December 8, 1997
Securities & Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Cyclo3pss Corporation/S-3
Dear Sir or Madam:
On behalf of Cyclo3pss Corporation, a Delaware Corporation, we are
enclosing herewith for filing pursuant to the Securities Act of 1933, as
amended, ("the Act"), a Registration Statement on Form S-3 for an offering
relating to shares of the Company's common stock underlying outstanding Class A
and Class B Stock Purchase Warrants.
Attached to the Form S-3 are required exhibits. We have previously wired
to the Securities and Exchange Commission a filing fee in the amount of
$1,515.00.
The Company presently wishes the Registration Statement to be declared
effective during the week of December 15, 1997.
Please direct any comments or questions you may have concerning the
attached Registration Statement to A.O. Headman, Jr. at 801-532-2666 or via
E-Mail to [email protected].
If you need any additional information, please contact me.
Sincerely,
COHNE, RAPPAPORT & SEGAL, P.C.
/s/ A. O. Headman, Jr.
-----------------------------------------
A.O. Headman, Jr.
<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
CYCLO3PSS CORPORATION
(Exact name of Registrant as specified in charter)
Delaware 87-0455642
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3646 West 2100 South
Salt Lake City, Utah 84120
(801) 972-9090
(Address and telephone number of principal executive office)
William R. Stoddard, President
3646 West 2100 South
Salt Lake City, Utah 84120
(801) 972-9090
(Name, address and telephone number of agent for service)
with copies to:
A.O. Headman, Jr., Esq.
Cohne, Rappaport & Segal
525 East 100 South, Fifth Floor
(801) 532-2666
Salt Lake City, Utah 84102
Approximate date of commencement of proposed sale to the public: From time to
time after the Effective Date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [XX]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being Price Per Offering Registration
Being Registered Registered Unit Price Fee
Common Stock, $.001 2,000,000
Par Value Shares (1) $2.50(2) $5,000,000(2) $1,515.15(2)
Total $5,000,000 $1,515.15
===================== ============= =========== ============= ==============
(1) Includes 1,000,000 shares of Common Stock issuable upon the exercise
of Redeemable Class "A" Common Stock Purchase Warrants and 1,000,000 shares of
Common Stock issuable upon the exercise of Redeemable Class "B" Common Stock
Purchase Warrants. Additional shares of Common Stock issuable in the future upon
the exercise of the Warrants pursuant to certain anti-dilution adjustments to
the Warrants are also being registered hereunder pursuant to Rule 416.
(2) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457 (c) under the Securities Act of 1933 based upon the
average of the bid and asked prices of the Common Stock on the NASDAQ Small Cap
Market on December 1, 1997.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CYCLO3PSS CORPORATION
CROSS REFERENCE SHEET
Form S-3 Item Numbers and Caption Heading in Prospectus
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus............ COVER PAGE OF FORM S-3
AND COVER PAGE OF
PROSPECTUS
2. Inside Front and Outside Back Cover Pages of
Prospectus................................ COVER PAGE OF PROSPECTUS
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges... RISK FACTORS
4. Use of Proceeds........................... USE OF PROCEEDS
5. Determination of Offering Price........... PLAN OF DISTRIBUTION
6. Dilution.................................. Inapplicable
7. Selling Security Holders.................. SELLING SHAREHOLDERS
8. Plan of Distribution...................... PLAN OF DISTRIBUTION
9. Description of Securities to be Registered DOCUMENTS INCORPORATED BY
REFERENCE
10. Interests of Named Experts and Counsel.... LEGAL MATTERS AND EXPERTS
11. Material Changes.......................... MATERIAL CHANGES AND OTHER
MATTERS
12. Incorporation of Certain Information By
Reference................................. DOCUMENTS INCORPORATED BY
REFERENCE
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........... INDEMNIFICATION
14. Other Expenses of Issuance and Distribution PART II
15. Indemnification of Directors and Officers. PART II
16. Exhibits.................................. PART II
17. Undertakings.............................. PART II
<PAGE>
PROSPECTUS
2,000,000 Shares of Common Stock
CYCLO3PSS CORPORATION
The 2,000,000 shares of common stock, $.001 par value (the "Common Stock"),
to which this Prospectus relates (the "Shares"), are being offered, from time to
time, on behalf of and for the account of certain stockholders (the "Selling
Stockholders") of CyClo3pss Corporation (the "Company") as identified herein
under "Selling Stockholders." Shares in the aggregate amount of 1,000,000 are
issuable to the Selling Stockholders upon their exercise of outstanding Class A
Redeemable Common Stock Purchase Warrants (the "Class A Warrants") and Shares in
the aggregate amount of 1,000,000 are issuable to the Selling Stockholders upon
their exercise of outstanding Class B Redeemable Common Stock Purchase Warrants
(the "Class B Warrants"). The distribution of the Shares by the Selling
Stockholders, or by pledgees, donees, distributees, transferees or other
successors in interest, may be affected from time to time by underwriters who
may be selected by the Selling Stockholders and/or broker-dealers, in one or
more transactions (which may involve crosses and block transactions) on
over-the-counter markets or in special offerings, exchange distributions or
secondary distributions pursuant to and in accordance with rules of such
over-the-counter markets or exchanges, in negotiated transactions or otherwise,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. (See "Selling Stockholders"
and "Plan of Distribution.")
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
THESE SECURITIES SHOULD BE PURCHASED ONLY BY THOSE PERSONS WHO CAN AFFORD A LOSS
OF THEIR ENTIRE INVESTMENT. (SEE "INVESTMENT CONSIDERATIONS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has agreed to pay all expenses of registration, estimated to be
approximately $24,000, in connection with this offering but will not receive any
of the proceeds from the sale of the Shares being offered hereby other than
proceeds upon the exercise of the Warrants (see "Use of Proceeds") . All
brokerage commissions and other similar expenses incurred by the Selling
Stockholders will be borne by such Selling Stockholders. The proceeds to the
Selling Stockholders from the sale of the Shares will be the purchase price of
the Shares sold, less the aggregate brokerage commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne by
the Company.
The Common Stock being offered hereby by the Selling Stockholders has not
been registered for sale under the securities laws of any state or jurisdiction
as of the date of this Prospectus. Brokers or dealers effecting transactions in
the Common Stock should confirm the registration thereof under the securities
law of the state in which such transactions occur, or the existence of any
exemption from registration.
The Common Stock is listed for trading on the NASDAQ Small Cap Market under
the symbol "OZON". On December 1, 1997, the closing bid price of the Common
Stock as reported by the NASDAQ Small Cap Market was $2.50 per share.
The date of this Prospectus is __________, 1997.
5
<PAGE>
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations not contained in this Prospectus or
incorporated by reference to this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Selling Stockholders. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. The delivery
of this Prospectus at any time does not imply that the information contained
herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance therewith,
the Company files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at 7 World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60621. Copies of such material may be obtained
from the Public Reference Section of the Commission at prescribed rates by
writing to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or
from the Commission's web site at http://www.sec.gov. The Common Stock is traded
on the NASDAQ Small Cap Market, and reports and other information concerning the
Company may be inspected and copied at The NASDAQ Stock Market, Inc. at 1735 K
Street, N.W., Washington, DC 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933,as amended (the "Securities Act") with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which can be obtained from the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference are the following documents filed by the
Company with the Commission (File No. 0-22720) under the Exchange Act:
(a) The Company's Annual Report on Form 10-KSB for its fiscal year ended
February 28, 1997;
(b) The Company's Quarterly Reports on Form 10-QSB for its fiscal
quarters ended May 31, 1997 and August 31, 1997; and
(c) The Current Report on Form 8-K dated November 12, 1997.
6
<PAGE>
All documents filed by the Company with the Commission pursuant to Sections
13, 14 and 15(d) of the Exchange Act subsequent hereto, but prior to the
termination of this offering, shall be deemed to be incorporated herein by
reference and to be a part hereof from their respective dates of filing. Any
statement contained herein, or in a document incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owners, to whom a copy of this Prospectus is delivered, upon the
written and oral request of any such person, a copy of any or all of the
documents referred to above which have been incorporated into this Prospectus by
reference (other than the exhibits to such documents). Requests for such copies
should be directed to William R. Stoddard, Chief Executive Officer, 3646 West
2100 South, Salt Lake City, UT 84120, telephone number (801) 972-9090.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Prospectus regarding the Company's financial position, business strategy and
plans and objectives of management of the Company for future operations, are
forward-looking statements. When used in this Prospectus, words such as
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors such as those disclosed under "Risk Factors," including but not limited
to, competitive factors and pricing pressures, changes in legal and regulatory
requirements, technological change or difficulties, product development risks,
commercialization and trade difficulties and general economic conditions. Such
statements reflect the current views of the Company with respect to future
events and are subject to these and other risks, uncertainties and assumptions
relating to the operations, results of operations, growth strategy and liquidity
of the Company. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf are expressly qualified
in their entirety by this paragraph.
7
<PAGE>
PROSPECTUS SUMMARY
The following summary information does not purport to be complete and is
qualified in its entirety by reference to the more detailed information and
financial statements appearing elsewhere in this Prospectus or in documents
incorporated by reference. Each prospective investor is urged to read this
Prospectus in its entirety. (See "Risk Factors.")
The Company
Cyclo3pss Corporation is a Delaware corporation with its principal and
executive offices at 3646 West 2100 South, Salt Lake City, UT 84120, telephone
(801) 972-9090. The Company also has small offices in Arizona and Florida. The
Company (i) designs, manufactures, sells and installs laundry sorting and
counting systems and ozone washing systems to commercial and institutional
laundries and healthcare facilities; (ii) manufactures and sells specialty
chemicals; (iii) performs research and development of technologies for the
sterilization and/or disinfection of surgical and medical instruments; and (iv)
is actively engaged in the development and testing of ozone systems for food
processing applications. (See "The Company.")
The Offering
This offering pertains to the possible sale of up to 2,000,000 shares of
the Company's Common Stock by the Selling Stockholders. The Shares offered
hereby are issuable to the Selling Stockholders by the Company upon the exercise
of Class A Warrants and Class B Warrants owned by the Selling Stockholders. The
Class A Warrants entitle the Selling Stockholders to purchase from the Company
an aggregate of 1,000,000 shares of Common Stock at $2.60 per share. The Class B
Warrants entitle the Selling Stockholders to purchase from the Company an
aggregate of 1,000,000 shares of Common Stock at $2.75 per share. The Selling
Stockholders may, but are not required to, sell the Shares subsequent to their
acquisition of the shares upon the exercise of the Warrants. The Selling
Stockholders are not required to exercise the Warrants and if exercised, are not
required to resell the Shares issued to them upon such exercise. The Company
will not receive any proceeds from the sale of the Shares by the Selling
Stockholders. The Company will receive proceeds from the exercise of the Class A
and Class B Warrants, to the extent such Warrants are exercised, and such
proceeds will be used as working capital by the Company. (See "Use of
Proceeds.")
All expenses relating to the registration of the Shares, estimated to be
approximately $24,000, will be borne by the Company. To the best knowledge of
the Company, the Selling Stockholders have not entered into any arrangements
regarding the sale of their shares of Common Stock offered hereby. This Offering
is not being underwritten. (See "Selling Stockholders" and "Plan of
Distribution."
THESE SECURITIES ARE VERY SPECULATIVE INVOLVING A HIGH DEGREE OF RISK.
THERE IS A POSSIBILITY THAT THE COMPANY WILL BE UNSUCCESSFUL. THE
PURCHASE OF THE COMPANY'S SECURITIES SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. (See "Risk
Factors").
8
<PAGE>
RISK FACTORS
THE PURCHASE OF THE SECURITIES BEING OFFERED INVOLVES A HIGH DEGREE OF RISK AND
THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE
PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE CONFIDENTIAL
PRIVATE OFFERING MEMORANDUM AND CAREFULLY CONSIDER, AMONG THE OTHER FACTORS AND
FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS INHERENT IN AND
AFFECTING THE BUSINESS OF THE COMPANY:
1. Ability to Continue as a Going Concern. As a result of the Company's
financial condition, the Company's independent auditor included an explanatory
paragraph in its report on the Company's financial statements for the period
ended February 28, 1997, with respect to the Company's ability to continue as a
going concern. The Company's ability to continue in the normal course of
business is dependent upon its access to additional capital and the success of
future operations. Uncertainties as to these matters raised substantial doubt
about the Company's ability to continue as a going concern at the date of such
report. Subsequent to the date such auditor's report was issued, the Company
took the following action: (i) eliminated most of its long-term debt by
converting approximately $1,250,000 of such debt into equity; and (ii) raised
$1,068,725 in net offering proceeds from the sale of common stock in a private
offering. There can be no assurance that the Company will not incur continuing
net losses in the future.
2. History of Operating Losses; Uncertainty of Future Profitability. The
Company has never operated at a profit. The Company has sold a limited number of
products and has generated a limited amount of revenue from its operations.
There can be no assurance that the Company will ever generate revenue from any
of its operations sufficient to achieve profitability.
3. Future Capital Requirements and Negative Cash Flow. The Company's
operations to date have consumed substantial amounts of cash. The negative cash
flow from operations is expected to continue and may increase over the
foreseeable future. The Company anticipates that its existing capital resources,
including the proceeds received from exercise of the warrants, will enable the
company to maintain its current and planned operations through at least the end
of Fiscal 1999. Thereafter, the Company will need to raise substantial
additional funds to conduct its operations, develop its products and
subsequently to establish manufacturing and marketing capabilities. The Company
intends to seek additional funding through public or private financing,
including equity financing, and through collaborative arrangements, and may seek
additional funding before the end of Fiscal 1999. Adequate funds for these
purposes, whether obtained through financial markets or from collaborative or
other arrangements with corporate partners or other sources, may not be
available when needed or on terms acceptable to the Company and may result in
significant dilution to existing stockholders. Insufficient funds may require
the Company to delay, scale back or eliminate some or all of its research and
product development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop
itself. The Company's future cash requirements will be affected by results of
research and development, results of relationships with corporate collaborators,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, the regulatory process and
other factors.
9
<PAGE>
4. Possible Loss of NASDAQ Listing. The Company's Common Stock is traded on
the NASDAQ Small Cap Market. In order to maintain its NASDAQ listing, the
Company must meet the NASDAQ maintenance requirements. The current NASDAQ
maintenance requirements include a requirement of a $1.00 bid price for the
Company's Common Stock, provided however, stock may, under current requirements,
be below a $1.00 bid price if the Company's public float is $1,000,000 or
greater, and if the Company's equity is $2,000,000 or greater. The Company's
Common Stock traded for less than $1.00 prior to October 1997. Since October 9,
1997, the Company's Common Stock has traded in excess of $1.00 per share. During
the time that the trading price for the Common Stock was less than $1.00 per
share, NASDAQ asked the Company to provide it with a plan by which the Company
proposed to meet the NASDAQ maintenance requirements.
As part of the Company's plan, more than $1,250,000 in long-term debt
obligations were converted into shares of the Company's Common Stock. As a
result of such conversion of debt, the Company's liabilities were reduced, and
its shareholders' equity was increased by such amount. The Company also sold
Units of its securities in a private offering in October 1997 from which the
Company obtained net offering proceeds of approximately $1,068,725.
In the event that all of the Company's outstanding Class A and Class B
Warrants are exercised, of which there can be no assurance, the Company will
receive additional capital, after costs and expenses, of approximately
$4,721,000.
In February 1998, new requirements for maintaining a continued listing on
the NASDAQ Small Cap Market become effective. These requirements include a
public float of 500,000 shares, a $1.00 bid price, $1,000,000 of public float,
and one of the following: (i) $2,000,000 in net tangible assets, (ii)
$35,000,000 in market capitalization; or (iii) $500,000 of net income in two of
the last three years. There can be no assurance that the Company will continue
to be listed on the NASDAQ Small Cap Market once the new maintenance
requirements come into effect. The failure to maintain its NASDAQ listing would
have an adverse effect on the Company and its shareholders. Many brokers will
not trade stocks which are not listed on an exchange or NASDAQ. The lack of a
NASDAQ listing would likely hurt the liquidity of the shares of the Company's
common stock, potentially resulting in further reductions in market prices.
5. Uncertainty of Entrance Into Medical Sterilization Market. The Company
business plan includes selling medical sterilization products. However, as of
the date hereof, the Company has not obtained FDA clearance for wide-scale
marketing of such products and there can be no assurance it will ever obtain
such FDA clearance. Even if FDA clearance is obtained, there can be no assurance
that the Company will be able to effectively and profitably enter into the
medical sterilization product market. Due to its lack of capital, the Company
has significantly reduced efforts to advance the progress of its medical
sterilization products.
6. Lengthy Sales Cycle. Currently, the Company is focusing its efforts and
financial resources on the marketing of its laundry system products and
technologies as a means of generating revenue. Installing and integrating a new
laundry system requires a substantial investment by a customer. In addition,
customers often require a significant number of product presentations and
demonstrations, as well as substantial interaction with the Company's senior
management, before reaching a sufficient level of confidence in the system's
performance characteristics and
10
<PAGE>
compatibility with the customer's target applications. Accordingly, the
Company's laundry systems typically have a lengthy sales cycle during which the
Company may expend substantial funds and management time and effort with no
assurance that a sale will result.
7. Discretionary Use of Warrant Proceeds; Possible Need for Additional
Financing; The Board of Directors of the Company will have broad discretion in
allocating the net proceeds from the exercise of the Warrants. It is possible
that proceeds from the exercise of the Warrants will not be adequate to provide
all funds necessary to the Company for operations until profitable operations
may begin. In such event, additional financing will be necessary. If additional
financing is required, there can be no assurance that the Company will be able
to obtain such financing or that such financing will be available on favorable
terms. If the Company is unable to obtain such additional financing, the
Company's ability to maintain its current level of operations could be
materially adversely affected and the Company may be required to reduce its
overall expenditures and operations.
8. Rapid Technological Change; Dependence on Product Development. The
industries in which the Company is engaged are characterized by rapid
technological change and evolving industry standards. As a result, the Company
must continue to enhance its existing products and develop and manufacture new
products and upgrades with improved capabilities, which has required and will
continue to require substantial investments in research and development by the
Company to advance a number of state-of-the-art technologies. Continuous
investments in research and development also will be required to respond to the
emergence of new technologies. The failure to develop, manufacture and market
new products, or to enhance existing products, would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's competitors can be expected to continue to develop
and introduce new and enhanced products, any of which could cause a decline in
market acceptance of the Company's products or a reduction in the Company's
margins as a result of intensified price competition.
The Company's potential success in developing and selling new and enhanced
products depends upon a variety of factors, including accurate prediction of
future customer requirements, introduction of new products on schedule,
cost-effective manufacturing and product performance in the field. The Company's
new product decisions and development commitments must anticipate the equipment
needed to satisfy the requirements for inspection processes one year or more in
advance of sales. Failure to predict accurately customer requirements and to
develop new generations of products to meet those requirements would have a
sustained material adverse effect on the Company's business, financial condition
and results of operations. New product transitions could adversely affect sales
of existing systems. Product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence, and
orders for existing products or enhancements of existing products fluctuate.
9. Risk of Product Liability. The manufacture and sale of products entails
an inherent risk of product liability. The Company does maintain product
liability insurance with limits of $1,000,000 per occurrence and $1,000,000 in
the aggregate. There can be no assurance that such insurance is adequate to
cover potential claims or that the Company will be able to obtain product
liability insurance on acceptable terms in the future, or that any product
liability insurance subsequently obtained will provide adequate coverage against
all potential claims. A successful claim brought
11
<PAGE>
against the Company in excess of its insurance coverage, or any material claim
for which insurance coverage was denied or limited, could have a material
adverse affect on the Company's business, results of operations and financial
condition. Additionally, the Company generally provides a design defect warranty
and in some instances indemnifies its customers for failure to conform to design
specifications and against defects in materials and workmanship. Any substantial
claim against the Company under such warranties or indemnification could have a
material adverse affect on the Company's business, results of operations and
financial condition.
10. Significant Industry Competition. The markets for the products the
Company currently offers and will offer in the future, are and will be, highly
competitive. Numerous manufacturers and distributors compete for customers
throughout the United States and internationally in these industries. Many of
the Company's competitors are substantially larger and more experienced than the
Company, have longer operating histories and have materially greater financial
and other resources than the Company. There can be no assurance that the Company
will be able to compete successfully with its more established and better
capitalized competitors.
11. Government Regulation. All of the Company's operations are subject to a
variety of governmental regulation just as all companies are subject to
governmental regulation. In addition, the Company's medical sterilization
products which are in development are regulated in the U.S. by the Food and Drug
Administration and other federal and state regulatory agencies. Domestic and
foreign government regulatory and certification authorities may delay or prevent
product introductions and may require additional studies or tests prior to
product introduction.
12. Patent Protection. The Company's patent and trade secret rights are of
material importance to the Company and its future prospects because the Company
relies on these rights to protect proprietary technology. Patents granted may
not provide meaningful protection from competitors. Even if a competitor's
products were to infringe patents owned by the Company, it would be costly for
the Company to enforce its rights in an infringement action and would divert
funds and other resources from the Company's operations. Furthermore, no
assurance can be given that the Company's products or processes will not
infringe any patents or other intellectual property rights of third parties. If
the Company's products or processes do infringe the rights of third parties, no
assurance can be given that the Company can obtain a license from the
intellectual property owner on commercially reasonable terms or at all.
The Company relies on trade secrets that it seeks to protect, in part,
through confidentiality agreements with employees, consultants and its current
and potential customers. No assurance can be given that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known to or
independently developed by competitors. As the Company intends to enforce its
patents, trademarks and copyrights and protect its trade secrets, it may be
involved from time to time in litigation to determine the enforceability, scope
and validity of these rights. Any such litigation could result in substantial
cost to the Company and diversion of effort by the Company's management and
technical personnel.
13. Dependence Upon Key Personnel. The Company's success is dependent upon
numerous factors including the active and continued participation of its
management team. The loss
12
<PAGE>
of services or current management, for any reason, would have a negative impact
on the future success of the Company. The Company has no key man insurance on
its officers and directors. Furthermore, there can be no assurance that the
Company will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. The Company's continued expansion
into areas and activities requiring additional expertise, such as regulatory
compliance, manufacturing, monitoring and distribution of ozone wasting systems
for the food industry is expected to place increased demands on the Company's
resources. The Company's activities are expected to require additional personnel
with expertise in these areas and the development of additional expertise by
existing personnel. The failure to acquire or retain such personnel, or develop
such expertise could adversely affect the prospect for the Company's success.
14. Dividends. The Company has never paid a dividend on its Common Stock
and there can be no assurance that it will ever pay a dividend on its Common
Stock. Any future cash dividends will depend on earnings, if any, the Company's
financial requirements and other factors. Investors who anticipate the need of
an immediate income from their investment in the Company's Common Stock should
refrain from the purchase of the Shares being offered hereby.
15. Immediate Dilution. An investment in the Company's Common Stock will
result in a substantial and immediate dilution of the purchaser's investment in
regards to the net tangible book value of the Company's Common Stock. Potential
investors should discuss the issue of dilution with their personal financial
consultants.
16. Possible Rule 144 Sales. The Common Stock presently owned by management
and certain other shareholders are deemed to be "restricted securities" as such
term is defined in Rule 144 under the Securities Act. Rule 144 provides that a
person who has held restricted securities for one year may, within a three-month
period, sell in "brokers transactions" (as defined by the Rule), an amount equal
to the greater of one percent of the Issuer's outstanding securities of such
class or the average weekly reported volume of trading in such securities during
the four calendar weeks preceding the sale if the conditions specified by the
Rule are satisfied. If such person is not an "affiliate" of the Issuer, as such
term is defined by Rule 144, he may, after a holding period of two years, sell
such restricted securities without a volume limitation. Future sales under Rule
144 may have a depressing effect on the market price of the Common Stock. As of
December 1, 1997, there were 15,063,779 shares of the Company's Common Stock
issued and outstanding, of which 12,681,196 may be sold under Rule 144 or as
non-restricted shares.
17. Authorization of Preferred Stock and Anti-Takeover Effect Risk. The
Company's Certificate of Incorporation authorizes the issuance of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Convertible Preferred Stock and Common Stock. Also, the voting power
and percentage of stock ownership of the shareholders of the Company's
outstanding capital stock can be substantially diluted by such preferred stock
issuance.
13
<PAGE>
In addition, the issuance of such preferred stock may have the effect of
rendering more difficult or discouraging an acquisition of the Company or
changes in control of the Company. There can be no assurance that the Company
will not issue preferred stock in the future. Other than the authorization of
"blank check" preferred stock, the Company does not have any other provisions in
the Company's Certificate of Incorporation, Stock Option Plans, and/or
Employment Agreements which may have an anti-takeover effect. The issuance of
preferred stock with anti-takeover provisions may discourage bidders from making
offers at a premium to the market price. In addition, the mere existence of an
anti-takeover device may have a depressive effect on the market price of the
Company's stock.
18. General Factors. The Company's business may be affected from time to
time by such matters as changes in general economic, industrial and
international conditions; change in taxes, prices and costs; and other factors
of a general nature which may have an adverse effect on the Company's business.
19. Risk of Loss of Entire Investment. Because of the limited capital of
the Company, its adverse financial position, its limited operating history and
other factors, each investor should be prepared to risk the entire loss of his
or her investment in the securities.
USE OF PROCEEDS
The Shares of Common Stock being offered hereby are for the account of the
Selling Stockholders. Accordingly, the Company will not receive any of the
proceeds from the sale of the Shares by the Selling Stockholders (see "Selling
Stockholders.")
To the extent that Selling Stockholders exercise the Class A and Class
B Warrants, the Company will receive funds from the purchase of the Shares
underlying the Warrants. If all Class A Warrants are exercised, the Company will
receive $2,600,000 from the Selling Shareholders for the purchase of Shares
underlying the Class A Warrants. If all of the Class B Warrants are exercised,
the Company will receive $2,750,000 from the Selling Shareholders for the
purchase of Shares underlying the Class B Warrants. The Company has agreed to
pay a fee to First Financial Investment Securities, Inc. upon the exercise of
the Warrants. Assuming all of the Class A and Class B Warrants are exercised,
the total fee will be $605,000. There can be no assurance that any of the
Warrants will be exercised. Any funds received by the Company from the exercise
of the Warrants will be used for working capital.
THE COMPANY
General
The Company (i) designs, manufactures, sells and installs laundry sorting
and counting systems and ozone washing systems to commercial and institutional
laundries and healthcare facilities; (ii) manufactures and sells specialty
chemicals; (iii) performs research and development of technologies for the
sterilization and/or disinfection of surgical and medical instruments; and (iv)
is actively engaged in the development and testing of ozone systems for food
processing applications. These activities are performed through wholly-owned
subsidiaries of the Company.
14
<PAGE>
Cyclo3pss Textile Systems, Inc. The Company, through internal technology
development and the 1994 acquisition of another corporation, has developed
products for sale to the healthcare, commercial and institutional laundry
markets. These products include:
Ozone washing systems for healthcare laundry facilities that enable
users to save time, money, energy and chemical costs while producing
laundry cleaning and disinfection which has demonstrated to be superior to
current methods.
Ozone washing systems for commercial and industrial laundries that
enable users to reduce the amount of time, water, energy and chemicals
needed to launder textiles.
Laundry sorting and counting systems designed to improve the speed
and accuracy of preparing, counting and transporting soiled linens for
washing operations.
Proprietary wash chemicals designed to be compatible with the ozone
washing technology.
The Company has commenced sales of its ozone washing systems and its VACTM
laundry sorting and counting systems to commercial and industrial laundries. The
Company is scheduling tests of its healthcare ozone laundry washing and
disinfection systems with leading companies in the healthcare field and expects
to commence sales of these systems during the next fiscal year. The Company is
also engaging in marketing efforts to the institutional laundry market and
expects to commence sales of systems to the institutional market during the next
fiscal year.
Cyclo3pss Food Processing Systems, Inc. The Company is actively engaged in
the development and testing of ozone systems for use in food processing
applications, including fresh fruits and vegetables. This subsidiary recently
entered into an agreement with Schlyer Machinery Company, a New York entity that
is a leading manufacturer of spray washer-disinfectors, to design and build food
processing systems which use ozone instead of chlorine to kill microbial
contaminants.
Cyclo3pss Biochemical Corporation. The Company has developed a line of
specialty chemicals for sale to biomedical and research institutions and
performs limited contract research and development of organic compounds and
synthesis methods for some of its customers. While the revenues produced by this
division constituted a significant portion of total revenues during the year
ended February 28, 1997, it is not currently expected to contribute a
significant portion of sales if and when the Company's laundry and/or medical
sterilization/disinfection products gain market acceptance.
Cyclo3pss Medical Systems, Inc. The Company has developed technologies and
products which it believes may be an effective alternative to current
sterilization technologies for the sterilization of medical instruments and
devices. The Company is developing two medical sterilization technologies, one
which utilizes ozone gas as a sterilant and a second which is a liquid chemical
sterilant/disinfectant. The Company has conducted five years of research,
development and testing of its gas sterilization technology and products and has
developed and constructed pre-production prototypes of its STER-O3-ZONE(TM) 100
model. The Company submitted a 510(k) Premarket Notification application to the
Food and Drug Administration (FDA) on January 6, 1995
15
<PAGE>
for the STER-O3-ZONE(TM) 100 ozone gas sterilizer, and the Company and the FDA
have since been in communication regarding the application. The FDA has accepted
the application for review and has begun the customary process of requesting
additional information for evaluation, which the Company is gathering.
Based upon the volume of additional data requested by the FDA and the
potential for additional design and engineering that will be required in order
to produce the required data and substantiate the desired labeling, the Company
is unable to predict the amount of time that will be required for the FDA to
complete its review or whether the submission will ultimately be accepted. Given
the Company's limited resources, during the fiscal year ended February 28, 1997,
the Company continued to scale back significantly its efforts relative to the
redesign and testing of the STER-O3- ZONETM100, choosing instead to concentrate
its resources on the completion and marketing of its textile systems. The
Company is prohibited from undertaking general marketing of the STER-O3-
ZONE(TM)100 device until final marketing clearance from the FDA has been
received, which is not anticipated by the Company during the next fiscal year.
The Company had previously planned on placing a limited number of initial
products prior to receiving marketing clearance from the FDA pursuant to an
Investigational Device Exemption (IDE) in accordance with the FDA rules and
regulations. The Company determined that it is prudent to postpone placement of
these units indefinitely or until issues of reproducibility have been satisfied,
and labeling claims made pursuant to the application can be fully substantiated
by internal testing and independent validation.
As discussed above, the Company is also engaged in the development of a
liquid chemical sterilant/disinfectant, SterOx(TM), which may compete with
liquid chemical sterilants/disinfectants currently available in the market
place. The Company has been awarded an issued patent on this chemical and is
continuing product testing in preparation for the submission of a 510(k)
Premarket Notification Application with the FDA. The Company is currently
considering whether it will complete this product itself or to complete an
agreement for its completion, manufacture and marketing with a strategic
partner.
The Company is also pursuing applications of the Company's technologies in
waste water treatment industries.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders. The number of Shares that may actually be sold by each of
the Selling Stockholders will be determined by each such Selling Stockholder,
and may depend upon a number of factors, including, among other things, the
market price of the Common Stock. The table below sets forth information as of
December 1, 1997, concerning the beneficial ownership of Common Stock of each of
the Selling Stockholders. All information concerning beneficial ownership has
been furnished by the Selling Stockholders.
16
<PAGE>
Ownership Securities Ownership Percentage
Prior to Being After Ownership
Selling Shareholder Offering (1Offered (2) Offering (3 of Class (4)
- ------------------- -------- ------- -------- --------
Brenda Greer 437,200 250,000 187,200 1.1%
Terry Armstrong 55,000 30,000 25,000 (5)
Antonio DiNapal 178,000 116,000 62,000 (5)
William Major 473,300 160,000 313,300 1.8%
Lawrence Smith 58,640 36,000 22,640 (5)
Bruce W. Wolitarsia 75,000 50,000 25,000 (5)
Joel W. Tippett 176,000 60,000 116,000 (5)
David Sherer 80,000 40,000 40,000 (5)
Rodney Hand 114,300 40,000 74,300 (5)
Gary Davis 117,400 72,000 45,400 (5)
Adrian Kathleen Killiam 180,000 120,000 60,000 (5)
Howard S. Kunka 228,000 152,000 76,000 (5)
Charles Bayles 177,500 96,000 81,500 (5)
George Dawkins 120,000 80,000 40,000 (5)
Graham Trust 54,00 36,000 18,000 (5)
Nancy W. Fisher 123,600 72,000 51,600 (5)
Andrew F. Stasio 59,000 36,000 23,000 (5)
Langston Family LTP 70,000 40,000 30,000 (5)
James H. Fowler 267,400 160,000 107,400 (5)
Robert Holzmueller 65,000 36,000 29,000 (5)
Jay Elder 72,500 36,000 30,750 (5)
Olen Cothron 66,750 36,000 18,000 (5)
Dr. Joe Matarazo 714,000 246,000 468,000 2.7%
Total 3,962,590 2,000,000 1,962,590
(1) Represents those shares of Common Stock held by the Selling
Stockholder, if any, together with those shares that such Selling
Stockholder has the right to acquire within 60 days from the date of this
Prospectus. Each of the Selling Stockholders specifically disclaims
beneficial ownership of the shares of Common Stock held (or acquirable
upon exercise or conversion of any derivative securities held) by the
other Selling Stockholders and, as such, the number of shares of Common
Stock represented hereby does not reflect any shares of Common Stock
beneficially owned by any other Selling Stockholder.
(2) Represents Shares acquirable by the Selling Shareholders upon exercise
of the Class A and Class B Warrants.
(3) Assumes all of the Shares acquirable upon the exercise of the Class A
and Class B Warrants will be sold. Because each of the Selling
Stockholders may sell all, some or none of the Shares that each may
acquire upon the exercise of the Class A and Class B Warrants, and because
the offering contemplated by this Prospectus is not a "firm commitment"
underwritten offering, the actual number of Shares that will be held by
each of the Selling Stockholders upon or prior to termination of this
offering may vary (see "Plan of Distribution.")
17
<PAGE>
(4) Assumes all Class A and Class B Warrants owned are exercised by each
Selling Shareholder and that each Selling Stockholder sells all of the
Shares issued upon such exercise of Warrants but sells no other shares
owned. A Selling Stockholder may sell all or none of the Shares acquired
by such Selling Stockholder from the exercise of the Class A and Class B
Warrants.
(5) Less than 1%
The Selling Stockholders identified above may have sold, transferred or
otherwise disposed of all or a portion of their Shares since the date on which
they provided the information regarding their Common Stock in transactions
exempt from the registration requirements of the Securities Act. Additional
information concerning the above listed Selling Stockholders may be set forth
from time to time in prospectus supplements to this Prospectus (see "Plan of
Distribution.")
Pursuant to the terms of a private placement of the Company's
securities commencing October 13, 1997, the Company agreed to file the
Registration Statement, to which this Prospectus forms a part, for the purpose
of registering the potential resale of the Shares underlying the Warrants. All
of the registration and filing fees, printing expenses, blue sky fees, if any,
and fees and disbursements of counsel for the Company will be paid by the
Company; provided, however, that any underwriting discounts and selling
commissions will be borne by the Selling Stockholders.
None of the Selling Stockholders has ever had any position, office or
other material relationship with the Company.
PLAN OF DISTRIBUTION
The Class A and Class B Warrants entitle the Selling Stockholders to
purchase Shares of the Company's Common Stock. There can be no assurance that
all or any of the Class A or Class B Warrants will be exercised. To the extent
Warrants are exercised, the Selling Stockholders will be issued Shares of Common
Stock underlying such Warrants. Upon the purchase of such Shares, the Selling
Stockholders may, in their sole discretion, sell all of the Shares, sell some of
the Shares or sell none of the Shares. To the extent Shares are sold by the
Selling Stockholders such sales may be made from time to time by the Selling
Stockholders, or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on
over-the-counter markets (any of which may involve crosses and block
transactions), in privately negotiated transactions or otherwise, or in a
combination of such transactions at prices and at terms then prevailing or at
prices related to the then- current market price, or at privately negotiated
prices. In addition, any Shares covered by this Prospectus which qualify for
sale pursuant to Section 4(1) of the Securities Act or Rule 144 promulgated
thereunder may be sold under such provisions rather than pursuant to this
Prospectus. Without limiting the generality of the foregoing, the Shares may be
sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to
sell the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus;
18
<PAGE>
(c) an exchange distribution in accordance with the rules of such
exchange;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
(e) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in the
resales.
The Selling Stockholders may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares
registered hereunder, which the broker-dealer may resell pursuant to this
Prospectus. The Selling Stockholders may also pledge the Shares registered
hereunder to a broker or dealer, and upon a default, the broker or dealer may
effect sales of the pledged Shares pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders in amounts to be
negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
If one or more Selling Stockholders engages an underwriter or
underwriters, information concerning such underwriters, the compensation to be
received by such underwriters, and the compensation to be received by other
broker-dealers, in the event the compensation of such other broker-dealers is in
excess of usual and customary commissions, will, to the extent required, be set
forth in a supplement to this Prospectus (the "Prospectus Supplement"). Any
dealer or broker participating in any distribution of the Shares may be required
to deliver a copy of this Prospectus, including the Prospectus Supplement, if
any, to any person who purchases any of the Shares from or through such dealer
or broker.
The Company has advised the Selling Stockholders that during such time as
they may be engaged in a distribution of the Shares included herein they are
required to comply with Regulation M promulgated under the Exchange Act. In
general, Regulation M precludes any Selling Shareholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase, any security which is the subject of the distribution
until the entire distribution is complete. A "distribution" is defined in the
rules as an offering of securities that is distinguished from ordinary trading
activities and depends on the "magnitude of the offering and the presence of
special selling efforts and selling methods." Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security.
It is possible that the Selling Stockholders will offer all of the Shares
for sale. Further, because it is possible that a significant number of Shares
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Company's
Common Stock.
19
<PAGE>
MATERIAL CHANGES AND OTHER MATTERS
Subsequent to the Company's Form 10-KSB for year ended February 28, 1997
and Form 10- QSB for the quarter ended August 31, 1997, the following material
changes and other events occurred:
1 The Company completed a debt conversion whereby $1,250,000 in
long-term debt was converted into shares of the Company's common
stock; and
2. The Company completed a private placement of its common stock in
which it received net offering proceeds of $1,068,725.
3. On October 31, 1997, John Williams, the Chairman of the Company's
Board of Directors resigned for health and other personal reasons.
Mr. Williams will continue to be available to provide consulting
services with the Company.
4. On December 2, 1997, the Company appointed Michael J. Lakis, Jr. as
a member of the Company's Board of Directors. Mr. Lakis is a
consultant to various food processors, growers and retailers. Mr.
Lakis was previously President and Chief Operating Officer - North
America for Del Monte Fresh Produce Company. From 1979 to 1992, Mr.
Lakis was President of Chiquita Brand Bananas. In addition to
providing service as a Director of the Company, Mr. Lakis will be
retained as a consultant to the Company.
LEGAL PROCEEDINGS
During the period from May through August 1996, the Company sold its
Series B preferred stock in a private placement to certain investors pursuant to
the provisions of Regulation S. The Series B Preferred Stock is convertible into
Common Stock based upon a percentage of the Common Stock market price
immediately prior to conversion. During the period of the Regulation S offering,
the market price of the Company's securities dropped significantly and the
trading volume increased significantly. The Company believes that actions were
taken by some or all of the Regulation S investors and other persons, none of
whom were previously affiliated with the Company, which may have violated
federal securities laws and which may have adversely impacted the trading market
for the Company's Common Stock during the offering period. As the result of such
actions, the Company has refused to remove restricted legends or to convert such
Series B Preferred Stock into common stock in connection with certain of the
investors.
In December 1996, one of these investors, Mifal Klita, a purported Canadian
company, filed suit against the Company demanding the removal of the restrictive
investment legend which the Company caused to be placed on common shares issued
pursuant to the conversion of Series B preferred shares. The suit was filed in
the Court of Chancery in the State of Delaware. On the Company's motion, the
Court of Chancery dismissed Mifal Klita's suit in April 1997. In May 1997, Mifal
Klita filed an amended complaint in the Superior Court of the State of Delaware
with essentially the same claims as were contained in the original Complaint.
The primary relief sought by Mifal Klita is the return of their invested funds
and/or the conversion of their Series B
20
<PAGE>
preferred shares into unrestricted common stock of the Company. Certain other
persons purchasing the Series B Preferred Stock subsequently joined Mifal Klita
as plaintiff's in such litigation.
The Company has filed a Counterclaim against the plaintiffs and a Third
Party Complaint against other persons and has alleged that the unlawful actions
of such persons violated federal securities laws and otherwise caused harm and
damages to the Company and its shareholders. The plaintiffs and the third party
defendants have denied the Company's allegations. The Company and the other
parties to this litigation have discussed settlement proposals, however, there
can be no assurance that this matter will be settled. If it is not settled, the
Company will expend additional funds for legal and other litigation fees and
costs, and the Company's management will devote additional management time to
the litigation. If the litigation is not settled and the Company is not
successful in the litigation, the Company may be required to issue a substantial
number of unrestricted shares of its Common Stock to the Regulation S investors
in connection with the conversion of their Series B Preferred Stock. The number
of shares of Common Stock which could be issued in such conversion could give
voting control of the Company to such investors and could have a substantial and
adverse effect on the trading market for the Company's Common Stock. The Company
has not recorded any contingencies or reserves related to this matter.
An action was filed on December 23, 1996 by Larry P. Bughi and Kathleen
Lison-Bughi in the United States District Court for the Western District of
Washington seeking recision of a $140,000 investment the Bughi's made in a
convertible secured promissory note which was offered and sold to accredited
investors by the Company. In addition to seeking recision of their investment,
the Bughi's complaint contained a motion for a temporary restraining order and a
motion for a preliminary injunction and pre-judgement attachment. These "Bughi
motions" were denied by the court and the Company filed a Motion to Dismiss for
Improper Venue. The Company's Motion was granted and the case was dismissed. The
Bughi's refiled the action in the United States District Court for the District
of Utah. The Company filed a counterclaim against Mr. Bughi in the Utah Court.
In December 1997, the case was settled by the parties with no material impact on
the Company's financial position or results of operations.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of three classes: (1)
55,000,000 shares of Common Stock, of which 15,063,772 were issued and
outstanding as of December 1, 1997; (2) $.01 par value preferred stock, of which
4,500,000 shares are authorized; and (3) 500,000 shares of Class A preferred
stock, of which none are issued and outstanding. The preferred stock may be
designated by the Company's Board of Directors as various series. As of the date
hereof, the Board of Directors has designated a Series "A" Preferred Stock of
which 35,638 shares are issued and outstanding and a Series "B" Preferred Stock
of which 1,935 shares are issued and outstanding.
Limitation on Directors' Liability, Charter Provisions and Other Matters
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
21
<PAGE>
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or recision. The Certificate of
Incorporation of the Company limits the liability of directors of the Company to
the Company or its stockholders (in their capacity as directors but not in their
capacity as officers) to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into indemnification agreements with each
of its directors providing for indemnification with respect to certain matters.
The indemnification agreements also provide that, to the extent the Company
maintains directors' and officers' liability insurance policies, each director
will be named as an insured under such policies.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and officers of the Company, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholders
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of the stockholders by the affirmative vote of the
22
<PAGE>
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Interwest
Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah
84117, telephone (801) 272-9294.
Reports to Shareholders and Fiscal Year End
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year. In addition, the Company may, in its discretion, distribute
quarterly reports containing unaudited financial statements for each of the
first three (3) quarters of each fiscal year. The Company's fiscal year end is
February 28th.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Cohne, Rappaport & Segal, Salt
Lake City, UT 84102.
EXPERTS
The consolidated financial statements of Cyclo3pss Corporation appearing
in the Company's annual report (Form 10-KSB) for the year ended February 28,
1997, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon (which contains an explanatory paragraph with respect to
the uncertainty regarding the Company's ability to continue as a going concern)
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
23
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimates of the expenses to
be incurred by it in connection with the Common Stock being offered hereby:
SEC Registration Fee...........................................$ 1,515
Printing registration statement and other documents...............2,000*
Legal fees and expenses..........................................14,000*
Accounting fees and expenses......................................5,000*
Miscellaneous expenses............................................1,485*
$24,000*
=======
* Estimated
Item 15. Indemnification of Directors and Officers.
As permitted by Sections 102 and 145 of the Delaware General Corporation
Law, the Registrant's Certificate of Incorporation eliminates a director's
personal liability for monetary damages to the Registrant and its stockholders
arising from a breach of alleged breach of a director's fiduciary duty except
for liability under Section 174 of the Delaware General Corporation Law or
liability for any breach of the director's duty of loyalty to the Registrant or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction from
which the director derived an improper personal benefit. The effect of this
provision in the Certificate of Incorporation is to eliminate the rights of the
Registrant and its stockholders (through stockholders' derivative suits on
behalf of the Registrant) to recover monetary damages against a director for
breach of fiduciary duty as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situation described
above.
The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of officers, directors and employees, and the Company has
entered into an indemnification agreement with each officer and director of the
Registrant (an "Indemnitee"). Under the Bylaws and such indemnification
agreements, the Registrant must indemnify an Indemnitee to the fullest extent
permitted by Delaware law for losses and expenses incurred in connection with
actions in which the Indemnitee is involved by reason of having been a director
or employee of the Registrant. The Registrant is also obligated to advance
expenses an Indemnitee may incur in connection with such actions before any
resolution of the action, and the Indemnitee may sue to enforce his or her right
to indemnification or advancement of expenses.
The Registrant, its current directors and two former directors, are
defendants, and the Registrant is a counterclaim plaintiff in an action titled
Mifal Klita, a Canadian corporation v. Cyclo3pss Corporation, a Delaware
corporation, et. al, which action is currently pending in the Superior Court of
the State of Delaware In and For New Castle County. The Registrant's directors
Part II - 24
<PAGE>
and former director have requested the Registrant's insurer to provide
indemnification for the expenses of such action but such insurer has denied
coverage as of the date hereof. The Registrant is currently paying all of the
expenses of such litigation on its own behalf and on behalf of its directors and
former director.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit
Number Description of Exhibit
4.01 Specimen Certificate representing the Common Stock (1)
4.02 Warrant Agreement
5.01 Opinion of Cohne, Rappaport & Segal
23.01 Consent of Ernst & Young LLP
23.02 Consent of Cohne, Rappaport & Segal (included in Exhibit
5.01 hereof)
24.01 Power of attorney (included in the signature page of Part II
of this Registration Statement)
- ----------------
(1) Such Exhibit was filed with the Company's Registration Statement on
Form 10-SB (File No. 0-22720 effective on December 24, 1993 and is
hereby incorporated by reference.
Item 17. Undertakings.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act"), each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Company's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in the Registration Statement, shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to Item 15 of Part II of the
Part II - 25
<PAGE>
Registration Statement, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Part II - 26
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Salt Lake City, Utah, on December 8, 1997.
By: /s/ William R. Stoddard
-------------------------------------------
William R. Stoddard, President and Chief
Executive Officer
By: /s/ Mondis Nkoy
-------------------------------------------
Mondis Nkoy, Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William R. Stoddard, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and the documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Date Title Signature
December 5, 1997 President/CEO /s/ William R. Stoddard
and Director -----------------------
William R. Stoddard
December 5, 1997 Director /s/ Robert J. Wrigley
-----------------------
Robert J. Wrigley
December 5, 1997 Director /s/ John R. Herzog
-----------------------
John R. Herzog
December 5, 1997 Director /s/ Steve Sarich, Jr.
-----------------------
Steve Sarich, Jr.
December 5, 1997 Director /s/ J. Bruce Bailey
-----------------------
J. Bruce Bailey
Part II - 27
CYCLO3PSS CORPORATION
WARRANT AGREEMENT
Dated as of November 5, 1997
INTERWEST TRANSFER COMPANY, INC.
(Warrant Agent)
1
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of November 5, 1997, is between CYCLO3PPS
CORPORATION, a Delaware corporation (the "Company"), and INTERWEST TRANSFER
COMPANY, INC. (the "Warrant Agent").
RECITALS:
WHEREAS, the Company has issued, in a private securities offering (the
"Offering"), 1,000,000 Units of its securities, each Unit consisting of one
share of common stock ("Share"), one redeemable Class "A" Common Stock Purchase
Warrant ("Class "A" Warrant") and one redeemable Class "B" Common Stock Purchase
Warrant ("Class "B" Warrant"); and
WHEREAS, the Company desires to enter into this Agreement to establish the
terms and conditions of the Warrants, to set forth the rights of the registered
holders of the Warrants (the "Warrant Holders"), and to provide for the
issuance, transfer, and exercise of the Warrants and other matters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company; and the Warrant Agent is willing to so act under the terms of this
Agreement;
NOW THEREFORE, in consideration of the mutual agreements stated in this
Agreement, the Company and the Warrant Agent agree:
Section 1. Warrants
1.1. Subject to the provisions of this Agreement, each Class "A" Warrant
shall entitle the Warrant Holder to purchase from the Company one fully-paid and
nonassessable Share at a price of $2.60 per Share (the "Exercise Price"). The
Class "A" Warrant will be exercisable at any time during the twelve (12) month
period beginning on the date that the Shares issuable upon the exercise of the
Class "A" Warrants are registered with the Securities and Exchange Commission.
The actual time of expiration of the Class "A" Warrants is hereafter called the
"Expiration Date." At the time of expiration of the Class "A" Warrants, any
unexercised Class "A" Warrant will become void, and all rights of the Warrant
Holders under the terms of the Warrant Certificates, this Agreement, and
otherwise shall cease. The period in which the Warrants may be exercised is
hereafter called the "Exercise Period."
1.2. Subject to the provisions of this Agreement, each Class "B" Warrant
shall entitle the Warrant Holder to purchase from the Company one fully-paid and
nonassessable Share at a price of $2.75 per Share (called the "Exercise Price").
The Class "B" Warrant will be exercisable at any time during the three year
period beginning on the termination date of the Offering. The actual time of
expiration of the Warrants being called the "Expiration Date." At the time of
expiration of the "B" Warrants, any unexercised "B" Warrant will become void,
and all rights of the Warrant Holders
1
<PAGE>
under the terms of the Warrant Certificates, this Agreement, and otherwise
shall cease. The period in which the Warrants may be exercised is hereafter
called the "Exercise Period."
Section 2. Warrant Transferable
Subject to compliance with the registration requirements of federal and
state securities laws the Warrants may be transferred by a holder. The
transferree shall be entitled to the rights and shall be subject to the
limitations as the original holder.
Section 3. Warrant Certificates
3.1. The Warrant Certificates shall be in registered form only. The text
of the Warrant Certificate, including the forms of exercise and assignment shall
be substantially in the form set forth in Exhibit A attached to this Agreement.
Warrant Certificates shall be signed by, or shall bear the facsimile signatures
of, the president or a vice president of the Company, the secretary or assistant
secretary of the Company, and shall bear a facsimile of the Company's corporate
seal. If any person whose facsimile signature has been placed upon any Warrant
Certificate as the signature of an officer of the Company shall have ceased to
be such officer before such Warrant Certificate is countersigned, issued, and
delivered, such Warrant Certificate may be countersigned, issued, and delivered
with the same effect as if such person had not ceased to be such officer. Any
Warrant Certificate may be signed by, or may bear the facsimile signature of,
any person who at the actual date of the preparation of such Warrant Certificate
shall be a proper officer of the Company to sign such Warrant Certificate even
though such person was not such an officer upon the date of this Agreement.
3.2. Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent is hereby authorized to countersign and deliver to, or in
accordance with the instructions of any Warrant Holder, any Warrant Certificate
which is properly issued under the terms of this Agreement.
Section 4. Registration of Transfer and Exchanges
4.1. Until the Expiration Date, the Warrant Agent shall from time to time
register the transfer of any outstanding Warrant Certificate upon records to be
maintained by the Warrant Agent for such purpose, upon surrender of such Warrant
Certificate to the Warrant Agent for transfer, accompanied by appropriate
instruments of transfer in form satisfactory to the Company and the Warrant
Agent and duly executed by the Warrant Holder or a duly authorized attorney.
Upon any such registration of transfer, a new Warrant Certificate shall be
issued in the name of and to the transferee, and the surrendered Warrant
Certificate shall be canceled.
4.2. Until the Expiration Date, any outstanding Warrant Certificate may be
surrendered by the Warrant Holder to the Warrant Agent in exchange for other
Warrant Certificates of like tenor, subject to any adjustment under Section 11.
Warrant Certificates so surrendered for exchange shall be canceled.
2
<PAGE>
Section 5. Redemption of Warrants.
Class "A" Warrants are redeemable by the Company at $.005 per Redeemable
Warrant on 10 days prior written notice, provided that the average closing bid
price of the Common Stock equals or exceeds $2.85 per share for 10 consecutive
trading days ending within 10 days prior to the notice of redemption. Class "B"
Warrants are redeemable by the Company at $.005 per Redeemable Warrant on 30
days prior written notice, provided that the average closing bid price of the
Common Stock equals or exceeds $3.25 per share for 10 consecutive trading days
ending within 10 days prior to the notice of redemption.
Section 6. Exercise of Warrants.
6.1. Subject to the existence of a current registration statement covering
the Warrant Shares, any whole number or all of the Warrants evidenced by any
Warrant Certificate may be exercised during the Exercise Period. A Warrant shall
be exercised by:
A. The Warrant Holder by surrendering to the Warrant Agent a Warrant
Certificate evidencing such number of Warrants, with the exercise form
duly completed and executed, and paying to the Warrant Agent, in lawful
money in the United States of America payable to the order of the Warrant
Agent, the Exercise Price for each Share to be purchased; or
B. The Warrant Holder, the Company and a registered broker-dealer
entering into an Agreement providing for the exercise of the Warrants
through the sale of the shares in a market transaction.
6.2. If the exercise method set forth in Section 6.1 (a) above is elected
by the Warrant Holder, then upon receipt of the Warrant Certificates with the
exercise form thereon duly executed, together with payment in full of the
Exercise Price for the Shares for which Warrants are then being exercised, the
Warrant Agent shall escrow the money received for a period of seven days. After
each seven day period, the Warrant Agent shall pay to the Company all funds
cleared during the period. The Warrant Agent shall then requisition from any
transfer agent for the Shares, and upon receipt shall make delivery of
certificates evidencing the total number of whole shares for which Warrants are
then being exercised, in such names and denominations as required for delivery
to or in accordance with the instructions of the Warrant Holder. Such
certificates for the Shares shall be deemed to be issued, and the person to whom
such Shares are issued of record shall be deemed to have become a holder of
record of such Shares, as of the date of the surrender of such Warrant
Certificates and payment of the Exercise Price, whichever shall last occur,
provided that if the books of the Company with respect to the Shares shall be
closed as of such date, the certificates for such Shares shall be deemed to be
issued, and the person to whom such Shares are issued of record shall be deemed
to have become a record holder of such Shares, as of the date on which such
books shall next be open (whether before, on or after the Expiration Date) but
at the Exercise Price and upon the other conditions in effect upon the date of
surrender of the Warrant Certificate and payment of the Exercise Price,
whichever shall have last occurred, to the Warrant Agent.
3
<PAGE>
6.3. If less than all of the Warrants evidenced by a Warrant Certificate
are exercised upon a single occasion, a new Warrant Certificate for the balance
of the Warrants not so exercised shall be issued and delivered to, or in
accordance with transfer instructions properly given by, the Warrant Holder.
6.4. All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled.
Section 7. Payment of Taxes.
The Company shall not pay taxes attributable to the initial issuance of
Shares upon exercise of Warrants nor shall the Company be required to pay any
tax which may be payable in respect of any transfer involved in the issue of any
Warrant Certificate or in the issuer of any certificates for Shares in a name
other than that of the Warrant Holder upon the exercise of any Warrant.
Section 8. Mutilated or Missing Warrant Certificates.
If any Warrant Certificate is mutilated, lost, stolen, or destroyed, the
Company and the Warrant Agent may, on such terms as to indemnify them or as they
may otherwise in their discretion impose (which shall, in the case of a
mutilated Warrant Certificate, include the surrender thereof), and upon receipt
of evidence satisfactory to the Company and the Warrant Agent of such loss,
theft or destruction, issue a substitute Warrant Certificate of like
denomination and tenor as the Warrant Certificate so mutilated, lost, stolen or
destroyed, and the Warrant Holder desires to exercise any Warrants evidenced
thereby, the Company and the Warrant Agent may authorize such exercise upon
receipt of such evidence and indemnity in lieu of issuing any substitute Warrant
Certificate to evidence the Warrants so exercised.
Section 9. Reservation of Shares
The Company will at all times reserve and keep available, free from
pre-emptive rights, the full number of Shares issuable upon the exercise of all
outstanding Warrants.
Section 10. Obtaining of Governmental Approvals and Stock Exchange Listings
Within 45 days after the termination of the Offering, the Company will in
good faith and as expeditiously as possible endeavor to secure registration of
the shares underlying the warrants with federal and state securities agencies or
to take such other action, as to allow the Shares to be issued as non-restricted
Shares. In no event shall Shares be issued until such registration or
qualifications shall have been obtained or such other action shall have been
taken.
Section 11. Adjustments of Exercise Price and Either Shares Purchasable or
Number of Warrants
The Exercise Price and either the number of Shares purchasable upon
exercise of each Warrant or the number of Warrants outstanding shall be subject
to adjustment from time to time as provided in this section.
4
<PAGE>
11.1. In case, prior to the expiration of the Warrants by exercise or by
their terms, the Company shall issue any shares of its Common Stock as a stock
dividend or shall subdivide the number of outstanding shares of its Common Stock
into a greater number of shares, then, the applicable purchase price per share
of the Shares of Common Stock purchasable pursuant to the Warrants shall be
proportionately reduced and the number of Shares at that time purchasable
pursuant to the Warrants shall be proportionately increased; and, conversely, in
the event that the Company shall reduce the number of outstanding shares of
Common Stock by combining such Shares into a smaller number of Shares, then, the
applicable purchase price per Share of the Shares of Common Stock purchasable
pursuant to the Warrants shall be proportionately increased and the number of
Shares of Common Stock at that time purchasable pursuant to the Warrants shall
be proportionately decreased. Any dividend paid or distributed upon the Common
Stock in stock of any other class or securities convertible into shares of
Common Stock shall be treated as a dividend paid in Common Stock to the extent
that shares of Common Stock are issuable upon the conversion thereof.
11.2. In case, prior to the expiration of the Warrants by exercise or by
their terms, the Company shall be recapitalized or in case the Company or a
successor corporation shall consolidate or merge with or convey all or
substantially all of its, or of any successor corporation's property and assets
to any other corporation or corporations (any such other corporation being
included within the meaning of the term "successor corporation" hereinbefore
used in the event of any consolidation or merger of any such other corporation
with, or the sale of all or substantially all of the property of any such other
corporation to, another corporation or corporations), then, as a condition of
such recapitalization, consolidation, merger of conveyance, lawful and adequate
provision shall be made whereby the holders of the Warrants shall thereafter
have the right to purchase, upon the terms and conditions specified in the
Warrants, in lieu of the shares of Common Stock of the Company theretofore
purchasable upon the exercise of the Warrants had such recapitalization,
consolidation, merger or conveyance not taken place; and in any such event, the
rights of the holders of the Warrants to any adjustment in the number of shares
of Common Stock purchasable upon the exercise of the Warrants, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
holders become entitled to purchase.
11.3. Anything in this Section 11 to the contrary notwithstanding, the
Company shall not be required to give effect to any adjustment in the exercise
price unless and until the net effect of one or more adjustments, determined as
above provided, shall have required a change of the exercise price by at least
$.005, but when the cumulative net effect of more than one adjustment so
determined shall be to change the actual exercise price by at least $.005, such
change in the exercise price shall thereupon be given effect.
11.4. For purposes of this Section 11, no adjustment shall be made by
virtue of the issuance of shares of Common Stock or convertible securities or
rights or options to purchase such Common Stock or convertible securities
pursuant to any stock purchase plan, stock option plan, employee savings or
profit sharing plan, other incentive or benefit plan of the Company or as a
result of the issuance of Shares for any reason except as specifically set forth
in this Section 11.
5
<PAGE>
Section 12. Fractional Warrants and Fractional Shares
Notwithstanding any other provision of this Agreement or any Warrant
Certificate, the Company shall not be required to issue fractions of Warrants on
any distribution for Warrant Certificates or to distribute Warrant Certificates
which evidence fractional Warrants and no adjustments in respect of a fractional
warrant will be made.
Section 13. Notices to Warrant Holders
Upon any adjustment of the Exercise Price, the Company within 30 days
thereafter shall (a) cause to be filed with the Warrant Agent a certificate,
signed by the president or a vice president of the Company and by its treasurer
or an assistant treasurer, setting forth the Exercise Price after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based and setting forth either (1) the
number of Shares (or portion thereof) purchasable upon exercise of a Warrant
after such adjustment of the Exercise Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and (b)
cause written notice of such adjustments to be given to each Warrant Holders as
of the record date applicable to such adjustment. Where appropriate, such notice
may be given in advance.
Section 14. Rights of Warrant Holders
14.1. No Warrant Holders, as such, shall have any rights of a shareholder
of the Company, either at law or equity, and the rights of the Warrant Holders,
as such, are limited to those rights expressly provided in this Agreement or in
the Warrant Certificates. The Company will provide Warrant Holders with copies
of all communications provided to shareholders.
14.2. When any Warrant Certificate shall have been surrendered for
exercise accompanied by payment of the Exercise Price as provided in this
Agreement, certificates for the Shares purchased upon such exercise shall be
issuable to any person designated to be the record holder of such surrender and
payment, whichever last occurs; provided that if at such date the transfer books
for the Shares shall be closed, the certificates for the Shares shall be
issuable on the date on which such books shall next be open (whether before, on,
or after the Expiration Date) and until then the Company shall be under no duty
to deliver any certificate for such Shares; and further provided that such
books, unless otherwise required by law, shall not be closed at any one time for
a period longer than thirty (30) days.
14.3. The Company and the Warrant Agent may treat the registered Warrant
Holder in respect of any Warrant Certificate as the absolute owner thereof for
all purposes notwithstanding any notice to the contrary.
Section 15. Warrant Agent
15.1. The Company hereby appoints the Warrant Agent to act as the agent of
the Company in accordance with this Agreement, and Warrant Agent hereby accepts
such appointment.
6
<PAGE>
15.2. The Warrant Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions by all of which the
Company and every Warrant Holder, by acceptance of any Warrants, shall be bound:
a. The statements contained in this Agreement and in the Warrant
Certificate shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken
by it.
b. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificate to be complied with by the Company.
c. The Warrant Agent shall incur no liability or responsibility to
the Company or to any Warrant Holder for any action taken in reliance on
any genuine notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument signed, sent, or presented by the
proper party or parties.
d. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, and to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the Execution of this Agreement
and not reimbursed by the Warrant Holders.
e. The Warrant Agent shall be under no obligation to institute any
action, suit, or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Warrant Holders shall
furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement shall be brought in
its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Warrant Holders as their respective rights or
interests may appear.
f. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
g. The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions
hereof.
Section 16. Merger, Consolidation or Change of Name of Warrant Agent
Any corporation into which the Warrant Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust
7
<PAGE>
business of the Warrant Agent shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 17 of
this Agreement.
Section 17. Change of Warrant Agent
The Company may discharge the Warrant Agent at any time and may appoint a
successor Warrant Agent or perform the functions of the Warrant Agent itself.
The Warrant Agent may resign and be discharged from its duties under this
Agreement by giving to the Company notice in writing, and giving notice in
writing to each Warrant Holder at his address appearing in the Warrant register,
specifying a date when such resignation shall take effect, which notice shall be
sent at least thirty (30) days prior to the date so specified. If the Warrant
Agent shall resign or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of thirty (30) days after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Warrant Holder, then any Warrant Holder
may apply to any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such court, the duties of the Warrant
Agent shall be carried out by the Company. Any successor Warrant Agent, whether
appointment by the Company or by such court, must be capable to performing all
of the duties of this Agreement. After appointment, the successor Warrant Agent
shall be vested with the same powers, rights, duties, and responsibilities as if
it had been originally named as Warrant Agent without further act or deed, and
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act, or deed necessary for the purpose. Failure
to give any notice provided for in this section, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be.
Section 18. Notices
Any notice or demand authorized by this Agreement to be given or made
shall be sufficiently given or made if sent by mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent), as follows:
The Company
Cyclo3pss Corporation.
3646 West 2100 South
Salt Lake City, UT 84120
The Warrant Agent
Interwest Transfer Company, Inc.
1981 East 4800 South, Suite 100
Salt Lake City, Utah 84117
8
<PAGE>
Section 19. Supplements and Amendments
19.1. The Company and the Warrant Agent may from time to time supplement
or amend this Agreement without the approval of any Warrant Holders in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable and
which shall not adversely affect the interests of the Warrant Holders.
19.2. With the consent of the Warrant Holders of at least two-thirds of
all remaining outstanding Warrants, given as set forth in this Subsection 19.2,
the Warrant Agent and the Company may make any other amendment in this Agreement
provided that no such change may shorten the time of exercise of any Warrant or
increase the Exercise Price without time of exercise of any Warrant or increase
the Exercise Price without the consent of all Warrant Holders. No consent of
Warrant Holders need to be obtained to amend those terms of the Warrants
described in Subsection 19.3. Consent of the Warrant Holders under this
Subsection 19.2 shall be evidenced by either (i) consents in writing to the
amendment, which consent need not set forth the specific form of amendment but
shall be sufficient if agreeing to the general substance thereof, and which
shall be executed by the Warrant Holders and notarized of acknowledged (any
consent so given in respect of a particular Warrant shall be binding upon any
subsequent owner thereof); (ii) by the affirmative vote of the requisite Warrant
Holders at a meeting of Warrant Holders called by the Company or the Warrant
Agent and held at such time and place as may be specified in a written notice of
the meeting to be mailed to each Warrant Holder not less than ten (10) days nor
more than fifty (50) days prior to the date set for the meeting. The Company or
the Warrant Holders entitled to vote at any meeting of Warrant Holder, which
record date shall be not more than fifty (50) days prior to the date of mailing
notice thereof. The Company and the Warrant Agent may make reasonable
regulations for the conduct of such meeting and for the appointment of a
chairman and a secretary thereof and of inspectors of votes. Proxies may be used
at any such meeting in the same manner as is provided in the Company's Bylaws
with respect to proxies for meetings of its stockholders.
19.3. Notwithstanding anything contained in this Agreement to the
contrary, the Company has the right, in its sole discretion, to extend the
period during which the Warrants are exercisable and to reduce the Exercise
Price without the consent of the Warrant Agent or the Warrant Holders.
Section 20. Successors
All the covenants and provisions of this Agreement by or for the benefit
of the Company or the Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 21. Termination
This Agreement shall terminate at the close of business on the Expiration
Date or such earlier date upon which all Warrants have been exercised.
9
<PAGE>
Section 22. Governing Law
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Utah and for all
purposes shall be construed in accordance with the laws of such state.
Section 23. Benefits of this Agreement
Nothing in this Agreement shall be construed to give any person or
corporation other than the Company, the Warrant Agent and the Warrant Holders
any legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the Warrant Holders.
Section 24. Agreement Available to Warrant Holders
A copy of this Agreement shall be available at all reasonable times at the
office of the Warrant Agent for inspection by any Warrant Holders. As a
condition of such inspection, the Warrant Agent may require any Warrant Holder
to submit his Warrant Certificate for inspection.
Section 25. Counterparts
This Agreement may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original and all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date and year first above written.
Cyclo3pss Corporation
By /s/ William R. Stoddard
President
Interwest Transfer Company, Inc.
By /s/ Kurt Hughes
Duly Authorized Agent
10
COHNE, RAPPAPORT & SEGAL
525 East 100 South, Fifth Floor
Salt Lake City, UT 84102
(801) 532-266
Fax: (801) 355-1813
December 8, 1997
Board of Directors
Cyclo3pss Corporation
3646 West 2100 South
Salt Lake City, UT 84120
Re: Opinion Letter and Consent
Registration Statement on Form S-3
Gentlemen:
We are acting as Securities Counsel for Cyclo3pss Corporation ("Company")
with respect to the Registration Statement on Form S-3 ("Registration
Statement"), filed by the Company with the Securities and Exchange Commission
for the purpose of registering under the Securities Act of 1933, as amended,
2,000,000 shares of Common Stock ("Common Stock"), $.001 par value, underlying
the Class A and Class B Redeemable Common Stock Purchase Warrants that were
issued by the Company to various "Selling Shareholders".
We are of the opinion that the said Common Stock when issued, will be
legally issued, fully paid and nonassessable, except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws or equitable principles
relating to or limiting creditors' rights generally.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-3 and to the reference to us under the caption "Legal
Opinion" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
COHNE, RAPPAPORT & SEGAL
BY: /s/ A. O. Headman Jr.
----------------------------
A. O. Headman, Jr.
11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Cyclo3pss
Corporation for the registration of 2,000,000 shares of its common stock and to
the incorporation by reference therein of our report dated April 25, 1997, with
respect to the consolidated financial statements of Cyclo3pss Corporation
included in its Annual Report (Form 10-KSB) for the year ended February 28,
1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG, LLP
Salt Lake City, Utah
December 8, 1997
12
