SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ________________ to________________.
Commission file number 0-24490
AQUAGENIX, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 65-0419263
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6500 N.W. 15th Avenue
Fort Lauderdale, Florida 33309
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(Address of Principal Executive Offices) (Zip Code)
(305) 975-7771
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the
Securities Exchange Act of 1934:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
Common Stock, par value $.01 per share
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(Title of Class)
Redeemable Common Stock Purchase Warrants
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(Title of Class)
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Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State registrant's revenues for its most recent fiscal year: $11,467,830
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on March 12, 1997, computed by reference to the
closing sale price on that date: $18,717,694. [1]
APPLICABLE ONLY TO CORPORATE ISSUERS
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The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share (the "Common Stock"), as of March 12, 1997, was 4,227,091.
DOCUMENTS INCORPORATED BY REFERENCE
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None.
_____________________________
See Item 11.
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PART I
Item 1. Description of Business
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(a) Background
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Aquagenix, Inc., a Delaware corporation (the "Company"), through its
wholly-owned subsidiaries, provides aquatic and industrial vegetation management
services to governmental and commercial customers. The Company provides aquatic
and industrial vegetation management services in the States of Florida, Georgia,
North and South Carolina, Arizona, Alabama and Tennessee. The Company offers a
variety of aquatic and industrial vegetation management and maintenance
services, consisting primarily of the control of aquatic weeds, algae and exotic
plants, brush and noxious tree control, wetland planting and restoration,
installation of fountains and aeration systems and the stocking of fish for game
and plant and insect control.
The Company was incorporated under the laws of the State of Delaware in
May 1993 to acquire all of the issued and outstanding capital stock of Aquagenix
Land-Water Technologies, Inc. ("ALWT"), formerly known as Environmental Waterway
Management, Inc. and Florida Underground Petroleum Tank Contractors, Inc.
("FUPTC"). Prior to their acquisition by the Company, ALWT had been engaged in
the aquatic management business, primarily aquatic weed, algae and plant
control, since its formation in October 1990. In February 1995, the Company
acquired Haas Environmental Services ("HES"). Both FUPTC and HES had been
engaged in the environmental remediation business, primarily remediation of
petroleum contaminated soil and ground water. The operations of FUPTC and HES
have been discontinued since November 1995. Unless the context requires
otherwise, the "Company" refers to Aquagenix, Inc. and its consolidated
subsidiaries, ALWT, Aquagenix Land-Water Technologies of Arizona, Inc. ("ALWTA")
and Right of Way Control, Inc. ("ARC"), Aquatic Dynamics, Inc. ("ADI"),
Aquagenix Land-Water Technologies of Georgia, Inc. (formerly known as Good
Shepherd, Inc. d/b/a Green Pastures, Inc., - "GPI"), FUPTC and HES.
In order to raise capital, in September 1994, the Company consummated an
underwritten initial public offering (the "IPO") of 1,250,000 shares of its
common stock, $.01 par value (the "Common Stock"), and 1,437,500 redeemable
warrants (the "Warrants"), for aggregate net proceeds of approximately
$5,541,000 (after deduction of the underwriting discounts and before deduction
of other expenses of the IPO). In October 1994, the Company realized additional
net proceeds of approximately $815,000 from the sale of an additional 187,500
shares of Common Stock upon the exercise by the underwriter of its
over-allotment option.
(b) Business Overview
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The Company offers a variety of aquatic and industrial vegetation
management services, consisting primarily of the control of aquatic weeds, algae
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and exotic plants, industrial vegetation management, wetland planting and
restoration, installation of fountains and aeration systems and the stocking of
fish for game and pest and plant control. The Company's services are intended to
assist in flood control, maintain the health, beauty, quality and natural
balance of life in aquatic and terrestrial environments and in some instances,
to maintain reasonable access to critical utility and other right of way areas.
They are designed to suit individual customer requirements, many of whom
maintain waterways and lands in compliance with federal, state and local
environmental laws and regulations.
Lakes, canals, ponds, rivers and wetlands have become increasingly
popular forms of aesthetic and recreational components in cities, golf courses,
country clubs, commercial and residential developments, apartment complexes and
parks in and throughout the United States. Waterways provide facilities for
recreational use, such as fishing and water sports, and are important for flood
control, drainage, wildlife preservation and as a source of water for industrial
and residential use. As a result of natural and other factors, including
overgrowth of noxious weeds, algae and exotic plants, which deplete oxygen and
restrict the flow of water, waterways and wetlands require ongoing management to
preserve and maintain their functional use, biological health and aesthetic
value.
In the Sunbelt states of Florida, Georgia, South Carolina, North
Carolina, Tennessee, Mississippi, Missouri, Louisiana, Texas, New Mexico,
Arizona, Nevada and California, there are over 5,500 golf courses and country
clubs , most of which require aquatic management services; and as a result of
the climate and topography within the Sunbelt states, the majority of real
estate developers have water features which require maintenance. The market for
aquatic management services on private land in Florida alone is estimated to
exceed $100 million.
There is also a growing trend toward privatization of aquatic and
industrial vegetation management services carried out on public lands by public
works personnel of governmental agencies as they come under increasing fiscal
pressures to reduce costs. The South Florida Water Management District, one of
the Company's customers, had performed its own vegetation management work years
ago and had subsequently awarded work to the Company. The potential market for
such services on public land in Florida is estimated to exceed $500 million.
Additionally, because extensive land development in the Sunbelt states
and other coastal states has depleted natural wetlands, federal and state
legislation has been enacted to preserve wetlands by requiring property owners
and developers to restore portions of developed properties to their natural
state, in what is known as a "no net loss" policy. In May 1994, a $700 million
restoration project for Florida's Everglades was adopted by the State of
Florida, which contemplates that the federal government, the State of Florida
and a group of landowners will jointly fund restoration of portions of Florida's
Everglades. The Company will seek to capitalize on perceived demand for aquatic
management services, particularly wetlands planting and restoration services.
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With annual revenues of approximately $11,500,000 for 1996, the Company
is currently the largest provider of aquatic and industrial management services
in the United States. In 1996, with the acquisition of two businesses engaged in
industrial vegetation management services (see below - "Recent Acquisitions"),
the Company has increased its revenues from such services which accounted for
17% of total revenues as compared to only 3% for 1995. In 1996, the Company has
begun creating a niche for itself in the industrial vegetation management
business, with the acquisitions providing the springboard from which marketing
efforts are targeted at electric and power utilities, telephone and railroad
companies, transportation departments and industrial sites throughout Florida,
Georgia and Alabama. In 1997, the Company anticipates securing more industrial
vegetation contracts which are generally larger in value as compared to the
aquatic vegetation contracts.
(c) Business of Issuer
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COMPANY SERVICES
AQUATIC WEED, ALGAE AND EXOTIC PLANT CON The term "aquatic weed"
encompasses a large, diverse group of plant types, consisting of four basic
groups which pose a problem to waterways: floating aquatics, submersed aquatics,
emergent and ditchbank weeds and grasses. Algae, a fifth classification, is a
lower form of submersed plant life and is the cause of "scum" on the water's
surface. Left unattended, aquatic weeds, algae and plants appear and propagate
in excessive amounts and interfere with the aquatic environment's natural
balance. Thick masses of aquatic weeds can disrupt boat traffic, fishing and
other water sports, lower the oxygen levels of water resulting in fish kills and
create water flow problems. Noxious weeds generate foul odors, visual eyesores
and create breeding grounds for mosquitos and other pests. Most noxious aquatic
weeds, exotic plants and trees have been imported into the Sunbelt States
without natural enemies and have proceeded to displace natural and native plant
life. While beneficial plants are essential to creating a properly balanced
aquatic ecosystem and provide food and shelter for various species of fish,
birds and animals, dense infestations of aquatic weeds and algae prevent
sunlight from entering the water, potentially endangering all living inhabitants
of aquatic environments.
The Company's aquatic management services consist primarily of the
control of aquatic weeds, algae and exotic plants. The Company establishes
treatment programs for lakes, canals, ponds, reservoirs, rivers, estuaries,
marine areas and wetlands by assessing ambient water quality and vegetation and
the specific needs of individual customers. The Company maintains a data base of
computerized water analysis information and property management control and
service records designed to provide customers with a comprehensive aquatic
treatment plan. Company-trained and licensed applicators utilize approved
algicides and herbicides and special spraying equipment to disperse algicides
and herbicides in water and on adjacent land to control the growth of aquatic
weeds, algae and exotic plants. The Company typically uses small boats equipped
with tanks to hold liquid formulations and spray arms for spraying from the
water. Similarly equipped four-wheel drive all-terrain vehicles are utilized for
spraying from the shoreline. Significant reduction in the growth of aquatic
weeds, algae and exotic plants is usually achieved within three to four weeks.
The customers for these services typically agree to annual contracts which
provide for monthly service and payment.
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In addition to the regular application of algicides and herbicides, the
Company utilizes harvesting methods to control aquatic weeds. Harvesting is
performed either manually or mechanically, depending upon the nature and extent
of the growth of undesirable aquatic weeds and plants. Mechanical harvesting is
typically expensive but achieves immediate results. The Company engages
third-party contractors which utilize barges equipped with special attachments
to cut, gather and crop aquatic weeds. Harvesting is done on a
project-by-project basis.
The Company also controls submersed aquatic weeds, algae and insects by
introducing several species of fish, the Triploid Grass Carp, a
genetically-engineered weed-eating fish which may consume as much as three times
its body weight each day, and the Gambusia, or Mosquitofish, which may consume
up to its weight in mosquito larvae and pupae each day. Additionally, the
Company stocks different types of Tilapia in the Western United States for the
control of toxic algae formations. The Company, when required, obtains necessary
permits from state governmental authorities to use biological control methods on
a project basis.
For the years ended December 31, 1995 and 1996, aquatic weed, algae and
exotic plant control services accounted for approximately 93% and 77%,
respectively, of the Company's revenues from continuing operations.
INDUSTRIAL VEGETATION MANAGEThe Company provides professional right of
way weed control along utility lines, pipelines, transmission lines,
distribution lines, railroads, power substations, canals, ditches, bridges and
other industrial sites for private and public sector customers.
The Company inspects target areas to determine environmental factors,
safety factors, geographic criteria surrounding plant life and combines this
information with input from the customers. The Company subsequently provides
precision low volume application weed, brush and tree control to the designated
system(s). The Company's services are varied and may be "bundled" to meet
specific customer needs. It maintains a large inventory of application equipment
at peak performance condition and has the most complete array of equipment
available for each job.
Distribution power lines are serviced by ground application techniques.
Equipment in service for these applications includes: four-wheel drive, one-ton
spray trucks, track equipment and ATVs. In addition, vegetation control is
achieved with personnel using backpack sprayers. Transmission power lines are
managed from the air by helicopters and aerial TVB spray equipment. Safety guard
rails and transportation right of ways are serviced by highly specialized
vehicles, equipped with computer injection systems designed specifically for
these functions.
For the years ended December 31, 1995 and 1996, industrial vegetation
management services accounted for approximately 3% and 17%, respectively, of the
Company's total revenues from continuing operations.
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WETLAND PLANTING AND RESTORAION. The preservation and propagation of
wetland areas has become recognized as an important part of maintaining the eco-
system. Aquatic and wetland plants are critical components of healthy ponds,
lakes or waterways, inasmuch as these plants form a base for an important link
between the beginnings of the food-chain and higher forms of plant and animal
life. The Company believes that the quality of water is directly attributable
to the balance of the water's and shoreline's vegetation.
The Company offers wetland planting, restoration and maintenance
services, which involve the movement of soil and the planting of beneficial
native plant life to create or recreate wetlands in the form in which they
naturally occur. The Company currently engages in wetland planting utilizing its
personnel and equipment and, to the extent necessary, third-party equipment.
Revenues from such services comprised 4% of total revenues from aquatic
management business for 1995 and 1996. With the "no net loss" governmental
policy and the State of Florida's Everglades restoration project, the Company
anticipates that wetland planting and restoration services will account for an
increasing portion of the Company's revenues in the future.
DESERT RAIN(TM) FOUNTAINS. The Company offers an extensive line of
decorative floating fountains, trademarked "Desert Rain(TM)", to enhance the
visual appeal and beauty of waterways, while providing ecological benefits,
including increased circulation, reduced stagnation and the reduction of odors
caused by algae. The Company's fountains feature a unique, interchangeable
nozzle which allows the customer to select from several different spray
patterns. Fountains are fabricated using quality waterproof materials which are
treated to resist corrosion. Nozzle assemblies are manufactured using
high-density polyurethane, epoxy, brass and stainless steel for durability.
AERATION SYSTEMS. The Company also offers aeration systems designed to
permit waterways to digest organic sediments which deplete oxygen, trap gasses
and result in general degradation of water quality. The Company's aeration
systems are custom designed systems consisting of a pattern of porous stones
which are laid on the bottom of a lake and a relatively silent air compressor
mounted on the shore. When air is injected from the compressor through pipes to
the stones, air rises through the water oxygenating and cleansing it. The
Company's aeration systems are designed to minimize fish kills and foul odors
and to facilitate lake management and the operations of wastewater and
aquaculture industries. To date, revenues derived from fountain and aeration
system installation services have not been material.
FISH STOCKING. The Company offers a variety of species of fish for
stocking lakes and ponds for recreational and biological purposes, including
Triploid Grass Carp (Amur), Tilapia, Gambusia (Mosquitofish), Smallmouth Bass,
Largemouth Bass, Bluegill, Black Crappie, Warmouth Perch and Channel Catfish.
The Company's personnel perform salinity, Ph and oxygen tests, conduct surveys
of existing fish population and create aquatic sanctuaries for successful fish
habitation. The Company obtains its requirements of fish from a number of
suppliers. To date, revenues derived from fish stocking services have not been
material. However, the Company is presently expanding this line of business in
the Western United States through its subsidiary, ALWTA, in Arizona.
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OPERATIONS
Headquartered in Fort Lauderdale, Florida, the operations of the Company
are decentralized with eleven customer service offices, one in each of Fort
Lauderdale, West Palm Beach, Orlando, Sarasota, Tampa, Jacksonville, Fort Myers,
Daytona Beach (all in Florida), Myrtle Beach (South Carolina), Tempe (Arizona)
and Athens (Georgia). Each customer service office is headed by a branch manager
and supported by sales representatives. As a result of maintaining decentralized
operations, the Company is able to reduce transit time and per diem expenses
while providing better services to a larger customer base. The branch offices
can also be utilized to integrate acquisitions within its geographic region of
operations and are easily expandable to handle increased levels of business
without a meaningful increase in administrative expenses. This was the case with
the Jacksonville, Tampa and Fort Lauderdale operations acquired from Aquatic and
Right of Way Control, Inc and AmerAquatic, Inc. (see below - "Recent
Acquisitions"). Each office has the same basic set-up, systems and general
operations which is a key aspect in the implementation of the Company's
expansion strategy in that branch offices can be quickly established in multiple
geographical areas in a proven company format. Offices are fully computerized
with established customer service protocol. This enables the Company's services
to be efficient, professional and responsive to the client base.
EXPANSION STRATEGY
The Company believes that continuing initiatives of governmental
authorities relating to environmental problems as well as the gradual
privatization of in-house governmental and utility based aquatic and industrial
vegetation management contracts have resulted in significant opportunities for
its business, through internal growth and acquisitions. Management estimates
that only 30% of the aquatic and vegetation management industry is served by
commercial companies. The Company's expansion strategy is: (i) to acquire
similar businesses and integrate their operations into the existing business so
as to create economies of scale; (ii) to intensify marketing efforts and open
additional decentralized branch offices that allow the Company to expand its
geographic markets while maintaining quality service and minimizing operating
expenses; and (iii) to achieve critical mass and increase operating leverage and
efficiency so that the Company can pursue larger contracts from the 70% of the
industry that traditionally sources contracts in-house. The proceeds of the IPO
have enabled the Company to finance increased levels of accounts receivable and
satisfy significant bonding requirements in connection with its operations. It
has also enabled the Company to establish substantial bonding and insurance
capabilities, thereby permitting the Company to bid on and secure larger
contracts, especially government and utility work. In addition, over the past
three years, the Company has made significant investment in building middle
management in order to provide the appropriate infrastructure to integrate the
acquisitions planned for under its growth strategy.
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The Company intends to aggressively apply its growth strategy in several
stages in the following geographic markets which it perceives to have
significant growth potential: (i) Georgia, South Carolina and North Carolina;
(ii) California, Arizona and Nevada; and (iii) Texas, Louisiana and the
remainder of the Southern United States.
The GPI, ADI, ARC, AmerAquatic, and L&L Acquisitions (see below -
"Recent Acquisitions") were consummated as part of the Company's goal of
expanding its operations. Consistent with its strategy of growth, the Company
will seek to expand its operations through further acquisitions. The Company
believes that the aquatic and industrial vegetation management industry is
highly fragmented, consisting principally of small privately-owned companies
with limited capital resources, bonding capabilities and documentation systems.
The Company believes that with further additions to its existing infrastructure,
including improvements to its information and documentation systems, coupled
with increased bonding capabilities, this will enable the Company to out-bid its
smaller competitors and position the Company to acquire smaller service
providers in new geographic markets. However, there can be no assurance that
the Company will be able to obtain the required financing to fund the costs of
purchasing capital equipment and to build its infrastructure or to make the
acquisitions to expand its operations or that the Company will be able to
successfully integrate into its operations any acquired business.
RECENT ACQUISITIONS
On December 31, 1996, the Company acquired 100% of the common stock of
Good Shepherd, Inc. d/b/a Green Pastures, Inc. ("GPI Acquisition"), now known as
Aquagenix Land- Water Technologies of Georgia, Inc., pursuant to a Stock
Exchange Agreement, dated as of December 31, 1996, by and among the Company, GPI
and Garry Seitz and Jan Seitz (the "Selling Shareholders"), the shareholders of
GPI. The aggregate purchase price was $600,000 which was paid by the issuance of
96,000 shares of the Company's common stock to the Selling Shareholders. The
assets acquired from GPI comprised mainly of high-tech roadside application
equipment and recurring service contracts.
GPI, a Georgia-based private company founded in 1988, is a provider of
roadside vegetation management services throughout the state of Georgia using
high-tech computer controlled application systems along roadsides and has annual
revenues of approximately $960,000. This acquisition has been accounted for as a
pooling of interests and the Company intends to continue and further develop the
existing business of GPI as part of ALWT.
On December 7, 1996, the Company, through its wholly owned subsidiary,
merged with Aquatic Dynamics, Inc. (the "ADI Acquisition") with the Company
becoming the surviving entity, pursuant to the terms of a Stock Exchange
Agreement and Plan of Merger, dated as of December 7, 1996, by and among the
Company, Aquagenix Land-Water Technologies of Arizona, Inc., ADI and Pat Church
and Stephen Church, the shareholders of ADI. The aggregate purchase price was
$1,000,000, of which (i) $750,000 was paid by the issuance of 133,333 shares of
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the Company's common stock to the former shareholders of ADI; (ii) $200,000 was
paid by the issuance of an installment note due on January 15, 1997, bearing
interest at 7% and (iii) $50,000 was paid in cash. The installment note of
$200,000 has since been paid in full. The cash portion was funded out of the
proceeds of certain private equity placements which took place in June 1996. The
assets acquired from ADI comprised mainly of vehicles and equipment, accounts
receivable, marketable securities and recurring service contracts.
In connection with the ADI Acquisition, the Company has entered into
two-year employment agreements with the former shareholders of ADI who are
participating in the management of the Company's western operations.
ADI, an Arizona-based private company founded in 1974, was a
full-service aquatic vegetation management firm whose experience and services
span the gamut of surface water management needs, including residential,
commercial, industrial and governmental projects, irrigation and effluent reuse
water systems, lake and pond management and ongoing waterway maintenance. ADI
has been a leading provider of aquatic vegetation management services throughout
Arizona and the southwestern United States with annual revenues of approximately
$1,600,000. The ADI Acquisition has established the Company's market presence in
the southwestern United States with ADI serving as the hub of operations in that
region. The Company intends to continue and further develop the existing
business of ADI under its new name, namely, Aquagenix Land-Water Technologies of
Arizona, Inc.
On June 7, 1996, the Company acquired 100% of the voting common stock of
Aquatic and Right of Way Control, Inc. ("ARC Acquisition") pursuant to the terms
of a Stock Exchange Agreement, dated as of June 7, 1996, by and among the
Company, ARC and Ray A. Spirnock and Shirley J. Spirnock, the shareholders of
ARC. The aggregate purchase price was $1,500,000, of which $1,350,000 was paid
by the issuance of 270,000 shares of the common stock of the Company to the
former shareholders of ARC and $150,000 was paid in cash. The cash portion was
funded out of cash flows from operations. The assets acquired from ARC consisted
mainly of recurring service contracts, accounts receivable and industrial
vegetation application equipment. In connection with the ARC Acquisition, the
Company entered into a two-year employment agreement with Ray A.
Spirnock.
With annual revenues of approximately $1,350,000, ARC was a leading
provider of industrial vegetation and utility right of way management services
in Florida, Georgia and Alabama. These services include the control of noxious
weeds in the right of way areas adjacent to distribution and transmission power
lines. The Company intends to operate the existing business as part of ALWT and
is further developing the industrial vegetation and utility right of way
management business previously conducted by ARC.
On November 17, 1995, ALWT acquired (the "L&L Acquisition") certain of
the equipment and customer contracts of L&L Mosquito & Pest Control, Inc., a
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South Carolina corporation ("L&L"), used in its aquatic weed and algae control
business, pursuant to the terms of an Asset Purchase Agreement, dated as of
November 17, 1995, by and among ALWT, L&L and the sole shareholder of L&L. The
aggregate purchase price paid by ALWT for the assets of L&L was $150,000 in
cash. The Company is continuing to operate the aquatic weed and algae control
business previously conducted by L&L. The L&L Acquisition has provided an
established foothold for the Company in Hilton Head, South Carolina.
On October 31, 1995, ALWT acquired ("the AmerAquatic Acquisition")
substantially all of the assets and assumed certain of the liabilities, of
AmerAquatic, Inc., a Florida corporation ("AmerAquatic"), pursuant to the terms
of an Asset Purchase Agreement, dated as of October 19, 1995, by and among ALWT,
the Company, AmerAquatic and Thomas Latta and C. Elroy Timer, the principal
shareholders of AmerAquatic. The aggregate purchase price paid by ALWT for the
assets of AmerAquatic was $4,291,084, subject to adjustment under certain
circumstances, of which (i) $3,791,084 was paid in cash and (ii) $500,000 was
paid through the issuance by ALWT of a seven-month promissory note bearing
interest at a rate of 9.75% per annum, which note was guaranteed by the Company
and subsequently paid in full. AmerAquatic was engaged in the business of
providing lake management services, including aquatic and terrestrial weed and
algae control, melaleuca and other exotic plant control, wetland and upland
restoration and other related services. They were the Company's largest
competitor in this business in Florida with over 1,000 customers. The
AmerAquatic Acquisition expanded the Company's geographic reach into northern
Georgia, North Carolina and South Carolina and initiated the Company's
penetration into its second strategic market, the South Atlantic states. The
Company is continuing to operate the lake and wetland management business
previously conducted by AmerAquatic as part of ALWT.
In connection with the AmerAquatic Acquisition, the Company, ALWT and
AmerAquatic entered into a Private Label Agreement, pursuant to which ALWT
agreed to purchase sixty specialized vehicles known as "Spra-Buggies", used
among other things, to provide lake management services, over a period of three
years commencing on October 31, 1995, for a purchase price of approximately
$25,000 each. ALWT has the exclusive right to purchase, use and sell these
highly-efficient and durable Spra-Buggies within the aquatics industry.
In connection with the AmerAquatic Acquisition, the Company, ALWT and C.
Elroy Timmer entered into a one-year employment agreement.
The Company funded the cash portion of the purchase price for the assets
of AmerAquatic from the proceeds of the issuance and sale of (i) the Company's
12.50% Senior Secured Note due February 28, 1996 (the "Bridge Note") in the
principal amount of $5,000,000, and (ii) warrants (the "Bridge Warrants") to
purchase an aggregate of 168,166 shares of the Company's Common Stock, pursuant
to a Senior Secured Note and Warrant Purchase Agreement, dated as of October 31,
1995 (the "Bridge Note Purchase Agreement"), between the Company and The
Equitable Life Assurance Society of the United States ("Equitable"). In December
1995, the Company issued to Equitable the Company's 12.50% Senior Secured Note
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due October 31, 2003 (the "Senior Secured Note") in the principal amount of
$5,000,000 and warrants (the "Warrants") to purchase an aggregate of 351,197
shares of the Company's Common Stock, subject to adjustment under certain
circumstances, in substitution for the Bridge Note and the Bridge Warrants,
respectively, pursuant to an Amended and Restated Senior Secured Note and
Warrant Purchase Agreement, dated as of December 15, 1995 (the "Note Purchase
Agreement"), between the Company and Equitable. The Senior Secured Note is
subordinated to all indebtedness of the Company to its bank lender and is
secured by substantially all of the Company's assets. The Warrants are
exercisable at any time until December 31, 2000 at an exercise price of $7.38
per share, subject to adjustment under certain circumstances.
CUSTOMERS
The Company provides surface water management and industrial vegetation
management services to utilities, golf courses, country clubs, real estate
owners and developers, homeowners and condominium associations, apartment
complexes and various municipal, state and federal governmental authorities and
taxing districts, many of which maintain waterways and lands in compliance with
local environmental laws and regulations. The Company currently provides aquatic
and industrial vegetation management services to approximately 48 customers in
the public sector and approximately 2,299 customers with whom the Company has
annual aquatic and industrial vegetation management contracts. Substantially all
of the Company's contracts for aquatic and industrial vegetation management
services are recurring in nature and for the year ended December 31, 1996, this
comprised 73% of total revenues (1995: 77%). These recurring annual contracts
provide for monthly payments and are automatically renewable. The annual
contracts for industrial vegetation management services are usually renewable
for a term of up to three years and provide for payments based on a cost per
acre or mile of land under management.
For the year ended December 31, 1996, 19% of its revenues were derived
from governmental customers as compared to 34% for 1995. Governmental customers
which formerly provided aquatic or vegetation management services through
government employees have accounted for a significant portion of the Company's
revenues. It is anticipated that a substantial portion of the Company's future
revenues will be derived from governmental and quasi-governmental customers.
Government contracts are subject to special risks, including delays in funding;
lengthy review processes for awarding contracts; non-renewal; delay,
termination, reduction or modification of contracts in the event of changes in
the government's policies or as a result of budgetary constraints; and increased
or unexpected costs resulting in losses.
Historically, the Company has been dependent on a limited number of
contracts for a significant portion of its revenues. For the years ended
December 31, 1996 and 1995, the Company's five largest customers with whom it
has annual contracts accounted for approximately 6.5% and 21.2%, respectively,
of the Company's revenues. In 1995, Northern Palm Beach County Water Control
District, the customer with which the Company has the largest annual contract,
accounted for approximately 14.0% of the Company's revenues while in 1996, it
only accounted for 2.2% of the total revenues for 1996. For the year ended
December 31, 1996, the Company has broadened its customer base and no one
customer accounts for more than 5% of the Company's total revenues.
- 12 -
<PAGE>
There can be no assurance that the Company will obtain additional
contracts for projects similar in scope to those previously obtained or retain
existing customers or attract and retain new customers or that the Company will
not remain largely dependent on non-recurring contracts with a limited customer
base, which will constitute a significant portion of the Company's revenues.
INSURANCE AND BONDING
The Company carries insurance coverage which the Company considers
sufficient to meet applicable regulatory and customer requirements and to
protect the Company's assets and operations. The Company's insurance coverage
currently includes $2 million of comprehensive general liability insurance, up
to $1 million of pollution liability insurance and $8 million of excess
liability insurance. The Company attempts to operate in a professional and
prudent manner and to reduce its liability risks through specific risk
management efforts, including employee training. Nevertheless, a partially or
completely uninsured claim against the Company, if successful and of sufficient
magnitude, could have a material adverse effect on the Company and its financial
condition. In addition, the inability to obtain insurance of the type and in the
amounts required could impair the Company's ability to obtain new contracts,
which are, in certain instances, conditioned upon the availability of adequate
insurance coverage.
The aquatic and industrial vegetation management business involves
potentially significant risks of statutory, contractual and common law liability
for environmental damage and personal injury. The Company, and in certain
instances, its officers, directors and employees, may be subject to claims
arising from the Company's on-site or off-site services, including chemicals
used in its operations, and environmental contamination by the Company, its
contracted transporters or disposal site operators. All such persons may be
liable for site investigation, site cleanup costs and natural resource damages,
which costs could be substantial, regardless of whether they exercised due care
and complied with all relevant laws and regulations. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured, that hazardous substances or materials are not
or will not be present at the Company's facilities or that the Company will not
incur liability for environmental impairment.
The Company is required, in most instances, to post bid and/or
performance bonds in connection with contracts or projects with government
entities and, to a lesser extent, private sector customers. To date, the Company
has been able to obtain bonds in amounts of up to approximately $4 million per
bond. However, there is no assurance that this will continue. The Company
anticipates that in the future it will continue to be required to post bid
and/or performance bonds in connection with contracts or projects with
government entities and, to an increasing extent, private sector customers. In
addition, new or proposed legislation in various jurisdictions require or will
require the posting of substantial bonds or require other financial assurances
with respect to particular projects. There can be no assurance that the Company
will be able to obtain bonds in the amounts required.
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<PAGE>
MARKETING
To date, marketing has principally been conducted through the efforts of
the Company's management and sales personnel. The Company uses various marketing
methods, including direct mailings, in-person solicitation, print advertising
and participation in trade shows and conventions, and periodically mails
attractive, full-color sales brochures and advertises in trade journals. The
Company's sales force consist of approximately sixteen people, who are
responsible for soliciting potential customers in their respective geographic
markets, receive salaries plus a percentage of gross profits derived from
Company services. The Company also obtains customers through recommendations and
referrals from existing customers and environmental engineers and consultants.
The Company's executive officers devote significant time and effort to maintain
continuing customer relationships.
The Company typically obtains private and public contracts for its
services through the process of competitive bidding. The Company's marketing
efforts include subscribing to several bid reporting services and monitoring
trade journals and other industry sources for bid solicitations by various
entities, including government authorities and related instrumentalities, and
responding to such bid solicitations, which include requests for proposals and
requests for qualifications. In response to a request for proposal or
qualification, the soliciting entity generally requires a written response
within a set period of time. Generally, in the case of a request for a proposal,
a bidder submits a proposal detailing its qualifications, the services to be
provided and the cost of the services to the soliciting entity which then, based
on its evaluation of the proposals submitted, awards the contract to the
successful bidder. Generally, in the case of a request for qualification, a
bidder submits a response describing its experience and qualifications, the
soliciting entity then selects the bidder believed to be the most qualified, and
then negotiates all the terms of the contract, including the cost of the
services.
The Company believes that accurate bidding is important to the Company's
business. Accordingly, the Company utilizes a computerized bidding system and
engages personnel at potential sites to determine cost factors used in
submitting bids. Public contracts are usually longer-term (two to three years)
and may periodically be put up for bid even though the Company has provided
quality services and has formed a strong relationship with the customer. While a
bid price is an important factor in obtaining contracts, the Company believes
that potential customers also consider reputation, experience, safety record and
the financial condition of bidders in awarding contracts. Because of its
familiarity with the nature of the contracts and the basis on which they are
awarded, the Company is often able to retain contracts that are put up for bid.
In the past, the Company has been able to retain approximately 85% of contracts
which fall into this category. However, there can be no assurance that the
Company will continue to be successful in having its bids accepted. The
competitive bidding process is typically lengthy and often results in the
expenditure of significant sums and allocation of resources in connection with
bids that may be rejected. Additionally, inherent in this process is the risk
that actual performance costs may exceed the projected costs, especially in
relation to disputes on the performance of services, upon which the submitted
bids or contract prices are based.
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<PAGE>
COMPETITION
The aquatic and vegetation management industry is highly competitive.
The Company faces competition from several hundred companies throughout the
Sunbelt States. In recent years, government authorities have implemented an
extensive regulatory framework directed toward alleviating various environmental
problems. The complex nature of government regulation has resulted in
significantly increased sophistication and costs of aquatic and industrial
vegetation management, handling and disposal methods, facilities and equipment.
Consequently, the industry has become increasingly capital intensive and
competitive.
The Company believes that the principal competitive factors in the
aquatic and industrial vegetation management industry are reputation, technical
proficiency, managerial expertise, financial assurance capability (particularly
as it relates to bonding), price and breadth of services offered, including
documentation capabilities. With its internal growth and its recent
acquisitions, the Company is currently the largest commercial provider of
aquatic and vegetation management services in the United States. With its highly
credible track record, substantial bonding and insurance capabilities, its
investment in managerial expertise, equipment and computerized operations,
management believes that the Company does have a competitive edge in the
business. The Company has developed a customized software package which provides
individual job budgets, branch work schedules, integrated customer service and
sales activity tracking and collaborative communications. All these allows the
Company to provide quality service, improve efficiency and costs control and
provide competitive yet profitable bids. In addition, the Company is also
committed to purchasing highly specialized proprietary equipment to remain in
the forefront of technology. This equipment is intended to be used for weed and
algae control both in water and on land ('amphibian' in nature). They may result
in high efficiency and accuracy including the reduction of the cost of labor per
acre of weed control, allowing the Company to use the finest treatment products
for its customers and projects.
Competition in the aquatic and industrial vegetation management industry
is, however, expected to increase in the foreseeable future. A significant
number of aquatic management projects continue to be performed "in house" by the
major water management districts, many of which may have substantially greater
financial and other resources than the Company. The Company also expects that a
significant number of new market entrants will seek to bid on new aquatic
management projects for the Everglades. There can be no assurance that the
Company will be able to compete successfully in its markets.
SUPPLIERS AND SUBCONTRACTORS
The Company is dependent on third-party suppliers and manufacturers for
all of its requirements of algicides and herbicides, fish and aeration systems
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<PAGE>
used in its aquatic management business. Although the Company purchases all of
these supplies from numerous suppliers and believes that alternative sources of
supply are available, failure by such suppliers and manufacturers to continue to
supply the Company with products on commercially reasonable terms, or at all, in
the absence of readily available alternate sources, would adversely affect the
Company's ability to deliver products and provide services on a timely and
competitive basis. The Company is dependent on the ability of its suppliers and
manufacturers, among other things, to satisfy performance, quality and
regulatory specifications and dedicate sufficient production capacity for
supplies within scheduled delivery times. The Company does not maintain
contracts with any of its suppliers or manufacturers and purchases supplies
pursuant to purchase orders placed from time to time in the ordinary course of
business. In addition, the Company currently does not own or lease certain
specialized equipment, including mechanical harvesting or certain planting
equipment and is dependent upon third-party subcontractors to provide necessary
equipment, know-how, transportation and other facilities on a project basis. In
the event such subcontractors were to become unavailable to the Company at
acceptable cost levels, or at all, the Company's business could be materially
adversely affected.
GOVERNMENT REGULATION
The aquatic and industrial vegetation management services business is
subject to extensive and frequently changing federal, state and local laws and
substantial regulation under these laws by governmental agencies, including the
United States Environmental Protection Agency (the "EPA") and the United States
Occupational Safety and Health Administration ("OSHA"). Among other things,
these regulatory authorities impose requirements which regulate the handling,
transportation and disposal of hazardous and non-hazardous materials and the
health and safety of workers, and require the Company and, in certain instances,
its employees, to obtain and maintain licenses and permits in connection with
its operations. This extensive regulatory framework imposes significant
compliance burdens and risks on the Company. The Company is currently subject to
the requirements of the Resource Conservation and Recovery Act of 1976, as
amended, the Federal Water Pollution Control Act, as amended, the Federal
Insecticide, Fungicide, and Rodenticide Act, the Florida Weed Control Act and
the Occupational Safety and Health Act of 1970. The following is a summary of
these regulations and other material governmental regulations which may be
applicable to the Company.
The Federal Water Pollution Control Act, as amended by the Federal Water
Pollution Control Act Amendments of 1979 and the Clear Water Act of 1977
(collectively "CWA"), create the federal statutory scheme for water pollution
control and management. The principal objective of the CWA is to restore and
maintain the integrity of the nation's waters. In addition, the CWA provides
for: (I) the development of pollutant discharge standards and limitations; (ii)
a permit and licensing system to enforce these discharge standards; (iii)
federal funding to assist in the construction of publicly owned and privately
owned treatment works; and (iv) research and development of pollution control
technologies and strategies.
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<PAGE>
Congress also created the federal Safe Drinking Water Act ("SDWA") to
ensure the quality and safety of drinking water supplies. To protect underground
sources of drinking water from contamination, SDWA regulates underground
injection wells used for waste disposal and establishes a permit program for
such practices. The SDWA also establishes procedures for the development and
implementation of programs for aquifer protection areas located within areas
designated as source aquifers for drinking water.
Even though the EPA has nationwide authority to implement CWA,
authorized states may implement various aspects of the National Pollutant
Discharge Elimination System ("NPDES") and pretreatment programs, among other
areas of responsibility. In addition to the option of administering the CWA
under authority delegated by the EPA, states may develop their own regulations
for water pollution control, which generally parallel federal CWA requirements.
As a complement to the regular NPDES program, the United States Army
Corps of Engineers must issue a special permit (commonly referred to as a
Section 404 permit) prior to the discharge of dredge-and-fill material into
navigable waters of the United States, including "wetlands" as defined under the
CWA. As a condition of obtaining such dredge-and-fill permits, the permittee is
required to mitigate the impacts of such dredge-and-fill activities (often times
by creating new wetlands), resulting in "no net loss" of wetlands or an increase
in wetlands areas. As is the case in Florida, many states implement the
dredge-and-fill permit criteria under a consolidated federal and state program.
The Company from time to time may be engaged in wetlands mitigation projects,
which may subject the Company to the provisions of the CWA and its permitting
programs.
Originally adopted in 1947, the Federal Insecticide, Fungicide, and
Rodenticide Act ("FIFRA") constitutes the federal regulatory framework governing
pesticides, including algicides and herbicides. FIFRA imposes a variety of
licensing, permitting, classification, and registration requirements, along with
various constraints imposed upon the application, use, and handling of
pesticides. FIFRA mandates that all restricted use of pesticides be applied by
or under the direct supervision of an applicator certified only under FIFRA.
Although FIFRA dictates certification for applications of restricted use of
pesticides, many states, including Florida, require the certification and/or
registration of commercial applicators for applications of both general and
restricted use pesticides.
FIFRA expressly authorizes states to regulate the sale or use of a
federally registered pesticide or device under certain circumstances, but defers
to state regulations employing stricter standards. A state may also require the
registration of federally registered pesticides for additional uses consistent
with special local needs. As a general rule, state laws regulating pesticides
parallel the federal scheme. Many states supplement the federal requirements
with their own regulations.
The Toxic Substance Control Act of 1975 ("TSCA") gives the EPA broad
authority to regulate the manufacture, processing, distribution in commerce, use
and disposal of chemical substances and mixtures. The EPA may require testing of
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<PAGE>
chemical substances that may present an unreasonable risk to health or the
environment. If testing reveals an unreasonable risk, the EPA must take steps to
reduce the risk. Options available to the EPA range from labeling requirements
prohibiting manufacture of the harmful chemical to mandating the manner in which
it must be disposed. The Company from time to time may be engaged in the future
to remediate certain contaminated sites, which may involve the use or disposal
of chemical substances and mixtures. To the extent that the Company handles in
the future those chemical substances and mixtures regulated by TSCA, the Company
could be subject to liability under TSCA. The Company does not anticipate that a
material portion of its environmental remediation activities in the future will
consist of the remediation of sites requiring the use or disposal of chemical
substances or materials regulated by TSCA.
The Florida Aquatic Weed Control Act ("FAWCA") creates a state
regulatory framework for the preservation and maintenance of the state's
waterways. Under FAWCA, no person or public agency shall eradicate, remove or
otherwise alter any aquatic weeds or plants in waters of the state unless the
Department of Environmental Protection ("DEP") or its designee issues a permit
or the activity is exempted. The Florida Legislature also established the
Florida Nonindigenous Aquatic Control Act, which is designed to control
nonindigenous aquatic plants primarily by means of maintenance programs. In
connection with its aquatic management activities, the Company is subject to the
permitting criteria of FAWCA and the Florida Nonindigenous Aquatic Control Act,
which the Company does not anticipate will have a material impact on its aquatic
management business.
The Company may also be subject to a variety of environment-related
worker and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe work places for all employees.
In particular, OSHA calls for special procedures and measures for the handling
of certain hazardous and toxic substances. In addition, specific safety
standards have been promulgated for workplaces engaged in the treatment,
disposal or storage of hazardous waste. Moreover, under the Federal Emergency
Planning and Right-to- Know Act of 1986, facilities handling specified extremely
hazardous materials must notify local emergency planning committees of their
activities and comply with the provisions of local emergency plans. Requirements
under state law, in some circumstances, may mandate additional measures for
facilities handling specified extremely dangerous materials.
The Company believes that it is in substantial compliance with all
material federal, state and local laws and regulations governing its operations
and has obtained all material licenses and permits necessary for the operation
of its business. However, amendments to existing statutes and regulations,
adoption of new statutes and regulations and the Company's expansion into new
jurisdictions and aquatic and vegetation management services could require the
Company to continually alter methods of operations at costs that could be
substantial. There can be no assurance that the Company will be able, for
financial or other reasons, to comply with applicable laws, regulations and
permitting requirements, particularly as it seeks to enter into new markets.
Failure to comply with applicable laws, rules or regulations or permitting
requirements could subject the Company to civil remedies, including fines and
injunctions, as well as possible criminal sanctions, which would have a material
adverse effect on the Company.
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<PAGE>
Notwithstanding the burdens of compliance, the Company believes that its
business prospects are significantly enhanced by the continuing stringent
enforcement of the comprehensive regulatory framework by government agencies.
Any significant relaxation of the regulatory requirements governing the aquatic
and vegetation management services industry could also adversely affect the
Company.
PERMITS AND LICENSES
The Company and, in certain instances, its employees are required to
obtain and maintain licenses and permits in connection with its operations. The
Company's employees currently hold the necessary permits for application of the
algicides and herbicides utilized by the Company in its aquatic management
business. The Company is required to obtain permits from state and local
governments for the harvesting and planting of aquatic plants in connection with
its wetlands planting activities on a project basis. The Company may also be
required to obtain surface water permits in connection with its aquatic
management activities on a project basis depending on the nature of the body of
water.
The Company anticipates that it will be required to obtain and maintain
additional licenses in geographic areas in which it intends to expand its
operations. The Company believes, based upon the level of training of its
employees and past experience, that it will be able to obtain all such required
licenses, although there is no assurance that it will be able to do so.
EMPLOYEES
As of March 12, 1997, the Company had approximately 150 employees other
than executives, all of whom are full-time employees, which includes 30
administrative staff, 12 branch managers, 13 sales personnel, 75 applicators and
20 laborers. The Company is not currently a party to any collective bargaining
agreement. The Company believes that its employee relations are satisfactory.
Discontinued Operations
The Company's Board of Directors in November 1995 approved a plan to
dispose of the environmental remediation business segment in view of the
continued losses of the environmental remediation services division and
operational problems associated with it. In 1996, management has implemented
various cost-cutting measures including the reduction of officers and other
personnel, the sale of under-utilized equipment and the consolidation of
accounting and administrative functions. The Company's remediation services
which are being discontinued include remediation of petroleum contaminated soil
and ground water and the removal, disposal and installation of underground
petroleum storage tanks and fuel dispensing systems.
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<PAGE>
On April 25, 1996, the Company sold substantially all of the assets and
liabilities of HES to Heart Environmental Services, Inc. (the "Buyer"), a New
Jersey corporation for a total consideration of $1,907,021. The total
consideration comprises (I) $681,000 in cash, (ii) a three-year promissory note
of $600,000 (the " Promissory Note") issued by the Buyer, bearing interest at 9%
per annum and collaterized by the pledge of 499 shares of the Buyer's Common
Stock pursuant to a Stock Pledge Agreement, (iii) the cancellation of total
obligations due to H&H Investments Corporation, Mr. Eugene M. Haas and Mr.
Robert E. Haas (collectively known as the "Haas Shareholders") which amounted to
$626,021. The Company originally incurred these obligations in connection with
the HES acquisition in February 1995. As a result of the HES sale, the Company
has agreed not to pursue any claims against the Haas Shareholders in connection
with the Haas acquisition in February 1995. All of the above items have been
satisfied with the exception of (ii) pertaining to the Promissory Note. As of
December 31, 1996, the Company determined that there will be a collectibility
problem in relation to the Promissory Note and as a result, a full valuation
allowance has been made.
In relation to FUPTC, the Company has not been successful in finding a
buyer for it and the net book values of the remaining assets of FUPTC have been
written down to its net realizable values. As at December 31, 1996, FUPTC has
fulfilled all of its remaining contractual obligations. All equipment have been
sold on a piece-meal basis and the net liabilities of the discontinued
environmental remediation entities consist mainly of accounts receivable,
accounts payable and amounts payable to Robert A. Radler, the former President
of the Company, under a settlement agreement entered into in 1996 with the
Company. (See Part III, Item 10: Employment Agreements). The Company is
continuing its collection efforts for the remaining accounts receivables in
relation to its discontinued operations so as to settle the remaining accounts
payable.
Item 2. Description of Property
-----------------------
The Company maintains a corporate headquarters for its aquatic
management and environmental remediation businesses, consisting of approximately
17,350 square feet, located in Fort Lauderdale, Florida, under a five-year
four-month lease which commenced on January 1, 1994. The Company has the option
to extend the term of the lease for an additional five years. The Company's
annual lease payments for the remaining two years of the lease will be
approximately $89,790 and $93,370. Thereafter, the Company's annual lease
payments will increase by 5% each year. In addition to its lease payments, the
Company is required to pay a proportionate share of the operating expenses, as
defined in the lease to include, among other things, property taxes, hazard
insurance and all public utility services aside from electric, incurred by the
lessor in connection with its management and maintenance of the property subject
to the lease. Under the terms of the lease, the Company's operating expenses may
not increase by more than 5% each year.
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<PAGE>
In addition to its corporate headquarters, the Company conducts its
aquatic and industrial vegetation management business out of the following
branch offices:
The Company's office in West Palm Beach, Florida consists of
approximately 3,450 square feet, under a two-year lease which commenced on
September 23, 1992. The Company has extended the lease for an additional
three-year term, including the rental of additional space of approximately 1,150
square feet. The Company has the option to renew the lease for an additional
year. Annual lease payment is approximately $35,200, which amounts include the
cost of property taxes, hazard insurance, and public utility services but
exclude the cost of maintaining exterior walls, roof areas and the structural
integrity of the leased building, a portion of which costs the Company may be
assessed to pay.
The Company rents an approximately 3,200 square foot office in Orlando,
Florida under a three-year one-month lease which commenced on June 1, 1994. The
Company has the option to extend the term of the lease for an additional two
years. The Company's annual lease payments for the three years of the lease
(excluding the first month) are approximately $17,440, $17,965 and $18,500,
excluding taxes, insurance and utilities.
The Company's office in Sarasota, Florida consists of approximately
4,000 square feet. The Company leases this office under a one-year lease which
commenced on January 1, 1997. The Company has the option to renew the lease for
four additional one-year terms. The annual lease payment is $24,000 which
excludes taxes, insurance and utilities.
The Company rents an approximately 4,500 square foot office in Tampa,
Florida under a five-year lease effective May 1, 1995. The Company has the
option to extend the term of the lease for an additional two years. The
Company's annual lease payment is $24,000 except for the first year where the
rent is specifically waived for a period of five months which amount includes
water services, but excludes the cost of all other public utility services,
insurance, taxes and maintenance.
The Company's office in Fort Myers, Florida is approximately 4,200
square foot in size and is under a two-year lease which commenced on December 1,
1995. The annual lease payment is $19,200 excluding taxes, insurance and
utilities. The Company has the option to renew the lease for three additional
one-year terms.
On March 1996, the Company entered into a lease for approximately 2,625
square feet of space in Jacksonville, Florida, with a term of one year effective
April 1, 1996. The Company has the option to renew the lease for three
additional one-year terms. The Company's annual lease payment is $13,200,
excluding taxes, insurance and utilities.
The Company's office in Myrtle Beach, South Carolina consists of
approximately 2,000 square feet and is leased on a month to month basis for
approximately $600 per month.
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The Company's office in Tempe, Arizona, is approximately 5,900 square
feet in size and is under a month to month lease which commenced December 7,
1996. The monthly lease payment is $2,000 in addition to all expenses borne by
triple net lease terms, including, but not limited to, real estate taxes. The
Company intends to enter into a two year lease agreement including yearly
renewal options, with a monthly lease payment of approximately $3,250 for this
office.
In connection with the GPI Acquisition, the Company entered into a month
to month lease for approximately 2,800 square feet of space in Athens, Georgia
at a monthly lease payment of $1,000.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock and Warrants are quoted on the NASDAQ
National Market System under the symbols "AQUX" and "AQUXW", respectively. The
following table sets forth, for the period since the first quarter ended March
31, 1995, the high and low closing sales prices for the Common Stock and the
Warrants as reported by NASDAQ.
Common Stock Warrants
----------------- ------------------
High Low High Low
------- -------- -------- --------
1995
- ----
First Quarter . . . . . . . . . . . . . 7-1/4 6-1/2 2-1/8 1-15/32
Second Quarter . . . . . . . . . . . . . 7-3/8 5-1/2 2-1/4 1
Third Quarter . . . . . . . . . . . . . 8-1/8 6-1/2 2-1/2 1-5/8
Fourth Quarter . . . . . . . . . . . . . 8-1/16 6-5/8 2-1/2 1-3/4
1996
- ----
First Quarter . . . . . . . . . . . . . 6-7/8 3-1/4 2 11/16
Second Quarter . . . . . . . . . . . . . 5-1/4 4-1/4 1-1/8 11/16
Third Quarter . . . . . . . . . . . . . 5-13/16 4-1/2 1 1/2
Fourth Quarter . . . . . . . . . . . . . 6-3/8 4-11/16 1-1/8 1/2
1997
- ----
First Quarter (through March 12, 1997) . 8 5-15/16 2-1/2 15/16
As of March 12, 1997, there were 42 record holders of the Company's
Common Stock. There are in excess of 1,009 beneficial owners of the Company's
Common Stock.
The Company has not paid any cash dividends on its Common Stock other
than S corporation dividends prior to the IPO and does not currently intend to
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declare or pay cash dividends in the foreseeable future. The Company intends to
retain any earnings that may be generated to provide funds for the operation and
expansion of its business. In addition, certain of the Company's loan agreements
with its lenders prohibit the Company from paying dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
The following management's discussion and analysis relates to the
financial condition and results of operations of the Company for the years ended
December 31, 1996 and 1995 after giving effect to the Company's merger with
Green Pastures, Inc. ("GPI") on December 31, 1996, which was accounted for as a
pooling-of-interests.
OVERVIEW
The Company is currently the largest provider of aquatic and industrial
vegetation management services in the United States. Besides Florida, Georgia,
North and South Carolina, the Company has begun providing services in Arizona,
Alabama and Tennessee. The Company's operations have grown significantly since
1994 as a result of internal growth and the selective acquisition and
consolidation of privately held aquatic and industrial vegetation management
companies with limited geographic service areas and market shares. The Company
continues to adopt a growth strategy which includes the acquisition of companies
offering similar services to its core business, eliminating duplicative expenses
and integrating the acquired operations into its existing business. Such
acquisitions have been accomplished through the purchase of the outstanding
stock or assets of the acquired entities for cash, notes, shares of the
Company's common stock, or a combination thereof.
On June 7, 1996, the Company acquired Aquatic and Right of Way Control,
Inc. ("ARC") for $1,500,000 which was paid by the issuance of 270,000 shares of
the Company's common stock and $150,000 was paid in cash. With annual revenues
of approximately $1,350,000, ARC is a leading provider of industrial vegetation
and utility right of way management services in Florida, Georgia and Alabama.
These services include weed control and growth regulation in right of way areas
adjacent to distribution and transmission power lines. In 1996, the Company has
begun to create a niche for itself in the industrial vegetation management
business, with the ARC acquisition providing the springboard from which
marketing efforts are being targeted at electric and power utilities, telephone
and railroad companies, transportation departments and industrial sites.
On December 7, 1996, the Company completed the acquisition of Aquatic
Dynamics, Inc. ("ADI") for $1,000,000, of which $750,000 was paid by the is-
suance of 133,333 shares of the Company's common stock, $200,000 was paid by the
issuance of an instalment note and $50,000 was paid in cash. This acquisition
marks the Company's entry into the Southwest market for aquatic vegetation
management services. Through this acquisition, the Company acquired a leading
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<PAGE>
provider of aquatic management services throughout Arizona and the southwestern
United States with annual revenues of approximately $1,600,000 and whose
experience and services span the gamut of surface water management needs,
including residential, commercial, industrial and governmental projects,
irrigation and effluent reuse water systems, lake and pond management and
ongoing waterway maintenance.
On December 31, 1996, the Company made its third acquisition in 1996 by
acquiring GPI for $600,000 which was paid by the issuance of 96,000 shares of
the Company's common stock. Through this acquisition, the Company acquired a
provider of roadside vegetation management services throughout the state of
Georgia, with annual revenues of approximately $960,000 and thereby
strategically broadens its expansion in the south of United States.
On October 31, 1995, the Company acquired substantially all of the assets
and assumed certain of the liabilities, of AmerAquatic, Inc., a Florida
corporation ("AmerAquatic"), pursuant to the terms of an Asset Purchase
Agreement, dated as of October 19, 1995, by and among EWM, the Company,
AmerAquatic and Thomas Latta and C. Elroy Timer, the principal shareholders of
AmerAquatic. The aggregate purchase price paid by EWM for the assets of
AmerAquatic was $4,291,084, subject to adjustment under certain circumstances,
of which (i) $3,791,084 was paid in cash and (ii) $500,000 was paid through the
issuance by EWM of a seven-month promissory note bearing interest at a rate of
9.75% per annum, which note is guaranteed by the Company. AmerAquatic was
engaged in the business of providing lake management services, including aquatic
and terrestrial weed and algae control, melaleuca and other exotic plant
control, wetland and upland restoration and other related services. They were
the Company's largest competitor in this business in Florida with over 1,000
customers. The AmerAquatic Acquisition expanded the Company's geographic reach
into northern Georgia, North Carolina and South Carolina and initiated the
Company's penetration into its second strategic market, the South Atlantic
states. The Company is continuing to operate the lake management business
previously conducted by AmerAquatic as part of ALWT.
The proforma combined results of operations of the Company assuming that
the ARC, ADI and AmerAquatic acquisitions were completed on January 1, 1995 are
as follows:
Pro Forma Pro Forma
1995 1996
------------ ------------
Revenues $ 12,825,618 $ 13,419,446
Net (loss) income $ (405,507) $ 450,391
Net (loss) income per share $ (0.11) $ 0.11
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<PAGE>
The proforma results combine the historical operating results of GPI, ADI and
GPI and are not necessarily indicative of operating results which would have
occurred if these acquisitions had been operated by current management during
the periods presented as these amounts do not reflect the full network
optimization and the synergistic effect on operating, selling, general and
administrative expenses.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS - AQUATIC & INDUSTRIAL VEGETATION MANAGEMENT BUSINESS
- ---------------------------------------------------------------------------
REVENUES
Total service revenue increased by approximately $4,498,000, or 64.5%,
from approximately $6,970,000 in 1995 to $11,468,000 in 1996. The increase in
revenues was primarily attributable to an increase in the number of recurring
and non-recurring aquatic and industrial vegetation management contracts. This
was brought about by the expansion of its customer base in Florida, Georgia,
North and South Carolina, Alabama and Arizona as a result of intensive marketing
efforts and acquisitions. Much of the internal growth in revenues resulted from
an increasing trend towards governmental and private outsourcing and the growing
need to comply with environmental laws and regulations. In addition, the Company
has embarked on an aggressive expansion strategy through proactive consolidation
of aquatic and vegetation management companies. The acquisitions in 1996 has
contributed approximately $1,243,000 to the total increase in revenues.
Approximately 76.7% of the total revenues were derived from the business
of aquatic weed, algae and plant control which accounted for approximately 67.4%
of the increased revenues. Revenues from industrial vegetation management
services comprised 17.3% of total revenues for 1996, accounting for 22.8% of the
increase in revenues for 1996. Revenues from industrial vegetation management
services are expected to contribute increasingly to the Company's overall
revenues in the next few years.
COST OF SERVICES AND GROSS MARGINS
Costs of services increased by approximately $2,852,000, or 78.5%, from
approximately $3,631,000 in 1995 to $6,483,000 in 1996. The increase in costs of
services was mainly attributable to increased chemical, labor, insurance and
fuel costs which was directly a result of the Company's expanding operations. As
a percentage of revenues, cost of services have increased from 52.1% for 1995 to
56.5% for 1996. The reduced gross margin was due primarily to higher chemical
and labor costs as a result of the particularly hot summer which was further
aggravated by a lower than normal rainfall experienced in Florida in 1996. This
caused an exceptionally rapid growth of algae and aquatic weeds. In addition, a
higher mix of industrial vegetation management contracts acquired for 1996 as
compared to 1995 also contributed to the lower gross margin. For 1996, revenues
from industrial vegetation management services comprised 17.3% of total revenues
as compared to 13.8% for 1995. Gross margins for industrial vegetation
management contracts are generally lower that the aquatic vegetation management
contracts as they involve a higher usage of chemicals.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by approximately
$697,000, or 17.0%, from approximately $4,095,000 in 1995 to $3,398,000 in 1996.
This decrease was mainly attributable to reductions in consulting fees incurred
for financial advisory services relating to the evaluation and sourcing of
financing arrangements for proposed acquisitions, professional fees and travel
and lodging expenses associated with due diligence work carried out for
potential acquisitions which were not consummated. In addition, the streamlining
of corporate operations also resulted in the reduction of payroll costs, legal
fees and public relations expenses. As a percentage of revenues, such expenses
have decreased from 58.7% in 1995 to 29.6% in 1996 due primarily to the cost
control measures taken with respect to the Company's corporate functions and the
operating efficiencies and economies of scale achieved following the various
acquisitions in 1996 and 1995 and internal growth experienced by the Company.
Depreciation and amortization expenses increased from approximately
$304,000 in 1995 to $721,000 in 1996. As a percentage of revenues, depreciation
and amortization expenses have increased from 4.4% in 1995 to 6.3% in 1996. This
increase reflected a full year's depreciation of the equipment acquired in
connection with the AmerAquatic acquisition in 1995 and the purchase of
additional application equipment in 1996 as a result of the Company's expanding
operations. The increase in amortization expense related to the amortization of
intangibles acquired from the acquisitions in 1995 and 1996 as well as
amortization of unearned compensation relating to the issuance of options as
compensation for certain financial consulting services rendered in 1996.
INTEREST INCOME
Interest income decreased by approximately $157,000, from approximately
$218,000 in 1995 to $61,000 in 1996. The decrease in interest income was
consistent with the lower average balance of marketable securities held in 1996
as compared to 1995.
INTEREST EXPENSE
Interest expense increased by approximately $509,000, from approximately
$174,000 in 1995 to $683,000 in 1996, primarily as a result of the 12.5% Senior
Secured Note of $5,000,000 issued in October 1995 to finance the AmerAquatic
acquisition.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased by approximately $886,000 from
a loss of approximately $642,000 in 1995 to a net income of $244,000 in 1996.
The increase in income from continuing operations was due to increased
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<PAGE>
revenues, improved utilization of its fixed administrative costs and the
elimination of certain nonrecurring expenditures from 1995. No provision for
income taxes was required in view of the Company's net operating loss
carryforwards.
SEASONALITY
The Company's results of operations are not materially affected by
seasonal trends. However, the Company's cost of services for aquatic and
industrial vegetation management services are higher during the spring and
summer months when aquatic weeds, algae and exotic plants grow at a much faster
rate than during the fall and winter months. As a result of such higher growth
rates, the Company is required to use increased amounts of chemicals to control
weeds, algae and exotic plants and to incur additional overtime for hourly
employees. Higher costs could adversely affect the Company's profit margins and
results of operations during such periods. However, the Company believes that in
the future, its results may reflect quarterly fluctuations resulting from the
different climatic conditions of the locations of its customers.
OUTLOOK
Management believes that the aquatic and industrial vegetation management
industry is expected to grow substantially over the next few years because of:
(I) the continued outsourcing of maintenance contracts of utilities, railroads
and government agencies which were previously conducted by internal public works
personnel; (ii) the growth in the number of golf courses and condominiums which
require frequent perennial maintenance of its lakes; (iii) environmental issues
reaching mainstream acceptance, thus reducing barriers to businesses and
individuals utilizing maintenance services even for predominantly cosmetic
reasons; and (iv) new legislation mandating increasingly stringent environmental
regulations.
The Company, through internal growth and its aggressive acquisition plan,
is currently the largest provider of aquatic-related vegetation management
services in the Southeastern United States. The Company will seek to take
advantage of the growth potential of the industry which includes making future
acquisitions of several privately-held waterway and vegetation management
companies throughout the Sunbelt states which are compatible with its core
business, eliminating duplicate expenses and integrating the acquired operations
into the existing business. Management believes that the industry is
particularly well suited for acquisitions as it is made up of numerous smaller
companies which are virtually identical. A larger entity would be able to take
advantage of (i) economies of scale; (ii) increased insurance and bonding
capacities; (iii) decentralized branch offices which reduce operating costs by
reducing transit time to job sites and increase employee efficiency; and (iv)
opportunities to service larger contracts that have traditionally been serviced
in-house.
Although the Company believes that there is significant demand for aquatic
and vegetation management services, the industry is emerging with a relatively
limited operating history. As such, demand and market acceptance for the
Company's services are subject to a high level of uncertainty.
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<PAGE>
The Company's growth prospects will be largely dependent on its ability to
achieve greater penetration in existing markets and new markets and also on
continued favorable regulatory environments. In addition, there can be no
assurance that additional financing can be obtained to finance future
acquisitions or that the Company can successfully integrate into its existing
operations any future acquisitions. The costs of additional financing, together
with its inability to integrate future acquisitions into its existing business,
would have a material adverse effect on the financial performance of the
Company, especially when the capital investment is significant.
The Company anticipates that selling, general and administrative expenses
will increase in 1997 as a result of the planned growth in the systems and
personnel necessary to support the expanded scope of the Company's operations
and to establish the required infrastructure to assimilate the increased
operations from internal growth and future acquisitions. The Company is
currently in the process of converting its information systems to better meet
the increasing information requirements of the business. Selling and promotional
expenses are also expected to increase in 1997 as a result of increased
marketing efforts especially in relation to the industrial vegetation management
services and the increased geographic distribution of the customer base. The
Company anticipates that this increased level of infrastructure spending will
have a negative impact on the Company's results of operations for 1997 and it is
expected that the Company will incur operating losses in the first quarter of
1997. The Company regards these expenditures as critical to the future business
success of the Company.
LIQUIDITY AND CAPITAL RESOURCES
CONTINUING OPERATIONS
- ---------------------
Working Capital
Working capital (excluding net liabilities of discontinued operations) was
approximately $1,384,000 at December 31, 1995 as compared to approximately
$1,140,000 as at December 31, 1996. The decrease in working capital of
approximately $244,000 was due primarily to the liquidation of the marketable
securities and the refund of income taxes.
As of December 31, 1996, accounts receivable increased by approximately
$64,000 as compared to 1995. This was in line with the increased revenues for
1996 as compared to 1995 as a result of internal growth and the ARC and ADI
acquisitions. The Company's accounts receivable as a percentage of revenues
decreased to 9.3% in 1996 from 14.3% in 1995 and this was due to the improved
collection period for the accounts receivable from 39 days at December 31, 1995
to 32 days at December 31, 1996. The incidence of bad debts experienced by the
Company has been negligible and the Company believes that the allowance for
doubtful accounts of approximately $89,000 at December 31, 1996 is adequate to
cover anticipated losses. Of the Company's total accounts receivable at December
31, 1995 and 1996, approximately $239,000 (23.9%) and $336,000 (31.6%) were due
from five customers, respectively. The increase was primarily due to larger
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<PAGE>
aquatic and industrial contracts secured in 1996 as compared to 1995. Delays in
collection or uncollectibility of accounts receivable could have an adverse
impact on the Company's liquidity and working capital position.
During 1996, the Company received a refund of income taxes amounting to
approximately $606,000 mainly as a result of the carryback of the net operating
losses incurred in 1995 against prior years' income.
At December 31, 1996, the Company has loan agreements with SunTrust Bank,
Miami, N.A. ("SunTrust") which provides for borrowings under a revolving line of
credit of up to $750,000, a 15- year loan in the principal amount of $94,144
collaterized by certain real property, and equipment loans in the principal
amounts of $90,624. At December 31, 1996, an aggregate of approximately $512,000
was outstanding under the loan agreements with SunTrust, of which approximately
$404,415 was outstanding under the line of credit, $85,634 was outstanding under
the 15-year loan and $21,538 was outstanding under the equipment loans. Advances
under the line of credit are based on certain borrowing formulas relating to
eligible accounts receivable. Accounts receivables of discontinued operations
are pledged as collateral for the line of credit but cannot be used as part of
the borrowing base under the line. Interest accrues at 1.5% above prime for the
line of credit and the facility expires on March 31, 1997. The Company is
currently in the process of establishing a new line credit with another bank.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company used approximately $2,099,000 in cash from operating
activities for the year ended December 31, 1995 as compared to cash provided by
operating activities of approximately $349,000 for the year ended December 31,
1996. Of this total net cash provided by operating activities, continuing
operations generated net cash of approximately $1,223,000 for the year ended
December 31, 1996 as compared to net cash used by continuing operations of
approximately $2,026,000 for 1995. The increase in net cash generated by
operating activities of the continuing operations was due primarily to an
increase in income from continuing operations, the improvement in the collection
period for accounts receivable and the refund of income taxes.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by investing activities of continuing operations was
approximately $31,000 in 1996, which related mainly to proceeds from the sale of
marketable securities and equipment and was partly offset by capital
expenditures of approximately $874,000. The increase in capital expenditures in
1996 as compared to 1995 was due to additional purchases of application
equipment and computers which were in line with the expansion of operations. As
of December 31, 1996, the Company has capital commitments to purchase forty-six
specialized application vehicles known as "Spra-Buggies" over the next
twenty-two months at a current purchase price of approximately $27,000 per
vehicle. The Company is currently seeking to establish equipment financing lines
of credit with various commercial equipment financing companies for a total of
approximately $2,000,000.
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<PAGE>
The cash outlay for the acquisitions completed in 1996 has not been
significant as the acquisitions were primarily financed by the issuance of the
Company's common stock. The increase in intangible assets for 1996 was due to
the intangibles acquired as a result of the ARC and ADI acquisitions which are
being amortized over 15-25 years.
CASH FLOWS FROM FINANCING ACTIVITIES
The Company repaid a total of approximately $847,000 of its borrowings
relating to its continuing operations during 1996 and this included the
repayment of the promissory note of $500,000 issued in connection with the
AmerAquatic acquisition in October 1995. In April 1996, the Company entered into
a sale and leaseback capital lease agreement, for a principal amount of
$300,000, with a commercial equipment financing company to refinance some of the
capital expenditures for application equipment.
During 1996, the Company completed four equity private placements totaling
437,500 shares of the common stock of the Company at a price of $4 per share for
a total cash consideration of $1,750,000. Of the total number of shares issued,
125,000 shares were issued to Mr. Jeffrey T. Katz, a director of the Company.
The proceeds from these equity placements have primarily been used to finance
working capital, repayment of debt and capital expenditures.
The proceeds from other borrowings in 1995 related mainly to the proceeds
from the issuance of a 12.5% Senior Secured Note due February 28, 1996 in the
principal amount of $5,000,000 to The Equitable Life Assurance Society of the
United States for the financing of the AmerAquatic acquisition in October 1995.
In November 1996, the Company issued to various private investors a total
of 350,000 stock options immediately exercisable for the purchase of common
stock of the Company at an exercise price of $5 per share. In February 1997,
50,000 stock options were exercised by an investor and the Company issued 50,000
shares of the common stock of the Company for an aggregate amount of $250,000.
The proceeds from these equity placements will primarily be used to finance
working capital and future acquisitions.
The Company continues to pursue private debt or equity offerings with
potential investors and increases in credit facilities with financial
institutions in order to fund the continued expansion of its aquatic and
industrial vegetation management business in 1997 both through internal growth
and acquisitions. To the extent that the Company is unable to obtain this
financing or financing available through the conversion of outstanding
redeemable warrants from the initial public offering, the Company may be
required to curtail its expansion activities.
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<PAGE>
DISCONTINUED OPERATIONS - ENVIRONMENTAL REMEDIATION BUSINESS
In January 1996, the Company refinanced substantially all of its equipment
in relation to its remediation segment with USL Capital Corporation ("USL").
Using the proceeds from the USL loan and the proceeds from the liquidation of
marketable securities, the Company repaid all advances made to the discontinued
operations under the previous line of credit with SunTrust which amounted to
approximately $818,000 and the long-term loan of $1,975,000 to SunTrust which
was used to finance the acquisition of HES in 1995.
In March 1996, the Company entered into an agreement with SunTrust for a
one-year extension to February 10, 1997 of a loan of $760,000 (the "FUPTC Loan")
advanced under the a revolving line of credit for FUPTC relating to a specific
remediation project. In July 1996, the entire outstanding loan was repaid, so as
to reduce interest expense, using primarily the proceeds from the refund of
income taxes.
On April 25, 1996, the Company sold substantially all of the assets and
liabilities of HES to Heart Environmental Services, Inc. (the "Buyer"), a New
Jersey corporation for a total consideration of $1,907,021. The total
consideration comprises (I) $681,000 in cash, (ii) a three-year promissory note
of $600,000 (the " Promissory Note") issued by the Buyer, bearing interest at 9%
per annum and collaterized by the pledge of 499 shares of the Buyer's Common
Stock pursuant to a Stock Pledge Agreement, (iii) the cancellation of total
obligations due to H&H Investments Corporation, Mr. Eugene M. Haas and Mr.
Robert E. Haas (collectively known as the "Haas Shareholders") which amounted to
$626,021. The Company originally incurred these obligations in connection with
the HES acquisition in February 1995. As a result of the HES sale, the Company
has agreed not to pursue any claims against the Haas Shareholders in connection
with the Haas acquisition in February 1995. As at December 31, 1996, the Company
has determined that there will be a collectibility problem in relation to the
Promissory Note and as a result, a full valuation allowance has been made. The
net gain on disposal of HES was approximately $716,000.
The proceeds from the HES sale have been used to repay a portion of the
loan from USL Capital which amounted to $405,722 and this includes $391,044
principal and $14,678 interest payments. The proceeds were also used for a
principal repayment of the FUPTC Loan in the amount of $100,000 in May 1996 and
to settle certain remaining liabilities of HES.
During the year ended December 31, 1996, the Company incurred losses from
discontinued operations of approximately $758,000. Additional losses were also
incurred due to the negative job- cost variances relating to the fulfillment of
remaining contractual services for Florida Underground Petroleum Tank
Contractors, Inc. ("FUPTC) and the provision of legal fees relating to the
collection of outstanding accounts receivables. The Company has also been unable
to find a buyer for FUPTC and the net book values of the remaining assets of
FUPTC have been written down to its net realizable value. As of December 31,
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<PAGE>
1996, FUPTC has fulfilled all of its remaining contracts. All equipment have
been sold on a piece-meal basis and the net liabilities of the discontinued
environmental remediation business consist mainly of accounts receivables,
accounts payable and amounts payable to Robert A. Radler, the former President
of the Company, under a settlement agreement entered into in 1996 with the
Company. (See Part III, Item 10: Employment Agreements).
In 1996, the Company has been vigorously continuing its collection efforts
in order to improve the cash flows of its remediation segment until disposal.
Gross accounts receivable for the remediation segment, excluding a long-term
receivable of $1,048,222 at December 31, 1995 and $1,269,909 at December 31,
1996, has decreased by $3,353,300 from $3,661,354 at December 31, 1995 to
$308,054 at December 31, 1996. Collections accounted for approximately
$1,400,000. The remainder of the decrease was mainly due to the transfer of the
uncollected portion of the accounts receivable of HES which amounted to
approximately $1,188,000 back to Mr. Eugene M. Haas and Mr. Robert E. Haas,
pursuant to the Haas Purchase Agreement dated as of February 28, 1995 and the
sale of the receivables of HES in April 1996 which amounted to $565,909. The
Company is continuing its collection efforts for the remaining receivables so as
to settle the remaining accounts payable of its remediation segment.
In partial settlement of the funds extended to FUPTC for the repayment of
its loans with SunTrust and for its working capital requirements in 1996, the
Company has reclassified a long-term receivable of FUPTC amounting to
$1,269,909. The receivable related to an environmental remediation contract
entered into in August 1994 between FUPTC and Riverfront Associates
("Riverfront") for remediation and clean-up services (the "Riverfront Project")
performed in connection with contamination associated with an abandoned
petroleum storage tank system at Riverfront's property. The State of Florida
Department of Environmental Protection ("DEP") had determined that the
Riverfront Project was eligible for a State-funded clean-up under the Abandoned
Tank Restoration Program and the work was thus performed in accordance with the
County Department of Environmental Resources Management approved Phase I
Remedial Action Plan for the Riverfront Project. The work was fully completed in
1996 and the Company has filed a reimbursement application with DEP seeking
reimbursement from DEP with respect to the work performed. The contract with
Riverfront also provides that Riverfront be responsible for paying the interest
on the outstanding amount owed to FUPTC with effect from the date the
application for reimbursement is filed with DEP, at prime plus 1.5% per month.
Included in the Riverfront receivable outstanding at December 31, 1996 is
approximately $60,000 of accrued interest. The contract with Riverfront also
provides that if the funds of DEP are insufficient to reimburse FUPTC for a
period of twenty-four months after submittal of the reimbursement application to
DEP, Riverfront shall be responsible for the payment of the outstanding balance
in ten monthly instalments, subject to certain conditions. As of December 31,
1996, the Company believes that it will receive full repayment of the balances
owed for the Riverfront Project as it has complied with the conditions of the
Riverfront contract and the reimbursement program; however, there can be no
assurance that DEP will allow all costs claimed in the reimbursement application
and that Riverfront will make payment for the shortfall.
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<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted the Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires that long-lived
assets and certain intangibles which are held and used by the Company be
reviewed for impairment. There was no effect on the Company's Consolidated
Financial Statements as a result of adopting SFAS No. 121 in 1996.
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" in 1996. This pronouncement
establishes financial accounting and reporting standards for stock-based
employee compensation plans. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Companies that choose not to adopt the new fair value accounting rules will be
required to disclose pro forma net income and earnings per share under the new
method. See Note 10 to the Consolidated Financial Statements.
IMPACT OF INFLATION
The Company has not been materially affected by inflation.
Item 7. Financial Statements
--------------------
See "Index to Consolidated Financial Statements" for a description of the
financial statements included in this Form 10-KSB.
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<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
-----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The executive officers, directors and significant employees of the
Company are as follows:
Name Age Position
- ------------------------- ---- ----------------------------------------------
Andrew P. Chesler........ 30 Chairman of the Board, Chief Executive Officer,
President and Treasurer
Helen Chia............... 33 Chief Financial Officer and Secretary
Abraham S. Fischler...... 69 Director
Fred S. Katz............. 58 Director
Allen H. Stern........... 38 Director
Jeffrey T. Katz.......... 29 Director
William E. Lloyd......... 52 Vice President, Marketing/Special Projects
Joseph J. Campolong...... 30 Vice President, Production
Robert Craig Smith....... 32 Vice President, Sales
ANDREW P. CHESLER has served as Chairman of the Board, Chief Executive
Officer, President and Treasurer since February 1996. Mr. Chesler co-founded the
Company and has been Executive Vice President of the Company since June 1993.
Mr. Chesler also co-founded ALWT and has been President, Chief Operating Officer
and a director since October 1990. Mr. Chesler is also the President of ALWTA,
the Company's subsidiary for its western operations. From January 1988 until
October 1990, Mr. Chesler served Florida Waterway as a Regional Manager and,
ultimately, as the Vice President of Sales.
HELEN CHIA has served as the Company's Chief Financial Officer since
January 1996. Ms. Chia was appointed as Secretary for the Company in February
1996. She joined the Company in April 1995 as Corporate Controller for the
Company. From February 1992 to December 1994, she served as Corporate Controller
for Milk Products Holdings (SEA) Pte Ltd, a Singapore-based company with an
annual sales of approximately $500 million, whose principal business is in the
trading of dairy products through its eight subsidiaries and nine associates
operating throughout Southeast Asia, South Africa and the Indian subcontinent.
From January 1986 to December 1991, she was with the public accounting firm of
KPMG Peat Marwick.
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<PAGE>
ABRAHAM S. FISCHLER has been a director of the Company since September
1994. Since July 1992, Mr. Fischler has been President Emeritus of Nova
University, Fort Lauderdale, Florida. From July 1970 to July 1992, Mr. Fischler
served as President of Nova University.
FRED S. KATZ has been a director of the Company since November 1994.
Mr. Katz has been Managing Director of Whale Securities Co., L.P. for more than
the past five years. Mr. Katz has been a director of UNSI Corp. since 1992. He
has been Chairman of the Board and Chief Executive Officer of Cyclone
Incorporated, a manufacturer of cyclone fences, since December 1994.
ALLEN H. STERN was appointed as director of the Company in February
1996. Mr. Stern is currently a Senior Vice President with the Corporate Finance
Department of Dabney Resnick, Inc., a Beverly Hills, California-based investment
bank and has been with Dabney Resnick, Inc. since 1993. From 1987 to 1993, Mr.
Stern was Senior Vice President in Binswanger Company, where he was the founder
of the Corporate Finance Real Estate Department. From 1980 to 1986, Mr. Stern
was in leveraged leasing and equipment project finance with First NH Resources
and Bank New England Leasing.
JEFFREY T. KATZ was appointed as director of the Company in March 1996.
Mr. Katz is currently the President, Chief Executive Officer and founder of
Blueberry Intermodal Inc., a chassis leasing company founded in 1995 which
leases chassis for newly designed "large-spec"containers for international
shipping and has operations in the Continental United States. In 1991, Mr. Katz
was the co-founder of Porter Capital Management, a hedge fund based in
Sausalito, California and continues currently as a limited partner. Between 1989
to 1991, Mr. Katz was in the securities industry on the Pacific Stock Options
Exchange with Adler, Coleman & Co. and Casey Securities, Inc.
WILLIAM E. LLOYD joined the Company in November 1995 as Vice President,
Marketing/Special Projects. He is also the Chief Operating Officer of ALWTA.
From 1981 to 1995, Mr. Lloyd was Vice-President of AmerAquatic, Inc. Prior to
his tenure at AmerAquatic, he was President of Lakes and Waterways Management
Services, a subsidiary of The 3M Company from 1978 and 1980.
JOSEPH J. CAMPOLONG, Vice President, Production, has been with the
Company since June 1990 and has been instrumental in the expansion of the
Company's production unit. His current responsibility is the management of all
production activities in the Southeastern United States.
Additionally, he is the Chief Compliance Officer for the Company.
ROBERT CRAIG SMITH was been with the Company since 1990. Mr. Smith has
been and is directly involved in the sales growth of the Company's aquatic and
vegetation management operations throughout Florida and the South Eastern United
States. Mr. Smith is currently responsible for the developing new client
business, maintaining existing customer relations and overseeing all sales
representatives of the branch offices.
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<PAGE>
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board of Directors. The Company's directors
hold office until the next annual meeting of stockholders and until their
successors have been duly elected and qualified.
In connection with the IPO, the Company agreed with Whale Securities
Co., L.P., who acted as the underwriter (the "Underwriter"), for a period of
five years, to nominate and use its best efforts to elect a designee of the
Underwriter as a director of the Company. In November 1994, the Underwriter
exercised this right and named Fred S. Katz as its designee.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has four committees, an Audit Committee, a Compensation
Committee, an Employee Stock Option Committee and a Directors Stock Option
Committee. The members of the Audit Committee consist of Andrew P. Chesler,
Abraham S. Fischler and Fred S. Katz. The principal functions of the Audit
Committee are to recommend the annual appointment of the Company's independent
auditors, to consult and review with the Company's auditors concerning the scope
of the audit and the results of their examination, to review and approve any
material accounting policy changes affecting the Company's operating results and
to review the Company's internal control procedures.
The Compensation Committee, comprising Abraham S. Fischler, Alan H.
Stern and Jeffrey T. Katz, reviews and recommends compensation and benefits for
the executives of the Company. The Directors Stock Option Committee, which
consists solely of Andrew P. Chesler, administers the Company's Directors Stock
Option Plans.
The Employee Stock Option Committee, which consists solely of outside
directors ineligible to participate in the Company's discretionary employee
stock programs, namely Alan H. Stern and Jeffrey T. Katz, has the function of
administering the grant of stock options to employees, including officers and
directors who are also employees of the Company, under the Company's Employees
Stock Option Plan.
COMPENSATION OF DIRECTORS
The Company pays directors who are not employees of the Company a fee
of $250 per meeting of the Board, and reimburses all directors for their
expenses in connection with their activities as directors of the Company. In
1995, the Company also paid Mr. Trent consulting fees of $9,750. Directors of
the Company who are also employees of the Company do not receive receive options
under the Company's Directors Stock Option Plan (the "Directors Plan"). The
Directors Plan was amended in May 1996 ("the Amended and Restated Directors
Stock Option Plan") to effect the following changes: (i) to increase the number
of shares available for issuance thereunder from 50,000 shares to 250,000
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<PAGE>
shares; (ii) the Directors Stock Option Committee will have the authority to
determine the annual amount of options to be granted to a non-employee director;
(iii) all options granted shall be exercisable in two equal instalments each on
the first and second anniversary dates following the date of the grants; and
(iv) any unexercised portion of the options shall automatically terminate on the
date the optionee ceases to be a director of the Company except upon death
whereupon the options will expire within sixty days. This amended Directors Plan
is subject to the written consent of the holders of not less than a majority of
the Company's outstanding stock as at December 31, 1996 and the filing of the
written consent with the Secretary of the Company in accordance with Section 228
of the Delaware General Corporation Law. Any options granted pursuant to the
Directors Plan have a term of five years and have an option price equal to the
fair market value of the Company's Common Stock on the date of grant.
During 1994 and 1995, in accordance with the Directors Plan, the
Company granted a total of 15,000 options to purchase 15,000 shares of Common
Stock to non-employee directors. During 1996, under the Amended and Restated
Directors Stock, a total of 85,000 options to purchase 85,000 shares of the
Company's common stock at an exercise price of $3.88 were granted to the four
non-employee directors of the Company, subject to stockholder approval.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the outstanding Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership on Form 3 and
reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.
Based solely on its review of the copies of such reports furnished to
the Company or written representations that no other reports were required, the
Company believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the year ended December 31, 1996.
Item 10. Executive Compensation.
----------------------
SUMMARY COMPENSATION TABLE
The following compensation table sets forth, for the three fiscal years
ended December 31, 1994, 1995 and 1996, the cash and certain other compensation
paid by the Company to Andrew P. Chesler, the Company's Chief Executive Officer,
and the Company's previous two executive officers whose compensation for 1995
and 1994 exceeded $100,000 (collectively, the "Named Executive Officers"). No
other executive officer had an annual salary in excess of $100,000 during such
years.
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<PAGE>
Long-Term
Compensation
Annual Compensation Awards
----------------------- -------------
Other Annual
Salary Bonus Compensation Options/SARS
Name and Principal
Position Year ($) ($) ($) (#)
- --------------------------------------------------------------------------------
Andrew P. Chesler
Chairman of the Board 1994 $157,665 - (1)
Chief Executive Officer 1995 $170,000 - (1) 20,000(2)
President and Treasurer 1996 $176,000 $20,000 - 60,000(3)
100,000(4)
50,000(5)
Alan H. Chesler 1994 $ 94,000 - (1) -
Former Chairman of the Board, 1995 $170,000 - (1) -
Secretary and Treasurer 1996 - - (1) -
Robert Radler 1994 $154,361 - (1) -
Former President 1995 $170,000 - (1) -
1996 - - - -
_____________________
(1) Represents certain perquisites, the value of which did not exceed the lesser
of $50,000 or ten percent of the Named Executive Officer's cash
compensation.
(2) Represents options granted under the Company's Employee Stock Option Plan at
an exercise price of $5.00 per share, the initial public offering price of
the Common Stock.
(3) Represents options granted under the Company's Employee Stock Option Plan at
an exercise price of $3.88 per share.
(4) Represents options granted under the Company's Employee Stock Option Plan at
an exercise price of $5.13 per share.
(5) Represents options granted under the Company's Employee Stock Option Plan at
an exercise price of $7.50 per share.
EMPLOYMENT AGREEMENTS
In June 1993, the Company entered into five-year employment agreements
with each of Alan H. Chesler, Robert A. Radler and Andrew P. Chesler, which are
automatically renewable and provide for initial annual base compensation of
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<PAGE>
$94,000, $150,000 and $150,000, respectively, and such increases in such base
compensation and bonuses as the Board of Directors may from time to time
determine. The employment agreements provide for employment on a full-time basis
(except for the Company's agreement with Alan H. Chesler, which requires him to
devote at least 75% of his business time to the Company), and contain a
provision that the employee will not compete or engage in a business competitive
with the current or anticipated business of the Company for the term of the
agreement and for one year thereafter if the executive is terminated for cause
or the executive terminates his employment. The employment agreements also
provide that the executive or the Company can terminate the employment
agreement, without cause, upon sixty days notice. If the executive is terminated
for cause, as defined in each employment agreement, the executive is not
entitled to receive severance pay. If the executive is terminated without cause,
he is entitled to receive his then current salary for the remaining term of the
employment agreement.
In February 1996, the annual base salaries for Alan H. Chesler and Robert
A. Radler were reduced to $127,500 and $158,000, respectively. In the same
month, both Alan H. Chesler and Robert A. Radler resigned as executive officers
of the Company. However, they agreed to provide outside consulting services to
the Company.
In April 1996, both Mr.Alan H. Chesler and Mr. Robert A. Radler ceased
providing any consulting services to the Company. It was mutually agreed with
Mr. Alan H. Chesler that his employment agreement with the Company was
terminated. However, in order to maintain the base compensation for Mr. Radler
at the current level, the Company entered into a settlement agreement with him
to continue his compensation until June 1998 subject to certain conditions and
obligations by Mr. Radler.
OPTIONS GRANTS TABLE
The following table sets forth information concerning the grant of stock
options to Mr. Andrew P. Chesler during the year ended December 31, 1996. No
stock appreciation rights were granted.
Options Granted in the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
% of Total Option
Number of Granted to Employees Exercise
Options in the Year Ended Price per Expiration
Name Granted (1) December 31, 1996 Share Date
- ------------------------- ----------- ----------------- -------- ----------
Andrew P. Chesler . . . . 60,000 10.5 $3.88 3/8/06
100,000 17.5 $5.13 11/1/06
50,000 8.8 $7.50 11/1/06
--------- ------
210,000 36.8
--------- ------
________________________
(1) Total number of options granted during the year ended December 31, 1996 was
570,000.
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<PAGE>
(2) Options granted in 1996 are pursuant to the Company's Employee Stock Option
Plan, of which 150,000 options granted in November 1996 are subject to the
stockholder approval to increase the number of shares available for issuance
pursuant to the said plan. Options granted under the Employee Stock Option
Plan have a term of ten years and vest over a five-year period at the rate
of 20% each year. However, the Employee Stock Option Committee, may in its
sole discretion, accelerate the exercise of any employee options.
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by Mr. Andrew P. Chesler as of December 31, 1996. No stock
options were exercised by him during the period ended December 31, 1996. No
stock appreciation rights were granted or are outstanding.
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the-Money
Held at December 31, 1996 Options at December 31, 1996(1)
------------------------------ ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Andrew P. Chesler.......... 8,000 222,000 $10,000 $269,200
</TABLE>
______________________
(1) The closing sale price of the Common Stock on December 31, 1996 as reported
by NASDAQ was $6.25 per share. Value is calculated by multiplying (a) the
difference between $6.25 and the option exercise price by (b) the number of
shares of Common Stock underlying the option.
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or pension plans
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth, as of March 12, 1997, the number of
shares of Common Stock which were owned beneficially by (i) each person who is
known by the Company to own beneficially more than 5% of its Common Stock, (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group:
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<PAGE>
Percentage
of
Outstanding
Name and Address of Amount and Nature of Shares
Beneficial Owner(1) Beneficial Ownership(2) Owned(2)
- ------------------------------------------ ------------------------- ---------
Directors
Andrew P. Chesler......................... 752,283(3) 17.8%
Jeffrey T. Katz........................... 143,000(4) 3.4
Fred S. Katz.............................. 7,500(5) 0.2
Abraham S. Fischler....................... 20,000(6) 0.5
Allen H. Stern............................ ---(7) ---
Other Executive Officer
Helen Chia................................ 5,000(8) 0.1
All directors and executive officers
as a group (six persons)............... 927,783(3)-(8) 21.9
Beneficial Stockholders (5%)
Shulman & Associates ..................... 699,782(9) 16.6
The Equitable Life Assurance Society of
the United States ................... 351,197(10) 8.3
Dabney Resnick Imperial, L.L.C............ 336,349(11) 8.0
Ray A. and Shirley J. Spirnock ........... 270,000(12) 6.4
____________________________________
(1) Unless otherwise indicated, the address of each beneficial owner is
Aquagenix, Inc., 6500 N.W. 15th Avenue, Fort Lauderdale, Florida 33309.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised.
(3) Includes (i) 1,600 shares of Common Stock held by Mr. Chesler's wife, (ii)
12,195 shares of Common Stock subject to an option granted to Robert A.
Radler, and (v) 20,000 shares of Common Stock held pursuant to the grant of
stock options. Does not include (vi) 60,000 shares of Common Stock issuable
upon the exercise of options granted to Mr. Chesler under the Company's
Employee Stock Option Plan (the "Plan"), which options are not presently
exercisable and (vii) 150,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Chesler in November 1996 under the same
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<PAGE>
Plan, subject to the approval by the stockholders to increase the amount of
shares available for issuance pursuant to the said Plan, which options are
not presently exercisable.
(4) Represents (i) 141,000 shares of Common Stock, (ii) 2,000 shares issuable
upon the exercise of Warrants of the Company. Does not include 10,000
shares of Common Stock issuable under the Company's Amended and Restated
Directors Stock Option Plan, subject to the approval by the Company's
stockholders of such Amended and Restated Plan, which options are presently
not exercisable.
(5) Includes 7,500 shares of Common Stock issuable upon the exercise of options
granted to Mr. Katz under the Company's Directors Stock Option Plan. Does
not include 40,000 shares of Common Stock issuable undthe Company's Amended
and Restated Directors Stock Option Plan, subject to the approval by the
Company's stockholders of such Amended and Restated Plan, which
optionspresently not exercisable.
(6) Represents (i) 12,500 shares of Common Stock, (ii) 7,500 shares held
pursuant to the grant of stock options. Does not include 12,500 shares of
Common Stock issuable under the Company's Amended and Restated Directors
Stock Option Plan, subject to the approval by the Company's stockholders of
such Amended and Restated Plan, which options are presently not
exercisable.
(7) Does not include 10,000 shares of Common Stock issuable under the Company's
Amended and Restated Directors Stock Option Plan, subject to the approval
by the Company's stockholders of such Amended and Restated Plan, which
options are presently not exercisable.
(8) Includes 5,000 shares of Common Stock issuable upon the exercise of options
granted to Ms. Chia under the Company's Employee Stock Option Plan. Does
not include (i) 20,000 shares of Common Stock pursuant to stock options
granted under the same Plan, which options are notpresently exercisable;
and (ii) 20,000 shares of Common Stock issuable upon the exercise of
options granted to Ms. Chia in November 1996 under the same Plan, subject
to the approval by the stockholders to increase the amount of shares
available for issuance pursuant to the said Plan, which options are not
presently exercisable.
(9) Represents (i) 174,782 shares of Common Stock held; and (ii) 525,000 shares
of Common Stock issuable upon the exercise of options granted under a
Consulting and Acquisition Management Agreement, dated as of January 7,
1997.
(10) Represents warrants to purchase an aggregate of 351,197 shares of the
Company's Common Stock pursuant to an Amended and Restated Senior Secured
Note and Warrant Purchase Agreement, dated as of December 15, 1995 in
relation to the funding of the acquisition of AmerAquatic, Inc. in October
1995.
(11) Represents warrants to purchase an aggregate of 336,349 shares of the
Company's Common Stock pursuant to certain warrant agreements in relation
to the provision of financial consulting services.
(12) Represents shares of Common Stock issued pursuant to the terms of a Stock
Purchase Agreement, dated as of June 7, 1996, for the acquisition of
Aquatic and Right of Way Control, Inc.
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<PAGE>
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------
GUARANTEES
In 1996, the revolving line of credit with SunTrust has been personally
guaranteed by Alan H. Chesler, Andrew P. Chesler and Robert A. Radler. The
Company anticipates that no further personal guarantees of the Company's
indebtedness by its executive officers will be granted in any future borrowings.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of
its executive officers and directors pursuant to which the Company has agreed to
indemnify each such person for all expenses and liabilities, including criminal
monetary judgments, penalties and fines, incurred by such person in connection
with any criminal or civil action brought or threatened against such person by
reason of such person being or having been an officer, director or employee of
the Company or its subsidiaries. In order to be entitled to indemnification by
the Company, such person must have acted in good faith and in a manner such
person believed to be in the best interests of the Company and, with respect to
criminal actions, such person must have had no reasonable cause to believe his
conduct was unlawful.
TRANSACTIONS WITH AFFILIATES
In December 1993, Alan H. Chesler and Andrew P. Chesler granted Robert
A. Radler six-year options to purchase 24,390 and 12,195 shares of Common Stock,
respectively, at an exercise price of $3.28 per share. As of December 31, 1996,
these options remain unexercised.
In March 1996, Alan H. Chesler granted Andrew P. Chesler an option
until April 9, 1996, to purchase 435,000 shares of Common Stock. The option was
exercised by Andrew P. Chesler. Alan H. Chesler is the father of Andrew P.
Chesler.
During the year ended December 31, 1996, the Company obtained
investment banking services from Dabney Resnick Imperial L.L.C. Allen H. Stern
is the Senior Vice President with the corporation. In November 1996, the Board
of Directors approved the issuance of 100,000 warrants and a cash payment of
$125,000 to Dabney Resnick Imperial L.L.C. as compensation for future investment
banking services rendered by the corporation. These warrants have a term of five
years and are exercisable at $4.88 per share. The compensation expense of
$200,000 in relation to these warrants have been computed based on the fair
value of these warrants on the date of the grant and is being amortized over
three years.
The Board of Directors also approved the issuance of 100,000 stock
options to First Taconic Capital as compensation for investment banking and
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<PAGE>
staffing services rendered for the year ended December 31, 1996. Fred S. Katz is
a partner of the firm. These options have a term of six months and are
exercisable at $5.00 per share. The compensation expense of $56,000 in relation
to these warrants have been computed based on the fair value of these warrants
on the date of the grant.
- 45 -
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
---------------------------------------
(a) Exhibits:
(I) General
Exhibit Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company(1)
3.2 Bylaws of the Company(1)
4.1 Form of Common Stock Certificate(1)
4.2 Revised Form of Warrant Agreement between the Company and
American Stock Transfer & Trust Company(1)
4.3 Revised Form of Warrant Agreement between the Company and the
Underwriter (including the form of Underwriters Warrant
Certificate)(1)
10.1 Stock Option Plan of the Company(1)(2)
10.2 Directors Stock Option Plan of the Company(1)(2)
10.3 Employment Agreement, dated June 1, 1993, between the Company
and Alan H. Chesler, and form of amendment thereto(1)(2)
10.4 Employment Agreement, dated June 1, 1993, between the Company
and Robert A. Radler, and form of amendment thereto(1)(2)
10.5 Employment Agreement, dated June 1, 1993, between the Company
and Andrew P. Chesler, and form of amendment thereto(1)(2)
10.6 Non-competition agreement, dated November 19, 1991, between
the Company and David Green(1)
10.7 Form of Indemnification Agreement between the Company and each
of the Company's Directors and Executive Officers(1)(2)
10.9 Credit Agreement, dated October 30, 1992, between Sun
Bank/Miami, N.A. and Florida Underground Petroleum Tank
Contractors, Inc. ("FUPTC")(1)
- 46 -
<PAGE>
10.10 First Amendment to Credit Agreement, dated August 5, 1993,
between Sun Bank/Miami, N.A. and FUPTC(1)
10.11 Second Amendment to Credit Agreement, dated as of March 14,
1994, between Sun Bank/Miami, N.A. and FUPTC(1)
10.12 Guaranty Agreements, dated August 5, 1993, between Sun
Bank/Miami, N.A. and each of Alan H. Chesler, Robert A. Radler
and Donald H. Shaffer, Jr.(1)
10.13 Security Agreement, dated October 30, 1992, from FUPTC to Sun
Bank/Miami, N.A.(1)
10.14 Negative Pledge, dated October 29, 1993, from Alan H. Chesler
to Sun Bank/Miami, N.A.(1)
10.20 Lease, dated October 2, 1992, between Palm Beach Commerce
Center Associates, Ltd. and ALWT(1)
10.22 Lease, dated November 14, 1991, between John Hancock Mutual
Life Insurance Co. and ALWT(1)
10.23 Lease, dated March 9, 1992, between Lawrence Danielle and
FUPTC(1)
10.24 Lease, dated November 30, 1993, between Franklin S. Davis and
the Company(1)
10.25 Assignment of Mortgage Note and Security Agreement, dated
October 19, 1990, between Alan H. Chesler and ALWT(1)
10.26 Bill of Sale, dated October 19, 1990, between Florida Waterway
Management, Inc. ("FWM") and ALWT(1)
10.27 Assumption Agreement, dated October 19, 1990, between ALWT and
FWM(1)
10.28 Asset Purchase Agreement, dated June 14, 1991, between FUPTC,
Don & Sons Equipment Rental, Inc. ("Don & Sons") and South
Florida Tank Disposal, Inc. ("South Florida Tank")(1)
10.29 Form of Consultation/Non-Competition Agreement, dated June
1991, between Donald H. Shaffer, Betty Shaffer and FUPTC(1)
- 47 -
<PAGE>
10.30 Form of Escrow Agreement, dated June 1991, between Don & Sons,
South Florida Tank, FUPTC, Donald H. Shaffer, Jr., Robert
Radler and Alan H. Chesler(1)
10.31 Form of Note from FUPTC to Don & Sons and South Florida
Tank(1)
10.32 Form of Security Agreement, dated June 1991, between FUPTC,
Donald H. Shaffer, Jr., Robert A. Radler, Alan H. Chesler and
Donald H. Shaffer, Betty Shaffer, Don & Sons, and South
Florida Tank(1)
10.33 Form of Agreement for Set Off, dated June 1991, between Don &
Sons, South Florida Tank and FUPTC(1)
10.34 Agreement regarding substitution of Common Stock of the
Company for Common Stock of FUPTC as collateral for certain
obligations of the former shareholders of FUPTC, dated May 25,
1993, between the Company, Alan H. Chesler, FUPTC, Robert
Radler, Donald Shaffer, Jr., Betty Shaffer, Don & Sons, and
Donald Shaffer, Sr.(1)
10.35 Stock Acquisition Agreement, dated June 2, 1993, between the
Company and the shareholders of ALWT(1)
10.36 Stock Acquisition Agreement, dated June 2, 1993, between the
Company and the shareholders of FUPTC(1)
10.37 Subscription Agreement, dated June 2, 1993, between the
Company and Gary Krulik, M.D. and Stephanie Krulik(1)
10.38 Waterway restoration contract, dated July 13, 1992, between
Greater Orlando Aviation Authority and ALWT(1)
10.39 Waterway/wetlands maintenance contract, dated August 1992,
between Northern Palm Beach County Water Control District and
ALWT(1)
10.40 Fueling Facility Demolition Subcontract Agreement, dated
February 11, 1993, between Blasland, Bouck & Lee of Florida,
Inc. and FUPTC(1)
10.41 Rehabilitation Subcontract Agreement, dated December 15, 1992,
between Gurr & Associates, Inc. and FUPTC(1)
10.42 Credit Agreement, dated as of June 10, 1994, between Sun
Bank/Miami, N.A. and ALWT(1)
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<PAGE>
10.43 Security Agreement, dated as of June 10, 1994, from ALWT to
Sun Bank/Miami, N.A.(1)
10.44 Guaranty Agreement, dated as of June 10, 1994, between Sun
Bank/Miami, N.A. and Alan Chesler, Andrew Chesler, Robert
Radler and the Company(1)
10.45 Third Amendment to Credit Agreement, dated as of October 5,
1994, between SunBank/Miami, N.A. and FUPTC (4)
10.46 Loan Agreement, dated as of February 10, 1995, between
SunBank/Miami, N.A. and FUPTC (4)
10.47 Security Agreement, dated as of February 10, 1995, between
SunBank/Miami, N.A. and FUPTC (4)
10.48 Guaranty Agreement, dated as of February 10, 1995, between
SunBank/Miami, N.A. and the Company (4)
10.49 Guaranty Agreements, dated February 10, 1995 by Alan H.
Chesler, Robert A. Radler and Andrew P. Chesler, in favor of
SunBank/Miami, N.A. (4)
10.50 Revolving Loan and Security Agreement dated February 28, 1995
between Midlantic Bank, N.A. and Haas Environmental Services,
Inc. (4)
10.51 Continuing Guaranty dated February 28, 1995 by the Company in
favor of Midlantic Bank, N.A. (4)
10.52 Asset Purchase Agreement, dated as of February 28, 1995, by
and among the Company, HES Acquisition Corp., Haas
Environmental Services, Inc., Eugene M. Haas and Robert E.
Haas(3)
10.53 Asset Purchase Agreement, dated as of November 23, 1994, by
and between ALWT and Mitigation Services, Inc. (4)
10.54 Promissory Note, dated February 27, 1995, of HES Acquisition
Corp. in the principal amount of $1,975,000 payable to the
order of SunBank/Miami, N.A. (4)
10.55 Business Lease, dated November 29, 1994, between ALWT and
Phillips Highway Land Trust (4)
10.56 Revolving Loan and Security Agreement, dated as of April 5,
1995 between Midlantic Bank, N.A. and HES (5)
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<PAGE>
10.57 Promissory Note and Security Agreement, dated as of February
13, 1995 between SunBank/Miami, N.A. and ALWT (5)
10.58 Credit Agreement, Security Agreement and Revolving Credit Note
dated as of August 11, 1995, between SunBank/Miami, N.A. and
the Company re: Exhibit 10.1 (6)
10.59 Senior Secured Note and Warrant Purchase Agreement dated as of
October 31, 1995, between The Equitable Life Assurance Society
of the United States (the "Purchaser") and the Company re:
Exhibit 10.1 (7)
10.60 Warrant Agreement dated as of October 31, 1995, between the
Purchaser and the Company re: Exhibit 10.2 (7)
10.61 Subordination Agreement dated as of October 31, 1995, by the
Purchaser and the Company in favor of SunTrust, Miami, N.A.
re: Exhibit 10.3 (7)
10.62 Letter Agreement, dated as of August 18, 1995, among H&H
Investments, Inc., Robert E. Haas, Inc., Eugene M. Haas,
Robert E. Haas, the Company and HES re: Exhibit 10.4 (7)
10.63 Compliance Agreement, dated as of September 12, 1995, between
the U.S. Environmental Protection Agency, ALWT, Alan H.
Chesler and Andrew P. Chesler re: Exhibit 10.5 (7)
10.64 Asset Purchase Agreement, dated as of October 19, 1995, among
the Company, ALWT, AmerAquatic, Inc., Thomas Latta and C.
Elroy Timmer re: Exhibit 10.6 (7)
10.65 Lake and canal aquatic weed control and marsh maintenance
contract, dated April 1995, between Northern Palm Beach County
Water Control District and ALWT/AmerAquatic, Inc. (8)
10.66 Lease, dated April 10, 1995, between Tampa Industrial
Developers, Ltd. and the Company d/b/a ALWT and FUPTC (8)
10.67 Lease, dated November 1, 1995, between Manny Schwartz , Steve
Schwartz and ALWT (8)
10.68 Lease, dated December 1, 1995, between Charles C. Souders,
Shirley A. Souders and ALWT (8)
10.69 Asset Purchase Agreement, dated as of November 17, 1995, by
and between ALWT and L&L Mosquito & Pest Control, Inc. (8)
- 50 -
<PAGE>
10.70 Amended and Restated Senior Secured Note and Warrant Purchase
Agreement dated as of December 15, 1995 between the Purchaser
and the Company (8)
10.71 Warrant Agreement dated as of December 15, 1995, between the
Purchaser and the Company (8)
10.72 Security Agreement dated as of December 15, 1995, between the
Purchaser and the Company (8)
10.73 Subordination Agreement dated as of December 15, 1995, by the
Purchaser and the Company in favor of SunTrust Bank, Miami,
N.A. (8)
10.74 Security Agreement dated as of December 28, 1995, between USL
Capital Corporation and the Company, FUPTC and HES (8)
10.75 Commitment Letter dated as of March 13, 1996, between SunTrust
Bank, Miami, N.A. and the Company (8)
10.76 Asset Purchase Agreement, dated as of April 25, 1996, by and
between Heart Environmental Services, Inc., H&H Investment
Corporation, Eugene M. Haas, Robert E. Haas, Haas Sand and
Gravel, Inc. HES and the Company (9)
10.77 First Amendment to Credit Agreement, Revolving Credit Note and
Reaffirmation and Ratification of Guaranty Agreements, dated
March 29, 1996 between SunTrust Bank, Miami, N.A. and the
Company (9)
10.78 Amendment to Loan Agreement, Amended Promissory Note and
Reaffirmation and Ratification of Guaranty Agreements, dated
as of March 29, 1996 between SunTrust Bank, Miami, N.A. and
FUPTC (9)
10.79 Contract between South Florida Water Management District and
ALWT, dated as of February 6, 1996 (9)
10.80 Amendment to Senior Secured Note and Warrant Purchase
Agreement between the Company and The Equitable Life Assurance
Society of the United States, dated as of December 15, 1995
(9)
10.81 Stock Exchange Agreement, dated as of June 7, 1996, by and
among the Company, ARC and Ray Spirnock and Shirley Spirnock,
the shareholders of ARC (10)
- 51 -
<PAGE>
10.82 Subscription Agreement, dated June 12, 1996, between the
Company and Mr. Jeffrey T. Katz (11)
10.83 Subscription Agreement, dated June 27, 1996, between the
Company and Tarragona Fund, Inc. (11)
10.84 Subscription Agreement, dated June 27, 1996, between the
Company and Alpha Atlas Fund, Ltd. (11)
10.85 Agreement and Plan of Merger, dated as of December 7, 1996, by
and among the Company, Aquagenix Governmental Services, Inc.,
ADI and Pat Church and Stephen Church, the shareholders of ADI
(12)
10.86 Stock Exchange Agreement, dated as of December 31, 1996, by
and among the Company, GPI and Garry Seitz and Jan P. Seitz,
the Selling Shareholders (13)
10.87 Option Agreement, dated as of November 1, 1996, between the
Company and Mr. Jon Kilik
10.88 Option Agreement, dated as of November 1, 1996, between the
Company and Mr. Perry Trebatch
10.89 Option Agreement, dated as of November 1, 1996, between the
Company and First Taconic Capital Corporation
10.90 Warrant Agreement, dated as of October 15, 1996, between the
Company, Dabney Resnick, Inc. and Aquagenix Warrant Holdings
II
10.91 Consulting and Acquisition Management Agreement, dated as of
January 7, 1997, between the Company and Shulman & Associates,
Inc.
16.1 Letter from Bernstein, Patchen, Gold & Wolfson, P.A. regarding
change in independent auditors (1)
23.1 Consent of Coopers & Lybrand, L.L.P.
27.1 Financial Data Schedule
21.1 Subsidiaries of the Company
____________________
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 33-78956-A).
- 52 -
<PAGE>
(2) Management contract or compensation plan.
(3) Incorporated by reference to Exhibit 2 filed with the Company's Report on
Form 8-K dated February 28, 1995.
(4) Incorporated by reference to the exhibit of the same number filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994.
(5) Incorporated by reference to the exhibit of the same number filed with the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 1995.
(6) Incorporated by reference to the exhibit as indicated which was filed with
the Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1995.
(7) Incorporated by reference to the exhibit as indicated which was filed with
the Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(8) Incorporated by reference to the exhibit of the same number filed with the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995.
(9) Incorporated by reference to the exhibit of the same number filed with the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 1996.
(10) Incorporated by reference to the exhibit of the same number which was
filed with the Company's Report on Form 8-K dated June 7, 1996.
(11) Incorporated by reference to the exhibit of the same number which was
filed with the Company's Report on Form 8-K dated June 12, 1996.
(12) Incorporated by reference to exhibit 2 which was filed with the Company's
Report on Form 8-K dated December 7, 1996.
(13) Incorporated by reference to exhibit 2 which was filed with the Company's
Report on Form 8-K dated December 31, 1996.
(b) REPORTS ON FORM 8-K:
During the last quarter of 1996 fiscal year, the Company filed the
following reports on Form 8-K:
(I) Current Report on Form 8-K dated December 7, 1996 which
reported the Company's acquisition of ADI.
(ii) Current Report on Form 8-K dated December 31, 1996 which
reported the Company's acquisition of GPI.
- 53 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AQUAGENIX, INC.
DATE: March 24, 1997 By: /s/ Andrew P. Chesler
-----------------------------------------
Andrew P. Chesler, Chairman of the Board,
Chief Executive Officer, President and
Treasurer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated:
DATE: March 24, 1996 /s/ Andrew P. Chesler
------------------------------------------
Andrew P. Chesler, Chairman of the Board,
Chief Executive Officer, President and
Treasurer (Principal Executive Officer)
DATE: March 24, 1996 /s/ Helen Chia
------------------------------------------
Helen Chia, Chief Financial Officer and
Secretary (Principal Financial and
Accounting Officer)
DATE: March 24, 1996 /s/ Abraham S. Fischler
------------------------------------------
Abraham S. Fischler, Director
DATE: March 24, 1996 /s/ Fred S. Katz
------------------------------------------
Fred S. Katz, Director
DATE: March 24, 1996 /s/ Allen H. Stern
------------------------------------------
Allen H. Stern, Director
DATE: March 24, 1996 /s/ Jeffrey T. Katz
------------------------------------------
Jeffrey T. Katz, Director
- 54 -
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Accountants F-1
Aquagenix, Inc. and Subsidiaries Financial Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Directors of Aquagenix, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Aquagenix, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aquagenix, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated result
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 15, 1997
F-1
<PAGE>
AQUAGENIX, INC & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 890,731 $ 720,888
Marketable securities 158,492 639,095
Accounts receivable, net of allowance for doubtful
accounts of $88,541 and $40,632, respectively 1,064,151 999,817
Income tax receivable 0 618,003
Inventories 339,114 370,497
Prepaid expenses and other 490,740 286,149
------------ ------------
Total current assets 2,943,228 3,634,449
Accounts receivable, non-current 1,269,909 1,048,222
Property and equipment, net 2,450,154 1,845,835
Intangible assets, net 4,946,027 3,222,013
Deferred financing costs, net 154,276 146,875
Other assets 267,233 93,239
------------ ------------
Total assets $ 12,030,827 $ 9,990,633
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings - acquisitions $ 200,000 $ 500,000
Borrowings under credit agreement 404,415 552,317
Current maturities of long-term debt 166,168 219,380
Accounts payable 709,870 567,076
Net liabilities of discontinued operations 350,076 1,497,772
Other current liabilities 322,582 411,438
------------ ------------
Total current liabilities 2,153,111 3,747,983
Long-term debt, net of current maturities 5,326,769 5,054,739
------------ ------------
Total liabilities 7,479,880 8,802,722
------------ ------------
Commitments (Note 10)
Stockholders' equity:
Preferred stock, par value $.01, 1,000,000 shares
authorized, no shares issued and outstanding 0 0
Common stock, par value $.01, 10,000,000 shares
authorized, 4,163,391 and 3,306,367 shares issued
and outstanding, respectively 41,634 33,064
Additional paid-in capital 12,671,620 8,438,035
Accumulated deficit (7,938,330) (7,332,385)
Unearned compensation (230,058) 0
Unrealized gain on securities 6,081 49,197
------------ ------------
Total stockholders' equity 4,550,947 1,187,911
------------ ------------
Total liabilities and stockholders' equity $ 12,030,827 $ 9,990,633
============ ============
</TABLE>
The accompanying notes are an integral part
of the Consolidated Financial Statements
F-2
<PAGE>
AQUAGENIX, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues - Continuing operations $ 11,467,830 $ 6,969,953
------------ ------------
Costs and expenses:
Costs of services 6,482,852 3,630,781
Selling, general and administrative 3,398,152 4,094,747
Depreciation and amortization 721,144 304,425
------------ ------------
Total costs and expenses 10,602,148 8,029,953
------------ ------------
Operating income (loss) 865,682 (1,060,000)
Interest income 61,065 217,713
Interest expense (683,049) (173,921)
------------ ------------
Income (loss) from continuing operations before income taxes 243,698 (1,016,208)
Income tax benefit 0 (374,350)
------------ ------------
Income (loss) from continuing operations 243,698 (641,858)
Discontinued operations:
Loss from operations of environmental remediation 0 (2,437,614)
business segment, net of income taxes
Estimated phase-out losses from environmental
remediation segment (758,332) (4,882,138)
------------ ------------
Net loss $ (514,634) $ (7,961,610)
============ ============
Earnings (loss) per weighted average common shares:
Continuing operations $ 0.06 $ (0.20)
Discontinued operations (0.20) (2.24)
------------ ------------
Net loss per common share $ (0.14) $ (2.44)
============ ============
Weighted average common shares outstanding 3,701,144 3,262,768
============ ============
</TABLE>
The accompanying notes are an integral part
of the Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
AQUAGENIX, INC & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
Retained
Additional Earnings Unrealized Total
Common Stock Paid-In (Accumulated Unearned Gain on Stockholders'
Shares Amount Capital Deficit) Compensation Securities Equity
--------- -------- ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 3,063,500 $ 30,635 $ 6,580,937 $ 686,187 $ - $ - $ 7,297,759
Issuance of common stock 236,467 2,365 1,670,635 - - - 1,673,000
Exercise of stock options 6,400 64 31,936 - - - 32,000
Unrealized gain on securities - - - - - 49,197 49,197
Warrants issued in connection with
12.5% senior secured note - - 154,527 - - - 154,527
Dividends paid to "S" corporation - - - (56,962) - - (56,962)
Net loss - - - (7,961,610) - - (7,961,610)
--------- -------- ------------ ------------ ---------- --------- ------------
Balances, December 31, 1995 3,306,367 33,064 8,438,035 (7,332,385) - 49,197 1,187,911
Issuance of common stock for cash 437,500 4,375 1,745,625 - - - 1,750,000
Issuance of common stock for acquisitions 403,333 4,033 2,095,967 - - - 2,100,000
Common stock, stock options and warrants
issued in connection with financial
consulting services 16,191 162 391,993 - (392,155) - -
Amortization of unearned compensation - - - - 162,097 - 162,097
Change in unrealized gain on securities - - - - - (43,116) (43,116)
Dividends paid to "S" corporation - - - (91,311) - - (91,311)
Net loss - - - (514,634) - - (514,634)
--------- -------- ------------ ------------ ---------- --------- ------------
Balances, December 31, 1996 4,163,391 $ 41,634 $ 12,671,620 $ (7,938,330) $ (230,058) $ 6,081 $ 4,550,947
========= ======== ============ ============ ========== ========= ============
The accompanying notes are an integral part of the Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
AQUAGENIX, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (514,634) $(7,961,610)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 721,144 304,425
(Gain) loss on sale of property and equipment (3,933) 21,304
Loss (gain) on sale of securities 55 (25,875)
Provision for doubtful accounts 107,433 37,575
Discontinued operations (115,386) 7,246,546
Net change in operating assets and liabilities 154,368 (1,721,392)
----------- -----------
Net cash provided by (used in) operating activities 349,047 (2,099,027)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 651,685 1,956,738
Proceeds from sale of property and equipment 336,096 27,015
Proceeds from sale of assets of discontinued operations 2,916,663 191,992
Cash paid for acquisitions, net of cash acquired (82,798) (4,038,421)
Purchase of property and equipment (873,704) (388,256)
----------- -----------
Net cash provided by (used in) investing activities 2,947,942 (2,250,932)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under credit agreements 0 534,817
Payment of credit agreements (147,902) 0
Payment of notes payable and long-term debt (699,319) (236,909)
Payment of debt obligations of discontinued operations (3,949,451) (413,910)
Deferred financing costs (30,616) (146,875)
Net proceeds from other borrowings 41,453 5,051,656
Distribution to stockholder (91,311) (56,962)
Issuance of common stock 1,750,000 32,000
----------- -----------
Net cash (used in) provided by financing activities (3,127,146) 4,763,817
----------- -----------
CASH AND CASH EQUIVALENTS:
Increase 169,843 413,858
Beginning balance 720,888 307,030
----------- -----------
Ending balance $ 890,731 $ 720,888
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 575,487 $ 94,908
=========== ===========
Income taxes refunded (paid) $ 605,951 $ (153,251)
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the Consolidated Financial Statements
F-5
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
Aquagenix, Inc. and subsidiaries (the "Company") provide a variety of
aquatic and industrial vegetation management services to both governmental
and commercial customers in Florida, Arizona, Alabama, Georgia, Tennessee,
North Carolina and South Carolina. The Company's customers consist
primarily of utilities, golf courses, country clubs, real estate owners and
developers, homeowner/condominium associations, municipalities, state
government and taxing districts. The majority of its customers have annual
contracts which provide for monthly payments. In 1996 and 1995, revenues
from governmental customers were approximately 19% and 34%, respectively.
During 1996 and 1995, five customers with whom the Company has annual
contracts represented approximately 19% and 21% of revenues, respectively.
In November 1995, the Company's Board of Directors approved a plan to
discontinue the environmental remediation business segment conducted by
certain subsidiaries in view of continued operating losses and in order to
focus future resources on the expansion of the Company's aquatic and
vegetation segment. Accordingly, the environmental remediation segment has
been reflected as discontinued operations, see Note 16.
The aquatic and industrial vegetation management business is subject to
extensive and frequently changing federal, state and local laws.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the operations, assets and
liabilities of Aquagenix, Inc. and subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company
maintains its cash in demand deposit and overnight repurchase accounts
which, at times, may exceed federally insured limits.
F-6
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MARKETABLE SECURITIES
Marketable securities are classified as available for sale and are carried
at fair value, with unrealized gains and losses, reported as a separate
component of stockholders' equity. Fair value is determined by the most
recently traded price of the security at the balance sheet date. Realized
gains and losses are included in earnings using the specific identification
method for determining the cost of securities sold.
Marketable securities consist of corporate stocks, mutual funds,
mortgage-backed securities as of December 31, 1996 and U.S. government
securities due within one year as of December 31, 1995.
REVENUE RECOGNITION
Revenue from the aquatic and industrial vegetation management services are
generally billed monthly and recognized in the same month services are
provided. Progress billings in accounts receivable exclude retentions until
such amounts are due in accordance with contract terms. Revenue from
certain aquatic and industrial vegetation management contracts are
recognized on the percentage of completion method, measured by the
percentage that costs incurred to date bear to estimated total costs for
each contract. This method is used because management considers expended
costs to be the best available measure of progress on these contracts.
The length of the Company's contracts varies but is typically less than
three months. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
INVENTORIES
Inventories, consisting primarily of chemicals, parts and supplies, are
valued at the lower of cost or market. Cost is determined by the first in,
first out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Depreciation is calculated using the straight-line method
over the estimated useful lives of the property and equipment or over the
lease term for leasehold improvements. Lives range from 5 to 31.5 years.
Upon sale or retirement, the cost of the property and equipment, and
related accumulated depreciation, are eliminated from the accounts. Any
resulting gains or losses are reflected in earnings for the period.
F-7
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INTANGIBLE ASSETS
Intangible assets consist principally of contract rights and goodwill
arising from business acquisitions. Contract rights, which represent the
value associated with recurring service contracts, is amortized over 15
years. Goodwill, which represents the excess of the purchase price over the
estimated fair value of net assets acquired, is amortized on a
straight-line method over a period of primarily 25 years. Other intangible
assets include covenants not to compete, deferred acquisition and
organization costs, which are being amortized on a straight line basis over
their estimated useful lives, ranging from 5 to 25 years.
The Company periodically reviews the carrying values of the intangible
assets and impairments are recognized in operating results when the
undiscounted value of expected future operating cash flows to be derived
from such intangible assets is less than their carrying value. Based on its
review, the Company does not believe that an impairment has occurred or
that an adjustment to its estimated recovery periods is required at
December 31, 1996.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related
indebtedness using the interest method.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are also established for the
future tax benefits of operating loss carryforwards. A valuation allowance
is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, and investments in
marketable securities approximates fair value due to the short term
maturities of these items. The carrying amounts of the long-term debt
approximates fair value because the interest rates on the instruments are
comparable to current market rates.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassification have been made to the 1995 financial statements
and related notes to conform with the 1996 presentation.
F-8
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING STANDARDS
During 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". This
pronouncement establishes financial accounting and reporting standards for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Such treatment is required for non-employee stock-based compensation. The
Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, compensation expense for employee stock options or
warrants is measured as the difference between the quoted market price of
the Company's stock at the date of grant and the amount the employee must
pay to acquire the stock. SFAS 123 requires companies electing to continue
using the intrinsic value method to make certain pro forma disclosures (see
Note 11).
During 1996, the Company also implemented SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". This statement requires that long-lived assets and certain intangibles
to be held and used by the Company be reviewed for impairment. This
pronouncement did not have a material impact on the financial statements of
the Company.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
shares outstanding. Common share equivalents resulting from stock options
and warrants to purchase common stock have not been included in the loss
per common share computation since their effect would be anti-dilutive.
In February 1997, SFAS No. 128, "Earnings Per Share" was issued which
established new standards for computing and presenting earnings per share
("EPS"). The Statement replaces the presentation of primary EPS and will
require a dual presentation of basic and diluted EPS on the face of the
income statement. SFAS 128 is effective beginning in fiscal 1998 and
requires restatement of all prior-period EPS data presented. The Company
has not yet determined the impact, if any, that adoption of SFAS 128 will
have on the Company's financial statements.
F-9
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITIONS:
On December 31, 1996, the Company acquired 100% of the common stock of Good
Shepherd, Inc. d/b/a Green Pastures, Inc. ("GPI") in exchange for 96,000
shares of the Company's common stock with an aggregate value of $600,000.
The merger was accounted for as a pooling of interests and accordingly, the
accompanying financial statements have been restated to include the
accounts of GPI for all periods prior to the merger. Separate results for
the combining entities for the years ended December 31, 1996 and 1995 are
as follows:
1995 1996
----------- -----------
Revenues:
Company $ 10,507,890 $ 6,208,905
GPI 959,940 761,048
------------ -----------
$ 11,467,830 $ 6,969,953
============ ===========
Net loss:
Company $ (642,663) $ (8,001,746)
GPI 128,029 40,136
------------ ------------
$ (514,634) $ (7,961,610)
============ ============
On December 7, 1996, the Company acquired 100% of the common stock of
Aquatic Dynamics, Inc. ("ADI") for $1,000,000. The purchase price consisted
of (i) 133,333 shares of the Company's common stock with an aggregate value
of $750,000; (ii) $200,000 promissory note payable on January 15, 1997
bearing interest at 7%; and (iii) $50,000 in cash. The Company has
accounted for the transaction using the purchase method of accounting and
accordingly, the operating results of ADI have been included in the
consolidated results of operations since the date of acquisition. In
connection with the transaction, the Company recorded intangible contracts
rights and goodwill of approximately $450,000 and $100,000, respectively.
On June 7, 1996, the Company acquired 100% of the common stock of Aquatic
and Right of Way Control, Inc. ("ARC") for $1,500,000. The purchase price
consisted of 270,000 shares of the Company's common stock with an aggregate
value of $1,350,000 and $150,000 in cash. The Company has accounted for the
transaction using the purchase method of accounting and accordingly, the
operating results of ARC have been included in the consolidated results of
operations since the date of acquisition. In connection with the
transaction, the Company recorded intangible contracts rights and goodwill
of approximately $1,000,000 and $346,000, respectively.
F-10
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITIONS, CONTINUED:
In October 1995, the Company acquired substantially all of the assets and
assumed certain of the liabilities of AmerAquatic, Inc. ("AmerAquatic") for
approximately $4.3 million, of which $500,000 was paid by the issuance of a
promissory note to the former shareholders of AmerAquatic and the remaining
balance of approximately $3.8 million was paid in cash. The Company has
accounted for the transaction using the purchase method of accounting and
accordingly, the operating results of AmerAquatic have been included in the
consolidated results of operations since the date of acquisition. In
connection with the transaction, the Company recorded goodwill of
approximately $2.7 million.
The following unaudited pro forma information for the years ended December
31, 1996 and 1995 combines the historical results of operations of the
Company, ADI, ARC and AmerAquatic as if the acquisitions had occurred on
January 1, 1995. The proforma results do not necessarily represent results
which would have occurred if the acquisition had taken place at the
beginning of the period and the acquirees had been operated by current
management during the periods presented, nor are they indicative of the
results of future consolidated operations.
1996 1995
----------- -----------
Revenues $13,419,446 $12,825,618
Income (loss) from continuing operations 450,391 (405,507)
Income (loss) per share from continuing operations .11 (.11)
4. ACCOUNTS RECEIVABLE, NON-CURRENT
In August 1994, Florida Underground Petroleum Tank Contractors, Inc.
("FUPTC"), a wholly-owned subsidiary of the Company presently classified as
a discontinued operation (see Note 16), entered into a contract with
Riverfront Associates ("Riverfront") for remediation and clean-up services
(the "Riverfront Project") relative to an abandoned petroleum storage tank
system at Riverfront's property. The work was fully completed in 1996 and
the Company has filed a reimbursement application with the State of Florida
Department of Environmental Protection ("DEP") under the Abandoned Tank
Restoration Program. In light of delays associated with DEP review of
reimbursement applications, the Company does not expect payment until 1998.
The contract with Riverfront provides that if funds of DEP are insufficient
to reimburse FUPTC for a period of twenty-four months after submittal of
the reimbursement application to DEP, Riverfront shall be responsible for
the payment of the outstanding balance in ten monthly installments, subject
to certain conditions.
During 1996, the Company reclassified this account receivable from
discontinued operations in partial settlement of funds extended to FUPTC
for the repayment of loans and working capital requirements.
F-11
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
Condominium $ 126,802 $ 126,802
Machinery and equipment 1,934,489 1,481,073
Machinery and equipment under capital lease 300,000 0
Vehicles 527,095 396,226
Office equipment 542,327 352,191
Leasehold improvements 206,443 98,031
----------- -----------
3,637,156 2,454,323
Accumulated depreciation and amortization (1,187,002) (608,488)
----------- -----------
$ 2,450,154 $ 1,845,835
=========== ===========
6. INTANGIBLE ASSETS:
Intangible assets consist of the following:
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
Goodwill $ 3,338,679 $ 2,892,651
Covenants not to compete 339,000 339,000
Deferred acquisition costs 120,262 80,615
Intangible contract rights 1,526,000 76,000
Organization costs 26,724 26,724
----------- -----------
5,350,665 3,414,990
Accumulated amortization (404,638) (192,977)
----------- -----------
$ 4,946,027 $ 3,222,013
=========== ===========
7. SHORT-TERM BORROWINGS - ACQUISITIONS:
Short-term borrowings - acquisitions represent notes payable issued to
sellers in connection with the ADI and AmerAquatic acquisitions. The
balance of $200,000 as of December 31, 1996 was issued as part of the ADI
acquisition, bears interest at 7% and matured January 15, 1997. The balance
of $500,000 as of December 31, 1995 was issued as part of the AmerAquatic
acquisition, bore interest at 9.75% and matured May 31, 1996.
F-12
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. CREDIT AGREEMENT:
The Company has a credit agreement which provides for aggregate borrowings
of up to $750,000. Interest is payable on the outstanding balance at the
bank's prime rate plus 1% (9.75% and 9.5% at December 31, 1996 and 1995,
respectively). Any unpaid principal and accrued interest is due no later
than March 31, 1997. This agreement is collateralized by substantially all
of the Company's assets. The terms of the agreement require, among other
provisions, for the Company to maintain certain covenants, including a
requirement that the Company maintain minimum levels of net worth and other
financial ratios. The Company expects to pay off this obligation at
maturity with the proceeds of private placements of the Company's common
stock.
9. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------- -----------
<S> <C> <C>
Note payable - bearing interest at 1% above the prime rate,
interest is payable monthly, the principal matures February
13, 2010, collateralized by a condominium. $ 85,634 $ 91,910
Note payable in connection with the purchases of assets,
bearing interest at 7%, requiring monthly payments of
principal and interest through December 1, 1999 75,641 98,754
$5,000,000, net of discount, 12.5% senior secured note due
October 31, 2003. Interest is payable quarterly. The note is
collateralized by a second security interest in all of the
Company's assets. 4,868,008 4,845,473
Vehicle and equipment notes to banks and financial institutions,
bearing interest at rates ranging from 7.50% to 12.95%, principal
payable in varying installments through 1998 173,897 201,598
Various notes payable to financial institutions bearing interest
at rates ranging from 9.02% to 10% (fully repaid in 1996). 0 36,384
Equipment obligation under capital leases, 11.15%, expiring April
2000. 289,757 0
---------- -----------
5,492,937 5,274,119
Less current maturities (166,168) (219,380)
----------- -----------
Total long-term debt $ 5,326,769 $ 5,054,739
=========== ===========
</TABLE>
F-13
<PAGE>
9. LONG-TERM DEBT, CONTINUED:
Aggregate maturities of long-term debt are as follows:
December 31,
------------
1997 $ 166,168
1998 152,750
1999 165,861
2000 77,508
2001 8,389
Thereafter 4,922,261
-----------
$ 5,492,937
===========
The Company funded the cash portion of the purchase price for the assets of
AmerAquatic from the proceeds of the issuance and sale of (i) the Company's
12.5% senior secured note due February 28, 1996 ("Bridge Note") in the
principal amount of $5,000,000 and (ii) warrants ("Bridge Warrants") to
purchase an aggregate of 168,166 shares of the Company's common stock
pursuant to a senior secured note and warrant purchase agreement dated
October 31, 1995. In December 1995, the Company issued 12.5% senior secured
notes due October 31, 2003 with a principal of $5,000,000 and warrants to
purchase an aggregate of 351,197 shares of the Company's common stock,
subject to adjustment under certain circumstances, in substitution for the
Bridge Note and the Bridge Warrants, respectively. All bridge financing
costs totaling approximately $517,000 were charged to operations during
1995.
The Company has allocated a portion of the proceeds from the 12.5% senior
secured note between the note and the 351,197 warrants issued based on
their relative fair value, at the time of issuance. The amount attributable
to the warrants was $154,527 which has been reflected as additional paid-in
capital. The original issue discount of $154,527 is being amortized over
the term of the note. As of December 31, 1996 and 1995, the unamortized
discount amounts to $131,992 and $154,527, respectively.
The senior secured note and warrant purchase agreement contain various
covenants which provide for, among other things, established levels of net
worth, debt coverage, and capital expenditure.
F-14
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. LEASE AND OTHER COMMITMENTS:
The Company is obligated under noncancelable operating leases for various
branch locations, vehicles and equipment. Total rent expense was
approximately $473,600 and $389,300 for the years ended December 31, 1996
and 1995, respectively. As of December 31, 1996, future minimum annual
lease payments under the operating leases were as follows:
December 31,
------------
1997 $ 514,000
1998 360,000
1999 222,000
2000 91,000
-----------
$1,187,000
===========
In connection with the AmerAquatic acquisition, the Company agreed to
purchase a minimum of sixty specialized vehicles known as "Spra-Buggies",
over a period of three years commencing on October 31, 1995 for an original
purchase price of $25,000 each. As of December 31, 1996, the Company has
remaining capital commitments to purchase forty-six Spra-Buggies over the
next twenty-two months.
11. EMPLOYEE STOCK-BASED COMPENSATION:
The Company has a Stock Option Plan (the "Stock Option Plan") and a
Directors Stock Option Plan (the "Director's Plan") (collectively, the
"Plans"). The Plans were amended in May 1996 to increase the number of
shares available for issuance thereunder from 550,000 to 1,250,000 shares,
subject to shareholders' approval. The Plans are designed to serve as an
incentive for retaining qualified and competent employees and directors.
The Company's Board of Directors, or a committee thereof, administers and
interprets the Stock Option Plan and is authorized, in its discretion, to
grant options thereunder to all eligible employees of the Company,
including officers and directors (whether or not employees) of the Company.
The Stock Option Plan provides for the granting of both "incentive stock
options" and "nonstatutory stock options". Options can be granted under the
Stock Option Plan on such terms and at such prices as determined by the
Board of Directors, or a committee thereof, except that, in the case of
incentive stock options, the per share exercise price of options will not
be less than the fair market value of the common stock on the date of
grant. In the case of an incentive stock option granted to a 10%
stockholder, the per share exercise price will not be less than 110% of
such fair market value. The aggregate fair market value of the shares
covered by incentive stock options granted under the Plans that become
exercisable by a grantee for the first time in any calendar year is subject
to a $100,000 limit.
F-15
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:
Only nonemployee directors are eligible to receive options under the
Director's Plan. The Director's Plan provides for the Directors Stock
Option Committee to determine the annual amount of stock options to be
granted to each nonemployee director.
Options granted under the Stock Option Plan will be exercisable after the
period or periods specified in the option agreement. The Committee may in
its sole discretion accelerate the date on which any option may be
exercised. Options granted under the Director's Plan are exercisable
commencing one year after date of grant. Options granted under the Plans
are not exercisable after the expiration of ten years from the date of
grant and are non transferable other than by will or by the laws of descent
and distribution. The Plans also authorize the Company to make loans to
optionees to enable them to exercise their options.
The Company recognizes compensation expense for options granted under the
Plans based on the difference between the quoted market price of the
Company's stock at the date of grant and the amount the employee must pay
to acquire the stock. No compensation cost has been recognized for employee
stock options. Had compensation cost for the Plans been determined based on
the fair value at the date of grant for 1996 and 1995 awards under those
Plans, consistent with the method prescribed by SFAS 123, the Company's net
loss and net loss per share in 1996 would have been increased to the pro
forma amounts indicated below:
Pro forma net loss:
As reported $ (514,634)
Pro forma (1,206,057)
Pro forma net loss per share:
As reported $ (0.14)
Pro forma (0.33)
The fair value of each option grant under the Plans is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1996 and 1995,
respectively: no dividend yield for both years; expected volatility of the
underlying stock of 35%; risk-free interest rates ranging from 5.43% to
6.79% covering the related option periods; and expected lives of the
options of 8 to 10 years based on the related option periods.
F-16
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:
A summary of the status of the Plans as of December 31, 1996 and 1995, and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 234,350 $ 5.17 238,250 $ 5.04
Granted 655,000 4.18 60,000 7.13
Exercised 0 (6,400) 5.00
Cancelled (167,620) 4.82 (57,500) 5.00
------------ -------- ---------- --------
Outstanding at end of year 721,730 4.60 234,350 6.17
========= ======== ========== ========
Options exercisable at year-end 53,820 43,750
Weighted-average fair value of
options granted during the year $ 2.44 $ 2.18
</TABLE>
12. NON-EMPLOYEE STOCK-BASED COMPENSATION:
During 1996, the Company issued 16,191 shares of common stock, 100,000
options to purchase common stock and 131,484 warrants to purchase common
stock to various parties affiliated with certain Company directors, as
consideration for financial consulting services. The stock options were
immediately exercisable at an exercise price of $5 per option with a term
of six months. The warrants were also immediately exercisable at $4.88-
$6.50 per warrant with a term of 5-6 years.
The Company recognized unearned compensation for the common stock issued
based upon the fair value of the Company's common stock and for the options
and warrants based upon the fair value methodologies of SFAS 123, see Note
2. The fair value of each option or warrant grant was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: no dividend yield; expected volatility of the
underlying stock 35%; risk-free interest rate of 6.2% covering the related
option or warrant periods; and expected lives of the options or warrants of
.5-6 years. Total unearned compensation amounted to $392,155, of which
$162,097 was amortized during 1996 and included in depreciation and
amortization.
F-17
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. NON-EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:
During 1995, the Company entered into various agreements whereby it agreed
to issue 656,062 warrants immediately exercisable for the purchase of
common stock at exercise prices ranging from $6.50 to $7.71 per share.
These issuances include 351,197 warrants related to the Company's senior
secured note which were valued at $154,527, see Note 9. During 1995, the
Company also granted to consultants 15,000 options to purchase common stock
at a price of $7.125 per share with a term of five years.
As of December 31, 1996, a total of 90,000 options are outstanding to
consultants at a weighted average exercise price of $6.15.
13. STOCKHOLDERS' EQUITY:
During 1996, the Company completed four equity private placements totaling
437,500 shares of common stock at a price of $4 per share for a total cash
consideration of $1,750,000. Of the total, 125,000 were issued to a
director of the Company.
During November 1996, the Company also issued stock subscriptions, in the
form of stock options, to issue 350,000 shares of common stock at $5 per
share, the then fair market value of the Company's common stock. Stock
options for 150,000 shares and 200,000 shares expire on February 28, 1997
and October 31, 1998, respectively. The stock options expiring on February
28, 1997 have been or are in the process of being exercised.
In connection with its initial public offering in September 1994, the
Company issued 1,250,000 redeemable warrants which entitle the registered
holders to purchase one share of common stock at a price of $6.00, subject
to adjustment in certain circumstances, until September 12, 1999. The
warrants are redeemable by the Company, upon notice of not less than 30
days, at a price of $.10 per warrant, provided that the closing bid price
of the common stock on all 20 trading days ending on the third day prior to
the day the Company gives notice has been at least 130% ($7.80) of the then
effective exercise price of the warrants.
Also, in connection with the initial public offering, the Company issued
437,500 warrants immediately exercisable for the purchase of common stock
to the underwriter at an exercise price ranging from $.17 to $8.25 per
share.
F-18
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. CASH FLOW INFORMATION:
The net changes in operating assets and liabilities, net of effects of
acquisitions, in the accompanying statements of cash flows are as follows:
Years ended December 31,
----------------------------
1996 1995
----------- -----------
(Increase) decrease in:
Accounts receivable $ 45,851 $ (534,285)
Income tax receivable 618,003 (601,978)
Inventories 43,642 (24,402)
Prepaid expenses and other (161,393) 62,242
Accounts receivable, non-current (221,987) (982,419)
Other assets (167,885) (34,590)
Increase (decrease) in:
Accounts payable 17,620 378,829
Other current liabilities (19,483) 292,811
Deferred income taxes 0 (40,100)
Fine payable 0 (237,500)
----------- -----------
$ 154,368 $(1,721,392)
=========== ===========
During 1996 and 1995, the Company issued notes payable for $200,000 and
$500,000, respectively, as payment of part of the purchase price for
certain acquisitions (see Note 3). In addition, during 1995, the Company
entered into note payable agreements for insurance policies totaling
$110,250.
During 1996, the Company recorded equipment under capital leases in the
amount of $300,000.
F-19
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. INCOME TAXES:
The income tax benefit is comprised of the following:
1996 1995
--------- ----------
Continuing operations $ 0 $(374,350)
Discontinued operations 0 (103,425)
--------- ---------
Income tax benefit $ 0 $(477,475)
========= =========
Current:
Federal $ 0 $(437,675)
State 0 0
--------- ---------
0 (437,675)
--------- ---------
Deferred:
Federal 0 (40,100)
State 0 0
--------- ---------
0 (40,100)
--------- ---------
Income tax benefit $ 0 $(477,775)
========= =========
The following table summarizes the differences between the Company's
effective tax rate for financial statement purposes and the Federal
statutory rate for continuing operations:
1996 1995
-------- ---------
Income tax benefit at Federal statutory rate $(180,122) $(359,157)
State taxes benefit net of Federal benefit 0 (38,345)
Change in valuation allowance 111,933 0
Permanent differences, net 68,189 23,152
-------- ---------
Income tax benefit $ 0 $(374,350)
========= =========
F-20
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. INCOME TAXES, CONTINUED:
The components of the net deferred tax assets (liabilities) are as follows:
1996 1995
----------- -----------
Deferred tax assets:
Allowance for doubtful assets $ 69,282 $ 134,212
Estimated loss from discontinued operations 121,873 1,518,725
Net operating losses 2,722,818 995,929
Other, net 136,477 36,993
----------- -----------
Total deferred tax assets 3,050,450 2,685,859
----------- -----------
Deferred tax liabilities:
Property and equipment (103,526) (169,513)
Customer contracts (571,181) (20,764)
----------- -----------
Total deferred tax liabilities (674,707) (190,277)
----------- -----------
Net deferred tax assets 2,375,743 2,495,582
Valuation allowance (2,375,743) (2,495,582)
----------- -----------
Net deferred tax liabilities $ 0 $ 0
=========== ===========
The Company has a net operating loss carryforward of approximately $8.6
million which expires from 2001 to 2012. The Company has determined, based
on the Company's earnings, that it is more likely than not that deferred
tax assets will not be realized and therefore, a full valuation allowance
has been provided.
F-21
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. DISCONTINUED OPERATIONS:
In November 1995, the Company's Board of Directors approved a plan to
dispose of the environmental remediation business segment which comprised
the activities of two subsidiaries, FUPTC and Haas Environmental Services,
Inc. ("HES"). The results of the environmental remediation segment have
been reported separately as discontinued operations in the accompanying
consolidated statements of operations.
During 1995, the Company provided for estimated losses on disposal of the
discontinued operations in the amount of approximately $4,882,000 which
included a provision for anticipated operating losses of approximately
$1,544,000 prior to disposal and the write-off of the unamortized goodwill
relating to the acquisition of HES approximating $2,792,000. During 1996,
the Company provided for additional losses on disposal in the amount of
approximately $1,475,000 for higher than anticipated losses in the
fulfillment of remaining contractual obligations of FUPTC and HES and legal
fees relating to the collection of accounts receivable. In April 1996, the
Company sold substantially all of the net assets of HES for approximately
$1.9 million, including a $600,000 three-year promissory note. During the
fourth quarter of 1996, the Company elected to provide a full valuation
allowance against the promissory note in light of concerns as to
collectibility. After consideration of the provision, the net gain on the
disposal of HES totaled approximately $716,000.
HES was originally formed to consummate the February, 1995 acquisition of
substantially all of the net assets of Haas Environmental Services, Inc.
("Haas") for approximately $4.9 million. The purchase price was paid in
cash, the issuance of a promissory note, the assumption of certain
liabilities and the issuance by the Company of 219,082 escrowed shares of
common stock. In August 1995, the Company entered into an agreement with
the former shareholders of Haas whereby their employment was terminated. In
consideration of their termination, the Company agreed to pay $250,000 and
to disburse all escrowed shares in January 1997. The Company recognized a
charge to earnings in 1995 of approximately $775,000 related to these
shares. In February 1996, the original purchase of Haas and the promissory
note issued in that connection were reduced by approximately $1.2 million
reflecting the return to the seller of certain uncollected accounts
receivable.
F-22
<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. DISCONTINUED OPERATIONS, CONTINUED:
Summarized 1995 operating results for discontinued operations are as
follows:
Net revenues $ 7,361,223
==============
Operating loss $ (2,194,982)
==============
Loss before income taxes (2,541,039)
Income tax benefit (103,425)
--------------
Loss from discontinued operations $ (2,437,614)
==============
Operating results of the discontinued operations include allocations of
overhead and interest expense from the parent company. For 1996 and 1995,
overhead expense of approximately $770,000 and $474,000, respectively, was
allocated based on specific identification of those costs incurred by the
parent company on behalf of its remediation subsidiaries which are not
expected to be incurred by continuing operations after the disposal of the
remediation segment. For 1996 and 1995, interest expense of approximately
$60,000 and $224,000, respectively, was also allocated based on debt
incurred to finance the discontinued operations and to acquire HES.
The net liabilities of the discontinued operations as of December 31, 1996
and 1995, have been segregated in the accompanying consolidated balance
sheets. The components of the net liabilities of discontinued operations
are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Marketable securities $ 0 $ 2,100,000
Accounts receivable, net of allowance for doubtful accounts 217,182 3,345,323
Inventories 0 105,876
Prepaid expenses and deposits 6,480 109,271
Property and equipment, net 42,924 1,229,667
Intangibles, net of accumulated amortization 0 378,805
----------- -----------
Total assets 266,586 7,268,942
----------- -----------
Liabilities:
Notes and loans payable 25,000 3,922,045
Borrowings under credit agreement 0 1,576,956
Accounts payable 226,402 1,250,337
Accrued expenses 46,970 473,555
Provision for phase-out losses and discontinuation expenses 318,290 1,543,821
----------- -----------
Total liabilities 616,662 8,766,714
----------- -----------
Net liabilities of discontinued operations $ (350,076) $(1,497,772)
=========== ===========
</TABLE>
F-23
OPTION AGREEMENT
OPTION AGREEMENT, dated as of November 1, 1996, between Aquagenix, Inc., a
Delaware corporation (the "Company"), and Jon Kilik , a person, (hereinafter
--------------
referred to as the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Optionee Fifty Thousand
(50,000) options (the "Options") to purchase up to Fifty Thousand (50,000)
shares (the "Shares") of Common Stock of the Company, par value $.01 per share
(the "Common Stock"); and
WHEREAS, each option entitles Optionee to buy one share of common stock;
WHEREAS, the Options issued pursuant to this Agreement are being issued by
the Company to the Optionee.
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Optionee is hereby granted the right to purchase up to
----
50,000 shares of Aquagenix Common Stock until 5:00 P.M., Eastern time, on or
before February 25, 1997, (the "Option Exercise Term"), at an exercise price of
$5.00 per share. Funds must be delivered by wire transfer or cashiers check on
or before February 25, 1997. It is hereby agreed that the Exercise of options
may not occur after this date. Optionees' right to exercise shall not survive
past the option exercise term, as defined in this paragraph 1.
1
<PAGE>
2. Option Certificate. The Option certificates (the "Option
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Option. The Options are exercisable at a price of Five
------------------
Dollars ($5.00) per Share purchased, payable in cash or by check to the order of
the Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Option Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Florida (currently located at 6500 NW 15th
Avenue, Ft. Lauderdale, FL 33309) the registered holder of an Option Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Option Certificate are exercisable at the option of the Holder hereof, in
whole only.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Options, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within fourteen
(14) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
2
<PAGE>
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Option Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Option
Certificates shall be dated the date of exchange by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Options, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred, offered or sold except (I)
pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Options.
----------------------------------
3
<PAGE>
5.1 Transfers to Others by Optionee. The Options may be assigned in
-------------------------------
whole or in part to any person other than the optionee.
5.2 Transfer of Options. Except as provided in Section 5.1 hereof,
-------------------
the registered Holder of an Option Certificate, by its acceptance thereof,
agrees that the Options are being acquired as an investment and that the Options
may not be assigned, pledged, hypothecated or otherwise transferred except
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "Act"), and in compliance with applicable state securities laws. In
order to make any assignment, the Holder must deliver to the Company the
assignment form annexed to the Option Certificate duly executed and completed,
together with the Option Certificate and payment of all transfer taxes, if any,
payable in connection therewith. The Company shall promptly transfer the Options
being assigned on the books of the Company and shall execute and deliver a new
Option Certificate or Certificates of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of Shares purchasable
under the Option Certificate surrendered or such portion of such number as shall
be contemplated by any such assignment.
5.3 Transfer of Common Stock. The Shares underlying the Options
-------------------------
shall not be transferred unless (I) the Company has received the opinion of
counsel, satisfactory to the Company, that such shares may be transferred
pursuant to an exemption from registration under the Act and in compliance with
applicable state securities laws, or (ii) the transfer is made pursuant to an
effective registration statement under the Act in compliance with applicable
state securities laws.
4
<PAGE>
6. Price.
-----
6.1 Initial Exercise Price. The initial exercise price of each
------------------------
Option shall be $5.00 per Share. The adjusted exercise price shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
-------------------
7.1 Registration & Lock up. If at any time commencing six (6) months
----------------------
after the Options are exercised but prior to the first anniversary of such
exercise date, the Company shall propose the registration of an appropriate form
under the Securities Act of 1933, as amended, of any shares of Common Stock
(other than in connection with a merger or acquisition or an employee benefit
plan), the Company shall at least 30 days prior to the filing of such
registration statement give the Optionee written notice of such proposed
registration and, upon written notice give to the Company within 10 business
days after your receipt of such notice from the Company, shall include or cause
to be included in any such registration all or such portion of the shares of
Common Stock received pursuant to the Exercise of the Options, as the Optionee
may request, provided, however, that the Company may at any time withdraw or
cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of such Common Stock
originally proposed to be registered. None of the shares have been registered
under the Securiites Act of 1933.
5
<PAGE>
7.2 Registrable Securities. As used herein, the term "Registrable
-----------------------
Security" means the Shares and any shares of Common Stock issued upon any stock
split or stock dividend in respect of such Shares; PROVIDED, HOWEVER, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (I) it has been
effectively registered under the Act and disposed of pursuant thereto or (ii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. After exercising the options; if, at any
----------------------
time after the six month potential holding period and before one (1) year ending
October 31, 1997, the Company plans to prepare and file any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form) (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to Optionee
and its counsel. Upon the written request of a holder of Registrable Securities
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
6
<PAGE>
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense provided that
(a) the Requesting Holders shall pay any and all (I) underwriting and
broker-dealer discounts, commissions and non-accountable expenses of any
underwriter or broker-dealer in connection with the sale of the Registrable
Securities, (ii) the fees and expenses of any legal counsel selected by the
Requesting Holders to represent them in connection with the sales of the
Registrable Securities and, (iii) all transfer, income and other taxes, and (b)
the Requesting Holders shall furnish the Company with such appropriate
information in connection therewith as the Company shall reasonably request in
writing.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Notwithstanding the provisions of this Section 7.3, if, in the
written opinion of the managing underwriter or underwriters, if any, for such
offering, the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (a)
at a price reasonably related to their then current market value, or (b) without
materially and adversely affecting the entire offering, then the Company may
7
<PAGE>
exclude from such Registration Statement and offering all or any portion of the
Registrable Securities requested to be so registered. In the event that any
Registrable Securities are so excluded, then the number of securities to be sold
by all stockholders in such public offering shall be apportioned pro rata among
all such selling stockholders, including all Holders of Registrable Securities,
according to the total amount of securities of the Company requested to be
registered by said selling stockholders, including all Holder(s) of the
Registrable Securities. The registered Holders of the Options, by their
acceptance thereof, acknowledge and agree that pursuant to the Warrant
Agreement, dated as of September 12, 1994 (the "Warrant Agreement"), by and
between the Company and Whale Securities Co., L.P., the Company has granted
certain registration rights to the holders of the Warrants issued pursuant to
the Warrant Agreement and the shares of the Common Stock underlying such
Warrants. Notwithstanding any other provision contained herein, the Company
shall not be required to take any action pursuant to this Section 7.3 which
conflicts with, or violates, any provision of the Warrant Agreement.
7.4 Covenants with Respect to Registration.
--------------------------------------
(a) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 7.3 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provide,
however, that in no event shall the Company be required to register the
8
<PAGE>
Registrable Securities in any state in which such registration would cause the
Company to be obligated to qualify to do business in such state or to execute a
general consent to service or process.
(c) The Company shall indemnify any Holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
any preliminary or final prospectus constituting a part thereof or any amendment
or supplement thereto (collectively, the "Offering Documents"), or (ii) the
omission or alleged omission by the Company to state in the Offering Documents a
material fact required to be stated therein or necessary to makie the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to any one of the Holder(s) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
9
<PAGE>
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by such
Holder for use in the preparation of the Offering Documents.
(d) Any holder of Registrable Securities to be sold pursuant
to a registration statement, and its successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents, or (ii)
the omission or alleged omission to state in the Offering Documents a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; but in
each case, only if and to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon or in
conformity with written information furnished to the Company by such Holder
specifically for use in the preparation of the Offering Documents.
(e) If the indemnification provided for in this Section 7.4 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
10
<PAGE>
or payable by such indemnified party, as a result of such losses, claims,
damage, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand, and of the Holder of the
Registrable Securities who seeks contribution or from whom contribution is
sought on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand, and such Holder of the Registrable Securities on the other hand,
will be determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a fact
relates to information supplied by the Company or the Holder, and their relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, provided, however, that amount which such Holder of
Registrable Securities shall be required to contribute pursuant to this
subparagraph (e) shall not be in excess of the amount received by the Holder
from the sale of its securities.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Option prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall deliver promptly to each Holder of
Registrable Securities participating in the offering requesting the
correspondence and emoranda described in this Section 7.4(g) and to the managing
underwriter, if any, copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the Registration Statement and
11
<PAGE>
permit each holder of Registrable Securities and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(h) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall contain such representations, options and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The holders of Registrable Securities shall be parties
to any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all of the
representations, options and covenants of the Company to or for the benefit of
such underwriter shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or agreements with the Company or the
underwriter except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
12
<PAGE>
8. Adjustments of Exercise Price and Number of Securities. The
-------------------------------------------------------------
following adjustments apply to the Exercise Price of the Options with respect to
the Shares and the number of Shares purchasable upon exercise of the Options.
8.1 Reclassification, Consolidation, Merger, etc.. In case of any
-----------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale, or conveyance as if the Holders were the owners of the Shares
immediately prior to any such events, at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Options
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Options.
8.2 Determination of Outstanding Shares of Common Stock. The number
----------------------------------------------------
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
13
<PAGE>
8.3 Dividends and Other Distributions with Respect to Outstanding
--------------------------------------------------------------
Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of the Options declare a dividend or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities, whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Options shall not be
entitled, to receive such monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value.
8.4 Subscription Rights for Shares of Common Stock or Other
--------------------------------------------------------------
Securities. In the case that the Company shall at any time after the date hereof
- ----------
and prior to the exercise of the Options issue any rights to subscribe for
shares of Common Stock or any other securities of the Company to all the
shareholders of the Company, the Holders of the unexercised Options shall not be
entitled, to receive such rights.
9. Exchange and Replacement of Option Certificates.
-----------------------------------------------
Each Option Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Option Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Option Certificate, and,
14
<PAGE>
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Options, if
mutilated, the Company will make and deliver a new Option Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Options, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
11. Reservation of Securities.
-------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Options, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Options and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder.
12. Notice to Option Holders.
------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
Directors or any other matter, or as having any rights whatsoever as a
15
<PAGE>
shareholder of the Company. If, however, at any time prior to the expiration of
the Options and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option
or right to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the Shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights or options, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
16
<PAGE>
declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights or options or
any proposed dissolution, liquidation, winding up or sale.
13. Notices.
-------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Options, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
--------------------------
The Company and the Optionee may from time to time supplement or
amend this Agreement without the approval of any Holders of the Options in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Optionee may deem necessary or desirable and which the
Company and the Optionee deem not to adversely affect the interests of the
Holders of Option Certificates.
17
<PAGE>
15. Successors.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. Termination.
-----------
This Agreement shall terminate at the close of business on October
31, 1998. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Options have been exercised and all Option Securities have
been resold to the public. This agreement shall terminate in the event that the
options are not exercised on or before February 1,1997.
17. Governing Law.
-------------
This Agreement and each Option Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Optionee and any other registered
holder or holders of the Option Certificates or Option Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Optionee and any
other holder or holders of the Option Certificates or Option Securities.
18
<PAGE>
19. Counterparts.
------------
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AQUAGENIX, INC.
By: /s/ Andrew Chesler
----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
By: /s/ Jon Kilik
----------------------------------
Jon Kilik
19
<PAGE>
EXHIBIT A
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED, OFFERED OR SOLD EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE
EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE OPTIONS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE OPTION AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., MIAMI TIME, ___2/25/98___
No. W-1 50,000 Options
OPTION CERTIFICATE
This Option Certificate certifies that ____Jon Kilik____ or registered
assigns, is the registered holder of Options to purchase, at any time from
__November 1, 1996___, until 5:00 P.M. Miami time on ___February 25, 1997____
("Expiration Date"), up to an aggregate of ___50,000___ fully-paid and
non-assessable shares of Common Stock, $.01 par value ("Common Stock"), of
Aquagenix, Inc., a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
__$5.00__ per share of Common Stock upon surrender of this Option Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein. Payment of the Exercise Price may be
made in cash, or by certified or official bank check in Miami Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Option may be exercised after 5:00 P.M., Miami time, on the Expiration
Date, at which time all Options evidenced hereby, unless exercised prior
thereto, shall thereafter be void.
The Options evidenced by this Option Certificate are part of a
duly-authorized issue of Options issued pursuant to the Option Agreement dated
__November 1, 1996___, between the Company and ____Jon Kilik____ (the "Option
Agreement), which Option Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Options.
20
<PAGE>
The Option Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Option
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Options; provided,
however, that the failure of the Company to issue such new Option Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Option Agreement.
Upon due presentment for registration of transfer of this Option
Certificate at an office or agency of the Company, a new Option Certificate or
Option Certificates of like tenor and evidencing in the aggregate a like number
of Options shall be issued to the transferee(s) in exchange for this Option
Certificate, subject to the limitations provided herein and in the Option
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Options evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new Option
Certificate representing such number of unexercised Options.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Option Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be
duly executed under its corporate seal.
Dated: November 1, 1996 AQUAGENIX, INC.
----------------
[SEAL] By: /s/ Andrew Chesler
-----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
Attest:
21
OPTION AGREEMENT
OPTION AGREEMENT, dated as of November 1, 1996, between Aquagenix, Inc., a
Delaware corporation (the "Company"), and Perry Trebatch, a person, (hereinafter
--------------
referred to as the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Optionee One Hundred
Thousand (100,000) options (the "Options") to purchase up to One Hundred
Thousand (100,000) shares (the "Shares") of Common Stock of the Company, par
value $.01 per share (the "Common Stock"); and
WHEREAS, each option entitles Optionee to buy one share of common stock;
WHEREAS, the Options issued pursuant to this Agreement are being issued by
the Company to the Optionee.
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Optionee is hereby granted the right to purchase up to
----
100,000 shares of Aquagenix Common Stock until 5:00 P.M., Eastern time, on or
before February 25, 1997, (the "Option Exercise Term"), at an exercise price of
$5.00 per share. Funds must be delivered by wire transfer or cashiers check on
or before February 25, 1997. It is hereby agreed that the Exercise of options
may not occur after this date. Optionees' right to exercise shall not survive
past the option exercise term, as defined in this paragraph 1.
1
<PAGE>
2. Option Certificate. The Option certificates (the "Option
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Option. The Options are exercisable at a price of Five
------------------
Dollars ($5.00) per Share purchased, payable in cash or by check to the order of
the Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Option Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Florida (currently located at 6500 NW 15th
Avenue, Ft. Lauderdale, FL 33309) the registered holder of an Option Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Option Certificate are exercisable at the option of the Holder hereof, in
whole only.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Options, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within fourteen
(14) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
2
<PAGE>
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Option Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Option
Certificates shall be dated the date of exchange by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Options, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred, offered or sold except (I)
pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Options.
----------------------------------
3
<PAGE>
5.1 Transfers to Others by Optionee. The Options may be assigned in
-------------------------------
whole or in part to any person other than the optionee.
5.2 Transfer of Options. Except as provided in Section 5.1 hereof,
-------------------
the registered Holder of an Option Certificate, by its acceptance thereof,
agrees that the Options are being acquired as an investment and that the Options
may not be assigned, pledged, hypothecated or otherwise transferred except
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "Act"), and in compliance with applicable state securities laws. In
order to make any assignment, the Holder must deliver to the Company the
assignment form annexed to the Option Certificate duly executed and completed,
together with the Option Certificate and payment of all transfer taxes, if any,
payable in connection therewith. The Company shall promptly transfer the Options
being assigned on the books of the Company and shall execute and deliver a new
Option Certificate or Certificates of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of Shares purchasable
under the Option Certificate surrendered or such portion of such number as shall
be contemplated by any such assignment.
5.3 Transfer of Common Stock. The Shares underlying the Options
-------------------------
shall not be transferred unless (I) the Company has received the opinion of
counsel, satisfactory to the Company, that such shares may be transferred
pursuant to an exemption from registration under the Act and in compliance with
applicable state securities laws, or (ii) the transfer is made pursuant to an
effective registration statement under the Act in compliance with applicable
state securities laws.
4
<PAGE>
6. Price.
-----
6.1 Initial Exercise Price. The initial exercise price of each
------------------------
Option shall be $5.00 per Share. The adjusted exercise price shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
-------------------
7.1 Registration & Lock up. If at any time commencing six (6) months
----------------------
after the Options are exercised but prior to the first anniversary of such
exercise date, the Company shall propose the registration of an appropriate form
under the Securities Act of 1933, as amended, of any shares of Common Stock
(other than in connection with a merger or acquisition or an employee benefit
plan), the Company shall at least 30 days prior to the filing of such
registration statement give the Optionee written notice of such proposed
registration and, upon written notice give to the Company within 10 business
days after your receipt of such notice from the Company, shall include or cause
to be included in any such registration all or such portion of the shares of
Common Stock received pursuant to the Exercise of the Options, as the Optionee
may request, provided, however, that the Company may at any time withdraw or
cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of such Common Stock
originally proposed to be registered. None of the shares have been registered
under the Securiites Act of 1933.
5
<PAGE>
7.2 Registrable Securities. As used herein, the term "Registrable
-----------------------
Security" means the Shares and any shares of Common Stock issued upon any stock
split or stock dividend in respect of such Shares; PROVIDED, HOWEVER, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (I) it has been
effectively registered under the Act and disposed of pursuant thereto or (ii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. After exercising the options; if, at any
----------------------
time after the six month potential holding period and before one (1) year ending
October 31, 1997, the Company plans to prepare and file any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form) (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to Optionee
and its counsel. Upon the written request of a holder of Registrable Securities
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
6
<PAGE>
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense provided that
(a) the Requesting Holders shall pay any and all (I) underwriting and
broker-dealer discounts, commissions and non-accountable expenses of any
underwriter or broker-dealer in connection with the sale of the Registrable
Securities, (ii) the fees and expenses of any legal counsel selected by the
Requesting Holders to represent them in connection with the sales of the
Registrable Securities and, (iii) all transfer, income and other taxes, and (b)
the Requesting Holders shall furnish the Company with such appropriate
information in connection therewith as the Company shall reasonably request in
writing.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Notwithstanding the provisions of this Section 7.3, if, in the
written opinion of the managing underwriter or underwriters, if any, for such
offering, the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (a)
at a price reasonably related to their then current market value, or (b) without
materially and adversely affecting the entire offering, then the Company may
7
<PAGE>
exclude from such Registration Statement and offering all or any portion of the
Registrable Securities requested to be so registered. In the event that any
Registrable Securities are so excluded, then the number of securities to be sold
by all stockholders in such public offering shall be apportioned pro rata among
all such selling stockholders, including all Holders of Registrable Securities,
according to the total amount of securities of the Company requested to be
registered by said selling stockholders, including all Holder(s) of the
Registrable Securities. The registered Holders of the Options, by their
acceptance thereof, acknowledge and agree that pursuant to the Warrant
Agreement, dated as of September 12, 1994 (the "Warrant Agreement"), by and
between the Company and Whale Securities Co., L.P., the Company has granted
certain registration rights to the holders of the Warrants issued pursuant to
the Warrant Agreement and the shares of the Common Stock underlying such
Warrants. Notwithstanding any other provision contained herein, the Company
shall not be required to take any action pursuant to this Section 7.3 which
conflicts with, or violates, any provision of the Warrant Agreement.
7.4 Covenants with Respect to Registration.
--------------------------------------
(a) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 7.3 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provide,
however, that in no event shall the Company be required to register the
8
<PAGE>
Registrable Securities in any state in which such registration would cause the
Company to be obligated to qualify to do business in such state or to execute a
general consent to service or process.
(c) The Company shall indemnify any Holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
any preliminary or final prospectus constituting a part thereof or any amendment
or supplement thereto (collectively, the "Offering Documents"), or (ii) the
omission or alleged omission by the Company to state in the Offering Documents a
material fact required to be stated therein or necessary to makie the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to any one of the Holder(s) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
9
<PAGE>
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by such
Holder for use in the preparation of the Offering Documents.
(d) Any holder of Registrable Securities to be sold pursuant
to a registration statement, and its successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents, or (ii)
the omission or alleged omission to state in the Offering Documents a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; but in
each case, only if and to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon or in
conformity with written information furnished to the Company by such Holder
specifically for use in the preparation of the Offering Documents.
(e) If the indemnification provided for in this Section 7.4 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
10
<PAGE>
or payable by such indemnified party, as a result of such losses, claims,
damage, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand, and of the Holder of the
Registrable Securities who seeks contribution or from whom contribution is
sought on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand, and such Holder of the Registrable Securities on the other hand,
will be determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a fact
relates to information supplied by the Company or the Holder, and their relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, provided, however, that amount which such Holder of
Registrable Securities shall be required to contribute pursuant to this
subparagraph (e) shall not be in excess of the amount received by the Holder
from the sale of its securities.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Option prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall deliver promptly to each Holder of
Registrable Securities participating in the offering requesting the
correspondence and emoranda described in this Section 7.4(g) and to the managing
underwriter, if any, copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the Registration Statement and
11
<PAGE>
permit each holder of Registrable Securities and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(h) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall contain such representations, options and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The holders of Registrable Securities shall be parties
to any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all of the
representations, options and covenants of the Company to or for the benefit of
such underwriter shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or agreements with the Company or the
underwriter except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
12
<PAGE>
8. Adjustments of Exercise Price and Number of Securities. The
-------------------------------------------------------------
following adjustments apply to the Exercise Price of the Options with respect to
the Shares and the number of Shares purchasable upon exercise of the Options.
8.1 Reclassification, Consolidation, Merger, etc.. In case of any
-----------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale, or conveyance as if the Holders were the owners of the Shares
immediately prior to any such events, at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Options
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Options.
8.2 Determination of Outstanding Shares of Common Stock. The number
----------------------------------------------------
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
13
<PAGE>
8.3 Dividends and Other Distributions with Respect to Outstanding
--------------------------------------------------------------
Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of the Options declare a dividend or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities, whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Options shall not be
entitled, to receive such monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value.
8.4 Subscription Rights for Shares of Common Stock or Other
--------------------------------------------------------------
Securities. In the case that the Company shall at any time after the date hereof
- ----------
and prior to the exercise of the Options issue any rights to subscribe for
shares of Common Stock or any other securities of the Company to all the
shareholders of the Company, the Holders of the unexercised Options shall not be
entitled, to receive such rights.
9. Exchange and Replacement of Option Certificates.
-----------------------------------------------
Each Option Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Option Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Option Certificate, and,
14
<PAGE>
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Options, if
mutilated, the Company will make and deliver a new Option Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Options, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
11. Reservation of Securities.
-------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Options, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Options and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder.
12. Notice to Option Holders.
------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
Directors or any other matter, or as having any rights whatsoever as a
15
<PAGE>
shareholder of the Company. If, however, at any time prior to the expiration of
the Options and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option
or right to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the Shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights or options, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
16
<PAGE>
declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights or options or
any proposed dissolution, liquidation, winding up or sale.
13. Notices.
-------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Options, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
--------------------------
The Company and the Optionee may from time to time supplement or
amend this Agreement without the approval of any Holders of the Options in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Optionee may deem necessary or desirable and which the
Company and the Optionee deem not to adversely affect the interests of the
Holders of Option Certificates.
17
<PAGE>
15. Successors.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. Termination.
-----------
This Agreement shall terminate at the close of business on October
31, 1998. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Options have been exercised and all Option Securities have
been resold to the public. This agreement shall terminate in the event that the
options are not exercised on or before February 1,1997.
17. Governing Law.
-------------
This Agreement and each Option Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Optionee and any other registered
holder or holders of the Option Certificates or Option Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Optionee and any
other holder or holders of the Option Certificates or Option Securities.
18
<PAGE>
19. Counterparts.
------------
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AQUAGENIX, INC.
By: /s/ Andrew Chesler
----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
By: /s/ Perry Trebatch
----------------------------------
Perry Trebatch
19
<PAGE>
EXHIBIT A
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED, OFFERED OR SOLD EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE
EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE OPTIONS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE OPTION AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., MIAMI TIME, ___2/25/98___
No. W-1 100,000 Options
OPTION CERTIFICATE
This Option Certificate certifies that __Perry Trebatch__ or registered
assigns, is the registered holder of Options to purchase, at any time from
__November 1, 1996___, until 5:00 P.M. Miami time on ___February 25, 1997____
("Expiration Date"), up to an aggregate of __100,000___ fully-paid and
non-assessable shares of Common Stock, $.01 par value ("Common Stock"), of
Aquagenix, Inc., a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
__$5.00__ per share of Common Stock upon surrender of this Option Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein. Payment of the Exercise Price may be
made in cash, or by certified or official bank check in Miami Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Option may be exercised after 5:00 P.M., Miami time, on the Expiration
Date, at which time all Options evidenced hereby, unless exercised prior
thereto, shall thereafter be void.
The Options evidenced by this Option Certificate are part of a
duly-authorized issue of Options issued pursuant to the Option Agreement dated
__November 1, 1996___, between the Company and __Perry Trebatch___ (the "Option
Agreement), which Option Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Options.
20
<PAGE>
The Option Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Option
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Options; provided,
however, that the failure of the Company to issue such new Option Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Option Agreement.
Upon due presentment for registration of transfer of this Option
Certificate at an office or agency of the Company, a new Option Certificate or
Option Certificates of like tenor and evidencing in the aggregate a like number
of Options shall be issued to the transferee(s) in exchange for this Option
Certificate, subject to the limitations provided herein and in the Option
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Options evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new Option
Certificate representing such number of unexercised Options.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Option Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be
duly executed under its corporate seal.
Dated: November 1, 1996 AQUAGENIX, INC.
----------------
[SEAL] By: /s/ Andrew Chesler
-----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
Attest:
21
OPTION AGREEMENT
OPTION AGREEMENT, dated as of November 1, 1996, between Aquagenix, Inc., a
Delaware corporation (the "Company"), and First Taconic Capital Corp., a company
the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Optionee One Hundred
Thousand (100,000) options (the "Options") to purchase up to One Hundred
Thousand (100,000) shares (the "Shares") of Common Stock of the Company, par
value $.01 per share (the "Common Stock"); and
WHEREAS, each option entitles Optionee to buy one share of common stock;
WHEREAS, the Options issued pursuant to this Agreement are being issued by
the Company to the Optionee.
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Optionee is hereby granted the right to purchase up to
-----
100,000 shares of Aquagenix Common Stock until 5:00 P.M., Eastern time, on or
before October 31, 1997, (the"Option Exercise Term"), at an exercise price of
$5.00 per share. Funds must be delivered by wire transfer or cashiers check on
or before November 1, 1997. It is hereby agreed that the Exercise of options may
not occur after this date. Optionees' right to exercise shall not survive past
the option exercise term, as defined in this paragraph 1.
<PAGE>
2. Option Certificate. The Option certificates (the "Option
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Option. The Options are exercisable at a price of Five
------------------
Dollars ($5.00) per Share purchased, payable in cash or by check to the order of
the Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Option Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Florida (currently located at 6500 NW 15th
Avenue, Ft. Lauderdale, FL 33309) the registered holder of an Option Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Option Certificate are exercisable at the option of the Holder hereof, in
whole only.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Options, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within fourteen
(14) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
2
<PAGE>
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Option Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Option
Certificates shall be dated the date of exchange by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Options, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred, offered or sold except (I)
pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Options.
----------------------------------
3
<PAGE>
5.1 Transfers to Others by Optionee. The Options may be assigned in
-------------------------------
whole or in part to any person other than the optionee.
5.2 Transfer of Options. Except as provided in Section 5.1 hereof,
-------------------
the registered Holder of an Option Certificate, by its acceptance thereof,
agrees that the Options are being acquired as an investment and that the Options
may not be assigned, pledged, hypothecated or otherwise transferred except
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "Act"), and in compliance with applicable state securities laws. In
order to make any assignment, the Holder must deliver to the Company the
assignment form annexed to the Option Certificate duly executed and completed,
together with the Option Certificate and payment of all transfer taxes, if any,
payable in connection therewith. The Company shall promptly transfer the Options
being assigned on the books of the Company and shall execute and deliver a new
Option Certificate or Certificates of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of Shares purchasable
under the Option Certificate surrendered or such portion of such number as shall
be contemplated by any such assignment.
5.3 Transfer of Common Stock. The Shares underlying the Options
-------------------------
shall not be transferred unless (I) the Company has received the opinion of
counsel, satisfactory to the Company, that such shares may be transferred
pursuant to an exemption from registration under the Act and in compliance with
applicable state securities laws, or (ii) the transfer is made pursuant to an
effective registration statement under the Act in compliance with applicable
state securities laws.
4
<PAGE>
6. Price.
-----
6.1 Initial Exercise Price. The initial exercise price of each
------------------------
Option shall be $5.00 per Share. The adjusted exercise price shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
-------------------
7.1 Registration & Lock up. If at any time commencing six (6) months
----------------------
after the Options are exercised but prior to the first anniversary of such
exercise date, the Company shall propose the registration of an appropriate form
under the Securities Act of 1933, as amended, of any shares of Common Stock
(other than in connection with a merger or acquisition or an employee benefit
plan), the Company shall at least 30 days prior to the filing of such
registration statement give the Optionee written notice of such proposed
registration and, upon written notice give to the Company within 10 business
days after your receipt of such notice from the Company, shall include or cause
to be included in any such registration all or such portion of the shares of
Common Stock received pursuant to the Exercise of the Options, as the Optionee
may request, provided, however, that the Company may at any time withdraw or
cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of such Common Stock
originally proposed to be registered. None of the shares have been registered
under the Securiites Act of 1933.
5
<PAGE>
7.2 Registrable Securities. As used herein, the term "Registrable
-----------------------
Security" means the Shares and any shares of Common Stock issued upon any stock
split or stock dividend in respect of such Shares; PROVIDED, HOWEVER, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (I) it has been
effectively registered under the Act and disposed of pursuant thereto or (ii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. After exercising the options; if, at any
----------------------
time after the six month potential holding period and before one (1) year ending
October 31, 1997, the Company plans to prepare and file any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form) (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to Optionee
and its counsel. Upon the written request of a holder of Registrable Securities
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
6
<PAGE>
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense provided that
(a) the Requesting Holders shall pay any and all (I) underwriting and
broker-dealer discounts, commissions and non-accountable expenses of any
underwriter or broker-dealer in connection with the sale of the Registrable
Securities, (ii) the fees and expenses of any legal counsel selected by the
Requesting Holders to represent them in connection with the sales of the
Registrable Securities and, (iii) all transfer, income and other taxes, and (b)
the Requesting Holders shall furnish the Company with such appropriate
information in connection therewith as the Company shall reasonably request in
writing.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Notwithstanding the provisions of this Section 7.3, if, in the
written opinion of the managing underwriter or underwriters, if any, for such
offering, the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (a)
at a price reasonably related to their then current market value, or (b) without
materially and adversely affecting the entire offering, then the Company may
7
<PAGE>
exclude from such Registration Statement and offering all or any portion of the
Registrable Securities requested to be so registered. In the event that any
Registrable Securities are so excluded, then the number of securities to be sold
by all stockholders in such public offering shall be apportioned pro rata among
all such selling stockholders, including all Holders of Registrable Securities,
according to the total amount of securities of the Company requested to be
registered by said selling stockholders, including all Holder(s) of the
Registrable Securities. The registered Holders of the Options, by their
acceptance thereof, acknowledge and agree that pursuant to the Warrant
Agreement, dated as of September 12, 1994 (the "Warrant Agreement"), by and
between the Company and Whale Securities Co., L.P., the Company has granted
certain registration rights to the holders of the Warrants issued pursuant to
the Warrant Agreement and the shares of the Common Stock underlying such
Warrants. Notwithstanding any other provision contained herein, the Company
shall not be required to take any action pursuant to this Section 7.3 which
conflicts with, or violates, any provision of the Warrant Agreement.
7.4 Covenants with Respect to Registration.
--------------------------------------
(a) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 7.3 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provide,
however, that in no event shall the Company be required to register the
8
<PAGE>
Registrable Securities in any state in which such registration would cause the
Company to be obligated to qualify to do business in such state or to execute a
general consent to service or process.
(c) The Company shall indemnify any Holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
any preliminary or final prospectus constituting a part thereof or any amendment
or supplement thereto (collectively, the "Offering Documents"), or (ii) the
omission or alleged omission by the Company to state in the Offering Documents a
material fact required to be stated therein or necessary to makie the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to any one of the Holder(s) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
9
<PAGE>
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by such
Holder for use in the preparation of the Offering Documents.
(d) Any holder of Registrable Securities to be sold pursuant
to a registration statement, and its successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents, or (ii)
the omission or alleged omission to state in the Offering Documents a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; but in
each case, only if and to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon or in
conformity with written information furnished to the Company by such Holder
specifically for use in the preparation of the Offering Documents.
(e) If the indemnification provided for in this Section 7.4 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
10
<PAGE>
or payable by such indemnified party, as a result of such losses, claims,
damage, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand, and of the Holder of the
Registrable Securities who seeks contribution or from whom contribution is
sought on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand, and such Holder of the Registrable Securities on the other hand,
will be determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a fact
relates to information supplied by the Company or the Holder, and their relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, provided, however, that amount which such Holder of
Registrable Securities shall be required to contribute pursuant to this
subparagraph (e) shall not be in excess of the amount received by the Holder
from the sale of its securities.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Option prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall deliver promptly to each Holder of
Registrable Securities participating in the offering requesting the
correspondence and emoranda described in this Section 7.4(g) and to the managing
underwriter, if any, copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the Registration Statement and
11
<PAGE>
permit each holder of Registrable Securities and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(h) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall contain such representations, options and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The holders of Registrable Securities shall be parties
to any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all of the
representations, options and covenants of the Company to or for the benefit of
such underwriter shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or agreements with the Company or the
underwriter except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
12
<PAGE>
8. Adjustments of Exercise Price and Number of Securities. The
-------------------------------------------------------------
following adjustments apply to the Exercise Price of the Options with respect to
the Shares and the number of Shares purchasable upon exercise of the Options.
8.1 Reclassification, Consolidation, Merger, etc.. In case of any
-----------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale, or conveyance as if the Holders were the owners of the Shares
immediately prior to any such events, at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Options
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Options.
8.2 Determination of Outstanding Shares of Common Stock. The number
----------------------------------------------------
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
13
<PAGE>
8.3 Dividends and Other Distributions with Respect to Outstanding
--------------------------------------------------------------
Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of the Options declare a dividend or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities, whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Options shall not be
entitled, to receive such monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value.
8.4 Subscription Rights for Shares of Common Stock or Other
--------------------------------------------------------------
Securities. In the case that the Company shall at any time after the date hereof
- ----------
and prior to the exercise of the Options issue any rights to subscribe for
shares of Common Stock or any other securities of the Company to all the
shareholders of the Company, the Holders of the unexercised Options shall not be
entitled, to receive such rights.
9. Exchange and Replacement of Option Certificates.
-----------------------------------------------
Each Option Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Option Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Option Certificate, and,
14
<PAGE>
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Options, if
mutilated, the Company will make and deliver a new Option Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Options, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
11. Reservation of Securities.
-------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Options, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Options and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder.
12. Notice to Option Holders.
------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
Directors or any other matter, or as having any rights whatsoever as a
15
<PAGE>
shareholder of the Company. If, however, at any time prior to the expiration of
the Options and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option
or right to subscribe therefor; or a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as an entirety
shall be proposed; then, in any one or more of said events, the Company shall
give written notice to the Holder or Holders of such event at least fifteen (15)
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the Shareholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights or options, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend or
distribution, or the issuance of any convertible or exchangeable securities or
subscription rights or options or any proposed dissolution, liquidation, winding
up or sale.
16
<PAGE>
13. Notices.
-------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Options, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
--------------------------
The Company and the Optionee may from time to time supplement or
amend this Agreement without the approval of any Holders of the Options in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Optionee may dnecessary or desirable and which the Company
and the Optionee deem not to adversely affect the interests of the Holders of
Option Certificates. Holders of Option Certificates.
17
<PAGE>
15. Successors.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. Termination.
-----------
This Agreement shall terminate at the close of business on October
31, 1998. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Options have been exercised and all Option Securities have
been resold to the public. This agreement shall terminate in the event that the
options are not exercised on or before February 1,1997.
17. Governing Law.
-------------
This Agreement and each Option Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Optionee and any other registered
holder or holders of the Option Certificates or Option Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Optionee and any
other holder or holders of the Option Certificates or Option Securities.
18
<PAGE>
19. Counterparts.
------------
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AQUAGENIX, INC.
By: /s/ Andrew Chesler
----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
By: /s/ Michael A. Elinsky
----------------------------------
First Taconic Capital
19
<PAGE>
EXHIBIT A
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED, OFFERED OR SOLD EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE
EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE OPTIONS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE OPTION AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., MIAMI TIME, OCTOBER 31, 1997
No. W-1 100,000 Options
OPTION CERTIFICATE
This Option Certificate certifies that First Taconic Capital Corp. or
registered assigns, is the registered holder of Options to purchase, at any time
until 5:00 P.M. Miami time on October 31, 1997 ("Expiration Date"), up to an
aggregate of 100,000 fully-paid and non-assessable shares of Common Stock, $.01
par value ("Common Stock"), of Aquagenix, Inc., a Delaware corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $5.00 per share of Common Stock upon surrender
of this Option Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein. Payment
of the Exercise Price may be made in cash, or by certified or official bank
check in Miami Clearing House funds payable to the order of the Company, or any
combination of cash or check.
No Option may be exercised after 5:00 P.M., Miami time, on the Expiration
Date, at which time all Options evidenced hereby, unless exercised prior
thereto, shall thereafter be void.
The Options evidenced by this Option Certificate are part of a
duly-authorized issue of Options issued pursuant to the Option Agreement dated
November 1, 1996, between the Company and First Taconic Capital (the "Option
Agreement), which Option Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Options.
20
<PAGE>
The Option Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Option
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Options; provided,
however, that the failure of the Company to issue such new Option Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Option Agreement.
Upon due presentment for registration of transfer of this Option
Certificate at an office or agency of the Company, a new Option Certificate or
Option Certificates of like tenor and evidencing in the aggregate a like number
of Options shall be issued to the transferee(s) in exchange for this Option
Certificate, subject to the limitations provided herein and in the Option
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Options evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new Option
Certificate representing such number of unexercised Options.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Option Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be
duly executed under its corporate seal.
Dated: November 1, 1996 AQUAGENIX, INC.
----------------
[SEAL] By: /s/ Andrew Chesler
-----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
21
OPTION AGREEMENT
OPTION AGREEMENT, dated as of November 1, 1996, between Aquagenix, Inc., a
Delaware corporation (the "Company"), and Pat Guadagno, a person, (hereinafter
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referred to as the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Optionee Two Hundred
Thousand (200,000) options (the "Options") to purchase up to Two Hundred
Thousand (200,000) shares (the "Shares") of Common Stock of the Company, par
value $.01 per share (the "Common Stock"); and
WHEREAS, each option entitles Optionee to buy one share of common stock;
WHEREAS, the Options issued pursuant to this Agreement are being issued by
the Company to the Optionee.
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Optionee is hereby granted the right to purchase up to
----
50,000 shares of Aquagenix Common Stock until 5:00 P.M., Eastern time, on or
before February 25, 1997, (the"Option Exercise Term"), at an exercise price of
$5.00 per share. Funds must be delivered by wire transfer or cashiers check on
or before February 25, 1997. It is hereby agreed that the Exercise of options
may not occur after this date. Optionees' right to exercise shall not survive
past the option exercise term, as defined in this paragraph 1.
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2. Option Certificate. The Option certificates (the "Option
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Option. The Options are exercisable at a price of Five
------------------
Dollars ($5.00) per Share purchased, payable in cash or by check to the order of
the Company, or any combination of cash or check, subject to adjustment as
provided in Article 8 hereof. Upon surrender of the Option Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Florida (currently located at 6500 NW 15th
Avenue, Ft. Lauderdale, FL 33309) the registered holder of an Option Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Option Certificate are exercisable at the option of the Holder hereof, in
whole only.
4. Issuance of Certificates.
------------------------
Upon the exercise of the Options, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within fourteen
(14) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
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Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Option Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Option
Certificates shall be dated the date of exchange by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Options, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred, offered or sold except (I)
pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Options.
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5.1 Transfers to Others by Optionee. The Options may be assigned in
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whole or in part to any person other than the optionee.
5.2 Transfer of Options. Except as provided in Section 5.1 hereof,
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the registered Holder of an Option Certificate, by its acceptance thereof,
agrees that the Options are being acquired as an investment and that the Options
may not be assigned, pledged, hypothecated or otherwise transferred except
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "Act"), and in compliance with applicable state securities laws. In
order to make any assignment, the Holder must deliver to the Company the
assignment form annexed to the Option Certificate duly executed and completed,
together with the Option Certificate and payment of all transfer taxes, if any,
payable in connection therewith. The Company shall promptly transfer the Options
being assigned on the books of the Company and shall execute and deliver a new
Option Certificate or Certificates of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of Shares purchasable
under the Option Certificate surrendered or such portion of such number as shall
be contemplated by any such assignment.
5.3 Transfer of Common Stock. The Shares underlying the Options
-------------------------
shall not be transferred unless (I) the Company has received the opinion of
counsel, satisfactory to the Company, that such shares may be transferred
pursuant to an exemption from registration under the Act and in compliance with
applicable state securities laws, or (ii) the transfer is made pursuant to an
effective registration statement under the Act in compliance with applicable
state securities laws.
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6. Price.
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6.1 Initial Exercise Price. The initial exercise price of each
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Option shall be $5.00 per Share. The adjusted exercise price shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
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initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
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7.1 Registration & Lock up. If at any time commencing six (6) months
----------------------
after the Options are exercised but prior to the first anniversary of such
exercise date, the Company shall propose the registration of an appropriate form
under the Securities Act of 1933, as amended, of any shares of Common Stock
(other than in connection with a merger or acquisition or an employee benefit
plan), the Company shall at least 30 days prior to the filing of such
registration statement give the Optionee written notice of such proposed
registration and, upon written notice give to the Company within 10 business
days after your receipt of such notice from the Company, shall include or cause
to be included in any such registration all or such portion of the shares of
Common Stock received pursuant to the Exercise of the Options, as the Optionee
may request, provided, however, that the Company may at any time withdraw or
cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of such Common Stock
originally proposed to be registered. None of the shares have been registered
under the Securiites Act of 1933.
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7.2 Registrable Securities. As used herein, the term "Registrable
-----------------------
Security" means the Shares and any shares of Common Stock issued upon any stock
split or stock dividend in respect of such Shares; PROVIDED, HOWEVER, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (I) it has been
effectively registered under the Act and disposed of pursuant thereto or (ii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. After exercising the options; if, at any
----------------------
time after the six month potential holding period and before one (1) year ending
October 31, 1997, the Company plans to prepare and file any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form) (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to Optionee
and its counsel. Upon the written request of a holder of Registrable Securities
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
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Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense provided that
(a) the Requesting Holders shall pay any and all (I) underwriting and
broker-dealer discounts, commissions and non-accountable expenses of any
underwriter or broker-dealer in connection with the sale of the Registrable
Securities, (ii) the fees and expenses of any legal counsel selected by the
Requesting Holders to represent them in connection with the sales of the
Registrable Securities and, (iii) all transfer, income and other taxes, and (b)
the Requesting Holders shall furnish the Company with such appropriate
information in connection therewith as the Company shall reasonably request in
writing.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Notwithstanding the provisions of this Section 7.3, if, in the
written opinion of the managing underwriter or underwriters, if any, for such
offering, the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (a)
at a price reasonably related to their then current market value, or (b) without
materially and adversely affecting the entire offering, then the Company may
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exclude from such Registration Statement and offering all or any portion of the
Registrable Securities requested to be so registered. In the event that any
Registrable Securities are so excluded, then the number of securities to be sold
by all stockholders in such public offering shall be apportioned pro rata among
all such selling stockholders, including all Holders of Registrable Securities,
according to the total amount of securities of the Company requested to be
registered by said selling stockholders, including all Holder(s) of the
Registrable Securities. The registered Holders of the Options, by their
acceptance thereof, acknowledge and agree that pursuant to the Warrant
Agreement, dated as of September 12, 1994 (the "Warrant Agreement"), by and
between the Company and Whale Securities Co., L.P., the Company has granted
certain registration rights to the holders of the Warrants issued pursuant to
the Warrant Agreement and the shares of the Common Stock underlying such
Warrants. Notwithstanding any other provision contained herein, the Company
shall not be required to take any action pursuant to this Section 7.3 which
conflicts with, or violates, any provision of the Warrant Agreement.
7.4 Covenants with Respect to Registration.
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(a) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 7.3 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement, for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provide,
however, that in no event shall the Company be required to register the
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Registrable Securities in any state in which such registration would cause the
Company to be obligated to qualify to do business in such state or to execute a
general consent to service or process.
(c) The Company shall indemnify any Holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
any preliminary or final prospectus constituting a part thereof or any amendment
or supplement thereto (collectively, the "Offering Documents"), or (ii) the
omission or alleged omission by the Company to state in the Offering Documents a
material fact required to be stated therein or necessary to makie the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to any one of the Holder(s) to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
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or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by such
Holder for use in the preparation of the Offering Documents.
(d) Any holder of Registrable Securities to be sold pursuant
to a registration statement, and its successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon (I) any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents, or (ii)
the omission or alleged omission to state in the Offering Documents a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; but in
each case, only if and to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon or in
conformity with written information furnished to the Company by such Holder
specifically for use in the preparation of the Offering Documents.
(e) If the indemnification provided for in this Section 7.4 is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
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or payable by such indemnified party, as a result of such losses, claims,
damage, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand, and of the Holder of the
Registrable Securities who seeks contribution or from whom contribution is
sought on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand, and such Holder of the Registrable Securities on the other hand,
will be determined with reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a fact
relates to information supplied by the Company or the Holder, and their relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, provided, however, that amount which such Holder of
Registrable Securities shall be required to contribute pursuant to this
subparagraph (e) shall not be in excess of the amount received by the Holder
from the sale of its securities.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Option prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall deliver promptly to each Holder of
Registrable Securities participating in the offering requesting the
correspondence and emoranda described in this Section 7.4(g) and to the managing
underwriter, if any, copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the Registration Statement and
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permit each holder of Registrable Securities and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(h) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall contain such representations, options and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The holders of Registrable Securities shall be parties
to any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all of the
representations, options and covenants of the Company to or for the benefit of
such underwriter shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or agreements with the Company or the
underwriter except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
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8. Adjustments of Exercise Price and Number of Securities. The
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following adjustments apply to the Exercise Price of the Options with respect to
the Shares and the number of Shares purchasable upon exercise of the Options.
8.1 Reclassification, Consolidation, Merger, etc.. In case of any
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reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale, or conveyance as if the Holders were the owners of the Shares
immediately prior to any such events, at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Options
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Options.
8.2 Determination of Outstanding Shares of Common Stock. The number
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of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
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8.3 Dividends and Other Distributions with Respect to Outstanding
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Securities. In the event that the Company shall at any time prior to the
- ----------
exercise of the Options declare a dividend or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities, whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Options shall not be
entitled, to receive such monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value.
8.4 Subscription Rights for Shares of Common Stock or Other
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Securities. In the case that the Company shall at any time after the date hereof
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and prior to the exercise of the Options issue any rights to subscribe for
shares of Common Stock or any other securities of the Company to all the
shareholders of the Company, the Holders of the unexercised Options shall not be
entitled, to receive such rights.
9. Exchange and Replacement of Option Certificates.
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Each Option Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Option Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Option Certificate, and,
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in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Options, if
mutilated, the Company will make and deliver a new Option Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Options, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
11. Reservation of Securities.
-------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Options, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Options and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder.
12. Notice to Option Holders.
------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
Directors or any other matter, or as having any rights whatsoever as a
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shareholder of the Company. If, however, at any time prior to the expiration of
the Options and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option
or right to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the Shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights or options, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
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declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights or options or
any proposed dissolution, liquidation, winding up or sale.
13. Notices.
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All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Options, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
--------------------------
The Company and the Optionee may from time to time supplement or
amend this Agreement without the approval of any Holders of the Options in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Optionee may deem necessary or desirable and which the
Company and the Optionee deem not to adversely affect the interests of the
Holders of Option Certificates.
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15. Successors.
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All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. Termination.
-----------
This Agreement shall terminate at the close of business on October
31, 1998. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Options have been exercised and all Option Securities have
been resold to the public. This agreement shall terminate in the event that the
options are not exercised on or before February 1,1997.
17. Governing Law.
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This Agreement and each Option Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person
or corporation other than the Company and the Optionee and any other registered
holder or holders of the Option Certificates or Option Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Optionee and any
other holder or holders of the Option Certificates or Option Securities.
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19. Counterparts.
------------
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AQUAGENIX, INC.
By: /s/ Andrew Chesler
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Name: Andrew Chesler
Title: Chairman of the Board
By: /s/ Pat Guadagno
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Pat Guadagno
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EXHIBIT A
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED, OFFERED OR SOLD EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE
EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE OPTIONS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE OPTION AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., MIAMI TIME, ___2/25/98___
No. W-1 200,000 Options
OPTION CERTIFICATE
This Option Certificate certifies that __Pat Guadagno___ or registered
assigns, is the registered holder of Options to purchase, at any time from
_November 1, 1996__, until 5:00 P.M. Miami time on ___February 25, 1997____
("Expiration Date"), up to an aggregate of ___200,000___ fully-paid and
non-assessable shares of Common Stock, $.01 par value ("Common Stock"), of
Aquagenix, Inc., a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of
__$5.00__ per share of Common Stock upon surrender of this Option Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein. Payment of the Exercise Price may be
made in cash, or by certified or official bank check in Miami Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Option may be exercised after 5:00 P.M., Miami time, on the Expiration
Date, at which time all Options evidenced hereby, unless exercised prior
thereto, shall thereafter be void.
The Options evidenced by this Option Certificate are part of a
duly-authorized issue of Options issued pursuant to the Option Agreement dated
__November 1, 1996___, between the Company and ___Pat Guadagno___ (the "Option
Agreement), which Option Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Options.
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The Option Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Option
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Options; provided,
however, that the failure of the Company to issue such new Option Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Option Agreement.
Upon due presentment for registration of transfer of this Option
Certificate at an office or agency of the Company, a new Option Certificate or
Option Certificates of like tenor and evidencing in the aggregate a like number
of Options shall be issued to the transferee(s) in exchange for this Option
Certificate, subject to the limitations provided herein and in the Option
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Options evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new Option
Certificate representing such number of unexercised Options.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Option Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meaning assigned to them in the Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be
duly executed under its corporate seal.
Dated: November 1, 1996 AQUAGENIX, INC.
----------------
[SEAL] By: /s/ Andrew Chesler
-----------------------------------
Name: Andrew Chesler
Title: Chairman of the Board
Attest:
21
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AQUAGENIX, INC
------------------------------
WARRANT AGREEMENT
------------------------------
DATED AS OF OCTOBER 15, 1996
100,000 WARRANTS TO PURCHASE COMMON STOCK
================================================================================
<PAGE>
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
Page
----
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.............. 1
1.1 Form of Warrant Certificates................................ 1
1.2 Execution of Warrant Certificates; Registration Books....... 1
1.3 Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Lost or Stolen Warrant Certificates........... 2
1.4 Subsequent Issuance of Warrant Certificates................. 3
1.5 Special Agreements of Warrant Certificate Holders........... 3
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE................... 3
2.1 Exercise of Warrants........................................ 3
2.2 Issuance of Common Stock.................................... 4
2.3 Unexercised Warrants........................................ 4
2.4 Cancellation and Destruction of Warrant Certificates........ 4
2.5 Shares not Registered....................................... 4
3. SPECIAL AGREEMENTS OF THE COMPANY................................. 5
3.1 Reservation of Common Stock................................. 5
3.2 Common Stock To Be Duly Authorized and Issued, Fully Paid and
Nonassessable............................................... 5
3.3 Transfer Taxes.............................................. 5
3.4 Common Stock Record Date.................................... 6
3.5 Rights in Respect of Common Stock........................... 6
3.6 Right to Receive Consideration Upon Dividend or Distribution. 6
3.7 Private Placement Number; CUSIP Number...................... 8
3.8 Right of Action............................................. 8
3.9 Survival.................................................... 8
4. ADJUSTMENTS....................................................... 9
4.1 Mechanical Adjustments...................................... 9
4.2 Fractional Shares........................................... 13
4.3 Additional Agreements of the Company........................ 13
5. FINANCIAL AND OTHER INFORMATION................................... 13
6. REGISTRATION RIGHTS............................................... 13
6.1 Incidental Registration..................................... 13
6.3 Preparation; Reasonable Investigation....................... 18
6.4 Registration Expenses....................................... 18
6.5 Rights of Requesting Holders................................ 19
6.6 Indemnification; Contribution............................... 19
6.7 Holdback Agreements; Registration Rights to Others.......... 21
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6.9 Availability of Information................................. 22
7. INTERPRETATION OF THIS AGREEMENT.................................. 22
7.2 Descriptive Headings........................................ 28
7.3 Governing Law............................................... 28
8. MISCELLANEOUS..................................................... 28
8.1 Expenses.................................................... 28
8.2 Amendment and Waiver........................................ 29
8.3 No Rights or Liabilities as Stockholder..................... 30
8.4 Directly or Indirectly...................................... 30
8.5 Survival of Representations and Warranties; Entire Agreement.30
8.6 Successors and Assigns...................................... 30
8.7 Notices..................................................... 30
8.8 Severability................................................ 31
8.9 Counterparts................................................ 31
8.10 Jurisdiction; Jury Trial.................................... 31
8.11. Expiration.................................................. 32
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WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of October 15, 1996, between
AQUAGENIX, INC. (together with its successors and assigns, the "Company"), a
Delaware corporation, DABNEY/RESNICK INCORPORATED, a California corporation
("DRI") and AQUAGENIX WARRANT HOLDINGS II, a general partnership (hereinafter
referred to as the "Warrant Holder").
RECITALS:
WHEREAS, DRI has provided financial consulting services to the Company
pursuant to a letter agreement dated October 1, 1996 between DRI and the Company
and the Warrants ("Warrants") issued pursuant to this Warrant Agreement are
being issued by the Company as consideration for such services; and
WHEREAS, DRI has assigned its right, title and interest in and to the
Warrants to the Warrant Holder; and
WHEREAS, the Company proposes to issue, effective October 15, 1996, to the
Warrant Holder, assignee of DRI, a warrant (the "Warrant" or "Warrants") to
purchase One Hundred Thousand (100,000) shares ("the Shares") of Common Stock of
the Company, par value $.01 per share (the "Common Stock").
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties to this Agreement hereby agree as follows:
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.
1.1 FORM OF WARRANT CERTIFICATES.
The warrant certificates ("Warrant Certificates") evidencing the Warrants
and the forms of assignment and of election to purchase shares are substantially
in the form of Attachment A to this Agreement.
1.2 EXECUTION OF WARRANT CERTIFICATES; REGISTRATION BOOKS.
(A) EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by an officer of the Company
authorized by the Board of Directors. In case the officer of the Company who
shall have signed any Warrant Certificate shall cease to be such an officer of
the Company before issuance and delivery by the Company of such Warrant
Certificate, such Warrant Certificate nevertheless may be issued and delivered
with the same force and effect s though the individual who signed such Warrant
Certificate had not ceased to be such an officer of the Company, and any Warrant
Certificate may be signed on behalf of the Company by any individual who, at the
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actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Agreement any such individual was not such an officer.
(B) REGISTRATION BOOKS. The Company will keep or cause to be kept at
its office maintained at the address of the Company set forth in Section 8.7, or
at such other office of the Company int he United States of America of which the
Company shall have given notice to each holder of Warrant Certificates, books
for registration and transfer of the Warrant Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
Warrant Certificates, the registration number and the number of Warrants
evidenced on its face by each of the Warrant Certificates and the date of each
of the Warrant Certificates.
1.3 TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT CERTIFICATES;
LOST OR STOLEN WARRANT CERTIFICATES.
(A) TRANSFER, SPLIT UP, ETC. Any Warrant Certificate, with or
without other Warrant Certificates, may be transferred, split up, combined or
exchanged for another Warrant Certificate or Warrant Certificates, entitling the
registered holder or transferee thereof to purchase a like number of shares of
Common Stock as the Warrant Certificate or Warrant Certificates surrendered then
entitled such registered holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender the Warrant
Certificate or Warrant Certificates to be transferred, split up, combined or
exchanged at the office of the Company referred to in Section 1.2(b), whereupon
the Company shall deliver promptly to the Person entitled thereto a Warrant
Certificate or Warrant Certificates, as the case may be, as so requested.
(B) LOSS, THEFT, ETC. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate (which evidence shall be,
in the case of an institutional investor, notice from such institutional
investor of such ownership (or of ownership by such institutional investor's
nominee) and such loss, theft, destruction or mutilation), and:
(i) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company; provided, however, that if
the holder of such Warrant Certificate is an institutional investor
or a nominee of an institutional investor, such holder's own
unsecured agreement of indemnity shall be deemed to be satisfactory;
or
(ii) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a new
Warrant Certificate, dated the date of such lost, stolen, destroyed or mutilated
Warrant Certificate and of like tenor.
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1.4 SUBSEQUENT ISSUANCE OF WARRANT CERTIFICATES.
Subsequent to the original issuance, no Warrant Certificates shall be
issued, except:
(A) Warrant Certificates issued upon any transfer, combination,
split up or exchange of Warrants pursuant to Section 1.3(a);
(B) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 1.3(b); and
(C) Warrant Certificates issued pursuant to Section 2.3 upon the
partial exercise of any Warrant Certificate to evidence the unexercised portion
of such Warrant Certificate.
1.5 SPECIAL AGREEMENTS OF WARRANT CERTIFICATE HOLDERS.
Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company and with every other holder of a Warrant Certificate
that:
(A) the Warrant Certificates are transferable only on the registry
books of the Company if surrendered at the office of the Company referred to in
Section 1.3(b), duly endorsed or accompanied by an instrument of transfer (in
the form attached hereto); and
(B) the Company may deem and treat the Person in whose name each
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company) for
all purposes whatsoever, and the Company shall not be affected by any notice to
the contrary.
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE.
2.1 EXERCISE OF WARRANTS.
At any time and from time to time on or prior to the Expiration Date, the
holder of any Warrant Certificate may exercise the Warrants evidenced thereby,
in whole or in part, by surrender of such Warrant Certificate, with an election
to purchase (a form of which is attached to each Warrant Certificate) attached
thereto duly executed, to the Company at its principal office, together with
payment of the Purchase Price for each share of Common Stock with respect to
which the Warrants are then being exercised. Such Purchase Price shall be
payable:
(A) in cash or by certified or official bank check payable to the
order of the Company or by wire transfer of immediately available funds to the
account of the Company; or
(B) at any time before the Expiration Date, the holder may, at its
option, exchange the Warrant, in whole or in part ("Warrant Exchange"), into the
number of shares of Common Stock determined in accordance with this Section
2.1(b), by surrendering the Warrant at the principal office of the Company,
accompanied by a notice stating such holder's intent to effect such exchange,
the number of shares of Common Stock to be exchanged and the date on which the
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<PAGE>
holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the shares of Common Stock
issuable upon such Warrant Exchange and, if applicable, a new warrant of like
tenor evidencing the balance of the shares of Common Stock remaining subject to
this Warrant shall be issued as of the Exchange Date and delivered to the holder
within three (3) days following the Exchange Date. In connection with any
Warrant Exchange, the Warrant shall represent the right to subscribe for and
acquire without any cash outlay the number of shares of Common Stock (rounded to
the next highest integer) equal to (A) the number of shares of Common Stock
specified by the holder in its Notice of Exchange (the "Total Share Number")
less (B) the number of shares of Common Stock equal to the quotient obtained by
dividing (i) the product of the Total Share Number and the existing Exercise
Price by (ii) the Market Price of a share of Common Stock.
2.2 ISSUANCE OF COMMON STOCK.
Upon timely receipt of a Warrant Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for each of
the shares to be purchased in the manner provided in Section 2.1 and an amount
equal to any applicable transfer tax (if not payable by the Company as provided
in Section 3.3), the Company shall thereupon promptly cause certificates
representing the number of whole shares of Common Stock then being purchased to
be delivered to or upon the order of the registered holder of such Warrant
Certificate, registered in such name or names as may be designated by such
holder, and, promptly after such receipt deliver the cash, if any, to be paid in
lieu of fractional shares pursuant to Section 4 to or upon the order of the
registered holder of such Warrant Certificate.
2.3 UNEXERCISED WARRANTS.
In case the registered holder of any Warrant Certificate shall exercise
less than all the Warrants evidenced thereby, a new Warrant Certificate
evidencing Warrants equal in number to the number of Warrants remaining
unexercised shall be issued by the Company to the registered holder of such
Warrant Certificate or to its duly authorized assigns.
2.4 CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES.
All Warrant Certificates surrendered to the Company for the purpose of
exercise, exchange, substitution or transfer shall be cancelled by it, and no
Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall cancel
and retire any other Warrant Certificates purchased or acquired by the Company
otherwise than upon the exercise thereof.
2.5 SHARES NOT REGISTERED.
The Purchaser acknowledges that the shares of Common Stock issuable upon
exercise of the Warrants have not been registered under the Securities Act and
may not be transferred, sold or otherwise disposed of unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
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<PAGE>
3. SPECIAL AGREEMENTS OF THE COMPANY.
3.1 RESERVATION OF COMMON STOCK.
The Company covenants and agrees that it will at all times cause to be
reserved and kept available out of its authorized and unissued shares of Common
Stock such number of shares of Common Stock as will be sufficient to permit the
exercise in full of all Warrants issued hereunder and all other rights, warrants
or options exercisable into, and the conversion of all Securities convertible
into, Common Stock.
3.2 COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND
NONASSESSABLE.
The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all shares of Common Stock delivered upon the
exercise of any Warrants, at the time of delivery of the certificates
representing such shares, shall be duly and validly authorized and issued and
fully paid and nonassessable, free of any preemptive rights and free of any Lien
created by, or arising out of actions of, the Company, any Subsidiary or any
Affiliate.
3.3 TRANSFER TAXES.
The Company covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges that may be payable in
respect of the initial issuance or delivery of:
(A) each Warrant Certificate;
(B) each Warrant Certificate issued in exchange for any other
Warrant Certificate pursuant to Section 1.4(a) or Section 2.3; and
(C) each share of Common Stock issued upon the exercise of any
Warrant.
The Company shall not, however, be required to-
(i) pay any transfer tax that may be payable in respect of the
transfer or delivery of Warrant Certificates or the issuance or
delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of the Warrant Certificate
evidencing any Warrant surrendered for exercise (any such tax being
payable by the holder of such Warrant Certificate at the time of
surrender); or
(ii) issue or deliver any such certificates referred to in the
foregoing clause (i) for shares of Common Stock upon the exercise of
any Warrant until any such tax referred to in the foregoing clause
(i) shall have been paid.
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7
3.4 COMMON STOCK RECORD DATE.
Except in the event the Warrants are exercised pursuant to Section 2.1(b),
each Person in whose name any certificate for shares of Common Stock is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Purchase Price (and
any applicable transfer taxes, if payable by such Person) was made. In the event
the Warrants are exercised pursuant to Section 2.1(b), the holder thereof shall
for all purposes be deemed to have become the holder of record of the Common
Stock represented thereby on the date the Warrants were issued.
3.5 RIGHTS IN RESPECT OF COMMON STOCK.
Prior to the exercise of the Warrants evidenced thereby, the holder of a
Warrant Certificate shall not be entitled to any rights of a stockholder in the
Company with respect to shares for which the Warrants shall be exercisable,
including, without limitation, the right to vote in respect of any matter upon
which the holders of Common Stock may vote or the right to receive dividends or
other distributions (but the holders of the Warrants shall have the rights set
forth in Section 3.6 in respect of the declaration or payment of any dividend or
distribution), and shall not be entitled to receive any notice of any
proceedings of the Company.
3.6 RIGHT TO RECEIVE CONSIDERATION UPON DIVIDEND OR DISTRIBUTION.
(A) RIGHT TO PAYMENT IN RESPECT OF CASH DIVIDENDS. In the event that
the Company shall pay any dividend in cash in respect of its Common Stock, the
Company shall, on the same date such dividend is paid, pay to each Person who
was a registered holder of Warrants on the record date for the payment of such
dividend on the Common Stock, an amount equal to the product of:
(i) the aggregate number of shares of Common Stock into which
all Warrants then held by such holder are exercisable on the date of
payment; times
(ii) the amount per share of Common Stock of such dividend.
(B) RIGHTS IN RESPECT OF OTHER DISTRIBUTIONS. In the event that the
Company shall distribute to holders of shares of Common Stock (including,
without limitation, any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation), any
Property (other than cash, shares of Common Stock or Rights) including, without
limitation, shares of stock other than Common Stock or evidences of
indebtedness, then, in each case, the Company shall, on the same date such
distribution is made, deliver to each Person who was a registered holder of
Warrants on the record date for the payment of such distribution on the Common
Stock, at the election of such holder, either:
(i) that amount of such Property which a holder of such number
of shares of Common Stock as the holder of a Warrant would have had
the right to acquire upon the exercise of such Warrant immediately
prior to such consolidation, merger, sale or conveyance; or
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(ii) the value, in cash, of the Property which such holder
would be entitled to receive pursuant to the foregoing clause (i),
as established by the Valuation Agent.
(C) NOTICE OF DECLARATION OF DIVIDEND OR DISTRIBUTION. In the event
that the Company shall declare any dividend or make any distribution of any
Property upon its Common Stock, the Company shall give written notice of such
declaration to each holder of Warrants within five (5) days after the
declaration of such dividend (but in no event later than thirty (30) days prior
to the making of such distribution), which notice shall state:
(i) that the Company has declared a dividend or distribution
in respect of its Common Stock;
(ii) the amount of cash or other consideration per share of
such dividend or distribution and, in the case of a distribution
other than in cash, a description of the Property to be so
distributed if the holder were to elect the option set forth in
Section 3.6(b)(i) and the amount of cash to be paid to such holder
should the holder elect the option set forth in Section 3.6(b)(ii);
(iii) the record date for the determination of the registered
holders of Common Stock for the purpose of payment of such dividend
or distribution;
(iv) a description of the right described in Section 3.6(a)
or Section 3.6(b), as the case may be;
(v) the number of shares of Common Stock into which each
Warrant is then exercisable; and
(vi) in the case of a distribution pursuant to Section 3.6(b):
(A) a statement describing the election of the holder
to be made pursuant thereto;
(B) a statement describing the manner in which the
holder may make the election provided for in
Section 3.6(b);
(C) a statement that if a holder fails to make an
election pursuant to Section 3.6(b), the holder
shall be deemed to have made the election set
forth in Section 3.6(b)(ii); and
(D) a copy of a report of the Valuation Agent relating
to the value of the Property to be so distributed,
reflecting the calculations of the respective
amounts set forth in Section 3.6(c)(ii).
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In the event of a distribution pursuant to Section 3.6(b), any holder may make
the election set forth therein by notifying the Company in writing of whether it
is making the election pursuant to Section 3.6(b)(i) or the election pursuant to
Section 3.6(b)(ii) not later than five (5) days prior to the date fixed for
making such distribution. In the event that any holder fails to make an election
pursuant to Section 3.6(b), the holder shall be deemed to have made the election
set forth in Section 3.6(b)(ii).
(D) DIVIDENDS PAID PARTLY IN CASH. For purposes of this Section 3.6,
any dividend declared or paid partly in cash and partly in Common Stock, other
Securities or other Property shall be deemed to be:
(i) a dividend of cash subject to the provisions of Section
3.6(a) in the amount payable in cash;
(ii) a dividend of Property subject to the provisions of
Section 3.6(b) to the extent payable in Property;
(iii) a dividend of Common Stock subject to the provisions of
Section 4.1(a) to the extent payable in Common Stock; and
(iv) an issuance, for no consideration, of Rights subject to
the provisions of Section 4.1(c) to the extent payable in Rights.
3.7 PRIVATE PLACEMENT NUMBER; CUSIP NUMBER.
The Company covenants and agrees to maintain a private placement number in
respect of the Warrants and a CUSIP number (so long as the Common Stock is then
listed on a national securities exchange or admitted to trading on any national
securities market (including, without limitation, the NASDAQ National Market
System)) or a private placement number (in the event that the Common Stock is
not then so listed) in respect of the Common Stock, in each case, from the CUSIP
Service Bureau of Standard & Poor's, a division of McGraw-Hill, Inc.
3.8 RIGHT OF ACTION.
All rights of action in respect of the Warrants are vested in the
respective registered holders of the Warrant Certificates, and any registered
holder of any Warrant Certificate, without the consent of the holder of any
other Warrant Certificate, may, in its own behalf and for its own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, its right to exercise
the Warrants evidenced by such Warrant Certificate in the manner provided in
such Warrant Certificate and in this Agreement.
3.9 SURVIVAL.
The agreements of the Company contained in this Section 3 (other than
those set forth in Sections 3.1, 3.6 and 3.7) shall survive the exercise of and
the expiration of the Warrants.
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4. ADJUSTMENTS
4.1 MECHANICAL ADJUSTMENTS.
The number of shares of Common Stock purchasable upon the exercise of each
Warrant, and the Purchase Price, shall be subject to adjustment as follows:
(A) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event
that the Company shall, on or after the date hereof:
(i) pay a dividend in shares of Additional Common Stock or
make a distribution in shares of Additional Common Stock;
(ii) reclassify by subdivision its outstanding shares of
Common Stock into a greater number of shares; or
(iii) reclassify by combination its outstanding shares of
Common Stock into a smaller number of shares;
then, and in each such case, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision or
combination shall be adjusted to that price determined by multiplying the
Purchase Price in effect immediately prior to such event by the quotient of:
(A) the total number of outstanding shares of Common
Stock immediately prior to such event; divided by
(B) the total number of outstanding shares of Common
Stock immediately after such event.
An adjustment made pursuant to this Section 4.1 (a) shall become effective on
the effective date of such event.
(B) DISTRIBUTIONS OF PROPERTY. In the event that the Company shall
make any dividend or distribution in cash or other Property (other than Common
Stock ) in respect of its Common Stock, no adjustment to the Purchase Price or
the number of shares issuable upon exercise of a Warrant shall be made, but the
holders of the Warrants instead shall have the rights set forth in Section 3.6
with respect to such dividend or distribution.
(C) ISSUANCES OF COMMON STOCK AND OTHER SECURITIES. In the event
that the Company shall issue or sell shares of Additional Common Stock or Rights
(other than Excluded Securities) at a Consideration Per Share lower than the
Reference Price in effect on the date of such issuance or sale or if the Company
should amend any provisions of any Rights such as to reduce the consideration
per share applicable thereto, then the Purchase Price in effect immediately
after such event shall be adjusted by multiplying the Purchase Price in effect
immediately prior to such event by the quotient of:
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(i) the sum of:
(A) the number of shares of Common Stock outstanding
immediately prior to such event; plus
(B) the quotient of (I) the Aggregate Consideration
Receivable, divided by (Il) the Reference Price,
in each case immediately prior to such event;
divided by
(ii) the sum of:
(A) the number of shares of Common Stock outstanding
immediately prior to such event; plus
(B) the number of shares of Additional Common Stock so
issued or sold (or then issuable pursuant to such
Rights).
In the event that the Company shall issue and sell shares of Common Stock or
Rights for a consideration consisting, in whole or in part, of Property other
than cash or its equivalent, then in determining the "Aggregate Consideration
Receivable," the Board of Directors shall determine, in good faith and on a
reasonable basis, the fair value of such Property, and such determination, If so
made, shall be binding upon all holders of Warrants.
(D) CONSOLIDATION; MERGER; SALE; RECLASSIFICATION. In the event
that there is:
(i) any consolidation of the Company with, or merger of the
Company with or into, another corporation (other than a merger in
which the Company is the surviving corporation and that does not
result in any reclassification of shares of Common Stock outstanding
immediately prior to such merger);
(ii) any sale or conveyance to another corporation of the
Property of the Company substantially as an entirety; or
(iii) any reclassification of the Common Stock that results in
the issuance of other Securities of the Company;
then, in each such case, lawful provision shall be made as a part of the terms
of such transaction so that the holders of Warrants shall thereafter have the
right to purchase the number and kind of shares of stock, other Securities,
cash, Property and rights receivable upon such consolidation, merger, sale,
conveyance or reclassification by a holder of such number of shares of Common
Stock as the holder of a Warrant would have had the right to acquire upon the
exercise of such Warrant immediately prior to such consolidation, merger, sale
or conveyance, at the Purchase Price then in effect.
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(E) DE MINIMIS CHANGES IN PURCHASE PRICE. No adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1 %) in the Purchase Price;
provided that any adjustments that, at the time of the calculation thereof, are
less than one percent (1%) of the Purchase Price at such time and by reason of
this Section 4.1 (e) are not required to be made at such time shall be carried
forward and added to any subsequent adjustment or adjustments for purposes of
determining whether such subsequent adjustment or adjustments, as so
supplemented, exceed the one percent (1 %) amount set forth in this Section
4.1(e) and, if any such subsequent adjustment, as so supplemented or otherwise,
should exceed such one percent (1 %) amount, all adjustments deferred prior
thereto and not previously made shall then be made. In any case all such
adjustments being carried forward pursuant to this Section 4.1 (e) shall be
given effect upon the exercise of any Warrants by any holder thereof for
purposes of determining the Purchase Price thereof. All calculations shall be
made to the nearest ten-thousandth of a dollar ($0.0001 ).
(F) ADJUSTMENT OF NUMBER OF SHARES LSSUABLE PURSUANT TO WARRANTS.
Upon each adjustment of the Purchase Price as a result of the calculations made
in this Section 4.1, each Warrant outstanding immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase, at the adjusted
Purchase Price, that number of shares of Common Stock (calculated to the nearest
one-hundredth (.01)) obtained by multiplying the number of shares of Common
Stock covered by such Warrant immediately prior to such adjustment by the
quotient of:
(i) the Purchase Price in effect immediately prior to such
adjustment,
(ii) the Purchase Price in effect immediately after such
adjustment.
All Warrants originally issued by the Company hereunder shall, subsequent to any
adjustment made to the Purchase Price hereunder, evidence the right to purchase,
at the adjusted Purchase Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of such Warrants,
all subject to further adjustment as provided herein. Each such adjustment shall
be valid and binding upon the Company and the holders of Warrants irrespective
of whether the Warrant Certificates theretofore and thereafter issued express
the Purchase Price per share of Common Stock and the number of shares of Common
Stock that were expressed upon the initial Warrant Certificates issued
hereunder.
(G) MISCELLANEOUS.
(i) Adjustments shall be made pursuant to this Section 4.1
successively whenever any of the events referred to in Section
4.1(a) through Section 4.1 (d), inclusive, and Section 4.1(1), shall
occur.
(ii) If any Warrant shall be exercised subsequent to the
record date for any of the events referred to in this Section 4.1,
but prior to the effective date thereof, appropriate adjustments
shall be made immediately after such effective date so that the
holder of such Warrant on such record date shall have received, in
the aggregate, the kind and number of shares of Common Stock or
other Securities or Property that it would have owned or been
entitled to receive on such effective date had such Warrant been
exercised prior to such record date.
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(iii) Shares of Common Stock owned by or held for the account
of the Company or any Subsidiary shall not, for purposes of the
adjustments set forth in this Section 4.1, be deemed outstanding.
(H) OTHER SECURITIES. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4.1, each holder of Warrants shall
become entitled to purchase any Securities of the Company other than shares of
Common Stock, the number or amount of such other Securities so purchasable and
the Purchase Price of such Securities shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 4.1 (a) through Section 4.1 (d), inclusive, and
all other relevant provisions of this Section 4.1 that are applicable to shares
of Common Stock shall be applicable to such other Securities.
(I) NOTICE OF ADJUSTMENT. Whenever the number of shares of Common
Stock issuable upon the exercise of Warrants is adjusted or the Purchase Price
in respect thereof is adjusted, as herein provided, the Company shall promptly
give to each holder of Warrants notice of such adjustment or adjustments and
shall promptly deliver to each holder of Warrants a certificate of the Company's
chief financial officer setting forth:
(i) the number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price of such shares after
such adjustment;
(ii) a brief statement of the facts requiring such adjustment;
and
(iii) the computation by which such adjustment was made.
So long as any Warrant is outstanding, within ninety (90) days of the end of
each fiscal year of the Company, the Company shall deliver to each holder of
Warrants a certificate of the Company setting forth:
(A) the number of shares of Common Stock issuable upon
the exercise of each Warrant and the Purchase Price of such
shares as of the end of such fiscal year;
(B) a brief statement of the facts requiring each
adjustment required to be made in such fiscal year; and
(C) the computation by which each such adjustment was
made.
(J) NOTICE OF CERTAIN EVENTS. Whenever the Company shall publicly
announce the authorization of any Notice Event, the Company shall, not less than
twenty (20) days after the record date with respect to such event (or, if no
record date for the same shall be fixed, not less than twenty (20) days after
the occurrence of such Notice Event), give to each holder of Warrants written
notice of such event setting forth any change in the number of shares of Common
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Stock the Company estimates will be issuable upon the exercise of such holder's
Warrants, the estimated Purchase Price of such shares after any adjustment
required to be made hereunder and a brief statement of the facts requiring such
adjustment and the computation by which the Company expects such adjustment will
be made. Notwithstanding the foregoing, no failure of the Company to give any
such notice shall affect the validity of the action taken unless such failure
was in bad faith.
4.2 FRACTIONAL SHARES.
The Company shall not be required to issue fractional shares of Common
Stock upon the exercise of any Warrant. Upon the exercise of any Warrant, there
shall be paid to the holder thereof, in lieu of any fractional share of Common
Stock resulting therefrom, an amount of cash equal to the product of:
(A) the fractional amount of such share; times
(B) the Market Price, as determined on the trading day immediately
prior to the date of exercise of such Warrant.
4.3 ADDITIONAL AGREEMENTS OF THE COMPANY.
The Company covenants and agrees that it shall not, by amendment to its
certificate of incorporation, as in effect on the date hereof, or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
liquidation, issuance or sale of Securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but shall at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holders of the Warrant Certificates against dilution
or other impairment.
5. FINANCIAL AND OTHER INFORMATION.
The Company shall, at all times, and whether or not the Company shall be
required to do so by law, deliver to each holder of Registrable Securities:
(A) copies of all quarterly, annual and current reports and other
information, documents and reports (or copies of such portions of the foregoing
as the SEC may from time to time by rules or regulations prescribe) which the
Company may be required to file with the SEC pursuant to Section 13 or Section
15(d) of the Exchange Act or the rules and regulations of the SEC thereunder;
or, if the Company is not required to file information, documents or reports
pursuant to either Section 13 or Section 1 5(d) of the Exchange Act, then it
will deliver to each holder of Registrable Securities such annual, quarterly and
current reports and such of the information, documents and reports which a
Person subject to Section 13 of the Exchange Act and the rules and regulations
of the SEC thereunder would be required to file with the SEC in respect of a
security listed and registered on a national securities exchange; and
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(B) all other information actually delivered to the holders of the
Common Stock generally.
6. REGISTRATION RIGHTS.
6.1 INCIDENTAL REGISTRATION.
(A) FILING OF REGISTRATION STATEMENT. If the Company at any time
proposes to register any of its Common Stock (an "Incidental Registration")
under the Securities Act (other than pursuant to a registration statement on
Form S-4 or Form S-8 or any successor forms thereto) for sale to the public in a
public offering, it will each such time give prompt written notice to all
holders of Registrable Securities of its intention to do so, which notice shall
be given to all such holders at least thirty (30) Business Days prior to the
date that a registration statement relating to such registration is proposed to
be filed with the SEC. Upon the written request of any such holder to include
its shares under such registration statement (which request shall be made within
fifteen (15) Business Days after the receipt of any such notice and shall
specify the Registrable Securities intended to be disposed of by such holder),
the Company will use its best efforts to effect the registration of all
Registrable Securities that the Company has been so requested to register by
such holder; provided, however, that if at any time after giving written notice
of its intention to register any Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to proceed with the Incidental
Registration, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, shall be
relieved of its obligation to register any Registrable Securities of such
Persons in connection with such registration.
(B) SELECTION OF UNDERWRITERS. Each notice of the Company's
intention to register such Securities given to the holders of Registrable
Securities pursuant to Section 6.1(a) shall designate the proposed underwriters
of such offering (which shall be one or more underwriting firms of recognized
standing) and shall contain the Company's agreement to use its best efforts, if
requested to do so, to arrange for such underwriters to include in such
underwriting the Registrable Securities that the Company has been so requested
to sell pursuant to this Section 6.1, it being understood that the holders of
Registrable Securities shall have no right to select different underwriters for
the disposition of their Registrable Securities.
(C) PRIORITY ON INCIDENTAL REGISTRATIONS. If the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities requesting sale) that, in such underwriter's opinion, the
number of shares of Securities requested to be included in such Incidental
Registration exceeds the number that can be sold in such offering within a price
range acceptable to the Company (such writing to state the basis of such opinion
and the approximate number of shares of Securities that may be included in such
offering without such effect), the Company will include in such Incidental
Registration, to the extent of the number of shares of Securities that the
Company is so advised can be sold in such offering:
(i) in the case of any registration initiated by the Company
for the purpose of selling Securities for its own account:
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(A) first, Securities that the Company proposes to
issue and sell for its own account; and
(B) second, Registrable Securities requested to be
sold by the holders thereof pursuant to this
Section 6.1 and all Securities proposed to be
registered by any other selling stockholders, pro
rata among such holders on the basis of the number
of shares requested to be so registered by such
holders; and
(ii) in the case of a registration initiated by any other
stockholder pursuant to demand or required registration rights in
favor of such other stockholder:
(A) FIRST, all Securities proposed to be registered by
any other stockholders exercising demand or
required registration rights with respect to such
registration pursuant to registration rights
agreements in existence on the date of this
agreement;
(B) SECOND, to the extent allowed by Section 7.5(g) of
the Underwriter Warrant Agreement, Registrable
Securities requested to be sold by the holders
thereof pursuant to this Section 6.1 and all other
Securities proposed to be registered by any other
stockholders, pro rata among such holders on the
basis of the number of shares requested to be so
registered by such holders; and
(C) THIRD, Securities that the Company proposes to
issue and sell for its own account.
6.2 REGISTRATION PROCEDURES.
The Company will use its best efforts to effect the Required Registration
and each Incidental Registration of any Registrable Securities under the
Securities Act as provided in Sections 6.1, and to cooperate with the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and the Company will as
expeditiously as possible:
(A) subject, in the case of an Incidental Registration, to the
proviso to Section 6.1(a), prepare and file with the SEC the registration
statement and use its best efforts to cause the Registration to become
effective; provided, however, that before filing any registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
the holders of the Registrable Securities covered by such registration
statement, their counsel, and the underwriters, if any, and their counsel,
copies of all such documents proposed to be filed at least fifteen (15) days
prior thereto, which documents will be subject to the reasonable review, within
such period, of such holders, their counsel and the underwriters;
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(B) subject, in the case of an Incidental Registration, to the
proviso to Section 6.1(a), prepare and file with the SEC such amendments and
post-effective amendments to any registration statement and any prospectus used
in connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement until such time as all of such Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and cause the prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act;
(C) furnish to each holder of Registrable Securities included in
such Registration and the underwriter or underwriters, if any, without charge,
at least one signed copy of the registration statement and any post-effective
amendment thereto, upon request, and such number of conformed copies thereof and
such number of copies of the prospectus (including each preliminary prospectus
and each prospectus filed under Rule 424 under the Securities Act), any
amendments or supplements thereto and any documents incorporated by reference
therein, as such holder or underwriter may reasonably request in order to
facilitate the disposition of the Registrable Securities being sold by such
holder (it being understood that the Company consents to the use of the
prospectus and any amendment or supplement thereto by each holder of Registrable
Securities covered by such registration statement and the underwriter or
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto);
(D) notify each holder of the Registrable Securities of any stop
order or other order suspending the effectiveness of any registration statement,
issued or threatened by the SEC in connection therewith, and take all reasonable
actions required to prevent the entry of such stop order or to remove it or
obtain withdrawal of it at the earliest possible moment if entered;
(E) if requested by the managing underwriter or underwriters or any
holder of Registrable Securities in connection with any sale pursuant to a
registration statement, promptly incorporate in a prospectus supplement or
post-effective amendment such information relating to such underwriting as the
managing underwriter or underwriters or such holder reasonably requests to be
included therein; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of the
matters incorporated in such prospectus supplement or post-effective amendment;
(F) on or prior to the date on which a Registration is declared
effective, use its best efforts to register or qualify, and cooperate with the
holders of Registrable Securities included in such Registration, the underwriter
or underwriters, if any, and their counsel, in connection with the registration
or qualification of the Registrable Securities covered by such Registration for
offer and sale under the securities or "blue sky" laws of each state and other
jurisdiction of the United States as any such holder or underwriter reasonably
requests in writing; use its best efforts to keep each such registration or
qualification effective, including through new filings, or amendments or
renewals, during the period such registration statement is required to be kept
effective; and do any and all other acts or things necessary or advisable to
enable the disposition in all such jurisdictions reasonably requested of the
Registrable Securities covered by such Registration; provided, however, that the
Company will not be required to qualify generally to do business in any
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jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction where it is
not then so subject;
(G) in connection with any sale pursuant to a Registration,
cooperate with the holders of Registrable Securities and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Securities to be sold under such Registration, and enable such Securities to be
in such denominations and registered in such names as the managing underwriter
or underwriters, if any, or such holders may reasonably request;
(H) use its best efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
within the United States and having jurisdiction over the Company or any
Subsidiary as may reasonably be necessary to enable the seller or sellers
thereof or the underwriter or underwriters, if any, to consummate the
disposition of such Securities;
(I) make available for inspection by any holder of Registrable
Securities included in any Registration, any underwriter participating in any
disposition pursuant to any Registration, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Person in connection
with such Registration;
(J) use its best efforts to obtain:
(i) at the time of effectiveness of each Registration, a
"comfort letter" from the Company's independent certified public
accountants covering such matters of the type customarily covered by
"cold comfort letters" as the Requisite Holders and the underwriters
reasonably request; and
(ii) at the time of any underwritten sale pursuant to the
registration statement, a "bring-down comfort letter," dated as of
the date of such sale, from the Company's independent certified
public accountants covering such matters of the type customarily
covered by comfort letters as the Requisite Holders and the
underwriters reasonably request;
(K) obtain, at the time of effectiveness of each Incidental
Registration and at the time of any sale pursuant to each Registration, an
opinion or opinions, reasonably acceptable to the Requisite Holders in form and
scope, from counsel for the Company in customary form;
(L) so long as such Registration remains effective, notify each
seller of Registrable Securities covered by such Registration, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such Registration, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and promptly
prepare, file with the SEC and furnish to such seller or holder a reasonable
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number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers or prospective
purchasers of such Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they are made;
(M) otherwise comply with all applicable rules and regulations of
the SEC, and make generally available to its security holders (as contemplated
by Section 11 (a) under the Securities Act) an earnings statement satisfying the
provisions of Rule 158 under the Securities Act no later than ninety (90) days
after the end of the twelve (12) month period beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of the
registration statement, which statement shall cover said twelve (12) month
period;
(N) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by each Registration from and
after a date not later than the effective date of such Registration;
(O) use its best efforts to cause all Registrable Securities covered
by each Registration to be listed subject to notice of issuance, prior to the
date of first sale of such Registrable Securities pursuant to such Registration,
on each securities exchange on which the Common Stock (or other Securities
issuable upon exercise of the Warrants) issued by the Company are then listed,
and admitted to trading on NASDAQ, if the Common Stock or any such other
Securities are then admitted to trading on NASDAQ; and
(P) enter into such agreements (including underwriting agreements in
customary form) and take such other actions as the Requisite Holders shall
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities.
The obligation of the Company to include Registrable Securities in any such
Registration is expressly subject to the condition that such holder furnish the
Company with such information in respect of such holder of its Registrable
Securities that will be included in such Registration as the Company may
reasonably request in writing and as is required by applicable laws or
regulations.
6.3 PREPARATION; REASONABLE INVESTIGATION.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Company will give the holders of such Registrable Securities so registered,
their underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration statement
(other than reports and proxy statements incorporated therein by reference and
lawfully and properly filed with the SEC) and each prospectus included therein
or filed with the SEC, and each amendment thereof or supplement thereto, and
will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' or such underwriters' to
conduct a reasonable investigation within the meaning of the Section 11 (b)(3)
of the Securities Act.
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6.4 REGISTRATION EXPENSES.
The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities, including, without limitation, any such
registration not effected by the Company.
6.5 RIGHTS OF REQUESTING HOLDERS.
Each holder of Registrable Securities which makes a written request
therefor within thirty (30) days after the notice to such holders provided for
in Section 6.1, shall have the right to receive the copies of the information,
notices and other documents described in Section 6.2(c), Section 6.2(l) and
Section 6.2(m) in connection with any proposed Registration by the Company under
the Securities Act.
6.6 INDEMNIFICATION; CONTRIBUTION.
(A) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, to
the fullest extent permitted by law, each holder of Registrable Securities, its
officers, directors and agents, if any, and each Person, if any, who controls
such holder within the meaning of section 15 of the Securities Act, against all
losses, claims, damages, liabilities (or proceedings in respect thereof) and
expenses (under the Securities Act or common law or otherwise), joint or
several, resulting from any violation by the Company of the provisions of the
Securities Act or any untrue statement or alleged untrue statement of a material
fact contained in any registration statement filed pursuant to this Agreement or
prospectus (and as amended or supplemented if amended or supplemented) or any
preliminary prospectus included therein or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any prospectus, in
light of the circumstances under which they were made) not misleading, except to
the extent that such losses, claims, damages, liabilities (or proceedings in
respect thereof) or expenses are caused by any untrue statement or alleged
untrue statement contained in or by any omission or alleged omission from
information concerning any holder furnished in writing to the Company by such
holder expressly for use therein. If the offering pursuant to any registration
statement provided for under this Section 6 is made through underwriters, no
action or failure to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any holder of Registrable Securities) shall
affect the obligations of the Company to indemnify any holder of Registrable
Securities or any other Person pursuant to the preceding sentence. If the
offering pursuant to any registration statement provided for under this Section
6 is made through underwriters, the Company agrees, to the extent required by
such underwriters, to enter into an underwriting agreement in customary form
with such underwriters and to indemnify such underwriters, their officers,
directors and agents, if any, and each Person, if any, who controls such
underwriters within the meaning of section 15 of the Securities Act to the same
extent as hereinbefore provided with respect to the indemnification of the
holders of Registrable Securities; provided that the Company shall not be
required to indemnify any such underwriter, or any officer or director of such
underwriter or any Person who controls such underwriter within the meaning of
section 15 of the Securities Act, to the extent that the loss, claim, damage
liability (or proceedings in respect thereof) or expense for which
indemnification is claimed results from such underwriter's failure to send or
give a copy of an amended or supplemented final prospectus to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
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omission at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in such
amended or supplemented final prospectus prior to such written confirmation and
the underwriter was provided with such amended or supplemented final prospectus.
(B) INDEMNIFICATION BY THE HOLDERS. In connection with any
registration statement in which a holder of Registrable Securities is
participating, each such holder, severally and not jointly, shall indemnify, to
the fullest extent permitted by law, the Company, each underwriter and their
respective officers, directors and agents, if any, and each Person, if any, who
controls the Company or such underwriter within the meaning of section 15 of the
Securities Act, against any losses, claims, damages, liabilities (or proceedings
in respect thereof) and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein (in the case of any prospectus, in
light of the circumstances under which they were made) not misleading, but only
to the extent that such untrue statement is contained in or such omission is
from information so concerning a holder furnished in writing by such holder
expressly for use therein; provided, however, that such holder's obligations
hereunder shall be limited to an amount equal to the net proceeds to such holder
of the Registrable Securities sold pursuant to such registration statement; and
provided, further, that no holder of Registrable Securities shall be required to
indemnify any such underwriter, or any officer or director of such underwriter
or any Person who controls such underwriter within the meaning of section 15 of
the Securities Act, to the extent that the loss, claim, damage, liability (or
proceedings in respect thereof) or expense for which indemnification is claimed
results from such underwriter's failure to send or give a copy of an amended or
supplemented final prospectus to the Person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such amended or supplemented final
prospectus prior to such written confirmation and the underwriter was provided
with such amended or supplemented final prospectus.
(C) CONTROL OF DEFENSE. Any Person entitled to indemnification under
the provisions of this Section 6.6 shall give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, permit
such indemnifying party to assume the defense of such claim, with counsel
reasonably satisfactory to the indemnified party; and if such defense is so
assumed, such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes liability to the
indemnified party and such indemnifying party shall not be subject to any
liability for any settlement made without its consent (which shall not be
unreasonably withheld); and any underwriting agreement entered into with respect
to any registration statement provided for under this Section 6 shall so
provide. In the event an indemnifying party shall not be entitled, or elects
not, to assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm of
counsel for all parties indemnified by such indemnifying party in respect of
such claim, unless in the reasonable judgment of any such indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties in respect to such claim.
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(D) CONTRIBUTION. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses, in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. Notwithstanding the foregoing, no holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount such holder would have been required to pay to an indemnified party
if the indemnity under Section 6.6(b) was available. No Person guilty of
fraudulent misrepresentation (within the meaning of section 11 (f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The obligation of any Person to
contribute pursuant to this Section 6.6 shall be several and not joint.
(E) TIMING OF PAYMENTS. An indemnifying party shall make payments of
all amounts required to be made pursuant to the foregoing provisions of this
Section 6.6 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwise
due or payable.
(F) SURVIVAL. The indemnity and contribution agreements contained in
this Section 6.6 shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating holder of Registrable
Securities, its officers, directors, agents or any Person, if any, who controls
such holder as aforesaid, and shall survive the transfer of such Securities by
such holder.
6.7 HOLDBACK AGREEMENTS; REGISTRATION RIGHTS TO OTHERS.
(A) In connection with each underwritten sale of Registrable
Securities, the Company agrees, and each holder of Registrable Securities by
acquisition of such Registrable Securities agrees, to enter into customary
holdback agreements for a period not exceeding two hundred (200) days concerning
sale or distribution of Registrable Securities and other equity Securities of
the Company, except, in the case of any holder of Registrable Securities, to the
extent that such holder is prohibited by applicable law or exercise of fiduciary
duties from agreeing to withhold Registrable Securities from sale or is acting
in its capacity as a fiduciary or investment adviser. In the event that any such
holder is so prohibited from making any such agreement, then, in the case of any
Incidental Registration only, the Company, at the discretion of the underwriter
of such offering, may refuse to include such holder in such Incidental
Registration. Without limiting the scope of the term "fiduciary," a holder shall
be deemed to be acting as a fiduciary or an investment adviser if its actions or
the Registrable Securities proposed to be sold are subject to the Employee
Retirement Income Security Act of 1974, as amended, or the Investment Company
Act of 1940, as amended, or if such Registrable Securities are held in a
separate account under applicable insurance law or regulation.
(B) If the Company shall at any time after the date hereof grant to
any holder of any Securities of the Company rights with respect to the
registration of such Securities under the Securities Act, such rights shall not
be in conflict with or adversely affect any of the rights provided in this
Section 6 to the holders of Registrable Securities.
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<PAGE>
6.8 OTHER REGISTRATION OF COMMON STOCK.
If any shares of Common Stock required to be reserved for purposes of
exercise of Warrants or conversion of any class of Common Stock into any other
class of Common Stock require registration with or approval of any governmental
authority under any federal or state law (other than the Securities Act) before
such shares may be issued upon conversion, the Company will, at its expense and
as expeditiously as possible, use its reasonable best efforts to cause such
shares to be duly registered or approved, as the case may be.
6.9 AVAILABILITY OF INFORMATION.
The Company will use its best efforts to comply with the reporting
requirements of Sections 13 and 15(d) of the Exchange Act and will use its best
efforts to comply with all other public information reporting requirements of
the SEC as from time to time in effect, and cooperate with the holders of
Registrable Securities, so as to permit disposition of the Registrable
Securities pursuant to an exemption from the Securities Act for the sale of any
Registrable Securities (including, without limitation, the current public
information requirements of Rule 144(c) and Rule 144A under the Securities Act).
The Company will also cooperate with each holder of any Registrable Securities
in supplying such information as may be necessary for such holder to complete
and file any information reporting forms presently or hereafter required by the
SEC as a condition to the availability of an exemption from the Securities Act
for the sale of any Registrable Securities.
7. INTERPRETATION OF THIS AGREEMENT.
7.1 CERTAIN DEFINED TERMS.
For the purpose of this Agreement, the following terms shall have the
meanings specified with respect thereto below:
ADDITIONAL COMMON STOCK - Common Stock of the Company, including treasury
shares, issued after the date hereof, except (a) Common Stock issued upon the
exercise of any one or more Warrants, and (b) Excluded Securities.
AFFILIATE - means, at any time, a Person (other than a Subsidiary or the
Purchaser):
(A) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company;
(B) that beneficially owns or holds five percent (5%) or more of
any class of the Voting Stock of the Company; or
(C) five percent (5%) or more of the Voting Stock (or in the case
of a Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by the Company or a Subsidiary;
at such time.
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<PAGE>
As used in this definition,
CONTROL - means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
AGGREGATE CONSIDERATION RECEIVABLE - means, in the case of a sale of
shares of Additional Common Stock, the aggregate amount paid to the Company in
connection therewith, and, in the case of an issuance or sale of Rights, or any
amendment thereto, the sum of:
(a) the aggregate amount paid to the Company for such Rights; plus
(b) the aggregate consideration or premiums stated in such Rights
to be payable for the shares of Additional Common Stock covered thereby;
in each case without deduction for any fees, expenses or underwriters discounts
or commissions.
AGREEMENT, THIS - and references thereto shall mean this Agreement as it
may from time to time be amended or supplemented.
BOARD OF DIRECTORS - means the board of directors of the Company or any
committee thereof that, in the instance, shall have the lawful power to exercise
the power and authority of such board of directors.
BUSINESS DAY - means a day other than a Saturday, a Sunday or a day on
which banks in the State of Florida are required or permitted by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CLOSING PRICE - means, per share of Common Stock, on any date specified
herein:
(a) the last sale price, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and asked
prices on such date, in each case as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading; and
(b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange, but is designated as a national market
system security by the National Association of Securities Dealers, Inc.,
the last trading price of the Common Stock on such date, or if there shall
have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked prices on
such date as shown by the NASDAQ.
COMMON STOCK - the common stock, par value $.01 per share, of the Company
and any other equity securities of the Company which are not limited to a fixed
sum or a fixed percentage of par value in respect of participation in dividends
and distributions in liquidation.
COMPANY - shall have the meaning specified in the introductory paragraph
hereof.
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<PAGE>
CONSIDERATION PER SHARE - means, with respect to shares of Common Stock or
Rights, the quotient of:
(a) the Aggregate Consideration Receivable in respect of such
shares of Common Stock or such Rights; divided by
(b) the total number of such shares of Common Stock or, in the case
of Rights, the total number of shares of Common Stock covered by such
Rights.
EFFECTIVE DATE - means October 15, 1996.
EXCHANGE ACT - means the Securities Exchange Act of 1934, as amended.
EXCLUDED SECURITIES - means and includes:
(a) shares of Common Stock or Rights issued (i) upon the exercise or
conversion of a Right (an "Underlying Right") if at the time of the
issuance of the Underlying Right either no adjustment pursuant to Section
4.1 was necessary or any necessary adjustment pursuant to Section 4.1 was
made, or (ii) in a transaction described in Section 4.1(a), Section 4.1(c)
or Section 4.1(d) in respect of which any necessary adjustment pursuant to
Section 4.1 was made;
(b) shares of Common Stock issuable upon exercise of the Warrants;
(c) up to 2,233,288 shares of Common Stock issuable upon the
exercise of presently outstanding rights and warrants which are listed on
Part 2.20 of the Disclosure Letter referred to in the Note Purchase
Agreement by and between the Company and Equitable Life Assurance Society
of the United States dated December 15, 1995;
(d) up to 500,000 shares of Common Stock issuable upon the exercise
of options granted after the Effective Date pursuant to the Company Stock
Option Plan, provided that the exercise price of each such option shall be
not less than the Market Price as of the date such option is granted; and
(e) up to 50,000 shares of Common Stock issuable upon the exercise
of options granted after the Effective Date pursuant to the Company's
Directors Stock Option Plan, provided that the exercise price of each such
option shall not be less than the Market Price as of the date such option
is granted.
EXPIRATION DATE - means 5:00 p.m. (Eastern Standard Time) on October 15,
2001.
FAIR VALUE - means, with respect to any share of Common Stock, the
quotient of:
(a) the sum of
(i) the fair salable value of the Company, as a going concern,
giving effect to all Property thereof and subject to all liabilities
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<PAGE>
thereof, that would be realized in an arm's length sale between an
informed and willing buyer and an informed and willing seller, under
no compulsion to buy or sell, respectively, as of a date that is
within fifteen (15) days of the date as of which the determination
is to be made, determined by the Valuation Agent, such determination
to be made without regard to any absence of a liquid or ready market
for such Common Stock; plus
(ii) the aggregate exercise or conversion price of all Rights
in existence and remaining unexercised on such date;
divided by
(b) the total number of shares of Common Stock outstanding at such
time on a fully diluted basis.
INCIDENTAL REGISTRATION - Section 6.1.
INITIAL PURCHASE PRICE - means $4.875 per share.
LIEN - means any mortgage, pledge, security interest, encumbrance, lien
(statutory or otherwise) or charge of any kind (including any agreement to give
any of the foregoing (but excluding negative pledge clauses in agreements
related to the borrowing of money), any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction (but excluding informational filings made in respect of leases)
or any other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation. The term "Lien" includes encumbrances with respect
to stock, including, without limitation, stockholder agreements, voting trust
agreements, buy-back agreements and all similar arrangements.
MARKET PRICE - means, per share of Common Stock, as of any date of
determination, the arithmetic mean of the daily Closing Prices for the twenty
(20) consecutive trading days before such date of determination; provided that
if the Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, then "Market
Price" means the greater of:
(a) the book value of one share of Common Stock, as determined in
accordance with generally accepted accounting principles by the Valuation
Agent, as of the date of determination; and
(b) the Fair Value of one share of Common Stock, as of the date of
determination .
NASDAQ - means the National Association of Securities Dealers Automated
Quotation
NOTICE EVENT - means any of the following:
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<PAGE>
(a) any event that would require an adjustment in the Purchase
Price pursuant to Section 4.1; or
(b) any distribution of Property in respect of Common Stock.
PERSON - means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
PROPERTY - means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
PURCHASE PRICE - means the Initial Purchase Price.
REFERENCE PRICE - means, per share of Common Stock, as of any date of
determination, the Market Price as of such date; provided, however, that with
respect to each of the first three Significant Equity Infusions to occur after
the date hereof and prior to May 1, 1997, the Reference Price shall be 85% of
the Market Price on the date of such transaction.
REGISTRABLE SECURITIES - means, at any time:
(a) any shares of Common Stock that have been issued upon the
exercise of any Warrant; and
(b) any shares of Common Stock that are issuable upon the exercise
of the Warrants.
For purposes of Section 6 and the definition of "Requisite Holders" herein,
holders of Warrants at any time shall be deemed to be holders of Registrable
Securities described in clause (b) of this definition that are at such time
issuable upon exercise in full of such Warrants, whether or not such holders are
then entitled so to exercise such Warrants pursuant to the terms thereof.
As to any particular Registrable Securities once issued, such Securities shall
cease to be Registrable Securities:
(i) when a registration statement with respect to the sale of
such Securities shall have become effective under the Securities Act
and such Securities shall have been disposed of in accordance with
such registration statement;
(ii) when they shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the
Securities Act;
(iii) when they shall have been otherwise transferred and
subsequent disposition of them shall not require registration or
qualification under the Securities Act or any similar state law then
in force; or
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<PAGE>
(iv) when they shall have ceased to be outstanding or (with
respect to Registrable Securities described in clause (b) of this
definition) issuable upon exercise of the Warrants.
REGISTRATION - means the Incidental Registration.
REGISTRATION EXPENSES - means all expenses incident to the Company's
performance of or compliance with Section 6.1 through Section 6.5, inclusive,
including, without limitation, all registration and filing fees (except to the
extent required by the National Association of Securities Dealers to be paid by
the holders of Registrable Securities), fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), expenses of printing certificates for the Registrable Securities in
a form eligible for deposit with Depositary Trust Company, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), and fees and disbursements of counsel for the Company and
its independent certified public accountants (including the expenses of any
management review, cold comfort letters or any special audits required by or
incident to such performance and compliance), securities acts liability
insurance (if the Company elects to obtain such insurance), the reasonable fees
and expenses of any special experts retained by the Company in connection with
such registration, fees and expenses of other Persons retained by the Company
and fees and expenses of counsel for holders of Registrable Securities, selected
by the Requisite Holders; but not including any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities or fees and
expenses of more than one counsel representing the holders of Registrable
Securities or any other selling expenses, discounts or commissions incurred in
connection with the sale of Registrable Securities.
REQUIRED WARRANTHOLDERS - means, at any time, the holders of at least
fifty-one percent (51%) of all Warrants outstanding (excluding any Warrants
directly or indirectly held by the Company, any Subsidiary or any Affiliate) at
such time.
REQUISITE HOLDERS - means, with respect to any registration or proposed
registration of Registrable Securities pursuant to Section 6, any holder or
holders (other than the Company or any Affiliate or Subsidiary) holding at least
seventy-five percent (75%) of the shares of Registrable Securities (excluding
any shares of Registrable Securities directly or indirectly held by the Company
or any Affiliate or Subsidiary) to be so registered.
RIGHT - means and includes:
(a) any warrant (including, without limitation, any Warrant) or any
option (including, without limitation, employee stock options) to acquire
Common Stock;
(b) any right issued to holders of the Common Stock, or any class
thereof, permitting the holders thereof to subscribe to shares of Common
Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock pursuant to the provisions of
any Security convertible or exchangeable into Common Stock; and
27
<PAGE>
(d) any similar right permitting the holder thereof to subscribe for
or purchase shares of Common Stock.
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT - means the Securities Act of 1933, as amended.
SECURITY - shall have the meaning specified in section 2(1) of the
Securities Act.
SIGNIFICANT EQUITY INFUSION - means, a transaction in which the Company
issues Common Stock or preferred stock and in which the gross proceeds to the
Company are at least Two Million Dollars ($2,000,000).
SUBSIDIARY - means, as to any Person, any corporation in which such Person
or one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person owns sufficient voting securities to enable it or
them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
corporation; the term "Subsidiary," as used herein without reference to any
Person, shall mean a Subsidiary of the Company.
TRANSFEREE - means any registered transferee of all or any part of any
Warrant Certificate issued to the Purchaser under this Agreement.
UNDERWRITER WARRANT AGREEMENT - that certain Warrant Agreement, dated as
of September 12, 1994, between the Company and Whale Securities Co., L.P.
VALUATION AGENT - means a firm of independent certified public
accountants, an investment banking firm or appraisal firm (which firm shall own
no Securities of, and shall not be an Affiliate, Subsidiary or a related Person
of, the Company) of recognized national standing retained by the Company and
reasonably acceptable to the Required Warrantholders.
VOTING STOCK - means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time any stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
WARRANT - shall have the meaning specified in the Recitals hereof.
WARRANT CERTIFICATE - shall have the meaning specified in Section 1.1
hereof.
7.2 DESCRIPTIVE HEADINGS.
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
7.3 GOVERNING LAW.
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THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF FLORIDA.
8. MISCELLANEOUS.
8.1 EXPENSES.
The Company agrees to pay, and save the Warrant Holder and any other
holders of Warrant Certificates harmless against liability for the payment of,
all out-of-pocket expenses arising in connection with the transactions herein
contemplated, including, without limitation:
(a) the cost, if any, of complying with Section 3.8;
(b) any subsequent proposed modification of, or proposed consent
requested or initiated by or on behalf of the Company under, this
Agreement, the Warrant Certificate or the Warrants, whether or not such
proposed modification shall be effected or proposed consent granted
(including, without limitation, all document production and duplication
charges and the fees and expenses of one special counsel engaged by the
holders of Warrant Certificates in connection therewith); and
(c) the enforcement of (or determination of whether or how to
enforce) any rights under this Agreement, the Warrant Certificates or the
Warrants or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement or
the transactions contemplated hereby or by reason of the Warrant Holder or
any Transferee's having acquired any Warrant Certificate, including,
without limitation, the fees and disbursements of one special counsel
engaged by the holders of Warrant Certificates and incurred by such
holders and the costs and expenses incurred in any bankruptcy case
involving the Company or any Subsidiary.
The obligations of the Company under this Section 8.1 shall survive the transfer
of any Warrant Certificate or portion thereof or interest therein by the Warrant
Holder or any Transferee and the exercise or expiration of any Warrant.
8.2 AMENDMENT AND WAIVER.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with and only with the written consent of the Company
and:
(a) in the case of Sections 1 through 5, inclusive, Section 7.2,
Section 7.3, Section 8 (other than this Section 8.2), and of any term
defined in Section 7.1 used in any of such Sections, the written consent
of the Required Warrantholders;
(b) in the case of Section 6 and of any term defined in Section 7.1
used in Section 6, the written consent of the Requisite Holders; and
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<PAGE>
(c) in the case of this Section 8.2, the written consent of all
holders of Warrants then outstanding;
provided, however, that:
(i) no such amendment or waiver of any of the provisions of
this Agreement pertaining to the Purchase Price or the number or
kind of shares of Common Stock that may be purchased upon exercise
of each Warrant; and
(ii) no change in the definition of "Expiration Date";
shall be effective as to the holder of any Warrant unless consented to in
writing by such holder.
8.3 NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
Nothing contained in this Agreement shall be construed as conferring upon
the holder of any Warrant any rights as a stockholder of the Company or as
imposing any obligation on such holder to purchase any Securities or as imposing
any liabilities on such holder as a stockholder of the Company, whether such
obligation or liabilities are asserted by the Company or by creditors of the
Company. Although a holder of the Warrants shall not be considered a stockholder
of the Company for any purposes, the holders of the Warrants shall have those
rights provided by agreement in Section 3.6 of this Agreement.
8.4 DIRECTLY OR INDIRECTLY.
Where any provision in this Agreement refers to any action to be taken by
any Person, or that such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person, including actions taken by or on behalf of any partnership in which such
Person is a general partner.
8.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Warrant Certificates, the
transfer by the Warrant Holder of any Warrant Certificate or portion thereof or
interest therein and the exercise or expiration of any Warrant, and may be
relied upon by the Warrant Holder or Transferee, regardless of any investigation
made at any time by or on behalf of the Warrant Holder or Transferee. Subject to
the preceding sentence this Agreement and the Warrant Certificates embody the
entire agreement and understanding between the Warrant Holder and the Company,
and supersede all prior agreements and understandings, relating to the subject
matter hereof.
8.6 SUCCESSORS AND ASSIGNS.
All covenants and other agreements in this Agreement contained by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including, without
limitation, any Transferee) whether so expressed or not.
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<PAGE>
8.7 NOTICES.
All written communications provided for hereunder sent to the parties
hereto shall be sufficiently given or made if sent by United States mail
(registered or certified mail), postage prepaid, or sent by nationwide overnight
delivery service (with charges prepaid) and are addressed to the following
addresses:
(a) if to the Warrant Holder, addressed to it at:
Aquagenix Warrant Holdings II, a General Partnership
150 South Rodeo Drive - Suite 100
Beverly Hills, CA 90212
Attention: Richard A. Bloom
or at such other address as the Warrant Holder shall have specified to the
Company in writing;
(b) if to any other holder of any Warrant Certificate, addressed to
such other holder at such address as such other holder shall have
specified to the Company in writing or, if any such other holder shall not
have so specified an address to the Company, then addressed to such other
holder in care of the last holder of such Warrant Certificate that shall
have so specified an address to the Company; and
(c) if to the Company, addressed to it at:
Aquagenix, Inc.
6500 N.W. 15th Avenue
Fort Lauderdale, FL 33309
Attention: Mr. Andrew P. Chesler
TEL: (305) 975-7771
FAX: (305) 969-7700
or at such other address as the Company shall have specified to the holder of
each Warrant Certificate in writing.
Any communication so addressed and deposited in the United States mail, postage
prepaid, by registered or certified mail (in each case, with return receipt
requested) shall be deemed to be received on the third (3rd) succeeding Business
Day after the day of such deposit (not including the date of such deposit). Any
notice so addressed and otherwise delivered shall be deemed to be received when
actually received at the address of the addressee.
8.8 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
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8.9 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument.
8.10 JURISDICTION; JURY TRIAL.
EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR FLORIDA STATE COURT SITTING IN
BROWARD COUNTY, FLORIDA ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS AND INSTRUMENTS CONTEMPLATED HEREBY
AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT. NONE OF THE PARTIES HERETO SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT
OF OR OTHERWISE RELATED TO THIS AGREEMENT OR ANY OF THE WARRANTS AND EACH OF THE
PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO ANY SUCH JURY TRIAL AND ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY SUCH
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8.10.
8.11. EXPIRATION.
All Warrants that have not been exercised in accordance with the
provisions of this Agreement shall expire and all rights of holders of such
Warrants shall terminate and cease on the Expiration Date.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed and delivered by one of its duly authorized officers or
representatives.
AQUAGENIX, INC.
By: /s/ Helen Chia
-----------------------------------
Helen Chia, Chief Financial Officer
DABNEY/RESNICK INCORPORATED, a
California corporation
By: /s/ Richard A. Bloom
-----------------------------------
Richard A. Bloom, Managing Director
AQUAGENIX WARRANT HOLDINGS II, a
General Partnership
By: /s/ Richard A. Bloom
-----------------------------------
Richard A. Bloom, Manager
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<PAGE>
ATTACHMENT A
[FORM OF WARRANT CERTIFICATE]
WARRANT CERTIFICATE
AQUAGENIX, INC.
No. WR-___ [______] Warrants
Date:________ PPN: 03838R 2# 8
This Warrant Certificate certifies that ___________, or registered
assigns, is the registered holder of ___________ (____) Warrants. Each Warrant
entitles the owner thereof to purchase at any time on or prior to 5:00 p.m.,
Eastern Time, on __________, 2001 (the "Expiration Date"), one (1) fully paid
and nonassessable share of Common Stock of AQUAGENIX, INC. (together with its
successors and assigns, the "Company"), a Delaware corporation, at a Purchase
Price of [ ($ )] per share, upon presentation and surrender of this Warrant
Certificate with a form of election to purchase duly executed and delivered to
the Company and payment of the Purchase Price in the manner set forth in the
Warrant Agreement (defined below). The number of shares of Common Stock that may
be purchased upon exercise of each Warrant and the Purchase Price are the number
and the Purchase Price as of the date hereof, and are subject to adjustment as
referred to below.
The Warrants are issued pursuant to that certain Warrant Agreement (as it
may from time to time be amended, the "Warrant Agreement"), dated as of
_____________, 1996, between the Company, Dabney/Resnick Incorporated and
Aquagenix Warrant Holdings II, and are subject to all of the terms, provisions
and conditions thereof, which Warrant Agreement is hereby incorporated herein by
reference and made a part hereof and to which Warrant Agreement reference is
hereby made for a full description of the rights, obligations, duties and
immunities of the Company and the holders of the Warrant Certificates.
Capitalized terms used, but not defined, herein have the respective meanings
ascribed to them in the Warrant Agreement.
This Warrant Certificate shall be exercisable, at the election of the
holder, either as an entirety or in part from time to time. If this Warrant
Certificate shall be exercised in part, the holder shall be entitled to receive,
upon surrender hereof, another Warrant Certificate or Warrant Certificates for
the number of Warrants not exercised. This Warrant Certificate, with or without
other Warrant Certificates, upon surrender in the manner set forth in the
Warrant Agreement, may be exchanged for another Warrant Certificate or Warrant
Certificates of like tenor evidencing Warrants entitling the holder to purchase
a like aggregate number of shares of Common Stock as the Warrants evidenced by
the Warrant Certificate or Warrant Certificates surrendered shall have entitled
such holder to purchase.
Except as expressly set forth in the Warrant Agreement, no holder of this
Warrant Certificate shall be deemed for any purpose the holder of shares of
Common Stock or of any other Securities of the Company that may at any time be
issued upon the exercise hereof, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a holder of a share of Common Stock in the Company or any right
to vote upon any matter submitted to holders of shares of Common Stock at any
meeting thereof, or to give or withhold consent to any corporate action (whether
Attachment A-1
<PAGE>
upon any recapitalization, issuance of stock, reclassification of Securities,
change of par value, consolidation, merger, conveyance, or otherwise) or, except
as provided in the Warrant Agreement, to receive notice of meetings, or to
receive dividends or distributions (except that the holder of this Warrant
Certificate has certain rights to receive consideration in respect of the
payment thereof, as further provided in the Warrant Agreement) or subscription
rights, or otherwise, until the Warrant or Warrants evidenced by this Warrant
Certificate shall have been exercised as provided in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE COMPANY AND THE HOLDER HEREOF SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF FLORIDA.
WITNESS the signature of a proper officer of the Company as of the date
first above written.
AQUAGENIX, INC.
By:_____________________________
Name:
Title:
Attachment A-2
<PAGE>
[FORM OF ASSIGNMENT]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO TRANSFER THE WARRANT
FOR VALUE RECEIVED,______________________________hereby sells, assigns and
transfers unto
__________________________________________________________________ (Please print
name and address of transferee.)
the accompanying Warrant Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint:
________________________________________________________________________________
attorney, to transfer the accompanying Warrant Certificate on the books of the
Company, with full power of substitution.
Dated: ____________________, _________.
AQUAGENIX WARRANT HOLDINGS II, A
GENERAL PARTNERSHIP
By:_________________________________
Name:
Title:
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the accompanying Warrant Certificate or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
Attachment A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO EXERCISE THE WARRANT CERTIFICATE)
To AQUAGENLX, INC.:
The undersigned hereby irrevocably elects to exercise____________ Warrants
represented by the accompanying Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants and requests that
certificates for such shares be issued in the name of:
___________________________________________________________________(Please print
name and address.)
_________________________________________________________
(Please insert social security or other identifying number.)
Payment for the share of Common Stock is made therewith pursuant to the
provisions of Section 2.1(a) of the Agreement in the amount of $__________, or
Section 2.1(b) of the Agreement in the amount of ____________ Warrants.
If such number of Warrants shall not be all the Warrants evidenced by the
accompanying Warrant Certificate, a new Warrant Certificate for the balance
remaining of such Warrants shall be registered in the name of and delivered to:
___________________________________________________________________(Please print
name and address.)
_________________________________________________________
(Please insert social security or other identifying number.)
Dated:_______________________,___________.
AQUAGENIX WARRANT HOLDINGS II, A
GENERAL PARTNERSHIP
By:___________________________________
Richard A. Bloom, Manager
NOTICE
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the face of the accompanying Warrant Certificate or any
prior assignment thereof in every particular, without alteration or enlargement
or any change whatsoever.
Attachment A-4
CONSULTING AND ACQUISITION MANAGEMENT AGREEMENT
Agreement made this 7th day of January 1997 by and between Aquagenix,
Inc., a Florida corporation ("Company") and Shulman & Associates, Inc. a
Florida corporation ("Shulman").
Whereas, Company desires to engage the services of Shulman in order to
identify, evaluate and structure mergers, consolidations, acquisitions, joint
ventures and strategic alliances (collectively referred herein as
"Acquisitions") and to provide certain financial public relations services for
Company ;
Whereas, Shulman desires to perform such services on behalf of the
Company; and
Whereas, the parties desire to set forth the terms and conditions of such
consulting arrangement;
Now Therefore, in consideration of the mutual promises contained herein
and intending to be legally bound hereby, the parties agree as follows:
1.CONSULTING SERVICES.
1.1 Company hereby agrees to retain Shulman as a consultant to assist
the Company in the identification, evaluation, structuring, negotiating and
closing of business acquisitions for the account of Company upon such terms and
conditions as are reasonably acceptable to Company. Notwithstanding anything to
the contrary contained herein, each Acquisition shall be subject to the approval
of the Company, which approval may be withheld or delayed for any reason in the
Company's sole and absolute discretion.
1.2 Shulman shall, in connection with each proposed Acquisition
assist the Company as requested in the consummation of the transaction. If any
Acquisition is completed by the Company or an affiliate during the term of this
Agreement, Shulman shall be entitled to the fees set forth in subparagraph 3.2
hereof.
1.3 Shulman, in addition, agrees to assist and advise the Company in its
financial public relations by working with outside entities as directed by the
Company.
2.TERM.
This Agreement shall be for a term of three (3) years from the
date hereof. However, the Agreement may be terminated by either party on the
annual anniversary date of this Agreement upon thirty (30) days prior written
notice.
<PAGE>
3.COMPENSATION.
The Company shall pay the following compensation to Shulman in
consideration of the services to be rendered hereunder:
3.1 A monthly fee of one thousand ($1,000.00) dollars during the term of
this Agreement. Such fee shall include normal out of pocket expenses incurred by
Shulman. Any extraordinary expenses for which Shulman desires to be reimbursed
must be approved in advance by the Company;
3.2 Upon the consummation of each Acquisition by the Company or an
affiliate, a fee of three (3%) per cent of the Aggregate Market Value (as
defined) of the Acquisition to be paid in cash or registered shares of the
Company 's common stock at the sole discretion of the Company.
3.3 Aggregate Market Value means (i) in the event that the Company, or
its stock is acquired, the number of fully diluted shares of the Company's
common stock so acquired times the fair market value per share of the cash paid
and/or the securities issued by the acquiring party, (ii) in the event that the
Company acquires another entity , or its stock, the fair market value of the
cash paid and/or the securities issued by the Company for such other entity's
common stock, and (iii) in the event of an Acquisition of the Company's assets,
or an Acquisition by the Company of assets of another entity, the fair market
value of the pre-tax consideration received or paid (as the case may be) by the
Company including assumption of indebtedness. For the purposes of this
Agreement, the fair market value of equity and debt securities will be
determined based upon (i) the closing sale price for such securities in the
registered national securities exchange providing the primary market in such
securities on the last trading day prior to the closing date of the Acquisition
or other transaction, (ii) if such securities are not so traded, the average of
the closing bid prices as reported by the Nasdaq for the previous ten(10)
consecutive trading days prior to closing, or (iii) if such securities are not
so traded or reported, as determined in good faith estimate of the Board of
Directors of the Company.
3.4 In the event this Agreement is terminated or expires, the provisions
of subparagraphs 3.2 and 3.3 shall be in effect for a period of one year from
such termination date; and with respect to any Acquisitions introduced by
Shulman to the Company for a period of two years from the termination date.
3.5 Upon the execution of this Agreement the Company shall grant Shulman
options to purchase three hundred thousand (300,000) shares of the Company's
common stock, such options to be effective as of January 7,1997 and exercisable
for a period of three years from that date at a price of $7.00 per share. Upon
the exercise of these options by Shulman, the Company shall register the
underlying shares within ninety (90) days from such exercise.
3.6 In addition, the Company shall grant Shulman two hundred twenty-five
<PAGE>
thousand (225,000) options to purchase shares of the Company's common stock at
$6.00 per share, such options shall be exercised within sixty (60) days of the
execution of this Agreement. Such shares shall be registered by the Company upon
their exercise.
4.DISPUTE RESOLUTIONS.
Any dispute, controversy or claim between the Company, on the one
hand, and Shulman on the other hand, which arises out of , relates to or is in
connection with this Agreement or the subject matter hereof, shall be settled by
arbitration in the jurisdiction of the parties against whom the proceeding is
initiated in accordance with the following principles:
(i) the party demanding arbitration shall, in writing , set
forth the nature of the dispute, controversy or claim;
(ii) each of the Company and Shulman shall name an arbitrator
to resolve the dispute, with such arbitrators naming a third arbitrator;
(iii) the arbitrators, sitting as a panel, shall go carefully
into the merits of the asserted dispute, controversy or claim, and shall have
full and complete power, authority and jurisdiction to hear and determine any
and all disputed matters and shall call, and have the power to demand, such
evidence as they deem necessary to a proper determination thereof;
(iv) after a full and careful consideration of the dispute,
controversy or claim and all matters related thereto, the arbitrators shall made
a report of its finding, and such report shall be final and conclusive and shall
be binding upon the parties;
(v) a decision by any two arbitrators shall be deemed a decision
by all of the arbitrators; and
(vi) the arbitrators shall execute an award upon its decision,
and such award may be entered as a final, nonappealable judgement in any court
having jurisdiction.
6.ENTIRE AGREEMENT.
This Agreement contains the entire agreement among the parties with
respect to the subject matter hereof and supercedes all prior agreements,
written or oral, with respect thereto.
7.WAIVERS AND AMENDMENTS.
This Agreement may be amended, modified , superceded, cancelled,
renewed or extended , and the terms and conditions hereof may be waived, only by
a written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which any party may otherwise
have at law or in equity.
8.GOVERNING LAW.
This Agreement shall be governed and construed in accordance
with the laws of the State of Florida.
9.NO ASSIGNMENT.
This Agreement is not assignable by the parties without the prior
consent of the others.
<PAGE>
10.SEVERABILITY.
The invalidity or unenforceability of any term, phrase, clause,
paragraph, restriction, covenant, agreement or other provision of this Agreement
shall in no way affect the validity or enforcement of any other provision or
part thereof.
11.NO AGENCY.
Shulman shall not, without the express written consent of the
Company, hold himself out as the agent of the Company, nor shall Shulman have
the authority to bind the Company or incur liabilities on behalf of the Company,
except as otherwise provided for herein, without the express written consent of
the Company.
12.NOTICES.
All notices to be given hereunder shall be in writing, with fax
notices being an acceptable substitute for mail and/or and delivery to:
(i) Shulman &Associates, Inc.
7777 Glades Road, Suite 201
Boca Raton, Florida 33434
Att. Manny Shulman, President
(ii) Aquagenix Inc.
6500 NW 15th Avenue
Ft. Lauderdale, Florida 33309
Att. Andrew Chesler, President
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
AQUAGENIX, INC.
BY: /s/ Andrew Chesler
--------------------------
Andrew Chesler,President
SHULMAN & ASSOCIATES,INC.
BY: /s/ Manny Shulman
--------------------------
Manny Shulman, President
Subsidiaries of the Company
Aquagenix Land-Water Technologies, Inc. (formerly known as Environmental
Waterway Management, Inc.)
Aquagenix Land-Water Technologies of Arizona, Inc.
Aquatic Dynamics, Inc.
Aquatic and Right of Way Control, Inc.
Aquagenix Land-Water Technologies of Georgia, Inc. (formerly known as Good
Shepherd, Inc. d/b/a Green Pastures, Inc.)
Florida Underground Petroleum Tank Contractors, Inc.
AmerAquatic, Inc. (formerly known as Haas Environmental Services, Inc.)
COOPERS & LYBRRNDS LLP
March 21, 1997
Board of Directors
c/o Mr. Andrew Chesler
6500 N.W. 15 Avenue
Fort Lauderdale, FL 33309
Dear Members of the Board:
Enclosed is our manually signed report on our audits of the 1996 and 1995
financial statements of Aquagenix, Inc. and Subsidiaries.
Our manually signed report serves to authorize the use of our name on our report
in the electronic filing of the Company's financial statements with the SEC.
Please provide us with an exact copy of the entire document as electronically
filed with the SEC.
Very truly yours,
/s/ Bill R. Tillett
--------------------
Bill R. Tillett
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF AQUAGENIX, INC. AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-30-1996
<CASH> 890,731
<SECURITIES> 158,492
<RECEIVABLES> 1,152,692
<ALLOWANCES> 88,541
<INVENTORY> 339,114
<CURRENT-ASSETS> 2,943,228
<PP&E> 3,637,156
<DEPRECIATION> 1,187,002
<TOTAL-ASSETS> 12,030,827
<CURRENT-LIABILITIES> 2,153,111
<BONDS> 0
0
0
<COMMON> 41,634
<OTHER-SE> 4,509,313
<TOTAL-LIABILITY-AND-EQUITY> 12,030,827
<SALES> 0
<TOTAL-REVENUES> 11,467,830
<CGS> 6,482,852
<TOTAL-COSTS> 10,602,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621,984
<INCOME-PRETAX> 243,689
<INCOME-TAX> 0
<INCOME-CONTINUING> 243,689
<DISCONTINUED> (758,332)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (514,634)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
