As Filed with the Securities and Exchange Commission on December 12, 1997
Registration No. 33-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
______________
AQUAGENIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0419263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 N.W. 15th Avenue
Fort Lauderdale, Florida 33309
(954) 975-7771
----------------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
______________________________
Andrew P. Chesler
Chief Executive Officer
6500 N.W. 15th Avenue
Fort Lauderdale, Florida 33309
(954) 975-7771
----------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Roxanne K. Beilly, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
(954) 763-1200
----------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
If this Form is filed to register to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ] ______________.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount of
Shares to be to be Price Per Offering Registration
Registered Registered Share (1) Price (1) Fee
================================================================================
Common Stock,
$.01 par value
per share 180,000 $6.85 (2) $1,233,000 (2) $363.74
Common Stock,
$.01 par value
per share 100,000 $5.00 (3) $ 500,000 (3) $147.50
-------
Total $511.24
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(b).
(2) The maximum offering price is estimated based on the low and high prices
on December 10, 1997.
(3) The maximum offering price is estimated based on the exercise price of the
stock options underlying the shares of Common Stock which are being
registered in this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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Subject to Completion, dated December 12, 1997
PROSPECTUS
280,000 Shares of Common Stock
AQUAGENIX, INC.
The 280,000 shares (the "Shares") of Common Stock, par value $.01 per
share ("Common Stock") offered hereby are being sold by certain selling
stockholders (the "Selling Stockholders") of Aquagenix, Inc. (the "Company"), if
at all, on a delayed basis. The 180,000 Shares to be sold by one of the Selling
Stockholders are issuable pursuant to a Subscription Agreement (the
"Agreement"), and Warrants issued pursuant thereto, dated October 27, 1997
between the Company and the Selling Stockholder. See "Business -Subscription
Agreement." The remaining 100,000 shares are issuable upon conversion of options
("Options") held by the other Selling Stockholder, pursuant to a restated option
agreement dated April 1, 1997.
The Company's Common Stock and Warrants are quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") under
the symbols "AQUX" and "AQUXW." On December 10, 1997 the closing price on NASDAQ
for the Common Stock was $6-7/8 and the closing price for the Warrants was
$1-3/4.
__________________________________
THESE SECURITIES ARE SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 5 THROUGH 15.
__________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________________
The date of this Prospectus is December __, 1997
[Front Cover Page Continues]
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The securities registered hereby may be sold from time to time in one or
more transactions that may take place on the over-the-counter market, including
ordinary brokerage transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the Shares offered hereby. Expenses of this offering, other than fees and
expenses of counsel to the selling securityholders and selling commissions, will
be paid by the Company. The Company will pay all offering expenses for the
offering, estimated at approximately $17,000 including (i) legal fees and
expenses ($5,500.00); (ii) accounting fees and expenses ($7,500.00); (iii)
printing expenses ($3,000.00); and (iv) miscellaneous expenses ($1,000.00), but
will not pay any discounts or commissions incurred by the Selling Stockholders
in connection with the sale of their Shares of Common Stock.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed with the Commission can be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http//www.sec.gov.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the resale of the securities described
herein. This Prospectus, which is Part I of the Registration Statement, omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits thereto. Statements in this Prospectus as to any document are not
necessarily complete, and where any such document is an exhibit to the
Registration Statement or is incorporated by reference herein, each such
statement is qualified in all respects by the provisions of such exhibit or
other document, to which reference is hereby made, for a full statement of the
provisions thereof. A copy of the Registration Statement, with exhibits, may be
obtained from the Commission's office in Washington, D.C. (at the above address)
upon payment of the fees prescribed by the rules and regulations of the
Commission, or through the Website are examined there without charge.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 4
RISK FACTORS............................................................... 5
USE OF PROCEEDS............................................................ 15
THE COMPANY................................................................ 15
SELLING STOCKHOLDERS....................................................... 38
PLAN OF DISTRIBUTION....................................................... 39
DESCRIPTION OF SECURITIES.................................................. 41
LEGAL MATTERS.............................................................. 46
EXPERTS.................................................................... 46
INDEMNIFICATION............................................................ 46
The Common Stock and Warrants are traded on the NASDAQ National Market
System ("NMS") under the symbols "AQUX" and "AQUXW," respectively. The low and
high prices of the Common Stock as reported on the NMS on December 10, 1997 were
$6- 3/4 and $6-31/32, per share, respectively. The low and high prices of the
Warrants as reported on the NMS on December 10, 1997 were both $1-3/4 per
warrant, respectively.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained in this Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders.
__________________________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
__________________________________
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The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission.
The Company has previously and intends to furnish its stockholders with
annual reports containing audited financial statements and distributes quarterly
reports containing unaudited summary financial information for each of the first
three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
I. Annual Report of the Company on Form 10-KSB for the fiscal year ended
December 31, 1996.
(a) Quarterly Reports of the Company on Form 10-QSB for the quarters
ended March 31, 1997, and June 30, 1997 and September 30, 1997.
(b) The Company's current report on Form 8-K dated May 20, 1997.
(c) All reports and documents filed by the Company pursuant to Section
13, 14 or 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered
hereby have been sold or which de-registers all securities then
remaining unsold, shall be deemed to be incorporated by reference
herein and to be a part hereof from the respective date of filing of
such documents. Any statement incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
other subsequently filed document, which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such
statement. Any statement modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this
Prospectus.
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The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to Corporate Secretary, Aquagenix,
Inc. at the Company's principal executive office, 6500 N.W. 15th Avenue, Fort
Lauderdale, Florida 33309, Telephone (954) 975- 7771.
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS
WELL AS THE OTHER INFORMATION SET FORTH IN THE PROSPECTUS, IN CONNECTION WITH AN
INVESTMENT IN THE SHARES OFFERED HEREBY.
LIMITED OPERATING HISTORY; NEWLY ACQUIRED BUSINESSES. The Company was
organized in May 1993 and has a limited operating history upon which an
evaluation of the Company's performance and prospects can be made. The Company's
prospects must be considered in light of the numerous risks, expenses, delays,
problems and difficulties frequently encountered in the establishment of a new
business in industries characterized by emerging markets, intense competition
and stringent government regulation. In that regard, the Company, after
sustaining significant losses from its remediation business, made a
determination to discontinue that business. Accordingly, there can be no
assurance that the Company will be able to successfully manage its aquatic and
industrial vegetation management operations or that failure to do so will not
exacerbate the risks inherent in the establishment of a new business.
ABSENCE OF SUBSTANTIAL PROFITABILITY; ACCUMULATED DEFICIT; PRIOR LOSS;
FUTURE OPERATING RESULTS. Although the Company has achieved increased levels of
revenues for the years ended December 31, 1994, 1995 and 1996, and the nine
months ended September 30, 1997, the Company has only achieved limited
profitability. For the year ended December 31, 1996, the Company had a net
income from continuing operations of $243,698. However, the Company incurred a
net loss of $1,552,735 for the nine months ended September 30, 1997. The
Company's operating expenses have increased and can be expected to increase
significantly in connection with the Company's proposed expansion and,
accordingly, the Company's future profitability may depend on corresponding
increases in revenues from operations. Future events, including unanticipated
expenses, increased competition or changes in government regulation, resulting
in decreased demand for aquatic and industrial vegetation management services,
could have an adverse affect on the Company's operating margins and results of
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operations. There can be no assurance that the Company's rate of revenue growth
will continue in the future or that the Company's future operations will be
profitable.
PROPOSED EXPANSION; ABILITY TO MANAGE GROWTH. Although the Company intends
to pursue a strategy of growth and will seek to expand the range of its services
and penetrate new geographic markets, the Company has achieved limited growth to
date and has limited experience in effectuating rapid expansion or in managing
operations which are geographically dispersed. The Company's proposed expansion
will be dependent on, among other things, the Company's ability to obtain
additional contracts (through the competitive bidding process or otherwise),
purchase or lease necessary equipment, obtain necessary construction and/or
operating permits and performance bonds, hire and retain skilled management,
financial, marketing, technical and other personnel and successfully manage
growth (including monitoring operations, controlling costs and maintaining
effective regulatory compliance procedures). To date, the Company's operations
have been limited to the States of Alabama, Arizona, California, Florida,
Georgia, North and South Carolina. The Company's growth prospects will be
largely dependent upon the Company's ability to achieve greater penetration in
existing markets as well as to achieve significant penetration in new geographic
markets. The Company's prospects could be adversely affected by unfavorable
general economic conditions, including any future downturns in the economy, or a
decline in the economic prospects of particular governmental or commercial
customers or segments of targeted markets, which could result in reduction or
deferral of expenditures by prospective customers. The Company's future growth
will also be dependent upon continued favorable regulatory environments and the
Company's ability to adapt its operations to satisfy evolving industry, customer
and regulatory requirements, standards and trends. The Company is also seeking
to expand its operations through the possible acquisition of existing companies
in businesses which the Company believes are compatible with its business. The
Company is presently engaged in identifying candidates for acquisition but has
no plans, agreements, understandings or arrangements with respect to any
acquisition. The Company has not established any minimum criteria for any
acquisition and management will have complete discretion in determining the
terms of any such acquisition. There can be no assurance that the Company will
be able to successfully expand its operations or ultimately effect any
acquisition, or that the Company will be able to successfully integrate into its
operations any business which it may acquire. Any inability to integrate into
its operations an acquired business, particularly in instances in which the
Company has made significant capital investments, would have a material adverse
effect on the Company. In addition, in the event the Company expands its
operations and/or effectuates additional acquisitions, there can be no assurance
that the Company will be able to successfully manage its expanded operations or
that failure to do so will not exacerbate the risks inherent in the
establishment of a new business. See "Use of Proceeds" and "Business - Proposed
Expansion."
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RISKS OF NEW PHASE OF OPERATIONS. Subsequent to the Company's initial
public offering, the Company expanded both its aquatic and vegetation management
and environmental remediation businesses by internal growth as well as by
acquisitions. However, in November of 1995, the Company's Board of Directors
approved a plan to dispose of the environmental remediation business segment in
view of the continued losses of the environmental remediation services division
and the operational problems associated with it. The Company is now
concentrating its future resources on the expansion of its aquatic and
industrial vegetation management business. Accordingly, results of operations in
the future will be influenced by numerous factors including the ability of the
Company to successfully acquire and integrate recently acquired companies or
companies to be acquired in the future within its operations, increases in
expenses associated with growth, competition and the ability of the Company to
control costs. There can be no assurance that revenue growth will be sustained
or that profitability will occur. Additionally, the Company will be subject to
all the risks incident to a rapidly developing business and the risks associated
with expanding operations. Accordingly, there can be no assurance that the
Company will be able to implement its business plan, expand its operations and
develop and sustain profitable operations in the future. See "Business Proposed
Expansion."
GOVERNMENT REGULATION. The aquatic and industrial vegetation management
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 nonhazardous
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 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. Amendments to
existing statutes and regulations, adoption of new statutes and regulations and
the Company's expansion into new jurisdictions and aquatic management services
could require the Company to continually alter methods of operations at costs
that could be substantial. Almost all states have commenced regulating the
handling of hazardous substances and wastes, and the Company could be subject to
substantial liability under government regulations to private parties and
governmental entities, in some instances without any fault, if the Company is
responsible for the improper disposal or release or threatened release of any
hazardous substance. 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 geographic
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
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a material adverse effect on the Company. 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 industrial vegetation management industry
could also adversely affect the Company.
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. See "The Company Government Regulation" and "-
Legal Proceedings."
COMPETITIVE BIDDING; FIXED PRICE CONTRACTS. The Company has obtained and
expects to continue to obtain a significant portion of its contracts for its
services through the process of competitive bidding. There can be no assurance
that the Company will continue to be successful in having its bids accepted or,
if accepted, that awarded contracts will generate sufficient revenues to result
in profitable operations. 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 not be accepted. Additionally,
inherent in the competitive bidding process is the risk that actual performance
costs may exceed the projected costs upon which submitted bids or contract
prices are based. Moreover, certain of the Company's contracts are negotiated on
a fixed price basis and involve the risk of cost overruns due to inaccurate
pricing, inefficient project management or cost estimates and disputes arising
in connection with the performance of services. To the extent that actual costs
exceed projected costs on which bids or contract prices are based, the Company
could incur losses, which would adversely affect the Company's operating margins
and results of operations. See "The Company Marketing."
DEPENDENCE ON SIGNIFICANT CONTRACTS AND CUSTOMERS. The Company has been
dependent on a limited number of recurring annual contracts for a significant
portion of its revenues. For the years ended December 31, 1994, 1995, 1996, and
the nine months ended September 30, 1997, the Company's five largest customers
accounted for approximately 37%, 21%, 19% and 5%, respectively, of the Company's
revenues. The Company through its wholly-owned subsidiaries has a broad base of
customers. No one customer accounts for more than 5% of the Company's total
revenue for the year ended December 31, 1996, and the nine months ended
September 30,1997. There can be no assurance that the Company will obtain
additional contracts for projects similar in scope to those previously obtained,
that the Company will obtain additional contracts for projects similar in scope
to those previously obtained, that the Company will be able to 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. See
"The Company - Customers."
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DEPENDENCE ON GOVERNMENT CONTRACTS. For each of the years ended December
31, 1994, 1995, 1996, and the nine months ended September 30,1997, approximately
40%, 34%, 19%, and 20%, respectively, of the Company's revenues were derived
from services provided to governmental customers. It is anticipated that a
substantial portion of the Company's future revenues will continue to be derived
from 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 governmental's policies or as a result of budgetary
constraints; and increased or unexpected costs resulting in losses, all of which
could have a material adverse effect on the Company. See "The Company
Customers."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH; INTERNAL CONTROL DEFICIENCIES
The Company has recently experienced and may continue to experience substantial
growth in the number of employees and the scope of its operations, resulting in
increased responsibilities for management. To manage growth effectively, the
Company will need to continue to improve its operational, financial and
management information systems and to develop and maintain sound internal
controls. There can be no assurance that the Company will be able to effectively
achieve or manage any future growth, or develop and maintain strong internal
controls. Such failure could result in a material adverse effect on the
Company's financial condition and results of operations and could result in a
misstatement of operating results.
COMPETITION. The aquatic and industrial vegetation management industry is
highly competitive. The Company faces competition from several large,
financially strong companies which offer integrated services in the industry and
numerous smaller companies which provide the same or similar services as those
of the Company. Certain of the Company's competitors are well established and
may have stronger financial, marketing, technical, personnel and other resources
than the Company, have significant bonding capabilities, and have established
reputations for success in the aquatic and industrial vegetation management
industry. In addition, certain of these competitors offer services or products
not currently offered by the Company and have capabilities not currently
possessed by the Company. Although it has been the Company's experience that
there are available subcontractors which possess capabilities which can be
integrated with those offered by the Company, competitors which possess these
capabilities internally may be able to provide such services more cost
effectively or otherwise have a competitive advantage over the Company. There
can be no assurance that the Company will be able to compete successfully. See
"The Company - Competition."
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SIGNIFICANT BONDING REQUIREMENTS. 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. A significant portion of the Company's revenue is derived from
contracts or projects which require the Company to post bid and/or performance
bonds. To date, the Company has been able to obtain bonds in amounts up to
approximately $4,000,000 per bond. 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 security necessary to obtain bonding coverage will be
available in the future or that the Company will be able to obtain bonds in the
amounts required or have the ability to increase its bonding capacity to bid on
and obtain larger contracts. Any inability to obtain bonding coverage would have
a material adverse effect on the Company. See "The Company - Insurance and
Bonding."
POTENTIAL LIABILITY AND INSURANCE. The aquatic and industrial vegetation
management industry 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 on-site or off-site
services, including spillage, misuse or mishandling of hazardous or
non-hazardous waste materials, or 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 waste site
investigation, waste 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 carries insurance coverage
which the Company considers sufficient to meet regulatory and customer
requirements and to protect the Company's assets and operations. The Company
also obtains additional insurance as required on a project-by-project basis. The
Company attempts to operate in a professional and prudent manner and to reduce
its liability risks through specific risk management efforts. 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. 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. See "The Company - Insurance and Bonding."
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OUTSTANDING INDEBTEDNESS; LOAN COVENANTS AND SECURITY INTERESTS; PERSONAL
GUARANTEES. In order to finance the Company's operations and acquisitions, the
Company has incurred significant indebtedness. Of the Company's total
indebtedness of $6,097,352 outstanding at December 31, 1996, an aggregate of
approximately $512,000 in relation to the continuing operations was outstanding
under loan agreements with SunTrust Bank, Miami, N.A. ("SunTrust"). In April
1997, the Company entered into loan agreements with Capital Bank (the "Bank")
which replaced all credit facilities with SunTrust. Of the Company's total
indebtedness of $6,683,090 outstanding at September 30, 1997, an aggregate of
approximately $783,000 was outstanding under loan agreements with the Bank. In
order to finance the AmerAquatic acquisition in October 1995, the Company issued
to the Equitable Life Assurance Society of the United States "Equitable", a
12.50% Senior Secured Note due October 31, 2003 in the principal amount of
$5,000,000. Substantially all of the Company's assets are pledged to the Bank
and Equitable as collateral, and the Company is prohibited from incurring senior
indebtedness above $5 million, which could, under certain circumstances, limit
the Company's ability to implement its proposed expansion. In addition to
covenants requiring the Company to maintain certain levels of net worth and
financial ratios, the Company's loan agreements with the Bank and Equitable
limit or prohibit the Company, subject to certain exceptions, from declaring or
paying dividends, making capital distributions or other payments to
stockholders, merging or consolidating with another corporation or selling all
or substantially all of its assets. The Company is in compliance with all of the
covenants contained in the loan agreements with its lenders. In the event of a
violation by the Company of any of its loan covenants or other default by the
Company on its obligations, the Bank could declare the Company's indebtedness to
be immediately due and payable and foreclose on the Company's assets.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS; OUTSTANDING ACCOUNTS
RECEIVABLE; CREDIT AND COLLECTION RISKS. The Company's operating results may
vary from period to period as a result of the length of the Company's sales
cycle, as well as from the purchasing patterns of potential customers and
variations in sales by industry segment. The Company's sales cycle, which
generally commences at the time a prospective customer issues a request for
proposal or otherwise demonstrates to the Company an interest in utilizing the
Company's services and ends upon execution of a contract with that customer,
typically ranges from one to four months. Accordingly, revenues may be
recognized by the Company even though associated cash payments have not been
received. Trade accounts receivable outstanding averaged approximately 39 days
and 32 days and 35 days for services performed on account in 1995, 1996 and for
the nine months ended September 30, 1997, respectively. In addition, the Company
has a long term accounts receivable relating to a contract with Riverfront
Associates ("Riverfront") for which a reimbursement application for work
completed (the "Riverfront Project") has been filed with the State of Florida
Department of Environmental Protection ("DEP") under the Abandoned Tank
Restoration Program. As a result of funding schedules imposed by the State of
Florida, this receivable may be extended for up to 36 months. The contract with
Riverfront also provides that if the funds of DEP are insufficient to reimburse
the Company for a period of twenty-four (24) months after submittal of the
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reimbursement application to DEP, Riverfront shall be responsible for the
payment of the outstanding balance in ten (10) monthly installments, subject to
certain conditions. 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. The Company's accounts receivable, less allowances for doubtful
accounts, at December 31, 1995 were $999,817 as compared to $1,064,151 at
December 31, 1996. At September 30, 1997, the Company's allowance for doubtful
accounts was $142,297 which the Company believes is currently adequate to cover
anticipated losses. Nevertheless, delays in collection or uncollectibility of
accounts receivable could have an adverse effect on the Company's liquidity and
working capital position and could require the Company to increase its allowance
for doubtful accounts. See "The Company - Marketing."
UNCERTAINTY OF DEMAND FOR COMPANY SERVICES. Although the Company believes
that there is significant demand for aquatic and industrial vegetation
management services, the aquatic and industrial vegetation management industry
is an emerging industry with relatively limited operating histories. As is
typically the case in emerging industries, demand and market acceptance for the
Company's services are subject to a high level of uncertainty. Demand for the
Company's services could be adversely affected by numerous factors beyond its
control, including changes in governmental regulations affecting the industries
in which it operates, the introduction of new technologies and increased
competition. In light of the evolving nature of the aquatic and industrial
vegetation management services industry, there can be no assurance as to the
ultimate level of demand and market acceptance for the Company's services. See
"The Company."
DEPENDENCE ON THIRD-PARTY SUPPLIERS AND SUBCONTRACTORS. The Company is
dependent upon third-party suppliers and manufacturers for all of its
requirements of algicides, herbicides, fish, fountains and aeration systems used
in its operations. Although the Company believes that alternative sources of
supply are available, failure by such suppliers or manufacturers to continue to
supply the Company with products on commercially reasonable terms, or at all, in
the absence of readily available alternative sources, would adversely affect the
Company's ability to deliver products and provide services on a timely and
competitive basis. In addition, the Company currently does not own or lease
certain specialized equipment, including mechanical harvesting or certain
planting equipment, or treatment, transportation or storage and is dependent
upon third party subcontractors to provide necessary equipment, know-how,
transportation and other facilities for its aquatic and industrial vegetation
management business 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 would be materially adversely affected. See "The Company -
Suppliers and Subcontractors."
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NASDAQ SYSTEM LISTING. The Company's Common Stock and Warrants are
included on the NASDAQ system. The continued listing criteria include (a) that a
company has net tangible assets of at least: (I) $1,000,000; or (ii) $2,000,000
if the issuer has sustained losses from continuing operations and/or net losses
in two of its three most recent fiscal years; or (iii) $4,000,000 if the company
sustained losses from continuing operations and/or net losses in three of its
four most recent fiscal years; (b) a market value of the publicly held shares of
$1,000,000, and (C) a minimum bid price of $1.00 per share of Common Stock. If
an issuer does not meet the $1.00 minimum bid price standard, it may, however,
remain in the NASDAQ system if the market value of its public float is at least
$3,000,000 and the issuer has $4,000,000 of total assets. If the Company became
unable to meet the continued listing criteria of the NASDAQ system and became
delisted therefrom, trading, if any, in the Common Stock and the Warrants would
thereafter be conducted in the NASDAQ SmallCap Market, if the Company qualified,
Over the Counter Market in the s-called "pink sheets" or, if the available, the
electronic bulletin board administered by the National Association of Securities
Dealers, Inc. (the "NASD"). As a result, an investor would likely find it more
difficult to dispose of, or to obtain accurate quotations as to the value of,
the Company's securities. If the Company's securities were delisted from the
NASDAQ system, they may become subject to Rule 15c2-6 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), which imposes additional
sales practice requirements on broker/dealers which sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
this Rule, a broker/dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to the sale. Consequently, the Rule may effect the ability of
broker/dealers to sell the Company's securities and may effect the ability of
purchasers in this offering to sell any of the securities acquired hereby in the
secondary market.
The Securities and Exchange Commission (the "Commission") has also adopted
regulations which define a "penny stock" to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the regulations require
the delivery, prior to any transaction in a penny stock, of a disclosure
schedule mandated by the Commission relating to the penny stock market.
Disclosure is also required to be made about compensation payable to both the
broker/dealer and the registered representative in current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on the NASDAQ system and have certain
price and volume information provided on a current and continuing basis, or meet
certain minimum net tangible assets for average revenue criteria. There can be
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no assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the 1934 Act,
which gives the Commission the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of a penny stock from
associating with a broker/dealer or participating in a distribution of penny
stock if the Commission finds that such a restriction would be in the public
interest.
CONTROL BY CURRENT STOCKHOLDERS. As of the date hereof, Andrew P. Chesler,
Chairman, Chief Executive Officer and President of the Company, will have
beneficial ownership of approximately 23.1% of the Company's outstanding Common
Stock (assuming exercise of his options and no exercise of outstanding
Warrants). Accordingly, Andrew P. Chesler will be able to control the Company,
elect all of the Company's directors, increase the authorized capital, dissolve,
merge, sell the assets of the Company and generally direct the affairs of the
Company.
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of 1,000,000 shares of "blank check"
preferred stock with such designation, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities."
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be highly
dependent upon the performance of its senior management and, in particular,
Andrew P. Chesler, the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Chesler has a five-year employment agreement with
the Company whereby he has agreed to devote substantially all of his business
time to the affairs of the Company. The Company does not have employment
agreements with any other executive officers or senior managers. The Company has
obtained "keyman" life insurance in the amount of $5,000,000 on the life of
Andrew P. Chesler. The success of the Company is also dependent upon its ability
to hire and retain additional qualified personnel. The loss of Andrew P. Chesler
or other key personnel or an inability to attract and retain additional key
personnel could have a material adverse effect on the Company's business.
UNCERTAINTY OF FUTURE DIVIDENDS ON COMMON STOCK. The Company has not paid
any cash dividends on its Common Stock to its stockholders, and does not expect
to declare or pay any cash dividends in the foreseeable future. See "Description
of Securities - Dividends." See "Description of Securities - Common Stock."
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EXPENSES OF OFFERING. The Company will pay all offering expenses for the
offering, estimated at approximately $17,000 including (I) legal fees and
expenses ($5,500.00); (ii) accounting fees and expenses ($7,500.00); (iii)
printing expenses ($3,000.00); and (iv) miscellaneous expenses ($1,000.00), but
will not pay any discounts or commissions incurred by Selling Stockholder in
connection with the sale of its Shares of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALES. Sales of substantial numbers of
additional shares of Common Stock of the Company, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. As of the date hereof 4,540,404 shares of Common Stock are
outstanding. As of the date hereof, of the outstanding shares, 3,449,983 shares
are tradeable in the public market without restriction under the Securities Act
of 1933, as amended (the "Securities Act"), except for any shares of Common
Stock purchased by an "affiliate" of the Company (as that term is defined under
the rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 under the Securities Act.
USE OF PROCEEDS
In the event all of the Options issued to Patrick Guadagno and warrants
issued to Alexander Enterprise Holdings Corp. were to be exercised, the Company
would receive net proceeds of approximately $963,000, after payment of offering
expenses estimated to be approximately $17,000. It is anticipated that the net
proceeds, if any, will be used by the Company for working capital associated
with continuing operations. There can be no assurances that any of the Options
will be exercised. Pending utilization of the proceeds as described above, the
net proceeds from the exercise of Options will be deposited in interest bearing
accounts or invested in money market instruments, government obligations,
certificates of deposits or similar short-term investment grade interest bearing
investments.
THE COMPANY
Description of Business
- -----------------------
(a) Background
----------
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.
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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") now known as AmerAquatic, Inc. 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
-----------------
The Company offers a variety of aquatic and industrial vegetation
management services, consisting primarily of the control of aquatic weeds, algae
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.
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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.
With annual revenues of approximately $11,500,000 for 1996, the Company
believes it is 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,
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the Company began 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 has secured more industrial
vegetation contracts which are generally larger in value per contract as
compared to the aquatic vegetation contracts. Industrial vegetation management
services accounted for 22% of the Company's total revenues for the nine months
ended September 30, 1997.
(c) Business of Issuer
------------------
COMPANY SERVICES
AQUATIC WEED, ALGAE AND EXOTIC PLANT CONTROL. 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 and the nine months ended
September 30, 1997, aquatic weed, algae and exotic plant control services
accounted for approximately 93%, 77% and 67%, respectively, of the Company's
revenues.
INDUSTRIAL VEGETATION MANAGEMENT. The 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.
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For the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997, industrial vegetation management services accounted for
approximately 3%, 17% and 22%, respectively, of the Company's total revenues
from continuing operations.
WETLAND PLANTING AND RESTORATION. The preservation and propagation of
wetland areas has become recognized as an important part of maintaining the
ecosystem. 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, 1996 and 3% for the nine months ended September 30, 1997. 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
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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.
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),
Athens (Georgia), Alabaster (Alabama) and Martinez (California). 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
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commercial companies. The Company's expansion strategy is: (i) to acquire
similar and complementary businesses and integrate their operations into the
existing business so as to create economies of scale and provide a fully
integrated, customized service package for its customers; (ii) to intensify
marketing efforts through the Company's specialized marketing team in providing
a comprehensive approach to integrated vegetation management, especially
targeted at utilities and municipalities; (iii) open additional decentralized
branch offices that allow the Company to expand its geographic markets while
maintaining quality service and minimizing operating expenses; and (iv) 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 and senior management in
order to provide the appropriate infrastructure to integrate the acquisitions
planned for under its growth strategy.
The Company intends to aggressively apply its growth strategy of acquiring
similar business 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.
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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
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 a
two-year employment agreement with a former shareholder of ADI who is
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
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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 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
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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
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.
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PROPOSED ACQUISITION OF LEWIS TREE SERVICES, INC.
On November 30, 1997, Aquagenix, Inc. (the "Company") entered into a Stock
Purchase Agreement (the "Acquisition Agreement") with Thomas Terry, Jr.
("Terry") to acquire all of the issued and outstanding stock of Lewis Tree
Service, Inc. ("Lewis"), a privately-owned business located in Rochester, New
York. The purchase price for the stock will be Twenty- five Million
($25,000,000) Dollars plus shares of Common Stock of the Company having a Fair
Market Value (as defined in the Acquisition Agreement) equal to the Applicable
Percentage (defined below) of Lewis' EBITDA for the twelve (12) months ended
October 31, 1998. The Applicable Percentage shall be as follows: (i) if EBITDA
is at least $6,000,000, the Applicable Percentage shall be sixty (60%) percent,
(ii) if EBITDA is at least $5,250,000 but less than $6,000,000, the Applicable
Percentage shall be fifty (50%) percent, (iii) if EBITDA is at least $4,500,000
but less than $5,250,000, the Applicable Percentage shall be forty (40%)
percent, and (iv) if EBITDA is less than $4,500,000, the Applicable Percentage
shall be twenty-five (25%) percent.
The proposed Acquisition is subject, among other things, to the Company's
obtaining the required financing for the Acquisition and the necessary credit
facilities to finance and/or repay the working capital requirements and the
current debt obligations of Lewis. The closing (the "Closing") shall take place
on January 31, 1998 unless extended by the Company to March 31, 1998 by
complying with the terms and conditions of the Escrow Agreement.
Under the terms of the Escrow Agreement the Company has deposited Six
Hundred Seventy Thousand ($670,000) Dollars (the "Escrow Amount") with the
Escrow Agent. If the Closing of the Acquisition has not occurred by January 31,
1998, and the Company has not terminated the Acquisition Agreement no later than
five (5) business days after the Company receives the audited financial
statements of Lewis as at October 25, 1997 which are materially and adversely
different from the unaudited balance sheet of Lewis as at October 25, 1997, the
Company shall either (a) elect to extend the term of the Agreement to March 31,
1998 and make an additional deposit with the Escrow Agent sufficient to increase
the Escrow Amount to Two Million Five Hundred Thousand ($2,500,000) Dollars or
(b) the Escrow Agent shall pay the Escrow Amount to Terry and the Agreement will
terminate, provided that certain conditions have been met, including but not
limited to, the accuracy in all material respects of all representations and
warranties made by Lewis in the Acquisition Agreement, no prohibition on the
sale of the stock by Terry and no material adverse change in the properties,
assets, business, financial condition or prospects of Lewis since the date of
the Acquisition Agreement.
Founded in 1938, Lewis also known as Monroe Tree Service, is believed to
be one of the oldest and largest tree trimming vegetation management companies
in the United States with approximately 1,000 employees. It provides vegetation
management services to utilities and government entities in eighteen states
throughout the eastern United States.
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Based on the audited financial statements for the fiscal year ended
October 25, 1997, Lewis generated total revenues of approximately $50 million.
The top ten customers of Lewis accounted for approximately 64% of the total
revenues for 1997.
This business combination of the Company and Lewis should further expand
the Company's operations throughout eastern United States. With the established
customer base of Lewis and its reputation for quality service, combined with the
Company's technology and infrastructure, this acquisition will expand the range
of vegetation management services and enable the combined company to provide
integrated vegetation management solutions to the utility and governmental
customers. Members of the executive management team of Lewis will remain with
the Company to ensure a seamless transition for its customers with the added
benefits of expanded service capabilities and significantly broader insurance
and bonding coverages.
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 74 customers in
the public sector and approximately 3,500 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%) and 76% of total revenues for the
nine months ended September 30, 1997. 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. For the nine months
ended September 30, 1997, 20% of its revenues were derived from governmental
customers. 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.
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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 nine months
ended September 30, 1997, the Company has further broadened its customer base
and no one customer accounts for more than 5% of the Company's total revenues.
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 $10 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.
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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.
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 eleven 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.
In 1997, the Company established a specialized marketing team consisting
of four persons, directed by the President of the main operating subsidiary. The
specialized marketing team of the Company have been targeting their efforts at
governmental agencies and utility and power companies. Management believes that
these customer segments have the most substantial demand potential for the
Company's services as a result of active deregulation and increased competition
which results in the outsourcing of their in-house services. Due to the greater
levels of competition and cost awareness, these utility companies and
municipalities must seek the most efficient and cost-effective methods of
delivering their core services. The average selling cycle ranges from 12-18
months for governmental contracts and 6-12 months for utility contracts.
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
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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.
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
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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, and allow 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
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
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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.
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 dis posal 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.
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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
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.
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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.
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.
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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 November 25, 1997, the Company had approximately 145 employees, all
of whom are full-time employees, which includes 30 administrative staff, 12
branch managers, 16 sales personnel, 73 applicators and 14 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.
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
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<PAGE>
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 collateralized 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 may 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. 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.
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.
In addition to its corporate headquarters, the Company conducts its
aquatic and industrial vegetation management business out of the following
branch offices:
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<PAGE>
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 extended the lease for an additional year. Annual lease payment is
approximately $41,400, 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 extended the term of the lease for an additional two years. The
Company's annual lease payments for the two years of the lease are approximately
$19,400 and $20,400, 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.
The Company has 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 lease has been extended for an additional year. The Company's annual lease
payment is $14,400, 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 three-year lease which commenced May 1, 1997. The monthly
lease payment is $3,250 in addition to all expenses borne by triple net lease
terms, including, but not limited to, real estate taxes. The Company has the
option to renew the lease for one additional three-year term and then
subsequently for four additional two-year terms.
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.
SUBSCRIPTION AGREEMENT
On October 27, 1997 the Company and Alexander Enterprise Holding Corp.,
the Selling Stockholder entered into a Subscription Agreement ("Agreement")
pursuant to which the Selling Stockholder purchased shares of Common Stock of
the Company and 60,000 Warrants for an aggregate purchase price of $700,000. The
Agreement provides that the Selling Stockholder will receive a number of shares
of Common Stock in the Company equal to $700,000 divided by the "fair market
value" of the Company's Common Stock on the date of notice of exercise is
provided to the Company by the Selling Stockholder. The term "fair market value'
of the Company's shares of Common Stock as used in the Agreement means 85% of
the average closing bid price of the Company's Common Stock, as reported by the
principal exchange on which the Common Stock is traded, the Nasdaq National
Market System or the National Quotation Bureau, Incorporated, as the case may
be, for ten consecutive trading days immediately prior to the date of the notice
of exercise. Notwithstanding anything contained in this Agreement to the
contrary, the maximum amount of Shares that the Selling Stockholder can receive
pursuant to the Agreement shall not exceed 19.99% of the Company's currently
issued and outstanding shares of Common Stock. Notice to receive all or any
portion of the amount of shares of Common Stock pursuant to the Agreement will
be determined at the option of the Selling Stockholder any time commencing
ninety (90) days from the date of the Agreement and ending on December 31, 1998.
Each Warrant issued pursuant to the Agreement is exercisable at $8.00 per share
commencing on the date of such Agreement and continuing for a period of two
years. The proceeds received pursuant to the Agreement were substantially used
as a deposit pursuant to the Letter of Intent with Lewis Tree Service Inc. See
"Business - Proposed Acquisition of Lewis Tree Service, Inc."
SELLING STOCKHOLDERS
The following table sets forth the names of each Selling Stockholder, the
amount of shares of Common Stock directly or indirectly owned by the Selling
Stockholders on the date hereof, the amount of Shares to be offered by the
Selling Stockholders, and the amount and percentage of shares of Common Stock to
be owned by the Selling Stockholders following sale of the Shares. As of the
date hereof, there were outstanding 4,540,404 shares of Common Stock of the
Company.
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Shares Number of Shares Shares Beneficially Beneficially
Beneficially Being Offered Owned After Owned After
Name Owned For Sale This Offering(1) This Offering
- ---- ----- -------- ---------------- -------------
<S> <C> <C> <C> <C>
Alexander Enterprise
Holdings Corp............ 240,000(2)(3) 180,000(2) 60,000(3) 1.3%
Patrick Guadagno........... 380,000(4) 100,000(5) 280,000 6.2%
__________________________
(1) Assumes all of the shares being registered will be sold.
(2) Includes: (a) 120,000 shares issuable pursuant to the terms of a written Subscription Agreement
between the Selling Stockholder and the Company and (b) 60,000 shares issuable upon exercise of
Warrants, issued pursuant to the Subscription Agreement at an exercise price of $8.00 per share
See "Business Subscription Agreement".
(3) Does not include: (a) 95,528 shares owned by Tarragona Fund, Inc. and (b) 132,500 shares owned
by Alpha Atlas Holdings, LDC. Nicholas Berggruen is the CEO, President and sole shareholder of
Alpha Investment Management, Inc. (a Delaware corporation), which acts as the investment
advisor to Alpha Atlas Holdings, LDC (a Cayman Island corporation). Mr. Berggruen also acts as
the investment adviser to Tarragona Fund Inc. (a Panama corporation), which is an affiliate of
Alexander Enterprise Holdings Corp. (a British Virgin Island corporation). Mr. Berggruen has
sole voting and dispositive power with respect to all of the shares owned by the three
companies.
(4) Includes 200,000 shares issuable pursuant to the exercise of options exerciseable at $5.00
until October 31, 1998.
(5) Represents 100,000 shares issuable pursuant to the exercise of options exerciseable at $5.00
until October 31, 1998.
</TABLE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of any of
the Shares by the Selling Stockholders. The sale of the securities registered
hereby may be effected by the Selling Stockholders from time to time in
transactions in the over-the-counter market, on the NASDAQ National Market
System, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
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<PAGE>
sale, at prices related to prevailing market prices or at negotiated prices. The
securities registered hereby may be sold by one or more of the following
methods: (i) a block trade in which the broker or dealer so engaged will attempt
to sell the Shares as agent for the Selling Stockholders; (ii) ordinary
brokerage transactions; (iii) transactions in which the broker solicits
purchasers and (iv) privately negotiated transactions. In effecting sales,
brokers or dealers engaged by the Selling Stockholders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions
from the Selling Stockholders in amounts to be negotiated immediately prior to
the sale. Such brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the Selling
Stockholders.
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the
securities registered hereby may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any securities registered
hereby purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the securities registered hereby may not
simultaneously engage in market-making activities with respect to the Common
Stock for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation, Rules 10b-6,
10b-6A and 10b-7, which provisions may limit the timing of the purchases and
sales of shares by the Selling Stockholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the securities registered hereby except selling commissions and
fees and expenses of counsel or any other professionals or other advisors, if
any, to the Selling Stockholders.
RESTRICTIONS UNDER SECURITIES LAWS
The sale of any Shares of stock must be made in compliance with federal
and state securities laws. Officers, directors and 10% or greater stockholders
of the Company, as well as certain other persons or parties who may be deemed to
be "affiliates" of the Company under the Federal Securities Laws, should be
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<PAGE>
aware that resales by affiliates can only be made pursuant to an effective
Registration Statement, Rule 144 or any other applicable exemption. Officers,
directors and 10% and greater stockholders are also subject to the "short swing"
profit rule of Section 16(b) of the Securities Exchange Act of 1934.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 10,000,000 shares of
Common Stock, $.01 par value per share, of which 4,540,404 shares were
outstanding as of the date hereof. The Company is authorized to issue up to
1,000,000 shares of Preferred Stock, $.01 par value per share, none of which
were outstanding as of the date hereof.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock. Holders of shares of Common Stock, as
such, have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby, will
be duly authorized, validly issued, fully paid and nonassessable.
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 September 12, 1994, the high
and low closing sales prices for the Common Stock and the Warrants as reported
by NASDAQ.
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1994
Third Quarter
(beginning September 12, 1994) .... $6-1/2 $5-3/8 $2-1/4 $1-1/8
Fourth Quarter........................ 6-7/8 5-5/8 2-1/4 1-1/2
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<PAGE>
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 1-1/16
Second Quarter ....................... 5-1/4 4-1/4 1-1/8 1-1/16
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......................... 8-1/8 4-7/8 2-1/2 15/16
Second Quarter........................ 7-5/8 6 2-3/8 1-1/4
Third Quarter......................... 7-1/2 6-3/8 1-29/32 1-3/18
Fourth Quarter (through
December 10, 1997)................. 7-3/4 6-3/4 2-7/16 1-9/16
</TABLE>
As of the date hereof, there were 55 record holders of the Company's
Common Stock. There are approximately 1,349 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 its initial public offering and does not
currently intend to 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.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of Preferred Stock
with such designation, rights and preferences as may be determined from time to
time by the Board of Directors none of which were outstanding as of the date
hereof. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
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<PAGE>
WARRANTS
As of the date hereof, the Company has 1,437,500 Warrants issued and
outstanding. The Warrants were issued in registered form pursuant to an
agreement (the "Warrant Agreement") between the Company and American Stock
Transfer & Trust Company, as Warrant Agent. Reference is made to said Warrant
Agreement for a complete description of the terms and conditions therein (the
description herein contained being qualified in its entirety by reference
thereto).
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock, at a price of $6.00, subject to adjustment in certain
circumstances, at any time until September 12, 1999 after the expiration date,
the Warrantholders shall have no further rights.
The Warrants are redeemable by the Company, with the consent of the Whale
Securities Co., L.P., the Underwriter for the Company's initial public offering,
at any time, 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 of
the trading days ending on the third day prior to the day on which the Company
gives notice has been at least 130% (currently $7.80, subject to adjustment) of
the then effective exercise price of the Warrants. Any redemption shall be for
all outstanding Warrants. All warrantholders have exercise rights until the
close of business on the date fixed for redemption.
The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, such warrants are not subject to adjustment for issuances of Common
Stock at a price below the exercise price of the Warrants, including the
issuance of shares of Common Stock pursuant to the Company's stock option plans.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date (September 12, 1999) at the offices of the
Warrant Agent, with the exercise form on the reverse side of the certificate
completed and executed as indicated, accompanied by full payment of the exercise
price and transfer tax (by certified check payable to the Company) to the
Warrant Agent for the number of Warrants being exercised. The warrantholders do
not have the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has an effective Registration Statement on file with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt under the securities
laws of the state of residence of the holder of such Warrant. The Company will
use its best efforts to have all such shares so registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there is no assurance
that it will be able to do so.
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<PAGE>
No fractional shares will be issued upon exercise of the Warrants.
However, if a warrantholder exercises all Warrants then owned of record by him,
the Company will pay to such warrantholder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
On May 12, 1997, the Company's Post-Effective Amendment No. 1 to Form SB-2
Registration Statement on Form S-3 Registration Statement covering the issuance
and public sale of shares of common stock issuable upon the exercise of the
Warrants was declared effective.
Additionally, pursuant to the terms of the Underwriting Agreement, the
Company sold the Underwriter, for an aggregate of $125, warrants (the
"Underwriter's Warrants") to purchase up to 125,000 shares of Common Stock
and/or 125,000 Warrants at an exercise price of $8.25 per share and $.165 per
Warrant. The Underwriter's Warrants are exercisable until September 14, 1999
(the "Warrant Exercise Term"). The Warrants issuable upon exercise of the
Underwriter's Warrants are exercisable to purchase one share of Common Stock at
a price equal to the exercise price equal to the exercise price of the Warrants
as set forth on the cover page of this Prospectus (subject to adjustment).
The Company also has outstanding Options, Warrants and/or rights to
purchase up to an aggregate of 1,437,546 shares of Common Stock at exercise
prices ranging from $4.88 to $8.00, all of which are presently exercisable until
expiration dates ranging from December 1997 to October 2002.
DIVIDEND POLICY
Holders of Common Stock are entitled to receive such dividends as may be
declared and paid from time to time by the Board of Directors out of funds
legally available therefor. The Company intends to retain any earnings for the
operation and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the payment
of cash dividends will depend upon future earnings, results of operations,
capital requirements, the Company's financial condition and such other factors
as the Board of Directors may consider.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION
Section 102 of the Delaware General Corporation Law ("DGCL") authorizes a
Delaware corporation to include a provision in its Certificate of Incorporation
limiting or eliminating the personal liability of its directors to the
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<PAGE>
corporation and its stockholders for monetary damages for breach of directors'
fiduciary duty of care. The duty of care requires that, when acting on behalf of
the corporation, directors exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by such provision, directors are accountable to corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Although Section 102 of the
DGCL does not change a director's duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission.
Pursuant to such provision, the Company Certificate of Incorporation limits the
personal liability of the Company directors (in their capacity as directors but
not in their capacity as officers) to the Company or its stockholders to the
fullest extent permitted by the DGCL. Specifically, a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for (I) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions, and (iv) any transaction from
which the director derived an improper personal benefit.
The inclusion of this provision may have the effect of reducing the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders. However, the
inclusion of this provision together with a provision which requires the Company
to indemnify its officers and directors against certain liabilities, is intended
to enable the Company to attract qualified persons to serve as directors who
might otherwise be reluctant to do so.
DELAWARE ANTI-TAKEOVER LAW
The Company is governed by the provisions of Section 203 of the DGCL. In
general, the law prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, own (or within three
years, did own) 15% or more of the corporation's voting stock.
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<PAGE>
OVER-THE-COUNTER MARKET
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbols "AQUX" and "AQUXW," respectively.
TRANSFER AGENT
The Transfer Agent for the Company's shares of Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson,
P.A., Counsel for the Company, Fort Lauderdale, Florida.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, and the
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended, appearing in the Registrant's Annual Report on Form
10-KSB, incorporated by reference in this prospectus, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
INDEMNIFICATION
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated. empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. A corporation may indemnify against
expenses (including attorneys' fees) and, other than in respect of an action by
or in the right of the corporation, against judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification of expenses may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
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<PAGE>
that the Court of Chancery or the court in which such action was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 of the General Corporation Law of Delaware further provides
that to the extent a director, officer, employee or agent of the corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Restated Certificate of Incorporation and By-Laws of the Company
require the Company to indemnify its Directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware.
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<PAGE>
No dealer, salesperson or any other
person has been authorized to give any
information or to make any
representations not contained in this
Prospectus in connection with this
offer made hereby. If given or made, 280,000 SHARES
such information or representations
must not be relied upon as having been
authorized by the Company or any
Underwriter. This Prospectus does not
constitute an offer to sell or a AQUAGENIX, INC.
solicitation of any offer to buy any
of the securities offered hereby in
any circumstance in which such offer
or solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall under any circumstances create
an implication that information herein
is correct at any time subsequent to
the date of this Prospectus.
______________
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----
AVAILABLE INFORMATION........... 2 ______________
INCORPORATION OF CERTAIN PROSPECTUS
INFORMATION BY REFERENCE...... 4 ______________
RISK FACTORS.................... 5
USE OF PROCEEDS................. 15
THE COMPANY..................... 15
SELLING STOCKHOLDER............. 38
PLAN OF DISTRIBUTION............ 39
DESCRIPTION OF SECURITIES....... 41
LEGAL MATTERS................... 46
EXPERTS......................... 46 _________, 1997
INDEMNIFICATION................. 46
48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14 Other Expenses of Issuance and Distribution.
--------------------------------------------
The following table sets forth the estimated expenses, all of which are being
paid by the Company, in connection with this offering.
Registration Fee................... $ 511.24
Legal fees and expenses............ $ 5,500.00*
Accounting fees and expenses....... $ 7,500.00*
Printing Expenses.................. $ 3,000.00*
Miscellaneous...................... $ 1,000.00*
----------
Total $17,511.24
__________________
*Estimated
Item 15. Indemnification of Directors and Officers.
------------------------------------------
Section 145 of the General Corporation Law of Delaware, under which
jurisdiction the Company is incorporated, empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. A corporation may indemnify against
expenses (including attorneys' fees) and, other than in respect of an action by
or in the right of the corporation, against judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if the person indemnified acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification of expenses may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 of the General Corporation Law of Delaware further provides
II-1
<PAGE>
that to the extent a director, officer, employee or agent of the corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Company's Bylaws provide that the Company has the power to indemnify
its directors and executive officers and may indemnify its other officers,
employees and other agents to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended maybe permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits.
---------
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)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(14)
II-2
<PAGE>
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 SunTrust Bank,
Miami, N.A. and Florida Underground Petroleum Tank Contractors, Inc.
("FUPTC")(1)
10.10 First Amendment to Credit Agreement, dated August 5, 1993, between
SunTrust Bank, Miami, N.A. and FUPTC(1)
10.11 Second Amendment to Credit Agreement, dated as of March 14, 1994,
between SunTrust Bank, Miami, N.A. and FUPTC(1)
10.12 Guaranty Agreements, dated August 5, 1993, between SunTrust 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 SunTrust
Bank, Miami, N.A.(1)
10.14 Negative Pledge, dated October 29, 1993, from Alan H. Chesler to
SunTrust Bank, Miami, N.A.(1)
10.20 Lease, dated October 2, 1992, between Palm Beach Commerce Center
Associates, Ltd. and ALWT(1)
II-3
<PAGE>
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)
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)
II-4
<PAGE>
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 SunTrust Bank,
Miami, N.A. and ALWT(1)
10.43 Security Agreement, dated as of June 10, 1994, from ALWT to SunTrust
Bank, Miami, N.A.(1)
10.44 Guaranty Agreement, dated as of June 10, 1994, between SunTrust
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 SunTrust Bank, Miami, N.A. and FUPTC (4)
10.46 Loan Agreement, dated as of February 10, 1995, between SunTrust
Bank, Miami, N.A. and FUPTC (4)
10.47 Security Agreement, dated as of February 10, 1995, between SunTrust
Bank, Miami, N.A. and FUPTC (4)
10.48 Guaranty Agreement, dated as of February 10, 1995, between SunTrust
Bank, Miami, N.A. and the Company (4)
II-5
<PAGE>
10.49 Guaranty Agreements, dated February 10, 1995 by Alan H. Chesler,
Robert A. Radler and Andrew P. Chesler, in favor of SunTrust Bank,
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
SunTrust Bank, 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)
10.57 Promissory Note and Security Agreement, dated as of February 13,
1995 between SunTrust Bank, Miami, N.A. and ALWT (5)
10.58 Credit Agreement, Security Agreement and Revolving Credit Note dated
as of August 11, 1995, between SunTrust Bank, Miami, N.A. and the
Company (7)
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 (7)
10.60 Warrant Agreement dated as of October 31, 1995, between the
Purchaser and the Company (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)
II-6
<PAGE>
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)
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)
II-7
<PAGE>
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 Re-
affirmation 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 the 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 shareholder
of ARC(10)
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)
II-8
<PAGE>
10.87 Option Agreement, dated as of November 1, 1996, between the Company
and Mr. Jon Kilik(14)
10.88 Option Agreement, dated as of November 1, 1996, between the Company
and Mr. Perry Trebatch(14)
10.89 Option Agreement, dated as of November 1, 1996, between the Company
and First Taconic Capital Corporation(14)
10.90 Option Agreement, dated as of November 1, 1996, between the Company
and Pat Guadagno(14)
10.91 Warrant Agreement, dated as of October 15, 1996, between the
Company, Dabney Resnick, Inc. and Aquagenix Warrant Holdings II(14)
10.92 Consulting and Acquisition Management Agreement, dated as of January
7, 1997, between the Company and Shulman & Associates, Inc.(14)
10.93 Subscription Agreement, dated as of May 19, 1997, between the
Company and Tarragona Fund, Inc. (15)
10.94 Restated Option Agreement, dated as of April 1, 1997, between the
Company and Pat Guadagno (16)
10.95 Loan Agreement, dated April 10, 1997, between the Company and
Capital Bank(17)
10.96 Promissory Note in the principal amount of $750,000, dated April 10,
1997, between the Company and Capital Bank(17)
10.97 Promissory Note in the principal amount of $250,000, dated April 10,
1997, between the Company and Capital Bank(17)
10.98 Security Agreement, dated April 10, 1997, between the Company and
Capital Bank(17)
10.99 Continuing Guaranty, Dated April 10, 1997, between the Company and
Capital Bank(17)
10.100 Subordination Agreement, dated April 18, 1997, between the Company
and The Equitable Life Assurance Society of the United States in
favor of Capital Bank re: Exhibits 10.96 and 10.97(17)
II-9
<PAGE>
10.101 Consolidated Promissory Note in the principal amount of $1,000,000,
dated October 3, 1997, between the Company and Capital Bank(17)
10.102 Term Promissory Note in the principal amount of $200,000, dated
October 3, 1997, between the Company and Capital Bank(17)
10.103 Guidance Equipment Line Promissory Note in the principal amount of
$270,000, dated October 3, 1997, between the Company and Capital
Bank(17)
10.104 Reaffirmation of Guaranty Agreement, dated October 3, 1997, between
the Company and Capital Bank(17)
10.105 First Amendment to Subordination Agreement, dated October 6, 1997,
between the Company and The Equitable Life Assurance Society of the
United States in favor of Capital Bank re: Exhibits 10.101, 10.102
and 10.103(17)
10.106 Subscription Agreement, dated as of October 27, 1997, between the
Company and Alexander Enterprise Holdings Corp.(17)
10.107 Stock Purchase Agreement, dated November 30, 1997, between the
Company and Thomas Terry, Jr. (18)
16.1 Letter from Bernstein, Patchen, Gold & Wolfson, P.A. regarding
change in independent auditors(1)
21.1 Subsidiaries of the Company(14)
23.01 Consent of Coopers & Lybrand L.L.P. (19)
23.02 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included in the
opinion filed as Exhibit 5.1 hereto.) (19)
___________________
(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).
(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.
II-10
<PAGE>
(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 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 filed with the
Company's Report on Form 8-K dated June 12, 1996.
(12) Incorporated by reference to exhibit 2 filed with the Company's Report on
Form 8-K dated December 7, 1996.
(13) Incorporated by reference to exhibit 2 filed with the Company's Report on
Form 8-K dated December 31, 1996.
(14) 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, 1996.
(15) Incorporated by reference to the exhibit of the same number filed with the
Company's Report on Form 8-K dated May 20, 1997.
(16) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form S-3 (File No. 33-78958-A) on June
9, 1997.
(17) 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, 1997.
(18) Incorporated by reference to the exhibit of the same number filed with the
Company's Report on Form 8-K dated November 30, 1997.
(19) Filed herewith.
__________________________
II-11
<PAGE>
Item 17. Undertakings.
-------------
(1) The undersigned Registrant hereby undertakes:
(a) to file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to include
any additional or changed material information on the plan of distribution;
(b) that, for determining any liability under the Securities Act,
treat each such post-effective amendment as a new Registration Statement of the
securities offered at that time shall be deemed to be the initial bona fide
offering thereof; and
(c) to file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(2) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer of controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Lauderdale and the State of Florida, on the
____th day of December, 1997
AQUAGENIX, INC.
By:
----------------------------------------
Andrew P. Chesler
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board,
Chief Executive Officer
and President (Principal
- ----------------------------- Executive Officer) December___, 1997
Andrew P. Chesler
Chief Financial Officer
- ----------------------------- (Principal Accounting
Helen Chia Officer) December___, 1997
- ----------------------------- Director December___, 1997
Abraham S. Fischler
- ----------------------------- Director December___, 1997
Allen H. Stern
- ----------------------------- Director December___, 1997
Jeffrey T. Katz
II-13
<PAGE>
EXHIBIT INDEX
5.1 Opinion of Atlas, Pearlman, Trop & Borkson P.A.
23.01 Consent of Coopers & Lybrand L.L.P.
23.02 Consent of Atlas, Pearlman, Trop & Borkson, P.A.
================================================================================
OPINION OF ATLAS, PEARLMAN, TROP & BORKSON
================================================================================
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, FL 33301
December 10, 1997
Aquagenix, Inc.
6500 Northwest 15th Avenue
Fort Lauderdale, FL 33309
Re: Registration Statement on Form S-3; Aquagenix, Inc. (the "Company");
280,000 Shares of Common Stock
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission ("Commission") with respect to the
registration by the Company of the resale of an aggregate of 280,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") to be sold by the
Selling Stockholders designated in the Registration Statement. The shares of
Common Stock to be sold consist of 280,000 shares (the "Shares") of Common
Stock, par value $.01 per share ("Common Stock") offered hereby are being sold
by certain selling stockholders (the "Selling Stockholders') of Aquagenix, Inc.
(the "Company"), if at all, on a delayed basis. Included in the 280,000 Shares
are 180,000 Shares issuable pursuant to a Subscription Agreement (the
"Agreement"), and Warrants issued pursuant thereto, dated October 27, 1997
between the Company and the Selling Stockholder and 100,000 Shares issuable upon
the conversion of options pursuant to a Restated Option Agreement dated April 1,
1997.
In our capacity as counsel to the Company, we have examined the original,
certified, conformed, photostat or other copies of the Company's Certificate of
Incorporation, ByLaws, corporate minutes provided to us by the Company and such
other documents and instruments as we deemed necessary. In all such
examinations, we have assumed the genuineness of all signatures on original
documents, and the conformity to originals or certified documents of all copies
submitted to us as conformed, photostat or other copies. In passing upon certain
corporate records and documents of the Company, we have necessarily assumed the
correctness and completeness of the statements made or included therein by the
Company, and we express no opinion thereon.
Based upon and in reliance of the foregoing, we are of opinion that the
Common Stock is validly issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the use of this opinion in the Registration Statement
on Form S-3 to be filed with the Commission.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
RKB/ms
================================================================================
CONSENT OF COOPERS & LYBRAND L.L.P.
================================================================================
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 (File No. 33-78956-A) of our report dated March 15, 1997, of our audits
of the financial statements of Aquagenix, Inc. appearing in the Registrant's
Annual Report on Form 10- KSB for the year ended December 31, 1996.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Miami, Florida
December 9, 1997
