stock, except that
holders of class B common stock are entitled to five (5) votes for each share of
class B common stock held. Upon sale or other disposition, the shares of class B
common stock may be converted, at the option of the holders into shares of class
A common stock on a one-share for one share basis. Upon such conversion, the
super-voting rights with respect to such shares will terminate.
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Warrants outstanding:
Before the offering..................... None
After the offering...................... 1,200,000
Use of proceeds........................... The net proceeds of this offering will be approximately $5,000,000,
which will be used as follows:
o $1,500,000 for reduction in bank loans
o $400,000 for the acquisition of Inual(Trademark) and
Tepual(Trademark) brands
o $700,000 for development of red tide consumer detection and testing
kits
o $550,000 for development of shrimp immune stimulants and additional
research and development of salmon immune stimulants
o $450,000 for additional research and development of poultry
vaccines
o $150,000 for repayment of bridge loans
o $1,250,000 for working capital.
Proposed Nasdaq symbols are:
Class A common stock.................... FISH
Warrants................................ FISHW
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4
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RISK FACTORS
BECAUSE WE HAVE CHANGED OUR BUSINESS STRATEGY, WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR NEW BUSINESS OPERATIONS. To date, we have engaged in
little or no commercial business outside of brokerage of fish meal, feather meal
and krill meal. Results of operations in the future will be influenced by
numerous factors. We will need significant operating expenditures arising from
technological developments, regulatory impediments, increases in expenses
associated with sales and marketing growth and maintenance of quality control.
Many of our marketing efforts have been untested in the market place, and may
not result in successful sales of our products and services.
OUR COSTS OF OPERATIONS ARE SUBJECT TO WIDE FLUCTUATIONS DEPENDING ON THE
COST OF FISH MEAL AND FEATHER MEAL. The costs of fish meal and feather meal are
subject to wide fluctuations due to factors such as: (1) seasonality;
(2) economic conditions; and (3) government restrictions. Our inability to
purchase these products on reasonable commercial terms could significantly
impact our financial results.
OUR POULTRY VACCINES ARE LIMITED IN THEIR SCOPE AND USE TO SPECIFIC
COUNTRIES AND REGIONS. Our current vaccines are limited to use in specific
countries. and regions. Animal pathogens in general are unique to specific
regions. Vaccines for poultry in Peru and Chile that we have produced are
developed to combat specific diseases to the region in which these bacterial and
viral strains are found. We will be required to commit considerable time, effort
and resources to develop vaccines for areas other than Peru and Chile. Our
success will depend upon, in part, the ability of new vaccines to meet targeted
performance.
OUR RED TIDE DETECTION AND CLEANSING SYSTEMS ARE NOT READY FOR IMMEDIATE
SALE. We anticipate that our paralytic shellfish poisoning red tide detection
kit will be available for sale during the first quarter of 2000. Our red tide
cleansing kit system is still in the preliminary stages of product development
and we anticipate that it will not be ready for commercial sale for
approximately two (2) years. Our red tide detection and cleansing is expected to
be subject to regulation by agencies that administer laws governing health,
safety and the protection of the environment, or any other government agency in
which we may seek to distribute our products. Our success will depend, in part,
upon our ability to comply with regulatory agencies and make timely and
cost-effective developments of this product.
OUR CURRENT PATENT PROTECTION IS LIMITED TO SPECIFIC TECHNOLOGY AND
COUNTRIES. Our current patent and patent applications are limited in scope to
specific areas of application. Patent protection for our poultry vaccines is
limited to Chile and currently only protects our Chilean vaccine for bronchitis
infection. As of the date of this offering, we have not filed nor received
patent protection for any other Chilean vaccines and we do not have any patent
protection for our immune stimulants.
We have only applied for patent protection for our red tide paralytic
shellfish poisoning detection kit and our red tide paralytic shellfish poisoning
detoxification process in the United States, Chile, Canada and the European
Community. An additional patent application for red tide paralytic shellfish
poisoning detoxification has been filed in Australia. We have not received any
confirmation of our applications as of the date of this offering. Failure to
obtain patent protection could have an adverse effect on our financial
condition. In addition, if the legal and other costs of obtaining patent
protection in any other country or on an international basis exceeds our
financial capabilities, we may have to limit our patent applications.
OUR TRADEMARK PROTECTION FOR THE INUAL(TRADEMARK) AND TEPUAL(TRADEMARK)
BRANDS ARE LIMITED. We currently only have trademark protection over the
Tepual(Trademark) and Inual(Trademark) brands in Chile, Colombia, Taiwan, China,
Ecuador, Mexico, Japan, Peru and South Africa. Failure to obtain trademark
protection in countries in which we presently operate may reduce the value of
our branded product and impact our financial condition.
RISKS BEYOND OUR CONTROL MAY AFFECT OUR ABILITY TO BROKER FISH MEAL,
FEATHER MEAL AND KRILL MEAL. Our business, as a broker, the purchasing and
reselling of fish meal, feather meal and krill meal is subject to the risks and
uncertainties associated with the worldwide supply and demand for these
products. Outside forces, beyond our control, such as weather, development of
alternative feed sources, animal diseases, government regulations, restrictive
quota, trade policies, supply constraints, and general economic conditions may
impact our brokerage business.
THE LOSS OF SIGNIFICANT CUSTOMERS IN OUR BROKERAGE OF FISH MEAL COULD
ADVERSELY EFFECT OUR BUSINESS. The loss of any one of the following seven
customers could materially and adversely affect our business as a
5
<PAGE>
broker of fish meal: (1) Bradwell Business Corp., (2) Agribrand Purina, (3) Bio
Mar, (4) Nor Aqua, (5) Pinar Yem Sanayi ve Pazarlama A.S., (6) Alitec and
(7) Enos Canada. During the first two quarters of 1999, these customers
accounted for an aggregate of approximately 80% of our fish meal sales.
REPAYMENT OF THE LOAN WE MADE TO KELOR TRADING, LTD. IS DEPENDENT ON KELOR
TRADING, LTD. HARVESTING SUFFICIENT AMOUNTS OF KRILL. To date, we have loaned,
on an unsecured basis an aggregate of $860,000 to Kelor Trading, Ltd. Kelor
Trading, Ltd. will repay us principally through profits it receives from our
joint venture as it harvests krill. If we and Kelor are unsuccessful in
harvesting krill and selling it at a profit, Kelor Trading, Ltd. may be unable
to repay us. We are not the primary beneficiaries of the insurance on the
vessel. If there is a catastrophe we may not be able to collect any insurance
proceeds.
LIMITS ON KRILL HARVESTING ESTABLISHED BY THE COMMISSION FOR THE
CONSERVATION OF ANTARCTIC MARINE LIVING RESOURCES MAY LIMIT THE KRILL WE CATCH
IN THE FUTURE. The commission limits the amount of krill that may be harvested
in Antarctic waters to 1.5 million tons. Presently 70,000 tons are being
harvested. The commission has established limits because increases in krill
catches could have a negative effect on the ecosystem, including other marine
life, particularly birds, seals and fish which mainly depend on krill for food.
WE DO NOT HAVE PRODUCT LIABILITY INSURANCE WHICH IN THE EVENT OF ANY LEGAL
ACTION BY THIRD PARTIES COULD RESULT IN SIGNIFICANT LEGAL DEFENSE FEES AS WELL
AS DAMAGES FOR LIABILITY. We do not have product liability insurance. While we
may seek to obtain such insurance in the future, the cost may exceed our
financial capabilities. Therefore, we may have to rely on unrelated companies to
whom we may license our products to provide such liability insurance. Companies
that we license our products may not be able to obtain product liability
insurance.
WE DEPEND ON THIRD PARTY MANUFACTURERS FOR THE PRODUCTION OF OUR PERUVIAN
VACCINES AND OUR RED TIDE DETECTION KIT. The loss of one of our third party
manufacturers would have a negative effect on our ability to manufacture our
products. We have contracted with Biosur S.A.C., a Peruvian company, to
manufacture and produce our Peruvian poultry vaccines. Tepual has also entered
into a joint venture with R-Biopharm GmbH, a German company, to manufacture a
Paralytic Shellfish Poisoning (PSP) red tide detection kit. These third parties
may not meet or satisfy their contractual obligations. While we, along with
Tepual, have entered into agreements with these companies, these contracts may
not be fulfilled or internal problems within these third parties may affect
production or productivity in the future.
REGULATORY COMPLIANCE AND GOVERNMENT REGULATION MAY ADVERSELY EFFECT OUR
ABILITY TO PRODUCE AND DISTRIBUTE OUR VACCINES. Our vaccines are subject to
regulatory compliance within the countries in which they are manufactured and
distributed. Our poultry vaccines are currently approved by the Peruvian
government, and we received re-approval from the Chilean government on June 22,
1999. While we are in compliance with Peruvian regulations and Chilean
regulations, the enactment of stricter laws or regulations, or the
implementation of more aggressive enforcement policies could adversely affect
our operations or financial conditions.
WE FACE SIGNIFICANT COMPETITIVE ACTIVITY IN ALL ASPECTS OF OUR BUSINESS. We
face intense competition in all areas of our business from other companies who
have far greater financial and marketing resources than us. This is especially
true in the area of immune stimulants, poultry vaccines and red tide and our
ongoing research and development in the aquaculture and animal feed industry,
where there are other companies and/or governments with greater resources
developing similar products. As Chile continues to enter into additional trade
initiatives with foreign countries, the number of foreign businesses that will
operate in Chile, will likely grow, resulting in an increase in our competition.
OUR MANAGEMENT HAS MAJORITY CONTROL OVER DECISIONS. Mr. Rutman will control
the election of directors as well as our other affairs for the foreseeable
future. Prior to this offering, Max Rutman, our Chief Executive Officer,
President, and Chairman of the Board of Directors owned, directly or indirectly,
approximately 86% and held the right to vote 89% of our outstand ing capital
stock. After this offering, Mr. Rutman will, directly or indirectly, own
approximately 53% of the outstanding capital stock, which represents the right
to vote 78% of our outstanding capital stock. Holders of class B common stock
(of which Mr. Rutman currently owns or controls all outstanding shares) are
entitled to five (5) votes for each share of class B common stock held, and
directors are elected by plurality vote.
6
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WE DEPEND ON OUR KEY PERSONNEL, SPECIFICALLY MAX RUTMAN. Our success is
highly dependent upon the continued services of Mr. Rutman who continues to
devote a substantial amount of his time to our business. Although we currently
have a 3 year employment agreement through our subsidiary, Tepual, with
Mr. Rutman for his services, the loss of his services could have a material
adverse effect on our business.
YOU MAY BE LIMITED IN YOUR ABILITY TO ENFORCE CIVIL LIABILITIES AGAINST US
SINCE MOST OF OUR ASSETS AND OPERATIONS ARE ABROAD. Enforcement by investors of
civil liabilities under the U.S. Federal securities laws may adversely be
affected by the fact that while Bio-Aqua is located in the U.S., our principal
subsidiary is located in Chile. While we are a U.S. corporation, our subsidiary,
Tepual is a Chilean corporation. For the foreseeable future, substantially all
of our assets will be held or used outside the United States (primarily in
Chile), and approximately 95% of the net proceeds from this offering will used
in Chile. Our current executive officers, directors (excluding David Mayer) and
management are residents of Chile, and substantially all of our assets and the
assets of our executive officers, directors and management are located outside
the United States.
OUR CLASS A STOCK IS SUBJECT TO IMMEDIATE AND SUBSTANTIAL DILUTION. The
initial public offering price of the common stock held by you is substantially
higher than the net book value per outstanding share of our common stock.
Purchasers will suffer an immediate dilution of approximately $3.13 per share.
WITHOUT A CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIREMENTS
YOU WILL HAVE NO ABILITY TO EXERCISE WARRANTS. Holders of our warrants will have
the right to exercise our warrants to purchase shares of class A common stock
only if a current prospectus relating to our shares is then in effect and only
if the shares have been qualified for sale under the securities laws of the
applicable state or states. Our warrants may lose, or be of no value, if a
prospectus covering the shares issuable upon the exercise of the warrants is not
kept current or if underlying shares are not, or cannot be, registered in the
applicable states.
OUR WARRANTS ARE REDEEMABLE. Our warrants are subject to redemption in
certain circumstances. The exercise of this right would: (1) force a holder of
our warrants to exercise our warrants and pay the exercise price at a time when
it may be disadvantageous for the holder to do so, (2) to sell our warrants at
the then current market price when the holder might otherwise wish to hold our
warrants for possible additional appreciation or (3) to accept the redemption
price, which is likely to be substantially less than the market value of our
warrants in the event of a call for redemption. Holders who do not exercise
their warrants prior to redemption by us will forfeit their right to purchase
the shares of class A common stock underlying our warrants.
REPRESENTATIVE HAS THE ABILITY TO INFLUENCE OUR DECISIONS. The terms of the
underwriting agreement between us and the representative gives the
representative the right to designate a member to our board of directors for a
period of three years from the effective date. The ability to designate a member
to our board of directors will provide the representative with a certain amount
of continuing influence over our business and operations, even though such
single designee will constitute a minority of the board of directors.
REPRESENTATIVE HAS A SIGNIFICANT INFLUENCE IN THE MARKET OF OUR SECURITIES.
It is anticipated that a significant amount of our class A common stock and
warrants will be sold to customers of the representative. Although the
representative has advised us that it intends to make a market in our class A
common stock and our warrants, it will have no legal obligation to do so. The
prices and the liquidity of our class A common stock and our warrants may be
significantly affected by the degree, if any, of the representative's
participation in the market. If it participates in the market, the
representative may influence the market, if one develops, for the securities.
This market-making activity may be discontinued at any time. Also, if the
representative sells our securities issuable upon the exercise of the
representative's warrants or acts as a warrant solicitation agent for our
warrants, it may be required under the Securities Exchange Act of 1934, as
amended, to temporarily suspend its market-making activities. The prices and
liquidity of our securities may be significantly affected by the degree, if any,
of the representative's participation in the market.
RULES RELATING TO LOW-PRICED STOCKS MAY APPLY TO US WHICH WOULD REDUCE THE
MARKET OF OUR SECURITIES. The Securities and Exchange Commission has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share, subject to
certain exceptions. Unless our class A common stock is listed on Nasdaq, upon
completion of this
7
<PAGE>
offering, the shares of class A common stock offered will be deemed to be "penny
stocks" and subject to rules that impose additional sales practice requirements
on broker/dealers who sell such securities to persons other than established
customers and accredited investors. Consequently, the "penny stock" rules may
restrict the ability of broker/dealers to sell the securities and may affect the
ability of purchasers in this offering to sell the securities in a secondary
market.
IF WE FAIL TO MAINTAIN THE STANDARDS FOR LISTING ON THE NASDAQ SMALLCAP,
THE MARKET FOR OUR SECURITIES WOULD BE ADVERSELY AFFECTED. Maintenance standards
for the Nasdaq SmallCap Market require at least $2,000,000 in net tangible
assets (total assets less total liabilities and goodwill) or $500,000 in net
income in two of the last three years, a public float of at least 500,000
shares, a $1,000,000 market value of public float, a minimum bid price of $1.00
per share, at least two market makers, at least 300 shareholders and at least
two outside directors. If we become unable to meet the initial or continuing
listing criteria of the Nasdaq SmallCap Market and are never traded or become
delisted, trading, if any, in our class A common stock and warrants would
thereafter be conducted in the over-the-counter market on the OTC Electronic
Bulletin Board. In this event, the market price of our class A common stock and
warrants may be adversely impacted and you may find it difficult to dispose of,
or to obtain accurate quotations as to the market value of our class A common
stock.
POSSIBLE EXERCISE OF REPRESENTATIVE'S WARRANTS WOULD RESULT IN DILUTION TO
YOUR SECURITY INTEREST. In connection with this offering, we will sell to the
representative, for nominal consideration, representative's warrants at an
exercise price of 165% of the price at which our class A common stock and
warrants are sold to the public hereunder. For the term of the representative's
warrants, the holders thereof will have, at nominal cost, the opportunity to
profit from a rise in the market price of the securities without assuming the
risk of ownership, with a resulting dilution in the interest of other security
holders.
REPRESENTATIVE'S WARRANTS MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL CAPITAL OR INVOLVE SUBSTANTIAL EXPENSES. As long as the
representative's warrants remain unexercised, our ability to obtain additional
capital might be adversely affected. Moreover, the representative may be
expected to exercise the representative's warrants at any time when we would, in
all likelihood, be able to obtain any needed capital through a new offering of
its securities on terms more favorable than those provided in the
representative's warrants. Exercise of these registration rights could involve
substantial expense to us at a time when we could not afford cash expenditures
and may adversely affect the terms upon which we may obtain additional funding
and may adversely affect the price of our class A common stock and our warrants.
WE HAVE ARBITRARILY DETERMINED THE OFFERING PRICE. The initial public
offering prices of our common stock and the exercise price and terms of our
warrants have been arbitrarily determined by negotiations between our management
and the representative and may bear no relationship to our current earnings,
book value, net worth or other established valuation criteria. The factors
considered in determining the initial public offering prices included an
evaluation by our management and the representative of the history of and
prospects for the industry in which we compete, an assessment of management, our
prospects, our capital structure, and certain other factors deemed relevant.
THE PRICE OF OUR SECURITIES MAY BE VOLATILE. The stock market from time to
time experiences significant price and volume fluctuations that may be unrelated
to the operating performance of specific companies. The trading prices of our
securities could be subject to wide fluctuations in response to variations in
our operating results, public announcements by ourselves or others, economic
developments affecting ourselves or our competitors, suppliers or clients and
other events or factors which may or may not be in our control.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT OUR
ACQUISITION AT A PREMIUM PRICE. Certain provisions of our amended and restated
articles of incorporation and bylaws, including the super voting rights of our
class B common stock and the authority of our board of directors to issue up to
5,000,000 shares of our preferred stock without shareholder approval, may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of the Florida Business Corporation Act
also may have certain anti-takeover effects, including the provision that shares
acquired in excess of certain specified thresholds will not possess any voting
rights unless the voting rights are approved by a majority of a corporation's
disinterested shareholders.
8
<PAGE>
CONSIDERATIONS RELATING TO CHILE
WE ARE SUBJECT TO RISKS ASSOCIATED WITH FOREIGN OPERATIONS. Our business is
currently conducted almost exclusively outside of the United States. We
consequently are subject to a number of significant risks associated with
foreign operations. Our operating profits may be negatively affected by changes
in the value of local currencies in the countries in which operations are
conducted or products are sold, by hyperinflationary conditions, or recession
such as those which have occurred in the past in several of such countries.
Other risks and considerations include: (1) the effect of foreign income and
withholding taxes and the U.S. tax implications of foreign source income and
losses; (2) the possibility of expropriation or confiscatory taxation or price
controls; (3) adverse changes in local investment or exchange control
regulations; (4) difficulties inherent in operating in less developed legal
systems; (5) political instability, government corruption and civil unrest; and
(6) potential restrictions on the flow of international capital. In many
developing countries, such as Chile and Peru where our business is conducted,
there has not been significant governmental regulation relating to the
environment, occupational safety, employment practices or other business matters
routinely regulated in the United States. As such economies develop, it is
possible that new regulations may increase the expense and risk of doing
business in such countries. In addition, social legislation in Chile may result
in significantly higher expenses associated with terminating employees or
distributors or closing manufacturing facilities.
WE ARE SUBJECT TO RESTRICTIONS ON REPATRIATION WITH RESPECT TO INVESTMENTS.
Equity investments in Chile by persons who are not Chilean residents may not be
freely repatriated for one year starting after the date the funds were brought
into Chile. After one year, equity investments may be freely repatriated only if
the investment is channeled through the Formal Exchange Market (Mercado
Cambiario Formal) pursuant to an investment contract entered into with the
Chilean government under Decree-Law No. 600 of 1974, as amended.
9
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the 1,200,000 shares of class A common
stock and 1,200,000 warrants offered will be approximately $6,150,000, assuming
an initial public offering price of $5.00 per share of class A common stock and
$.125 per warrant. The net proceeds will be approximately $5,000,000 after
giving effect to (1) the representative's discounts ($615,000), (2) a 3%
non-accountable expense allowance to the representative ($184,500), and (3)
offering costs and expenses of approximately $351,000, but without giving effect
to the exercise of the over-allotment option.
Approximately 30% of our proceeds will be used for reduction of a portion
of debt due to Banco Do Brasil, Banco Santander, Banco Sudamericano, Corpbanca
and Hemisphere National Bank which have maturity dates throughout 2006. The
interest rates for these debts range from 9.259% to 13.8%. As of June 30, 1999
$2,151,509 was outstanding under these debt obligations. Approximately 25% of
our proceeds will be used for working capital, which includes (1) marketing;
(2) overhead; (3) administrative expenses; (4) general corporate purposes; and
(5) possible payment to the shareholders of Profeed, Inc., for the acquisition
of the Tepual(Trademark) and Inual(Trademark) brands. The Tepual(Trademark)
and Inual(Trademark) brands are held by Profeed, Inc., which is equally owned
and controlled by Max, Paulina and Andrea Rutman. We will acquire Profeed, Inc.
by purchasing all of the issued and outstanding shares of Profeed, Inc. for an
aggregate of $1.3 million. We will pay the shareholders of Profeed, Inc.
$400,000 from the proceeds of this offering. The balance shall be paid, at the
board of directors' option, out of: (1) 5% of our gross revenues per quarter,
but in no event greater than 20% of our net income per quarter, from the sale
of products sold under the Tepual(Trademark) and Inual(Trademark) brands; (2)
third party financing; or (3) working capital. Approximately 95% of our
proceeds will be used in Chile.
We intend to use the net proceeds of this offering, during the twelve
months following the effective date, approximately as follows:
<TABLE>
<CAPTION>
ANTICIPATED USE OF NET PROCEEDS APPROXIMATE AMOUNT PERCENTAGE OF PROCEEDS
- ----------------------------------------------------------- ------------------ ----------------------
<S> <C> <C>
Reduction of Bank Loans.................................... $1,500,000 30.0%
Purchase of Brands......................................... 400,000 8.0
Development of Red Tide Kits............................... 700,000 14.0
Development of Immune Stimulants........................... 550,000 11.0
Research and Development of Poultry Vaccines............... 450,000 9.0
Repayment of Bridge Loans(1)............................... 150,000 3.0
Working Capital............................................ 1,250,000 25.0
---------- ------
Total................................................. $5,000,000 100.0%
---------- ------
---------- ------
</TABLE>
- ------------------
(1) Between April and May 1999 we received loans in the aggregate amount of
$150,000 from third party accredited investors. These loans are
evidenced by promissory notes bearing interest at 8% per year with maturity
dates ranging from October 31, 1999 through January 1, 2001.
Our anticipated use of net proceeds are based upon our current status of
operations and anticipated business plans. It is possible that the application
of funds may vary depending on numerous factors including, but not limited to,
changes in the economic climate or unanticipated complications, delay and
expenses. We currently estimate that the net proceeds from this offering will be
sufficient to meet our liquidity and working capital requirements for the next
12 months. However, there can be no assurance that the net proceeds of this
offering will satisfy our requirements for any particular period of time.
Additional financing may be required to implement our long-term business plan.
There can be no assurance that any such additional financing will be available
when needed on terms acceptable to us, if at all. Pending use of the proceeds of
this offering, we may make temporary investments in bank certificates of
deposit, interest bearing savings accounts, prime commercial paper, U.S.
Government obligations and money market funds. Any income derived from these
short term investments will be used for working capital.
We have wide discretion in the use of our proceeds. We reserve the right to
use the funds obtained from this offering for other purposes not presently
contemplated which we deem to be in our best interest and the
10
<PAGE>
best interest of our shareholders. As a result, our success will be
substantially dependent upon the discretion and judgment of our management. The
application and allocation of the net proceeds of the offering are determined by
discretion and judgment of our management.
DIVIDEND POLICY
While Tepual has previously paid dividends to its shareholders, we do not
anticipate paying dividends in the foreseeable future.
DILUTION
At June 30, 1999, we had a net tangible book value of $590,384 or
approximately $.33 per share of outstanding class A and B common stock after
giving effect to the stock issuances. Net tangible book value per share
represents the amount of our total tangible assets less our total liabilities,
divided by the number of shares of common stock outstanding. After giving effect
to the receipt of the estimated net proceeds from our sale of the 1,200,000
shares of class A common stock offered hereby, at an assumed initial public
offering price of $5.00 per share of class A common stock (after deducting
underwriting discounts and estimated offering expenses payable by us), the net
tangible book value of us at June 30, 1999, would have been approximately
$5,590,384 or $1.87 per share of common stock. This would represent an immediate
increase in the net tangible book value per share of common stock of $1.54 to
existing shareholders and an immediate dilution of $3.13 per share to new
investors purchasing shares of class A common stock in the offering. Dilution is
determined by subtracting net tangible book value per share after the offering
from the offering price to investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial offering price per share of class A common stock........................................ $5.00
Net tangible book value per share of Class A and B common stock before the offering............. $ .33
Increase attributable to new investors.......................................................... $1.54
Proforma net tangible book value after the offering............................................. $1.87
Dilution to new investors....................................................................... $3.13
Percentage of dilution to new investors......................................................... 63.00%
</TABLE>
The following table summarizes the number of shares of common stock
purchased from the Company, the total consideration paid and the average price
per share paid by (1) existing shareholders of the Company at June 30, 1999 and
(2) new investors purchasing shares of class A common stock in this offering,
before deducting the underwriting discounts and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED CONSIDERATION PAID AVERAGE PRICE
----------------------- ------------------------ PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1)....................... 1,786,294 59.82% $ 441,388 6.85% $0.25
New Investors(2)............................... 1,200,000 40.18 6,000,000 93.15 $5.00
---------- ------ ---------- ------ -----
Total........................................ 2,986,294 100.00% $6,441,388 100.00% $2.16
---------- ------ ---------- ------ -----
---------- ------ ---------- ------ -----
</TABLE>
- ------------------
(1) Gives effect to the stock purchases, including 51,000 shares issued on our
formation in March 1999 and 35,294 shares of class A common stock issued in
April and May, 1999 in connection with the bridge financing.
(2) Represents 1,200,000 shares of class A common stock, but does not include
(i) the sale of 1,200,000 warrants offered hereby or (ii) the issuance and
exercise of the representative's warrants.
11
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999, the capitalization of
our actual, and as adjusted for, issuance and sale of the 1,200,000 shares of
class A common stock (assuming an initial public offering price of $5.00 per
share of class A common stock) after deducting estimated offering expenses and
underwriting discounts and the initial application of the proceeds.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED(1)
---------- -------------
<S> <C> <C>
Long-term Debt....................................................................... $ 408,642 $ 408,642
Stockholders' equity:
Class A common stock ($.0001 par value)
20,000,000 shares authorized; 86,294 shares issued
and outstanding (actual) and 1,286,294 (as adjusted)(1)......................... 9 129
Class B common stock ($.0001 par value)
2,000,000 shares authorized; 1,700,000 shares issued
and outstanding (actual) and 1,700,000 (as adjusted)(1)......................... 170 170
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding (actual)
and as adjusted................................................................. -0- -0-
Additional paid-in capital........................................................... 441,209 5,441,089 (2)
Retained earnings.................................................................... 1,678,723 1,678,723
Cumulative translation adjustment
from the Chilean pesos into U.S. dollars........................................... (211,364) (211,364)
---------- -----------
Total stockholders' equity........................................................... $1,908,747 $ 6,908,747
---------- -----------
Total capitalization................................................................. $2,317,389 $ 7,317,389
---------- -----------
---------- -----------
</TABLE>
- ------------------
(1) Gives effect to the issuance of 1,200,000 shares of class A common stock and
the receipt of the net proceeds from the sale of 1,200,000 warrants.
<TABLE>
<S> <C> <C>
(2) Reconciliation: Issuance of 1,200,000 shares at $5.00 ......... $6,000,000
Issuance of 1,200,000 warrants at $.125 ....... 150,000
Less offering costs ........................... (350,500)
representative's discounts .................... (615,000)
3% non-accountable expense to representative... (184,500)
----------
Total Proceeds ................................ $5,000,000
less 1,200,000 shares at $.0001 par value ..... 120
----------
$4,999,880
Plus actual additional paid in capital ........ 441,209
----------
Total ......................................... $5,441,089
</TABLE>
12
<PAGE>
EXCHANGE RATES
Unless otherwise specified, references to U.S. dollars, dollars, $, or
U.S.$ are to United States dollars and references to pesos or Ch$ are to Chilean
pesos, the legal currency of Chile, and peso-denominated monetary unit. As of
June 30, 1999, the exchange rate was one (1) U.S. dollar to 518.90 pesos. No
representation is made that the peso or U.S. dollar amounts shown in this
prospectus could have been or could be converted into U.S. dollars or pesos, as
the case may be, at such rate or at any other rate.
Chile's Ley Organica Constitucional del Banco Central de Chile No. 18.840,
the Central Bank Act of Chile, enacted in 1989, liberalized the rules that
govern the ability to buy and sell foreign exchange. Prior to 1989, the law
permitted the purchase and sale of foreign exchange only in those cases
explicitly authorized by the Central Bank of Chile. The Central Bank Act now
provides that the Central Bank of Chile may determine that certain purchases and
sales of foreign exchange may be exercised by the banks and other entities so
authorized by the Central Bank of Chile.
The following table sets forth the annual high, low, average and year-end
observed exchange rate for U.S. dollars for each year starting in 1997 as
reported by the Central Bank of Chile. The table reflects the actual high and
low exchange rates on a month-to-month basis for each period and the average
monthly rates during the period.
<TABLE>
<CAPTION>
EXCHANGE RATES
OF Ch$ PER
U.S.$
---------------------------
YEAR LOW HIGH AVERAGE
---- ------ ------ -------
<S> <C> <C> <C>
1997......................................... 411.85 439.81 419.31
1998......................................... 439.18 460.33 465.25
1999 (first quarter)......................... 472.41 501.15 487.30
1999 (second quarter)........................ 472.41 518.90 491.26
</TABLE>
Source: Central Bank of Chile
13
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data as set forth below for the years ended
December 31, 1997 and 1998 and the balance sheet data at December 31, 1997 and
1998, have been derived from our Combined Financial Statements and Notes, which
have been audited by Spear, Safer, Harmon & Co., P.A., independent auditors,
whose report is included in this prospectus. The statement of operations data
for the six months ended June 30, 1999 and 1998, and the balance sheet data at
June 30, 1999 are derived from our unaudited financial statements included
elsewhere in this prospectus. In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and included all adjustments (consisting only of normal
recurring adjustments) necessary for the fair presentation of our financial
condition and results of operations for such periods. The results of operations
for the six months ended June 30, 1999 are not necessarily indicative of results
to be expected for any other interim period or the entire year. The following
financial data should be read in conjunction with the consolidated financial
statements and notes and management's discussion and analysis of financial
condition and results of operations included in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED PROFORMA SIX PROFORMA
YEARS ENDED DECEMBER 31, JUNE 30, MONTHS ENDED YEAR ENDED
------------------------ ------------------------ ---------------- --------------------
STATEMENT OF OPERATIONS 1997 1998 1998 1999 JUNE 30, 1999(1) DECEMBER 31, 1998(1)
- ------------------------------ ---------- ---------- ---------- ---------- ---------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $5,238,299 $6,873,512 $3,201,998 $2,963,040 $2,963,040 $ 6,873,512
Cost of Operations............ 3,571,678 4,853,553 2,393,983 1,968,756 1,968,756 4,853,553
Selling and Administrative
Expenses.................... 1,185,000 1,429,049 707,264 846,170 996,170 1,729,049
Other Income (Expenses)....... (93,220) (224,325) (89,133) (49,250) (49,250) (224,325)
Net Income.................... 388,401 366,585 11,618 98,864 (51,136) 66,585
Net Income per common share... 0.23 0.22 .01 .06 (.03) .04
Weighted average common shares
outstanding................. 1,700,000 1,700,000 1,700,000 1,739,882 1,739,882 1,700,000
<CAPTION>
JUNE 30, 1999
PERIOD ENDED ------------------------
DECEMBER 31, AS
------------------------ ACTUAL ADJUSTED
BALANCE SHEET DATA 1997 1998 (UNAUDITED) (UNAUDITED)(2)
- ------------------------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Working capital...................................................... $ 617,413 $ 984,937 $ (753,954) $ 4,256,046
Total assets......................................................... 5,180,304 6,911,750 7,708,093 10,658,093
Total long-term liabilities.......................................... 355,014 478,813 408,642 408,642
Total liabilities.................................................... 2,348,531 3,678,546 5,799,346 3,749,346
Stockholders' equity................................................. 2,831,773 3,233,204 1,908,747 6,908,747
</TABLE>
- ------------------
(1) Assumes the president and chief financial officer received an annual base
salary of $200,000 and $100,000, respectively, for the periods indicated.
(2) Adjusted to reflect the sale of 1,200,000 shares of class A common stock
including receipt of net proceeds from the sale of 1,200,000 warrants
offered, excluding the exercise of our warrants and the exercise of
representative's warrants and the over-allotment option.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis contains various "forward looking
statements" within the meaning of the Securities Act of 1933 and the Securities
and Exchange Act of 1934. Such statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or use of negative or other variations or comparable terminology.
We caution that these statements are further qualified by important factors
that could cause actual results to differ materially from those contained in the
forward-looking statements, that these forward-looking statements are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.
OVERVIEW
We generate substantially all of our revenues from the sale of certain
products such as fish meal, feather meal and krill meal which we purchase from
third parties under our own brand for resale to our customers throughout the
world. As of December 31, 1998, we have sold two of our automatic control
systems for fish meal processing, certain immune stimulants on a testing basis,
as well as vaccines which we have developed. Management anticipates that we will
sell three more automatic control systems, however, we cannot provide any
assurances that such sales will take place.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
RESULTS OF OPERATIONS
Gross revenues for the six months ended June 30, 1999 decreased $238,458
from the six months ended June 30, 1998 from $3,201,998 to $2,963,040, a
decrease of approximately 7%. This is primarily due to the translation
exchange rate. Sales have remained relatively constant between the periods.
Cost of operations decreased from $2,393,983 in the six months ended
June 30, 1998 to $1,968,756 for the six months ended June 30, 1999. This
decrease of $425,227 (18%) was directly related to management's efforts to
control costs. Further, we sold more fish meal, as opposed to feather meal,
during this period, which requires less costs. Our cost of operations will
continue to fluctuate on a quarterly basis based upon the price of feather or
fish meal.
Selling and administrative expenses for the six months ended June 30, 1999
increased $138,906 in comparison to the six months ended June 30, 1998 from
$707,264 to $846,170, an increase of approximately 20%. This increase is
principally attributed to an increase in staff relating to the production of
poultry vaccines in Chile. For the immediate future, we will continue to incur
costs in excess of revenues associated with the expansion of our poultry vaccine
business.
Other income (expenses) decreased from $(89,133) at June 30, 1998 to
$(49,250) at June 30, 1999, a decrease of $39,883 or approximately 45%. The
decrease is due to an increase in tax credits based on the export of certain
commodities.
Net income for the six months ended June 30, 1999 was $98,864 compared to
$11,618 for the six months ended June 30, 1998, an increase of $87,246 or
approximately 751%, as a result of the above.
15
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR END DECEMBER 31, 1997
RESULTS OF OPERATIONS
Gross revenues for the year ended December 31, 1998 increased $1,635,213
over the year ended December 31, 1997 from $5,238,299 to $6,873,512, an increase
of approximately 31%. The increase in gross revenues may be attributed to our
broader base trading activities during 1998 as compared to 1997, which included
the additional products of feather meal and krill meal. In addition, during
1998, we sold two automatic control systems for approximately $800,000 which
accounted for approximately 50% of the increase in gross revenues. In
particular, during 1997 we were unable to purchase fish meal products to trade
and broker due to the effects of El Nino and Chilean laws restricting fishing.
Prior to 1997, we purchased a portion of our krill products from Russian and
Polish fleets, however, due to political situations in those countries in 1997,
the fleets did not travel to Antarctica and thus there was no krill available.
During this time we also began to trade poultry feather meal. In 1997, the
selling price of feather meal was much less than in 1998 because it was a new
product and we offered it at a reduced price to generate demand. In 1998, prices
were increased as demand increased.
Cost of operations increased from $3,571,678 in 1997 to $4,853,553 in 1998.
This increase of $1,281,875 (36%) is attributable to the additional product sold
in our fish, feather and krill meal business. In particular, there were
increased costs associated with the purchase of feather meal from Brazil which
led to increased shipping costs and import tariffs.
Selling and administrative expenses for the year ended December 31, 1998
increased $244,049 in comparison to the year ended December 31, 1997 from
$1,185,000 to $1,429,049, an increase of approximately 21%. During 1998, we
began selling more poultry feather meal which was purchased from Brazil. As a
result, we incurred more selling expenses including cost of travel to and from
Brazil. In addition, we hired a new chief financial officer in 1998, thus
increasing administrative salaries.
Other expenses increased from ($93,220) for the year ended December 31,
1997 to ($224,325) for the year ended December 31, 1998, an increase of $131,105
or approximately 141%. The increase is due to (i) the reduction in royalty
income for use of one of our products; (ii) increase in interest expense and
(iii) gain on sale of fixed assets. Interest expense increased as a result of
the increase in average outstanding loan balances.
Net income for the year ended December 31, 1998 was $366,585 compared to
$388,401 for the year ended December 31, 1997, a decrease of $21,816 or
approximately 6%, as a result of the above.
LIQUIDITY AND CAPITAL RESOURCES
To date, our liquidity has been principally supplied by bank financings and
internal cash generated from existing operations. In April and May 1999, we
received loans from six (6) third party investors for an aggregate $150,000.
These loans are evidenced by promissory notes bearing interest at 8% per annum.
As additional consideration, the third party investors received an aggregate of
35, 294 shares of our class A common stock.
At June 30, 1999, accounts receivable decreased by $95,560 to $2,886,114
from $2,981,674 at December 31, 1998. This decrease is a result of certain
outstanding invoices being paid during the period. Payment terms and conditions,
which among other factors, are dependent on the customer, credit histories,
economic conditions and country payment standards. In particular, approximately
$120,000 is owed from the sale of the two automatic control systems. Management
anticipates we will receive payment of the balance due for these two automatic
control systems by September 30, 1999. However, under the terms of sale, each
customer was given a period of time beyond installation of the equipment for
testing before final payment was due. Further, management has provided extended
terms up to six months to several of its fish meal and feather meal customers.
On June 30, 1999, we had outstanding receivables of $2,886,114 of which
$111,782 were in excess of six months old. Half of the amount outstanding in
excess of six months is payable on a yearly term and therefore not delinquent.
We believe that we can collect substantially all these receivables. We believe
that many of the extended receivables are consistent with the payee's payment
policies.
16
<PAGE>
At June 30, 1999, inventory increased $31,217 to $793,086 as compared to
$761,869 at December 31, 1998. This increase is due to purchases in excess of
sales in the second quarter of 1999.
At June 30, 1999, other assets increased by $442,991 to $2,185,395 from
$1,742,404 at December 31, 1998. This increase is due to advances made to
vendors, in particular, a krill fishing operation for which we have entered into
an agreement for the exclusive rights to all of the vessel's krill products and
right to perform certain research and development on board the vessel located in
Antarctic waters. In order to make these advances, we borrowed approximately
$800,000 from Banco Do Brasil, thus increasing our current obligations with
banks.
Accounts payable increased $309,696 from $990,749 at December 31, 1998 to
$1,300,445 at June 30, 1999. This is due to purchases made in the period which
were on extended payment terms of up to four months.
Long term debt has decreased from $478,813 at December 31, 1998 to $408,642
at June 30, 1999, a decrease of $70,171. This decrease is due to timely payments
on our outstanding loans.
Under employment agreements with two of our executive officers we are
required to pay annual salaries of $300,000 plus up to an additional $120,000 in
bonuses. We have a 10 year consulting agreement with one of our directors for an
annual fee of $30,000 and a two year consulting agreement with the
representative of the underwriters of this offering for $60,000 per annum
commencing with the closing of this offering. We will also enter into a two year
lease agreement with Andean Financial Corporation for $30,000 per annum, to use
a portion of Andean Financial Corporation's facilities in Boca Raton, Florida,
for our corporate U.S. offices. The sole shareholder and director of Andean
Financial Corporation is one of our directors. We have facility lease agreement
payments for approximately $220,000 for the next 12 months.
We shall acquire Profeed, Inc. for $1.3 million, as evidenced by the
increase in due to shareholder because of payable due to the related party
nature of the transaction, of which $400,000 will be paid to its shareholders at
closing and the balance, under the discretion of the board of directors, out of:
(1) 5% of the gross revenues per quarter, but in no event greater than 20% of
the net income per quarter, of the sale of products sold under the
Tepual(Trademark) and Inual(Trademark) brand names; (2) third party financing;
or (3) working capital.
YEAR 2000 ISSUE
Many currently installed computer systems and software are coded to accept
only two digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish whether "00" means 1900 or 2000.
This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with year 2000
requirements. The potential global impact of the year 2000 problem is not known.
If year 2000 problems are not corrected in a timely manner, they could affect
us.
We have formed a project team to address internal year 2000 issues. Our
internal financial and other computer systems have been reviewed to assess and
remediate year 2000 problems. Our assessment of internal systems includes our
information technology systems as well as other systems which include embedded
technology in equipment containing microprocessors or other similar circuitry.
Our year 2000 compliance program includes the following phases:
o identifying systems that need to be modified or replaced;
o carrying out remediation work to modify existing systems or convert
to new systems; and
o conducting validation testing of systems and applications to ensure
compliance.
The amount of remediation work required to address internal year 2000
problems is expected to be minimal. Our use of operational systems, personal
computers and software is limited. We installed our personal computers and
hardware in June 1999. We are in the process of implementing a new operational
system and installing new software provided by Softland, a Chilean computer
company. We believe that this
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<PAGE>
equipment and software was designed to address year 2000 issues and does not
have to be modified in order to function properly in the year 2000.
Our automatic control systems utilize software designed by Advantage, a
U.S. company and software and hardware designed by Opto 22, a U.S. Company. This
software and hardware is certified as year 2000 compatible.
Our present and future costs to address year 2000 issues should be minimal.
However, there can be no assurance that these estimates are correct or that
future costs, if any, will not be materially greater than anticipated.
In addition, we are in the process of surveying our major suppliers
throughout our business lines and evaluating their plans to address potential
year 2000 issues. We anticipate that this evaluation will be completed by
December 31, 1999. We will rely primarily on our suppliers' commitments to
accomplish this task but have no contractual commitments from the suppliers
regarding year 2000 issues. It is impossible to fully assess the potential
consequences in the event interruptions from supplier occur or in the event that
there are disruptions in infrastructure areas such as utilities, communications,
transportation, banking or government.
We have also sent questionnaires to our customers requesting that they
notify us of their plans to address year 2000 issues. We have informed all of
our customers that if they do not respond by October 31, 1999, we will take
necessary actions to insure that their possible problems with year 2000 issues
do not effect us. We are prepared to suspend transactions with our customers
that do not respond to our questionnaire.
Based on our assessments to date, we believe we will not experience any
material disruptions as a result of year 2000 problems in internal processes,
information processing, and interfaces with major customers or with processing
orders and billing. However, our ability to timely ship products to our
customers wold be disrupted if suppliers or other third-party providers, such as
those providing electricity, water or telephone services, experience
difficulties in providing product or services to us. These difficulties could
seriously harm our business. In addition, if our information technology systems
are not year 2000 compliant, we would have to devote significant resources to
correct such problems and we may be unable to process customer orders, which
could lead to shipment delays. Assuming no major disruption in service from
suppliers or other third parties, we believe that we will be able to manage our
total year 2000 transition without any material effect on our results of
operations or financial condition.
We have also developed a contingency plan for the following areas as
follows:
(1) Administration and accounting. We have retained back-up files of all
material information. Softland, provider of our new operational system
and software, has agreed to support and help us if we have any problems
in relation to the year 2000.
(2) Automatic control. We have retained back-up files for all hardware and
software for our automatic control systems in operation. We also have
commitments from Advantage and Opto 22 to support and help us in the
event of any problems in relation to the year 2000.
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<PAGE>
BUSINESS
GENERAL
Bio-Aqua Systems, Inc. was organized in March 1999 as a holding company to
acquire a 99.9% interest in Tepual, S.A., a Chilean corporation established in
1982 with its principle offices in Santiago, Chile. Before the effective date,
Tepual, S.A. is owned 90% by Flagship Import Export Corporation, a company
wholly-owned by Max Rutman and 10% owned by Atik, S.A., a company owned by
Paulina Rutman and Andrea Rutman.
Since inception, our major source of revenue has been generated through the
branded sale of various products for animal nutrition, including fish meal,
feather meal and krill. These products are sold worldwide as a nutrient additive
for fish, poultry and livestock raised for human consumption with the
recognition that there is a direct correlation between the health of the animals
raised for human consumption and the consumer. We sell these nutrient products
under the Tepual(Trademark) and Inual(Trademark) brands. These brands are held
by Profeed, Inc., a Bahamian company, equally owned by Max Rutman, Andrea
Rutman and Paulina Rutman. We will acquire 100% of the issued and outstanding
shares of Profeed, Inc. at the effective date.
Our success in this area has been predicated on our ability to certify to
nutrient levels and ecological standards of fish and feather meals. For our
fish, feather and krill meal business we have more than 100 customers in
approximately 25 countries.
Recently, by virtue of our relationships with our suppliers and customers,
we have identified specific problems relating to farmed fish and poultry.
Together with cooperative relationships with academic, private and government
research institutions, we have engaged in research and development programs to
find commercially viable solutions for feed and food producers as follows:
-- automatic control for fish meal processing
-- salmon and shrimp immune stimulants
-- poultry vaccines
-- red tide detection and cleansing process
Our strategy is to continue to expand as a niche participant in the
worldwide specialized animal feed and immunology market by capitalizing on the
commercialization of our research and development expertise.
Our U.S. offices are located at 1900 Glades Road, Suite 351, Boca Raton,
Florida 33431, and our telephone number is (561) 416-8930. Our offices in Chile
are located at General Ekdhal 159, Santiago, Chile, and our telephone number is
011 (562) 777-0262. Our fiscal year end is December 31.
BACKGROUND
Tepual, organized in 1982 as a Chilean limited partnership, was
incorporated in 1996 when Tepual began commercial operations which capitalized
on research and development projects initiated by Inual, a Chilean company.
Inual, wholly owned by Max Rutman and Paulina Rutman, was organized in 1973.
Inual is currently a non-operating entity, with no assets. Prior to 1985 Tepual
and Inual generated revenues through grants from various government entities and
private foundations. These grants decreased starting in 1985, due in part to
privatization in Chile and an overall decrease in grants from private
foundations. We expanded our brokerage division to replace the revenues lost
from the decrease in the aforementioned grants to aid in the continuous funding
required to support our research and development department.
As our brokerage business began to grow, we developed relationships which
have given us a first hand view of the biological and processing factors that
affect the business of our customers and suppliers. Through years of research
and development we have developed and are developing commercially viable
solutions to these biological and processing factors in automatic control for
fish meal processing, salmon and shrimp immune stimulants, poultry vaccines and
red tide detection and cleansing process. Through our work on nutrient quality,
we have developed a unique automatic control processing system which facilitates
the
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production of the highest nutrient level fish meal while avoiding toxicity for
the fish meal industry. Through research in animal health we have developed
poultry vaccines and salmon immune stimulants. Through research in marine
toxins, we have developed new and potential methods for detecting and cleansing
toxins found in red tide.
We will consolidate ourselves on the effective date through the following
transactions:
1. Two stock purchase agreements shall be simultaneously effectuated
whereby (a) Flagship Import Export Corporation shall purchase 1,529,910 shares
and Atik S.A. shall purchase 169,990 shares, totaling 1,699,900 shares of
class B common stock for $3,540,390, and (b) Bio-Aqua shall purchase Flagship
Import Export Corporation's and Atik S.A.'s 99.9% in Tepual for $3,540,290 and
Tepual shall then become our majority owned (99.9%) subsidiary. The remaining 15
shares of Tepual stock will continue to be owned by Max Rutman, through his
ownership interest in Flagship Import Export Corporation (Chilean law requires
that a Chilean corporation be owned by not less than two shareholders).
2. We will acquire the rights to the Tepual(Trademark) and
Inual(Trademark) brands by purchasing all of the issued and outstanding shares
of Profeed, Inc., for an aggregate of $1,300,000.
OVERVIEW
As we approach the millennium, our environment is fraught with a myriad of
ecological and health problems which effect the entire world population. These
problems stem from changing weather patterns (El Nino), pollution of the
atmosphere and water, and new and localized strains of viral and bacterial
disease. Together each of these factors has placed an enormous strain on our
ability to produce, by farming or otherwise, a supply of food that is healthy,
nutritional and not exorbitant in cost. It is in the context of this worldwide
problem that companies such as ourselves have and must continue to develop
commercially viable solutions in the areas of animal nutrition and health, as
well as fish meal processing.
The changing weather patterns, among other things, have caused severe
droughts in many areas, which has affected the farming of essential food
products. Overall global warming has had a negative impact on the fishing
industry, reducing the amount and size of fish caught. These problems have
presented a niche market for the sale of our automatic fish meal processing
systems, which automatically produces fish meal with the highest nutrient levels
at the lowest cost. Additionally, as fishing waters have been depleted, we began
seeking viable alternatives and began selling feather meal as a partial
replacement for fish meal. The sale of these products, led to the formation of
relationships with local poultry producers which led us to the development of
vaccines for certain diseases found in Chilean and Peruvian poultry. The
production and sale of these vaccines has a direct impact on the population of
both countries by ensuring that production levels are maintained and disease
free poultry is produced.
The cultivation and farming of fish has become an important element in the
world's food supply. Farmed fish are subject to diseases, which on occasion have
wiped out an entire two years production of farmed salmon. Our immune stimulant,
as it relates to salmon farming, in test results we have conducted, has reduced
the mortality rate from approximately 30% to between 8% and 10%. Since these
tests were conducted by ourselves on a limited basis, there cannot be any
assurances that such test results will be indicative of future commercial
results.
Red tide has affected the waters of every coastal country in the world and
has intensified over the past two decades. The Chilean coastline has produced
significant amounts of shellfish which on occasion has been effected by red
tide. In 1992 we began an intensive research and development program designed to
provide solutions to certain forms of red tide. As a result of this research and
development we have developed the following: (1) detection systems to test
shellfish for certain red tide toxins, and (2) a system to cleanse shellfish by
lowering certain toxin levels.
We will continue to utilize research and development skills of our own
scientists and those of various consultants from the world of academia,
government and private industry, as well as the proceeds from this offering to
develop viable solutions to problems relating to the food chain, caused by
today's ever changing world, that one way or another affects all of humanity.
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BUSINESS STRATEGY
Our strategy is to continue to expand as a niche participant in the
specialized animal feed and immunology market worldwide. We intend to continue
to turn our research and development in automatic processing controls, immune
stimulants, poultry vaccines and red tide detection and cleansing systems into
commercially viable profit centers. In addition to our internal staff, we will
continue the use of outside consultants, laboratories, universities and
governmental research facilities worldwide to consult on specific projects. In
the majority of bio-technical companies an inordinate amount of funds are
initially expended on research and development, however, we have already
accounted for the majority of our research and development costs. Pursuant to
the use of proceeds from this offering approximately 35% of the proceeds will be
used for the further development of certain immune stimulants, vaccines, and red
tide detection and cleansing systems. Further, as we have done in the past and
should the need arise, we will seek strategic partnerships for the production
and marketing of our products.
OVERVIEW OF OUR OPERATIONS
Principal executive management, financing, marketing and operations support
functions are conducted at the Company's Santiago, Chile headquarters. Upon
closing we will maintain an office in Boca Raton, Florida which will be used for
shareholder relations as well as conducting and assisting with U.S. business
matters.
Our experience within the animal feed industry and the strong linkage
between the animal feed market and nutrition, health and research created an
opportunity and natural transition to commence research and development in areas
such as automatic control, poultry vaccines, immune stimulants and red tide.
Attempting to alleviate the problems that effect our suppliers and customers,
our numerous research and projects have led to the development of automatic
control processing for fish meal, viral vaccines for localized poultry disease,
immune boosters to be applied in the salmon industry (which may be applied to
the farm shrimp industry) and red tide toxin diagnostic and cleansing kits.
BROKERAGE BUSINESS
We believe that we may be the only broker/purveyor in the world that
incorporates technical knowledge in the field of fish meal, feather meal and
krill meal. We not only trade these products, but more importantly, have a
selection procedure based on our knowledge and laboratory testing so as to
provide the correct nutrient blended product on a market by market basis. In
addition, we have and will continue to send our technical staff to the producers
of these products in order to assure quality control and to advise them on how
to produce the Tepual(Trademark) and Inual(Trademark) branded products.
Fish meal sales
Fish meal is a powder obtained from cooking, drying and grinding raw fish.
Fish meal is a rich protein source and an essential ingredient in feedstuffs in
pet food, animal feed and fish feed. Depending upon the customer and its use,
the nutrient levels of fish meal are extremely important.
Our locations in Chile and Peru place us within close proximity to one of
the largest sources of fish meal in the world. Chile and Peru (which borders
Chile) are responsible for over one-fourth of the fish meal produced worldwide
and for 65% of all fish meal exported. The International Fishmeal and Oil
Manufacturers Association (IFOMA) reported 4,749 thousand tons (TT) or $1.5
billion of fish meal was produced and sold in 1998. We have developed and
maintained long term relationships with Chilean and Peruvian fish meal
processing companies that benefit our brokerage and trading which to date,
account for a substantial amount of our revenues.
Through our Tepual(Trademark) and Inual(Trademark) brands we certify that
the fish meal we sell has the highest possible nutrient levels and lowest
toxicity levels. Our Tepual(Trademark) and Inual(Trademark) brands are
recognized internationally, providing us with a worldwide customer base. There
are many suppliers of fish meal in Chile and Peru. We are only limited by our
certification standards, in our ability to use all of these production sources.
Currently we purchase our fish meal from ten fish meal producers in Chile
and five fish meal producers in Peru. All of these companies adhere to our
certification standards. There are approximately 165 other fish
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meal producers in Chile and Peru of whom we could also use to satisfy our fish
meal supply needs, assuming that these producers can meet our high nutrient and
low toxicity standards.
Additional products
Due to El Nino and fishing restrictions, resulting in a lack of fish meal,
we began researching alternative sources of animal feed protein. This research
resulted in the application of chicken feathers and krill as a rich source of
protein.
Feather meal sales
We began selling chicken feather meal in 1997. Feather meal is a rich
source of protein and therefore, we have found that feather meal can be a
partial replacement for fish meal. Today we are selling feather meal to animal
feed producers in Chile and other countries. We initially researched the
potential value of this poultry byproduct when fish meal prices increased
significantly. Since we introduced feather meal as a source of protein, this
product has become an acceptable alternative for feed producers. In 1997 we
began (and continue today) to process and certify feather meal. Today we sell
approximately 600 tons of feather meal per month with Chile and Brazil providing
us with sources for our feather meal. Our principal customers are: Alitec,
Alimentos Technicos Limitada, Biomaster S.A. and Ecofeed. These customers are
farmed salmon feed producers and are all located in Chile.
Although present feather meal sales are limited, we believe that as this
product gains wider acceptance it may replace up to 5% to 10% of the fish meal
market worldwide. We believe, that regardless of the future price of fish meal,
there will remain a commercially viable market for feather meal due to its
excellent quality and nutritional value.
Our supply of feathers comes from approximately five poultry farms in
Brazil. These feathers are a byproduct of the poultry industry. We believe our
supply of feathers is unlimited.
Krill
Krill are tiny shrimp-like creatures found in the Antarctic waters. We have
found that krill, in addition to being a source of protein, has additional
nutritional values. Krill may be used as an additive to feed to improve taste
and as a color enhancer. Due to its nutritional and other benefits, we believe
that krill will be widely used and in high demand throughout the shrimp and
salmon feed industries.
We have initiated a research and development program to blend krill with
certain agricultural products, mainly as a complement to vegetable proteins, to
produce a cost effective product with nutrient levels similar to or higher than
quality fish meal. Krill meal also provides pigmentation (red coloring) to
salmon. As of March 31, 1999, the cost of producing krill meal is approximately
$700 per metric ton and it is sold for approximately $1,300 per metric ton. We
believe that in the future the cost of producing krill meal will decrease which
will allow krill meal to compete with fish meal. We also believe that the price
of fish meal will increase in the future due to possible shortages in
aquaculture supply (such as mackerel and anchovies). In the future we may also
expect an increase in krill meal production and an improvement in krill meal
processing, which would likely contribute to a drop in the price of krill meal.
Under these scenarios krill meal would become an important ingredient for the
animal feed industry. Accordingly, we believe our present involvement with krill
will provide us with an opportunity to become significantly involved in the
krill meal business.
We have begun to open markets in countries throughout Europe, Asia and
Japan and to insure a consistent supply of krill Tepual has entered into a joint
venture with Kelor Trading, Ltd., an Irish fishing company. Under this agreement
Tepual has provided financing for Kelor Trading's krill fishing operations. This
financing is for the preparation of a Kelor Trading vessel to operate in
Antarctic waters. Tepual has agreed to lend Kelor Trading up to $2 million,
repayable over 18 months at an interest rate of 13.5%, and provide specialized
krill fishing technology, machinery and equipment for a Kelor Trading vessel in
return for the exclusive rights to broker 100% of Kelor Trading's sales of krill
and related products and conduct research and development projects on Kelor
Trading's vessels. As of June 30, 1999, Tepual has lent Kelor
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Trading approximately $860,000. Kelor Trading has agreed to pay Tepual a
brokerage commission of 3% over the F.O.B. sales and $20.00 per ton of krill
meal and 5% for krill oil. This agreement gives Tepual the right to utilize
Kelor Trading's krill fishing operations and facilities to perform research and
development relating to krill. The use of Kelor Trading's operations and
facilities enables Tepual, and will enable us, to perform research and
development in this area at a minimal cost.
Distribution of nutrient products
We have our own five person sales staff plus our chief executive officer
located in our offices in Santiago that sells all of our nutrient products
directly to customers. While our sales staff may travel throughout the world to
see clients, today's communications allows our staff to remain in constant
contact with our customers while operating out of our offices in Santiago.
Competition within the nutrient industry
There are many companies that are larger and have better resources than us
that are producers and sellers of fish meal. We believe that based on our
reputation for selling high nutrient and low toxicity fish meal under the
InualTM and TepualTM brands we are able to retain our market share.
All of our feather meal sales to date have been to animal feed producers in
Chile. We believe we are the premier seller of feather meal in Chile. We believe
that we may face competition from other companies that could have better
resources than us if we expand our feather meal business outside of Chile and
Brazil.
Future of the nutrient industry
The demand for nutrient supply will continue to grow, only limited by the
availability of high quality ingredients. Today's shortage of fish meal drives
the market to look for substitutes. This will require a strong input in research
and development to develop better proteins and more efficient processing.
Furthermore, increased awareness into the components of animal feed and their
impact on human health should have an effect on the quality of ingredients in
demand. We believe that we have a strong position in the market, because of our
long history in research and development, and quality assurance. We believe that
we have an enviable reputation in today's animal nutrition market. Moreover, our
international customer list should provide us with an opportunity to capitalize
on the current strengths and weaknesses in this market. Set forth below is a
substantial list of our past and present customers.
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PAST AND PRESENT PARTIAL CUSTOMER LIST
<TABLE>
<CAPTION>
CUSTOMER NAME COUNTRY PRODUCT
- ------------- ------- -------
<S> <C> <C>
Ridley Agriproducts.............................................. Australia Fish Meal
Agribrands Purina Do Brazil Ltda................................. Brazil Fish Meal
Ewos Canada Ltd.................................................. Canada Fish Meal and Krill Meal
Alitec, Alimentos Tecnicos Limitada.............................. Chile Feather Meal
Biomaster S.A.................................................... Chile Feather Meal
Cultivos Marinos................................................. Chile Feather Meal
Ecofeed.......................................................... Chile Feather Meal
Ewos Chile....................................................... Chile Feather Meal
Trouw Chile S.A.................................................. Chile Feather Meal
Acondesa (Alimentos Concentrados del Caribe S.A.)................ Columbia Fish Meal
Albatez S.A...................................................... Columbia Fish Meal
Concentrados del Norte S.A....................................... Columbia Fish Meal
Concentrados S.A................................................. Columbia Fish Meal
Finca S.A........................................................ Columbia Fish Meal
Nutridias........................................................ Columbia Fish Meal
Purina Colombiana S.A............................................ Columbia Fish Meal
Aller Aqua AS.................................................... Denmark Fish Meal
Agrinpaca C.A.................................................... Ecuador Fish Meal
Alimentos Balanceados S.A........................................ Ecuador Fish Meal
Alimentsa, Dletas y Alimentos S.A................................ Ecuador Fish Meal
Diamante Del Mar S.A. Diamasa.................................... Ecuador Fish Meal
El Rosario S.A................................................... Ecuador Fish Meal
Procesadora Nacional de Aves, Pronaca............................ Ecuador Fish Meal
Propellets S.A................................................... Ecuador Fish Meal
Pan Animal Feed.................................................. Egypt Fish Meal
Collvi........................................................... Spain Fish Meal
Sopropeche....................................................... France Krill Meal and Fish Meal
Zootechniki Korinthias S.A....................................... Greece Fish Meal
Provimi B.V...................................................... Holland Fish Meal
Tesgofarm Aqua B.V............................................... Holland Fish Meal
Grupo Alcon, S.A., Division Nutricion Animal..................... Honduras Fish Meal
Higashimaru Feeds (India) Ltd.................................... India Fish Meal
Livestock Feed Limited........................................... Moriches Islands Fish Meal
Maruehni Corp.................................................... Japan Fish Meal and Krill Meal
Mitsubishi Corporation Tokyo..................................... Japan Fish Meal
Nagase Co., Ltd.................................................. Japan Fish Meal
Shintoa Corp..................................................... Japan Fish Meal and Krill Meal
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CUSTOMER NAME COUNTRY PRODUCT
- ------------- ------- -------
<S> <C> <C>
Transpac Fisheries, Ltd.......................................... Japan Fish Meal
Easy System, Inc................................................. Korea Fish Meal and Krill Meal
Aceitera La Junta, S.A. de C.V................................... Mexico Fish Meal
Agribrands Purina Mexico, S.A. de C.V............................ Mexico Fish Meal
Proteinas Marinas Y Agropecuarias, S.A. de C.V................... Mexico Fish Meal
Bio Mar.......................................................... Norway Krill Meal
Nor Aqua Innovation AS........................................... Norway Fish Meal and Krill Meal
Moulin de St. Vincent............................................ New Caladonia Fish Meal
Sica--NC......................................................... New Caladonia Fish Meal
Epol Pty Ltd..................................................... South Africa Fish Meal
Hochfeld Commodities (Pty) Limited............................... South Africa Fish Meal
Meadow Feed Pietermaritzburg..................................... South Africa Fish Meal
C.P.............................................................. Thailand Krill Meal
Great Wall Enterprise Co., Ltd................................... Taiwan Fish Meal
Harinas Co., Ltd................................................. Taiwan Fish Meal
Ye Cherng Industrial Products Co., Ltd........................... Taiwan Fish Meal
Pinar Yem Sanayi ve Pazarlama A.S................................ Turkey Fish Meal
Wilbur Ellis Company............................................. U.S.A. Krill Meal
Bio Products, Inc................................................ U.S.A. Fish Meal
H. J. Baker...................................................... U.S.A. Krill Meal
Bocm Pauls Ltd................................................... U.K. Fish Meal
Dalgety.......................................................... U.K. Fish Meal
Trouw............................................................ U.K. Krill Meal
Chinfon (VN) Livestock Co., Ltd.................................. Vietnam Fish Meal
</TABLE>
Material Customers
Our principle revenues are generated through our sale of fish meal, feather
meal and krill meal. Our material brokerage customers are the principle source
of our total revenues. Listed below are our material customers for the first two
quarters of 1999 and an approximate percentage of our total revenues that they
each accounted:
<TABLE>
<CAPTION>
CUSTOMER PERCENTAGE OF TOTAL REVENUES
- -------- ----------------------------
<S> <C>
Bradwell Business Corp............................................ 20%
Agribrand Purina.................................................. 10
Bio Mar........................................................... 10
Nor Aqua.......................................................... 10
Pinar Yem Sanayi ve Pazarlama A.S................................. 10
Alitec............................................................ 10
Ewos Canada....................................................... 10
</TABLE>
AUTOMATIC CONTROL
The current worldwide market for fish meal, according to IFOMA, is
approximately $1.5 billion. Fish meal plants are principally located in Chile,
Peru and, to a lesser extent, in Equador. We believe there are approximately 180
fish meal plants throughout Chile and Peru.
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In the fish meal industry higher nutrient levels have a direct relationship
with higher prices and profits for the producer. Our automatic fish meal
processing control system facilitates the production of the highest nutrient
level fish meal, while avoiding toxicity, and therefore, we believe provides the
highest possible profit margin for the producer.
Through our involvement as a purveyor of fish meal on a worldwide basis, we
have been developing and manufacturing a computerized process for the processing
of fish meal since 1993. Our research for developing an automatic processing
system began with studying the general processing conditions for the fish meal
industry. We developed simple strategies based on normal conditions of a fish
meal processing plant, while taking into account the skilled operator's working
procedures. By developing and manufacturing an automatic control process for
fish meal production we have developed a system that produces quality fish meal
while assuring efficiencies in a production process which has been subject to a
high level of spoilage and has been subject to different variables. These
different variables are largely due to the variety of fish and composition of
raw materials used to produce fish meal, which change daily depending on
availability.
The fish meal industry currently incorporates little automatic control
within its production process. Automatic control has not been a main concern for
the fish meal industry, giving priority to other aspects, such as plant capacity
increases and fleet increases. This common pattern shown by the industry gives
us a vast field of application because the automatic control becomes crucial for
high capacity plant operation in order to maximize efficiencies and maintain or
improve quality. Today most fish meal processors manually control quality
throughout all stages of production. Samples are taken for analysis, results are
registered and adjustments are made at each production stage. This process is
flawed and inefficient. Under normal operating conditions, fish meal must be
produced and samples must be tested prior to any adjustments being made. Our
computerized automatic control allows fish meal processors to determine the
composition and quality of fish meal before it is produced, rather than
adjusting processing equipment after the final product is tested. The current
process requires constant taking and analyzing of samples and monitoring of
machinery by a processing plant's labor force. Our computerized and centralized
control system reduces the number of employees needed, and allows for full
supervision of the production process from a centralized location rather than
multiple locations throughout the process. We believe that our automatic control
will enable a producer of fish meal to ensure the quality of its product,
increase speed, maximize efficiencies and reduce labor.
During 1998, we began marketing and selling our automatic control system to
the fish meal industry. These units currently sell for $400,000 to $800,000.
There are two installations in operation today--both in the South of Chile which
were sold during the latter part of 1998. We are presently negotiating to
install another system in Chile which should be completed in 12 months and we
anticipate an additional two sales in 1999. Chile has approximately 40 fish meal
processing plants and Peru has approximately 140 fish meal processing plants. We
anticipate additional sales in both of these markets. We are not aware of any
other competitive automatic control system currently being produced in these
markets.
IMMUNE STIMULANTS
Salmon farming
As reported by the Aquaculture Magazine in 1999, in its Chile aquaculture
report: A Focus on Salmon, Chile is the second largest salmon producer in the
world, with yearly sales of more than $600,000,000. While salmon are not native
to Chile, today the country accounts for 60% of the U.S. salmon market and over
40% of the world's salmon production, with predictions reaching 50% to 60%
within the next five years. The cultivation of salmon is a two year process. It
has flourished in the south of Chile because of the region's ideal weather and
environmental conditions. Today there are approximately 55 companies, operating
over 300 individual salmon farm projects in Chile.
The Chilean salmon market, as with any aquaculture project, has to contend
with various diseases which are unique to Chilean salmon. The rickettsia
bacteria is one of these unique diseases. We believe that to date there is no
vaccine available to successfully combat this bacteria. Chilean salmon fisheries
have reported losing approximately 15% to 35% of its stock to disease and it is
possible for a farm to lose the majority of its stock to disease. We began
researching and developing immune stimulants in an attempt to reduce these
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high mortality rates. We performed our initial tests on 200,000 salmon ranging
in age from 6 to 8 months. These tests were performed at two salmon farms
located in Southern Chile. Based on our internal test results our management
believes that we have developed oral and injectable immune stimulants which
reduce the mortality rates in farmed salmon to approximately 8% to 10%. We
continue to evaluate our immune stimulant test results from the salmon farms in
Southern Chile.
We believe our immune stimulant will decrease the use of antibiotics on
farmed salmon. In December 1998, "Revista Aqua Noticias," a Chilean salmon
producer trade periodical, reported the use of antibiotics in Chile for disease
control in salmon was over 85,000 kg. This figure, in comparison to Norway, is
very high. Revista Aqua Noticias also reported that Norway, with almost twice
the production of salmon, uses only 300 kg. of antibiotics. The high use of
antibiotics has created serious problems in Chilean salmon farming, such as
higher bacterial resistance, higher doses applied, higher number of treatments
to get similar efficiency, and continuous replacement of antibiotics.
Regulations also forbid farmers to harvest fish when antibiotic treatment is
being applied and growing regulations in this area are being established in the
other major fish farming countries. We believe that immune stimulants can
significantly reduce the use of antibiotics, therefore eliminating the problems
the overuse of antibiotics has created and avoiding government regulation that
controls the use of antibiotics.
Immune stimulants are a recent phenomena and are 100% natural. Therefore,
oral immune stimulants are not presently subject to specific government
regulation. The commercial production of injectable immune stimulants must be
done in Chilean veterinarian laboratories that meet government specifications.
These specifications are established by the Servicio Agricola y Ganadero, the
Chilean department of agriculture. Immune stimulants produced in these labs must
also individually meet specifications. Upon commencement of our commercial
production of injectable immune stimulants we will enter into an agreement with
a qualified veterinary laboratory. We intend to file patent applications for our
immune stimulants.
As of March 31, 1999, there were no sales of our salmon immune stimulants.
During the past three months we have continued to test these immune stimulants
with three salmon farms. These tests will continue. On completion of these tests
we will sell our immune stimulants throughout Chile, however, we cannot provide
any assurances that the test results will be successful. Depending on the
success of the salmon immune stimulants, we will expand our research and
development to other farm aquaculture production industries. We have already
commenced a research and development project for shrimp immune stimulants.
We believe that we do not face any competition with respect to our
injectable immune stimulants. There is a Norwegian company and a U.S. company
that have developed oral immune stimulants and are attempting to sell immune
stimulants to salmon farmers in Chile.
Shrimp farming
Should the initial immune stimulant testing with salmon prove to be
successful then we will continue to expand our research and development to
shrimp farming. We have observed, through direct contact with our Asian fish
meal customers and other sources, that the mortality rates for farm raised
shrimp are significantly higher than those for salmon. As reported in 1992 by
Dr. Douglas Andersen in his article "Immunostimulants, Ajuvants, and Vaccine
Carriers in Fish: Applications to Aquaculture," illnesses such as Yellow Head
Virus or Taura Virus, have caused economic disasters throughout the Asian and
South American farmed shrimp market. The first country destroyed by an epidemic
was Taiwan, where the production fell in 1988 from 100,000 tons per year to only
30,000 tons per year, and eventually disappeared.
Thirty percent of worldwide production of shrimp comes from cultivation and
reaches 700,000 tons yearly. The largest worldwide production (550,000 tons) is
found in Asia, in countries such as: Indonesia, China, India and Vietnam. The
remaining production (150,000 tons) is found in South America (Ecuador and
Colombia) and Central America (Mexico, Honduras and Panama). However over the
last few years there have been strong variations in the production levels due to
bacterial and viral illnesses.
The mortality rate in farmed shrimp, as reported by Dr. Douglas Andersen,
ranges from 30% to 70% and current methods to control disease, such as vaccines
and antibiotics, have not been successful. We believe that current vaccines and
antibiotics available for pathogens of major commercial impact are
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ineffective. Therefore, genetic selection in order to obtain a more resistant
shrimp to illness, better cultivation strategies, and immune stimulants seem to
be the future tools for disease prevention and reducing mortality rates.
The immune system in shrimp is less developed than in vertebrates and
research in this area is very recent. Shrimp are primarily dependent on
non-specific immune processes for their resistance to infection. They do not
produce antibodies as in the case of mammals. Therefore, substances like immune
stimulants, might become an important tool to reduce diseases of crustaceans in
aquaculture due to their role as "alarm molecules" that activate the
non-specific immune system in shrimp.
We are working on developing an effective immune stimulant for shrimp.
Research is presently in the preliminary stage. A multiprofessional team in the
field of shrimp and immunology led by our researchers will analyze shrimp immune
responses and will identify the main factors affecting these responses. We have
worked with distinguished professionals in this field. In the area of basic
immunology we have worked with Professor Rolf Seljelid (University of Tromso in
Norway) and with Dr. Elizabeth Cruz (Universidad de Nuevo Leon in Mexico).
Dr. Seljelid and Dr. Cruz have expressed interest of being part of our research
team. It is anticipated that their employment and compensation will be discussed
within the next few months.
POULTRY VACCINES
We have supplied poultry feed manufacturers, mostly located in Peru and
Chile, with certified fish meal since 1989. This ongoing relationship alerted us
to specific diseases that have not been cured by the use of conventional vaccine
products offered in the market.
As a result of our research and laboratory testing, we believe that the
major weakness with conventional vaccines are that they are not specific to the
regions in which a disease is found. We have determined that the specific
strains of diseases affecting poultry are unique to each region and therefore
need specific responses and treatment. We have developed vaccines along with
diagnostic and production laboratories to address the specific needs of Chilean
poultry producers and have become the first Chilean producer of poultry
vaccines. These vaccines have been registered in Chile and in June 1999 we
received re-approval (we opened a new laboratory in Santiago, Chile which
required separate approval) by the Chilean government to sell vaccines
throughout Chile.
We began developing poultry vaccines by isolating the viruses and bacteria
in diseased poultry. The isolated strains of virus and bacteria was then
modified through chicken embrio passages. Through this process we developed
non-pathogenic strains that remained immunogenic. These strains are vaccines.
Today we are producing niche vaccines to treat the following diseases:
-- Bronchitis Infection in two presentations for two different
pathologies
-- Hepatitis
-- Coriza infection
-- Salmonella enteritidis and its combinations
-- Combinations of all of the above
In order to market our vaccine sales in Chile, in April 1997 Tepual entered
into a marketing agreement with Biosur S.A., a Chilean corporation 95% owned by
Paulina and Andrea Rutman through their interest in Atik and 5% owned by Max
Rutman. Biosur S.A. is engaged in the distribution of veterinary products
throughout Chile. Under this agreement, Biosur S.A. has agreed to buy and
distribute 100% of the vaccines that Tepual produces in Chile. In consideration
of this exclusive right to buy and distribute, they will purchase from Tepual a
minimum of $40,000 of Chilean vaccines per month. From January 1999 through June
1999, there were not any sales of Chilean vaccines while Tepual was waiting for
re-approval of its new laboratory. Tepual received the requisite approval during
June 1999, and Tepual intends to commence sales September 1999. Tepual believes
that the new facility is more than adequate to meet the sales anticipated from
the sale of these vaccines.
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In 1995 we began the production of vaccines specific to the unique strains
of disease found in Peru, utilizing a laboratory similar to their Chilean
counterpart. To accomplish this, Tepual entered into a licensing agreement with
Biosur, S.A.C., a Peruvian company (Biosur S.A.C. is an unaffiliated third
party). Under the terms of this agreement, Biosur, S.A.C. will manufacture and
market all of our poultry vaccines in Peru and will pay Tepual a 13% royalty on
gross sales. As of June 30, 1999, Biosur S.A.C. had sold approximately $200,000
of Peruvian vaccines. Our vaccines have been approved for sale by the Peruvian
Ministry of Agriculture. There is currently no patent protection for the
Peruvian vaccines. Tepual has also given Biosur S.A.C. the right to manufacture
and market poultry vaccines in Ecuador and Bolivia if and when such vaccines are
developed.
We believe the same pathologies exist in Argentinean, Brazilian, Ecuadorian
and Bolivian poultry, and therefore are studying the production and sales
possibilities of vaccines in these countries. Based upon our preliminary
testing, we plan to expand research within Argentina, Brazil, Ecuador and
Bolivia in the future. The chart below indicates the size of the poultry market
in countries in which we have developed or may develop vaccines for commercial
sales. This information was taken from Empresas Lideras 99, a Chilean business
journal.
<TABLE>
<CAPTION>
1998 POULTRY PRODUCTION LEVELS CHICKENS
---------------------------------------
<S> <C>
Argentina.............................................. 360,000,000
Bolivia................................................ 41,000,000
Brazil................................................. 3,000,000,000
Chile(1)............................................... 156,000,000
Ecuador 67,000,000
Peru(1)................................................ 220,000,000
-------------
Totals............................................ 3,884,000,000
-------------
-------------
</TABLE>
- ------------------
(1) Peru and Chile are currently the only countries in which we have developed
or produced vaccines for commercial use.
RED TIDE DETECTION AND CLEANSING
Blooms of toxic or harmful microalgae blooms, commonly called red tide,
occur when either natural or human factors cause a rapid increase in the
production of one-celled organisms (dinoflagellates and diatomeas), which
ordinarily grow in water rich in nitrogen and phosphorus. Red tide has occurred
in every coastal country in the world. Litoral contamination by man is one of
the major causes for the stimulation of microalgal blooms. Microalgae play an
important role in the marine biological system. With their photosynthetic
ability, they are the major producer of biomass and organic compounds in the
ocean. In most cases, the proliferation of plankton algae is beneficial
aquaculture and wild fisheries. However, some plankton algae have the capacity
to produce potent toxins and in some circumstances these algal blooms produce
negative effects, causing severe economic losses to aquaculture, fisheries and
tourism, with environmental and health impacts.
The term red tide is generally a misnomer because they are not associated
with tides; are not usually harmful; and those algal blooms that are harmful may
never even reach the densities required to discolor the water. Unfortunately,
however, a small number of algal blooms produce potent toxins that can be
transferred through the food web where they can affect and even kill humans.
Humans are principally exposed to the naturally occurring toxins produced by the
harmful algae through the consumption of contaminated shellfish. According to
the U.S. National Office for Marine Biotoxins and Harmful Algal Blooms, the most
significant public health problems caused by harmful algae are:
Paralytic Shellfish Poisoning (PSP)
Diarrhetic Shellfish Poisoning (DSP)
Ciguatera Fish Poisoning (CSP)
Neurotoxic Shellfish Poisoning (NSP)
Amnesic Shellfish Poisoning (ASP)
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Each of these syndromes are caused by different species of toxic algae
which occur in coastal waters all over the world. Common impact of red tide
includes mass mortalities of wild and farmed fish. However, humans may be
severely effected by red tide illnesses.
Human consumption of PSP toxic shellfish may result in death or paralysis
in extreme cases. Paralytic toxins are responsible for PSP and they comprise a
collection of different toxins. The main toxins found in shellfish can be
classified in three main groups:
-- Saxitoxin group (STX and neoSTX),
-- Gonyautoxin group (GTX1, GTX2,GTX3 and GTX4) and
-- N-sulfocarbamoyl group (C1, C2, C3 and C4).
Human consumption of DSP toxic shellfish may cause severe diarrhea, nausea,
vomiting, cramps and chills. Diarrhetic toxins are responsible for DSP and they
comprise a collection of four different toxins. These toxins are:
-- Okadaic acid (OA),
-- Dinophysis toxin 1 (DTX1),
-- Dinophysis toxin 2 (DTX2) and
-- Dinophysis toxin 3 (DTX3).
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COUNTRIES WITH RED TIDE AND THEIR NOMINAL CATCHES OF SHELLFISH*
<TABLE>
<CAPTION>
CATCHES
COUNTRY RED TIDE(1) (METRIC TONS)*(2) % WORLD(2)
- --------------------------------------------------------- -------------------------- ----------------- ----------
<S> <C> <C> <C> <C>
China.................................................... PSP 1,041,709 30.86
USA...................................................... PSP 660,766 19.57
Japan.................................................... PSP DSP 411,413 12.19
Philippines.............................................. PSP 150,861 4.47
Canada................................................... PSP DSP 120,497 3.57
Korea Republic........................................... PSP 120,004 3.55
Denmark.................................................. PSP DSP 106,864 3.17
Thailand................................................. PSP 101,916 3.02
Chile.................................................... PSP DSP 96,151 2.85
Italy.................................................... PSP DSP 65,523 1.94
United Kingdom........................................... PSP 56,954 1.69
Indonesia................................................ PSP DSP 51,766 1.53
Netherlands.............................................. DSP 44,423 1.32
Mexico................................................... PSP DSP 36,469 1.08
France................................................... PSP DSP 33,313 0.99
Turkey................................................... 28,618 0.85
Venezuela................................................ PSP 28,496 0.84
Peru..................................................... 24,993 0.74
Australia................................................ PSP DSP 24,529 0.73
Vietnam.................................................. PSP DSP 23,110 0.68
Norway................................................... PSP DSP 12,264 0.36
Iceland.................................................. DSP 12,080 0.36
Malaysia................................................. PSP 11,017 0.33
Russian Fed.............................................. PSP 10,009 0.30
Portugal................................................. PSP DSP 8,861 0.26
Greece................................................... 7,801 0.23
New Zealand.............................................. PSP DSP 6,810 0.20
Ireland.................................................. PSP DSP 6,734 0.20
Spain.................................................... PSP DSP 6,279 0.19
--------- ------
TOTAL.................................................... 3,310,187 98.05
--------- ------
World Total.............................................. 3,375,997 98.05
--------- ------
--------- ------
</TABLE>
- ------------------
* average of nominal catches 1987-1996
(1) Source: J.J. Landsberg: Shellfish RES, 1996
(2) Source: Food Agricultural Organization (FAO): 1997 Fishery Statistics
Currently there is not any way to prevent red tide and not any way to clean
or detoxify contaminated shellfish. Today the only acceptable detection method
for PSP and DSP is a mouse bioassay test. PSP mouse bioassay is used as the
official testing method worldwide, however, the DSP mouse bioassay is only used
in a few countries as the official method. These tests consist of injecting a
mouse with shellfish extracts under laboratory conditions and waiting for a
reaction. If the mouse dies, the sample is considered toxic. While this method
is considered the official testing method for red tide, it has weaknesses. Some
countries do not permit testing on animals and therefor prohibit the mouse
bioassay test. In countries that do permit animal testing for toxin detection,
animal regulations require that this test only be administered under laboratory
conditions. Therefor the mouse bioassay test does not allow on site testing and
does not permit immediate results. Moreover, the DSP mouse bioassay is not a
specific nor sensitive assay.
We have been working for seven years in red tide research for the
development of DSP and PSP red tide detection kits with more practical
applications than the mouse bioassay test and a
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decontaminating/cleansing technology to remove toxins from contaminated
shellfish. The advantages of our testing methods for detecting PSP and DSP over
other current processes are twofold. Our methods allow for testing without the
use of animals. Since our tests do not require the use of animals, the
laboratory space our testing methods require is smaller.
Red tide detection kits
DSP
We have developed, for laboratory use, a diagnostic kit for the detection
of DSP toxins. This kit determines DSP toxicity based on a colorimetric
evaluation. Under this method, toxins are detected though samples extracted from
the shellfish's hepatopancreas.
Our DSP kit is an enzymatic assay of a protein phosphatase. A protein
phosphatase is a macro molecule that is responsible for releasing phosphate
within living cells. It is an enzyme used by a living cell to control
metabolism. An enzyme is a protein produced by living animal cells that enable
chemical reactions. Our DSP kit uses an isolated protein phosphatase for
detecting toxicity. Since DSP toxins inhibit a protein phosphatase at an
extremely low level, we have developed our colorimetric assay to inhibit sample
enzyme extracts in proportion to the levels that toxins are present. Reactions
in the colorimetric assay will produce a color to indicate toxicity.
Our DSP kit can detect all diarrhetic toxins. Our conclusions have recently
been presented by Mario Chong, one of our researchers, at the International
Meeting on Red Tide. This meeting was held in Puerto Varas, Chile, during the
first two weeks of August 1999.
This kit is being introduced in the Chilean market and was presented in
1998 at the Second Convention of Harmful Algae Blooms (Segundo Taller de
Floraciones de Algas Nocivas), an international conference on red tide,
sponsored by the National Oceanographic Committee, a division of the Chilean
Navy. We are preparing our marketing and commercialization of the kit and there
is currently no patent for this technology. While we intend to file for patents,
there can be no assurances that we will obtain patent protection.
PSP
We are also developing PSP diagnostic kits. To that effect we have
developed techniques using antibodies to isolate PSP toxins as well as
analytical and toxicological methods using antibodies to quantify and qualify
PSP toxins. These methods involve extracting acid fluids from a shellfish to
detect whether the shellfish contains PSP toxins through the analyzation of the
fluids. These methods will detect PSP toxins from the acid extracts of shellfish
determining whether the specific shellfish actually contains toxins. We have
developed certain procedures to isolate and purify the three main groups of PSP
toxins (saxitoxin, gonyautoxins, and sulfocarbamoyl) as well as analytical and
toxicological methods to quantify and to qualify each PSP toxin.
Our PSP kit consists of an immunoassay. In our immunoassay, toxins are
bound to a biopolimer to make the PSP toxin conjugates. Conjugates are necessary
to generate antibodies. PSP toxin specific antibodies were developed using these
conjugates. These antibodies are used to detect PSP toxins in shellfish,
gastropods and crustacean extracts. This kit also is a colorimetric assay and
the color is correlated to the amount of toxin present in the sample extract. We
have developed antibodies against saxitoxin, gonyaulatoxin and sulfocarbamoyl
toxins that are used in our kit to detect all PSP toxins. Until now, PSP toxins
and correlating conjugates have been impossible to obtain. We believe that
before our kit, no one has developed antibodies which cover the three
major groups of PSP toxins (saxitoxin, gonyaulatoxin and sulfocarbamoyl toxin
groups).
Production of kits
Through a joint venture with Centro de Estudios Cientificos de Santiago
(CECS), a Chilean private non-profit research company, we have produced an
antitoxin test system. This antitoxin test system was developed from the
antitoxin "saxitoxin," of which the rights to the antitoxin
saxitoxin are held
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by CECS. We have acquired a 50% ownership interest in this antitoxin test
system. We believe this antitoxin test system has enabled us to develop a PSP
detection test for specific PSP toxins which can be used in specialized
laboratories. This method, consistent with our methodology described above, will
extract and analyze acid fluids from a shellfish to detect whether the shellfish
contains specific PSP toxins. We are solely responsible for the
commercialization of this antitoxin test system. By contract with CECS we will
receive 60% of all the benefits of any licensing, royalties or sales limited to
this antitoxin test system while the remaining 40% shall accrue to CECS.
By agreement, dated June 20, 1998, between Tepual/CECS and R-Biopharm GmbH,
a German company, Tepual and CECS have agreed to supply R-Biopharm GmbH with
antibodies necessary to produce PSP ELISA Test Kit. R-Biopharm GmbH will
manufacture and distribute the PSP ELISA Test Kit under the trademark
"RIDASCREEN." This agreement provides that Tepual and CECS will receive
royalties of 12.5% of the net sales of the PSP ELISA Test Kit, of which Tepual
will receive 60% (consistent with our agreement with CECS), for 10 years dated
from the execution of the agreement. We believe that this PSP ELISA Test Kit
will begin to be sold commercially during the first quarter of 2000. R-Biopharm
GmbH will also pay a minimum royalty of $5,000 during 1999 and a minimum of
$15,000 for each remaining year under this agreement. This payment constitutes
minimum royalties against the 12.5% of net sales on an annual basis.
Under a separate agreement, dated June 20, 1998, between Inual and
R-Biopharm GmbH, Inual has agreed to supply R-Biopharm GmbH with all toxins and
conjugates necessary to produce the PSP ELISA Test Kit. This agreement provides
that Inual shall receive royalties of 12.5% of the net sales of the PSP ELISA
Test Kit for 10 years dated from the execution of the agreement. R-Biopharm GmbH
will also pay a minimum royalty of $5,000 during 1999 and a minimum of $15,000
for each remaining year under the agreement. This payment constitutes minimum
royalties against the 12.5% of net sales on an annual basis. In addition to this
12.5% royalty, Inual shall receive $400,000, from R-Biopharm GmbH in
consideration for supplying R-Biopharm GmbH with a customer list for the future
potential sales of the PSP ELISA Test Kit. This payment is due two years from
the date of the agreement. Inual transferred this contract to Tepual in July
1999, and we shall receive 100% of its benefits.
Through a separate agreement between R-Biopharm GmbH and Inual dated May
20, 1998, of which Inual also transferred to Tepual in July, 1999, R-Biopharm
GmbH agreed to supply Inual on a continuous demand with commercial PSP ELISA
Test Kits at a price equivalent to those of R-Biopharm GmbH's other future
distributers. This agreement will permit us to sell the PSP ELISA Test Kit in
countries including, but not limited to, Chile, the United States and Japan,
where we have the ability to market this product.
Together with CECS we have jointly applied for patents in Chile, USA,
Canada and the European Community for our antitoxin test kit, under a patent
application titled "immunoassay for the detection and quantitation of toxins
causing paralytic shellfish poisoning." While we may apply for worldwide patents
with CECS there can be no assurances that we will obtain these patents. As of
June 22, 1999 we have not received any patent protection for our antitoxin test
kit.
Future developments
on site testing kits
Having developed detection kits that have shown successful results in the
laboratory, we plan to focus our efforts on the development of on site testing
kits for PSP and DSP. We believe that our current research and development may
lead to a commercial testing kit that would enable commercial shell fishers,
recreational fisherman or restaurants to test shellfish for toxicity levels on
location with a fast, economical, reliable and comprehensive kit to perform on
site PSP or DSP detection tests.
cleansing of shellfish
Through continuous research we have also developed and tested at the
laboratory level, an innovative multi-step procedure for decontaminating or
cleansing potentially PSP tainted shellfish, which may be applied in processing
plants or restaurants. We have developed technology which has enabled us in
laboratory testing
33
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to chemically remove toxins, without changing the organolleptic (flavor, texture
and color) characteristic of the shellfish or introducing negative environmental
effects. We believe this process, which involves dipping entire shellfish stocks
in a cleansing solution can be used in pre-cooked or canned shellfish, reducing
toxicity to acceptable consumption levels. We believe that this preventative
process may be used to guarantee safe human consumption of canned or cooked
shellfish, regardless of whether the shellfish has even been tested for PSP
toxins. We have applied for patents in Chile, the United States, Canada,
Australia and the European Community and may apply for worldwide patents.
TRADEMARKS AND PATENTS
We currently have trademark rights over the Tepual and Inual brands in
Chile, Columbia, Taiwan, China, Ecuador, Mexico, Japan, Peru and South Africa.
As of the date of this offering we have not applied for further trademark
protection.
Patent protection for our poultry vaccines is limited to Chile and
currently only protects our Chilean vaccine for bronchitis infection. We intend
to patent our other Chilean vaccines, however, as of the date of this offering,
we have not filed nor received patent protection for any of our other Chilean
vaccines. As of the date of this offering we do not have any patent protection
for our immune stimulants.
We have applied for patent protection for our red tide paralytic shellfish
poisoning detection kit (antitoxin test kit) and our red tide paralytic
shellfish poisoning detoxification process. These patent applications have been
made in the United States, Chile, Canada, and the European Community. An
additional patent application for red tide paralytic shellfish poisoning
detoxification has been filed in Australia. We have also applied for patent
protection in Chile for a procedure to obtain krill oil.
We have received comments to our patent filings in the United States for
our red tide paralytic shellfish poisoning detection kit (antitoxin test kit)
and our red tide paralytic shellfish poisoning detoxification process and
anticipate filing responses in the U.S. Patent Office later this year. We are
unable to predict the timing of the grants of any patents or if any patent
protection can be obtained.
GOVERNMENT REGULATION
Nutrition
Our brokerage business is subject to general import and export regulations
that are not specific to our nutrient products.
Chilean and international fishing laws have and may place restrictions and
limitations on the catching of fish. Future restrictions and limitations can
have an effect on the availability of fish used in fish meal.
Krill catches are limited by the Convention of the Commission for the
Conservation of Antarctic Marine Living Resources. The aim of the convention is
to conserve marine life. This does not exclude harvesting as long as such
harvesting is carried out in a rational manner. This international body limits
the total amount of krill that can be harvested in Antarctic waters to 1.5
million tons. The total amount of krill that is currently being harvested in
Antarctic waters is about 70,000 tons.
Although we have developed numerous products, specific government
regulation of which we are subject to, and responsible for obtaining or
maintaining compliance, is limited to the products we manufacture ourselves.
Material government regulation for our self-produced products include:
Immune stimulants
The commercial production of our injectable immune stimulants is subject
to regulatory approval by the Servicio Agricola y Ganadero. The Servicio
Agricola y Ganadero is the Chilean equivalent to the USDA. We will be regulated
by Servicio Agricola y Ganadero in two ways:
1) veterinary laboratory approval and
2) final product approval.
Once our injectable immune stimulants are ready for commercial sale,
we will seek approval from the Servicio Agricola y Ganadero. There is no
regulation for our oral immune stimulants.
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Chilean poultry vaccines
The commercial production of our Chilean poultry vaccines also requires
laboratory and product approval from the Servicio Agricola y Ganadero. We have
received its approval.
Other products
Our other products, such as our Peruvian poultry vaccines and red tide
detection kits are subject to government regulation in the countries in which
they are produced. Receiving government approval and satisfying government
regulation, however, is the responsibility of the companies that are
manufacturing our products.
We also incur government regulation when we sell our products outside of
of Chile. We are subject to import and export restrictions in every country that
we sell our nutrient products. No import or export law has had a material effect
on our brokerage business.
RESEARCH AND DEVELOPMENT
Our research and development division includes cooperative efforts with
academic, private and government institutions and our own highly qualified
scientists. Our internal research and development staff includes 36 employees.
Of these employees 33 are full-time employees. We believe we are able to recruit
these highly qualified employees though incentives relating to productivity.
Therefore, we intend to enter into employment agreements with certain of our
researchers whereby these employees will receive a royalty for products they
have developed. During 1998 and 1997, respectively, we spent $426,195 and
$232,128 on research and development (does not include software development
costs).
KEY PERSONNEL
Our key personnel include the following:
Nutrition and immune stimulant research
Dr. Jenny Blamey--Dr. Blamey graduated from the University of Georgia with
a Bachelor degree in science. She also received a Masters degree and Ph.D. in
biochemistry from the University of Georgia. Dr. Blamey has been a research
scientist for Tepual since 1994 and our research manager since 1996. Prior to
her employment with us, Dr. Blamey was a researcher of enzymes at the Center for
Metallo at the University of Georgia from 1984 until 1994. Today Dr. Blamey's
research areas include the study of hyperthermophile enzymes, protein
purification, enzymology and enzyme technology. Dr. Blamey is a member of the
Chilean Society of Biology and the Society of Molecular Biology and
Biochemistry.
Claudia Lopez--Ms. Lopez graduated from the Universidad Catolica de Chile
with a degree in biochemistry. Ms. Lopez has also received post-graduate
training from the Fermentation Research Institute in Tsukuba, Japan and the
University of Washington where she studied aquaculture. Her research areas
within Bio-Aqua include fish nutrition, fish immunology, fish pathology,
immunostimulants, feed formulation and marine pigments.
Maria Teresa Millan--Ms. Millan graduated from the Universidad Catolica de
Valparaso in Chile with a degree in biochemical engineering. She has been
working for us since 1990 and is currently in charge of our product development
division. Her research areas within Bio-Aqua include enzyme technology, feed
formulation and seafood solids.
Vaccine research
Dr. Ricardo Gallardo--Dr. Gallardo is a licensed doctor in animal sciences
and veterinary medicine. He has been involved in poultry vaccine research for
over 25 years. He is a specialist in the fields of poultry production and
poultry pathology. Dr. Gallardo is also a professor of poultry production and
pathology at the Universidad Mayor in Chile and was a professor at the
Universidad de Chile. He is a member of numerous professional organizations,
including, the College of Doctors in Veterinary Medicine, the Society of Doctors
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<PAGE>
in Veterinary Medicine and the Association of Doctors in Veterinary Medicine.
Dr. Gallardo has been working for us for 12 years where he is our lead
researcher for poultry vaccines.
Automatic control processing
Oscar Cornejo--Mr. Cornejo graduated from the Universidad de Concepcion and
Universidad Cathlica Valparaiso with degrees in chemistry and chemical
engineering. Mr. Cornejo is the head of our automatic control division. He is a
member of the International Fishmeal and Oil Association (IFOMA) and an
international consultant for the Food Agricultural Organization (FAO). Prior to
working with us, Mr. Cornejo was the technical director and general manager of
Boher Chile, a leading fructose and corn syrup processor in South America.
Mr. Cornejo also served as the managing director of Compania Pesquera San Pedro,
a fish meal and canning company in Chile, for 14 years.
Pedro Sayes--Mr. Sayes graduated from the Universidad de Santiago in
Santiago, Chile with a degree in electronic engineering. He has been working for
us for 10 years in our automatic control division. Mr. Sayes designs and
develops automatic control equipment and systems for us.
Red tide
Dr. Sergio Lavandero--Dr. Lavandero graduated from the Universidad de Chile
with a degree in pharmaceutical chemistry and a Ph.D. in biochemistry. He has
been leading our toxin research projects and is the project manager for our
toxic research division. Dr. Lavandero is a professor of the Universidad de
Chile and his areas of specialty within our research divisions include
polyclonal and monoclonal antibody production, toxin pharmacology and the study
of tissue culture.
Dr. Nestor Lagos--Dr. Lagos graduated from the Universidad de Chile where
he received a degree in biochemistry, a Masters degree in biochemistry and a
Ph.D. in biology. He has also received post-doctoral training at the University
of California, Los Angeles. Dr. Lagos has led Tepual's red tide research
division since 1994. His areas of research also include marine toxins and the
isolation and purification of toxic biomolecules. Dr. Lagos is also a professor
of membrane physiology at the Universidad de Chile.
Mario Chiong--Mr. Chiong graduated from the Universidad de Chile with a
degree in biochemistry and has been a researcher and biochemist for us since
1994. Mr. Chiong's area of research includes red tide and marine toxins.
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TECHNICAL NETWORK
We have also developed an international network of scientists who are
called upon from time to time to consult with us. A partial list of our
technical network and their areas of expertise is as follows:
<TABLE>
<S> <C>
Nutrition
Aquaculture
Professor Ron Hardy.............................. Idaho University, USA.
Professor Addison Lawrence....................... Texas A&M University, USA.
Dr. Dean Akiyama................................. Technical Director of Japfa, Indonesia.
Dr. Luca Elizabeth Cruz.......................... Facility of Biological Sciences, Universidad
Autonoma Nuevo Leon, U.A.N.L., Mexico.
Dr. Heinrich Kossman............................. Former R&D Director of Ewos Fish Feed Company,
Sweden.
Dr. Elinar Watne................................. R&D Director of NorAqua, aquiculture company,
Norway.
Pigs
Professor Froseth................................ Washington State University, USA.
Dr. Ad van Wessel................................ Provimi, animal feed producer, Holland.
Poultry
Dr. Barry Hundley................................ Nutrition Expert; Former Director of Rainbow
Chicken, South Africa.
Immunology
Professor Rolf Sejlelid.......................... Head of Pathology Department, Tromso University,
Norway.
Professor Douglas Anderson....................... Former Director National Fish Health Research Lab,
Biotechnology & automatic control processing
Professor Tung Ching Lee......................... Food Science Department, Rutgers University, USA.
Dr. Alfredo de Ioannes........................... Universidad Catolica de Chile, Centro de Estudios
Cientficos de Santiago, Chile.
Dr. Ralf Dreher.................................. R-Biopharm GmbH, development company, Germany.
Dr. Eugene T. Smith.............................. Hammline University, USA.
Dr. Mario Perez Won.............................. Food Engineering Department, Universidad de la
Serena, Chile.
</TABLE>
FOREIGN CORRUPT PRACTICES ACT
Substantially all of our operations are transacted in South America. To the
extent that we conduct operations and sell our products outside the U.S., we are
subject to the Foreign Corrupt Practices Act which makes it unlawful for any
issuer to pay or offer to pay, any money or anything of value to any foreign
official, foreign political party or official thereof or any candidate for
foreign political office (foreign official) or any person with knowledge that
all or a portion of such money or thing of value will be offered, given, or
promised, directly or indirectly, to any foreign official.
We have not made any offers, payments, promises to pay, or authorization of
any money or anything of value to any foreign official and have implemented a
policy to be followed by our officers, directors, employees and anyone acting on
its behalf, that no such payments can and will be made. We have made all
employees cognizant of the need for compliance with the Foreign Corrupt
Practices Act and any violation of
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<PAGE>
our policy will result in dismissal. Further, we conduct periodic reviews of
this policy with all employees to ensure full compliance.
FOREIGN INVESTMENT LAWS AND REGULATIONS
The Chilean Constitution establishes that any Chilean or foreigner may
freely develop any activity in Chile so long as the securities activity in Chile
does not contravene existing laws dealing with public morals, public safety or
national security and follows the laws that regulate such activity. It also
establishes the principle of non-discrimination, thus guaranteeing foreign
investors equal protection under Chilean law. Additionally, Chilean law
prohibits any discretionary acts by the Chilean government or other entities
against the rights of persons or property in derogation of this principle.
Foreign investors may transfer capital and net profits abroad. There are no
exchange control regulations which restrict the repatriation of the investment
or earnings except that the remittance of capital may take place starting a year
after the date the funds were brought into the country, but net profits can be
remitted at any time, after deduction of applicable withholding income taxes.
Therefore, equity investments in Chile by persons who are not Chilean residents
follow the same rules as investments made by Chilean citizens.
These principles are the basis for the DL 600. Based on DL 600, the foreign
investor and the government sign a legally-binding investment contract which may
only be modified by mutual consent. The contract sets forth the current tax and
foreign exchange laws as each relates to the specific investments by that
investor in Chile. Thus, the investor is protected against any subsequent
changes in the law which could adversely affect the investor or his investments
in Chile. Although the Chilean government has been successful in keeping this
principle in place for the last 23 years, there can be no assurances that a
breach by the Chilean government will not occur in the future or that it would
not adversely affect our rights to do business in Chile. Moreover, while there
has been no precedent that political changes had determined changes in these
rules, no assurances can be made that such changes will not occur in the future.
We intend to enter into an investment contract with the Government of Chile on
or around the closing of this offering.
EMPLOYEES
As of January 31, 1999, we employed 67 employees, of which 8 were full-time
salaried employees in administration, 8 were full-time salaried employees in
trading and brokering positions and 36 were involved in research and
development. Substantially all of our management and employees who reside in
Chile speak Spanish and our senior management team in Chile also communicates in
English. None of our employees are covered by a collective bargaining agreement.
We believe that the dedication of its employees is critical to our success, and
that our relations with our employees are good.
PROPERTIES
We own approximately 1,420 square feet of executive office space and
research facilities in Santiago, Chile. This property was purchased by Tepual in
1992 for a purchase price of approximately $110,000.
We also lease four (4) facilities in Santiago, Chile. We lease
approximately 1,400 square feet of office space which is used by our trading,
quality control, finance and accounting departments at a rate of $1,439 per
month. The lease is for two (2) years, commencing April 30, 1998, and provides
for an automatic renewal term of one (1) year, unless leasee or leasor
terminates in writing. We also hold an option to buy this facility in the event
the leasor decides to sell the property.
We lease approximately 2,670 square feet of laboratory space for production
and quality control of poultry vaccines at a rate of $5,200 per month. The lease
contract commenced in March 1999, and is for an indefinite term, terminable on
four months notice by either party. We are responsible for obtaining and
maintaining proper government authorization for producing biological products
within the facility.
We lease two buildings containing approximately 2,070 square feet of
laboratory space for bio-toxilogical testing, aquaculture research and
development and a pilot plant for research and development at a total rate of
$1,604 per month. The lease was for an initial term of one and one-half (1 1/2)
years, commencing in November 1995, and automatically renews, unless there is a
written request for termination by either party.
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<PAGE>
We lease approximately 6,000 square feet of warehouse space within two
buildings in Santiago, Chile at a total rate of $7,400 per month. These spaces
are used to store feather meal and for processing and packaging of these
products. The lease contracts do not include a termination date, although either
party must provide thirty (30) days notice to terminate either agreement.
Chilean law provides that a landlord may not evict a tenant without a court
hearing, although the tenant is responsible for all costs related to such a
hearing.
Upon the effective date, we will enter into a two year lease with Andean
Financial Corporation for its corporate U.S. offices in Boca Raton, Florida,
which lease may be renewed for an additional two year term. David Mayer, a
member of our board of directors, is the sole shareholder, officer and director
of Andean Financial Corporation. The annual lease amount will be $30,000
annually, payable semi-annually, which includes all telephone and facsimile,
secretarial and other expenses. These terms were negotiated on an arm's length
basis and such terms are competitive with current lease terms for similar
arrangements in the South Florida area.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding the resolution of which,
our management believes, would have a material adverse effect on our results of
operations or financial condition, nor to any other pending legal proceedings
other than ordinary, routine litigation incidental to its business.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement in Washington, D.C., on Form SB-2 under the Securities Act, with
respect to the securities being offered hereby. This prospectus does not contain
all the information set forth in the registration statement and its exhibits.
For further information about us and the securities we offer, reference is made
to the registration statement and to the exhibits filed. The statements
contained in this prospectus as to the contents of any contract or other
document identified as exhibits in this prospectus are not necessarily complete,
and in each instance, reference is made to a copy of such contract or document
filed as an exhibit to the registration statement, each statement being
qualified in any and all respects by such reference. The registration statement,
including exhibits, may be inspected without charge at the principal reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; at its Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048; and at its Midwest Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission at its principal office in Washington,
D.C. set forth above upon payment of prescribed fees. Additionally, the
Securities and Exchange Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Securities and Exchange Commission and the address
of such site is (http://www.sec.gov).
We intend to furnish our shareholders with annual reports containing
audited financial statements and such other periodic reports as we may from time
to time deem appropriate or as may be required by law.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF BIO-AQUA SYSTEMS, INC.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Max Rutman (1).................................. 59 Chief Executive Officer, President, Chairman of
the board of directors
Guillermo Quiroz (2)............................ 49 Chief Financial Officer, Vice President of
Finance and Administration, Director
Nestor Lagos (2)................................ 48 Director
Sergio Vivanco (2).............................. 46 Director
David Mayer (1)................................. 57 Director, Assistant Secretary
</TABLE>
- ------------------
(1) Has served in his position since our inception in March 1999.
(2) Will commence serving in his position upon the effective date.
Max Rutman has served as chief executive officer, president and chairman of
the board of directors of Bio-Aqua since its inception in March 1999 and as the
chief executive officer and Chairman of the board of directors of Tepual since
its incorporation. Mr. Rutman has served as general manager of Tepual since
1989. Mr. Rutman has received a degree in chemical engineering from the
Universidad de Santiago and a Masters in food science from Massachusetts
Institute of Technology (MIT). Mr. Rutman has served as the head of
bio-engineering division and former director of the Protein Group at I.F.O.P.
(Chilean Institute of Fisheries Development), and visiting professor at the
following Universities: Universidad Catolica, Universidad Catolica de Valparaiso
and Universidad de Santiago, in food science, and biotechnology. Mr. Rutman has
also been consultant to the World Bank, the Interamerican Development Bank, the
Ford Foundation, MIT and Colorado State University's International Development
Agency. Mr. Rutman is a member of the Academy of Science and the Institute of
Food Technology.
Guillermo Quiroz has served as chief financial officer, vice president of
finance and administration of Bio-Aqua since inception and will serve as a
member of the board of directors of Bio-Aqua as of the effective date.
Mr. Quiroz has served as president, chief financial officer and vice president
of finance and administration of Tepual since October 1998 and as member of the
board of directors of Tepual since May 1999. Mr. Quiroz has also been a
financial advisor for Tepual since 1994. From 1985 through 1994 Mr. Quiroz
served as the general manager and legal representative for Salmosur S.A., a fish
farming company. From 1994 through April 1997 Mr. Quiroz was the chief executive
officer for Soalva S.A., a Chilean dairy producer and distributor and also a
financial advisor for Varmontt S.A., a Chilean transportation company. From May
1997 through September 1998 Mr. Quiroz was the chief financial officer for
Empresas Dicsa S.A., a Chilean company engaged in the import, distribution and
service of construction and mining equipment where he was responsible for
financial planning and corporate administration throughout Chile, Peru,
Argentina and Bolivia. Mr. Quiroz is a commercial engineer and auditor.
Nestor Lagos will serve as a member of Bio-Aqua's board of directors as of
the effective date and has been a member of Tepual's board of directors since
April 1999. Dr. Lagos has led our red tide research department since 1994. Dr.
Lagos is also a professor of membrane physiology at the Universidad de Chile
located in Santiago, Chile. Dr. Lagos is a biochemist with a Ph.D. in biology
and has also received post-doctoral training at the University of California,
Los Angeles (UCLA).
Sergio Vivanco has served as a member of Bio-Aqua's board of directors as
of the effective date. Since November 1997, Mr. Vivanco has served as a member
of the board of directors of Uniservice Corporation (NASDAQ SmallCap: "UNSRA,"
"UNSRW"). Since 1991, Mr. Vivanco has served as a member of the board of
directors of Kentucky Foods Chile, S.A., the Kentucky Fried Chicken franchisee
in Chile. Mr. Vivanco has been an attorney since 1979 and has served as general
counsel to Tepual since 1998.
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<PAGE>
Mr. Vivanco is a partner in the law firm of Abud, Vivanco and Vergara in
Santiago, Chile, which serves as Tepual's and our legal counsel in Chile.
David Mayer has served as a member of Bio-Aqua's board of directors and
assistant secretary of Bio-Aqua since March 1999 and has entered into a ten
(10) year consulting agreement with the Bio-Aqua. Since July 1997, Mr. Mayer has
served as the president of Andean Financial Corporation. Since November 1997,
Mr. Mayer has also served as a member of the board of directors and assistant
secretary of Uniservice Corporation (NASDAQ SmallCap: "UNSRA," "UNSRW"). From
January 1992 to March 1996, Mr. Mayer was a consultant to various companies
where he assisted with mergers and acquisitions.
DIRECTORS AND EXECUTIVE OFFICERS OF TEPUAL
The directors and executive officers of Tepual are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Max Rutman(1)................................... 59 Chief Executive Officer, Director
Guillermo Quiroz(1)............................. 49 Chief Financial Officer, President, Director
Nestor Lagos (1)................................ 48 Director
</TABLE>
- ------------------
(1) See "Directors and executive officers of Bio-Aqua Systems, Inc."
ELECTION OF DIRECTORS
Each of our directors are elected at our annual meeting of shareholders and
holds office until the next annual meeting of shareholders, or until his or her
successor is elected and qualified. The bylaws permit the board of directors to
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified.
We have agreed that for a period of three years after the effective date,
if requested by the representative, we will use our best efforts to cause one
individual designated by the representative to be elected to our board of
directors, which individual may be a director, officer, employee or affiliate of
the representative. The representative has not, to date, selected a designee to
our board of directors. Alternatively, the representative may designate a person
to attend meetings of our board of directors as an observer for three years
following the effective date.
DIRECTORS' COMPENSATION
Upon the effective date, our non-employee Directors, David Mayer and Sergio
Vivanco, will receive $100 plus expenses, for attendance at each meeting of the
board of directors, as well as reimbursement of reasonable out-of-pocket
expenses incurred in connection with their attendance at the meetings. We intend
to purchase directors and officers insurance as soon as practicable to the
extent that it is available and cost effective to do so.
COMMITTEES OF THE BOARD OF DIRECTORS
Our audit committee will be established upon the effective date and will
consist of Guillermo Quiroz, Sergio Vivanco and David Mayer. Our audit committee
will review the work of the audit staff and direct reports covering such work to
be prepared. Our audit committee will oversee our continuous audit program to
attempt to protect against improper and unsound practices and to attempt to
furnish adequate protection for its assets and records. Our audit committee also
will act as liaison to our independent certified public accountants, and will
conduct such work as is necessary and will receive written reports, supplemented
by such oral reports as it deems necessary, from our independent certified
public accountants.
Our compensation and stock option committee will be established upon the
effective date and will consist of Messrs. Rutman, Quiroz and Mayer. The
compensation and stock option committee will make recommendations with respect
to compensation of senior officers and granting of stock options and stock
awards.
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<PAGE>
Our nominating committee will be established upon the effective date and
will consist of Messrs. Rutman, Vivanco and Quiroz. The nominating committee
will make recommendations with respect to qualified individuals to become
members of our board of directors.
Of the five members of the board of directors, Messrs. Vivanco and Mayer
are non-employee directors. However, we have entered into a consulting agreement
with Mr. Mayer and Mr. Vivanco serves as our Chilean counsel.
APPOINTMENT OF OFFICERS
Officers are elected annually by the our board of directors and their terms
of office are, except to the extent governed by employment contracts, at the
discretion of the board of directors. Our officers devote full time to the
business.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth compensation awarded to, earned by or paid
to our chief executive officer and each executive officer whose compensation
exceeded $100,000 for the year ended December 31, 1998. We did not grant any
stock options, restricted stock awards or stock appreciation rights or make any
long-term incentive plan payments during 1998. This table is based solely upon
compensation received from Tepual. It also includes payments under Chilean
social security provisions.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Max Rutman CEO,
President and Chairman..................................... 1998 $48,000 $-0- $ -0-
1997 48,000 -0- -0-
1996 48,000 -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
Max Rutman, Chief Executive Officer, President and Chairman. Tepual, our
subsidiary, has entered into a written three-year employment agreement with
Mr. Rutman, which shall commence upon the effective date. Pursuant to the terms
and conditions of his employment agreement, Mr. Rutman shall receive an initial
annual base salary of $200,000, annual bonuses of up to $100,000, as determined
by Tepual's board of directors. Mr. Rutman shall be reimbursed for his ordinary
and necessary business expenses including fees for membership in one business or
social club, up to a maximum of $10,000 per year, and in other clubs and
organizations as Tepual and Mr. Rutman shall mutually agree are necessary and
appropriate. In any event Mr. Rutman terminates his employment contract within
12 months after a change in control, he will be entitled, for the remaining term
of his employment contract, to: (1) earned, but unpaid salary; (2) benefits to
which he is entitled as a former employee under our benefit and compensation
plans; (3) continued health benefits; (4) monetary payments under severence
plans; and (5) all cash and stock payments he would have been entitled to, had
his employment not terminated. We intend to obtain a $1,000,000 key man life
insurance policy, of which we will be the beneficiary on the life of Mr. Rutman.
Guillermo Quiroz, Chief Financial Officer. Tepual, our subsidiary, has
entered into a written two year employment agreement with Guillermo Quiroz,
which shall commence upon the effective date. Pursuant to the terms and
conditions of his employment agreement, Mr. Quiroz shall receive an initial
annual base salary of $100,000, bonuses of up to $20,000 per year, as determined
by Tepual's board of directors, as well as $7,500 for automobile expenses. Prior
to the effective date, Mr. Quiroz entered into a written employment agreement
with Tepual, which employment agreement will terminate upon the effective date
of the written employment agreement with Tepual described herein.
Chilean Social Security/AFP and ISAPRE. Messrs. Rutman and Quiroz are also
entitled to receive certain social security benefits pursuant to Chilean law.
The Social Security laws in Chile were established as a private system that
requires all companies to retain approximately 20% of the gross salaries of its
42
<PAGE>
employees, up to a maximum of $4,408.95 per year, which is used to pay both
Administrators of Pension Funds Companies (AFP) and Institutions of Provisional
Health (ISAPRE).
The allocation of this 20% to each service is approximately as follows:
(a) 10% to the AFP: This amount is deposited in an individual
interest-bearing account of each employee to cover their retirement. In
Chile, the age of retirement is 60 for women and 65 for men.
(b) 3% to the AFP: This amount covers any partial or permanent
disability and, in the case of death, will provide a monthly amount to the
deceased's spouse. The amount paid corresponds to 70% of an employee's
average salary, based upon the last 10 years of the employee's life.
(c) 7% to ISAPRE: This amount covers medical fees, hospitalization and
clinical examinations. This percentage may be voluntarily increased by the
employee according to the employee's contractual agreement with the
employee's ISAPRE. In many instances it may be necessary to pay additional
costs for health care.
Additionally, Chilean law requires the payment of one month salary (up to a
maximum of approximately $2,736.00) for each year (or portion thereof in excess
of six months worked in the last year), worked by the employee when he is
dismissed without cause, subject to a maximum of eleven months (up to a maximum
of $2,736.00 per month, or an aggregate of $30,104.00). When the employee
terminates his or her employment, no compensation is legally required.
Bonuses. Bonuses will be determined by our compensation committee based on
our results of operations and individual performance. Our compensation committee
has not established any specific formula or criteria for determining bonuses.
STOCK OPTIONS
During fiscal year 1998, there were no option or SAR grants to any persons,
including any of our executive officers or directors.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
On June 1, 1999, the board of directors and a majority of our shareholders
adopted our stock option plan. The purpose of our stock option plan is to
increase our employees', advisors', consultants', and directors' proprietary
interest in Bio-Aqua and Tepual, to align more closely their interests with the
interests of our shareholders, and to enable us to attract and retain the
services of experienced and highly qualified employees and directors. We have
reserved an aggregate of 300,000 shares of class A common stock under the stock
option plan.
Our board of directors, or a committee thereof, administers and interprets
the stock option plan and is authorized to grant options thereunder to all our
eligible employees, including our officers and directors (whether or not
employees). The stock option plan provides for the granting of incentive stock
options (as defined in Section 422 of the Internal Revenue Code), non-statutory
stock options and reload options. Options may be granted under the stock option
plan on such terms and at such prices as determined by the board of directors,
or a committee, except that in the case of an incentive stock option granted to
a 10% shareholder, the per share exercise price will not be less than 110% of
such fair market value.
The exercise price for any option under the stock option plan may be paid
in cash, in shares of class A common stock or such other consideration that is
acceptable to the board of directors or any committee. If the exercise price is
paid in whole or in part in class A common stock, such exercise may result in
the issuance of additional options, known as reload options, for the same number
of shares of class A common stock surrendered upon the exercise of the
underlying option. The reload option would be generally subject to the same
provisions and restrictions set forth in the stock option plan with respect to
the underlying option except as varied by the board of directors or any
committee. A reload option enables the optionee to ultimately own the same
number of shares as the optionee would have owned if the optionee had exercised
all options for cash.
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<PAGE>
Options granted under the stock option plan will be exercisable after the
period or periods specified in the option agreement. Options granted under the
stock option plan are not exercisable after the expiration of five years from
the date of grant and are not transferable other than by will or by the laws of
descent and distribution. The stock option plan also authorizes us to make loans
to optionees to enable them to exercise their options.
As of the effective date, no options have been granted pursuant to the
stock option plan. Furthermore, to the extent that any options granted within
the first year are exercised, the underlying shares of class A common stock will
be subject to a 24 month lock-up period commencing on the effective date.
OPTION EXERCISES AND HOLDINGS
To date, we have not issued any options or SARs to any persons thus, during
fiscal year 1998, no options or SARs were exercised or unexercised during fiscal
year 1998.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations. However, the
provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. Our articles of incorporation and
bylaws provide that we shall indemnify our directors and officers to the fullest
extent permitted by the Florida Business Corporation Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to these
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
LIMITATION OF LIABILITY
Under Florida law, our directors are protected against personal liability
for monetary damages from breaches of their duty of care. As a result, our
directors will not be liable in an action by us or a shareholder for monetary
damages alleging negligence or gross negligence in the performance of their
duties. In such actions, our directors remain liable for monetary damages for
willful misconduct, conscious disregard of our best interest, and for
transactions from which a director derives an improper personal benefit. Our
directors also remain liable under another provision of Florida law which makes
directors personally liable for unlawful distributions and which expressly sets
forth a negligence standard with respect to such liability. The liability of our
directors under federal or applicable state securities laws is also unaffected.
While our directors have protection from awards of monetary damages for
breaches of fiduciary duty, that does not eliminate their fiduciary duty.
Equitable remedies, such as an injunction or rescission based upon a director's
breach of fiduciary duty, are still available.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the effective date, (1) Flagship Import Export Corporation will
purchase 1,529,910 shares and Atik will purchase 169,990 shares totaling
1,699,900 shares of our class B common stock for $3,540,290, and (2) we will
purchase Flagship Import Export Corporation's and Atik's combined 99.9% interest
in Tepual for $3,540,290 and Tepual shall then become our majority owned (99.9%)
subsidiary. The remaining 15 shares of Tepual will continue to be owned by Max
Rutman, through his interest in Flagship Import Export Corporation (Chilean law
requires that a Chilean corporation be owned by not less than two shareholders).
The current shareholders of Tepual are Flagship Import Export Corporation (90%)
and Atik (10%). Mr. Rutman, through his ownership interest in Flagship Import
Export Corporation, will retain a .01% interest (15 shares) in Tepual in order
to comply with Chilean law. Flagship Import Export Corporation's sole
shareholder is Max Rutman. Atik's shareholders are Paulina and Andrea Rutman,
daughters of Max Rutman.
On the effective date, we will acquire the rights to the brands and patents
Inual(Trademark) and Tepual(Trademark) by acquiring Profeed, Inc., equally owned
and controlled by Max, Andrea and Paulina Rutman, by acquiring all
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<PAGE>
of the issued and outstanding shares of Profeed, Inc., in consideration of an
aggregate of $1.3 million, of which $400,000 will be paid from the proceeds of
this offering and the balance, under the discretion of the board of directors,
out of: (1) 5% of the gross revenues per quarter, but in no event greater than
20% of the net income per quarter, of the sale of products sold under the
Tepual(Trademark) and Inual(Trademark) brands; (2) third party financing; or
(3) working capital. We believe that the terms of these acquisitions are
competitive with the going rates.
Upon the effective date, we will enter into a two year lease, which lease
may be renewed for an additional term of two years, with Andean Financial
Corporation to use a portion of Andean Financial Corporation's facilities in
Boca Raton, Florida, for our corporate U.S. offices. David Mayer, our director,
is the sole shareholder, officer and director of Andean Financial Corporation.
The annual lease amount will be $30,000 payable semi-annually. These terms were
negotiated on an arm's length basis and such terms are competitive with the
going rates.
As of the effective date and unless otherwise agreed upon, we will enter
into a ten year agreement with David Mayer, one of our directors, whereby
Mr. Mayer shall perform certain services for us, including advising in the
preparation and implementation of our business plan, research, evaluation and
negotiations with strategic partners and alternative sources of credit and
financial opportunities, assisting in conducting market surveys, assisting in
shareholder and investor relations, assisting in the preparation of reports to
shareholders and investors, and acting as our U.S. liaison. In consideration for
these services, Mr. Mayer receives an annual fee of approximately $30,000.00, or
as otherwise agreed upon by the parties, commencing as of the effective date.
We will receive a minimum of $40,000 monthly from Biosur S.A., a Chilean
corporation in consideration for giving Biosur S.A. an exclusive right to buy
and distribute our Chilean poultry vaccines. Biosur S.A. is 95% owned by Atik
and 5% owned by Max Rutman. The shareholders of Atik are Paulina and Andrea
Rutman. Atik is a shareholder of Bio-Aqua.
Sergio Vivanco, a member of our board of directors upon the effective date,
serves as our Chilean legal counsel an has served as legal counsel for Tepual
since 1988.
We believe that all transactions with our officers, shareholders and each
of our affiliated companies have been made on terms no less favorable to the
Company than those available from unaffiliated parties. In the future, we intend
to handle transactions of a similar nature on terms no less favorable to
Bio-Aqua than those available from unaffiliated parties.
BRIDGE FINANCING
Between April and May 1999, we received loans in the aggregate amount of
$150,000 from six (6) third party accredited investors. These loans are
evidenced by promissory notes bearing interest at 8% per year. We are obligated
to repay five of these loans on the earlier of (i) the closing of this offering
or (ii) January 1, 2001. A loan from Inversiones Kau Kau, S.A., a Chilean
corporation, for $50,000 is due on the earlier of (1) the closing of this
offering or (2) October 31, 1999. As additional consideration, the investors
that loaned us $150,000 received an aggregate of 35,294 shares of class A common
stock.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the common
stock beneficially owned as of the date of this prospectus (1) by each person
who we know by to own beneficially 5% or more of our common stock; (2) by each
of our executive officers and directors; and (3) by all of our executive
officers and directors as a group. After the offering, the shares held by
Mr. Rutman, Flagship Import Export Corporation and Atik, directly or indirectly,
will represent an aggregate 58.8% of the outstanding common stock issued and
will represent an aggregate approximately 87% of our voting interest, since
Mr. Rutman, Flagship Import Export Corporation and Atik, as holders of class B
common stock, are entitled to 5 votes for each share of class B common stock
held. Andrea and Paulina Rutman, daughters of Max Rutman, are the
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<PAGE>
shareholders of Atik S.A. Max Rutman disclaims any beneficial ownership of these
shares. Unless otherwise set forth, the mailing addresses for the individuals
named below is General Ekdhal 159, Santiago, Chile.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK OWNERSHIP PERCENTAGE VOTING PERCENTAGE
BENEFICIAL OWNER -------------------- --------------------
NAME AND ADDRESS OF BEFORE AND AFTER BEFORE AFTER BEFORE AFTER
BENEFICIALLY OWNED OFFERING OFFERING OFFERING OFFERING OFFERING
------------------- ---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Flagship Import Export Corporation.............. 1,529,910 85.7% 53.000% 89.1% 78.2%
Atik, S.A....................................... 169,990 9.5 5.800 9.9 8.8
Max Rutman...................................... 1,530,010(1)(2) 85.7 53.000 89.1 78.2
Guillermo Quiros................................ -0- -0- -0- -0- -0-
David Mayer(3).................................. 51,000 2.9 1.600 .6 .6
Nestor Lagos.................................... -0- -0- -0- -0- -0-
Sergio Vivanco.................................. -0- -0- -0- -0- -0-
All executive officers
and directors as a group (5 persons).......... 1,581,010(1)(2) 88.5 54.600 89.7 78.9
</TABLE>
- ------------------
(1) Includes 1,529,910 shares of class B common stock issued to Flagship Import
Export Corporation.
(2) Includes 100 shares of class B common stock issued to Mr. Rutman as founders
shares.
(3) Mr. Mayer's address is 1900 Glades Road, Suite 351, Boca Raton, Florida
33301.
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<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
We are currently authorized to issue up to 22,000,000 shares of common
stock, of which 20,000,000 shares are designated as class A common stock and
2,000,000 shares are designated as class B common stock. As of the effective
date, there were (i) 86,294 shares of class A common stock outstanding, and (ii)
1,700,000 shares of class B common stock outstanding. We have also reserved up
to an aggregate of 300,000 shares of class A common stock pursuant to our stock
option plan, under which we may issue options subject to the approval of the
representative (for a period of twelve months from the effective date, and to
the extent any granted options are exercised, the underlying shares of class A
common stock shall be subject to a 24-month lock-up period from the effective
date).
Upon our liquidation, dissolution or winding up, after payment to our
creditors and holders of any senior securities, including preferred stock, as
applicable, our assets will be divided pro rata on a per share basis among the
holders of the shares of common stock. The common stock has no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All outstanding shares of
common stock are, and the shares of class A common stock offered hereby will be,
upon completion of this offering, fully paid and non-assessable.
Subject to the dividend rights of the holders of any other class of common
stock or preferred stock, if applicable, holders of shares of common stock are
entitled to share, on a ratable basis, such dividends as may be declared by the
board of directors out of funds legally available. We have never paid dividends
on any class of common stock since our inception in March 1999.
Class A common stock and class B common stock
Holders of shares of class A common stock are entitled to one vote per
share on all matters to be voted on by the shareholders. Holders of shares of
class B common stock are entitled to five (5) votes per for each share of
class B common stock on all matters to be voted on by the shareholders. Neither
holders of class A common stock nor class B common stock have cumulative voting
rights. Accordingly, the holders of more than 50% of the voting rights for the
election of directors can elect all of the directors if they choose to do so,
and in such event, the holders of the remaining shares will not be able to elect
any directors. Following this offering, management will have the ability to vote
directly or indirectly 1,581,010 shares of our common stock or approximately 79%
of our voting power, without giving effect to the exercise of the over-allotment
option or the representative's warrants. Our bylaws require that only a majority
of the issued and outstanding voting shares of common stock need be represented
to constitute a quorum and to transact business at a shareholders' meeting.
Subject to the approval of the representative (for the first 24 months
following the effective date), holders of class B common stock have the right to
(1) transfer or sell shares of class B common stock, and/or (2) convert shares
of class B common stock into shares of class A common stock on a "one share for
one share" basis, provided that any shares so converted (but not sold or
transferred) will only be entitled to one vote per share. Any persons acquiring
shares of class B common stock in a private transaction, either by means of a
transfer or sale, shall be entitled to 5 votes for each one share of class B
common stock held. Each certificate representing shares of class B common stock
contains a legend setting for the restrictions imposed by the representative.
PREFERRED STOCK
Our board of directors has the authority to issue up to 5,000,000 shares,
par value $.0001, of our preferred stock and to fix the dividend, liquidation,
conversion, redemption and other rights, preferences and limitations of such
shares without any further vote or action of the shareholders, but subject to
the approval of the representative for a period of one (1) year from the
effective date (but which shares shall be subject to a lock-up period of
twenty-four months from the effective date).
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<PAGE>
WARRANTS
Our warrants will be issued in registered form pursuant to an agreement
dated as of the effective date (the "warrant Agreement"), between us and Florida
Atlantic Stock Transfer, Inc., as warrant agent. The following discussion of
certain terms and provisions of our warrants is qualified in its entirety by
reference to the warrant agreement. A form of the certificate representing our
warrants which form a part of the warrant agreement has been filed as an exhibit
to the registration statement of which this prospectus forms a part.
Each of our warrants entitles the registered holder to purchase one share
of class A common stock. Our warrants are exercisable at a price of $6.50 (which
exercise price has been arbitrarily determined by us and the representative)
subject to certain adjustments. Our warrants are entitled to the benefit of
adjustments in their exercise prices and in the number of shares of class A
common stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
Our warrants may be exercised, in whole or in part, for a period of five
(5) years from the effective date, unless we extend such period. After the
expiration date, warrant holders shall have no further rights.
Warrant holders do not have any voting or any other rights as our
shareholders. Our warrants will not be redeemable for a period of twelve (12)
months following the effective date, at which time our warrants may be redeemed
by us for $0.05 per warrant on not less than thirty (30) days prior written
notice, subject to exercise by the warrant holder, if the closing bid price for
our class A common stock has been at least $8.50 per share for thirty (30)
consecutive trading days. If we exercises our right to redeem warrants, such
warrants may still be exercised by the holder until the close of business on the
day immediately preceding the date fixed for redemption. If any warrant called
for redemption is not exercised by such time, it will cease to be exercisable,
and the holder will be entitled only to the redemption price. The foregoing
notwithstanding, we may not redeem our warrants at any time that a current
registration statement under the Securities Act covering the shares of class A
common stock issuable upon exercise of our warrants is not then in effect.
Additionally, the issuance of such shares to the holder must be registered,
qualified or exempt under the laws of the state in which the holder resides. If
required, we will file a new registration statement with the Securities and
Exchange Commission with respect to the securities underlying our warrants prior
to the exercise of such warrants and will deliver a prospectus with respect to
such securities to all holders thereof as required by Section 10(a)(3) of the
Securities Act.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The provisions of the Florida Control Share Act, relating
to control share acquisitions, generally provide that shares acquired in excess
of certain specified thresholds will not possess any voting rights unless such
voting rights are approved by a majority of the board of directors or a majority
of a corporation's disinterested shareholders. The provisions of the Florida
Control Share Act apply to us. The provisions of the Florida Affiliated
Transaction Act, relating to affiliated transactions, generally require super
majority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates). The
provisions of the Florida Affiliated Transactions Act do not apply to us because
we has opted out of such act. Our articles of incorporation and bylaws also
authorize us to indemnify our directors, officers, employees and agents. In
addition, our articles of incorporation and Florida law presently limit the
personal liability of corporate directors for monetary damages, except where the
directors (1) breach their fiduciary duties and (2) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct.
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<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE OUR ARTICLES OF INCORPORATION
AND BYLAWS.
Certain provisions of our articles of incorporation and bylaws described
below may delay, defer or prevent a tender offer or takeover attempt, including
attempts that might result in a premium being paid over the market price for the
shares held by shareholders. Such provisions could result in us being less
attractive to a potential acquiror or in shareholders receiving less for their
shares in the event of a take-over attempt.
Class B common stock.
Holders of class B common stock are entitled to five (5) votes for each
share of class B common stock held. Upon the effective date, Max Rutman will own
or control, directly or indirectly, approximately 53% of the common stock and
will have the right to cast 78% of the votes. The class B common stock could be
utilized under certain circumstances, as a method of discouraging, delaying or
preventing a change in our control.
Preferred shares
The board of directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or the rights of the holders of
common stock. In the event of issuance, the preferred stock could be utilized
under certain circumstances, as a method of discouraging, delaying or preventing
a change in our control. Although we have no present intention to issue any
shares of our preferred stock, there can be no assurance that we will not do so
in the future.
Special meeting of shareholders.
Our articles of incorporation and bylaws provide that special meetings of
our shareholders may be called only by a majority of the board of directors, our
chief executive officer or holders of not less than ten percent (10%) of our
outstanding voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent, warrant agent, and registrar for our class A common
stock and our warrants is Florida Atlantic Stock Transfer, Inc., 7130 Nob Hill
Road, Tamarac, Florida 33321; (954) 726-4954.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of thisdoffering, we will have 1,286,294 shares of
class A common stock outstanding (1,466,294 shares if the over-allotment option
is exercised in full but without giving effect to the exercise of our warrants)
and 1,700,000 shares of class B common stock outstanding, of which 35,294 shares
of class A common stock and all of the class B common stock outstanding are
restricted securities as the term is defined under the Securities Act. Prior to
the consummation of this offering our class A common stock was held by seven
entities and our class B stock was held by three entities.
The 1,200,000 shares of class A common stock sold in this offering
(1,380,000 shares if the over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by our affiliate (in general, a
person who has a control relationship with us), which shares will be subject to
the resale limitations of Rule 144 under the Securities Act. An additional
1,200,000 shares of class A common stock have been registered (1,380,000 shares
if the over-allotment option is exercised in full) and reserved for issuance
upon exercise of our warrants.
In general, Rule 144 promulgated under the Securities Act permits a
shareholder of ours who has beneficially owned restricted shares of any class of
common stock for at least one year to sell without registration, within a
three-month period, such number of shares not exceeding the greater of one
percent of the then outstanding shares of any class of common stock or,
generally, the average weekly trading volume during the four calendar weeks
preceding the sale, assuming our compliance with certain reporting requirements
of Rule 144. Furthermore, if the restricted shares of any class of common stock
is held for at
49
<PAGE>
least two years by a person not affiliated with us (in general, a person who is
not our executive officer, director or principal shareholder during the three
month period prior to resale), such restricted shares can be sold without any
volume limitation. Since we were not organized until March 18, 1999, the 51,000
shares of class A common stock issued on March 18, 1999, will not be eligible to
be resold until March 18, 2000, subject to the lock-up provisions described
below. Any sales of shares pursuant to Rule 144 may have a depressive effect on
the price of our class A common stock.
Notwithstanding the foregoing, all of the holders of common stock prior to
the closing of this offering (including Flagship Import Export Corporation and
Atik, who will purchase 1,699,900 shares of our class B common stock as of the
effective date) have agreed not to, directly or indirectly, offer to sell,
contract to sell, sell, transfer, assign, encumber, grant an option to purchase
or otherwise dispose of any beneficial interest in such securities for a period
of 24 months from the date hereof (with the exception of 35,294 shares of
class A common stock issued in connection with the bridge financing, which are
subject only to a six month lock-up period), without the prior written consent
of the representative. Additionally, holders of any securities issued by us for
a period of twelve months from the effective date (other than those securities
offered, the representative's warrants and the underlying securities) will also
be subject to a 24-month lock-up period from the date of issuance. An
appropriate legend referring to these restrictions will be marked on the face of
the certificates representing all such securities.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representative, Nutmeg Securities, Ltd.
have severally agreed to purchase from us and we have agreed to sell to the
underwriters, the respective number of shares of class A common stock and
warrants set forth opposite their respective names at the initial public
offering price, less the underwriting discounts set forth on the cover page of
this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES NUMBER OF WARRANTS
- ---------------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
Nutmeg Securities, Ltd..........................................
Emerson Bennett & Associates, Inc...............................
---------- ----------
Total...................................................... 1,200,000 1,200,000
---------- ----------
---------- ----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of the shares of class A common
stock and our warrants are subject to approval of certain legal matters by
counsel to the underwriter and to certain other conditions precedent. The
underwriters are obligated to purchase all shares of common stock and our
warrants hereby (other than those covered by the over-allotment option described
below), if any such shares are purchased.
We have been advised by the representative of the underwriters that the
underwriters propose initially to offer the shares of common stock and warrants
to the public at the offering price set forth on the cover page of this
prospectus and through members of the NASD, and may allow a concession, not in
excess of $ per share of class A common stock and $ per warrant, in their
discretion, to certain domestic dealers who are members of the NASD and which
domestic dealers agree to sell our securities in conformity with the NASD
Conduct Rules. The initial public offering price and concessions will not be
changed by the representative until after the offering has been completed.
At the closing of the sale of our securities that we are offering, we will
sell to the representative, the representative's warrants, for nominal
consideration, entitling the representative to purchase an aggregate of 120,000
shares of class A common stock and 120,000 warrants, similar but not identical
to our warrants. The representative's warrants shall be non-exercisable and
non-transferable (other than a transfer to affiliates of the representative or
members of the selling group) for a period of twelve months following the
effective date. The representative's warrants and the underlying securities
shall contain anti-dilution provisions and are redeemable. The representative's
warrants will be exercisable for a period of four years commencing one year
following the effective date and, if the representative's warrants are not
exercised during such period, they shall, by their own terms, automatically
expire. The exercise price of each representative warrant shall be
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<PAGE>
$8.25 per share of class A common stock, $.206 per warrant, and $10.725 per
share of class A common stock for each share underlying the warrant, which are
165% of the public offering price of our class A common stock, our warrants and
the shares of class A common stock underlying our warrants, respectively.
The warrants will not be redeemable for a period of twelve (12) months
following the effective date, at which time the warrants may be redeemed by us
for $0.05 per warrant on not less than thirty (30) days prior written notice,
subject to exercise by the representative, if the closing bid price for our
class A common stock has been at least $8.50 per share for thirty (30)
consecutive trading days. If we exercise our right to redeem warrants, the
warrants may still be exercised by the representative until the close of
business on the day immediately preceding the date fixed for redemption. If any
warrant called for redemption is not exercised by such time, it will cease to be
exercisable, and the representative will be entitled only to the redemption
price. The foregoing notwithstanding, we may not redeem the warrants at any time
that a current registration statement under the Securities Act covering the
shares of class A common stock issuable upon exercise of our warrants is not
then in effect. Additionally, the issuance of such shares to the representative
must be registered, qualified or exempt under the laws of the state in which the
repesentative resides. If required, we will file a new registration statement
with the Securities and Exchange Commission with respect to the securities
underlying the warrants prior to the exercise of such warrants and will deliver
a prospectus with respect to such securities to the representative as required
by Section 10(a)(3) of the Securities Act.
Pursuant to Rule 2710(a)(7)(A) of the NASD Conduct Rules, the warrants
acquired by the representative will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the effective date of
this offering, except to officers or partners (not directors) of the
representative and members of the selling group and their officers or partners.
In addition to the above, we have granted to the representative an option
exercisable for 45 days from the effective date, to purchase up to an additional
180,000 shares of class A common stock and an additional 180,000 warrants at the
initial public offering price, less the underwriting discount set forth on the
cover page of this prospectus (the over-allotment option). The underwriters (or
the representative individually at its option) may exercise this option solely
to cover over-allotments in the sale of our securities being offered by this
prospectus.
Prior to this offering, there has been no public market for our securities
and there can be no assurances that an active public market for our securities
will be developed or, if developed, sustained after this offering. The initial
public offering price of our class A common stock offered hereby and the
exercise price and terms of our warrants has been arbitrarily determined by
negotiations between us and the representative and may bear no relationship to
our current earnings, book value, net worth or other established valuation
criteria. The factors considered in determining the initial public offering
prices included an evaluation by our management and the representative of the
history of and prospects for the industry in which we compete, an assessment of
management, our prospects, our capital structure, and certain other factors
deemed relevant. The initial public offering prices do not necessarily bear any
relationship to our assets, book value, earnings or other established criterion
of value. Such prices are subject to change as a result of market conditions and
other factors, and no assurance can be given that a public market for the shares
of class A common stock and/or warrants will develop after the close of the
public offering, or if a public market in fact develops, that such public market
will be sustained, or that the shares of class A common stock and/or warrants
can be resold at any time at the initial public offering prices or any other
prices.
We have agreed to pay our underwriters an underwriting discount--a
commission of ten percent (10%) of the gross proceeds of this offering,
including the gross proceeds from the sale of the over-allotment option, if
exercised. We have also agreed to reimburse the representative on a
non-accountable basis for their expenses in the amount of three (3%) of the
gross proceeds of this offering, including proceeds from any securities
purchased pursuant to the over-allotment option. The representative's expenses
in excess of the non-accountable expense allowance will be paid by the
representative. To the extent that the expenses of the
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<PAGE>
representative are less than the amount of the non-accountable expense allowance
received, such excess shall be deemed to be additional compensation to the
representative.
We have agreed to engage Nutmeg Securities, Ltd. and Emerson Bennett &
Associates, Inc. as consultants for a period of two (2) years from the closing
of this offering, at a fee of $60,000 per annum payable to the representative,
commencing on the effective date and continuing for a period of two years. As a
consultant, Nutmeg Securities, Ltd. and Emerson Bennett & Associates, Inc., will
provide us with (1) general financial consulting services and advice pertaining
to our business affairs; (2) assistance in developing, studying and evaluating
financing and capital structure; (3) mergers and acquisitions activity and
corporate financing proposals; (4) prepare reports and studies; and (5) assist
in negotiations and discussions pertaining to the above.
We have agreed to indemnify the underwriters against any costs or
liabilities incurred by the representative by reasons of misstatements or
omissions to state material facts in connection with statements made in the
registration statement or the prospectus. The representative has, in turn agreed
to indemnify us against any liabilities by reason of misstatements or omissions
to state material facts in connection with the statements made in the
prospectus, based on information relating to the representative and furnished in
writing by the representative. To the extent that this indemnification may
purport to provide exculpation from possible liabilities arising from the
federal securities laws, in the opinion of the Securities and Exchange
Commission, such indemnification is contrary to public policy and therefore
unenforceable.
Shares of common stock held by our existing shareholders immediately prior
to the effective date and any other securities issued for a period of twelve
months from the effective date (other than those offered hereby, including the
underlying securities, the representative's warrants and the underlying
securities thereto), are subject to a 24-month lock-up period (with the
exception of 35,294 shares of class A common stock issued in connection with
bridge financing in the principal amount of $150,000, which are subject only to
a six month lock-up period. The lock-up periods begin on the later of (1) the
date of issuance or (2) the effective date, and are subject to early termination
at the sole discretion of the representative. An appropriate legend referring to
these restrictions will be marked on the face of the certificates representing
all such securities. Moreover, for a period of twelve months from the effective
date, we will not sell or otherwise dispose of any securities without the prior
written consent of the representative.
The representative of the underwriters shall have the right to designate of
a member of the board of directors, or at the representative's option, to
designate one individual to attend the meetings of our board of directors for a
period of three years after the effective date.
The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to the
underwriting agreement which is filed as an exhibit to the registration
statement.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of our common stock and
warrants, including stabilizing transactions in accordance with Rule 104 of
Regulation M. Under Regulation M persons may bid for or purchase of common stock
for the purpose of stabilizing its market price.
In connection with this offering, certain underwriters (and selling group
members) may engage in passive marketing transactions in class A common stock
and warrants on NASDAQ in accordance with Rule 103 of Regulation M.
LEGAL MATTERS
Legal matters in connection with our class A common stock and our warrants
being offered hereby will be passed upon for us by Atlas, Pearlman, Trop &
Borkson, P.A., Fort Lauderdale, Florida. Affiliates of the firm own 1,176 shares
of our class A common stock. We are being represented as to matters of Chilean
law by the law firm of Abud, Vivanco and Vergara, Santiago, Chile. Certain legal
matters will be passed upon for the underwriters by the law firm of Sacher,
Zelman, Stanton, Paul, Beiley & Van Sant, P.A., Miami,
52
<PAGE>
Florida. Atlas, Pearlman, Trop & Borkson, P.A. has from time to time provided
legal representation to Emerson Bennett & Associates, one of the underwriters.
EXPERTS
Our balance sheets, including our subsidiary, Tepual, as of December 31,
1998 and 1997, and the related statements of income, stockholders' equity and
cash flows for the years then ended, included in this prospectus have been so
included in reliance upon the report of Spear, Safer, Harmon & Co., P.A.,
independent accountants, given on authority of Spear, Safer, Harmon & Co., P.A.
as experts in auditing and accounting.
53
<PAGE>
BIO-AQUA SYSTEMS, INC.
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bio-Aqua Systems, Inc.
Boca Raton, Florida
We have audited the accompanying combined balance sheets of Bio-Aqua Systems,
Inc. (the "Company") as of December 31, 1998 and 1997, and the related combined
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1998 and 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The combined financial statements give retroactive effect to the tax free
exchange of shares between the Company and Tepual, S.A., which will be
effectuated at the time of the closing of a public offering of the Company's
stock, which has been accounted for as a combination of entities under common
control under the pooling of interests method as described in Note 1 to the
combined financial statements. Generally accepted accounting principles
prescribe giving effect to a consummated business combination accounted for by
the pooling of interests method in financial statements that do not include the
date of consummation as if the business combination occurred for the periods
presented. In addition, they will become the historical combined financial
statements of the Company after financial statements covering the date of
consummation of the business are issued.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Bio-Aqua Systems,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
SPEAR, SAFER, HARMON & CO.
Miami, Florida
February 26, 1999
F-2
<PAGE>
BIO-AQUA SYSTEMS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................................................. $ 131,695 $ 136,489 $ 29,168
Accounts receivable................................................... 2,886,114 2,981,674 1,583,271
Due from related parties (Note 2)..................................... 5,865 -- 250,672
Other receivables..................................................... -- 69,082 65,646
Inventory............................................................. 793,086 761,869 297,946
Income taxes receivable (Note 3)...................................... 37,192 52,231 134,949
Offering costs........................................................ 205,127 -- --
Other current assets (Note 4)......................................... 587,671 183,325 249,278
----------- ---------- ----------
Total Current Assets.................................................... 4,646,750 4,184,670 2,610,930
----------- ---------- ----------
Property and Equipment, net (Note 5).................................... 875,948 984,676 1,393,603
----------- ---------- ----------
Other Assets:
Software development costs, net (Note 6).............................. 1,318,363 1,217,759 1,091,147
Other assets (Note 7)................................................. 867,032 524,645 84,624
----------- ---------- ----------
2,185,395 1,742,404 1,175,771
----------- ---------- ----------
$ 7,708,093 $6,911,750 $5,180,304
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................... $ 1,300,445 $ 990,749 $ 294,023
Obligations with banks: (Note 8)
Lines-of-credit.................................................... 2,151,509 1,525,968 1,193,338
Current portion.................................................... 135,547 158,603 106,320
Notes payable (Note 9)................................................ 100,864 124,775 --
Bridge loan payable................................................... 150,000 -- --
Accrued expenses and other current liabilities (Note 10).............. 252,339 399,638 399,836
Due to stockholder.................................................... 1,300,000 -- --
----------- ---------- ----------
Total Current Liabilities............................................... 5,390,704 3,199,733 1,993,517
----------- ---------- ----------
Long-Term Liabilities:
Obligations with banks, excluding current portion (Note 8)............ 408,642 478,813 355,014
----------- ---------- ----------
Stockholders' Equity:
Class A common stock, $.0001 par value; 20,000,000 shares authorized,
86,294, 0, and 0 shares issued and outstanding at June 30, 1999,
December 31, 1998 and 1997, respectively........................... 9 -- --
Class B common stock, $.0001 par value; 2,000,000 shares authorized;
1,700,000 shares issued and outstanding............................ 170 170 170
Preferred stock, $.0001 par value; 5,000,000 shares authorized;
no shares issued and outstanding................................... -- -- --
Additional paid-in capital............................................ 441,209 411,331 411,331
Retained earnings..................................................... 1,678,723 2,879,859 2,513,274
Cumulative translation adjustment..................................... (211,364) (58,156) (93,002)
----------- ---------- ----------
Total Stockholders' Equity.............................................. 1,908,747 3,233,204 2,831,773
----------- ---------- ----------
$ 7,708,093 $6,911,750 $5,180,304
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
BIO-AQUA SYSTEMS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- --------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $2,963,040 $3,201,998 $6,873,512 $5,238,299
Cost of Operations........................... 1,968,756 2,393,983 4,853,553 3,571,678
---------- ---------- ---------- ----------
Gross Profit................................. 994,284 808,015 2,019,959 1,666,621
General and Administrative Expenses.......... 846,170 707,264 1,429,049 1,185,000
---------- ---------- ---------- ----------
Income from Operations....................... 148,114 100,751 590,910 481,621
---------- ---------- ---------- ----------
Other Income (Expenses):
Other, net................................. 153,618 33,312 24,060 203,353
Interest expense........................... (202,868) (122,445) (280,266) (231,805)
Loss on investment in related parties...... -- -- (23,082) (64,768)
Gain on sale of property and
equipment............................... -- -- 54,963 --
---------- ---------- ---------- ----------
(49,250) (89,133) (224,325) (93,220)
---------- ---------- ---------- ----------
Net Income................................... $ 98,864 $ 11,618 $ 366,585 $ 388,401
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income Per Common Share.................. $ .06 $ .01 $ 0.22 $ 0.23
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average Common Shares
Outstanding............................. 1,739,882 1,700,000 1,700,000 1,700,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
BIO-AQUA SYSTEMS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL CUMULATIVE TOTAL
COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............... $ -- $170 $411,331 $2,124,873 $(403,628) $ 2,132,746
Net income............................... -- -- -- 388,401 -- 388,401
Translation adjustment................... -- -- -- -- 310,626 310,626
---- ---- -------- ---------- ---------- ------------
Balance at December 31, 1997............... -- 170 411,331 2,513,274 (93,002) 2,831,773
Net income............................... -- -- -- 366,585 -- 366,585
Translation adjustment................... -- -- -- -- 34,846 34,846
---- ---- -------- ---------- ---------- ------------
Balance at December 31, 1998............... -- 170 411,331 2,879,859 (58,156) 3,233,204
Issuance of common stock................. 9 -- 29,878 -- -- 29,887
Net income (unaudited)................... -- -- -- 98,864 -- 98,864
Distribution to stockholder
(unaudited)............................ -- -- -- (1,300,000) -- (1,300,000)
Translation adjustment (unaudited)....... -- -- -- -- (153,208) (153,208)
---- ---- -------- ---------- ---------- ------------
Balance at June 30, 1999 (unaudited)....... $ 9 $170 $441,209 $1,678,723 $(211,364) $ 1,908,747
---- ---- -------- ---------- ---------- ------------
---- ---- -------- ---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
BIO-AQUA SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------------- --------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................. $ 98,864 $ 11,618 $ 366,585 $ 388,401
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization...................... 117,777 132,460 255,732 283,588
Loss on investment in related party................ -- -- 23,082 64,768
Gain on sale of property and equipment............. -- -- (54,963) --
Translation adjustment............................. (153,208) 277,236 34,846 310,626
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................................ 310,440 (359,496) (1,398,403) 1,322,729
Other receivables.................................. 69,082 (196,987) (3,436) 59,354
Inventory.......................................... (31,217) (167,913) (463,923) 749,054
Income taxes receivable............................ 15,039 71,109 82,718 4,051
Other current assets............................... (386,699) 242,640 65,953 (62,278)
Software development costs......................... (100,604) (34,683) (154,612) (331,974)
Other assets....................................... (342,387) (42,692) (463,103) (6,392)
Increase (decrease) in:
Accounts payable................................... 309,696 50,973 696,726 (502,977)
Accrued expenses and other current liabilities..... (147,299) 106,864 90,218 (1,868,164)
--------- --------- ----------- -----------
Net Cash (Used in) Provided by Operating Activities..... (240,516) 91,129 (922,580) 410,786
--------- --------- ----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment................ (9,049) (8,519) (195,761) (28,618)
Proceeds from sale of property and equipment......... -- -- 431,919 --
--------- --------- ----------- -----------
Net Cash (Used in) Provided by Investing Activities..... (9,049) (8,519) 236,158 (28,618)
Cash Flows from Financing Activities:
Net proceeds (payments) of lines-of-credit........... 625,541 (61,269) 332,630 90,338
Net proceeds from related parties.................... (220,745) 95,679 250,672 54,328
Proceeds from bridge loan............................ 150,000 -- -- --
Costs of public offering............................. (192,887) -- -- --
Proceeds of long-term debt........................... -- -- 236,161 --
Payments of long-term debt........................... (117,138) (116,303) (25,720) (500,666)
--------- --------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities..... 244,771 (81,893) 793,743 (356,000)
--------- --------- ----------- -----------
(Decrease) Increase in Cash............................. (4,794) 717 107,321 26,168
Cash--Beginning of Period............................... 136,489 29,168 29,168 3,000
--------- --------- ----------- -----------
Cash--End of Period..................................... $ 131,695 $ 29,885 $ 136,489 $ 29,168
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest............... $ 202,868 $ 122,445 $ 280,266 $ 231,805
Supplemental Disclosure of Non-Cash Financing
Activities:
Issuance of Class A common stock in connection with
offering........................................... 29,887 -- -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Bio-Aqua Systems, Inc., (the "Company"), is a Florida
corporation incorporated in March 1999 as a holding company to acquire Tepual,
S.A., a Chilean corporation. Tepual, S.A. is in the business of researching and
developing of production and control systems related to animal nutrition. The
Company provides brokerage services and technical advice in the production of
meals for feed for aquaculture, poultry and cattle farming. In addition, the
Company researches poultry vaccines.
Basis of Presentation--Subsequent to December 31, 1998, the Company entered
into an agreement to acquire 99.9% of the issued and outstanding common stock of
Tepual, S.A., in exchange for 1,700,000 shares of Class B common stock which
will be effective as of the closing of the initial public offering of the
Company's stock. (See Note 12 for more details.) In order to comply with Chilean
law and the requirements of the Central Bank of Chile for foreign investments,
two stock purchase agreements will be effectuated at the time of the closing of
the initial public offering of the Company's stock whereby (i) Atik, S.A.
("Atik"), a Chilean corporation and Flagship Imports Corporation ("Flagship"), a
Bahamian corporation shall purchase 1,699,900 shares of Class B common stock
and, (ii) the Company shall purchase Atik and Flagship's 99.9% interest in
Tepual, S.A. and Tepual, S.A. shall then become a majority owned (99.9%)
subsidiary of the Company. The substance of this transaction is an exchange of
shares between the Company and Atik and Flagship which is accounted for as a
combination of entities under common control under the pooling of interests
method. Generally accepted accounting principles prescribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation as
if the business combination occurred at the beginning of the first period
presented. Accordingly, the combined financial statements for all periods
presented have been prepared assuming the acquisition by the Company took place
on January 1, 1997, that the Company was incorporated on that date, and the
exchange of shares was effectuated at that time. Because the Company was not
formed until March 1999, historical and proforma financial statements are not
included herein because the assets, liabilities, revenues and expenses and net
income of Bio-Aqua Systems, Inc. are not material to the information presented.
These financial statements will become the historical combined financial
statements of the Company after financial statements covering the date of
consummation of the business combination are issued.
Functional Currency--The financial statements have been translated in
accordance with the provisions set forth in Statement of Financial Accounting
Standards No. 52, from Chilean pesos (the functional currency) into US dollars
(the reporting currency). The exchange rate used at June 30, 1999, December 31,
1998 and 1997, respectively, was 518.90 pesos to U.S. $1, 473.77 pesos to
U.S. $1 and 439.18 pesos to U.S. $1. The weighted average exchange rate used in
June 30, 1999 and 1998, December 31, 1998 and 1997 was 485.72 pesos to U.S. $1,
443.26 pesos to U.S. $1, 465.98 pesos to U.S. $1 and 420.69 pesos to U.S. $1,
respectively.
Revenue Recognition--The Company earns revenues principally from the sale
of different types of meals (fish, feather, and krill) used in the production of
animal feed as well as its automatic fish meal processing control system. The
Company also researches vaccines and other types of meals for its customers. In
the case of meal sales, revenue is recognized at the point of sale of goods to
its customers. Revenue associated with research services are recognized when the
services are performed.
Royalty income in included in other income and is recognized on the basis
of terms specified in contractual agreements, normally as earned.
Concentrations of Credit Risk--Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and trade receivables. The Company places its cash with high credit quality
financial institutions. A significant portion of the Company's sales are to
several large customers and, as such, the Company is directly affected by the
well-being of those customers.
F-7
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
However, the credit risk associated with trade receivables is mitigated due to
the Company's customer base and ongoing control procedures which monitor the
credit worthiness of customers. Historically, the Company has not experienced
losses on trade receivables. Therefore, no allowance for bad debts is deemed
necessary. At June 30, 1999, December 31, 1998 and 1997, approximately 22%, 20%
and 20%, respectively, of the Company's consolidated accounts receivable was
attributable to one customer.
Inventory--Inventory consists primarily of fish, feather, and krill meal
and are stated at the lower of cost or market. Cost is determined using the
weighted average method.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method based on the estimated
useful life of the asset ranging from three to ten years.
Software Development Cost--The Company develops and manufacturers a
computerized process to facilitate the production of the highest nutrient level
in fish meal. In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," the Company capitalizes the direct costs and allocated
overhead associated with the development of software products used in the
processing of fish meal. Initial costs are charged to operations as research
prior to the development of a detailed program design or a working model. Costs
incurred subsequent to the product release, and research and development
performed under contract are charged to operations.
Capitalized costs are amortized over the estimated total number of units to
be sold on the straight-line basis. Unamortized costs are carried at the lower
of book value or net realizable value.
Income Taxes--In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
Accounting for Income Taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Foreign Operations--As the Company operates almost exclusively outside of
the United States, one must be aware of the potential for both economic and
political change in the business environment, different than that of the United
States. The success of the Company depends on the success of its foreign
operations and a stable economic and political environment of those countries.
Earnings Per Common Share--Earnings per common share are based on the
weighted average number of shares outstanding of 1,739,882 and 1,700,000 for the
periods ended June 30, 1999 and 1998 and 1,700,000 for the years ended
December 31, 1998 and 1997, giving effect to common stock equivalents, none of
which existed in the aforementioned periods.
Recent Pronouncements--In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128 "Earnings per
Share" and Statement of Financial Accounting Standards No. 129 "Disclosure of
Information About Capital Structure" which are both effective for fiscal years
beginning after December 15, 1997. SFAS No. 128 simplifies the current required
calculation of earnings per share ("EPS") under APB No. 15, "Earnings per
Share", by replacing the existing calculation of primary EPS with a basic EPS
calculation. It requires a dual presentation for complex capital structures of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of basic EPS factors
F-8
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
to diluted EPS factors. SFAS No. 129 requires disclosure of the Company's
capital structure. There was no material impact to the Company's EPS calculation
or financial statement presentation and disclosure due to the adoption of SFAS
No. 128 and SFAS No. 129.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" which is
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements which
requires the Company to (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. There was no
material impact to the Company's financial reporting or presentation due to the
adoption of SFAS No. 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", and amends SFAS
No. 94, "Consolidation of All Majority-Owned Subsidiaries". SFAS No. 131
requires annual financial statements to disclose information about products and
services, geographic areas, and major customers based on a management approach,
along with interim reports. The management approach requires disclosing
financial and descriptive information about an enterprise's reportable operating
segments based on reporting information the way management organizes the
segments for making business decisions and assessing performance. It also
eliminates the requirement to disclose additional information about subsidiaries
that were not consolidated. This new management approach may result in more
information being disclosed than presently practiced and require new interim
information not previously presented. There was no material impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 131.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 "Employers' Disclosures About Pensions
and Other Postretirement Benefits--An Amendment of FASB Statements No. 87, 88,
and 106" which is effective for fiscal years beginning after December 15, 1 997.
SFAS No. 132 revises only the employers' disclosures about pension and other
postretirement benefit plans; it does not change the measurement or recognition
of such plans. Since the Company does not have such plans, there is no impact to
the Company's financial reporting or presentation due to the adoption of SFAS
No. 132.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain 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.
Interim Financial Statements--The accompanying interim unaudited combined
financial information has been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, all adjustments and eliminations consisting only of
normal recurring adjustments, necessary to present fairly the combined financial
position of the Company as of June 30, 1999 and the combined results of its
operations and cash flows for the six months ended June 30,
F-9
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
1999 and 1998, have been included. The results of operations for such interim
period are not necessarily indicative of the results for the full year.
NOTE 2--RELATED PARTY TRANSACTIONS
During 1998 and 1997, the Company earned royalty income of approximately
$9,000 and $57,000, respectively from an affiliated company. As of December 31,
1997, $123,186 was due from this affiliate. No amounts were due as of June 30,
1999 and 1998 and December 31, 1998.
Also during 1998 and 1997, the Company made advances to other affiliated
companies. As of June 30, 1999, December 31, 1998 and 1997, $5,865, $-0- and
$250,672, respectively, were due from these affiliates.
NOTE 3--INCOME TAXES
In Chile, the Company is subject to income taxes at a statutory rate of 15%
of taxable income, as defined. For the period ended June 30, 1999 and the years
ended December 31, 1998 and 1997, the Company had no taxable income due to
various credits and incentives provided by the government of Chile. In addition,
the Company made estimated income tax payments during those years and is due a
refund.
The following is a reconciliation of the statutory tax rates:
<TABLE>
<CAPTION>
YEARS ENDED
PERIOD ENDED DECEMBER 31,
JUNE 30, ---------------
1999 1998 1997
------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Statutory tax rate..................................................... 15% 15% 15%
Credits and incentives from government................................. (15) (15) (15)
---- ---- ----
Effective tax rate..................................................... 0% 0% 0%
---- ---- ----
---- ---- ----
</TABLE>
As mentioned above, while the Company has incurred no income taxes for the
period ended June 30, 1999 and the years ended December 31, 1998 and 1997, it
has made monthly estimated tax payments in excess of the tax due which coupled
with the aforementioned credits has yielded income tax recoverables.
The Company was not liable for U.S. income taxes for the years ended
December 31, 1998 and December 31, 1997, because all earnings were generated by
the Chilean subsidiary and no earnings were repatriated to the Company for these
reporting periods. Therefore, no deferred tax assets or liabilities are
attributable to these years other than those reported by the subsidiary in its
regional operations. A deferred tax liability was recognized at June 30, 1999,
December 31, 1998 and 1997 for approximately $74,000, $74,000 and $80,000,
respectively and is included in accrued expenses and other current liabilities.
F-10
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 4--OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Advances to vendors............................................... $ 550,864 $175,167 $233,765
Prepaid expenses.................................................. 17,160 8,158 10,112
Bridge loan financing............................................. 19,647 -- --
Other............................................................. -- -- 5,401
--------- -------- --------
$ 587,671 $183,325 $249,278
--------- -------- --------
--------- -------- --------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1999 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures..................................... $ 154,928 $ 154,928 $ 154,701
Machinery and equipment.................................... 1,517,561 1,508,512 1,503,316
Buildings and improvements................................. 238,053 238,053 238,053
Land....................................................... 39,511 39,511 317,523
Other...................................................... 95,531 95,531 91,605
Vehicles................................................... 94,446 94,446 94,446
----------- ----------- -----------
2,140,030 2,130,981 2,399,644
----------- ----------- -----------
----------- ----------- -----------
Less accumulated depreciation.............................. (1,264,082) (1,146,305) (1,006,041)
----------- ----------- -----------
$ 875,948 $ 984,676 $ 1,393,603
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Depreciation expense was $117,777, $132,460, $227,732 and $283,588 for the
six months ended June 30, 1999 and 1998 and the years ended December 31, 1998
and 1997, respectively.
During 1998, the Company sold land with a cost basis of approximately
$278,000.
NOTE 6--SOFTWARE DEVELOPMENT COSTS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period.................................. $ 1,217,759 $1,091,147 $ 759,173
Current period:
Total expenditures.......................................... 358,574 580,807 564,102
Less research and development expenses...................... (257,970) (426,195) (232,128)
----------- ---------- ----------
Net capitalized costs......................................... 100,604 154,612 331,974
----------- ---------- ----------
Total amortizable costs....................................... 1,318,363 1,245,759 1,091,147
Less current period's amortization............................ -- (28,000) --
----------- ---------- ----------
Net capitalized software development costs.................... $ 1,318,363 $1,217,759 $1,091,147
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
F-11
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 6--SOFTWARE DEVELOPMENT COSTS--(CONTINUED)
In management's opinion, the net realizable value of future sales will
exceed the carrying value of unamortized software development costs; therefore,
no adjustment to carrying value is required.
Software development costs are being amortized over the number of units
sold. There were no units sold during the six months ending June 30, 1999.
Research and development expenses are included in general and
administrative expenses.
NOTE 7--OTHER ASSETS
The Company has advanced approximately $860,000 and $500,000 to a fishing
vessel company as of June 30, 1999 and December 31, 1998, respectively, (see
Note 11).
NOTE 8--OBLIGATIONS WITH BANKS
Obligations with banks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Lines-of-credit with monthly, semi-annual and annual maturity
dates and interest rates ranging from 9% to 13.8% APR.;
fully collateralized by a personal guarantee from a
stockholder and certain assets of the Company. Currency:
Chilean Pesos and UF........................................ $ 2,151,509 $1,525,968 $1,193,338
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank with maturity date in January 2005 and fully
collateralized by a personal guarantee from a stockholder and
certain assets of the Company, bearing interest at 13.7%.
Currency: Chilean Pesos and UF.................................. $ 544,189 $637,416 $461,334
Less: Current portion............................................. (135,547) (158,603) (106,320)
--------- -------- --------
$ 408,642 $478,813 $355,014
--------- -------- --------
--------- -------- --------
</TABLE>
The note payable was refinanced in October 1998 increasing the debt by
approximately $236,000.
Interest rates on all of these loans are based on the Asociacion de Bancos
y Entidades Financieras, (T.A.B.) rate, which represents a daily average of the
interest paid by banks on its deposits. The rate is then adjusted upwards
approximately 1.5% for the banks profit, and then an additional 1.0%-1.7%
reflecting the individual risk of the bank on the individual loan. There are no
covenants or restrictions imposed on the aforementioned obligations with any of
the banks involved.
The UF is an indexed unit of account expressed in pesos and adjusted
according to inflation (CPI).
F-12
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 8--OBLIGATIONS WITH BANKS--(CONTINUED)
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------
<S> <C>
1999.................................................................... $ 158,603
2000.................................................................... 81,521
2001.................................................................... 88,594
2002.................................................................... 97,670
2003.................................................................... 102,947
2004 and thereafter..................................................... 108,081
----------
$ 637,416
----------
----------
</TABLE>
NOTE 9--NOTES PAYABLE
Notes payable consist of various short-term loans bearing interest at rates
ranging from 12% to 14% per annum. The notes are secured by approximately
$274,000 of accounts receivable.
NOTE 10--ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and employee related payables............................ $ 90,697 $120,925 $105,155
Sales and other taxes payable..................................... 16,527 87,367 195,248
Deferred taxes.................................................... 73,932 73,932 79,755
Other............................................................. 71,183 117,414 19,678
--------- -------- --------
$ 252,339 $399,638 $399,836
--------- -------- --------
--------- -------- --------
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES
Operating Leases--The Company leases various offices in Santiago, Chile
pursuant to operating leases. Monthly rental payments were approximately $3,000
during 1998 and 1997. Rent expense for the six months ended June 30, 1999 and
1998 and the years ended December 31, 1998 and 1997 totaled approximately
$73,000, $48,000, $119,000 and $73,000, respectively.
Future minimum rental payments under the lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING ANNUAL
DECEMBER 31, PAYMENTS
- ------------ ----------
<S> <C>
1999.................................................................... $ 144,648
2000.................................................................... 17,484
----------
$ 162,132
----------
----------
</TABLE>
Commercial Agreement--During 1998, the Company entered into an agreement
with Kelor Trading Ltd. ("Kelor") a fishing vessel company, for the exclusive
rights to Kelor's krill products. Pursuant to the agreement, the Company has
committed to advance Kelor up to $2,000,000 for its exploration. In return,
Kelor agrees to pay the Company the following; (i) a 3% commission of sales,
(ii) $20 per ton of krill meal sold and (iii) 5% of krill oil produced on board
by the Company's technological package.
F-13
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
As of June 30, 1999 and December 31, 1998, the Company advanced
approximately $860,000 and $500,000, respectively, to Kelor which is included in
other assets on the accompanying 1999 and 1998 combined balance sheets. This
agreement is due within 18 months with interest at a rate of 13.5%.
NOTE 12--OTHER MATTERS
Initial Public Offering--The Company signed a letter of intent with an
underwriter to offer 1,200,000 shares of Class A common stock and 1,200,000
redeemable common stock purchase warrants to the public in an initial public
offering, being made on a firm commitment basis. Each of the warrants entitles
the registered holder to purchase one share of Class A common stock. Total
anticipated funds being raised will be approximately $6,100,000. The net
proceeds will be used for the continued development of the Company.
Royalty Agreements--In June 1998, the Company and a non-profit corporation
(CECS) entered into a 10-year agreement with R-Biopharm GMBH (Biopharm), a
German company, in which the Company and CECS has agreed to provide technology
it possesses with respect to a red-tide detection kit. In exchange for this
technology, the Company and CECS will receive 12.5% royalties of net sales of
the detection kit. Biopharm will pay a minimum of $5,000 in 1999 and a minimum
of $15,000 for each remaining year under the agreement. Sales of this red tide
detection kit are expected to begin in the first quarter of 2000. The royalties,
including the minimum payments, will be shared 60% by the Company and 40% by
CECS.
Under a separate agreement, dated June 20, 1998, between Inual (a company
related through common ownership) and Biopharm, Inual has agreed to supply
Biopharm with all toxins and conjugates necessary to produce the red-tide
detection test kit. This agreement provides that Inual shall receive royalties
of 12.5% of the net sales of the test kit for 10 years dated from the execution
of the agreement. Biopharm will pay a minimum royalty of $5,000 during 1999 and
a minimum of $15,000 for each remaining year under the agreement. This payment
constitutes minimum royalties against the 12.5% of net sales on an annual basis.
In addition to this 12.5% royalty, Inual shall receive $400,000 from Biopharm in
consideration for supplying Biopharm with a customer list for the future
potential sales of the test kit. This payment is due two years from the date of
the agreement. Inual transferred this contract to the Company in July 1999 and
the Company shall receive 100% of its benefits.
NOTE 13--YEAR 2000 ISSUE
Computer programs used by businesses worldwide were written using two
digits rather than four digits to define the applicable year. Accordingly, these
programs recognize the dates "00" and "01" as the years 1900 and 1901 rather
than the years 2000 and 2001. The Company recognizes the need to ensure its
operations will not be adversely impacted by year 2000 computer program failures
arising from program processes and calculations misinterpreting the year 2000
date. The Company has evaluated its financial and operational systems to
determine the impact the year 2000 issue will have on its operations. The
Company also plans to communicate with its significant suppliers, dealers,
financial institutions, and others with which it conducts business to determine
the extent the Company may be impacted by third parties' failure to address the
year 2000 issue. Although the Company plans to be year 2000 compliant prior to
December 31, 1999 and expects no material impact to the Company's operations,
there can be no assurance that the failure of the Company or such third parties
to successfully address their respective year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows, and result of operations.
F-14
<PAGE>
BIO-AQUA SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO JUNE 30, 1999 AND 1998
NOTE 14--INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The Company operates predominantly in one industry segment--that being the
production, research, and development of animal nutrition and related products.
During 1998 and 1997, sales to the top five customers amounted to approximately
65% and 52%, respectively, of total sales.
Customers outside Chile are worldwide, but primarily in South America,
United States, Asia, Europe and Australia. No single country or geographic
region is significant to the overall operations of the Company. All the
Company's assets are located within Chile.
NOTE 15--SUBSEQUENT EVENT
Bridge Loan--In April and May 1999, the Company entered into several bridge
loans totaling $150,000 with investors which was used for short-term operations.
These loans are evidenced by promissory notes bearing interest at 8% per year.
The Company is obligated to repay these notes the earlier of (i) the closing
date of the aforementioned initial public offering, or (ii) ranging from
October 30, 1999 to January 15, 2001. As additional consideration, the investors
received 35,294 shares of Class A common stock valued at $.50 per share. The
Company has capitalized these costs and are included in other current assets and
are being amortized over the term of the loans. Interest expense relating to
these loans amounted to $2,000 for the six months ending June 30, 1999.
Trademarks--In June 1999, the Company entered into an agreement to purchase
the outstanding common stock of Profeed, Inc., an entity related through common
control, upon completion of the initial public offering ("IPO"). Profeed's sole
assets consist of the Tepual and Inual trademarks and has had no other activity
since its inception. The Company will purchase Profeed for $1,300,000, of which
$400,000 will be paid out of the proceeds of the IPO. The balance will be paid
either from sales of products sold under the Tepual and Inual brands, third
party financing, or other working capital.
As the above transaction is between related parties under common control,
the above mentioned assets must be accounted for at historical cost. Such amount
is immaterial and therefore, not reflected in the financial statements. Due to
the related party nature of this transaction, the purchase price of $1,300,000
is recorded as a distribution and a liability, due to stockholder, in the
accompanying June 30, 1999 (unaudited) combined financial statements.
Rental and Consulting Agreement--In 1999, the Company entered into an
agreement with an affiliate of one of the Company's directors to perform certain
services including acting as the U.S. liaison, rental of office space and
certain financial, advisory and consulting services, at an annual payment of
$30,000.
Employment Agreements--In 1999, the Company entered into a three year
employment agreement with the Company's President and Chief Financial Officer.
Pursuant to the terms and conditions of the employment agreements, the President
shall receive an initial annual base salary of $200,000 and the Chief Financial
Officer shall receive an initial annual base salary of $100,000. In addition to
the base salaries, they are entitled to receive various incentives and other
compensation amounting up to $100,000 and $20,000 as President and Chief
Financial Officer, respectively.
Stock Option Plan--Subsequent to year end, the Board of Directors of the
Company and a majority of the Company's shareholders adopted a Stock Option Plan
(the "Plan"). The Company will reserve a small amount of shares (not yet
determined) of Class A common stock for issuance under this Plan. No options
have been issued under the Plan.
F-15
<PAGE>
1,200,000 SHARES OF
CLASS A COMMON STOCK
1,200,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
BIO-AQUA SYSTEMS, INC.
------------------------
PROSPECTUS
------------------------
NUTMEG SECURITIES, LTD.
EMERSON BENNETT &
ASSOCIATES, INC.
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporation. Our articles
of incorporation and bylaws provides that we shall indemnify to the fullest
extent permitted by the Florida Business Corporation Act any person whom it may
indemnify thereunder.
The provisions of Florida law that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available. In addition, each director will continue to be subject to
liability for (a) violations of criminal laws, unless the director has
reasonable cause to believe that his or her conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (b) deriving an improper
personal benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) willful misconduct or conscious disregard for our best
interests in a proceeding by or in our right to procure a judgment in its favor
or in a proceeding by or in the right of a shareholder. The statute does not
affect a director's responsibilities under any other law, such as the federal
securities laws.
The effect of Florida law, our articles of incorporation and our bylaws is
to require us to indemnify our officers and directors for any claim arising
against such persons in their official capacities if such person acted in good
faith and in a manner that he or she reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
Pursuant to the terms of the underwriting agreement, our directors and
officers also are indemnified against certain civil liabilities that they may
incur under the Securities Act.
To the limit indemnification for liabilities arising under the Securities
Act, may be permitted to our directors, officers or control persons control, we
have been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts expected to be incurred in connection with the offering described in
this registration statement. All amounts are estimated except the registration
fee, NASD Fee and the underwriters' non-accountable expense allowance.
<TABLE>
<S> <C>
Securities and Exchange Commission/Registration fee and other documents*.................... $ 5,400
NASD filing fee*............................................................................ 2,500
NASDAQ filing fee*.......................................................................... 8,000
Printing and engraving expenses*............................................................ 65,000
Accounting fees and expenses*............................................................... 50,000
Legal fees and expenses*.................................................................... 200,000
Blue Sky fees and expenses*................................................................. 18,850
Transfer Agent fees and expenses*........................................................... 750
--------
Total*................................................................................. $350,500
--------
--------
</TABLE>
- ------------------
* Estimated
We will pay all of the above expenses of this offering.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On March 18, 1999, we issued 100 shares of class B common stock to
Mr. Rutman, our president, chief executive officer and chairman of the board for
par value, as promotional shares. The issuance of the shares of class B common
stock were exempt from registration pursuant to Section 4(2) of the Securities
Act.
Between April and May 1999, six (6) unrelated, accredited investors loaned
us $150,000 (at an interest rate of 8% per year). As consideration for this
loan, the investors received an aggregate of 35,294 shares of class A common
stock. These investors had access to, or were otherwise provided with, our
information, including financial. On March 18, 1999, we issued 51,000 shares of
class A common stock to David Mayer at our formation. Accordingly, the issuance
of the shares of class A common stock were exempt from registration pursuant to
Section 4(2) of the Securities Act.
As of the effective date, Flagship Import Export Corporation, wholly-owned
and controlled by Mr. Rutman and Atik, owned and controlled by Paulina and
Andrea Rutman, will purchase 1,699,900 shares of class B common stock for
$3,540,290. The shareholders of Flagship Import Export Corporation and Atik were
provided with, or otherwise had access to, our information, including financial.
Accordingly, the issuances of the shares of class B common stock to Flagship
Import Export Corporation and Atik will be exempt from registration pursuant to
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 -- Form of Underwriting Agreement(1)
1.2 -- Form of Agreement Among Underwriters(1)
1.3 -- Form of Selected Dealers Agreement(1)
1.4 -- Lock-Up Agreement(1)
2.1 -- stock Purchase Agreement between Flagship Import Export Corporation and Bio-Aqua for the purchase
of class B common stock(2)
2.2 -- Stock Purchase Agreement between Bio-Aqua and Flagship Import Export Corporation for the purchase
of shares of Tepual S.A.(2)
2.3 -- Stock Purchase Agreement between Atik, S.A. and Bio-Aqua for the purchase of class B common
stock(2)
2.4 -- Stock Purchase Agreement between Bio-Aqua and Atik, S.A. for the purchase of shares of Tepual
S.A.(2)
2.5 -- Stock Purchase Agreement between Profeed, Inc. and Bio-Aqua for the acquisition of Profeed, Inc.
and the rights to the Tepual(Trademark) and Inual(Trademark) brands and trademarks(1)
3.1 -- Bio-Aqua's Articles of Incorporation(2)
3.1(a) -- Articles of Amendment to the Articles of Incorporation of Bio-Aqua(1)
3.2 -- Bio-Aqua's Bylaws(2)
4.1 -- Form of warrant agreement together with the form of warrant certificate(1)
4.2 -- Form of representative's warrant agreement together with the form of representative's purchase
warrant certificate(1)
4.3 -- Form of class A common stock certificate(1)
5.1 -- Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(1)
10.1 -- Stock Option Plan(2)
10.2 -- Association Agreement between Tepual S.A. and Centro de Estudios Cientificos de Santiago and
Implementation Agreement (2)
10.3 -- Agreement between Tepual S.A., Centro de Estudios Cientificos de Santiago and R-Biopharm(2)
10.4 -- Agreement Between Inual S.A. and R-Biopharm(2)
10.5 -- Distribution Agreement between Inual S.A. and R-Biopharm(2)
10.6 -- License Agreement between Tepual S.A. and Biosur S.A.C.(2)
10.7 -- Marketing Agreement between Tepual S.A. and Biosur S.A.(2)
10.8 -- Commercial Agreement between Tepual S.A. and Kelor Trading Ltd.(2)
10.9 -- Form of Bridge Loan Documents(2)
10.10 -- Employment Agreement between Tepual S.A. and Max Rutman(1)
10.11 -- Employment Agreement between Tepual S.A. and Guillermo Quiroz(2)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.12 -- Consulting Agreement between Bio-Aqua and David Mayer(1)
10.13 -- Recognition of Bank Note with Hemisphere National Bank(1)
10.14 -- Recognition of Bank Note with Corpbanca(1)
10.15 -- Recognition of Bank Note with Banco Sud Americano(1)
10.16 -- Recognition of Bank Note with Banco Santander(1)
10.17 -- Recognition of Bank Note with Banco do Brasil(1)
10.18 -- Lease Agreement between Bio-Aqua and Andean Financial Corporation(1)
10.19 -- Lease Agreement between Tepual and Kaman Construcciones Limitada(1)
10.20 -- Lease Agreement between Tepual and Don Lindor Ltda.(1)
10.21 -- Lease Agreement between Tepual and Centrovet Ltda.(1)
10.22 -- Lease Agreement between Tepual and Turteltaub(1)
21 -- Subsidiaries of Registrant(2)
23.1 -- Consent of Atlas, Pearlman, Trop & Borkson, P.A. (to be included in its opinion filed as
Exhibit 5.1)(1)
23.2 -- Consent of Spear, Safer, Harmon & Co. P.C.(1)
27 -- Financial Data Schedule(1)
99.3 -- U.S. Patent Application for PSP Red Tide Detection Kit(2)
99.4 -- U.S. Patent Application for Red Tide Cleansing System(2)
99.5 -- Consent of Guillermo Quiroz(1)
99.6 -- Consent of Nestor Lagos(1)
99.7 -- Consent of Sergio Vivanco(1)
</TABLE>
- ------------------
(1) Filed herewith
(2) Previously filed
ITEM 28. UNDERTAKINGS.
We undertake that:
(a) we will file, during any period in which we offer or sell our
securities, a post-effective amendment to this registration statement to:
(1) include any prospectus required by section 10(a)(3) of the
Securities Act;
(2) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(3) include any additional or changed material information on the
plan of distribution;
(4) for determining liability under the Securities Act, we will
treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering.
(5) we will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(6) we will provide to the underwriter at the closing of this
offering certificates in such denominations and registered in such names
as required by the underwriter to permit prompt delivery to each
purchaser.
(b) As indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is unenforceable. In the event that a claim for indemnification against
such liabilities (other than our the payment of expenses incurred or paid
by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted
II-3
<PAGE>
by any director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) We hereby undertake that:
(1) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZES THIS
AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF FT.
LAUDERDALE, STATE OF FLORIDA, ON THIS 26 DAY OF AUGUST, 1999.
BIO-AQUA SYSTEMS, INC.
By: /s/ MAX RUTMAN
----------------------------------
Max Rutman
President and Chief Executive
Officer
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT TO THE REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MAX RUTMAN President and Chief Executive Officer and August 26, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Max Rutman
/s/ GUILLERMO QUIROZ Chief Financial Officer (Principal August 26, 1999
- ------------------------------------------ Financial and Accounting Officer)
Guillermo Quiroz
/s/ DAVID MAYER Director August 26, 1999
- ------------------------------------------
David Mayer
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement(1)
1.2 -- Form of Agreement Among Underwriters(1)
1.3 -- Form of Selected Dealers Agreement(1)
1.4 -- Lock-Up Agreement(1)
2.1 -- Stock Purchase Agreement between Flagship Import Export Corporation and Bio-Aqua for the purchase
of class B common stock(2)
2.2 -- Stock Purchase Agreement between Bio-Aqua and Flagship Import Export Corporation for the purchase
of shares of Tepual S.A.(2)
2.3 -- Stock Purchase Agreement between Atik, S.A. and Bio-Aqua for the purchase of class B common
stock(2)
2.4 -- Stock Purchase Agreement between Bio-Aqua and Atik, S.A. for the purchase of shares of Tepual
S.A.(2)
2.5 -- Stock Purchase Agreement between Profeed, Inc. and Bio-Aqua for the acquisition of Profeed, Inc.
and the rights to the TepualTM and InualTM brands and trademarks(1)
3.1 -- Bio-Aqua's Articles of Incorporation(2)
3.1(a) -- Articles of Amendment to the Articles of Incorporation of Bio-Aqua(1)
3.2 -- Bio-Aqua's Bylaws(2)
4.1 -- Form of warrant agreement together with the form of warrant certificate(1)
4.2 -- Form of representative's warrant agreement together with the form of representative's purchase
warrant certificate(1)
4.3 -- Form of class A common stock certificate(1)
5.1 -- Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(1)
10.1 -- Stock Option Plan(2)
10.2 -- Association Agreement between Tepual S.A. and Centro de Estudios Cientificos de Santiago and
Implementation Agreement (2)
10.3 -- Agreement between Tepual S.A., Centro de Estudios Cientificos de Santiago and R-Biopharm(2)
10.4 -- Agreement Between Inual S.A. and R-Biopharm(2)
10.5 -- Distribution Agreement between Inual S.A. and R-Biopharm(2)
10.6 -- License Agreement between Tepual S.A. and Biosur S.A.C.(2)
10.7 -- Marketing Agreement between Tepual S.A. and Biosur S.A.(1)
10.8 -- Commercial Agreement between Tepual S.A. and Kelor Trading Ltd.(2)
10.9 -- Form of Bridge Loan Documents(2)
10.10 -- Employment Agreement between Tepual S.A. and Max Rutman(1)
10.11 -- Employment Agreement between Tepual S.A. and Guillermo Quiroz(2)
10.12 -- Consulting Agreement between Bio-Aqua and David Mayer(1)
10.13 -- Recognition of Bank Note with Hemisphere National Bank(1)
10.14 -- Recognition of Bank Note with Corpbanca(1)
10.15 -- Recognition of Bank Note with Banco Sud Americano(1)
10.16 -- Recognition of Bank Note with Banco Santander(1)
10.17 -- Recognition of Bank Note with Banco do Brasil(1)
10.18 -- Lease Agreement between Bio-Aqua and Andean Financial Corporation(1)
10.19 -- Lease Agreement between Tepual and Kaman Construcciones Limitada(1)
10.20 -- Lease Agreement between Tepual and Don Lindor Ltda.(1)
10.21 -- Lease Agreement between Tepual and Centrovet Ltda.(1)
10.22 -- Lease Agreement between Tepual and Turteltaub(1)
21 -- Subsidiaries of Registrant(2)
23.1 -- Consent of Atlas, Pearlman, Trop & Borkson, P.A. (to be included in its opinion filed as
Exhibit 5.1)(1)
</TABLE>
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<TABLE>
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<S> <C> <C>
23.2 -- Consent of Spear, Safer, Harmon & Co. P.C.(1)
27 -- Financial Data Schedule(1)
99.3 -- U.S. Patent Application for PSP Red Tide Detection Kit(2)
99.4 -- U.S. Patent Application for Red Tide Cleansing System(2)
99.5 -- Consent of Guillermo Quiroz(1)
99.6 -- Consent of Nestor Lagos(1)
99.7 -- Consent of Sergio Vivanco(1)
</TABLE>
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(1) Filed herewith
(2) Previously filed
UNDERWRITING AGREEMENT
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<TABLE>
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TABLE OF CONTENTS
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Underwriting Agreement............................................................................................1
SECTION I Description of Securities..............................................................................1
SECTION 2 Representations and Warranties of the Company..........................................................2
2.01. Registration Statement and Prospectus.............................................................2
2.02. Accuracy of Registration Statement and Prospectus.................................................2
2.03. Financial Statements..............................................................................3
2.04. Independent Public Accountant.....................................................................3
2.05. No Material Adverse Change........................................................................3
2.06. No Defaults.......................................................................................3
2.07. Incorporation and Standing........................................................................4
2.08. Legality of Outstanding Stock.....................................................................4
2.09. Legality of Stock, Warrants and Representative's Warrants.........................................4
2.10. Prior Sales.......................................................................................4
2.11. Litigation........................................................................................5
2.12. Warrants and Representative's Warrants............................................................5
2.13. Finder............................................................................................5
2.14. Exhibits..........................................................................................5
2.15. Tax Returns.......................................................................................6
2.16. Property..........................................................................................6
2.17 Patents & Trademarks..............................................................................6
2.18 Authority.........................................................................................6
2.19 Environmental Laws................................................................................6
2.20 ERISA.............................................................................................7
2.21 No NASD Affiliation...............................................................................7
2.22 Foreign Corrupt Practices Act.....................................................................7
SECTION 3 Purchase and Sale of the Stock.........................................................................7
3.01. Purchase of Stock and Over-Allotment Option.......................................................7
3.01.01. Default by an Underwriter......................................................................8
3.01.02. Liability of Defaulting Underwriter............................................................8
3.01.03. Right of Remaining Underwriters................................................................8
3.02. Public Offering Price.............................................................................8
3.02.01. Payment For Stock..............................................................................8
3.02.02. Closing........................................................................................9
3.02.03. Inspection of Certificates.....................................................................9
3.03. Sale of Warrants..................................................................................9
3.04. Representative's Expense Allowance................................................................9
3.05. Representations of the Parties...................................................................10
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3.06. Post-Closing Information.........................................................................10
3.07. Re-Offers By Selected Dealers....................................................................10
SECTION 4 Registration Statement and Prospectus.................................................................10
4.01. Delivery of Registration Statements..............................................................10
4.02. Delivery of Preliminary Prospectus...............................................................10
4.03. Delivery of Prospectus...........................................................................11
4.04. Further Amendments and Supplements...............................................................11
4.05. Use of Prospectus................................................................................12
SECTION 5 Covenants of the Company..............................................................................12
5.01. Objection of Representative to Amendments or Supplements........................................12
5.02. Company's Best-Efforts to Cause Registration Statement to Become
Effective......................................................................................12
5.03. Preparation and Filing of Amendments and Supplements.............................................13
5.04. Blue-Sky Qualification...........................................................................13
5.05. Financial Statements.............................................................................13
5.06. Reports and Financial Statements to the Representative
and Co-Manager ................................................................................13
5.07. Expenses Paid by the Company.....................................................................14
5.08. Reports to Shareholders..........................................................................14
5.09. Section 11(a) Financials.........................................................................14
5.10. Post-Effective Availability of Prospectus........................................................14
5.11. Application of Proceeds..........................................................................15
5.12. Undertakings of Certain Shareholders.............................................................15
5.13. Delivery of Documents............................................................................15
5.14. Cooperation With Representative's Due Diligence.................................................15
5.15. No Sale Period...................................................................................15
5.16. Appointment of Transfer Agent....................................................................16
5.17. Compliance With Conditions Precedent.............................................................16
5.18. Filings of Form SR...............................................................................16
5.19. Registration Under the Exchange Act..............................................................16
5.20. Designation of Member of Company's Board of Directors............................................16
5.21 Key Man Insurance................................................................................16
5.22. Application to Moody's or Standard & Poors.......................................................16
5.23. NASDAQ Listing...................................................................................17
5.24. Consulting.......................................................................................17
SECTION 6 Indemnification.......................................................................................17
6.01. Indemnification By Company.......................................................................17
6.02. Indemnification By Underwriters..................................................................18
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SECTION 7 Effectiveness of Agreement............................................................................19
SECTION 8 Conditions of the Underwriters' Obligations...........................................................19
8.01. Effectiveness of Registration Statement..........................................................20
8.02. Accuracy of Registration Statement...............................................................20
8.03. Casualty and Other Calamity......................................................................20
8.04. Litigation and Other Proceedings.................................................................20
8.05. Lack of Material Change and Other Conditions.....................................................20
8.06. NASDAQ Listing Approval and NASD No-Objection Letter.............................................21
8.07. Accountant's Comfort Letter and Update...........................................................21
8.08. Review By and Opinion of Underwriter's Counsel...................................................21
8.09. Opinion of Counsel...............................................................................21
8.10.01. Accountant's Letter...........................................................................23
8.10.02. Conformed Copies of Accountant's Letter.......................................................24
8.11. Officer's Certificate............................................................................24
8.12. Tender of Delivery of Stock......................................................................25
8.13. Blue-Sky Qualification...........................................................................25
8.14. Approval of Representative's Counsel.............................................................25
8.15. Officers' Certificate As a Company Representative................................................26
SECTION 9 Termination...........................................................................................26
9.01. Termination Because of Non-Compliance............................................................26
9.02. Market Out Termination...........................................................................26
9.03. Company's Right to Terminate.....................................................................27
9.04. Effect of Termination Hereunder..................................................................27
SECTION 10 Underwriter's Representations and Warranties.........................................................27
10.01. Registration as Broker-Dealer and Member of NASD................................................27
10.02. No Pending Proceedings..........................................................................27
SECTION 11 Right of First Refusal...............................................................................27
11.01. Consultation With Representative................................................................27
11.02. Representative's and Co-Manager's Right of First Refusal........................................28
11.03 Exercise of Warrants............................................................................28
SECTION 12 Notice...............................................................................................30
12.01. Notice to the Company...........................................................................30
12.02. Notice to the Underwriters......................................................................30
SECTION 13 Miscellaneous.........................................................................................31
13.01. Benefit.........................................................................................31
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13.02. Survival........................................................................................31
13.03. Governing Law...................................................................................31
13.04. Underwriters' Information.......................................................................31
13.05. Counterparts....................................................................................31
</TABLE>
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Underwriting Agreement
Nutmeg Securities, Ltd.
495 Post Road East
Westport, CT 06880
Emerson Bennett & Associates, Inc.
6261 Northwest 6th Way, Suite 207
Fort Lauderdale, FL 33309
Ladies and Gentlemen:
Bio-Aqua Systems, Inc. and its subsidiaries (the "Company'), a Florida
company, of 1900 Glades Road, Suite 351, Boca Raton, Florida, hereby confirms
its agreement with the representative of the Underwriters, Nutmeg Securities
Ltd. ("Representative"), Emerson Bennett & Associates, Inc. ("Co-Manager") and
other members of the Underwriting Group (hereinafter the "Underwriting Group" or
"Underwriters") as follows:
SECTION I
Description of Securities
The Company's authorized and outstanding capitalization when the
offering of the securities contemplated hereby is permitted to commence and at
the Closing Date (hereinafter defined), will be as set forth in the Registration
Statement and Prospectus included therein (hereinafter defined). The Company
proposes to issue and sell to the Underwriting Group an aggregate of 1,200,000
Class A Voting Stock par value $.0001 at
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$5.00 per share ("Stock") and 1,200,000 Redeemable Common Stock Purchase
Warrants at $.125 per Warrant ("Warrants") and Redeemable Representative's
Warrants entitling Representative to 120,000 shares of Stock at $8.25 and
120,000 warrants at $.206 exercisable for Stock at $10.725 ("Representative's
Warrants").The Underwriting Group shall also have an over-allotment option to
purchase up to an additional 180,000 shares of Class A Common Stock and 180,000
Warrants at initial public offering minus the Underwriter's discount as provided
in Section 3.01 hereof.
SECTION 2
Representations and Warranties of the Company
In order to induce the Underwriting Group to enter into this Agreement
the Company hereby represents and warrants to and agrees with the Underwriting
Group as follows:
2.01. Registration Statement and Prospectus. A registration statement
on Form SB-2 (File No. 33-81829) (the "Registration Statement") with respect to
the Stock and Warrants, including the related Prospectus, copies of which have
heretofore been delivered by the Company to the Underwriter, has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations ("Rules and
Regulations") of the Securities and Exchange Commission (the "'Commission")
thereunder, and said Registration Statement has been filed with the Commission
under the Act; one or more amendments to said Registration Statement, copies of
which have heretofore been delivered to the Representative, has or
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have heretofore been filed; and the Company may file on or prior to the
effective date additional amendments to said Registration Statement, including
the final Prospectus. Included in such Registration Statement of the Company's
Common Stock, are which shares are reserved against exercise of the
Underwriter's Warrants to be granted by the Company, as more particularly
described hereinafter.
As used in this Agreement: the term "Registration Statement" refers to
and means said Registration Statement on Form SB-2 and all amendments thereto,
including the Prospectus, all exhibits and financial statements, as it becomes
effective; the term "Prospectus" refers to and means the Prospectus included in
the Registration Statement when it becomes effective; and the term "Preliminary
Prospectus" refers to and means any prospectus included in said Registration
Statement before it becomes effective. The terms "Effective Date" and
"Effective" refer to the date the Commission declares the Registration Statement
filed with the Electronic Data Gathering, Analysis and Retrieval system
("EDGAR") effective pursuant to Section 8 of the Act.
2.02. Accuracy of Registration Statement and Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Stock and Warrants, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and the applicable Rules and Regulations of the Commission thereunder, and
to the best of the Company's knowledge, has not included at the time of filing
any untrue statement of a material fact or omitted to
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state a material fact necessary to make the statements therein not misleading.
When the Registration Statement becomes Effective and on the Closing Date (as
hereinafter defined), the Registration Statement and Prospectus, and any further
amendments or supplements thereto, will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations for the purposes of the proposed public offering of the Stock and
Warrants, and all statements of material fact contained in the Registration
Statement and Prospectus will be true and correct, and neither the Registration
Statement nor the Prospectus will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein necessary
to make the statements therein not misleading; provided, however, the Company
does not make any representations or warranties as to information contained in
or omitted from the Registration Statement or the Prospectus in reliance upon
written information furnished by the Representative on behalf of the
Underwriters specifically for use therein.
2.03. Financial Statements. The financial statements of the Company
together with related schedules and notes as set forth in the Registration
Statement and Prospectus will present fairly the financial position of the
Company and the results of its operations and the changes in its financial
position at the respective dates and for the respective periods for which they
apply; such financial statements have been prepared in accordance with generally
accepted principles of accounting consistently applied throughout the periods
concerned except as otherwise stated therein.
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<PAGE>
2.04. Independent Public Accountant. Spear, Safer, Harmon & Co., P.A. ,
which has certified, or shall certify, certain of the financial statements
filed, or to be filed, with the Commission as part of the Registration Statement
and Prospectus, are independent certified public accountants within the meaning
of the Act and the Rules and Regulations.
2.05. No Material Adverse Change. Except as may be reflected in or
contemplated by the Registration Statement or the Prospectus, subsequent to the
dates as of which information is given in the Registration Statement and
Prospectus, and prior to the Closing Date, (i) there shall not be any material
adverse change in the condition, financial or otherwise, of the Company or in
its business taken as a whole; (ii) there shall not have been any material
transaction entered into by the Company or its subsidiaries other than
transactions in the ordinary course of business; (iii) neither the Company nor
any of its subsidiaries shall have incurred any material obligations, contingent
or otherwise, which are not disclosed in the Prospectus; (iv) there shall not
have been, nor will there be, any change in the capital stock or long-term debt
(except current payments) of the Company; (v) the Company has not, and will not,
have paid or declared any dividends or other distributions on its common stock;
and (vi) there are no currency exchange control laws or withholding taxes of any
applicable country which govern the payment of dividends on the stock of the
Company or the stock of any of the subsidiaries of the Company except as set
forth in the Prospectus and Registration Statement.
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2.06. No Defaults. Neither the Company nor any of its subsidiaries is
in any default which has not been waived in the performance of any obligation,
agreement or condition contained in any debenture, note or other evidence of
indebtedness or any indenture or loan agreement of the Company. The execution
and delivery of this Agreement and the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement will not conflict
with or result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, the articles of incorporation, as amended, or bylaws
of the Company, any note, indenture, mortgage, deed of trust or other agreement
or instrument to which the Company is a party or by which it or any of its
property is bound, or any existing law, order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality, agency or
body, arbitration tribunal or court, domestic or foreign, having jurisdiction
over the Company or its property. The consent, approval, authorization, or order
of any court or governmental instrumentality, agency or body is not required for
the consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.07. Incorporation and Standing. The Company is, and at the Closing
Date will be, duly incorporated and validly existing in good standing as a
corporation under the laws of the State of Florida and the Company and/or its
subsidiaries is duly is authorized to do business in all other states and
applicable foreign jurisdictions, including Chile and Peru, with authorized and
outstanding capital stock as set forth in the Registration Statement
6
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and the Prospectus, and with full power and authority (corporate and other) to
own its property and conduct its business, present and proposed, as described in
the Registration Statement and Prospectus; the Company has full power and
authority to enter into this Agreement; and the Company is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which it owns or
leases real property or transacts business requiring such qualification. The
Company has no subsidiaries other than as shown in Exhibit 21 to the
Registration Statement.
2.08. Legality of Outstanding Stock. The outstanding common stock of
the Company has been duly and validly authorized, issued and is fully paid and
non-assessable and will conform to all statements with regard thereto contained
in the Registration Statement and Prospectus. No sales of securities have been
made by the Company in violation of the registration provisions of the
Securities Act of 1933.
2.09. Legality of Stock, Warrants and Representative's Warrants. The
Stock, Warrants, and Representative's Warrants have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
in this Agreement, will be validly issued, fully paid and non-assessable. The
Stock, Warrants, and Representative's Warrants upon issuance will not be subject
to the preemptive rights of any shareholders of the Company. The Warrants and
Representative's Warrants when sold and delivered, will constitute valid and
binding obligations of the Company enforceable in accordance with the terms
thereof. A sufficient number of shares of
7
<PAGE>
Common Stock and Warrants have been reserved for issuance upon exercise of the
Warrants and Representative's Warrants. The Stock, Warrants, and
Representative's Warrants will conform to all statements with regard thereto in
the Registration Statement and Prospectus.
2.10. Prior Sales. No securities of the Company, of an affiliate or of
a predecessor of the Company have been sold within one year prior to the date
hereof, except as set out in the Registration Statement.
2.11. Litigation. Except as set forth in the Registration Statement and
Prospectus, there is, and at the Closing Date there will be, no action, suit or
proceeding before any court or governmental agency, authority or body pending or
to the knowledge of the Company threatened which might result in judgments
against the Company not adequately covered by insurance or which collectively
might result in any material adverse change in the condition (financial or
otherwise), the business or the prospects of the Company, or would materially
affect the properties or assets of the Company.
2.12. Warrants and Representative's Warrants. Upon delivery of and
payment for the Warrants and Representative's Warrants to be sold by and to the
Company as set forth in Section 3.03 of this Agreement, the Underwriter and the
Underwriter's designees will receive good and marketable title thereto, free and
clear of all liens, encumbrances, charges and claims whatsoever; and the Company
will have on the Effective Date of the
8
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Registration Statement and at the time of delivery of such Warrants or
Representative's Warrants full legal right and power and all authorization and
approval required by law to sell, transfer and deliver such Warrants or
Representative's Warrants in the manner provided hereunder subject to certain
"lock up" provisions set forth in the Registration Statement and Prospectus.
2.13. Finder. The Company knows of no outstanding claims for services
in the nature of a finder's fee or origination fee with respect to the sale of
the Stock and Warrants hereunder resulting from its acts for which the
Representative may be responsible.
2.14. Exhibits. There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations which have not been so filed and each contract to
which the Company or any of its subsidiaries is a party and to which reference
is made in the Prospectus has been duly and validly executed, is in full force
and effect in all material respects in accordance with their respective terms,
including but not limited to the Employment Agreement between the Company and
Max Rutman, Exhibit No. 10.10, the Employment Agreement between Guillermo Quiroz
and the Company, Exhibit No. 10.11, and the various distribution and licensing
agreements in Exhibits 10.2-10.8, and none of such contracts have been assigned
by the Company; and the Company knows of no present situation or condition or
fact which would prevent compliance with the terms of such contracts, as amended
to date. Except for amendments or modifications of such contracts in the
9
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ordinary course of business, the Company has no intention of exercising any
right which it may have to cancel any of its obligations under any of such
contracts, and has no knowledge that any other party to any of such contracts
has any intention not to render full performance under such contracts.
2.15. Tax Returns. The Company has filed all federal and state tax
returns which are required to be filed by it and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due. The Company has filed all tax returns required by it in any foreign
jurisdictions. All taxes with respect to which the Company is obligated have
been paid or adequate accruals have been set up to cover any such unpaid taxes.
2.16. Property. Except as otherwise set forth in or contemplated by the
Registration Statement and Prospectus, the Company has good title, free and
clear of all liens, encumbrances and defects, except liens for current taxes not
due and payable, to all property and assets which are described in the
Registration Statement and the Prospectus as being owned by the Company, subject
only to such exceptions as are not material and do not adversely affect the
present or prospective business of the Company.
2.17 Patents & Trademarks. Except as disclosed in the Registration
Statement or Prospectus, the Company has sufficient licenses, permits and other
governmental authorizations currently necessary for the conduct of its business
or the ownership of its
10
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properties as described in the Prospectus and is in all material respects
complying therewith and owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights and licenses necessary for
the conduct of such business and had not received any notice of conflict with
the asserted rights of others in respect thereof. To the best knowledge of the
Company, none of the activities or business of the Company are in violation of,
or cause the Company to violate, any law, rule, regulation or order of the
United States, any state, county or locality, or of any agency or body of the
United States or of any state, county or locality, the violation of which would
have a Material Adverse Effect.
2.18 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.19 Environmental Laws. Neither the Company nor any of its
subsidiaries has violated any foreign, federal, state or local law relating to
the protection of human health and safety, the environmental or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental Laws"),
or incurred costs or liabilities associated with these Environmental Laws,
except for such violations which singly or in the aggregate would not have a
material adverse effect on the business, prospects, financial condition or
results of the Company and its subsidiaries taken as a whole.
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2.20 ERISA. Neither the Company nor any of its subsidiaries has
violated any provisions or the Employee Retirement Income Security Act of 1974,
as amended, or the rules and regulations promulgated thereunder, in each case
that is applicable to the Company or such subsidiary, except for such violations
which singly or in the aggregate would not have a material adverse effect on the
business, prospects, financial condition or results of the Company and its
subsidiaries taken as a whole.
2.21 No NASD Affiliation. Except as previously disclosed in writing by
the Company to the Representative, no officer, director or 10% stockholder of
the company has any National Association of Securities Dealers, Inc. (the
"NASD") affiliation.
2.22 Foreign Corrupt Practices Act. The Company has not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
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SECTION 3
Purchase and Sale of the Stock
3.01. Purchase of Stock and Over-Allotment Option. The Company hereby
agrees to sell to members of the Underwriting Group named in Schedule I hereto
(for all of whom the Representative is acting), severally and not jointly, and
each member of the Underwriting Group, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company, severally and not jointly, the number of
shares of Stock set forth opposite their respective names in Schedule I hereto
at a purchase price of $5.00 per share, less the underwriting discounts, and the
number of Warrants set forth opposite their respective names in Schedule I
hereto at a purchase price of $.125 per Warrant, less the underwriting
discounts. The Representative is also granted Representative's Warrants
entitling them to purchase120,000 Warrants exercisable at a purchase price of
$.001, 120,000 shares of Stock at $8.25 per share of Stock, and 120,000 warrants
exercisable at a price of $.206 per Warrant. These warrants are exercisable for
Stock at $10.725 per share for four years following the Effective Date subject
to a twelve month lock-up. Pursuant to NASD Rule 2710(c)(7)(A) the
Representative Warrants and warrants acquired by the Representative and
Co-Manager will be restricted from sale, transfer, assignment, or hypothecation
for a period of one year from the Effective Date of the Registration Statement
except to officers or members of the Representative or Co-Manager and members of
the selling group and/or their officers or partners.
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The Company hereby grants to the Representative an over allotment
option (the "Over- allotment Option") for a period of forty-five days after the
Effective Date to purchase at the initial public offering price of $5.00 per
share up to 180,000 additional shares of Stock and 180,000 Warrants at $.125 per
Warrant, less the underwriting discounts, in order to cover over-allotments.
3.01.01. Default by an Underwriter. If any of the Underwriters shall
fail to purchase the entire number of shares of Stock and Warrants set opposite
its name in Schedule I hereto, and such failure to purchase shall constitute a
default by such Underwriter in the performance of its obligations under this
Agreement, the remaining Underwriters shall have the right and shall be
obligated to take up and pay for (in the respective proportions which the number
of shares of Stock and Warrants set opposite the names of the several remaining
Underwriters bears to the aggregate number of shares of Stock and Warrants set
opposite the names of all the remaining Underwriters) the entire amount of
shares of Stock and Warrants which the defaulting Underwriter agreed but failed
to purchase, provided, however, that the aggregate amount of all such increases
for all non-defaulting Underwriters shall not exceed 120,000 shares of Stock or
120,000 Warrants and provided, further, that in the event that such additional
shares of Stock or Warrants shall exceed the foregoing maximum, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be
14
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agreed upon among them) the entire amount (but not less than all) of remaining
shares of Stock or Warrants which all defaulting Underwriters agreed but failed
to purchase.
3.01.02. Liability of Defaulting Underwriter. Nothing contained in this
Section 3.01 shall relieve any defaulting Underwriter of its liability, if any,
to the Company or to the remaining Underwriters for damages occasioned by its
default hereunder.
3.01.03. Right of Remaining Underwriters. If any of the Underwriters
shall fail to purchase the entire number of shares of Stock and Warrants set
opposite its name and such failure to purchase shall not constitute a default by
such Underwriter in the performance of its obligations under this Agreement, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as in be agreed upon among them) the entire
amount (but not less than all) of the shares of Stock and Warrants which all
withdrawing Underwriters agreed but failed to purchase.
3.02. Public Offering Price. After the Commission notifies the Company
that the Registration Statement has become Effective, the Underwriters propose
to offer the Stock to the public at a public offering price of $5.00 per share,
and the Warrants at $.125 per Warrant, as set forth in the Prospectus. The
Underwriters may allow a discount of $.50 upon sales of Stock and $.0125 upon
sales of Warrants to selected dealers as may be determined from time to time by
the Representative.
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3.02.01. Payment For Stock. Payment for the Stock and Warrants
(including the Over-allotment Option Stock and Warrants) which the Underwriters
agree to purchase shall be made to the Company or its order by certified or
official bank check or checks, in the amount of the purchase price by or on
behalf of the Representative at the offices of the Representative in Westport,
Connecticut, upon delivery to the Representative of certificates for shares and
Warrants in definitive form in such numbers and registered in such names as the
Representative requests in writing at least one full business day prior to such
delivery.
3.02.02. Closing. The time and date of delivery and payment hereunder
is herein called the "Closing Date" and shall take place at the office of the
Representative at 495 Post Road East, Westport, Connecticut 06880, or at such
other place that shall be agreed upon by the Company and the Underwriters, on
the third business day following the effective date of this Agreement(unless
postponed in accordance with Section 9) or such other time not later than ten
business days after such date as shall be agreed upon by the Representative and
the Company. Should the Representative elect to exercise any part of the
Over-allotment Option pursuant to Section 3.01 herein above, the time and date
of delivery and payment for said over-allotment Stock and Warrants shall be as
mutually agreed, but not later than the 45th calendar day after the Effective
Date. Said date is hereinafter referred to, as the "Over-Allotment Closing
Date."
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3.02.03. Inspection of Certificates. For the purpose of expediting the
checking and packaging of the certificates for Stocks and Warrants, the Company
agrees to make the certificates available for inspection by the Representative
at the office of the Representative, set forth above in Westport, Connecticut at
least one full business day prior to the proposed delivery date.
3.03. Sale of Warrants. The Company will sell and deliver to the
Representative, at a purchase price of $0.125 per Warrant less the underwriting
discounts, 1,200,000 Warrants, dated on the Closing Date, substantially in the
form of Exhibit A, attached hereto and by this reference incorporated herein,
evidencing the right of the Representative to purchase 1,200,000 shares of Stock
at the price of $5.00 per share and upon the terms and conditions provided in
the Warrants. The Company shall not be obligated to sell and deliver the
Warrants, and the Underwriter will not be obligated to purchase and pay for the
Warrants, except upon payment for the shares pursuant to Subsection 3.02.01
hereof.
The Representative may purchase for nominal consideration, at the
closing of the sale of all the Stock and Warrants contemplated by this
Underwriting Agreement, Representative's Warrants entitling Representative to
120,000 shares of Stock and 120,000 Warrants, which shall not be exercisable or
transferable for a twelve month period following the Effective Date. The
Representative's Warrants shall be exercisable for a period of four years at
$8.25 per share of Stock and $.206 per Warrant exercisable for Stock at $10.725,
upon the terms and conditions provided in the Representative's
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Warrants. The Company shall not be obligated to sell and deliver the
Representative's Warrants, and the Representative will not be obligated to
purchase and pay for the Representative's Warrants, except upon payment for the
shares pursuant to Subsection 3.02.01 hereof.
3.04. Representative's Expense Allowance. It is understood that the
Company shall reimburse the Representative and Co-Manager for its expenses on a
non-accountable basis in the total amount of 3% of the gross proceeds from the
offering, including proceeds from the sale of the over-allotment shares, if
exercised. At the Closing and, if applicable, on the Over-Allotment Closing
Date, the Company shall pay to the Representative and Co-Manager the unpaid
balance of such allowance to defray the expenses incurred by the Representative
and Co-Manager in connection with the offering. The Representative shall be
solely responsible for all expenses incurred by it in connection with the
offering including, but not limited to, the expenses of its own counsel except
as set forth in subsection 5.07 hereof.
3.05. Representations of the Parties. The parties hereto respectively
represent that as of the Closing Date the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this Agreement, shall in all
material respects be true and correct.
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3.06. Post-Closing Information. The Representative covenants that
reasonably promptly after the Closing Date, it will supply the Company with all
information required from the Underwriters for the completion of any applicable
forms and such additional information as the Company may reasonably request to
be supplied to the securities commissions of such states in which the Stock and
Warrants have been qualified for sale.
3.07. Re-Offers By Selected Dealers. On each sale by the Underwriters
of any of the Stock to selected dealers, the Representative shall require the
selected dealer purchasing any such Stock to agree to re-offer the same on the
terms and conditions of the offering set forth in the Registration Statement and
Prospectus.
SECTION 4
Registration Statement and Prospectus
4.01. Delivery of Registration Statements. The Company shall deliver to
the Representative without charge two signed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supplements thereto, and shall deliver without charge to the
Representative five conformed copies of the Registration Statement and any
amendment or supplement thereto, including such financial statements and
exhibits. The signed copies of the Registration Statement so furnished to the
Representative will include signed copies of any and all consents and
certificates of the independent public accountant certifying to the financial
statements
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included in the Registration Statement and Prospectus and signed copies of any
and all consents and certificates of any other persons whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified, or reviewed any part
thereof.
4.02. Delivery of Preliminary Prospectus. The Company will deliver to
the Representative, without charge, as many copies of each Preliminary
Prospectus filed with the Commission bearing in red ink the statement required
by Regulation S-B Item 501(6) and (7) as may be required by the Underwriters.
The Company consents to the use of such documents by the Underwriters and by
dealers prior to the Effective Date of the Registration Statement. The Company
will deliver at its expense such copies of the Preliminary Prospectus as the
Representative may deem necessary in order to recirculate the Preliminary
Prospectus and/or to permit compliance with the provisions of Rule 15c2- 11. For
purposes of the paragraph, the term "Preliminary Prospectus" shall be deemed to
include after the Effective Date of the Registration Statement a Rule 430A
subject to completion prospectus and the Company will deliver to the
Representative, after the effective date at its expense such copies of the Rule
430A prospectus subject to completion as the Representative deems necessary in
connection with the offering.
4.03. Delivery of Prospectus. The Company will deliver, at its expense,
as many printed copies of the Prospectus as the Underwriter may require for the
purposes contemplated by this Agreement and shall deliver said printed copies of
the Prospectus
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to the Representative as soon as practicable on effectiveness of this Agreement,
but in no event more than one business day after the effective date of this
Agreement. The Company will deliver such additional copies at its expense as may
be necessary to permit dealers to comply with the requirements of Rule 174. If
the Representative determines to use a Term Sheet together with a prospectus
subject to completion in accordance with Rule 434 to satisfy the delivery of
prospectus requirement, the Company shall furnish the Representative with such
number of copies of the Term Sheet meeting the requirements of Rule 434 and will
file such number of copies with the Commission as required by Rule 424(b) to
permit the Representative to deliver the final prospectus to purchasers in the
offering in this manner.
4.04. Further Amendments and Supplements. If, during such period of
time as in the opinion of the Representative or its counsel a Prospectus
relating to this financing is required to be delivered under the Act, any event
occurs or any event known to the Company relating to or affecting the Company
shall occur as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made not misleading, or if it is necessary
at any time after the Effective Date of the Registration Statement to amend or
supplement the Prospectus to comply with the Act, the Company will forthwith
notify the Representative thereof and prepare and file with the Commission such
further amendment to the Registration Statement or supplemental or amended
Prospectus as may be required
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and furnish and deliver to the Representative and to others whose names and
addresses are designated by the Representative, all at the cost of the Company,
the number of copies of the amended or supplemented Prospectus designated by the
Representative, which is so amended or supplemented to not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the Prospectus not misleading in the light of the circumstances
when it is delivered to a purchaser or prospective purchaser, and which will
comply in all respects with the Act.
4.05. Use of Prospectus. The Company authorizes the Underwriters in
connection with the distribution of the Stock and Warrants and all dealers to
whom any of the Stock and Warrants may be sold by the Underwriters to use the
Prospectus as from time to time amended or supplemented, in connection with the
offering and sale of the Stock and Warrants, and in accordance with the
applicable provisions of the Act and the applicable Rules and Regulations and
applicable state blue sky or securities laws.
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SECTION 5
Covenants of the Company
The Company covenants and agrees with the Underwriters that:
5.01. Objection of Representative to Amendments or Supplements. After
the date hereof, the Company will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment or supplement
to the Registration Statement or Prospectus, unless and until a copy of such
amendment or supplement has been previously furnished to the Representative
within a reasonable time period prior to the proposed filing thereof, or of
which the Representative or counsel for the Representative has reasonably
objected to, in writing, on the ground that such amendment or supplement is not
in compliance with the Act or the Rules and Regulations.
5.02. Company's Best-Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement and any post-effective amendment subsequently filed, to become
effective as promptly as reasonably practicable and will promptly advise the
Representative, and will confirm such advice in writing (i) when the
Registration Statement shall have become effective and when any amendment
thereto shall have become Effective and when any amendment of or supplement to
the Prospectus shall be filed with the Commission; (ii) when the Commission
shall make a request or suggestion for any amendment to the Registration
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Statement or the Prospectus or for additional information and the nature and
substance thereof; and (iii) of the issuance by the Commission of an order
suspending the effectiveness of the Registration Statement pursuant to Section 8
of the Act or of the initiation of any proceedings for that purpose; (iv) of the
happening of any event which in the judgment of the Company makes any material
statement in the Registration Statement or Prospectus untrue or which requires
the making of any changes in the Registration Statement or Prospectus in order
to make the statements therein not misleading; and (v) of the refusal to qualify
or the suspension of the qualification of the Stock and Warrants for offering or
sale in any jurisdiction, or of the institution of any proceedings for any of
such purposes. The Company will use every reasonable effort to prevent the
issuance of any such order or of any order preventing or suspending such use, to
prevent any such refusal to qualify or any such suspension, and to obtain as
soon as possible a lifting of any such order, the reversal of any such refusal
and the termination of any such suspension.
5.03. Preparation and Filing of Amendments and Supplements. The Company
will prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to counsel to the Company, as in the opinion of
counsel to the Representative and of counsel to the Company, may be necessary in
connection with the offering or distribution of the Stock and Warrants and will
use its best efforts to cause the same to become effective as promptly as
possible.
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5.04. Blue-Sky Qualification. The Company will, when and as requested
by the Representative and Co-Manager, use reasonable efforts to qualify the
Stock and Warrants or such part thereof as the Representative and Co-Manager may
determine for sale under the so-called blue sky laws of the State of Florida,
and of so many other states as the Representative may reasonably request, and to
continue such qualification in effect so long as required for the purposes of
the distribution of the Stock and Warrants.
5.05. Financial Statements. The Company at its own expense will prepare
and give and will continue to give such financial statements and other
information to and as may be required by the Commission, or the proper public
bodies of the states in which the Stock and Warrants may be qualified.
5.06. Reports and Financial Statements to the Representative and Co-
Manager. During the period of five years from the Closing Date, the Company will
deliver to the Representative and Co-Manager, copies of each annual report of
the Company and (i) within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its subsidiaries, if any, on a
consolidated basis, and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as of the end
of the preceding fiscal year, an income statement, a statement of changes in
financial condition and an analysis of shareholders' equity covering such fiscal
year, and all to be in reasonable detail and certified by independent public
accountants for the Company; (ii) within 45 days after the end of each quarterly
fiscal period of the Company
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other than the last quarterly fiscal period in any fiscal year, copies of the
consolidated income statement and statement of changes in financial condition
for that period, and the balance sheet as of the end of that period of the
Company and its subsidiaries, if any, and the income statement, statement of
changes in financial condition and the balance sheet of each unconsolidated
subsidiary, if any, of the Company for that period, all subject to year-end
adjustment, certified by the principal financial or accounting officer of the
Company; (iii) copies of all other statements, documents, or other information
which the Company shall mail or otherwise make available to any class of its
security holders, or shall file with the Commission; and (iv) upon request in
writing from the Underwriter, furnish to the Underwriter such other information
as may reasonably be requested and which may be properly disclosed to the
Representative with reference to the property, business and affairs of the
Company and its subsidiaries, if any.
5.07. Expenses Paid by the Company. The Company will pay, whether or
not the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement including:
all expenses incident to the authorization of the Stock and Warrants and their
issue and delivery to the Representative; any original issue taxes in connection
therewith; all transfer taxes, if any, incident to the initial sale of the Stock
and Warrants to the public; the fees and expenses of the Representative's and
Co-Manager's counsel and accountants; the costs and expenses incident to the
preparation, printing and filing under the Act and with the National
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Association of Securities Dealers, Inc. of the Registration Statement, any
Preliminary Prospectus and the Prospectus and any amendments or supplements
thereto; the cost of printing, reproducing and filing all exhibits to the
Registration Statement, the underwriting documents and the Selected Dealers
Agreement, the cost of printing and furnishing to the Representative copies of
the Registration Statement and copies of the Prospectus as herein provided; and,
the cost of qualifying the Stock and Warrants under the state securities or Blue
Sky laws as provided in Section 5.04 herein, including expenses and
disbursements of the Representative and the Co-Manager incurred in connection
with such qualification.
5.08. Reports to Shareholders. During the period of five years from the
Closing Date, the Company will, as promptly as possible, not to exceed 120 days,
after each annual fiscal period render and distribute reports to its
shareholders which will include audited statements of its operations and changes
of financial position during such period and its balance sheet as of the end of
such period, as to which statements the Company's independent certified public
accountants shall have rendered an opinion.
5.09. Section 11(a) Financials. The Company will make generally
available to its security holders and will deliver to the Representative and the
Co-Manager, as soon as practicable, but in no event later than the first day of
the sixteenth full calendar month following the Effective Date of the
Registration Statement, an earnings statement (as to which no opinion need be
rendered but which will satisfy the provisions of Section 11(a)
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of the Act) covering a period of at least 12 months beginning after the
Effective Date of the Registration Statement.
5.10. Post-Effective Availability of Prospectus. Within the time during
which the Prospectus is required to be delivered under the Act, the Company will
comply, at its own expense, with all requirements imposed upon it by the Act, as
now or hereafter amended, by the Rules and Regulations, as from time to time may
be in force, and by any order of the Commission, so far as necessary to permit
the continuance of sales or dealings in the Stock and Warrants.
5.11. Application of Proceeds. The Company will apply the net proceeds
from the sale of the Stock and Warrants substantially in the manner set forth in
the Registration Statement and Prospectus.
5.12. Undertakings of Certain Shareholders. The Company will deliver to
the Representative, prior to or simultaneously with the execution of this
Agreement, the undertaking of each officer, director, and each employee of the
Company who owns 5% or more of shares of the Company (based on the number of
shares to be outstanding prior to the completion of the offering) that such
person shall not directly or indirectly offer or sell to the public any portion
of the shares of common stock owned prior to the effective date of this
Agreement or hereafter acquired by exercise of an option for a period of
twenty-four
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months or privately for a period of twelve months from the Effective Date of the
Registration Statement without the Representative's prior written consent.
5.13. Delivery of Documents. At the Closing, the Company will deliver
to the Representative true and correct copies of the articles of incorporation
and certificate of incorporation of the Company and all amendments thereto, all
such copies to be certified by the Secretary of State of the State of Florida;
true and correct copies of the bylaws of the Company and of the minutes of all
meetings of the directors and shareholders of the Company held prior to the
Closing Date which in any way relate to the subject matter of this Agreement;
and true and correct copies of all material contracts to which the Company is a
part, other than contracts for the sale of products or services in the normal
course of business.
5.14. Cooperation With Representative's Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative
and the Co- Manager in such investigation as the Representative may make, or
cause to be, made of all the properties, business and operations of the Company
in connection with the purchase and public offering of the Stock and Warrants,
and the Company will make available to the Representative in connection
therewith such information in its possession as the Representative and the
Co-Manager may reasonably request.
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5.15. No Sale Period. No offering, sale or other disposition of any
common stock, equity or long-term debt will be made within one year after the
Effective Date of the Prospectus, directly or indirectly, by the Company,
otherwise than hereunder or with the Representative's consent.
5.16. Appointment of Transfer Agent. The Company has appointed Florida
Atlantic Stock Transfer, Inc. as Transfer Agent for the Stock and Warrants
subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Effective Date without first
obtaining the written consent of the Representative, which consent shall not be
unreasonably withheld.
5.17. Compliance With Conditions Precedent. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Underwriters in Section 8 hereof.
5.18. Filings of Form SR. The Company agrees to file with the
Commission all required reports on Form SR in accordance with the provisions of
Rule 463 promulgated under the Act and to provide a copy of such reports to the
Representative and its counsel.
5.19. Registration Under the Exchange Act. The Company shall, within 90
days after the Effective Date, register the class of equity securities which
constitutes the Stock and Warrants by filing with the Securities and Exchange
Commission a Registration
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Statement (and such copies thereof as the Commission may require) with respect
to such securities, containing such information and documents as the Commission
may specify comparable to that which is required in an application to register a
security pursuant to subsection (g) of Section 12 of the Act, as amended.
5.20. Designation of Member of Company's Board of Directors. The
Representative and the Co-Manager shall have the right to designate as a member
of the Board of Directors or at the Representative's option, an individual to
attend the meetings of the Board of Directors of the Company for a period of
three years after the Effective Date. The attending individual shall not be
compensated for attendance in excess of any fee paid to any other members of the
Board of Directors.
5.21 Key Man Insurance. The Company as of the Effective Date, shall
have a one million dollar ($1,000,000) key man life insurance policy, from a
qualified insurance company, on Max Rutman the Chief Executive Officer,
President and Chairman of the Board of the Company , for which the Company will
be the beneficiary. The Company will use its best efforts to maintain such
insurance for 5 years from Effective Date.
5.22. Application to Moody's or Standard & Poors. The Company shall,
within 120 days after the Effective Date, apply for listing in either Moody's
Over-the-Counter Manual or Standard & Poors and shall use its best efforts to
have the Company listed in such manual.
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5.23. NASDAQ Listing. For a period of five years from the Effective
Date of the Registration Statement, the Company will use its best efforts at its
cost and expense to effect and maintain the quotation of the Stock and Warrants
on the NASDAQ SmallCap Market and will file with the NASDAQ SmallCap Market all
documents and notices required by the NASDAQ SmallCap Market for companies that
have securities that are traded in the over the counter market and quotations
for which are reported by the NASDAQ SmallCap Market.
**** 5.24. Consulting. The Company has agreed to engage the Representative and
the Co-Manager as a consultant for a period of two (2) years from the closing of
the offering at a fee of $2,500 per month payable to each of the Representative
and the Co- Manager commencing on the Effective Date and continuing for a period
of twenty-four consecutive months, for advisory services that will be rendered
by the Representative on a going forward basis.
SECTION 6
Indemnification
6.01. Indemnification By Company. The Company agrees to indemnify and
hold harmless the Underwriters and each person who controls any underwriter
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse
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persons indemnified as above for any legal or other expenses (including the cost
of any investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereto or any
application or other document filed in order to qualify the Stock and Warrants
under the blue sky or securities laws of the states where filings were made, or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, all
as of the date when the Registration Statement or such amendment, as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the indemnity agreement contained in this subsection 6.01 shall not apply
to amounts paid in settlement of any such litigation if such settlements are
effected without the consent of the Company, nor shall it apply to the
Underwriter or any person controlling the Underwriters in respect of any such
losses, claims, damages, liabilities or actions arising out of or based upon any
such untrue statements or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information peculiarly within the knowledge of the Underwriter and furnished in
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writing to the Company by the Underwriter specifically for use in connection
with the preparation of the Registration Statement and Prospectus or any such
amendment or supplement thereto. This indemnity agreement is in addition to any
other liability which the Company may otherwise have to the Underwriters. The
Underwriters agree within ten days after the receipt by them of written notice
of the commencement of any action against them or against any person controlling
them as aforesaid, in respect of which indemnity may be sought from the Company
on account of the indemnity agreement contained in this subsection 6.01 to
notify the Company in writing of the commencement thereof. The failure of the
Underwriters so to notify the Company of any such action shall relieve the
Company from any liability which it may have to the Underwriters or any person
controlling them as aforesaid on account of the indemnity agreement contained in
this subsection 6.01, but shall not relieve the Company from any other liability
which it may have to the Underwriters or such controlling person. In case any
such action shall be brought against the Underwriters or any such controlling
person and the Underwriters shall notify the Company of the commencement
thereof, the Company shall be entitled to participate in (and, to the extent
that it shall wish, to direct) the defense thereof at its own expense, but such
defense shall be conducted by counsel of recognized standing and reasonably
satisfactory to the Representative or such controlling person or persons,
defendant or defendants in such litigation. The Company agrees to notify the
Representative and the Co-Manager promptly of commencement of any litigation or
proceedings against it or any of its officers or directors, of which it may be
advised, in connection with the issue and sale of any of its securities and to
furnish to the Representative and the Co-Manager, at its
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request, copies of all pleadings therein and permit the Representative and the
Co- Manager to be an observer therein and apprise the Representative and the
Co-Manager of all developments therein, all at the Company's expense. Provided,
however, that in no event shall the indemnification agreement contained in this
Section 6.01 inure to the benefit of the Representative (or any person
controlling the Representative) on account of any losses, claims, damages,
liabilities or actions arising from the sale of the Stock and Warrants upon the
public offering to any person by such Representative if such losses, claims,
damages, liabilities or actions arise out of, or are based upon, an untrue
statement or omission or alleged untrue statement or omission in a Preliminary
Prospectus and if the Prospectus shall correct the untrue statement or omission
or the alleged untrue statement or omission which is the basis of the loss,
claim, damage, liability or action for which indemnification is sought and a
copy of the Prospectus had not been sent or given to such person at or prior to
the confirmation of such sale to him in any case where such delivery is required
by the Securities Act, unless such failure to deliver the Prospectus was a
result of non-compliance by the Company with Section 4.03 hereof.
6.02. Indemnification By Underwriters. The Underwriters severally
agree, to the extent of and only to the extent of their commitment pursuant to
Schedule I, in the same manner as set forth in subsection 6.01 above, to
indemnify and hold harmless the Company, the directors of the Company and each
person, if any, who controls the Company with respect to any statement in or
omission from the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended
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or supplemented as aforesaid) or any application or other document filed in any
state or jurisdiction in order to qualify the Stock and Warrants under the blue
sky or securities laws thereof, or any information furnished pursuant to Section
3.05 hereof, if such statement or omission was made in reliance upon information
peculiarly within its knowledge and furnished in writing to the Company by the
Representative on its behalf specifically for use in connection with the
preparation thereof or supplement thereto. The Underwriters shall not be liable
for amounts paid in settlement of any such litigation if such settlement was
effected without the consent of the Representative. In case of commencement of
any action in respect of which indemnity may be sought from the Underwriters on
account of the indemnity agreement contained in this subsection 6.02, each
person agreed to be indemnified by the Underwriters shall have the same
obligation to notify the Underwriters as the Underwriters have toward the
Company in subsection 6.01 above, subject to the same loss of indemnity in the
event such notice is not given, and the Underwriters shall have the same right
to participate in (and, to the extent that they shall wish, to direct) the
defense of such action at their own expense, but such defense shall be conducted
by counsel of recognized standing and satisfactory to the Company. The
Underwriters agree to notify the Company promptly of the commencement of any
litigation or proceeding against the Underwriters or against any such
controlling person, of which it may be advised, in connection with the issue and
sale of any of the securities of the Company, and furnish to the Company at its
request copies of all pleadings therein and apprise it of all the developments
therein, all at the Company's expense, and permit the Company to be an observer
therein.
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SECTION 7
Effectiveness of Agreement
This Agreement shall become effective upon release by the
Representative of the Stock and Warrants for offering after the Effective Date.
The time of the release by the Representative of the Stock and Warrants for
offering, for the purposes of this Section 7, shall mean the time of the release
by the Representative of the Stock and Warrants for public sale pursuant to the
Registration Statement. The Representative agrees to notify the Company
immediately after the Representative shall have released the Stock and Warrants,
that this Agreement has become effective. This Agreement shall nevertheless,
become effective at such time earlier than the time specified above, after the
Effective Date, as the Representative may determine by notice to the Company.
SECTION 8
Conditions of the Underwriters' Obligations
The Underwriters' obligations hereunder to purchase the Stock and
Warrants and to make payment to the Company hereunder on the Closing Date shall
be subject to the accuracy, as of the Closing Date, of the representations and
warranties on the part of the Company herein contained, to the performance by
the Company of all its agreements herein contained, to the fulfillment of or
compliance by the Company with all covenants and conditions hereof, and to the
following additional conditions:
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8.01. Effectiveness of Registration Statement. The Registration
Statement shall have become effective on or prior to 12:00 Noon EST time, on the
Effective Date hereof, or such later date as the Underwriter may agree to. On or
prior to the Closing Date, no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement or the Prospectus nor any amendment thereto shall have
been filed to which counsel to the Representative shall have reasonably objected
in writing or have not given their consent.
8.02. Accuracy of Registration Statement. The Representative shall not
have disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel to the Representative, is
material, or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein not misleading.
8.03. Casualty and Other Calamity. Between the date hereof and the
Closing Date, the Company shall not have sustained any loss on account of fire,
explosion, flood, accident, calamity or any other cause, of such character as
materially adversely affects its
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business or property considered as an entire entity, whether or not such loss is
covered by insurance and neither the President of the Company nor the Chief
Financial Officer of the Company shall have suffered any injury or disability of
a nature which would materially adversely affect his ability to properly
function as an officer and director of the Company.
8.04. Litigation and Other Proceedings. Between the date hereof and the
Closing Date, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, patents, operations or financial condition or
income of the Company considered as an entity.
8.05. Lack of Material Change and Other Conditions. Except as
contemplated herein or as set forth in the Registration Statement and
Prospectus, during the period subsequent to the date of the last audited balance
sheet included in the Registration Statement and prior to the Closing Date, the
Company (A) shall have conducted its business in the usual and ordinary manner
as the same was being conducted on the date of the last audited balance sheet
included in the Registration Statement, (B) except in the ordinary course of its
business, the Company shall not have incurred any liabilities or obligations
(direct or contingent) or disposed of any of its assets, or entered into any
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material transaction or suffered or experienced any substantially adverse change
in its condition, financial or otherwise.
8.06. NASDAQ Listing Approval and NASD No-Objection Letter. The NASDAQ
shall have approved the Company's listing application for NASDAQ Small Cap under
the symbols "FISH" for the Stock and " FISHW" for the Warrants; and the
Underwriters shall have received a no-objection letter from the NASD.
8.07. Accountant's Comfort Letter and Update. At the Closing the
Representative shall have received from Spear, Safer, Harmon & Co. a letter
dated such date, in form and substance satisfactory to the representative
containing statements and information of the type ordinarily included in
accountants' "comfort letter" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and Prospectus; and, at the Closing, the Representative shall also
have received from Spear, Safer Harmon & Co. a letter, dated at the Closing
Date, to the effect that they reaffirm the statements made in the letter
furnished pursuant to the previous clause, except that the specified date
referred to shall be a date not more than three days prior to the Closing Date.
At the Closing Date, the capital stock and surplus accounts of the Company shall
be substantially the same as at the date of the last audited balance sheet
included in the Registration Statement, without considering the proceeds from
the sale of the Stock, other than as may be set forth in the Prospectus.
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8.08. Review By and Opinion of Underwriter's Counsel. The authorization
of the Stock, the Warrants, the Warrant Stock, the Representative's Warrants,
the Registration Statement, the Prospectus and all corporate proceedings and
other legal matters incident thereto and to this Agreement shall be reasonably
satisfactory in all respects to counsel to the Representative and the
Co-Manager. The Representative and the Co-Manager shall have received an opinion
dated as of the Closing Date from its counsel, substantially in the form of the
opinion called for by Section 8.07(viii), qualified in such manner as the
Representative may deem acceptable.
8.09. Opinion of Counsel. The Company (which term shall include any
subsidiaries of the Company) shall have furnished to the Representative the
opinion, dated the Closing Date, addressed to the Representative, from Atlas,
Pearlman, Trop & Borkson, counsel to the Company, to the effect that based upon
a review by them of the Registration Statement, Prospectus, the Company's
certificate of incorporation, bylaws, and relevant corporate proceedings, an
examination of such statutes they deem necessary and such other investigation by
such counsel as they deem necessary to express such opinion:
(i) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of Florida, with full corporate
power and authority to own and operate its properties and to carry on its
business as set forth in the Registration Statement and Prospectus.
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(ii) The Company is duly qualified or registered as a foreign
corporation in any applicable state or foreign jurisdiction cognizant that the
Company's ownership of property and its conduct of business requires such
qualification or registration and that the failure to so qualify would have a
material adverse effect on its operations.
(iii) The Company has authorized an outstanding capital stock as set
forth in the Registration Statement and Prospectus; the outstanding common stock
of the Company, the Stock, and the Warrants conform to the statements concerning
them in the Registration Statement and Prospectus; the outstanding common stock
of the Company has been duly and validly issued and is fully-paid and
nonassessable and contains no preemptive rights; the Stock has been, and the
shares of Warrant Stock issuable upon exercise of the Warrants will be, duly and
validly authorized and, upon issuance thereof and payment therefor in accordance
with this Agreement and the Warrants, will be duly and validly issued, fully
paid and nonassessable, and will not be subject to the preemptive rights of any
shareholder of the Company.
(iv) The Warrants and Representative's Warrants have been duly and
validly authorized and issued and are valid and binding instruments enforceable
in accordance with their terms.
(v) A sufficient number of shares of Stock and Warrants have been duly
reserved for issuance upon exercise of the Warrants and the Representative's
Warrants.
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(vi) No consents, approvals, authorizations or orders of agencies,
officers or other regulatory authorities are known to such counsel which are
necessary for the valid authorization, issue or sale of the Stock and Warrants
hereunder, except as required under the Act or blue sky or state securities
laws.
(vii) The issuance and sale of the Stock, the Warrants,
Representative's Warrants and the consummation of the transactions herein
contemplated and compliance with the terms of this Agreement will not conflict
with or result in a breach of any of the terms, conditions, or provisions of or
constitute a default under the certificate of incorporation, or bylaws of the
Company, or any note, indenture, mortgage, deed of trust, or other agreement or
instrument known to such counsel to which the Company is a party or by which the
Company or any of its property is bound or any existing law (provided this
paragraph shall not relate to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree known to such counsel of any government,
governmental instrumentality, agency, body, arbitration tribunal, or court
domestic or foreign, having jurisdiction over the Company or its property.
(viii) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel after such counsel has
conducted a reasonable investigation, no order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission under the
Act; and the Registration Statement and
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Prospectus, and each amendment and supplement thereto, comply as to form in all
material respects with the requirements of the Act and the Rules and Regulations
thereunder, and after a reasonable investigation such counsel has no reason to
believe that either the Registration Statement or the Prospectus or any such
amendment or supplement contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which made (except that no opinion need be expressed as to financial statements
contained in the Registration Statement or Prospectus); and such counsel is
familiar with all contracts referred to in the Registration Statement or
Prospectus and such contracts are sufficiently summarized or disclosed therein
or filed as exhibits thereto as required, and such counsel, after a reasonable
investigation, does not know of any contracts required to be summarized or
disclosed or filed, and such counsel, after a reasonable investigation, does not
know of any legal or governmental proceedings pending or threatened to which the
Company is the subject of such a character required to be disclosed in the
Registration Statement or the Prospectus which are not disclosed and properly
described therein.
(ix) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company.
As to routine factual matters such as the issuance of stock
certificates and receipt of payment therefor, the states and countries in which
the Company transacts business,
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the adoption of resolutions reflected by the Company's minute book and the like,
such counsel may rely on the certificate of an appropriate officer of the
Company. Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Underwriter or their Counsel
shall reasonably request.
8.10.01. Accountant's Letter. The Underwriter shall have received a
letter addressed to it and dated the date of this Agreement and the Closing
Date, respectively, from Spear, Safer, Harmon & Co. independent public
accountants for the Company, stating that (i) with respect to the Company they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and the response to Item
509 of Regulation S-K as reflected by the Registration Statement is correct
insofar as it relates to them; (ii) in their opinion, the financial statements
examined by them of the Company at all dates and for all periods referred to in
their opinion and included in the Registration Statement and Prospectus, comply
in all material respects with the applicable accounting requirements of the Act
and the published Rules and Regulations thereunder with respect to registration
statements on Form S-B2; (iii) on the basis of certain indicated procedures (but
not an examination in accordance with generally accepted accounting principles),
including examinations of the instruments of the Company set forth under
"Capitalization" in the Prospectus, a reading of the latest available interim
unaudited financial statements of the Company, whether or not appearing in the
Prospectus, inquiries of the officers of the Company or other persons
responsible for its financial and accounting matters regarding the specific
items for which representations are
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requested below and a reading of the minute books of the Company, nothing has
come to their attention which would cause them to believe that during the period
from the last audited balance sheet included in the Registration Statement to a
specified date not more than five days prior to the date of such letter (a)
there has been any change in the capital stock or other securities of the
Company or any payment or declaration of any dividend or other distribution in
respect thereof or exchange therefor from that shown on its audited balance
sheets or in the debt of the Company from that shown or contemplated under
"Capitalization" in the Registration Statement or Prospectus other than as set
forth in or contemplated by the Registration Statement or Prospectus; (b) there
have been any material decreases in net current assets or net assets as compared
with amounts shown in the last audited balance sheet included in the Prospectus
so as to make said financial statements misleading; and (c) on the basis of the
indicated procedures and discussions referred to in clause (iii) above, nothing
has come to their attention which, in their judgment, would cause them to
believe or indicate that (1) the unaudited financial statements and schedules
set forth in the Registration Statement and Prospectus do not present fairly the
financial position and results of the Company, for the periods indicated, in
conformity with the generally accepted accounting principles applied on a
consistent basis with the audited financial statements, and (2) the dollar
amounts, percentages and other financial information set forth in the
Registration Statement and Prospectus under the captions "Prospectus Summary,"
"Risk Factors," "Dilution," "Capitalization," "Exchange Rates", "Remuneration,"
"Bridge Financing", "Business", "Principal Shareholders," and
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Certain Relationships and Related Transactions are not in agreement with the
Company's general ledger, financial records or computations made by the Company
therefrom.
8.10.02. Conformed Copies of Accountant's Letter. The Representative
shall be furnished without charge, in addition to the original signed copies,
such number of signed or photostatic or conformed copies of such letters as the
Representative shall reasonably request.
8.11. Officer's Certificate. The Company shall have furnished to the
Representative and to the Co-Manager its certificate by the Chief Executive
Officer and the Chief Financial Officer, dated as of the Closing Date, to the
effect that:
(i) The representations and warranties of the Company in this Agreement
are true and correct at and as of the Closing Date, and the Company has complied
with all the agreements and has satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date.
(ii) The Registration Statement has become effective and no order
suspending the effectiveness of the Registration Statement has been issued and
to the best of the knowledge of the respective signers, no proceeding for that
purpose has been initiated or is threatened by the Commission.
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(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto contain all statements
required to be stated therein, and all statements contained therein are true and
correct, and neither the Registration Statement nor Prospectus nor any amendment
or supplement thereto includes any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or a supplemented Prospectus which has not been so set forth.
(iv) Except as set forth in the Registration Statement and Prospectus
since the respective dates as of which the periods for which information is
given in the Registration Statement and Prospectus and prior to the date of such
certificate, (A) there has not been any substantially adverse change, financial
or otherwise, in the affairs or condition of the Company, and (B) the Company
has not incurred any liabilities, direct or contingent, or entered into any
transactions, otherwise than in the ordinary course of business.
(v) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, no dividends or distribution
whatever have been declared and/or paid on or with respect to the common stock
of the Company.
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8.12. Tender of Delivery of Stock. All of the Stock being offered by
the Company and the Warrants being purchased from the Company by the
Representative shall be tendered for delivery in accordance with the terms and
provisions of this Agreement.
8.13. Blue-Sky Qualification. The Stock shall be qualified in such
states as the Underwriters through their Representative may reasonably request
pursuant to Section 5.04, and each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Closing Date.
8.14. Approval of Representative's Counsel. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative and to the
Co-Manager, whose approval shall not be unreasonably withheld. The suggested
form of such documents shall be provided to the counsel for the Representative
and to the Co-Manager, at least one business day before the Closing Date. The
Representative's and to the Co-Manager's counsel will provide a written
memorandum stating such closing documents which they deem necessary for their
review. Such memorandum shall be delivered at least three business days before
the Closing Date to counsel for the Company.
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8.15. Officers' Certificate As a Company Representative. Any
certificate signed by an officer of the Company and delivered to the
Representative or to counsel for the Representative will be deemed a
representation and warranty by the Company to the Representative as to the
statements made therein.
SECTION 9
Termination
9.01. Termination Because of Non-Compliance. This Agreement may be
terminated by the Representative by notice to the Company in the event that
there has been, since the time of execution of this Agreement or since the
respective dates as of which the information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings or business affairs of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
if, the Company shall have failed or been unable to comply with any of the
terms, conditions or provisions of this Agreement on the part of the Company to
be performed, complied with or fulfilled (including but not limited to those
specified in Sections 2, 3, 4, 5, and 8 hereof) within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing.
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9.02. Market Out Termination. This Agreement may be terminated by the
Representative by notice to the Company at any time if payment for and delivery
of the Stock and Warrants is rendered impracticable or inadvisable because (i)
trading in securities generally on the New York Stock Exchange, American Stock
Exchange, or NASDAQ (including NASDAQ SmallCap) shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Florida shall have been declared by either federal or state
authorities, or (iii) there has occurred a material adverse change in the
financial markets in the United States or elsewhere including, but not limited
to: a war, outbreak of hostilities or escalation thereof, or any other national
calamity shall have occurred, or any development involving a crisis or change in
political, financial, or economic conditions, the effect of which on the
financial markets of the United States or overseas is such as it would be
undesirable, impracticable or inadvisable for the Representative to proceed or
continue with this Agreement or with the public offering. Notice of such
termination may be given to the Company by telegram, telecopy or telephone and
shall subsequently be confirmed by letter.
9.03. Company's Right to Terminate. In the event any action or
proceeding of the type referred to in subparagraph 9.02 above shall be
instituted or threatened against the Underwriters at any time prior to the
effective date hereunder, or in the event there shall be filed by or against it
in any court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of its assets or if it makes an assignment
for the benefit of creditors,
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the Company shall have the right on three days' written notice to the
Representative to terminate this Agreement without any liability to the
Underwriters of any kind except for the payment of all expenses as provided
herein.
9.04. Effect of Termination Hereunder. Any termination of this
Agreement pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto; except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Section 5.07; and the Company and the Representative shall be obligated to pay,
respectively, all losses, claims, damages or liabilities, joint or several,
under Section 6.01 in the case of the Company and Section 6.02 in the case of
the Representative.
SECTION 10
Underwriter's Representations and Warranties
The Underwriters represent and warrant to and agree with the Company
that:
10.01. Registration as Broker-Dealer and Member of NASD. Each
underwriter is registered as a broker-dealer with the Securities and Exchange
Commission and is registered as a broker-dealer in all states in which it
conducts business and is a member in good standing of the National Association
of Securities Dealers, Inc.
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10.02. No Pending Proceedings. There is not now pending or threatened
against the Underwriters any action or proceeding of which it has been advised,
either in any court of competent jurisdiction, before the Securities and
Exchange Commission or any state securities commission concerning its activities
as a broker or dealer, nor have any of the Underwriters been named as a "cause"
in any such action or proceeding.
SECTION 11
Right of First Refusal
11.01. Consultation With Representative. For a period of two years from
the date of the definitive prospectus, the Company and its officers and
directors agree to consult with the Representative and the Co-Manager in respect
of any prospective or actual public or private offering of securities of the
Company (as such term is defined in this subsection 11.01) for cash, securities
or other consideration, other than to employees.
For the purposes of this Section 11, the term, "securities of the
Company" shall be deemed to include any debt or equity securities of the Company
other than debt securities secured by chattel mortgages or equipment or property
of the Company, the maturity date of which is less than two years, and which are
offered by the Company for sale or sold by the Company only to commercial banks,
insurance companies, recognized finance companies or pension trusts. Also
specifically excluded are public offerings and/or private
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offerings of the Company's shares in exchange for properties, assets or stock of
other individuals or corporations. The Company shall not be required to consult
with the Underwriter concerning any borrowings from banks and institutional
lenders or concerning financing under any equipment leasing or similar
arrangements.
11.02 Exercise of Warrants. Upon the exercise of any Warrants after the
Effective Date, the Company will pay the Representative, as principal and not in
its representative capacity, a fee of four percent (4%) of the difference
between the initial offering price and the aggregate exercise price of the
Warrants if: (i) the market price of the Company's Stock is greater than the
exercise price of the Warrants on the date of exercise; (ii) the exercise of the
Warrants was solicited by a member of the NASD; (iii) the Warrants are not held
in a discretionary account; (iv) the disclosure of compensation arrangements has
been made in documents provided to customers, both as part of the original
offering and at the time of the exercise; (v) the solicitation of the exercise
of the Warrants was not in violation of Rule 10b-6 promulgated under the
Exchange Act; and (vi) the solicitation of the exercise of the Warrants is in
compliance with NASD Notice to Members 81-38. The Company agrees not to solicit
the exercise of any Warrants through brokers or dealers other than through the
Representative and the Co-Manager provided that the Company shall not be
required to pay the Representative and Co-Manager any solicitation fee as to any
Warrants solicited solely by the Company without any action on the part of the
Representative and the Co-Manager and provided the Company is permitted by
applicable laws to so solicit the
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exercise of the Warrants. The Company will not authorize any other dealer to
engage in such solicitation without the prior written consent of the
Representative and the Co- Manager. The exercise of the Warrants other than
through the Representative and the Co- Manager will be presumed to be
unsolicited unless the customer has indicated in writing that the transaction
was not unsolicited and has designated the broker/dealer which is to receive
compensation for the exercise. The warrant solicitation fee to be paid upon the
exercise of the warrants will not be paid before (12) twelve months after the
effective date of the offering.
SECTION 12
Notice
Except as otherwise expressly provided in this Agreement:
12.01. Notice to the Company. Whenever notice is required by the
provisions of this Underwriting Agreement to be given to the Company, such
notice shall be in writing addressed to the Company as follows:
BIO-AQUA SYSTEMS, INC.
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
Telephone: (561) 416-8930
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Attention: David Mayer
With a copy to:
Charles B. Pearlman
Brian Pearlman
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Blvd., Suite 1900
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Telefax: (954) 766-7800
12.02. Notice to the Underwriters. Whenever notice is required by the
provisions of this Agreement to be given to the Underwriters, such notice shall
be given in writing addressed to the Representative at the address set out at
the beginning of this Agreement, with a copy to:
Nutmeg Securities, Ltd.
495 Post Road East
Westport, CT 06880
Attention: Dan Guilfoile
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Emerson Bennett & Associates, Inc.
6261 Northwest 6th Way, Suite 207
Fort Lauderdale, FL 33309
Attention: Brentley Martin
With a copy to:
Walter J. Stanton III, Esq. and Nancy Van
Sant, Attorney
Sacher, Zelman, Stanton, Paul, Beiley & Van
Sant P.A.
1401 Brickell, Suite 700
Miami, FL 33133
Telephone: (305) 371-8797
Telefax: (305) 374-2605
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SECTION 13
Miscellaneous
13.01. Benefit. This Agreement is made solely for the benefit of the
Underwriters, the Company, their respective officers and directors and any
controlling person, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successor" or the term "successors and assigns" as used in this Agreement
shall not include any purchasers, as such, of any of the Stock or Warrants.
13.02. Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
its officers as set forth in or made pursuant to this Agreement and the
indemnity agreements of the Company and the Underwriters contained in Section 6
hereof shall survive and remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or the Underwriters or any
such officer or director thereof or any controlling person of the Company or of
the Underwriters, (ii) delivery of or payment for the Stock, (iii) the Closing
Date, and (iv) any successor of the Company and the Underwriters or any
controlling person, officer or director thereof, as the case may be, shall be
entitled to the benefits hereof.
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13.03. Governing Law. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the State
of Florida.
13.04. Underwriters' Information. The statements with respect to the
public offering of the Stock on the cover page of the Prospectus and under the
caption "Underwriting"' in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in subsection 2.02
hereof, in subsection 6.01 hereof and subsection 6.02 hereof.
13.05. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth our Agreement.
Very truly yours,
Bio-Aqua Systems, Inc.
By:_______________________________
ATTEST:
_____________________________
Secretary
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WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND US.
Emerson Bennett & Associates,
Inc. [Nutmeg Securities Ltd.]
________________________________________
(for itself and as Representative of the
members of the Underwriting Group)
BIO-AQUA SYSTEMS, INC.
By:_____________________________________
60
BIO-AQUA SYSTEMS, INC.
1,380,000 SHARES CLASS A VOTING STOCK
AND
1,380,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
----------------------------
August 26, 1999
Dear Ladies and Gentlemen:
We wish to confirm our agreement among you, the undersigned, and the
other underwriters set forth on Schedule A attached hereto (collectively, the
"Underwriters") with respect to the purchase by the Underwriters severally from
Bio-Aqua, Systems Inc., a Florida corporation (the "Company"), of up to
1,380,000 shares of Class A Voting Stock par value $.0001 at $5.00 per share
("Stock") and 1,380,000 Redeemable Common Stock Purchase Warrants at $0.125 per
Warrant ("Warrants") (the "Offering").
The Company has filed an SB-2 Registration Statement (File No.
33-81829) with respect to the Stock and Warrants with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), which is more particularly described in the Underwriting
Agreement hereinafter referred to. As used herein, the "Registration Statement"
means such registration statement, as amended and supplemented from time to time
in accordance with the Act, and the "Prospectus" means the prospectus
constituting a part of the Registration Statement, as amended and supplemented
from time to time in connection with the Offering. One or more amendments or
supplements to the Registration Statement or the Prospectus have been or may be
filed in which, with our consent hereby given, we have been, or will be, named
as one of the Underwriters of the Offering, but no such amendment or supplement
shall release us from or otherwise affect our obligations hereunder or under the
Underwriting Agreement, as defined below.
1. Underwriting Agreement. Attached hereto is a copy of a proposed
agreement (the "Underwriting Agreement") with the Company providing for the
purchase of the Stock, and Warrants from the Company by each Underwriter,
severally and not jointly, in the respective amount of each as set forth
opposite the name on Schedule A hereto, subject to increase as provided in the
Underwriting Agreement upon certain defaults by other
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Underwriters, and providing for the grant by the Company to the Underwriters, as
provided in Section 1 of the Underwriting Agreement, of the right to purchase
Stock and Warrants pursuant to the Over-Allotment Option. We authorize you to
execute the Underwriting Agreement on our behalf in substantially the form
attached hereto. It is understood that changes may be made in those who are to
be Underwriters and in the respective number of Stock and Warrants to be
purchased by them, but that the number of Stocks and Warrants to be purchased by
us as set forth in the Underwriting Agreement will not be changed without our
consent except as provided herein or in the Underwriting Agreement. The term
"Underwriting Commitment," with respect to any Underwriter, shall refer to the
number of Stocks and Warrants which such Underwriter is obligated to purchase
pursuant to the provisions of the Underwriting Agreement.
2. Authority of Representative. We authorize you, as Representative of
the several Underwriters, (i) to act as our representative in all matters
concerning the Underwriting Agreement, this Agreement, and the purchase,
carrying, sale and distribution of the Stock and Warrants thereunder, (ii) to
exercise all authority vested in the Underwriters or the Representative by the
Underwriting Agreement, including the determination of whether and to what
extent to purchase Stocks and Warrants pursuant to the Over-Allotment Option on
behalf of the Underwriters, and (iii) to take such action as you may deem
necessary or advisable in respect of all matters pertaining thereto, including
the determination of the time of the initial public offering and the furnishing
to the Company of the information to be included in the Prospectus with respect
to the terms of the offering. We understand that you will advise us when the
Stocks and Warrants are released for sale to the public. You will furnish to us
as soon as possible copies of the Prospectus to be used in connection with the
Offering. We authorize you on our behalf, in your discretion, to approve or
object to any amendments or supplements to the Registration Statement or the
Prospectus.
We authorize you to reserve for sale and to sell for our account (a) to
institutions and other retail purchasers and (b) to dealers selected by you
("Selected Dealers"), including Underwriters, such amounts of our Stocks and
Warrants as you determine, and we authorize you to fix the concessions and
reallowances in connection with any such sales to Selected Dealers. Such
concessions and reallowances may be allowed only as consideration for services
rendered in distribution to Selected Dealers who are actually engaged in the
investment banking or securities business, and who are either (i) members in
good standing of the National Association of Securities Dealers, Inc. ("NASD"),
and who agree in writing to comply with NASD Conduct Rule 2740 or (ii) foreign
dealers who are not eligible for membership in the NASD and (a) who agree that
(x) in making sales of Stocks and Warrants outside the United States they will
comply with the NASD's Interpretation
Page 2
<PAGE>
with Respect to Free-Riding and Withholding and (y) they will not offer or sell
any Stocks and Warrants in the United States and (b) who agree in writing that
in making sales of the Stocks and Warrants outside the United States they will
comply with the provisions of NASD Conduct Rules 2730, 2740, and 2750 and with
Conduct Rule 2420 as that Rule applies to a non-member broker or dealer in a
foreign country. Except for sales for the accounts of Underwriters designated by
a purchaser, aggregate sales of Stocks and Warrants to institutions and for the
accounts of Underwriters designated by a purchaser, aggregate sales of Stocks
and Warrants to institutions and other retail purchasers will be made for the
accounts of the several Underwriters as nearly as practicable in proportion to
their respective Underwriting Commitments. Sales of Stocks and Warrants to
Selected Dealers will be made for the accounts of the several Underwriters in
such proportions as you determine.
Sales of the Stocks and Warrants between Underwriters may be made with
your prior consent, or as you deem advisable for "blue sky" purposes.
At or prior to the time when the Stocks and Warrants are released for
sale, you will advise us of the amounts so sold or reserved for sale for our
account. We will retain for direct sale any Stocks and Warrants purchased by us
and not sold or reserved for sale for our account. With your consent, we may
obtain a release from you for direct sale of Stocks and Warrants reserved for
sale to Selected Dealers but not sold and paid for, in which event the amount
reserved for our account for sale to Selected Dealers will be correspondingly
reduced.
After advice from you that the Stocks and Warrants are released for
sale to the public, we will offer for sale to the public in conformity with the
terms of offering set forth in the Prospectus such of our Stocks and Warrants as
you advise us are not sold or reserved for sale for our account.
We will advise you from time to time, at your request, of the number of
Stocks and Warrants retained by us remaining unsold. You may at any time (a)
reserve any of such Stocks and Warrants for sale by you for our account or (b)
purchase any of such Stocks and Warrants which, in your opinion, are needed to
enable you to make deliveries for the accounts of the several Underwriters
pursuant to this Agreement. Such purchases will be made at the public offering
price or, at your option, at such price less any part of the Selected Dealers'
concession.
In respect of any Stocks and Warrants sold directly by us and
thereafter purchased by you at or below the initial public offering price prior
to the termination of this Agreement
Page 3
<PAGE>
(or such longer period as may be necessary to cover any short position with
respect to the offering), you may charge our account with an amount equal to the
Selected Dealers' concession with respect thereto and credit such amount against
the cost thereof, or you may require us to purchase such Stocks and Warrants at
a price equal to the total cost thereof, including any commissions and transfer
taxes on redelivery.
3. Stabilization and Trading. We authorize you, at any time prior to
Termination (as defined in Section 5 hereof), in your discretion (a) to make
purchase and sales of Stocks and Warrants in the open market or otherwise,
either for long or short accounts, and on such terms and at such prices as you
may determine and (b) in arranging for sales of Stocks and Warrants pursuant to
Section 2 hereof, to over-allot, and to make purchases for the purpose of
covering any over-allotment so made; provided, however, that in no time will the
aggregate of our net commitments resulting from such purchases and sales and
over-allotments, whether for long or short account, exceed 15% of our
Underwriting Commitment. All such purchases, sales and over-allotments will be
made for the respective accounts of several Underwriters as nearly as
practicable in proportion to their respective Underwriting Commitments. We agree
to take up at cost on demand any of the Stocks and Warrants so purchased for our
account and to deliver on demand any of the Stocks and Warrants so sold or
over-allotted for our account. Without limiting the generality of the foregoing,
you may buy or take over for the accounts of the several Underwriters, all in
the proportion and within the limits set forth above, at the price at which
reserved, any Stocks and Warrants of any Underwriter reserved for sale by you,
but not purchased and paid for.
Except as permitted by you, we will not bid for, purchase, attempt to
induce others to purchase, or sell, directly or indirectly, any Stocks and
Warrants otherwise than by (a) the purchase and sale of Stocks and Warrants as
provided in the Underwriting Agreement, this Agreement or the agreements with
Selected Dealers, (b) the purchase from or sale to other Underwriters or
Selected Dealers of Stocks and Warrants at the public offering price or at such
price less any part of the Selected Dealers' concession and (c) as brokers
pursuant to unsolicited orders. We confirm that we have at all times complied
and agree that we will at all times comply with the provisions of Regulation M
(17 CFR ss.242.100- 242.105) of the Commission under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), applicable to this offering.
We understand that, in the event that you effect stabilization pursuant
to this Section, you will notify us promptly of the date and time at which the
first stabilizing purchase is effected and the date and time when stabilizing is
terminated. We agree (and such agreement will survive Termination) to comply
with all requirements of the 1934 Act
Page 4
<PAGE>
and the rules and regulations thereunder applicable to us with respect to
notifications and keeping of records of stabilizing transactions.
4. Delivery and Payment. At your request, we will furnish you with
funds in an amount equal to the public offering price, less the Selected
Dealers' concession, of either our Stocks and Warrants or our unreserved Stocks
and Warrants, as you may direct, and we authorize you to make payment therewith
pursuant to the provisions of the Underwriting Agreement. Such payment will be
credited to our account. You may in your discretion make such payment on our
behalf with your own funds, in which event we will reimburse you on request.
You will promptly deliver to us any Stocks and Warrants purchased by us
and not sold or reserved for sale by you. You may in your discretion deliver
such Stocks and Warrants to us through the facilities of Florida Atlantic Stock
Transfer, Inc. if transactions in the Stocks and Warrants may be settled through
its facilities and if we are a member or, if we are not a member, through our
ordinary correspondent who is a member, unless we promptly give you written
instructions otherwise. All other Stocks and Warrants which you then hold for
our account will be delivered to us upon Termination, or prior thereto in your
discretion, and may at any time be delivered to us for carrying purposes only,
subject to redelivery upon demand. If, upon Termination, the amount of Stocks
and Warrants reserved by you which remains unsold does not exceed ten percent of
the aggregate Underwriting Commitments of all of the Underwriters, you may, in
your discretion, sell such Stocks and Warrants at such prices as you may
determine.
We authorize you, in connection with the purchase, distribution and
resale of the Stocks and Warrants, to advance your own funds for our account (in
which event we will reimburse you on request), charging current interest rates,
or to arrange loans for our account and execute on our behalf any note in
connection therewith, and to hold or pledge all or any part of our Stocks and
Warrants as security therefor. Any lender is hereby authorized to accept your
instructions with respect thereto.
You will promptly remit to us or credit to our account (a) the proceeds
of any loan made on our behalf and (b) upon payment to you for any unreserved
Stocks and Warrants sold for our account, an amount equal to the sale price of
such Stocks and Warrants received by you, less transfer taxes, if any, and
expenses, and (c) upon payment to you for any reserved Stocks and Warrants sold
for our account, the purchase price (if any) paid by us for such Stocks and
Warrants, and you will debit or credit, as appropriate, our account with the
difference between the sale price and the purchase price of reserved Stocks and
Warrants sold for our account.
Page 5
<PAGE>
5. Termination and Settlement. Termination of this Agreement
("Termination") will occur upon closing of the Offering.
Upon Termination, all authorizations, rights and obligations hereunder
will cease, except (a) the mutual obligation to settle account hereunder, (b)
our obligation to pay any claims referred to in the last paragraph of this
Section, (c) our obligation with respect to purchases which may be made by you
from time to time thereafter to cover any short position with respect to the
offering and (d) the obligations with respect to indemnity and contribution set
forth in Section 6 hereof, all of which will continue until fully discharged,
and except your authority with respect to matters to be determined by you, or by
you and the Company pursuant to the terms of the Underwriting Agreement, which
will survive Termination.
The accounts arising pursuant to this Agreement will be settled and
paid as soon as practicable after Termination. The determination by you of the
amounts to be paid to or by us will be final and conclusive.
We authorize you to charge our account with (a) any transfer taxes on
sales made for our account, (b) our proportionate share (based upon our
Underwriting Commitment) of all expenses (other than transfer taxes) incurred by
you, as Representative of the several Underwriters, in connection with the
negotiations for, purchase of and distribution of the Stocks and Warrants and
(c) the compensation to the Representative referred to in Section 6.
Notwithstanding any settlement upon Termination, we will pay our
proportionate share of an amount asserted against and discharged by the
Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and will pay any transfer taxes which may be
assessed thereafter on account of any sale or transfer of Stocks and Warrants
for our account.
6. Indemnity and Contribution. Each Underwriter, including yourselves,
agrees to indemnify, hold harmless and reimburse each other Underwriter, each
person who controls any other Underwriter within the meaning of Section 15 of
the Act, and any successor of any other Underwriter, all if and to the extent
that each Underwriter will be obligated in the Underwriting Agreement to
indemnify, hold harmless and reimburse the Company, each of its directors, each
of its officers who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Act.
Page 6
<PAGE>
Each Underwriter (including yourselves) will pay upon request, as
contribution, its proportionate share, based upon its Underwriting Commitment,
of any losses, claims, damages or liabilities, joint or several, paid or
incurred by any Underwriter to any person other than an Underwriter arising out
of or based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus or any
related preliminary prospectus or any other selling or advertising material
approved by you for use by the Underwriters in connection with the sale of the
Stocks and Warrants, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading (other than an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by an Underwriter
specifically for use therein); and will pay such proportionate share of any
legal or other expenses reasonably incurred by you or with your consent in
connection with investigating or defending any such loss, claim damage or
liability, or any action in respect thereof. In determining the amount of any
Underwriter's obligation under this paragraph, appropriate adjustment may be
made by you to reflect any amounts received by any one or more Underwriters in
respect of such claim from the Company, pursuant to the Underwriting Agreement
or otherwise. There will be credited against any amount paid or payable by us
pursuant to this paragraph any loss, damage, liability or expense which is
incurred by us as a result of any such claim asserted against us, and if such
loss, claim, damage, liability or expense is incurred by us subsequent to any
payment by us pursuant to this paragraph, appropriate provision will be made to
effect such credit, by refund or otherwise. If any such claim is asserted, you
may take such action in connection therewith as you deem necessary or desirable,
including retention of counsel for the Underwriters, and in your discretion
separate counsel for any particular Underwriter or group of Underwriters, and
the fees and disbursements of any counsel so retained by you, including fees and
disbursements for a successful defense, will be included in the amounts payable
pursuant to this paragraph. In determining amounts payable pursuant to this
paragraph, any loss, claim, damage, liability or expense incurred by any person
controlling any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act which has been incurred by reason of such control
relationship will be deemed to have been incurred by such Underwriter. Any
Underwriter may elect to retain at its own expense its own counsel. You may
settle or consent to the settlement of any such claim, on advice of counsel
retained by you, with the approval of a majority in interest of the
Underwriters. Whenever you receive notice of the assertion of any claim to which
the provisions of this paragraph would be applicable, you will give prompt
notice thereof to each Underwriter. You will also furnish each Underwriter with
periodic reports, at such times as you deem appropriate, as to the status of
such claim and the action taken by you in connection therewith. If any
Underwriter or Underwriters default in their obligations to make any payments
under this paragraph, each non-defaulting Underwriter will be obligated to pay
its proportionate share of all defaulted payments, based upon such Underwriter's
Underwriting Commitment as related to the Underwriting Commitments of all
non-defaulting Underwriters.
Page 7
<PAGE>
7. Position of Representative. In taking any action under this
Agreement, you will act only as agent to the Underwriters and will be under no
liability to us except for lack of good faith, for obligations expressly assumed
by you in this Agreement and for any liability imposed by the Act.
8. Miscellaneous. If the Underwriting Agreement provides that the
obligations of the Underwriters thereunder are subject to the condition that the
Registration Statement, as defined therein, shall have become effective not
later than a specified time on a specified date following the date of the of the
of Underwriting Agreement, you are hereby authorized, in your discretion, to
extend such date to not later than the same specified time on the second full
business day following such specified date, and, with the consent of
Underwriters, including yourselves, who have agreed to purchase in the aggregate
at least a majority of the Offering, to extend such date to any subsequent date
and to execute on our behalf any supplementary agreement that may be necessary
for such purpose.
With respect to the Underwriting Agreement, you are authorized in your
discretion (a) to postpone the Closing Date, or any other date specified therein
and (b) to exercise any right of cancellation or termination.
Default by any of the other Underwriters with respect to the
Underwriting Agreement will release us from any of our obligations thereunder
and hereunder only if the Underwriting Agreement is thereupon terminated in
accordance with its terms. If one or more Underwriters default under the
Underwriting Agreement, you may arrange for the purchase by others, including
non-defaulting Underwriters, of Stock not taken up by the defaulting Underwriter
or Underwriters.
Nothing herein contained will constitute the Underwriters a
partnership, association or separate entity, and the obligations of ourselves
and of each of the other Underwriters are several and not joint. If for Federal
income tax purposes the several Underwriters should be deemed to constitute a
partnership, then each Underwriter elects to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as
amended. You, as Representative of the several Underwriters, are authorized, in
your discretion, to execute on behalf of the Underwriters such evidence of such
election as may be required by the Internal Revenue Service.
Page 8
<PAGE>
We authorize you to file with any governmental agency any reports
required to be field by you in connection with the transactions contemplated by
this Agreement or the Underwriting Agreement, and we will furnish any
information in our possession needed for such reports. You do not assume any
responsibility or obligation as to our right to sell the Stocks and Warrants in
any jurisdiction, notwithstanding any information you may furnish in that
connection.
We will not advertise our name until after the first public
advertisement made by you and then only at our own expense and risk. We
authorize you to exercise complete discretion with regard to the first public
advertisement.
You will not be under any duty to account for any interest on our funds
at any time in your hands.
We hereby confirm that we are willing to accept the responsibilities
under the Act of an Underwriter named in the Registration Statement. We agree
that we will deliver all preliminary and final prospectuses required for
compliance with the provisions of Rule 15c2-8 under the 1934 Act.
Any notice from you to us will be deemed to have been duly given if
mailed, telexed or sent by facsimile or other written communication to us at the
address set forth in our Underwriters' Questionnaire addressed to the Company.
Any notice to you will be deemed to have been duly given if mailed, telexed or
sent by facsimile or other written communication to you at 495 Post Road East,
Westport, CT 06880 with a copy sent to Sacher, Zelman, Stanton, Paul, Beiley &
Van Sant, Professional Association, 1401 Brickell Avenue, Suite 700, Miami,
Florida 33131, Attention: Walter J. Stanton III, Esq. or Nancy Van Sant, Esq. or
at such other address as you shall specify.
You represent that you are a member in good standing of the NASD and we
represent that we are actually engaged in the investment banking or securities
business and are a member in good standing of the NASD or a foreign dealer not
eligible for membership in the NASD and we agree that, if the former, we will
comply with the provisions of NASD Conduct Rule 2740, and, if the latter, that
(i) in making sales of the Stocks and Warrants outside the United States, we
will comply with the provisions of NASD Conduct Rules 2730, 2740, and 2750 and
Conduct Rule 2420 as that Rule applies to a non-member broker or dealer in a
foreign country and with the requirements of the NASD's Interpretation with
Respect to Free-Riding and Withholding, and (ii) we will not offer or sell any
of the Stocks and Warrants in the United States except through you.
Page 9
<PAGE>
The Agreement will be governed by and construed in accordance with the
laws of the State of Florida, without regard to the principles of conflict of
law.
The Agreement is being executed by us and delivered to you in
duplicate. Please indicate your receipt of identical agreements from each of the
other Underwriters by signing and returning to us one counterpart of this
Agreement whereupon it will constitute a binding contract between us.
Very truly yours,
Confirmed as of the day and year first above written.
Nutmeg Securities, Ltd.
By:
------------------
Emerson Bennett & Associates, Inc,
By:
-----------------------
Brentley C. Martin
President and CEO
As Representative of the Underwriters
Page 10
<PAGE>
SCHEDULE A
----------
BIO-AQUA SYSTEMS, INC.
1,200,000 SHARES CLASS A VOTING STOCK
AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
----------------------------
<TABLE>
<CAPTION>
- -------------------------------- --------------------------------------- -------------------------------------------
UNDERWRITER STOCK COMMITMENT WARRANT COMMITMENT
- -------------------------------- --------------------------------------- -------------------------------------------
<S> <C> <C>
Emerson Bennett & Associates, ________ shares _______Warrants
Inc.
- -------------------------------- --------------------------------------- -------------------------------------------
Nutmeg Securities. Ltd. ________ shares _______Warrants
- -------------------------------- --------------------------------------- -------------------------------------------
Page 11
</TABLE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER TO
BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE
RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
BIO-AQUA SYSTEM, INC.
1,380,000 SHARES CLASS A VOTING STOCK
AND
1,380,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(INCLUDES OVER-ALLOTMENT OPTION)
SELECTED DEALERS AGREEMENT
--------------------------
August 26, 1999
Dear Sirs:
1. Nutmeg Securities, Ltd. (the "Representative"), as underwriter and
representative of the several Underwriters set forth on Schedule A attached
hereto (collectively, the "Underwriters"), has agreed to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 1,200,000 Shares Class A Voting Stock ("Stock"), par
value $.0001 per share, and 1,200,000 Redeemable Common Stock Purchase Warrants
("Warrants") of Bio-Aqua Systems, Inc., a Florida corporation (the "Offering")
(together with any additional Stock or Warrants offered in the Prospectus of
offered pursuant to an over-allotment option). The Offering is more particularly
described in the enclosed Preliminary Prospectus, additional copies of which as
well as the Prospectus (after the effective date, as defined herein) will be
supplied in reasonable quantities upon request.
2. The Representative is soliciting offers to buy the Stock and
Warrants upon the terms and conditions hereof, from Selected Dealers, who are to
act as principals, including you, who are (i) registered with the Securities and
Exchange Commission (the "Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and members in good
standing with the National Association of Securities Dealers, Inc. (the "NASD"),
or (ii) dealers of institutions with their principal place of business located
outside the United States, its territories and possessions and not registered
under the Exchange Act who agree to make no sales within the United States, its
territories and possessions or to persons who are nationals thereof or residents
therein
2
<PAGE>
and, in making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Stock is to be offered to the public at a price of
$5.00 per share and Warrants at $.125 per Warrant. Selected Dealers will be
allowed a concession of not less than ten percent (10%) of the offering price.
You will be notified of the precise amount of such concession prior to the
effective date of the registration statement. The offer is solicited subject to
the issuance and delivery of the Stock and Warrants and their acceptance by the
Representative, to the approval of legal matters by Representative's counsel,
and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Offering has become effective with the Commission (the
"Effective Date"). Subject to the foregoing, upon execution by you of the Offer
to Purchase below and the return of same to us, you shall be deemed to have
offered to purchase the number of Stocks and Warrants set forth in your offer on
the basis set forth in paragraph 2 above. Any oral notice by us of acceptance of
your offer shall be immediately followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual commitment
arises hereunder, all the terms of this Selected Dealers Agreement shall be
applicable. We may also make available to you an over-allotment to purchase
Stocks and Warrants, but such over-allotment shall be subject to modification or
termination upon notice from us any time prior to an exchange of confirmations
reflecting completed transactions. All references hereafter in this Agreement to
the purchase and sale of the Stocks and Warrants assume and are applicable only
if contractual commitments to purchase are completed in accordance with the
foregoing.
4. A registration statement covering the Offering has been filed with
the Commission (the "Registration Statement"). You will be promptly advised when
the Registration Statement becomes effective. Each Selected Dealer in selling
the Stock and Warrants pursuant hereto agrees (which agreement shall also be for
the benefit of the Company) that it will comply with the applicable requirements
of the Securities Act of 1933 and of the Exchange Act and any applicable rules
and regulations issued under said Acts. No person is authorized by the Company
or by the Representative to give any information or to make any representations
other than those contained in the Prospectus in connection with the sale of the
Stocks and Warrants. Nothing contained herein shall render the Selected Dealers
a member of the underwriting group or partners with the Representative or with
one another.
5. You agree that in re-offering the Stocks and Warrants, if your offer
is accepted after the Effective Date, you will make a bona fide public
distribution of same. You will advise us upon request of the Stocks and Warrants
purchased by you remaining unsold, and we shall have the right to repurchase
such Stocks and Warrants upon demand at the public offering price less the
concession as set forth in paragraph 2 above. Any of the Stocks and Warrants
purchased by you pursuant to this Agreement are to be re-offered by you to the
public at the public offering price, subject to the terms hereof and shall not
be offered or sold by you below the public offering price before the termination
of this Agreement.
3
<PAGE>
6. Payment for Stocks and Warrants which you purchase hereunder shall
be made by you on such date as we may determine by certified or bank cashier's
check payable to Nutmeg Securities, Ltd. for the securities to be delivered as
soon as practicable to the offices of Nutmeg Securities, Ltd., 495 Post Road
East Westport, Connecticut 06880. Unless specifically authorized by us, payment
by you may not be deferred until delivery of certificates to you.
7. You will be informed by us as to the states in which we have been
advised by counsel that the Stock and Warrants have been qualified for sale or
are exempt under the respective securities or blue sky laws of such states, but
we have not assumed and will not assume any obligation or responsibility as to
the right of any Selected Dealer to sell Stocks and Warrants in any state.
8. The Representative shall have full authority to take such action as
we may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Representative shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Stock and Warrants; such contractual commitment can
only be made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD
and registered as a broker-dealer or are not eligible for membership under
Section I of the By-Laws of the NASD who agree to make no sales within the
United States, its territories, or possessions or to persons who are nationals
thereof or residents therein and, in making sales, to comply with the NASD's
interpretation with respect to free-riding and withholding. Your attention is
called to the following: (a) Rules 2110, 2730, 2740, 2420, and 2750 of the NASD
Manual Conduct Rules and the interpretations of said Rules promulgated by the
Board of Governors of the NASD including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the Exchange Act and
Regulation M (17 CFR ss.242.100- 242.105) of the general rules and regulations
promulgated under said Act; (c) Securities Act Release No. 3907; (d) Securities
Act Release No. 4150; and (e) Securities Act Release No. 4968 requiring the
distribution of a Preliminary Prospectus to all persons reasonably expected to
be purchasers of Shares from you at least 48 hours prior to the
3
<PAGE>
time you expect to mail confirmations. You, if a member of the NASD, by signing
this Agreement, acknowledge that you are familiar with the cited law, rules, and
releases, and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Stocks and Warrants.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that all of the
Stocks and Warrants have been distributed, bid for or purchase Stocks or
Warrants or any component securities in the open market or otherwise make a
market in such securities or otherwise attempt to induce others to purchase such
securities in the open market. Nothing contained in this paragraph 11 shall,
however, preclude you from acting as agent in the execution of unsolicited
orders of customers in transactions effectuated for them through a market maker.
12. You understand that the Representative may in connection with the
offering engage in stabilizing transactions. If the Representative contracts for
or purchases in the open market in connection with such stabilization any Stock
and Warrants sold to you hereunder and not effectively placed by you, the
Representative may charge you the Selected Dealer's concession originally
allowed you on the Stock and Warrants so purchased, and you agree to pay such
amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net
capital is such that you may, in accordance with Rule 15c3-1 adopted under the
Exchange Act, agree to purchase the number of Stock and Warrants you may become
obligated to purchase under the provisions of this Agreement.
14. You acknowledge that the offering of the Stock and Warrants is
being made in accordance with the requirements of the NASD. Accordingly, as
required by NASD Manual Conduct Rules 2310 and 2720(k), you agree that (i) you
shall not recommend to a customer the purchase of Stock and Warrants unless you
shall have reasonable grounds to believe that the recommendation is suitable for
such customer on the basis of information furnished by such customer concerning
the customer's investment objectives, financial situation and needs, and any
other information known to you, (ii) in connection with all such determinations,
you shall maintain in your files the basis for such determination, and (iii) you
shall not execute any transaction in Stock and Warrants in a discretionary
account without the prior specific written approval of the customer.
15. All communications from you should be directed to us at the office
of the Representative, Nutmeg Securities, Ltd., 495 Post Road East, Westport,
Connecticut 06880. All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
4
<PAGE>
NUTMEG SECURITIES, LTD.
By:
-------------------------------
5
<PAGE>
EMERSON BENNETT & ASSOCIATES, INC.
By:
------------------------------------
Brentley C. Martin
President and CEO
Accepted and Agreed to as of the _____
day of ______________, 1999
[Name of Dealer]
By:
-------------------------------
Its
6
<PAGE>
To: Brentley C. Martin
President and CEO
Emerson Bennett & Associates, Inc.
6261 Northwest 6th Way, Suite 207
Fort Lauderdale, Florida 33309
Daniel T. Guilfoile, Director, Investment Banking
Nutmeg Securities, Ltd.
495 Post Road East
Westport, Connecticut 06880
We hereby subscribe for ________ Stocks of Bio-Aqua Systems, Inc., a
Florida corporation, par value $.0001 per share, and Redeemable Stock Purchase
Warrants (the "Stock and Warrants") in accordance with the terms and conditions
stated in the foregoing letter. We hereby acknowledge receipt of the Prospectus
referred to in the first paragraph thereof relating to said Stock and Warrants.
We further state that in purchasing said Stock and Warrants, we have relied upon
said Prospectus and upon no other statement whatsoever, whether written or oral.
We confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (ii) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended, who hereby agrees not to make
any sales within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein. We hereby agree to
comply with the provisions of Rule 2740 of the NASD Manual Conduct Rules, and if
we are a foreign dealer and not a member of the NASD, we also agree to comply
with the NASD's interpretation with respect to free-riding and withholding, to
comply, as though we were a member of the NASD, with the provisions of Conduct
Rules 2730 and 2750 as they apply to non-member foreign dealers.
[Name of Dealer]
By: __________________________
Address:
------------------------------
------------------------------
Dated: August __, 1999
7
<PAGE>
SCHEDULE A
----------
BIO-AQUA SYSTEMS, INC.
1,380,000 SHARES CLASS A VOTING STOCK
AND
1,380,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(INCLUDES OVER-ALLOTMENT OPTION)
SELECTED DEALERS AGREEMENT
--------------------------
Underwriters
------------
1. Representative Underwriter
Nutmeg Securities, Ltd.
495 Post Road East
Westport, Connecticut 06880
2. Emerson Bennett & Associates, Inc.
6261 N.W. 6th Way, Suite 207
Fort Lauderdale, FL 33309
8
ANNEX A
Form of Lock-Up
---------------
Brentley C. Martin, President/CEO
Emerson Bennett & Associates
Corporate Headquarters
6261 N.W. 6th Way, Suite 207
Fort Lauderdale, Florida 33309
Daniel T. Guilfoile, Director, Investment Banking
Nutmeg Securities, Ltd.
495 Post Road East
Westport, Connecticut 06880
Gentlemen:
Reference is made to the Underwriting Agreement, dated August ___, 1999
(the "Underwriting Agreement"), between Bio-Aqua Systems, Inc., a Florida
corporation (the "Company"), and Emerson Bennett & Associates and Nutmeg
Securities, Ltd. (the "Underwriter"). Capitalized terms used herein and not
defined herein shall have the same meanings ascribed to them in the Underwriting
Agreement.
1. In consideration of the Underwriting Agreement, the undersigned
hereby agrees not to, without the prior written consent of the Underwriter and
except as set forth in Section 2, offer, sell or otherwise dispose of any shares
of the Company's common stock, par value $.0001 per share (the "Common Stock"),
or any securities convertible into or exercisable or exchangeable for, or any
right to purchase or acquire Common Stock ("Warrants") owned by the Undersigned
for a period of twelve (12) months after the date of the Underwriting Agreement.
2. The restrictions set forth in Section 1 shall not apply to private
sales or transfers of Common Stock or Warrants to purchasers or transferees who
agree in writing to be bound by the terms set forth herein.
3. The undersigned hereby waives the registration rights to which the
undersigned may be entitled to until the expiration of such twelve (12) month
period.
Date: August ___, 1999
Very truly yours,
By: ____________________
Name
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 15th day of June 1999 but effective as of the
Closing, by and between Max Rutman, Andrea Rutman and Paulina Rutman
(collectively the "Sellers"), and Bio-Aqua Systems, Inc., a Florida corporation
("Purchaser").
W I T N E S S E T H:
WHEREAS, Sellers are the owners of all of the issued and outstanding
stock (the "Shares"), of Profeed, Inc. ("Profeed"), a Bahamian corporation; and
WHEREAS, Purchaser desires to purchase from Sellers and Sellers desire
to sell to Purchaser, the Shares upon the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained and upon the terms and conditions hereinafter set forth, the
parties hereto, intending to be legally bound, agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
a. Purchase and Sale. Upon the terms and conditions herein
contained, at the Closing (as hereinafter defined), Sellers agree to sell the
Shares to Purchaser and Purchaser agrees to purchase the Shares from Sellers,
free and clear of all liens, claims, pledges, mortgages, restrictions,
obligations, security interests and encumbrances of any kind, nature and
description.
2. CONSIDERATION.
a. Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be an aggregate of One Million Three Hundred Thousand
Dollars ($1,300,000) to Sellers, of which $400,000 will be paid from the
proceeds of Purchaser's initial public offering and the balance will be paid,
under the discretion out of: (1) 5% of Purchaser's gross revenues per quarter,
but in no event greater than 20% of Purchaser's gross income per quarter, from
the sale of products sold under the Tepual(Trademark) and Inual(Trademark)
brands; (2) third party financing; or (3) working capital.
3. CLOSING.
a. Time and Place of Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place simultaneously
with the effective date of the Registration Statement on Form SB-2 as filed by
Purchaser with the Securities and Exchange Commission.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers hereby
represent and warrant to Purchaser as follows:
a. Status of Sellers and Shares. Sellers are the sole
beneficial owner of the respective Shares, and own the Shares, free and clear of
all mortgages, pledges, restrictions, liens, charges, encumbrances, security
interests, obligations or other claims.
b. Organization. To Sellers' knowledge, Profeed is a
corporation duly organized, validly existing and in good standing under the laws
of the Bahamas, has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it, is duly qualified to do
business and is in good standing in any jurisdiction its business requires
qualification.
c. Inual(Trademark) and Tepual(Trademark) Brands, Trademarks and
Marks.
(i) All Inual(Trademark) and Tepual(Trademark) Brands,
Trademarks and Marks that have been registered with the appropriate authorities
are currently in compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety (90) days after
the Closing Date.
(ii) No Brands, Trademarks or Marks have been or are now
involved in any opposition, invalidation, or cancellation and, to Seller's
knowledge, no such action is threatened with the respect to any of the Brands,
Trademarks or Marks.
(iii) To Seller's knowledge, there is no potentially
interfering trademark or trademark application of any third party.
(iv) No Brands, Trademarks or Marks are infringed or, to
Seller's knowledge, have been challenged or threatened in any way. None of the
Brands, Trademarks or Marks used by Seller infringe or are alleged to infringe
any trade name, trademark, or service mark of any third party.
(v) All products and materials containing Brands,
Trademarks and Marks bear the proper registration notice where permitted by law.
(vii) The transfer of the shares will not result in the loss
of any brands, trademarks or marks held by the Purchaser.
d. Due Authorization. This Agreement has been duly authorized
by each Seller and is a validly binding and legally enforceable obligation of
each Seller enforceable in accordance with its terms.
2
<PAGE>
5. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS OF PURCHASER.
Purchaser hereby represents, warrants and acknowledges to Sellers as follows:
a. Due Incorporation. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
b. Corporate Power of Purchaser. Purchaser has the full legal
right and power and all authority and approval required to enter into, execute
and deliver this Agreement and to perform fully its obligations hereunder.
c. Due Authority. Purchaser has all power and authority
necessary to enable it to carry out the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by it have been authorized by all necessary
corporate action on the part of Purchaser, including shareholder approval, if
required. This Agreement is a valid and binding agreement of Purchaser,
enforceable against Purchaser in accordance with its terms. Neither the
execution and delivery of this Agreement by Purchaser nor the consummation of
the transactions contemplated by this Agreement will violate, result in a breach
of, or constitute a default under, any agreement or instrument to which
Purchaser is a party or by which Purchaser is bound, or any order, rule or
regulation of any court or governmental agency having jurisdiction over
Purchaser.
d. No Breach. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate any provision of the Articles of Incorporation or By-Laws of
Purchaser; (ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both) a default under any contract or other agreement to which
Purchaser is a party; (iii) violate any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body against, or
binding upon Purchaser, or upon the properties or business of Purchaser; or (iv)
violate any statute, law or regulation of any jurisdiction applicable to
Purchaser.
6. CLOSING ITEMS.
a. Purchaser's Deliveries. At Effective Date, Purchaser shall
deliver to Sellers the following monies and documents:
(i) a certified copy of a resolution of Purchaser's Board
of Directors authorizing the execution and delivery of this Agreement and the
purchase of the Shares.
3
<PAGE>
(ii) other purchase documents: all such documents and
instruments as Sellers and their counsel may reasonably request in connection
with the consummation of the transaction contemplated by this Agreement.
b. Sellers' Deliveries. At Effective Date, Sellers shall
deliver to Purchaser the following rights and documents for the following:
(i) all the rights to the brands, trademarks and patents
"Inual(Trademark);"
(ii) all the rights to the brands, trademarks and patents
"Tepual(Trademark);"
(iii) assignment and assumption of all future rights to the
brands, trademarks and patents "Inual(Trademark)" and "Tepual(Trademark)
executed by Max Rutman;"
(iv) agreements and assignments of trade names and
trademarks between Max Rutman and Profeed, Inc.;
(v) assignment and assumption agreements; and
(vi) certificates representing the shares issued in the
names of the Purchaser, free and clear of any legends or restrictions.
7. MISCELLANEOUS.
a. Binding Effect; Benefits. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and their respective
successors and permitted assigns. Except as otherwise set forth herein, this
Agreement may not be assigned by any party hereto without the prior written
consent of the other party hereto. Except as otherwise set forth herein, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
b. Notices. All notices, requests, demands and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person, or transmitted by telecopy or telex, or upon receipt after dispatch
by certified or registered first class mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made, at the following
addresses (or such others as shall be provided in writing hereinafter):
(i) If to Sellers, to:
Tepual S.A.
159 General Ekdhal 159
Santiago, Chile
4
<PAGE>
(ii) If to the Purchaser, to:
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
Attention: Brian Pearlman, Esq.
c. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
d. Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this Agreement.
e. Counterparts. This Agreement may be executed in any number
of counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
f. Governing Law. This Agreement shall be construed as to both
validity and performance and enforced in accordance with and governed by the
laws of the State of Florida, without giving effect to the conflicts of law
principles thereof.
g. Severability. If any term or provision of this Agreement
shall to any extent be invalid or unenforceable, the remainder of this Agreement
shall not be affected thereby, and each term and provision of the Agreement
shall be valid and enforced to the fullest extent permitted by law.
h. Arbitration. Any controversy or dispute arising out of or
in connection with this Agreement, its interpretation, performance or
termination, which the parties hereto are unable to resolve within a reasonable
time after written notice from one (1) party to the other of the existence of
such controversy or dispute shall be determined by arbitration. Such arbitration
shall be in accordance with the rules and procedures then in effect of the
American Arbitration Association. The costs and expenses of such arbitration,
including attorney's fees and expenses, shall be awarded as determined by the
arbitrators.
i. Amendments. This Agreement may not be modified or changed
except by an instrument or instruments in writing executed by the parties
hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SELLERS:
/s/ Max Rutman
------------------------------------
Max Rutman
/s/ Andrea Rutman
------------------------------------
Andrea Rutman
/s/ Paulina Rutman
------------------------------------
Paulina Rutman
PURCHASER:
BIO-AQUA SYSTEMS, INC.
By: /s/ David Mayer
--------------------------------
David Mayer
Director, Assistant Secretary
By: /s/ Guillermo Quiroz
--------------------------------
Guillermo Quiroz
Director, Chief Financial Officer
6
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
BIO-AQUA SYSTEMS, INC.
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of Bio-Aqua Systems, Inc. (the
"Corporation"), a corporation organized and existing under and by virtue of the
Business Corporation Act of the State of Florida, bearing document number
P99000025047, does hereby certify:
FIRST: That pursuant to written consent of the Board of Directors and
majority of the shareholders of the Corporation, dated August 5, 1999, the Board
of Directors and a majority of the shareholders approved the Amendment to the
Corporation's Articles of Incorporation as follows:
Article IV of the Corporation's Articles of Incorporation shall be
deleted in its entirety and substituted by the following:
CAPITAL STOCK
-------------
The maximum number of shares that this Corporation shall be authorized
to issue and have outstanding at any one time shall be (i) twenty-two million
(22,000,000) shares of common stock, par value $.0001 per share, of which
20,000,000 shares have been designated as Class A Common Stock and 2,000,000
shares have been designated as Class B Common Stock, and (ii) five million
(5,000,000) shares of Preferred Stock having a par value of $.0001 per share.
The Class A Common Stock shall be designated as follows:
1. Designation and Number of Shares. The Class A Common Stock shall be
designated "Class A Common Stock" of a par value of $.0001 each, and the number
of shares constituting the Class A Common Stock shall be 20,000,000 shares.
2. Voting Rights. Holders of Class A Common Stock shall be entitled to
one (1) vote for each share of Class A Common Stock held.
3. Dividends. Holders of Class A Common Stock shall be entitled to
dividends as shall be designated by the Company's Board of Directors from time
to time.
BRIAN PEARLMAN, Esq., Florida Bar No. 0157023
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Blvd., Ste. 1900
Ft. Lauderdale, FL 33301 (954) 763-1200
<PAGE>
The Class B Common Stock shall be designated as follows:
1. Designation and Number of Shares. The Class B Common Stock shall be
designated "Class B Common Stock" of a par value of $.0001 each, and the number
of shares constituting the Class B Common Stock shall be 2,000,000 shares.
2. Voting Rights. Holders of Class B Common Stock shall be entitled to
five (5) votes for each share of Class B Common Stock held.
3. Dividends. Holders of Class B Common Stock shall be entitled to
dividends as shall be designated by the Company's Board of Directors from time
to time.
4. Conversion. Holders of Class B Common Stock may convert any shares
of Class B Common Stock held by any of them into shares of Class A Common Stock,
provided that upon conversion, the voting rights of such converted shares shall
be on a one vote for one share basis; and provided that such Class A Common
Stock are unencumbered or are not subject to any escrow agreement or otherwise.
5. Sale or Transfer of Class B Common Stock. Holders of Class B Common
Stock may sell or transfer any or all of their shares of Class B Common Stock to
any party, who will have the same rights, privileges, and restrictions, if
applicable, of any other holder of Class B Common Stock.
Classes and series of the Preferred Stock may be created and issued
from time to time, with such designations, preferences, conversion rights,
cumulative, relative, participating, optional or other rights, including voting
rights, qualifications, limitations or restrictions thereof as shall be stated
and expressed in the resolution or resolutions providing for the creation and
issuance of such classes of Common Stock as adopted by the Board of Directors.
SECOND: The foregoing amendment was adopted by the Board of Directors
of the Corporation pursuant to a Written Consent of the Board of Directors of
the Corporation and by a majority of the shareholders of the Common Stock of the
Corporation, dated August 5, 1999, acting by Written Consent pursuant to
Sections 607.0821 and 607.0704 of the Florida Business Corporation Act.
Therefore, the number of votes cast for the amendment to the Corporation's
Articles of Incorporation was sufficient for approval.
Dated: August 5, 1999
Max Rutman, Director
and President
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of
this ____ day of ___________, 1999, by and between BIO-AQUA SYSTEMS, INC. a
corporation organized and existing under the laws of the State of Florida
("Company"), and FLORIDA ATLANTIC STOCK TRANSFER, INC., as warrant agent
("Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 1,380,000
shares of common stock ("Class A Common Stock"), $.0001 par value per share,
(which includes 180,000 shares of Class A Common Stock pursuant to the
Underwriters' over-allotment option) at a purchase price of $5.00 per share and
1,380,000 redeemable Class A Common Stock purchase warrants ("Warrants") (which
includes 180,000 shares of Warrants pursuant to the Underwriters' over-allotment
option) at a purchase price of $.125 per Warrant pursuant to a Registration
Statement on Form SB-2 (the "Prospectus"), File Number 333-81829, filed with the
Securities and Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrants. The text and the terms of the Warrants, and the
form of election to purchase shares of Class A Common Stock appearing on the
reverse side thereof shall be substantially as set forth in Exhibit A attached
hereto and made a part hereof. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the president or a vice
president of the Company and by the manual or facsimile of the secretary or
assistant secretary of the Company under its corporate seal, affixed or in
facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial date
of issuance thereof, and upon transfer or exchange, the Warrant shall be dated
as of such subsequent issuance date.
3. Registration and Countersignature. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective registered holders, and upon subsequent
issuance, such Warrants shall be registered in the names of the respective
<PAGE>
succeeding registered holders. The Warrants shall be countersigned by the
Warrant Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the Warrant Agent
(or by its successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signature appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery. Until a Warrant is transferred
on the books of the Warrant Agent, the Company and the Warrant Agent may treat
any registered holder of Warrants as the absolute owner thereof for all
purposes, notwithstanding any notice to the contrary.
4. Registration of Transfers and Exchanges. The Warrant Agent shall
transfer any outstanding Warrants on the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer, properly endorsed
or accompanied by appropriate instructions for transfer with proper documentary
stamps affixed thereto, if requested. Upon any such transfer, a new Warrant
shall be issued to the transferee, and the surrendered Warrant shall be canceled
by the Warrant Agent. Warrants so canceled shall be delivered by the Warrant
Agent to the Company from time to time. Warrants may be exchanged at the option
of the holder thereof when surrendered at the office of the Warrant Agent, for
another Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Class A Common Stock. The Warrant Agent is hereby irrevocably authorized to
countersign and deliver the Warrants in accordance with the provisions of this
Paragraph 4, and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrants duly executed on behalf of the Company
for such purpose.
5. Exercise of Warrants. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which right may be
exercised as in such Warrants expressed, during the five year period commencing
on the date of the Company's Prospectus dated _________ ____, 199__
("Prospectus") to purchase from the Company, and the Company shall issue and
sell to such registered holder of Warrants, the number of fully paid and
non-assessable shares of Class A Common Stock specified in such Warrants, upon
surrender to the Company at the office of the Warrant Agent, with the form of
election to purchase on the reverse side thereof duly completed and signed, and
upon payment to the Warrant Agent for the account of the Company of the Exercise
Price, as hereinafter defined, for the number of shares of Class A Common Stock
in respect of which such Warrants are then exercised. Payment of such Exercise
Price may be made in cash or by certified check, bank draft, or postal or
express money order, payable in United States dollars, to the order of the
Company. Subject to the provisions of Paragraph 8 hereof, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company, acting
through the Warrant Agent, shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrants and in such name or names as such registered holder may designate,
a certificate or certificates for the number of full shares of Class A Common
Stock so purchased upon the exercise of such Warrants. Such certificates shall
be deemed to have been issued, and any person so designated to be named therein
shall be deemed to have become a holder of record of such Class A Common Stock,
as of the date of surrender of such Warrants and payment of the Exercise Price,
as aforesaid; provided, however, that if, at the date of surrender of such
2
<PAGE>
warrants and the payment of such Exercise Price, the transfer books for the
Class A Common Stock purchasable upon the exercise of such Warrants shall be
closed, the certificates for the shares in respect of which such Warrants are
then exercised shall be issuable as of the date on which such books shall next
be opened, and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the transfer books
aforesaid, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 days. The right of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or, from time to time, for part only of the
shares specified therein, and in the event that any Warrant is exercised in
respect of less than all of the shares specified therein at any time prior to
the date of expiration of the Warrants, a new Warrant or warrants will be issued
for the remaining number of Class A Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Paragraph 5 and of Paragraph 3 of this Agreement, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrants duly executed on behalf of the Company for such purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Class A Common Stock in connection therewith
would constitute a violation of the registration provisions of federal or state
securities laws.
The Company will use its best efforts to file and keep effective a
current prospectus which will permit the purchase and sale of the Warrants and
the Class A Common Stock underlying the Warrants. In addition, the Company will
use its best efforts to qualify for sale the Warrants and the Class A Common
Stock underlying the Warrants in those states in which the Warrants and the
Class A Common Stock are to be offered.
Upon thirty (30) days' prior written notice to all holders of the
Warrants, the Company shall have the right to reduce the exercise price and/or
extend the term of the Warrants in compliance with the requirements of Rule
13e-4 to the extent applicable.
The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a recapitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter shall
mean said price as adjusted from time to time in accordance with the provisions
hereof. No such adjustment shall be made unless such adjustment would change the
then purchase price per share by Ten Cents ($.10) or more; provided, however,
that all adjustments not so made shall be deferred and made when the aggregate
thereof would change the then purchase price per share by Ten Cents ($.10) or
more. No adjustment made pursuant to any provision hereof shall have the effect
of increasing the total consideration payable upon exercise of any of the
Warrants.
6. Adjustments in Certain Cases. In case the Company shall at any time
prior to the exercise or termination of any of the Warrants effect a
recapitalization or reclassification of such character that its Class A Common
Stock shall be changed into or become exchangeable for a larger or smaller
number of shares, then, upon the effective date thereof, the number of shares of
Class A
3
<PAGE>
Common Stock that the holders of the Warrants shall be entitled to purchase upon
exercise thereof shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in such number of shares of Class A
Common Stock by reason of such recapitalization or reclassification on, and the
purchase price per share of such recapitalized or reclassified Class A Common
Stock shall, in the case of an increase in the number of shares, be
proportionately decreased and, in the case of a decrease in the number of
shares, be proportionately increased.
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Class A Common
Stock cash, evidences of indebtedness, or other securities or assets, other than
as dividends or distributions payable out of current or accumulated earnings,
then, in any such case, the holders of the Warrants shall be entitled to
receive, upon exercise thereof, with respect to each share of Class A Common
Stock issuable upon such exercise, the amount of cash or evidences of
indebtedness or other securities or assets that such holder would have been
entitled to receive with respect to the Class A Common Stock as a result of the
happening of such event, had the Warrants been exercised immediately prior to
the record date or other date fixing shareholders to be affected by such event
(without giving effect to any restriction upon such exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a condition
precedent to such transaction, cause effective provision to be made so that the
holders of the Warrants, upon the exercise thereof after the effective date of
such transaction, shall be entitled to receive the kind and amount of shares,
evidences of indebtedness, and/or other property receivable on such transaction
by a holder of the number of shares of Class A Common Stock as to which the
Warrants were exercisable immediately prior to such transaction (without giving
effect to any restriction upon such exercise); and, in any such case,
appropriate provision shall be made with respect to the rights and interests of
the holders thereof to the effect that the provisions of the Warrants shall
thereafter be applicable (as nearly as may be practicable) with respect to any
shares, evidences of indebtedness, or other securities or assets thereafter
deliverable upon exercise of the Warrants.
Whenever the number of shares of Class A Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing, which may include the Company's then
independent auditing firm setting forth the computation and the adjusted number
of shares of Class A Common Stock or other securities or assets purchasable
hereunder resulting from such adjustments, and a copy of such certificate or
letter shall be mailed to each of the registered holders of the Warrants. Any
such certificate or letter shall be conclusive evidence as to the correctness of
the adjustment or adjustments referred to therein and shall be available for
inspection by the holders of the Warrants on any day during normal business
hours.
4
<PAGE>
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Class A Common Stock, then, wherever appropriate, all
references herein to Class A Common Stock shall be deemed to refer to and
include such shares, evidences of indebtedness, or other securities or assets,
and thereafter the number of such shares, evidences of indebtedness, or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions
hereof.
7. Redemption. The Warrants may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant (subject to adjustment as set
forth herein) at any time commencing twelve (12) months from the date of the
Prospectus upon not less than thirty (30) days prior written notice, subject to
exercise by the Warrantholder, if the closing bid price of the Company's Class A
Common Stock, as reported by the principal exchange on which the Class A Common
Stock is traded, the NASDAQ SmallCap Market or the National Quotation Bureau,
Incorporated, as the case may be, equals or exceeds $8.50 per share for thirty
(30) consecutive trading days. However, the Company may not redeem the Warrants
at any time that a current registration statement under the Securities Act of
1933 covering the shares of Class A Common Stock issuable upon exercise of the
Warrants is not then in effect. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants except to
receive the $.05 per Warrant upon surrender of this Warrant Certificate.
8. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of securities upon the exercise of
the Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issue or delivery of any securities in a name other than that of the registered
holder of Warrants in respect of which such securities are issued and, in such
case, neither the Company nor the Warrant Agent shall be required to issue or
deliver any certificate representing such securities or any Warrant until the
person requesting the same has paid to the Company or the Warrant Agent the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid.
9. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Warrant Agent may countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Warrant Agent of
such loss, theft or destruction of such Warrants and indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrants shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
10. Reservation of Class A Common Stock. Prior to the issuance of any
Warrants, there shall have been reserved, and the Company shall at all times
keep reserved out of the authorized and unissued Class A Common Stock, a number
of shares of Class A Common Stock sufficient to
5
<PAGE>
provide for the exercise of the rights of purchase represented by the Warrants,
and the transfer agent for the Class A Common Stock and every subsequent
transfer for any of the Company's Class A Common Stock issuable upon the
exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued Class A Common Stock as shall be requisite for such purpose. The
Company agrees that all Class A Common Stock issued upon exercise of the
Warrants shall be, at the time of delivery of the certificates representing such
Class A Common Stock, validly issued and outstanding, fully paid and
non-assessable. The Company will keep a copy of this Agreement on file with the
transfer agent for the Class A Common Stock and with every subsequent transfer
agent for the Company's Class A Common Stock issuable upon the exercise of the
right of purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such transfer agent
stock certificates required to honor outstanding Warrants that have been
exercised. The Company will supply such transfer agent with duly executed stock
certificates for such purpose. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of Class A Common Stock
that have been issued upon the exercise of such Warrants. All Warrants
surrendered for transfer, exchange or partial exercise shall be canceled by the
Warrant Agent and delivered to the Company. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding and, thereafter, no Class A
Common Stock shall be subject to reservation in respect of such Warrants.
11. Disposition of Proceeds on Exercise of Warrants. Upon the exercise
of the Warrants, the Warrant Agent shall promptly deposit the payment into an
escrow account established by mutual agreement of the Company and the Warrant
Agent at a federally insured commercial bank. All funds deposited in the escrow
account will be disbursed on a weekly basis to the Company once they have been
determined by the Warrant Agent to be collected funds. Once the funds are
determined to be collected, the Warrant Agent shall cause the share
certificate(s) representing the exercised Warrants to be issued.
12. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company that may succeed to the business of the Warrant Agent by
merger or consolidation or otherwise to which the Warrant Agent shall be a
party, or any corporation or company or otherwise succeeding to the business of
the Warrant Agent shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
for appointment as a successor Warrant Agent under the provision of Paragraph 14
of this Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement or in case at any time the name
of the Warrant Agent shall be changed, and any of the Warrants shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrants so countersigned; and in case at the time any of the Warrants shall not
have been countersigned, the successor to the Warrant Agent may countersign such
Warrants, either in the name of the predecessor Warrant Agent or in
6
<PAGE>
the name of the successor Warrant Agent; and in all such cases, such Warrants
shall have the full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and if at that time any of the Warrants
shall not have been countersigned, the Warrant Agent may countersign such
Warrants either in its prior name or in its changed name; and in all such cases,
such Warrants shall have the full force provided in the Warrants and this
Agreement.
13. Duties of the Warrant Agent.
(a) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company shall be bound:
(i) The statements contained herein and in the Warrants
shall be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same, except such as describe
the Warrant Agent or action or actions taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the
Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder,
either itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company), and the Warrant
Agent shall incur no liability or responsibility to the Company or to any holder
of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or advice of such
counsel, provided the Warrant Agent shall have exercised reasonable care in the
selection and continued employment of such counsel.
(v) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
(vi) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement; to reimburse the Warrant Agent for all expenses,
taxes, governmental charges and other charges of any
7
<PAGE>
kind and nature incurred by the Warrant Agent in the execution of this
Agreement; and to indemnify the Warrant Agent and save it harmless from and
against any and all liabilities, including judgments, costs and reasonable
attorneys' fees for anything done or omitted by the Warrant Agent in the
execution of this Agreement, except as a result of the Warrant Agent's
negligence or bad faith.
(vii) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding, or to take any other action
likely to involve expense, unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity. All rights of action under this Agreement or under any of the
Warrants or in the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any recovery of judgment
shall be for the benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(viii) The Warrant Agent and any shareholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(ix) The Warrant Agent shall act hereunder solely as
agent, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement, except for its own negligence or bad
faith.
(x) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of the Warrants during normal
business hours at its principal office in Colorado.
14. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing of said notice. The Warrant Agent may be
removed at the discretion of the Company by like notice to the Warrant Agent
from the Company and by like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal, or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. After appointment, any successor Warrant Agent shall be vested
with the same powers, rights,
8
<PAGE>
duties and responsibilities as if it had been originally named as Warrant Agent
without further act or deed, but the former Warrant Agent shall deliver and
transfer to the successor Warrant Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance act or deed
necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall give notice thereof to the predecessor Warrant
Agent and each transfer agent for the Class A Common Stock, and shall forthwith
give notice to the holders of the Warrants in the manner prescribed in this
section. Failure to file or mail any notice provided for in this Section 14,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of any successor
Warrant Agent, as the case may be.
15. Identity of Transfer Agent. Forthwith upon the appointment of any
transfer agent other than the Warrant Agent for the Class A Common Stock of the
Company issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
16. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or by the registered holder of any Warrant to the Company
shall be deemed to have been sufficiently given or made if sent by certified
mail, return receipt requested, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:
To the Company: Bio-Aqua Systems, Inc.
1900 Glades Road, Suite 351
Boca Raton, FL 33431
To the Warrant Agent: Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, Florida 33321
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed ln writing
by the Warrant Agent with the Company) to the Warrant Agent as set forth above.
17. Standard of Conduct. Notwithstanding any implication to the
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any judgment or to take any action, no such
judgment or action shall be made or taken in bad faith or in any arbitrary or
capricious fashion.
18. Supplements and Amendments. The Company and the Warrant Agent may,
from time to time, supplement or amend this Agreement without the approval of
any of the holders of the Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other
9
<PAGE>
provisions in regard to matters or questions arising hereunder that the Company
and the Warrant Agent may deem necessary or desirable, that shall not be
inconsistent with the provisions of the Warrants, and that shall not materially
adversely affect the rights of the holders of the Warrants.
19. Successors. All of the covenants and provisions hereof by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company will not merge
or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual performance
and observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
21. Florida Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Florida and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or corporation, other than the Company, the Warrant
Agent and the registered holders of the Warrants, any legal or equitable right,
remedy or claim under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company and the Warrant Agent and their respective
successors and of the holders of the Warrant Certificates.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
BIO-AQUA SYSTEMS, INC.
By:
---------------------------------
Name:
-------------------------------
Its:
--------------------------------
ATTEST:
- ------------------------
FLORIDA ATLANTIC STOCK TRANSFER, INC.
By:
---------------------------------
Name:
-------------------------------
Its:
--------------------------------
ATTEST:
- ------------------------
11
<PAGE>
EXHIBIT A
12
<PAGE>
[FORM OF FACE OF WARRANT CERTIFICATE]
No.___ ____ Warrants
VOID AFTER ___, 200__
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
BIO-AQUA SYSTEMS, INC.
This certifies that FOR VALUE RECEIVED, ____________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Common Stock Redeemable Warrants ("Warrants") specified above. Each Warrant
represented hereby entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate and the Warrant
Agreement of even date herewith (the "Warrant Agreement"), one fully paid and
nonassessable share of Class A Common Stock, par value $.0001 per share ("Common
Stock"), of BIO-AQUA SYSTEMS, INC., a Florida corporation (the "Company") at any
time commencing _______________, 199__, and expiring on the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse side hereof duly executed,
at the corporate office of Florida Atlantic Stock Transfer, Inc., as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.50
per share (subject to adjustment) (the "Purchase Price") in the lawful money of
the United States of America in cash or by official bank or certified check made
payable to the Company. No fractional shares of Common Stock will be issued.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement by and among the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Florida Time) on
_______, 200__, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of Florida be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (Florida
time) the next following day which in the State of Florida is not a holiday or a
day on which banks are authorized to be closed.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect
<PAGE>
to such securities is effective. The Company has covenanted and agreed that it
will file a registration statement and will use its best efforts to cause the
same to become effective and to keep such registration statement current while
any of the Warrants are outstanding. The Warrants represented hereby shall not
be exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment, with the appropriate transfer fee
per certificate in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, commencing twelve (12) months following the effective date of the
Company's registration statement on Form SB-2 filed with the Securities and
Exchange Commission at a redemption price of $.05 per Warrant, upon thirty (30)
days' prior written notice, if (i) the average closing price of the Common
Stock, as reported by the principal exchange on which the Common Stock is
traded, the NASDAQ Small Cap Market or the National Quotation Bureau,
Incorporated, as the case may be, equals or exceeds $8.50 per share for any
thirty (30) consecutive trading days ending within thirty (30) days prior to the
date of the notice of redemption. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants
represented hereby except to receive the $.05 per Warrant upon surrender of this
Warrant Certificate. Upon thirty (30) days' prior written notice to all holders
of the Warrants and subject to the consent of the Company's lead underwriter or
representative, the Company shall have the right to reduce the exercise price
and/or extend the term of the Warrants in compliance with the requirements of
Rule 13e-4 to the extent applicable.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Florida.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
BIO-AQUA SYSTEMS, INC.
Dated__________________, 199__ By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[corporate seal]
Countersigned:
FLORIDA ATLANTIC STOCK TRANSFER, INC.,
as Warrant Agent
By:
-------------------------------
Authorized Officer
3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
[please print or type name and address]
and be delivered to
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: X
-------------------- ---------------------------------
Signature
----------------------------------
----------------------------------
Address
<PAGE>
---------------------------------
Taxpayer Identification Number
---------------------------------
Signature Guaranteed
---------------------------------
THE SIGNATURE TO THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
MEMBER OF THE MEDALLION STAMP PROGRAM.
2
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF TRANSFEREE
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
[please print or type name and address]
___________of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints ____________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated: X
-------------------- ---------------------------------
Signature
----------------------------------
----------------------------------
Address
---------------------------------
Taxpayer Identification Number
---------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A MEMBER OF THE
MEDALLION STAMP PROGRAM.
WARRANT AGREEMENT
This Representative's Warrant Agreement (the "Agreement") is dated as
of August __, 1999 between Bio-Aqua Systems, Inc., a Florida corporation (the
"Company"), Nutmeg Securities, Ltd. and Emerson Bennett & Associates, Inc.
(hereinafter collectively referred to as the "Underwriter").
WITNESSETH
WHEREAS, the Company proposes to issue to the Underwriter 120,000
warrants (the "Representative's Warrants"at $.001 per Representative Warrant,
each Representative Warrant shall be exercisable for Class A Common Stock (the
"Shares") after a lock up period of twelve months, at a purchase price of $8.25
per share and for warrants (the "warrants") at $.206 per warrant which shall be
exercisable for Shares purchase price of $10.725.
WHEREAS, the Underwriter has agreed pursuant to the Underwriting
Agreement dated August ___, 1999 between the Underwriter and the Company to act
as the Underwriter in connection with the Company's proposed public offering
(the "Offering") of 1,380,000 shares of Class A Stock at an initial public
offering price of $5.00 per share and 1,380,000 warrants (the "Warrants") at an
initial public offering price of $0.125 per Warrant (inclusive of an
Over-Allotment Option); and
WHEREAS, the Representative's Warrants issued pursuant to this
Agreement are being issued by the Company to the Underwriter, or to its
designees who are officers of the Underwriter or to members of the selling group
participating in the Offering and/or their respective officers or partners
(collectively, the "Designees"), in consideration for, and as part of the
Underwriter's compensation in connection with acting as the Underwriter for the
Offering;
<PAGE>
NOW, THEREFORE, in consideration of these premises, the payment by the
Underwriter or its designees to the Company of One Hundred Twenty Dollars
($120.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. GRANT.
------
The Underwriter and/or the Designees are hereby granted the right to
purchase, commencing ________ __, 2000 until 5:00 P.M., Eastern time, on
_________, 2004 (the "Warrant Exercise Term"), up to 120,000 fully-paid and
non-assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 6 hereof) of $8.25 per Share and up to 120,000 warrants at
an initial exercise price (subject to adjustment as provided in Article 6
hereof) of $0.206 per warrant exercisable for Shares at a purchase price of
$10.725. The warrants are exercisable at any time commencing _________, 1999
until 5:00 P.M., Eastern time on ________, 2004. The Holder (defined hereafter)
may purchase, upon exercise of the Representative's Warrants, either all or part
of the Shares or all or part of the warrants, or all or part of both. The Shares
and, except as provided in Article 13 hereof, the warrants are in all respects
identical to the Shares and Warrants, respectively, being sold to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. WARRANT CERTIFICATES.
---------------------
The warrant certificates delivered, and to be delivered pursuant to
this Agreement shall be for the Representative's Warrants in the form set forth
in Exhibit A attached hereto (the "Representative's Warrant Certificates") and
for the warrants in the form of Exhibit B attached hereto (the "warrant
Certificate"), each with such appropriate insertions, omissions, substitutions
and other variations as required or permitted by this Agreement.
2
<PAGE>
3. EXERCISE OF WARRANTS.
---------------------
The Representative's Warrants initially are exercisable at a purchase
price of $8.25 per Share and $0.206 per warrant, payable in cash or by check to
the order of the Company, or any combination thereof, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Representative's Warrant
Certificate(s) with an Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Shares and
warrants purchased, at the Company's principal offices in Florida (currently
located at 1900 Glades Road, Suite 351, Boca Raton, Florida 33431) the
registered holder of a Representative's Warrant Certificate ("Holder(s)") shall
be entitled to receive a certificate or certificates for the Shares so purchased
and/or a certificate or certificates for the warrants so purchased. The purchase
rights represented by each Representative's Warrant Certificate are exercisable
at the option of the Holder thereof, in whole or in part (but not as to
fractional Shares or fractional warrants). In the case of the purchase of less
than all Shares or warrants purchasable under any Representative's Warrant
Certificate, the Company shall cancel said Representative's Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Representative's
Warrant Certificate of like tenor for the balance of the Shares or warrants
purchasable thereunder.
4. ISSUANCE OF CERTIFICATES.
-------------------------
Upon the exercise of the Representative's Warrants, the issuance of
certificates for the Shares purchased and certificates for the warrants
purchased, and upon the exercise of the warrants, the issuance of certificates
for the Shares purchased shall be made forthwith (and in any event within three
(3) business days thereafter)without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall be issued in the name of, or in such names
as may be directed by, the Holder thereof; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
3
<PAGE>
The Representative's Warrant Certificates and the certificates
representing the Shares and the warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman or Vice Chairman of the Board of Directors or Chief Executive Officer,
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Representative's Warrant
Certificates and certificates representing the warrants shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS AND REDEMPTION.
---------------------------------------------------
The Holder of a Representative's Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Representative's Warrants are
being acquired as an investment and not with a view to the distribution thereof,
and that the Representative's Warrants, Shares, warrants and Shares obtained by
exercise of the warrants, may not be sold, transferred, assigned, pledged or
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to the Underwriter or to the Designees.
The Representative's Warrants may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant (subject to adjustment as set forth herein)
at any time commencing twelve (12) months from the date of the Prospectus upon
not less than thirty (30) days prior written notice, subject to exercise by the
Underwriter, if the closing bid price of the Company's Common Stock, as reported
by the principal exchange on which the Common Stock is traded, the NASDAQ
SmallCap Market or the National Quotation Bureau, Incorporated, as the case may
be, equals or exceeds $8.50 per share for thirty (30) consecutive trading days.
However, the Company may not redeem the Representative's Warrants at any time
that a current registration statement under the Securities Act of 1933 covering
the shares of Common Stock issuable upon exercise of the Representative's
Warrants is not then in effect. On and after the date fixed for redemption, the
Holder shall have no rights with respect to the Representative's Warrants except
to receive the $.05 per Representative's Warrant upon surrender of this
Representative's Warrant Certificate.
4
<PAGE>
6. PRICE.
------
6.1. INITIAL AND ADJUSTED EXERCISE PRICE.
------------------------------------
The initial exercise price of each Representative's Warrant shall be
$8.25 per Share and $0.206 per warrant. The adjusted exercise price per Share
and the adjusted exercise price per warrant shall be the prices which shall
result from time to time from any and all adjustments of the initial exercise
price per Share or per warrant, as the case may be, in accordance with the
provisions of Article 8 hereof.
6.2. EXERCISE PRICE.
---------------
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. REGISTRATION RIGHTS.
--------------------
7.1. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
----------------------------------------------
All of the Representative's Warrants, the Shares, the warrants, and the
shares underlaying the warrants have been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
5
<PAGE>
7.2. REGISTRABLE SECURITIES.
-----------------------
As used herein the term "Registrable Security" means each of the
Representative's Warrants, the Shares, the warrants, and the Shares underlaying
the warrants and any Shares issued upon any stock split or stock dividend in
respect of such Shares; provided, however, that with respect to any particular
Registrable Security, such security shall cease to be a Registrable Security
when, as of the date of determination, (i) it has been effectively registered
under the Act and disposed of pursuant thereto, (ii) registration under the Act
is no longer required for subsequent public distribution of such security, or
(iii) it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Shares such adjustment shall be made in the definition of "Registrable
Security" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Article.
7.3. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
------------------------------------------------------
The Company covenants and agrees as follows:
(a) Once effective, the Company will use its best efforts to maintain
the effectiveness of the Registration Statement until the earlier of (i) the
date that all of the Registrable Securities have been sold or (ii) the date the
Holders thereof receive an opinion of counsel to the Company that all of the
Registrable Securities may be freely traded without registration under the Act,
under Rule 144(k) promulgated under the Act or otherwise.
(b) In connection with the registration under Section 7.1 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in any event no later than furnish each Holder of Registrable Securities such
number of prospectuses as shall reasonably be requested.
6
<PAGE>
(c) The Company shall pay all costs, fees and expenses (other than
underwriting fees, discounts and non-accountable expense allowance applicable to
the Registrable Securities and fees and expenses of counsel retained by the
holders of Registrable Securities) in connection with all Registration
Statements filed pursuant to Section 7.1 hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, and blue sky fees
and expenses.
(d) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in the
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities.
(e) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter, and to provide for just and equitable contribution, as set forth in
Section 7 of the Underwriting Agreement.
(f) Any holder of Registrable Securities to be sold pursuant to a
registration statement, and such holder's successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such holder, or such holder's
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions pursuant to which the
Underwriter has agreed to indemnify the Company, and to provide for just and
equitable contribution, as set forth in Section ___ of the Underwriting
Agreement.
7
<PAGE>
(g) Nothing contained in this Agreement shall be construed as requiring
any holder to exercise the Representative's Warrants or the warrants held by
such holder prior to the initial filing of any registration statement or the
effectiveness thereof.
(h) If the Company shall fail to comply with the provisions of this
Article , the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.
(i) The Company shall promptly deliver copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the Registration Statement to each holder of Registrable Securities included
for such registration in such Registration Statement pursuant to Section 7.1
hereof requesting such correspondence and memoranda and to the managing
underwriter, if any, of the offering in connection with which such Holder's
Registrable Securities are being registered and shall permit each holder of
Registrable Securities and such underwriter to do such reasonable investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the Registration Statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the NASD. Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such holder of Registrable Securities or underwriter shall reasonably request.
8
<PAGE>
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SECURITIES.
-------------------------------------------------------
The following adjustments apply to the Exercise Price of the
Representative's Warrants with respect to the Shares and the number of Shares
purchasable upon exercise of the Representative's Warrants. In the event the
Exercise Price per Share and/or the number of Shares so purchasable is adjusted,
then the Exercise Price of the Representative's Warrants relating to the
warrants and the number of warrants purchasable thereunder shall be adjusted in
the same proportion.
8.1. DISTRIBUTION OF SECURITIES.
---------------------------
In case the Company shall at any time after the date hereof pay a
dividend in shares of common stock or make any issuance or distribution in
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock (other than securities to employees of the Company
pursuant to an employee stock purchase or option plan that has been approved by
the Company's stockholders in which non-executive employees are eligible to
participate), then upon such dividend or distribution, the holder of
Representative's Warrants shall receive the amount of such dividend in shares of
common stock or the amount of such other distribution in shares of common stock
which would have otherwise been payable to such holder if it been the holder of
record of common stock issuable upon exercise of its Representative's Warrant on
the record date for the determination of those entitled to such stock dividend
or distribution.
8.2. SUBDIVISION AND COMBINATION.
----------------------------
In case the Company shall at any time subdivide or combine the
outstanding shares of common stock, the Exercise Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination.
9
<PAGE>
8.3. ADJUSTMENT IN NUMBER OF SECURITIES.
-----------------------------------
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Article , the number of Shares issuable upon the exercise of each
Representative's Warrant shall be adjusted to the nearest full number by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Shares issuable upon exercise of the
Representative's Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price. Notwithstanding the
foregoing, in the case of adjustments to the exercise price of the
Representative's Warrants with respect to the warrants and/or the number of
warrants purchasable upon exercise of the Representative's Warrants, if an event
occurs that results in an adjustment of the number and/or price of the shares of
common stock issuable upon exercise of the Warrants pursuant to the Warrant
Agreement by and among the Company and the Underwriter, resulting in automatic
adjustment in the number and/or price of the Shares underlaying the warrants
issuable upon exercise of the Representative's Warrants pursuant to Section 8.5
hereof, then the adjustment provided for in this Section shall not, in such
instance, result in any further adjustment in the aggregate number of Shares
ultimately issuable upon exercise of the Representative's Warrants.
8.4. RECLASSIFICATION, CONSOLIDATION, MERGER, ETC.
---------------------------------------------
In case of any reclassification or change of the outstanding shares of
common stock(other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in the
case of any consolidation of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation and which does not result in any reclassification
or change of the outstanding shares of common stock, except a change as a result
of a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of both the Shares
and the underlaying warrant Shares immediately prior to any such events.
10
<PAGE>
8.5. ADJUSTMENT OF UNDERLYING WARRANTS' EXERCISE PRICE
AND SECURITIES ISSUABLE UPON EXERCISE OF WARRANTS.
--------------------------------------------------
With respect to any of the warrants, whether or not the warrants have
been exercised and whether or not the warrants are issued and outstanding, the
exercise price for, and the number of Shares issuable upon exercise of the
warrants shall automatically be proportionately adjusted in accordance with the
Warrant Agreement, upon the occurrence of any of the events described therein.
Thereafter, until the next such adjustment or until otherwise adjusted in
accordance with this Section 8.5, the warrants shall be exercisable at such
adjusted exercise price and for such adjusted number of Shares.
8.6. DISTRIBUTION OF ASSETS.
-----------------------
In the event that the Company shall at any time prior to the exercise
of all Representative's Warrants or warrants make any distribution of its assets
to holders of its common stock as a liquidating or a partial liquidating
dividend, then the holder of Representative's Warrants and warrants who
exercises its Representative's Warrants or warrants after the record date for
the determination of those holders of common stock entitled to such distribution
of assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Representative's Warrant Price or warrant price per
Representative's Warrant or Warrant, in addition to each share of common stock,
the amount of such distribution (or, at the option of the Company, a sum equal
to the value of any such assets at the time of such distribution as determined
by the Board of Directors of the Company in good faith) which would have been
payable to such holder had he been the holder of record of the common stock
receivable upon exercise of his Representative Warrant or warrant on the record
date for the determination of those entitled to such distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
8.6.
11
<PAGE>
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
-------------------------------------------------
Each Representative's Warrant Certificate or warrant Certificate is
exchangeable without expense, upon the surrender thereof by the registered
Holder at the principal executive office of the Company, for a new
Representative's Warrant Certificate or warrant Certificate of like tenor and
date representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Representative's Warrant
Certificate or warrant Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Representative's Warrant Certificate, or warrant
Certificate, if mutilated, the Company will make and deliver a new
Representative's Warrant Certificate or warrant Certificate of like tenor, in
lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS.
------------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares or fractions of warrants upon the exercise of the
Representative's Warrants, nor shall it be required to issue scrip or pay cash
in lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares and warrants.
12
<PAGE>
11. RESERVATION AND LISTING OF SECURITIES.
--------------------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of common stock, solely for the purpose of issuance upon the
exercise of the Representative's Warrants and the warrants, such number of
Shares as shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Representative's Warrants and payment of the
Exercise Price therefor, all Shares issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. The Company further covenants and agrees that upon
exercise of the warrants and payment of the respective warrant exercise price
therefor, all Shares for warrants issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. As long as the Representative's Warrants shall be
outstanding, the Company shall use its best efforts to cause all Shares issuable
upon the exercise of the Representative's Warrants and the warrants and all
warrants to be listed on or quoted by NASDAQ or listed on such national
securities exchange, in the event the common stock is listed on a national
securities exchange.
12. NOTICES TO WARRANT HOLDERS.
---------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Representative's Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its Shares for
the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company; or
13
<PAGE>
(b) the Company shall offer to all the holders of its Shares any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed; or
(d) reclassification or change of the outstanding Shares (other than a
change in par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination),consolidation of the Company with, or
merger of the Company into, another corporation (other than a consolidation or
merger in which the Company is the surviving corporation and which does not
result in any reclassification or change of the outstanding Shares, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or a sale or conveyance to another corporation of the
property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the Company shall propose to issue
any rights to subscribe for Shares or any other securities of the Company or of
such affiliate to all the shareholders of the Company; then, in any one or more
of said events, the Company shall give written notice to the Holder or Holders
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
14
<PAGE>
13. WARRANTS.
---------
As set forth in Section 8.3 of this Agreement, the exercise price of
the warrants and the number of Shares issuable upon the exercise of the warrants
are subject to adjustment, whether or not the Representative's Warrants have
been exercised and the warrants have been issued, in the manner and upon the
occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the warrants, each registered holder of such warrants shall have the right to
purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable Shares underlaying
the warrants, free and clear of all preemptive rights of shareholders, provided
that such registered holder complies, in connection with the exercise of such
holders' warrants, with the terms governing exercise of the Warrants set forth
in the Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
warrants, the Company shall forthwith issue to the registered holder of any such
warrants, in such holder's name or in such name as may be directed by such
holder, certificates for the number Shares so purchased. The warrants shall be
transferable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new warrant shall be issued promptly to the transferee. The Company
covenants to, and agrees with, each Holder that without the prior written
consent of all the Holders, the Warrant Agreement will not be modified, amended,
canceled, altered or superseded, and that the Company will send to each Holder,
irrespective of whether or not the warrants have been exercised, any and all
notices required by the Warrant Agreement to be sent to holders of the Warrants.
14. NOTICES.
--------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
15
<PAGE>
(a) If to a registered Holder of the Representative's Warrants or
warrants, to the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
15. SUPPLEMENTS AND AMENDMENTS.
---------------------------
The Company and the Underwriter may from time to time supplement or
amend this Agreement without the approval of any Holders of the Representative's
Warrants or warrants in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Representative's Warrant
Certificates or warrant Certificates.
16. SUCCESSORS.
-----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
17. TERMINATION.
------------
This Agreement shall terminate at the close of business on _________,
2005. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Representative's Warrants and warrants have been exercised
and all Warrant Securities have been resold to the public; provided, however,
that the provisions of Section 7.3 (a), (c), (d), (e) and (h) shall survive any
termination pursuant to this Section until the close of business on __________,
2006.
16
<PAGE>
18. GOVERNING LAW.
--------------
This Agreement and each Representative's Warrant Certificate and
warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Florida and for all purposes shall be construed in
accordance with the laws of said State.
19. BENEFITS OF THIS AGREEMENT.
---------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
holder or holders of the Representative's Warrant Certificates or warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other holder or holders of the Representative's
Warrant Certificates or warrant Certificates.
20. COUNTERPARTS.
-------------
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
17
<PAGE>
BIO-AQUA SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
NUTMEG SECURITIES, LTD.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EMERSON BENNETT & ASSOCIATES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
18
<PAGE>
EXHIBIT A
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE REPRESENTATIVE'S WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE AT ANY TIME COMMENCING _________, 2000
UNTIL 5:00 P.M., EASTERN TIME, _______, 2004
_______ Representative's Warrants
Representative's Warrant Certificate
This Representative's Warrant Certificate certifies
that______________________________________ or registered assigns, is the
registered holder of __________ Representative's Warrants to purchase, at any
time until 5:00 P.M. Eastern time on _______, 2004 (the "Expiration Date"), up
to 120,000 fully-paid and non-assessable shares (the "Shares") of the common
stock, par value $.0001 per share of Bio-Aqua Systems, Inc., a Florida
corporation (the "Company"), at an initial exercise price, subject to adjustment
in certain events (the "Exercise Price"), of $8.50 per
19
<PAGE>
Share, and up to 120,000 purchase warrants exercisable upon surrender of the
warrant Certificate and payment of the Exercise Price of $10.725 at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of _______, 1999 between the
Company, Nutmeg Securities, Ltd. and Emerson Bennett & Associates, Inc. Payment
of the Exercise Price may be made in cash, or by certified or official bank
check in New York Clearing House funds payable to the order of the Company, or
any combination thereof.
No Representative's Warrant may be exercised after 5:00 P.M., Eastern
time, on the Expiration Date, at which time all Representative's Warrants
evidenced hereby, unless exercised prior thereto, shall thereafter be void.
The Representative's Warrants evidenced by this Representative's
Warrant Certificate are part of a duly authorized issue of Representative's
Warrants issued pursuant to the Representative's Warrant Agreement, which
Representative's Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to in a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Company and the holders (the words "Holder(s)" meaning the registered
holders or registered holder) of the Representative's Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Representative's Warrant Certificate evidencing the adjustment in
the Exercise Price and the number and/or type of securities issuable upon the
exercise of the Representative's Warrants; provided, however, that the failure
of the Company to issue such new Representative's Warrant Certificate shall not
in any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Representative's Warrant Agreement.
This Representative's Warrant Certificate may be divided or combined
with other Representative's Warrant Certificates of other denominations upon
surrender hereof at an office or agency maintained by the Company for such
20
<PAGE>
purpose, together with a written notice specifying the names and denominations
(in whole Representative's Warrants) in which new Representative's Warrant
Certificates are to be issued, signed by the holder thereof or his duly
authorized attorney, together with the funds to pay any transfer, documentary,
stamp or other taxes or government charges payable in connection with such
transfer and any other amounts required pursuant to this Representative's
Warrant Certificate. Upon such surrender and payment, a new Representative's
Warrant Certificate or Certificates representing a like aggregate number of
Representative's Warrants shall be issued and delivered in accordance with such
notice.
Upon the exercise of less than all of the Representative's Warrants
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Representative's Warrant Certificate representing such number of
unexercised Representative's Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Representative's Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s) hereof,
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
All terms used in this Representative's Warrant Certificate which are
defined in the Representative's Warrant Agreement shall have the meanings
assigned to them in the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Representative's
Warrant Certificate to be duly executed under its corporate seal.
Dated:___________, 1999
BIO-AQUA SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
21
<PAGE>
EXHIBIT B
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE AT ANY TIME COMMENCING _________, 2000
UNTIL 5:00 P.M., EASTERN TIME, _______, 2004
No. W- _________ Warrants
Warrant Certificate
This warrant Certificate certifies that ______________________ , or
registered assigns, is the registered holder of __________________________
(_______) warrants to purchase, at any time until 5:00 P.M. Eastern time on
_______, 2004 ("Expiration Date"), an aggregate of up to 120,000 shares of
common stock, par value $.0001 per share (the "Shares), of Bio-Aqua Systems,
Inc., a Florida corporation (the "COMPANY"), at an initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $10.725 per
Share, upon surrender of this warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the Representative's Warrant Agreement dated as of _______,
1999 between the Company and Nutmeg Securities, Ltd. and Emerson Bennett (the
"Representative's Warrant Agreement"). Payment of the Exercise Price may be made
in cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination thereof.
The warrants issuable upon exercise of the Representative's Warrants
will be exercisable at any time from _______, 1999 (or such earlier date on
which the Underwriter consents to the exercise of the Public Warrants (as
defined in the Representative's Warrant Agreement which is hereinafter defined)
until 5:00 P.M. Eastern time _______, 2004 each warrant entitling the holder
thereof to purchase one fully-paid and non-assessable share of common stock of
22
<PAGE>
the Company, at an initial exercise price, subject to adjustment in certain
events, of $10.725 per share. The warrants are issuable pursuant to the terms
and provisions of a certain agreement dated as of August 27, 1999 by and among
the Company, Nutmeg Securities, Ltd. and Emerson Bennett (the "Representative's
Warrant Agreement"). The Representative's Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to (except as otherwise provided in the Warrant Agreement) for a
description of the rights, limitations of rights, manner of exercise,
anti-dilution provisions and other provisions with respect to the warrants.
No warrant may be exercised after 5:00 P.M., Eastern time, on the
Expiration Date, at which time all warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The warrants evidenced by this warrant Certificate are part of a duly
authorized issue of warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to in a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "Holders" or
"Holder" meaning the registered holders or registered holder) of the warrants.
The Representative's Warrant Agreement provides that, upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of the
warrants; provided, however, that the failure of the Company to issue such new
warrant Certificates shall not in any way change, alter, or otherwise impair the
rights of the holder as set forth in the Representative's Warrant Agreement.
This warrant Certificate may be divided or combined with other warrant
Certificates of other denominations upon surrender hereof at an office or agency
maintained by the Corporation for such purpose, together with a written notice
specifying the names and denominations (in whole warrants) in which new warrant
Certificates are to be issued,
23
<PAGE>
signed by the holder thereof or his duly authorized attorney, together with the
funds to pay any transfer, documentary, stamp or other taxes or government
charges payable in connection with such transfer and any other amounts required
pursuant to this warrant Certificate. Upon such surrender and payment, a new
warrant Certificate or certificates representing a like aggregate number of
warrants shall be issued and delivered in accordance with such notice.
Upon the exercise of less than all of the warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
warrant Certificate representing such number of unexercised warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this warrant
Certificate to be duly executed under its corporate seal.
Dated:_____________, 1999
BIO-AQUA SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
24
<PAGE>
SPECIMEN COMMON STOCK CERTIFICATE (FRONT)
- --------------------------------------------------------------------------------
Number Shares
- --------------------- ------------------
Class A Common Stock
BIO-AQUA SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP
090556 10 1
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON
STOCK, PAR VALUE $.0001 PER SHARE, OF
BIO-AQUA SYSTEMS, INC. transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
CORPORATE SEAL
SPECIMEN SPECIMEN
<PAGE>
/s/ Signature /s/ Signature
- ------------------------- ---------------------------
Assistant Secretary President
COUNTERSIGNED
FLORIDA ATLANTIC STOCK TRANSFER, INC.
7130 Nob Hill Road, Tamarac, Florida 33321
Transfer Agent a Registrar Authorized Signature
SPECIMEN COMMON STOCK CERTIFICATE (REVERSE)
- --------------------------------------------------------------------------------
BIO-AQUA SYSTEMS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
OF SUCH PREFERENCES AND/OR RIGHTS, SUCH REQUEST MAY BE MADE TO THE CORPORATION
OR THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--
_____Custodian______
(cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT ENT -- as joint tenants with right of Act _________________________
survivorship and not as tenant (State)
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
2
<PAGE>
- ----------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE
OF ASSIGNEE)
- --------------------------------------------------------------------------Shares
of the common stock represented by the within certificate and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated -----------------------------
--------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: -------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17 Ad-15.
3
Bio-Aqua Systems, Inc.
August 26, 1999
Page 1
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
August 26, 1999
Bio-Aqua Systems, Inc.
1900 Glades Road, Suite 351
Boca Raton, Florida 33434
Re: Registration Statement on Form SB-2; Bio-Aqua Systems, Inc. (the
"Company"), Registration No. 333-81829.
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration by the
Company of 1,200,000 shares of Class A Common Stock, $.0001 par value ("Class A
Common Stock") plus up to an additional 180,000 shares of Class A Common Stock
issuable in connection with the Underwriters' over-allotment option, and
1,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants") to purchase
shares of Class A Common Stock at $5.00 per share to be sold by the Company plus
up to an additional 180,000 Warrants issuable in connection with the
Underwriters' over-allotment option.
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation and Bylaws of the Company; (ii) resolutions of the Board of
Directors of the Company authorizing the offering and the issuance of the Common
Stock, the Warrants, and the shares of Common Stock underlying the Warrants, and
related matters; (iii) the Registration Statement and the exhibits thereto; and
(iv) such other matters of law as we have deemed necessary for the expression of
the opinion herein contained. In all such examinations, we have assumed the
genuineness of all signatures on original documents, and the conformity to
originals or certified documents of all copies submitted to us as conformed,
photostat or other copies. In passing upon certain corporate records and
documents of the Company, we have necessarily assumed the correctness and
completeness of the statements made or included therein by the Company, and we
express no opinion thereon. As to the various questions of fact material to this
opinion, we have relied, to the extent we deemed reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments.
<PAGE>
Bio-Aqua Systems, Inc.
August 26, 1999
Page 2
Based upon the foregoing, we are of the opinion that the Common Stock,
the Warrants, and the shares of Common Stock underlying the Warrants have been
duly and validly authorized and when issued and paid for in accordance with
their terms will be fully paid and non-assessable. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and to use
our name under the caption "Legal Matters" in the prospectus comprising part of
the Registration Statement. In giving such consent, we do not thereby admit that
we are included in with the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations promulgated thereunder.
Sincerely,
/s/ ATLAS, PEARLMAN, TROP & BORKSON, P.A.
-----------------------------------------
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into on June 8, 1999, by and between TEPUAL S.A., a corporation organized and
existing under the laws of Chile and having its executive offices at General
Ekdhal 159, Santiago, Chile ("Company"), a subsidiary of Bio-Aqua Systems, Inc.,
and MAX RUTMAN, whose address is General Ekdhal 159, Santiago, Chile (the
"Executive"), but shall be effective as of the effective date of the initial
public offering of Bio-Aqua Systems, Inc.'s securities ("Effective Date")
pursuant to a registration statement filed with the Securities and Exchange
Commission on Form SB-2 ("IPO").
W I T N E S S T H:
WHEREAS, Executive is currently serving as Chief Executive Officer of
the Company and as Chairman of the Company's Board of Directors (the "Board");
and
WHEREAS, the Company desires to secure for itself the continued
availability of Executive's services; and
WHEREAS, for purposes of securing for the Company Executive's services,
the Board has approved and authorized the execution of this Agreement with
Executive on the terms and conditions set forth herein; and
WHEREAS, Executive is willing to continue to make his services
available to the Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Company and Executive
hereby agree as follows:
Section 1. Employment
The Company hereby agrees to continue the employment of Executive and
Executive hereby agrees to continue such employment during the period and upon
the terms and conditions set forth in this Agreement.
Section 2. Employment Period
Except as otherwise provided in this Agreement to the contrary, the
terms and conditions of this Agreement shall be and remain in effect during the
period of employment ("Employment Period") established under this Section 2. The
Employment Period shall be for a term of three (3) years commencing on the
Effective Date and shall automatically be extended for each successive year
thereafter unless (i) the parties mutually agree in writing to alter or amend
the terms of the Agreement; or (ii) one or both of the parties exercises their
right, pursuant to this Agreement, to terminate this employment relationship.
1
<PAGE>
Section 3. Duties
Executive shall serve as ^Chief Executive Officer of the Company.
Executive's responsibilities, duties and authority as ^Chief Executive Officer
of the Company shall, subject to the direction of the Board and the By-laws of
the Company and Chilean law or any applicable provisions of the Florida Business
Corporation Act ("Corporation Act"), be those commonly associated with such
position and shall include, but shall not be limited to, the employment, general
supervision and direction of all operating officers, the employment, general
supervision and direction of the Company's personnel and planning for the
Company's long-term needs and objectives. Executive shall be responsible for the
general supervision and management of the business affairs of the Company, and,
under authority given to him by the Board, shall execute documents in the name
of the Company and do such other official acts on behalf of the Company as are
appropriate and permitted by the By-laws of the Company. Executive shall serve
as ^Chief Executive Officer of any and all subsidiaries hereafter created by the
Company during the Employment Period without additional compensation therefor.
Section 4. Compensation
(a) Base Salary. In consideration for the services rendered by
Executive under this Agreement, the Company shall pay to Executive a salary at
an annual rate equal to Two Hundred Thousand Dollars ($200,000). The annual
salary payable under this Section 4(a) shall be paid in approximately equal
installments in accordance with the Company's customary payroll practices.
(b) Bonuses. In addition to the salary provided under Section 4(a),
Executive shall be entitled to receive a bonus (initially for the first year of
this Agreement of up to $100,000), at the times and in the amounts and
determined in such reasonable manner as may be prescribed by the Board from time
to time.
^ (c) ISAPRE. In addition to the compensation described in Sections 4(a), (b)
and (c) above, Executive shall also be entitled to receive social security
benefits pursuant to Chilean law including without limitation, to the
Institutions and Provisional Health (ISAPRE) and Administrators of Pension Funds
(AFP).
Section 5. Employee Benefit Plans and Programs
(a) Executive shall be entitled to a minimum of four (4) weeks of paid
vacation in each calendar year, all of which shall be deemed accrued, earned and
available for use on the first day of the year.
(b) The Company shall also purchase or lease, for Executive's exclusive
use, a beeper and cellular telephone of his choice and shall pay, or reimburse
Executive for his payment of, all charges relating thereto.
2
<PAGE>
(c) Except as otherwise provided in this Agreement, Executive shall,
during the Employment Period, be entitled to participate in and receive benefits
under the Company's group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans, and
such other employee benefit plans and programs, including, but not limited to,
any pension plans, incentive compensation plans or programs (whether or not
employee benefit plans or programs), and any stock option and appreciation
rights plan, employee stock ownership plan and restricted stock plan, as may
from time to time be maintained by, or cover executive and/or employees of, the
Company, in accordance with the terms and conditions of such benefit plans and
programs and compensation plans and programs and with the Company's customary
practices.
Section 6. Investments and Other Business Interests
Executive may engage in personal business and investment activities for
his own account including, without limitation, serving on boards of directors
and engaging in charitable and community affairs; provided, however, that such
personal business and investment activities shall not materially interfere with
the performance of his duties under this Agreement and shall in all events be
subject to the provisions of Section 10 hereof.
Section 7. Working Facilities and Expenses
Executive's principal place of employment shall be at the Company's
executive offices at the address first above written, or at such other location
as the Company and Executive may mutually agree upon. The Company shall provide
Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Company and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Company shall
reimburse Executive for his ordinary and necessary business expenses, including,
without limitation, fees for memberships in one business or social club of his
choice (up to maximum cost of $20,000 per year) and in such other clubs and
organizations as Executive and the Company shall mutually agree are necessary
and appropriate for business purposes, and his travel and entertainment expenses
incurred in connection with the performance of his duties under this Agreement
upon presentation to the Company of an itemized account of such expenses in such
form as the Company may reasonably require.
Section 8. Termination of Employment with Company Liability
(a) In the event that Executive's employment with the Company shall
terminate during the Employment Period on account of:
(i) Executive's voluntary resignation from employment with the
Company within ninety (90) days after the occurrence, without the
express written consent of Executive, of any of the following:
3
<PAGE>
(A) the failure of the Company's Board to appoint or
re-appoint or elect or re-elect Executive to the office of Chief
Executive Officer (or a more senior office) of the Company;
(B) the failure of the stockholders of the Company to
elect or re-elect Executive as Chairman of the Board and a Director of
the Company;
(C) a material failure of the Company, whether by
amendment of the Company's Articles of Incorporation or By-laws, action
of the Board or the Company's stockholders or otherwise, to vest in
Executive the functions, duties, or responsibilities prescribed in
Section 3 of this Agreement or the By-Laws of the Company or any
significant change in any of the foregoing;
(D) a material breach of this Agreement by the
Company;
(E) a "Change of Control" (as hereinafter defined) of
the Company; as used herein, a "Change of Control" shall mean:
(a) individuals who as of the date hereof
constitute the Board (the "Incumbent Board") cease for any
reason to constitute a majority of the Board other than
through action by the Board in creating and filling vacancies
on the Board; or
(b) either
(i) the acquisition, after
the completion of the IPO, by any individual, entity
or group (within the meaning of Section 13 (d)(3) or
14 (d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person"), of
beneficial ownership (within the meaning of Rule 1
3d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition
causes such Person to own 35% or more of the
outstanding voting securities of the Company
("Securities Acquisition"); or
(ii) the approval by the
stockholders of the Company of a reorganization,
merger or consolidation or sale or other disposition
of all or substantially all of the assets of the
Company ("Business Combination"),
unless pursuant to such Securities Acquisition or Business
Combination (A) all or substantially all of the individuals
and entities who were the beneficial owners of the outstanding
voting securities of the Company prior to the Securities
Acquisition or Business Combination beneficially own more than
66-2/3 % of the then outstanding voting securities of the
Company (if it is the surviving corporation) or the surviving
corporation (if it is other than the Company) in substantially
the same proportions as
4
<PAGE>
their ownership immediately prior to the Securities
Acquisition or Business Combination, and (B) at least a
majority of the members of the Board of the surviving
corporation were members of the Incumbent Board immediately
prior to the Securities Acquisition or Business Combination;
(F) a five percent (5%) reduction in Executive's
compensation below the salary in effect immediately prior to such
reduction;
(G) a material reduction of Executive's benefits
under any employee benefit plan, program or arrangement (for Executive
individually or as part of a group) of the Company as then in effect or
as in effect on the effective date of the Agreement, which reduction
shall not be effectuated for similarly situation employees of the
Company; or
(H) failure by a successor company to assume the
obligations under the Agreement; or
(ii) the discharge of Executive by the Company for any reason
other than for "cause" as provided in Section 9(a);
then the Company shall provide the benefits and pay to Executive the amounts
provided for under Section 8(b). Notwithstanding anything contained herein to
the contrary, the Company shall not be liable for the payments and benefits
under Section 8(b) in the case of (a) a resignation described in Section
8(a)(i)(C) or (1) for reasons other than failure to pay compensation due
hereunder unless Executive has given written notice to the Company of its breach
and the Company fails to cure such breach within thirty (30) days thereafter or
Executive has, within the twelve (12) month period ending on the date of his
resignation, given the Company written notice of a substantially similar breach
which was subsequently cured, or (b) Executive's employment with the Company
shall terminate under circumstances described in this Section 8(a) which
Executive has directly and willfully caused to occur.
(b) Upon the termination of Executive's employment with the Company
under circumstances described in Section 8(a) of this Agreement, the Company
shall pay and provide to Executive (or, in the event of his death, to his
estate):
(i) his earned but unpaid salary as of the date of the
termination of his employment with the Company, and his earned but
unpaid bonus as of the date of his termination, pro-rated for the
fiscal quarter during which his termination occurs (based on the number
of days that he was in the Company's employ during such fiscal quarter)
if the termination is other than on the last day of a fiscal quarter;
(ii) except as provided in Section 8(b)(iv), the benefits, if
any, to which he is entitled as a former employee under the employee
benefit plans and programs and compensation plans and programs
maintained for the benefit of the Company's officers and employees;
5
<PAGE>
(iii) continued life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to Section
8(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for
Executive for the remaining unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled if he
had continued working for the Company during the remaining unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to
Executive's termination of employment with the Company;
(iv) within thirty (30) days following his termination of
employment with the Company and in lieu of any monetary payments to
which he may be entitled under any severance pay plan, program or
policy, a lump sum payment, in an amount equal to the present value of
the salary that Executive would have earned at the rate set forth in
Section 4(a) if he had continued working for the Company during the
remaining unexpired Employment Period, where such present value is to
be determined using a discount rate of six percent (6%) per annum,
compounded monthly (or the compounding period corresponding to the
Company's regular payroll periods with respect to its officers, if not
monthly), such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination (other than the additional severance
payment provided for in Section 8(c) as set forth therein);
(v) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the excess, if any, of: (A) the present value of the benefits to which
he would be entitled under any benefit plans maintained by, or covering
employees of, the Company if he were 100% vested thereunder and had
continued working for the Company during the remaining unexpired
employment period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to
Executive's termination of employment with the Company, over (B) the
present value of the benefits to which he is actually entitled under
any benefit plans maintained by, or covering employees of, the Company
as of the date of his termination, where such present values are to be
determined using a discount rate of six percent (6%) per annum,
compounded monthly;
(vi) within thirty (30) days following his termination of
employment with the Company a lump sum cash payment in the amount of
the payments that would have been made to Executive (in cash and stock)
under Section 4(b) of this Agreement if he had continued working for
the Company during the remaining unexpired Employment Period and had
earned an annual bonus payment for each fiscal quarter equal to the
highest amount, if any, actually paid to Executive for any fiscal
quarter pursuant to Section 4(b);
(vii) at the election of Executive made within thirty (30)
days following his termination of employment with the Company, upon the
surrender of options or appreciation rights issued to Executive under
any stock option and appreciation rights plan or program
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or restricted stock plan maintained by, or covering employees of, the
Company, a lump sum payment in an amount equal to the product of:
(A) in the case of a stock option or appreciation
rights plan or program:
(I) the excess of (A) the fair
market value of a share of stock of the same class as
the stock subject to the option or appreciation
right, determined as of the date of termination of
employment, over (B) the exercise price per share for
such option or appreciation right, as specified in or
under the relevant plan or program; multiplied by
(II) the number of shares with
respect to which options or appreciation rights are
being surrendered; and
(B) in the case of a restricted stock plan:
(I) the fair market value of a share
of stock of the same class of stock granted under
such plan, determined as of the date of Executive
termination of employment; multiplied by
(II) the number of shares which are
being surrendered.
For purposes of this Section 8(b)(vii) and for purposes of determining
Executive's right following his termination of employment with the Company to
exercise any options or appreciation rights not surrendered pursuant hereto,
Executive shall be deemed fully vested in all options and appreciation rights
under any stock option or appreciation rights plan or program maintained by, or
covering employees of, the Company, even if he is not vested under such plan or
program.
(c) In the event that a termination of employment occurs pursuant to
Section 8(a) on or after November 1, 1999, then in addition to all of the
payments and benefits which the Company shall pay or provide pursuant to Section
8(b), the Company shall also pay to Executive (or his estate, as applicable)
within thirty (30) days following his termination of employment, the following
severance payments:
(A) a lump sum cash payment in an amount equal to the
difference between the amounts actually paid relating to Executive's
salary under Section 8(b) and an amount equal to two (2) times
Executive's annual salary, based upon the greater of Executive's salary
(i) immediately prior to the effective date of termination or (ii) as
of ninety (90) days prior to the effective date of termination; plus
(B) a lump sum cash payment in an amount equal to the highest
annual bonus payment, if any, that was actually paid to Executive (in
cash and stock) for any fiscal year pursuant to Section 4(b).
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(d) The Company and Executive hereby stipulate that the damages which
may be incurred by Executive following any termination of employment pursuant to
Section 8(a) are not capable of accurate measurement as of the date first above
written and that the payments and benefits contemplated by Section 8(b) and 8(c)
constitute reasonable damages under the circumstances and shall be payable
without any requirement of proof of actual damage and without regard to
Executive's efforts, if any, to damages.
(e) In the event of the death of Executive during the Employment Period
of the Agreement, salary shall be paid to Executive's designated beneficiary,
or, in the absence of such designation, to the estate or other legal
representative of Executive for a period of up to the date of death. Other death
benefits will be determined in accordance with the terms of the Company's
benefit programs and plans.
(f) In the event of Executive's disability, as hereinafter defined,
Executive shall be entitled to compensation in accordance with the Company's
disability compensation practice for senior executives, including any separate
arrangement or policy covering Executive, but in all events Executive shall
continue to receive Executive's salary for a period, at the annual rate in
effect immediately prior to the commencement of disability, of not less than 180
days from the date on which the disability has been deemed to occur as
hereinafter provided below. "Disability" for the purposes of this Agreement,
shall be deemed to have occurred in the event (A) Executive is permanently
unable by reason of sickness or accident to perform Executive's duties under
this Agreement for a continuous period of 180 days. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
(g) In the event of termination as a result of Executive death or
disability, and in addition to the payments set forth in Sections 8(e) or 8(f),
as the case may be, Executive (or his estate) shall also be paid his earned but
unpaid bonus as of the date of his termination, pro-rated for the fiscal quarter
during which his termination occurs (based on the number of days he was in the
Company's employ during such fiscal quarter) if the date of termination is other
than on the last day of a fiscal quarter; and the provisions of such other
benefits, if any, to which he is entitled as a former employee under this
Agreement and the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Company.
Section 9. Termination without Additional Company Liability
In the event that Executive's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of Executive for "cause" which, for purposes of this
Agreement, shall mean his repeated and gross negligence in the fulfillment of,
or repeated failure of Executive to fulfill, his material obligation under this
Agreement, in either event after due written notice thereof (which notice
requirement shall be deemed satisfied if due written notice of a substantially
similar act or omission shall have been given within three (3) months prior to
such discharge), or willful
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misconduct by Executive in respect of his obligations hereunder, or his
conviction of a felony under the laws of the United States or any State, but
only if such gross negligence, repeated failure, willful misconduct or
conviction materially impairs his ability to effectively perform his duties
under this Agreement; provided, however, that cause shall not include, without
limitation:
(i) the refusal by Executive of an assignment not consistent
with the status, titles and reporting requirements set forth herein or
contemplated hereby; or
(ii) bad judgment or negligence of Executive; or
(iii) any act or omission (other than one constituting a
material breach of trust committed in willful and reckless disregard of
the interests of the Company and undertaken for personal gain) in
respect of which a determination could properly have been made by the
Board that Executive met the applicable standard of conduct prescribed
for indemnification or reimbursement under the By-Laws of the Company
or the laws of the State in which the Company is then chartered, in
each case in effect at the time of such act or omission; or
(iv) any act or omission with respect to which notice of
termination is given more than three (3) months after the earliest date
on which any non-employee director of the Company who was not a party
to such act or omission knew or should have known of such act or
omission; or
(b) Executive's voluntary resignation from employment with the Company
for reasons other than those specified in Section 8(a)(i);
then the Company shall have no further obligations under this Agreement, other
than the payment to Executive of his earned but unpaid salary as of the date of
the termination of his employment; his earned but unpaid bonus as of the date of
his termination, pro-rated for the fiscal quarter during which his termination
occurs (based on the number of days he was in the Company's employ during such
fiscal quarter) if the date of termination is other than on the last day of a
fiscal quarter; and the provisions of such other benefits, if any, to which he
is entitled as a former employee under this Agreement and the employee benefit
plans and programs and compensation plans and programs maintained by, or
covering employees of, the Company.
Section 9A. Severance at Expiration of Employment Period
In the event that at the expiration of the Employment Period,
Executive's employment is not continued for any reason, then the Company shall
pay to Executive (or his estate, as applicable) his earned but unpaid salary as
of the date of the termination of his employment and his earned but unpaid
bonus, if any, as of the date of his termination, pro-rated for the fiscal
quarter during which his termination occurs (based on the number of days he was
in the Company's employ during such fiscal quarter) if the date of termination
is other than on the last day of a fiscal quarter; shall provide to Executive
all of the benefits, if any, to which he is entitled as a former employee under
this Agreement and the employee benefit plans and programs and compensation
plans and programs
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<PAGE>
maintained by, or covering employees of, the Company; and, in addition, shall
pay to Executive an amount equal to the aggregate of the highest salary and
bonus earned by Executive during any calendar year during the Employment Period.
Section 10. Covenant Not To Compete
Executive hereby covenants and agrees that, during the Employment
Period and in the event of his termination of employment with the Company prior
to the expiration of the Employment Period, for a period of one (1) year
following the date of his termination of employment with the Company (or, if
less, for the remaining unexpired Employment Period), he shall not, without the
written consent of the Company, become an officer, employee, consultant,
director or trustee of any entity, or any direct or indirect subsidiary or
affiliate of any such entity, that directly or indirectly competes with this
Company in providing services in any market area in which it is active;
provided, however, that this Section 10 shall not apply if Executive's
employment is terminated for the reasons set forth in Section 8(a); and,
provided, further, that if Executive's employment shall be terminated on account
of disability as provided in Section 9(d) of this Agreement, this Section 10
shall not prevent Executive from accepting any position or performing any
services if (a) he first offers, by written notice, to accept a similar position
with, or perform similar services for, the Company on substantially the same
terms and conditions and (b) the Company declines to accept such offer within
ten (10) days after such notice is given.
Section 11. Confidentiality Proprietary Information
(a) Unless he obtains the prior written consent of the Company (which
consent shall not be unreasonably withheld), Executive shall keep confidential
and shall refrain from using for the benefit of any person or entity other than
the Company or any entity which is a subsidiary of the Company or of which the
Company is a subsidiary, any material document or information obtained from the
Company, or from its parent or subsidiaries, in the course of his employment
with any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or published
information or trade sources or has otherwise been made available to the public
through no fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); provided, however, that nothing in this Section 11
shall prevent Executive, with or without the Company's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
(b) Executive acknowledges that during the course of his employment
with the Company he may develop or otherwise acquire papers, files or other
records involving or relating to confidential or secret processes, formulas,
discoveries, inventions, machinery, plans, design information of any kind,
devices, material, research, new product development, customers or customer
lists. All such papers, files and other records shall be the exclusive property
of the Company and shall, together with any and all copies thereof, be returned
to the Company upon Executive's termination of employment.
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<PAGE>
Section 12. Solicitation
Executive hereby covenants and agrees that in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one (1) year following his termination of
employment with the Company (or, if less, the remaining unexpired Employment
Period), he shall not, without the written consent of the Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company (other than a member of
Executive's family) or any subsidiary of the Company to terminate his or her
employment and accept employment or become affiliated with, or provide services
for compensation in any capacity whatsoever to, any entity that directly or
indirectly competes with this Company in any market area in which it is then
active;
(b) provide any information, advice or recommendation with respect to
any officer or employee of the Company (other than a member of Executive's
Family) or any subsidiary of the Company to any entity engaged or to be engaged
in the same or competing business with the Company that is intended, or that a
reasonable person acting in like circumstances would expect, to have the effect
of causing any such officer or employee to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any entity that directly or
indirectly competes with the Company in any market area in which it is then
active; provided, however, that nothing in this Section 12(b) shall be construed
as prohibiting Executive from serving as a reference if so requested by an
officer or employee of the Company or subsidiary of the Company;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Company with which Executive has had substantial contact to terminate an
existing business or commercial relationship with the Company;
provided, however, that this Section 12 shall not apply if Executive's
employment is terminated for any of the reasons set forth in Section 8(a).
Nothing in this Section 12 shall prevent Executive from directly or indirectly
advertising employment opportunities or disseminating marketing materials
through newspapers of general circulation or other mass media.
Section 13. No Effect on Employee Benefit Plans or Programs
The termination of Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by Executive shall have no
effect on the rights and obligations of the parties hereto, which shall continue
for a period of two (2) years after Executive's termination under the Company's
pension plan, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or such
other employee benefit plans or programs, or compensation plans or programs
(whether or not employee benefit plans or
11
<PAGE>
programs) and any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may be maintained by, or cover
employees of, the Company from time to time.
Section 14. Indemnification and Attorneys' Fees
The Company shall provide Executive with payment of legal fees and
indemnification to the maximum extent permitted from time to time by the
Corporation Act or other applicable laws or regulations. Executive shall
continue to be covered by the Articles of Incorporation and/or the Bylaws of the
Company with respect to matters occurring on or prior to the date of termination
of Executive's employment with the Company, subject to all the provisions of
^the Country of Chile and the Articles of Incorporation and Bylaws of the
Company then in effect. The Company shall indemnify and hold harmless Executive
against reasonable costs, including, without limitation, legal fees and
expenses, incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved to defend or enforce the terms of this
Agreement, without regard to whether Executive is the prevailing party in such
action, suit or proceeding. Such reasonable expenses, including attorneys' fees
that may be covered by the Articles of Incorporation and/or Bylaws of the
Company shall be paid by the Company on a current basis in accordance with such
provision, the Company's Articles of Incorporation and applicable law. To the
extent that any such payments by the Company pursuant to the Company's Articles
of Incorporation and/or Bylaws may be subject to repayment by Executive pursuant
to the provisions of the Company's Articles of Incorporation or Bylaws, or
pursuant to applicable law, such repayment shall be due and payable by Executive
to the Company within thirty six (36) months after the termination of all
proceedings, if any, which relate to such repayment and to the Company's affairs
for the period prior to the date of termination of Executive's employment with
the Company and as to which Executive has been covered by such applicable
provisions.
^
Section 15. Successors and Assigns; Survivorship
This Agreement will inure to the benefit of and be binding upon
Executive, his legal representatives, heirs and assigns, and the Company, its
respective successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the respective assets and business of the
Company may be sold or otherwise transferred.
Section 16. Waiver
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
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<PAGE>
Section 17. Notices
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or ten (10) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Executive:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
If to the Company:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
Attention: Claudius Wolf
with copy to:
Abud, Vivanco &Vergara
Mac Iver 125 10th Floor
Santiago, Chile
Chile
Attention; Sergio Vivanco, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
Section 18. Severability
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 19. Counterparts
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This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
Section 20. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of Chile and any applicable laws of the State of
Florida, without reference to conflicts of law principles.
Section 21. Headings and Construction
The headings of Sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any Section. Any
reference to a Section number shall refer to a Section of this Agreement, unless
otherwise stated.
Section 22. Survival
The rights and obligations of the Company and Executive under Sections
10, 11, 12, 14 and 15 of this Agreement shall survive the termination or
expiration of this Agreement, notwithstanding anything contained herein to the
contrary.
Section 23. Equitable Remedies
The Company and Executive hereby stipulate that monetary damages shall
be an inadequate remedy for violations of Sections 10, 11 and 12, of this
Agreement and agree that equitable remedies, including, without limitation, the
remedies of specific performance and injunctive relief, shall be available with
respect to the enforcement of such provisions.
Section 24. Entire Agreement, Modifications
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Executive has hereunto set his hand, all as of the day and year
first above written.
/s/ Max Rutman
--------------
Max Rutman
ATTEST: TEPUAL S.A.
By: /s/ Claudius Wolf By: /s/ Guillermo Quiroz
- --- ----------------- ------------------------
Name: Claudius Wolf Name: Guillermo Qurioz
Title: Chief Financial Officer and President
15
CONSULTING AGREEMENT
THIS AGREEMENT (the "Agreement") is made this 10th day of June, 1999,
but shall be effective as of the effective date of the Initial Public Offering
of Bio-Aqua Systems, Inc.'s securities pursuant to a Registration Statement
filed with the Securities and Exchange Commission on Form SB-2 (the "Effective
Date") by and between BIO-AQUA SYSTEMS, INC. a Florida corporation (the
"Company") and DAVID MAYER, an individual residing in Boca Raton, Florida (the
"Consultant").
RECITALS
The Consultant provides professional business, corporate finance, and
financial public relations, consulting and advisory services designed to inform
interested parties as to the business products, management, marketing and
financial potential of the Company;
The Company desires to engage the Consultant to perform certain
services on behalf of the Company and the Consultant desires to perform such
services, as described more fully in this Agreement.
NOW, THEREFORE, in consideration of the premises, the terms, covenants
and conditions herein and other valuable consideration, the receipt, adequacy
and sufficiency of which the parties hereto acknowledge, the parties hereto
agree as follows:
1. APPOINTMENT. The Company hereby appoints and retains the Consultant
on the terms and conditions of this Agreement. The Consultant accepts such
appointment and agrees to perform the services upon the terms and conditions of
this Agreement.
2. TERM. Except as otherwise terminated pursuant to Section 8 of this
Agreement, the term of this Agreement shall begin on the date hereof and
continue for a period of ten (10) years thereafter. This Agreement may be
extended for additional twelve (12) month periods upon the mutual consent of the
parties.
3. CONSULTING SERVICES.
(a) Consultant shall provide a general presence of the Company
in the United States;
(b) Consultant shall provide interfacing on behalf of the
Company with the brokerage community and individual investors;
(c) Consultant shall coordinate release of financial
information and other information by means of press releases and other media
concerning the Company;
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(d) Consultant shall coordinate the preparation and filing of
Form 10Q-SB, Form 10K-SB and related filings with the Securities and Exchange
Commission;
(e) Consultant shall provide consulting services regarding
future mergers and acquisitions and additional financings on behalf of the
Company; and
(f) Consultant shall provide such additional services as may
be mutually agreeable between the Company and the Consultant.
4. DUTIES OF THE COMPANY.
(a) The Company shall supply the Consultant, on a regular and
timely basis, with all approved data and information about the Company, its
management, its products and its operations, and the Company shall be
responsible for advising the Consultant of any facts which would affect the
accuracy of any prior data and information previously supplied to the Consultant
so that the Consultant may take corrective action.
(b) The Company shall promptly supply the Consultant with:
full and complete copies of all filings with all federal and state securities
agencies; full and complete copies of all shareholder reports and
communications, whether or not prepared with the Consultant's assistance; all
data and information supplied to any analyst, broker-dealer, market maker or
other member of the financial community; and all product/services brochures,
sales materials, etc.
(c) The Company shall promptly notify the Consultant of the
filing of any registration statement or private placement memorandum for the
sale of securities and of any other event which imposes any restrictions on
publicity.
(d) The Company shall contemporaneously notify the Consultant
if any information or data being supplied to the Consultant has not been
generally released or promulgated.
5. REPRESENTATION AND INDEMNIFICATION.
(a) The Company shall be deemed to make a continuing
representation of the accuracy of any and all material facts, material
information and data which it supplies to the Consultant and the Company
acknowledges its awareness that the Consultant will rely on such continuing
representation in disseminating such information and otherwise performing its
public relations functions.
(b) The Consultant, in the absence of notice in writing from
the Company, will rely on the continuing accuracy of material, information and
data supplied by the Company.
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<PAGE>
(c) The Company hereby agrees to indemnify the Consultant
against, and to hold the Consultant harmless from, any claims, demands, suits,
loss, damages, etc. arising out of the Consultant's reliance upon the accuracy
and continuing accuracy of such facts, material, information and data, unless
the Consultant has been negligent in fulfilling his duties and obligations
hereunder.
(d) The Company hereby agrees to indemnify the Consultant
against, and to hold the Consultant harmless from, any claims, demands, suits,
loss, damages, etc. arising out of the Consultant's reliance on the general
availability of information supplied to the consultant and the Consultant's
ability to promulgate such information, unless the Consultant has been negligent
in fulfilling his duties and obligations hereunder.
(e) The Company hereby authorizes the Consultant to issue, in
the Consultant's sole discretion, corrective, amendatory, supplemental or
explanatory press releases, shareholder communications and reports, or data
supplied to analysts, broker-dealers, market makers or other members of the
financial community.
(f) The Company shall endeavor to appoint and nominate the
Consultant to be a member of the Company's Board of Directors during the Term.
6. COMPENSATION.
(a) As the sole compensation for the services to be performed
by the Consultant, the Consultant shall receive:
(i) an annual compensation of Thirty Thousand
($30,000) Dollars, payable semi-annually or as otherwise agreed upon;
(b) The Consultant shall not entitle to reimbursement by the
Company of all telephone, mail (including courier) and facsimile charges as the
Consultant may incur in performing service under this Agreement at the actual
cost to the Consultant.
7. RELATIONSHIP OF PARTIES. The Consultant is an independent
contractor, responsible for compensation of its agents, employees and
representatives, as well as all applicable withholding therefrom and taxes
thereon (including unemployment compensation) and all workers' compensation
insurance. This Agreement does not establish any partnership, joint venture, or
other business entity or association between the parties, and neither party is
intended to have any interest in the business or property of the other.
8. TERMINATION. This Agreement may not be terminated by either party
prior to the expiration of the term provided in Paragraph 2 above except as
follows:
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(a) Upon failure of the other party to cure a material default
under, or a breach of, this Agreement within thirty (30) days after written
notice is given as to such breach by the terminating party; provided, however,
that there shall be no termination if the defaulting party cures such default
within such 30 day period or if such breach or default did not cause a material
and continuing damage to the Company.
(b) Upon the bankruptcy or liquidation of the other party,
whether voluntary or involuntary;
(c) Upon the other party taking the benefit of any insolvency
law; and/or
(d) Upon the other party having or applying for a receiver
appointed for all or a substantial part of such party's assets or business.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Consultant
acknowledges that is the policy of the Company to maintain as secret and
confidential all valuable information heretofore or hereafter acquired,
developed or used by the Company in relation to its business, operations,
employees and customers which may give the Company a competitive advantage in
its industry (all such information is hereinafter referred to as "Confidential
Information"). The parties recognize that, by reason of its duties, the
Consultant may acquire Confidential Information. The Consultant recognizes that
all such Confidential Information is the property of the Company. In
consideration of the Company entering into this Agreement, the Consultant agrees
that:
(a) it shall never, directly or indirectly, publicly
disseminate or otherwise disclose any Confidential Information obtained during
its engagement by the Company without the prior written consent of the Company,
unless and until such information is otherwise known to the public generally or
is not otherwise secret and confidential, it being understood that the
obligation created by this subparagraph shall survive the termination of this
Agreement; and
(b) during the term of its engagement by the Company, the
Consultant shall exercise all due and diligent precautions to protect the
integrity of any of the Company's documents embodying Confidential Information
(which shall be marked "Confidential" by the Company prior to delivery to the
Consultant and, if not so marked, shall not be deemed to embody Confidential
Information), and upon termination of its engagement, it shall return all such
documents (and copies thereof) in its possession or control.
10. DISCLAIMER BY CONSULTANT. The Consultant makes no representation
that (a) the price of the company's publicly-traded securities will increase,
(b) any person will purchase securities in the Company as a result of the
contract, or (c) any investor will lend money to or invest in or with the
Company.
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11. NON-ASSIGNABILITY. The rights, obligations and benefits established
by this Agreement shall not be assignable by either party hereto except with the
consent of the other. This Agreement shall, however, be binding upon and shall
inure to the benefit of the parties and their successors.
12. COMPLIANCE AND GOVERNING LAW. The Consultant, together with his
agents and associates, shall take all necessary, appropriate and reasonable
steps to provide the services in accordance with both the securities laws of the
United States and the several states, and pursuant to the rules and regulations
promulgated thereunder. The terms and provisions of this Agreement shall be
governed by and construed under the laws of the State of Florida.
13. NOTICE. Notice hereunder shall be in writing and shall be deemed to
have been given (a) at the time when deposited for mailing in a receptacle under
the control of the United States Postal Service, by registered or certified
mail, prepaid, return receipt requested, or (b) on the business day following
deposit with a reputable overnight courier for overnight delivery; each
addressed to the respective party at the address of such party first above
written or at such other address as such party may fix by notice given pursuant
to this paragraph.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one agreement.
15. NO OTHER AGREEMENTS. This Agreement supersedes all prior
understandings, written or orally given and constitutes the entire Agreement
between the parties hereto with respect to the subject matter hereof. No waiver,
modification or termination of this Agreement shall be valid unless in writing
signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
BIO-AQUA SYSTEMS, INC.
By:/s/Max Rutman
------------------
Max Rutman, CEO
CONSULTANT
By:/s/David Mayer
------------------
David Mayer
RENEWAL AND CONSOLIDATION
PROMISSORY NOTE
$250,000.00 Miami, Florida April 16, 1999
ON DEMAND, for value received, TEPUAL, S.A. (the "Borrower"), a Chilean
corporation, whose address is General Ekdahl 159, Santaigo, Chile, promises to
pay the order of THE HEMISPHERE NATIONAL BANK (the "Lender"), a Florida banking
corporation, at 2159 Coral Way, Miami, Florida 33145, or at such other place as
may from time to time be designated by the holder hereof from the date hereof,
the principal sum of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00), together with the interest on the unpaid principal balance hereof
from the date hereof at a rate per annum equal to the Prime Rate plus 1.50%. For
the purposes of this Note, the "Prime Rate" shall mean the rate of interest
published in the Wall Street Journal from time to time. Today the "Prime Rate"
is 7.75%, for an Initial rate of 9.75%.
This Note is a Revolving Credit Note which is payable on demand. The holder
hereof may demand payment thereof at any time with or without reasons. Until
such time as Lender shall determine to demand payment of hereof. Lender may make
loans to the Borrower up to the maximum amount of principal set forth above and,
unless Lender shall have made demand for payment hereof, Borrower is permitted
to borrow and repay said loans and to re-borrow amounts hereunder up to the
maximum amount of principal set forth above.
This facility shall be reviewed annually beginning on December 31, 1999 and on
the same day each year that this note is in effect.
This is a renewal and consolidation of Promissory Note dated March 5, 1999
between Borrower or Lender in the amount of Seventy Thousand and 00/100
($70,000.00) and Promissory Note dated April 16, 1999 between borrower and
lender in the amount of One Hundred Eighty Thousand and 00/100 Dollars
($180,000.00).
Any request for an advance hereunder, excepting only the initial advance which
may be made concurrently with the execution hereof, shall be made in writing and
shall be delivered to the Lender at its offices no less than two (2) business
days, prior to the date on which the Borrower requires such advance. Lender
shall have no obligation to make any advances while Borrower is in default
hereunder.
Interest shall be payable monthly in arrears, principal shall be due on demand.
If no demand is made then principal shall be due at the maturity of each
advance. Maximum tenor shall be one hundred and eighty (180) days from date of
advance. Interest shall be calculated based upon the actual number of days
elapsed divided by Three Hundred Sixty (360).
1
<PAGE>
If any installment of principal or interest is due on a day which is not a
Business Day (hereinafter defined), then said paid installment shall be due on
the next following Business Day. "Business Day" shall mean a day, which the
Lender is open for business in Miami, Florida.
If principal is not paid within ten (10) days of demand therefor, or any
installment of interest is not paid on the date when due, the principal as of to
said due date shall earn interest from such due date to the date payment is
actually received by lender at the highest rate of interest then allowed by law.
Late charges equal to 5% will be charged on any installment not paid within ten
(1) days of the due date.
Nothing contained in this Note shall entitle the Lender to interest payments,
which are calculated at a rate in excess of the maximum interest rate permitted
by law. If any law governing this Note is finally interpreted so that the
interest or other loan charges collected or to be collected hereunder exceed the
interest rate permitted by law, then any such interest or loan charges shall be
reduced by the amount necessary to reduce the aggregate thereof to the limits
permitted by law and any sums collected by the Lender which exceed the permitted
limits will be refunded to the Borrower. Such refund may be made by reducing the
principal amount owed hereunder or by a direct payment to the Borrower.
All credit facilities are to be cross collateralized and a default in one shall
constitute a default in all others. Collateral securing other loans with us may
also secure this loan. To the extent that collateral previously has been given
to Lender by any person which may secure this loan, whether directly or
indirectly, it is specifically agreed that all such collateral consisting of
household goods will not secure this loan. In addition, if any collateral
requires the giving of a right of recission under Truth in Lending for this
loan, such collateral also will not secure this loan unless and until all
required notices of that right have been given.
This Note shall be governed by and construed in accordance with the laws of the
State of Florida
2
<PAGE>
THE BORROWER HEREBY, AND THE LENDER BY ITS ACCEPTANCE OF THIS NOTE, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDER MAKING THE LOAN EVIDENCED BY THIS NOTE.
TEPUAL, S.A.
/s/Max Rutman
---------------------
Max Rutman, President
3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
C O R P
B A N C A
PROMISSORY NOTE
(Development Units)
(Unequal Payments) 473553 (handwritten)
(Fixed Rate)
I (We) owe and shall pay unconditionally, to the order of CORPBANCA, in its office at HUERFANOS
STREET NO. 770-B, a sector of SANTIAGO, the sum of Chilean legal tender equivalent to TWO
THOUSAND SIX HUNDRED TWENTY-TWO -- Development Units (U.F. 2,622.-) which I (we) have
received on loan under the following conditions, which I (we) accept and with which I (we) shall comply.
The sum or capital owed and the interest shall be determined and paid in Chilean legal tender, for the
value which the Development Unit shows on the day of the respective effective payment, except if the
payment should be made after the date stipulated and in this the value of the Development Unit should
have been higher, and thus in this event the last value shall be used.
Form of payment of capital owed. Shall be paid on the date(s) and for the amount(s) indicated below:
DATE AMOUNT (UF) DATE AMOUNT(UF) DATE AMOUNT (UF)
Apr 1, 1999 2,622.-
etc.
Interest: Beginning with the date of this promissory note, the sum or capital shall return interest at the
rate of 13.8% annually.
Form of payment of the interest Shall be paid on the following date(s):
DATE DATE DATE DATE
Apr 1, 1999
ETC.
Non-working days, extension of payment: Any date for the payment of capital and/or interest which
falls on a banking day not worked shall be extended until the immediately following valid banking day,
the res-pective payment to include as well the interest corresponding to the days covering that
extension.
Calculation of interest: The annual rates of interest refer to 360-day years. The interest is calculated
and shall be paid per days passed and on the total of the capital that is owed, in accordance with the
value of the Development Unit on the day of its effective payment, save for the payment that may be
paid after the date stipulated and on that date the value of the Development Unit may have been higher,
so that in such event the latter value shall be used.
Interest in delay and/or in advance: In case of default or simple delay in the payment of all or part of
the capital and/or of the interest, this promissory note shall yield for the entire lapse of the default or
delay, the maximum conventional interest which the law allows to be stipulated for adjustable operations
of credits of money in national legal tender in effect during the default, but only if these should be greater
than the maximum conventional interest in effect on this date. Otherwise, this last rate shall be applied.
The same interest shall be yielded in case of advance payment.
<PAGE>
Page 2
Acceleration because of default: In case of default or simple delay in the payment of all or part of the
capital and/or of the interest which this promissory note establishes, the creditor has the power to call in the
total amount of indebtedness, which in this case shall be considered an expired period for all legal and
conventional effects
The creditor may also call in this promissory note in advance, which in that case is considered as an expired
period for all legal and conventional effect, if the signatory should cease paying any other obligation
contracted, whether to the name of CORPBANCA or to the name of any other creditor, or if the declaration
of bankruptcy of the signatory should be declared, or if he should formulate proposals for extralegal or legal
agreement.
Ordinary account. CORPBANCA, in its capacity as creditor of this obligation, is irrevocably empowered
upon its expiration, to cash the ordinary bank accounts which the debtor may maintain in CORPBANCA, the
amounts of capital and interest to which this document refers.
Advance payment. In the event of prepayment, if the capital declared to be owing in this instrument is
equal to or less than the equivalent in national legal tender of UF5,000, I (we) are under obligation to pay
the capital which is paid in early, to be duly readjusted, plus the interest calculated up to the date of the
effective payment, and a commission of prepayment which shall ascend to the value of three months of
interest calculated on the capital which is prepaid.
If the capital declared owing exceeds the equivalent in national currency to Development Units I (we) are
obliged to pay the total of the interest stipulated up to the expiration date agreed to, in conformity with Law
No. 18.010.
Indivisibility. All the obligations derived from this promissory note are considered indivisible for the
signatory, his heirs and/or successors, for all legal effects, and especially those included in articles 1526
No. 4 and 1528 of the Civil Code.
Protest: Without obligation of protest. I (We) hold the creditor free and clear of the obligation of protest,
but if he should choose to carry out said extraordinary proceeding, he may do so, at his free choice, in
notarial bank form or by a suitable public servant. In any case, in the event of protest I (we) are obliged to
pay the resulting expenses and taxes.
Taxes, Fees and Expenses: Any tax, fee, expense and increase in the costs which for the beneficiary of
this Promissory Note may be caused or which results by reason of his signing, modifications, delays,
renewals, payments, protest or other circumstances relative to the same, shall be for the signatory's
exclusive expense. Likewise, any increase in the costs which may accrue to the holder of this instrument
through the concept of technical reserve, the reserve fund and/or financing costs with which resources
may be burdened with charge to those who are financing the obligation contained in this instrument, shall
be for the exclusive charge of the signatory of this instrument.
Guarantees. CORPBANCA and whoever may represent their rights, is from this point on authorized to
modify, substitute, raise or renounce, totally or partially, the guarantees which actually may be constituted
or which in the future should be constituted in order to safeguard the obligations to which this promissory
note refers, none of which are to be understood as transferred to whosoever may acquire this promissory
note unless CORPBANCA so expressly states.
Domicile and Competence. For all the legal effects derived from this promissory note, the debtor or
signatory constitutes special domicile in the community indicated in the heading of this promissory note and
submits to the competence of its Ordinary Tribunals of Justice, domicile which also shall be the operative
place for the procedures of protest in case it is practiced.
The tax for Stamps and Documentary stamps which are placed on this document shall be paid by monthly
amounts of money to the Treasury according to Decree Law 3475 Article 15. No. 2.
In SANTIAGO on DECEMBER 29, OF THE YEAR 1998.
<PAGE>
Page 3
Full name (Business Name) of the surety (1) MAX RUTMAN SOUBOTNIK
Address GENERAL EKDHAL 159
City: SANTIAGO District: RECOLETA Telephone: xx
National ID Number: 4,335,394-2 Tax No. xx
(Information concerning co-signing with spouse is not provided)
I hereby authorize the signature of MAX RUTMAN
SOUBOTNIK, National ID No. 4,335.39 (text missing)
he himself being surety, bondsman, co-signer jointly and
severally who signs on the date of its emission,
December 29, 1998.
(Stamped seal and initials of Notary No. 38, Santiago,
Gonzalo de la Cuadra Fabres)
(Information concerning surety of spouse is not given)
I hereby authorize the signature of MAX RUTMAN
SOUBOTNIK, National ID No. 4,335.394-2 for
TEPUAL S.A., Natl. Tax No. 89,115,400-3 as
signatory debtor who signs on the date of its emission,
December 29, 1998. Santiago
(Stamped seal and initials of Notary No. 38,
Santiago, Gonzalo de la Cuadra Fabres)
(continued to next page)
<PAGE>
Page 4
(Signed) MAX RUTMAN
Signature of Signatory or Debtor
for TEPUAL S.A.
Full Name (Business Name) of debtor: TEPUAL S.A.
City: SANTIAGO District: RECOLETA Telephone: xx
National ID Number Tax NO. 89,115,400-3 Bank Account No: 15-058632
Legal Representative: MAX RUTMAN SOUBOTNIK
National ID Number 4,335,394-2
For Surety:
Every one of the undersigned constitute a surety for this present obligation and is constituted expressly in
bondsman and co-debtor jointly and severally for the obligations of the signatory or debtor above indicated
to CORPBANCA or whoever should represents its rights, for each and every one of the obligations
contained in the present instrument, for the entire time it runs until the effective and complete payment of
this document, and states expressly that:
a) He accepts as of this moment, the time periods and time period renewals and/or modifications of
the rate of interest which may be agreed to between debtor and creditor, the joint obligation
remaining in effect, in spite of any arrangement or agreement concerning the amount and form of
paying the obligation, whether or not such renewals and/or modifications alter the currency in which
the indebted obligation is expressed;
b) He holds CORPBANCA free and clear of the obligation of the protest of this document;
c) His responsibility and that of hie heirs and/or successors is indivisible for all legal effects and in
particular for the dispositions of articles 1526 No. 4 and 1528 of the Civil Code;
d) His responsibility is not affected, released or diminished in any way whatsoever by other warranties
which may be constituted, are constituted at this time, or which heretofore may be constituted for
securing the same obligation, and which may totally or partially be released in the future, and his
joint and several responsibility shall remain in full effect for the total of the secured obligation, even
though another person may take upon himself the secured obligation, in any form, and although
said third party may take charge of the assets and liabilities of the debtor or introduce modifications
to the debtor company.
CORPBANCA and whoever may represents its rights, of course is still authorized to modify,
substitute, increase or renounce, in whole or in part, the warranties which presently may be
constituted, which are constituted on this date, or which in the future may be constituted in order to
protect the obligations subject of this instrument, none of which were considered by whoever is
constituted as surety(ies) of this promissory note and as bondsman(men) and co-debtor(s) jointly
and severally of the obligation contained therein.
e) For all the legal effects of this surety, each surety constitutes special domicile in the place indicated
at the beginning of this promissory note and submits to the competence of its Ordinary Courts of
Justice.
In SANTIAGO on the 29th day of DECEMBER of the year 1998.
(Signed) M. RUTMAN _____________________
(1) SURETY SIGNATURE (2) SURETY SIGNATURE
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
BANCO SUD AMERICANO BANK STATEMENT - FOREIGN TRADE
COMPANY NAME OF CLIENT: TEPUAL S.A. Date of Inquiry: Apr. 14, 99
P. 1 RENEWAL
Specialists:
EXPORT Information not available
IMPORTATION Information not available
- -------------------------------------------------------------------------------------------------------------------
PRODUCT: Credits for Exports
Type of Operation No. Operation Currency Bal. debt Expiration Expiration Date
Interest
<S> <C> <C> <C> <C> <C>
Export Credit 0020859255 US$ 260,000.00 6,792.50 June 5, 99
Export Credit 0020859282 US$ 40,000.00 1,045.00 May 23, 99
Export Credit 0020859947 US$ 31194.30 823.53 June 23,99
Export Credit 0108510116 US$ 100,000.00 4,702.50 June 6, 99
</TABLE>
Banco Sud Americano EXPORTER PROMISSORY NOTE
__________________ Headquarters Morande 226 Santiago
RUT.: 97.018.000-1 Central Office PAE 108510116
Series J No. 023361
I (We) owe and shall pay on JUNE 6, 1999, to the order of Banco Sud
America in its SANTIAGO office, the amount of US$ 180,000.00 (ONE HUNDRED EIGHTY
THOUSAND OO/100) Dollars of the United States of North America, plus interest,
at the rate of:
RATE: 10.45% plus xxx points.
When Prime Rate may be applied, this shall be the product of the
average existing between this date and the date of the effective payment.
In case of default or simple delay in the payment of the capital and/or
its interest, or of part of such upon their expiration, the maximum interest
allowed by law shall be returned in the same currency in which the capital must
be paid. In the case of protest and from the date of same, the maximum
conventional interest shall be returned in National Currency.
However, the Banco Sud Americano is empowered to demand the complete
fulfillment of this present promissory note and its interest, as if it were the
expiration time, in the event of producing the return of the foreign currency
for Exportation to which this credit belongs, prior to the expiration of this
present instrument.
This promissory note shall immediately become payable, should the
signer fall into insolvency or cease payment of any obligation, whether to the
Banco Sur Americano or any other legally constituted or natural person, without
prejudice to the demandability which may result from the pertinent standards of
the Bankruptcy Law. For all effects of this present promissory note, it is
understood that the signer has fallen into insolvency upon ceasing payment of
any obligation according to what is herein expressed; if he or one or more
creditors solicit his bankruptcy or formulate propositions of extrajudicial or
judicial agreement, whether through the route of attachment due to prejudicial
or cautionary measures, retentions or prohibitions which are obtained for
entering into acts of contracts regarding any of his goods, or in the naming of
interventors, or whether any fact different from those mentioned should occur
which also may place in evidence a noticeable insolvency.
I (We) hold free and clear the holder of this Promissory Note from the
obligation of protest. All taxes, notarial fees and other taxes which
affect or may affect this promissory note as to its receipts, cancellations,
etc., are for the exclusive charge of the debtor.
All the obligations which emanate from this promissory note shall be
espressly for him or the subscribers, its sureties, and others obliged for its
payment, and shall be considered indivisible for the effects of articles No.
1,526, No. 4 and No. 1,528 of the Civil Code.
I (We) authorize Banco Sud Americano so that under the sole signature
of one or more of its Attorneys, the Bank may sign one or more renewals of this
promissory note, setting in such case (in the form already stated) new rates of
interest, as well as dates of expiration (due dates), all of which I (we)
accept, as of that time, with reserve, and grant the bank for this, irrevocably,
power to sign those renewals.
In awareness of the fact that the rate of interest, which has been
agreed upon in this promissory note, is based on the cost that the Bank, as
financial intermediary, must in turn pay for the funds with which this placement
is financed, the undersigned states and accepts that said rate may be increased
in an equal amount or percentage, in view of the fact that eventually the basic
cost may vary, whether on the occasion of taxes (excepting income taxes),
reserve, technical reserve, or any other legal or reglamentary exigency, whether
regarding its amount, or the form of calculating such exigencies, and that
definitively may result in a greater cost of funds for the Bank.
The payment of this obligation is of indivisible nature, its compliance
demandable upon any of the debtor's heirs or successors.
As of this date, I (we) authorize the charges which the Bank may make
upon any of the ordinary accounts which I may have in its offices, in order to
cover the costs of capital, interest, taxes, expenses, etc., which this
obligation may generate.
<PAGE>
For all the effects of this promissory note I (We) constitute domicile
in the city of SANTIAGO and submit to the jurisdiction of its courts.
SANTIAGO 08 OF MARCH OF 1999
SUBSCRIBER TEPUAL S.A. TAX NUMBER R.U.T. 89,115,400-3
ADDRESS GENERAL EKDHAL 159 RECOLETA
MAX RUTMAN SOUBOTNIK
Legal Representative Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
SURETY
- ------
I (We) hereby constitute in surety/sureties and codebter(s) jointly and
severally, as of this date holding free and clear the holder of this promissory
note of the obligation of protest and accepting hereinafter the extensions which
may be agreed to, setting for all my (our) effects domicile in this city. The
payment of the obligation which I (we) may contract as surety shall be in the
nature of indivisibility, with the power to demand such payment from any of my
(our) successors._
SANTIAGO 08 OF MARCH OF 1999
SURETY MAX RUTMAN SOUBOTNIK SURETY
ADDRESS AGUSTIN DEL CASTILLO 2581 VII ADDRESS
MAX RUTMAN SOUBOTNIK
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
IRREVOCABLE INSTRUCTION
- -----------------------
By virtue of the stipulations of Article 11 of Law 18,092, I irrevocably
instruct you to fill out Promissory Note Series No. ____ and sign for me (us),
being able to incorporate all the mentions of Article 102 of Law 18,092,
excepting those of Nos. 4 and 6, both already consigned, of that Article and
execute immediately and without advance notice the promissory note that the
client signs with this date, to the name of the Bank, as has been stated.
SANTIAGO 08 OF MARCH OF 1999
------------------------------
NAME OF SUBSCRIBER (DEBTOR)
NAME/COMPANY NAME TEPUAL, S.A. TAX No. R.U.T. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (Illegible) SIGNATURE
- --------------------------------------------------------------------------------
STATEMENT
- ---------
I (We) hereby state that we know and accept the dispositions of Circular No. 31
of the Internal Tax Service published in the Diario Oficial of
11.07.92,regarding the fact that the Tax for Stamps and Seals must be paid when
the export is not made. I (We) also promise, at the time for payment of the
credit, to deliver to the Bank a sworn statement concerning the origin of said
funds, so as to facilitate the pertinent revisions concerning the new standard.
SANTIAGO 09 OF MARCH OF 1999
NAME/COMPANY NAME TEPUAL, S.A. TAX NUMBER R.U.R. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NO. R.U.T. 4,335,394-2 R.U.T.
Signature (illegible) SIGNATURE
- --------------------------------------------------------------------------------
NOTARIAL AUTHORIZATION
I hereby authorize signature(s) placed on this document on the date of issuance.
In Santiago 08 of March, 1999. I (We) accept the commitment of this instrument.
BANCO SUD AMERICA
<PAGE>
Banco Sud Americano EXPORTER PROMISSORY NOTE
__________________ Headquarters Morande 226 Santiago
RUT.: 97.018.000-1 Central Office PAE 20859282
Series J No. 026905
I (We) owe and shall pay on OCTOBER 30 1997, to the order of Banco Sud
America in its SANTIAGO office, the amount of US$ 40,000.00 (FORTY THOUSAND
OO/100) Dollars of the United States of North America, plus interest, at the
rate of:
RATE: 11.40% plus xxx points.
When Prime Rate may be applied, this shall be the product of the
average existing between this date and the date of the effective payment.
In case of default or simple delay in the payment of the capital and/or
its interest, or of part of such upon their expiration, the maximum interest
allowed by law shall be returned in the same currency in which the capital must
be paid. In the case of protest and from the date of same, the maximum
conventional interest shall be returned in National Currency.
However, the Banco Sud Americano is empowered to demand the complete
fulfillment of this present promissory note and its interest, as if it were the
expiration time, in the event of producing the return of the foreign currency
for Exportation to which this credit belongs, prior to the expiration of this
present instrument.
This promissory note shall immediately become payable, should the
signer fall into insolvency or cease payment of any obligation, whether to the
Banco Sur Americano or any other legally constituted or natural person, without
prejudice to the demandability which may result from the pertinent standards of
the Bankruptcy Law. For all effects of this present promissory note, it is
understood that the signer has fallen into insolvency upon ceasing payment of
any obligation according to what is herein expressed; if he or one or more
creditors solicit his bankruptcy or formulate propositions of extrajudicial or
judicial agreement, whether through the route of attachment due to prejudicial
or cautionary measures, retentions or prohibitions which are obtained for
entering into acts of contracts regarding any of his goods, or in the naming of
interventors, or whether any fact different from those mentioned should occur
which also may place in evidence a noticeable insolvency.
I (We) hold free and clear the holder of this Promissory Note from the
obligation of protest. All taxes, notarial fees and other taxes which
affect or may affect this promissory note as to its receipts, cancellations,
etc., are for the exclusive charge of the debtor.
All the obligations which emanate from this promissory note shall be
espressly for him or the subscribers, its sureties, and others obliged for its
payment, and shall be considered indivisible for the effects of articles No.
1,526, No. 4 and No. 1,528 of the Civil Code.
I (We) authorize Banco Sud Americano so that under the sole signature
of one or more of its Attorneys, the Bank may sign one or more renewals of this
promissory note, setting in such case (in the form already stated) new rates of
interest, as well as dates of expiration (due dates), all of which I (we)
accept, as of that time, with reserve, and grant the bank for this, irrevocably,
power to sign those renewals.
In awareness of the fact that the rate of interest, which has been
agreed upon in this promissory note, is based on the cost that the Bank, as
financial intermediary, must in turn pay for the funds with which this placement
is financed, the undersigned states and accepts that said rate may be increased
in an equal amount or percentage, in view of the fact that eventually the basic
cost may vary, whether on the occasion of taxes (excepting income taxes),
reserve, technical reserve, or any other legal or reglamentary exigency, whether
regarding its amount, or the form of calculating such exigencies, and that
definitively may result in a greater cost of funds for the Bank.
The payment of this obligation is of indivisible nature, its compliance
demandable upon any of the debtor's heirs or successors.
As of this date, I (we) authorize the charges which the Bank may make
upon any of the ordinary accounts which I may have in its offices, in order to
cover the costs of capital, interest, taxes, expenses, etc., which this
obligation may generate.
For all the effects of this promissory note I (We) constitute domicile
in the city of SANTIAGO and submit to the jurisdiction of its courts.
<PAGE>
SANTIAGO 01 OF AUGUST OF 1997
SUBSCRIBER TEPUAL S.A. TAX NUMBER R.U.T. 89,115,400-3
ADDRESS GENERAL EKDHAL 159 RECOLETA SURETY
MAX RUTMAN SOUBOTNIK
Legal Representative Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
SURETY
- ------
I (We) hereby constitute in surety/sureties and codebter(s) jointly and
severally, as of this date holding free and clear the holder of this promissory
note of the obligation of protest and accepting hereinafter the extensions which
may be agreed to, setting for all my (our) effects domicile in this city. The
payment of the obligation which I (we) may contract as surety shall be in the
nature of indivisibility, with the power to demand such payment from any of my
(our) successors._
SANTIAGO 01 OF AUGUST OF 1997
SURETY MAX RUTMAN SOUBOTNIK SURETY
ADDRESS AGUSTIN DEL CASTILLO 2581 VII ADDRESS
MAX RUTMAN SOUBOTNIK
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
IRREVOCABLE INSTRUCTION
- -----------------------
By virtue of the stipulations of Article 11 of Law 18,092, I irrevocably
instruct you to fill out Promissory Note Series No. ____ and sign for me (us),
being able to incorporate all the mentions of Article 102 of Law 18,092,
excepting those of Nos. 4 and 6, both already consigned, of that Article and
execute immediately and without advance notice the promissory note that the
client signs with this date, to the name of the Bank, as has been stated.
SANTIAGO 01 OF AUGUST OF 1997
-----------------------------
NAME OF SUBSCRIBER (DEBTOR)
NAME/COMPANY NAME TEPUAL, S.A. TAX No. R.U.T. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (Illegible) SIGNATURE
- --------------------------------------------------------------------------------
STATEMENT
- ---------
I (We) hereby state that we know and accept the dispositions of Circular No. 31
of the Internal Tax Service published in the Diario Oficial of
11.07.92,regarding the fact that the Tax for Stamps and Seals must be paid when
the export is not made. I (We) also promise, at the time for payment of the
credit, to deliver to the Bank a sworn statement concerning the origin of said
funds, so as to facilitate the pertinent revisions concerning the new standard.
SANTIAGO 01 OF AUGUST OF 1997
NAME/COMPANY NAME TEPUAL, S.A. TAX NUMBER R.U.R. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NO. R.U.T. 4,335,394-2 R.U.T.
Signature (illegible) SIGNATURE
- --------------------------------------------------------------------------------
NOTARIAL AUTHORIZATION (Seal) JAIME MORANDE ORREGO, Notary Public I hereby
authorize signature(s) placed on this document on the date of issuance. In
Santiago 01 of August, 1997. I (We) accept the commitment of this instrument.
BANCO SUD AMERICA
<PAGE>
Banco Sud Americano EXPORTER PROMISSORY NOTE
__________________ Headquarters Morande 226 Santiago
RUT.: 97.018.000-1 Central Office PAE 20859255
Series J No. 026904
I (We) owe and shall pay on OCTOBER 13 1997, to the order of Banco Sud
America in its SANTIAGO office, the amount of US$ 260,000.00 (TWO HUNDRED SIXTY
THOUSAND OO/100) Dollars of the United States of North America, plus interest,
at the rate of:
RATE: PRIME plus 2.70 points.
When Prime Rate may be applied, this shall be the product of the
average existing between this date and the date of the effective payment.
In case of default or simple delay in the payment of the capital and/or
its interest, or of part of such upon their expiration, the maximum interest
allowed by law shall be returned in the same currency in which the capital must
be paid. In the case of protest and from the date of same, the maximum
conventional interest shall be returned in National Currency.
However, the Banco Sud Americano is empowered to demand the complete
fulfillment of this present promissory note and its interest, as if it were the
expiration time, in the event of producing the return of the foreign currency
for Exportation to which this credit belongs, prior to the expiration of this
present instrument.
This promissory note shall immediately become payable, should the
signer fall into insolvency or cease payment of any obligation, whether to the
Banco Sur Americano or any other legally constituted or natural person, without
prejudice to the demandability which may result from the pertinent standards of
the Bankruptcy Law. For all effects of this present promissory note, it is
understood that the signer has fallen into insolvency upon ceasing payment of
any obligation according to what is herein expressed; if he or one or more
creditors solicit his bankruptcy or formulate propositions of extrajudicial or
judicial agreement, whether through the route of attachment due to prejudicial
or cautionary measures, retentions or prohibitions which are obtained for
entering into acts of contracts regarding any of his goods, or in the naming of
interventors, or whether any fact different from those mentioned should occur
which also may place in evidence a noticeable insolvency.
I (We) hold free and clear the holder of this Promissory Note from the
obligation of protest. All taxes, notarial fees and other taxes which
affect or may affect this promissory note as to its receipts, cancellations,
etc., are for the exclusive charge of the debtor.
All the obligations which emanate from this promissory note shall be
espressly for him or the subscribers, its sureties, and others obliged for its
payment, and shall be considered indivisible for the effects of articles No.
1,526, No. 4 and No. 1,528 of the Civil Code.
I (We) authorize Banco Sud Americano so that under the sole signature
of one or more of its Attorneys, the Bank may sign one or more renewals of this
promissory note, setting in such case (in the form already stated) new rates of
interest, as well as dates of expiration (due dates), all of which I (we)
accept, as of that time, with reserve, and grant the bank for this, irrevocably,
power to sign those renewals.
In awareness of the fact that the rate of interest, which has been
agreed upon in this promissory note, is based on the cost that the Bank, as
financial intermediary, must in turn pay for the funds with which this placement
is financed, the undersigned states and accepts that said rate may be increased
in an equal amount or percentage, in view of the fact that eventually the basic
cost may vary, whether on the occasion of taxes (excepting income taxes),
reserve, technical reserve, or any other legal or reglamentary exigency, whether
regarding its amount, or the form of calculating such exigencies, and that
definitively may result in a greater cost of funds for the Bank.
The payment of this obligation is of indivisible nature, its compliance
demandable upon any of the debtor's heirs or successors.
As of this date, I (we) authorize the charges which the Bank may make
upon any of the ordinary accounts which I may have in its offices, in order to
cover the costs of capital, interest, taxes, expenses, etc., which this
obligation may generate.
For all the effects of this promissory note I (We) constitute domicile
in the city of SANTIAGO and submit to the jurisdiction of its courts.
<PAGE>
SANTIAGO 15 OF JULY OF 1997
SUBSCRIBER TEPUAL S.A. TAX NUMBER R.U.T. 89,115,400-3
ADDRESS GENERAL EKDHAL 159 RECOLETA
MAX RUTMAN SOUBOTNIK
Legal Representative Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
SURETY
I (We) hereby constitute in surety/sureties and codebter(s) jointly and
severally, as of this date holding free and clear the holder of this promissory
note of the obligation of protest and accepting hereinafter the extensions which
may be agreed to, setting for all my (our) effects domicile in this city. The
payment of the obligation which I (we) may contract as surety shall be in the
nature of indivisibility, with the power to demand such payment from any of my
(our) successors._
SANTIAGO 15 OF JULY OF 1997
SURETY MAX RUTMAN SOUBOTNIK
ADDRESS AGUSTIN DEL CASTILLO 2581 VII ADDRESS
MAX RUTMAN SOUBOTNIK
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
IRREVOCABLE INSTRUCTION
By virtue of the stipulations of Article 11 of Law 18,092, I irrevocably
instruct you to fill out Promissory Note Series No. ____ and sign for me (us),
being able to incorporate all the mentions of Article 102 of Law 18,092,
excepting those of Nos. 4 and 6, both already consigned, of that Article and
execute immediately and without advance notice the promissory note that the
client signs with this date, to the name of the Bank, as has been stated.
SANTIAGO 15 OF JULY OF 1997
------------------------------
NAME OF SUBSCRIBER (DEBTOR)
NAME/COMPANY NAME TEPUAL, S.A. TAX No. R.U.T. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (Illegible) SIGNATURE
- --------------------------------------------------------------------------------
STATEMENT
I (We) hereby state that we know and accept the dispositions of Circular No. 31
of the Internal Tax Service published in the Diario Oficial of
11.07.92,regarding the fact that the Tax for Stamps and Seals must be paid when
the export is not made. I (We) also promise, at the time for payment of the
credit, to deliver to the Bank a sworn statement concerning the origin of said
funds, so as to facilitate the pertinent revisions concerning the new standard.
SANTIAGO 15 OF JULY OF 1997
NAME/COMPANY NAME TEPUAL, S.A. TAX NUMBER R.U.R. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NO. R.U.T. 4,335,394-2 R.U.T.
Signature (illegible) SIGNATURE
- --------------------------------------------------------------------------------
NOTARIAL AUTHORIZATION (Seal) JAIME MORANDE ORREGO, Notary Public I hereby
authorize signature(s) placed on this document on the date of issuance. In
Santiago 15 of JULY, 1997. I (We) accept the commitment of this instrument.
BANCO SUD AMERICA
<PAGE>
Banco Sud Americano EXPORTER PROMISSORY NOTE
__________________ Headquarters Morande 226 Santiago
RUT.: 97.018.000-1 Central Office PAE 20859947
Series J No. 023360
I (We) owe and shall pay on JANUARY 24, 1999, to the order of Banco Sud
America in its SANTIAGO office, the amount of US$ 265,000.00 (TWO HUNDRED
SIXTY-FIVE THOUSAND OO/100) Dollars of the United States of North America, plus
interest, at the rate of:
RATE: 10.45 plus xxxxxx points.
When Prime Rate may be applied, this shall be the product of the
average existing between this date and the date of the effective payment.
In case of default or simple delay in the payment of the capital and/or
its interest, or of part of such upon their expiration, the maximum interest
allowed by law shall be returned in the same currency in which the capital must
be paid. In the case of protest and from the date of same, the maximum
conventional interest shall be returned in National Currency.
However, the Banco Sud Americano is empowered to demand the complete
fulfillment of this present promissory note and its interest, as if it were the
expiration time, in the event of producing the return of the foreign currency
for Exportation to which this credit belongs, prior to the expiration of this
present instrument.
This promissory note shall immediately become payable, should the
signer fall into insolvency or cease payment of any obligation, whether to the
Banco Sur Americano or any other legally constituted or natural person, without
prejudice to the demandability which may result from the pertinent standards of
the Bankruptcy Law. For all effects of this present promissory note, it is
understood that the signer has fallen into insolvency upon ceasing payment of
any obligation according to what is herein expressed; if he or one or more
creditors solicit his bankruptcy or formulate propositions of extrajudicial or
judicial agreement, whether through the route of attachment due to prejudicial
or cautionary measures, retentions or prohibitions which are obtained for
entering into acts of contracts regarding any of his goods, or in the naming of
interventors, or whether any fact different from those mentioned should occur
which also may place in evidence a noticeable insolvency.
I (We) hold free and clear the holder of this Promissory Note from the
obligation of protest. All taxes, notarial fees and other taxes which
affect or may affect this promissory note as to its receipts, cancellations,
etc., are for the exclusive charge of the debtor.
All the obligations which emanate from this promissory note shall be
espressly for him or the subscribers, its sureties, and others obliged for its
payment, and shall be considered indivisible for the effects of articles No.
1,526, No. 4 and No. 1,528 of the Civil Code.
I (We) authorize Banco Sud Americano so that under the sole signature
of one or more of its Attorneys, the Bank may sign one or more renewals of this
promissory note, setting in such case (in the form already stated) new rates of
interest, as well as dates of expiration (due dates), all of which I (we)
accept, as of that time, with reserve, and grant the bank for this, irrevocably,
power to sign those renewals.
In awareness of the fact that the rate of interest, which has been
agreed upon in this promissory note, is based on the cost that the Bank, as
financial intermediary, must in turn pay for the funds with which this placement
is financed, the undersigned states and accepts that said rate may be increased
in an equal amount or percentage, in view of the fact that eventually the basic
cost may vary, whether on the occasion of taxes (excepting income taxes),
reserve, technical reserve, or any other legal or reglamentary exigency, whether
regarding its amount, or the form of calculating such exigencies, and that
definitively may result in a greater cost of funds for the Bank.
The payment of this obligation is of indivisible nature, its compliance
demandable upon any of the debtor's heirs or successors.
As of this date, I (we) authorize the charges which the Bank may make
upon any of the ordinary accounts which I may have in its offices, in order to
cover the costs of capital, interest, taxes, expenses, etc., which this
obligation may generate.
For all the effects of this promissory note I (We) constitute domicile
in the city of SANTIAGO and submit to the jurisdiction of its courts.
<PAGE>
SANTIAGO 25 OF NOVEMBER OF 1998
SUBSCRIBER TEPUAL S.A. TAX NUMBER R.U.T. 89,115,400-3
ADDRESS GENERAL EKDHAL 159 RECOLETA
MAX RUTMAN SOUBOTNIK
Legal Representative Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
SURETY
- ------
I (We) hereby constitute in surety/sureties and codebter(s) jointly and
severally, as of this date holding free and clear the holder of this promissory
note of the obligation of protest and accepting hereinafter the extensions which
may be agreed to, setting for all my (our) effects domicile in this city. The
payment of the obligation which I (we) may contract as surety shall be in the
nature of indivisibility, with the power to demand such payment from any of my
(our) successors.
SANTIAGO 25 OF NOVEMBER OF 1998
SURETY MAX RUTMAN SOUBOTNIK SURETY
ADDRESS AGUSTIN DEL CASTILLO 2581 VII ADDRESS
MAX RUTMAN SOUBOTNIK
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
IRREVOCABLE INSTRUCTION
By virtue of the stipulations of Article 11 of Law 18,092, I irrevocably
instruct you to fill out Promissory Note Series No. ____ and sign for me (us),
being able to incorporate all the mentions of Article 102 of Law 18,092,
excepting those of Nos. 4 and 6, both already consigned, of that Article and
execute immediately and without advance notice the promissory note that the
client signs with this date, to the name of the Bank, as has been stated.
SANTIAGO 25 OF NOVEMBER OF 1998
------------------------------
NAME OF SUBSCRIBER (DEBTOR)
NAME/COMPANY NAME TEPUAL, S.A. TAX No. R.U.T. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (Illegible) SIGNATURE
- --------------------------------------------------------------------------------
STATEMENT
- ---------
I (We) hereby state that we know and accept the dispositions of Circular No. 31
of the Internal Tax Service published in the Diario Oficial of
11.07.92,regarding the fact that the Tax for Stamps and Seals must be paid when
the export is not made. I (We) also promise, at the time for payment of the
credit, to deliver to the Bank a sworn statement concerning the origin of said
funds, so as to facilitate the pertinent revisions concerning the new standard.
SANTIAGO 25 OF NOVEMBER OF 1997
NAME/COMPANY NAME TEPUAL, S.A. TAX NUMBER R.U.R. 89,115,400-3
Legal Representative: MAX RUtMAN SOUBOTNIK Legal Representative
TAX NO. R.U.T. 4,335,394-2 R.U.T.
Signature (illegible) SIGNATURE
- --------------------------------------------------------------------------------
NOTARIAL AUTHORIZATION (Seal) JAIME MORANDE ORREGO, Notary Public I hereby
authorize signature(s) placed on this document on the date of issuance. In
Santiago 25 of NOVEMBER, 1998. I (We) accept the commitment of this instrument.
BANCO SUD AMERICA
<PAGE>
Banco Sud Americano EXPORTER PROMISSORY NOTE
__________________ Headquarters Morande 226 Santiago
RUT.: 97.018.000-1 Central Office PAE 20859282
Series J No. 026905
I (We) owe and shall pay on OCTOBER 30 1997, to the order of Banco Sud
America in its SANTIAGO office, the amount of US$ 40,000.00 (FORTY THOUSAND
OO/100) Dollars of the United States of North America, plus interest, at the
rate of:
RATE: 11.40 plus xxx points.
When Prime Rate may be applied, this shall be the product of the
average existing between this date and the date of the effective payment.
In case of default or simple delay in the payment of the capital and/or
its interest, or of part of such upon their expiration, the maximum interest
allowed by law shall be returned in the same currency in which the capital must
be paid. In the case of protest and from the date of same, the maximum
conventional interest shall be returned in National Currency.
However, the Banco Sud Americano is empowered to demand the complete
fulfillment of this present promissory note and its interest, as if it were the
expiration time, in the event of producing the return of the foreign currency
for Exportation to which this credit belongs, prior to the expiration of this
present instrument.
This promissory note shall immediately become payable, should the
signer fall into insolvency or cease payment of any obligation, whether to the
Banco Sur Americano or any other legally constituted or natural person, without
prejudice to the demandability which may result from the pertinent standards of
the Bankruptcy Law. For all effects of this present promissory note, it is
understood that the signer has fallen into insolvency upon ceasing payment of
any obligation according to what is herein expressed; if he or one or more
creditors solicit his bankruptcy or formulate propositions of extrajudicial or
judicial agreement, whether through the route of attachment due to prejudicial
or cautionary measures, retentions or prohibitions which are obtained for
entering into acts of contracts regarding any of his goods, or in the naming of
interventors, or whether any fact different from those mentioned should occur
which also may place in evidence a noticeable insolvency.
I (We) hold free and clear the holder of this Promissory Note from the
obligation of protest. All taxes, notarial fees and other taxes which
affect or may affect this promissory note as to its receipts, cancellations,
etc., are for the exclusive charge of the debtor.
All the obligations which emanate from this promissory note shall be
espressly for him or the subscribers, its sureties, and others obliged for its
payment, and shall be considered indivisible for the effects of articles No.
1,526, No. 4 and No. 1,528 of the Civil Code.
I (We) authorize Banco Sud Americano so that under the sole signature
of one or more of its Attorneys, the Bank may sign one or more renewals of this
promissory note, setting in such case (in the form already stated) new rates of
interest, as well as dates of expiration (due dates), all of which I (we)
accept, as of that time, with reserve, and grant the bank for this, irrevocably,
power to sign those renewals.
In awareness of the fact that the rate of interest, which has been
agreed upon in this promissory note, is based on the cost that the Bank, as
financial intermediary, must in turn pay for the funds with which this placement
is financed, the undersigned states and accepts that said rate may be increased
in an equal amount or percentage, in view of the fact that eventually the basic
cost may vary, whether on the occasion of taxes (excepting income taxes),
reserve, technical reserve, or any other legal or reglamentary exigency, whether
regarding its amount, or the form of calculating such exigencies, and that
definitively may result in a greater cost of funds for the Bank.
The payment of this obligation is of indivisible nature, its compliance
demandable upon any of the debtor's heirs or successors.
As of this date, I (we) authorize the charges which the Bank may make
upon any of the ordinary accounts which I may have in its offices, in order to
cover the costs of capital, interest, taxes, expenses, etc., which this
obligation may generate.
For all the effects of this promissory note I (We) constitute domicile
in the city of SANTIAGO and submit to the jurisdiction of its courts.
<PAGE>
SANTIAGO 01 OF AUGUST OF 1997
SUBSCRIBER TEPUAL S.A. TAX NUMBER R.U.T. 89,115,400-3
ADDRESS GENERAL EKDHAL 159 RECOLETA SURETY
MAX RUTMAN SOUBOTNIK
Legal Representative Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
SURETY
- ------
I (We) hereby constitute in surety/sureties and codebter(s) jointly and
severally, as of this date holding free and clear the holder of this promissory
note of the obligation of protest and accepting hereinafter the extensions which
may be agreed to, setting for all my (our) effects domicile in this city. The
payment of the obligation which I (we) may contract as surety shall be in the
nature of indivisibility, with the power to demand such payment from any of my
(our) successors._
SANTIAGO 01 OF AUGUST OF 1997
SURETY MAX RUTMAN SOUBOTNIK SURETY
ADDRESS AGUSTIN DEL CASTILLO 2581 VII ADDRESS
MAX RUTMAN SOUBOTNIK
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (illegible) SIGNATURE
- --------------------------------------------------------------------------------
IRREVOCABLE INSTRUCTION
By virtue of the stipulations of Article 11 of Law 18,092, I irrevocably
instruct you to fill out Promissory Note Series No. ____ and sign for me (us),
being able to incorporate all the mentions of Article 102 of Law 18,092,
excepting those of Nos. 4 and 6, both already consigned, of that Article and
execute immediately and without advance notice the promissory note that the
client signs with this date, to the name of the Bank, as has been stated.
SANTIAGO 01 OF AUGUST OF 1997
------------------------------
NAME OF SUBSCRIBER (DEBTOR)
NAME/COMPANY NAME TEPUAL, S.A. TAX No. R.U.T. 89,115,400-3
Legal Representative: MAX RUTMAN SOUBOTNIK Legal Representative
TAX NUMBER R.U.T. 4,335,394-2 R.U.T.
SIGNATURE (Illegible) SIGNATURE
- --------------------------------------------------------------------------------
STATEMENT
- ---------
I (We) hereby state that we know and accept the dispositions of Circular No. 31
of the Internal Tax Service published in the Diario Oficial of
11.07.92,regarding the fact that the Tax for Stamps and Seals must be paid when
the export is not made. I (We) also promise, at the time for payment of the
credit, to deliver to the Bank a sworn statement concerning the origin of said
funds, so as to facilitate the pertinent revisions concerning the new standard.
SANTIAGO 01 OF AUGUST OF 1997
NAME/COMPANY NAME TEPUAL, S.A. TAX NUMBER R.U.R. 89,115,400-3
Legal Representative: MAX RUtMAN SOUBOTNIK Legal Representative
TAX NO. R.U.T. 4,335,394-2 R.U.T.
Signature (illegible) SIGNATURE
- --------------------------------------------------------------------------------
NOTARIAL AUTHORIZATION (Seal) JAIME MORANDE ORREGO, Notary Public I hereby
authorize signature(s) placed on this document on the date of issuance. In
Santiago 01 of August, 1997. I (We) accept the commitment of this instrument.
BANCO SUD AMERICA
<PAGE>
(Handwritten note) RUT 89.115.400-3
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Soubotnick (signed) M. Rutman
RUT 4,335,394-2 SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 22 FEBRUARY 1999
Promissory note for credit operation No. 20859282
re-subscribed MAY 23, 1999
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.45%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, FEBRUARY 22, 1999
__________________
NOTARY
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Soubotnick (signed) M. Rutman
RUT 4,335,394-2 SIGNATURE OF SIGNATORY
(Handwritten: Max Rutman Suobotnik)
SANTIAGO, 24 NOVEMBER 1998
Promissory note for credit operation No. 20859282
re-subscribed FEBRUARY 22, 1999
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.45%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, FEBRUARY 22, 1999
__________________
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Soubotnick (signed) M. Rutman
RUT 4,335,394-2 SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 26 OCTOBER 1998
Promissory note for credit operation No. 20859282
re-subscribed NOVEMBER 24,, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.43%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
__________________
NOTARY
SANTIAGO, FEBRUARY 22, 1999
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Subotnick (signed) M. Rutman
RUT 4,335,394-2 SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 27 JULY 1998
Promissory note for credit operation No. 20859282
re-subscribed OCTOBER 25, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.80%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, JULY 21, 1998
__________________
NOTARY
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(signature illegible)
SIGNATURE OF SIGNATORY
JORGE BULNES ROSALES
Asst. Mgr. Special Credits
SANTIAGO, 28 APRIL1998
Promissory note for credit operation No. 20859282
re-subscribed JULY 27, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.84%
INTEREST
(Signature illegible)
Signature of Signatory
JORGE BULNES ROSALES
Asst. Mgr. Special Credits
SANTIAGO, APRIL 28, 1999
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(signed) M. Rutman
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 28 JANUARY 1998 (Stamped) PABLO PORTALES DONOSO
Asst Mgr. Commercial Accts.
Promissory note for credit operation No. 20859282
re-subscribed MAY 28, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 10.80%
INTEREST
(Signed) M. Rutman
Signature of Signatory
SANTIAGO, JANUARY 28, 1999 PABLO PORTALES DONOSO
Asst. Manager Commercial Banking
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859282 contained on the Promissory Note folio Series J No. 026905 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
AUGUST 1, 1997 for the amount of USD 40,000.00 and signed before Notary with the
date AUGUST 1, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Subotnick (signed) M. Rutman
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 30 OCTOBER 1997
Promissory note for credit operation No. 20859282 7,335,3944-2
re-subscribed JANUARY 28, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$40,000.00
RATE OF INTEREST 11.40%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, OCTOBER 30, 1997
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859947 contained on the Promissory Note folio Series J No. 023360 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
NOVEMBER 25, 199 for the amount of USD 265,000.00 and signed before Notary with
the date NOVEMBER 25, 1998 by TEPUAL S.A.
(handwritten) Max Rutman Subotnick (signed) M. Rutman
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 25 JANUARY 1999 (handwritten) 4,335,394-2
Promissory note for credit operation No. 20859947
re-subscribed MARCH 25, 1999
for the amount of USD 149,194.30
the remaining service of the debt
shall be made as follows: xx
CAPITAL USS 149,194.30
RATE OF INTEREST 10.45%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, JANUARY 25, 1999
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Subotnick (signed) M. Rutman
RUT 4,335,394-2 SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 07 DECEMBER 1998
Promissory note for credit operation No. 20859225
re-subscribed MARCH 7, 1999
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 10.45%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, FEBRUARY 22, 1999
__________________
NOTARY
(Stamped text illegible)
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(Stamped: JORGE BULNES ROSALES, Asst. Mgr. Comm. Accts)
(signed) M. Rutman
SIGNATURE OF SIGNATORY
SANTIAGO, 11 APRIL 1998
Promissory note for credit operation No. 20859255
re-subscribed MAY 11, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 10.80%
INTEREST
(Stamped: JORGE BULNES ROSALES,
Asst. Mgr. Commercial Accts)
(Signed) M. Rutman
Signature of Signatory
SANTIAGO, APRIL 11, 1998
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(signed) M. Rutman
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
(stamped) Marcela Eyheramendy J.
Assistant Mgr. Commercial Banking
SANTIAGO, 08 SEPTEMBER 1998
Promissory note for credit operation No. 20859255
re-subscribed DECEMBER 7, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 11.66%
INTEREST
(Signed) M. Rutman
Signature of Signatory
for TEPUAL S.A.
(stamped) Marcela Eyheramendy J.
Assistant Mgr. Commercial Banking
SANTIAGO, SEPTEMBER 8, 1998
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed
on this document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(Signature illegible)
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 10 JUNE 1998
(stamped) Marcela Eyheramendy J.
Assistant Mgr. Commercial Banking
Promissory note for credit operation No. 20859255
re-subscribed SEPTEMBER 8, 1998
for the amount of USD 40,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 10.80%
INTEREST
(Signature illegible)
Signature of Signatory
for TEPUAL S.A.
SANTIAGO, JUNE 10, 1998
(stamped) Marcela Eyheramendy J.
Assistant Mgr. Commercial Banking
SANTIAGO, SEPTEMBER 8, 1998
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(Signature illegible)
SIGNATURE OF SIGNATORY
for TEPUAL S.A.
SANTIAGO, 11 MAY 1998
(stamped) Marcela Eyheramendy J.
Assistant Mgr. Commercial Banking
SANTIAGO, SEPTEMBER 8, 1998
(Signature illegible)
---------------------
NOTARY
(stamped) Marcela Eyheramendy
Assistant Mgr. Commercial Banking
Promissory note for credit operation No. 20859255
re-subscribed JUNE 10, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 11.00%
INTEREST
(Signature illegible)
Signature of Signatory
(stamped) Marcela Eyheramendy
Assistant Mgr. Commercial Banking
SANTIAGO, MAY 11, 1998
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Your friendly bank Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No. 2085
9255 contained on the Promissory Note folio Series J No. 026905 to which this
sheet is attached, was issued to the order of the BANCO SUDAMERICANO on JULY 15,
1997 for the amount of USD 260,000.00 and signed before Notary with the date
JULY 15, 1997 by TEPUAL S.A.
(signature illegible)
SIGNATURE OF SIGNATORY
JORGE BULNES ROSALES
SANTIAGO, 12 MARCH 1998 Asst. Manager Commercial Banking
Promissory note for credit operation No. 2085 9255
re-subscribed APRIL 11, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 10.80%
INTEREST
(Signature illegible)
Signature of Signatory
JORGE BULNES ROSALES
SANTIAGO, 12 MARCH 1998 Asst. Manager Commercial Banking
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Your friendly bank Headquarters Morande 226, Santiago Office
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 15, 1997 by TEPUAL S.A.
(Signed) M Rutman
SIGNATURE OF SIGNATORY
SANTIAGO, 10 FEBRUARY 1998 JORGE BULNES ROSALES
Asst. Manager Commercial Banking
Promissory note for credit operation No. 20859255
re-subscribed MARCH 12, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 10.80%
INTEREST
(Signed) M. Rutman
Signature of Signatory
JORGE BULNES ROSALES
Asst. Manager Commercial Banking
SANTIAGO, FEBRUARY 10, 1999
(Signature illegible)
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
<PAGE>
B A N C O
Sud Americano RENEWAL NOTE FOR PROMISSORY NOTE
Your friendly bank Headquarters Morande 226, Santiago Office
(Stamped seal - illegible)
It is hereby attested that the Promissory note for the credit operation No.
20859255 contained on the Promissory Note folio Series J No. 026904 to which
this sheet is attached, was issued to the order of the BANCO SUDAMERICANO on
JULY 15, 1997 for the amount of USD 260,000.00 and signed before Notary with the
date JULY 17, 1997 by TEPUAL S.A.
(handwritten) Max Rutman Subotnick (signed) M. Rutman
SIGNATURE OF SIGNATORY
SANTIAGO, 13 OCTOBER 1997
Promissory note for credit operation No. 20859255
re-subscribed JANUARY 11, 1998
for the amount of USD 260,000.00
the remaining service of the debt
shall be made as follows: xx
CAPITAL US$260,000.00
RATE OF INTEREST 11.40%
INTEREST
(Signed) M. Rutman
Signature of Signatory
SANTIAGO, OCTOBER 13, 1997
(Signature illegible)
---------------------
NOTARY
(Stamped Seal: Jaime Morande Orrego)
I hereby authorize signatures placed on this
document on its date of issue.
<PAGE>
<TABLE>
<CAPTION>
BANCOSORNO
Banco Osorno y La Union
PROMISSORY NOTE
(in Development Fund Monthly Payments, Fixed Rate)
(Matured Interest Payable)
<S> <C>
No. _______
Dev. Fund 13,450.0000
I (We) owe and will pay jointly and unconditionally, to the order of Banco Osorno y La Union, in its office at 140
Banderas, City of Santiago, the sum of legal tender equivalent to THIRTEEN THOUSAND FOUR HUNDRED FIFTY
Development Units (U.F. 13,450.00000) for capital, which I (we) have received in loan to my (our) entire satisfaction,
plus the sum in currency ordinary circulation in Chile equivalent to (Development Units .................................... for the
interest which is earned from application to capital owed in the amount of ........... annually, which amount I an (we are)
obliged to pay under the following conditions, which I (we) accept and will meet.
The capital and interests I (we) shall pay in 96 monthly and successive payments for the equivalent of 211.0328
Development Units each, save for the last one for the equivalent of .................. Development Units upon due date of the
first on December 26, 1997 and the rest on the 26th day of each of the following calendar months following said date,
until the final payment of the obligation.
The payments for capital and interest shall be determined and paid in ordinary Chilean legal tender for the value of the
Development Units on the day for the respective effective payment except if the payment should be made before the
date stipulated and on this day, should the value of the Development Unit be higher, then this last value shall be utilized.
Non-working days, extension of payment: Any date for the payment of capital and/or interest which falls on a banking
day not worked shall be extended until the immediately following valid banking day, the respective payment to include as
well the interest corresponding to the days covering that extension.
Interest in delay : In case of default or simple delay in the payment of all or part of the capital and/or interest, this
promis-sory note shall yield for the entire lapse of the default or delay, the maximum conventional interest the law allows
to be stipulated for adjustable operations of credits of money in national legal tender in effect during the default, but only
if these should be greater than the maximum conventional interest in effect on this date. Otherwise, this last rate shall
be applied.
Acceleration because of default: In case of default or simple delay in the payment of all or part of the payments lasting
more than ten calendar days, the creditor has the power of making the total amount due demandable, which in this case
shall be considered an expired period for all legal effects.
Advance payment. The creditor may call in this promissory note in advance, which in that event shall be considered as
an expired period for all conventional and legal effect, if the signatory should cease payment of any other obligation
contracted, whether in favor of the Bank or in favor of any other creditor, or should the declaration of bankruptcy of the
signatory be petitioned, or if the signatory should formulate proposals of extrajudicial or judicial agreement.
Ordinary account. The Banco Osorno y La Union , in its capacity as creditor of this obligation, is irrevocably
empowered upon its expiration, to draw upon the ordinary bank accounts which the debtor may maintain in said bank,
the amounts of capital and interest to which this document refers.
Indivisibility. All the obligations derived from this promissory note are considered indivisible for the signatory, his heirs
and/or successors, for all legal effects, and especially those included in articles 1526 No. 4 and 1528 of the Civil Code.
Protest: Without obligation of protest. I (We) hold the creditor free and clear of the obligation of protest, but if he should
choose to carry out said proceeding, he may do so, at his free choice, in bank or notarial form or by a suitable public
servant. In any case, in the event of protest I (we) are obliged to pay the resulting expenses and taxes.
Taxes, Fees and Expenses: Any tax, fee, expense and increase in the costs which may arise out of this Promissory
Note, its modifications, extension, payment or other circumstances relative to or produced by the same, shall be for the
signatory's (signatories') exclusive expense.
Warranties. The Banco Osorno y La Union, and whoever may represent their rights, is from this point on authorized to
modify, substitute, raise or renounce, totally or partially, the guarantees which presently may be constituted or which in
the future should be constituted in order to safeguard the obligations to which this promissory note refers, none of which
are to be understood as transferred to whosoever may acquire this promissory note unless Banco Osorno y La Union so
expressly states.
<PAGE>
Page 2
Domicile and Competence. For all the legal effects derived from this promissory note, the debtor or signatory constitutes
special domicile in the community indicated in the heading of this promissory note and submits to the competence of its
Ordinary Tribunals of Justice, and said domicile also shall be the operative location for procedures of protest in case it is
practiced.
The tax for Stamps and Documentary stamps placed on this document shall be paid by monthly amounts of money to the
Treasury according to Decree Law 3475 Article 15. No. 2.
SANTIAGO DECEMBER 27, 1996
(Signed) M. RUTMAN (Illegible)
SIGNATURE OF SIGNATORY OR DEBTOR SIGNATURE OF SIGNATORY OR DEBTOR
Full Name (Business Name) of debtor (1) TEPUAL SOCIEDAD ANONIMA
Address: GENERAL EKDHAL 159
City SANTIAGO District RECOLETA
RUT (Tax No) 4,335,394-2 NATIONAL
(Debtor (2) N/A
SURETY
Whereas the signatories are constituted as surety (guarantors) of the present promissory note and as bondsmen and co-
debtors jointly and severally of the obligations therein consigned, to the order of the Banco Osorno y La Union, or of
whoever may represent their rights for each and every one of the obligations indicated above, for all time which may pass
until the final and complete payment of this document, and he expressly states that:
He accepts from henceforth the time periods and extensions of time periods, renewals and modifications of the rate
of interest which may be agreed upon between debtor and creditor, the joint obligation remaining in existence
regardless of any arrangement or agreement concerning the mode and form of paying the obligation;
He holds Banco Osorno y La Union free and clear of the obligation of protest of this document;
His responsibility and that of his heirs and/or successors shall be indivisible in nature for all legal effects, and in
particular for those stipulated in Articles 1526 No. 4 and 1528 of the Civil Code.
The Banco Osorno y La Union, and whoever may represent its rights is henceforth authorized to modify, substitute,
raise or renounce, wholly or in part, the warranties which are now constituted or which may be constituted in the
future, in order to protect the obligations to which this present promissory note refer, none of which are understood
as transferred to whoever may acquire this promissory note unless the Bank expressly so states; and
For all legal effects of this surety, each surety (guarantor) constitutes special domicile in the location indicated on
the heading of this promissory note and submits to the jurisdiction of its Ordinary Courts of Justice.
</TABLE>
BANK LOAN AGREEMENT WITH
BANCO SANTANDER
Banco
Santander
ATTESTATION
Banco Santander Chile attests that MESSRS. TEPUAL S.A., TAX NO. 89,115,400-3,
presents the Op. No. 21.99.128/340573-3, with the following characteristics:
PURPOSE OF DEBT : Renegotiation
TYPE : Direct
DATE GRANTED : October 16, 1998
NO. PAYMENTS AGREED TO : 72
NO. PAYMENTS PAID : 4
NO. PAYMENTS PENDING : 68
AMOUNT OF CREDIT GRANTED : $111,886,306
DEBT IN EFFECT : $107,987,448
DATE OF EXPIRATION October 16, 2004
This attestation is issued at the request of the interested party(ies) for
purposes he deems suitable, without further responsibility for our Bank.
by BANCO SANTANDER CHILE
Santiago, March 12, 1999
PGA/NVR Stamped: PATRICIO GALAZ AHUMADA
Operative Supervisor
Debtors and Reports
Bandera 140
Tel. 6960414
P.O. Box 76-D - Santiago
<PAGE>
Banco
Santander
ATTESTATION
Banco Santander Chile attests that MESSRS. TEPUAL S.A., TAX NO. 89,115,400-3,
presents the Op. No. 23.01.122000202-2, with the following characteristics:
PURPOSE OF DEBT : Renegotiation
TYPE : Direct
DATE GRANTED : December 27, 1996
NO. PAYMENTS AGREED TO : 96
NO. PAYMENTS PAID : 25
NO. PAYMENTS PENDING : 71
AMOUNT OF CREDIT GRANTED : $173,529,786.-
DEBT IN EFFECT : $157,598,565.-
DATE OF EXPIRATION December 26, 2004
This attestation is issued at the request of the interested party(ies) for
purposes he deems suitable, without further responsibility for our Bank.
by BANCO SANTANDER CHILE
Santiago, March 12, 1999
PGA/NVR Stamped: PATRICIO GALAZ AHUMADA
Operative Supervisor
Debtors and Reports
Bandera 140
Tel. 6960414
P.O. Box 76-D - Santiago
<PAGE>
<TABLE>
<CAPTION>
Banco
Santander
PROMISSORY NOTE
DEVELOPMENT UNIT READJUSTABLE CREDIT IN NATIONAL LEGAL CURRENCY
<S> <C>
I (We) owe and shall pay to the order of the Banco Santander the sum of ONE HUNDRED ELEVEN MILLION
EIGHT HUNDRED EIGHTY-SIX THOUSAND THREE HUNDRED SIX pesos ($111.886.306.- ) value of a credit that I (we)
have received in national currency, equivalent to 7715.02 Development Units. This sum shall be returned, also in national
currency, readjusted according to the variation which the Development Unit undergoes determined by the Superintendency
of Banks and Financial Institutions, between this date and the date of the effective payment.
The capital owed shall be paid, with the readjustment indicated above, in 72 monthly payments, with due date(s) on
the 16th day of the corresponding month. The first expiration shall therefore be November 16, 1998, and the last, October
16, 2004.
The readjusted capital owed shall earn interest which shall be paid on the due date for the corresponding month.
The rate of interest shall be 13.70% yearly, for the first period which shall expire on November 16, 1998. For the following
periods which shall become due on the 16th day of the corresponding month, the rate shall be the one the Bank has
established for this class of operation to the date of initiation of the respective period, with the limitation that it cannot
exceed the maximum conventional rate of interest for readjustable operations in ordinary money in effect on that date. The rate
indicated above shall be certified by the Bank in this document, on the date the corresponding period begins and said
certificate shall be considered an integral part of this promissory note for all legal effect. The interest which is not paid on
the time established shall be added for this single time to the capital owing.
If there should be discussion or objection at any time or in any form concerning the rate(s) which in accordance with
the foregoing are certificated for the following periods, for this single time the maximum conventional rate ruling these credit
operations in money on the date of the beginning of said period, must be applied to to the respective period, in substitution of
the rate under discussion or objected to.
The Bank may, upon expiration of any of the payments of capital in which this promissory note is divided, and/or its
interest payments, extend such payments of capital and/or interest, for which it is especially empowered in this act. In this
case, during the entire period of the extension, the total amount of what is owed on that date, shall be returned at the rate of
interest which may rule in the corresponding period(s), increased up to .......... So that said extension should be effective, an
affidavit is sufficient that this is allowed by the Bank in this promissory note, with the new date of expiration.
The simple delay in the payment of any regular payment of the capital into which this promissory note is divided,
gives the Bank the right to demand as of the lapsed period of time, without need of protest, the total amount of indebtedness
up to that date, which shall pay since that time, as penalty interest, the maximum which the law allows to stipulate for this
type of operations. The same will take place in the event that ____
payments of interest have gone unpaid, consecutive or otherwise.
The obligation arising out of this present promissory note is indivisible in nature for the effects of calling it in
against any of my (our) heirs or successors.
I (We) empower the Banco Santander so that each payment of capital, readjustments and/or interests, is paid
totally or partially at due time, drawing the value corresponding to my ordinary bank accounts open in any of its offices.
For all the effects of this promissory note I constitute domicile in the city and section of Santiago and submit to the
competence of its courts.
Santiago, 16 October 1998.
Tepual S,A, (Signed) M, RUTMAN
NAME OF DEBTOR SIGNATURE(S)
Domicile: General Eckhal, No. 159,
Section - Recoleta City: Santiago
Tax No. 89,115,400-3
I authorize the signature of Mr. Max Rutman Soubotnik Tax No. 4,335,394-2 who signed before me as representative of the
Tepual S.A. Tax No. 89,115,400-3. Santiago 16 October 1998.
Stamped seal of Notary Arturo Carvajal Escobar (signature illegible)
SIGNATURE OF NOTARY
Signature of Party Requesting
(Margin) The amount of Stamps charged on this document are paid from monthly returns on money in the Treasury, as per
Decree Law No. 3,475 Article 15, No. 2.
<PAGE>
SURETY
I (We) hereby constitute myself (ourselves) as surety(ies) or guarantor(s) and co-debtor(s) jointly and
severally of the present promissory note until the complete extinction of the obligation from which same
may issue, in capital, readjustments, interest and costs, for which I (we) accept from hereinafter all
extension or renewal which the Bank concedes to the signatory with respect to any of the payments of
capital and/or interest.
I (We) also excuse the Bank from the necessity of protest for all legal effects, and therefore, said bank may
draw upon my (our) account, without further processing, one or more payments or the total owed, as
established in the promissory note. The obligation arising out of the present promissory note shall be
considered indivisible in order to make it effective against each and all of my (our) heirs.
For all effects of this surety, I (we) set domicile in the city and section of Santiago and I (we) submit to the
competence of its courts.
CO-DEBTOR JOINTLY AND CO-DEBTOR JOINTLY AND CO-DEBTOR JOINTLY AND
SEVERALLY AND SURETY SEVERALLY AND SURETY SEVERALLY AND SURETY
Signature: M. Rutman Signature ______________ Signature ______________
Name: Max Rutman Signature ______________ Signature ______________
Soubotnik
Domicile: General Ekdhal 159 ETC. ETC.
ID# 4,335,394-2
TAX # 4,335,394-2
In representation of etc. etc.
Amended: "4,335,394-2, correct
I authorize the signature of Mr. Max Rutman Soubotnik - Tax No. 4,335,394-2
which is the signature he used before me.
Santiago, October 16, 1998
(Stamped seal and initials of Notary Arturo Carvajal Escobar
Notary Public)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANCO DO BRASIL
Apoquindo 3001 - Santiago
TAX NO. 97,003,000-K No. of Operation: 105143
No. of Promissory Note: 7406
E X P O R T P R O M I S S O R Y N O T E
<S> <C>
I owe and shall pay to the order of the BANCO DO BRASIL S.A. on June 16, 1999 the sum of
US$200,000.00 (Two hundred thousand Dollars USA) value for an export credit that I have received in
loan from that Bank, to my entire satisfaction and approval.
I shall make the payment with the compensation from exports to United States of America
dollars or its equivalent in national legal tender, in conformance with the standards in effect.
If the expiration date arrives and for any reason I have not received part or all of the
compensation from the exports, I shall likewise pay the credit in full on that day.
The interest the credit will return shall be 9.3625% annually, and shall be calculated on the basis
of a year of 360 days and shall be paid together with the capital.
The default or simply delay in payment of the credit and its interest shall return, beginning on the
day on which such eventuality may be produced, an interest equal to the maximum that the Law allows
to be pacted. The calculation of the interest for default shall be made prior to capitalization of the
interest earned up to the date of expiration of the promissory note.
The BANCO DO BRASIL S.A. is empowered to demand full payment of this promissory note,
including the interest earned, if the individual thus obligated should fall into insolvency, such being
understood to mean that if he should cease in paying any obligation, if he, the debtor, or one or more of
his creditors solicit his bankruptcy or formulate proposals of extrajudicial or judicial agreements, whether
through the route of prejudicial or precautionary measures they may obtain against him; i.e., retentions,
prohibitions from entering into acts or contracts regarding any of his goods, or in the naming of
intervening parties; if the impediment of embargo is brought against any of his goods or should any other
fact occur which also places in evidence a noticeable insolvency on his part. The foregoing is
understood to be without prejudice to the other cases in which advance payment may be demanded in
accordance with legal standards.
The obligations emanating from this promissory note are indivisible in nature and his compliance
can be demanded from each and every one of the heirs, or successors of the debtor, in conformity with
Articles 1526 No. 4 and 1528 of the Civil Code.
This promissory note is exempt from the obligation of protest.
For all the effects of this promissory note, the debtor fixes his domicile in the community of
Santiago and submits to the jurisdiction of its Courts.
The BANCO DO BRASIL S.A. is irrevocably authorized to debit the bank accounts which the
debtor maintains in the Bank, with the total amount of the credit, including its interest and collection
costs, as of the date of expiration of this promissory note, or since the same has become demandable or
payable.
The debtor states that he accepts that this promissory note is governed by the dispositions
established by the Banco Central de Chile, and by the Superintendency of Banks and Financial
Institutions, concerning financing for exports.
This promissory note is exempt from taxation, in conformity with the dispositions of Article 24 of
Decree Law 3475 and by the Superintendency of Banks and Financial Institutions concerning financing
for exports.
In Santiago, December 18, 1998
NAME / BUSINESS NAME OF DEBTOR TEPUAL S.A.
TAX NO. OF DEBTOR 89,115,400-3
REPRESENTATIVE(S) MAX RUTMAN SOUBOTNIK
TAX REPRESENTATIVE(S) 4,335,394-2
DOMICILE STREET GENERAL EKDHAL, 159
DISTRICT RECOLETA
CITY SANTIAGO
IN CASE OF PROTEST, PLEASE SEND PROMISSORY NOTE TO THE CORRESPONDING NOTARY
(Signed) M. Rutman
SIGNATURE OF DEBTOR OR LEGAL REPRESENTATIVE(S)
(illegible notation and date)
</TABLE>
<TABLE>
<CAPTION>
BANCO DO BRASIL
[loan renewal]
STATE OF DEBT AT JULY 15, 1999 REF: CONTAGB208
PAGE: 1
CLIENT NO.: 0186155-7 RUT: 89.115.400-3 ACTIVITY CODE: 61 RISK CLASSIFICATION: B
NAME: TEPUAL S.A. ADDRESS: GENERAL EKDAHL 159 CITY: SANTIAGO
ACCOUNT DOCUMENT DATE EXPIRATION CURRENCY
NUMBER ACCOUNT NAME NUMBER GRANTED DATE CODE VALUE CONVERSION
LOANS:
<S> <C> <C> <C> <C> <C> <C> <C>
1130.031.01 Export Loans 105.117 15/07/99 21/10/99 13 300,000.00 DB 155,670,000.00
1130.031.01 Export Loans 105.143 15/07/99 21/10/99 13 200,000.00 DB 103,780,000.00
1130.031.01 Export Loans 105.148 15/07/99 22/10/99 13 300,000.00 DB 155,670,000.00
1130.031.01 Export Loans 105.260 15/07/99 22/10/99 13 500,000.00 DB 259,450,000.00
Debt for negotiable Letter of Credit
1615.005.01 with view to payment 105.862 15/07/99 22/09/99 13 48,000.00 DB 24,907,200.00
Debt for negotiable Letter of Credit
1615.005.01 with view to payment 105.863 15/07/99 22/09/99 13 104,000.00 DB 53,965,600.00
Debt for negotiable Letter of Credit
1615.005.01 with view to payment 105.901 15/07/99 30/09/99 13 26,250.00 DB 13,621,125.00
Debt for negotiable Letter of Credit
1615.005.01 with view to payment 105.941 15/07/99 13/10/99 13 11,785.00 DB 6,115,237.00
FOREIGN
TOTAL LOANS CHILEAN CURRENCY 0.00 CURRENCY - 773,179,162.00 TOTAL DEBT - 773,179,162.00
INTEREST:
Interest for the collection of export
1130.031.02 loan 105.117 15/07/99 21/10/99 13 1,830.19 DB 949,686.00
Interest for the collection of export
1130.031.02 loan 105.143 15/07/99 21/10/99 13 1,220.12 DB 633,120.00
1
<PAGE>
ACCOUNT DOCUMENT DATE EXPIRATION CURRENCY
NUMBER ACCOUNT NAME NUMBER GRANTED DATE CODE VALUE CONVERSION
Interest for the collection of export
1130.031.02 loan 105.148 15/07/99 22/10/99 13 1,757.25 DB 911,837.00
Interest for the collection of export
1130.031.02 loan 105.260 15/07/99 22/10/99 13 23,471.75 DB 12,179,491.00
FOREIGN
TOTAL INTEREST CHILEAN CURRENCY 0.00 CURRENCY - 14,674,134.00 TOTAL DEBT - 14,674,134.00
GUARANTEES:
9220.012.00 Standby Letter of Credit (Guarantees) 8.825 15/07/99 31/12/99 13 1,500,000.00 DB 778,350,000.00
9220.006.00 Guarantee of Foreign Certificate 105.862 15/07/99 22/09/99 13 48,000.00 DB 24,907,200.00
9220.006.00 Guarantee of Foreign Certificate 105.863 15/07/99 22/09/99 13 104,000.00 DB 53,965,600.00
9220.006.00 Guarantee of Foreign Certificate 105.901 15/07/99 30/09/99 13 26,250.00 DB 13,621,125.00
TOTAL FOREIGN
GUARANTEES CHILEAN CURRENCY 0.00 CURRENCY - 870,843,925.00 TOTAL DEBT - 870,843,925.00
/s/Pugenio Nunez Paredes
Pugenio Nunez Paredes
Account Executive
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BANCO DO BRASIL
Apoquindo 3001 - Santiago
TAX NO. 97,003,000-K No. of Operation: 105260
(by hand - a.86155x) No. of Promissory Note: 7405
E X P O R T P R O M I S S O R Y N O T E
I owe and shall pay to the order of the BANCO DO BRASIL S.A. on Julu 12, 1999 the sum of
US$500,000. (Five hundred thousand Dollars USA) value for an export credit that I have received in loan
from that Bank, to my entire satisfaction and approval.
I shall make the payment with the compensation from exports to United States of America dollars
or its equivalent in national legal tender, in conformance with the standards in effect.
If the expiration date arrives and for any reason I have not received part or all of the compensation
from the exports, I shall likewise pay the credit in full on that day.
The interest the credit will return shall be 9.3887% annually, and shall be calculated on the basis of
a year of 360 days and shall be paid together with the capital.
The default or simply delay in payment of the credit and its interest shall return, beginning on the
day on which such eventuality may be produced, an interest equal to the maximum that the Law allows to
be pacted. The calculation of the interest for default shall be made prior to capitalization of the interest
earned up to the date of expiration of the promissory note.
The BANCO DO BRASIL S.A. is empowered to demand full payment of this promissory note,
including the interest earned, if the individual thus obligated should fall into insolvency, such being
understood to mean that if he should cease in paying any obligation, if he, the debtor, or one or more of his
creditors solicit his bankruptcy or formulate proposals of extrajudicial or judicial agreements, whether
through the route of prejudicial or precautionary measures they may obtain against him; i.e., retentions,
prohibitions from entering into acts or contracts regarding any of his goods, or in the naming of intervening
parties; if the impediment of embargo is brought against any of his goods or should any other fact occur
which also places in evidence a noticeable insolvency on his part. The foregoing is understood to be
without prejudice to the other cases in which advance payment may be demanded in accordance with legal
standards.
The obligations emanating from this promissory note are indivisible in nature and his compliance
can be demanded from each and every one of the heirs, or successors of the debtor, in conformity with
Articles 1526 No. 4 and 1528 of the Civil Code.
This promissory note is exempt from the obligation of protest.
For all the effects of this promissory note, the debtor fixes his domicile in the community of
Santiago and submits to the jurisdiction of its Courts.
The BANCO DO BRASIL S.A. is irrevocably authorized to debit the bank accounts which the debtor
maintains in the Bank, with the total amount of the credit, including its interest and collection costs, as of the
date of expiration of this promissory note, or since the same has become demandable or payable.
The debtor states that he accepts that this promissory note is governed by the dispositions
established by the Banco Central de Chile, and by the Superintendency of Banks and Financial Institutions,
concerning financing for exports.
This promissory note is exempt from taxation, in conformity with the dispositions of Article 24 of
Decree Law 3475 and by the Superintendency of Banks and Financial Institutions concerning financing for
exports.
In Santiago, January 13, 1999
NAME / BUSINESS NAME OF DEBTOR TEPUAL S.A.
TAX NO. OF DEBTOR 89,115,400-3
REPRESENTATIVE(S) MAX RUTMAN SOUBOTNIK
TAX REPRESENTATIVE(S) 4,335,394-2
DOMICILE STREET GENERAL EKDHAL, 159
DISTRICT RECOLETA
CITY SANTIAGO
IN CASE OF PROTEST, PLEASE SEND PROMISSORY NOTE TO THE CORRESPONDING NOTARY
(Signed) M. Rutman
SIGNATURE OF DEBTOR OR LEGAL REPRESENTATIVE(S)
(illegible notation and date)
<PAGE>
BANCO DO BRASIL
Apoquindo 3001 - Santiago
TAX NO. 97,003,000-K No. of Operation: 105117
No. of Promissory Note: 7365
E X P O R T P R O M I S S O R Y N O T E
I owe and shall pay to the order of the BANCO DO BRASIL S.A. on June 14, 1999 the sum of
US$300,000.00 (Three hundred thousand Dollars USA) value for an export credit that I have received in
loan from that Bank, to my entire satisfaction and approval.
I shall make the payment with the compensation from exports to United States of America dollars
or its equivalent in national legal tender, in conformance with the standards in effect.
If the expiration date arrives and for any reason I have not received part or all of the compensation
from the exports, I shall likewise pay the credit in full on that day.
The interest the credit will return shall be 9.3025% annually, and shall be calculated on the basis of
a year of 360 days and shall be paid together with the capital.
The default or simply delay in payment of the credit and its interest shall return, beginning on the
day on which such eventuality may be produced, an interest equal to the maximum that the Law allows to
be pacted. The calculation of the interest for default shall be made prior to capitalization of the interest
earned up to the date of expiration of the promissory note.
The BANCO DO BRASIL S.A. is empowered to demand full payment of this promissory note,
including the interest earned, if the individual thus obligated should fall into insolvency, such being
understood to mean that if he should cease in paying any obligation, if he, the debtor, or one or more of his
creditors solicit his bankruptcy or formulate proposals of extrajudicial or judicial agreements, whether
through the route of prejudicial or precautionary measures they may obtain against him; i.e., retentions,
prohibitions from entering into acts or contracts regarding any of his goods, or in the naming of intervening
parties; if the impediment of embargo is brought against any of his goods or should any other fact occur
which also places in evidence a noticeable insolvency on his part. The foregoing is understood to be
without prejudice to the other cases in which advance payment may be demanded in accordance with legal
standards.
The obligations emanating from this promissory note are indivisible in nature and his compliance
can be demanded from each and every one of the heirs, or successors of the debtor, in conformity with
Articles 1526 No. 4 and 1528 of the Civil Code.
This promissory note is exempt from the obligation of protest.
For all the effects of this promissory note, the debtor fixes his domicile in the community of
Santiago and submits to the jurisdiction of its Courts.
The BANCO DO BRASIL S.A. is irrevocably authorized to debit the bank accounts which the debtor
maintains in the Bank, with the total amount of the credit, including its interest and collection costs, as of the
date of expiration of this promissory note, or since the same has become demandable or payable.
The debtor states that he accepts that this promissory note is governed by the dispositions
established by the Banco Central de Chile, and by the Superintendency of Banks and Financial Institutions,
concerning financing for exports.
This promissory note is exempt from taxation, in conformity with the dispositions of Article 24 of
Decree Law 3475 and the Superintendency of Banks & Financial Institutions re financing for exports.
In Santiago, December 15, 1998
NAME / BUSINESS NAME OF DEBTOR TEPUAL S.A.
TAX NO. OF DEBTOR 89,115,400-3
REPRESENTATIVE(S) MAX RUTMAN SOUBOTNIK
TAX REPRESENTATIVE(S) 4,335,394-2
DOMICILE STREET GENERAL EKDHAL, 159
DISTRICT RECOLETA
CITY SANTIAGO
IN CASE OF PROTEST, PLEASE SEND PROMISSORY NOTE TO THE CORRESPONDING NOTARY
(Signed) M. Rutman
SIGNATURE OF DEBTOR OR LEGAL REPRESENTATIVE(S)
(Stamped: ARIEL OPAZO RAMIREZ (by hand) 291298 (illegible notation and date)
I authorize the signature of Max Rutman Soubotnik ID 4,335,394-1 in representation of Tepual S.A. Tax No.
39.115.400-3, as debtot, Santiago December 15, 1998.
<PAGE>
BANCO DO BRASIL
Apoquindo 3001 - Santiago
TAX NO. 97,003,000-K No. of Operation: 105148
No. of Promissory Note: 7378
E X P O R T P R O M I S S O R Y N O T E
I owe and shall pay to the order of the BANCO DO BRASIL S.A. on June 21, 1999 the sum of
US$300,000.00 (Three hundred thousand Dollars USA) value for an export credit that I have received in
loan from that Bank, to my entire satisfaction and approval.
I shall make the payment with the compensation from exports to United States of America dollars
or its equivalent in national legal tender, in conformance with the standards in effect.
If the expiration date arrives and for any reason I have not received part or all of the compensation
from the exports, I shall likewise pay the credit in full on that day.
The interest the credit will return shall be 9.3305% annually, and shall be calculated on the basis of
a year of 360 days and shall be paid together with the capital.
The default or simply delay in payment of the credit and its interest shall return, beginning on the
day on which such eventuality may be produced, an interest equal to the maximum that the Law allows to
be pacted. The calculation of the interest for default shall be made prior to capitalization of the interest
earned up to the date of expiration of the promissory note.
The BANCO DO BRASIL S.A. is empowered to demand full payment of this promissory note,
including the interest earned, if the individual thus obligated should fall into insolvency, such being
understood to mean that if he should cease in paying any obligation, if he, the debtor, or one or more of his
creditors solicit his bankruptcy or formulate proposals of extrajudicial or judicial agreements, whether
through the route of prejudicial or precautionary measures they may obtain against him; i.e., retentions,
prohibitions from entering into acts or contracts regarding any of his goods, or in the naming of intervening
parties; if the impediment of embargo is brought against any of his goods or should any other fact occur
which also places in evidence a noticeable insolvency on his part. The foregoing is understood to be
without prejudice to the other cases in which advance payment may be demanded in accordance with legal
standards.
The obligations emanating from this promissory note are indivisible in nature and his compliance
can be demanded from each and every one of the heirs, or successors of the debtor, in conformity with
Articles 1526 No. 4 and 1528 of the Civil Code.
This promissory note is exempt from the obligation of protest.
For all the effects of this promissory note, the debtor fixes his domicile in the community of
Santiago and submits to the jurisdiction of its Courts.
The BANCO DO BRASIL S.A. is irrevocably authorized to debit the bank accounts which the debtor
maintains in the Bank, with the total amount of the credit, including its interest and collection costs, as of the
date of expiration of this promissory note, or since the same has become demandable or payable.
The debtor states that he accepts that this promissory note is governed by the dispositions
established by the Banco Central de Chile, and by the Superintendency of Banks and Financial Institutions,
concerning financing for exports.
This promissory note is exempt from taxation, in conformity with the dispositions of Article 24 of
Decree Law 3475 and by the Superintendency of Banks and Financial Institutions concerning financing for
exports.
In Santiago, December 21, 1998
NAME / BUSINESS NAME OF DEBTOR TEPUAL S.A.
TAX NO. OF DEBTOR 89,115,400-3
REPRESENTATIVE(S) MAX RUTMAN SOUBOTNIK
TAX REPRESENTATIVE(S) 4,335,394-2
DOMICILE STREET GENERAL EKDHAL, 159
DISTRICT RECOLETA
CITY SANTIAGO
IN CASE OF PROTEST, PLEASE SEND PROMISSORY NOTE TO THE CORRESPONDING NOTARY
(Signed) M. Rutman
SIGNATURE OF DEBTOR OR LEGAL REPRESENTATIVE(S)
(illegible notation and date January 27, 99)
</TABLE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT, made and entered into by and between ANDEAN
FINANCIAL CORPORATION, whose address is 1900 Glades Road, Suite 351, Boca Raton,
Florida 33431 hereinafter referred to as LESSOR, and BIO-AQUA SYSTEMS, INC.,
whose address in Santiago, Chile is General Ekdhal 159, Santiago Chile,
hereinafter referred to as LESSEE on 20th day of June, 1999, but shall be
effective as of the effective date of the initial public offering of the
Company's securities pursuant to a registration statement filed with the
Securities and Exchange Commission on Form SB-2 (the "Effective Date").
W I T N E S S E T H:
--------------------
THAT FOR and in consideration of the covenants and agreements herein
contained and in consideration of the rents herein reserved to be paid by LESSEE
to LESSOR, the parties do hereby mutually covenant and agree as follows:
1. PREMISES: LESSOR does hereby lease and demise unto LESSEE the
Premises known as 1900 Glades Road, Suite 351, Boca Raton, Florida 33431 upon
the terms and conditions herein set forth.
2. TERM AND OCCUPANCY: Said premises shall hereinafter sometimes be
referred to as the "leased premises" or "premises". LESSOR does hereby lease and
demise unto LESSEE said Premises to have and to hold the same for a period of
two (2) years. Said term shall commence on the Effective Date ("Effective
Date"), and terminate at midnight one year thereafter.
3. RENTAL: During the term of this Lease, LESSEE shall pay to LESSOR a
fixed annual minimum rent of $30,000. Rent shall be payable in semi-annual
installments commencing on the first day of the month following the Effective
Date and continuing in six month increments thereafter this Lease term, at
LESSOR's office or any other place designated by it, without any set-off or
deduction. LESSEE shall pay the rent and all other payments deemed under this
Lease to be additional rent by check and such check shall be payable in lawful
money of the United States which, at the time of payment, is legal tender for
the payment of public and private debts (LESSOR to accept the check subject to
collection). If the Effective Date is not the first day of a calendar month,
LESSEE shall pay to LESSOR, on the Effective Date, a fraction of the equal
monthly installment, the numerator of which is the number of days from the
Effective Date to the end of the calendar month in which that date occurs, and
the denominator of which is the total number of days in the calendar month. This
payment shall represent the pro rata rent from the Effective Date to the end of
the calendar month.
1
<PAGE>
4. OPTION TO RENEW: LESSOR grants to LESSEE, subject to the conditions
set forth below, the right and option to renew this Lease for an additional two
(2) year term or as otherwise agreed upon, which annual rate shall be adjusted
as mutually agreed upon.
Except as provided above, and otherwise subject to and on all of the
terms and conditions herein contained, all other terms and conditions of this
lease are to be and remain in full force and effect. This option must be
exercised by the giving to LESSOR, on or before ninety (90) days of the
expiration date of this lease, or any option period, written notice of the
exercise thereof by LESSEE; but LESSEE shall in no event be entitled to renew
the term hereof, even though such notice be timely given, unless LESSEE shall
have timely performed all of its obligations hereunder, and shall not be in
default in the performance of any terms of this lease, on the date of the
expiration of the initial term hereof. LESSOR shall, within ten (10) days of
receipt of LESSEE's notice of election of such option, acknowledge in writing
that said lease is extended for said option period.
5. DATE AND PLACE OF PAYMENT: LESSEE shall pay LESSOR the monthly
rental herein required to be paid in advance on the first day of each and every
six month period without demand and at any place that shall be designated by
LESSOR.
6. USE: LESSEE shall use the demised Premises only for the purpose of
general office activities of its executive administrative and sales personnel.
Any other substantial variation in the use of the Premises shall be only with
the prior written consent of LESSOR, which request of LESSEE shall be promptly
responded to by LESSOR within ten (10) days of receipt of said request and which
shall not be unreasonably withheld by LESSOR.
7. UTILITIES: LESSOR shall pay all charges against the demised Premises
for electricity, telephone, water, trash pick-up, area lights and all other
utilities, together with deposits therefore as may be required. And such
deposits shall remain the property of LESSOR and LESSEE shall not make any claim
thereon for any reason.
8. TAXES: LESSOR shall be responsible for the payment of all property
taxes, city and county, assessed against the demised Premises and shall pay the
same before such taxes become delinquent.
9. SURRENDER OF PREMISES: LESSEE shall at the termination of the lease
term, of any renewal or extension thereof, quietly and peacefully surrender said
Premises in as good condition and substantially in the same condition as such
Premises existed at the commencement of the lease term, subject to the other
terms of this lease concerning alterations, ordinary wear and tear or damage or
loss by fire or the elements excepted. LESSEE shall have full authority to
remove from the demised Premises all of its merchandise and trade fixtures,
notwithstanding the fact that the same may have heretofore been bolted or
otherwise affixed to such Premises, all conditioned upon the LESSEE not being in
default hereunder any the repair be LESSEE of any damage resulting from such
removal.
2
<PAGE>
10. DEFAULT: If LESSEE shall make any default in the payment of rent or
any other sums due LESSOR under the terms of this Agreement and the same shall
remain unpaid for three (3) days after such rent or such other amount shall
become due, or if the LESSEE shall default in the performance of any one of the
terms, conditions or covenants of this lease, and if said default is not cured
within ten (10) days from the date of written notice of such default to LESSEE,
or if the demised Premises become and remain deserted for a period of ten (10)
days, the LESSOR may, without written notice or demand to LESSEE, re-enter the
demised Premises according to law and remove all persons according to law, and
the LESSOR may, at it option, relet the demised Premises or any part thereof for
the balance of the lease term as agent for the LESSEE and receive rents thereof
and apply the same first to the payment of the expenses of reasonable
redecorating and making necessary repairs to the Premises, attorneys fees,
brokers commissions, advertising and all other reasonable expenses of the LESSOR
in re-entering the Premises and reletting the same; and second, to the payment
of rent due hereunder. LESSEE shall be responsible for all costs, including
attorney's fees, incurred by LESSOR in enforcing any of the terms and provisions
of this Lease Agreement.
In addition and in connection with the reletting of the demised
Premises for the account of LESSEE as hereinabove provided, LESSOR shall have
the right to declare all monthly installments of rental for the balance of the
lease term to be immediately due and payable and to proceed to obtain a judgment
therefor against LESSEE. Thereafter, all sums collected from the reletting of
the Premises, less costs in connection therewith, shall be applied on said
judgment or if the judgment has been paid, turned over to LESSEE.
Further, in the event of default on the part of LESSEE, the LESSOR
shall have the right to pursue any legal remedy available to it, and LESSOR
shall have the right to bring distress proceedings without in any way affecting
its right to accelerate the balance of rental due and to bring an action
therefor.
11. MECHANICS' LIEN: Said Premises shall not be subject to any lien
under the Mechanic's Lien Law of the State of Florida as a result of any
improvements made by LESSEE. LESSEE shall not permit the Premises to be subject
to any lien for labor, services or material furnished at the request of LESSEE
or its agent and it shall insure that all amounts owed for labor, services or
materials shall be paid for by it promptly.
12. WAIVER: The failure of LESSOR in one or more instances to insist
upon strict performance or observance of one or more of the terms or covenants
hereof or to exercise any remedy herein conferred upon LESSOR shall not operate
or be construed as a relinquishment or a waiver for the future of any such
covenant or condition or the right to enforce the same or to exercise such
remedy, but the same shall continue in full force and effect.
13. NOTICE: It is agreed that whenever notice is required to be given
hereunder that written notice mailed by certified mail return receipt requested
or delivered to LESSOR at 1900 Glades Road, Suite 351, Boca Raton, Florida
33431, or such other address as LESSOR shall furnish
3
<PAGE>
in writing, shall constitute sufficient notice to LESSOR, and written notice
mailed or delivered to LESSEE at: 1900 Glades Road, Suite 351, Boca Raton,
Florida 33431 or such other place as may be designated by LESSEE in writing
shall constitute sufficient notice to the LESSEE.
14. BINDING ON SUCCESSORS, HEIRS AND ASSIGNS: This Lease Agreement
shall be binding and obligatory upon the heirs, assigns and successors of the
respective parties.
15. RADON GAS: Section 404.056(a) Florida Statutes, requires that the
following notification be given on real estate documents:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it
is accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
Radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding Radon and Radon
testing may be obtained from your county public health unit.
16. HAZARDOUS WASTE: LESSEE agrees that leased Premises will fully
comply with all applicable federal, state, and local environmental laws,
regulations, and rulings on LESSEE's occupation of leased Premises and through
the term of this lease and that there will not be any hazardous or toxic
substances prohibited by environmental protection and enforcement agencies on or
at the leased Premises, during LESSEE's possession and occupation of the leased
Premises.
LESSEE will defend, indemnify, and hold LESSOR harmless from and
against any and all actions, losses, liabilities, damages, claims, obligations,
debts, costs, and expenses (including attorney's fees), known or unknown,
contingent or absolute, arising out of or resulting from any (i) petroleum based
products, (ii) oil, (iii) waste, (iv) chemical substance or mixture, (v) toxic,
hazardous or regulated substance, mixture or waste, and/or (vi) radioactive
substance stored, released and/or disposed of on or at the leased Premises from
the commencement of the term of this lease by LESSEE through and including the
date LESSOR retakes possession of the leased Premises. This will only be for any
such claim or liability attributable to LESSEE. LESSEE specifically excludes
pre-existing violations for which LESSOR will indemnify and hold LESSEE harmless
should any claim be brought against it.
17. ENTIRE AGREEMENT: This lease agreement expresses the entire
agreement between the parties and all negotiations and agreements preceding the
execution hereof are merged into, included modified or amended only by a writing
executed by the LESSOR and LESSEE. It may not be amended or modified by oral
agreements or understandings between the parties unless the same shall be
reduced to writing duly authorized and executed by both LESSOR and LESSEE.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals.
LESSOR: LESSEE:
ANDEAN FINANCIAL BIO-AQUA SYSTEMS, INC.
CORPORATION
By:/s/David Mayer By:/s/Max Rutman
- ----------------- ----------------
David Mayer, President Max Rutman, President
5
(Stamped seal of Internal Tax Service (Stamped seal of Fernando Alzate Claro,
No. 1305, March 26, 1999 Acting 40th Notary Santiago)
CRS Center)
LEASE
In Santiago on April 28, 1998, appeared Mr. NEVEN IVAN ILIC ALVAREZ,
Chilean, married, civil engineer and building contractor, national
identification No. 8,652,094-K, in representation -- as is to be accredited --
of KAMEN CONSTRUCCIONES LIMITADA, a limited liability company as reflected by
its company name, Tax No. 79,764,480-3, both domiciled at 163 General Ekdhal
Street, municipality of Recoleta, Metropolitan Region, hereinafter either one of
the two being taken as the LESSOR; and Mr. MAX RUTMAN SOUBOTNIK, Chilean,
married, chemical engineer, national identification No. 4,335,394-2, in
representation -- as is to be accredited -- of TEPUAL S.A., a business
corporation, Tax. No. 89,115,400-3, both domiciled at No. 159 General Ekdhal
Street, municipality of Recoleta, Metropolitan Region, hereinafter either one of
the two being taken as the LESSEE, who state that they have agreed to a LEASE
which consists of the following clauses:
FIRST: The LESSOR is the owner of the property located at No. 163
General Ekdhal Street, Municipality of Recoleta of this city. The LESSOR gives
in lease to the LESSEE, for whom Mr. Max Rutman Soubotnick accepts the property
described below.
The LESSEE will use this property as a Laboratory and to develop
activities appropiate to his business activity.
SECOND: The monthly rental payment shall be the sum of 46.99 UF
(forty-six comma ninety-nine Development Units) which shall be paid in advance,
in the peso equivalent on the effective day for its payment, within the first
five days of each calendar month, through deposit in the bank account of the
LESSOR - No. ________ of the ______________ Bank, Branch ____________.
THIRD This rental lease shall be in effect as of May 1, 1998. Its term
shall be for two years, renewable tacitly, successively and automatically for
periods of one year each, if on the date of its expiration the parties have not
stated their wish to end it
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through notarial certified letter which must be addressed to the domicile of the
party shown in this instrument, with at least sixty days' advance notice at the
end of said legal document, or of any of its extensions. Should the LESSEE not
hand over the property on the date agreed to, the rental for the period of
occupation shall be increased by 50% over the last rental payment, without
prejudice to the other legal rights and actions at the disposition of the
LESSOR.
FOURTH: The LESSEE shall undertake to make opportune payment and, to
whomever it may apply, for use of electrical power, potable water and gas. The
delay or non-payment of one month for any or all of these services, shall give
the right to the LESSOR to suspend the respective services.
FIFTH: The failure to make timely payment of the rental shall give the
LESSOR the right to charge a fine to the LESSEE for the mere fact of delay -
equivalent to one Development Unit (1 UF) for each day of delay. If the delay in
the payment should make legal collection necessary, the LESSEE shall also pay
10% over and above the total amount owing. The delay of one month in the payment
of the rental shall give the LESSOR the right to cancel the lease immediately,
in the manner prescribed by law.
SIXTH: The LESSEE is prohibited: 1) to make changes in the rental
property; to disturb the neighbors; 2) To use the property for a purpose
different from that indicated in this contract; 3) To impute or charge against
the guarantee of the rental payment or other payments, not even case of being
the last month of the rental. The infraction of any of these prohibitions shall
give the LESSOR the right to early termination of the present contract, and to
request the immediate restitution of the property.
SEVENTH: The LESSEE undertakes to: 1) Maintain in perfect condition and
function the plumbing fixtures, the toilet valves and floats, the keys,
doorbells and electrical installation switches, repairing or changing them for
its own account; 2) Keep the rental property in perfect conditions of
housekeeping and preservation; maintain the heating and hot water installations
in good condition and, in general, make all the repairs adequate for the
conservation and proper functioning of the rental property, in timely manner and
at its own expense; 3) Return the property immediately after this
2
<PAGE>
contract terminates, through total evacuation of the property, placing it in the
hands of the LESSOR and handing over the keys; 4) Show the receipts proving that
payment was made up to the last day the LESSEE occupied the property, for the
consumption of power, gas, water and similar services; 5) Cover the expenses
incurred for compliance with orders or dispositions which at any time the
authority may have given by reason of the use to which the property is put,
regardless of whether these requirements relate to sanitary, hygienic,
environmental, municipal or reglamentary demands; 6) Provide the access
necessary so that the LESSOR or whoever represents said Lessor, can visit the
property, in case said lessor wishes to sell it, to allow the visits at least
three days a week during the hours between 1200 and 1800 hours, at the election
of the LESSOR; 7) Sign the inventory which takes into account the condition of
the property, its installations and fixtures, and which must be kept as an
integral part of the present contract.
EIGHTH: Included in the rental shall be included the furnishings and
fixtures which are noted in the inventory, the condition in which said
furnishings and fixtures are found at the time of receiving the property; which
document, signed by the parties, is understood to become an integral part of the
present lease.
NINTH: The LESSOR is not required to make improvements in the property.
Those which the LESSEE should make, even when they are made voluntarily, shall
remain for the benefit of the property as of the time they are made, without
prejudice to the right to agree to another standard in writing, and of the right
of the LESSEE to remove them after the present contract is ended -- restoring
the property in the same condition in which it had been before making the
improvements in reference.
TENTH: The LESSOR is not liable, in any case, for thefts which may
occur on the property or for damages the LESSEE may suffer in case of fires,
floods, filtrations, sewer pipe breaks, effects of humidity or heat and other
events of similar nature, that are not imputable to negligence or serious fault
of the LESSOR. Therefore, the LESSEE shall be responsible for insuring the
furnishings and machinery of its own
3
<PAGE>
property that he keeps on the (leased) property, and it shall be the
responsibility of the LESSOR to take out insurance for the risks of fire arising
out of act of God or force majeure, as well as the risk of earthquake.
ELEVENTH: Despite the statements in the foregoing clause, the LESSEE
shall not be responsible for damages that may arise out of latent and/or hidden
defects of construction, quality or age, or of the materials and artefacts used
for the construction, installation and decorating of the property subject of the
present contract. Upon the appearance of such defects, the LESSEE shall make the
fact known to the LESSOR so that the latter may make the corresponding repairs,
changes or substitutions. If the LESSOR should not begin the corresponding
repairs, changes or substitutions within a period of 15 days from notification
of the appearance of the aforementioned defects, or having already done so
within said period, have not yet completed the repair, replacement, substitution
or change, as may be the case, within the 20 days following the date of their
initiation, the LESSEE has the right to make said repairs at his own cost, which
sum he shall discount from the lease rental, after notice given to the LESSOR in
writing.
TWELFTH: With the aim of guaranteeing the conservation of the property
and its restitution in the same condition as it was received, the return of the
fixtures and artefacts which are indicated in the inventory; the payment for
damages and deterioration which are caused in the rental property, its services
and installations; and in general in order to respond for faithful performance
of the stipulations of this contract, the LESSEE gives, in guarantee in this
act, to the LESSOR, the sum of $573,642, equivalent on May 1 to 40,28
Development Units, which the LESSOR undertakes to return within thirty days
following delivery to entire satisfaction of the rental property, at which time
the LESSOR is authorized to subtract from the guarantee the value of the
deterioration and damages chargeable to the LESSEE that may have been caused, as
well as the value of unpaid accounts for electrical power, gas, water or other
accounts which are to be charged against the LESSEE. The guarantee shall be
returned in its peso equivalent on the effective date of payment at 40,28
Development Units.
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THIRTEENTH: The parties expressly attest that the LESSEE has the power
to sublet the rental property to any related company. In spite of the foregoing,
regarding the LESSOR, TEPUAL S.A. shall be the party responsible for all the
obligations as set forth in the present contract, especially that of payment of
the lease rental at the time and in the manner indicated in the second clause,
without this excusing him in any way from his responsibility in the acts
executed by the subleasing party.
FOURTEENTH: In the present act, the LESSOR grants the LESSEE the right
of first option for purchase of the leased property, during the entire term of
the present contract, and up to 90 consecutive days counted from its expiration
date, in case the LESSOR should decide to sell it. In order to exercise this
first option to purchase which is granted in this act, the LESSOR must notify
the LESSEE by certified letter sent through a Notary, of his wish to sell the
property in reference and the sale conditions. The LESSOR must wait for the
reply from the LESSEE for a period of thirty days counted from the date of
sending the notification indicated herein in case the lease is still in effect,
and fifteen days in case the lease may have expired. If the LESSEE does not
reply within the periods indicated, or does not accept, the LESSOR is liberated
from the LESSEE's first option for purchase. and is at liberty to offer the
property in reference freely to the public in general, under the same conditions
in which it was offered to the LESSEE . Should the LESSEE accept the
sale/purchase option of the LESSOR, the parties are committed to sign the final
sale and purchase contract within the period of 60 days counted from the date on
which the purchase option in question was exercised.
Should the LESSOR be in non-compliance with the stipulations contained
in this clause, that is, should he not honor the first option of purchase which
the LESSEE holds on the property in reference, or should not arrive to sign for
the final sale and purchase contract mentioned in the foregoing paragraph, for
motives imputable to him (the LESSOR), within the period previously established,
the lessor must pay a fine equivalent to 300 (three hundred Development Units)
to the LESSEE, without prejudice to the right of the latter to request the
forced performance of the obligation, with indemnization for damages. As for the
other (situation) if the LESSEE, having
5
<PAGE>
exercised the purchase option in reference, does not arrive to sign the final
sale and purchase contract within the term established in the foregoing
paragraph for causes imputable to him, he must pay a fine equivalent to 300
(three hundred Development Units) to the LESSEE, without prejudice to the right
of the latter to order the forced performance of the obligation, with
indemnization for damages.
FIFTEENTH: Any difficulty which may arise between the parties by reason
of the application, interpretation, modification, (resciliacion*), validity or
performance of the present contract shall be submitted to the resolution of a
mixed arbiter/arbitrator who shall rule regarding the form for the procedure
established in Title XI of Book III of the Code for Civil Procedures, with the
modifications established in Title III of Law 18.101 concerning Urban Land
Leases, and in the end, shall hand down the decision as arbitrator. Against the
resolutions of the designated arbiter, no recourse whatsoever can be processed,
which the parties of course abjure. For carrying out this task, the parties name
Mr. Fernando Barros Tocornal or, in his defect, Mr. Jose Tomas Errazuriz Grez.
If neither one is available, the arbiter shall be named by the parties by mutual
agreement, or in subsidy by Ordinary Justice, in which case the nomination must
be for some attorney who has carried out or is carrying out -- for more than two
years -- the task of attorney assigned to the Court of Appeals of Santiago, or
of San Miguel, or of the Supreme Court, who shall act as an arbiter bound by
legal principles.
SIXTEENTH: Present at this act, the company "Constructora Kamen
Limitada," represented by Mr. Mario Alday Papic, Chilean, unmarried,
auditor/accountent, National I.D. No. 8,601,069-0, domiciled at 4445 Apoquindo
Avenue, 7th Floor, municipality of Las Condes, Santiago, who undertakes to
respect and comply with all the rights and obligations of this contract, both
for the Lessor party as well as the Lessee party, in the event the property
subject of this contract may be acquired by transfer during the effective period
of the contract, in particular the lessee party's right of first option to
purchase as established in the fourteenth clause. The company "Tepual S.A." as
of now accepts the transfer of the contract to the lessor party, in the
* (Possibly an error, as there is no such word to be found in Spanish
dictionaries)
6
<PAGE>
sense that either one or the other, the Kamen Construcciones Limitada company or
the Constructora Kamen Limitada, may be the lessor party.
The legal status of Mario Alday Papic to represent the company
"Constructora Kamen Limitada" consists of a notarized document for delegation of
powers dated August 20, 1996, granted in the Santiago Notary of Mr. Kamel Saquel
Zaror.
SEVENTEENTH: The legal status of Mr. MAX RUTMAN SOUBOTNIK to
represent the company "TEPUAL S.A." consists of a notarized document granted on
September 8, 1989 in the Santiago Notary of Mr. Mario Farren Cornejo.
This contract is signed in four copies of the same content and
information, two to be kept by each party.
(signature illegible)
---------------------
KAMEN CONSTRUCCIONES LIMITADA
Neven Ivan Ilic Alvarez
(signed) M. Rutman
------------------
TEPUAL S.A.
MAX RUTMAN SOUBOTNIK
I authorize the signature of Mr. MAX RUTMAN SOUBONIK, ID No. 4,335,394-2 in
representation of TEPUAL S.A., Santiago, December 14, 1998.
(Illegible stamped Notary Seal and signature)
(initials)
----------
CONSTRUCTORA KAMEN LIMITADA
Mario Alday Papic
7
LEASE
In Santiago de Chile, on September 1, 1998, between DON LINDOR LTDA., Tax List
Only number seventy-eight million five hundred forty-five thousand seven hundred
seventy-six represented by Mr. Melinton Campillay Rojas, National I.D. number
five million eight hundred fifty-three thousand three hundred forty-nine-1, both
with domicile at number 5100 Camino Lo Ruiz, Municipality of Renca Santiago,
hereinafter called the "Lessor," and TEPUAL S.A., Tax List Only number
eighty-nine million one hundred fifteen thousand four hundred-3, represented by
Ms. Marta Troncoso Schneider, National I.D. number six million fifty thousand
nine hundred thirty-eight-7, both domiciled at number 159, General Ekdhal
Street, municipality of Recoleta Santiago, hereinafter called the "Lessee," the
parties came to agreement on the following rental contract.
FIRST: DON LINDOR LTDA. is a company which renders services for rentals and
storage, and in this capacity gave in rental the warehouses numbers five and six
of the establishment located at number 5100, Camino Lo Ruiz, municipality of
Renca Santiago, both equivalent to two thousand two hundred meters.
SECOND: The Lessee states that the goods which she is storing are her own
property, and that they are not affected by any embargo, encumbrance,
litigation, resolutory condition resolution or limitation whatsoever. Each entry
of goods belonging to the lessee shall be documented with the corresponding
Receipt Waybills. At the same time, the removal or restitutions of species shall
be documented with the corresponding Shipping Waybills.
THIRD: For the item of monthly rental, the Lessor shall receive the amount of
UF240,231 (Two hundred forty thousand, two hundred thirty-one Development Units
(UF) plus the Tax for Value Added (IVA), which shall be paid in advance, amount
for which the corresponding invoice shall be issued. In the event that the
Lessor should be found in arrears in the payment of one or more of the rentals,
the Lessee is empowered to withhold any or part of the goods with the purpose of
making full payment of the debt with the product of their sale. The amounts owed
shall be returned at maximum conventional interest, counting from the arrears,
FOURTH: The Lessor shall also grant services for loading and unloading of
40-foot containers which shall have a value of $22,000.- Outside of normal
working hours in the installations, the Lessor shall charge additionally $8,000
plus IVA for each hour needed in carrying out the work indicated, plus $700 per
ton for loading or unloading.
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FIFTH: This lease shall have an indefinite period of duration, but in any case,
the Lessee would be able to terminate it in writing with advance notice of at
least 30 days. For his part, the lessor can terminate the contract with advance
notice of 30 days, through certified mail addressed to the domicile of the
lessee
SIXTH: The following shall be the conditions for the lease:
a) The entry and exit of merchandise must be made within the time frame
which DON LINDOR LTDA. has in effect for such purpose. This is from
Monday to Friday, 0900 hours A.M. to 1830 hours P.M.
b) Partial or complete removals shall require the full payment of the
rents owed by the lessee to the lessor, including the reimbursement of
any additional expense which the latter may have incurred for proper
preservation of the goods stored.
c) After removal of the goods from the warehouse by the lessee, he cannot
claim any deterioration, reduction of size, loss or, in general,
damages and losses regarding the quantity or quality of said goods that
the lessee may have claimed in writing in the corresponding Shipping
Waybill, it otherwise being understood that they were received in
perfect condition.
d) Any withdrawal of the species stored shall be for the exclusive
responsibility of the lessee. In any case, the removal of parts, items
of species, liquids, etc., contained in boxes, cases, buckets, trunks,
wrappings, packages, drums, jars, etc. is prohibited. In each case the
removal of the complete unit must be made.
e) The lessor has insurance exclusively for his installations.
The lessee must ensure the species against natural or accidental
catastrophes, this without any obligation or responsibility whatsoever
for the lessor, unless otherwise instructed in writing from the lessee
so specifying, with copy of the respective policy, and the existence of
insurance covering the merchandise, the lessee gives the lessor the
right to contract to contract for his (the lessor's) own charge, the
payment of which shall be charged to the lessee. For purposes of
contracting of insurance, the evaluation of the merchandise shall be
made according to what the corresponding Delivery Waybill and or
Shipping Waybill and/or a statement of values may indicate.
Additionally, the evaluation which the lessor may make according to his
criteria, and which can be adjusted according to market conditions
shall be accepted by the lessee.
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f) Weapons, explosives, flammable substances, acids, perishables, or any
other objects which can decompose or contaminate, cause damages to the
warehouse or to other objects deposited shall not be admitted. In the
event that the species, due to their own shortcomings or for any other
reason cause damage to the warehouse or other objects stored, these
must be removed by the lessor within three work days counted from the
communication from the lessee, and if within this period the former has
not made the removal, it is understood that the lessor has abandoned
the merchandise, with the lessor empowered to sell it in the form and
under the conditions which are stipulated, without the corresponding
publication or notice being required.
g) Those persons who may, at the expense of the lessor, remove goods from
the warehouse must present a letter of authorization for so doing. In
any case, the persons who sign the Receipt or Shipping Waybills for the
lessee shall be understood to represent them validly and that their
signatures registered in the warehouse of the lessor also are binding
upon the lessee.
SEVENTH: Any difficulty which the parties should encounter because of this
contract, especially in such matters as concern its interpretation, term,
validity, performance or non-performance, or any other matter, shall be resolved
by an arbitrator against whose resolutions there shall be no recourse whatsoever
other than appeal. For these purposes, the parties appoint Mr. Sergio Vivanco A.
and if he cannot or does not wish to carry out the task, Mr. _____________ shall
be named. If neither of the above named arbiters will accept their appointment,
Ordinary Law must do so, making the appointment of a titled professor from the
Faculty of Civil or Business Law of the Pontifical Catholic University of Chile
or the University of Chile. The arbiter named by the Ordinary Court shall be
arbitrator regarding the procedure and in law regarding the decision.
EIGHTH: This contract for all effects shall have a duration of one (1) year from
date of its signing, renewable upon agreement of the parties. if this latter
does not occur, it shall be understood as renewed for a new period.
NINTH: this contract is signed in two originals, one for each party. For all
purposes of this contract, the parties set their domicile in the city of
Santiago, and submit to the jurisdiction of its courts.
(Signature illegible) (Signature illegible):
DON LINDOR LTDA. TEPUAL, S.A.
Don Melinton Campillay Rojas Ms. Marta Troncoso Schneider
5,853,349-1 89,115,400-3
3
LEASE
In Santiago, on January 25, 1999, the following Leasing Contract is entered into
by and between CENTROVET LTDA., National ID No. 6,510,400-6, represented by Mr.
Alberto Farcas Knapp, Tax No. 3,683,332-7, domiciled at 2973 Blanco Encalada
Street, municipality of Santiago, who hereinafter shall be called THE LESSOR;
and TEPUAL S.A., Tax No. 89,115,400-3, represented by Mr. Max Rutman Soubotnik,
Tax No. 4,355,394-2, domiciled at 159 General Ekdhal, municipality of Recoleta,
who hereinafter shall be called THE LESSEE, under the terms and conditions
indicated below:
FIRST: The LESSOR states that he is the owner of the property located at 2973
Blanco Encalada Avenue of the municipality of Santiago, which is presently
authorized as a laboratory for veterinary pharmaceutical products.
SECOND: Through this instrument, the LESSOR gives in lease the property
indicated in point one to the LESSEE to be used exclusively in research and
production of veterinary biological products and other related operations.
The parties state that the property given in lease is not authorized by the
Farming and Cattle Service (SAG) for the production of biological products, the
obtaining of said authorization being the responsibility of the LESSEE.
Obtaining this authorization is an indispensable condition for the operation of
this contract for rental, so that the impossibility of obtaining it annuls and
abrogates the contract.
THIRD: The period of this contract shall be indefinite as of March 1, 1999.
Without prejudice to the foregoing, either of the parties can terminate this
contract, without stating just cause, by giving written notarized notice to the
other, with at least four months of advance notice. The parties may exercise
this right of terminating the lease only after the first six months of this
contract have passed.
FOURTH: The monthly rental shall be the equivalent in legal tender of UF 170.00
(Development Units) plus IVA (Tax for Added Value) with possible readjustment at
the end of each period to be agreed upon through direct negotiation of the
parties. This increment shall be applied to the value of the rent for the new
yearly period. This rent of UF 170 shall become effective from the date when the
lessee obtains the license or authorization from SAG for the preparation and
commercialization of biological products, in the real property subject of this
contract.
FIFTH: The monthly rental or payment of rental must be paid by the LESSEE to the
LESSOR in the domicile herein indicated, within the first ten days of each
month, it being established that non-payment for two consecutive months of said
rental payment or reiterated delay in payment of the monthly rent shall be
immediate cause for ending this contract.
1
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SIXTH: The property subject of this contract shall be delivered in perfect
condition and with full approval on the part of the LESSEE, who undertakes to
return it in the same physical condition, save for normal deterioration through
use. The LESSOR, together with the physical delivery of the property, shall also
deliver to the LESSEE an act in which is attested the state in which the
property and installations or equipment that are part of this contract are
found.
SEVENTH: The LESSEE is prohibited from using the property for purposes different
from those established in this contract, as well as to the subletting to third
parties of all or any part of the property subject of this contract, and partial
or total non-performance of this point shall be cause for immediate termination
of this contract.
EIGHTH: Any problem that may arise out of a defect of construction or hidden
defect shall be the responsibility of the LESSOR, and the maintenance of the
property and repair of damage arising from use of said property shall be the
responsibility of the LESSEE.
NINE: The LESSEE assumes the exclusive and total responsibility for the
production which he shall prepare on the leased site, before all corresponding
authorities, third parties, and others, for any problem arising out of the
production, sale and marketing of those products. For this act, the LESSOR is
free of any civil, criminal, commercial, or sanitary responsibility whatsoever,
which may originate in this sense.
TENTH: In the case of termination of this contract, the LESSEE is required to
return the property to the LESSOR within a lapse of time not greater than 15
days following the date of the period, under the conditions indicated in point
SIXTH.
ELEVENTH: The payment of any and all types of territorial taxes imposed on the
property are for the account of the LESSOR, as well as are the municipal taxes
created and to be created that are imposed directly on the property in
reference.
TWELFTH: For any difficulty which might arise from the interpretation and/or
obligations this contract imposes, the parties in common accord agree to submit
to the rulings of the competent Courts of Justice.
THIRTEENTH: For all effect, the parties set their domicile in the city of
Santiago.
(signed) (signed)
Mr. Alberto Farcas K. Mr. Max Rutman S.
CENTROVET LTDA. TEPUAL S.A.
2
LEASE
(Partly illegible Notary Stamp)
In Santiago de Chile, on June 1, 1993, by and between Ms. MANUELA
FRIDMAN YUJIM, widow of TURTELTAUB, Chilean, with independent means, domiciled
at No. 2015 Austria Street, Apartment 12, of the Municipality of Providencia,
with National I.D. No. 527,549- 0, hereinafter called the "LESSEE" and Mr. MAX
RUTMAN, Chilean, business agent, domiciled at 159 General Ekdhal Street, of the
Municipality of Recoleta, with National I.D. No. 4,335,394- 2, in representation
of the Company "TEPUAL S.A." hereinafter called the "LESSOR", the following
lease has been contracted:
FIRST: Mrs. Fridman widow of Turteltaub gives in lease to the Company Tepual
S.A.:
a) A storehouse of approximately 250 square meters, indicated with
number 10, and
b) A storehouse of approximately 440 square meters, located in the
west-central part, indicated with Number 10-A.
Both storehouses are contiguous and are part of the property of No. 2598 Fermin
Vivaceta street of the Municipality of Independencia.
The renting company accepts the two separate storehouses, as those which are in
its material possession and entire satisfaction, and which are to be used for a
Food Analysis Laboratory.
SECOND: This lease is agreed upon for a period of one year and one month, which
shall begin on June 1 of 1993 and therefore shall expire on June 30 1994, which
period shall be understood as renewed for equal and successive periods of one
year and one month, except should either of the parties state, with 60 days of
advance notice of the respective expiration date, his/her desire not to extend
the period, which notice shall be given through certified lettler addressed to
the other party at the domicile indicated in the appearance given in this
contract.
THIRD: The monthly rental of the individualized sites described in the first
clause must be paid within the first 5 days of each month, in the equivalent in
national legal tender, of forty-five and fifty-four UF, at the exchange rate
which said Unit may have on the day of the payment. If in the future the
Development Unit (UF) should disappear, the contracting parties shall agree to
an index or system of readjustment, and should they not be able to agree, the
determination shall made by an arbitor who shall be named herein.
The lessee company must make the payment of the rent at the the domicile of the
lessor or through deposit in the bank he shall indicate.
Failure to pay the rent agreed upon within the first five days of each month
shall give the lessor the right to terminate this contract and demand return of
the storehouses.
1
<PAGE>
FOURTH: The lessee company undertakes to pay, within the first five days of each
month, for the water and electricity used in the storehouses for the past month.
Attestation is given that in the storehouse indicated in letter a) of the first
clause, there is a 380- volt electrical meter, Danubia brand No. 9266469, that
is the property of the lessor, and a second 3800-volt meter in storehouse 10A,
Mitsubishi brand, No. 8383737, also the property of the lessor. Both meters will
indicate the monthly use of power which, as stated, must be paid by the renting
company.
Should the consumption of power and water not be paid within the first five days
of each month, the lessor has the right to cut off said supplies and cancel the
contract and request restitution of the storehouses.
FIFTH: The lessee is prohibited from sub-leasing, assigning, transferring this
contract to any title; to use nails or make holes in the walls; to make changes
to the rented property; to cause disturbance to the neighbors; to bring in
explosive, inflammable or odoriferous materials, or to use the property for any
purpose other than that agreed upon in clause number two of this contract.
It is prohibited to keep any kinds of animals in the rented storehouse, with the
only exception, since the purpose of the lessee company is the operation of a
Food Analysis Laboratory, that the lessor is expressly authorized to have birds
or other species animals, up to a maximum age of one month, and this only for
purposes of research.
SIXTH: The lessee company undertakes to keep in perfect operating order the
faucets of plumbing fixtures, by-pass and other valves, as well as the complete
electrical installation, making repairs or changes for his own account, taking
care of the rented storehouses in perfect conditions of housekeeping and
maintenance and in general, making opportunely at his own cost, all the repairs
for the upkeep and proper functioning of the rented property.
SEVENTH: The lessor has no obligation whatsoever to make improvements of any
kind in the storehouses, it having been agreed that those which the lessee may
make shall be for the benefit of the rented property as of the time they are
made, without the owner having to pay any amount whatsoever for these, whatever
be their nature, character or quantity.
EIGHTH: The lessee company undertakes to return the rented storehouses when this
contract terminates, which delivery must be made through the total vacating of
said storehouses, placing them at the disposition of the lessor and delivering
the keys to the lessor. The lessee must also show the receipts for payment up to
the last day of rental occupancy, of ordinary expenses or special services;
likewise he must repair all holes in the floor caused by anchoring the
machinery, should such exist.
NINTH: The lessee company undertakes, within the course of this month of June,
to contract for fire insurance that must also cover acts of terrorism, labor
problems, etc., naming the lessor as the beneficiary for one hundred percent
(100%) of the value of the rented storehouses, which
2
<PAGE>
insurance to be renewable every year with the corresponding readjustments. The
amount insured shall be indicated by the the respective Insurance Company or the
arbitrating arbitor to be named.
The lessee company shall be responsible for the damages which may arise from the
failure to take out the insurance policy to which this stipulation refers; and
this without prejudice to the fact that such non-performance shall authorize the
lessor to request the termination of the present contract and the return of the
storehouses.
TENTH: The lessor shall not answer in any way whatsoever for robberies which may
occur in the rented storehouses, or for damages which may be produced by fires,
floods, filtrations, breakage of sewer lines, earthquakes, effects of humidity,
heat, etc.
ELEVENTH It shall be the responsibility of the lessee to carry out orders or
dispositions which at any time the authorities may issue, whether in reference
to municipal licenses, sanitary hygienic and reglamentary conditions of the
storehouses, regarding the use which the lessee gives them.
TWELFTH: The lessee party undertakes to give the permissions necessary so that
lessor or whoever represents said lessor be able to visit the storehouses in
case they wish to see or rent them, as well as to allow entry to take the
readings of electric consumption and make periodical check-ups of the electrical
system in general.
THIRTEENTH With the aim of guaranteeing the upkeep of the property and its
return in the same condition in which it is received, the return and upkeep of
the furnishings and artefacts which are indicated in the inventory, the payment
of damages and deterioration which may be caused in the leased property, its
services and installations and, in general, in order to answer for the faithful
performance of the stipulations of the contract, the lessee company delivers in
this act to the lessor the sum of forty-five comma fifty four FUs which the
lessor undertakes to return readjusted to the value of one month of rental in
effect upon termination of the contract, within the thirty days following the
restitution of the property, the lessor party naturally being authorized to
subtract from the amount mentioned the effective value of the deterioration and
damages for payment by the lessee party, as well as the value of the accounts
pending for common expenses and/or special services, etc.
FOURTEENTH: The lessee company cannot in any case impute the guarantee to
payment of the unpaid rentals nor to the rental of the last month in which he
remains on the property.
FIFTEENTH: Any difficulty that may be produced between the parties in relation
to the application, interpretation, resolution, validity or nullity of this
contract, or in relation to the liquidation of the guarantee of the rental
and/or damages caused by the lessee company shall be resolved by an arbitor
arbitrators without further recourse, leaving it established that all the
notifications which may be produced in the arbitration shall be given by means
of a letter addressed to the domicile appearancing already stated in the present
contract, without prejudice to the fact that the first notification must be made
personally or through official notice if the Arbitor so resolves. As arbitor
arbitratos they name Attorney Mr. Enrique Ortuzar Escobar and in his
3
<PAGE>
defect, Mr. Oscar Valenzuela Fuenzalida, the lessor party attesting that he
knows Mr. Ortuzar is legal Counsel of Mrs. Fridman Yujim and that said party
accepts him as arbitor arbitrator as deserving of absolute confidence.
SIXTEENTH: Present at this act was Mr. MAX RUTMAN SOUBOTNIK, National I.D. No.
4,335,394-2, domiciled at 2581 Augustin del Castillo Street of the municipality
of Las Condes, who explained that: in his personal capacity he constitutes
himself as bondsman and co-debtor jointly for the lessee party of this contract,
accepting of course the time periods, extensions and modifications of the
contract that may be introduced herein by the parties, especially the variations
in the rental of the lease, also accepting the arbitral jurisdiction in the
terms indicated in number fifteenth of this contract.
Mr. Max Rutman Soubotnik is also constituted as joint bondsman and co-debtor for
any damages which may arise from the lack of contracting of insurance to which
clause 9A makes reference.
SEVENTEENTH: It is attested that the representation of Mr. Max Rutman Soubotnik
appears in the public document dated September 8, 1989 given before Mr. Ivan
Torrealba Acevedo, Notary Public of the 33rd Notary of Santiago.
EIGHTEENTH: For all legal effects derived from the resent contracts, the parties
set their domicile in this city.
(signed) M. Rutman (signature illegible)
for TEPUAL S.A. MANUELA FRIDMAN YUJIM
Max Rutman Soubotnik Lessor
Tax # 4,335,394-2 Tax # 527,549-0
(signed) Max Rutman
Max Rutman Soubotnik
Surety
Tax # 4,335,394-2
I authorize the preceding signature.
Nov. 18, 1993
(signed and sealed) Roberto Mosquera Gallegos, Notary.
4
<PAGE>
MODIFICATION OF LEASE
On June 1, 1993, Mrs. Manuela Fridman Yujim and the Company "TEPUAL,
S.A.," represented by Mr. Max Rutman Soubotnik, Tax No. 4,335,394-2, entered
into a lease for the following storehouses: No. 10 of approximately 180 sq.
meters and No. 10-A of approximately 440 sq. maters, both forming part of the
property located at 2598 Fermin Vivaceta Street, Municipality of Independencia.
On November 7, 1995, the parties have agreed to modify Clause No. 3 of
the mentioned contract referring to the rental, to the effect that as of
November 1, 1995 the monthly value of the rental shall be as follows:
Storehouse No. 10 = UF 18,22 and storehouse No. 10-A = UF 34,16
On the same date clause No. 13 is also modified regarding the guarantee
of rental, which stands at a total for the two storerooms at UF 52,38 (fifty
two, comma thirty eight).
All the other clauses of the original contract, signed before Public
Notary Roberto Mosquero Gallegos on June 1, 1993, and its modification dated May
10, 1995 before the same notary, remain without change.
In Santiago de Chile on the thirteenth day of November of nineteen
hundred ninety-five.
(signed) MAX RUTMAN (signature illegible)
Pp. Tepual S.A. Manuela Fridman Yujim
Tax No. 4,335,394-2 Tax No. 527-549-0
I authorize the above signatures.
(Stamped Notary Seal of Robert
Mosquera Gallegos, Notary Public
Santiago
5
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Amendment 1 to Form SB-2 being filed under the
Securities Exchange Act of 1933 by Bio-Aqua Systems, Inc. of our report dated
February 26, 1999, relating to our audits of the combined financial statements
of Bio-Aqua Systems, Inc. as of December 31, 1998 and 1997 and appearing in the
aforementioned Amendment 1 to Form SB-2.
SPEAR, SAFER, HARMON & CO.
Certified Public Accountants
Miami, Florida
August 24, 1999
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 131,695
<SECURITIES> 0
<RECEIVABLES> 2,886,114
<ALLOWANCES> 0
<INVENTORY> 793,086
<CURRENT-ASSETS> 4,646,750
<PP&E> 2,140,030
<DEPRECIATION> (1,264,082)
<TOTAL-ASSETS> 7,708,093
<CURRENT-LIABILITIES> 5,390,704
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 1,908,568
<TOTAL-LIABILITY-AND-EQUITY> 7,708,093
<SALES> 2,963,040
<TOTAL-REVENUES> 2,963,040
<CGS> 1,968,756
<TOTAL-COSTS> 846,170
<OTHER-EXPENSES> (153,618)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (202,868)
<INCOME-PRETAX> 98,864
<INCOME-TAX> 0
<INCOME-CONTINUING> 98,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,864
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
CONSENT OF NOMINEE DIRECTOR
OF
BIO-AQUA SYSTEMS, INC.
The undersigned nominee for director of Bio-Aqua Systems, Inc. (the
"Company") hereby consents to the following:
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned
nominee director consents to the inclusion of his name and references to him in
the Registration Statement on Form SB-2 filed by the Company, with regard to
becoming a director of the Company upon the effective date of the Company's
initial public offering.
Dated: May 31, 1999.
/s/ Guillermo Quiroz
--------------------------
Guillermo Quiroz
CONSENT OF NOMINEE DIRECTOR
OF
BIO-AQUA SYSTEMS, INC.
The undersigned nominee for director of Bio-Aqua Systems, Inc. (the
"Company") hereby consents to the following:
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned
nominee director consents to the inclusion of his name and references to him in
the Registration Statement on Form SB-2 filed by the Company, with regard to
becoming a director of the Company upon the effective date of the Company's
initial public offering.
Dated: May 31, 1999.
/s/ Nestor Lagos
--------------------------
Nestor Lagos
CONSENT OF NOMINEE DIRECTOR
OF
BIO-AQUA SYSTEMS, INC.
The undersigned nominee for director of Bio-Aqua Systems, Inc. (the
"Company") hereby consents to the following:
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned
nominee director consents to the inclusion of his name and references to him in
the Registration Statement on Form SB-2 filed by the Company, with regard to
becoming a director of the Company upon the effective date of the Company's
initial public offering.
Dated: May 31, 1999.
/s/ Sergio Vivanco
-------------------------
Sergio Vivanco
