<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
Commission File No. 000-18448 For the fiscal year ended December 31, 1995
--------- -----------------
AMERICAN CONSOLIDATED LABORATORIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2624130
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1640 N. Market Drive, Raleigh, North Carolina 27609
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(Address of principal executive offices) (Zip Code)
(919) 872-0744
--------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:
Common Stock, $0.05 Par Value
- ------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Registrant's revenues for year ended December 31, 1995 were $9,003,229. The
aggregate market value of the Common Stock of the registrant held by
non-affiliates as of February 28, 1996 was $374,222. The number of shares
outstanding of Common Stock of the registrant as of February 28, 1996 was
4,436,927.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Proxy Statement for Annual Meeting of Shareholders. (The Company intends to
file with the Commission a definitive proxy statement pursuant to Regulation
14A prior to April 30, 1996.)
<PAGE> 2
1995 Form 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE NO.
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 8
Item 6. Management's Discussion and Analysis 8
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 12
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and
Management 12
Item 12. Certain Relationships and Related Transactions 12
Item 13. Exhibits and Reports on Form 8-K 12
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL BACKGROUND American Consolidated Laboratories, Inc. ("the Company" or
"AC Labs") was formed in 1985 as a manufacturer of contact lenses. The name
was changed in September, 1994, following the installation of new management,
to better reflect the Company's aggressive acquisition strategy within the
regional contact lens lab and distributor industry. The Company has also
changed its overall focus from that of a full-line contact lens manufacturer of
soft and hard lenses to a manufacturer of rigid gas permeable lenses (RGPs) and
speciality soft lenses only, emphasizing multifocal lenses for the growing
presbyopic population, and to a distributor of soft lenses produced by all
major manufacturers.
On December 15, 1994, the Company acquired Carolina Contact Lens, Inc. ("CCL").
CCL is a leading East Coast manufacturer of RGP contact lenses, and
distributor of soft contact lenses produced by major national and international
manufacturers.
On May 1, 1995, the Company acquired certain assets of Philcon Laboratories,
Inc. ("Philcon"). Philcon is a leading distributor of RGP contact lenses and of
major brands of soft contact lenses in the greater Philadelphia area.
On January 5, 1995, the Company created a subsidiary, Salvatori Ophthalmic
Manufacturing Corporation ("SOMC"), which encompasses all of its speciality
soft contact lens manufacturing operations in Sarasota, Florida.
AC Labs produces simple to complex lens designs in RGP material, which can
provide crisp vision and long life, and in soft lens material which provides
good initial comfort. It also distributes a full line of traditional and
disposable soft contact lenses made by all of the major manufacturers.
Additionally, AC Labs produces and markets specialty lenses indicated for
keratoconus, post-keratoplasty, radial keratotomy, pediatric aphakia, and very
high degrees of myopia, hyperopia, and astigmatism.
The Company's corporate headquarters are in Raleigh, North Carolina, with
contact lens labs and distribution facilities in Lincoln, Nebraska, Sarasota,
Florida and Raleigh, North Carolina; and a sales and distribution facility in
Philadelphia, PA.
AC Labs is traded over-the-counter, and its symbol is EYES.
RGP and PMMA Lenses
The Company manufactures a full line of daily and extended wear contact lenses
from modern RGP polymers as well as replacement lenses made from older, hard
PMMA material. Lens designs range from simple spheres to complex toric,
bi-toric, bifocal, and multifocal models. Unfinished or semi-finished
"buttons" of approximately 25 different polymers are purchased from suppliers,
and then lathe-cut into prescription lenses when ordered by dispensing
ophthalmologists, optometrists, and opticians. These polymers are supplied to
the Company by a number of manufacturers, although primarily by Polymer
Technology Corp., a subsidiary of Bausch & Lomb, and Paragon Vision Sciences, a
subsidiary of Pilkington Barnes Hind, and are generally protected by patents.
The Company has no difficulty in obtaining an adequate supply of these
polymers.
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Soft Lenses
Through its SOMC subsidiary, the Company also manufactures a complete line of
extended wear spherical and daily wear toric lenses from 55% water methafilcon
A, and daily wear spheres from 38% water polymacon. The Company produces
methafilcon A under license from Kontour Kontact Lens Co., Inc. from generally
available chemicals, and purchases polymacon from a supplier in Sarasota,
although an alternative supplier is available if needed.
MANUFACTURED PRODUCT - ALL MANUFACTURED LENSES ARE WARRANTED TO BE FREE OF
DEFECTS.
Soft Lenses
The Company distributes virtually every brand of daily wear, extended wear,
disposable, and specialty soft contact lens of consequence available in the
United States. Principal vendors include Johnson & Johnson's Vistakon
subsidiary, Bausch & Lomb, CibaVision, Schering Plough's Wesley-Jessen
subsidiary, and Pilkington Barnes Hind.
Lens Care Products
The Company also distributes the Boston(R) line of RGP care products from
Polymer Technology Corp., along with certain other brands.
DISTRIBUTED PRODUCTS - Distributed products are covered by warranties from each
manufacturer.
MARKETING
The Company's products are sold directly to ophthalmic professionals
(ophthalmologists, optometrists, and opticians). These ophthalmic
professionals are in individual and group practices, members of health care
maintenance organizations, employees of chain operations, and members of buying
groups. One chain customer of SOMC accounted for approximately $761,000, or
8.5% and $950,000, or 23%, of 1995 and 1994 sales, respectively. Ophthalmic
professionals, in turn, provide corrective eyewear to approximately 60% of the
U.S. population, or about 155 million people, who require some form of vision
correction.1 This translates to a $12.9 billion total retail eyewear market.2
Within this total market, there are an estimated 28 million contact lens
wearers, of which over 85% are soft lens wearers. A sub-market of keen
interest to the Company is the approximately 75 million presbyopes, expected to
swell to 100 million by the turn of the century, who will require bifocal or
multifocal correction in order to see clearly at near point.
Company sales are generated by direct sales calls, telephone marketing, journal
advertising, trade show participation, and professional seminars. Sales
support is provided by contact lens design and fitting consultants and customer
service personnel. Generous exchange programs at low cost are also offered as
an aid to the fitter and as an inducement to purchase.
The Company markets its products in virtually every state, although sales are
concentrated to an extent in the Mid-atlantic states, the Mid-west, and the
North-east.
COMPETITION
The contact lens business is highly competitive. In the Company's core
business of manufacturing RGP lenses and distributing soft lenses, the Company
primarily competes with other local and regional labs, a few of which operate
nationally. There are an estimated 300 such labs manufacturing RGP lenses,
with average annual sales estimated in the $500,000 to $5,000,000 range. The
Company also competes for soft
- -------------------------------
1 "Focus On Contact Lenses 1994", 20/20 Magazine, January 1995, p. 54.
2 "State of the Market 1994 Report", 20/20 Magazine, January 1995, p. 32
Page 4
<PAGE> 5
lens orders with a few exclusive distributors which usually carry a
broader line of ophthalmic and office products.
In the manufactured soft lens business conducted by SOMC, the Company competes
with six major multinational firms which produce and sell over 90% of all soft
lenses consumed in the U.S. These firms are substantially larger and have
greater resources than the Company. This market is moving rapidly to
disposable and frequent replacement lenses, the production of which requires
sophisticated technology and dramatic capital investment. Thus, the
manufactured soft lens market is increasingly a difficult one for a niche
participant like SOMC, particularly with a limited research and development
budget.
TRADEMARKS, PATENTS, AND LICENSES
The Company owns seven U.S. trademarks, one of which is also registered in
Canada. The registered marks "Allvue," "BiVue," "Consta-Vu," "Sof-form," and
"Accuform" currently are in use. The Company occasionally uses the marks
"Comfort Control" and "The Tailors of Contact Lenses." AC Labs does not own
any patents.
The Company holds three manufacturing licenses. A nonexclusive license,
(expiring in 2006) is held from the estate of David Volk, M.D., to manufacture
certain aspheric RGP lenses and a soft multifocal lens sold under the trademark
"Allvue." The Company holds an ongoing license from Kontour Kontact Lens to
produce methafilcon A and contact lenses from that polymer. The Company also
has a license from Polymer Technology Corp. to produce RGP lenses from
Boston(R) lens polymer.
FDA AND ENVIRONMENTAL REGULATION
Virtually all of the products manufactured or distributed by the Company are
classified as medical devices, and are therefore regulated by the U.S. Food and
Drug Administration ("FDA"). FDA regulations govern products, manufacturing
procedures, and facilities.
A new medical device must be submitted to the FDA along with supporting
microbiological, toxicological, and clinical trial results to obtain approval
for a Pre-Market Application ("PMA"), necessary before the device can be
marketed. The approval process can take two years or more, and cost $100,000
or more.
The Company is also an FDA-approved alternate manufacturer for virtually every
RGP polymer under each supplier's PMA.
AC Labs is also subject to various environmental laws, with which it believes
it is in compliance. Most of this regulation applies to the proper handling,
storage, and disposal of chemicals used in manufacturing. The cost of
complying with applicable laws is not easily ascertained, but not significant
to the Company's operations.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are primarily devoted to
developing and enhancing lens designs, and qualifying as an FDA-approved
alternate manufacturing site for new RGP materials and designs. Total
expenditures in this area have been less than $100,000 per year in 1995 and
1994.
EMPLOYEES
As of December 31, 1995, the Company employed 109 individuals, of which 105
were full-time employees. The Company is not party to any collective
bargaining agreement, and believes that its relations with its employees are
good.
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ITEM 2. PROPERTIES
The Company owns two connected buildings comprising approximately 10,800 square
feet in Lincoln, Nebraska, which houses the S-O Nebraska manufacturing and care
products distribution operation. These two one-story buildings, one of which
is of steel construction and the other of which is brick masonry, are about 35
years old and in fair condition. Both are subject to liens held by Cornhusker
Bank, Tullis-Dickerson Capital Focus L.P. and David J. Dougherty securing their
respective loans to the Company. This facility is deemed adequate for the
anticipated needs of the Company.
In Sarasota, Florida, the Company leases a 12,000 square foot, single-story
concrete block building housing the SOMC manufacturing operation. The 10-year
lease runs until January 31, 2001, and includes an option to expand the size of
the facility to 15,000 square feet during the lease period. 1995 lease
payments were approximately $8,000 per month, and these payments increase by 3%
each year of the lease. Approximately 2800 square feet of this space is not
currently required, and the Company anticipates it will be sublet during the
first half of 1996.
In Raleigh, North Carolina, the Company leases a steel building of
approximately 6,000 square feet from the former owner of CCL, which operates
its manufacturing and distribution business from this facility. The five-year
lease, initiated in December, 1994, specifies monthly payments of $5,000. This
facility is fully utilized at present, but production can be readily expanded
by adding 2nd and 3rd shift operations. In addition, commencing on November 1,
1995, the Company leases approximately 1360 square feet of administrative space
in Raleigh at a monthly cost of $963 for the first three years, and $1,020 per
month for years four and five, of the five year lease. The Company's
headquarters were moved to Raleigh in 1995.
In Philadelphia, the Company leases a 2,000 square foot facility which houses
the Philcon distribution and sales facility. The five-year lease, commenced on
January 1, 1996, specifies monthly payments of $2,275, and with annual
increases of approximately 3 percent.
The Company's tangible property consists primarily of production equipment,
including manual, semi-automatic, and computer controlled lathes and polishers,
and computer hardware. This property is subject to liens held by a variety of
lenders, securing their loans to the Company.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The common stock of the Company is reported on the National Association of
Securities Dealers ("NASD") Electronic Bulletin Board, and is traded under the
symbol "EYES." The following high and low bid information was provided by the
National Quotation Bureau, Inc.:
<TABLE>
<CAPTION>
1995 1994
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 2 1/8 1/2 9/32 1/16
Second Quarter 5 1 1/2 9/32 1/8
Third Quarter 4 3/8 1 1/2 3/8 1/8
Fourth Quarter 2 1/4 3/8 1 1/8 1/4
</TABLE>
As of March 1, 1996, the Company had approximately 300 shareholders of record
and 1,000 beneficial owners of the Company's common stock.
No cash dividends have been declared or paid on the Company's common stock. A
provision of a loan agreement prohibits the Company from paying dividends.
Further, the Company has no plans for payment of cash dividends on stock until
earnings generate funds in excess of those required to provide for the growth
needs of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following selected financial data is qualified in its entirety by reference
to the more detailed consolidated financial statements and notes thereto
included elsewhere in this report:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31:
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1995 1994
<S> <C> <C>
NET SALES $9,003 $4,127
NET INCOME (LOSS) (2,094) 104
NET INCOME (LOSS) PER SHARE (0.51) 0.08
NET INCOME PER SHARE - FULLY DILUTED N/A 0.07
FINANCIAL POSITION AT YEAR END:
WORKING CAPITAL (DEFICIENCY) (890) (18)
PROPERTY AND EQUIPMENT, NET 621 572
TOTAL ASSETS 3,842 4,381
LONG-TERM DEBT 1,657 1,488
STOCKHOLDERS' EQUITY 70 1,753
</TABLE>
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995 ("1995") compared to the year
ended December 31, 1994 ("1994") increased 118% to $9,003,000 due almost
entirely to the acquisition of CCL (December 15, 1994) and the purchase of
certain assets from Philcon (May 1, 1995).
The Company incurred a net loss of $2,094,000 for the 1995 period, compared
to a net profit of $104,238 for the 1994 period. Management attributes the
loss for 1995 to: (i) increased general and administrative expenses related
to payroll and travel costs, (ii) new acquisitions related amortization
expenses, (iii) lower margins in the newly acquired soft lens distribution
business, (iv) expansion of the Company's sales force; and (v) deterioration of
service levels as a result of difficulties encountered with the installation of
a new Company computer system.
Sales of soft contact lenses and lens care products increased 229% in 1995 to
$6,397,000, compared to $1,945,000 in 1994. This increase is also due almost
entirely to the CCL and Philcon acquisitions. Sales of RGP contact lenses
increased by 19% in 1995 to $2,607,000 compared to $2,182,000 in 1994. This
increase is also due to the CCL and Philcon acquisitions.
1995 gross profit was $2,763,000, or 31% of sales, compared to $2,089,000, or
50% of sales in 1994. While gross profits are expected to increase in the
future in absolute terms, the growing impact of distributed soft lenses and
their correspondingly lower gross margins may continue to lead to lower gross
margin percentages in future years. The Company's goal is to manage this
business efficiently with sophisticated order entry, order fulfillment, and
shipping procedures so as to maximize net profits. However, 1995 gross profits
were impacted as management began to install these sophisticated systems, the
transition was slow and the Company experienced some inventory shortages and
shipment delays.
Selling expenses increased 139% in 1995 to $1,059,000 from $443,000 in 1994, as
a result of the CCL and Philcon acquisitions and the Company's hiring of a
limited outside sales force. However, most of this new sales force was
terminated during the 4th quarter of 1995 to reduce expenses. Marketing
expenses increased 111% in 1995 to $154,000 from $73,000 in 1994, and research
and development expenses decreased 10% to $56,000 in 1995, compared to $62,000
in 1994.
General and administrative expenses increased 139% in 1995 to $3,261,000
compared to $1,365,000 for 1994. This increase is attributable to CCL and
Philcon integration related expenses, payroll and travel expenses, and
acquisitions related amortization expense.
Interest expense increased to $215,000 in 1995 from $82,000 in 1994 due to the
increase of debt related to the CCL acquisition and the new mortgage on the
Lincoln property.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities during 1995 totaled $457,000, compared to cash
provided of $421,000 in 1994. For 1995, cash and cash equivalents decreased by
$283,000 to a year-end balance of $38,000.
Working capital deficit at December 31, 1995 was approximately $(890,000)
compared to $(18,000) at December 31, 1994. Although the Company experienced
strong sales growth as a result of the CCL and Philcon acquisitions, it made
substantial expenditures for all outside sales force, computer systems and
training and expenses related to various financing activities. Difficulties
associated with the installation of a new company computer system resulted in
customer orders failing to be filled and some customer defections resulted.
Sales in the fourth quarter were negatively impacted as customer returns from
late deliveries accumulated. Customer defections for poor service in the soft
lens distribution sector continued into 1996. Management believes that most
customers will return to ordering soft lenses and supplies from the Company,
but is aware that aggressive moves by competitors in the soft lens distribution
sector have had an impact on certain customers. Management believes that the
total impact is not major. Other sectors of the business experienced minimal
disruption and are back to normal operations.
Management believes that the computer software deficiencies have been rectified
and the software related issues are now behind it. Each segment of the
software system has been tested and currently operates smoothly.
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In July, the Company obtained a mortgage on its Lincoln, Nebraska, building for
$175,000. The proceeds were used for working capital. In the third quarter,
the Company borrowed $150,000 from Caribou Bridge Capital Corp. on a short-term
basis. Tullis-Dickerson Capital Focus, LP (TDCLP) has since purchased this
Note. During the fourth quarter, TDCLP has made substantial advances to the
Company to fulfill working capital needs on terms the Company believes are
competitive with outside sources.
Management, working to return to positive cash flow from operations, has
implemented programs intended to improve cash flow and maintain adequate cash to
support the operations of the Company. These programs include efforts to
increase sales, improve margins, decrease costs, and secure additional
financing. These measures have been put in place in December and have had a
positive impact on working capital in the first quarter of 1996. With the
release of several senior executives and many individuals in the outside sales
force, management believes that it has reduced operating expenses
substantially.
Management is currently negotiating with a number of outside financing sources
for a working capital facility, based on the inventory and accounts receivables
of the Company. There can be no assurance that such a working capital facility
can be put in place. If the Company is not successful in increasing sales over
1995 levels, decreasing costs, improving margins or securing additional
capital, the Company will not have adequate cash to meet its current
obligations and re-scheduling of its current obligations may be required.
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report, page 11.
Consolidated Balance Sheet as of December 31, 1995 and 1994,
pages 12 and 13.
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1994, page 14.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995 and 1994, page 15.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1994, pages 16 and 17.
Notes to Consolidated Financial Statements, pages 18 through 29.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
THE INFORMATION REQUIRED BY PART III OF FORM 10-KSB IS CONTAINED IN AND
INCORPORATED BY REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE
FILED PURSUANT TO REGULATION 14A FOR THE REGISTRANT'S ANNUAL MEETING OF
SHAREHOLDERS.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
THE EXHIBITS ARE LISTED IN THE INDEX TO EXHIBITS ON
PAGES 31 AND 32.
(b) Reports on Form 8-K
INCORPORATED BY REFERENCE.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
American Consolidated Laboratories, Inc.
Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of American
Consolidated Laboratories, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of American Consolidated
Laboratories, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company's loss from operations,
negative operating cash flows and working capital deficiency raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Deloitte & Touche LLP
Raleigh, North Carolina
April 15, 1996
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AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37,772 $ 320,948
Accounts receivable, less allowance for doubtful accounts of $216,000
and $90,000, respectively 635,032 998,907
Inventories, at lower of cost (first-in, first-out) or market 1,094,743 803,859
Other current assets 5,181 92,487
----------- ----------
Total current assets 1,772,728 2,216,201
----------- ----------
PROPERTY AND EQUIPMENT:
Land 50,000 50,000
Buildings and improvements 205,000 205,000
Laboratory equipment 1,114,567 998,911
Office equipment 320,607 323,360
Leasehold improvements 60,150 60,150
----------- ----------
Total property and equipment 1,750,324 1,637,421
Less accumulated depreciation 1,128,838 1,065,236
----------- ----------
Property and equipment, net 621,486 572,185
----------- ----------
OTHER ASSETS:
Cost in excess of fair value of assets acquired 828,419 813,419
Other intangible assets 865,034 740,000
Deferred loan costs 73,781 73,781
Miscellaneous 91,945 55,828
----------- ----------
1,859,179 1,683,028
Less accumulated amortization 411,835 90,098
----------- ----------
Total other assets, net 1,447,344 1,592,930
----------- ----------
TOTAL ASSETS $ 3,841,558 $4,381,316
=========== ==========
</TABLE>
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AMERICAN CONSOLIDATED LABORITIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,796,484 $ 903,000
Accrued expenses 260,097 175,930
Notes payable to stockholders 376,107 1,040,000
Current maturities of long-term debt and
obligation under capital lease 230,267 115,523
----------- ----------
Total current liabilities 2,662,955 2,234,453
----------- ----------
LONG-TERM DEBT:
Obligation under capital lease 34,565
Long-term debt, other 1,050,639 297,900
----------- ----------
Total long-term debt 1,050,639 332,465
----------- ----------
DEFERRED RENT 58,238 61,046
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value, 20,000,000
shares authorized; 4,436,927 and 3,823,048 issued
and outstanding, respectively 221,847 191,153
Capital in excess of par value 5,887,834 5,282,708
Receivable for shares issued as collateral (225,000)
Deficit (5,814,955) (3,720,509)
----------- ----------
Total stockholders' equity 69,726 1,753,352
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,841,558 $4,381,316
=========== ==========
</TABLE>
See notes to consolidated financial statements.
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AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
NET SALES $ 9,003,229 $4,126,685
COST OF SALES 6,240,575 2,037,420
----------- ----------
Gross profit 2,762,654 2,089,265
OPERATING COSTS AND EXPENSES:
Selling expenses 1,059,294 442,944
Marketing expenses 153,616 72,744
Research and development 56,435 61,815
General and administrative expenses 3,268,468 1,365,257
----------- ----------
Total operating costs and expenses 4,537,813 1,942,760
----------- ----------
Operating (loss) income (1,775,159) 146,505
OTHER INCOME (EXPENSES):
Interest expense (214,536) (82,034)
Other (expense) income (104,751) 39,767
----------- ----------
Total other expenses (319,287) (42,267)
----------- ----------
(Loss) income before income taxes (2,094,446) 104,238
INCOME TAXES
----------- ----------
NET (LOSS) INCOME $(2,094,446) $ 104,238
=========== ==========
Net (loss) income per common share - primary $ (0.51) $ 0.08
=========== ==========
Net (loss) income per common share - fully
diluted $ 0.07
=========== ==========
Weighted average shares outstanding - primary 4,091,549 1,306,705
=========== ==========
Weighted average shares outstanding - fully
diluted 1,561,720
=========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 14
<PAGE> 15
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RECEIVABLE
CAPITAL IN FOR SHARES
COMMON STOCK EXCESS OF ISSUED AS TREASURY
SHARES AMOUNT FAIR VALUE COLLATERAL DEFICIT STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 1,160,786 $ 58,040 $4,071,545 $ - $(3,824,747) $ (4,735) $ 300,103
Issuance of common stock 2,841,862 142,093 1,250,535 1,392,628
Purchase of treasury
stock (167,500 shares) (43,617) (43,617)
Retirement of treasury
stock (179,600 shares) (179,600) (8,980) (39,372) 48,352
Net income 104,238 104,238
--------- -------- ---------- ---------- ----------- -------- -----------
Balances, December 31, 1994 3,823,048 191,153 5,282,708 (3,720,509) 1,753,352
Issuance of common stock 613,879 30,694 605,126 (225,000) 410,820
Net loss (2,094,446) (2,094,446)
--------- -------- ---------- ---------- ----------- -------- -----------
Balances, December 31, 1995 4,436,927 $221,847 $5,887,834 $ (225,000) $(5,814,955) $ $ 69,726
========= ======== ========== ========== =========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
Page 15
<PAGE> 16
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,094,446) $ 104,238
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation 134,959 147,075
Amortization 321,663 38,945
Debt extension expense 8,125
Management fee expense 18,000
Changes in assets and liabilities:
Decrease in accounts receivable 438,875 80,741
Increase in inventories (290,884) (41,847)
Decrease in other current assets 87,306 33,155
Increase in accounts payable 893,484 171,755
Increase (decrease) in accrued expenses 29,167 (113,204)
Decrease in deferred rent (2,808) (152)
----------- -----------
Net cash (used in) provided by operating
activities (456,559) 420,706
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Carolina Contact Lens, Inc., net of cash acquired (1,811,996)
Purchase of equipment (84,260) (121,025)
Purchase of Philcon Laboratories assets (95,000)
Deferred acquisition costs (36,117)
----------- -----------
Net cash used in investing activities (215,337) (1,933,021)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt 592,000 860,000
Principal payments on long-term debt (242,975) (66,386)
Issuance of common stock 39,695 882,628
Purchases of treasury stock (43,617)
----------- -----------
Net cash provided by financing activities 388,720 1,632,625
----------- -----------
NET (DECREASE) INCREASE (283,176) 120,310
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 320,948 200,638
----------- -----------
CASH AND CASH EQUIVALENTS END OF YEAR $ 37,772 $ 320,948
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 16
<PAGE> 17
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following activities are applicable to the year ended December 31, 1995:
The issuance of a note payable in the amount of $125,000 to a shareholder of
Philcon Laboratories in conjunction with the purchase of certain assets of
Philcon Laboratories.
The issuance of 8,117 shares of common stock valued at $20,000 in conjunction
with the purchase of certain assets of Philcon Laboratories.
The issuance of 166,666 shares of common stock for the conversion of notes
payable to 3 employees in the aggregate amount of $250,000.
The issuance of 100,000 shares of common stock valued at $75,000 for the
conversion of a $55,000 note payable to a stockholder of the Company and
forgiveness of $20,000 of accrued interest payable.
The issuance of 150,000 shares of common stock valued at $225,000 and
recording of a receivable for $225,000 as collateral for a $150,000 term loan.
The following activities are applicable to the year ended December 31, 1994:
The issuance of 21,862 shares of common stock valued at $5,500 for services
rendered by 55 employees, including 2 officers of the Company. At the time of
issuance, the bid price for the Company's stock was $0.25 per share.
The issuance of 2,700,000 shares of common stock for $900,000 cash and the
conversion of a $450,000 term loan, less transaction costs of $17,000.
The issuance of 120,000 shares of common stock valued at $60,000 for financial
advisory services in connection with the CCL acquisition.
Taxes paid for all years presented is immaterial.
Interest paid during 1995 and 1994 was approximately $167,000 and $82,000,
respectively.
See notes to consolidated financial statements.
Page 17
<PAGE> 18
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of business
American Consolidated Laboratories, Inc. ("AC Labs") or (the "Company")
is in the business of manufacturing and distribution of contact lenses.
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
As shown in the 1995 consolidated financial statements, the Company
incurred a net loss as well as negative operating cash flows resulting
in a working capital deficiency of $890,227. These factors may
indicate that the Company may be unable to continue as a going concern.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts or classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a
timely basis, to obtain additional financing as may be required, and
ultimately to attain profitable operations and positive cash flows. New
senior management has been put in place with the expectation that they
will be able to increase sales through focused customer service,
institute appropriate cost control measures, and obtain additional
outside financing, if required. The Company's future plans include
possible acquisitions to increase the overall size and profitability of
the Company.
(b) Principles of consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, Salvatori Ophthalmic Manufacturing
Corporation ("SOMC") S-O Nebraska, Inc. (the "Lincoln division"),
and Carolina Contact Lens, Inc. ("CCL") which was acquired on December
15, 1994. The operating results of CCL are included in the Company's
consolidated results of operations from December 16, 1994 to
December 31, 1994.
(c) Depreciation and amortization
Property and equipment are depreciated over their estimated useful
lives using the straight-line method for both financial statement and
income tax purposes. Cost in excess of the fair value of assets
acquired and other intangible assets are being amortized on the
straight-line method over five to ten years. Deferred loan costs are
amortized on the interest method over the life of the related debt.
The operating loss for 1995 reflects a charge of approximately
$80,000 as a result of a change in the estimated amortization period of
goodwill related to the Lincoln division from forty to five years.
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<PAGE> 19
The Company assesses the recoverability of the excess of cost over fair
market value of net assets acquired and other intangible assets based
on management's projections of future discounted cash flows of the
respective operations.
(d) Deferred rent
The Company's operating lease on its laboratory and office facility
located in Sarasota, Florida commenced on February 1, 1991 and will
terminate on January 31, 2001. Rental expense for the ten year lease
period is recorded ratably in each accounting period although no lease
payments were due for a total of seven months during the initial year
of the lease and lease payments are lower during the earlier years of
the lease. The difference between the average rental expense recorded
and rental payments made during the earlier years of the lease is
recorded as deferred rent in the accompanying consolidated balance
sheets.
(e) Accrued expenses
Accrued expenses at December 31,1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Vacation pay $ 47,570 $ 54,400
Payroll 86,756 51,300
Interest 99,975 5,250
Other 25,796 64,980
-------- --------
$260,097 $175,930
======== ========
</TABLE>
(f) Net income per share
Net income per share was computed based upon the weighted average
number of shares outstanding during the period. Stock options and
warrants are not included in the per share calculations for 1995
because their inclusion would be anti-dilutive. For 1994, warrants and
stock options are included in the per share calculation.
(g) Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
(h) New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS 21"). SFAS 121 is generally effective for fiscal
years beginning after December 15, 1995 and applies to long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and to long-lived assets and certain
identifiable intangibles to be disposed of.
Page 19
<PAGE> 20
The FASB issued Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation ("SFAS 123") in October 1995.
SFAS 123 is generally effective for fiscal years beginning after
December 15, 1995 and applies to all arrangements by which employee
receives shares of stock or other equity instruments of the employer or
employer incurs liabilities to employees in amounts based on the price
of the employer's stock.
The Company has not adopted either SFAS 121 or SFAS 123 and has not
determined the effect, if any, of adopting these statements on the
Company's financial position and results of operations.
(i) Reclassifications
Certain amounts for 1994 have been reclassified to conform to the 1995
presentation.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. INVENTORIES
Inventories consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials $ 180,913 $172,988
Work in process 29,154 36,165
Finished goods 884,676 594,706
---------- --------
$1,094,743 $803,859
========== ========
</TABLE>
Page 20
<PAGE> 21
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Notes payable to Tullis Dickerson Capital Focus L.P. ("TDCFLP") $ 272,000 $ 60,000
Secured Convertible Term Promissory Note payable to TDCFLP 800,000 800,000
Convertible Subordinated Promissory Notes payable to CCL sellers - 250,000
Notes payable to The Oncologic Foundation, Inc. 22,500 37,500
Obligation under capital lease, payable to IBM Credit Corporation 27,762 77,661
Long-term debt, other 6,801 19,027
Note payable to David J. Dougherty 55,000 180,000
Note payable to Joe Kelly 125,000 -
Note payable to SouthTrust Bank 25,400 63,800
Note payable to Cornhusker Bank 172,550 -
Note payable to The Caribou Bridge Fund 150,000 -
---------- ----------
1,657,013 1,487,988
Less current maturities 606,374 1,155,523
---------- ----------
$1,050,639 $ 332,465
========== ==========
</TABLE>
On August 15, 1992, the Company completed a financing transaction with
David J. Dougherty, former Chairman and President of the Company, whereby
Mr. Dougherty made a loan to the Company totaling $180,000. (See Note 4).
Mr. Dougherty was also granted warrants to purchase 60,750 common shares of
the Company at a price of $0.15 per share. Interest is payable monthly at
a bank's prime rate plus 5% (13.5% at December 31, 1995). The loan was
originally due on September 30, 1995. During 1995, the Company issued
3,000 shares of common stock to Mr. Dougherty to extend the maturity date
of the note. The remaining principal balance is payable in monthly
installments beginning January 30, 1996 through June 30, 1996. The note is
convertible into common stock of the Company at any time after April 15,
1996 at the option of Mr. Dougherty. The number of shares issued upon
conversion is based on a conversion price defined in the extension
agreement.
The Company completed a financing transaction with Tullis-Dickerson Capital
Focus L.P. ("TDCFLP") on September 16, 1991 whereby TDCFLP loaned the
Company $510,000 with principal payable in August 1995. At the time of the
transaction, TDCFLP was the owner of
Page 21
<PAGE> 22
approximately 49% of the Company's outstanding common stock. Interest
is payable quarterly at 6%. TDCFLP was also granted a warrant to purchase
100,000 shares of the Company at a price of $0.75 per share. The Company
determined the fair value of the underlying common stock to be $1.50 per
share at the date of issuance of the warrant resulting in a financing cost
of $75,000. On December 15, 1994, as part of the CCL transaction described
in Note 9, the Company issued TDCFLP 900,000 shares in exchange for the
reduction of the outstanding balance of the note by $450,000. In March of
1995, TDCFLP exercised the warrants. Consideration for the shares was
the reduction of the notes outstanding principal by $55,000 and a $20,000
forgiveness of accrued interest payable to TDCFLP Accordingly, at December
31, 1995, the outstanding principal balance of the note totaled $5,000.
In order to complete the CCL transaction, TDCFLP loaned the Company
$800,000 in the form of a bridge loan. The Secured Convertible Term
Promissory Note is due September 30, 1997. Interest is payable quarterly
at a rate of 15.25%. At December 31, 1995 and 1994, interest owed to TDCFLP
totaled approximately $85,000 and $3,000, respectively. TDCFLP may convert
the note into common stock of the Company as determined by dividing the
aggregate amount of unpaid principal and/or accrued interest by the
conversion price of $2.38 until maturity. After the maturity date, the
conversion price will become $.50.
The Company received additional financing from TDCFLP during November and
December of 1995 in the amount of $267,000. Subsequent to December 31,
1995, the additional financing was consolidated with advances made in
January and February, 1996. The consolidated note is payable at varying
amounts and dates beginning June 30, 1996 through August 5, 1996. Interest
is payable at 13.5% until maturity and 19.5% after maturity.
All of the TDCFLP financing is secured by substantially all inventories and
property and equipment. In addition, the Company is prohibited by its
agreement with TDCFLP from paying any dividends.
On October 17, 1995, the Company completed a financing transaction with The
Caribou Bridge Fund, LLC ("CBF"), whereby CBF made a loan to the Company in
the amount of $150,000 secured by 150,000 shares of the Company's common
stock held by an escrow agent and a first priority lien on the Company's
assets. As additional consideration for the loan, the Company granted CBF
a warrant to purchase up to 20,000 common shares of the Company's common
stock at a price of $.10 per share. The outstanding principal balance of
the CBF note was paid subsequent to January 31, 1996.
The Company entered into a loan agreement with a bank on June 28,1995 in
the amount of $175,000. The loan is secured by a deed of trust on real
property at the Lincoln site. The terms call for monthly payments of
principal and interest of $1,935 to commence on July 28, 1995 until June
28, 2000 with a balloon payment covering any remaining principal and unpaid
interest. The outstanding principal balance at December 31, 1995 was
$172,550.
The Company has a $25,400 loan payable to a bank secured by a blanket lien
on all machinery and equipment at the Raleigh facility. The terms call for
monthly payments of $3,200. Interest is payable at 9.00% at December 31,
1995.
Page 22
<PAGE> 23
As a part of the CCL transaction described in Note 9, the selling
shareholders agreed to accept $250,000 of Convertible Subordinated
Promissory Notes. The three note holders are key employees of CCL, one of
which is party to an Employment Agreement, Non-Compete Agreement, and Real
Property Lease all described in Note 8. The notes were automatically
converted into 166,667 shares of the Company's common stock in August of
1995.
In connection with the Philcon Purchase described in Note 9, the selling
shareholder agreed to accept a $125,000 Subordinate Promissory Note. The
note holder is a key employee of Philcon Labs and is party to a Non-Compete
Agreement and a Real Property Lease all described in Note 8. Interest is
payable at 12%. The note was originally scheduled to mature on October 1,
1995. As consideration for the extension of the maturity date, the Company
issued the note holder 2,000 shares of common stock. Upon amendment of the
note effective January 1, 1996, accrued interest of $10,000 was included in
the balance for a total note balance of $135,000. The amended Note calls
for principal and interest payments to be made in 28 monthly installments
of $5,787 beginning on February 10, 1996.
On December 13, 1991, the Company issued a promissory note to The
Oncologic Foundation, Inc. for $75,000. The note is payable over a period
of five years with quarterly payments of $3,750 in principal plus interest
on the outstanding balance at 12%. The loan is due on January 1, 1997 and
is secured by equipment having an approximate carrying value of $74,500 at
December 31, 1995. Interest expense for 1995 and 1994 was approximately
$3,375 and $5,175, respectively. In connection with the note, the Company
provided The Oncologic Foundation, Inc. a warrant to acquire 1,200 shares
of the Company's common stock at a price of $.75 per share. The warrant
expires 30 days following the full repayment of the promissory note.
The aggregate annual maturities of debt for years 1996 through 2000 and
thereafter are $606,374; $867,013; $28,917; $7,323; and $147,386,
respectively.
4. COMMON STOCK
As a part of its investment agreement with the Company, Tullis-Dickerson
has the right to select one-half of the directors of the Company by an
appropriate increase, when necessary, in the number of directors who serve
on the Company's Board of Directors. The Company also agreed to provide
Tullis-Dickerson with certain registration rights with respect to its
common stock investment. At December 31, 1995, TDCFLP owned approximately
64% of the Company's common stock.
On January 28, 1993, the Board of Directors awarded an officer and director
15,000 shares of its common stock and granted the officer and director an
option to buy 25,000 shares of common stock at $0.125 per share. The
option was in addition to options for the purchase of 5,000 shares of
common stock at $3.75 which the officer previously was granted under the
1989 Stock Option Plan. In August, 1994, this officer and director
resigned, although he continued to serve the Company as a financial
advisor. On December 21, 1994 the Board of Directors agreed to immediately
vest any unvested options granted. The option to purchase 25,000 shares
was exercised in October of 1995. Effective April 15, 1996, this former
officer and director was named Chief Executive Officer of the Company.
On April 28, 1993, the Board of Directors granted an officer an option to
buy 5,000 shares of its common stock at $0.125 per share. On November 24,
1993, the Board of Directors granted this same officer an option to buy
15,000 additional shares of its common stock at $0.125 per share. Both of
Page 23
<PAGE> 24
these options are exercisable ratably on the first, second, and third
anniversary of the respective grants and expire five years from the date of
such grants. In addition, on November 24, 1993 the Board of Directors
awarded this officer 1,000 shares of its common stock. On May 26, 1994 the
Board of Directors agreed to a Executive Incentive Agreement with this
officer as described in Note 8. One of the provisions of such
agreement provides for the acceleration of vesting of these options should
this officer's employment with the Company terminate.
On November 24, 1993, the Board of Directors awarded a third officer 1,000
shares of its common stock and the Company also granted this officer an
option to buy 15,000 shares of common stock at $0.125 per share. On August
14, 1994 the Board of Directors agreed to a Salary Retention Agreement with
this officer as described in Note 8. One of the provisions of such
agreement provides for the acceleration of vesting of these options should
this officer's employment with the Company terminate. The option to
purchase 15,000 shares was exercised in September of 1995.
During May 1994, the Board of Directors approved the 1994 Restricted
Stock Bonus Plan (the "Stock Plan"). The Stock Plan provides for a bonus to
certain salaried and hourly employees who agreed to accept reduced salaries
or working hours during 1992 and 1993 at the Company's Lincoln and Sarasota
facilities. The bonus consisted of a one time stock grant to the eligible
employees based on the amount of reduced wages the employees were subject to
during 1992 and 1993. For every $5.00 of reduced wages, eligible employees
received one share of common stock. A total of 21,862 shares were issued
under this program to 55 eligible employees, including two officers. The
Company's obligation for the stock issued to these employees was accounted
for as a 1994 expense equal to the estimated fair market value of the stock
on the date of issuance ($5,467).
During August 1994, the Board of Directors approved the Company's purchase
from David J. Dougherty of the 167,500 shares of common stock he held.
(See Note 3) The negotiated purchase price was $43,617. Mr. Dougherty
held warrants for 60,750 shares of common stock at $0.15 per share. In
August 1995, all of the warrants were exercised.
During May 1995, the Company issued 10,636 shares to James Tullis and 5,318
shares to Thomas Dickerson in lieu of a cash payment for management fees.
The Company determined the fair value of the common stock to be $1.13 at
the date of payment, resulting in a reduction to accrued expense of
$18,000.
In connection with the CCL transaction as described in Note 9, the Company
entered into a Stock Purchase and Term Loan Agreement, dated as of
August 15, 1994, with TDCFLP. Pursuant to this agreement, TDCFLP purchased
an additional 2,220,000 shares of common stock of the Company for $660,000
in cash and cancellation of $450,000 of its $510,000 term loan. In
addition, TDCFLP made an additional loan of $800,000 to the Company. The
$0.50 per share price was determined by the two non-TDCFLP directors and
confirmed by an Independent Investment Banking review. As part of the
employment agreements described in Note 8, two executive officers of the
Company each purchased 300,000 shares of common stock for $150,000. Net
proceeds to the Company, after approximately $17,000 in costs incurred in
completing the transaction, were approximately $1,393,000. When these
shares were issued, the Company also retired all 179,600 shares of treasury
stock with a related total cost of approximately $48,000.
Page 24
<PAGE> 25
In connection with the Philcon purchase as described in Note 9, the Company
issued 8,117 shares of common stock to Philcon's sole stockholder. The
Company determined the fair value of the shares to be $2.46 at the date of
the purchase, resulting in an increase in the purchase price.
As part of the loan agreement with Caribou Bridge Fund, the Company issued
150,000 shares of common stock to an escrow agent as collateral. (See Note
3). A receivable for the shares issued to the escrow agent is presented
in the balance sheet as a reduction of stockholders' equity since no
consideration for the shares had been received as of December 31, 1995.
These shares were returned to the Company after year end as debt was paid.
5. STOCK OPTIONS
The Company has granted to certain officers, directors, employees and
consultants qualified and nonqualified stock options for the purchase of
the Company's common stock through various stock option plans and through
other grants of stock options. Stock options are generally granted with a
five year expiration following the date of grant. In certain instances,
the right of the recipient to exercise the stock options vests ratably over
a period of two or more years. The following summarizes stock options
granted and outstanding for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
<S> <C> <C>
Outstanding, December 31, 1993 82,663 $0.125 to $6.25
1994:
Granted 605,000 $0.50 to $1.125
Exercised -
Expired 2,663 $2.50 to $6.25
-------
Outstanding, December 31, 1994 685,000 $0.125 to $3.00
1995:
Granted -
Exercised 109,390 $0.125 to $0.50
Expired -
-------
Outstanding, December 31, 1995 575,610 $0.125 to $3.75
=======
</TABLE>
As of December 31, 1994, all outstanding stock options issued prior to 1993
were exercisable. Options issued during 1993 are exercisable ratably over
three years, unless vesting was accelerated as outlined in Note 4, or as
part of an employment agreement as outlined in Note 8.
As of December 31, 1995, the Company has reserved a total of 770,000 shares
for options, warrants and convertible debt.
Options for 297,500 shares were granted during 1994 to the Chief Executive
Officer and the former ex-Chief Operating Officer under the terms of their
respective employment agreements described further in Note 8, and 10,000
shares to the Company's General Counsel. In 1995, the Chief Executive
Officer exercised 39,390 options and the former ex-Chief Operating Officer
exercised 30,000 options. Subsequent to December 31, 1995, the remaining
options held by the former ex-chief Operating Officer expired prior to
exercise.
Page 25
<PAGE> 26
6. INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards No. 109
("FAS 109"), Accounting for Income Taxes. SFAS 109 requires a change from
the deferred method to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes
are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statements carrying amounts and the tax
basis of existing assets and liabilities. Under prior rules, deferred
taxes were determined using the rates in effect at the time the tax asset
or liability was recorded. Under SFAS 109, the effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company files a consolidated federal income tax return with its
subsidiaries. Due to its net operating loss position, the Company recorded
no provision for income taxes in 1995, 1994, and 1993.
The federal net operating loss carryforward at December 31, 1995 is
approximately $5,035,807. The Company had an ownership change in 1990 as
defined by Internal Revenue Code Section 382. Of the amount of the federal
net operating loss carryforward which was generated prior to the ownership
change, $181,094 has been utilized to date and up to $682,228 and $5,376
may be utilized in the years 1996 and 1997, respectively. Any portion of
the allowed "pre-ownership change" losses not utilized in any year will
carryforward to the following year subject to the 15 year limitation on
carryforward of net operating losses. The net operating loss of
approximately $4,167,109 generated after the ownership change is not
subject to any annual limitation. The total net operating loss
carryforward expires $671,109, $23,892, $601,349, $1,642,677, $1,783,
$461, and $2,094,446 in years ending December 31, 2003, 2005, 2006, 2007,
2008, 2009, and 2010, respectively. As of December 31, 1995, state net
operating loss carryforwards totaled approximately $3,315,648 and are
likewise subject to various Section 382 limitations.
The components of the net deferred tax assets and liabilities under SFAS
109 consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Federal Net Operating Loss $ 1,712,174 $ 1,059,343
State Net Operating Loss 134,583 79,195
Other 128,677 142,408
------------ ------------
Gross Deferred Tax Assets 1,975,434 1,280,946
Less: Valuation Allowance (1,975,434) (1,280,946)
------------ ------------
Net Deferred Tax Assets $ 0 $ 0
============ ============
</TABLE>
These net deferred tax assets are subject to a valuation allowance for the
full amount of such assets. The valuation allowance is equal to the
portion of the deferred tax asset for which it is not more likely
Page 26
<PAGE> 27
than not that a tax benefit will be realized. However, it will be
possible for the Company to reduce the valuation allowance and utilize its
deferred tax assets at the time future income is generated.
7. LEASES
The Company leases computer equipment under a capital lease which expires
in 1996 and has a capitalized cost of $195,470. The computer equipment was
placed in service during January 1992.
Following is a schedule of future lease payments required under the capital
lease as of December 31, 1995:
<TABLE>
<S> <C>
1996 29,230
--------
Total minimum lease payments 29,230
Less: Amount representing interest 1,468
--------
Present value of minimum lease payments $ 27,762
========
</TABLE>
Lease obligations include operating leases on laboratory and office
facilities for the Company. The following is a schedule of annual future
minimum rental payments required under operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of
December 31, 1995:
<TABLE>
<S> <C>
Year ending December 31:
1996 $192,516
1997 193,823
1998 196,480
1999 195,922
2000 142,844
--------
$921,585
========
</TABLE>
Lease expense for all operating leases approximated $184,650 and $136,000
for the years ended December 31, 1995 and 1994, respectively.
As part of the CCL transaction (Note 9) the Company's CCL unit leases
laboratory and office facilities from the former owner of CCL. This former
owner is a key employee of CCL and is party to an Employment Agreement,
Non-Compete Agreement, and Real Property Lease. The lease calls for
monthly rent of $5,000 through December 14, 1999, with real property taxes
and insurance being the responsibility of the Lessor.
Page 27
<PAGE> 28
8. EMPLOYMENT AGREEMENTS
During 1994, the Company's Board of Directors adopted employment contracts
with a new Chief Executive Officer and a new Chief Operating Officer. Both
contracts provide for minimum annual salaries of $85,000 and annual bonuses
based on the executive's performance and the price of the Company's stock.
Although the contracts expire in August 1997, they can be terminated sooner
with severance payments of approximately $85,000 or 5% of the Company's
earnings before interest, taxes, depreciation and amortization ("EBITDA")
for the four full fiscal quarters immediately preceding termination. The
employment agreements also contained provisions to reimburse these
individuals up to $150,000 of certain transaction expenses upon completion
of the acquisition of CCL. Pursuant to this provision, the Company
reimbursed these individuals approximately $90,000.
In addition to the 300,000 shares acquired by the new Chief Executive
Officer and Chief Operating Officer pursuant to agreements described in
Note 4, each executive was granted options to purchase 297,500 shares of
the Company's stock at $.0.50 per share. (See Note 5). The exercise
dates of these options vary from December 15, 1994 through June 30, 2001.
At December 31, 1995, 171,340 shares of the Chief Executive Officer's
options were exercisable. Subsequent to December 31, 1995, all of the
former Chief Operating Officers options expired.
The Company completed a termination agreement with the former Chief
Operating Officer of the Company for the payment of approximately $39,000
beginning in June, 1996 for bonus amounts due the officer, accrued vacation
and unpaid wages. As part of this agreement, the Company has agreed to
purchase 300,000 shares of common stock from the officer for $150,000 with
monthly payments of $7,500 over 20 months beginning March 15, 1996.
9. BUSINESS ACQUISITIONS
Effective May 1, 1995, the Company acquired certain assets and assumed
certain liabilities of Philcon Laboratories, Inc. ("Philcon"). The
purchase price was approximately $240,000 plus assumed liabilities and
included a non-compete agreement with the Seller.
Page 28
<PAGE> 29
On December 15, 1994, the Company acquired the common stock of Carolina
Contact Lens, Inc. in exchange for $1,400,000 in cash and $250,000 of
Convertible Subordinated Promissory Notes. In addition, the Company
incurred approximately $225,000 of transaction costs which have been added
to the purchase price.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the fair market
value of assets acquired (approximately $1,531,000, net of cash acquired of
approximately $86,000, consisting primarily of accounts receivable and
inventory) and the liabilities assumed (approximately $621,000) at the date
of acquisition. The purchase price associated with the acquisition was
assigned to various intangible assets as indicated below:
<TABLE>
<S> <C>
Assembled Work Force $ 365,000
Goodwill 308,500
Active Customer List 300,000
U.S. Trademark 50,000
Non-Compete Agreement 25,000
----------
$1,048,500
==========
</TABLE>
The operating results of CCL from December 16, 1994 to December 31, 1994
are included in the Company's consolidated results of operations for the
year ended December 31, 1994.
10. SIGNIFICANT CUSTOMER
One chain customer of the Company accounted for approximately $761,000, or
8%, of 1995 sales and $950,000, or 23% of 1994 sales. Receivables
outstanding from these sales were approximately $140,000 and $161,000 at
December 31, 1995 and 1994, respectively. The contract with this customer
is scheduled to expire during April 1996.
Page 29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN CONSOLIDATED LABORATORIES, INC.
(Registrant)
By: /s/ Joseph Arena
-----------------------------------
Joseph Arena
Chief Executive Officer
Date: April 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 15th day of April, 1996.
Signature Title
- --------- -----
/s/ Thomas P. Dickerson Chairman of the Board
- -----------------------
Thomas P. Dickerson
/s/ Joan P. Neuscheler Director
- -----------------------
Joan P. Neuscheler
/s/ James L. L. Tullis Director
- -----------------------
James L. L. Tullis
Page 30
<PAGE> 31
ITEM 13(a) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporated by
Reference to
<S> <C> <C>
3.1 Certificate of Incorporation Exhibit 3.1 to Quarterly Report
on Form 10-Q for the quarter
ended March 31, 1992
3.2 Articles of Amendment Exhibit 3.2 to Form 10KSB
for the Fiscal Year Ended
December 31, 1994
4.1 1994 Incentive and Non- Exhibit 4.1 to Form 10KSB for the
Statutory Stock Option Plan Fiscal Year Ended December 31, 1994
10.2 Agreement between Registrant Exhibit 10.61 to Quarterly Report on
and Kontur Kontact Lens Co., Form 10-Q for quarter ended June 30,
March 1, 1988 1988
10.3 Lease Agreement between Exhibit 10.1 to Quarterly Report
Registrant and High Properties on Form 10-Q for quarter ended
June 11, 1990 June 30, 1990
10.4 Financing Agreement between Exhibit 10.1 to Quarterly
Registrant, S-0 Nebraska, Inc. Report on Form 10-Q for
and TDCFLP, September 13, 1991 quarter ended September
30, 1991
10.5 Term Note between Registrant Exhibit 10.2 to Quarterly
and TDCFLP, September 16, Report on Form 10-Q for
1991 quarter ended September 30,
1991
10.6 Share Purchase and Stockholder Exhibit 2 to Current Report on
Agreement between Registrant, Form 8-K, dated December 29,
TDCFLP, Wayne Upham Smith, 1994
and Grady A. Deal
10.7 Employment Agreement, Wayne Exhibit 3 to Current Report on
Upham Smith, December 15, Form 8-K, dated December 29,
1994 1994
10.8 Employment Agreement, Grady Exhibit 4 to Current Report on
A. Deal, December 15, 1994 Form 8-K, dated December 29,
1994
10.9 Secured Convertible Term Exhibit 6 to Current Report on
Promissory Note between Form 8-K, dated December 29, 1994
Registrant and TDCFLP December
15, 1994; and Stock Purchase and
Term Loan Agreement between
Registrant and TDCFLP, August 15,
1994
</TABLE>
Page 31
<PAGE> 32
<TABLE>
<S> <C> <C>
10.10 Financial Advisory Services Exhibit 7 to Current Report
Agreement between Registrant and on Form 8-K, dated December 29,
TDCFLP, August 15, 1994 1994
10.11 Secured Convertible Term
Promissory Note dated as of
December 14, 1994, (as amended
and restated as of June 15,
1995) from the Company to
Tullis-Dickerson Capital Focus,
L.P. and amendment of
Promissory Note dated February
15, 1996
10.12 Amended and Restated
Convertible Promissory Note
dated February 15, 1996 from the
Company to Tullis-Dickerson
Capital Focus, L.P. and related
Warrants.
11.1 Computations of Earnings Per Included in this Report
Share for the Years Ended
December 31, 1994 and 1993
Included in this report
23/A Consent of Deloitte & Touche LLP
</TABLE>
ITEM 13(b) REPORTS ON 8-K
1. Item 2. Acquisition or Disposition of Assets, filed December 29, 1994.
2. Item 7. Financial Statements and Exhibits, filed February 27, 1995.
Page 32
<PAGE> 33
AMERICAN CONSOLIDATED LABORATORIES, INC.
(FORMERLY SALVATORI OPHTHALMICS, INC.)
COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994(a)
<S> <C>
Net income $ 104,238
----------
$ 104,238
==========
Common stock:
Weighted averages shares outstanding 1,306,705
Dilutive effective of outstanding options,
convertible debt, and warrants (as determined
by the application of treasury stock method) 255,015
----------
1,561,720
==========
Net income per common share - fully diluted $ 0.07
==========
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-B item
60(b)(11).
(b) Addition to income for interest $3,817 of debt converted - considered, but
has no effect on fully diluted earnings per share.
Page 33
<PAGE> 1
AMERICAN CONSOLIDATED LABORATORIES, INC.
SECURED CONVERTIBLE TERM PROMISSORY NOTE
(AS AMENDED AND RESTATED AS OF JUNE 15, 1995)
$800,000 DECEMBER 15, 1994
FOR VALUE RECEIVED, AMERICAN CONSOLIDATED LABORATORIES, INC.,
a Florida corporation (the "Borrower") hereby promises to pay to the order of
TULLIS-DICKERSON CAPITAL FOCUS, L.P., a Delaware limited partnership (the
"Lender"), at its principal place of business and chief executive office
located at One Greenwich Plaza, Greenwich, Connecticut, on the first to occur
of:
(a) September 30, 1997;
(b) demand by the holder following a Default (as such term is
defined in the 1994 Security Agreement referred to below);
(c) funding of any equity or debt financing of, or borrowing
by, the Borrower, other than (i) a working capital debt or
equity financing, when aggregated with any prior working
capital financings not provided by the Lender, not in excess
of $500,000, or (ii) any equity or debt financing in
connection with an acquisition for a consideration, when
aggregated with the consideration for any prior acquisitions
consummated after June 15, 1995, not exceeding $2,000,000; or
(d) the voluntary termination of employment with the Borrower
by both of Wayne U. Smith and Grady A. Deal;
(each of the foregoing events being the "New Maturity Date");
the principal sum of EIGHT HUNDRED THOUSAND DOLLARS ($800,000) (or, if less,
such amount as shall equal the aggregate unpaid Obligations (as defined in the
Term Loan Security Agreement referred to below) of the Borrower), in lawful
money of the United States of America and in immediately available funds, and
to pay interest on the unpaid principal amount of the Obligations, at such
office, in like money and funds:
(i) for the period commencing on the date hereof until and including
June 15, 1995 (the "Original Maturity Date") at a rate per annum equal
to nine-and-one-quarter percent (9-1/4%); and
(ii) after the Original Maturity Date and until and including
September 30, 1995, at a rate per annum of twelve-and-one-quarter
percent (12-1/4%), which rate shall increase by three percent (3%) on
each succeeding October 1, January 1, April 1 and July 1 that all or
any part of the principal of and accrued interest on this Note
<PAGE> 2
remains unpaid, provided, however, that the rate of interest shall not
exceed the then applicable legal rate.
Interest shall be computed based upon a 360-day year and the
actual number of days elapsed. Until the New Maturity Date, accrued interest
shall be paid quarterly, in immediately available funds, on the first banking
day of each calendar quarter, commencing January 2, 1995. This Note need not
be presented for the purpose of any payment of interest.
This Note is the Secured Convertible Term Promissory Note
referred to in the Term Loan Security Agreement dated as of December 15, 1994
(as the same may be amended or modified from time to time, the "1994 Security
Agreement"), of the Borrower and Carolina Contact Lens, Inc. (the
"Subsidiary"), in favor of the Lender, and is entitled to the benefits and
subject to the terms and conditions thereof. This Note may be sold, assigned,
pledged or otherwise transferred by the holder without restriction, subject to
applicable federal and state securities laws.
The principal of and all accrued interest on this Note may be
prepaid at any time or from time to time by the Borrower without penalty or
premium, provided that (a) the Borrower gives the holder not less than twenty
(20) days prior written notice of its intent to effect such prepayment, and the
proposed amount thereof, in accordance with Section 6 below, or (b) the holder
waives such notice in writing.
CONVERSION OF NOTE AT ELECTION OF HOLDER. The holder of this Note
shall have the following conversion rights ("Conversion Rights"):
1. RIGHT TO CONVERT. The principal of, and any and all
accrued interest on this Note shall be convertible, without the
payment of any additional consideration by the holder hereof and at
the option of the holder hereof, at any time or from time to time
after June 15, 1995, at the office of the Borrower, into such number
of fully paid and nonassessable shares of common stock of the Borrower
("Common Stock") as is determined by dividing the aggregate amount of
unpaid principal and/or accrued interest proposed to be converted, by
the applicable Conversion Price, determined as hereinafter provided,
in effect at the time of conversion. The Conversion Price at which
shares of Common Stock shall be deliverable upon conversion without
the payment of any additional consideration by the holder thereof (the
"Conversion Price") shall initially be Two Dollar and Thirty-Eight
Cents ($2.38) per share of Common Stock, and upon the New Maturity
Date shall be Fifty Cents ($0.50) per share of Common Stock. Such
initial and adjusted Conversion Price shall be subject to further
adjustment, in order to adjust the number of shares of Common Stock
into which the Note is convertible, as hereinafter provided.
2. MECHANICS OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of this Note. In lieu of
any fractional shares to which the holder would otherwise be entitled,
the Borrower shall pay cash equal to such fraction multiplied by the
then effective Conversion Price. Before any holder of this Note shall
be entitled to convert the same into full shares of Common Stock,
2
<PAGE> 3
he shall surrender this Note, duly endorsed, at the office of the
Borrower, accompanied by written notice to the Borrower that he elects
to convert a stated portion of the unpaid principal amount hereof and
accrued interest hereon and shall state therein his name or the name
or names of his nominees in which he wishes the certificate or
certificates for shares of Common Stock to be issued. The Borrower
shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of the Note, or to his nominee or nominees, a
certificate or certificates for the number of shares of Common Stock
to which he shall be entitled as aforesaid, together with cash in lieu
of any fraction of a share. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date on
which such written notice shall have been received by the Borrower and
this Note shall have been surrendered as aforesaid, and the person or
persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Concurrently with
the delivery of the shares of Common Stock as provided above, the
Borrower shall execute and deliver to the holder of this Note a new
Note in principal amount equal to the unconverted portion of this
Note, if any.
3. ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(a) SPECIAL DEFINITIONS. For purposes of this
Section 3, the following definitions shall apply:
(i) "OPTION" shall mean rights, options
or warrants to subscribe for,
purchase or otherwise acquire either
Common Stock or Convertible
Securities.
(ii) "ORIGINAL MATURITY DATE" shall mean
June 15, 1995.
(iii) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness,
shares (other than Common Stock) or
other securities (other than this
Note) directly or indirectly
convertible into or exchangeable for
Common Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common
Stock issued (or, pursuant to
Section 3(c), deemed to be issued)
by the Borrower after the Original
Maturity Date, other than shares of
Common Stock issued or issuable:
a. upon conversion of this Note;
b. to officers or employees of, or
consultants to, the Borrower
with the approval of the
Board of Directors of the
Borrower, pursuant to any
stock option or purchase plan
or other employee stock
3
<PAGE> 4
incentive program (x)
approved by the Board of
Directors of the Borrower
prior to the Original
Maturity Date, or (y) if
approved by the Board of
Directors of the Borrower
subsequent to the Original
Maturity Date, either
consented to in writing by
the holder of this Note, or
approved by the vote or
written consent of 75% of all
outstanding shares of Common
Stock of the Borrower; or
c. by way of dividend or other
distribution on shares of
Common Stock excluded from
the definition of Additional
Shares of Common Stock by the
foregoing clauses (a) and (b)
or this clause (c) or on
shares of Common Stock so
excluded.
(b) NO ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the number of shares of Common
Stock into which this Note is convertible
shall be made, by adjustment in the
Conversion Price of this Note, in respect of
the issuance of Additional Shares of Common
Stock or otherwise, unless the consideration
per share for an Additional Share of Common
Stock issued or deemed to be issued by the
Borrower is less than the Conversion Price in
effect on the date of, and immediately prior
to, the issue of such Additional Share.
(c) ISSUE OF SECURITIES DEEMED ISSUE OF
ADDITIONAL SHARES OF COMMON STOCK.
(i) OPTIONS AND CONVERTIBLE SECURITIES.
In the event the Borrower at any
time or from time to time after the
Original Maturity Date shall issue
any Options or Convertible
Securities or shall fix a record
date for the determination of
holders of any class of securities
entitled to receive any such Options
or Convertible Securities, then the
maximum number of shares (as set
forth in the instrument relating
thereto without regard to any
provisions contained therein for a
subsequent adjustment of such
number) of Common Stock issuable
upon the exercise of such Options
or, in the case of Convertible
Securities and Options therefor, the
conversion or exchange of such
Convertible Securities, shall be
deemed to be Additional Shares of
Common Stock issued as of the time
of such issue or, in case such a
record date shall have been fixed,
as of the close of business on such
record date, provided that
Additional Shares of Common Stock
shall not be
4
<PAGE> 5
deemed to have been issued unless the
consideration per share (determined
pursuant to Section 3(e) hereof), of
such Additional Shares of Common
Stock would be less than the
applicable Conversion Price in
effect on the date of and
immediately prior to such issue, or
such record date, as the case may
be, and provided further that in any
such case in which Additional Shares
of Common Stock are deemed to be
issued:
a. no further adjustment in the
applicable Conversion Price
shall be made upon the
subsequent issue of
Convertible Securities or
shares of Common Stock upon
the exercise of such Options
or conversion or exchange of
such Convertible Securities;
b. if such Options or Convertible
Securities by their terms
provide, with the passage of
time or otherwise, for any
increase in the consideration
payable to the Borrower, or
decrease in the number of
shares of Common Stock
issuable, upon the exercise,
conversion or exchange
thereof, the applicable
Conversion Price computed
upon the original issue
thereof (or upon the
occurrence of a record date
with respect thereto), and
any subsequent adjustments
based thereon, shall, upon
any such increase or decrease
becoming effective, be
recomputed to reflect such
increase or decrease insofar
as it affects such Options or
the rights of conversion or
exchange under such
Convertible Securities;
c. upon the expiration of any
such Options or any rights of
conversion or exchange under
such Convertible Securities
which shall not have been
exercised, the applicable
Conversion Price computed
upon the original issue
thereof (or upon the
occurrence of a record date
with respect thereto), and
any subsequent adjustments
based thereon, shall, upon
such expiration, be
recomputed as if:
(1) in the case of
Convertible Securities
or Options for Common
Stock the only
Additional Shares of
Common Stock issued were
the shares of Common
Stock, if any, actually
issued upon the
5
<PAGE> 6
exercise of such Options or
the conversion or exchange of
such Convertible Securities
and the consideration
received therefor was the
consideration actually
received by the Borrower for
the issue of all such
Options, whether or not
exercised, plus the
consideration actually
received by the Borrower upon
such exercise, or for the
issue of all such Convertible
Securities which were
actually converted or
exchanged, plus the
additional consideration, if
any actually received by the
Borrower upon such conversion
or exchange, and
(2) in the case of Options for
Convertible Securities only
the Convertible Securities,
if any, actually issued upon
the exercise thereof were
issued at the time of issue
of such Options, and the
consideration received by the
Borrower for the Additional
Shares of Common Stock deemed
to have been then issued was
the consideration actually
received by the Borrower for
the issue of all such
Options, whether or not
exercised, plus the
consideration deemed to have
been received by the Borrower
(determined pursuant to
Section 3(e) hereof) upon the
issue of the Convertible
Securities with respect to
which such Options were
actually exercised;
d. no readjustment pursuant to
clause (b) or (c) above shall have the
effect of increasing the Conversion
Price to an amount which exceeds the
lower of (i) the Conversion Price on the
original adjustment date, or (ii) the
Conversion Price that would have
resulted from any issuance of Additional
Shares of Common Stock between the
original adjustment date and such
readjustment date;
e. in the case of any Options
which expire by their terms not more
than 30 days after the date of issue
thereof, no adjustment of the Conversion
Price shall be made until the expiration
or
6
<PAGE> 7
exercise of all such Options, whereupon
such adjustment shall be made in the
same manner provided in clause (c)
above; and
f. if such record date shall have
been fixed and such Options or
convertible Securities are not issued on
the date fixed therefor, the adjustment
previously made in the Conversion Price
which became effective on such record
date shall be cancelled as of the close
of business on such record date, and
thereafter the Conversion Price shall be
adjusted pursuant to this Section 3(c)
as of the actual date of their issuance.
(ii) STOCK DIVIDENDS, STOCK DISTRIBUTIONS
AND SUBDIVISIONS. In the event the Borrower at
any time or from time to time after the Original
Maturity Date shall declare or pay any dividend
or made any other distribution on the Common
Stock payable in Common Stock, or effect a
subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and
in any such event, Additional Shares of Common
Stock shall be deemed to have been issued:
a. in the case of any such dividend or
distribution, immediately after the
close of business on the record date for
the determination of holders of any
class of securities entitled to receive
such dividend or distribution, or
b. in the case of any such subdivision, at
the close of business on the date
immediately prior to the date upon which
such corporate action becomes effective.
If such record date shall have been fixed and
such dividend shall not have been fully paid on
the date fixed therefor, the adjustment previously
made in the Conversion Price which became
effective on such record date shall be cancelled
as of the close of business on such record date,
and thereafter the Conversion Price shall be
adjusted pursuant to this Section 3(c) as of the
time of actual payment of such dividend.
7
<PAGE> 8
(d) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK.
In the event the Borrower shall issue
Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued
pursuant to Section 3(c), but excluding Additional
Shares of Common Stock issued pursuant to Section
3(c)(2), which event is dealt with in Section 3(f)
hereof) without consideration or for a consideration
per share less than the Conversion Price in effect on
the date of and immediately prior to such issue, then
and in such event, such Conversion Price shall be
reduced, concurrently with such issue in order to
increase the number of shares of Common Stock into
which this Note is convertible, to a price
(calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction (x)
the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior
to such issue (including shares of Common Stock
issuable upon conversion of this Note or any
outstanding Convertible Securities), plus (2) the
number of shares of Common Stock which the aggregate
consideration received by the Borrower for the total
number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and (y) the
denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior
to such issue (including shares of Common Stock
issuable upon conversion of this Note or any
outstanding Convertible Securities), plus (2) the
number of such Additional Shares of Common Stock so
issued, provided that the Conversion Price shall not
be so reduced at such time if the amount of such
reduction would be an amount less than $0.01, but any
such amount shall be carried forward and reduction
with respect thereto made at the time of and together
with any subsequent reduction which, together with
such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more.
(e) DETERMINATION OF CONSIDERATION. For
purposes of this Section 3, the consideration
received by the Borrower for the issue of any
Additional Shares of Common Stock shall be
computed as follows:
(i) CASH AND PROPERTY: Such consideration
shall:
a. insofar as it consists of cash,
be computed at the aggregate
amount of cash received by
the Borrower excluding
amounts paid or payable for
accrued interest or accrued
dividends;
b. insofar as it consists of
property other than cash, be
computed at the fair value
thereof at
8
<PAGE> 9
the time of such issue, as
determined in good faith by
the Board of Directors; and
c. in the event Additional Shares
of Common Stock are issued
together with other shares or
securities or other assets of
the Borrower for
consideration which covers
both, be the proportion of
such consideration so
received, computed as
provided in clauses (a) and
(b) above, as determined in
good faith by the Board of
Directors.
(ii) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received
by the Borrower for Additional
Shares of Common Stock deemed to
have been issued pursuant to Section
3(c)(1), relating to Options and
Convertible Securities, shall be
determined by dividing
(x) the total amount, if any, received
or receivable by the Borrower as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent adjustment
of such consideration) payable to the
Borrower upon the exercise of such Options or
the conversion or exchange of such
Convertible Securities, or in the case of
Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments
relating thereto, without regard to any
provision contained therein for a subsequent
adjustment of such number) issuable upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities.
(f) ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATION
OF COMMON STOCK.
(i) STOCK DIVIDENDS, DISTRIBUTIONS OR
SUBDIVISIONS. In the event the
Borrower shall issue Additional
Shares of Common Stock pursuant to
Section 3(c)(2) in a stock dividend,
stock distribution or subdivision,
the Conversion Price in effect
immediately prior to such stock
dividend, stock distribution or
subdivision shall, concurrently with
the effectiveness of such stock
dividend, stock distribution or
subdivision, be proportionately
decreased.
9
<PAGE> 10
(ii) COMBINATIONS OR CONSOLIDATIONS. In
the event the outstanding shares of
Common Stock shall be combined or
consolidated, by reclassification or
otherwise, into a lesser number of
shares of Common Stock, the
Conversion Price in effect
immediately prior to such
combination or consolidation shall,
concurrently with the effectiveness
of such combination or
consolidation, be proportionately
increased.
(g) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC.
In case of any consolidation or merger of the
Borrower with or into another corporation or
the conveyance of all or substantially all of
the assets of the Borrower to another
corporation, this Note shall thereafter be
convertible into the number of shares of
stock or other securities or property to
which a holder of the number of shares of
Common Stock of the Borrower deliverable upon
conversion of this Note would have been
entitled upon such consolidation, merger or
conveyance; and, in any such case,
appropriate adjustment (as determined by the
Board of Directors) shall be made in the
application of the provisions herein set
forth with respect to the rights and interest
thereafter of the holders of this Note, to
the end that the provisions set forth herein
(including provisions with respect to changes
in and other adjustments of the Conversion
Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to
any shares of stock or other property
thereafter deliverable upon the conversion of
this Note.
4. NO IMPAIRMENT. The Borrower will not, by amendment
of its certificate of incorporation or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to
be observed or performed hereunder by the Borrower
but will at all times in good faith assist in the
carrying out of all the provisions of this Note and
in the taking of all the such action as may be
necessary or appropriate in order to protect the
Conversion Rights of the holders of this Note against
impairment.
5. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each event requiring adjustment or readjustment of
the Conversion Price pursuant to this Section, the
Borrower at its expense shall promptly compute such
adjustment or readjustment in accordance with the
terms hereof and furnish to the holder of this Note a
certificate setting forth such adjustment or
readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time
of the holder of this Note, furnish or cause to be
furnished to such holder a like certificate
10
<PAGE> 11
setting forth (i) all such adjustments and
readjustments, (ii) the Conversion Price at the time
in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which
at the time would be received upon the conversion of
this Note.
6. NOTICES OF RECORD DATE OR REDEMPTION DATE. In the
event (i) the Borrower establishes a record date to
determine the holders of any class of securities who
are entitled to receive any dividend or other
distribution, (ii) the Borrower proposes to redeem or
otherwise prepay all or any portion of the principal
of or accrued interest on this Note, or (iii) there
occurs any capital reorganization of the Borrower,
any reclassification or recapitalization of the
capital stock of the Borrower, any merger or
consolidation of the Borrower, any transfer of all or
substantially all of the assets of the Borrower to
any other corporation, or any other entity or person,
or any voluntary or involuntary dissolution,
liquidation or winding up of the Borrower, the
Borrower shall mail to the holder of this Note at
least twenty (20) days prior to the record date or
redemption date, as the case may be, specified
therein, a notice specifying (a) the date of such
record date for the purpose of such dividend or
distribution and a description of such dividend or
distribution, (b) the date and amount of the proposed
redemption or prepayment, (c) the date on which any
such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (d)
the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other
securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for
securities or other property deliverable upon such
reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or
winding up.
7. COMMON STOCK RESERVED. The Borrower shall reserve
and keep available out of its authorized but unissued
Common Stock such number of shares of Common Stock as
shall from time to time be sufficient to effect full
conversion of this Note.
11
<PAGE> 12
This Note constitutes senior debt of the Borrower.
The Borrower acknowledges and agrees that the execution,
delivery or acceptance of this amended Note shall not be deemed a novation or
otherwise constitute the incurrence or creation of new or additional debt of
the Borrower. This amended Note is and shall be deemed to evidence the
continued indebtedness of the Borrower to the holder of this Note, including
herein the amendments to the original note evidencing such indebtedness, which
original note is deemed cancelled effective upon execution and delivery of this
Note.
The Borrower agrees, and the Lender by acceptance of this
amended Note and return of the original note shall be deemed to have agreed, to
mutually negotiate in good faith, with the purpose of reaching written
agreement by September 15, 1995, on the terms, conditions and documentation of
loan covenants to be incorporated as part of this Note and/or the 1994 Security
Agreement, to (i) succeed those covenants set forth in the Financing Agreement
referred to in the 1991 Term Note, as the same may have been modified by
agreement subsequent to September 16, 1991, and (ii) supplement those covenants
set forth in the 1994 Security Agreement, such terms, conditions and
Documentation of such covenants to be reasonably protective of the financial
interests of the Lender, taking into consideration the aggregate indebtedness
of the Borrower due the Lender and the financial condition and historical
results of operations of the Borrower.
The Borrower agrees to pay all costs and expenses (including
attorneys' fees and disbursements) incurred by the Lender in connection with
the preparation, amendment, administration, enforcement, collection or
modification of this Note, the 1994 Security Agreement, and the Obligations.
The Borrower hereby waives diligence, presentment, demand,
protest and notice (except as specifically provided above) of any kind
whatsoever. The nonexercise of any holder of this Note of any of such holder's
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance. This Note shall be governed by,
and construed in accordance with, the laws of the State of Florida.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed by its duly authorized officer as of the date first written above.
AMERICAN CONSOLIDATED LABORATORIES, INC.
By:
-----------------------------------
Name: Wayne Upham Smith
Title: Chief Executive
Officer
12
<PAGE> 13
AMERICAN CONSOLIDATED LABORATORIES, INC.
AMENDMENT OF SECURED CONVERTIBLE TERM PROMISSORY NOTE, DATED DECEMBER
15, 1994 (AS AMENDED AND RESTATED AS OF JUNE 15, 1995), MADE BY AMERICAN
CONSOLIDATED LABORATORIES, INC. (THE "BORROWER") TO THE ORDER OF
TULLIS-DICKERSON CAPITAL FOCUS, L.P. (THE "LENDER"), IN THE ORIGINAL PRINCIPAL
AMOUNT OF $800,000 (THE "SECURED CONVERTIBLE TERM NOTE".
The undersigned Borrower hereby agrees, in consideration of
the past advances made by the Lender to and for the benefit of the Borrower
from and after November 8, 1995, that the above-captioned Convertible Term Note
is hereby amended, effective as of February 15, 1996, as follows:
The second sentence of Section 1 under "Conversion at Election
of Holder" is hereby deleted and replaced by the following:
"The Conversion Price at which shares of Common Stock shall be
deliverable upon conversion without the payment of any
additional consideration by the holder hereof (the "Conversion
Price") shall initially be One Dollar ($1.00) per share of
Common Stock, and upon the New Maturity Date shall be Fifty
Cents ($0.50) per share of Common Stock."
All other terms and conditions of the Secured Convertible Term
Promissory Note remain unchanged.
AMERICAN CONSOLIDATED LABORATORIES, INC.
By:
--------------------------------------
Wayne Upham Smith,
Chairman and Chief Executive
Officer
<PAGE> 1
This Note has not been registered under the Securities Act of 1933,
the New York Securities Act or Chapter 517, Florida Statutes. This Note has
not been acquired with a view to, or in connection with any distribution
hereof, and may not be sold, pledged, hypothecated, transferred or otherwise
disposed of in the absence of an effective registration statement thereunder or
an applicable exemption from such registration.
AMERICAN CONSOLIDATED LABORATORIES, INC.
CAROLINA CONTACT LENS, INC.
AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE
$712,000 February 15, 1996
For value received, American Consolidated Laboratories, Inc., a
Florida corporation ("ACL" or a "Borrower"), and Carolina Contact Lens, Inc., a
North Carolina corporation ("CCL" or a "Borrower"), hereby jointly and
severally promise to pay to the order of Tullis-Dickerson Capital Focus, L.P.,
a Delaware limited partnership (the "Lender"), the sum of $712,000 (and any
additional amounts in excess of $712,000 that may be advanced by the Lender to
the Borrower with written notice, or oral notice followed by written
confirmation, by the Lender to a Borrower that such advances are being made
pursuant to, and in reliance on, this Note), or so much thereof as is advanced
and remains outstanding hereunder from time to time, together with interest
thereon from the date advanced until maturity at the fixed annual rate of
13.5%, and after maturity at 19.5% per annum.
Payments shall be made to the Lender at its principal place of
business and chief executive office at One Greenwich Plaza, Greenwich,
Connecticut 06830 or at such other place as the Lender may designate in
writing. All payments received shall be applied first to accrued and unpaid
interest, and thereafter to outstanding principal in the order in which the
advances represented by such principal amounts were first made.
The principal amount of this Note shall be due and payable in full as
follows: (i) $267,000 on June 30, 1996, (ii) $75,000 on July 5, 1996, (iii)
$50,000 on July 10, 1996, and (iv) all other outstanding principal amounts, on
the date or dates which is six (6) months following the date or dates such
outstanding principal amounts were initially advanced (each of the
aforementioned and such other dates being hereinafter referred to as a
"Maturity Date"). All accrued interest on each advance shall be due and
payable in full on the first day of each month, commencing February 1, 1996 and
at the final Maturity Date.
The principal of and all accrued interest on this Note may be prepaid
at any time or from time to time by the Borrower without penalty or premium,
provided that the Borrower gives the Lender not less than twenty (20) days
prior written notice of its intent to effect such prepayment and the proposed
amount thereof, or the holder waives such notice in writing.
This Note and all past and future advances hereunder are obligations
under and are secured by the Term Loan Security Agreement dated as of December
15, 1994 (as the same may be amended or modified from time to time, the "1994
Security Agreement"), of ACL and CCL in favor of the Lender, and are entitled
to the benefits and subject to the terms and conditions thereof. This Note may
be sold, assigned, pledged or otherwise transferred by the Lender without
restriction, subject to applicable federal and state securities.
<PAGE> 2
FUTURE ADVANCES
All future advances under this Note shall be in the sole discretion of
the Lender.
CONVERSION
All or any portion of the entire principal amount of and all accrued
interest on this Note shall be convertible, without the payment of any
additional consideration by the Lender, at the option of the Lender, at any
time or from time to time after the Maturity Date at the office of ACL, into
such number of fully paid and nonassessable shares of common stock of ACL
("Common Stock") as is determined by dividing the aggregate amount of unpaid
principal and/or accrued interest by the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The Conversion
Price shall be the price per share equal to 50% of the Market Price (as defined
below) per share on the date written notice of Lender's election to convert is
delivered to ACL. For purposes of this Note, the Market Price of a share of
Common Stock shall mean the average of the closing prices of the sales of
Common Stock on all domestic securities exchanges on which the Common Stock may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day the Common Stock is not
quoted in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case on the business day prior to the date provided, that if the
Common Stock is listed on any domestic securities exchange the term "business
days" as used in this sentence means business days on which such exchange or
system is open for trading. If at any time the Common Stock is not listed on
any domestic securities exchange or quoted in the Nasdaq System or the domestic
over-the-counter market, the Market Price will be the fair value thereof on the
business day prior to the date of written notice of Lender's election to
convert is delivered ACL as determined by the ACL Board of Directors acting in
good faith.
No fractional shares of Common Stock shall be issued upon conversion
of this Note. In lieu of any fractional shares to which the Lender would
otherwise be entitled, ACL shall pay cash equal to such fraction multiplied by
the Conversion Price. Before the Lender shall be entitled to convert this Note
into Common Stock it shall surrender this Note, duly endorsed, at the office of
ACL, accompanied by written notice to ACL that it elects to convert all or a
specified portion of the unpaid principal amount hereof and accrued interest
thereon. ACL shall issue and deliver to the Lender a certificate or
certificates for the number of shares of Common Stock to which it shall be
entitled as aforesaid, together with cash in lieu of any fraction of a share
and, if all of the unpaid principal amount of, and accrued interest thereon is
not being converted into Common Stock, a replacement note in an amount equal to
the unpaid principal amount not being converted, and in form and substance
otherwise identical to this Note. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date on which such
written notice shall have been delivered to ACL and this Note shall have been
surrendered as aforesaid, and the Lender shall be treated for all purposes as
the record holder of such shares of Common Stock on such date. ACL shall
reserve and keep available out of its authorized but unissued Common Stock
-2-
<PAGE> 3
such number of shares of Common Stock as shall from time to time be sufficient
to effect full conversion of this Note.
COVENANTS
Borrower covenants and agrees that during the term of this Agreement:
Borrower shall pay the indebtedness evidenced by the Note according to
the terms thereof, and shall timely pay or perform, as the case may be, all of
the other obligations of Borrower to Lender hereunder and any extensions,
modifications, consolidations and/or renewals hereof.
Borrower shall permit Lender, its officers and employees, at Lender's
expense, to visit and inspect any of its properties, corporate books and
financial records, and to discuss its accounts, affairs and finances with
Borrower or the principal officers of Borrower during reasonable business
hours, all at such times as Lender may reasonably request; provided that no
such inspection shall materially interfere with the conduct of Borrower's
business.
Borrower shall maintain, in amounts customary for entities engaged in
comparable business activities, (i) to the extent required by applicable law,
workman's compensation insurance (or maintain a legally sufficient amount of
self insurance against worker's compensation liabilities, with adequate
reserves, and (ii) fire and "all risk" casualty insurance on its properties
against such hazards as are customary in Borrower's business. Borrower will
make reasonable efforts to obtain and maintain public liability insurance at a
cost deemed reasonable to the Borrower's Board of Directors. At the request of
Lender, Borrower will deliver forthwith a certificate specifying the details of
such insurance in effect.
Borrower shall (i) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date
of delinquency, (ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon Borrower upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach
thereto, and (iii) pay all taxes, assessments and governmental charges or
levies that, if unpaid, might become a lien or charge upon any of its
properties; provided, however, that Borrower in good faith may contest any such
tax, assessment, governmental charge or levy described in the foregoing clauses
(ii) and (iii) so long as appropriate reserves are maintained with respect
thereto.
Borrower shall maintain its corporate existence and good standing in
the state of its incorporation, and its qualification and good standing as a
foreign corporation in each jurisdiction in which such qualification is
necessary pursuant to applicable law and where failure to qualify would have a
material adverse effect upon the Borrower.
Except where the failure to do so would not materially adversely
affect Borrower's operations or its ability to fulfill its obligations
hereunder, Borrower shall maintain its business operations and property owned
or used in connection therewith in compliance with (i) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (ii) all agreements,
licenses, franchises, indentures and mortgages to which Borrower is a party or
by which Borrower of any of its properties is bound. Without limiting the
foregoing, Borrower shall pay all of its indebtedness promptly in accordance
with the terms thereof.
Borrower shall give notice, in writing, to Lender of (i) any actions,
suits or proceedings wherein the amount at issue is in excess of Fifty Thousand
Dollars ($50,000.00) instituted by any persons
-3-
<PAGE> 4
whomsoever against Borrower or affecting any of the assets of Borrower, and
(ii) any dispute, not resolved within sixty (60) days of the commencement
thereof, between Borrower on the one hand and any governmental regulatory body
on the other hand which dispute might materially interfere with the normal
operations of Borrower.
Borrower shall not sell, assign, transfer, convey, grant a security
interest in or lease all or substantially all of its assets, without the prior
written consent of Lender.
Borrower shall keep true books, records, and accounts that completely,
accurately and fairly reflect all dealings and transactions relating to its
assets, business, and activities and shall record all transactions in such
manner as is necessary to permit preparation of its financial statements in
accordance with generally accepted accounting principles applied on a
consistent basis. Borrower shall submit to Lender within ninety-five days
after the end of each of the Borrower's fiscal years audited financial
statements for each fiscal year prepared by certified public accountants.
Borrower further shall furnish to Lender within forty-five days after the end
of each fiscal quarter of the Borrower unaudited financial statements and
Borrower shall provide all other financial information reasonably requested by
Lender.
ACCELERATION
Maturity of all principal and interest due hereunder shall at the
option of the Lender be accelerated and be immediately due and payable upon
demand upon (i) default in the payment of principal of or interest on this Note
when due; (ii) failure of the Borrower to comply with any other terms or
provisions of this Note if such failure has not been remedied within 30 days
after notice (or such longer time as may be reasonably necessary if such
failure cannot be cured within 30 days); or (iii) the occurrence of any Event
of Default as such term is defined in the 1994 Security Agreement referenced
above. The Borrower will pay all costs of collection of the indebtedness due
hereunder, including reasonable attorneys' fees, paid or incurred by the Lender
and the same shall constitute a part of the indebtedness represented hereby and
be secured by any and all collateral securing this Note.
The Borrower hereby waives (i) presentment for payment, protest,
notice of nonpayment and notice of protest, (ii) all defenses given to sureties
or guarantors at law or in equity, other than payment of this Note, and (iii)
any mitigation of its obligations hereunder by virtue of any extensions of time
of payment or partial payments before, at or after maturity, the addition or
release of any party primarily or secondarily liable, the release or
substitution of any or all collateral, and any other indulgence granted by the
Lender to any party liable hereon.
No failure to exercise or delay in exercising any right hereunder of
the holder shall operate as a waiver of such right or of any right hereunder,
nor shall any waiver by the holder be construed as a waiver of such rights on
any future occasion.
This Note amends, restates and replaces the Promissory Note dated
November 8, 1995 from ACL to Lender in the principal amount of $167,000 (the
"Original Note"). The Borrower acknowledges and agrees that the execution,
delivery and acceptance of this amended and restated Note shall not be deemed a
novation, or otherwise constitute the incurrence or creation of new or
additional debt of the Borrower except with respect to the increase in
principal amount hereof. This amended Note is and shall be deemed to evidence
the continued indebtedness of the Borrower to the holder of this Note,
including
-4-
<PAGE> 5
herein the amendments to the Original Note evidencing such indebtedness, which
Original Note is deemed cancelled effective upon execution and delivery of this
Note.
AMERICAN CONSOLIDATED LABORATORIES, INC.
By:
---------------------------------------
Wayne Upham Smith,
Chairman and Chief Executive Officer
CAROLINA CONTACT LENS, INC.
By:
---------------------------------------
Wayne Upham Smith,
Chairman and Chief Executive Officer
-5-
<PAGE> 6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS THE PERSON REQUESTING THE
TRANSFER OF THIS WARRANT SHALL FURNISH, WITH RESPECT TO SUCH TRANSFER, AN
OPINION OF COUNSEL, SATISFACTORY TO AMERICAN CONSOLIDATED LABORATORIES, INC.,
TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISPOSITION WILL NOT
INVOLVE ANY VIOLATION OF THE REGISTRATION PROVISIONS OF THE ACT OR ANY SIMILAR
OR SUPERSEDING STATUTE OR OF ANY APPLICABLE STATE SECURITIES LAW.
AMERICAN CONSOLIDATED LABORATORIES, INC.
(a Florida corporation)
WARRANT FOR THE PURCHASE OF SECURITIES OF AMERICAN CONSOLIDATED
LABORATORIES, INC.
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON FEBRUARY 15, 2001
FOR VALUE RECEIVED, American Consolidated Laboratories, Inc., a Florida
corporation (the "Company"), hereby certifies that Tullis-Dickerson Capital
Focus, L.P., or assigns (the "Holder"), is entitled, subject to the provisions
of this Warrant, to purchase from the Company at any time during the period
commencing on February 15, 1996 and expiring at 5:00 p.m. Eastern Standard Time
on February 15, 2001 (the "Expiration Date"), up to such number of fully paid
and nonassessable shares of the Company's authorized but unissued Common Stock,
as hereinafter defined, at a price of $.10 per share (the "Exercise Price"), as
equals (x) the aggregate principal amount of all past and future advances made
(whether or not hereafter repaid) under the Company's Amended and Restated
Promissory Note to the order of Holder dated February 15, 1996, multiplied by
(y) 0.1333.
The term "Common Stock" means the common stock of the Company,
together with any other equity securities that may be issued by the Company in
respect thereof or in substitution therefor. The shares of Common Stock
deliverable or delivered upon such exercise, as adjusted from time to time, are
hereinafter referred to as "Warrant Stock."
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant certificate and
(in the case of loss, theft or destruction) of satisfactory indemnification and
upon surrender and cancellation of this Warrant certificate, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
1. Exercise of Warrant. This Warrant may be exercised, subject
to the requirements set forth below, in whole or in part at any time or from
time to time prior to 5:00 p.m. Eastern Standard Time on the Expiration Date
set forth above, or, if such a day is a day on which banking institutions in
New York, New York are authorized by law to close, then on the next succeeding
day that shall not be such a day, by presentation and surrender of this Warrant
certificate to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company, or by surrender of
Warrant Shares) of the Exercise Price. Upon receipt by the Company of this
Warrant certificate, together with the Exercise Price, at its office, or by the
stock transfer agent of the Company at its offices, if any, in proper form for
exercise as described above, together with an agreement to comply with the
restrictions on transfer and related covenants contained herein and a
representation as to investment intent and any other matter required by counsel
to the Company, signed by the Holder (and, if other than the original Holder,
accompanied by proof satisfactory to counsel for the Company of the right of
such person or persons to exercise the Warrant), the Holder
<PAGE> 7
shall be deemed to be the holder of record for the shares of Common Stock
issuable upon such exercise, even if the stock transfer books of the Company
shall then be closed or certificates representing such shares of Common Stock
shall not have been delivered to the Holder. The Holder shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant. The
Company shall promptly thereafter issue certificate(s) evidencing the Common
Stock so purchased.
2. Reservation of Shares. The Company shall at all times reserve
for issuance and delivery upon exercise of this Warrant all shares of Common
Stock or other shares of capital stock of the Company (and other securities)
from time to time receivable upon exercise of this Warrant. All such shares
(and other securities) shall be duly authorized and, when issued upon exercise,
shall be validly issued, fully paid and nonassessable.
3. Fractional Shares.
(a) No Fractional Shares Issued. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the Market
Price of such fractional share of Common Stock in lieu of each fraction of a
share otherwise called for upon exercise of this Warrant.
(b) Market Price Defined. For purposes of this Warrant,
the Market Price of a share of Common Stock shall mean the average of the
closing prices of the sales of Common Stock on all domestic securities
exchanges on which the Common Stock may at the time be listed, or, if there
have been no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or,
if on any day the Common Stock is not quoted in the Nasdaq System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case on the
business day prior to the date of exercise of this Warrant, provided, that if
the Common Stock is listed on any domestic securities exchange the term
"business days" as used in this sentence means business days on which such
exchange or system is open for trading. If at any time the Common Stock is not
listed on any domestic securities exchange or quoted in the Nasdaq System or
the domestic over-the-counter market, the Market Price will be the fair value
thereof on the business day prior to the date of exercise of this Warrant as
determined by the Company's Board of Directors acting in good faith.
4. Transfer.
(a) Securities Law. Neither this Warrant nor the Warrant
Stock issuable upon the exercise hereof has been registered under the
Securities Act of 1933, as amended (the "Act"), or under any state securities
laws and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption for such registration
is available. In the event Holder desires to transfer this Warrant or any of
the Warrant Stock issued, the Holder must give the Company prior written notice
of such proposed transfer including the name and address of the proposed
transferee. Such transfer may be made only either (i) upon registration of the
Warrants pursuant to the Act and applicable state securities laws; or (ii) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts
presented to said Commission or (iii) upon receipt by the Company of an opinion
of counsel, satisfactory to the Company, in either case to the effect that the
proposed transfer will not involve any violation of the registration provisions
of the Act or any similar or superseding statute or of any applicable state
securities laws.
-2-
<PAGE> 8
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Act, the Holder will, if
requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee and (iii) an agreement by such transferee that the Company may place
a "stop transfer order" with its transfer agent or registrar.
(c) Transfer. Except as restricted hereby, this Warrant
and the Warrant Stock may be transferred by the Holder in whole at any time.
Upon surrender of this Warrant certificate to the Company with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant
certificate in the name of the assignee named in such instrument of assignment,
and this Warrant certificate shall promptly be cancelled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon this Warrant, shall be null and void
and without effect.
5. Rights of Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Anti-Dilution Provisions.
(a) Adjustment for Reorganization, Consolidation, Merger,
Etc. In case of any reorganization of the Company (or any other corporation,
the securities of which are at the time receivable on the exercise of this
Warrant) after the date hereof, or in case after the date hereof the Company
(or any such other corporation) shall consolidate with or merge into another
corporation or convey all or substantially all of its assets to another
corporation, then, all in each such case, the Holder of this Warrant upon the
exercise as provided in Section 1 at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the securities and property receivable upon the exercise of
this Warrant prior to such consummation, the securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto. In each such case, the terms
of this Warrant shall be applicable to the securities or property received upon
the exercise of this Warrant after such consummation.
(b) Certificate as to Adjustments. In each case of an
adjustment in the number of shares of Common Stock receivable on the exercise
of this Warrant, the Company at its expense shall promptly compute such
adjustment in accordance with the terms of the Warrant and prepare a
certificate executed by an officer of the Company setting forth such adjustment
and showing the facts upon which such adjustment is based. The Company shall
forthwith mail a copy of each such certificate to the Holder.
(c) Notices of Record Date, Etc. In case: (i) the
Company shall take record of the holders of its Common Stock (or other
securities at the time receivable upon the exercise of the Warrant) for the
purpose of entitling them to receive any dividend (other than a cash dividend)
or other distribution of stock, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities, or
to receive any other right; or (ii) of any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then and in each such
case, the Company shall mail or cause to be mailed to the Holder a notice
specifying, as the case may be, (A) the date on which record is to be
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<PAGE> 9
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (B) the date
on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place and the
time, if any, to be fixed, as to which of the holders of record of Common Stock
(or such other securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other securities) for securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up.
7. Legend and Stop Transfer Orders. Unless the shares of Warrant
Stock have been registered under the Act, upon exercise of any of this Warrant
and the issuance of any of the shares of Warrant Stock, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing shares of Warrant Stock shall bear on
the face thereof substantially the following legend, insofar as is consistent
with applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT SUCH
DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE REGISTRATION
PROVISIONS OF THE ACT OR ANY SIMILAR OR SUPERSEDING STATUTE OR
OF ANY APPLICABLE STATE SECURITIES LAW."
8. Registration.
(a) Demand Registration. The Company agrees that upon
demand of the Holders at any time after January 31, 1997, it shall file a
registration statement under the Securities Act, and the Company shall effect,
as soon as practicable, the registration under the Act of all Warrant Stock.
If the Holder(s) intends to distribute the Warrant Stock by means of an
underwriting, it shall so advise the Company. In the event Company does not
register the Warrant Shares on or before January 31, 1997, Company hereby
irrevocably grants and issues to Holder the right and option to sell to Company
(the "Put") this Warrant at any time after January 31, 1997 and prior to the
Expiration Date, at a purchase price (the "Purchase Price") equal to the fair
market value of the Warrant Shares issuable hereunder upon exercise of this
Warrant. The Company shall pay to Holder, in cash or certified or cashier's
check, the Purchase Price in exchange for delivery to Company of the Warrant,
within 30 days of the receipt of written notice from Holder of its intention to
exercise the Put. The fair market value of each Warrant Share shall be the
closing price of Company's Common Stock as reported on any automated quotation
system or stock exchange on which such stock is listed or reported or the
average of the last bid and last offer for the stock of Company as reported on
the Nasdaq over the counter market, if the stock is not listed on any exchange
or reported on an automated quotation system, on the last full day of trading
immediately preceding the date on which such written notice of Holder's
intention to exercise the Put is received by Company.
(b) Piggyback Registrations. Notwithstanding the
provisions set forth above, the Company shall notify the Holder(s) in writing
at least thirty (30) days prior to filing any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to employee benefit plans) and will afford each
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<PAGE> 10
such Holder an opportunity to include in such registration statement the
Warrant Stock. If the registration statement is for an underwritten offering,
the Company shall so advise the Holder and the right of Holder to be included
in a registration shall be subject to reduction in the discretion of the
underwriter and conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Warrant Stock and Holder's
execution of the underwriting agreement.
(c) All expenses incurred in connection with registration
(excluding underwriters' discounts and commissions), including, without
limitation, all registration and qualification fees, printers' and accounting
fees, and fees and disbursements of counsel for the Company shall be borne by
the Company.
(d) Obligations of the Company. Whenever required to
effect the registration of the Warrant Stock, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file a registration statement
with respect thereto and use its best efforts
to cause such registration statement to
become effective, and keep such registration
statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file such amendments and
supplements to such registration statement
and the prospectus used in connection with
such registration statement as may be
necessary to comply with the provisions of
the Act.
(iii) Furnish to the Holder(s) such number of
copies of a prospectus, including a
preliminary prospectus, in conformity with
the requirements of the Act, and such other
documents as may be reasonably requested.
(iv) Use its best efforts to register and qualify
the securities covered by such registration
statement under such other securities or Blue
Sky laws of such jurisdictions as shall be
reasonably requested by the Holder(s),
provided that the Company shall not be
required in connection therewith or as a
condition thereto to qualify to do business
or to file a general consent to service of
process in any such states or jurisdictions.
(v) In the event of any underwritten public
offering, enter into and perform its
obligations under an underwriting agreement,
in usual and customary form, with the
managing underwriter(s) of such offering.
The Holder participating in such underwriting
shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder at any time when a
prospectus relating thereto is required to be
delivered under the Act of the happening of
any event as a result of which the prospectus
included in such registration statement, as
then in effect, includes an 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
then existing.
(vii) Furnish, at the request of any Holder
requesting registration on the date that such
Warrant Stock is delivered to the
underwriters for sale, if such
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<PAGE> 11
securities are being sold through
underwriters, or, if such securities are not
being sold through underwriters, on the date
that the registration statement with respect
to such securities becomes effective, (i) an
opinion, dated as of such date, of the
counsel representing the Company for the
purposes of such registration in form and
substance as is customarily given to
underwriters in an underwritten public
offering and reasonably satisfactory to the
Holder, addressed to the underwriters, if
any, and to the Holder and (ii) a letter
dated as of such date, from the independent
certified public accountants of the Company,
in form and substance as is customarily given
by independent certified public accountants
to underwriters in an underwritten public
offering and reasonably satisfactory to the
Holder, addressed to the underwriters, if
any, and to the Holder.
(e) Indemnification. The Company will indemnify and hold
harmless the Holder, the partners, officers and directors of the Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against
any losses, claims, damages, or liabilities (joint and several) to which they
may become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any Preliminary Prospectus or final Prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation
or alleged violation by the Company of the Securities Act, the 1934 Act, any
state securities law or rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company, at its option, shall
either assume the defense thereof or will reimburse the Holder, partner,
officer, or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if the Holder fails to promptly notify the Company of such
claim or such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder. The obligations of
the Company under this paragraph shall survive the completion of any offering
of Warrant Stock.
9. Notice. All notices hereunder shall be in writing
and shall be deemed given (a) when delivered personally, (b) the next business
day when sent by nationally recognized overnight courier service procuring a
return receipt, or (c) within three business days after mailing when by
certified or registered mail, return receipt requested, to the Company at
American Consolidated Laboratories, Inc., 6414 Parkland Drive, Sarasota,
Florida 34243, or to the Holder at his address on the Company's records or at
such other address of which the Company or Holder has been advised by notice
hereunder.
10. Applicable Law. This Warrant is issued under and
shall for all purposes be governed by and construed in accordance with the laws
of the State of Florida.
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<PAGE> 12
11. Miscellaneous. This Warrant represents the entire
agreement of the Company with respect to the subject matter hereof and may be
changed only by a written agreement executed by the Company and the Holder.
12. Certain Prior Warrants Replaced and Superseded. This
Warrant replaces and supersedes the Warrants dated as of November 8, 1995
issued by the Company to the Holder for the purchase of an aggregate of 26,720
shares of Common Stock and exercisable commencing November 8, 1995.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed on its behalf, in its corporate name, by its duly authorized officer,
all as of February 15, 1996.
AMERICAN CONSOLIDATED LABORATORIES,
INC.
By:
----------------------------------
Wayne Upham Smith
Chairman and Chief Executive
Officer
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<PAGE> 13
ASSIGNMENT FORM
For value received, the undersigned ________________________,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of the capital stock
covered thereby set forth below, unto:
<TABLE>
<S> <C> <C>
Name and address of Assignee Number of Shares
---------------------------- ----------------
Date:
Name of Holder:
By:
-------------------------------------------
</TABLE>
<PAGE> 14
WARRANT EXERCISE FORM
1. The undersigned Warrant Holder of the attached original,
executed Warrant hereby elects to exercise its purchase right under such
Warrant with respect to the Warrant Stock, as defined in the Warrant of
American Consolidated Laboratories, inc. (the "Company").
2. The undersigned Warrant Holder
(a) elects to pay the aggregate exercise price for such
Warrant Stock in the following manner:
(i) by lawful money of the United States or the
enclosed certified check or postal or express
money order payable in United States dollars
to the order of the Company in the amount of
$_________; or
(ii) by wire transfer of United States funds to
the account of the Company in the amount of
$_________, which transfer has been made
before or simultaneously with the delivery of
this Warrant Exercise Form pursuant to the
instructions of the Company.
(iii) by surrendering Holder's rights to that
number of Warrant Shares having a fair market
value equal to the exercise price of the
Warrant Shares being purchased. Accordingly,
upon exercise of this Warrant, Holder would
receive the number of Warrant Shares to which
it would otherwise be entitled upon such
exercise, less the surrendered shares. For
purposes of this provision, the fair market
value of one share of stock shall be the
closing price as reported on any automated
quotation system or exchange on which the
Company's stock is listed or reported or the
average of the last bid and last offer for
the stock of the Company as reported on the
Nasdaq over-the-counter market, as
applicable, on the last full day of trading
immediately preceding such exercise.
3. Please issue a stock certificate or certificates
representing the appropriate number of shares of Warrant Stock in the name of
the undersigned or in such names as is specified below:
Name: _______________________________
Address: ____________________________
Tax Identification No.: _____________
HOLDER: _____________________________
By: _________________________________
Date: _______________________________
Note: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, or
Assignment, without alteration, enlargement or any change whatsoever.
<PAGE> 15
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS THE PERSON REQUESTING THE
TRANSFER OF THIS WARRANT SHALL FURNISH, WITH RESPECT TO SUCH TRANSFER, AN
OPINION OF COUNSEL, SATISFACTORY TO AMERICAN CONSOLIDATED LABORATORIES, INC.,
TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISPOSITION WILL NOT
INVOLVE ANY VIOLATION OF THE REGISTRATION PROVISIONS OF THE ACT OR ANY SIMILAR
OR SUPERSEDING STATUTE OR OF ANY APPLICABLE STATE SECURITIES LAW.
AMERICAN CONSOLIDATED LABORATORIES, INC.
(a Florida corporation)
WARRANT FOR THE PURCHASE OF SECURITIES OF AMERICAN CONSOLIDATED
LABORATORIES, INC.
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON MAY 8, 2001
FOR VALUE RECEIVED, American Consolidated Laboratories, Inc., a Florida
corporation (the "Company"), hereby certifies that Tullis-Dickerson Capital
Focus, L.P., or assigns (the "Holder"), is entitled, subject to the provisions
of this Warrant, to purchase from the Company at any time during the period
commencing on May 8, 1996 and expiring at 5:00 p.m. Eastern Standard Time on
May 8, 2001 (the "Expiration Date"), up to such number of fully paid and
nonassessable shares of the Company's authorized but unissued Common Stock, as
hereinafter defined, as equals a fraction in which an amount equal to one-sixth
of all advances made, and not repaid within 150 days of each such advance,
under the Company's Amended and Restated Promissory Note to the order of Holder
dated February 15, 1996 in the original principal amount of $712,000 (the
"Note") is the numerator and the average sales price of the Company's Common
Stock for the previous 30 days is the denominator as of the date of exercise,
at a price of $.10 per share, subject to adjustment as described below (the
"Exercise Price"); provided, however, that this Warrant shall be effective only
in the event principal of and all accrued interest under the Note is not repaid
in full on or before 150 days of the date the funds representing such principal
were initially advanced, and then only with respect to the number of shares of
Common Stock exercisable under this Warrant by reason of those advances. In
the event all advances represented by or made under the Note are repaid in full
within 150 days of each such advance, this Warrant shall be null and void.
The term "Common Stock" means the common stock of the Company,
together with any other equity securities that may be issued by the Company in
respect thereof or in substitution therefor. The shares of Common Stock
deliverable or delivered upon such exercise, as adjusted from time to time, are
hereinafter referred to as "Warrant Stock."
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant certificate and
(in the case of loss, theft or destruction) of satisfactory indemnification and
upon surrender and cancellation of this Warrant certificate, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
1. Exercise of Warrant. This Warrant may be exercised, subject
to the requirements set forth below, in whole or in part, at any time or from
time to time, prior to 5:00 p.m. Eastern Standard Time on the Expiration Date
set forth above, or, if such a day is a day on which banking institutions in
New York, New York are authorized by law to close, then on the next succeeding
day that shall not be such a day, by presentation and surrender of this Warrant
certificate to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable
<PAGE> 16
to the order of the Company, or by surrender of Warrant Shares) of the Exercise
Price. Upon receipt by the Company of this Warrant certificate, together with
the Exercise Price, at its office, or by the stock transfer agent of the
Company at its offices, if any, in proper form for exercise as described above,
together with an agreement to comply with the restrictions on transfer and
related covenants contained herein and a representation as to investment intent
and any other matter required by counsel to the Company, signed by the Holder
(and, if other than the original Holder, accompanied by proof satisfactory to
counsel for the Company of the right of such person or persons to exercise the
Warrant), the Holder shall be deemed to be the holder of record for the shares
of Common Stock issuable upon such exercise, even if the stock transfer books
of the Company shall then be closed or certificates representing such shares of
Common Stock shall not have been delivered to the Holder. The Holder shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on exercise of this
Warrant. The Company shall promptly thereafter issue certificate(s) evidencing
the Common Stock so purchased.
2. Reservation of Shares. The Company shall at all times reserve
for issuance and delivery upon exercise of this Warrant all shares of Common
Stock or other shares of capital stock of the Company (and other securities)
from time to time receivable upon exercise of this Warrant. All such shares
(and other securities) shall be duly authorized and, when issued upon exercise,
shall be validly issued, fully paid and nonassessable.
3. Fractional Shares.
(a) No Fractional Shares Issued. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the Market
Price of such fractional share of Common Stock in lieu of each fraction of a
share otherwise called for upon exercise of this Warrant.
(b) Market Price Defined. For purposes of this Warrant,
the Market Price of a share of Common Stock shall mean the average of the
closing prices of the sales of Common Stock on all domestic securities
exchanges on which the Common Stock may at the time be listed, or, if there
have been no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or,
if on any day the Common Stock is not quoted in the Nasdaq System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case on the
business day prior to the date of exercise of this Warrant, provided, that if
the Common Stock is listed on any domestic securities exchange the term
"business days" as used in this sentence means business days on which such
exchange or system is open for trading. If at any time the Common Stock is not
listed on any domestic securities exchange or quoted in the Nasdaq System or
the domestic over-the-counter market, the Market Price will be the fair value
thereof on the business day prior to the date of exercise of this Warrant as
determined by the Company's Board of Directors acting in good faith.
4. Transfer.
(a) Securities Law. Neither this Warrant nor the Warrant
Stock issuable upon the exercise hereof has been registered under the
Securities Act of 1933, as amended (the "Act"), or under any state securities
laws and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption for such registration
is available. In the event Holder desires to transfer this Warrant or any of
the Warrant Stock issued, the Holder must give the Company prior written notice
of such proposed transfer including the name and address of the proposed
transferee. Such
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<PAGE> 17
transfer may be made only either (i) upon registration of the Warrants pursuant
to the Act and applicable state securities laws; or (ii) upon publication by
the Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts presented to
said Commission or (iii) upon receipt by the Company of an opinion of counsel,
satisfactory to the Company, in either case to the effect that the proposed
transfer will not involve any violation of the registration provisions of the
Act or any similar or superseding statute or of any applicable state securities
laws.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Act, the Holder will, if
requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee and (iii) an agreement by such transferee that the Company may place
a "stop transfer order" with its transfer agent or registrar.
(c) Transfer. Except as restricted hereby, this Warrant
and the Warrant Stock may be transferred by the Holder in whole at any time.
Upon surrender of this Warrant certificate to the Company with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant
certificate in the name of the assignee named in such instrument of assignment,
and this Warrant certificate shall promptly be cancelled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon this Warrant, shall be null and void
and without effect.
5. Rights of Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Anti-Dilution Provisions.
(a) Adjustment for Reorganization, Consolidation, Merger,
Etc. In case of any reorganization of the Company (or any other corporation,
the securities of which are at the time receivable on the exercise of this
Warrant) after the date hereof, or in case after the date hereof the Company
(or any such other corporation) shall consolidate with or merge into another
corporation or convey all or substantially all of its assets to another
corporation, then, all in each such case, the Holder of this Warrant upon the
exercise as provided in Section 1 at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the securities and property receivable upon the exercise of
this Warrant prior to such consummation, the securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto. In each such case, the terms
of this Warrant shall be applicable to the securities or property received upon
the exercise of this Warrant after such consummation.
(b) Certificate as to Adjustments. In each case of an
adjustment in the number of shares of Common Stock receivable on the exercise
of this Warrant, the Company at its expense shall promptly compute such
adjustment in accordance with the terms of the Warrant and prepare a
certificate executed by an officer of the Company setting forth such adjustment
and showing the facts upon which such adjustment is based. The Company shall
forthwith mail a copy of each such certificate to the Holder.
-3-
<PAGE> 18
(c) Notices of Record Date, Etc. In case: (i) the
Company shall take record of the holders of its Common Stock (or other
securities at the time receivable upon the exercise of the Warrant) for the
purpose of entitling them to receive any dividend (other than a cash dividend)
or other distribution of stock, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities, or
to receive any other right; or (ii) of any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then and in each such
case, the Company shall mail or cause to be mailed to the Holder a notice
specifying, as the case may be, (A) the date on which record is to be taken for
the purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (B) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place and the time, if any,
to be fixed, as to which of the holders of record of Common Stock (or such
other securities at the time receivable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other
securities) for securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up.
7. Legend and Stop Transfer Orders. Unless the shares of Warrant
Stock have been registered under the Act, upon exercise of any of this Warrant
and the issuance of any of the shares of Warrant Stock, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing shares of Warrant Stock shall bear on
the face thereof substantially the following legend, insofar as is consistent
with applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED
FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT SUCH
DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE REGISTRATION
PROVISIONS OF THE ACT OR ANY SIMILAR OR SUPERSEDING STATUTE OR
OF ANY APPLICABLE STATE SECURITIES LAW."
8. Registration.
(a) Demand Registration. The Company agrees that upon
demand of the Holders at any time after January 31, 1997, it shall file a
registration statement under the Securities Act, and the Company shall effect,
as soon as practicable, the registration under the Act of all Warrant Stock.
If the Holder(s) intends to distribute the Warrant Stock by means of an
underwriting, it shall so advise the Company. In the event Company does not
register the Warrant Shares on or before January 31, 1997, Company hereby
irrevocably grants and issues to Holder the right and option to sell to Company
(the "Put") this Warrant at any time after January 31, 1997 and prior to the
Expiration Date, at a purchase price (the "Purchase Price") equal to the fair
market value of the Warrant Shares issuable hereunder upon exercise of this
Warrant. The Company shall pay to Holder, in cash or certified or cashier's
check, the Purchase Price in exchange for delivery to Company of the Warrant,
within 30 days of the receipt of written notice from Holder of its intention to
exercise the Put. The fair market value of each Warrant Share shall be the
closing price of Company's Common Stock as reported on any automated quotation
system or stock exchange on which such stock is listed or reported or the
average of the last bid and last offer for the stock of Company as reported on
the Nasdaq over the counter market, if the stock is not listed on any exchange
or reported on an automated quotation system, on the last full day of trading
-4-
<PAGE> 19
immediately preceding the date on which such written notice of Holder's
intention to exercise the Put is received by Company.
(b) Piggyback Registrations. Notwithstanding the
provisions set forth above, the Company shall notify the Holder(s) in writing
at least thirty (30) days prior to filing any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to employee benefit plans) and will afford each such Holder an
opportunity to include in such registration statement the Warrant Stock. If
the registration statement is for an underwritten offering, the Company shall
so advise the Holder and the right of Holder to be included in a registration
shall be subject to reduction in the discretion of the underwriter and
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Warrant Stock and Holder's execution of the
underwriting agreement.
(c) All expenses incurred in connection with registration
(excluding underwriters' discounts and commissions), including, without
limitation, all registration and qualification fees, printers' and accounting
fees, and fees and disbursements of counsel for the Company shall be borne by
the Company.
(d) Obligations of the Company. Whenever required to
effect the registration of the Warrant Stock, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file a registration statement
with respect thereto and use its best efforts
to cause such registration statement to
become effective, and keep such registration
statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file such amendments and
supplements to such registration statement
and the prospectus used in connection with
such registration statement as may be
necessary to comply with the provisions of
the Act.
(iii) Furnish to the Holder(s) such number of
copies of a prospectus, including a
preliminary prospectus, in conformity with
the requirements of the Act, and such other
documents as may be reasonably requested.
(iv) Use its best efforts to register and qualify
the securities covered by such registration
statement under such other securities or Blue
Sky laws of such jurisdictions as shall be
reasonably requested by the Holder(s),
provided that the Company shall not be
required in connection therewith or as a
condition thereto to qualify to do business
or to file a general consent to service of
process in any such states or jurisdictions.
(v) In the event of any underwritten public
offering, enter into and perform its
obligations under an underwriting agreement,
in usual and customary form, with the
managing underwriter(s) of such offering.
The Holder participating in such underwriting
shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder at any time when a
prospectus relating thereto is required to be
delivered under the Act of the happening of
any event as
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<PAGE> 20
a result of which the prospectus included in
such registration statement, as then in
effect, includes an 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 then
existing.
(vii) Furnish, at the request of any Holder
requesting registration on the date that such
Warrant Stock is delivered to the
underwriters for sale, if such securities are
being sold through underwriters, or, if such
securities are not being sold through
underwriters, on the date that the
registration statement with respect to such
securities becomes effective, (i) an opinion,
dated as of such date, of the counsel
representing the Company for the purposes of
such registration in form and substance as is
customarily given to underwriters in an
underwritten public offering and reasonably
satisfactory to the Holder, addressed to the
underwriters, if any, and to the Holder and
(ii) a letter dated as of such date, from the
independent certified public accountants of
the Company, in form and substance as is
customarily given by independent certified
public accountants to underwriters in an
underwritten public offering and reasonably
satisfactory to the Holder, addressed to the
underwriters, if any, and to the Holder.
(e) Indemnification. The Company will indemnify and hold
harmless the Holder, the partners, officers and directors of the Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against
any losses, claims, damages, or liabilities (joint and several) to which they
may become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any Preliminary Prospectus or final Prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation
or alleged violation by the Company of the Securities Act, the 1934 Act, any
state securities law or rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company, at its option, shall
either assume the defense thereof or will reimburse the Holder, partner,
officer, or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if the Holder fails to promptly notify the Company of such
claim or such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder. The obligations of
the Company under this paragraph shall survive the completion of any offering
of Warrant Stock.
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<PAGE> 21
9. Notice. All notices hereunder shall be in writing
and shall be deemed given (a) when delivered personally, (b) the next business
day when sent by nationally recognized overnight courier service procuring a
return receipt, or (c) within three business days after mailing when by
certified or registered mail, return receipt requested, to the Company at
American Consolidated Laboratories, Inc., 6414 Parkland Drive, Sarasota,
Florida 34243, or to the Holder at his address on the Company's records or at
such other address of which the Company or Holder has been advised by notice
hereunder.
10. Applicable Law. This Warrant is issued under and
shall for all purposes be governed by and construed in accordance with the laws
of the State of Florida.
11. Miscellaneous. This Warrant represents the entire
agreement of the Company with respect to the subject matter hereof and may be
changed only by a written agreement executed by the Company and the Holder.
12. Certain Prior Warrants Replaced and Superseded. This
Warrant replaces and supersedes the Warrants dated as of November 8, 1995
issued by the Company to the Holder for the purchase of an aggregate of 32,400
shares of Common Stock and effective only if principal and interest under
certain promissory notes of the Company to the order of the Holder is not paid
in full by May 8, 1996.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed on its behalf, in its corporate name, by its duly authorized officer,
all as of February 15, 1996.
AMERICAN CONSOLIDATED LABORATORIES,
INC.
By:
---------------------------------
Wayne Upham Smith
Chairman and Chief Executive
Officer
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<PAGE> 22
ASSIGNMENT FORM
For value received, the undersigned ________________________,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of the capital stock
covered thereby set forth below, unto:
<TABLE>
<S> <C> <C>
Name and address of Assignee Number of Shares
---------------------------- ----------------
Date:
Name of Holder:
By:
----------------------------------------
</TABLE>
<PAGE> 23
WARRANT EXERCISE FORM
1. The undersigned Warrant Holder of the attached original,
executed Warrant hereby elects to exercise its purchase right under such
Warrant with respect to the Warrant Stock, as defined in the Warrant of
American Consolidated Laboratories, inc. (the "Company").
2. The undersigned Warrant Holder
(a) elects to pay the aggregate exercise price for such
Warrant Stock in the following manner:
(i) by lawful money of the United States or the
enclosed certified check or postal or express
money order payable in United States dollars
to the order of the Company in the amount of
$_________; or
(ii) by wire transfer of United States funds to
the account of the Company in the amount of
$_________, which transfer has been made
before or simultaneously with the delivery of
this Warrant Exercise Form pursuant to the
instructions of the Company.
(iii) by surrendering Holder's rights to that
number of Warrant Shares having a fair market
value equal to the exercise price of the
Warrant Shares being purchased. Accordingly,
upon exercise of this Warrant, Holder would
receive the number of Warrant Shares to which
it would otherwise be entitled upon such
exercise, less the surrendered shares. For
purposes of this provision, the fair market
value of one share of stock shall be the
closing price as reported on any automated
quotation system or exchange on which the
Company's stock is listed or reported or the
average of the last bid and last offer for
the stock of the Company as reported on the
Nasdaq over-the-counter market, as
applicable, on the last full day of trading
immediately preceding such exercise.
3. Please issue a stock certificate or certificates
representing the appropriate number of shares of Warrant Stock in the name of
the undersigned or in such names as is specified below:
Name: _______________________________
Address: ____________________________
Tax Identification No.: _____________
HOLDER: _____________________________
By: _________________________________
Date: _______________________________
Note: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, or
Assignment, without alteration, enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT NO. 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 filed on June 12, 1995 of American Consolidated Laboratories, Inc. of
our report dated April 15, 1996, appearing in this Annual Report on Form 10-KSB
for the year ended December 31, 1995.
/s/DELLIOTTE & TOUCHE LLP
Raleigh, North Carolina
April 15, 1996
