As filed with the Securities and Exchange Commission on ______ __, 1999
Registration No. 333 ____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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.)
1900 Glades Road, Suite 351
Boca Raton, Florida 33431 1900 Glades Road, Suite 351
(561) 416-8930 Boca Raton, Florida 33431
(Address and Telephone Number of (Address of Principal Place of Business or
Principal Executive Offices) Intended Principal Place of Business)
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)
Copies to:
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
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Title of Each Class of Amount Proposed Proposed Amount of
Securities to be Registered to be Maximum Maximum Registration
Registered Offering Price Aggregate Fee
per Security Offering Price(1)
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Class A Common Stock 1,610,000(2) $4.250 $6,842,500 $1,902.21
- ----------------------------------------------------------------------------------------------------------------------
Warrants 1,610,000(3) $.150 $241,500 $67.14
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Class A Common Stock issuable
upon exercise of the Warrants 1,610,000(4) $6.250 $10,062,500 $2,797.37
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Representative's Warrants 140,000(5) $0.001 $140 $.04
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Class A Common Stock 140,000(6) $6.375 $892,500 $248.11
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Warrants issuable upon the exercise of
the Representative's Warrants 140,000(7) $.225 $31,500 $8.76
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Class A Common Stock issuable upon
the exercise of the Representative's
Warrants 140,000(8) $9.375 $1,312,500 $364.88
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TOTAL $19,383,140 $5,388.51
======================================================================================================================
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(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 (the "Act").
(2) Includes 210,000 shares of Class A Voting Common Stock ("Class A Common
Stock") issuable pursuant to the Underwriter's over-allotment option
("Over-Allotment Option").
(3) Includes 210,000 Redeemable Common Stock Purchase Warrants ("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 140,000 Representative's Purchase Warrants ("Representative's
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.
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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SUBJECT TO COMPLETION, DATED _____ __, 1999
BIO-AQUA SYSTEMS, INC.
1,400,000 Shares of Class A Common Stock and
1,400,000 Redeemable Common Stock Purchase Warrants
Bio-Aqua Systems, Inc. is offering ("Offering") 1,400,000 shares of Class A
Voting Common Stock, par value $.0001 ("Class A Common Stock") at $4.25 per
share and 1,400,000 Redeemable Common Stock Purchase Warrants ("Warrants") at
$.15 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 $6.25 per
share (subject to adjustment) during the five-year period commencing on the date
of this Prospectus (the "Effective Date"). Our Warrants are redeemable by
Bio-Aqua Systems, Inc. commencing twelve (12) months following the Effective
Date for $.15 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 (30) consecutive trading days. See "Description of Securities."
Prior to this Offering, there has been no public market for our Class A Common
Stock, our Warrants or our shares of Class A Common Stock underlying our
Warrants (collectively the "Securities") and we cannot assure that any market
will develop or if developed, that it will be sustained. The initial public
offering prices of our Class A Common Stock and our Warrants and the exercise
price and other terms of our Warrants were determined through negotiations
between Bio-Aqua Systems, Inc. and Emerson Bennett & Associates, Inc. the
representative ("Representative") of the Underwriters ("Underwriters") and are
not related to Bio-Aqua Systems, Inc.'s assets, book value, financial condition
or other recognized criteria value. Bio-Aqua Systems, Inc. has applied for the
inclusion of our Class A Common Stock and our Warrants on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") SmallCap
Market under the symbols "FISH," and "FISHW," respectively.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN OUR CLASS A COMMON STOCK AND OUR WARRANTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discounts(1) Bio-Aqua Systems, Inc.(2)
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Per share of Class A Common Stock $4.25 $.425 $3.825
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Per Warrant $.15 $.015 $.135
- --------------------------------------------------------------------------------------------------------------------
Total(3) $6,160,000 $616,000 $5,544,000
====================================================================================================================
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(See next page for footnotes)
The Securities are being offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this Offering without notice and to reject any order in whole
or in part. It is expected that delivery of our Class A Common Stock and our
Warrants will be made against payment therefor at the offices of the
Representative at 6261 Northwest 6th Way, Fort Lauderdale, Florida 33309 on or
about ____________, 1999.
Emerson Bennett & Associates, Inc.
The date of this Prospectus is __________, 1999
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(1) Does not include additional compensation payable to the Representative
in the form of (i) a non-accountable expense allowance equal to 3% of
the gross proceeds of the Offering ($184,800 or $212,520 if the
Over-Allotment Option is exercised) of which $30,000 has been paid to
date; (ii) Representative's Purchase Warrants ("Representative's
Warrants") to purchase 140,000 shares of Class A Common Stock and
140,000 Warrants for a four-year period commencing one year from the
Effective Date at an exercise price of 150% of the initial public
offering price for our Class A Common Stock ($6.375 per share) and our
Warrants ($.225 per Warrant), subject to adjustment, and (iii) a
three-year financial consulting fee in the amount of $100,000, payable
at the closing. In addition, Bio-Aqua Systems, Inc. has granted the
Representative certain registration rights with respect to registration
of the shares of Class A Common Stock and Warrants underlying the
Representative's Warrants and the shares of Class A Common Stock
issuable upon the exercise of the Representative's Warrants, and has
agreed to indemnify the Underwriters against certain liabilities,
including liabilities arising under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting expenses payable by Bio-Aqua Systems, Inc. estimated
at $475,000, not including the Representative's non-accountable expense
allowance.
(3) Bio-Aqua Systems, Inc. has granted the Underwriters (or the
Representative, individually at its option) an option (the
"Over-Allotment Option"), exercisable within 45 days from the date of
this Prospectus, to purchase up to 210,000 additional shares of Class A
Common Stock and up to 210,000 additional Warrants at an exercise price
of $4.25 per share and $.15 per Warrant, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts, and Proceeds
to Bio-Aqua Systems, Inc. will be $7,093,000, $709,300, and $6,383,700,
respectively. See "Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF BIO-AQUA SYSTEMS INC.'S
CLASS A COMMON STOCK AND WARRANTS, INCLUDING STABILIZING TRANSACTIONS EFFECTED
IN ACCORDANCE WITH RULE 104 OF REGULATION M PURSUANT TO WHICH PERSONS MAY BID
FOR OR PURCHASE OF COMMON STOCK FOR THE PURPOSE OF STABILIZING ITS MARKET PRICE.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKETING MAKING TRANSACTIONS IN CLASS A
COMMON STOCK AND WARRANTS ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
2
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PROSPECTUS SUMMARY
You should read the following summary together with, the more detailed
information and the Financial Statements (the "Financial Statements"), including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus (i) 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
Bio-Aqua Systems, Inc.'s Stock Option Plan (See "Management--Incentive and
Non-Qualified Stock Options Plan); (ii) assumes a public offering price of $4.25
per share of Class A Common Stock and $.15 per Warrant; and (iii) gives effect
as of the Closing of this offering to two stock purchase agreements whereby (i)
Flagship Import Export Corporation ("Flagship"), a Bahamian company, will own
1,529,910 shares and Atik S.A. ("Atik"), a Chilean corporation, will own 169,990
shares, totaling 1,699,900 shares of the Company's Class B Common Stock, par
value $.0001 ("Class B Common Stock") and, simultaneously therewith, (ii) the
Company shall purchase Flagship's and Atik's combined 99.9% interest in Tepual
S.A. See "Business - Background" and "Certain Relationships and Related
Transactions." All amounts are in U.S. Dollars except as otherwise specifically
noted. The terms the "Company," "we," "our" and "us" refer to Bio-Aqua Systems,
Inc. and Tepual S.A. and assumes the transfer of Inual S.A. assets and Tepual
S.A. assets to Bio-Aqua Systems, Inc. The term "you" refers to a prospective
investor.
The Company
Bio-Aqua Systems, Inc. was organized in March 1999 as a holding company
to acquire a 99.9% interest in Tepual, S.A. ("Tepual"), a Chilean corporation
established in 1982 with its principle offices in Santiago, Chile. 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 meal. 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. We sell these products under the
"Tepual(TM)" and "Inual(TM)" brands which brands we believe have been recognized
by users of animal nutrition products as one of the leading purveyors of animal
nutrient products. Our success in this area has been predicated on our ability
to certify to nutrient levels and ecological standards of fish and feather meal.
We have more than 100 customers in our fish meal, feather meal and krill meal
business in approximately 25 countries, which accounted for approximately 85% of
our revenues as of March 31, 1999.
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:
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- Automatic Control for Fish Meal Processing
- Salmon and Shrimp Immune Stimulants
- Poultry Vaccines
- Red Tide Detection and Cleansing Equipment
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 principal executive offices are located at General Ekdhal 159,
Santiago, Chile. 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 December 31.
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The Offering
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Class A Common Stock Offered......................... 1,400,000 shares
Warrants Offered..................................... 1,400,000 Warrants
Shares of Class A Common Stock
Underlying Warrants.............................. 1,400,000 shares
Class A Common Stock Outstanding:
Before the Offering.............................. 86,294
After the Offering............................... 1,486,294
Class B Common Stock Outstanding
Before the Offering.............................. 1,700,000(1)
After the Offering............................... 1,700,000
Warrants Outstanding:
Before the Offering.............................. None
After the Offering............................... 1,400,000
Use of Proceeds...................................... The net proceeds of this Offering will be approximately
$4,959,000, which will be used as follows: (1) $1,500,000 for
reduction in bank loans; (2) $400,000 for purchase of Inual(TM)
and Tepual(TM)brands; (3) $700,000 for development of red tide
consumer detection and testing kit; (4) $550,000 for
development of shrimp immune stimulants and additional
research and development of salmon immune stimulants; (5)
$450,000 for additional research and development of poultry
vaccines; (6) $150,000 for repayment of bridge loans; and (7)
$1,209,000 for working capital.
Risk Factors......................................... See "Risk Factors" commencing on page 5 for certain
considerations relevant to an investment in the Securities.
Proposed Nasdaq Symbols
Class A Common Stock............................. FISH
Warrants......................................... FISHW
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(1) The 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.
4
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RISK FACTORS
In addition to the other information presented in this Prospectus, the following
risk factors should be considered carefully prior to making a business decision
and before purchasing the Common Stock and Warrants offered hereby. This
Prospectus contains forward looking statements that involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this Prospectus.
Risks Associated with Change in Business Strategy/Risks of Expansion and
Development. To date, we have engaged in little or no commercial business
outside of brokerage of fish meal, feather meal and krill meal. There is no
assurance that all or any of our new business divisions will be profitable. See
"Business." Results of operations in the future will be influenced by numerous
factors including technological developments, regulatory impediments, increases
in expenses associated with sales and marketing growth, market acceptance,
maintenance of quality control and the ability of the Company to control costs.
See "Business."
Limited Use of Technology and Commercialization. Animal pathogens in general are
unique to specific regions. Vaccines for poultry in Peru and Chile and immune
stimulants for farmed salmon in Chile that we have produced are developed to
combat specific diseases to the region in which these bacterial and viral
strains are found. Although we plan to pursue research and development projects
for these products outside of Chile and Peru, current vaccines and immune
stimulants are limited to use in these countries. Therefore there can be no
assurances that such vaccines and stimulants will be accepted, effective, or
approved outside Peru or Chile. 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. There cannot be any assurances
that either of our red tide products will be commercially viable on a large
scale basis. See "Business."
Limited Patents and Technology Licenses. All of our current patents 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. 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 these 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 not received
any confirmation of our applications as of the date of this offering. We cannot
provide any assurances that we will obtain patent protection for these
procedures and technologies or retain
5
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patent protection for any of our other products or technology in the future. In
addition, the legal and other costs of obtaining patent protection in any other
country or on an international basis may exceed our financial capabilities,
therefore, we may have to limit our patent applications.
Our trademark protection is limited. We currently have trademark protection over
the "Tepual" and "Inual" brands in Chile, Colombia, Taiwan, China, Ecuador,
Mexico, Japan, Peru, Namibia and South Africa. As of the date of this offering,
we have not applied for further trademark protection. We plan to apply for
international trademark protection for Tepual and Inual, however, we can not
provide any assurances that we will make or receive international trademark
protection in the future.
Brokerage Risks. 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.
Customer Concentration. One of our customers currently accounts for
approximately 20% of our fish meal sales. Accordingly, the loss of this customer
could materially and adversely affect our business as a broker and trader of
fish meal.
Lack of Product Liability Insurance. We do not currently have any product
liability insurance in effect which in the event of any legal action by third
parties could result in significant legal defense fees as well as damages for
liability. 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. There can be no assurances that we will be able to obtain
product liability insurance or that companies to whom we license our products
will have or will be able to obtain product liability insurance.
Significant Competitive Activity. 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 may be 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.
Regulatory Compliance/Government Regulation. Our vaccines are subject to
regulatory compliance within the countries in which they are manufactured and
distributed. Our 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
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more aggressive enforcement policies could adversely affect our operations or
financial conditions.
While our immune stimulants are comprised of natural products and our management
believes our immune stimulents are not regulated by the Chilean government,
there can be no assurances that this product will not be regulated in the future
by the Chilean government or any government in which we seek to market this
product or markets in which salmon that have received immune stimulants are
sold.
Our present and future operations in red tide detection and cleansing may be
subject to regulation by agencies that administer laws governing health, safety
and the protection of the environment, including, but not limited to, the U.S.
Food and Drug Administration (the "FDA") and the United States Department of
Agriculture (the "USDA") or any other government agency in which we may seek to
distribute our products. There can be no assurances that such governmental
agencies, if required, will grant approval.
Control by Management. Prior to this Offering, Max Rutman, our Chief Executive
Officer ("CEO"), President, and Chairman of the Board of Directors owned,
directly or indirectly, approximately 80% and held the right to vote 99.9% of
our outstanding capital stock. After this Offering, Mr. Rutman will, directly or
indirectly, own approximately 53.2% of the outstanding capital stock, which
represents the right to vote 85% of our outstanding capital stock. See
"Principal Shareholders" and "Description of Securities." 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. Accordingly, Mr. Rutman will
control the election of directors as well as the other affairs of the Company
for the foreseeable future. See "Management" and "Principal Shareholders."
Dependence on Third Party Manufacturers. We have contracted with Biosur S.A.C.,
a Peruvian company, to manufacture and produce our Peruvian poultry vaccines. We
have also entered into a joint venture with R-Biopharm GmbH Research, a German
company, to manufacture a Paralytic Shellfish Poisoning (PSP) red tide detection
kit. While we have entered into agreements with these companies, there can be no
assurance that such contracts will be fulfilled or that internal problems within
these third parties will not affect production or productivity in the future.
While we believe that such third parties have the ability to meet production
requirements, there can be no assurances that these third parties will meet or
satisfy their contractual obligations. We believe we can obtain similar services
from other companies, however, the losses of one of these contracts may have a
negative impact on our results of operations.
We also rely on numerous buyers for our brokerage of fish meal, feather meal and
krill meal. While we do not believe that the loss of any one supplier or buyer
would have a material adverse effect upon this line of business, our continued
success in the brokerage and trading industry will depend in part on our ability
to maintain relationships with existing suppliers and buyers. There can be no
assurances that these relationships will continue to be maintained. See also
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"Brokerage Risks" as to additional risk factors in relation to the impact of
outside forces on availability of fish used for fish meal and krill used for
krill meal.
Dependence on Key Personnel. Our success is highly dependent upon the continued
services of Mr. Max Rutman who continues to devote substantially all 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. 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, as soon as practicable following the
Effective Date.
See "Management."
With the implementation of our business strategy, it may become necessary for us
to hire additional experienced professionals to meet our expanding needs. We
intend to use our existing staff and may hire new personnel, as required. While
we believe that our current staff will be sufficient for our present research
and development projects, it may be necessary to hire additional experienced
professionals. While we believe that by offering competitive salaries and
benefit packages, we will be able to solicit and hire qualified individuals, no
assurances can be made that such individuals will accept employment or will
continue to be employed by us, or that qualified individuals will always be
available to us when needed.
Discretion in Use of Proceeds; Assets to Be Held Outside the United States. We
presently intend to use the net proceeds from this Offering for the purposes set
forth in "Use of Proceeds." We reserve the right to use the funds obtained from
this Offering for other purposes not presently contemplated which it deems to be
in our best interest and the best interest of our shareholders in order to
address changed circumstances and opportunities. As a result of the foregoing,
our success will be substantially dependent upon the discretion and judgment of
our management with respect to the application and allocation of the net
proceeds of the Offering. As investors in the Securities offered hereby you will
be entrusting your funds to our management, upon whose judgment and discretion
you must depend, with only limited information concerning management's specific
intentions.
Additionally, while Bio-Aqua is a U.S. corporation, it is a holding company for
Tepual, 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 92% of the net proceeds from this Offering will used in Chile.
See "Use of Proceeds." 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.
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.
Immediate and Substantial Dilution. This Offering will result in immediate
dilution of approximately $2.09 per share to new investors of Class A Common
Stock, without giving effect to the exercise of our Warrants, the Over-Allotment
Option, the Representative's Warrants, or the
8
<PAGE>
issuance of up to an aggregate of 300,000 shares of Class A Common Stock
reserved for issuance under our Stock Option Plan (the "Plan"). See "Dilution"
and "Management - Incentive and Non-Qualified Stock Option Plan."
No Dividends Anticipated to be Paid. While Tepual has previously paid dividends
to its shareholders, we do not anticipate paying dividends in the foreseeable
future. The future payment of dividends is directly dependent upon our future
earnings, our financial requirements and other factors to be determined by our
Board of Directors. See "Dividend Policy."
Current Prospectus and State Blue Sky Registration Required 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 such 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. We have
undertaken to use our best efforts to file and keep effective a current
prospectus which will permit the purchase and sale of our Warrants and our Class
A Common Stock underlying Warrants, but there can be no assurances that we will
be able to do so. Although we have undertaken to use our best efforts to qualify
for sale our Warrants and the shares of Class A Common Stock underlying our
Warrants in those states in which the Securities are to be offered, no assurance
can be given that such qualifications will occur. Our Warrants may lose, or be
of no value, if a prospectus covering the shares issuable upon the exercise
thereof is not kept current or if such underlying shares are not, or cannot be,
registered in the applicable states. See "Description of Securities."
Redeemable Warrants and Impact on Investors. Our Warrants are subject to
redemption in certain circumstances. The exercise of this right would 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, 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 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. The
foregoing notwithstanding, we may not redeem our Warrants at any time that a
current registration statement under the Act is not then in effect. Any
redemption of our Warrants during the one-year period commencing on the
Effective Date shall require the written consent of the Representative. See
"Description of Securities - Warrants."
Representative's Potential Influence on the Company and the Market. Pursuant to
the terms of the Underwriting Agreement between us and the Representative, the
Representative has the right to designate a member to our Board of Directors for
a period of three years from the Effective Date, such member to be reasonably
acceptable to our management. 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.
9
<PAGE>
Additionally, 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.
Such market-making activity may be discontinued at any time. Moreover, if the
Representative sells the 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 the Securities may be significantly affected by the degree, if any,
of the Representative's participation in such market. See "Underwriting."
Possible Applicability of Rules Relating to Low-Priced Stocks; Possible Failure
to Qualify for NASDAQ SmallCap Market Listing. The Securities and Exchange
Commission (the "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. Upon completion of
this Offering, the shares of Class A Common Stock offered hereby may be deemed
to be "penny stocks" and thus will become 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,
unless our Class A Common Stock is listed on Nasdaq. 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. See "Underwriting."
New 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 are or become unable to
meet the initial or continuing listing criteria of the Nasdaq SmallCap Market
and are never traded or become delisted therefrom, 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 such an event,
the market price of our Class A Common Stock and Warrants may be adversely
impacted and an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the market value of our Class A Common Stock.
Shares Eligible for Future Sale and Registration Rights. All of the shares of
Class A Common Stock and Class B Common Stock (collectively the "Common Stock")
held by our existing shareholders immediately prior to the Effective Date are
"restricted securities", as that term is defined under the Act, and may only be
sold pursuant to a registration statement or in compliance with Rule 144 under
the Act or other exemption from registration. Rule 144 provides that a person
holding restricted Class A Common Stock for a period of one year may
10
<PAGE>
sell such securities during any three month period, subject to certain
exceptions, in amounts equal to the greater of one percent (1%) of our
outstanding Class A Common Stock or the average weekly trading volume of our
Class A Common Stock during the four calendar weeks prior to the filing of the
required Form 144. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity limitation by a person who is not our affiliate
and who has satisfied a two year holding period. Upon the sale of our Class A
Common Stock offered hereby, we will have 1,486,294 shares of Class A Common
Stock (1,696,294 shares of Class A Common Stock if the Over-Allotment Option is
exercised) and 1,700,000 shares of Class B Common Stock issued and outstanding,
of which 86,294 shares of Class A Common Stock and all of the shares of Class B
Common Stock are "restricted securities."
Shares of Class B 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 and
then are subject to SEC Rule 144 ("Rule 144"). 35,294 shares of Class A Common
Stock issued in connection with a loan made to us by unrelated third parties in
the principal amount of $150,000 (the "Bridge Financing") are subject only to a
six month lock-up period or Rule 144. See "Bridge Financing." The lock-up
periods begin on the Effective Date and are subject to early termination at the
sole discretion of the Representative. The Representative does not have a
general policy with respect to the release of these shares prior to the
expiration of the lock-up. See "Underwriting." After expiration of the lock-up
periods, all outstanding shares of Class A Common Stock will be eligible for
sale under Rule 144. The availability for sale of substantial amounts of Class A
Common Stock subsequent to this Offering could adversely affect the prevailing
market price of our Class A Common Stock and could impair our ability to raise
additional capital through the sale of its equity securities. See "Principal
Shareholders," and "Shares Eligible for Future Sale."
Exercise of Representative's Warrants. In connection with this Offering, we will
sell to the Representative, for nominal consideration, Representative's Warrants
to purchase 140,000 shares of Class A Common Stock and 140,000 Warrants (or
161,000 shares of Class A Common Stock and 161,000 Warrants, assuming exercise
of the Over-Allotment Option). The Representative's Warrants will be exercisable
commencing twelve months after the Effective Date for a period of four years at
an exercise price of 150% 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. 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. See "Underwriting."
11
<PAGE>
We have agreed that, at the request of the holders of the Representative's
Warrants, under certain circumstances, it will register under state securities
laws the Representative's Warrants and/or the securities issuable thereunder.
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. See "Underwriting."
Lack of Public Market; Arbitrary Determination of Offering Price; Possibility of
Volatility of Prices of the Securities. Prior to this Offering, there has been
no public market for the Securities and there can be no assurances that an
active public market for the Securities will be developed or, if developed,
sustained after this Offering. The initial public offering prices of the
Securities offered hereby 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. See
"Underwriting."
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 the 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.
Anti-Takeover Provisions; Possible Issuances of Preferred Stock. Certain
provisions of our Amended and Restated Articles of Incorporation ("Articles of
Incorporation") and Bylaws may be deemed to have anti-takeover effects and may
delay, defer or prevent a takeover attempt, which include when and by whom our
special meetings may be called. 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.
Furthermore, the Board of Directors has the authority to issue up to 5,000,000
shares 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 year from the Effective Date (which
shares will be subject to a lock-up period of twenty-four months from the
Effective Date). Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue preferred stock which could adversely affect the
voting power or the rights of the holders of our Class A 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
control.
12
<PAGE>
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. See
"Description of Securities."
Experience of Representative. This offering is the Representative's first
underwritten public offering of securities. The Representative was formed as a
broker-dealer in 1998, and has limited experience in the public underwriting of
securities. In addition, the Representative is a relatively small firm, and
there can be no assurances that the Representative will be able to continue to
make a market in the Common Stock and Warrants, or that if it does, it will be
able to adequately support trading of the Common Stock and Warrants in the
aftermarket. See "Underwriting."
CONSIDERATIONS RELATING TO CHILE
Risks Associated with Foreign Operations. The Bio-Aqua 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. The
operating profits of Bio-Aqua 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 the effect of foreign income and withholding taxes and
the U.S. tax implications of foreign source income and losses; the possibility
of expropriation or confiscatory taxation or price controls; adverse changes in
local investment or exchange control regulations; difficulties inherent in
operating in less developed legal systems; political instability, government
corruption and civil unrest; and 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. As
our business operates on an international basis, however, weakness in a
particular market may be offset by strength in another market. See "Management"
Discussion and Analysis of Financial Condition and Results of
Operations--Inflation" below.
Inflation. A number of reforms have been introduced by the Chilean government
over the past 20 years to achieve macroeconomic stability and to increase
economic growth, while controlling inflation. The average annual inflation rate
in Chile, as measured by changes in the Official Consumer Price Index of the
Chilean National Institute of Statistics ("Instituto Nacional de Estadisticas"),
for 1994, 1995, 1996, 1997, and 1998 was 8.9%, 8.2%, 6.6%, 6.0% and 4.3%
respectively. While Chilean inflation has not had a material adverse effect on
the operations of the Company in the past, there can be no assurance that high
levels of inflation in the future will not adversely affect the Company or the
Securities offered hereby. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
13
<PAGE>
Restrictions on Repatriation with Respect to Investments Equity investments in
Chile by persons who are not Chilean residents may be freely repatriated
starting one year after the date the funds were brought into Chile, provided
that 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 ("DL 600"),
which contract is not subject to subsequent exchange-control restrictions. Net
profits can be remitted at any time, after deduction of applicable withholding
income taxes. See "Dividend Policy." Although there have been no cases of
deviations from this rule for more than 22 years, there is no assurance that
such a deviation could not occur in the future. The Company intends to enter
into a foreign investment contract with the Chilean government which states the
laws concerning foreign investments as of the date of the contract and permits
income to flow outside Chile. There can be no assurances that the Chilean
government will not modify these restrictions in the future in such a manner to
adversely affect us and our shareholders. See "Business- Foreign Investment Laws
and Regulations."
It is not possible to foresee all risk factors. Moreover, there can be no
assurance that we will successfully effectuate our business plan. Each
prospective investor should carefully analyze the risks and merits of an
investment in our Class A Common Stock and our Warrants and should take into
consideration when making such an analysis, among other things, the risk factors
discussed above.
14
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the 1,400,000 shares of Class A
Common Stock and 1,400,000 Warrants offered hereby will be $6,160,000, assuming
an initial public offering price of $4.25 per share of Class A Common Stock and
$.15 per Warrant. The net proceeds will be approximately $4,959,000 after giving
effect to (i) the Representative's discounts ($616,000), (ii) a 3%
non-accountable expense allowance to the Representative ($184,800), and (iii)
offering costs and expenses of approximately $400,200, but without giving effect
to the exercise of the Over-Allotment Option. We intend to use the net proceeds
of this Offering, during the twelve months following the Effective Date,
approximately as follows, of which approximately $4,562,280 (approximately 92%)
will be used in Chile:
<TABLE>
<CAPTION>
Anticipated Use of Net Proceeds Approximate Amount Percentage of Proceeds
- ------------------------------- ------------------ ----------------------
<S> <C> <C>
Reduction of Bank Loans(1) $1,500,000 30.3%
Purchase of Brands(2) $ 400,000 8.0%
Development of Red Tide Kits (See "Business") $700,000 14.1%
Development of Immune
Stimulants (See "Business") $550,000 11.1%
Research and Development of Poultry
Vaccines(See "Business") $450,000 9.1%
Repayment of Bridge Loans(3) $150,000 3.0%
Working Capital(4) $1,209,000 24.4%
----------- ---------
TOTAL $4,959,000 100.0%
</TABLE>
(1) Reduction of a portion of short term debt (approximately 70%) due to
Banco Do Brasil, Banco Sudamericano, Corpbanca and Hemisphere National
Bank which have maturity dates throughout 1999. The interest rates for
these short term debts range from 9.259% to 13.8%. As of March 31, 1999
$2,163,962 was outstanding under these debt obligations. See "Note 7 to
Notes to the Financial Statements."
(2) The Tepual and Inual brands, as of the day of the offering are held by
Profeed, Inc., a Bahamian corporation owned and controlled by Mr.
Rutman, the Company's chairman and Paulina and Andrea Rutman. These
brands have been valued at $1,300,000. See "Certain Relationships and
Related Transactions." The Company will pay Profeed, Inc. $400,000 from
the proceeds of this offering. The balance shall be paid out of the
over-allotment or from a percentage of the gross proceeds of the sale
of products sold under the Tepual and Inual brands. See "Certain
Relationships and Related Transactions." The Company believes that
terms were negotiated at arm's length and $1,300,000 is a fair value
for these brands. Opinions certifying the valuation of these brands
have been received by the Company. See "Certain Relationships and
Related Transactions."
(3) Between April and May 1999 the Company received loans in the aggregate
amount of $150,000 from unrelated 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. See "Bridge Financing."
(4) Includes overhead and administrative expenses, Chilean legal expenses,
U.S. legal expenses (not in connection with this Offering) and
reserves.
15
<PAGE>
The foregoing represents our best estimate of the allocation of the net
proceeds of the Offering, 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
DIVIDEND POLICY
We have never paid dividends and do not anticipate paying dividends in
the foreseeable future.
16
<PAGE>
DILUTION
At March 31, 1999, we had a net tangible book value of $1,933,535 or
approximately $1.10 per share of outstanding Class A and B Common Stock (after
giving effect to the Stock Purchases). "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 1,400,000
shares of Class A Common Stock offered hereby, at an assumed initial public
offering price of $4.25 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 March 31, 1999, would have been approximately
$6,892,535 or $2.16 per share of Common Stock. This would represent an immediate
increase in the net tangible book value per share of Common Stock of $1.06 to
existing shareholders and an immediate dilution of $2.09 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:
Initial offering price per share of Class A Common Stock $4.25
Net tangible book value per share of
Class B Common Stock before the Offering $1.10
Increase attributable to new investors $1.06
Proforma net tangible book value after the Offering $2.16
Dilution to new investors $2.09
Percentage of dilution to new investors 49.00%
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 (i) existing shareholders of the Company at March 31, 1999 and
(ii) new investors purchasing shares of Class A Common Stock in this Offering,
before deducting the underwriting discounts and estimated offering expenses
payable by the Company.
<TABLE>
<CAPTION>
Shares Purchased Consideration Paid Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) 1,751,000 54.95% $ 423,741 6.50% $0.24
New Investors(2)(3) 1,435,294 45.05% $6,100,000 93.50% $4.25
--------- ----- ---------- ----- ----
Total 3,186,294 100.00% $6,523,741 100.00% $2.05
</TABLE>
- ----------
(1) Gives effect to the Stock Purchases, including 51,000 shares issued to
David Mayer on the formation of Bio-Aqua Systems, Inc. in March 1999.
(2) Represents 1,400,000 shares of Class A Common Stock, but does not
include (i) the sale of 1,400,000 Warrants offered hereby or (ii) the
issuance and exercise of the Representative's Warrants.
(3) Includes 35,294 shares of Class A Common Stock issued in April and
May, 1999 in connection with the Bridge Financing. See "Bridge
Financing."
17
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999, the capitalization
of the Company, actual and as adjusted for the issuance and sale of the
1,400,000 shares of Class A Common Stock offered hereby (assuming an initial
public offering price of $4.25 per share of Class A Common Stock) after
deducting estimated Offering expenses and underwriting discounts and the initial
application of the proceeds therefrom.
<TABLE>
<CAPTION>
Actual(1) As Adjusted(1)(2)
--------- -----------------
<S> <C> <C>
Long-term Debt...................................................... $ 455,962 $ 455,962
Stockholders' equity:
Class A Common Stock ($.0001 par value)
20,000,000 shares authorized; 51,000 shares issued
and outstanding (actual) and 1,486,294 (as adjusted)(2).......... 5 149
Class B Common Stock ($.0001 par value)
2,000,000 shares authorized; 1,700,000 shares issued
and outstanding (actual) and 1,700,000 (as adjusted)(2).......... 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.......................................... 423,566 5,532,417
Retained earnings................................................... 2,938,565 2,938,565
Cumulative translation adjustment(3)................................ (110,408) (110,408)
Total stockholders' equity.......................................... $ 3,251,898 $ 8,360,893
Total capitalization................................................ $ 3,707,860 $ 8,816,855
</TABLE>
- -------------------
(1) Gives effect to the Stock Purchases and excludes the issuance of (i)
1,400,000 shares of Class A Common Stock upon exercise of our Warrants;
(ii) up to 210,000 shares of Class A Common Stock issuable pursuant to
the Over- Allotment Option (210,000 shares if the Over-Allotment Option
is exercised); (iii) up 140,000 shares of Class A Common Stock issuable
pursuant to the Representative's Warrants; and (iv) up to 300,000
shares of Class A Common Stock reserved for issuance under the Plan, of
which no shares are currently subject to the Plan. See "Underwriting,"
"Management-Incentive and Non-Qualified Stock Option Plan," and
"Description of Securities."
(2) Gives effect to the issuance of 1,400,000 shares of Class A Common
Stock and the receipt of the net proceeds therefrom. Gives effect to
(i) the sale of 1,400,000 Warrants offered hereby and exercise of the
Over-Allotment Option; and (ii) the issuance of 35,294 shares of Class
A Common Stock in connection with the Bridge Financing, see "Bridge
Financing."
(3) Represents the conversion from the Chilean pesos into U.S. Dollars.
18
<PAGE>
EXCHANGE RATES
Unless otherwise specified, references herein to "U.S. dollars",
"dollars", "$", or "U.S.$" are to United States dollars and references to
"pesos" or "Ch$" are to Chilean pesos, the legal currency of Chile, and
peso-denominated monetary unit. As of March 31, 1999, the exchange rate was one
(1) U.S. dollar to 483.83 pesos. No representation is made that the peso or U.S.
dollar amounts shown in this Prospectus could have been or could be converted
into U.S. dollars or pesos, as the case may be, at such rate or at any other
rate.
Chile's Ley Organica Constitucional del Banco Central de Chile No.
18.840 ("Central Bank Act") enacted in 1989, liberalized the rules that govern
the ability to buy and sell foreign exchange. Prior to 1989, the law permitted
the purchase and sale of foreign exchange only in those cases explicitly
authorized by the Central Bank of Chile. The Central Bank Act now provides that
the Central Bank may determine that certain purchases and sales of foreign
exchange may be exercised by the banks and other entities so authorized by the
Central Bank.
The following table sets forth the annual high, low, average and
year-end observed exchange rate for U.S. dollars for each year starting in 1994
as reported by the Central Bank of Chile.
<TABLE>
<CAPTION>
Exchange Rates of Ch$ per U.S.$(3)
----------------------------------
Year Low(1) High(1) Average(2)
---- ------ ------- ----------
<S> <C> <C> <C> <C>
1994 397.87 433.69 420.18
1995 368.75 418.98 396.77
1996 402.25 424.97 412.27
1997 411.85 439.81 419.31
1998 439.18 460.33 465.25
1999 (first quarter) 472.41 501.15 487.30
</TABLE>
Source: Central Bank of Chile
- ---------------
(1) Exchange rates are the actual high and low, on a month-to-month basis
for each period.
(2) The average monthly rates during the period.
(3) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
19
<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 the Company's Consolidated Financial Statements and
Notes thereto, which have been audited by Spear, Safer, Harmon & Co., P.A.,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The statement of operations data for the three months ended
March 31, 1999 and 1998, and the balance sheet data at March 31, 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 three months
ended March 31, 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 elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
1997 1998 1998 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Earnings Data
- -------------
Revenues $ 5,238,299 $ 6,873,512 $ 1,464,567 $ 1,391,358
Cost of Operations $ 3,571,678 $ 4,853,553 1,056,267 999,015
Selling and Administrative Expenses $ 901,412 $ 1,173,317 272,750 230,074
Other Income (Expenses) (376,808) (480,057) (75,546) (103,563)
Net Income $ 388,401 $ 366,585 60,0004 58,706
Net Income per common share $ 0.23 $ 0.22 $ .04 $ .03
Weighted average common shares outstanding 1,700,000 1,700,000 1,700,000 1,717,000
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
- ------------------
March 31,
March 31, 1999
Period Ended 1999 As Adjusted
December 31, (Unaudited) (Unaudited)(1)
------------------------------- ----------- --------------
1997 1998
<S> <C> <C> <C> <C>
Working capital $ 617,413 $1,484,937 $1,447,931 $ 5,406,931
Total assets $ 5,180,304 $6,911,750 $7,836,732 $10,283,492
Total long-term liabilities $ 355,014 $ 478,813 $ 455,962 $ 455,962
Total liabilities $ 2,348,531 $3,678,546 $4,584,834 $ 3,084,834
Stockholders' equity $ 2,831,773 $3,233,204 $3,251,898 $ 8,360,898
</TABLE>
(1) Adjusted to reflect the sale of 1,400,000 shares of Class A Common
Stock (assuming an initial public offering price of $4.25 per share of
Class A Common Stock, after deducting the underwriting discounts and
estimated offering expenses). Including receipt of net proceeds from
the sale of 1,400,000 Warrants offered hereby, the exercise of our
Warrants, the Representative's Warrants, or the Over-Allotment Option.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995. 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 the negative thereof or other variations thereon 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.
We do not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by our management over
time means that actual events are bearing out as estimated 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. See "Business-Past and Present Partial Customer List." 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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Results of Operations
Gross revenues for the three months ended March 31, 1999 decreased
$73,209 over the three months ended March 31, 1998 from $1,464,567 to
$1,391,358, a decrease of approximately 5%. This is primarily due to the
translation exchange rate. Sales have remained relatively constant between the
periods.
21
<PAGE>
Cost of operations decreased from $1,056,267 in the three months ended
March 31, 1998 to $999,015 for the three months ended March 31, 1999. This
decrease of $57,252 (5%) was directly related to the decrease in revenues.
Selling and administrative expenses for the three months ended March
31, 1999 decreased $42,676 in comparison to the three months ended March 31,
1998 from $272,750 to $230,074, a decrease of approximately 16%. This decrease
is attributed to a decrease in the use of outside consultants.
Other income (expenses) increased from $(103,563) at March 31, 1999 to
$(75,546) at March 31, 1998, an increase of $28,017 or approximately 27%. The
increase is due to a reduction in royalty income and increase in interest
expense. Interest expense increased as a result of the increase in average
outstanding loan balances.
Net income for the three months ended March 31, 1999 was $58,706
compared to $60,004 for the three months ended March 31, 1998, a decrease of
$1,298 or approximately 2%, as a result of the above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED 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 $271,905 in comparison to the year ended December 31, 1997 from
$901,412 to $1,173,317, an
22
<PAGE>
increase of approximately 30%. 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 income (expenses) increased from ($376,808) at December 31, 1997
to ($480,057) at December 31, 1998, an increase of $103,249 or approximately
27%. 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
At March 31, 1999, accounts receivable increased by $368,717 to
$3,350,391 from $2,981,674 at December 31, 1998. This increase is a result of
the timing of revenue recognition as compared to the date of payment received.
Payment terms and conditions, which among other factors, are dependent on the
customer, credit histories, economic conditions and country payment standards.
In particular, approximately $250,000 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 July 31, 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.
At March 31, 1999, inventory decreased $119,884 to $641,985 as compared
to $761,869 at December 31, 1998. This decrease is due to sales in excess of
purchases during the first quarter in 1999.
At March 31, 1999, other current assets increased by $668,337 to
$1,351,662 from $683,325 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 $400,503 from $990,749 at December 31, 1998
to $1,391,252 at March 31, 1999. This is due to purchases made in the period
which were on extended payment terms of up to four months.
23
<PAGE>
Long term debt has decreased from $478,813 at December 31, 1998 to
$455,962 at March 31, 1999, a decrease of $22,851. This decrease is due to
timely payments on our outstanding loans.
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. We recognize the need to ensure our operations
will not be adversely impacted by year 2000 computer program failures arising
from program processes and calculations misinterpreting the year 2000 date. We
have evaluated our financial and operational systems to determine the impact the
year 2000 issued will have on its operations. We also plan to communicate with
our significant suppliers, dealers, financial institutions, and others with
which it conducts business to determine the extent we may be impacted by third
parties' failure to address the year 2000 issue. Although we plan to be year
2000 compliant prior to December 31, 1999 and expect no material impact to our
operations, there can be no assurance that our failure or such third parties to
successfully address their respective year 2000 issues will not have a material
adverse effect on our business, financial condition, cash flows, and result of
operations.
24
<PAGE>
BUSINESS
General
Bio-Aqua Systems, Inc. (the "Company") was organized in March 1999 as a
holding company to acquire a 99.9% interest in Tepual, S.A. ("Tepual"), a
Chilean corporation established in 1982 with its principle offices in Santiago,
Chile. 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 products under the
"Tepual(TM)" and "Inual(TM)" brands, which brands have been recognized as one of
the leading purveyors of nutrient products. 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 we began commercial operations which capitalized on
research and development projects initiated by Inual, a Chilean company. Inual,
owned by Max Rutman, was organized in 1973 and holds all rights to the Inual
brand which, since 1982, has been marketed by Tepual. Prior to 1985 Tepual and
Inual generated revenues through grants from various government entities and
private
25
<PAGE>
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 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.
On the Effective Date, two stock purchase agreements shall be
simultaneously effectuated whereby (i) Flagship shall purchase 1,529,910 shares
and Atik shall purchase 169,990 shares, totaling 1,699,900 shares of Class B
Common Stock for $3,540,390, and (ii) Bio-Aqua shall purchase Flagship's and
Atik's 99.9% in Tepual for $3,540,290 and Tepual shall then become a majority
owned (99.9%) subsidiary of Bio-Aqua. See "Certain Relationships and Related
Transactions." The remaining 15 shares of Tepual stock will continue to be owned
by Max Rutman, through his ownership interest in Flagship (Chilean law requires
that a Chilean corporation be owned by not less than two shareholders). See
"Principal Shareholders." In addition, on the Effective Date Bio-Aqua will
purchase the rights to the Tepual(TM) and Inual(TM) brands from Profeed for
$1,300,000. On the Effective Date, Bio-Aqua will also purchase the remaining
assets of Inual.
BUSINESS STRATEGY AND OVERVIEW FOR BIO-AQUA
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 Bio-Aqua 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
26
<PAGE>
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: (a) a detection
system to test shellfish for certain "Red Tide" toxins, and (b) a system to
"cleanse" shellfish by lowering certain toxin levels. See Business-Red Tide
Detection and Cleansing."
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 effects all of humanity.
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. See
"Management." 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.
27
<PAGE>
The Company Operations
Overview
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 toxin and "red tide" diagnostic and cleansing
kits.
Brokerage Business
Management believes that it 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(TM) and Inual(TM) 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. According to International Fishman and
Oil Manufacturers Association ("IFOMA"), 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.
28
<PAGE>
Through our Tepual(TM) and Inual(TM) brands we certify that the fish
meal we sell has the highest possible nutrient levels and lowest toxicity
levels. We are recognized internationally as a premier broker based on the high
nutrient and low toxicity levels of the Tepual(TM) and Inual(TM) brands,
providing us with a worldwide customer base.
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 an
adequate 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. 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.
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
29
<PAGE>
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 we have entered into a joint
venture with Kelor Trading, Ltd. ("Kelor"), an Irish fishing company. Under this
agreement we have provided financing for Kelor's krill fishing operations. This
financing is for the preparation of a Kelor vessel to operate in Antarctic
waters. We have agreed to lend Kelor 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 vessel in return for the exclusive rights to
broker 100% of Kelor's sales of krill and related products and conduct research
and development projects on Kelor's vessels. As of March 31, 1999, we have lent
Kelor approximately $1.5 million. Kelor has agreed to pay us 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 us the right to utilize Kelor's krill
fishing operations and facilities to perform research and development relating
to krill. The use of Kelor's operations and facilities enables us to perform our
research and development in this area at a minimal cost.
Future of the 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.
<TABLE>
<CAPTION>
PAST AND PRESENT PARTIAL CUSTOMER LIST
--------------------------------------
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
30
<PAGE>
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
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>
Automatic Control
The current worldwide market for fish meal is approximately $1.3
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.
31
<PAGE>
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 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 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.
32
<PAGE>
Immune Stimulants
Salmon Farming. 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. Salmon fisheries lose
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 high mortality rates.
Based on our internal test results our management believes that we have
developed an immune stimulant which reduces the mortality rates in farmed salmon
to approximately 8% to 10%. We are currently testing our immune stimulants with
two salmon farms in Chile.
We believe our immune stimulant will decrease the use of antibiotics on
farmed salmon. In December 1998, "Revista Aqua Noticias" 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 100% natural and are not presently subject to government regulation. We
intend to file patent applications for our immune stimulants, but there can be
no assurances that we will obtain patent protection.
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 (See below).
33
<PAGE>
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. 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 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 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 the Company researchers will analyze
shrimp immune responses and will identify the main factors affecting these
responses. The Company has worked with distinguished professionals in this
field. In the area of basic immunology the Company has worked with Professor
Rolf Seljelid (University of Tromso in Norway) and with Dr. Elizabeth Cruz
(Universidad de Nuevo Leon in Mexico). See "Technical Network." 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
34
<PAGE>
not been cured by the use of conventional vaccine products offered in the
market. 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.
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 we entered
into a marketing agreement with Biosur S.A., a Chilean corporation, wholly owned
by Paulina and Andrea Rutman, daughters of Max Rutman and shareholders of Atik,
S.A. 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 we produce in Chile. In consideration of
this exclusive right to buy and distribute, they will purchase from us 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 we were waiting for
re-approval of our new laboratory. We received the requisite approval during
June 1999, and we intend to commence sales in the near future. Management
believes that our new facility is more than adequate to meet the sales
anticipated from the sale of these vaccines. Furthermore, we believe we can
easily acquire additional facilities to meet any future demand increases. See
"Certain Relationships and Related Transactions."
In 1995 we began the production of vaccines specific to the unique
strains of disease found in Peru, establishing laboratories similar to their
Chilean counterpart. To accomplish this, we entered into a licensing agreement
with Biosur, S.A.C., a Peruvian company. Under the terms of this agreement,
Biosur, S.A.C. will manufacture and market all of our poultry vaccines in Peru
and will pay us a 13% royalty on gross sales. As of May 30, 1999, Biosur S.A.C.
had sold approximately $200,000 of our Peruvian vaccines. Our vaccines have been
approved for sale by the Peruvian Ministry of Agriculture. Therefore, these
vaccines are being produced and sold in Peru. There is currently no patent
protection for the Peruvian vaccines. We have 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.
35
<PAGE>
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. Preliminary results are
promising and 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.
<TABLE>
<CAPTION>
1998 Poultry Production Levels(1)
---------------------------------
Chickens
--------
<S> <C>
Argentina 360,000,000
Bolivia 41,000,000
Brazil 3,000,000,000
Chile(2) 156,000,000
Ecuador 67,000,000
Peru(2) 220,000,000
--------------
Totals 3,884,000,000
</TABLE>
- ----------------
(1) Source "Empresas Lideres 99"
(2) Peru and Chile are currently the only countries in which we have
developed or produced vaccines for commercial use.
Red Tide Detection and Cleansing
"Red tide" occurs when either natural or human factors cause a rapid
increase in the production of one-celled organisms (dinoflagellates), which
ordinarily grow in water rich in nitrogen and phosphorus. Red tide has occurred
in every coastal country in the world (See "Chart"). Dinoflagellates consume
nitrogen and phosphorus and then reproduce or "bloom" profusely. They spread
across the water like a carpet, absorbing oxygen and shutting off sunlight from
plants. When these organisms or harmful algae die and decay they absorb even
more oxygen, literally suffocating marine life. The term "red tide" is generally
a misnomer because they are not associated with tides; are not usually harmful;
and those species that are harmful may never even reach the densities required
to discolor the water. Unfortunately, however, a small number of species produce
potent neurotoxin 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. 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)
Each of these syndromes are caused by different species of toxic algae
which occur in coastal waters all over the world. Human consumption of PSP toxic
shellfish may result in death or paralysis in extreme cases, while human
consumption of DSP toxic shellfish may cause severe diarrhea, nausea, vomiting,
cramps and chills. A more common impact of red tide includes mass mortalities of
wild and farmed fish.
36
<PAGE>
<TABLE>
<CAPTION>
COUNTRIES WITH RED TIDE AND ITS NOMINAL CATCHES OF SHELLFISH*
- ------------------------------------------------------------------------------------------------------------------------------------
Country Red Tide(1) Catches (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
37
<PAGE>
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. This test consists of
injecting a mouse with water samples (water suspected to be toxic) under
laboratory conditions and waiting approximately three minutes for a reaction. If
the mouse dies the sample is toxic and all fish or shellfish within the area in
which the sample was taken may be 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, chemical 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. Further, this method does not actually test the shellfish, but rather
the water in which the shellfish is found.
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 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. A more
significant advantage over acceptable methods is that our testing kits determine
the toxicity found within the shellfish itself, while other methods only test
the waters in which shellfish are found.
Red Tide Detection
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. This kit is being introduced in
the Chilean market and was recently presented 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.
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 four main groups of PSP
toxins (saxitoxin, neosaxitoxin, gonyautoxins, and Cs toxins) as well as
analytical and toxicological methods to quantify and to qualify each PSP toxin.
38
<PAGE>
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 intellectual rights to the saxitoxin
antitoxin are exclusively held 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.
Together with CECS, we have entered into an agreement with R-Biopharm
GmbH (R- Biopharm), a German company, to manufacture and distribute this
antitoxin test kit. We have sold to R-Biopharm all transferable rights and
technical knowledge to use, manufacture and to distribute the antitoxin test
system as a "PSP ELISA Test Kit." In consideration for granting the rights to
this PSP ELISA Test Kit, Bio-Aqua and CECS will receive 12.5% of the net sales
of the kit, of which we receive 60% (consistent with our agreement with CECS),
for 10 years dated from the commercial production and sale of the PSP ELISA Test
Kit. We believe that this PSP ELISA Test Kit will begin to be sold commercially
during the first quarter of 2000, however we cannot provide any assurances that
the PSP ELISA Test Kit will be produced commercially before the end of the first
quarter of the year 2000. R-Biopharm will also pay a minimum royalty of $5,000
during the first year of production 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, Inual has agreed to supply R-Biopharm 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 from the PSP ELISA Test Kit
for 10 years dated from the commercial production and sale of the PSP ELISA Test
Kit. R-Biopharm will also pay a minimum royalty of $5,000 during the first year
of production 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. In addition to this 12.5% royalty, Inual shall receive
$400,000, from R-Biopharm in consideration for supplying R-Biopharm 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 has verbally
agreed to transfer this contract to Bio-Aqua and we shall receive 100% of its
benefits.
Additionally, through the above agreement between Inual and R-Biopharm
Inual will also receive royalties of 12.5%, in their entirety, from all kits
developed from any other toxins or antibodies Inual supplies to them. Bio-Aqua
will receive this potential future royalty upon an agreement with Inual to
transfer this contract to Bio-Aqua.
39
<PAGE>
Through a separate agreement between R-Biopharm and Inual dated May 20,
1998, of which Inual has verbally agreed to transfer to Bio-Aqua, R-Biopharm has
agreed to supply Inual on a continuous demand with commercial PSP ELISA Test
Kits at a price equivalent to those of R-Biopharm's other future distributers.
This agreement permits Inual to sell the PSP ELISA Test Kit in countries
including, but not limited to, Chile, the United States and Japan, where Inual
has the ability to market this product.
Together with CECS we have jointly applied for patents in Chile, USA,
Canada, Australia 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 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, USA, Canada,
Australia and the European Community and may apply for worldwide patents. No
assurance can be given that patents will be granted.
Research and Development
Our research and development division includes cooperative efforts with
academic, private and government institutions and our own highly qualified
scientists. 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).
40
<PAGE>
Key Personnel
The key personnel of the Company 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 Bio-Aqua since 1994 and a research manager for Bio-Aqua since
1996. Prior to her employment with Bio-Aqua, 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
Valparaiso in Chile with a degree in biochemical engineering. She has been
working in Bio-Aqua since 1990 and is currently in charge of Bio-Aqua's 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 in Veterinary
Medicine and the Association of Doctors in Veterinary Medicine. Dr. Gallardo has
been working for Bio-Aqua for 12 years where he is the 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 currently leading the Company's Automatic Control
Division. He is also a member of the International Fishman and Oil Association
(IFOMA) and an international consultant for the Food Agricultural Organization
(FAO). Prior to working for Bio-Aqua, Mr. Cornejo was the
41
<PAGE>
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 Bio-Aqua
for 10 years in Bio-Aqua's Automatic Control Division. Mr. Sayes designs and
develops automatic control equipment and systems for Bio-Aqua.
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 Bio-Aqua's toxin research projects and is the Project Manager for
Bio-Aqua's Toxic Research Division. Dr. Lavandero is a Professor of the
Univosidad de Chile and his areas of specialty within Bio-Aqua's 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 the Bio-Aqua'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 Bio-Aqua since
1994. Mr. Chiong's area of research includes red tide and marine toxins.
42
<PAGE>
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>
<CAPTION>
<S> <C> <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. Lucia 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 Pathology Department, Tromso University, Norway.
Professor Douglas Anderson Former Director National Fish Health Research Lab, USA.
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 Cientificos de Santiago,
Chile.
Dr. Ralf Dreher R-Biopharm, development company, Germany.
Dr. Eugene T. Smith Hammline University, USA.
Dr. Mario Perez Won Food Engineering Department, Universidad de la
Serena, Chile.
</TABLE>
43
<PAGE>
Foreign Corrupt Practices Act
Substantially all of our operations are transacted in South America. To
the extent that we conduct operations and sells 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 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 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 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
44
<PAGE>
an investment contract with the Government of Chile on or around the closing of
this Offering. See "Risk Factors."
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.
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.
45
<PAGE>
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 ("AFC") for its corporate U.S. offices in Boca
Raton, Florida, which lease may be renewed for an additional two year term.
David Mayer, a Director of Bio-Aqua, is the sole shareholder, officer and
director of AFC. 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. See "Certain Relationships and Related Transactions."
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.
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 the Bio-Aqua's 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. See "Certain Relationships and Related Transactions." 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 Bioengineering Division and former Director of
the Protein Group at I.F.O.P. (Chile's Institute of Fisheries Development), and
visiting Professor at the following
46
<PAGE>
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. Mr. Rutman is also the sole shareholder of Profeed, Inc. and
Flagship Import Export Corporation. See "Certain Relationships and Related
Transactions."
Guillermo Quiroz has served as Chief Financial Officer, Vice President of
Finance and Administration, and 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 has served as a member of Bio-Aqua's Board of Directors as of the
Effective Date and as a member of Tepual's Board of Directors since April 1999.
Dr. Lagos has led Bio-Aqua's 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). See "Advisors and Key Personnel."
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. Mr. Vivanco is a partner in the law firm of Abud,
Vivanco and Vergara in Santiago, Chile, which serves as Bio-Aqua's 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. See "Certain
Relationships and Related Transactions." 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
47
<PAGE>
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."
Election of Directors
Each Director of Bio-Aqua is elected at the 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 Bio-Aqua's
Board of Directors, which individual may be a director, officer, employee or
affiliate of the Representative. Alternatively, the Representative may designate
a person to attend meetings of Bio-Aqua's Board of Directors as an observer for
three years following the Effective Date.
Directors' Compensation
Upon the Effective Date, Bio-Aqua's 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
The Audit Committee will be established upon the Effective Date and
will consist of Max Rutman, Guillermo Quiroz, Sergio Vivanco and David Mayer.
The Audit Committee will review the work of the audit staff and direct reports
covering such work to be prepared. The Audit Committee will oversee our
continuous audit program to attampt to protect against improper and unsound
practices and to attempt to furnish adequate protection for its assets
and records. The Audit
48
<PAGE>
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.
The 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.
The 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 Bio-Aqua's 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. See "Certain Relationships and Related Transactions."
Appointment of Officers
Officers are elected annually by the Board of Directors and their terms
of office are, except to the extent governed by employment contracts, at the
discretion of the Board. 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 $100,000 for the year ended December 31, 1998. We did not
grant any stock options, restricted stock awards or stock appreciation rights or
make any long-term incentive plan payments during 1998.
<TABLE>
<CAPTION>
Summary Compensation Table(1)(2)
Other Annual
Name and Principal Position Year Salary($) Bonus ($) Compensation($)
- --------------------------- ---- --------- --------- ---------------
<S> <C> <C> <C> <C>
Max Rutman CEO, 1998 $ 48,000 $ -0- $ -0-
President and Chairman 1997 48,000 -0- -0-
1996 48,000 -0- -0-
</TABLE>
- ---------
(1) This table is based solely upon compensation received from Tepual.
(2) Includes "ISAPRE" payments described under "Employment Agreements-
ISAPRE."
49
<PAGE>
Employment Agreements
Max Rutman, Chief Executive Officer, President and Chairman. Tepual,
our subsidiary, will enter 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.
Guillermo Quiroz, Chief Financial Officer. Tepual, our subsidiary, will
enter 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
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
50
<PAGE>
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.
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 Bio-Aqua's
shareholders adopted our Stock Option Plan (the "Plan"). The purpose of the Plan
is to increase the employees', advisors', consultants', and directors'
proprietary interest in Bio-Aqua and Tepual, to align more closely their
interests with the interests of Bio-Aqua's shareholders, and to enable us to
attract and retain the services of experienced and highly qualified employees
and directors. Bio-Aqua has reserved an aggregate of 300,000 shares of Class A
Common Stock under the Plan.
Our Board of Directors, or a committee thereof, administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible employees of Bio-Aqua, including officers and directors (whether or not
employees) of Bio-Aqua. The 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 Plan on
such terms and at such prices as determined by the Board, or a committee
thereof, 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 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 the committee thereof. 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 Plan with respect to the underlying
option except as varied by the Board of Directors or the committee thereof. 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.
Options granted under the Plan will be exercisable after the period or
periods specified in the option agreement. Options granted under the 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 Plan also authorizes us to make loans to optionees to enable
them to exercise their options.
51
<PAGE>
As of the Effective Date, no options have been granted pursuant to the
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 ("Corporation Act") permits the
indemnification of directors, employees, officers and agents of Florida
corporations. However, the provisions of the 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. Bio-Aqua's Articles of
Incorporation and Bylaws provide that we shall indemnify our directors and
officers to the fullest extent permitted by the Corporation Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling Bio-Aqua pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
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 Bio-Aqua or a shareholder for
monetary damages alleging negligence or gross negligence in the performance of
their duties. In such actions, they remain liable for monetary damages for
willful misconduct, conscious disregard of the best interest of Bio-Aqua, and
for transactions from which a director derives an improper personal benefit.
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
Bio-Aqua's 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.
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon the effective date, (i) Flagship 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 (ii) we will purchase Flagship's and Atik's
combined 99.9% interest in Tepual for $3,540,290 and Tepual shall then become a
majority owned (99.9%) subsidiary of Bio-Aqua. The remaining 15 shares of Tepual
will continue to be owned by Max Rutman, through his interest in Flagship
(Chilean law requires that a Chilean corporation be owned by not less than two
shareholders). The current shareholders of Tepual are Flagship (90%) and Atik
(10%). Mr. Rutman, through his ownership interest in Flagship, will retain a
.01% interest (15 shares) in Tepual in order to comply with Chilean law.
Flagship is a Bahamian corporation whose sole shareholder is Max Rutman. Atik is
a Chilean corporation whose shareholders are Paulina and Andrea Rutman,
daughters of Max Rutman.
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, a Director of
Bio-Aqua, 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.
On the date of closing, we will acquire the rights to the brands and
patents "Inual(TM)" and "Tepual(TM)" from Profeed, Inc., a Bahamian corporation,
owned and controlled by Max, Andrea and Paulina Rutman, 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 out of the Over Allotment Options, should such
options be exercised by the underwriter, or from a percentage of the gross
proceeds of the sale of products sold under the Tepual and Inual brands at 5%
per quarter, payable over a three year period, or otherwise mutually agreed
upon. We believe that the terms of these acquisitions 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, a Director of Bio-Aqua,
whereby Mr. Mayer shall perform certain services for Bio-Aqua, including
advising in the preparation and implementation of Bio-Aqua's 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 the 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
53
<PAGE>
poultry vaccines. Biosur S.A. is owned by Atik, a Chilean corporation. The
shareholders of Atik are Paulina and Andrea Rutman, daughters of Max Rutman.
Atik is a shareholder of Bio-Aqua.
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 May1999, we received loans in the aggregate amount of
$150,000 from unrelated third party accredited investors. These loans are
evidenced by promissory notes bearing interest at 8% per year. We are obligated
to repay two of these loans on the earlier of (i) the closing of this Offering
or (ii) January 1, 2001. A loan to Inversiones Kau Kau, S.A., a Chilean
corporation, for $50,000 is due on the earlier of (i) the closing of this
offering or (ii) 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.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the Common
Stock beneficially owned as of the date of this Prospectus (i) by each person
who is known by Bio- Aqua to own beneficially 5% or more of the Common Stock;
(ii) by each of Bio-Aqua's executive officers and directors; and (iii) by all
executive officers and directors of Bio-Aqua as a group. 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 Voting
Beneficially Owned Percentage Percentage
Name and Address of Before and After Before After Before After
Beneficial Owner Offering Offering Offering(1)(2) Offering Offering(1)(2)
- ---------------- -------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Flagship Import Export
Corporation 1,529,910(3)(4)(6) 85.7% 48.000%(4) 89.10% 76.6%
Atik, S.A. 169,990(4)(5)(6) 9.5% 05.200%(4) 9.89% 8.5%
Max Rutman 1,530,010(3)(6)(7)(8) 85.7% 48.000%(5) 89.10% 76.6%
Guillermo Quiros -0- -0- -0- -0- -0-
David Mayer(9) 51,000 2.9% 1.600% .51% -0-
Nestor Lagos -0- -0- -0- -0- -0-
All executive officers and
directors as a group (6 persons) 1,581,010(3)(7)(8) 88.5% 49.600% 92.06% 79.2%
</TABLE>
- --------------------
(1) Assumes no exercise of the Over-Allotment Option. See "Underwriting."
(2) Does not give effect to the issuance or exercise of Warrants offered
hereby.
(3) Includes 1,529,910 shares of Class B Common Stock issued to Flagship
Import Export Corporation ("Flagship") in connection with the Stock
Purchases. See Note 1 to "Notes to Financial Statements." Flagship is
owned and controlled by Mr. Rutman. See "Certain Relationships and
Related Transactions."
(4) Represents shares of Class B Common Stock that have 5 votes for each
share of Class B Common Stock held. See "Description of Securities."
(5) Includes 169,990 shares of Class B Common Stock issued to Atik, S.A.
("Atik") in connection with the Stock Purchases. See Note 1 to "Notes
to Financial Statements." Atik is owned by Paulina and Andrea Rutman,
daughters of Max Rutman.
(6) While the shares held by Mr. Rutman, Flagship and Atik, directly or
indirectly, will represent 53.2% of the outstanding Common Stock
issued, they will represent an approximately 85% voting interest in
Bio-Aqua, since holders of Class B Common Stock are entitled to 5 votes
for each share of Class B Common Stock held.
(7) Includes 100 shares of Class B Common Stock issued to Mr. Rutman as
founders shares.
(8) Includes 1,529,910 shares of Class B Common Stock issued to Flagship in
connection with the Stock Purchases. Does not include 169,990 shares of
Class B Common Stock issued to Atik.
(9) Mr. Mayer's address is 1900 Glades Road, Suite 351, Boca Raton, Florida
33301.
55
<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 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 lockup period from the Effective Date).
Upon our liquidation, dissolution or winding up, after payment of
creditors and holders of any senior securities of Bio-Aqua, 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 therefor.
Bio-Aqua has never paid dividends on any class of Common Stock since its
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 1,700,000 shares of Class B Common Stock or approximately
85% of the votes of Bio-Aqua, 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.
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<PAGE>
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. See "Underwriting." Each certificate representing shares of
Class B Common Stock contains a legend setting for the restrictions imposed by
the Representative. See "Shares Eligible for Future Sale."
Preferred Stock
The Board of Directors has the authority to issue up to 5,000,000
shares, par value $.0001, of Bio-Aqua's 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).
Warrants
Our Warrants will be issued in registered form pursuant to an agreement
dated as of the Effective Date (the "Warrant Agreement"), between Bio-Aqua and
American Stock Transfer and Trust Company 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 $6.25
(which exercise price has been arbitrarily determined by the Company 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
shareholders of the Company. 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 the Company for $0.15 per
57
<PAGE>
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 the Company exercises its right to redeem Warrants, such Warrants may
still be exercised by the holder thereof 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 thereof will be entitled only to the redemption price. The foregoing
notwithstanding, the Company may not redeem our Warrants at any time that a
current registration statement under the 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, the Company will file a new registration statement with the 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 Act. See "Risk
Factors "Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants."
Certain Florida Legislation
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The provisions of Florida corporate law relating to
control share acquisitions (the "Florida Control Share Act") 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 a
corporation's disinterested shareholders. The provisions of the Florida Control
Share Act apply to the Company. The provisions of Florida corporate law relating
to affiliated transactions (the "Florida Affiliated Transactions Act") 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 the
Company because it has opted out of such act. The Company's Articles of
Incorporation and Bylaws also authorize the Company to indemnify the Company's
directors, officers, employees and agents. See "Management - Indemnification of
Officers and Directors." In addition, the Articles of Incorporation and Florida
law presently limit the personal liability of corporate directors for monetary
damages, except where the directors (i) breach their fiduciary duties and (ii)
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. See "Management - Limitation of Liability."
Anti-takeover Effects of Certain Provisions of the Company's Articles of
Incorporation and Bylaws.
Certain provisions of the Articles of Incorporation and Bylaws of
Bio-Aqua 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.
58
<PAGE>
Such provisions could result in the Company 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 53.2% of the Common Stock and
will have the right to cast 85% 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 control of the Company.
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 control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See "Description of
Securities - Preferred Stock"
Special Meeting of Shareholders.
The Articles of Incorporation and Bylaws of Bio-Aqua provide that
special meetings of shareholders of the Company may be called only by a majority
of the Board of Directors, the Company's Chief Executive Officer or holders of
not less than ten percent (10%) of the Company's 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 this Offering, the Company will have 1,486,294
shares of Class A Common Stock outstanding (1,696,294 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 such term is defined
under the Act.
59
<PAGE>
The 1,400,000 shares of Class A Common Stock sold in this Offering
(1,610,000 shares if the Over-Allotment Option is exercised in full) will be
freely tradeable without restriction or further registration under the Act,
except for any shares purchased by an "affiliate" of the Company (in general, a
person who has a control relationship with the Company), which shares will be
subject to the resale limitations of Rule 144 under the Act. An additional
1,400,000 shares of Class A Common Stock have been registered (1,610,000 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 Act permits a shareholder of
the Company 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 compliance by the Company with certain reporting requirements of Rule
144. Furthermore, if the restricted shares of any class of Common Stock is held
for at least two years by a person not affiliated with the Company (in general,
a person who is not an executive officer, director or principal shareholder of
the Company during the three month period prior to resale), such restricted
shares can be sold without any volume limitation. Since the Company was 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 and Atik, who will purchase
1,699,900 shares of Class B Common Stock of Bio-Aqua 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 the Company
for a period of twelve months from the Effective Date (other than those
Securities offered hereby, the Representative's Warrants and the underlying
securities thereto) will also be subject to a 24-month lock-up period from the
date of issuance. See "Bridge Financing." 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, Emerson Bennett have
severally agreed to purchase from us and we have agreed to sell to the such
Underwriters, the respective number of shares of Class A Common Stock and
Warrants set forth opposite their respective names at the initial
60
<PAGE>
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>
Emerson Bennett & Associates, Inc.
TOTAL 1,400,000 1,400,000
</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 National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, not in excess of $.425 per
share of Class A Common Stock and $.015 per Warrant, in their discretion, to
certain domestic dealers who are members of the NASD and which domestic dealers
agree to sell the 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 the Securities being offered hereby, we
will sell to the Representative, the Representative's Warrants, for nominal
consideration, entitling the Representative to purchase an aggregate of 140,000
shares of Class A Common Stock and 140,000 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 shall not be 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
$6.375 per share of Class A Common Stock, $.225 per warrant, which are 150% 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. In
addition, we have granted to the Representative a single demand registration
right and unlimited piggy back registration rights with respect to our Class A
Common Stock and our Warrants underlying the Representative's Warrants for a
period commencing at the beginning of the second year and concluding at the end
of the fifth year following the Effective Date.
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<PAGE>
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 210,000 shares of Class A Common Stock and an additional 210,000
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 the Securities being
offered by this Prospectus.
Prior to this Offering, there has been no public market for the
Securities and there can be no assurances that an active public market for the
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. See "Risk Factors."
We have agreed to pay the Underwriters a commission of ten percent
(10%) of the gross proceeds of this Offering ("Underwriting Discount"),
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 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 the Representative as a consultant for a
period of two (2) years from the closing of this Offering, at a fee of $5,000
per month payable to the Representative, commencing on the Effective Date and
continuing for a period of twenty-four (24) months.
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
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<PAGE>
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 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. See "Bridge Financing"). The lock-up periods begin
on the later of (i) the date of issuance or (ii) 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. In addition, for
a period of three years, the Representative shall have a right of first refusal
to sell the Company's securities in a public or private offering.
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. See "Additional Information."
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. The Company is 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, Florida. Atlas, Pearlman, Trop & Borkson, P.A. has from time to time
provided legal representation to the Representative.
EXPERTS
The balance sheets of Bio-Aqua and its 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,
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<PAGE>
Safer, Harmon & Co., P.A., independent accountants, given on authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement in
Washington, D.C., on Form SB-2 under the Act, with respect to the securities
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto. For further
information about us and the Securities offered hereby, reference is made to the
Registration Statement and to the exhibits filed as a part thereof. 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 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 Commission at its
principal office in Washington, D.C. set forth above upon payment of prescribed
fees. Additionally, the Commission maintains a Web sit that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the 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.
64
<PAGE>
BIO-AQUA SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATED
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 supplemental consolidated balance sheets of
Bio-Aqua Systems, Inc. (the "Company") as of December 31, 1998 and 1997, and the
related supplemental consolidated statements of income, stockholders' equity and
cash flows for the years ended December 31, 1998 and 1997. These supplemental
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these supplemental
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the supplemental consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the supplemental
consolidated 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 supplemental consolidated 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 pooling of interests as described in
Note 1 to the supplemental consolidated 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 consolidated financial statements of the Company after financial
statements covering the date of consummation of the business are issued.
In our opinion, the supplemental consolidated 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.
Miami, Florida
February 26, 1999
F-2
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Balance Sheets
A S S E T S
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------
1999 1998 1997
--------------- ------------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash $ 47,329 $ 136,489 $ 29,168
Accounts receivable 3,350,391 2,981,674 1,583,271
Due from related parties (Note 2) 71,147 - 250,672
Other receivables - 69,082 65,646
Inventory 641,985 761,869 297,946
Income taxes receivable (Note 3) 102,049 52,231 134,949
Offering costs 12,240 - -
Other current assets (Note 4) 1,351,662 683,325 249,278
-------------- -------------- ----------------
Total Current Assets 5,576,803 4,684,670 2,610,930
-------------- -------------- ----------------
Property and Equipment, net (Note 5) 931,798 984,676 1,393,603
-------------- -------------- ----------------
Other Assets:
Software development costs, net (Note 6) 1,318,363 1,217,759 1,091,147
Other assets 9,768 24,645 84,624
-------------- -------------- ----------------
1,328,131 1,242,404 1,175,771
-------------- -------------- ----------------
$ 7,836,732 $ 6,911,750 $ 5,180,304
============== ============== ================
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-3
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------
1999 1998 1997
--------------- ------------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable $ 1,391,252 $ 990,749 $ 294,023
Obligations with banks: (Note 7)
Lines-of-credit 2,163,962 1,525,968 1,193,338
Current portion 143,787 158,603 106,320
Notes payable (Note 8) 82,732 124,775 -
Accrued expenses and other current
liabilities (Note 9) 347,139 399,638 399,836
-------------- -------------- ----------------
Total Current Liabilities 4,128,872 3,199,733 1,993,517
-------------- -------------- ----------------
Long-Term Liabilities:
Obligations with banks, excluding
current portion (Note 7) 455,962 478,813 355,014
-------------- -------------- ----------------
Stockholders' Equity:
Class A common stock, $.0001 par value;
20,000,000 shares authorized, 51,000 shares
issued and outstanding 5 - -
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 423,566 411,331 411,331
Retained earnings 2,938,565 2,879,859 2,513,274
Cumulative translation adjustment (110,408) (58,156) (93,002)
-------------- -------------- ----------------
Total Stockholders' Equity 3,251,898 3,233,204 2,831,773
-------------- -------------- ----------------
$ 7,836,732 $ 6,911,750 $ 5,180,304
============== ============== ================
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-4
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------------------- ----------------------------------
1999 1998 1998 1997
------------------ ----------------- ---------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,391,358 $ 1,464,567 $ 6,873,512 $ 5,238,299
Cost of Operations 999,015 1,056,267 4,853,553 3,571,678
-------------- -------------- -------------- -------------
Gross Profit 392,343 408,300 2,019,959 1,666,621
General and Administrative Expenses 230,074 272,750 1,173,317 901,412
-------------- -------------- -------------- -------------
Income from Operations 162,269 135,550 846,642 765,209
-------------- -------------- -------------- -------------
Other Income (Expenses):
Other, net 47,628 47,553 24,060 203,353
Interest expense (90,629) (56,869) (280,266) (231,805)
Depreciation and amortization expense (60,562) (66,230) (255,732) (283,588)
Loss on investment in related parties - - (23,082) (64,768)
Gain on sale of property and equipment - - 54,963 -
-------------- -------------- -------------- ------------
(103,563) (75,546) (480,057) (376,808)
-------------- -------------- -------------- -------------
Net Income $ 58,706 $ 60,004 $ 366,585 $ 388,401
============== ============== ============== =============
Net Income Per Common Share $ .03 $ .04 $ 0.22 $ 0.23
============== ============== ============== =============
Weighted Average Common
Shares Outstanding 1,717,000 1,700,000 1,700,000 1,700,000
============== ============== ============== =============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-5
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in
Stock Stock Capital
-------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ - $ 170 $ 411,331
Net income - - -
Translation adjustment - - -
---------- ---------- --------------
Balance at December 31, 1997 - 170 411,331
Net income - - -
Translation adjustment - - -
---------- ---------- --------------
Balance at December 31, 1998 - 170 411,331
Issuance of common stock 5 - 12,235
Net income (unaudited) - - -
Translation adjustment (unaudited) - - -
---------- ---------- --------------
Balance at March 31, 1999 (unaudited) $ 5 $ 170 $ 423,566
========== ========== ==============
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Cumulative Total
Retained Translation Stockholders'
Earnings Adjustment Equity
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 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 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 2,879,859 (58,156) 3,233,204
Issuance of common stock - - 12,240
Net income (unaudited) 58,706 - 58,706
Translation adjustment (unaudited) - (52,252) (52,252)
-------------- ------------- --------------
Balance at March 31, 1999 (unaudited) $ 2,938,565 $ (110,408) $ 3,251,898
============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-6
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------------------- ----------------------------------
1999 1998 1998 1997
------------------- ---------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 58,706 $ 60,004 $ 366,585 $ 388,401
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 60,562 66,230 255,732 283,588
Loss on investment in related party - - 23,082 64,768
Gain on sale of property and
equipment - - (54,963) -
Translation adjustment (52,252) 229,988 34,846 310,626
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (368,717) (1,929,770) (1,398,403) 1,322,729
Other receivables 69,082 46,720 (3,436) 59,354
Inventory 119,884 8,392 (463,923) 749,054
Income taxes receivable (49,818) 2,222 82,718 4,051
Other current assets (668,337) (277,011) (434,047) (62,278)
Software development costs (100,604) (34,683) (154,612) (331,974)
Other assets 14,877 (45,437) 36,897 (6,392)
Increase (decrease) in:
Accounts payable 400,503 2,165,953 696,726 (502,977)
Accrued expenses and other
current liabilities (52,499) (133,149) 90,218 (1,868,164)
------------- ------------- ------------- --------------
Net Cash (Used in) Provided by
Operating Activities (568,613) 159,459 (922,580) 410,786
------------- ------------- ------------- --------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (7,684) (8,519) (195,761) (28,618)
Proceeds from sale of property
and equipment - - 431,919 -
------------- ------------- ------------- --------------
Net Cash Provided by (Used in)
Investing Activities (7,684) (8,519) 236,158 (28,618)
------------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-7
<PAGE>
BIO-AQUA SYSTEMS, INC.
Supplemental Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------------------- ----------------------------------
1999 1998 1998 1997
------------------- ---------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Net proceeds of lines-of-credit $ 637,994 $ (83,276) $ 332,630 $ 90,338
Net proceeds from related parties (71,147) 24,506 250,672 54,328
Proceeds of long-term debt - - 236,161 -
Payments of long-term debt (79,710) (96,672) (25,720) (500,666)
-------------- ------------- ------------- --------------
Net Cash Provided by (Used in)
Financing Activities 487,137 (155,442) 793,743 (356,000)
-------------- ------------- ------------- --------------
(Decrease) Increase in Cash (89,160) (4,502) 107,321 26,168
Cash - Beginning of Period 136,489 29,168 29,168 3,000
-------------- ------------- ------------- --------------
Cash - End of Period $ 47,329 $ 24,666 $ 136,489 $ 29,168
============== ============= ============= ==============
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for interest $ 81,491 $ 51,027 $ 280,266 $ 231,805
Supplemental Disclosure of Non-Cash
Financing Activities:
Issuance of Class A common stock
in connection with offering 12,240 - - -
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-8
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements
(Unaudited) With Respect to March 31, 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
aqualculture, 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 11 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 by the pooling of interests. 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 supplemental consolidated
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 consolidated financial statements of the
Company after financial statements covering the date of consummation
of the business combination are issued.
F-9
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 March 31, 1999, December 31, 1998 and 1997, respectively, was
483.83 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 March 31, 1999
and 1998, December 31, 1998 and 1997 was 472.30 pesos to U.S. $1,
452.88 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.
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. 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 March 31, 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 - 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. 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.
F-10
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Capitalized costs are amortized over 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 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 1,700,000 for
the periods ended March 31, 1999 and 1998 and 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 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.
F-11
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
F-12
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Interim Financial Statements - The accompanying interim unaudited
supplemental consolidated 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 supplemental
consolidated financial position of the Company as of March 31, 1999
and the supplemental consolidated results of its operations and cash
flows for the three months ended March 31, 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, 1998 and 1997, $-0- and $123,186 were due
from this affiliate.
Also during 1998 and 1997, the Company made advances to other
affiliated companies. As of March 31, 1999, December 31, 1998 and
1997, $71,147, $-0- and $127,486, 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 March 31,
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.
F-13
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 3 - INCOME TAXES (Continued)
The following is a reconciliation of the statutory tax rates:
<TABLE>
<CAPTION>
Years Ended
Period Ended December 31,
March 31, ----------------------------
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 March 31, 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 March 31, 1999, December 31, 1998 and 1997
for approximately $74,000, $74,000 and $80,000, respectively.
NOTE 4 - OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Advances to vendors $ 1,327,316 $ 675,167 $ 233,765
Prepaid expenses 24,346 8,158 10,112
Other - - 5,401
------------ ------------- ------------
$ 1,351,662 $ 683,325 $ 249,278
============ ============= ============
</TABLE>
F-14
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 4 - OTHER CURRENT ASSETS (Continued)
Advances to vendors represent deposits for inventory acquisition and
approximately $990,000 and $500,000 as of March 31, 1999 and December
31, 1998, respectively, advanced to a fishing vessel company (see
Note 10).
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 154,928 $ 154,928 $ 154,701
Machinery and equipment 1,516,196 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
------------ ------------- -------------
2,318,665 2,130,981 2,399,644
Less accumulated depreciation (1,206,867) (1,146,305) (1,006,041)
------------ ------------- -------------
$ 931,798 $ 984,676 $ 1,393,603
============ ============= =============
</TABLE>
Depreciation expense was $60,562, $66,230, $227,732 and $283,588
for the three months ended March 31, 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.
F-15
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 6 - SOFTWARE DEVELOPMENT COSTS
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Balance, beginning of period $ 1,217,759 $ 1,091,147 $ 759,173
Current period:
Total expenditures 220,844 580,807 564,102
Less research and
development expenses (120,240) (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>
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.
Research and development expenses are included in general and
administrative expenses.
NOTE 7 - OBLIGATIONS WITH BANKS
Obligations with banks consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
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 $ 2,163,962 $ 1,525,968 $ 1,193,338
============= ============ ============
</TABLE>
F-16
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 7 - OBLIGATIONS WITH BANKS (Continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
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 $ 599,749 $
637,416 $ 461,334
Less: Current portion (143,787) (158,603) (106,320)
------------ ----------- ------------
$ 455,962 $ 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-17
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 7 - OBLIGATIONS WITH BANKS (Continued)
Future maturities of long-term debt are as follows:
Year Ending
December 31,
------------
1999 $ 158,603
2000 81,521
2001 88,594
2002 97,670
2003 102,947
2004 102,067
Thereafter 6,014
-------------
$ 637,416
=============
NOTE 8 - 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 9 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Salaries and employee related payables $ 83,050 $ 120,925 $ 105,155
Sales and other taxes payable 91,635 87,367 195,248
Deferred taxes 73,932 73,932 79,755
Other 98,522 117,414 19,678
------------ ------------ ------------
$ 347,139 $ 399,638 $ 399,836
============ ============ ============
</TABLE>
F-18
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 10 - 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 three
months ended March 31, 1999 and 1998 and the years ended December 31,
1998 and 1997 totaled approximately $47,000, $17,666, $73,000 and
$119,000, respectively.
Future minimum rental payments under the lease are as follows:
Year Ending Annual
December 31, Payments
------------ ----------------
1999 $ 144,648
2000 17,484
----------------
$ 162,132
================
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.
As of March 31, 1999 and December 31, 1998, the Company advanced
approximately $990,000 and $500,000, respectively, to Kelor which is
included in other current assets on the accompanying 1999 and 1998
supplemental consolidated balance sheets. This agreement is due within
18 months with interest at a rate of 13.5%.
NOTE 11 - OTHER MATTERS
The Company signed a letter of intent with an underwriter to offer
1,400,000 shares of Class A common stock and 1,400,000 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
$6,200,000. The net proceeds will be used for the continued
development of the Company.
F-19
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 12 - 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.
NOTE 13 - 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.
Operations 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.
NOTE 14 - SUBSEQUENT EVENT
Bridge Loan - Subsequent to March 31, 1999, the Company entered into a
bridge loan in the amount of $150,000 with investors which was used
for short-term operations. This loan is evidenced by a promissory note
bearing an interest rate of 8% per year. The Company is obligated to
repay this note the earlier of (i) the closing date of the
aforementioned initial public offering, or (ii) January 1, 2001. As
additional consideration, the investors received 35,294 shares of
Class A common stock.
F-20
<PAGE>
BIO-AQUA SYSTEMS, INC.
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 14 - SUBSEQUENT EVENT (Continued)
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 will enter 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 $50,000 for the 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-21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman or any other person has been authorized to give any Bio-Aqua Systems, Inc.
information or to make any representations not contained in this Prospectus,
and, if given or made, such informa tion or representation must not be relied
upon as having been authorized by Bio-Aqua Systems, Inc. or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, in
any circumstances, create an implication that there has been no change in the
affairs of Bio-Aqua Systems, Inc. or that information contained herein is
correct as of any date subsequent to the date hereof. This Prospectus does not 1,400,000 SHARES OF
constitute an offer to sell or a solicitation of an offer to buy any securities CLASS A COMMON STOCK
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is 1,400,000 REDEEMABLE
not qualified to do so or to any person to whom it is unlawful to make such COMMON STOCK
offer or solicitation. PURCHASE WARRANTS
-------------------- ----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.......................... __
Risk Factors................................ __
Use of Proceeds ............................ __
Dividend Policy............................. __
Dilution.................................... __
Capitalization.............................. __
Exchange Rates.............................. __
Selected Financial Data..................... __
Management's Discussion and
Analysis of Financial Condition ----------------
Results of Operations.................... __
Business.................................... __ PROSPECTUS
Management.................................. __
Certain Relationships and Related ----------------
Transactions.............................. __
Bridge Financing............................ __
Principal Shareholders...................... __
Description of Securities................... __
Shares Eligible for
Future Sale............................... __ EMERSON BENNETT &
UNDERWRITING................................ __ ASSOCIATES, INC
Legal Matters............................... __
Experts .................................... __
Additional Information...................... __
Index to Financial
Statements................................ F-1
</TABLE>
--------------------
Until _________, 199___ (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold al lotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Florida Business Corporation Act ("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 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 the foregoing 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 Act.
Insofar as indemnification for liabilities arising under the Act, may
be permitted to our directors, officers or persons controlling Bio-Aqua pursuant
to the foregoing provisions, we have been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
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.
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission/Registration fee and other documents*............................. $ 5,400
NASD filing fee*.....................................................................................
NASDAQ filing fee*...................................................................................
Printing and engraving expenses*.....................................................................
Accounting fees and expenses*........................................................................
Legal fees and expenses*.............................................................................
Blue Sky fees and expenses*..........................................................................
Representative's non-accountable expense allowance...................................................
Transfer Agent fees and expenses ....................................................................
Miscellaneous .......................................................................................
______
Total ............................................................................................ $
*Estimated
</TABLE>
All of the above expenses of this Offering will be paid by the Company.
Item 26. Recent Sales of Unregistered Securities.
On March 18, 1999, we issued 100 shares of Class B Common Stock to Mr.
Rutman, the President, Chief Executive Officer and Chairman of the Board of
Bio-Aqua and Flagship 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 Act.
Between April and May 1999, 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, information,
including financial, concerning Bio-Aqua. On March 18, 1999, we issued 51,000
shares of Class A Common Stock to David Mayer at the formation of Bio-Aqua
Systems, Inc. Accordingly, the issuance of the shares of Class A Common Stock
were exempt from registration pursuant to Section 4(2) of the Act.
As of the Effective Date, Flagship, that is wholly-owned and controlled
by Mr. Rutman and Atik, that is owned by Paulina and Andrea Rutman, daughters of
Max Rutman, will purchase 1,699,900 shares of Class B Common Stock for
$3,540,290. The shareholders of Flagship and Atik were provided with, or
otherwise had access to, information, including financial, concerning Bio-Aqua.
Accordingly, the issuances of the shares of Class B Common Stock to Flagship and
Atik will be exempt from registration pursuant to Section 4(2) of the Act.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement(2)
1.2 Form of Agreement Among Underwriters(1)
1.3 Form of Selling Group Agreement(1)
1.3(a) Selected Dealers Agreement(1)
II-2
<PAGE>
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 Asset Purchase Agreement between Profeed, Inc. and Bio-Aqua for the purchase
of the Tepual(TM)and Inual(TM)brands.(2)
3.1 Bio-Aqua's Articles of Incorporation(2)
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)
4.2(a) Form of Registration Rights Agreement(1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(2)
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 Form of Employment Agreement between Tepual S.A. and Max Rutman(2)
10.11 Form of Employment Agreement between Tepual S.A. and Guillermo Quiroz(2)
10.12 Recognition of Bank Notes(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)(2)
23.2 Consent of Spear, Safer, Harmon & Co. P.C.(2)
27 Financial Data Schedule(2)
99.1 Jeannette Cherit Independent Fairness Opinion for the Valuation of Inual(TM)and
Tepual(TM)Brands and Trademarks(2)
99.2 Grant Thornton International Independent Fairness Opinion for the Valuation of
Inual(TM)and Tepual(TM)Brands and Trademarks(2)
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)
II-3
<PAGE>
99.5 Consent of Guillermo Quiroz(2)
99.6 Consent of Nestor Lagos(2)
99.7 Consent of Sergio Vivanco(2)
</TABLE>
- --------------------
(1) To be filed by amendment
(2) Filed herewith
Item 28. Undertakings.
The undersigned registrant hereby undertakes that:
it will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) include any additional or changed material information
on the plan of distribution;
(iv) for determining liability under the Act, it 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.
(v) it will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
(vi) it 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) Insofar as indemnification for liability arising under the Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-4
<PAGE>
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i For determining any liability under the 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 the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(ii For the purpose of determining any liability under the
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-5
<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 the Registration Statement on Form
SB-2 and authorizes this Registration Statement to be signed on its behalf by
the undersigned, in the City of Ft. Lauderdale, State of Florida, on this 28
day of June, 1999.
Bio-Aqua Systems, Inc.
By: /s/ 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>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/Max Rutman President and Chief June 28, 1999
----------
Max Rutman Executive Officer and
Director (Principal
Executive Officer)
/s/Guillermo Quiroz Chief Financial Officer June 28, 1999
----------------
Guillermo Quiroz (Principal Financial and
Accounting Officer)
and Director
/s/Nestor Lagos Director June 28, 1999
------------
Nestor Lagos
/s/Sergio Vivanco Director June 28, 1999
--------------
Sergio Vivanco
/s/David Mayer Director June 28, 1999
-----------
David Mayer
</TABLE>
II-6
Underwriting Agreement
June 29, 1999
Emerson Bennett & Associates
6261 Northwest 6th Way
Fort Lauderdale, FL 33309
Ladies and Gentlemen:
Bio-Aqua Systems, Inc. (the "Company'), a Florida company, of 1900
Glades Road, Suite 351, Boca Raton, Florida, hereby confirms its agreement with
the representative of the Underwriters, Emerson Bennett & Associates, ("Emerson
Bennett" or the "Representative") 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 1,400,000
Class A Voting Stock par value $.0001 at $4.25 per share ("Stock") and 1,400,000
Redeemable Common Stock Purchase Warrants at $.15 per Warrant ("Warrants") and
Representative's Warrants entitling Representative to 140,000 shares of Stock at
$6.375 and 140,000 warrants at $.225 ("Representative's Warrants"). The
Underwriting Group shall also have an over-allotment option to purchase
1
<PAGE>
up to an additional 210,000 shares of Class A Common Stock and 210,000 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. ____) (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 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.
2
<PAGE>
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 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
3
<PAGE>
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.
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
4
<PAGE>
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.
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
5
<PAGE>
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 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
6
<PAGE>
issued, fully paid and nonassessable. 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 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,
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charges and claims whatsoever; and the Company will have on the Effective Date
of the 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
ordinary course of business, the Company has no intention of exercising any
right which it may have to cancel
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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. 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.
2.18 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
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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.
2.19 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.
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 $4.25 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 $.15 per Warrant, less the underwriting discounts.
The Representative is also granted Representative's Warrants entitling them to
purchase 140,000 shares of Stock and 140,000 Warrants exercisable at a purchase
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price of $6.375 per share of Stock and $.225 per Warrant for four years
following the Effective Date subject to a twelve month lock-up.
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 $4.25 per
share up to 210,000 additional shares of Stock and 210,000 Warrants at $.15 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 160,000 shares of Stock or
160,000 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 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.
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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 $4.25 per share,
and the Warrants at $.15 per Warrant, as set forth in the Prospectus. The
Underwriters may allow a discount of $.425 upon sales of Stock and $.015 upon
sales of Warrants to selected dealers as may be determined from time to time by
the Representative.
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 Fort
Lauderdale, Florida, upon delivery to the Representative of certificates for
shares and Warrants in definitive form in such numbers and registered in
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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 6261 Northwest 6th Way, Fort Lauderdale, FL 33309, 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 hereinabove, 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."
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 Fort Lauderdale, Florida
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 $0.15 per Warrant less the underwriting
discounts, 1,400,000 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
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purchase 1,4000,000 shares of Stock at the price of $6.25 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
140,000 shares of Stock and 140,000 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
$6.375 per share of Stock and $.225 per Warrant, upon the terms and conditions
provided in the Representative's 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 Emerson Bennett for its expenses on a nonaccountable
basis in the 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 Emerson Bennett the unpaid balance of such allowance to defray the
expenses incurred by Emerson Bennett in connection with the offering. Emerson
Bennett 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.
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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.
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
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certificates of the independent public accountant certifying to the financial
statements 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 to the Representative as soon as practicable on effectiveness of
this Agreement, but in no
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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 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
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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.
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.
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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
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.
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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.
5.04. Blue-Sky Qualification. The Company will, when and as requested
by the Representative, use reasonable efforts to qualify the Stock and Warrants
or such part thereof as the Representative 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. During
the period of five years from the Closing Date, the Company will deliver to the
Representative, copies of each annual report of the Company, and will deliver to
the Representative: (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
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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 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,
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incident to the initial sale of the Stock and Warrants to the public; the fees
and expenses of the Company's counsel and accountants; the costs and expenses
incident to the preparation, printing and filing under the Act and with the
National 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 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, 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) of the Act) covering a
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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 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
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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 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 may reasonably request.
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
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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 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 shall have the right to designate or an individual selected by
the Representative, as a member of the Board of Directors or at the
Repesentative'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.
5.21 Key Man Insurance. The Company shall, of the Effective Date, have
obtained a one million dollar ($1,000,000) key
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man life insurance policy from a qualitied insurance company, on Max Rutman the
Chief Executive Officer and Chairman of the Board of the Company , for which the
Company will be the beneficiary.
5.22. Application to Moody's. The Company shall, within 120 days after
the Effective Date, apply for listing in Moody's Over-the-Counter Manual and
shall use its best efforts to have the Company listed in such manual.
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.
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 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
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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 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
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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 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, at its request, copies of all
pleadings therein and permit the Representative to be an observer therein and
apprise the Representative 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,
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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 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
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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.
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,
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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:
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.
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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 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. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of
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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 material transaction or suffered or experienced any
substantially adverse change in its condition, financial or otherwise,
8.06. NASDAQ Listin Approval and NASD No-Objection Letter. 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,
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. The
Representative 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.
(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
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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.
(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
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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 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
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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 in which the Company
transacts business, 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.
8.08.10.01. 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
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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 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
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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,"
"Remuneration," "Stock Option Plan," "Principal Shareholders," and "Interest of
Management and Others in Certain Transactions," are not in agreement with the
Company's general ledger, financial records or computations made by the Company
therefrom.
8.08.10.02. 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 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.
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(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.
(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, whose approval
shall not be unreasonably withheld. The suggested form of such documents shall
be provided to the counsel for the Representative at least one business day
before the Closing Date. The Representative'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.
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.
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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.
9.02. Market Out Termination. This Agreement may be terminated by the
Representative by notice to the Company at any time if, in the judgment of the
Representative, 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
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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 in the judgment of 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 10.02 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, 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
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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.
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 Emerson Bennett in respect of any prospective or
actual public or private offering of
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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 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. Underwriter's Right of First Refusal. For a period of three
years from the date of the definitive prospectus, the Company will not enter
into an agreement for any public or private offering for cash (other than to
employees) of any securities of the Company as defined in Section 11.01 to or
through any person, firm or corporation other than Emerson Bennett unless and
until the Company shall have first negotiated for the sale of the Company's
securities with or offered to sell its securities to Emerson Bennett. The
Company shall notify Emerson Bennett in writing of the Company's intention to
offer its securities in a covered offering and the terms (including the price to
the Representative or other method of determining the underwriting discount or
fee) and conditions of the proposed offering.
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11.03 Exercise of Warrants. The Company hereby grants a right of first
refusal to Emerson Bennett for three (3) years from the date of the definitive
Prospectus, with respect to the exercise of Warrants issued in the instant
offering and any Rule 144 sales by Company officials.
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
Attention: David Mayer
With a copy to:
Charles B. Pearlman, Esq.
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:
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Emerson Bennett
6261 Northwest 6th Way
Fort Lauderdale, FL 33309
Attention: Brentley Martin
With a copy to:
Walter J. Stanton III, Esq. and Nancy Van Sant, Esq.
Sacher, Zelman, Stanton, Paul, Beiley & Van Sant P.A.
1401 Brickell, Suite 700
Miami, FL 33133
Telephone: (305) 371-8797
Telefax: (305) 374-2605
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
47
<PAGE>
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.
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.
48
<PAGE>
Very truly yours,
Bio-Aqua Systems, Inc.
By:_________________________________
ATTEST:
___________________________
Secretary
49
<PAGE>
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND US.
Emerson Bennett & Associates
________________________________________
(for itself and as Representative of the
members of the Underwriting Group)
BIO-AQUA SYSTEMS, INC.
By:_____________________________________
50
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Bio-Aqua Agreement") is entered
into by and among BIO-AQUA SYSTEMS, INC., a Florida corporation ("Bio-Aqua") and
FLAGSHIP IMPORT EXPORT CORPORATION, a Bahamian corporation, which is wholly
owned and controlled, directly or indirectly by Max Rutman, an individual
currently residing in Santiago, Chile (collectively "Flagship") and which owns
8,573 shares of TEPUAL, S.A., a Chilean corporation ("Tepual"), as of the 15th
day of June, 1999, but which Bio-Aqua Agreement shall be effective as of the
effective date of the registration statement on Form SB-2 as filed by Bio-Aqua
with the Securities and Exchange Commission ("Effective Date"). (Bio-Aqua,
Flagship, and Tepual sometimes individually referred to as "Party" and
collectively as "Parties").
RECITALS
A. Bio-Aqua is a corporation duly organized and existing under the laws
of the State of Florida and located in Palm Beach County, Florida, having been
incorporated March 18, 1999 and having authorized capital stock consisting of
twenty-two million (22,000,000) shares of Common Stock par value $.0001, of
which Twenty Million (20,000,000) shares are designated as Class A Voting Common
Stock and Two Million (2,000,000) shares are designated as Class B Voting Common
Stock ("Class B Common Stock")
B. Flagship wishes to purchase 1,529,910 shares of Class B Common Stock
for $3,185,703, pursuant to the terms and conditions of this Bio-Aqua Agreement.
C. The laws of the State of Florida and the Country of Chile permit
Flagship to purchase the shares of Class B Common Stock for $3,185,703, subject
to the terms and conditions set forth in this Bio-Aqua Agreement.
D. Contemporaneously with the execution of this Bio-Aqua Agreement,
Bio- Aqua shall enter into a stock purchase agreement ("Flagship Agreement")
with Flagship whereby as of the Effective Date, Bio-Aqua shall purchase 8,558
shares of Tepual which are owned by Flagship (the "Tepual Shares") for
$3,185,703, which Flagship Agreement shall be in substantially the same form as
this Bio-Aqua Agreement, and which Flagship Agreement is attached hereto as
Exhibit A.
E. The Parties acknowledge and agree that the sole purpose for entering
into the Bio-Aqua Agreement and the Flagship Agreement in this manner is to
comply with the rules and regulations governing foreign investments in Chile, as
promulgated by the Central Bank of Chile and but for these requirements, the
Parties would have entered into a share exchange agreement whereby Bio-Aqua
would have exchanged 1,529,910 shares
1
<PAGE>
of Class B Common Stock for 8,558 Tepual Shares. It is the Parties' intention
that the Bio- Aqua Agreement and the Flagship Agreement be effective
contemporaneously as of the Effective Date.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants herein contained, as of the "Effective Date," as
hereinafter defined, it is agreed that Flagship shall purchase the shares of
Class B Common Stock for $3,185,703, subject to the terms and conditions set
forth and the mode of carrying it into effect are and shall be as follows:
1. Recitals. The above recitals are true, correct and are herein
incorporated by reference.
2. Purchase of Shares.
(a) Bio-Aqua hereby agrees to transfer to Flagship at the
closing referred to in Section 3 below the 1,529,910 shares of Class B Common
Stock for $3,185,703, and Bio-Aqua agrees to deliver to Flagship a certificate
representing the 1,529,910 shares of Class B Common Stock. All certificates to
be delivered at the closing by the parties hereto shall be in negotiable form,
subject to any lock-up agreements and other restrictions pursuant to Federal and
state securities laws and contractual agreements with certain persons and
Bio-Aqua's representative of the underwriters, including but not limited to,
Rule 144 of the Securities Act of 1933, as amended or as applicable.
(b) Notwithstanding anything else to the contrary contained
herein, contemporaneously with the closing contemplated herein, Bio-Aqua and
Flagship shall enter into the Flagship Agreement.
3. Closing Date. The "Closing Date" shall be the effective date of
Bio-Aqua's registration statement on Form SB-2 filed with the Securities and
Exchange Commission.
4. Representations of Bio-Aqua. Bio-Aqua hereby represents and
warrants that:
(a) Bio-Aqua is validly organized, existing and in good
standing under the laws of the State of Florida. Upon information and belief,
there are no outstanding options, contracts, calls, commitments or demands of
any character relating to the authorized but unissued stock of Bio-Aqua.
(b) The shares of Class B Common Stock to be sold at the
closing are validly issued, fully paid and non-assessable.
2
<PAGE>
(c) Except as otherwise previously disclosed to Flagship by
Bio-Aqua, there has been no material adverse change in the condition of Bio-Aqua
since the date of the financial statements previously provided to Flagship. To
the best of Bio-Aqua's knowledge, the only changes in the financial condition of
Bio-Aqua since said date are those arising from the normal and regular conduct
of the business of Bio-Aqua.
(d) Except as otherwise previously disclosed to Flagship by
Bio-Aqua, to the best of Bio-Aqua's knowledge, there is no litigation,
governmental proceeding or investigation threatened or in prospect against
Bio-Aqua or relating to any of the interest to be transferred hereunder which
could materially affect Bio-Aqua.
(e) Except as otherwise previously disclosed to Flagship by
Bio-Aqua, to the best of Bio-Aqua's knowledge, Bio-Aqua has no bonus, deferred
compensation, profit-sharing, pension or retirement arrangements, whether or not
legally binding, nor is it presently paying any pension, deferred compensation
or retirement allowance which has not otherwise been disclosed to Flagship.
(f) The statements made and information given to Flagship
concerning Bio-Aqua and the transactions covered by this Agreement are true and
accurate and no material fact has been withheld from Flagship.
(g) Bio-Aqua has no knowledge of any developments or
threatened developments of a nature that would be materially adverse to the
business of Bio-Aqua.
(h) Subject to the lock-up requirements previously discussed
to Flagship and as set forth in the Registration Statement, the shares of Class
B Common Stock to be transferred by Bio-Aqua to Flagship hereunder are free and
clear of all voting trusts, agreements, arrangements, encumbrances, liens,
claims, equities and liabilities of every nature and Bio-Aqua is conveying clear
and unencumbered title thereto to Flagship.
(i) There are no agreements to which Bio-Aqua is a party nor
does Bio- Aqua know of any other agreements that in any way materially restrict
or impinge upon the business of Bio-Aqua or the benefit of which Bio-Aqua
requires or presently has in its business.
5. Representations of Flagship. Flagship hereby makes the following
representations and warranties to Bio-Aqua, each of which is true as of the date
hereof and will be true as of the Closing Date with the same effect as though
such representations and warranties had been made on the Closing Date:
(a) Flagship is a corporation duly organized and existing
under and by virtue of the laws of the Country of Bahamas, and is in good
standing under the laws thereof.
3
<PAGE>
(b) The execution and delivery of this Agreement by Flagship
and the performance by Flagship of its covenants and undertakings hereunder have
been duly authorized by all requisite corporate action, and Flagship has the
corporate power and authority to enter into this Agreement and to perform the
covenants and undertakings to be performed by it hereunder.
(c) Neither the execution nor the delivery of this Agreement,
nor the consummation of the transaction herein contemplated, nor compliance with
the terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation or the Bylaws of
Bio-Aqua as amended, or any agreement or instrument to which Flagship is now a
party.
(d) Flagship is acquiring Bio-Aqua's stock for its own account
and for investment and not with the view to the distribution or resale of any
thereof.
6. Investment Purpose. Flagship represents that it is acquiring the
shares of Bio-Aqua Common Stock to be delivered at the closing solely for
investment and not for distribution or resale.
7. Notices. Any notice or communication necessary or desirable
hereunder shall be considered sufficient and delivery thereof shall be deemed
complete if delivered in person or mailed by registered mail on the part of
Bio-Aqua to:
Bio-Aqua Systems, Inc.
c/o Andean Development Corporation
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
and to Max Rutman, as follows:
Bio-Aqua Systems, Inc.
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
and to Flagship as follows:
Flagship Import Export Corporation
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
4
<PAGE>
or to such other address as either party may hereafter specify in writing as his
or its own address to the other party.
8. Entire Agreement. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection herewith.
9. Severability. Flagship and Bio-Aqua hereby agree and affirm that
none of the above provisions is dependent on the validity of any other provision
and invalidity as to any provision or any part thereof shall not affect any
other provision.
10. Governing Law. This Agreement shall be governed by the laws of the
State of Florida. Venue shall be Broward County, Florida.
11. Counterpart. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
BIO-AQUA SYSTEMS, INC.
By: /s/ Max Rutman
-----------------------------------
Name: Max Rutman
-----------------------------------
Its: CEO
-----------------------------------
FLAGSHIP IMPORT EXPORT CORPORATION
By: /s/ Max Rutman
-----------------------------------
Name: Max Rutman
-----------------------------------
Its: CEO and Sole Shareholder
-----------------------------------
5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Flagship Agreement") is entered
into by and among BIO-AQUA SYSTEMS, INC., a Florida corporation ("Bio-Aqua") and
FLAGSHIP IMPORT EXPORT CORPORATION, a Bahamian corporation, which is controlled,
directly or indirectly by Max Rutman, an individual currently residing in
Santiago, Chile (collectively "Flagship") and which owns 8,573 shares of TEPUAL,
S.A., a Chilean corporation ("Tepual"), as of the 15th day of June, 1999, but
which Flagship Agreement shall be effective as of the effective date of the
Registration Statement on Form SB-2 ("Registration Statement"), as filed by
Bio-Aqua with the Securities and Exchange Commission ("Effective Date").
(Bio-Aqua, Flagship, and Tepual sometimes individually referred to as "Party"
and collectively as "Parties").
RECITALS
A. Bio-Aqua is a corporation duly organized and existing under the laws
of the State of Florida and located in Palm Beach County, Florida, having been
incorporated March 18, 1999 and having authorized capital stock consisting of
twenty-two million (22,000,000) shares of Common Stock par value $.0001, of
which Twenty Million (20,000,000) shares are designated as Class A Voting Common
Stock and Two Million (2,000,000) shares are designated as Class B Voting Common
Stock ("Class B Common Stock").
B. Bio-Aqua wishes to purchase 8,558 shares of Tepual (the "Tepual
Shares"), out of 9,510 issued shares in Tepual.
C. The laws of the State of Florida and the Country of Chile permit
Bio-Aqua to purchase the 8,558 Shares for $3,185,703, subject to the terms and
conditions set forth in this Flagship Agreement.
D. Contemporaneously with the execution of this Flagship Agreement,
Bio-Aqua shall enter into a stock purchase agreement with Flagship whereby as of
the Effective Date, Flagship shall purchase 1,529,910 shares of Bio-Aqua Class B
Common Stock, par value $.0001 ("Class B Common Stock") for $3,185,703
("Bio-Aqua Agreement"), which Bio-Aqua Agreement shall be in substantially the
same form as this Flagship Agreement, and which Bio-Aqua Agreement is attached
hereto as Exhibit A.
E. The Parties acknowledge and agree that the sole purpose for entering
into the Flagship Agreement and the Bio-Aqua Agreement in this manner is to
comply with the rules and regulations governing foreign investments in Chile, as
promulgated by the Central Bank of Chile and but for these requirements, the
Parties would have entered into a share exchange agreement whereby Bio-Aqua
would have exchanged 1,529,910 shares
1
<PAGE>
of Class B Common Stock for 8,558 Tepual Shares. It is the Parties' intention
that the Flagship Agreement and the Bio-Aqua Agreement be effective
contemporaneously as of the Effective Date.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants herein contained, as of the "Effective Date," as
hereinafter defined, it is agreed that Bio-Aqua shall purchase the 8,558 Shares
for $3,185,703, subject to the terms and conditions set forth and the mode of
carrying it into effect are and shall be as follows:
1. Recitals. The above recitals are true, correct and are herein
incorporated by reference.
2. Purchase of Shares.
(a) Flagship hereby agrees to transfer to Bio-Aqua at the
closing referred to in Section 3 below the 8,558 Tepual Shares, which represents
an interest in Tepual, for $3,185,703, and Flagship agrees to deliver to
Bio-Aqua a certificate representing the 8,558 Tepual Shares. All certificates to
be delivered at the closing by the parties hereto shall be in negotiable form,
subject to any lock-up agreements and other restrictions pursuant to Federal and
state securities laws and contractual agreements with certain persons and
Bio-Aqua's representative of the underwriters, including but not limited to,
Rule 144 of the Securities Act of 1933, as amended or as applicable.
(b) Notwithstanding anything else to the contrary contained
herein, contemporaneously with the closing contemplated herein, Bio-Aqua and
Flagship shall enter into the Bio-Aqua Agreement.
3. Closing Date. The "Closing Date" shall be the effective date of
Bio-Aqua's registration statement on Form SB-2 filed with the Securities and
Exchange Commission.
4. Representations of Flagship. Flagship hereby represents and
warrants that:
(a) Tepual is validly organized, existing and in good standing
under the laws of the Country of Chile. Upon information and belief, there are
no outstanding options, contracts, calls, commitments or demands of any
character relating to the authorized but unissued stock of Tepual.
(b) The Tepual Shares to be sold at the closing are validly
issued, fully paid and non-assessable.
2
<PAGE>
(c) Except as otherwise previously disclosed to Bio-Aqua by
Flagship, there has been no material adverse change in the condition of Tepual
since the date of the financial statements previously provided to Bio-Aqua. To
the best of Flagship's knowledge, the only changes in the financial condition of
Tepual since said date are those arising from the normal and regular conduct of
the business of Tepual.
(d) Except as otherwise previously disclosed to Bio-Aqua by
Flagship, to the best of Flagship's knowledge, there is no litigation,
governmental proceeding or investigation threatened or in prospect against
Tepual or relating to any of the interest to be transferred hereunder which
could materially affect Bio-Aqua.
(e) Except as otherwise previously disclosed to Bio-Aqua by
Flagship, to the best of Flagship's knowledge, Tepual has no bonus, deferred
compensation, profit-sharing, pension or retirement arrangements, whether or not
legally binding, nor is it presently paying any pension, deferred compensation
or retirement allowance which has not otherwise been disclosed to Bio-Aqua.
(f) The statements made and information given to Bio-Aqua
concerning Tepual and the transactions covered by this Agreement are true and
accurate and no material fact has been withheld from Bio-Aqua.
(g) Flagship has no knowledge of any developments or
threatened developments of a nature that would be materially adverse to the
business of Tepual.
(h) The Tepual Shares to be transferred by Flagship to
Bio-Aqua hereunder are free and clear of all voting trusts, agreements,
arrangements, encumbrances, liens, claims, equities and liabilities of every
nature and Flagship is conveying clear and unencumbered title thereto to
Bio-Aqua.
(i) There are no agreements to which Tepual is a party nor
does Flagship know of any other agreements that in any way materially restrict
or impinge upon the business of Tepual or the benefit of which Tepual requires
or presently has in its business.
5. Representations of Bio-Aqua. Bio-Aqua hereby makes the following
representations and warranties to Flagship, each of which is true as of the date
hereof and will be true as of the Closing Date with the same effect as though
such representations and warranties had been made on the Closing Date:
(a) Bio-Aqua is a corporation duly organized and existing
under and by virtue of the laws of the State of Florida, and is in good standing
under the laws thereof.
(b) The execution and delivery of this Agreement by Bio-Aqua
and the performance by Bio-Aqua of its covenants and undertakings hereunder have
been duly
3
<PAGE>
authorized by all requisite corporate action, and Bio-Aqua has the corporate
power and authority to enter into this Agreement and to perform the covenants
and undertakings to be performed by it hereunder.
(c) Neither the execution nor the delivery of this Agreement,
nor the consummation of the transaction herein contemplated, nor compliance with
the terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation or the Bylaws of
Bio-Aqua as amended, or any agreement or instrument to which Bio-Aqua is now a
party.
(d) Bio-Aqua is acquiring Flagship's stock for its own account
and for investment and not with the view to the distribution or resale of any
thereof.
6. Investment Purpose. Bio-Aqua represents that it is acquiring the
Tepual Shares to be delivered at the closing solely for investment and not for
distribution or resale.
7. Notices. Any notice or communication necessary or desirable
hereunder shall be considered sufficient and delivery thereof shall be deemed
complete if delivered in person or mailed by registered mail on the part of:
Bio-Aqua to:
Bio-Aqua Systems, Inc.
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
and to Flagship and Max Rutman, as follows:
Flagship Import Export Corporation
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
and to Tepual as follows:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
or to such other address as either party may hereafter specify in writing as his
or its own address to the other party.
4
<PAGE>
8. Entire Agreement. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection herewith.
9. Severability. Flagship and Bio-Aqua hereby agree and affirm that
none of the above provisions is dependent on the validity of any other provision
and invalidity as to any provision or any part thereof shall not affect any
other provision.
10. Governing Law. This Agreement shall be governed by the laws of the
State of Florida. Venue shall be Broward County, Florida.
11. Counterpart. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
BIO-AQUA SYSTEMS, INC.
By: /s/ Max Rutman
-----------------------------
Name: Max Rutman
-----------------------------
Its: CEO
-----------------------------
FLAGSHIP IMPORT EXPORT CORPORATION
By: /s/ Max Rutman
-----------------------------
Name: Max Rutman
-----------------------------
Its: CEO
-----------------------------
5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Bio-Aqua Agreement") is entered
into by and among BIO-AQUA SYSTEMS, INC., a Florida corporation ("Bio-Aqua") and
ATIK, S.A., a Chilean corporation, which is wholly owned and controlled,
directly or indirectly by Paulina Rutman and Andrea Rutman, individuals
currently residing in Santiago, Chile (collectively "Atik") and which owns 952
shares of TEPUAL, S.A., a Chilean corporation ("Tepual"), as of the 15th day of
June, 1999, but which Bio-Aqua Agreement shall be effective as of the effective
date of the registration statement on Form SB-2 as filed by Bio-Aqua with the
Securities and Exchange Commission ("Effective Date"). (Bio- Aqua, Atik, and
Tepual sometimes individually referred to as "Party" and collectively as
"Parties").
RECITALS
A. Bio-Aqua is a corporation duly organized and existing under the laws
of the State of Florida and located in Palm Beach County, Florida, having been
incorporated March 18, 1999 and having authorized capital stock consisting of
thirty million (22,000,000) shares of Common Stock par value $.0001, of which
Twenty Million (20,000,000) shares are designated as Class A Voting Common Stock
and Two Million (2,000,000) shares are designated as Class B Voting Common Stock
("Class B Common Stock")
B. Atik wishes to purchase 169,990 shares of Class B Common Stock for
$354,587, pursuant to the terms and conditions of this Bio-Aqua Agreement.
C. The laws of the State of Florida and the Country of Chile permit
Atik to purchase the shares of Class B Common Stock for $354,587, subject to the
terms and conditions set forth in this Bio-Aqua Agreement.
D. Contemporaneously with the execution of this Bio-Aqua Agreement,
Bio- Aqua shall enter into a stock purchase agreement ("Atik Agreement") with
Atik whereby as of the Effective Date, Bio-Aqua shall purchase 952 shares of
Tepual which are owned by Atik (the "Tepual Shares") for $354,587, which Atik
Agreement shall be in substantially the same form as this Bio-Aqua Agreement,
and which Atik Agreement is attached hereto as Exhibit A.
E. The Parties acknowledge and agree that the sole purpose for entering
into the Bio-Aqua Agreement and the Atik Agreement in this manner is to comply
with the rules and regulations governing foreign investments in Chile, as
promulgated by the Central Bank of Chile and but for these requirements, the
Parties would have entered into a share exchange agreement whereby Bio-Aqua
would have exchanged 169,990 shares of Class B Common Stock for 952 Tepual
Shares. It is the Parties' intention that the Bio-Aqua
1
<PAGE>
Agreement and the Atik Agreement be effective contemporaneously as of the
Effective Date.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants herein contained, as of the "Effective Date," as
hereinafter defined, it is agreed that Atik shall purchase the shares of Class B
Common Stock for $354,587, subject to the terms and conditions set forth and the
mode of carrying it into effect are and shall be as follows:
1. Recitals. The above recitals are true, correct and are herein
incorporated by reference.
2. Purchase of Shares.
(a) Bio-Aqua hereby agrees to transfer to Atik at the closing
referred to in Section 3 below the 169,990 shares of Class B Common Stock for
$354,587, and Bio- Aqua agrees to deliver to Atik a certificate representing the
169,990 shares of Class B Common Stock. All certificates to be delivered at the
closing by the parties hereto shall be in negotiable form, subject to any
lock-up agreements and other restrictions pursuant to Federal and state
securities laws and contractual agreements with certain persons and Bio-Aqua's
representative of the underwriters, including but not limited to, Rule 144 of
the Securities Act of 1933, as amended or as applicable.
(b) Notwithstanding anything else to the contrary contained
herein, contemporaneously with the closing contemplated herein, Bio-Aqua and
Atik shall enter into the Atik Agreement.
3. Closing Date. The "Closing Date" shall be the effective date of
Bio-Aqua's registration statement on Form SB-2 filed with the Securities and
Exchange Commission.
4. Representations of Bio-Aqua. Bio-Aqua hereby represents and
warrants that:
(a) Bio-Aqua is validly organized, existing and in good
standing under the laws of the State of Florida. Upon information and belief,
there are no outstanding options, contracts, calls, commitments or demands of
any character relating to the authorized but unissued stock of Bio-Aqua.
(b) The shares of Class B Common Stock to be sold at the
closing are validly issued, fully paid and non-assessable.
2
<PAGE>
(c) Except as otherwise previously disclosed to Atik by
Bio-Aqua, there has been no material adverse change in the condition of Bio-Aqua
since the date of the financial statements previously provided to Atik. To the
best of Bio-Aqua's knowledge, the only changes in the financial condition of
Bio-Aqua since said date are those arising from the normal and regular conduct
of the business of Bio-Aqua.
(d) Except as otherwise previously disclosed to Atik by
Bio-Aqua, to the best of Bio-Aqua's knowledge, there is no litigation,
governmental proceeding or investigation threatened or in prospect against
Bio-Aqua or relating to any of the interest to be transferred hereunder which
could materially affect Atik.
(e) Except as otherwise previously disclosed to Atik by
Bio-Aqua, to the best of Bio-Aqua's knowledge, Bio-Aqua has no bonus, deferred
compensation, profit-sharing, pension or retirement arrangements, whether or not
legally binding, nor is it presently paying any pension, deferred compensation
or retirement allowance which has not otherwise been disclosed to Atik.
(f) The statements made and information given to Atik
concerning Bio- Aqua and the transactions covered by this Agreement are true and
accurate and no material fact has been withheld from Atik.
(g) Bio-Aqua has no knowledge of any developments or
threatened developments of a nature that would be materially adverse to the
business of Bio-Aqua.
(h) Subject to the lock-up requirements previously discussed
to Atik and as set forth in the Registration Statement, the shares of Class B
Common Stock to be transferred by Bio-Aqua to Atik hereunder are free and clear
of all voting trusts, agreements, arrangements, encumbrances, liens, claims,
equities and liabilities of every nature and Bio-Aqua is conveying clear and
unencumbered title thereto to Atik.
(i) There are no agreements to which Bio-Aqua is a party nor
does Bio- Aqua know of any other agreements that in any way materially restrict
or impinge upon the business of Bio-Aqua or the benefit of which Bio-Aqua
requires or presently has in its business.
5. Representations of Atik. Atik hereby makes the following
representations and warranties to Bio-Aqua, each of which is true as of the date
hereof and will be true as of the Closing Date with the same effect as though
such representations and warranties had been made on the Closing Date:
(a) Atik is a corporation duly organized and existing under
and by virtue of the laws of the Country of Bahamas, and is in good standing
under the laws thereof.
3
<PAGE>
(b) The execution and delivery of this Agreement by Atik and
the performance by Atik of its covenants and undertakings hereunder have been
duly authorized by all requisite corporate action, and Atik has the corporate
power and authority to enter into this Agreement and to perform the covenants
and undertakings to be performed by it hereunder.
(c) Neither the execution nor the delivery of this Agreement,
nor the consummation of the transaction herein contemplated, nor compliance with
the terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation or the Bylaws of
Bio-Aqua as amended, or any agreement or instrument to which Atik is now a
party.
(d) Atik is acquiring Bio-Aqua's stock for its own account and
for investment and not with the view to the distribution or resale of any
thereof.
6. Investment Purpose. Atik represents that it is acquiring the shares
of Bio- Aqua Common Stock to be delivered at the closing solely for investment
and not for distribution or resale.
7. Notices. Any notice or communication necessary or desirable
hereunder shall be considered sufficient and delivery thereof shall be deemed
complete if delivered in person or mailed by registered mail on the part of
Bio-Aqua to:
Bio-Aqua Systems, Inc.
c/o Andean Development Corporation
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
and to Atik and Paulina and Andrea Rutman, as follows:
Atik, S.A.
General Ekdhal 159
Santiago, Chile
Attn: Pauline and Andrea Rutman
and to Tepual as follows:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
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or to such other address as either party may hereafter specify in writing as his
or its own address to the other party.
8. Entire Agreement. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection herewith.
9. Severability. Atik and Bio-Aqua hereby agree and affirm that none of
the above provisions is dependent on the validity of any other provision and
invalidity as to any provision or any part thereof shall not affect any other
provision.
10. Governing Law. This Agreement shall be governed by the laws of the
State of Florida. Venue shall be Broward County, Florida.
11. Counterpart. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
BIO-AQUA SYSTEMS, INC.
By: /s/ Max Rutman
-----------------------
Name: Max Rutman
-----------------------
Its: CEO
-----------------------
ATIK, S.A.
By: /s/ Paulina Rutman
-----------------------
Name: Paulina Rutman
-----------------------
Its:
-----------------------
By: /s/ Andrea Rutman
-----------------------
Name: Andrea Rutman
-----------------------
Its:
-----------------------
5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Atik Agreement") is entered into by
and among BIO-AQUA SYSTEMS, INC., a Florida corporation ("Bio-Aqua") and ATIK,
S.A., a Chilean corporation, which is controlled, directly or indirectly by
Paulina and Andrea Rutman, individuals currently residing in Santiago, Chile
(collectively "Atik") and which owns 952 shares of TEPUAL, S.A., a Chilean
corporation ("Tepual"), as of the 15th day of June, 1999, but which Atik
Agreement shall be effective as of the effective date of the Registration
Statement on Form SB-2 ("Registration Statement"), as filed by Bio-Aqua with the
Securities and Exchange Commission ("Effective Date"). (Bio-Aqua, Atik, and
Tepual sometimes individually referred to as "Party" and collectively as
"Parties").
RECITALS
A. Bio-Aqua is a corporation duly organized and existing under the laws
of the State of Florida and located in Palm Beach County, Florida, having been
incorporated March 18, 1999 and having authorized capital stock consisting of
thirty million (22,000,000) shares of Common Stock par value $.0001, of which
Twenty Million (20,000,000) shares are designated as Class A Voting Common Stock
and Two Million (2,000,000) shares are designated as Class B Voting Common Stock
("Class B Common Stock").
B. Bio-Aqua wishes to purchase 952 shares of Tepual (the "Tepual
Shares"), out of 9,525 issued shares.
C. The laws of the State of Florida and the Country of Chile permit
Bio-Aqua to purchase the 952 Tepual Shares for $354,587, subject to the terms
and conditions set forth in this Atik Agreement.
D. Contemporaneously with the execution of this Atik Agreement,
Bio-Aqua shall enter into a stock purchase agreement with Atik whereby as of the
Effective Date, Atik shall purchase 169,990 shares of Bio-Aqua Class B Common
Stock, par value $.0001 ("Class B Common Stock") for $354,587 ("Bio-Aqua
Agreement"), which Bio-Aqua Agreement shall be in substantially the same form as
this Atik Agreement, and which Bio-Aqua Agreement is attached hereto as Exhibit
A.
E. The Parties acknowledge and agree that the sole purpose for entering
into the Atik Agreement and the Bio-Aqua Agreement in this manner is to comply
with the rules and regulations governing foreign investments in Chile, as
promulgated by the Central Bank of Chile and but for these requirements, the
Parties would have entered into a share exchange agreement whereby Bio-Aqua
would have exchanged 169,990 shares of Class B Common Stock for 952 Tepual
Shares. It is the Parties' intention that the Atik
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Agreement and the Bio-Aqua Agreement be effective contemporaneously as of the
Effective Date.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants herein contained, as of the "Effective Date," as
hereinafter defined, it is agreed that Bio-Aqua shall purchase the 952 Shares
for $354,587, subject to the terms and conditions set forth and the mode of
carrying it into effect are and shall be as follows:
1. Recitals. The above recitals are true, correct and are herein
incorporated by reference.
2. Purchase of Shares.
(a) Atik hereby agrees to transfer to Bio-Aqua at the closing
referred to in Section 3 below the 952 Tepual Shares, for $354,587, and Atik
agrees to deliver to Bio- Aqua a certificate representing the 952 Tepual Shares.
All certificates to be delivered at the closing by the parties hereto shall be
in negotiable form, subject to any lock-up agreements and other restrictions
pursuant to Federal and state securities laws and contractual agreements with
certain persons and Bio-Aqua's representative of the underwriters, including but
not limited to, Rule 144 of the Securities Act of 1933, as amended or as
applicable.
(b) Notwithstanding anything else to the contrary contained
herein, contemporaneously with the closing contemplated herein, Bio-Aqua and
Atik shall enter into the Bio-Aqua Agreement.
3. Closing Date. The "Closing Date" shall be the effective date of
Bio-Aqua's registration statement on Form SB-2 filed with the Securities and
Exchange Commission.
4. Representations of Atik. Atik hereby represents and warrants that:
(a) Tepual is validly organized, existing and in good standing
under the laws of the Country of Chile. Upon information and belief, there are
no outstanding options, contracts, calls, commitments or demands of any
character relating to the authorized but unissued stock of Tepual.
(b) The Tepual Shares to be sold at the closing are validly
issued, fully paid and non-assessable.
(c) There has been no material adverse change in the condition
of Tepual since the date of the financial statements previously provided to
Bio-Aqua. To the best of
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Atik's knowledge, the only changes in the financial condition of Tepual since
said date are those arising from the normal and regular conduct of the business
of Tepual.
(d) Except as otherwise previously disclosed to Bio-Aqua by
Atik, to the best of Atik's knowledge, there is no litigation, governmental
proceeding or investigation threatened or in prospect against Tepual or relating
to any of the interest to be transferred hereunder which could materially affect
Bio-Aqua.
(e) Except as otherwise previously disclosed to Bio-Aqua by
Atik, to the best of Atik's knowledge, Tepual has no bonus, deferred
compensation, profit-sharing, pension or retirement arrangements, whether or not
legally binding, nor is it presently paying any pension, deferred compensation
or retirement allowance which has not otherwise been disclosed to Bio-Aqua.
(f) The statements made and information given to Bio-Aqua
concerning Tepual and the transactions covered by this Agreement are true and
accurate and no material fact has been withheld from Bio-Aqua.
(g) Atik has no knowledge of any developments or threatened
developments of a nature that would be materially adverse to the business of
Tepual.
(h) The Tepual Shares to be transferred by Atik to Bio-Aqua
hereunder are free and clear of all voting trusts, agreements, arrangements,
encumbrances, liens, claims, equities and liabilities of every nature and Atik
is conveying clear and unencumbered title thereto to Bio-Aqua.
(i) There are no agreements to which Tepual is a party nor
does Atik know of any other agreements that in any way materially restrict or
impinge upon the business of Tepual or the benefit of which Tepual requires or
presently has in its business.
5. Representations of Bio-Aqua. Bio-Aqua hereby makes the following
representations and warranties to Atik, each of which is true as of the date
hereof and will be true as of the Closing Date with the same effect as though
such representations and warranties had been made on the Closing Date:
(a) Bio-Aqua is a corporation duly organized and existing
under and by virtue of the laws of the State of Florida, and is in good standing
under the laws thereof.
(b) The execution and delivery of this Agreement by Bio-Aqua
and the performance by Bio-Aqua of its covenants and undertakings hereunder have
been duly authorized by all requisite corporate action, and Bio-Aqua has the
corporate power and authority to enter into this Agreement and to perform the
covenants and undertakings to be performed by it hereunder.
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<PAGE>
(c) Neither the execution nor the delivery of this Agreement,
nor the consummation of the transaction herein contemplated, nor compliance with
the terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation or the Bylaws of
Bio-Aqua as amended, or any agreement or instrument to which Bio-Aqua is now a
party.
(d) Bio-Aqua is acquiring Atik's stock for its own account and
for investment and not with the view to the distribution or resale of any
thereof.
6. Investment Purpose. Bio-Aqua represents that it is acquiring the
Tepual Shares to be delivered at the closing solely for investment and not for
distribution or resale.
7. Notices. Any notice or communication necessary or desirable
hereunder shall be considered sufficient and delivery thereof shall be deemed
complete if delivered in person or mailed by registered mail on the part of:
Bio-Aqua to:
Bio-Aqua Systems, Inc.
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
and to Atik and Paulina and Andrea Rutman, as follows:
Atik, S.A.
General Ekdhal 159
Santiago, Chile
Attn: Paulina and Andrea Rutman
and to Tepual as follows:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
Attn: Max Rutman
or to such other address as either party may hereafter specify in writing as his
or its own address to the other party.
8. Entire Agreement. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection herewith.
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<PAGE>
9. Severability. Atik and Bio-Aqua hereby agree and affirm that none of
the above provisions is dependent on the validity of any other provision and
invalidity as to any provision or any part thereof shall not affect any other
provision.
10. Governing Law. This Agreement shall be governed by the laws of the
State of Florida. Venue shall be Broward County, Florida.
11. Counterpart. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
BIO-AQUA SYSTEMS, INC.
By: /s/ Max Rutman
----------------------
Name: Max Rutman
----------------------
Its: CEO
----------------------
ATIK, S.A.
By: /s/ Paulina Rutman
----------------------
Name: Paulina Rutman
----------------------
Its:
----------------------
By: /s/ Andrea Rutman
----------------------
Name: Andrea Rutman
----------------------
Its:
----------------------
5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is entered into by and among PROFEED, INC., a Bahamian
corporation ("Seller") and BIO-AQUA SYSTEMS, INC., a Florida corporation
("Buyer"), as of the 15th day of June, but shall be effective as of the
effective date of the Registration Statement on Form SB-2 ("Registration
Statement") as filed by Bio-Aqua with the Securities and Exchange Commission
("Effective Date").
W I T N E S S E S T H:
WHEREAS, Seller desires to sell and Buyer desires to purchase certain
assets of the of Seller used in the conduct of its business.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
SECTION 1. SALE AND PURCHASE OF ASSETS.
1.1 Transfer of Assets. Upon the terms and subject to the conditions of
this Agreement, Buyer, will, as of Effective Date, acquire from Seller the
following assets (collectively, the "Assets"):
(a) all the rights, title and interest to the brands,
trademarks and marks "Inual (TM);"
(b) all the rights, title and interest to the brands,
trademarks and marks "Tepual (TM);"
(c) all future rights, title and interest to the brands,
trademarks and marks "Inual (TM)" and "Tepual (TM)."
SECTION 2. ASSUMPTION OF LIABILITIES. From and after the Effective Date, Buyer
shall not assume nor be liable for any liabilities of Seller, whether contingent
or otherwise, and whether or not such liabilities are reflected on the books or
records of Seller on the date hereof or on the Effective Date.
SECTION 3. PURCHASE PRICE. The purchase price to be paid by Buyer for all of the
Assets (the "Purchase Price") will be an aggregate of One Million Three Hundred
Thousand Dollars ($1,300,000) of which $400,000 shall be payable from the
proceeds of Bio-Aqua's Initial Public Offering ("IPO"). The balance shall be
paid out of the "over-allotment," as defined in the Registration Statement, or
from 5% of the gross proceeds of the sale of products sold under the Tepual and
Inual brands, payable quarterly over a 3 year term, or as otherwise mutually
agreed upon.
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SECTION 4. CLOSING DATE. The "Closing Date" shall be the effective date of Bio-
Aqua's registration statement on Form SB-2 filed with the Securities and
Exchange Commission.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller makes the
representations and warranties to Buyer set forth below.
5.1 Due Incorporation. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the Bahamas.
5.2 Corporate Power of Seller. Seller 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.
5.3 Due Authority. Seller 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 Seller. This Agreement is a valid and binding agreement of
Seller, enforceable against Seller in accordance with its terms. Neither the
execution and delivery of this Agreement by Seller 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 Seller is a
party or by which Seller is bound, or any order, rule or regulation of any court
or governmental agency having jurisdiction over Seller.
5.4 Brands, Trademarks and Marks.
(a) Exhibit "A" contains a complete and accurate list and
summary description of all Brands, Trademarks and Marks. Seller is the owner of
all right, title, and interest in and to each of the Brands, Trademarks and
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(b) All 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.
(c) 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.
(d) To Seller's knowledge, there is no potentially interfering
trademark or trademark application of any third party.
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(e) 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.
(f) All products and materials containing Brands, Trademarks
and Marks bear the proper registration notice where permitted by law.
5.5 No Consents. No governmental filings, authorizations, approvals or
consents are required to permit Seller to fulfill all of its obligations under
this Agreement.
5.6 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 Seller;
(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 Seller 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 Seller,
or upon the properties or business of Seller; or (iv) violate any statute, law
or regulation of any jurisdiction applicable to Seller.
5.7 Compliance with Laws. Seller has complied in all material respects
with all laws, ordinances, regulations, inspections, orders, judgments,
injunctions, awards or decrees applicable to Seller's business.
5.8 Actions and Proceedings. There is no outstanding order, judgment,
injunction, award or decree of any court, governmental or regulatory body or
arbitration tribunal against or involving the Seller in respect of, or in
connection with, its business; (ii) there is no action, suit, claim or legal,
administrative or arbitration proceeding or, to the best knowledge of Seller
after due inquiry, any investigation (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) pending or, to the best
knowledge of Seller.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Seller as follows:
6.1 Due Incorporation. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida.
6.2 Corporate Power of Buyer. Buyer 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.
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<PAGE>
6.3 Due Authority. Buyer 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 Buyer, including shareholder approval, if required. This
Agreement is a valid and binding agreement of Buyer, enforceable against Buyer
in accordance with its terms. Neither the execution and delivery of this
Agreement by Buyer 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 Buyer is a party or by which Buyer is
bound, or any order, rule or regulation of any court or governmental agency
having jurisdiction over Buyer.
6.4 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 Buyer;
(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 Buyer 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 Buyer, or
upon the properties or business of Buyer; or (iv) violate any statute, law or
regulation of any jurisdiction applicable to Buyer.
SECTION 7. CLOSING ITEMS.
7.1 Buyer's Deliveries. At Effective Date, Buyer shall deliver to
Seller the following monies and documents:
(a) a certified copy of a resolution of Buyer's Board of
Directors authorizing the execution and delivery of this Agreement and the
purchase of the Assets.
(b) other purchase documents: all such documents and
instruments as Seller and its counsel may reasonably request in connection with
the consummation of the transaction contemplated by this Agreement.
7.2 Seller's Deliveries. At Effective Date, Seller shall deliver to
Buyer the following rights and documents for the following:
(a) all the rights to the brands, trademarks and patents
"Inual (TM);"
(b) all the rights to the brands, trademarks and patents
"Tepual (TM);"
(c) assignment and assumption of all future rights to the
brands, trademarks and patents "Inual (TM)" and "Tepual (TM);"
(d) agreements and assignments of trade names and trademarks;
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(e) bill of sale; and
(f) assignment and assumption agreement.
SECTION 8. INDEMNIFICATION
8.1 Indemnification by Seller. Seller shall indemnify, defend, and hold
Buyer and its representatives, successor, and assigns, harmless from and against
any and all damage, loss, judgments, or liability and all expenses (including
reasonable attorneys' fees) incurred by any of the above-named persons,
resulting from or in connection with:
(a) the Assets prior to the Effective Date, or
(b) any material breach by Seller or any representation or
covenant made by Seller in, or any obligation of Seller under this Agreement.
8.2 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
Seller and its representatives, successor, and assigns, harmless from and
against any and all damage, loss, judgments, or liability and all expenses
(including reasonable attorneys' fees) incurred by any of the above-named
persons, resulting from or in connection with:
(a) the Assets or the business prior to the Effective Date, or
(b) any material breach by Buyer or any representation or
covenant made by Buyer in, or any obligation of Buyer under this Agreement.
SECTION 9. FURTHER ASSURANCES. The parties shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby.
SECTION 10. MISCELLANEOUS.
10.1 Notices. Any notice or other communication required or which may
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered, or express mail, postage prepaid, and shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or
if mailed, four (4) days after the date of mailing, as follows:
If to Buyer: BIO-AQUA SYSTEMS, INC.
1900 Glades Road, Suite 351
Boca Raton, FL 33431
Telephone: (561) 416-8930
If to Seller, to: PROFEED, INC.
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General Ekdhal 159
Santiago, Chile
Telephone: 011 (562) 777-0262
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notice hereunder.
10.2 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and any collateral agreements executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the subject matter hereof and
related transactions, and supersede all prior agreements, written or oral, with
respect thereto.
10.3 Waivers and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance.
10.4 Remedies Not Exclusive. The rights and remedies herein provided
are cumulative and are not exclusive of any rights or remedies which any party
may otherwise have at law or in equity. The rights and remedies of any party
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which the claim of any inaccuracy or
breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
10.5. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to agreements made
and to be performed entirely within such State and jurisdiction shall be in
Broward County, Florida.
10.6 Exhibits and Schedules. The Exhibits and Schedules to this
Agreement are a part of this Agreement as if set forth in full herein.
10.7 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.8 Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance shall, to any extent, be
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term
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and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed, shall constitute an original copy
hereof, but all of which together shall constitute but one and the same
document.
As of the date written above, Assignee hereby accepts the foregoing
assignments and assumes all the obligations and liabilities of the Assignor as
to those leases subject to the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
BIO-AQUA SYSTEMS, INC.
By: /s/ David Mayer
------------------------
Name: David Mayer
------------------------
Title: Director
------------------------
PROFEED, INC.
By: /s/ Max Rutman
------------------------
Name: Max Rutman
------------------------
Title: CEO
------------------------
7
ARTICLES OF INCORPORATION
OF
BIO-AQUA SYSTEMS, INC.
The undersigned, being a natural person competent to contract, does
hereby make, subscribe and file these Articles of Incorporation for the purpose
of organizating a corporation under the laws of the State of Florida.
ARTICLE I.
CORPORATE NAME
The name of this Corporation shall be: BIO-AQUA SYSTEMS, INC.
ARTICLE II.
PRINCIPAL OFFICE AND MAILING ADDRESS
The principal office and mailing address of the Corporation is c/o
Andean Development Corporation, One Lincoln Place, 1900 Glades Road, Suite 351,
Boca Raton, Florida 33431.
ARTICLE III.
NATURE OF CORPORATE BUSINESS AND POWERS
The general nature of the business to be transacted by this Corporation
shall be to engage in any and all lawful business permitted under the laws of
the United States and the State of Florida.
ARTICLE IV.
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.
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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.
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
ten (10) 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.
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ARTICLE V.
TERM OF EXISTENCE
This Corporation shall have perpetual existence.
ARTICLE VI.
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
The Registered Agent and the street address of the initial Registered
Office of this Corporation in the State of Florida shall be:
David Mayer
c/o Andean Development Corporation.
One Lincoln Place
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
ARTICLE VII.
BOARD OF DIRECTORS
This Corporation shall have two (2) Directors initially.
ARTICLE VIII.
INITIAL DIRECTORS
The names and addresses of the initial Directors of this corporation
are:
Max Rutman
One Lincoln Place
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
David Mayer
One Lincoln Place
1900 Glades Road, Suite 351
Boca Raton, Florida 33431
3
<PAGE>
ARTICLE IX.
INCORPORATOR
The name and address of the person signing these Articles of
Incorporation as the Incorporator is David Mayer, c/o Andean Development
Corporation, One Lincoln Place, 1900 Glades Road, Suite 351, Boca Raton, Florida
33431.
ARTICLE X.
INDEMNIFICATION
This Corporation may indemnify any director, officer, employee or agent
of the Corporation to the fullest extent permitted by Florida law.
ARTICLE XI.
AFFILIATED TRANSACTIONS
This Corporation expressly elects not to be governed by Section
607.0901 of the Florida Business Corporation Act, as amended from time to time,
relating to affiliated transactions.
ARTICLE XII.
CONTROL SHARE ACQUISITIONS
This Corporation expressly elects to be governed by Section 607.0902 of
the Florida Business Corporation Act, as amended from time to time, relating to
control share acquisitions.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on this ___ day of March 1999.
___________________________________
David Mayer, Incorporator
4
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND OFFICE FOR SERVICE OF PROCESS
BIO-AQUA SYSTEMS, INC., a corporation existing under the laws of the
State of Florida, with its principal office and mailing address at c/o Andean
Development Corporation, One Lincoln Place, 1900 Glades Road, Suite 351, Boca
Raton, Florida 33431, has named David Mayer, whose address is c/o Andean
Development Corporation, One Lincoln Place, 1900 Glades Road, Suite 351, Boca
Raton, Florida 33431, as its agent to accept service of process within the State
of Florida.
ACCEPTANCE:
Having been named to accept service of process for the above-named
Corporation, at the place designated in this Certificate, I hereby accept the
appointment as Registered Agent, and agree to comply with all applicable
provisions of law. In addition, I hereby am familiar with and accept the duties
and responsibilities as Registered Agent for said Corporation.
____________________
David Mayer
5
BYLAWS
OF
BIO-AQUA SYSTEMS, INC.
a Florida corporation
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
PAGE
----
<S> <C>
ARTICLE I
---------
Offices
-------
Section 1.01 Principal Office......................... 1
----------------
Section 1.02 Registered Office........................ 1
-----------------
Section 1.03 Other Offices............................ 1
-------------
ARTICLE II
----------
Meetings of Shareholders
------------------------
Section 2.01 Annual Meeting........................... 1
--------------
Section 2.02 Special Meeting.......................... 2
---------------
Section 2.03 Shareholders' List for Meeting........... 2
------------------------------
Section 2.04 Record Date.............................. 3
-----------
Section 2.05 Notice of Meetings and Adjournment....... 3
----------------------------------
Section 2.06 Waiver of Notice......................... 4
----------------
ARTICLE III
-----------
Shareholder Voting
------------------
Section 3.01 Voting Group Defined..................... 5
--------------------
Section 3.02 Quorum and Voting Requirements for
----------------------------------
Voting Groups............................ 5
-------------
Section 3.03 Action by Single and Multiple Voting
------------------------------------
Groups................................... 5
------
Section 3.04 Shareholder Quorum and Voting; Greater
--------------------------------------
or Lesser Voting Requirements............ 6
-----------------------------
Section 3.05 Voting for Directors; No
Cumulative Voting........................ 6
-----------------
<PAGE>
Section 3.06 Voting Entitlement of Shares............. 7
----------------------------
Section 3.07 Proxies.................................. 8
-------
Section 3.08 Shares Held by Nominees.................. 9
-----------------------
Section 3.09 Corporation's Acceptance of Votes........ 10
---------------------------------
Section 3.10 Action by Shareholders Without Meeting... 11
--------------------------------------
Section 3.11 Frequency of Solicitations for Action
-------------------------------------
by Shareholders Without a Meeting........ 14
---------------------------------
ARTICLE IV
----------
Board of Directors and Officers
-------------------------------
Section 4.01 Qualifications of Directors.............. 15
---------------------------
Section 4.02 Number of Directors...................... 15
-------------------
Section 4.03 Terms of Directors Generally............. 15
----------------------------
Section 4.04 Staggered Terms for Directors............ 16
-----------------------------
Section 4.05 Vacancy on Board......................... 16
----------------
Section 4.06 Compensation of Directors................ 16
-------------------------
Section 4.07 Meetings................................. 16
--------
Section 4.08 Action by Directors Without a Meeting.... 17
-------------------------------------
Section 4.09 Notice of Meetings....................... 17
------------------
Section 4.10 Waiver of Notice......................... 17
----------------
Section 4.11 Quorum and Voting........................ 18
-----------------
Section 4.12 Powers of the Directors.................. 18
-----------------------
Section 4.13 Committees............................... 18
----------
Section 4.14 Loans to Officers, Directors and
--------------------------------
Employees; Guaranty of Obligations....... 19
----------------------------------
Section 4.15 Required Officers........................ 20
-----------------
Section 4.16 Duties of Officers....................... 20
------------------
<PAGE>
Section 4.17 Resignation and Removal of Officers...... 20
-----------------------------------
Section 4.18 Contract Rights of Officers.............. 20
---------------------------
Section 4.19 General Standards for Directors.......... 20
-------------------------------
Section 4.20 Director Conflicts of Interest........... 21
------------------------------
Section 4.21 Resignation of Directors................. 22
------------------------
ARTICLE V
---------
Indemnification of Directors, Officers,
---------------------------------------
Employees and Agents
--------------------
Section 5.01 Directors, Officers, Employees
and Agents............................... 23
----------
ARTICLE VI
----------
Office and Agent
----------------
Section 6.01 Registered Office and Registered
Agent.................................... 28
-----
Section 6.02 Change of Registered Office or Registered
-----------------------------------------
Agent; Resignation of Registered Agent... 28
--------------------------------------
ARTICLE VII
-----------
Shares, Options, Dividends and Distributions
--------------------------------------------
Section 7.01 Authorized Shares........................ 29
-----------------
Section 7.02 Terms of Class or Series Determined
-----------------------------------
by Board of Directors.................... 30
---------------------
Section 7.03 Issued and Outstanding Shares............ 30
-----------------------------
Section 7.04 Issuance of Shares....................... 31
------------------
Section 7.05 Form and Content of Certificates......... 31
--------------------------------
Section 7.06 Shares Without Certificates.............. 32
---------------------------
Section 7.07 Restriction on Transfer of Shares
---------------------------------
and Other Securities..................... 33
--------------------
<PAGE>
Section 7.08 Shareholder's Pre-emptive Rights......... 33
--------------------------------
Section 7.09 Corporation's Acquisition of its
Own Shares............................... 33
----------
Section 7.10 Share Options............................ 33
-------------
Section 7.11 Terms and Conditions of Stock Rights
------------------------------------
and Options.............................. 34
-----------
Section 7.12 Share Dividends.......................... 34
---------------
Section 7.13 Distribution to Shareholders............. 35
----------------------------
ARTICLE VIII
------------
Amendment of Articles and Bylaws
--------------------------------
Section 8.01 Authority to Amend the Articles of
----------------------------------
Incorporation............................ 36
-------------
Section 8.02 Amendment by Board of Directors.......... 37
-------------------------------
Section 8.03 Amendment of Bylaws by Board of
-------------------------------
Directors................................ 37
---------
Section 8.04 Bylaw Increasing Quorum or Voting
---------------------------------
Requirements for Directors............... 37
--------------------------
ARTICLE IX
----------
Records and Report
------------------
Section 9.01 Corporate Records........................ 38
-----------------
Section 9.02 Financial Statements for Shareholders.... 39
-------------------------------------
Section 9.03 Other Reports to Shareholders............ 40
-----------------------------
Section 9.04 Annual Report for Department of State.... 40
-------------------------------------
ARTICLE X
---------
Miscellaneous
-------------
Section 10.01 Definition of the "Act".................. 41
-----------------------
Section 10.02 Application of Florida Law............... 41
--------------------------
<PAGE>
Section 10.03 Fiscal Year.............................. 41
-----------
Section 10.04 Conflicts with Articles of
Incorporation............................ 41
-------------
Section 10.05 Partial Invalidity....................... 41
------------------
</TABLE>
<PAGE>
ARTICLE I
Offices
-------
Section 1.01. Principal Office.
---------------
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
Section 1.02. Registered Office.
-----------------
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
Section 1.03. Other Offices.
-------------
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Annual Meeting.
--------------
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting , annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
1
<PAGE>
Section 2.02. Special Meeting.
---------------
(1) The corporation shall hold a special meeting of shareholders:
(a) On call of a majority of its board of directors or the
person or persons authorized to do so by the board of directors; or
(b) By the Chief Executive Officer of the Corporation;
(c) If the holders of not less than 10% of all votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
Section 2.03. Shareholders' List for Meeting.
------------------------------
(1) After fixing a record date for a meeting, a corporation
entitled to notice of a shareholders' meeting, in accordance with the Florida
Business Corporation Act (the "Act"), or arranged by voting group, with the
address of, and the number and class and series, if any, of shares held by,
each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
2
<PAGE>
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
Section 2.04. Record Date.
-----------
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice of such annual or special shareholders' meeting is delivered to
shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than 120 days after the date fixed for the original
meeting.
Section 2.05. Notice of Meetings and Adjournment.
----------------------------------
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no
3
<PAGE>
fewer than 10 or more than 60 days before the meeting date. Unless the Act
requires otherwise, the corporation is required to give notice only to
shareholders entitled to vote at the meeting. Notice shall be given in the
manner provided in Section 607.0141 of the Act, by or at the direction of the
president, the secretary, of the officer or persons calling the meeting. If the
notice is mailed at least 30 days before the date of the meeting, it may be done
by a class of United States mail other than first class. Notwithstanding Section
607.0141, if mailed, such notice shall be deemed to be delivered when deposited
in the United Statement mail addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if: (a) an annual report and proxy statements for two consecutive
annual meetings of shareholders, or (b) all, and at least two checks in payment
of dividends or interest on securities during a 12-month period, have been sent
by first-class United States mail, addressed to the shareholder at his address
as it appears on the share transfer books of the corporation, and returned
undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
Section 2.06. Waiver of Notice.
----------------
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the
4
<PAGE>
corporate records. Neither the business to be transacted at nor the purpose of
any regular or special meeting of the shareholders need be specified in any
written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or (b) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented.
ARTICLE III
Shareholder Voting
------------------
Section 3.01. Voting Group Defined.
--------------------
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
Section 3.02. Quorum and Voting Requirements for Voting Groups.
------------------------------------------------
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
Section 3.03. Action by Single and Multiple Voting Groups.
-------------------------------------------
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter
5
<PAGE>
is taken when voted upon by that voting group as provided in Section 3.02 of
these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
Section 3.04. Shareholder Quorum and Voting; Greater or Lesser Voting
-------------------------------------------------------
Requirements.
- ------------
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders. When a
specified item of business is required to be voted on by a class or series of
stock, a majority of the shares of such class or series shall constitute a
quorum for the transaction of such item of business by that class or series.
(2) An amendment to the articles of incorporation that changes the
quorum to a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote required to take action under
the quorum and voting requirements then in effect or proposed to be adopted,
whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders~ meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
Section 3.05. Voting for Directors; No Cumulative Voting.
------------------------------------------
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not have a right to cumulate their votes for
directors.
6
<PAGE>
Section 3.06. Voting Entitlement of Shares.
----------------------------
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Only shares are
entitled to vote.
(2) The shares of a corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary
7
<PAGE>
relationship respecting the same shares, unless the secretary of the corporation
is given notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
then acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act
binds all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
Section 3.07. Proxies.
--------
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
8
<PAGE>
(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
Section 3.08. Shares Held by Nominees.
-----------------------
(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
9
<PAGE>
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the manner in which the procedure is selected by the
nominee; (d) the information that must be provided when the procedure is
selected; (e) the period for which selection of the procedure is effective; and
(f) other aspects of the rights and duties created.
Section 3.09. Corporation's Acceptance of Votes.
---------------------------------
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable
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in damages to the shareholder for the consequences of the acceptance or
rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
Section 3.10. Action by Shareholders Without Meeting.
--------------------------------------
(1) Action by Written Consent. Any action which is required to be or
may be taken at any annual or special meeting of the shareholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if written consents which set forth the specific corporate action (the
"Corporate Action") to be taken have been signed by the holders of outstanding
shares of common stock which possess not less than the minimum number of votes
necessary to authorize or take such Corporate Action at an annual or special
meeting of shareholders at which all outstanding shares of common stock are
represented and the other requirements contained herein and in the corporation's
articles of incorporation and Florida law are complied with.
(2) Determination of Record Date for Action by Written Consent. In
order to inform the corporation's shareholders and the investing public in
advance that a record date for action by written consent will occur and in order
that the corporation may determine the shareholders entitled to consent to
Corporate Action in writing without a meeting, the Board of Directors may fix a
record date for such action, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 10 business days after
the date upon which the resolution fixing such record date is adopted by the
Board of Directors. Any Soliciting Party (as defined herein) who seeks to have
the shareholders authorize or take a Corporate Action by written consent must
advise the corporation by written notice (the "Solicitation Notice") delivered
to the Secretary of the corporation (the "Secretary"), which must be delivered
by certified mail, overnight courier or hand delivery, of the proposed Corporate
Action for which written consents will be sought and request that the Board of
Directors fix a record date. The record date for determining shareholders
entitled to consent to the Corporate Action in writing shall be fixed by the
Board of Directors by resolution within 10 business days after the date of
delivery of the Solicitation Notice. If the Board of Directors does not fix a
record date within the 10 business day-period after the date of delivery of the
Solicitation Notice, and no prior action by the Board of Directors is required
by Florida law, the corporation's articles of incorporation or these bylaws, the
record date shall be the first date on which a valid signed consent setting
forth the
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Corporate Action is delivered to the corporation in accordance with Florida law,
the corporation's articles of incorporation and these bylaws. If the Board of
Directors does not fix a record date within the 10 business day-period after the
date of delivery of the Solicitation Notice and prior action by the Board of
Directors is required by Florida law, the corporation's articles of
incorporation or these bylaws, the record date shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(3) Duration and Revocation of Consents. Consents to a Corporate Action
shall only be valid during the period ending 60 days after the date the first
valid signed consent regarding the proposed Corporate Action is delivered to the
corporation in accordance with Florida law, the corporation's articles of
incorporation and these bylaws. Consents may be revoked by written notice to (i)
the Secretary or (ii) any other officer or agent of the corporation having
custody of the book in which proceedings of meetings of shareholders are
recorded.
(4) Retention and Duties of Inspector. Within 15 business days after
receipt of a Solicitation Notice, the Secretary shall engage a
nationally-recognized independent inspector of elections (the "Inspector") to
perform a review of any consents and revocations related to such Solicitation
Notice. The Inspector shall review all such consents and revocations, determine
whether the requisite number of valid and unrevoked consents has been obtained
to authorize or take the Corporate Action specified in the consents, and certify
such determination for entry in the records of the corporation. All costs of
retaining the Inspector shall be borne by the party which is soliciting
consents. For the purpose of permitting the Inspector to perform such review, no
action by written consent without a meeting shall be effective until such date
as the Inspector certifies to the corporation that the consents delivered to the
corporation in accordance with this Section 3.10 represent at least the minimum
number of votes that would be necessary to take the Corporate Action by written
consent.
(5) Procedures for Counting and Challenging Consents. All consents and
revocations shall be delivered to the Inspector upon receipt by the corporation
or its other designated agents. When such consents and revocations are received,
the Inspector shall review the consents and revocations and shall maintain a
count of the number of valid and unrevoked consents. As soon as practicable
after the end of the 60-day period provided for in paragraph (c), the Inspector
shall issue a preliminary report to the corporation and the Soliciting Party
stating:
(a) The number of valid and unrevoked consents;
(b) The number of valid revocations;
(c) The number of invalid consents;
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(d) The number of invalid revocations; and
(e) Based on a preliminary count, whether the requisite
number of valid and unrevoked consents has been
obtained to authorize or take the Corporate Action
specified in the consents.
Unless the corporation and the Soliciting Party shall agree to a
shorter or longer period, the corporation and the Soliciting Party shall each
have 48 hours to review the consents and revocations and to advise the Inspector
and the other party in writing whether they will challenge any of the
determinations set forth in the Inspector's preliminary report. Any such written
notice must describe with specificity the particular determinations set forth in
the preliminary report that are being challenged. Both the corporation and the
Soliciting Party may challenge any aspect of any of the consents or revocations.
If no written notice of a challenge to the preliminary report is received by the
Inspector within 48 hours after the issuance of the preliminary report, the
preliminary report of the Inspector shall become its final report.
If the corporation or the Soliciting Party or both deliver timely
written notice of a challenge to the preliminary report, the Inspector shall
hold a meeting as promptly as possible to allow the challenging party or parties
to present its or their challenges to any consents and/or revocations. The
Inspector shall adopt such reasonable procedures to be used at such meeting as
it deems necessary in its sole discretion. Representatives and counsel of the
corporation and the Soliciting Party may be present at such meeting. In such
meeting each challenging party (if there are two) and its counsel will be given
an opportunity to present documentation to support its position. The other party
will be given an opportunity to respond to a challenging party's presentation if
it so desires. A transcript of the meeting shall be recorded by a certified
court reporter and will be available for inspection by all parties. Following
completion of this meeting and a review of its results, the Inspector shall as
promptly as possible issue its final report to the corporation and the
Soliciting Party containing its final determinations plus any changes in the
preliminary totals as a result of any challenges and a certification of whether
the requisite number of valid and unrevoked consents was obtained to authorize
or take the Corporate Action specified in the consents. Nothing contained in
this paragraph shall in any way be construed to suggest or imply that the
corporation or any shareholder shall not be entitled to contest the validity of
any consent or revocation thereof or to take any other action (including,
without limitation, the commencement, prosecution or defense of any litigation
with respect thereto).
For purposes of determining the identity of the party which is
soliciting written consents, and to ensure that the limitations contained in
this Section are complied with, "Soliciting Party" shall include (x) any person
who directly or indirectly is the
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beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of shares of
common stock of the corporation and who delivers a Solicitation Notice to the
corporation or on whose behalf a Solicitation Notice is delivered to the
corporation by the record holder of such shares, (y) any corporation,
partnership or other business entity which such person and/or his affiliates
control (as both terms are defined in Rule 12b-2 promulgated under the Exchange
Act), and (z) any group (within the meaning of Section 13(d)(3) of the Exchange
Act) of which such person is a member.
(6) Notice of Result. Notice of any Corporate Action taken without a
meeting shall be given to those shareholders who have not consented in writing
to such Corporate Action or who were not entitled to vote on the Corporate
Action within five business days after the date on which such Corporate Action
becomes effective.
(7) Amendment, Repeal, Alteration or Modification. This Section 3.10 of
the corporation's bylaws shall not be amended, repealed, altered or modified
until three years after its effective date, except by a vote or consent of
shareholders representing a majority of the then-issued and outstanding shares
entitled to vote thereon; provided, however, that this Section 3.10 of the
corporation's bylaws may be amended, repealed, altered or modified by the Board
of Directors when and to the extent that, in the written opinion of counsel, a
statutory amendment or judicial decision represents a material change in Florida
law relative to the subject matter hereof and the amendment, repeal, alteration
or modification is meant solely to conform with such change of law.
Section 3.11. Frequency of Solicitations for Action by Shareholders
-----------------------------------------------------
Without a Meeting.
- -----------------
Notwithstanding any other provision of these bylaws or Florida law, a
Soliciting Party may only solicit (as such term is defined for purposes of
Section 14(a) of the Exchange Act and the regulations thereunder) written
consents from shareholders for any Corporate Action one time during each fiscal
year of the corporation. The corporation shall not (a) provide a shareholder
list or any other shareholder information to a Soliciting Party, (b) set a
record date pursuant to a Solicitation Notice (and no record date shall be set
in accordance with the next to last sentence of Section 3.10(2) of these
bylaws), or (c) have any obligation to mail any materials for or on behalf of
such Soliciting Party for any consent solicitation made by such Soliciting Party
which has already solicited written consents regarding the same or substantially
similar Corporate Action(s) (as determined by the Board of Directors in its
reasonable discretion) within the corporation's then-current fiscal year;
provided, however, that a Soliciting Party may solicit written consents twice in
such fiscal year if the corporation has not conducted an annual
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meeting of shareholders within 16 months prior to the date that the Soliciting
Party delivers its Solicitation Notice for the second consent solicitation. For
purposes of this Section 3.11, all parties contained in the definition of
"Soliciting Party" in Section 3.10(5) of these bylaws shall be considered to be
the same Soliciting Party for purposes of determining whether a consent
solicitation can be made during the fiscal year.
ARTICLE IV
Board of Directors and Officers
-------------------------------
Section 4.01. Qualifications of Directors.
---------------------------
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
Section 4.02. Number of Directors.
-------------------
(1) The board of directors shall consist of not less than one nor more
than 15 individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws by a majority of the directors or by a vote of
67% of the shares entitled to vote. If the terms of the directors are staggered
under Section 4.04 of these bylaws, any increase or decrease in the number of
directors shall be allocated proportionately among the classes. Any decrease in
the number of directors shall not prematurely shorten the term of any incumbent
director.
(3) Directors are elected at the first annual shareholders~ meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
Section 4.03. Terms of Directors Generally.
----------------------------
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
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(5) Despite the expiration of a director's term, the director shall
continue to serve until that director's successor is elected and qualified or
until there is a decrease in the number of directors.
Section 4.04. Staggered Terms for Directors.
------------------------------
The directors of the corporation may, by the articles of incorporation,
or by amendment to these bylaws adopted by a vote of the directors, be divided
into one, two or three classes with the number of directors in each class being
as nearly equal as possible; the term of office of those of the first class to
expire at the annual meeting next ensuing; of the second class one year
thereafter; at the third class two years thereafter; and at each annual election
held after such classification and election, directors shall be chosen for a
full term, as the case may be, to succeed those whose terms expire. If the
directors have staggered terms, then any increase or decrease in the number of
directors shall be so apportioned among the classes as to make all classes as
nearly equal in number as possible.
Section 4.05. Vacancy on Board.
----------------
(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
(3) A director chosen as a result of this Section 4.06 or Section 4.02
shall hold such office until the next election of the class for which such
director has been chosen and until their successors shall be elected and
qualified.
Section 4.06. Compensation of Directors.
-------------------------
The board of directors may fix the compensation of directors.
Section 4.07. Meetings.
--------
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting
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are announced at the time of the adjournment, to the other directors.
(3) Meetings of the board of directors may be called by the
chairman of the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
Section 4.08. Action by Directors Without a Meeting.
-------------------------------------
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
Section 4.09. Notice of Meetings.
------------------
Regular and special meetings of the board of directors may be held
without notice of the date, time, place, or purpose of the meeting.
Section 4.10. Waiver of Notice.
----------------
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
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Section 4.11. Quorum and Voting.
-----------------
(1) A quorum of a board of directors consists of a majority of the
number of directors prescribed by the articles of incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of the corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or
promptly upon his arrival) to holding it or transacting specified
business at the meeting; or
(b) He votes against or abstains from the action taken.
Section 4.12. Powers of the Directors. In furtherance, and not in limitation of
the powers conferred to the Directors by statute, the Board of directors is
expressly authorized as follows:
(1) To make and alter the Bylaws of this corporation.
(2) To authorize and to cause to be executed mortgages and liens upon
the real and personal property of the corporation.
(3) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose, or to abolish any
such reserve in the manner in which it was created.
(4) From time to time to determine whether and to what extent, at what
time and place, and under what conditions and regulations the accounts and books
of this corporation, or any of them, shall be open to inspection of any
stockholder; and no stockholder shall have any right to inspect any account,
book, or document of this corporation except as conferred by statute or by the
bylaws or as authorized by a resolution of the stockholders or board of
directors.
Section 4.13. Committees.
----------
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution and by these bylaws, shall have and may exercise all the
authority of the board of directors, except that no such committee shall have
the authority to:
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(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the board of
directors may authorize a committee (or a senior executive officer of the
corporation) to do so within limits specifically prescribed by the board of
directors.
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
Section 4.14. Loans to Officers, Directors, and Employees; Guaranty
-----------------------------------------------------
of Obligations.
- --------------
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of directors, such loan,
guaranty, or assistance may reasonably be expected to benefit the corporation.
The loan, guaranty, or other assistance may be with or without interest and may
be unsecured or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section shall
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be deemed to deny, limit, or restrict the powers of guaranty or warranty of any
corporation at common law or under any statute. Loans, guaranties, or other
types of assistance are subject to section 4.20.
Section 4.15. Required Officers.
-----------------
(1) The corporation shall have such officers as the board of
directors may appoint from time
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
(4) The same individual may simultaneously hold more than one office in
the corporation.
Section 4.16. Duties of Officers.
------------------
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
Section 4.17. Resignation and Removal of Officers.
-----------------------------------
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
Section 4.18. Contract Rights of Officers.
---------------------------
The appointment of an officer does not itself create contract rights.
Section 4.19. General Standards for Directors.
-------------------------------
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(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best
interests of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee
(3) In discharging his duties, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
Section 4.20. Director Conflicts of Interest.
------------------------------
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves or ratifies such
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contract or transaction, or because his or their votes are counted for such
purpose, if:
(1) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves or ratifies the
contract or transactions by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors;
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
Section 4.21. Resignation of Directors.
------------------------
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
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ARTICLE V
Indemnification of Directors, Officers,
---------------------------------------
Employees and Agents
--------------------
Section 5.01. Directors, Officers, Employees and Agents.
------------------------------------------
(1) The corporation shall indemnify any director or executive officer
who was or is a party to any proceeding (other than an action by, or in the
right of, the corporation), by reason of the fact that he is or was a director
or executive officer of the corporation against liability incurred in connection
with such proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the director or executive officer did not act in good faith and
in a manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was an employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against liability incurred in connection
with such proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(3) The corporation shall indemnify any person, who was or is a party
to any proceeding by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or executive
officer of the corporation, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense of
litigating the proceeding to conclusion, actually and reasonably
23
<PAGE>
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if such
director or executive officer acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such director or executive officer shall
have been adjudged to be liable unless, and only to the extent that, the court
in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such director or
executive officer is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(4) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was an employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(5) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
(6) Any indemnification under subsections (1), (2), (3) and (4) unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has
24
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met the applicable standard of conduct set forth in subsections (1) or (2), (3)
and (4). Such determination shall be made:
(a) By the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such
proceeding;
(b) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
(1) Selected by the board of directors prescribed
in paragraph (a) or the committee prescribed in paragraph (b); or
(2) If a quorum of the directors cannot be obtained
for paragraph (a) and the committee cannot be designed under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(7) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (6)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(8) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(9) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
25
<PAGE>
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(10) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
(11) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under subsection (5), in which case the court shall
also order the corporation to pay that person reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by
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virtue of the exercise by the corporation of its power pursuant to subsection
(9); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2), subsection
(3), subsection (4) or subsection (9).
(12) For purposes of this section, the term "corporation~ includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(13) For purposes of this section:
(a) The term "other enterprises" includes employee
benefit plans;
(b) The term "expenses" includes counsel fees, including those
for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation~
includes any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties relating to an
employee benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best
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interests of the participants and beneficiaries of an employee benefit plan.
(14) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
Office and Agent
----------------
Section 6.01. Registered Office and Registered Agent.
--------------------------------------
(1) The corporation shall have and continuously maintain in the State
of Florida:
(a) A registered office which may be the same as its place of
business; and
(b) A registered agent, who, may be either:
(1) An individual who resides in the State of Florida
whose business office is identical with such registered office; or
(2) Another corporation or not-for-profit corporation
as defined in Chapter 617 of the Act, authorized to transact business or conduct
its affairs in the State of Florida, having a business office identical with the
registered office; or
(3) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to Chapter 607 or Chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
Section 6.02. Change of Registered Office or Registered Agent, Resignation of
---------------------------------------------------------------
Registered Agent.
- ----------------
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
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(b) The street address of its current registered office;
(c) If the current registered office is to be changed, the
street address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name
of the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the
street address of the business office of its registered agent, as changed, will
be identical;
(g) That such change was authorized by resolution duly adopted
by its board of directors or by an officer of the corporation so authorized by
the board of directors.
ARTICLE VII
Shares, Options, Dividends and Distributions
--------------------------------------------
Section 7.01. Authorized Shares.
-----------------
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class
or classes as those with voting rights) that together are entitled to receive
the net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles
of incorporation;
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(b) Entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative, non cumulative, or partially
cumulative;
(c) Have preference over any other class of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
Section 7.02. Terms of Class or Series Determined by Board of Directors.
----------------------------------------------------------
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
(a) Any class of shares before the issuance of any shares of
that class, or
(b) One or more series within a class before the issuance of
any shares of that series.
(2) Each series of a class must be given a distinguishing
designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
Section 7.03. Issued and Outstanding Shares.
-----------------------------
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
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(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
Section 7.04. Issuance of Shares.
------------------
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares are fully paid and non-assessable,
there shall be a conclusive presumption that such shares are fully paid and
non-assessable if the board of directors makes a good faith determination that
there is no substantial evidence that the full consideration for such shares has
not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
Section 7.05. Form and Content of Certificates.
--------------------------------
(1) Shares may but need not be represented by certificates.
Unless the Act or another statute expressly provides otherwise, the
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rights and obligations of shareholders are identical whether or not
their shares are represented by certificates.
(2) At a minimum, each share certificate must state on its face:
(a) The name of the issuing corporation and that the
corporation is organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
(4) Each share certificate:
(a) Must be signed (either manually or in facsimile) by an
officer or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
Section 7.06. Shares Without Certificates.
---------------------------
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
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Section 7.07. Restriction on Transfer of Shares and Other Securities.
------------------------------------------------------
(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
Section 7.08. Shareholder's Pre-emptive Rights.
--------------------------------
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
Section 7.09. Corporation's Acquisition of its Own Shares.
-------------------------------------------
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
Section 7.10. Share Options.
-------------
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are
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issued, their form and content, and the consideration for which the shares are
to be issued.
(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.11. Terms and Conditions of Stock Rights and Options.
------------------------------------------------
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions or conditions that preclude or limit the exercise, transfer,
receipt or holding of such rights or options by any person or persons, including
any person or persons owning or offering to acquire a specified number or
percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.12. Share Dividends.
---------------
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class
or series to be issued approves the issue, or
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(c) There are no outstanding shares of the class or series to
be issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
Section 7.13. Distributions to Shareholders.
-----------------------------
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts
as they become due in the usual course of business; or
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a
distribution under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or
other acquisition of the corporation's shares, as of the earlier of:
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<PAGE>
1. The date money or other property is transferred or
debt incurred by the corporation, or
2. The date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as
of the date the indebtedness is distributed;
(c) In all other cases, as of:
1. The date the distribution is authorized if the
payment occurs within 120 days after the date of authorization, or
2. The date the payment is made if it occurs more
than 120 days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
Amendment of Articles and Bylaws
--------------------------------
Section 8.01. Authority to Amend the Articles of Incorporation.
-------------------------------------------------
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
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Section 8.02. Amendment by Board of Directors.
-------------------------------
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
Section 8.03. Amendment of Bylaws by Board of Directors.
-----------------------------------------
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
Section 8.04. Bylaw Increasing Quorum or Voting Requirements for Directors.
------------------------------------------------------------
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
(a) If originally adopted by the shareholders, only by
the shareholders;
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(b) If originally adopted by the board of directors, either by
the shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (l)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
ARTICLE IX
Records and Reports
-------------------
Section 9.01. Corporate Records.
-----------------
(1) The corporation shall keep as permanent records minutes of all
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
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(c) Resolutions adopted by the board of directors creating one
or more classes or series of shares and finding their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions are
outstanding;
(d) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or
all shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and off
(g) Its most recent annual report delivered to the Department
of State of the State of Florida.
Section 9.02. Financial Statements for Shareholders.
-------------------------------------
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its financial statements within
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<PAGE>
the prescribed period. Thereafter, on written request from a shareholder who was
not mailed the statements, the corporation shall mail him the latest annual
financial statements.
Section 9.03. Other Reports to Shareholders.
-----------------------------
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation.
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
Section 9.04. Annual Report for Department of State.
-------------------------------------
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
40
<PAGE>
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid and shall be subject to dissolution or
cancellation of its certificate of authority to do business as provided in the
Act.
ARTICLE X
Miscellaneous
-------------
Section 10.01. Definition of the "Act."
-----------------------
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
Section 10.02. Application of Florida Law.
---------------------------
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
Section 10.03. Fiscal Year.
------------
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
Section 10.04. Conflicts with Articles of Incorporation.
----------------------------------------
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
Section 10.05. Partial Invalidity.
------------------
If any provision of these bylaws shall, for any reason, be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of these bylaws, and these bylaws shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
41
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
June 28, 199
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").
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 1,400,000 shares of Class A Common Stock, $.0001 par value ("Class A
Common Stock") including up to 210,000 shares of Class A Common Stock issuable
in connection with the Underwriters' over-allotment option, and 1,400,000
Redeemable Common Stock Purchase Warrants (the "Warrants") to purchase shares of
Class A Common Stock at $6.25 per share to be sold by the Company including up
to 210,000 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.
June 28, 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. 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.
BIO-AQUA SYSTEMS, INC.
-----------------------------
1999 STOCK OPTION PLAN
-----------------------------
1. Purpose. The purpose of this Plan is to advance the interests of the
BIO-AQUA SYSTEMS, INC., a Florida corporation ("BASI" or "the Company") and each
"Subsidiary," as hereinafter defined, of BASI (BASI and Subsidiary collectively
referred to as the "Company"), by providing an additional incentive to attract
and retain qualified and competent persons who are key employees of the Company,
and upon whose efforts and judgment the success of the Company is largely
dependent, through the encouragement of stock ownership in the Company, by such
persons.
2. Definitions. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the stock option committee
appointed by the Board pursuant to Section 13 hereof or, if not appointed, the
Board.
(c) "Common Stock" shall mean the Company's Common Stock, par
value $0.0001 per share.
(d) "Director" shall mean a member of the Board.
(e) "Disinterested Person" shall mean a Director who is not,
during the one year prior to his or her service as an administrator of this
Plan, or during such service, granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any of its affiliates, except
that:
(i) participation in a formula plan meeting the
conditions in paragraph (c)(2)(ii) of Rule 16b-3 promulgated under the
Securities Exchange Act shall not disqualify a Director from being a
Disinterested Person;
(ii) participation in an ongoing securities acquisition
plan meeting the conditions in paragraph (d)(2)(i) of Rule 16b-3 promulgated
under the Securities Exchange Act shall not disqualify a Director from being a
Disinterested Person; and
(iii) an election to receive an annual retainer fee in
either cash or an equivalent amount of securities, or partly in cash and partly
in securities, shall not disqualify a Director from being a Disinterested
Person.
<PAGE>
(f) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee, in its sole
discretion, shall determine otherwise in a fair and uniform manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation, (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such day of Common Stock on
such system, or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five of the ten preceding days.
(g) "Incentive Stock Option" or "ISO" shall mean an incentive
stock option as defined in Section 422 of the Internal Revenue Code.
(h) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(i) "Non-Statutory Stock Option" or "NSO" shall mean an Option
which is not an Incentive Stock Option.
(j) "Officer" shall mean the Company's president, principal
financial officer, principal accounting officer and any other person who the
Company identifies as an "executive officer" for purposes of reports or proxy
materials filed by the Company pursuant to the Securities Exchange Act.
(k) "Option" (when capitalized) shall mean any option granted
under this Plan.
(l) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(m) "Plan" shall mean this Stock Option Plan for the Company.
(n) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(o) "Share(s)" shall mean a share or shares of the Class A
Common Stock.
2
<PAGE>
(p) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time the Option is granted, each of the corporations other than the last
corporation in the unbroken chain owns 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
3. Shares and Options. The Company may grant to Optionees from time to
time Options to purchase an aggregate of up to Three Hundred Thousand (300,000)
Shares from Shares held in the Company's treasury or from authorized and
unissued Shares. If any Option granted under the Plan shall terminate, expire or
be canceled or surrendered as to any Shares, new Options may thereafter be
granted covering such Shares. An Option granted hereunder shall be either an
Incentive Stock Option or a Non-Statutory Stock Option as determined by the
Committee at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or Non-Statutory Stock Option. All Incentive Stock
Options shall be granted within 10 years from the effective date of this Plan.
4. Dollar Limitation. Options otherwise qualifying as Incentive Stock
Options hereunder will not be treated as Incentive Stock Options only to the
extent that the aggregate fair market value (determined at the time the Option
is granted) of the Shares, with respect to which Options meeting the
requirements of the Internal Revenue Code Section 422(b) are exercisable for the
first time by any individual during any calendar year (under all plans of the
Company), exceeds $100,000.
5. Conditions for Grant of Options.
--------------------------------
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. Optionees
shall be those persons selected by the Committee from the class of all regular
employees of the Company, including employees who are also Directors or
Officers. Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options, the Committee may take into
consideration the contribution the person has made to the success of the Company
and such other factors as the Committee shall determine. The Committee shall
also have the authority to consult with and receive recommendations from
officers and other personnel of the Company with regard to these matters. The
Committee may, from time to time, in granting Options under the Plan, prescribe
such other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, or (iii) relating an Option to the continued
employment of the Optionee for a specified period of time, provided that such
terms and conditions are not more favorable to an Optionee than those expressly
permitted herein.
3
<PAGE>
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company. Neither the Plan nor any Option
granted under the Plan shall confer upon any person any right to employment or
continuance of employment by the Company.
(d) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, Options may not be granted to a
Director or Officer unless the grant of such Options is authorized by, and all
of the terms of such Options are determined by, a Committee that is appointed in
accordance with Section 14 of this Plan and all of whose members are
Disinterested Persons.
6. Option Price. The option price per Share of any Option shall be any
price determined by the Committee but shall not be less than the par value per
Share; provided, however, that in no event shall the option price per Share of
any Incentive Stock Option be less than the Fair Market Value of the Shares
underlying such Option on the date such Option is granted.
7. Exercise of Options. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee, in its sole discretion, have been made
for the Optionee's payment to the Company of the amount that is necessary for
the Company employing the Optionee to withhold in accordance with applicable
Federal or state tax withholding requirements. Unless further limited by the
Committee in any Option, the option price of any Shares purchased shall be paid
in cash, by certified or official bank check, by money order, with Shares or by
a combination of the above; provided further, however, that the Committee, in
its sole discretion, may accept a personal check in full or partial payment of
any Shares. If the exercise price is paid in whole or in part with Shares, the
value of the Shares surrendered shall be their Fair Market Value on the date the
Option is exercised. The Company, in its sole discretion, may, on an individual
basis or pursuant to a general program established by the Committee in
connection with this Plan, lend money to an Optionee to exercise all or a
portion of an Option granted hereunder. If the exercise price is paid in whole
or in part with the Optionee's promissory note, such note shall (i) provide for
full recourse to the maker, (ii) be collateralized by the pledge of the Shares
that the Optionee purchases upon exercise of such Option, (iii) bear interest at
a rate no less than the rate of interest payable by the Company to its principal
lender, and (iv) contain such other terms as the Committee, in its sole
discretion, shall require. No Optionee shall be deemed to be a holder of any
Shares subject to an Option unless and until a stock certificate or certificates
for such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
4
<PAGE>
8. Exercisability of Options. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option, except as otherwise provided in this Section 8.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or occurring pursuant
to a plan), that has the result that shareholders of the Company immediately
before such transaction cease to own at least 51% of the voting stock of the
Company or of any entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) if the shareholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
(iii) if the shareholders of the Company shall approve
a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
(d) Options granted to Officers and Directors shall not be
exercisable until the expiration of a period of at least six months following
the date of grant.
9. Termination of Option Period.
----------------------------
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the Optionee's
employment is terminated or, in the case of a Non-Statutory Stock Option, and
unless the Committee shall otherwise determine in writing, in its sole
discretion, the date on which the Optionee's employment is terminated, in either
case for any reason other than by reason of (A) Cause, which, solely for
purposes of this Plan, shall mean the termination of the Optionee's employment
by reason of the
5
<PAGE>
Optionee's wilful misconduct or gross negligence, (B) a mental or physical
disability as determined by a medical doctor satisfactory to the Committee, or
(C) death;
(ii) immediately upon the termination of the Optionee's
employment for Cause;
(iii) one year after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of Internal Revenue Code Section 22(e)) as determined by a medical
doctor satisfactory to the Committee; or
(iv) (A) 12 months after the date of termination of the
Optionee's employment by reason of death of the employee, or (B) three months
after the date on which the Optionee shall die if such death shall occur during
the one-year period specified in Subsection 9(a)(iii) hereof.
(b) The Committee, in its sole discretion, may, by giving
written notice ("Cancellation Notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
approval of such corporate transaction.
10. Reload Options. The Committee may provide for the grant to any
Optionee of additional Options upon the exercise of Options ("Reload Options"),
including the exercise of Reload Options, through the delivery of Shares;
provided, however, that (i) the Reload Options may be granted only with respect
to the same number of Shares as were surrendered to exercise the Options, (ii)
the exercise price of the Reload Options will be the Fair Market Value on the
date of grant of the Reload Options, (iii) with respect to Optionees who are
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act, the Reload Option may not be exercised after the date the Options
with respect to which such Reload Options were granted expire or terminate and
(iv) the provisions contained in this Section may not be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder.
11. Adjustment of Shares.
--------------------
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
6
<PAGE>
(i) appropriate adjustment shall be made in the maximum
number of Shares available for grant under the Plan, so that the same percentage
of the Company's issued and outstanding Shares shall continue to be subject to
being so optioned; and
(ii) appropriate adjustment shall be made in the number
of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate price.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate by reason
of a corporate transaction described in Subsections 8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
12. Transferability of Options. Each Option shall provide that such
Option shall not be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable during
the Optionee's lifetime only by the Optionee.
13. Issuance of Shares. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
7
<PAGE>
(i) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he is acquiring the Shares to
be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to be bound
by any legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed by the
Committee to be applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
14. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors, each of whom shall be
Disinterested Persons to the extent required by Section 5(d) hereof. The
Committee shall have all of the powers of the Board with respect to the Plan.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
15. Incentive Options for 10% Shareholders. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Internal Revenue Code) at the date of grant, stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (or of its subsidiary [as defined in Section 424 of the
Internal Revenue Code] at the date of grant) unless the option price of such
Option is at least 110% of the Fair Market Value of the Shares subject to such
Option on the date the Option is granted, and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted.
16. Interpretation.
--------------
(a) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code. If any provision of the
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in the Plan.
8
<PAGE>
(b) This Plan shall be governed by the laws of the State of
Florida.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
17. Amendment and Discontinuation of the Plan. Either the Board or the
Committee may from time to time amend the Plan or any Option; provided, however,
that, except to the extent provided in Section 11, no such amendment may,
without approval by the shareholders of the Company, (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase the
number of securities which may be issued under the Plan, or (c) materially
modify the requirements as to eligibility for participation in the Plan; and
provided further, that, except to the extent provided in Section 9, no amendment
or suspension of the Plan or any Option issued hereunder shall substantially
impair any Option previously granted to any Optionee without the consent of such
Optionee.
18. Effective Date and Termination Date. The effective date of the Plan
is the date on which the Board and the shareholders of the Company have adopted
this Plan, which is _________, 1999, and the Plan shall terminate on the 10th
anniversary year of the effective date.
BIO-AQUA SYSTEMS, INC.
By:
---------------------------
9
<PAGE>
[NSO GRANT FORM]
BIO-AQUA SYSTEMS, INC.
====================
Date: __________
- ----------
- ----------
- ----------
Dear __________:
The Board of Directors of Bio-Aqua Systems, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1999 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 12 of the -------------- Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full
<PAGE>
payment for the Stock or that number of already owned shares of Stock equal in
value to the total Exercise Price of the Option. We shall make delivery of the
shares of Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
---------------
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
2
<PAGE>
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:________________________
President
AGREED AND ACCEPTED:
- --------------------
3
<PAGE>
Date:__________________
BIO-AQUA SYSTEMS, INC.
------------------
------------------
- ---------------
- ---------------
- ---------------
Dear _______________:
The Board of Directors of Bio-Aqua Systems, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1999 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in particular
Section 12 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE>
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the
date of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
---------------
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
2
<PAGE>
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:________________________
President
AGREED AND ACCEPTED:
- --------------------
3
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
BIO-AQUA SYSTEMS, INC.
-------------------
-------------------
Date:____________
- ----------
- ----------
- ----------
Dear __________:
The Board of Directors of Bio-Aqua Systems, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1999 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 12 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE>
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered Shares. The date on which the
Tendered Shares are tendered to the Corporation in full or partial payment of
the purchase price for the shares of Stock acquired pursuant to the exercise of
the Underlying Option is the Reload Grant Date. The exercise price of the Reload
Option is the fair market value of the Tendered Shares on the Reload Grant Date.
The fair market value of the Tendered Shares shall be the low bid price per
share of the Corporation's Common Stock on the Reload Grant Date. The Reload
Option shall vest equally over a period of __________ (___) years, commencing on
the first anniversary of the Reload Grant Date, and on each anniversary of the
Reload Grant Date thereafter; however, no Reload Option shall vest in any
calendar year if it would allow you to purchase for the first time in that
calendar year shares of Stock with a fair market value in excess of $100,000,
taking into account ISOs previously granted to you. The Reload Option shall
expire on the earlier of (i) __________ (___) years from the Reload Grant Date,
or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with Paragraph
5(c) as set forth herein. If vesting of the Reload Option is deferred, then the
Reload Option shall vest in the next calendar year, subject, however, to the
deferral of vesting previously provided. Except as provided herein the Reload
Option is subject to all of the other terms and provisions of this Agreement
governing Options.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable
2
<PAGE>
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
----------------
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:___________________________
President
AGREED AND ACCEPTED:
- --------------------
3
ASSOCIATION AGREEMENT
Santiago, Chile on March 14, 1994 between "CENTRO DE ESTUDIOS CIENTIFICOS DE
SANTIAGO" a non-profit corporation represented by its Executive Director Claudio
Teitelboim Weitzmann, address in Ave. President Errazuriz NO. 3132, Las Condes,
Santiago; called "CECS", and TEPUAL S.A. represented by Max Rutman Soubotnik,
address in General Ekdhal 159, Santiago; called "TEPUAL"; they have agreed on
the following Association Agreement.
FIRST: Two years ago the CECS began researching a system to obtain an antidote
to the Red Tide toxin through an immunology test. This research has achieved the
production of an antitoxin called Saxitoxina that when linked with a Bovine
Seroalbumina protein enables the development of an antitoxin test system. The
intellectual property of the antitoxin belongs exclusively to CECS.
SECOND: By the present agreement CECS and TEPUAL have agreed to jointly research
and work on this project to obtain a system to detect the "Red Tide Toxin".
Later they will develop a commercial system and bring it to the market.
THIRD: CECS will supply to this Association the antitoxin-Saxitoxina in order to
develop the product, including the necessary technical and scientific assistance
for the complete development of the product.
FOURTH: TEPUAL will supply its facilities, laboratory, equipment, and all
necessary personnel to complete the development of the product.
FIFTH: The intellectual and commercial property of the final product will be the
common property of CECS and TEPUAL at 50% each. Any intellectual or commercial
rights will be registered in respect to this percentage, for any and all
products, originated from this product.
SIXTH: TEPUAL has the exclusive right to the marketing of the products
originated in this project.
SEVENTH: All the profit and economic benefit from the sales, royalties,
technical assistance, in any way related with the products of the project will
be divided 60% for TEPUAL and 40% for CECS.
EIGHTH: Both parties agree that they will seek additional funds from third
parties to complete the project including "FONTC" and other corporations linked
with TEPUAL's agreements related with this program. For this particular case
TEPUAL will be committed to design the project for FONTC contacting with any
company for the purpose of the project. The parties by common agreement can find
funds for the project through different sources besides the above-mentioned
source. However, it is not CECS's responsibility to
1
<PAGE>
look for financing for the project, CEC's primary responsibility is to supply
the antitoxin named in the first clause and give any scientific and technical
assistance to develop the project. Furthermore, it is clearly understood between
the parties that any and all intellectual properties belong to them and won't be
shared with any other companies even if those companies participate in any way
to achieve the project's success.
NINTH: The parties agree to include US$14,000 already spent by CECS for the
project as part of the funds to be raised for the present project.
TENTH: If by an circumstance the project is not successful, any and all the
intellectual property regarding the antitoxin mentioned in the first clause
shall remain exclusively to CECS. The last statement doesn't exclude the parties
pursuing on the project jointly or separately.
ELEVENTH: This Agreement governs general and specific stipulations and
agreements, in case of specific situations related with commercial production
and marketing this Agreement will be implemented. By a common agreement the
parties will write, sign and implement the Agreement.
TWELFTH: Any controversy or discrepancy of this Agreement will be resolved in
any instance by arbitor, other methods are not acceptable. The parties
designated Mr. Carlos Pena Gonzalez, and as his replacement Mr. Fernando Barros
Tocornal as arbiter; in case of absence a new arbiter will be designated by the
Court. The arbiter needs to be a lawyer or ex-member of the Supreme Court of
Court of Appeals of Santiago.
THIRTEENTH: This Agreement recognizes Santiago as proper venue.
FOURTEENTH: Mr. Claudio Teitelboim's representation of Estudios Cientificos de
Santiago is legally certified by Notarized Register document of January 2, 1992.
Mr. Max Rutman Soubotnik's representation of Tepual is legally certified by
Notarized Register documents of September 8, 1999.
/s/ Max Rutman Soubotnik /s/ Claudio Teitelboim Weitzmann
- ------------------------ --------------------------------
Max Rutman Soubotnik Claudio Teitelboim Weitzmann
By: TEPUAL S.A. By: CECS
2
<PAGE>
IMPLEMENTED ASSOCIATION AGREEMENT
Santiago, Chile on October 2, 1996 between "CENTRO DE ESTUDIOS CIENTIFICOS DE
SANTIAGO" a non-profit corporation represented by its Executive Director Ramon
Latorre De La Cruz, with address in Avenue President Errazuriz NO. 23132, Las
Condes, Santiago City; called "CECS" and TEPUAL S.A. represented by Max Rutman
Soubotnik with address in General Ekdahal NO. 159 called "TEPUAL". They have
agreed to the Association Agreement between them dated March 14, 1994 for the
research and production of a system for the detection of Red Tide Toxins.
FIRST: The parties agreed that any profit or economic benefit coming from the
sales of the Red Tide Toxins detection system will be, after deducting all
development costs of CECS and TEPUAL and any and all other costs that TEPUAL
will have after October 2, 1996 related to the development of the project.
The costs regarding the program development are the following:
Profits = Sales Income - Development costs:
Development cost = CECS Cost and TEPUAL Cost
CECS Cost = US$ 19,000
TEPUAL Cost = Present Cost + Future Cost
Present Cost = US$ 340,000
Future Cost = All the necessary marketing
expenses that TEPUAL will have after
October 2, 1996 related to the
program.
It is stated that TEPUAL had already spend US$ 140,000 plus US$ 200,000 as
alternate capital expended by TEPUAL for the present project.
The future cost is related to all the necessary expenses to be spent in the
development of a marketing program for the project, which will be approved by
both parties. The revenue generated by the marketing of the system should first
cover all the above-mentioned costs. Secondly, they agreed to divide the profit
according to the percentages of the Seventh clause, meaning 60% for TEPUAL and
40% for CECS.
As an example we include a table with projections of potential program profit.
3
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Assumed) Sales Income 500 100 1500 2000 2500 3000 3500 4000
(Assumed) TEPUAL Future Cost -50 -100 -200 -300 -300 -300 -350 -400
(Assumed) Net Income 450 700 1350 1800 2250 2700 3150 3600
(Assumed) CECS Cost -19 -19 -19 -19 -19 -19 -19 -19
(Assumed) TEPUAL Present Cost -340 -340 -340 -340 -340 -340 -340 -340
(Assumed) Profit 91 541 991 1441 1891 2341 2791 3241
CECS Cost Recovery 19 19 19 19 19 19 19 19
CECS Profit Share 36 216 396 396 756 836 1116 1236
TEPUAL Cost Recovery 370 440 490 540 590 640 690 740
TEPUAL Profit Share 55 325 595 865 1135 1405 1675 1945
</TABLE>
SECOND: The parties agree to coordinate their public and private communications
in order to obtain public image and corporate good image of TEPUAL and CECS.
THIRD: The parties agree to maintain constant communication regarding the
situation of the project and they are committed to share analysis, options,
decisions and alternatives regarding the development and marketing of the
system.
FOURTH: The parties agree that complement agreement is part of the original
Agreement signed on March 14, 1994. All the clauses of the Agreement will be
respected.
/s/ Ramon Latorre De La Cruz /s/ Max Rutman Soubotnick
- ---------------------------- -------------------------
Ramon LaTorre De La Cruz Max Rutman Soubotnick
CECS TEPUAL S.A.
4
AGREEMENT
This Agreement, made and entered into as of the 20th day of June, 1998,
by and between the Parties:
1. R-BIOPHARM GmbH, having its registered office in Darmstadt, Germany,
hereinafter referred to as: "R-BIOPHARM",
2. TEPUAL S.A. and CENTRO DE ESTUDIOS CIENTIFICOS DE SANTIAGO ("CECS"), having
its registered seat in Santiago, Chile, hereinafter referred to as:
"TEPUAL/CECS").
Preamble
TEPUAL/CECS more specifically TEPUAL S.A./CECS, has developed
antibodies against neoSTX and GTXs (Licensed Product) and has offered to
license/sell all related rights and their use to R-BIOPHARM. R-BIOPHARM will
develop and PSP ELISA Test Kit and produce this kit.
R-BIOPHARM is interested in obtaining all transferable rights
concerning the Licensed Products from TEPUAL/CECS in order to manufacture and to
distribute the PSP ELISA Test under the R-BIOPHARM trade mark "RIDASCREEN",
co-exclusively, where and how R-BIOPHARM sees fit, bearing the sole
responsibility thereof.
Now, therefore, the Parties agree as follows:
1. Licensed Product
1.1 TEPUAL/CECS sells to R-BIOPHARM and R-BIOPHARM buys from
TEPUAL/CECS all transferable rights to use, manufacture and distribute the
Licensed Product freely, indicating that these antibodies were developed by
TEPUAL/CECS.
TEPUAL/CECS has informed R-BIOPHARM that TEPUAL/CECS is
entitled to sell these rights related to the Licensed Product.
1.2 TEPUAL/CECS further agrees to supply R-BIOPHARM with antibodies of
the Licensed Product on a continuous basis according to the demand and forecast
of R- BIOPHARM for the manufacture of the test.
1.3 As remuneration for the transfer of the rights, indent know-how and
the supply of fey materials (as outlined above), R-BIOPHARM will pay TEPUAL/CECS
12.5% of the net sales turnover of the Licensed Product for the period of ten
(10) years counted from the execution of this Agreement.
1
<PAGE>
Net sales turnover shall mean the proceeds from the sale of
the Licensed Product after deduction of all costs (e.g. for packaging, freight,
insurance, commission, etc. contained in the invoice price) and any rebate given
to customers, even where such rebates are granted in retrospect.
R-BIOPHARM agrees to identify TEPUAL/CECS in kits, or in any
promotional or other materials to be disseminated to the public or to use the
name of TEPUAL/CECS but having obtained TEPUAL/CECS's prior written consent.
2. Payments
2.1 R-BIOPHARM will calculate the remuneration pursuant 1.3 semester
and transfer the amount due to TEPUAL/CECS to its account.
2.2 The remuneration according to 1.3 shall include such improvements
of the Licensed Product as may be effected by TEPUAL/CECS and offered to
R-BIOPHARM. In case R-BIOPHARM initiates or suggests improvements of the
Licensed Product by TEPUAL/CECS, the Parties shall agree on a possible joint
development up to marketability. In accordance with the actual development costs
incurred the Parties will determine possible changes in the remuneration
pursuant to 1.3 in order to reach a mutually acceptable solution. Until the end
of such negotiations concerning a change R- BIOPHARM shall continue to pay the
original rate of remuneration for the Licensed Product.
2.3 R-BIOPHARM agrees to pay at the start of each year of this
Agreement a minimum annual advance on earned royalties. The minimum annual
advance shall be US$5,000 (five thousand dollars) for 1999 and US$15,000
(fifteen thousand dollars) for each following year of this Agreement. The
advance royalty payments are non-refundable but they are creditable against
earned royalties.
3. Exclusivity
TEPUAL/CECS offers R-BIOPHARM the exclusive option to an exclusive
supply of key materials for an ELISA test, and to an exclusive distributorship
for the Licensed Product of TEPUAL/CECS for the world.
4. Product Liability
R-BIOPHARM shall be responsible for the quality of the Licensed Product
market by R-BIOPHARM and shall have the sole authority to release the Licensed
Product for commercialization. To the extent key materials or finished test kits
supplied by TEPUAL/CECS are found to be faulty, TEPUAL/CECS shall be obliged to
replace such faulty material with faultless ones. Any further liability of
TEPUAL/CECS shall be excluded
2
<PAGE>
to the extent permissible by law. However, R-BIOPHARM exclusivity will not be
effective if R-BIOPHARM does not get, at least, 50% of the estimated sales at
the end of year 2.
5. Governing Law and Arbitration
This Agreement shall be governed by Chilean law. Disputes related to or
arising out of this Agreement shall be settled by amicable discussions between
the Parties. In case any possible differences of opinion cannot be settled
amicably, only the regular courts of justice competent according to the rules of
international private law only will be competent for the claims, provided that
both Parties do not arrange expressly for a court of arbitration.
If the Parties arrange for a court of arbitration, either Party shall
have the right to appoint one arbitrator and the decision of that court shall be
definitive and incontestable for both Parties.
R-BIOPHARM, Darmstadt TEPUAL, Santiago
Signature: /s/ Ralf Dreher Signature: /s/ Max Rutman
----------------------- --------------------
Name: Dr. Ralf Dreher Name: Max Rutman S.
----------------------- --------------------
Function: General Manager Function: General Manager
----------------------- --------------------
Date: June 30, 1998 Date: June 25, 1998
----------------------- --------------------
CECS, Santiago
Signature: /s/ Ramon Latorre
--------------------
Name: Ramon Latorre
--------------------
Function: General Manager
--------------------
Date: June 21, 1998
--------------------
3
AGREEMENT
This Agreement, made and entered into as of the 20th day of June, 1998, by and
between the Parties:
1. R-BIOPHARM GmbH, having its registered office in Darmstadt, Germany,
hereinafter referred to as: "R-BIOPHARM",
and
2. INUAL S.A. having its registered seat in Santiago, Chile, hereinafter
referred to as: INUAL.
Preamble
INUAL more specifically INUAL S.A., has developed technology to isolate neoSTX
and GTX and produce their corresponding HRP conjugates (Licensed Products) and
has offered to license/sell all related rights and their use to R-BIOPHARM and
R-BIOPHARM will develop an PSP ELISA Test Kit and will produce this kit.
R-BIOPHARM is interested in obtaining all transferable rights concerning the
Licensed Products from INUAL in order to manufacture and to distribute the PSP
ELISA Test under the R-BIOPHARM trade mark "RIDASCREEN", co-exclusively, where
and how R- BIOPHARM sees fit, bearing the sole responsibility thereof.
Now, therefore, the Parties agree as follows:
1. Licensed Product
1.1 INUAL sells to R-BIOPHARM and R-BIOPHARM buys from INUAL all transferable
rights to use, manufacture and distribute the Licensed Product freely but
indicating that these products were developed and/or obtained by INUAL.
INUAL has informed R-BIOPHARM that INUAL is entitled to sell these rights
related to the Licensed Product.
1.2 INUAL further agrees to supply R-BIOPHARM with HRP conjugates and the toxins
(neoSTX and GTXs) of the Licensed Product on a continuous basis according to the
demand and forecast of R-BIOPHARM for the manufacture of the tests.
1.3 As remuneration for the transfer of the rights, indent know-how and the
supply of key materials (as outlined above), R-BIOPHARM will pay INUAL 12.5% of
the net sales turnover of the Licensed Product for the period of 10 (ten) years
counted from the execution of this Agreement.
1
<PAGE>
Net sales turnover shall mean the proceeds from the sale of the Licensed Product
after deduction of all costs (e.g. for packaging, freight, insurance,
commission, etc. contained in the invoice price) and any rebate given to
customers, even where such rebates are granted in retrospect.
R-BIOPHARM agrees to identify INUAL in kits, and in any promotional or other
materials to be disseminated to the public or to use the name of INUAL but
having obtained INUAL's prior written consent.
2. Payments
2.01 R-0BIOPHARM will calculate the remuneration pursuant 1.3 per semester and
transfer the amount due to INUAL to its account together with such calculation.
2.2 In addition to the remuneration set forth above, R-BIOPHARM will within 2
years of signing this Agreement pay INUAL as compensation for existing customers
relations established by INUAL on lump sum payment of US$400,000 (to be obtained
by two ECIP projects).
2.3 The remuneration according to 1.3 shall include such improvements of the
Licensed Product as may be effected by INUAL and offered to R-BIOPHARM. In case
R-BIOPHARM initiates or suggests improvements of the Licensed Product by INUAL,
the Parties shall agree on a possible joint development up to marketabilty. In
accordance with the actual development costs incurred the Parties will determine
possible changes in the remuneration pursuant to 1.3 in order to reach a
mutually acceptable solution. Until the end of such negotiations concerning a
change R-BIOPHARM shall continue to pay the original rate of remuneration for
the Licensed Product.
2.4 R-BIOPHARM agrees to pay at the start of each year of this Agreement a
minimum annual advance on earned royalties. The minimum annual advance shall be
US$5,000 (five thousand dollars) for 1999 and US$15,000 (fifteen thousand
dollars) for each following year of this Agreement. The advance royalty payments
are non-refundable but they are creditable against earned royalties.
3. Exclusivity
INUAL offers R-BIOPHARM the exclusive option to an exclusive supply of key
materials for Elisa Kit and to an exclusive distributorship for the Licensed
Product of INUAL for the world. However, R-BIOPHARM exclusivity will be not
effective if R-BIOPHARM does not get, at least, 50% of the estimated sales at
the end of year 2 and in the following years of this Agreement.
4. Product Liability
2
<PAGE>
R-BIOPHARM shall be responsible for the quality of the Licensed Product marketed
by R- BIOPHARM and shall have the sole authority to release the Licensed Product
for commercialization. To the extent key materials or finished ted kits supplied
by INUAL are found to be faulty, INUAL shall be obliged to replace such faulty
material with faultless ones. Any further liability of INUAL shall be excluded
to the extent permissible by law.
5. Governing Law and Arbitration
This Agreement shall be governed by Chilean law. Disputes related to or arising
out of this Agreement shall be settled by amiable discussions between the
Parties. In case any possible differences of opinion cannot be settled amicably,
only the regular courts of justice competent according to the rules of
international private law only will be competent for the claims, provided that
both Parties do not arrange expressly for a court of arbitration.
If the Parties arrange for a court of arbitration, either Party shall have the
right to appoint one arbitrator and the decision of that court shall be
definitive and incontestable for both Parties.
R-BIOPHARM, Darmstadt INUAL, Santiago
Signature /s/ Ralf Dreher Signature /s/ Max Rutman S.
- --------------------------- ---------------------------
Name Dr. Ralf Dreher Name Max Rutman S
Function General Manager Function General Manger
Date June 30, 1998 Date June 25, 1998
3
DISTRIBUTION AGREEMENT
This Agreement, made and entered into as of the 20th day of May, 1998, by and
between the Parties:
1. B-BIOPHARM GmbH, having its registered office in Darmastadt, Germany,
hereinafter referred to as: "R-Biopharm";
2. INUAL S.A. having its registered seat in Santiago, Chile, hereinafter
referred to as: INUAL.
Preamble
R-BIOPHARM will produce a new ELISA PSP kit (Licensed Products) and will offer
to license/sell to INUAL this kit.
Now, therefore, the Parties agree as follows:
1. Licensed Product
1.1 R-Biopharm distribute to INUAL this kit and in those countries like Chile,
USA and Japan where INUAL has possibilities for marketing, INUAL will sell the
product under R- Biopharm label or under their own label. The kits sold by INUAL
are produced by R- Biopharm and sold to INUAL. Transfer price will be similar to
others distributors.
1.2 R-Biopharm agrees to supply INUAL with kits (Licensed Product) on a
continuous basis according to the demand and forecast of INUAL for the
manufacture of the tests.
R-BIOPHARM-INUAL
2. Governing Law and Arbitration
This Agreement shall be governed by Chilean law. Disputes related to or arising
out of this Agreement shall be settled by amicable discussions between the
parties. In case any possible differences of opinion cannot be settled amicably,
only the regular courts of justice competent according to the rules of
international private law only will be competent for the claims, provided that
both Parties do not arrange expressly for a court of arbitration.
If the Parties arrange for a court of arbitration, either Party shall have the
right to appoint one arbitrator and the decision of that court shall be
definitive and incontestable for both Parties.
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R-Biopharm, Darmstadt INUAL, Santiago
Signature /s/Ralf Dreher Signature /s/Max Rutman
-------------- ----------------
Name Ralf Dreher Name Max Rutman
Function General Manager Function General Manager
Date June 10, 1998 Date June 25, 1998
2
LICENSE AGREEMENT
In Lima, on January 2 of 1999, between Tepual S.A. represented by Max Rutman
Soubbotnick C.I. 4335394 address General Ekdhal 159 La Recoleta, Santiago Chile
and Biosur S.A.C. represented by Sergio Zamora Munoz C.E. N-83679 Peru, both
with addresses in Los Calderos 208 Ate- Vitarte, Lima Peru, agree on the present
License Agreement.
First: Tepual S.A. has developed and is sole owner of poultry vaccines named as
follows:
- Infectious Bronchitis with two different pathologic
presentations
- Hepatitis with body inclusion
- Infectious Coriza
- Enteritis Salmonella and its combinations
- Other vaccines combinations
Second: Biosur S.A.C. is a business dedicated to the manufacturing and marketing
of veterinary products in Peru, equipped with the infrastructure, proper
technical personnel and the necessary Peruvian permits.
Third: Tepual has authorized Biosur S.A.C. to manufacture and market in Peru all
the vaccines mentioned in the first clause, according to the specifications and
manufacturing techniques provided by Tepual excepting the restrictions by the
eighth clause or any other conditions which may cause Tepual to modify, restrict
or suspend this agreement.
Fourth: The present agreement allows Biosur S.A.C. to manufacture and market the
products in Peru, Bolivia and Ecuador.
Fifth: This agreement includes the free technical support of Tepual S.A. to
Biosur S.A.C., excluding traveling costs such as airline tickets, hotels, meal
and transportation.
Sixth: The royalty to be paid for this license will be 13% of the gross sales of
Biosur S.A.C., of which Biosur, S.A.C. will give monthly sales statements to
Tepual and pay the amount due in no more than 120 days from the invoice day.
Seventh: This agreement does not have a written term.
Eighth: Without prejudice to the previous clause, this agreement will be void in
case of:
- Repeated delays on the royalties payment
- Manufacturing without observing the Tepual standards
- Tepual failing to give technical support
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Ninth: Additionally Biosur S.A.C. acknowledges Tepual's right to control and
inspect the vaccine production and reject any production which is not in
accordance with Tepual standards. In case of defective production of three
consecutive periods this agreement will be terminated.
Tenth: Biosur S.A.C. is committed to keep confidential the manufacturing methods
of Tepual vaccines.
Eleventh: Tepual recognizes Biosur S.A.C. rights to implement new techniques
regarding the production of the vaccines and any other new vaccines developed
from this agreement will become part of the present agreement.
Twelfth: Biosur S.A.C. has the right to apply for a free pathology diagnosis for
any diseases related to the vaccines. Biosur S.A.C. will submit samples for the
analysis.
Thirteenth: Any possible disagreement will be resolved at first by an arbitrator
designated by common agreement.
Be in agreement and sign by
/s/ Max Rutman Soubbotnick /s/ Sergiop Zamora Munoz
- -------------------------- ------------------------
Max Rutman Soubbotnick Sergio Zamora Munoz
pp Tepual S.A.C. pp Biosur S.A.C.
2
MARKETING AGREEMENT
In Santiago, Chile on April 15, 1997, between Tepual S.A. represented by Max
Rutman Soubotnick C.I. 4335 3942, address General Ekdhal 159, La Recoleta,
Santiago, Chile and Biosur S.A. represented by Carlos Sepulveda C.I. 7070 9570
address in Av., Fermin Vivaceta No. 2598, Independencia, agree on the present
marketing Agreement (the "Agreement").
First: Tepual S.A. has developed and is sole owner of poultry vaccines named as
follows:
- Infectious Bronchitis with two different pathologic
presentations
- Hepatitis with body inclusion
- Infectious Coriza
- Enteritis Salmonella and its combinations
- Other vaccines combinations
Second: Biosur S.A is a marketing corporation involved in veterinary products in
Chile, having corporate infrastructure and qualified technical personnel for
this purpose.
Third: the parties agree to the following: Tepual S.A. will sell to Biosur S.A.
100% of its vaccine production and Biosur S.A. agrees to buy 100% of Tepual's
production, as limited by section eight of this Agreement or at Tepual's
discretion to modify, restrict or suspend this agreement.
Fourth: the present Agreement allows Biosur S.A. to sell the product in the
Republic of Chile by its own means and without any responsibility to Tepual S.A.
Fifth: Tepual S.A. does not have any responsibility to Biosur S.A. personnel.
Sixth: Biosur S.A. agrees to buy a minimum of $40,000 U.S. per month. If such
amount is not attainable, both parties may revise this agreement. The prices of
the vaccines will be fixed by Tepual S.A. Tepual S.A. will inform Biosur S.A. of
such prices in writing, and Biosur S.A. will sell the products at competitive
prices and will communicate to Tepual S.A. the prices.
Seventh: This Agreement does not have a written term.
Eighth: Regardless of what is agreed upon in the seventh section, this Agreement
will automatically terminate in the case of:
- Repeat delay to pay for the vaccines
- Failure of Tepual S.A. to sell exclusivity to Biosur S.A.
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Ninth: Additionally, Biosur S.A. recognizes Tepual S.A.'s right to inspect,
control and audit all sales related to this Agreement.
Tenth: Biosur S.A. will respect and keep confidential all the manufacturing
information related to Tepual S.A.'s products.
Eleventh: Tepual S.A. recognizes Biosur S.A.'s right to know of and sell any new
found vaccines, which will become part of this Agreement.
Twelfth: Biosur S.A. has the right to apply for a free pathology diagnosis for
any diseases related to the vaccines. Biosur S.A. will submit samples for the
analysis.
Thirteenth: any possible controversies related to this Agreement will be
resolved at the first instance by an arbiter agreed upon by both parties.
Signed and Agreed
/s/ Max Rutman Soubotnick /s/ Carlos Sepulveda
- ------------------------- --------------------
Max Rutman Soubotnick Carlos Sepulveda
Tepual S.A. Biosur S.A.
2
COMMERCIAL AGREEMENT WITH EXCLUSIVE CLAUSE:
In Santiago at November 15, 1998 between TEPUAL S.A. (hereinafter
"Tepual"), a Chilean company represented by Mr. Max Rutman, President, addressed
in General Ekdahl 159, Recoleta, Santiago, Chile and KELOR TRADING LTD.
(hereinafter "Kelor"), represented by Mr. Jose Gutierrez, Director, addressed in
Second Floor Saint Andrew's House, 28-30 Exchequer Street, Dublin 2, Republic of
Ireland, it is agreed the following commercial Agreement with exclusive clauses.
1. Tepual is a commercial and technical company specialized in krill products
that possesses a broad market of specialty krill products and the know how of a
technological package for factory vessels to produce said products under the
required technical specifications and quality. Under this agreement Tepual S.A.
convenes to transfer this technological package to Kelor.
2. Under this Agreement Kelor will finance, purchase and prepare vessels for the
exploitation and production of krill products starting in the 1999 season with
one vessel. The products will be krill meal, krill oil and other under
development krill products established with Tepual under the scope of this
contract.
3. Tepual will promote and develop the market for these products and will hold
the exclusive rights to distribute and sell them under a brokerage scheme all
over the world. Tepual will use its own commercial net to reach the main markets
and all its technical and scientific facilities and staff to research and
develop over krill to introduce new products to the market regularly.
4. Kelor will sell its production through Tepual and will assist the market
development supplying all the support to the research and development activities
of Tepual on board its vessels. Under this Agreement Kelor will have the first
refusal to take the exclusive to exploit each new line of product and market
opportunities resulting from this research and development work. Kelor will take
this option either alone or in new associations and will be free to establish at
its own will working procedures. Tepual rights over the new developments will be
negotiated when Kelor takes its right of first refusal over the new product or
development.
5. Kelor will pay a brokerage commission of 3% over the F.O.B. sales and U$ 20,0
per ton. of krill meal and 5% for krill oil produced on board as payment for the
quality control system and technical support on board in charge of Tepual as
part of the technological package stated in point 1 of this contract. Every new
product introduced in the line will have a prenegotiated commission.
6. To receive the exclusive rights to make the brokerage of krill products from
Kelor, Tepual commits to finance up to U$ 2,000,000 for the period 1998-1999
when Kelor will prepare one vessel to operate in Antarctic waters. The financing
will consist in the technological package transferred through Tepual
administrative and technical staff,
1
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machinery and equipments bought specifically for the project, cash for other
investments and cash for working capital. All the financing for the period will
be properly agreed and accounted at termination of the 1998-1999 project and the
total value and final payment terms will be included as Addendums that will be
part of this contract. All pending debt will pay an interest rate of 13,5% per
year while.
7. Payment terms will be agreed in such a way that the debt will be totally paid
in eighteen months after the start of production in Antarctic waters. The
estimated date is June 10, 1999. Payment of these debts will be done by Kelor
through its cash superavits from the operational cash flow based on budgets
prepared together with Tepual and by no means these payments will restrict the
operations for lack of working capital. Under these circumstances both Kelor and
Tepual will convene the best payment schedule of the obligations.
8. As part of this Agreement, Tepual staff will be in charge of all the
development of the project for each vessel, the administration, the designs, the
equipment selection and definition of shipyard works required, the technical
staff on board and the crewing, the tests trials of the vessel in operation and
setting up the process standards. Kelor will extend the proper power of attorney
to the nominated Tepual staff to develop these activities under its name. All
this work will be included in the value of the technological package that will
be properly charged as part of the financing to Kelor.
9. To assist Tepual to obtain the financing sources for its commitment, Kelor
agrees to give the vessels as collateral in whatever state they are and when
needed in order that Tepual can use them as guarantee in its financial
negotiations, subject that this cession does not interfere at all with the
operations.
10. This contract will be indefinite and it will be finished under the following
circumstances:
10.1 Agreement from both parties with a fixed finishing date defined in
common.
10.2 Sales volumes and/or prices below 50% of the budgets for more that
sequential years.
10.3 Termination or absorption of Tepual S.A. by other companies,
including bankruptcy, intervention or any other form of taking over of the
control of the company.
10.4 Sale or absorption or taking over of Kelor by other companies.
Prior to termination the pending debt to Tepual must be paid. Negotiations for
this payment are accepted, but not longer than two years.
11. Every difference of interpretation or problem of any nature arising from
this contract will be agreed between the parties in goodwill. Any deviation from
the spirit of the contract
2
<PAGE>
will be notified in written form and both parties will meet within the following
week after notification to look and study the solution to the problems.
12. If by any event the situation not solved in point 11 requires a definition,
both parties agree to go to arbitration by a nominee agreed in common. The final
verdict of this arbitration will be accepted by both parties without claim.
13. Both parties agree that this contract will be ruled by the laws of Denmark.
On behalf of Tepual S.A. On behalf of Kelor Trading Ltd.
By: /s/ Max Rutman By: /s/ Jose Gutierrez
------------------------- --------------------------
Max Rutman Jose Gutierrez
President of the Board Director of the Board
3
AGREEMENT
In consideration for a loan by ______________ (the "Investor") to
Bio-Aqua Systems, Inc., a Florida corporation ("BA/Company"), BA hereby agrees
that the principal amount of the loan of _______ Thousand ($___,000) Dollars,
together with interest at eight percent (8%) per annum, shall be paid on the
earlier of (i) the closing of BA's initial public offering or (ii)
______________.
This loan shall be evidenced by a Promissory Note between the Company
as Maker and the Investor as Payee of even date herewith.
As additional consideration, the Investor shall receive ________ shares
of restricted Class A Voting Common Stock, par value $.0001 (the "Class A Common
Stock") of BA, subject to a lock- up period of six (6) months from the effective
date of the Registration Statement or such other lock- up period as may be
imposed by the Company's Underwriter or the National Association or Securities
Dealers or by any national exchange including the National Association of
Securities Dealers Automated Quotation (Nasdaq) System in connection with the
Registration Statement.
The Investor represents that it is an Accredited Investor as that term
is defined in Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act").
The Company has not made any other representations or warranties to the
Investor with respect to the Company or rendered any investment advice to the
undersigned. The Investor represents that the Investor (i) has adequate means of
providing for the undersigned's current financial needs and possible personal
contingencies and has no need for liquidity of investment in the Company; (ii)
can afford (a) to hold unregistered securities for an indefinite period of time
as required; and (b) sustain a complete loss of the entire amount of the
investment; and (iii) has not made an overall commitment to investments which
are not readily marketable which is disproportionate so as to cause such overall
commitment to become excessive.
The Investor has been afforded the opportunity to ask questions of, and
receive answers from, the officers and/or directors of the Company acting on its
behalf concerning the terms and conditions of this transaction and to obtain any
additional information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information furnished; and has availed itself of
such opportunity to the extent the undersigned considers appropriate in order to
permit the undersigned to evaluate the merits and risks of an investment in the
Company. It is understood that all documents, records and books pertaining to
this investment have been made available for inspection, and that the books and
records of the Company will be available upon reasonable notice for inspection
by investors during reasonable business hours at its principal place of
business.
The Investor hereby agrees that the Company may insert the following or
similar legend on the face of the certificates evidencing the Shares and the
Note:
"These securities have not been registered under any state securities
laws and may not be sold or otherwise transferred or disposed of except
pursuant to an effective registration statement under any applicable
state securities laws, or an opinion of counsel satisfactory to counsel
to the Company that an exemption from registration under any applicable
state securities laws is available."
1
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The Company intends to use the proceeds received from the Investor in
connection with the costs and expenses related to its initial public offering.
This Agreement shall be governed by the laws of Florida and shall be
deemed entered into ______ ___, 1999.
INVESTOR COMPANY
_______________________ Bio-Aqua Systems, Inc.
By:___________________________ By:__________________________
Max Rutman, President
2
<PAGE>
These securities have not been registered under any state securities laws and
may not be sold or otherwise transferred or disposed of except pursuant to an
effective registration statement under any applicable state securities laws, or
an opinion of counsel satisfactory to counsel to the Company that an exemption
from registration under any applicable state securities laws is available.
PROMISSORY NOTE
$___,000
Palm Beach County, Florida ________, 1999
FOR VALUE RECEIVED, BIO-AQUA SYSTEMS, INC., a Florida corporation (the
"Maker") promises to pay to the order of ___________________ (the "Payee"), at
the earlier of (i) the closing of the Maker's underwritten public offering of
its securities or (ii) _____________, the principal sum of _ Thousand ($__,000)
Dollars in lawful money of the United States, in hand or at the principal office
of the Payee as may from time to time be designated by the Payee. This Note
shall bear interest on the unpaid principal balance at the rate of Eight Percent
(8%), payable at the time of the payment of the principal sum of this Note.
In the event of any default in any payment on this Note, then at the
option of the Payee, this Note shall bear interest computed from the date of
such default at one and one-half percent (1-1/2%) per month, but in any event
not in excess of the legally prescribed rate for instruments of this kind. The
term "event of default" as used herein, shall mean the failure of Maker to make
any payment of the principal or interest due under the Note, which failure shall
continue for five (5) days after notice of default, such notice to be delivered
to Maker by registered, certified or overnight mail duly recorded at the
principal office of the Maker.
An provision hereof which may prove unenforceable under any law shall
not affect the validity of any other provisions hereof.
Maker hereby waives presentment for payment, protest and notice of
protest and all other notices or demands in connection with the delivery,
acceptance, performance, default or endorsement of this Note.
This Note shall be governed by the laws of the State of Florida.
BIO-AQUA SYSTEMS, INC.
By:__________________________
Max Rutman, CEO
3
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 pr ovided 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.
<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.
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<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 $_____ 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:
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(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
4
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corporation (if it is other than the Company) in substantially the same
proportions as 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
5
<PAGE>
compensation plans and programs maintained for the benefit of the
Company's officers and employees;
(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);
6
<PAGE>
(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 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
7
<PAGE>
(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).
(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:
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<PAGE>
(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 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
9
<PAGE>
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 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 to the gay community 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.
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<PAGE>
(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.
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.
11
<PAGE>
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 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
Florida and Federal law 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 twelve (12) 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. Excise Tax
----------
(a) If, in connection with the termination of Executive's employment,
Executive shall be liable for the payment of an excise tax under Section 4999 of
the Code with respect to any payment of money or property made by the Company,
the Company shall pay to Executive an amount to indemnify Executive against such
excise tax and against any additional income and excise taxes imposed on him as
a result of such indemnification. With respect to any payment that is made to
Executive under the terms of this Agreement in the year of his termination of
employment and on
12
<PAGE>
which an excise tax under Section 4999 of the Code will be assessed, the payment
determined under this Section 15(a) shall be made to Executive not later than
thirty (30) days following his termination of employment. With respect to any
payment made under the terms of this Agreement in any other year and on which an
excise tax under Section 4999 of the Code will be assessed, the payment under
this Section 15(a) shall be made to Executive not later than December 31st of
the year in which the payment on which such excise tax will be assessed is made
to Executive or, if earlier, the date on which such tax is required to be
remitted to the Internal Revenue Service The payments made by the Company under
this Section 1 5(a) shall be determined by the Company on the basis of advice
from the firm of independent certified public accountants regularly retained by
the Company to audit its books and shall be subject to subsequent adjustment as
provided in Section 15(b).
(b) In the event that Executive's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount paid for such year pursuant to Section 15(a),
Executive or the Company, as the case may be, shall pay to the other party at
the time that the amount of such excise tax is finally determined, an
appropriate amount, plus interest, such that the payment made under Section
15(a), when increased by the amount of the payment made to Executive under this
Section 15(b) by the Company, or when reduced by the amount of the payment made
to the Company under this Section 15(b) by Executive, equals the amount finally
determined to have been properly payable to Executive under Section 15(a). The
interest paid under this Section 15(b) shall be determined at the rate provided
under Section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if
any, was paid to Executive under this Section 15, Executive shall furnish to the
Company a copy of each tax return which reflects a liability for an excise tax
payment under Section 4999 of the Code with respect to a payment made by the
Company, at least twenty (20) days before the date on which such return is
required to be filed with the Internal Revenue Service. If Executive fails to
furnish any such return by the prescribed date, then (i) the Company's payment
obligation hereunder shall be deferred until twenty (20) days after the date on
which such return is actually furnished and (ii) the Company shall have no
liability to indemnify Executive against any excess tax payment which the
Company reasonably believes to have been made in error.
Section 16. 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 17. 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
13
<PAGE>
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.
Section 18. 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 five (5) 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:
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
Section 19. 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 20. Counterparts
------------
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.
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Section 21. 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 22. 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 23. 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 24. 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 25. 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.
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.
15
<PAGE>
By: /s/ Claudius Wolf By: /s/ Guillermo Quiroz
---------------------- ----------------------------
Name: Claudius Wolf Name: Guillermo Qurioz
--------------------- -------------------------
Title: Chief Financial Officer
--------------------
and President
--------------------
16
EMPLOYMENT AGREEMENT
--------------------
This 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
GUILLERMO QUIROZ, ("Mr. Quiroz") whose address is General Ekdhal 159, Santiago,
Chile^, but shall be effective as of the effective date of the initial public
offering of the 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, Mr. Quiroz is currently serving as Chief Financial Officer and
President of Tepual S.A. and
WHEREAS, the Company desires to secure for itself the availability of
Mr. Quiroz's services; and
WHEREAS, for purposes of securing for the Company Mr. Quiroz's
services, the Board of Directors of the Company ("Board") has approved and
authorized the execution of this Agreement with Mr. Quiroz on the terms and
conditions set forth herein; and
WHEREAS, Mr. Quiroz upon the Effective Date is willing 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 Mr. Quiroz
hereby agree as follows:
Section 1. Employment
----------
The Company hereby agrees to the employment of Mr. Quiroz and Mr.
Quiroz hereby agrees to 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 two (2) 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.
Upon the Effective Date, any prior employment agreement
1
<PAGE>
between the Company and Mr. Quiroz then in effect shall terminate and shall have
no further force or effect.
Section 3. Duties
------
Mr. Quiroz shall serve as Chief Financial Officer, President and as a
Director of the Company. Mr. Quiroz's responsibilities, duties and authority as
Chief Financial Officer, President and a Director of the Company shall, subject
to the direction of the Board and the By-laws of the Company, Chilean law or any
applicable provision 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. Mr. Quiroz 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. Mr. Quiroz shall serve as Chief Financial Officer
and a Director 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 Mr.
Quiroz under this Agreement, the Company shall pay to Mr. Quiroz a salary at an
annual rate equal to One Hundred Thousand Dollars ($100,000). 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), Mr.
Quiroz shall be entitled to receive a bonus ^(initially for the first year of
this Agreement of up to $20,000), 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) Additional Annual Compensation. In addition to the salary provided
under Section 4(a) and the Bonuses provided under Section 4(b), Mr. Quiroz shall
be entitled to receive additional annual compensation of $7,500^ for automobile
expenses.
(d) ISAPRE. In addition to the compensation described in Sections 4(a),
(b) and (c) above, Mr. Quiroz 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).
2
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Section 5. Employee Benefit Plans and Programs
-----------------------------------
(a) Mr. Quiroz shall be entitled to a minimum of two (2) 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) Except as otherwise provided in this Agreement, Mr. Quiroz 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. Termination.
-----------
a. Termination Without Cause. Subject to the provisions of Section 6
and 7 of this Agreement, Mr. Quiroz's employment with the Company may be
terminated by either party upon ninety (90) days prior written notice of the
terminating party's intent to terminate Mr. Quiroz's employment with the
Company.
b. Termination by the Company for Cause.
------------------------------------
(1) Nothing herein shall prevent the Company from terminating
Mr. Quiroz's employment immediately for "Cause," as hereinafter
defined. Any rights and benefits Mr. Quiroz may have in respect of any
compensation shall be determined in accordance with the terms of such
other compensation arrangements or such plans or programs.
(2) "Cause" shall mean and include those actions or events
specified below in subsections (A) through (G) to the extent the same
occur, or the events constituting the same take place, subsequent to
the date of execution of this Agreement: (A) Failing, neglecting or
refusing to perform in any material respect any of Mr. Quiroz's duties
hereunder at the time; (B) Committing or participating in an injurious
act of fraud, gross neglect or embezzlement against the Company; (C)
committing or participating in any other injurious act or omission
wantonly, willfully, recklessly or in a manner which was grossly
negligent against the Company, monetarily or otherwise; (D) engaging in
a criminal enterprise involving moral turpitude; (E) conviction of an
act or acts constituting a felony under the laws of the United States
or Chile or any state or province thereof; (F) the death of Mr. Quiroz;
or (G) "disability" of Mr. Quiroz, as defined in Section 6(b)(4). No
actions,
3
<PAGE>
events or circumstances occurring or taking place at any time prior to
the date of this Agreement shall in any event constitute or provide any
basis for any termination of this Agreement for Cause;
(3) Notwithstanding anything else contained in this Agreement,
this Agreement will not be deemed to have been terminated for Cause
unless and until there shall have been delivered to Mr. Quiroz a notice
of termination stating that Mr. Quiroz committed one of the types of
conduct set forth in Section 6(b)(2) of this Agreement and specifying
the particulars thereof.
(4) For the purposes of this Agreement, Mr. Quiroz shall be
deemed to have become disabled if, because of ill health, physical or
mental disability or for other causes beyond Mr. Quiroz's control, Mr.
Quiroz shall have been unable or shall have failed to perform his
duties hereunder for a cumulative total of 180 days in any twelve-month
period, or if he shall have been unable or shall have failed to perform
his/her duties for sixty (60) or more consecutive days.
Section 7. Confidentiality Proprietary Information
---------------------------------------
(a) Unless he obtains the prior written consent of the Company (which
consent shall not be unreasonably withheld), Mr. Quiroz 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 7
shall prevent Mr. Quiroz, 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) Mr. Quiroz 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 Mr Quiroz's termination of employment.
Section 8. Solicitation
------------
4
<PAGE>
Mr. Quiroz 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
Mr. Quiroz'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 Mr. Quiroz'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 8(b) shall be construed
as prohibiting Mr. Quiroz 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 Mr. Quiroz has had substantial contact to terminate an
existing business or commercial relationship with the Company.
Section 9. Indemnification and Attorneys' Fees
-----------------------------------
The Company shall provide Mr. Quiroz 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. Mr. Quiroz 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 Mr. Quiroz's employment with the Company, subject to Chilean law, any
applicable provision of Florida and Federal law and the Articles of
Incorporation and Bylaws of the Company then in effect. The Company shall
indemnify and hold harmless Mr. Quiroz 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 Mr.
Quiroz 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
5
<PAGE>
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 Mr. Quiroz 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 Mr. Quiroz to the Company within twelve (12) 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 Mr.
Quiroz's employment with the Company and as to which Mr. Quiroz has been covered
by such applicable provisions
Section 10. Excise Tax
----------
(a) If, in connection with the termination of Mr. Quiroz's employment,
Mr. Quiroz shall be liable for the payment of an excise tax under Section 4999
of the Code with respect to any payment of money or property made by the
Company, the Company shall pay to Mr. Quiroz an amount to indemnify Mr. Quiroz
against such excise tax and against any additional income and excise taxes
imposed on him as a result of such indemnification. With respect to any payment
that is made to Mr. Quiroz under the terms of this Agreement in the year of his
termination of employment and on which an excise tax under Section 4999 of the
Code will be assessed, the payment determined under this Section 10(a) shall be
made to Mr. Quiroz not later than thirty (30) days following his termination of
employment. With respect to any payment made under the terms of this Agreement
in any other year and on which an excise tax under Section 4999 of the Code will
be assessed, the payment under this Section 10(a) shall be made to Mr. Quiroz
not later than December 31st of the year in which the payment on which such
excise tax will be assessed is made to Mr. Quiroz or, if earlier, the date on
which such tax is required to be remitted to the Internal Revenue Service The
payments made by the Company under this Section 10(a) shall be determined by the
Company on the basis of advice from the firm of independent certified public
accountants regularly retained by the Company to audit its books and shall be
subject to subsequent adjustment as provided in Section 10(b).
(b) In the event that Mr. Quiroz's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount paid for such year pursuant to Section 10(a), Mr.
Rutman or the Company, as the case may be, shall pay to the other party at the
time that the amount of such excise tax is finally determined, an appropriate
amount, plus interest, such that the payment made under Section 10(a), when
increased by the amount of the payment made to Mr. Quiroz under this Section
10(b) by the Company, or when reduced by the amount of the payment made to the
Company under this Section 10(b) by Mr. Quiroz, equals the amount finally
determined to have been properly payable to Mr. Quiroz under Section 10(a). The
interest paid under this Section 10(b) shall be determined at the rate provided
under Section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if
any, was paid to Mr. Quiroz under this Section 15, Mr. Quiroz shall furnish to
the Company a copy of each tax return which reflects a liability for an excise
tax payment under Section 4999 of the Code with respect to a payment made by the
Company, at least twenty (20) days before the date on which such return is
required to be filed with the Internal Revenue Service. If Mr. Quiroz fails to
furnish any such return by the prescribed
6
<PAGE>
date, then (i) the Company's payment obligation hereunder shall be deferred
until twenty (20) days after the date on which such return is actually furnished
and (ii) the Company shall have no liability to indemnify Mr. Quiroz against any
excess tax payment which the Company reasonably believes to have been made in
error.
Section 11. Successors and Assigns; Survivorship
------------------------------------
This Agreement will inure to the benefit of and be binding upon Mr.
Quiroz, 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 12. 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.
Section 13. 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 five (5) 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 Mr. Quiroz:
Tepual S.A.
General Ekdhal 159
Santiago, Chile
If to the Company:
General Ekdhal 159
==================
Santiago, Chile
===============
Attention: Claudius Wolf
=============
7
<PAGE>
with copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Attention: Brian Pearlman
Section 14. 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 15. Counterparts
------------
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 16. Governing Law
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of Chile, without reference to conflicts of law
principles.
Section 17. 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 18. Survival
--------
The rights and obligations of the Company and Mr. Quiroz under Sections
7, 8, 9 and 10 of this Agreement shall survive the termination or expiration of
this Agreement, notwithstanding anything contained herein to the contrary.
Section 19. Equitable Remedies
------------------
The Company and Mr. Quiroz hereby stipulate that monetary damages shall
be an inadequate remedy for violations of Sections 7, 8, 9 and 10 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 20. Entire Agreement, Modifications
-------------------------------
8
<PAGE>
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.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Mr. Quiroz has hereunto set his hand, all as of the day and year
first above written.
/s/ Guillermo Quiroz
---------------------------
Guillermo Quiroz
ATTEST: TEPUAL S.A.
By: /s/ Claudius Wolf By: /s/ Max Rutman
---------------------------- -----------------------
Claudius Wolf Name: Max Rutman
---------------------
Title: CEO
--------------------
9
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
SUBSIDIARIES OF BIO-AQUA SYSTEMS, INC.
1) Tepual, S.A. (99.9%)
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Form SB-2 being filed under the Securities
Exchange Act of 1934 by Bio-Aqua Systems, Inc. Corporation of our report dated
February 26, 1999, relating to our audits of the supplemental consolidated
financial statements of Bio-Aqua Systems, Inc. as of December 31, 1998 and 1997
and appearing in the aforementioned Form SB-2.
SPEAR, SAFER, HARMON & CO.
Certified Public Accountants
Miami, Florida
June 22, 1999
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 47,329
<SECURITIES> 0
<RECEIVABLES> 3,350,391
<ALLOWANCES> 0
<INVENTORY> 641,985
<CURRENT-ASSETS> 5,576,803
<PP&E> 2,318,665
<DEPRECIATION> (1,206,867)
<TOTAL-ASSETS> 7,836,732
<CURRENT-LIABILITIES> 4,128,872
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 3,251,723
<TOTAL-LIABILITY-AND-EQUITY> 7,836,732
<SALES> 1,391,358
<TOTAL-REVENUES> 1,391,358
<CGS> 999,015
<TOTAL-COSTS> 230,074
<OTHER-EXPENSES> 12,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,629
<INCOME-PRETAX> 58,706
<INCOME-TAX> 0
<INCOME-CONTINUING> 58,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-BASIC> (.03)
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</TABLE>
Jeannette Cherit Abuauad
Abogado
Propiedad Industrial, D Civil e D Comercial
Santiago, 21st of April, 1999
To Whom it May Concern:
The undersigned lawyer, with wide expertise in trademarks and patents,
hereby states the following:
- Trademarks are subjects to be negotiated, sold or transferred according to
the laws of each country in which they are registered.
- The foregoing mentioned transactions are frequent in a constantly growing
and expanding business community.
- The value of a trademark is set by agreement between the parties according
to market values assigned to them in relation to their current and estimated
potential business capacity.
- In my professional opinion, in the specific case of "TEPUAL" and "INUAL",
both are trademarks registered in seven countries and worldwide known.
During the past years they have developed business and provided revenues for
at least U$6 million a year. Accordingly a market value of U$1,3 million is
a reasonable price for both trademarks.
Yours sincerely,
/s/ Jeannette Cherit
-----------------------
Jeannette Cherit
Santiago, April 26, 1999
Mr.
Guillermo Quiroz L.
Corporate Finance Director
Tepual S.A.
Present
- -------
Dear Sir:
In response of your request, we are able to state that we are aware of
experiences in relation of valorization of trademarks, which also involved
transactions and negotiations regarding them.
To this matter we can point out that trademarks may constitute relevant assets
for a corporation when they are commercially established and formally
registered, even so to become in some cases the main substance of a business.
In this manner, it is quite difficult to assign a market based value, but it is
reasonable to assume that a trademark in the foregoing conditions may, for
example, represent 25% of the market value of the corporation, all this
restricted to market conditions and without considering special situations in
which this value may increase substantially.
With no further comments, we remain yours
Sincerely,
/s/ Heraldo Hetz Vorpahl
-----------------------------
Heraldo Hetz Vorpahl, Partner
Grant Thornton International
Auditores Consultores Ltda.
PTO-103X UNITED STATES DEPARTMENT OF COMMERCE
(Rev. 8-95) Patent and Trademark Office
ASSISTANT SECRETARY AND COMMISSIONER
FILING RECEIPT OF PATENTS AND TRADEMARKS
CORRECTED Washington, D.C. 20231
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICATION NUMBER FILING DATE GRP ART UNIT FIL FEE REC'D ATTORNEY DOCKET NO. DRWGS TOTAL CL IND CL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
09/009,863 01/22/98 1641 $672.00 7 20 3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LACKENBACH SIEGEL MARZULLO
ARONSON & GREENSPAN
ONE CHASE ROAD
SCARSDALE, NY 10583
Receipt is acknowledged of this nonprovisional Patent Application. It will be
considered in its order and you will be notified as to the results of the
examination. Be sure to provide the U.S. APPLICATION NUMBER, FILING DATE, NAME
OF APPLICANT, and TITLE OF INVENTION when inquiring about this application. Fees
transmitted by check or draft are subject to collection. Please verify the
accuracy of the date presented on this receipt. If an error is noted on this
Filing Receipt, please write to the Application Processing Division's Customer
Correction Branch within 10 days of receipt. Please provide a copy of the Filing
Receipt with the changes noted thereon.
Applicant(s)
JENNY BLAMEY, SANTIAGO, CHILE; MARIO CHIONG, SANTIAGO, CHILE;
CLAUDIA LOPEZ, SANTIAGO, CHILE; MARIA PAZ OCARANZA, SANTIAGO, CHILE;
JUAN HINRIKSEN, SANTIAGO, CHILE; NESTOR LAGOS, SANTIAGO, CHILE; MAX
RUTMAN, SANTIAGO, CHILE; SERGIO LAVANDERO, SANTIAGO, CHILE; ALFREDO DE
IOANNES, SANTIAGO, CHILE; ENRIQUE JAIMOVICH, SANTIAGO, CHILE; RAMON
LATORRE, SANTIAGO, CHILE.
FOREIGN APPLICATIONS - CHILE 143-97 01/24/97
TITLE * SMALL ENTITY *
IMMUNOASSAY FOR THE DETECTION AND QUANTITATION OF TOXINS CAUSING PARALYTIC
SHELLFISH POISONING
PRELIMINARY CLASS: 436
PTO-103X UNITED STATES DEPARTMENT OF COMMERCE
(Rev. 8-95) Patent and Trademark Office
ASSISTANT SECRETARY AND COMMISSIONER
FILING RECEIPT OF PATENTS AND TRADEMARKS
Washington, D.C. 20231
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICATION NUMBER FILING DATE GRP ART UNIT FIL FEE REC'D ATTORNEY DOCKET NO. DRWGS TOTAL CL IND CL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
08/890,594 07/09/97 3303 $451.00 P-1 4 26 1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LACKENBACH SIEGEL MARZULLO
ARONSON & GREENSPAN
ONE CHASE ROAD
SCARSDALE, NY 10583
Receipt is acknowledged of this nonprovisional Patent Application. It will be
considered in its order and you will be notified as to the results of the
examination. Be sure to provide the U.S. APPLICATION NUMBER, FILING DATE, NAME
OF APPLICANT, and TITLE OF INVENTION when inquiring about this application. Fees
transmitted by check or draft are subject to collection. Please verify the
accuracy of the date presented on this receipt. If an error is noted on this
Filing Receipt, please write to the Application Processing Division's Customer
Correction Branch within 10 days of receipt. Please provide a copy of the Filing
Receipt with the changes noted thereon.
Applicant(s)
NESTOR LAGOS, SANTIAGO, CHILE; MAX RUTMAN, SANTIAGO, CHILE;
JENNY BLAMEY, SANTIAGO, CHILE; MARIA PAZ OCARANZA, SANTIAGO,
CHILE; MARIO CHIONG, SANTIAGO, CHILE; JUAN PABLO HINRICHSEN,
SANTIAGO, CHILE, CLAUDIA LOPEZ, SANTIAGO, CHILE.
FOREIGN/PCT APPLICATIONS-CHILE 1525-96 08/29/96
TITLE * SMALL ENTITY *
PROCEDURE FOR DETOXIFICATION OF SHELLFISH, CONTAMINATED
WITH PARALYTIC SHELLFISH TOXINS
PRELIMINARY CLASS: 119
Jeannette Cherit Abouad, Esq.
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: _________, 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: _________, 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: _________, 1999.
/s/ Sergio Vivanco
--------------------
Sergio Vivanco
