SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 33-80961-NY
THERMO-MIZER ENVIRONMENTAL CORP.
(Exact name of small business in its charter)
Delaware 22-2312917
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
528 Oritan Avenue, Ridgefield, NJ 07657
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 201-941-5805
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001;
Redeemable Warrants
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $2,351,191. The
aggregate market value of common voting stock held by non-affiliates of the
Issuer was approximately $1,953,000 computed by reference to the last sale price
at which the stock was sold on June 30, 1997 as reported by Nasdaq. As of June
30, 1997, 2,717,000 shares of common stock and 1,725,000 redeemable warrants
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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The information required in Part III by Items 9, 10, 11 and 12 is incorporated
by reference to the Registrant's proxy statement in connection with the annual
meeting of shareholders to be held on December 12, 1997, which will be filed by
the Company within 120 days after the close of its fiscal year.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Thermo-Mizer Environmental Corp. (the "Company" or "Thermo"), based in
Ridgefield, New Jersey, designs, produces, and markets products based on
microprocessors which control or monitor temperature, humidity, emissions, and
pollutants. From its inception, the Company's primary products were chiller
controls for air conditioning systems in large office buildings and institutions
and systems to monitor temperature and humidity conditions in hospitals and
pharmaceutical manufacturing facilities. The Company's products are used in the
manufacturing process of pharmaceutical products. Pursuant to regulations of the
Food and Drug Administration (the "FDA"), pharmaceutical manufacturers must
monitor and record the physical conditions under which certain pharmaceutical
products are manufactured because such factors as temperature and humidity can
affect the quality and composition of the manufactured product. The Company had
planned on introducing its products into the Continuous Emissions Monitoring
market following the adoption of amendments to the Clean Air Act by Congress.
However, the specific rules and regulations to be issued by the various
regulatory agencies responsible therefor have been delayed. As a result, the
Company made a decision to focus its resources on other market niches.
In October 1997, the Company signed a definitive Purchase Agreement to
acquire all of the outstanding common stock of Laminaire Corporation
("Laminaire"), located in Rahway, New Jersey, a manufacturer and distributor of
clean room products which also assembles, under contract, a variety of
electronic circuit boards. Laminaire has annual sales in excess of $6,000,000.
The closing is scheduled to take place on October 16, 1997. Management believes
that the Company's technology can enhance the Laminaire product line and intends
to refocus substantially all of the Company's technological resources and
efforts in that direction. This refocusing will result in a substantial
reduction in the Company's traditional systems business.
General
The Company was founded in 1978 by Jon J. Darcy to provide energy efficient
products for large heating and cooling systems. Since its inception, the Company
had changes in ownership and developed a family of products and equipment
related to environmental services. The Company was sold to a British company in
1981. In 1984, Jon J. Darcy and several partners used a corporation named
Control Engineering that had been a subsidiary of the Company to acquire the
Company's assets. The subsidiary's name was changed to Thermo Engineering, Inc.
In 1987, Mr. Darcy increased his ownership interest and, since that time, has
determined the direction of the Company. In 1994, the name of the Company was
changed to Thermo-Mizer Environmental Corp., the corporate domicile was changed
from New Jersey to Delaware, and the capital structure was changed in that one
share was exchanged for 1,000 shares of common stock. In January 1996, the
Company effected a 1 to .75 reverse stock split of its common stock. In March
1996, the Company completed an initial public offering of its common stock and
redeemable warrants. In October 1997, the Company acquired Laminaire, located in
Rahway, New Jersey, a manufacturer and distributor of cleanroom products which
also assembles a variety of electronic circuit boards.
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In 1997, the Company adopted a strategy of seeking growth by acquiring
companies in related markets. In October 1997, the Company completed the first
step in that strategy by entering into acquisition agreements with Laminaire
Corporation ("Laminaire"), a Rahway, New Jersey-based company engaged in the
sale of electronic components, supplies and self contained environmental
structures for the clean room industry. Its products are sold to thousands of
customers, nationally and internationally, through a combination of direct
salesmen and representatives. These customers include electronic manufacturers,
biotechnology companies, and pharmaceutical manufacturers. There is an overlap
between the industries served by the Company and those served by Laminaire,
which offers both entities the opportunity to cross sell their products.
Since inception, the Company's primary products related to chiller controls
and systems to monitor environmental conditions in hospitals and the
manufacturing areas of pharmaceutical companies. Chillers are an integral part
of the mechanical air conditioning systems in large buildings.
Products
Prior to the acquisition of Laminaire, the Company had one basic product
line, products used for data collection and analysis, with users spread over
many industries. The Company's products are designed to permit users to gather,
analyze, summarize, and store data about certain aspects of a physical
environment on a real time basis. Users of these products consist of industries
having smoke stack emissions, the pharmaceutical industry, and large office
buildings and institutions. All of the Company's products are
microprocessor-based and use the same computer board, proprietary operating
system (an operating system owned and developed for the Company), and
input/output circuit board.
The Company's products all use the Company's basic technology and products
which can be modified and configured to meet the particular needs of each
industry and can be modified to comply with future regulatory requirements
because they are modular in design requiring only the change of specific boards
to perform different functions. The applications software runs on many platforms
or operating systems of personal computers, including Windows 95 and Windows NT.
The Company anticipates adapting to future changes by revising software and
changing the modules.
The Company's current products are designed around a custom interpreter
software kernel that has similar cross platform capabilities as the JAVA
programming language. The interpreter enables the software to be transportable
to different hardware platforms and be menu driven so that, in many cases, they
can be installed without the assistance of a company engineer. Its products can
easily be adapted to different systems, making them cost effective and easy to
install and use. When regulatory authorities make changes in regulations, the
Company believes that it will be able to respond by modifying the software to
adapt the system so the customer can comply with the changes. The operating
system is modular in design and therefore flexible in nature. As changes are
required the modules can be added, removed or modified easily without effecting
the rest of the operating system.
Each system is comprised of three basic parts. Data gathering is
accomplished in the target environment through sensors and analyzers that are
hardware devices purchased from other manufacturers. The sensors and analyzers
are placed in environmentally-controlled rooms or in exhaust outlets. In the
pharmaceutical manufacturing facilities, the sensors and analyzers are placed in
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the manufacturing area. The analyzers convert the data to electrical signals
which are transferred to the microprocessor. The Company's oldest core product,
the Thermo-Mizer, is a microprocessor included in all Company systems which
converts the real time data transmitted from the analyzers and sensors to
digital form which can then be processed by a computer. The Thermo-Mizer
digitizes the data from the analyzers and sensors, performs all the required
calculations, prepares the data for storage, formats the data, and transmits the
data to a personal computer. The personal computer is used to store the data in
a database and generates reports as required or needed.
The microprocessor used in Company products is designed, manufactured, and
programmed by the Company. It is comprised of a micro-controller purchased from
an outside source, but whose operating system is designed by the Company's
software development engineers. Application software is written by the Company's
engineers to use the micro-controller in a Thermo-Mizer system. The
micro-controller chip is placed on a circuit board designed by the Company with
other electronic components. All of the Company's products utilize the same
circuit board, micro-controller chip, and electronic components. The
manufacturing and testing of circuit boards is done by contract manufacturers
(although this work may be performed by Laminaire in the future). The Company's
engineers do all final assembly, testing and programming.
The Company offers a fully integrated hardware/software solution for custom
systems. The Company's products can communicate the data gathered from the
sensors and analyzer directly to the personal computer. When developing a
system, the Company purchases the analyzers and sensors, as well as the personal
computers, from outside sources. The Company sells an entire system on a
contractual basis (in which case it integrates the analyzers, monitors, sensors,
and personal computer purchased from other manufacturers into one discrete
system). The Company also sells the Thermo-Mizer as the "brains" of the system
to a systems integrator. The contractor then incorporates the Thermo-Mizer as
one of the components of the system.
Laminaire, established in 1964, has two principal product lines -
electronic component assembly and clean room products. The Electronic Products
Group specializes in the assembly of printed circuit boards, wire harnesses,
cables and other electronic component assembly. The Clean Room Division
manufactures clean room workstations and modules, sells related supplies and
accessories manufactured by others and provides consulting services for the
design and certification of customers' clean rooms. In addition, Management
believes that Thermo's microprocessor-based controls technology can be
incorporated into certain Laminaire products to give such products technological
and competitive advantages.
The Company has introduced three new products to penetrate its marketplace,
the Maxi-mizer, the Mini-mizer Industrial Environmental Control System (see
"Management's Discussion and Analysis") and T-Vision Operator Interface and Data
Acquisition Software. The Maxi-mizer is a microcomputer controller that collects
data inputs from electronic sensors, digitizes such inputs, performs complex
calculations and uses the output to control various types of environmental
equipment in large buildings, pharmaceutical and microelectronic manufacturing
facilities and healthcare facilities. The Mini-mizer is a smaller, less
expensive version of the Maxi-mizer that is designed for use by OEMs and system
integrators. T-Vision is a data acquisition software program that permits
communications between a computer and either a Maxi-mizer or Mini-mizer. It
collects large quantities of data in real time, performs
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complex calculations, stores data and creates reports required by various
regulatory bodies. Management believes that these products can be adapted to
enhance Laminaire's product line, as well as fit into the Company's traditional
product lines.
Chiller Controls
The oldest application of the Company's products is control systems for
heating, ventilating, and air conditioning ("HVAC") in large office buildings
and institutions. This unit monitors pressure flow, temperature and energy. The
chiller control has similar technology but represents a separate and distinct
application. Approximately 10%--15% of the Company's revenues are generated in
Chiller control applications.
The product is used primarily as a chiller control that regulates the air
conditioner component of the mechanical system. Many facilities must upgrade or
modify their Air conditioning systems because of the ban on the use in new
systems of many chloroflurocarbons ("CFC's") after 1995. CFC's are used in
chiller units in most HVAC environmental systems installed in large commercial
facilities prior to 1990. As air conditioning systems in large office buildings
and factories are modified and replaced, the Company anticipates that its
chiller control will be in demand because of cost savings benefits available
through effective energy control. Changing refrigerants causes a change or
modification in the mechanical system.
Pharmaceutical Industry
The Company's products to monitor the environment are used in the
pharmaceutical industry. Presently the Company's products are used for
approximately 25 environmental applications used for pharmaceutical
manufacturing and laboratories. All manufacturers of health and pharmaceutical
products are subject to regulations promulgated by the FDA known as the Good
Manufacturing Procedures ("GMP"). GMP requires that a product be made consistent
with a precise prescribed method set down by the manufacturer in advance of
production runs of the product. The manufacturer then validates that all
parameters, set forth as monitored conditions for proper manufacture, are met.
During the manufacturing process these conditions must be monitored, recorded,
alarmed and controlled within specified parameters to ensure adherence to GMP.
Temperature, humidity and pressure are typically some of the key parameters
required to be monitored and controlled as these factors may affect the quality,
quantity, strength and purity of the drug being manufactured.
The systems not only monitor environmental conditions, but they also
document the conditions so that compliance can be recorded and verified. The
Company sells its products to other suppliers who incorporate the Company's
products into the entire system.
Warranty
The Company's hardware/software solutions have been designed to be
compatible with most systems configuration requirements. The Company's flexible
proprietary operating system allows for easy adaptation to future requirements.
The Company's policy is to warrant parts on new installations for one year from
the start-up of the system. Cost of the parts used in installations is generally
not a material component of the total installation costs.
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Marketing
The Company's product lines and proprietary technology are positioned to
penetrate markets that are affected by environmental laws and regulations.
Management believes that a substantial portion of its current contract revenues
result from referrals from existing or previous customers. The principal
impediments to expanding sales remain as the lack of resources to establish a
national distribution network and the reluctance of larger contractors to award
major contracts to a small public company.
Marketing and sales materials for the Company's products include the
production of brochures and other marketing related material and an advertising
campaign directed at creating name and product recognition for the Company.
Thermo's project and field engineers perform marketing functions after learning
of anticipated construction or other needs for the Company's products. Company
personnel make direct contact with facilities managers, consulting engineers and
primary contractors to sell products or systems. In addition, the Company is
expanding the scope of its operations beyond its present geographical market
area primarily in the states of New York and New Jersey with new contracts in
Canada and Georgia. The Company will continue to develop its marketing network
on a limited geographical basis unless an acquisition offers a more rapid
expansion opportunity. It will develop one geographic location before expanding
into another area or region. Management has not developed a definitive plan as
to the order or priority of expansion into new geographical areas. Market
expansion will continue to be supported by customer demand.
The Company's marketing efforts are divided into two categories, (i) system
and contract sales and (ii) product and service sales. Laminaire's marketing
will include direct contact with internal sales programs and include an
electronic menu of products and services available on an interactive basis over
the internet. The company will publish a catalog of proprietary as well as
distributor products. Extensive participation in nationally attended trade shows
will continue.
System and Contract Sales - System sales occur when the Company designs,
assembles, and installs entire environmental control systems for which it
purchases and integrates equipment manufactured by other companies. The
Company's products are then designed into the system. Large system contracts
generally require formal bids. At first, the Company by request submits a
proposal. When the customer determines that the products meet the specifications
and requirements, the Company then submits a formal bid. In the past, the
Company believes it was not awarded certain contracts because it was perceived
by the customer to be a small company. Having greater resources would increase
its ability to win bids based on technological merit, price, and cost
effectiveness. In the past, most of the systems sold by the Company have
typically involved installation of chiller control systems or pharmaceutical
monitoring systems. The Company classifies all contracts and purchase orders
requiring a relatively large percentage of engineering effort as a "system sale"
regardless of the dollar value of the sale.
Systems contracts involve the integration of hardware and equipment
manufactured by different companies with the Company's products. System sales
comprised more than 90 percent of total revenues in both 1997 and 1996, but will
make up a significantly smaller percentage of fiscal 1998 consolidated revenue
because of the acquisition of Laminaire.
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Product and service sales - Product and service sales require less engineering
and field support than do system sales. In addition, individual product sales
are easier to manage than are large contracts. However, the Company has lacked
the resources to develop a network and methodology to sell and distribute
individual products. The acquisition of Laminaire will shift the Company's focus
much more strongly towards product sales because of Laminaire's strength in that
area. In addition, Management believes that the Company's technology can be
incorporated into certain of Laminaire's products, thereby increasing the focus
on product sales. This change in emphasis may result in the Company devoting
larger portions of its engineering resources towards this immediate opportunity.
Laminaire currently sells a significant number of different products that
it either inventories or "drop ships" from its distributors for its customers.
These products are sold primarily through an in-house sales group to an
established customer base which purchase either through bulk or small quantity
sale. Thermo's customer base in pharmaceuticals will offer an expanded
opportunity for Laminaire's products to be presented into a new market.
Competition
Competition in the market niches in which the Company operates is
fragmented. Competition in the pharmaceutical industry consists of major
industrial companies, including Landis & Gyr Power, Johnson Controls, and
Honeywell. Competitors in the chiller control niche include Carrier, Trane, and
York. The Company believes that its competitive advantage is derived from the
flexibility of its products which permits users to integrate equipment made by
more than one manufacturer. No market share data is available for the Company
and its competitors. No assurances can be given that large companies with
greater financial and marketing resources than are possessed by the Company will
not enter the Company's market niches as demand increases for products needed
for compliance with recently-enacted regulations for continuous emissions
monitoring.
Laminaire's competition consists primarily of small companies with each
having limited market penetration. Many of these companies also provide general
contracting services for clean room construction. Manufacturers of cleanroom
equipment are typically regional product and service providers. The Company's
Management believes that incorporating its microprocessor-based technology into
certain of Laminaire's products will provide Laminaire with a meaningful
competitive advantage.
Competition in the market niches in which the Company operates is
fragmented. No firm dominates the market. Competition in the pharmaceutical
industry are major industrial companies including Landis & Gyr Power, Johnson
Controls, and Honeywell. Competition in the chiller control business include
Carrier, Trane, and York. The Company believes that its competitive advantage is
derived from the flexibility of its products which permits users to integrate
equipment made by more than one manufacturer. No market share data is available
for the Company and its competitors. No assurances can be given that large
companies with greater financial and marketing resources than are possessed by
the Company will not enter the Company's market niches as demand increases.
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Employees
At June 30, 1997, the Company had 20 employees, of which ten are engineers
or have degrees in applied science, and four write software. The remaining
employees perform administrative and shop assembly responsibilities. The
employees are not unionized, and the Company has no collective bargaining
agreement. Messrs. Darcy, Scally, Smith, Breitenbach, and Musto as the president
and managers, respectively, are considered as key employees.
Laminaire has approximately 60 employees, none of whom are unionized.
ITEM 2. FACILITIES
The Company leases office and research facilities of 7,000 square feet in
Ridgefield, New Jersey under the terms of a verbal lease expiring in July 1998
which calls for monthly lease payments of approximately $4,000. With the
acquisition of Laminaire, the Company plans on relocating into Laminaire's
47,000 square foot facility in Rahway, New Jersey.
Manufacturing
The Company uses contract manufacturers to assemble and test subassemblies
and components for its products. Computer hardware and other components used for
systems are purchased from original equipment manufacturers and other suppliers.
The Company's proprietary software controls the operation of the products. The
complete system is assembled, tested, and programmed by the Company's engineers.
Depending on the circumstances the system is then installed by the end user or
their contractors.
Management believes that its sources of equipment, parts and supplies are
sufficient as all required parts and components are readily available and can be
acquired from alternative sources.
The Company generally does not commence assembling a system unless it has a
contract or a purchase order from the customer. The Company has limited
inventory. At August 31, 1997, its backlog was approximately $ 1,125,000,
substantially all of which is expected to be completed during the fiscal year
ending June 30, 1998.
The acquisition of Laminaire significantly increases the Company's
manufacturing capacity. Laminaire has adequate space, capacity and trained,
experienced technicians to develop and manufacture many standard components used
in Thermo's core products.
Research and Development
The Company operates in an industry subject to rapid and significant
technological change. Future growth for the Company's traditional product niches
is dependent on its ability to innovate and adapt its technologies to the
changing needs of a marketplace defined in large part by federal and state
environmental regulations. During the past two years, most of the product
development cost was expended for the development of the Mini-mizer, Maxi-mizer,
and T-Vision products. The formation of Virtual Dynamics, Thermo's software
development team, in June 1996 provides the Company with enhanced quality
control over the software portions of its product developments. The integration
of the Company's components with other control systems is important to its
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future success. Previously, much of the software effort was contracted to
outside vendors.
Although no precise dollar amount has been determined, the Company will
continue to allocate resources to develop and enhance its current products
further and the design of complementary products. The Company expenses
development costs as they are incurred. The Company intends to work closely with
its customers and prospective customers to determine their requirements and to
design enhancements and new products to meet changes in the regulatory
environment. Much of this knowledge is derived from performing systems
contracts.
The Company has one process patent for its chiller control system. However,
the Company relies on its proprietary technology and know-how to maintain or
establish competitive position or advantage.
The acquisition of Laminaire provides the Company with new marketing
opportunities. The first of these opportunities will involve adapting the
Mini-mizer and T-Vision products for use with Laminaire's clean room products.
These two products advance the technology content of Laminaire products.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
on it or its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and Redeemable Warrants are quoted on the NASDAQ
Small Cap Market under the symbols "THMZ" and "THMZW", respectively. Both
securities commenced trading on February 27, 1996. The table below sets forth
the high and low sale prices for the Company's Common Stock and Warrants as
reported by NASDAQ:
Quarter Ended Common Stock Redeemable Warrants
High Low High Low
March 31, 1996 $8.00 $ 1 31/64 $ 5 3/8 $ 1 1/4
June 30, 1996 3.00 1 3/8 1 1/4 1/8
September 30,1996 2 11/32 1 1/16 1/2 1/8
December 31, 1996 2 7/32 29/32 13/32 3/32
March 31, 1997 2 3/32 11/16 9/16 3/32
June 30, 1997 1 1/4 7/16 1/14 1/16
There are approximately 96 stockholders of record of the Company's Common
Stock.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy. No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. The Company cautions readers that important factors
may affect the Company's actual results and could cause such results to differ
materially from forward-looking statements made by or on behalf of the Company.
Such factors include, but are not limited to, changing market conditions, the
impact of competitive products, pricing, acceptance of the Company's products in
development and other risks detailed herein and in other filings that the
Company makes with the Securities and Exchange Commission.
General
The Company's operations are currently dominated by systems contracts with
customers in the pharmaceutical and chiller control industries. Fluctuations in
sales, revenues and operating results can and do occur because of the timing of
such contracts since certain larger contracts require greater amounts of
vendors' materials and use of subcontractors than do other contracts. Generally,
gross margins are lower on those contracts which require the purchase of
significant amounts of vendor materials and services compared with contracts
which are more engineering or labor intensive. In addition, the Company's
engineering staff is capable of serving a significant volume of business. Thus,
engineering costs do not fluctuate at the same rate as revenues. This means that
if revenues increase, gross profits will increase at a faster rate than revenue.
The reverse is true if revenues were to decrease below the break-even point.
Because of the Company's historical emphasis on systems sales, a
substantial portion of its revenue is derived from a relatively few number of
contracts. In general, the Company has less than 50 open contracts in a fiscal
quarter of which fewer than ten comprise more than 50 percent of revenues for
that quarter. This also means that a small number of customers make up a large
percentage of sales. For the fiscal year ended June 30, 1997, sales to two
customers accounted for 31% of total sales with individual customers comprising
17% and 14%, respectively, of total sales. For the fiscal year ended June 30,
1996, sales to six customers comprised 87% of total sales (with individual
customers comprising 23%, 20%, 13%, 11%, 10% and 10%, respectively, of total
sales). Laminaire has two customers that comprised 23% of its sales for the year
ended December 31, 1996, with the individual customers comprising 12% and 11%,
respectively.
The Company believes that it is beneficial to implement a strategy to
reduce its dependence on large contracts by increasing its focus on product
sales and service. Its product development efforts have resulted in the recent
introduction of three new products, and several others are under development.
The acquisition of Laminaire accelerates this strategy because Laminaire is a
product-driven business with a product line that potentially can be enhanced by
Thermo's newly-introduced products. Because of the acquisition of Laminaire,
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most historical relationships between costs and revenues set forth below will
not be indicative of such relationships in the future.
Results of Operations
Comparison of Fiscal 1997 to 1996
<TABLE>
<CAPTION>
Caption 1997 % 1996 % Change %
<S> <C> <C> <C> <C> <C> <C>
Contract and other revenues $ 2,351,191 $ 2,125,959 $ 225,232 10.6%
Cost of revenues 2,099,873 89.3% 1,437,682 67.6% 662,191 46.1%
Gross profit 251,318 10.7% 688,277 32.4% -436,959 -63.5%
Expenses:
Personnel and related costs 524,401 22.3% 246,489 11.6% 277,912 -63.5%
Selling and administrative 897,839 38.2% 417,686 19.6% 480,153 -63.5%
Product development costs 221,429 9.4% 169,667 8.0% 51,762 30.5%
Occupancy costs 32,955 1.4% 38,333 1.8% -5,378 -14.0%
Total 1,676,624 71.3% 872,175 41.0% 804,449 2.9%
Operating income -1,425,306 -60.6% -183,898 -8.7% -1,241,408
Nonoperating expenses - net -478,653 -20.4% 15,117 0.7% -463,536
Loss before income taxes -1,903,959 -81.0% -168,781 -7.9% -1,735,178
Income taxes - net -19,207 -0.8% -55,643 -2.6% -74,850
Net loss ($1,923,166) -81.8% ($ 113,138) -5.3% ($1,810,028)
</TABLE>
The Company completed an initial public offering of its common stock and
warrants in March 1996. Thereafter, it commenced implementing a strategy
designed to make it a product and service, rather than a systems-driven
business. This strategy required it to make a variety of investments in human
resources, management systems and product development which negatively impacted
earnings during the fiscal year ended June 30, 1997. The investments included
(i) expanding the Company's product and software development capabilities, (ii)
hiring new financial, engineering, sales and marketing professionals, (iii)
conducting an analysis of the Company's marketplace, and (iv) acquiring the
rights to certain new products which the Company believes fit well into the
Company's overall strategy. Certain of these investments were made late in
fiscal 1996.
The Company believed that it would begin to realize the benefits of these
investments during fiscal 1997. However, operations for the fiscal year ended
June 30, 1997 were adversely impacted by two sets of circumstances. First,
certain of the Company's principal customers significantly and unexpectedly
reduced their capital spending. These cutbacks resulted in the Company's actual
volume of work for the period being significantly below the level planned and
was insufficient to cover its overhead. The Company increased it selling efforts
and augmented its marketing resources that resulted in a significant increase in
its bidding and proposal activity. Although Management is optimistic about the
Company's prospects for being awarded certain of these proposed contracts, no
assurance can be given that it will be successful in this regard. Secondly, the
Company introduced a new product in fiscal 1997 and performed two major
contracts that incorporated such product. The Company required longer than
expected to identify and correct certain problems which arose in connection with
the operation of this new product which resulted in it incurring a substantial
loss during the period on one of these contracts and significantly reduced
margins on the other. The loss was caused because significant amounts of
engineering labor and subcontractor assistance was required on these jobs to
analyze and address the problems. Throughout fiscal 1997 the Company did not
make a meaningful penetration into the targeted CEM business or obtain
significant contracts from new customers despite increased marketing efforts. In
part, this inability to penetrate the marketplace was caused by delays of
governmental bodies to release specific regulations in this area.
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In January 1997, the Company made certain reductions in its workforce to
permit it to approach breakeven at lower levels of sales activity. The Company
also believes that it has identified the problems in its new product.
Nevertheless, the Company is not receiving a sufficient quantity of new
ordersand contracts to permit its traditional core business to operate at a
profitable level in the next few fiscal quarters. In addition, there are prepaid
expenses of $183,334 associated with a financial public relations program. A
substantial portion of such prepaid amount will be amortized during the first
quarter of fiscal 1998.
The Company's strategy is to reduce its dependence on large contracts by
increasing its focus on product sales. No assurance can be given that the
Company will be successful in these efforts. However, in October 1997 the
Company acquired Laminaire (see Note 14 to "Notes to Financial Statements" and
"Liquidity and Capital Resources" below). Management believes that the
acquisition of Laminaire, a product-driven manufacturer and distributor of clean
room products which also produces a variety of electronic circuit boards and has
annual sales in excess of $6,000,000, represents a critical element in its
effort to make this transition and stabilize its financial condition. A
significant portion of its management, marketing and technical resources will be
focused towards integrating and, where possible, expanding and enhancing the
Laminaire business. This refocusing could result in a transition away from the
Company's core niches and contract orientation.
Operating expenses are not comparable between periods because fiscal 1997
includes the costs associated with. (i) expanding the Company's software
development capabilities, (ii) hiring new financial, engineering, sales and
marketing professionals, (iii) conducting a sophisticated analysis of the
Company's marketplace, (iv) acquiring the rights to certain new products which
fit well into the Company's overall strategy and (v) significant financial
public relations and other "public company" related costs. The costs associated
with being a public company include public relations costs, additional
insurance, professional fees, shareholder and board of director costs. The
financial public relations costs included in "Selling and administrative"
amounted to $150,633 and were incurred to establish name recognition and
liquidity for the Company's stock after the Company's underwriter ceased
operations shortly after the initial public offering. These factors were
important for shareholders and to permit the Company to complete the acquisition
of Laminaire (see below). There were substantially fewer such costs incurred in
1996. The Company also hired several new engineers and incurred the customary
time and costs associated with training.
Product development costs increased because the Company hired four
engineers who devote a significant portion of their time to developing or
enhancing software and other new products and enhancements to existing products.
In addition, significant development efforts were necessary in connection with
the problems encountered with a newly-introduced product.
In addition, operating results were significantly impacted by several
transactions which took place during the fiscal year ended June 30, 1997 and
related to the engagement of a financial public relations and acquisition
consultant, the issuance of nonqualified stock options and the cancellation of
the Underwriting Agreement with Nationwide Securities, Inc. Management believes
that each of these expenditures and transactions had the potential to contribute
positively to future shareholder value, although no assurance thereof can be
given. There were no similar investments or transactions during the fiscal year
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ended June 30, 1996. A detailed listing and description of these charges, which
include noncash items aggregating approximately $247,000, is set forth in Note
12 to the Financial Statements included elsewhere herein. Management does not
anticipate incurring similar charges in the future
The Company has established reserves for the entire benefit associated with
the unused income tax loss carryforwards because the Company must realize income
in the future to utilize such carryforwards.
Comparison of Fiscal 1996 to 1995
As described elsewhere herein, the Company completed an initial public
offering of its common stock and warrants in March 1996. Thereafter, it
commenced implementing a strategy designed to make it a product and service,
rather than a systems-driven business. This strategy required it to make a
variety of investments in human resources, management systems and product
development which negatively impacted earnings following the closing of the
public offering and will continue to impact earnings during fiscal 1997. The
Company believes that it will begin realizing the benefits from these
investments during the second half of fiscal 1997, although no assurances
thereof can be given.
The investments include (i) hiring a new chief financial officer, (ii)
expanding the Company's software development capabilities, (iii) developing and
implementing new management control and reporting systems,(iv)hiring new sales
and marketing professionals, (v) conducting a sophisticated analysis of the
Company's marketplace, and (vi) acquiring the rights to certain new products
which fit well into the Company's overall strategy. Many of these investments
were made late in fiscal 1996 and, therefore, their effect on operating results
will be greater during fiscal 1997 than they were during fiscal 1996. In
addition, fiscal 1997's operating results will be impacted by several
transactions which took place during the three months ending September 30, 1996
and related to the engagement of a financial public relations and acquisition
consultant, the issuance of nonqualified stock options and the termination of
the Underwriting Agreement (see Note 13 of "Notes to Financial Statements").
A comparison of activity between fiscal 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Caption 1996 % 1995 % Change
<S> <C> <C> <C> <C> <C>
Contract and other revenues $2,125,959 $2,548,660 $-422,701
Cost of revenues 1,437,682 0.676 0.652 -224,788
1,661,470
Gross profit 688,277 0.324 887,190 0.348 -198,913
Expenses:
Personnel and related costs 246,489 0.116 233,110 0.091 13,379
Administration expenses 304,057 0.143 180,039 0.071 124,018
Product development costs 169,667 0.080 197,978 0.078 -28,311
Selling expenses 113,629 0.053 68,344 0.027 45,285
Occupancy costs 38,333 0.018 39,593 0.016 -1,260
Total Expenses 872,175 0.410 719,064 0.282 153,111
Operating Income (Loss) -183,898 -0.087 168,126 0.066 -352,024
Interest-Net 15,117 0.007 42,572 0.017 57,689
Income before income taxes -168,781 -0.079 125,554 0.049 -294,335
Income Taxes-Net 55,643 0.026 30,874 0.012 86,517
Net Income (Loss) $-113,138 -0.053 $94,680 0.037 $-207,818
</TABLE>
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<PAGE>
Sales decreased by $422,701 (or 16.6%)in fiscal 1996 compared to fiscal
1995 because (i) a portion of a major contract expected to be completed in
fiscal 1996 was delayed by the customer such that it will be completed in fiscal
1997; (ii) service revenues declined by $30,200; (iii) two large pharmaceutical
customers had unexpected temporary moratoriums on capital expenditures and (iv)
there was a decrease in the number of smaller jobs. The Company has engaged a
new national sales manager, as well as two salesmen, to solicit new business in
a more aggressive way in fiscal 1997 and thereafter.
Cost of sales decreased by $224,788 (or 13.5%) in fiscal 1996 compared with
fiscal 1995. The decrease resulted from the decrease in sales. Cost of sales, as
a percentage of sales, increased to 67.6% in fiscal 1996 from 65.2% in fiscal
1995 principally because the contracts undertaken in fiscal 1996 were more
material intensive than were those in fiscal 1995. Material and outside
purchases constituted 27% of cost of sales in fiscal 1996 compared with 20% in
fiscal 1995. A substantial portion of this change relates to one large hospital
contract in progress. Material-intensive contracts are generally less profitable
than are engineering-intensive contracts.
The major changes in selling, general and administrative expenses during
fiscal 1996 compared with fiscal 1995 relate to: administrative expenses
($124,018) and selling expenses ($153,111). Administrative expenses increased
principally because of (i) amortization of the consulting agreement associated
with the underwriter ($38,700), expenses of financial public relations
($23,224), increased insurance costs principally caused by director and officer
liability insurance ($23,647), and increased accounting and director costs
caused by being a public company ($47,784). These increases were partially
offset by decreases in software and other office costs. The increase in selling
expenses was principally caused by costs of a comprehensive marketing survey
($29,516) and the costs of attending tradeshows ($22,433). As stated above, the
Company has hired additional finance, marketing, sales and engineering personnel
in order for it to implement its strategic plan. Most of these individuals were
hired during the fourth quarter of fiscal 1996 or early in the first quarter of
fiscal 1997. Thus, the impact of their salaries on operations will be greater in
fiscal 1997 than is reflected in fiscal 1996 results.
The change in interest-net is a direct result of the Company realizing
interest income of $43,092 in fiscal 1996 because it invested the proceeds from
its initial public offering in time deposits.
The income tax benefit in fiscal 1996 relates to the amount of income taxes
that are recoverable from the carryback of the net operating loss incurred in
fiscal 1996.
Liquidity and Capital Resources
Subsequent to June 30, 1997, the Company issued convertible debentures (the
"Debentures") to ten investors, in the aggregate principal amount of $1,500,000,
the net proceeds from which, together with the proceeds from additional
financings, will be used to close the acquisition of Laminaire and repay all of
Laminaire's obligations under a term loan agreement with a bank. The Company
will pay interest to the holders of the Debentures at the rate of 5% per annum.
Interest on the Debentures is payable in cash or Common Stock of the Company, at
the Company's discretion. The Company's obligations under $50,000 principal
amount of the Debentures are secured by a lien on the Company's
15
<PAGE>
accounts receivable. The Debentures are convertible into shares of the Company's
Common Stock at any time at dates ranging from 41 days after the date of
issuance, at a price per share (the "Conversion Price") equal to the lesser of
70% of the average closing bid price for the five trading days preceding: (i)
the date of conversion or, (ii) the date of closing. In the event that the
Debentures are not converted prior to the maturity date of the Debentures, the
Company has the option to satisfy its obligations under $50,000 principal amount
of the Debentures on such maturity date by the payment of cash or the issuance
of Common Stock at the Conversion Price. Through September 30, 1997, holders of
$250,000 principal amount of Debentures had converted their Debentures into
501,252 shares of the Company's Common Stock. All Debentures are convertible by
October 12,1997.
The Company intends to use the proceeds of the Debentures for working
capital and to acquire Laminaire. In the event that the Company has not
consummated the acquisition of Laminaire on or before November 10, 1997, the
holders of Debentures having an aggregate principal amount of $1,200,000 are
entitled, at their option, at any time thereafter to demand that the Company
redeem any or all outstanding principal amount, plus all accrued interest
thereon. The redemption price payable by the Company shall be payable in cash,
provided, however, that the Company shall have the right to pay a maximum of 10%
of the redemption price through the issuance of shares of Common Stock.
The Company does not have any working capital or other credit facilities.
The Company is dependent on revenue from operations and, to date, has satisfied
its obligations when due. However, it may require credit facilities or other
source of liquidity to meet the needs of its business. No assurance can be given
that it will obtain such financing or, if available, on terms acceptable to the
Company.
The Company is obligated for a $375,000 short-term bank loan which is
collateralized by a certificate of deposit. Such loan bears interest at the rate
of 6.4 percent per annum.
Seasonality
The demand for the Company's products is not seasonal. However, lengthy
stretches of inclement weather can create delays in the performance of some
systems contracts.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share'; No. 129, "
Disclosure of Information about Capital Structure"; No. 130, "Reporting
Comprehensive Income"; and No. 131, "Disclosure about Segments of an Enterprise
and Related Information." These new accounting pronouncements are not expected
to have a significant impact on the Company. SFAS No. 128 requires the
presentation of Basic Earnings Per Share that the Company believes will, in its
case, approximate the amounts reported as Primary Earning Per Share. The
disclosure requirements in SFAS No. 129 and 130 are not expected to impact the
Company's financial statements. The acquisition of Laminaire Corporation is
expected to result in the Company having to provide segment information.
16
<PAGE>
Item 7. FINANCIAL STATEMENTS
The financial statements are filed as part of this Annual Report on Form
10-KSB.
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None. The Company has not had any disagreements with its independent
auditors regarding the presentation of its financial statements or the
application of any Generally Accepted Accounting Principles.
PART III.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The executive officers and directors of the Company are as follows:
Name Age Position with Company
Edward A. Sundberg 50 Chairman of the Board
Jon J. Darcy 50 President, Chief Executive Officer,
Treasurer and Director
Edward A. Heil 46 Director
K. Ivan F. Gothner 39 Director
Steven W. Schuster 43 Secretary
All Directors hold office until the completion of their term of office,
which is not longer than three years, or until their successors have been
elected. All officers are appointed annually by the Board of Directors and,
subject to existing employment agreements, serve at the discretion of the Board.
Background of Executive Officers and Directors
Jon J. Darcy co-founded the Company in 1978 and has been an executive with
it since inception and President since 1987. He has a Bachelor of Science degree
from the State University of New York Maritime College.
Edward A. Sundberg has been President of ConsultAmerica, Inc., a business
consulting firm, since 1992. From 1989 to 1992, he was Executive Vice President
of ISS International Service Systems, Inc. Mr. Sundberg holds a Bachelor of
Science degree from the United States Naval Academy and a Master of Business
Administration from Boston University.
Edward A. Heil is a certified public accountant and a principal since
January 1992 in Independent Network Group, Inc., a financial consulting firm.
From 1984 through December 1991 he was a partner in the accounting firm,
Deloitte & Touche, LLP. From 1973 to 1984 he was employed in various
professional capacities by Deloitte & Touche, LLP. Mr. Heil holds Bachelor of
Arts and Master of Business Administration degrees from New York University.
K. Ivan F. Gothner has been a Managing Director of The Adirondack Group
LLC, a financial consulting firm, since March 1997. Prior thereto, he was
employed as a managing director of First United Equities, Inc., a broker-dealer
that is a member of the National Association of Securities Dealers, Inc., since
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<PAGE>
August 1995. He was President of Breasy Medical Equipment (US), Inc. from
October 1994 to August 1995. From January 1993 through September 1994 he was
General Partner of Adirondack Partners, LP. From 1990 to 1992 he was a Senior
Vice President at Barclays Bank of New York. Prior thereto, he was a Senior Vice
President at Kleinwort Benson Limited, an investment banking firm. Mr. Gothner
holds Bachelor of Arts and Master of Arts degrees from Columbia University. Mr.
Gothner is also a director of The Ashton Group, Inc., a NASDAQ-listed company
headquartered in Philadelphia.
Steven W. Schuster has been secretary of the Company since July 1996. He is
a member of McLaughlin & Stern, LLP, counsel to the Company, since 1995. Mr.
Schuster has practiced corporate and securities law for the past 15 years. He
received a Bachelor of Arts degree from Harvard University and a Juris Doctorate
from New York University. Mr. Schuster is a director of ACTV, Inc., an
interactive television company.
Charles J. Garay, the founder and President of Laminaire will become a
member of the Board of Directors upon the completion of the Laminaire
acquisition.
Outside directors receive $4,000 per year plus $350 per meeting as
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for expenses incurred in attending Directors' meetings. Firms
associated with outside directors an aggregate of $332,953 (principally for
professional fees associated with the acquisition of Laminaire and the
negotiation of the financing therefor, and in the case of Mr. Schuster, legal
services) during the fiscal year ended June 30, 1997. A firm associated with
Edward A. Sundberg received $125,815; a firm associated with Edward A. Heil
received $82,746; a firm associated with Steven W. Schuster received $76,392,
and Carl Bruno, a former director, received $12,000. The law firm in which Mr.
Schuster is a partner also received 41,000 shares of common stock in
satisfaction of fees owed. In addition, the directors received the following
options at the specified exercise price:
Name $.10 (1) $.83 (2) $1.00 (2) Total
Edward A. Sundberg 30,000 38,000 25,000 93,000
K. Ivan. F. Gothner 30,000 38,000 25,000 93,000
Edward A. Heil 80,000 38,000 25,000 143,000
Carl R. Bruno 30,000 38,000 25,000 93,000
Steven W. Schuster 15,000 5,000 15,000 35,000
(1) Messrs. Sundberg, Gothner and Heil have exercised these options. Mr. Bruno's
options were cancelled. The market price of the shares on the date of issuance
was $.50.
(2) These options were granted at the market price of the shares at the date of
issuance. None have been exercised.
Project Managers and Key Employees
James Scally, joined the Company in 1982 and is a design engineer having
responsibility for product design, application engineering and systems
installation. Mr. Scally, who holds a B.S.M.E. degree from New Jersey Institute
of Technology, has more than 25 years of experience in the automation and
controls industry.
18
<PAGE>
David J. Musto, is a national sales manager, having responsibilities for
the sales and staffing of all the company's systems and product sales. Mr. Musto
holds a Bachelor of Science degree in Computer and Systems Engineering from
Rensselear Polytechnic Institute.
Gregory Smith, is a project manager having responsibilities for
installation of electronic systems, and the evaluation of the hardware and
software in existing digital and solid state systems. Mr. Smith holds a Bachelor
of Science degree in engineering from SUNY Maritime College.
Ernesto Ramos, is a project manager having responsibilities for
installation of electronic systems, and the evaluation of the hardware and
software in existing digital and solid state systems. Mr. Ramos holds a B.S.E.E.
from Rensselear Polytechnic Institute.
John M. Breitenbach, is research and software development manager, having
15 years experience as a design and software writer and troubleshooter with
extensive work having been done in systems engineering and controls.
Laminaire separately employs experienced managers, designers and draftsmen.
The information required by this Item 9 as to directors is incorporated by
reference to the information captioned "Election of Directors" to be included in
the Company's definitive proxy statement in connection with the meeting of
shareholders scheduled to be held on December 12, 1997.
Item 10. EXECUTIVE COMPENSATION
Jon J. Darcy, President and Chief Executive Officer, received compensation
of approximately $131,000 in each of fiscal 1996 and 1995 (consisting of salary
of $123,000 and benefits having an estimated value of $8,000). Mr. Darcy
received options to purchase 95,000 shares at an exercise price of $.83 per
share, the market price of the shares on the date of issuance. No other
employee, officer or director received annual compensation of as much as
$100,000. The Board of Directors has established a compensation committee
comprised of outside directors to review compensation matters as well as any new
employment contracts. The Company has a health and disability plan and a 401(k)
plan for its employees.
Employment Agreements
In July 1997, the Company entered into a three-year employment agreement
with Jon J. Darcy, President and Chief Executive Officer of the Company, under
which he will receive an annual salary of $135,000, $ 145,000 and $ 155,000,
respectively, during each of the three fiscal years in the period ended June 30,
2000. The contract also provides for the issuance of stock options based on the
achievement of specified operating performance, the use of a car and that the
Board of Directors may award Mr. Darcy bonuses and other incentive compensation
as it deems appropriate, based upon the Company's operating performance or other
reasonable criteria and includes a restrictive covenant limiting Mr. Darcy's
ability to obtain employment with a competitor or potential competitor.
In June 1996, the Company entered into three-year employment agreements
with three software engineers under which it is obligated to pay annual salaries
of $60,000 to each such engineer. The agreements contain
covenants-not-to-
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<PAGE>
compete and confidentiality agreements, as well as provisions for severance pay
if the Company terminates any or all such agreements for other than cause.
Stock Option Plan
The Thermo-Mizer Environmental Corp. 1996 Stock Incentive Plan (the
"Plan"), which expires ten years from the date adopted, enables the Company to
grant incentive stock options, nonqualified options and stock appreciation
rights ("SARs") for up to 500,000 shares of the Company's Common Stock.
Incentive stock options granted under the Plan must conform to applicable
Federal income tax regulations and have an exercise price not less than the fair
market value of shares at the date of grant (110% of fair market value for ten
percent or more stockholders). Other options and SARs may be granted on terms
determined by a committee of the Board of Directors. As of June 30, 1997, there
were 289,000 options outstanding under the Plan, all with an exercise price of
$1 per share.
The information required by this Item 10 is incorporated by reference to
the information captioned "Remuneration and Other Transactions with Management"
included in the Company's definitive proxy statement in connection with the
meeting of shareholders to be held on December 12, 1997.
Item 11. SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at September 30,
1997 by (i) each person known by the Company to own, directly or beneficially,
more than 5% of the Company's Common Stock at such date, (ii) each of the
Company's directors, and (iii) all officers and directors of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws, where applicable.
NAME AND ADDRESS OF NUMBER OF PERCENT Of
BENEFICIAL OWNER (6) SHARES OWNED (5) SHARES OWNED (4)
Jon J. Darcy (1) 644,750 18.5
Edward A. Sundberg 65,500 0.1
Edward A. Heil (2) 63,000 0.1
K. Ivan F. Gothner 63,000 0.1
Steven W. Schuster (3) 36,000 0.1
Continental Capital & Equity Corp. (7) 402,557 11.9
Blue Chip Securities, Ltd. (8) 250,626 7.4
Bay Bridge International, Ltd. (8) 250,626 7.4
Austost Anstalt Schaan (9) 285,000 7.7
UFH Endowment (9) 285,000 7.7
Arcadia Mutual Fund Co., Inc (9) 715,000 17.4
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<PAGE>
NAME AND ADDRESS OF NUMBER OF PERCENT Of
BENEFICIAL OWNER (6) SHARES OWNED (5) SHARES OWNED (4)
Directors and Officers
as a Group (5 persons) 809,250 18.9
(1) Excludes 112,500 shares held in trust for Mr. Darcy's children over which
Mr. Darcy disclaims beneficial ownership.
(2) Excludes 80,000 shares owned by a company in which Mr. Heil is managing
director. Mr. Heil disclaims beneficial ownership thereof.
(3) Excludes 41,000 shares held by the law firm in which Mr. Schuster is a
partner.
(4) Excludes the assumed conversion of warrants and options.
(5) Includes all options held by the respective individuals.
(6) The address for each officer or director listed above is 528 Oritan Avenue,
Ridgefield, New Jersey 07657.
(7) Includes 177,557 shares issued subsequent to June 30, 1997 pursuant to a
contract in effect prior to June 30, 1997. Continental Capital & Equity
Corp.'s address is 2301 Maitland Center Parkway, Suite 100, Maitland, FL
32751.
(8) Represents shares of common stock issued upon conversion of a Convertible
Note in the principal amount of $250,000.
(9) Issuable upon conversion of Convertible Debentures at a conversion price
equal to 70% of the lesser of the average closing bid price per share of
the Common Stock for the five trading days prior to the (i) closing date of
the Convertible Debentures or (ii) conversion date of such Debentures. For
the purpose of this calculation, the bid price was assumed to be $1.
The information required by this Item 11 is incorporated by reference to
the information captioned "Voting Securities" to be included in the Company's
definitive proxy statement in connection with the meeting of shareholders
scheduled to be held on December 12, 1997.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is incorporated by reference to
the information captioned "Remuneration and Other Transactions with Management"
to be included in the Company's definitive proxy statement in connection with
the meeting of shareholders scheduled to be held on December 12, 1997.
On July 30, 1996, the Company entered into a one-year financial consulting
agreement with Solay, Inc. ("Solay") under which Solay agreed to provide the
Company with financial public relations and acquisition-related services in
consideration for a payment of $165,000 and an option (the "Option") granting
Solay the right to purchase 550,000 units at an exercise price of $1 per unit.
Each unit consists of one share of common stock and two Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock at an exercise price equal to the greater of (i) $3 per share or (ii) 120%
of the offering price of a share of common stock in a secondary public offering
which results in gross proceeds of at least $3,000,000. The Class B warrants
were exercisable for a period of five years commencing on the earlier of (i) one
year from the date that the option was granted or (ii) the consummation of an
acquisition, as defined, by the Company. The Company registered all securities
covered by the Option in a Registration Statement on Form S-8. In February 1997,
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<PAGE>
the Company and Solay agreed to modify the terms of the option such that it
cancelled 470,000 previously issued Class B Warrants and Solay's right to
purchase 30,000 Class B Warrants and issued an aggregate of 100,000 shares of
Common Stock (one share of Common Stock for each five Class B Warrants).
Solay is entitled to exercise options for up to 300,000 shares, of which it
exercised such option for 260,000 such shares, including 160,000 for which it
issued a note to the Company in the principal amount of $160,000. The note is
interest-free and is nonrecourse to Solay, except to the extent that an officer
of the Company repays a note due by such officer to Solay. The remainder of the
Option becomes exercisable at the earlier of (i) the consummation by the Company
of an acquisition, as defined, or (ii) 18 months from the date of grant. The
Option expires five years from the date of grant. Solay granted an irrevocable
proxy to vote all shares purchased and held by Solay pursuant to the Option to
the Company's President. Such proxy terminates at the time that the shares are
sold, exclusive of a transfer pursuant to a pledge of the shares.
As part of the agreement with Solay, Nationwide Securities, Inc.
("Nationwide"), the underwriter for the Company's initial public offering in
March 1996, agreed to terminate the underwriting agreement effectively
eliminating all restrictive covenants set forth therein and severing the
relationship between the Company and Nationwide. Accordingly, the Company also
wrote off the unamortized portion, amounting to $100,000, of the Nationwide
consulting agreement during the fiscal year ended June 30, 1997.
The Company issued nonqualified options for 180,000 units to officers and
directors. The units covered by these nonqualified options are identical to the
units included in the Option issued to Solay, except that they were exercisable
at estimated fair market value at the date of grant ($1.16). The Class B
Warrants included in such units were treated in the same manner as the Class B
Warrants included in the Solay agreement described above. The conversion of the
Class B Warrants results in the exercise price per share becoming $.83.
For financial reporting purposes, the Company ascribed a value of $.05 to
each Class B Warrant. The aggregate difference between the fair market value of
a share of common stock on the date of grant ($1.0623) and the value ascribed to
each share of common stock included in the units described above ($.90) for the
Solay Options amounts to $89,375 and was accounted for as an expense during the
fiscal year ended June 30, 1997. There are no remaining unamortized costs
associated with the Solay Agreement at June 30, 1997.
On April 30, 1997, the Company entered into an agreement with Continental
Capital & Equity Corporation ("CCE") under which CCE agreed to conduct a
financial public relations campaign and other consulting services to the Company
in consideration for the receipt of (i) $25,000 plus 225,000 shares of the
Company's Common Stock at the commencement of services and (ii) $125,000 payable
in cash or the issuance of Common Stock at a price equivalent 80 percent of the
closing bid price of such shares on June 15, 1997. In August 1997, the Company
issued 177,587 shares of Common Stock to CCE to satisfy this obligation. The
Company's fiscal 1997 financial statements set forth elsewhere herein include
$91,666 in the caption "Selling, General and Administrative" and $183,334 in the
caption "Prepaid Expenses" relating to CCE.
During fiscal 1997 and 1996, the Company paid professional, consulting and
legal fees amounting to $332,953(of which $153,924 relates to the acquisition of
Laminaire or obtaining the financing therefor) and $97,095 (of which $40,220
relates to services associated with the initial public offering) to directors or
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firms related to directors or officers. The law firm in which the Company's
Secretary is a partner also received 41,000 shares of common stock in
satisfaction of fees owed in fiscal 1997. See "DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934."
PART IV Exhibits and Reports on Form 8-K
a. Exhibits
INDEX TO EXHIBITS
1.1 *Release Agreement among Nationwide Securities, Inc. (and its affiliates)
and Thermo-Mizer Environmental Corp. *Planof Merger for Thermo
Engineering, Certificate of Ownership and
2. Merger, Certificate of Merger.
3.1 *Certificates of Incorporation.
3.2 *By-Laws.
4.1 *Specimen Certificate of Common Stock.
4.2 *Form of Underwriter's Warrant Purchase Option.
4.3 **Form of Option issued to Solay, Inc. and Crystal Line, Inc.
4.4 **Form of Options issued to Officers, Directors, Consultants and
Employees.
4.5 **Form of Class B Warrant.
4.6 ***Thermo-Mizer Environmental Corp. 1996 Incentive Plan.
10.2 ****Agreement with D.R. Maruster & Co. dared December 10, 1996.
10.2 *Premium Reduction Option Cafeteria Plan.
10.3 *Lease Agreement
10.4 *401(k) Retirement Plan and Profit Sharing Plan.
10.5 ***Thermo-Mizer Environmental Corp. 1996 Stock Incentive Plan.
10.6 Employment Agreement - Thomas B. Lewis
10.7 Employment Agreement - Jeffrey A. Buser
10.8 Employment Agreement - Eric W. Stark
10.9 ***Agreement between the Registrant and Enersave, Inc. dated July 1996
23
<PAGE>
10.10 *** Agreement between the Registrant and American Process Controls, Inc.
10.11 **Consulting Agreement with Solay, Inc.
10.12 *****Amendment to Consulting Agreement between Registrant and Solay, Inc.
dated as of February 21, 1997.
10.13 ******Agreement with Continental Capital & Equity Corporation dated April
29th, 1997.
10.14 *******Form of Convertible Debenture regarding July 7th, 1997 issuance.
10.15 *******Form of Subscription Agreement.
10.16 *******Form of Escrow Agreement.
10.17 *******Form of Registration.
10.18 Form of Employment Agreement.
10.19 Purchase Agreement with Laminaire Corporation dated October 9th, 1997
14. *Assignment of Patent.
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
*Include in, and incorporated by reference to, the Registrant's Registration
Statement on Form SB-2.
**Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on September 26, 1996.
***Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on June 30, 1996.
****Included in, and incorporated by reference to, the Registrant's Registration
Statement on Form S-8, filed on January 21, 1997.
*****Included in, and incorporated by reference to, the Registrant's
Registration Statement on Form S-8, filed on March 11, 1997.
******Included in, and incorporated by reference to, the Registrant's
Registration Statement on Form S-8, filed on May 12, 1997.
*******Included in, and incorporated by reference to, the Registrant's
Registration Statement on Form S-8, filed on July 22, 1997.
b.Reports on Form 8-k
During the last fiscal quarter, the Company did not file a report on Form 8-k.
24
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
/s/ JonJ Darcy
----------------------------------------
JON J. DARCY
Title: President, Chief Executive
Officer and Treasurer
(Principal Executive and
Financial Officer)
Date: 10/8/97
---------------
Directors
/S/ Edward A. Sundberg
-----------------------------
EDWARD A. SUNDBERG
Title: Director and Chairman
Date: 10/8/97
---------------
/S/ Edward A. Heil
-----------------------------
EDWARD A. HEIL
Title: Director
Date: 10/8/97
---------------
/S/ K. Ivan F. Gothner
-----------------------------
K. IVAN F. GOTHNER
Title: Director
Date: 10/8/97
---------------
25
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 27
FINANCIAL STATEMENTS:
Balance Sheet at June 30, 1997 28
Statements of Operations for the Years Ended June 30, 30
1997 and 1996
Statements of Cash Flows for the Years Ended June 30, 31
1997 and 1996
Statements of Stockholders' Equity for the Years Ended June 30, 32
1997 and 1996
Notes to Financial Statements 33
26
<PAGE>
To the Board of Directors
Thermo-Mizer Environmental Corp.
Ridgefield, New Jersey
We have audited the accompanying balance sheet of Thermo-Mizer
Environmental Corp. as of June 30, 1997 and the related statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended June 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above represent
fairly, in all material respects, the financial position of Thermo-Mizer
Environmental Corp. as of June 30, 1997 and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
Eichler Bergsman & Co., LLP
New York, NY
October 9, 1997
27
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
BALANCE SHEET
JUNE 30, 1997
ASSETS
------
Current Assets:
Cash $ 234,006
Other time deposits 375,000
Contracts receivable-net of allowance of $30,000 960,045
Inventories 378,284
Unbilled receivables 27,976
Prepaid expenses and other 258,894
----------
Total Current Assets 2,234,205
Property and Equipment - net 135,209
Other Assets 750,182
----------
Total Assets $3,119,596
==========
See Notes to Financial Statements.
28
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
BALANCE SHEET
JUNE 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Note payable - bank $ 375,000
Accounts payable - trade 381,988
Billings in excess of costs 82,653
Accrued expenses and other 259,899
-----------
Total Current Liabilities 1,099,540
-----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.001 par value;
25,000,000 shares authorized; 2,717,500 shares issued 2,717
Additional paid-in capital 3,831,094
Deficit (1,619,675)
-----------
Total 2,214,136
Less - Note receivable (160,000)
Treasury stock-at cost (35,100 shares) (34,080)
-----------
Stockholders' Equity-net 2,020,056
-----------
Total Liabilities and Stockholders' Equity $ 3,119,596
===========
See Notes to Financial Statements.
29
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
---- ----
Contract and other revenues $ 2,351,191 $ 2,125,959
Cost of revenues 2,099,873 1,437,682
----------- -----------
Gross profit 251,318 688,277
----------- -----------
Expenses:
Personnel and related costs 524,401 246,489
Selling and administration expenses 897,839 417,686
Product development costs 221,429 169,667
Occupancy costs 32,955 38,333
Nonrecurring expenses-net 478,653 (15,117)
----------- -----------
Total expenses 2,155,277 857,058
----------- -----------
Loss before income taxes (1,903,959) (168,781)
Income taxes 19,207 55,643
----------- -----------
Net loss $(1,923,166) $ (113,138)
=========== ===========
Loss per share $ (.86) $ (.08)
=========== ===========
Weighted average number of shares of common stock 2,231,372 1,387,000
=========== ===========
See Notes to Financial Statements.
30
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,923,166) $ (113,138)
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 41,551 22,342
Loss on disposal of assets 27,756
Nonoperating writeoffs and charges 204,555
Provision for doubtful accounts 15,000
(Increase) decrease in assets:
Contract receivables (184,594) (185,012)
Inventories (62,832) (162,362)
Unbilled receivables 226,862 (204,207)
Prepaid expenses and other (497,633) (209,391)
Increase (decrease) in liabilities:
Accounts payable 121,896 168,878
Billings in excess of costs 82,653 (7,419)
Accrued expenses and other 191,185 (41,943)
----------- -----------
Net cash used in operating activities (1,756,767) (732,252)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (104,112) (56,730)
----------- -----------
FINANCING ACTIVITIES:
Issuance of common stock and warrants 428,764 3,222,600
Payments on debt (311,839)
Proceeds from debt 375,000
Deferred acquisition and finance costs (282,272)
Investment in other time deposit (375,000)
Other investments (198,619)
Purchase of treasury stock (34,080)
----------- -----------
Net cash provided by (used in) financing activities (86,207) 2,910,761
----------- -----------
Net increase (decrease)in cash and cash equivalents (1,947,086) 2,121,779
Cash --beginning 2,181,092 59,313
----------- -----------
Cash --ending $ 234,006 $ 2,181,092
=========== ===========
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, July 1,1995 1,125,000 $ 1,125 $ 129,375 $ 416,629 $ 547,129
Sale of Common Stock and 771,500 771 3,113,776 3,114,547
Warrants--net
Net Loss (113,138) (113,138)
----------- ----------- ----------- ----------- -----------
Balance, June 30,1996 1,896,500 1,896 3,243,151 303,491 3,548,538
Sale of Common Stock 821,000 821 587,943 588,764
Net loss (1,923,166) (1,923,166)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 2,717,500 $ 2,717 $ 3,831,094 $(1,619,675) 2,214,136
=========== =========== =========== ===========
Less - Note receivable (160,000)
- - Treasury stock - at cost (34,080)
-----------
Total $ 2,020,056
===========
</TABLE>
Note - All amounts give retroactive effect to a .75 to 1 reverse stock split
declared in January 1996.
See Notes to Financial Statement
32
<PAGE>
THERMO-MIZER ENVIRONMENTAL CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 1--NATURE OF BUSINESS
Thermo-Mizer Environmental Corp. (the "Company"), based in Ridgefield, New
Jersey, designs, assembles and sells a family of products and systems used to
monitor a wide variety of environmental conditions. These products and systems
have the capability of monitoring and summarizing factory emissions on a real
time basis to assist companies to comply with environmental laws and
regulations, as well as specific applications in industries such as
pharmaceuticals, hospitals, commercial real estate, energy conservation and
power generation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's principal accounting and financial reporting policies
is as follows:
Revenue Recognition
Contract revenues are recognized on the percentage-of-completion method by
multiplying total contract revenue by the estimated percentage of contract
completion. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Earnings are
also charged with a provision for doubtful accounts based on a review of
collectibility.
Service revenue amounted to $232,223 in 1997 and $184,029 in 1996 and is
recognized when the service is performed.
Inventories
Inventories consist principally of parts and components for use in
contracts and are stated at the lower of cost or market. Cost is determined
using the first-in, first-out cost flow assumption.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods based upon
the estimated useful lives of the related assets as follows:
Furniture and fixtures 5 years
Vehicles 7 years
Machinery and equipment 5-7 years
33
<PAGE>
Expenditures for repairs and maintenance are charged to expense as incurred.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121("SFAS 121"), "Accounting For the
Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of."
SFAS 121 prescribes the accounting treatment for cases in which there are
indications that the carrying values of long-lived assets, identifiable
intangibles and goodwill may not be fully recoverable. The adoption of SFAS 121
did not have a material effect on the Company's results of operations or its
financial position at June 30, 1997.
Statement of Cash Flows
Interest paid for the years ended June 30, 1997 and 1996 was $22,697 and
$28,527, respectively. Income taxes paid for the year ended June 30,1997 was
$19,207. For the purposes of this statement, investments and time deposits
having an initial term of 90 days or less are considered to be cash equivalents.
Product Development Costs
Product development costs are charged to operations as incurred. During the
fiscal year ended June 30, 1997, such charges include the cost of engineering
labor and overhead. Substantially all charges during the fiscal year ended June
30, 1996 were paid to consultants and contractors.
Loss Per Share
Loss per common and common equivalent share are calculated by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the period, after giving retroactive effect to the .75 to 1
reverse stock split effected in January 1996. The assumed exercise of
outstanding warrants and options would have been antidilutive and, therefore,
were excluded from the calculation of loss per share in all periods presented.
Warranty Costs
The Company's policy is to warrant parts on new installations for one year
from start-up of the system. The cost of parts used in installations is
generally not a material component of the total installation costs. The
Company's policy is to accrue expenses related warranty costs when the related
revenue is recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The principal assumptions inherent in the
accompanying financial statements relate to estimated percentages of contract
completion and the realizability of deferred costs associated with planned
business combinations. Actual results may differ from those estimates. All
liabilities are recorded at approximate fair values.
34
<PAGE>
Revenue and Credit Concentration
A significant portion of the Company's revenue is derived from a small
number of systems contracts performed for customers located principally in the
New York Metropolitan Area. Accordingly, a substantial portion of the Company's
accounts receivable at June 30, 1997 is due from customers in the pharmaceutical
or commercial real estate industry operating in the New York Metropolitan area.
Reclassifications
Certain 1996 amounts and balances have been reclassified to conform to the
1997 presentation.
NOTE 3 -- CONTRACTS RECEIVABLE
Contracts receivable at June 30, 1997 exclude retainages of $223,424, a
substantial portion of which may not be collected during the fiscal year ending
June 30, 1998.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1997:
Furniture, fixtures and office equipment $ 329,326
Machinery and equipment 75,952
Leasehold Improvements 74,890
Vehicles 14,152
------
Total 494,320
Less - accumulated depreciation 359,111
-------
Property and equipment - net $135,209
========
NOTE 5--OTHER ASSETS
Other assets consist of the following at June 30, 1997:
Retainages (note 3) $ 223,424
Deferred costs (note 14) 282,272
Rights and miscellaneous 198,619
Other 45,867
---------
Total $ 750,182
=========
Rights and miscellaneous consist of:
American Process Controls, Inc. $ 114,299
Enersave, Inc. 84,320
---------
Total $ 198,619
=========
35
<PAGE>
In August 1996, the Company made a noninterest-bearing loan of $93,750
(which was subsequently increased to $114,299 to American Process Controls, Inc.
("APC"), the proceeds from which were used to fund the development of a working
temperature-activated steam trap alarm device (the "Product"). The loan is
collateralized by all of APC's assets. The Company has the right to receive 45%
of APC's common stock in full satisfaction of such loan plus the (i) exclusive
right to sell the Product in the Heating, Ventilation and Air Conditioning
market and (ii) nonexclusive right to sell the product in all other markets. APC
is required to sell the Product to the Company at a price equivalent to 120% of
APC's manufacturing costs. The Company believes that additional costs must be
incurred to complete the Product's design and testing and has advised APC that
it is currently unwilling to advance such funds. The Company has proposed that
APC obtain alternative financing in sufficient amount as to repay the amounts
due to the Company and complete the Product. No assurance can be given that APC
will be successful in such efforts.
In July 1996, the Company and Enersave, Inc. ("Enersave") entered into an
agreement under which the Company acquired, for $100,000, all of Enersave's
rights to provide all necessary performance metering and billing services
pursuant to certain energy service contracts between Enersave and certain public
utility companies. The acquisition price will be amortized based on actual
billings.
NOTE 6 -- CASH CONCENTRATION
Cash in excess of the banks' depository insurance coverage amounted to
approximately $60,000 at June 30, 1997.
NOTE 7 -- NOTES PAYABLE
The Company has a $375,000 short-term note payable to a bank, which is
collateralized by a certificate of deposit and bears interest at the rate of 6.4
percent per annum.
NOTE 8--INCOME TAXES
The Company incurred a net operating loss for the year ended June 30, 1997.
The Company has established an allowance for the full potential benefit of all
such carryforwards because of doubt as to the realizability of such benefit. The
income tax benefit for the year ended June 30, 1996 consists entirely of the
estimated benefit available from the carryback of the Company's net operating
losses. The entire provision in 1997 relates to state franchise taxes and fees.
A reconciliation of income tax benefit calculated using the Federal
statutory rate to the reported income tax benefit for fiscal 1996 is as follows:
Federal statutory rate applied to pretax income (loss) $(59,073)
Investment and research credits (17,000)
Benefit of graduated rates 20,430
---------
Income tax benefit $(55,643)
=========
36
<PAGE>
Deferred income taxes will be recorded for the net tax effects when
temporary differences arise between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. No deferred income taxes are recorded at June 30, 1997. The Company
incurred a net operating loss for the year ended June 30, 1997.
The Company has net operating loss carryforwards of approximately
$1,800,000 expiring in the year 2012 and investment and research and development
credits amounting to $37,000 which are available to reduce future income taxes
through 2012.
NOTE 9--STOCKHOLDERS' EQUITY
The Company is a Delaware corporation. Its Certificate of Incorporation
provides that its authorized capital stock consists of 25 million shares of
Common Stock, par value $.001 per share. The holders of the Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders. Holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor.
Initial Public Offering
In March 1996, the Company completed an initial public offering in which it
sold 771,500 shares of its common stock and 1,725,000 redeemable warrants (the
"Redeemable Warrants") which resulted in net proceeds, after all expenses, of
$3,114,547. Each Redeemable Warrant entitles the holder thereof to purchase one
share of common stock for $6.00 (120% of the initial public offering price),
subject to adjustment, commencing one year from the date of the initial public
offering and remains exercisable for a period of four years thereafter. The
Redeemable Warrants are redeemable for $.05 per warrant commencing two years
from the closing date of the offering if the closing price of the Company's
common stock equals or exceeds $7.50 for 20 consecutive trading days. The
Company also sold, for nominal consideration, a warrant to the underwriter
entitling the holder thereof to purchase 75,000 shares of common stock and
150,000 warrants at a price equal to 165% of the initial public offering price
thereof. This warrant becomes exercisable one year from the date of the initial
public offering and remains exercisable for a period of four years thereafter.
As part of the initial public offering, the Company also paid, at closing, a fee
of $120,000 for a two-year consulting agreement (see Note 12).
The transactions described below, together with certain other issuances of
securities in consideration for services received, result in a modification of
the exercise price of the Redeemable Warrants issued as part of the Company's
initial public offering under the antidilution provisions of the warrant
agreement. Such issuances result in the exercise price of the Redeemable
Warrants being reduced from $6.00 (the price in effect on the date of issuance)
to $3.12 at June 30, 1997. In addition, each Redeemable Warrant, as adjusted,
will entitle the holder thereof to purchase 1.92 shares of Common Stock at the
adjusted purchase price of $3.12 per share. See Note 14 below for the impact
that certain subsequent events have on the exercise price of these Warrants.
Solay Agreement
On July 30, 1996, the Company entered into a one-year financial consulting
agreement with Solay, Inc. ("Solay") under which Solay agreed to provide the
Company with financial public relations and acquisition-related services in
37
<PAGE>
consideration for a payment of $165,000 and an option (the "Option") granting
Solay the right to purchase 550,000 units at an exercise price of $1 per unit.
Each unit consists of one share of common stock and two Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock at an exercise price equal to the greater of (i) $3 per share or (ii) 120%
of the offering price of a share of common stock in a secondary public offering
which results in gross proceeds of at least $3,000,000. The Class B warrants
were exercisable for a period of five years commencing on the earlier of (i) one
year from the date that the option was granted or (ii) the consummation of an
acquisition, as defined, by the Company. The Company registered all securities
covered by the Option in a Registration Statement on Form S-8. In February 1997,
the Company and Solay agreed to modify the terms of the option such that it
cancelled 470,000 previously issued Class B Warrants and Solay's right to
purchase 30,000 Class B Warrants and issued an aggregate of 100,000 shares of
Common Stock (one share of Common Stock for each five Class B Warrants).
Solay is entitled to exercise options for up to 300,000 shares, of which it
exercised such option for 260,000 such shares, including 160,000 for which it
issued a note to the Company in the principal amount of $160,000. The note is
interest-free and is nonrecourse to Solay, except to the extent that an officer
of the Company repays a note due by such officer to Solay. The remainder of the
Option becomes exercisable at the earlier of (i) the consummation by the Company
of an acquisition, as defined, or (ii) 18 months from the date of grant. The
Option expires five years from the date of grant. Solay granted an irrevocable
proxy to vote all shares purchased and held by Solay pursuant to the Option to
the Company's President. Such proxy terminates at the time that the shares are
sold, exclusive of a transfer pursuant to a pledge of the shares.
As part of the agreement with Solay, Nationwide Securities, Inc.
("Nationwide"), the underwriter for the Company's initial public offering in
March 1996, agreed to terminate the underwriting agreement effectively
eliminating all restrictive covenants set forth therein and severing the
relationship between the Company and Nationwide. Accordingly, the Company also
wrote off the unamortized portion, amounting to $100,000, of the Nationwide
consulting agreement during the fiscal year ended June 30, 1997.
The Company issued nonqualified options for 180,000 units to officers and
directors. The units covered by these nonqualified options are identical to the
units included in the Option issued to Solay, except that they were exercisable
at estimated fair market value at the date of grant ($1.16). The Class B
Warrants included in such units were treated in the same manner as the Class B
Warrants included in the Solay agreement described above. The conversion of the
Class B Warrants results in the exercise price per share becoming $.83.
For financial reporting purposes, the Company ascribed a value of $.05 to
each Class B Warrant. The aggregate difference between the fair market value of
a share of common stock on the date of grant ($1.0623) and the value ascribed to
each share of common stock included in the units described above ($.90) for the
Solay Options amounts to $89,375 and was accounted for as an expense during the
fiscal year ended June 30, 1997. There are no remaining unamortized costs
associated with the Solay Agreement at June 30, 1997.
Continental Capital & Equity Corp.
On April 30, 1997, the Company entered into an agreement with Continental
Capital & Equity Corporation ("CCE") under which CCE agreed to conduct a
financial public relations campaign and other consulting services to the Company
38
<PAGE>
in consideration for the receipt of (i) $25,000 plus 225,000 shares of the
Company's Common Stock at the commencement of services and (ii) $125,000 payable
in cash or the issuance of Common Stock at a price equivalent 80 percent of the
closing bid price of such shares on June 15, 1997. In August 1997, the Company
issued 177,587 shares of Common Stock to CCE to satisfy this obligation. The
accompanying fiscal 1997 financial statements include $91,666 in the caption
"Selling, General and Administrative" and $183,334 in the caption "Prepaid
Expenses" relating to CCE. A substantial portion of such prepaid amount will be
amortized during the first quarter of fiscal 1998.
Stock Options
In December 1996, the shareholders approved a stock incentive plan under
which the Company may issue incentive stock options, nonqualified stock options
and stock appreciation rights. As of June 30, 1997, the Company has granted
options covering 314,000 shares of Common Stock, of which 169,000 options are
vested and the remaining vest ratably over four years. The maximum number of
shares which may be issued under this plan is 500,000.
In June 1997, the Company issued stock options for 140,000 shares of Common
Stock exercisable at a price of $.10 per share in consideration for services
performed by outside directors in connection with the acquisition of Laminaire.
The difference between the exercise price and the market price of these shares
was accounted for as part of the acquisition price of Laminaire (see Note 14).
The Company accounts for all options using the intrinsic value method in
accordance with Accounting Principles Board Opinion No.25, "Accounting For Stock
Issued To Employees" and its related interpretations. Effective with fiscal
1997, the Company is subject to the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation" ("SFAS
123"). SFAS 123 establishes a fair value method of determining compensation
expense relating to stock-based compensation plans, and requires the disclosure
of the pro forma effects of recording such expense using the fair value method
rather than the intrinsic method. Under SFAS 123,the fair value of stock-based
awards to employees is calculated using option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's pro forma
calculations were made using the Black-Scholes option pricing model with the
following assumptions:
Risk-Free Interest Rate 9%
Dividend Rate 0%
Expected Term of Option In Years Five years
On a pro forma basis, net loss and loss per common share for fiscal 1997
and 1996 would not have changed significantly if the Company had accounted for
options using the fair value method rather than the intrinsic value method.
A summary of stock option activity follows:
Description Number Price Range
39
<PAGE>
Options granted 1,286,000 $.10 to $1.00
Options exercised 400,000 $1.00
Options cancelled 55,000 $1.00
Options outstanding 831,000 $.83 to $1.00
Of the total options outstanding, 461,000 are exercisable at June 30, 1997.
Shares Reserved for Issuance
At June 30, 1997, the Company reserved 4,354,000 shares of common stock for
issuance in connection with outstanding options and warrants.
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company leases its principal office and warehouse facility under the
terms of a verbal operating lease that expires July 31, 1998 and calls for
monthly payments of approximately $4,000. Total rent expense for the years ended
June 30, 1997 and 1996 amounted to $74,985 and $50,492, respectively. Future
minimum lease payments under operating leases, excluding escalations, for the
fiscal year ending June 30, 1998 is $48,000.
In July 1997, the Company entered into a three-year employment agreement
effective July 1, 1997, with its President and Chief Executive Officer under
which he will receive an annual salary of $135,000, $145,000 and $155,000,
respectively, during each of the three fiscal years in the period ended June 30,
2000. The contract also provides for the issuance of stock options based on the
achievement of specified operating performance, the use of a car and that the
Board of Directors may award Mr. Darcy bonuses and other incentive compensation
as it deems appropriate, based upon the Company's operating performance or other
reasonable criteria and includes a restrictive covenant limiting Mr. Darcy's
ability to obtain employment with a competitor or potential competitor.
In June 1996, the Company entered into three-year employment agreements
with three software engineers under which it is obligated to pay annual salaries
of $60,000 to each such engineer. The agreements contain
covenants-not-to-compete and confidentiality agreements, as well as provisions
for severance pay if the Company terminates any or all such agreements for other
than cause.
The Company's management does not believe that its products are subject to
any material product liability claims and has no insurance to cover such risk.
The Company has a qualified 401(k) profit sharing plan available to
full-time employees who meet the plan's eligibility requirements. The plan
permits participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. In addition, the Company has no
obligation to contribute to the plan, however, it can elect a discretionary
contribution. The Company made no contributions to the plan during the either of
the two years in the period ended June 30, 1997.
NOTE 11--CONCENTRATION OF CREDIT RISK
The Company's two largest customers accounted for 31% of net revenues
in 1997, and its six largest customers accounted for 87% of net revenues in 1996
as follows:
1997 1996
---- ----
40
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Customer A 14% 23%
Customer B 6% 13%
Customer C 7% 20%
Customer D 7% 11%
Customer E 17% ---
Customer F 1% 10%
Customer G 1% 10%
No other customers accounted for ten percent or more of net revenue during
either fiscal year. Customer G is located in Canada. No other sales were made to
customers located outside the United States.
The employees and facilities of the Company service all customers. Company
costs other than direct material are not related to specific customers.
NOTE 12--NONRECURRING EXPENSES
Nonrecurring expenses consist of the following for the fiscal years ended
June 30, 1997 and 1996:
1997 1996
---- ----
Solay agreement (Note 9) $ 294,375
Write-off - Nationwide consulting
agreement (Note 9) 95,000
Postemployment cost 40,000
Professional fees associated with
nonrecurring transactions 67,510
Interest - net (43,436) $ 15,117
Disposal of equipment 27,756
Other (2,552)
--------- ---------
Total $ 478,653 $ 15,117
========= =========
The Company agreed to purchase an annuity for an officer who retired during
the fiscal year ended June 30, 1997, the cost of which ($40,000) was charged to
operations.
NOTE 13--RELATED PARTY TRANSACTIONS
During fiscal 1997 and 1996, the Company paid professional, consulting and
legal fees amounting to $332,953(of which $153,924 relates to the acquisition of
Laminaire or obtaining the financing therefor) and $97,095 (of which $40,220
relates to services associated with the initial public offering) to directors or
firms related to directors or officers. The law firm in which the Company's
Secretary is a partner also received 41,000 shares of common stock in
satisfaction of fees owed during fiscal 1997.
NOTE 14--SUBSEQUENT EVENTS (Unaudited)
41
<PAGE>
In October 1997, the Company signed a definitive Purchase Agreement to
acquire all of the outstanding common stock of Laminaire Corporation
("Laminaire"), located in Rahway, New Jersey, a manufacturer and distributor of
clean room products which also produces a variety of electronic circuit boards.
The purchase price, exclusive of expenses, was $3,200,000 (subject to adjustment
based on Laminaire's earnings during the period immediately prior to the
closing), consisting of $1,000,000 in cash and a five-year convertible
promissory note in the principal amount of $2,200,000. The promissory note,
which bears interest at the rate of 10% per annum and is collateralized by
substantially all of the Company's assets, is payable in 60 equal monthly
instalments with a balloon payment of $1,000,000 due at maturity. It is
convertible, subject to certain limitations and restrictions, into shares of the
Company's Common Stock at the closing sale price of the Company's common stock
at the closing date of the Laminaire acquisition. The closing is scheduled to
take place on October 16, 1997.
The following unaudited pro forma operating data assumes that the
acquisition of Laminaire had taken place as of the beginning of each period
presented. The data combines the operating results of the Company's fiscal year
with corresponding data from Laminaire's calendar year and gives effect to (i)
the amortization of purchase adjustments and goodwill and (ii) incremental
interest expense associated with the financing arrangements. No effect has been
giving to assumed cost savings brought about by the consolidation of the two
entities.
1997 1996
Net revenues $8,777,632 $8,185,390
Cost of sales 6,635,974 5,712,061
Gross profit 2,141,658 2,473,329
Operating expenses 3,322,865 2,428,859
Nonoperating expenses 480,221 18,657
Income (loss) before taxes -1,858,292 -136,873
Income taxes-net 19,607 55,493
Net income (loss) -$1,877,899 -$81,380
The following unaudited pro forma balance sheet data assumes that the
acquisition of Laminaire and the issuance of the convertible debt used to
finance such acquisition had taken place on June 30, 1997. Such pro forma
information gives effect to all known purchase adjustments. The last two columns
assume that the holders of the convertible debt have exercised their conversion
rights.
Description Combined Proforma Combined Proforma
Current Assets:
Cash 297,290 $297,290
Receivables - net $1,784,924 1,784,924
Inventories 1,183,710 1,183,710
Other 681,760 681,760
Total 3,947,684 3,947,684
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Property & Equipment 2,414,467 2,414,467
Other 2,346,596 -$356,250 1,990,346
Total $8,708,747 -$356,250 $8,352,497
Current Liabilities:
Notes payable 744,079 744,079
Accounts payable 843,351 843,351
Accrued expenses 546,815 546,815
Other 88,900 88,900
Total $2,223,145 $2,223,145
Long-term Obligations 4,450,000 -$2,450,000 2,000,000
Stockholders' Equity 2,035,602 2,093,750 4,129,352
Total $8,708,747 -$356,250 $8,352,497
Subsequent to June 30, 1997, the Company issued convertible debentures (the
"Debentures") to ten investors, in the aggregate principal amount of $1,500,000,
the net proceeds from which, together with the proceeds from additional
financings, will be used to close the acquisition of Laminaire and repay all of
Laminaire's obligations under a term loan agreement with a bank. The Company
will pay interest to the holders of the Debentures at the rate of 5% per annum.
Interest on the Debentures is payable in cash or Common Stock of the Company, at
the Company's discretion. The Company's obligations under $50,000 principal
amount of the Debentures are secured by a lien on the Company's accounts
receivable. The Debentures are convertible into shares of the Company's Common
Stock at any time at dates ranging from 41 days after the date of issuance, at a
price per share (the "Conversion Price") equal to the lesser of 70% of the
average closing bid price for the five trading days preceding: (i) the date of
conversion or, (ii) the date of closing. In the event that the Debentures are
not converted prior to the maturity date of the Debentures, the Company has the
option to satisfy its obligations under $50,000 principal amount of the
Debentures on such maturity date by the payment of cash or the issuance of
Common Stock at the Conversion Price. Through September 30, 1997, holders of
$250,000 principal amount of Debentures had converted their Debentures into
501,252 shares of the Company's Common Stock. All Debentures are convertible by
October 12,1997.
Such issuances result in the exercise price of the Redeemable Warrants
being reduced, on an estimated pro forma basis, to $1.99. In addition, each
Redeemable Warrant, as adjusted, will entitle the holder thereof to purchase
three shares of Common Stock at the adjusted purchase price of $1.99 per share.
43
EXHIBIT 10.19
PURCHASE AGREEMENT WITH LAMINAIRE CORPORATION
<PAGE>
PURCHASE AGREEMENT
AGREEMENT made as of the 9th day of October, 1997, by and among
Thermo-Mizer Environmental Corp., a corporation duly organized, validly existing
and in good standing under and by virtue of the laws of the State of Delaware,
with executive offices at 528 Oritan Avenue, Ridgefield, New Jersey 07657
(hereinafter referred to as the "Buyer"), and Garay, LLC, a limited liability
company, duly organized and validly existing under and by virtue of the laws of
the State of New Jersey (hereinafter referred to as the "Seller").
INTRODUCTION
A. The Seller owns one hundred percent (100%) of the presently issued and
outstanding shares of capital stock (hereinafter referred to as the "Company
Stock") of Laminaire Corporation, a corporation duly organized, validly existing
and in good standing under and by virtue of the laws of the State of New Jersey,
with executive offices at 960 East Hazelwood Avenue, Rahway, New Jersey 07065
(the "Company").
B. The Seller is willing to sell the Company Stock to Buyer, and Buyer is
willing to purchase the Company Stock from Seller. The agreed purchase price is
Three Million ($3,000,000) Dollars for 100% of the Company Stock as valued as of
September 30, 1996, exclusive of three automobiles. The exact selling price is
to be adjusted to reflect the difference between the shareholders equity shown
in the financial statements of September 30, 1996 and the last day of the month
ending prior to the month of the closing date, which shall be no later than
October 31, 1997.
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<PAGE>
The terms of the sale will be for One Million ($1,000,000) Dollars in cash, Two
Million Two Hundred Thousand ($2,200,000) Dollars in a first convertible
promissory note, and the adjusted balance in a second short term promissory
note, subject to the terms and conditions of this agreement and payable on March
31, 1998.
2
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
1(b) Shares of Laminaire
2(b) Financial Statements
2(b)(2) Material Adverse Changes
2(d) Tax Returns
2(e) Property
2(f) Inventory
2(g) Contracts
2(g)(5) Insurance
2(g)(6) Banks
2(g)(7) Interested Transactions
2(g)(8) Defaults
2(g)(9) Accounts Receivable
2(i) Employee Relations
2(k) Litigation
2(l) Patents
2(m) Trademarks
2(p) Loans
2(r) Environmental Protection
5(c) Employees Continuing in Employment
EXHIBITS
- --------
A First Note
B Second Note
C Third Note
D Laminaire Guaranty
E Security Agreement and UCC-1
F General Release
G Laminaire Mortgage and Security Agreement and UCC-1
H Charles J. Garay Employment Agreement
I Antonio Garay Employment Agreement
J Gerald E. Reilly Employment Agreement
K Etta Monteleone Employment Agreement
3
<PAGE>
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the sufficiency of which is hereby acknowledged, the parties
intending to be legally bound hereby do hereby agree as follows:
1. Purchase of Stock and Consideration.
(a) Purchase and Sale of Stock. In reliance on the representations and
warranties, and subject to the terms and conditions hereinafter set forth, the
Seller shall sell and deliver to Buyer, and the Buyer shall purchase and take
delivery from Seller, on the Closing Date (as hereinafter defined), all of the
Company Stock owned by the Seller. Each certificate representing the Company
Stock shall be duly endorsed for transfer or accompanied by an appropriate
instrument of transfer duly executed.
(b) Purchase Price and Terms of Payment.
(1) The Purchase Price for the Company Stock shall be Three Million
Dollars ($3,000,000), adjusted to reflect the difference between the
Stockholders' Equity of the Company shown in the financial statements of
September 30, 1996 and the last day of the month ending prior to the month
of the closing, calculated and agreed to no later than December 31, 1997.
(2) The purchase price shall be payable as follows, (i) $1,000,000 in
cash, (ii) convertible promissory note in the aggregate principal amount of
$2,200,000, which note shall bear interest at the rate of ten percent per
anum (the "First Note"), in the form of Exhibit A attached hereto, and
(iii) a promissory note in the principal amount of the difference between
(a) the Stockholders' Equity (as hereinafter defined) of Laminaire as of
the last day of the month prior to closing minus $200,000 minus (b) the
Stockholders' Equity of Laminaire as of September 30, 1996 (the "Second
Note") payable in the form of the note, which note shall bear interest at
the rate of
4
<PAGE>
fifteen percent per annum, attached hereto as Exhibit B. In the event that
the adjustment as determined in accordance with clause (iii) is less than
$0, then the principal amount of the First Note shall be reduced by such
amount. The term "Stockholders' Equity" shall mean as of the time of any
determination thereof, the net worth of Laminaire, all as determined by the
Company in accordance with generally accepted accounting principles. The
cash portion of the purchase price shall be paid by certified or bank
cashier's check or wire transfer on the closing date (the "Closing Date")
to the order of the Seller. The First Note and Second Note shall also be
delivered by Buyer on the Closing Date and the Second Note shall be amended
as to the amount not later than December 31, 1997..
(c) Security Interest. The Buyer's obligations under the First Note
and the Second Note shall be secured by separate security interests in the
real property and all tangible and intangible personal property including,
inventory and accounts receivables of the Buyer and of the Company
(including their respective subsidiaries), including the inventory and
accounts receivable owned by the Buyer and the Company during the period
between the Closing and the satisfaction of the Buyer's obligations under
the First Note, as set forth in the Security Agreements and mortgage
annexed hereto as Exhibits E and G. Such security interests shall be first
in priority, upon the satisfaction of all of the Company's obligations to
Corestates New Jersey National Bank (the "Bank") pursuant to a loan
agreement dated as of July 17, 1996 (the "Loan Agreement") on the Closing
Date, except such security interest will be second in priority, only with
respect to Buyer's accounts receivable granted to the holders of a
convertible debenture in the original principal amount of $550,000 issued
in connection with the transactions contemplated by this Agreement and to a
certificate of deposit held by Bank of New York in the principal amount of
$375,000.
5
<PAGE>
(d) Third Note. At Closing, Buyer shall deliver a promissory note in
the aggregate principal amount of $90,479.27, which note shall bear
interest at the rate of fifteen percent per anum (the "Third Note"), in the
form of Exhibit C attached hereto, payable to Charles J. Garay.
(e) Laminaire Guarantee. The Company shall deliver a guaranty of the
Buyer's obligations under the First Note, the Second Note and the Third
Note, in the form of Exhibit D attached hereto.
2. Representations and Warranties of the Company and the Seller. The
Company and the Seller jointly and severally represent, warrant and agree as
follows:
(a) Corporate.
(1) The Company is a corporation duly organized, validly existing and
in good standing under and by virtue of the laws of the State of New
Jersey. The Company is not qualified to do business as a foreign
corporation in any other states and is not required to so qualify.
(2) The Company has the power to own its property and to carry on its
business as and where such are now conducted. The Company does not have any
equity interest in any other corporation, partnership, joint venture or
association or control, directly or indirectly, of any other entity, except
for its wholly-owned subsidiary, Cleanaire Industries, Inc.
(3) The authorized capital stock of the Company (the "Company Capital
Stock") consists of 2500 shares of voting common stock, no par value per
share, of which all are issued and outstanding. The issued and outstanding
shares of the Company's voting common stock are as stated in Schedule 1(b)
(the "Company's Outstanding Capital Stock"). The Seller owns, beneficially
and of record, all of the shares of the Company's Outstanding Capital
Stock, free and
6
<PAGE>
clear of all liens, claims, charges, security interests and encumbrances
("Free and Clear Title"). The Company's Outstanding Capital Stock are held
in its treasury. The Company's Outstanding Capital Stock has been duly
authorized and validly issued and is fully paid and nonassessable; with no
liability on the part of the holders thereof. There are no preemptive
rights on the part of any holder of any class of securities of the Company
and no options, warrants, conversion or other rights, agreements or
commitments of any kind obligating the Company, contingently or otherwise,
to issue or sell any shares of its capital stock of any class or any
securities convertible into or exchangeable for any such shares and no
authorization therefor has been given.
(4) The copy of the Articles of Incorporation certified by the
Secretary of the State of New Jersey on or about September 24, 1997 as
being a true and current copy of the Articles of Incorporation, the
By-Laws, and lists of officers and directors of the Company previously
delivered by the Seller to Buyer, are true and correct copies as of the
date hereof.
(5) This Agreement has been duly executed and delivered by the Seller
and constitutes the legal, valid and binding obligation of the Seller,
enforceable in accordance with its terms, except as may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or laws affecting the
rights and remedies of creditors generally, and (ii) the availability of
the remedy of specific performance, injunctive relief or other equitable
relief, whether applicable applied by a court of law or equity, including
the exercise of judicial discretion in accordance with general principles
of equity.
(b) Financial.
(1) The audited balance sheets of the Company as of December 31, 1995
and 1996, the related audited statement of earnings for the years ended
December 31, 1995 and
7
<PAGE>
1996, and the unaudited balance sheet as of August 31, 1997 and the related
unaudited statement of earnings for the eight months then ended prepared by
the Company, labeled Schedule "2(b)" and previously delivered to Buyer, are
complete and correct and present fairly the financial condition of the
Company as of December 31, 1995 and 1996 and August 31, 1997, and the
results of its operations for the periods then ended in conformity with
generally accepted accounting principles applied on a basis consistent with
that of the preceding periods.
(2) Since August 31, 1997, except as specified in Schedule 2(b)(2),
the business of the Company has been carried on in the ordinary course in
substantially the same manner as prior to that date, and the Company has
not:
(i) undergone any material adverse change in the financial
condition or in the operations or the business of the Company from
that shown on the unaudited financial statements as of August 31, 1997
referred to in subsection (b)(1) of this Section 2, including, but not
limited to, any reduction in excess of $10,000 in the Company's cash
or cash equivalents;
(ii) any damages, destruction or loss, whether covered by
insurance or not, which materially and adversely affect the business,
property or assets of the Company;
(iii) made any declaration, setting aside or payment of any
dividend, or any distribution with respect to the capital stock of the
Company or any direct or indirect redemption, purchase or other
acquisition by the Company of any such stock;
(iv) made any increase in the compensation payable or to become
payable by the Company to directors, officers or employees other than
as mandated by law
8
<PAGE>
with respect to minimum wages, or in the payment of any bonus, or in
any insurance, pension or other benefit plan, payment or arrangement
made to, for or with any of such officers, employees or agents;
(v) changed any accounting principles applicable to the books and
records of the Company or reduced its reserves or allowances; or
(vi) encountered any other event or condition of any character,
not in the ordinary course of business, that materially and adversely
affect the results of operations or business or financial condition of
the Company.
(c) Undisclosed Liabilities.
The Company has no liabilities or obligations, either accrued, absolute,
contingent or otherwise, except:
(1) to the extent reflected or reserved against in the financial
statements referred to in subsection (b)(1) of this Section 2, and not
heretofore paid or discharged;
(2) to the extent specifically set forth in any of the Schedules
delivered to Buyer or elsewhere in this Agreement; and
(3) those incurred in or as a result of the normal and ordinary course
of business since August 31, 1997, all of which have been consistent with
past practices and none of which in the aggregate are material and adverse.
(d) Tax Returns.
Except as otherwise described on attached Schedule 2(d):
(1) The Company has filed with the appropriate governmental agencies
all the returns required to be filed by it or with respect to its business
and has paid, or made provision for the payment of, all taxes as well as
penalties and interest related thereto, if any, which
9
<PAGE>
have or may become due pursuant to said returns, except taxes which have
not yet accrued or otherwise become due or for which adequate provision has
been made on the books of the Company.
(2) None of such returns has been examined and settled, and no waivers
of statutes of limitation have been given or requested.
(3) All such returns and reports have been prepared on the same basis
as those of previous years, and all federal, state, city and foreign
income, profits, franchise, sales, use, occupation, property, excise or
other taxes due in connection with the Company's business has been fully
paid or accrued or adequately reserved for in the financial statements
referred to in subsection (b)(1) of this Section 2 of the Agreement.
(4) No deficiency or assessment with respect to or proposed adjustment
of the Company's Federal, state, county or local taxes are pending or, to
the best of the Company's knowledge, threatened. There are no tax liens,
whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or businesses of the Company.
(e) Title to Property.
(1) A list of all real and personal property owned by the Company is
set forth on Schedule 2(e) attached hereto (hereinafter referred to as the
"Assets"). The Company owns all right, title and interest in and to all of
its respective properties and assets, including intangibles, free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever, except as set forth in Schedule 2(e) previously delivered to
Buyer; and has taken all steps necessary or otherwise required to perfect
and protect its rights in and to their respective properties
10
<PAGE>
and assets, including intangibles. The parties acknowledge that three
automobiles were transferred to Charles Garay or his designees prior to the
Closing (the "Automobiles").
(2) The Company does not lease any real or personal property as
lessee, except as set forth in Schedule 2(g), attached hereto. Each of
these leases (the "Leases") are in good standing, valid, binding, and in
full force and effect and have not been modified. The Company is not in
default under any of the Leases and the Company has not received any notice
of its default under any of the leases and Company has not given any notice
of any and there is no default by any other party under any of the Leases,
nor has any event occurred which, with notice or the passage of time, or
both, would constitute a default by any other party under any of the
Leases. Except as set forth on Schedule 2(g), the Company's rights in the
property covered under the Leases (including any improvements and
appurtenances thereto) are paramount to the rights of any other person or
entity other than the landlords under the leases. The Company has received
no notices other than periodic rent, common area maintenance and other
operating expense bills from the landlord under each lease and as included
in the Company's lease files made available for Buyer's review.
(3) Except as set forth on Schedule 2(g), all personal property in
which the Company has an ownership or leasehold interest, or which the
Company has in its possession, are in all material respects in good
operating condition and repair and in all material respects conform to all
applicable laws, including without limitation building and zoning laws,
statutes, ordinances or regulations and no notice of any violation of such
matters relating to the business, property or assets of the Company has
been received by the Company. Except as set forth on Schedule 2(e), none of
the premises owned or leased by the Company are in need of maintenance
11
<PAGE>
or repairs except for reasonable wear and tear and ordinary routine
maintenance and repairs that are not material in nature or cost.
(4) Neither the whole nor any portion of any of the Assets has been
condemned or otherwise taken by a public authority, nor does the Seller
know or have any reasonable grounds to believe that any such condemnation
or taking is threatened or contemplated.
(5) Seller has delivered to Buyer an appraisal report issued by an
appraiser acceptable to Buyer and dated in 1996 which concludes that the
land and real property located at 960 East Hazelwood Avenue, Rahway, New
Jersey have a current value of not less than $2,150,000.
(f) Inventories. The inventories of the Company existing on the Closing
Date consist of items of a quality and quantity usable or saleable in the normal
course of its business, subject to usability and salability exceptions described
on attached Schedule 2(f) which are consistent with past business experience.
The inventories being paid for by Buyer in accordance with this Agreement on the
Closing Date will consist of a quantity usable or saleable within one hundred
eighty (180) days following the Closing Date on the assumption the business of
the Company continues to operate and the values at which such inventories are
carried reflect the normal inventory valuation policy of the Company with all
inventories valued at the lower of cost or market, with costs determined on a
first-in, first-out basis. The present inventories of the Company are maintained
at levels that are consistent with past practices to this point of the fiscal
year. Schedule "2(f)" (previously delivered to Buyer) sets forth the actual
inventory for the business as of September 30, 1997.
12
<PAGE>
(g) Contracts and Commitments.
Except as set forth on attached Schedule 2(g):
(1) The Company has no written or oral contracts or commitments (other
than in the normal course of business) involving a consideration in excess
of $5,000.
(2) There are no claims under any service warranties, whether express
or implied, by the customers of the Company.
(3) The Company has not given any revocable or irrevocable power of
attorney to any person, firm or corporation for any purpose whatsoever.
(4) The Company is not restricted by agreement from carrying on its
business anywhere in the United States.
(5) Set forth in Schedule 2(g)(5), previously delivered to Buyer, are
insurance policies and bonds in force with respect to the Company and the
date on which such policies were to be in force and the date on which such
policies expire.
(6) Set forth in Schedule 2(g)(6) previously delivered to Buyer are
the names and locations of all banks in which the Company has accounts and
the names of persons authorized to sign checks, drafts or other instruments
drawn thereon.
(7) Except as set forth on Schedule 2(g)(7), previously delivered to
Buyer, no director, officer, employee or stockholder of the Company, or
member of the family of any such person, or any corporation, partnership,
trust or other entity in which any such person, or any member of the family
of any such person, has a substantial interest or is an officer, director,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof, in an entity who is a competitor, customer, supplier or other,
entity, who, during the past 12 months has been a party
13
<PAGE>
to any transaction with the Company, including any contract, agreement or
other arrangement providing for the employment of, furnishing of services
by, rental of real or personal property from or otherwise requiring
payments to any such person or firm. For the purposes hereof, a spouse,
lineal descendant, parent, brother or sister of any Seller shall be deemed
to be a member of the family of such Seller.
(8) The Company is not in default, nor is there any known basis for
any claim of default, under any contracts or commitments made or
obligations owed by it. The Company has no present expectation or intention
of not fully performing all its obligations under each such lease, contract
or other agreement, and the Company has no knowledge of any breach or
anticipated breach by the other party to any contract or commitment to
which the Company is a party. To the best of Seller's knowledge, no consent
or approval of any third party is required with respect to such contract in
order to avoid a default thereunder by reason of the transactions
contemplated by this Agreement, except as set forth on Schedule 2(g)(8).
(9) Except as disclosed on Schedule 2(g)(9), all accounts receivable
of the Company reflected in the aging of receivables as of September 30,
1997 (attached as part of Schedule 2(b), except those collected since such
date, and such additional accounts receivable as are reflected on the books
of the Company on the date hereof, net of applicable reserves set forth on
such books, are collectible. Schedule 2(g)(9) previously delivered to Buyer
is an aging Schedule with respect to such accounts receivable, as of the
date thereof.
(h) Disclosure. No representation or warranty by the Company or the Seller
in this Agreement, nor any statement, certificate or Schedule furnished, or to
be furnished, by or on behalf of the Company or the Seller pursuant to this
Agreement, nor any document or
14
<PAGE>
certificate delivered to Buyer pursuant to this Agreement, contains or shall
contain any untrue statement of a material fact, or omits, or shall omit to
state a material fact necessary to make the statements contained therein not
materially misleading.
(i) Employee Relations.
(1) The Seller has heretofore furnished to Buyer a true and complete
payroll roster (Schedule 2(i)) of all employees of the Company as of
September 26, 1997 showing the rate of pay for each such person entitled to
receive compensation from the Company, and the gross payments made to each
such person for the periods set forth above. No increases in such salaries,
other than as set forth on Schedule 2(i), or the increase in federal
minimum wage, has been given since September 30, 1997.
(2) (i) The Company is not a party to any collective bargaining
agreement covering or relating to any of its employees except as set forth
in Schedule 2(i), previously delivered to Buyer. The Company is not
required to recognize and have not received a written demand for
recognition by any collective bargaining representative.
(ii) The Company is not a party to any contract with any of its
employees, agents, consultants, officers, salesmen, sales
representatives, distributors or dealers that is not cancelable by the
Company without penalty or premium on not more than thirty days'
notice, except as set forth in Schedule 2(i) attached hereto; and
(iii) The Company has not promulgated any policy or entered into
any agreements relating to the payment of severance pay to employees
whose employment is terminated or suspended, voluntarily or otherwise.
(3) Except as set forth in the schedules attached hereto:
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(i) The Company has complied in all material respects with all
applicable laws, rules or regulations relating to employment,
including those relating to wages, hours, collective bargaining and
the withholding and payment of taxes and contributions, and (ii) the
Company has complied in all material respects with the National Labor
Relations Act, as amended, Title VII of the Civil Rights Act of 1964,
as amended, the Occupational Safety and Health Act, Executive Order
11246, the regulations under such acts and all other Federal and state
laws applicable to the Company relating to the employment of labor,
including any provisions thereof relating to discrimination or
harassment. The Company has, and will have at the Closing Date,
withheld all amounts required by law or agreement to be withheld from
the wages or salaries of its employees and there are no arrearage of
wages, payments under any pension or insurance plan or any other
benefit, or any tax or penalty for failure to comply with the
foregoing owed by all of them with respect to employees which are not
either accrued or adequately reserved for in the financial statements
referred to in Subsection 2(b)(i) of this Agreement. There are no
material controversies pending or threatened, between the Company and
any of its employees or any labor unions or other collective
bargaining agents representing or purporting to represent its
employees.
(4) The Company has not promulgated any profit-sharing, retirement,
stock purchase, deferred compensation or other similar plan providing
benefits for its employees and the Company has not announced the
prospective promulgation thereof except as set forth in Schedule 2(i).
There is no unfunded past service credit liability or any other liability
with respect to any such plans other than as set forth on Schedule 2(i). No
reportable event as defined in Title IV of the Employee Retirement Income
Security Act of 1974, as amended by the Multi
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employer Pension Plan Amendments Act of 1980, has occurred with respect to
any such plan subject to the minimum funding requirement of Section 412 of
the Internal Revenue Code.
(j) No Breach of Statute or Contract. Neither the execution and delivery of
this Agreement, nor compliance with the terms and provisions of this Agreement
on the part of the Company or the Seller, will (i) violate any statute, license,
or regulation of any governmental authority, domestic or foreign, or (ii) will
result in the default by the Company or any of the Seller of any judgment,
order, writ, decree, rule or regulation of any court or administrative agency,
or (iii) will breach, conflict with, or result in a breach of any of the terms,
conditions or provisions of any material agreement or instrument to which either
the Company or the Seller is a party, or by which any of them is or may be
bound, or (iv) constitute a default thereunder, or (v) result in the creation or
imposition of any claim, lien, charge or encumbrance of any nature whatsoever
upon, or (vi) give to others any claim, interest or rights, including rights of
termination or cancellation in, or with respect to, any of their property,
assets, contracts, licenses or businesses.
The conduct of the Company's business does not violate any law or
regulation applicable to such business. The Company has complied with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted. There is no existing law, rule,
regulation or order, and the Company is not aware of any proposed law, rule,
regulation or order, whether Federal or state, which would prohibit or
materially restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business, except that the consummation of the transactions
contemplated by this Agreement may
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constitute a default in any contract in which the Company has represented that a
majority of its common stock is owned by "individuals eligible for minority set
aside contracts".
(k) No Litigation. Except as set forth in Schedule 2(k) previously
delivered to Buyer, there is no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation, or any change in
the zoning or building ordinances affecting the real property or leasehold
interests of the Company, pending or threatened against the Company. The Company
has not received any opinion or memorandum or legal advice from legal counsel to
the effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, financial condition,
operations, property or affairs. Each of the Company and its subsidiaries is not
in default with respect to any order, writ, injunction or decree known to or
served upon the Company or its subsidiaries of any court or of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign. There is no action or suit by
the Company or its subsidiaries pending or threatened against others.
(l) Patents and Trademarks. Schedule 2(l) and 2(m) previously delivered to
Buyer correctly sets forth a list of all letters patent, patent applications,
inventions upon which patent applications have not yet been filed, trade names,
trademarks, trademark registrations and applications, copyrights, copyright
registrations and applications, both domestic and foreign, presently owned,
possessed, used or held by the Company and, except for licenses from the Buyer
or unless otherwise indicated in such Schedule, the Company owns the entire
right, title and interest in and to the same. Such Schedule also correctly sets
forth all patents, patent applications, inventions upon which patent
applications have not yet been filed, trade names, trademarks, trademark
registration and applications, and licenses, both domestic and foreign, which
materially in any way
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relate to the business of the Company, and which are owned or controlled by any
director, officer, stockholder or employee of the Company. Such Schedule also
correctly sets forth a list of all licenses granted to the Company by others,
except by the Buyer, and to others by the Company. All letters patent, patent
applications, trade names, trademark registrations and applications, copyrights,
copyright registrations and applications, and grants of licenses set forth in
such Schedule are subject to no pending or threatened challenge, except as set
forth in said Schedule. The conduct of the Company's business as heretofore
carried on is free from any infringement by it of patents, trademarks, trade
name rights, copyrights or publication rights of others, except as set forth in
said Schedule and no notice of any infringement has been received by the
Company.
(m) Trademark Indemnification. Except as set forth in Schedule 2(m), the
Company has not given any indemnification for trademark or copyright
infringement as to any equipment, materials or supplies manufactured, produced,
used or sold by it or with respect to services rendered by it.
(n) Absence of Undisclosed Liabilities. The Company has no material
liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation any affirmative obligations under its Leases and
liabilities as guarantor or otherwise not disclosed to the Buyer pursuant to
this Agreement with respect to obligations of others, or liabilities for taxes
due or accrued or to become due in each case to the extent not disclosed to the
Buyer pursuant to this Agreement).
(o) Insurance. The Company holds policies in the amounts and for the
coverage set forth on Schedule 2(g)(5), previously delivered to Buyer, which
coverage is consistent with Company's past business practices and covering all
of the insurance required to be maintained
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by it and which is customary for businesses similar to the Company. There are
currently no claims pending against the Company under any insurance policies
currently in effect and covering the property, business or employees of the
Company, there has been no lapse of coverage as a result of the termination of
any policy and all premiums with respect to the policies maintained by the
Company due and payable through the date hereof have been paid by the Company,
or on behalf of the Company.
(p) Loans and Advances. Except as set forth on Schedule 2(p), previously
delivered to Buyer, the Company does not have any outstanding loans or advances
to any person and is not obligated to make any such loans or advances, except,
in each case, for advances to employees of the Company in respect of
reimbursable business expenses anticipated to be incurred by it in connection
with its performance of services for the Company.
(q) Environmental Protection.
(1) Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Environmental Law" means any federal, state, provincial,
foreign, or local statute, law, rule, regulation, ordinance, code or
policy having the force of law relating to pollution or protection of
the environment or natural resources, existing as of the Closing Date,
including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss.9601 et seq.
("CERCLA"); the Superfund Amendments and Reauthorization Act, Public
Law 99-499, 100 Stat. 1613); Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss.6901, et seq.; the National Environmental
Policy Act, 42 U.S.C. ss.4321; the Safe Drinking Water Act, 42 U.S.C.
ss.300f et seq.; the Toxic Substances Control Act ("TSCA"),
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15 U.S.C. ss.2601 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. ss.136, et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. ss.1801; the Federal Water Pollution
Control Act, 33 U.S.C. ss.1251 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. ss.651 et seq.; and counterpart state and local
laws; and any regulations or orders adopted thereunder.
(ii) "Governmental Agency" means any agency of the United States
Government, any state, or political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of a government with jurisdiction over the
matter in question.
(iii) "Pre-Closing Environmental Condition" means the presence of
a Regulated Substance used in the ordinary course of Company's
operations) on or in environmental media at a property (including the
presence in surface water, groundwater, soils or subsurface strata, or
air) as of the Closing Date, including the subsequent migration of any
such Regulated Substance. (Pre-Closing Environmental Condition does
not include the mere presence of substances at the property, such as
parts of building materials or equipment.)
(iv) "Regulated Substance" means any pollutant, contaminant,
hazardous substance, hazardous material, toxic substance, toxic
pollutant, solid waste, municipal waste, industrial waste, or
hazardous waste, that is defined as such and is subject to regulation
under any applicable Environmental Law, including, but not limited to
asbestos.
(v) "Release" shall mean the spilling, leaking, pumping, pouring,
emitting, discharging, injecting, escaping, leaching, dumping or
disposal of any Regulated Substance into surface water, groundwater,
soil, the land surface or subsurface, or ambient air.
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(vi) "Required by Law" means an action that is specifically
mandated by an injunction, order, consent order, permit or license
condition, or other legally-binding document issued by a government
agency, or that is specifically mandated by a statute or by an
applicable regulation or standard issued by a Governmental Agency.
(vii) "Response" or "Response Actions" means any action taken in
the investigation, removal, confinement, remediation or cleanup of a
Release or any Environmental Condition. "Response" and "Response
Actions" include, without limitation, any action which constitutes a
"removal" action or "remedial action" as defined by Section 101 of
CERCLA 42 U.S.C. ss.6901(23) and (24), or the New Jersey Industrial
Sites Recovery Act.
(viii) "Third Party" means a person or entity other than Buyer,
Buyer's officers, directors, shareholders, or employees.
(2) Except as set forth in Schedule 2(r):
(i) The Company has obtained or applied for all permits, licenses
and other governmental approvals (collectively, "Governmental
Approvals") which are required to be obtained by it as of the Closing
Date under applicable Environmental Laws for the operation of the
Company's business and the ownership and use of all properties owned
or leased by the Company, the absence of which would have a material
adverse effect on such business. To the best knowledge of the Company
and seller, the sale of the Company Stock will not cause the
termination or lapse of any such Governmental Approvals, and such
Governmental Approvals are either transferrable to Buyer or, upon
appropriate application, may be reissued in Buyer's name.
(ii) The Company is in compliance in all material respects with
all applicable Environmental Laws, the terms and conditions of all
Governmental Approvals
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<PAGE>
issued to the Company, and the terms of any orders, decrees, or
judgments issued to the Company under such Environmental Laws.
(iii) The Company has not received written notice of any claim
from any Governmental Agency or any third party that the Company, the
Company's Business, or any property owned or leased by the Company are
in violation of any applicable Environmental Law, or any written
notification to the effect that the Company is or may be liable for
damages, Response or other liabilities relating to the Release or
threatened Release of any Regulated Substance at any property
currently or previously owned or operated by the Company or at any
other side.
(iv) There are no past or present conditions, circumstances,
activities, practices, incidents, or actions, or the existence of any
Pre-Closing Environmental Condition at any property owned, leased or
operated by the Company, which under any Environmental Law currently
in effect (a) would interfere with or prevent continued compliance
with applicable Environmental Law; (b) would impose or could
reasonably be expected to impose liability for a Response, damages or
other claims under Environmental Law; (c) could have a material
adverse effect on the value of the property, the Company or the
Company's Business; or (d) could reasonably be expected to result in
the imposition of a lien on the property of the Company.
(v) Except for permitted discharges to sanitary or septic systems
and air emissions conducted in compliance with applicable
Environmental Laws, the Company has not disposed, discharged or
Released into the environment at any property owned, leased or
operated by the Company any "hazardous waste," "hazardous substances"
or "toxic substances" (as those terms are defined under applicable
Environmental Law. The property owned,
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leased or operated by the Company was not used prior to the Company's
ownership, lease or operations, for the disposal of hazardous waste or
hazardous substances.
(3) Seller has delivered to Buyer a report which confirms that
the land and building located at 960 East Hazelwood Avenue, Rahway,
New Jersey contain no asbestos, hazardous materials or other Regulated
Substance.
(r) Investment Representation:
(i) Seller represents that it is acquiring the First Note and the
shares of Common Stock issuable upon conversion of the First Note
(collectively, the "Securities") for its own account for investment
only and not with a view towards distribution or resale, and agrees
not to sell, transfer, pledge, hypothecate or otherwise dispose of, or
offer to dispose of, the Securities unless the Securities have been
registered under the Securities Act of 1933 (the "Act") and applicable
state securities laws or such registration is not required in the
opinion of counsel for the Seller reasonably acceptable to the Seller.
Any routine sale of the Securities may require compliance with some
exemption under the Act prior to resale. Notwithstanding anything
contained herein to the contrary, the Seller shall be entitled to
registration rights with respect to such shares of Common Stock as set
forth in the First Note. Seller understands that certificates for the
Securities issued pursuant to this Agreement shall bear the following
legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER
SUCH ACT OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
SELLER THAT AN EXEMPTION FROM REGISTRATION FOR SUCH SALE, OFFER,
TRANSFER, HYPOTHECATION OR OTHER ASSIGNMENT IS AVAILABLE UNDER
SUCH ACT."
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(ii) Seller represents that (i) it is subscribing for the
Securities after having made adequate investigation of the business,
finances and prospects of Buyer, (ii) they have been furnished any
information and materials relating to the business, finances and
operation of Buyer and information and materials relating to the offer
and sale of the Securities which he has requested, including, but not
limited to the filings by Buyer under the Securities Exchange Act of
1934, and they have been given an opportunity to make any further
inquiries desired of the management and any other personnel of the
Buyer as received satisfactory responses to such inquiries. Seller
understands that the Buyer is offering Convertible Debentures in the
original principal amount of up to $3,000,000 prior to the Closing
Date in order to finance the acquisition of the Shares and for working
capital.
3. Representations and Warranties of Buyer. Buyer represents and warrants
as follows:
(a) Organization, Power and Qualification. Buyer is a corporation duly
organized and validly existing, and is in good standing, under the laws of its
jurisdiction of incorporation or organization, has the power and authority to
own its property and to carry on its business as now being conducted and
hereafter proposed to be conducted and is duly qualified and is in good standing
as a foreign corporation or partnership, and authorized to do business, in all
jurisdictions in which the character of its properties and assets or the nature
of its business as now being conducted requires such qualification or
authorization.
(b) Ability to Carry Out the Agreement, Etc. Buyer is not subject to or
bound by any provision of any certificate or articles of incorporation or
by-laws, or to the best of Buyer's knowledge any mortgage, deed of trust, lease,
note, bond, indenture, other instrument or agreement, license, permit, trust,
custodianship, other restriction, or any applicable provision of any
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law, statute, rule, regulation, judgment, order, writ, injunction or decree of
any court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default as a result
of, nor, is the consent of any person which has not been obtained required for
the execution, delivery and performance by the Buyer under this Agreement, or
any agreements, contemplated hereunder.
(c) Validity of Agreement, Authority, Etc. The execution and delivery of,
and performance by Buyer and the Company of its obligations under this Agreement
and the other documents contemplated or referenced under this Agreement
(collectively, the "Transaction Documents"), have been duly authorized by all
necessary action of Buyer and the Company. This Agreement has been, and each
other Transaction Document has been, or will be at the Closing Date, duly
executed and delivered by Buyer and the Company and (assuming valid execution
and delivery by the other party) the Transaction Documents are, or will be at
the Closing Date, the valid and binding obligation of it, enforceable in
accordance with their terms, except as may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or laws affecting the rights and remedies
of creditors generally, and (ii) the availability of the remedy of specific
performance, injunctive relief or other equitable relief, whether applicable
applied by a court of law or equity, including the exercise of judicial
discretion in accordance with general principles of equity.
(d) Litigation. There are no judicial or administrative actions, suits,
proceedings or investigations pending, or threatened, which question the
validity of or conflict with the terms of this Agreement or of any action taken
or to be taken pursuant to or in connection with the provisions of this
Agreement, nor does any basis exist for any such action, suit, proceeding or
investigation.
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4. Conduct of the Business of the Company Pending the Closing Date. From
and after the date of this Agreement and until the Closing Date:
(a) Full Access. Buyer and its authorized representatives shall have full
access, during normal business hours, to all properties, books, records,
contracts and documents of the Company, and the Company shall furnish or cause
to be furnished to Buyer and its authorized representatives all information with
respect to the affairs and business of the Company as Buyer may request.
(b) Carry On In Regular Course. The Company shall carry on its business
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or novel methods of trade, purchase, sale, lease,
management, accounting or operation.
(c) Contracts and Commitments. The Company shall not enter into any
contract or commitment or engage in any transaction not in the usual and
ordinary course of its business and consistent with past practices without the
prior written consent of the Buyer.
(d) Indebtedness. The Company will not create any indebtedness, other than
that incurred in the usual and ordinary course of business, that incurred
pursuant to existing contracts disclosed in the Schedules attached hereto, that
incurred pursuant to commitments permitted hereby, and that reasonably incurred
in doing the acts and things contemplated by this Agreement.
(e) Investments. The Company will not make any investments, loans, advances
or contributions to any other person, corporation, partnership, joint venture or
association; provided, however, that the Company may invest in United States
government obligations, certificates of deposit and commercial paper rated a-1
by Standard & Poor's Corporation or P-1 by Moody's.
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(f) Dividends and Distributions. The Company will not declare or pay any
dividend or make any distribution with respect to its capital stock, or directly
or indirectly redeem, purchase or otherwise acquired any of its capital stock or
issue or in any way dispose of any shares of its capital stock or any rights
therein or thereto.
(g) Amendment of Charter. The Company will not amend its Certificates of
Incorporation or By-Laws or make any change in the authorized or unissued
capital stock or its officers or directors without the prior written consent of
Buyer.
(h) Insurance. All property, real and personal, owned or leased by the
Company will be insured by reputable insurance companies against all insurable
risks normally insured against by companies conducting a business the same as,
or similar to, the business conducted by the Company, and all property shall be
used, operated and maintained in a normal businesslike manner.
(i) Preservation of Organization and Employees. The Company will use its
best efforts (without making any commitments on behalf of Buyer) to preserve its
business organization intact, to keep available to Buyer its key officers and
employees, and to preserve for Buyer the present relationships of the Company
and its suppliers and others having business relations with it The Company will
not change its present relationships with its employees as set forth in Schedule
5(c) hereof. The Company will not make any material payments or advances to any
shareholder, officer, director or affiliate or family member of the Company or
any shareholder, officer or director of the Company outside of the normal course
of business and consistent with existing salaries.
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(j) No Default. The Company shall not do any act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any contract,
lease commitment or obligation by it.
(k) Compliance with Laws. The Company and the Seller will duly comply with
all applicable laws as may be required for the valid and effective transfer of
the Company Stock as contemplated by this Agreement.
(l) Tax Returns. The Company will prepare and file all state, federal and
other tax returns, and amendments thereto required to be filed between the date
of this Agreement and the Closing Date. Buyer shall have a reasonable
opportunity to review all such returns, and amendments thereto, prior to their
being filed.
(m) Sale of Capital Assets. As of the Closing Date, the Company will not
have sold or disposed of any capital assets with an original cost in excess of
$5,000 without the prior written consent of Buyer or capital assets in the
aggregate with an original cost of $10,000 without the prior written consent of
Buyer.
(n) Information to be Furnished. The Company and the Seller will furnish or
make available to Buyer all the information concerning the Company required for
inclusion in any statement or application made by Buyer to any governmental body
in connection with the transaction contemplated by this Agreement, and the
Company and the Seller represent and warrant that all such information furnished
to Buyer for such applications or statements shall be true and correct in all
respects without omission of any material fact required to be stated to make any
such information not misleading.
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<PAGE>
5. Survival of Representations and Warranties. All representations,
warranties, and agreements of the Seller, the Company and Buyer contained herein
(including all schedules and exhibits hereto) or in any document, statement,
certificate or other instrument referred to herein or delivered hereunder in
connection with the transactions contemplated hereby shall survive the Closing.
6. Conditions Precedent to Buyer's Obligations. Each and every obligation
of Buyer to be performed on the Closing Date or thereafter, as the case may be,
shall be subject to the satisfaction prior thereto of the following conditions:
(a) Representations and Warranties True at the Closing Date. The
representations and warranties made by the Company and the Seller in this
Agreement or given on their behalf hereunder shall be true on and as of the
Closing Date with the same effect as through such representations and warranties
had been made or given on and as of the Closing Date.
(b) No Adverse Change. The business, assets and properties of the Company
shall not have been materially and adversely affected in any way as a result of
fire, explosion, earthquake, disaster, accident, labor trouble or dispute, any
action by the United States or any other governmental authority, flood, drought,
embargo, riot, civil disturbance, uprising, activity of armed forces or act of
God or public enemy.
(c) Compliance with Agreement. The Company shall have performed and
complied with all of its obligations under this Agreement which are to be
performed or complied with by it prior to or on the Closing Date.
(d) Employees Continuing in Employment. Charles J. Garay, Antonio Garay,
and Gerald E. Reilly, pursuant to written Employment Agreements, attached hereto
as
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Exhibits H, I and J shall have agreed to continue their employment with the
Company after the Closing Date.
(e) Certificate of Fulfillment of Conditions. There shall be delivered to
Buyer a certificate of the Company certifying in such detail as Buyer may
specify the fulfillment of conditions set forth in subsections (a), (b), (c) and
(d) of this Section 6.
(f) Opinion of Counsel for Seller. Buyer shall have received a written
opinion of counsel of Seller dated as of the Closing Date, addressed to Buyer in
form and substance to the effect that (1) the Company is a corporation duly
organized, validly existing and in good standing under and by virtue of the laws
of the State of New Jersey; (2) that the Company has no subsidiaries (except for
Cleanaire Industries, Inc.) and the Company is entitled to own or lease its
property; (3) counsel, without making any independent inquiry, does not know of
any pending litigation other than that set forth on Schedule 2(k) to which the
Company is a party or any threatened litigation against the Company; (4) the
Seller owns and holds all of the outstanding shares of the Company's Stock free
and clear of any liens, charges, encumbrances, restrictive agreements and
assessments and have full power and authority to sell, assign, transfer, convey
and deliver to Buyer said Company Stock as contemplated by this Agreement; (5)
the shares of Company Stock are not subject to any restrictions on
transferability and upon transfer and delivery of said shares of Company Stock
to Buyer as contemplated by this Agreement, Buyer will receive good and absolute
title thereto free from any liens, charges, encumbrances, restrictive
agreements, equities, claims and restrictions whatsoever; and (6) this Agreement
is a valid and binding obligation of the Seller enforceable in accordance with
its terms.
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(g) Certificates of Good Standing. The Seller shall have delivered to Buyer
a certificate issued by appropriate governmental authorizes evidencing the good
standing of the Company as of a date or not more than thirty (30) days prior to
the Closing Date as a corporation of the state of its incorporation and in each
state where it is qualified to do business.
(h) Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transaction contemplated by this
Agreement, and all documents incident thereto, shall be satisfactory in form and
substance to Buyer, and the Company shall have made available to Buyer for
examination the originals or true and correct copies of all records and
documents relating to the business and affairs of the Company, which Buyer may
request in connection with said transaction. The Company and the Seller shall
have complied with all statutory requirements for the valid consummation by the
Company or the Seller of the transaction contemplated by this Agreement.
(i) No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency which in the
opinion of Buyer's counsel is likely to result in the restraint, prohibition or
the obtaining of damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby, or in connection with
any claim against the Company, not disclosed by the Schedules attached hereto.
(j) All Documents. All documents required by Section 10(a) of this
Agreement shall have been delivered to the Buyer.
(k) Interim Financial Statements. The Company shall have delivered to
Buyer, prior to the Closing Date, financial statements as of August 31, 1997 and
for the eight month period then ended, which financial statements shall include
a balance sheet and income
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statement, be prepared in conformity with generally accepted accounting
principles applied on a basis consistent with those used during the preceding
three years and shall reflect assets, liabilities and operating results
substantially consistent with the corresponding amounts reflected in the
Company's financial statements as of June 30, 1997 and for the six months then
ended.
(l) Title. Upon satisfaction of the Company's obligations to
Corestates National Bank and the EDA, the Company shall own its real
property free and clear of any liens and encumbrances.
7. Conditions Precedent to the Seller Obligations. Each and every
obligation of the Seller to be performed on the Closing Date shall be subject to
the satisfaction prior thereto of the following conditions:
(a) Representations and Warranties True at the Closing Date. Buyer's
representations and warranties contained in this Agreement shall be true at and
as of the Closing Date as though such representations and warranties were made
at and as of the Closing Date.
(b) Compliance with Agreement. Buyer shall have performed and complied with
its obligations under this Agreement which are to be performed or complied with
prior to or on the Closing Date.
(c) All Documents. All documents required by Section 10(b) of this
Agreement shall have been delivered to the Seller.
(d) Employees Continuing in Employment. Charles J. Garay, Antonio Garay,
Gerald E. Reilly and Etta Monteleone shall have been offered employment
agreements executed by the Company (in the form of Exhibits H, I, J and K) to
continue their employment with the Company after the Closing Date.
33
<PAGE>
(e) Opinion of Counsel for Buyer. Seller shall have received a written
opinion of counsel of Buyer dated as of the Closing Date, addressed to Seller in
form and substance to the effect that (1) the Buyer is a corporation duly
organized, validly existing and in good standing under and by virtue of the laws
of the State of Delaware; (2) that the Buyer has no subsidiaries, and the Buyer
is entitled to own or lease its property; (3) counsel, without making any
independent inquiry, does not know of any pending litigation to which the Buyer
is a party or any threatened litigation against the Buyer; and (4) this
Agreement is a valid and binding obligation of the Buyer enforceable in
accordance with its terms including, but not limited to, obligation to register
shares under Note 1, and (5) the guaranty, mortgage and security agreement
executed by the Company are binding and valid obligations of the Company and
have been duly executed and delivered pursuant to proper corporate
authorization.
(f) Certificates of Good Standing. The Buyer shall have delivered to Seller
a certificate issued by appropriate governmental authorizes evidencing the good
standing of the Buyer as of a date or not more than thirty (30) days prior to
the Closing Date as a corporation of the state of its incorporation and in each
state where it is qualified to do business.
(g) Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transaction contemplated by this
Agreement, and all documents incident thereto, shall be satisfactory in form and
substance to Seller, and the Buyer shall have made available to Seller for
examination the originals or true and correct copies of all records and
documents relating to the business and affairs of the Buyer, which Seller may
request in connection with said transaction. The Buyer shall have complied with
all statutory requirements for
34
<PAGE>
the valid consummation by the Buyer or the Buyer of the transaction contemplated
by this Agreement.
(h) No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency which in the
opinion of Seller's counsel is likely to result in the restraint, prohibition or
the obtaining of damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby, or in connection with
any claim against the Buyer, not disclosed by the Schedules attached hereto.
(i) Corestates. The Buyer shall have supplied the funds to the Company and
the Company shall have satisfied all of its obligations to Corestates National
Bank and the EDA with respect to the mortgages of any real property owned by the
Company and the Company shall own such real property free an clear of any liens
and encumbrances.
(j) Receipt of Funds. Receipt by the Seller, Buyer and Corestates National
Bank of a minimum of $2,300,000 for payment of the cash portion of the purchase
price, satisfaction of the Company's obligations to Corestates National Bank and
EDA and funds for working capital of Laminaire.
8. Indemnification and Resolution of Disputes.
(a) Indemnification by Seller and Buyer. Seller shall indemnify and hold
harmless Buyer, and shall reimburse Buyer for, any loss, liability, claim,
damage, expense (including, but not limited to, reasonable cost of investigation
and defense and reasonable attorneys' fees) or diminution of value
(collectively, "Damages") arising from or in connection with (a) any inaccuracy
in any of the representations and warranties of Seller pursuant to this
Agreement or in any certificate delivered by the Seller pursuant to this
Agreement, or any actions, omissions or states of facts
35
<PAGE>
inconsistent with any such representation or warranty, or (b) any failure by the
Seller to perform or comply with any provision of this Agreement. Buyer shall
indemnify and hold harmless Seller, and shall reimburse Seller for any Damages
arising from (a) any inaccuracy in any of the representations and warranties of
Buyer in this Agreement or in any certificate delivered by the Buyers pursuant
to this Agreement, or any actions, omissions or states of facts inconsistent
with any such representation or warranty, or (b) any failure by the Buyer to
perform or comply with any provision of this Agreement. In no event shall the
indemnity exceed the purchase price or apply to any claims made by Buyer more
than five years after the Closing Date.
(b) Procedure for Indemnification. Promptly after receipt by an indemnified
party under Section 7(a) above, of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under such section, give notice to the
indemnifying party of the commencement thereof, but the failure so to notify the
indemnifying party shall not receive it of any liability that it may have to any
indemnified party except to the extent the defense of such action by the
indemnifying party is prejudiced thereby. In case any such action shall be
brought against an indemnified party and it shall give notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, to assume
the defense thereof with counsel reasonable satisfactory to such indemnified
party and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such section for any fees of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation, If an indemnifying party assume the defense of
36
<PAGE>
such an action, (a) no compromise or settlement thereof may be effected by the
indemnifying party without the indemnified party's consent (which shall not be
unreasonable withheld) unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any person which is not fully
remedied by the payment referred to in clause (ii) and no adverse effect on any
other claims that may be made against the indemnified party and (ii) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party, (b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its consent (which shall not
be reasonably withheld) and (c) the indemnified party will reasonable cooperate
with the indemnifying party in the defense of such action. If notice is given to
an indemnifying party of the commencement of any action and it does not, within
15 days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense thereof, the
indemnifying party shall be bound by any determination made in such action or
any compromise or settlement thereof effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determined in good faith
that there is a reasonable probability that an action may materially and
adversely affect it or its affiliated other than as a result of monetary
damages, such indemnified party may, by notice to the indemnifying party, assume
the exclusive right to defend, compromise or settle such action, but the
indemnifying party shall not be bound by any determination of an action so
defended or any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld).
(c) Set-Off. Buyer shall have the right to deduct any amounts which become
due under Section 7 from its obligations under First Note or Second Note.
37
<PAGE>
(d) Indemnification Threshold. The Buyer's right to indemnification under
this Section 8 does not arise until and unless the Damages exceed $35,000
without giving effect to the three Automobiles as previously distributed.
9. Termination and Abandonment. This Agreement may be terminated and the
sale provided for by this Agreement may be abandoned without liability on the
part of any party to the other, on or before the Closing Date:
(a) by mutual consent of Buyer and the Seller;
(b) by Buyer
(1) if an examination of the Company by Buyer, or its authorized
representatives, shows that since August 31, 1997, there has been a material and
adverse change in the financial condition of the Company or the results of its
operations from that shown in the financial statements referred to in subsection
(b)(1) of Section 2, or shows that such financial statements do not completely,
truly and correctly reflect and fairly present the financial conditions and
results of operations of the Company in all material respects; or
(2) if any of the events or conditions specified in subsection (b)(2)
of Section 2 have occurred; or
(3) if any of the conditions provided for in Section 6 of this
Agreement have not been met and have not been waived by Buyer in writing;
(c) by the Seller
38
<PAGE>
(1) if any of the conditions of Section 7 of this Agreement have not
been met and have not been waived in writing by the Seller; or
(2) if the Closing does not occur on or before October 31, 1997. In
the event of termination and abandonment by any party, as above provided in
this Section 9, prompt written notice shall be given to the other party.
10. Closing Date. The closing with respect to the transactions contemplated
hereunder shall take place at the offices of McLaughlin & Stern, LLP, 260
Madison Avenue, New York, New York, at 10:00 a.m. local time on October 16,
1997, or at such earlier date as may be set by Buyer, on at least two (2) days'
prior written notice to the Seller. Buyer may, at its option, delay the Closing
Date until two business days after the closing of its pending private placement,
but no later than October 31, 1997, upon written notice to the Company. Such
date (or such earlier date) is hereinafter referred to as the "Closing Date".
At the Closing,
(a) The Seller shall deliver to Buyer the following:
(1) a certificate of fulfillment of conditions signed by the President
and Treasurer of the Company, referred to in subsection (e) of Section 6
hereof;
(2) the opinion of counsel for the Company, described in subsection
(f) of Section 6 hereof;
(3) a certificate of good standing referred to in subsection (g) of
Section 6 hereof;
(4) certificates representing all of the Company Stock as set forth in
Section 1(a) hereof;
39
<PAGE>
(5) a general release executed by the Seller and the members of Seller
in favor of the Company, in the form attached hereto and labeled Exhibit F;
(6) Employment Agreements executed by Charles J. Garay, Antonio Garay,
Gerald E. Reilly and Etta Monteleone.
(7) Certificate of Incumbency;
(8) such other and further documents, instruments and certificates not
inconsistent with the provisions of this Agreement, executed by Seller as
Buyer shall reasonably require to carry out and effectuate the purposes and
terms of this Agreement.
(b) Buyer shall deliver to the Seller the following:
(1) the sum of One Million Dollars ($1,000,000) by certified or bank
cashier's check or wire transfer to the order of the Seller;
(2) The First Note executed by the Buyer;
(3) the Second Note executed by the Buyer;
(4) the Laminaire Guaranty, Mortgage, UCC-1 and corporate resolutions;
(5) the Security Agreement, UCC-1;
(6) corporate resolutions of Buyer authorizing this transaction;
(7) Certificate of Incumbency of Buyer's officers and of the Company
officers;
40
<PAGE>
(8) a release of Charles and Maria Garay of their guaranty of the Loan
Agreement executed by the Bank and payment of all of the Company's
obligations to the Bank and EDA;
(9) the Third Note executed by the Buyer.
11. Operation of the Buyer and Company after the Closing Date. Buyer
covenants as follows:
(a) Separate Books and Records. Buyer shall cause the Company to maintain
separate records for the operation of the Company's business.
(b) Board of Directors. Buyer shall cause Charles J. Garay to be elected to
the Board of Directors of Buyer for a period of a minimum of one year after the
Closing Date, in the event that Mr. Garay elects to serve on such Board or such
other period as the First Note is outstanding.
(c) Tax Returns. The Company shall not file any amended tax return to any
prior year's return which could cause additional tax liability to members of the
LLC except as required by the Internal Revenue Service or if any of the
Company's prior year's returns were prepared in error. No amended return shall
be amended or filed without prior notice to and consent of Seller.
12. Brokerage. The Seller represent and warrant that they have not engaged
the services of any broker or finder hereunder, and agree to indemnify and hold
the Buyer harmless against any claim for brokers' or finders' fees or
compensation in connection with the transactions herein provided for by any
person, firm or corporation claiming a right to the same because engaged by the
Seller. Buyer represents and warrants to the Seller that it has not engaged the
services of any
41
<PAGE>
broker or finder in connection with the transactions herein provided for and
agrees to indemnify and hold harmless Seller against any claims for brokers' or
finders' fees or compensation in connection with the transactions herein
provided for by any other person, firm or corporation claiming a right to the
same because engaged by Buyer or its subsidiaries.
13. Restriction on Negotiation. The Seller agrees that until the earlier of
(a) the Closing Date or (b) October 31, 1997, neither the Company nor the Seller
will sign any agreement or have any negotiations regarding the sale of the
Company or any of its assets.
14 Miscellaneous.
(a) Nature and Survival of Representations. All statements contained in any
certificate, instrument, schedule or document delivered by or on behalf of any
of the parties pursuant to this Agreement and the transactions contemplated
hereby shall be deemed representations and warranties by the respective parties
hereunder. All representations and warranties made by the parties each to each
other in this Agreement or pursuant hereto shall survive, except to the extent
waived in writing by the parties hereto, the consummation of the transactions
contemplated by this Agreement, notwithstanding any investigation heretofore or
hereafter made by any of them or on behalf of any of them. Each Schedule
delivered in accordance with this Agreement shall be deemed to include and refer
to every other Schedule hereto.
(b) Entire Agreement. This Agreement, together with the Exhibits and
Schedules delivered pursuant to this Agreement, sets forth the entire agreement
and understanding between the parties as to the subject matter hereof, and
merges and supersedes all prior discussions, agreements and understandings of
every and any nature between them, and no party shall be bound by any condition,
definition, warranty, or representation, other than expressly set forth or
provided
42
<PAGE>
for in this Agreement, or as may be, on or subsequent to the date hereof, set
forth in writing and signed by the party to be bound thereby. This Agreement may
not be changed or modified, except by agreement in writing, signed by all of the
parties hereto.
(c) Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
successors in interest of the respective parties hereto.
(d) Laws Governing. This Agreement shall be construed and interpreted
according to the law of the State of New Jersey as applied to contracts executed
and performed in the State of New Jersey.
(e) Assignment. This Agreement shall not be assigned by the Seller or
Buyer.
(f) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, or overnight courier, telecopied or mailed, certified or
registered mail, with first-class postage page, (a) if to the Seller at 480
Stalevicz Lane, Rahway, New Jersey 07065, or the Company, 960 East Hazelwood
Avenue, Rahway, New Jersey 07065, or to such other person and place as the
Seller shall furnish to Buyer in writing, with a copy to Roger N. Levine, Levine
& Furman, PO Box 6429, East Brunswick, NJ 08816; and, (b) if to Buyer, 528
Oritan Avenue, Ridgefield, New Jersey 07657, or to such other person and place
as Buyer shall furnish to the Seller in writing with a copy to Steven W.
Schuster, Esq., McLaughlin & Stern, LLP, 260 Madison Avenue, New York, New York
10016. All notices shall be deemed given upon receipt.
43
<PAGE>
(g) Further Instruments. The Seller will, on the Closing Date or such other
date as Buyer may request, without cost or expense to Buyer, execute and deliver
or cause to be executed and delivered to Buyer such other action as Buyer may
reasonably request to more effectively consummate the transactions contemplated
by this Agreement and confirm and assure Buyer title thereto.
(h) Counterparts. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(i) Headings. The headings in the sections of this Agreement are inserted
for convenience only and shall not constitute a part hereof.
(j) Expenses. Buyers, on one hand, and Seller and Company on the other
hand, shall bear their own respective expenses, including professional fees,
incurred in connection with this Agreement and the Transaction Documents, it
being understood that the Company's legal fees shall be paid by Seller.
(k) Transfer Taxes. Except as specifically provided below, Seller shall pay
any state or local sales, transfer or like taxes, including but not limited to
real estate transfer taxes, payable in connection with the transactions
contemplated pursuant to this Agreement, it being understood that each Seller is
solely responsible for his or her personal income tax obligations arising from
the sale of his or her stock as contemplated hereunder.
(l) Mail. Buyer and company agree that from and after the Closing Date all
mail addressed to the Seller shall be sent to Charles J. Garay as agent for the
Seller.
44
<PAGE>
(m) Confidentiality. Each party shall maintain the existence of this
Agreement and the other Transaction Documents, and the terms and conditions
described therein ("Confidential Information") strictly confidential. No party
may disclose any Confidential Information to any third party (other than to its
legal, accounting or financial advisors) without the prior consent of the other
party. Any press release will be subject to the prior consent of the parties.
The parties acknowledge that any press release or other disclosure required to
be made by Buyer in order for it to comply with any federal or state securities
laws shall not be subject to Seller's prior review.
(n) Books and Records; Inventory; Further Assurances. The parties
acknowledge and agree that Seller may retain (but keep confidential) copies of
business records of the Company as are reasonably necessary to Seller in
connection with (x) the preparation of Seller's tax returns or other filings
prepared by Seller, (y) Seller's performance of its obligations hereunder, and
(z) Seller's continuing businesses. After the Closing, each party shall provide
to the other party any reasonably requested copies of any contracts, agreements,
commitments, books, records, files or other data not provided to such party at
the time of the Closing that such party may reasonably require in connection
with (i) the preparation of such party's tax returns or other filings prepared
by such party, (ii) such party's performance of its obligations hereunder, (iii)
such party's continuing businesses, or (iv) any litigation, tax audit or
threatened litigation relating to such party's continuing or former businesses,
provided that such party shall reimburse the party providing copies for all
reasonable costs incurred in connection with the provision thereof.
(o) Severability. If any provision of this Agreement is held by any court
of competent jurisdiction to be illegal, invalid or unenforceable, such
provision shall be of no force
45
<PAGE>
and effect, but the illegality, invalidity or unenforceability shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THERMO-MIZER ENVIRONMENTAL CORP.
By: Jon Darcy, President
-----------------------------
Name:
Title:
GARAY, LLC
---------------------------------
By: Charles J. Garay, President
-----------------------------
Name:
Title:
46
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at June 30, 1996 and the Statement of Operations for the
fiscal year then ended and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 609,006
<SECURITIES> 0
<RECEIVABLES> 990,045
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,234,205
<PP&E> 494,320
<DEPRECIATION> 359,111
<TOTAL-ASSETS> 3,119,596
<CURRENT-LIABILITIES> 1,099,542
<BONDS> 0
0
0
<COMMON> 2,717
<OTHER-SE> 2,017,339
<TOTAL-LIABILITY-AND-EQUITY> 3,119,596
<SALES> 2,351,191
<TOTAL-REVENUES> 2,351,191
<CGS> 2,099,873
<TOTAL-COSTS> 2,155,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,903,959)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 19,207
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
