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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-KSB
[ X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1997
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[X] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________________ to _____________________
Commission file number 0-26434
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Kyzen Corporation
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(Name of small business issuer in its charter)
Utah 87-0475115
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
430 Harding Industrial Drive, Nashville, TN 37211
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 615-831-0888
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Class A Common Stock Boston Stock Exchange, NASDAQ Small Cap
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Warrants for Class A Common Stock Boston Stock Exchange, NASDAQ Small Cap
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Securities registered under Section 12(g) of the Exchange Act:
CLASS A COMMON STOCK
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(Title of class)
WARRANTS FOR CLASS A COMMON STOCK
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(Title of class)
Check whether the issuer (1) 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. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Items 405
of Regulation S-B in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $5,459,846
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act) $4,451,800
at $2.00 per share on January 20, 1998.
NOTE: If determining whether a person is an affiliate would involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
<PAGE> 2
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) or the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date.
5,006,681 shares of Class A Common Stock outstanding as of January 20, 1998
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 31, 1990)
Portions of the Registrant's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 24, 1998 are incorporated into Part
III of this report.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
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KYZEN CORPORATION
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INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I
Item 1. Description of Business 4
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Management's Discussion and Analysis or Plan of Operation 9
Item 7. Financial Statements 13
Report of Independent Accountants 14
Balance Sheet as of December 31, 1996, and 1997 15
Statement of Operations for the years ended
December 31, 1996 and 1997 16
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1996 and 1997 17
Statement of Cash Flows for the years ended
December 31, 1996 and 1997 18
Notes to Financial Statements 19
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. 27
Item 10. Executive Compensation 27
Item 11. Security Ownership of Certain Beneficial Owners and Management 27
Item 12. Certain Relationships and Related Transactions 27
Item 13. Exhibits and Reports on Form 8-K 27
</TABLE>
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KYZEN CORPORATION
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Kyzen(R) Corporation ("Kyzen" or the "Company") manufactures and markets
chemical solutions and processes used in high-technology cleaning applications,
including electronic assemblies and precision metal and plastic components where
precision cleaning processes are required. The Company also manufactures and
markets peripheral equipment such as process control systems and chemical
handling systems that enhance the use by the Company's customers of its chemical
solutions. These products and services may be sold as a package, as a cleaning
process or as separate items that can be integrated into the customer's existing
cleaning process. The Company was incorporated in Utah in 1990. Its headquarters
are located at 430 Harding Industrial Dr., Nashville, TN 37211, where its
telephone number is (615) 831-0888, and its fax number is (615) 831-0889.
HISTORY OF THE COMPANY
In September 1987, the United States and 22 other countries signed the Montreal
Protocol ("the Protocol") on Substances that Deplete the Ozone Layer. The
Protocol called for a freeze in the production and consumption of ozone
depleting products ("ODPs") by the year 2000 for developed countries and 2010
for developing countries. As of February 1993, over 90 nations, representing
over 90% of the world's consumption of ODPs, were parties to the Protocol. In
1990, the United States enacted the Clean Air Act mandating that the use of ODPs
be phased out by the year 2000. In September 1991, the US Environmental
Protection Agency announced that ozone layer depletion over North America was
greater than expected. In response to this announcement, then President Bush
issued an executive order accelerating the phase-out of ozone depleting
materials to December 31, 1995. The more than 90 nations which are signatories
to the Protocol agreed to accelerate the phase-out of production of ODPs to
December 31, 1995 for developed countries and December 31, 2005 for developing
countries. After the 1995 deadline ODP products can still be bought, recycled
and sold until the inventory is depleted, which is the state of the market
today.
Because industrial cleaning is one of the largest applications for ODPs, Kyzen
was organized to develop chemical solutions and processes to replace ODPs used
in the cleaning of electronic assemblies and precision metal components.
Historically, materials such as chlorofluorocarbon 113 ("CFC-113") and 1,1,1,
Trichloroethane ("Methyl Chloroform" or "Trich") were widely used in these
applications.
CHEMICAL CLEANING PRODUCTS
Kyzen has formulated seven general lines of cleaning chemistries that serve
different market niches. These chemistries are:
1. semi-aqueous electronic cleaning (Ionox(R));
2. aqueous cleaner concentrates for electronic cleaning (Aquanox(R));
3. metal/plastic precision cleaners which can be aqueous or
semi-aqueous (Metalnox(R));
4. volatile organic chemical ("VOC") compliant cleaning agents for
electronics and metals (Lonox(TM));
5. optical solvents and cleaning agents (Optisolv(TM));
6. semi-conductor cleaning agents (Micronox(TM)); and
7. waterless solvents and hand-wipe solvents (Kryptonol(R)).
In addition, Kyzen has currently identified product niches in batteries and
medical devices and is currently selling on a limited basis specialty cleaning
substances to address needs in those industries.
It is the Company's strategy to patent its formulations where unique materials,
blends or uses are identified. In other formulations the Company uses a strategy
of multiple ingredients and suppliers to protect and keep proprietary the key
active materials used in the product.
Most Kyzen formulations are non-flammable and non-combustible, low in toxicity
and generally require no hazardous material shipping or storage precautions. The
Company attempts to meet this standard with all its products. Customized
products for key high volume customers and new niche applications, however,
frequently have unique requirements which may necessitate departures from these
general standards.
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KYZEN CORPORATION
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PART I (CONTINUED)
The Company is currently developing new cleaning chemistries and processes for
the semiconductor, optics, medical, industrial and other niche cleaning markets.
Kyzen believes its non-flammable, low toxicity chemistry will be an attractive
alternative in such industries. The Company also believes that future product
lines may be obtained through acquisitions, although the Company has not entered
into definitive acquisition agreements and there can be no assurance that any
acquisition opportunities will materialize.
EQUIPMENT PRODUCTS AND PERIPHERALS
Kyzen's Equipment Products and Peripherals ("EP&P") group has a goal of
enhancing processes and expediting and eliminating obstacles in the
implementation of Kyzen's chemical cleaning solutions. Prior to the third
quarter of 1997, the Company was focused on developing process control systems,
water re-use and cleaning machine technology and incorporating those
technologies into equipment sold by the Company. Historically the Company has
viewed its EP&P group as necessary to sell Kyzen chemical products, despite the
losses incurred by the group since the inception of the Company. During 1997,
changes in customer requirements and in capabilities of outside vendors resulted
in the Company's decision to downsize the EP&P group. The Company currently
maintains the group at a level capable of developing and manufacturing process
control equipment, building and maintaining equipment in Kyzen's Cleaning
Applications and Evaluation Centers, maintaining existing customer machines and
service contracts and manufacturing peripheral items necessary to assist the
installation and implementation of chemicals.
Process Control Systems ("PCS"). The Company's systems are based on the
Company's proprietary technology to control the cleaner concentration in
applications where water is added to the cleaning agent. The PCS system is a
fully integrated tool that automatically samples and adjusts cleaning agent
concentration to a specified level in a cleaning tank or machine. The system
also has the capability to automatically (1) monitor and maintain liquid levels,
(2) pump chemicals directly from the drum to the wash tank and (3) fill the
cleaning machine. The current PCS product line is designed to operate on a
number of the Company's existing and developmental cleaning solutions.
The Company's strategy going forward is to further develop Kyzen's technologies
in this area and use it to differentiate the Company's cleaning agents from
competitors. The Company's plan is to pursue the construction and sale of its
PCS to potential customers in current markets and to continue to develop PCS for
new niche cleaning applications.
Process Rinse Water Reuse Technology. In early 1991, management of the Company
recognized that the majority of chemical cleaning products designed to replace
ODPs required the use of water in the cleaning process, either as a part of the
washing process or as a rinsing agent. In addition, the Company determined that
most potential customers at that time desired to recycle the rinse water in the
cleaning process. The Company developed technologies for process water reuse
machines using reverse osmosis ("RO") membranes in conjunction with
distillation, activated carbon and ion exchange resins. Currently, the recycling
of reuse water is less of an issue with the Company's customers because most
publicly owned treatment works ("POTW") now accept rinse water effluent and
certain suppliers of water reuse equipment are now able to handle water
recycling within the precision cleaning industry. The Company's rinse water
reuse technology may find broader use if environmental laws change and require
more water recycling.
The Company's strategy regarding its process water reuse technology going
forward is to maintain Kyzen's technology in this area and use it to
differentiate the Company's cleaning agents from competitors. The Company plans
to assist customers in developing processes for water reuse with Kyzen's
cleaning products but not to aggressively pursue the construction and sale of
mechanical systems to potential customers.
Specialized Cleaning Machine. In 1996 and the first half of 1997, the Company
was involved with Intel Corporation in developing and manufacturing a
specialized cleaning machine using the Company's chemical and water reuse
technology, specifically designed for Intel's computer motherboard business. One
machine was produced, shipped and accepted by Intel in second quarter of 1996.
After further discussion and testing, Intel informed the Company in the second
quarter of 1997 that Intel's business strategy had changed and they had no need
for such machines in the near future.
The Company's strategy going forward is to maintain Kyzen's technology and
development work in this area and use it in the event a potential opportunity or
need arises. Since the second quarter of 1997, the Company has
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KYZEN CORPORATION
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PART I CONTINUED)
downsized its machine manufacturing capability and does not plan to aggressively
pursue the manufacture and sale of the Company's cleaning machines to potential
customers. In the event an opportunity arises, management of the Company expects
to outsource the manufacture of cleaning machines in some form of strategic
alliance that would mitigate the risk to the Company of such an endeavor.
COMPETITION
The industry of cleaning electronic and metal products is undergoing rapid
change as companies search for new technology to replace processes based on
ODPs. The market is rapidly moving from a commodity market supplied by major
chemical companies to a series of highly fragmented niche markets supplied by
focused specialty chemical companies. There are numerous competitors in this
fragmented industry. Management believes its most significant competitors are
Petroferm(R), Church & Dwight, Alpha Metals, Multicore, and Dr. O.K. Wack
Chemie. Management believes the Company has a competitive advantage in the
targeted markets because many of the above named competitors sell their
technical products indirectly through distribution. In addition management
believes that the Company is unique in its focus as Kyzen is the only company
listed that derives greater than 70% of the revenues from high technology
cleaning products and is therefore focused on the opportunity.
DEPENDENCE ON SUPPLIERS AND OTHERS
The Company purchases its raw materials, components and finished machines from a
variety of sources. While the Company believes that it is generally not
significantly dependent on any sole supplier for raw materials, components and
finished machines, it has, in the past, relied on one chemical producer for its
supply of the nonlinear alcohol used in many of the Company's cleaning
formulations. There can be no assurance that any raw material or other
components and systems utilized by the Company will continue to be available at
reasonable prices in the volume required for the Company to meet its customers'
orders.
PRODUCTION AND SUPPLY
The production of the Company's chemistries involves the blending of specific
chemicals purchased from third party chemical producers in the open market. The
Company's chemical raw materials, other than the nonlinear alcohol, are widely
available from numerous sources. The nonlinear alcohol is currently available
from three producers, all of which management believes are currently operating
at levels below capacity.
SALES AND DISTRIBUTION
Marketing. The Company believes that there are a number of precision cleaning
market niches ranging in size from $5 million to $50 million in which the
Company should be able to maintain a competitive advantage. The Company is now
established in the electronic assembly market niche. The Company is currently
developing other niches such as precision metal parts, other electronic devices,
optics, medical devices and semiconductors.
Cleaning Applications and Evaluation Centers. The Company currently operates two
comprehensive Cleaning Applications and Evaluation Centers, one in Manchester,
New Hampshire and the other in Nashville, Tennessee. A Cleaning Applications and
Evaluation Center is a demonstration facility in which customers can view the
effectiveness of the Company's cleaning technology in a risk free environment.
The Company believes these centers give it a competitive advantage in that the
Company believes it has the most comprehensive testing facilities in the
cleaning industry. The centers are used to expedite the sales cycle for Kyzen's
chemical solutions in addition to accelerating the development of new Kyzen
chemical products.
Sales Force. One of the primary sales challenges facing the Company is selling
its innovative technologies to customers who have limited experience with
water-based cleaning agents and processes. These sales require long relationship
building periods, considerable time for problem solving and testing of process
and chemistry. The Company is accelerating this process through the investment
in Cleaning Applications and Evaluation Centers which management believes will
shorten the period required for testing and problem solving and will increase
contact the customer has with Kyzen and its products. Nevertheless, the
Company's sales cycles for conversion to the Company's products typically range
from three months to two years.
The Company currently sells it products with a direct regional sales force,
which depending on the region, may be complemented with manufacturer
representatives or agents. The company also uses sales engineers, chemists,
application
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KYZEN CORPORATION
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PART I (CONTINUED)
lab personnel and inside sales personnel in the Company's sales
efforts depending on the customer and where the customer is in the sales cycle.
CUSTOMERS
During the past 12 months, no customer accounted for more than 10% of the
Company's revenues. Management believes that the loss of any one customer would
not have a material adverse effect on the Company's financial condition or
results of operations.
PATENTS
The Company jointly holds two patents for its chemical cleaning formulations in
the United States. The Company also has obtained one patent in each of Mexico,
Taiwan, Australia, Europe and Japan. These existing patents, which expire
between 2009 and 2014, and pending patents related to these two US issued
patents are jointly owned by the Company and Delco, a division of General
Motors. Delco has retained the right to use chemistry developed under the
patents, and the Company has retained the right to market the patented
formulations. Delco is not entitled to receive royalties or license fees from
the Company on the chemical cleaning products manufactured and sold by the
Company. However, if the Company were to enter into a license or royalty
arrangement for the patented formulations, the resulting license fee or
royalties would be shared between the Company and Delco.
The Company has applied for three additional patents in the United States in
1997. These filings relate to work performed during the past two years on a
number of formulations to be used in existing and new market niches.
The Company is also required to pay royalties to Bix Manufacturing Company (a
shareholder). Royalties are based on 2% of revenues related to the patented
chemistry. The Company is currently settling its royalty obligation through
consulting services performed by a founder of the Company. In 1997 and 1996,
$71,925 and $56,342 has been recorded as royalty expense to reflect these
transactions.
FUTURE LEGISLATION AND GOVERNMENTAL REGULATION
The Company believes that the demand for its products is directly related to
governmental responses to and public concern with ozone depletion, CFC
elimination, use of hazardous or highly toxic cleaning agents and air and water
contamination. If there were to be less public concern over ozone depletion or
water contamination or less governmental pressure to remedy such problems, there
could be substantially reduced demand for the products offered by the Company.
Although the Company is not aware of any pending or proposed federal legislation
or regulation that could adversely affect its products, chemicals or services,
any such legislation or regulation in the future that limits the sale of the
Company's products, chemicals or services or components or limits the methods by
which the Company's products or chemicals are manufactured, installed or
serviced, could have a material adverse impact on the Company.
RESEARCH AND DEVELOPMENT
The Company's research and development expenses in 1997 were $461,470. Of this
amount, $430,460, was spent for chemical research and development. Research and
development activities are expensed as incurred because the majority of the
Company's research and development activities consist of developing technically
feasible products and processes. The Company will continue to maintain a high
level of research and development activity in order to create new and better
products and processes as required by niche markets in which management believes
the Company can effectively compete.
EMPLOYEES
As of December 31, 1997, the Company had 35 full-time employees and 1 part-time
employee. The Company considers its employee relations to be satisfactory. The
Company believes that additional staff will be required to properly support
increased marketing, sales, development and support functions. The Company
intends to hire support staff and other personnel as they are needed.
ENVIRONMENTAL, HEALTH AND SAFETY CONSIDERATIONS
The Company and its operations are subject to certain Federal, state and local
laws and regulations relating to the discharge of pollutants into the air and
water, worker exposure to the chemical formulations manufactured and sold and
established standards for the reuse, storage and disposal of hazardous wastes.
The Company believes that its operations are in compliance with current laws and
regulations relating to such matters. The Company derives a large portion of its
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KYZEN CORPORATION
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PART I (CONTINUED)
revenue from the sale of blended products made from finished materials purchased
from various chemical producers. These chemicals are periodically evaluated
and/or re-evaluated by the third-party chemical producers for potential adverse
health effects resulting from exposure or overexposure.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company's headquarters are located at 430 Harding Industrial Dr., Nashville,
Tennessee. At this facility the Company occupies approximately 18,000 square
feet, which houses a research and development laboratory, a Cleaning
Applications and Evaluation Center, a chemical manufacturing facility and sales,
engineering, marketing and administrative offices. The Company has an
approximately 6,500 square foot facility located at 540 Commercial Street,
Manchester, New Hampshire. This location houses a Cleaning Application and
Evaluation Center, EP&P manufacturing and a regional sales office. Management
believes the current facilities and leased space are adequate to serve the
Company's needs for the next year.
The Company conducts its operations from leased facilities under two operating
lease agreements. As of December 31, 1997, future minimum annual rental payments
are summarized as follows:
<TABLE>
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1998 $130,016
1999 41,958
2000 36,060
</TABLE>
Total rent expense was $163,434 in 1997 and $127,126 in 1996. Included in this
amount is approximately $92,198 of rent paid to a shareholder. The Company has
options to renew its leases on both of its facilities for up to three additional
years.
The Company carries general property and casualty insurance in an amount
management considers to be adequate.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1997, the Company was not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
1997.
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KYZEN CORPORATION
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's securities, Class A Common Stock (symbols KYZN and KYZNW,
respectively) and Warrants to purchase Class A Common Stock, are quoted on the
Nasdaq Small Cap Stock Market and listed on the Boston Stock Exchange (symbols
KYZ and KYZW, respectively). The Stock and Warrant prices for the previous eight
quarters is presented in the table below. The following table provides the range
of the high and low bid quotations for the Company's Warrants and Class A Common
Stock on the Nasdaq Small Cap Stock Market for each quarter within the last two
fiscal years. The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Class A
Warrants Common Stock
Dividends High Low High Low
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<S> <C> <C> <C> <C> <C>
Quarter ended: March 31, 1996 $0 31/32 1/2 3 5/16 2 1/2
June 30, 1996 0 1 9/16 1/2 5 2
September 30, 1996 0 1 1/8 9/16 4 1/16 2 7/8
December 31, 1996 0 5/8 3/16 3 1/8 1 5/8
March 31, 1997 0 9/16 5/16 3 1/8 1 13/16
June 30, 1997 0 1/2 7/32 2 1/8 1 3/8
September 30, 1997 0 3/4 1/4 2 5/8 1 1/4
December 31, 1997 0 3/4 3/16 2 9/16 1 3/8
</TABLE>
There were approximately 1,600 shareholders of record of Class A Common Stock on
December 31, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net sales for 1997 from all business activities increased approximately 10% or
$500,844 to $5,459,846, while net chemical sales increased 20% from 1996. These
increases are due to increased sales volume of the Company's chemical cleaning
agents to existing customers as well as sales to new customers who are
converting to the Company's products. Sales of equipment, processes and
peripheral systems have decreased during 1997, reflecting the Company's focus on
more profitable chemical products and smaller more profitable pieces of
equipment like the Process Control System (PCS).
Gross profit for 1997 increased 18% or $424,935 to $2,775,716 as compared to
$2,350,781 in 1996. This increase is attributable to increased sales volume of
the Company's cleaning agents. Gross profit margins from all business activities
increased from 47% in 1996 to 51% in 1997. This increase reflects a larger
percentage of total sales coming from higher margin chemical products.
Selling, general and administrative expenses for the year ended December 31,
1997 increased 12% or $320,026 to $2,961,009 in 1997 as compared to $2,640,983
for 1996. This increase reflects increased spending on advertising and sales
personnel partially offset by lower general and administrative expenses.
Research and development expenses for 1997 decreased 20% or $114,838 to $461,470
from $576,308 for 1996. Development expenses for chemical cleaning products
increased approximately 7% while expenditures for development of equipment,
processes and peripherals decreased significantly in 1997. This change reflects
the one time R&D expenses associated with developing the cleaning machine in
1996 for Intel.
Operating loss for 1997 decreased 25% or $219,747 to a loss of $646,763 from a
loss of $866,510 for the year ended December 31, 1996. This decrease is due
primarily to increased sales of chemical products and smaller increases in
operating expenses in conjunction with the downsizing of the cleaning machine
project from 1996 to 1997.
Interest income for 1997 decreased 34% to $83,222 from $126,481 for 1996. This
$43,259 decrease is due to lower cash balances during 1997 as a result of
investment of cash in the operations of the Company.
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KYZEN CORPORATION
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PART II (CONTINUED)
Interest expense for 1997 decreased 49% to $8,467 from $16,591 in 1996. The
decrease of $8,124 in interest expense is due to interest charges incurred in
1996 related to a put repurchase obligation settled in 1996.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net sales for 1996 from all business activities increased approximately 25% or
$1,002,653 to $4,959,002, while net chemical sales increased 18% from 1995.
These increases are due to increased sales volume of the Company's chemical
cleaning agents to existing customers as well as sales to new customers who were
converting from ozone depleting processes and chemicals. Sales of equipment,
processes and peripheral systems have increased due to increased sales and
marketing efforts.
Gross profit for 1996 increased 19% or $369,733 to $2,350,781 as compared to
$1,981,048 in 1995. This $369,733 increase is attributable to increased domestic
sales volume of the Company's cleaning agents, as well as increased sales of
equipment, processes and peripheral systems. Gross profit margins on chemical
sales remained constant with the prior year, while gross profit margins from all
business activities decreased from 50% in 1995 to 47% in 1996, reflecting lower
margins on equipment, process and peripheral manufacturing.
Selling, general and administrative expenses for the year ended December 31,
1996 increased 43% or $789,022 to $2,640,983 in 1996 as compared to $1,851,961
for 1995. This increase reflects augmented spending on advertising and selling
expenses, expenses associated with being a public company and expenses
associated with hiring and relocating sales personnel during 1996.
Research and development expenses for 1996 increased 157% or $351,800 to
$576,308 from $224,508 for 1995. This increase reflects the Company's continued
efforts in development projects for new products and processes with current and
potential customers and expenses associated with development of a new machine
product line. One of the new product lines consisted of specialty cleaning
machines to be built to specific customer order.
Operating loss for 1996 increased 808% or $771,089 to a loss of $866,510 from a
loss of $95,421 for the year ended December 31, 1995. This increase is due
primarily to the increased research and development expenses in developing a new
line of specialty cleaning machines and increased sales and marketing expenses
in anticipation of greater sales growth in the future.
Interest income for 1996 increased 16% to $126,481 from $108,743 for 1995. This
$17,738 increase is due to higher cash balances during 1996 as a result of the
excess cash available from the initial public offering being invested in
investment grade commercial paper and similar financial instruments.
Interest expense for 1996 decreased 88% to $16,591 from $143,079 in 1995. This
decrease of $126,488 in interest expense reflects the results of the
extinguishment of debt with a portion of the proceeds of the Company's initial
public offering.
ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that in the event certain facts and circumstances
indicate an asset may be impaired, an evaluation of recoverability must be
performed to determine whether or not the carrying amount of the asset is
required to be written down. The Company adopted the provisions of this
statement effective January 1, 1996, and adoption did not materially impact the
Company's financial condition or results of operations.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. The Company will continue to measure compensation costs for its employee
stock compensation plans as prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," as allowed under SFAS No. 123. SFAS No. 123 does,
however, require disclosure of the pro forma effect of stock-based compensation.
This information is disclosed in the footnotes to the financial statements.
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earnings per share ("EPS"). The presentation of basic EPS replaces the
presentation of primary
Page 10 of 69
<PAGE> 11
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART II (CONTINUED)
EPS previously required by Accounting Principles Board Opinion No. 15 ("APB
15"). Basic EPS is calculated as income available to common shareholders divided
by the weighted average number of shares outstanding during the period. Diluted
EPS (previously referred to as fully diluted EPS) is calculated using the "if
converted method" for convertible securities and the treasury stock method for
options and warrants. This statement also requires the Company to disclose a
reconciliation of the numerators and denominators used in the calculation of the
basic and diluted EPS. The Company adopted the provisions of this Statement for
the quarter ended December 31, 1997.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure." This Statement establishes standards for disclosing
information about an entity's capital structure, including, but not limited to,
pertinent rights and privileges of various outstanding securities, dividend
arrearages and information about redeemable stock. The Company adopted the
provisions of SFAS No. 129 in 1997.
Additionally, the FASB has issued SFAS No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers Disclosure about Pensions and Other
Post-Retirement Benefits." These Statements are effective in fiscal 1998,
however, they will not have significant impact on the Company's financial
statements.
FORWARD-LOOKING STATEMENTS
Management has included certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. When used, statements which are
not historical in nature, including the words "anticipate," "estimate,"
"should," "expect," "believe," "intend" and similar expressions are intended to
identify forward-looking statements. Such statements are, by their nature,
subject to certain risks and uncertainties. Among the factors that can could
cause actual results to differ materially from those projected are the
following: business conditions and the general economy as they affect interest
rates; business conditions as they affect manufacturers of chemical raw
materials; the federal, state and local regulatory environment; availability of
debt and equity capital with favorable terms and conditions; availability of new
expansion and acquisition opportunities; changes in the financial condition or
corporate strategy of the Company's primary customers; and the ability of the
Company to develop new competitive product lines. Actual results, events and
performance may differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to release
publicly the result of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
YEAR 2000 IMPACT
The Company is currently evaluating its internal computing systems and believes
they will all accommodate the year 2000 century change. Because of the
relatively simple nature of the Company's information systems, management
believes that any impact on such systems resulting from the year 2000 and beyond
will not have a material adverse effect on the Company's financial condition or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has been the remaining proceeds from its
initial public offering in 1995 and borrowings on a term loan. The Company's
primary uses of funds are research and development of new product lines,
purchase of capital equipment and sales and marketing activities.
As of December 31, 1997, the Company had working capital of $1,250,588, compared
to $1,994,994 as of December 31, 1996. This represents a decrease of $744,406,
or 37% from 1996. This decrease resulted primarily from the funding of operating
costs, the purchase or construction of fixed assets and the purchase of patent
rights and related expenditures during 1997.
In April 1997, the Company obtained a line of credit from a commercial bank in
the amount of $500,000 secured by the Company's accounts receivable and a cash
balance (the "Credit Facility"). On November 13, 1997 the available line was
reduced to $420,000 and the Company obtained a term loan (the "Term Loan") of
$80,000 for the financing of certain improvements to the Company's offices,
laboratories and demonstration facilities. This Term Loan has a stated rate of
interest of 10% and requires monthly interest and principal payments of $2,039
through December 2001. As of December 31, 1997, the balance outstanding of the
Term Loan was $77,990.
Page 11 of 69
<PAGE> 12
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART II (CONTINUED)
As a result of its 1997 net loss, the Company was in violation of certain of its
financial debt covenants under the Credit Facility. The Company has received
waivers of these covenants from its lender under the Credit Facility through
December 31, 1997. At December 31, 1997 and as of the date of this Report, the
Company had no balances outstanding under the Credit Facility. The Credit
Facility expires on April 30, 1998 and the Company is currently negotiating with
the lender and with several banks to obtain a replacement facility. There can be
no assurance that the lender will continue to waive the financial covenants
under the Credit Facility or that the Company will be able to obtain another
credit facility to replace the Credit Facility.
Cash used by operations of $326,144 in 1997 represented a $298,928 or 48%
decrease over cash used by operations of $625,072 during 1996. This decrease
resulted from lower operating losses, decreases in accounts receivable and
increases in accounts payable balances.
Cash provided by investing activities of $221,413 in 1997 represented a $404,776
or 221% increase over cash used by investing activities during 1996 of $183,363.
This increase was due mainly to the decrease in short-term investments during
1997 and lower fixed asset purchases.
Cash provided by financing activities of $73,689 in 1997 represented an increase
of $132,324 or 226% from cash used by financing activities of $58,635 during
1996. This difference was due to the cash provided by the issuance of long-term
debt during 1997 and the settlement of a put obligation on the Company's stock
in 1996.
In 1995, the Company reclassified $257,236 from stockholders' equity to current
liabilities to accrue for a potential obligation associated with a put option
issued in connection with a bridge loan offering of debt and equity prior to the
initial public offering. This put option expired on August 4, 1996, and the
amount was reclassified from current liabilities to additional paid-in-capital.
Additionally, the Company accrued $59,796 of interest expense to current
liabilities for an obligation associated with a put option granted to a
shareholder. This option was exercised in August 1996, and the Company acquired
100 shares of its Class A Common Stock as a result of this transaction. The
Company recorded the acquisition of treasury stock of $313 and the reduction of
the current liability.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations and expansion plans, that the current cash balances,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements at least through 1998. The Company's cash
requirements for 1997 and beyond will depend primarily upon the level of sales,
product development, sales and marketing expenditures, timing of expansion plans
and capital expenditures. In the event the Company's plans change, its
assumptions change or prove to be inaccurate (due to unanticipated expenses,
delays, or otherwise) the Company could be required to seek additional financing
from public or private debt and equity markets prior to such time. There can be
no assurance, however, that these sources will be available to the Company on
favorable terms, and unfavorable markets could limit the Company's ability to
obtain additional financing. Additionally, the Company plans to continue to
investigate potential acquisition candidates that are consistent with the
Company's growth strategies which would create additional financing needs for
the Company.
Page 12 of 69
<PAGE> 13
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART II (CONTINUED)
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 14
Balance Sheet as of December 31, 1996 and 1997 15
Statement of Operations for the years ended December 31, 1996 and 1997 16
Statement of Changes in Shareholders' Equity (Deficit) for the years
ended December 31, 1996 and 1997 17
Statement of Cash Flows for the years ended December 31, 1996 and 1997 18
Notes to Financial Statements 19
</TABLE>
Page 13 of 69
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Kyzen Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Kyzen Corporation at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Nashville, Tennessee
January 23, 1998
Page 14 of 69
<PAGE> 15
KYZEN CORPORATION
- -------------------------------------------------------------------------------
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 710,778 $ 741,820
Short-term investments 99,208 528,416
Accounts receivable, net of allowance for doubtful accounts
of $8,068 in 1997, and $16,338 in 1996 802,400 860,785
Costs and estimated losses in excess of billings on
uncompleted contracts 7,155 80,321
Inventory 332,367 205,126
Other 28,892 37,137
----------- -----------
Total current assets 1,980,800 2,453,605
Property and equipment, net 928,079 786,797
Patents, net 147,296 99,243
Interest receivable from related parties 170,151 124,839
----------- -----------
Total assets $ 3,226,326 $ 3,464,484
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable and capital lease obligations, current $ 17,050 $ 5,610
Accounts payable and accrued expenses 707,781 432,088
Accounts payable to related parties 5,381 20,913
----------- -----------
Total current liabilities 730,212 458,611
Note payable and capital lease obligations 67,665 6,697
----------- -----------
Total liabilities 797,877 465,308
----------- -----------
Commitments and contingencies (Note 11)
Mandatorily redeemable Class B Common Stock,
1,200,000 shares authorized, no shares
issued or outstanding in 1997 or 1996
Shareholders' equity:
Preferred stock, $0.001 par value,
10,000,000 shares authorized, no
shares issued or outstanding in
1997 or 1996
Class A Common Stock, $0.01 par value,
30,000,000 shares authorized,
5,006,781 and 5,006,681 shares
issued and outstanding,
respectively, in 1997, 4,999,948
and 4,999,848 shares issued and
outstanding, respectively, in 1996
50,068 50,000
Additional paid-in capital 5,294,633 5,293,420
Treasury stock, at cost (313) (313)
Accumulated deficit (2,915,939) (2,343,931)
----------- -----------
Total shareholders' equity 2,428,449 2,999,176
----------- -----------
Total liabilities and shareholders' equity $ 3,226,326 $ 3,464,484
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 15 of 69
<PAGE> 16
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1997 1996
------------ -----------
<S> <C> <C>
Net sales $ 5,459,846 $ 4,959,002
Cost of sales 2,684,130 2,608,221
----------- -----------
Gross profit 2,775,716 2,350,781
Operating costs and expenses:
Selling, marketing, general and administrative 2,961,009 2,640,983
Research and development expenses 461,470 576,308
----------- -----------
Total operating expenses 3,422,479 3,217,291
----------- -----------
Operating loss (646,763) (866,510)
Other income (expense):
Interest income 83,222 126,481
Interest expense (8,467) (16,591)
----------- -----------
Total other income (expense) 74,755 109,890
----------- -----------
Net loss $ (572,008) $ (756,620)
=========== ===========
Basic and diluted earnings per share $ (0.11) $ (0.15)
Weighted average shares outstanding 5,005,081 4,964,549
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 16 of 69
<PAGE> 17
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A ADDITIONAL
COMMON STOCK PAID-IN TREASURY ACCUMULATED
SHARES AMOUNT CAPITAL STOCK DEFICIT TOTAL
--------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,917,322 $ 49,174 $5,031,560 $ - $(1,587,311) $3,493,423
Issuance of Stock 8,000 80 5,370 5,450
Expiration of put obligation 74,626 746 256,490 257,236
Repurchase of Common Stock (100) (313) (313)
Net loss (756,620) (756,620)
--------- -------- ----------- ----- ----------- ----------
Balance at December 31, 1996 4,999,848 50,000 5,293,420 (313) (2,343,931) 2,999,176
Issuance of Stock 6,833 68 1,213 1,281
Net loss (572,008) (572,008)
--------- -------- ---------- ----- ----------- ----------
Balance at December 31, 1997 5,006,681 $ 50,068 $5,294,633 $(313) $(2,915,939) $2,428,449
========= ======== ========== ===== =========== ==========
</TABLE>
The above Class A Common Stock and Additional Paid-in Capital have been
reduced by $906,263 to reflect stock notes receivable (see Note 2).
The accompanying notes are an integral part of the financial statements
Page 17 of 69
<PAGE> 18
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(572,008) $ (756,621)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization 210,662 154,642
Non-cash interest charge -- 11,948
(Increase) decrease in accounts receivable 58,385 (230,521)
Decrease in costs and estimated losses in excess
of billings on uncompleted contracts 73,166 59,735
Increase in inventory (319,443) (85,649)
(Increase) decrease in other current assets 8,245 (15,898)
Increase in interest receivable from related parties (45,312) (37,734)
Increase in accounts payable and accrued expenses 260,161 275,026
--------- -----------
Net cash used by operating activities (326,144) (625,072)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments 429,208 176,192
Purchase of fixed assets (149,739) (343,936)
Purchase of patent rights and related expenditures (58,056) (15,619)
--------- -----------
Net cash provided (used) by investing activities 221,413 (183,363)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 1,281 5,450
Repurchase of Class A Common Stock -- (59,796)
Proceeds from issuance of note payable 80,000
Payment on note payable (7,592) (4,289)
--------- -----------
Net cash provided (used) by financing activities 73,689 (58,635)
--------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,042) (867,070)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 741,820 1,608,890
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 710,778 $ 741,820
========= ===========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used for interest payments was $8,467 in 1997 and $59,320 in 1996. The
Company paid no income taxes in 1997 and 1996.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company reclassified inventory of $192,202 and $53,104 to fixed assets in
1997 and 1996, respectively.
The accompanying notes are an integral part of the financial statements
Page 18 of 69
<PAGE> 19
KYZEN CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Kyzen Corporation ("Kyzen" or the "Company") was incorporated under the laws of
the State of Utah on March 9, 1990. Kyzen was formed to develop environmentally
safe chemical solutions to replace ozone-depleting chlorinated solvents. The
Company manufactures or markets chemical solutions and processes used in
high-technology cleaning applications, including electronic assemblies and
precision metal and plastic components where precision cleaning processes are
required and peripheral equipment such as process control systems and chemical
handling systems that enhance the customers use of the Company's chemical
solutions. These products and services can be sold as a package, as a cleaning
process or as separate items that can be integrated into the customer's cleaning
process. The Company's operations are located in Nashville, Tennessee and
Manchester, New Hampshire.
The Company's operations are conducted within one business segment. Sales to
customers outside the United States totaled $743,141 in 1997 and $463,464 in
1996, representing approximately 14% and 9% of 1997 and 1996 net sales,
respectively. No individual customer or foreign country accounted for more than
10% of the Company's revenues in 1997 or 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers securities with an original maturity of three months or
less to be cash equivalents.
SHORT-TERM INVESTMENTS
By Company policy, short-term investments consist primarily of investment grade
commercial paper, direct obligations of the U.S. government and its agencies and
other short-term investment funds. The Company has classified all of its
investments in debt and equity securities as trading securities as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Debt and Equity Securities." In accordance with SFAS No. 115, the
Company records its investments at fair value and recognizes unrealized holding
gains and losses in earnings. Unrealized gains and losses recognized in earnings
during 1997 and 1996 were not significant.
Fair value is determined by the most recently traded price of the security at
the balance sheet date. Net realized gains or losses are determined on the
specific identification cost method.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers involved in a variety of industries
including electronics and computers. Kyzen performs continuing credit
evaluations of its customers and does not require collateral. Historically, the
Company has not experienced significant losses related to individual customers
or groups of customers in any particular industry or geographic area.
REVENUE RECOGNITION
Revenue from chemical products or services is recognized based upon shipment of
products or performance of services. Revenues and profits are recorded using the
percentage of completion method for certain contracts based on the product type,
contract size and duration of the time to completion. The percentage of
completion is determined by relating the actual costs of work performed to date
to the current estimated total cost of the respective contracts. Revenues and
profits on all other contracts are recorded as shipment is made. If estimated
total costs on any of these contracts indicate a loss, the entire amount of the
estimated loss is recognized immediately. Costs reduced by estimated losses in
excess of billings on uncompleted contracts, as reflected on the accompanying
balance sheet, represent revenues recognized in excess of amounts billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values of cash, accounts receivable and accounts payable approximate
fair value due to the short-term maturities of these assets and liabilities. The
fair value of the Company's note payable is not significantly different than its
carrying amount based upon the current interest rate environment.
Page 19 of 69
<PAGE> 20
KYZEN CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
INVENTORIES
Inventories are valued at the lower of cost or market value with cost determined
using the weighted average, first in, first out (FIFO) method.
INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the income tax basis of the Company's assets and
liabilities.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated on a straight-line
basis over the estimated useful lives (2 to 12 years) of the respective assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful life of the asset or the lease term.
PATENT COSTS
Patent costs, including the purchase of patent rights (Note 11) and legal costs
incurred related to issued and pending patents, are amortized using the
straight-line method over the useful lives of the patents, not exceeding 17
years. Accumulated amortization amounted to $52,681 and $42,677 in 1997 and
1996, respectively.
IMPAIRMENT OF VALUE
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," as of January 1, 1996.
Impairment of accounting value is measured on the basis of anticipated
undiscounted cash flows from operations. Based upon a review of its assets, the
Company determined no impairment existed at December 31, 1997 or 1996.
Accordingly, the adoption of SFAS No. 121 did not have a significant impact on
the Company's financial condition or results of operations.
RESEARCH AND DEVELOPMENT COSTS
The Company is involved in research and development activities relating to new
product development and new uses for its chemicals. The Company expenses
research and development costs as incurred.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are expensed in the
period incurred and totaled $203,895 in 1997 and $174,905 in 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PER SHARE DATA
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share," in the
quarter ending December 31, 1997. SFAS No. 128 requires the presentation of
basic and diluted earnings per share ("EPS") on the face of the statement of
operations. In accordance with the provisions of this Statement, the Company
calculates basic EPS as income available to common shareholders divided by the
weighted average number of shares outstanding during the year. Diluted EPS is
calculated using the "if converted method" for convertible securities and the
treasury stock method for options and warrants as prescribed by Accounting
Principles Board Opinion No. 15. This Statement has been applied,
retrospectively, to all periods presented.
SFAS No. 128 also requires the Company to disclose a reconciliation of the
numerators and denominators used in basic and diluted earnings per share. Based
upon the Company's capital structure throughout 1997 and 1996 and the Company's
net loss for such periods, there are no differences in the amounts used in the
numerators and denominators for purposes of calculating basis and diluted EPS.
As a result, basic and diluted EPS are the same.
Page 20 of 69
<PAGE> 21
KYZEN CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - NOTES RECEIVABLE
Certain key executives and former employees of the Company exercised stock
options during 1994 by issuing to the Company non-recourse promissory notes. The
notes bear interest at 5% per year and are secured by the Company's stock held
by such employees. Both principal and interest are due January 2000. The
non-recourse notes receivable principal balance of $906,263 at December 31, 1997
has been reflected as a reduction of shareholders' equity. Interest receivable
of $170,151 and $124,839 at December 31, 1997 and 1996, respectively, is
included in non-current assets.
NOTE 3 - COSTS AND ESTIMATED LOSSES IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
Costs and estimated losses incurred on uncompleted contracts incorporate the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- ---------
<S> <C> <C>
Costs incurred on uncompleted contracts $325,219 $ 681,071
Estimated losses (11,182) (254,159)
-------- ---------
314,037 426,912
Less: Billings to date 306,882 346,591
-------- ---------
Costs and estimated losses in excess of
billings on uncompleted contracts $ 7,155 $ 80,321
======== =========
</TABLE>
NOTE 4 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Raw materials $206,811 $100,523
Work in process 78,813 50,818
Finished goods 46,743 53,785
-------- --------
$332,367 $205,126
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- -----------
<S> <C> <C>
Manufacturing equipment $ 595,234 $ 501,129
Office furniture and fixtures 333,931 307,164
Demonstration equipment 327,112 186,906
Leasehold improvements 164,914 84,053
---------- ----------
1,421,191 1,079,252
Less-accumulated depreciation (493,112) (292,455)
---------- ----------
$ 928,079 $ 786,797
========== ==========
</TABLE>
Assets under capital lease amounted to $17,008 at December 31, 1997 and 1996,
respectively. Depreciation expense totaled $200,658 in 1997 and $143,029 in
1996. Included in depreciation expense in 1997 and 1996 was $2,706 and $2,025,
respectively, related to the amortization of assets under a capital lease.
Page 21 of 69
<PAGE> 22
KYZEN CORPORATION
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Accounts payable $623,626 $380,337
Salaries, wages and commissions 75,076 15,386
Deferred revenue 3,365 30,365
Other 5,714 6,000
-------- --------
$707,781 $432,088
======== ========
</TABLE>
NOTE 7 - NOTES PAYABLE
CAPITAL LEASE AND PUT OPTION OBLIGATIONS
The Company has a line of credit in the amount of $500,000 which is secured by
certain assets of the Company including cash and accounts receivable. At
December 31, 1997 and 1996, the Company had no balances outstanding on this line
of credit. The Company paid no fees related to this facility during 1997 or
1996.
Due to its net loss for 1997, the Company was in violation of certain of its
financial debt covenants. The Company has received waivers of these covenants
through December 31, 1997. The expiration of the line of credit is on April 30,
1998, and the Company is currently in negotiations with the lender and with
several banks to obtain a line of credit after the expiration of the current
facility.
On November 13, 1997 the Company obtained a term loan of $80,000 for the
financing of certain improvements to the Company's offices, laboratories and
demonstration facilities. This note payable has a stated rate of interest of 10%
and requires monthly interest and principal payments of $2,039 through December
2001. The Company's line of credit was reduced to $420,000 on the date the note
was issued. The balance of the term loan was $77,990 at December 31, 1997.
In addition the Company has a capital lease obligation of $6,725 at December 31,
1997. Future maturities of the Company's note payable and capital lease
obligation at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 17,050
1999 25,607
2000 20,911
2001 21,147
--------
84,715
Less: current portion (17,050)
--------
$ 67,665
========
</TABLE>
NOTE 8 - CAPITAL STOCK
COMMON STOCK
The Company's authorized common stock comprise of two classes, A and B. The
latter class provided redemption and/or other rights not available to Class A
common shareholders. The Company has 30,000,000 shares of $0.01 par value Class
A Common Stock authorized and 1,200,000 shares of $0.001 par value Class B
Common Stock authorized.
WARRANTS
In conjunction with its initial public offering in 1995, the Company issued
warrants to purchase 1,650,000 shares of Class A Common Stock at an exercise
price of $5.00 per share. The warrants are exercisable from February 4, 1996
through August 4, 2000. The warrants are subject to redemption by the Company at
$0.05 per warrant at any time on thirty days prior written notice, provided that
the closing price or the closing bid quotation for the Class A
Page 22 of 69
<PAGE> 23
KYZEN CORPORATION
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Common Stock has equaled or exceeded $7.50 for ten trading days. All warrants
remain outstanding at December 31, 1997.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred stock
with a par value of $0.001 per share. The Board of Directors is authorized to
establish the terms and rights of the preferred stock.
As of December 31, 1997 and 1996 there were no preferred shares issued or
outstanding.
STOCK OPTIONS
The Company has an incentive stock option plan. Under this plan, officers,
directors and other key employees may be granted options, each of which allows
for the purchase of shares of the Company's Class A Common Stock. The per share
price of the options granted under the plan is equal to the estimated fair value
of the Class A Common Stock on such date as determined by the Board of
Directors, except for options granted to 10% or greater shareholders for which
the per share price is 110% of the estimated fair value. The Company has
reserved 600,000 shares of Class A Common Stock for issuance upon exercise of
the options. The stock options have terms of 5 to 10 years from the date of the
grant and vest ratably over a three-year period, except for options granted to
directors, which vest immediately upon grant. The Company also granted options
to purchase 106,666 shares of the Company's Class A Common Stock to three
employees under a prior non-qualified plan. Options to purchase 93,333 shares
under this prior non-qualified plan remain unexercised at December 31, 1997.
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation," as
of January 1, 1996. In accordance with the provisions of SFAS No. 123, the
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans and accordingly, does
not recognize compensation costs. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS 123, net income and earnings per share would have been
reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net loss allocable to Class A Common Shareholders as
reported $(572,008) $(756,620)
Net loss allocable to Class A Common Shareholders pro
forma (749,902) (906,279)
Net loss per share allocable to Class A Common
Shareholders as reported (0.11) (0.15)
Net loss per share allocable to Class A Common
Shareholders pro forma (0.15) (0.18)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 76% 65%
Risk-free interest rate 6.4% 6.8%
Expected life of options 10 years 5 - 10 years
</TABLE>
The weighted average fair value at date of grant for options granted during 1997
and 1996 was $1.54 and $2.64 per option, respectively.
Page 23 of 69
<PAGE> 24
KYZEN CORPORATION
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Stock option transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
OUTSTANDING, DECEMBER 31, 1995 456,833 $2.27
Granted 164,000 3.54
Exercised (8,000) 0.68
Forfeited (33,333) 3.09
-------- -----
OUTSTANDING, DECEMBER 31, 1996 579,500 $2.61
Granted 44,900 1.84
Exercised (6,833) 0.19
Forfeited (109,184) $2.89
-------- -----
OUTSTANDING, DECEMBER 31, 1997 508,383 $2.51
======== =====
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- ------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE PRICES NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
(YEARS)
- --------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$0.19 93,333 4.4 $0.19 93,333 $0.19
1.84 44,600 9.5 1.84 20,000 1.84
2.81 - 3.99 369,950 5.9 3.17 286,486 3.06
4.50 500 6.0 4.50 500 4.50
------- -------
508,383 400,319
======= =======
</TABLE>
NOTE 9 - RETIREMENT PLAN
The Company implemented the Kyzen Corporation 401(k) Retirement Plan (the
"Plan") in 1997. Following initial enrollment, employees become eligible to
participate in the plan within 90 days of their initial employment. Employees
may contribute as little as 1% or up to 20% of their salary to the Plan. The
Company pays all expenses of the Plan and matches employee contributions on a
discretionary basis in such amounts as are determined by the Company's Board of
Directors. Matches of employer contributions are available to the employee based
on a 6 year vesting schedule that is prorated at different percentages for each
year vested. The Company did not match or make other contributions to this Plan
during 1997. The Plan expense for 1997 was $1,771.
NOTE 10 - INCOME TAXES
The Company recorded no provision for income taxes in 1997 or 1996 as there was
no taxable income for financial reporting or income tax purposes.
At December 31, 1997, the Company had available tax basis net operating loss
carryforwards to reduce future taxable income of approximately $2,190,360, which
expire through 2013.
The difference between available tax basis and financial statement carryforwards
is due to recognition of expenses in different periods for financial reporting
and federal income tax purposes. The tax effect of these temporary differences
gives rise to deferred tax assets and consist of the following:
Page 24 of 69
<PAGE> 25
KYZEN CORPORATION
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
--------- ----------
<S> <C> <C>
Net operating losses $ 852,050 $ 538,674
Capitalized start-up costs 102,562 17,272
Estimated losses on construction contracts 4,350 96,479
Other 8,993 37,633
--------- ---------
Deferred tax assets 967,955 690,058
Deferred tax asset valuation allowance (967,955) (690,058)
--------- ---------
Total deferred taxes, net $ -- $ --
========= =========
</TABLE>
The Company has fully reserved for its deferred tax assets due to uncertainty of
future realization.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts its operations from two leased facilities under operating
lease agreements. As of December 31, 1997, including transactions subsequent to
year end, future minimum annual rental payments are summarized as follows:
<TABLE>
<S> <C>
1998 $ 130,016
1999 41,958
2000 36,060
</TABLE>
Total rent expense was $163,435 in 1997 and $127,126 in 1996. Included in the
amount for 1997 is approximately $92,198 of rent paid to a shareholder. The
Company has options to renew its leases on both of its facilities for up to
three additional years.
PATENTS
The Company's original patents were for products developed by a founder of the
Company while employed by Bix Manufacturing Company ("Bix") and Delco, a
division of General Motors. The joint effort was undertaken to develop a more
effective non-chlorinated fluorocarbon cleaning solvent which would be
environmentally neutral. A patent was applied for jointly by Bix and Delco in
1989. The Company purchased the patent rights from Bix in 1990 and two patents
were subsequently issued jointly to Kyzen and Delco in the United States. Delco
retained the right to use chemistry developed under the patent and the Company
retains the right to market the patented technology. However, if the Company
enters into a license or royalty arrangement for the patented technology, the
resulting license fee or royalty revenues will be shared jointly between Delco
and the Company.
The Company has subsequently applied for and received one patent each in Mexico,
China, European Union, Japan, Australia and Taiwan. In addition Company has
applied for three additional patents in the United States in 1997. These filings
relate to work performed during the past two years on a number of formulations
to be used in existing and new market niches.
The Company is also required to pay royalties to Bix (a shareholder). Royalties
are based on 2% of revenues related to the patented chemistry. The Company is
currently settling its royalty obligation through consulting services performed
by a founder of the Company. In 1997 and 1996, $71,925 and $56,342 is recorded
as royalty expense to reflect these transactions.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company purchased approximately $141,000 and $162,000 of advertising, health
insurance and transportation services from related parties during 1997 and 1996,
respectively.
Page 25 of 69
<PAGE> 26
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART II
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 26 of 69
<PAGE> 27
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Incorporated by reference in Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 24, 1998
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference in Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 24, 1998
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference in Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 24, 1998
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is required to pay royalties in connection with the Company's
acquisition of certain patent rights to Bix Manufacturing Company, a
shareholder. Royalties are based on 2% of revenues related to the patented
chemistry. The Company is currently satisfying its royalty obligation through
consulting services performed by the Company. In 1997 and 1996, $71,925 and
$56,342, respectively, is recorded as royalty expenses to reflect these
transactions. Michael L. Bixenman, a director and officer is a 10% shareholder
of Bix Manufacturing Company.
The Company paid $26,262 and $15,350 in 1997 and 1996 for transportation
services from Benco Sales. Benco Sales is owned by Mr. Benny Bixenman who is a
shareholder and the brother of Mr. Michael L. Bixenman a director and officer of
the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 3.1 Registrant's Amended and Restated Articles of Incorporation (1)
Exhibit 3.2 Bylaws of Registrant, as amended to date (1)
Exhibit 4.1 Specimen of Class A Common Stock Certificate (1)
Exhibit 4.2 Specimen of Warrant Certificate (1)
Exhibit 10.1 Lease Agreement, dated June 11, 1993 between Harding Business
Park, a Partnership and Registrant, for Registrant's headquarters
and chemical manufacturing facilities. (1)
Exhibit 10.3 Employee Agreements with officers and key employees of Registrant: (1)
(a) Kyle J. Doyel
(b) Michael L. Bixenman
(c) Thomas M. Forsythe
Exhibit 10.4 1994 Employee Stock Option Plan and forms of Stock Option Grant,
Acceptance and Exercise Notice and Agreement. (1)
Exhibit 10.5 First Amendment to the 1994 Employee Stock Option Plan. (1)
Exhibit 10.6 Loan Agreements and five percent (5%) Promissory Notes between
officers and key employees and Registrant: (1)
(a) Kyle J. Doyel
(b) Michael L. Bixenman
(c) James J. Andrus
(d) Benjamin D. Wolfley
(e) Thomas M. Forsythe
Exhibit 10.7 Purchase Agreement, dated May 1, 1990 between Bix Manufacturing
Company, Inc. and Registrant (1)
Exhibit 10.8 Technology Exchange Agreement, dated December 17, 1993 between
Bix Manufacturing Company, Inc. and Registrant (1)
Exhibit 10.20 Warrant Agreement between Kyzen Corporation and American Stock
Transfer & Trust Company (1)
</TABLE>
Page 27 of 69
<PAGE> 28
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (CONTINUED)
<TABLE>
<S> <C>
Exhibit 10.21 Reassignment of Patents to Bix Manufacturing Company, Inc. (1)
Exhibit 10.23 Employment Agreement dated January 1, 1997 with Thomas J. Herrmann
Exhibit 10.24 Lease Agreement, dated April 25, 1995 between Five-Forty North
Associates a Partnership and the Registrant, for Registrant's
offices, demonstration facility, and equipment manufacturing facilities.
Exhibit 10.25 Amended Lease Agreement, dated December 30 25, 1997 between
Five-Forty North Associates a Partnership and the Registrant,
for Registrant's offices, demonstration facility, and equipment
manufacturing facilities
Exhibit 10.26 Loan Agreement dated March 11. 1996 between Registrant and First
Union National Bank of Tennessee
Exhibit 10.27 Amended Loan Agreement dated July 7, 1997 between Registrant
and First Union National Bank of Tennessee
Exhibit 10.28 Loan Agreement and $80,000 Promissory Note dated November 3, 1997
between Registrant and First Union National Bank of Tennessee
Exhibit 23.1 Consent of Price Waterhouse LLP
Exhibit 27.1 Financial Data Schedule
(1) Incorporated by reference from Registrants Form SB-2, File No. 33-91854-A
</TABLE>
Page 28 of 69
<PAGE> 29
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (CONTINUED)
(b) Reports on Form 8-K
During the fourth quarter of 1997 the Company filed a current report on
form 8-K reporting a press release that was published on October 15, 1997,
with its accompanying schedules and exhibits pertaining to the Company's
third quarter 1997 conference call, statement of operations and earnings
per share. No other Forms 8-K were filed during the fourth quarter of 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) Kyzen Corporation
-----------------------------------------------------------------
By /s/ Michael L. Bixenman
--------------------------------------------------------------------------
Date March 18, 1998 Michael L. Bixenman, Chairman, Vice
------------------------------ President, Director
By /s/ Kyle J. Doyel
---------------------------------------------------------------------------
Date March 18, 1998 Kyle J. Doyel, President, CEO (Principal
------------------------------- Executive Officer), Director
By /s/ Thomas M. Forsythe
---------------------------------------------------------------------------
Date March 18, 1998 Thomas M. Forsythe, Vice President,
------------------------------- Treasurer (Principal Accounting
Officer), Director
By /s/ Thomas J. Herrmann
---------------------------------------------------------------------------
Date March 18, 1998 Thomas J. Herrmann, Vice President,
------------------------------- Secretary
By /s/ John A. Davis III
---------------------------------------------------------------------------
Date March 18, 1998 John A. Davis, III, Director
-------------------------------
By /s/ James A. Gordon
- -------------------------------------------------------------------------------
Date March 18, 1998 James A. Gordon, Director
-------------------------------
By /s/ Larry A. Lofgreen
----------------------------------------------------------------------------
Date March 18, 1998 Larry A. Lofgreen, Director
------------------------------
By /s/ Edward F. Bradley
---------------------------------------------------------------------------
Date March 18, 1998 Edward F. Bradley, Director
-------------------------------
Page 29 of 69
<PAGE> 30
EXHIBIT INDEX AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 3.1 Registrant's Amended and Restated Articles of Incorporation (1)
Exhibit 3.2 Bylaws of Registrant, as amended to date (1)
Exhibit 4.1 Specimen of Class A Common Stock Certificate (1)
Exhibit 4.2 Specimen of Warrant Certificate (1)
Exhibit 10.1 Lease Agreement, dated June 11, 1993 between Harding Business Park,
a Partnership and Registrant, for Registrant's headquarters and
chemical manufacturing facilities. (1)
Exhibit 10.3 Employee Agreements with officers and key employees of Registrant: (1)
(a) Kyle J. Doyel
(b) Michael L. Bixenman
(c) Thomas M. Forsythe
Exhibit 10.4 1994 Employee Stock Option Plan and forms of Stock Option Grant,
Acceptance and Exercise Notice and Agreement. (1)
Exhibit 10.5 First Amendment to the 1994 Employee Stock Option Plan. (1)
Exhibit 10.6 Loan Agreements and five percent (5%) Promissory Notes between
officers and key employees and Registrant: (1)
(a) Kyle J. Doyel
(b) Michael L. Bixenman
(c) James J. Andrus
(d) Benjamin D. Wolfley
(e) Thomas M. Forsythe
Exhibit 10.7 Purchase Agreement, dated May 1, 1990 between Bix Manufacturing
Company, Inc. and Registrant (1)
Exhibit 10.8 Technology Exchange Agreement, dated December 17, 1993 between
Bix Manufacturing Company, Inc. and Registrant (1)
Exhibit 10.20 Warrant Agreement between Kyzen Corporation and American Stock
Transfer & Trust Company (1)
Exhibit 10.21 Reassignment of Patents to Bix Manufacturing Company, Inc. (1)
Exhibit 10.23 Employment Agreement dated January 1, 1997 with Thomas J. Herrmann
Exhibit 10.24 Lease Agreement, dated April 25, 1995 between Five-Forty North
Associates a Partnership and the Registrant, for Registrant's
offices, demonstration facility, and equipment manufacturing facilities.
Exhibit 10.25 Amended Lease Agreement, dated December 30 25, 1997 between Five-Forty
North Associates a Partnership and the Registrant, for Registrant's
offices, demonstration facility, and equipment manufacturing facilities
Exhibit 10.26 Loan Agreement dated March 11. 1996 between Registrant and First
Union National Bank of Tennessee
Exhibit 10.27 Amended Loan Agreement dated July 7, 1997 between Registrant
and First Union National Bank of Tennessee
Exhibit 10.28 Loan Agreement and $80,000 Promissory Note dated November 3, 1997
between Registrant and First Union National Bank of Tennessee
Exhibit 23.1 Consent of Price Waterhouse LLP
Exhibit 27.1 Financial Data Schedule
(1) Incorporated by reference from Registrants Form SB-2, File No. 33-91854-A
</TABLE>
<PAGE> 1
10.23 Employment Agreement dated January 1, 1997 with Thomas J. Herrmann
EMPLOYMENT AGREEMENT
THIS AGREEMENT (hereinafter the "Agreement") is made and entered into
this 1st day of January, 1997 by and between KYZEN CORPORATION, a Utah
Corporation, (hereinafter "Employer") and Thomas J. Herrmann, an individual
(hereinafter "Employee").
RECITALS
WHEREAS, Employer has been formed to engage in the manufacture of
specialty chemicals, water management systems, specialty cleaning systems,
integration of processes into cleaning machines and associated businesses; and
WHEREAS, Employee has experience and background to participate in the
above designated businesses; and
WHEREAS, Employer desires to engage Employee, and Employee desires to
become so engaged.
NOW, THEREFORE, in view of the foregoing recitals, which are
incorporated as a part of this Agreement, and in consideration of the mutual
covenants contained herein and the mutual benefits to be derived hereunder, the
parties agree as follows:
1. Employment. Employer hereby employs Employee to perform those duties
assigned to Employee by Employer, and Employee accepts and agrees to such
employment. Employee's first assignment shall be Vice President-Marketing.
Employee's initial salary shall be at rate of Seven Thousand Six Hundred Sixty
Six Dollars and Sixty Seven cents ($7,666.67) per month (payable in pro-rated
semi-monthly payments on the 15th and 30th or last day of each month). Employer
will review Employee's salary approximately annually, taking into consideration
such factors as changes in the consumer price index, the level of the salaries
of employees in comparable positions, and the earnings and cash flow of the
Employer. In addition the Employee, based on management and Board of Director
recommendations, will be invited to participate based on his performance,
knowledge and accomplishments in his job, in equity in the Employer through the
Employer's Incentive Stock Option Plan. Employer will provide Employee with
medical insurance coverage to cover his family based on the current Kyzen
Employee Benefit plan. This medical coverage is anticipated to take effect on or
about January 1, 1997 provided the employee and his family can qualify with the
insurance carrier underwriting the medical plan.
In addition to Employee's salary, Employee shall be entitled to
participate in the insurance and other fringe benefit programs (including but
not limited to the Management Disability Insurance Coverage Plan) which Employer
provides to its other full-time employees.
2. Term. The first term of this Agreement shall begin on January 1,
1997, and shall continue for a period of one year. Thereafter, this Agreement
shall continue for successive one year periods until it is terminated by a
minimum of sixty (60) days written notice from either party to the other party
prior to the end of an existing one year period; provided, however, that in the
event that more than twenty percent (20%) of the voting common stock of the
Employer is acquired by a person or entity (other than an underwriter) which
does not own or control shares of the common stock of the Employer as of January
1, 1994 and such acquisitions results in a change of control over the Employer,
and Employer terminates this Agreement as a result of such change in control
over Employer, then for a period of two (2) years after such termination
Employee shall be entitled to receive semi-monthly severance payments equal to
salary payments which otherwise would have been paid to Employee pursuant to
this Agreement.
If Employee terminates this Agreement, Employer shall have the option
of terminating this Agreement either immediately or at the end of the calendar
month in which notice is given.
3. Salary Deferral In the event that the Employer determines that it
does not have the necessary funds to pay the full amount of the salary of
Employee without impairing its working capital, Employee agrees to
<PAGE> 2
defer the unpaid portion of such salary, subject to interest accruals at the
rate of twelve percent (12%) per annum compounded monthly, on a basis of parity
with other employees who are also deferring payment of their salaries. Payment
of any deferred salary, plus accrued interest, may be made at any time at the
sole discretion of the Employer; provided, however, that in the event that the
Employer terminates this Agreement, then the Employer shall pay all unpaid
salary, plus accrued interest, within thirty (30) days after such termination of
this Agreement.
4. Duties. Employee shall perform those duties assigned by Employer,
subject to the general supervision and direction of Employer. Employee shall
devote substantially all of his working time and efforts to the business of
Employer and its subsidiaries or affiliates, if any, and shall not during the
term of this Agreement be engaged in any other business activities (defined to
be services, transactions, non-passive investments, or other activity engaged in
for the direct financial benefit of the Employee) without the express written
consent of Employer.
5. Best Efforts. Employee agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of his duties assigned by Employer.
6. Covenant Not To Compete. During the period of this Agreement, and
for a period of two (2) years after its termination, Employee shall not, without
the express written consent of Employer, compete with Employer in any fashion,
including but not limited to directly or indirectly engaging in, assisting,
performing services for, establishing or opening, or having any equity interest
(other than ownership of ten (10) percent or less of the outstanding stock of
any corporation listed on the New York or American Stock Exchanges or included
in the National Association of Securities Dealers Automated Quotation System) in
any person, firm, corporation, or business entity, whether as an employee,
officer, director, agent, security holder, creditor, consultant, or otherwise,
that engages in the specialty chemical, specialty equipment or water treatment
businesses in competition with Employer. This covenant shall be construed as a
series of separate covenants, one for each separate market area. If, in any
judicial proceeding, a court shall refuse to enforce any of these separate
covenants, then the unenforceable covenants shall be deemed eliminated from this
Agreement to the extent necessary to permit the remaining separate covenants to
be enforced. Each covenant contained or described in this paragraph 6 shall
survive expiration or termination of this Agreement.
7. Non-Disclosure of Information. Employee shall not duplicate or
disclose to any person not authorized to receive or use same, any of Employer's
Proprietary and/or Confidential Information, including, but not limited to,
Employer's data, information, lists, studies, plans, procedures, results,
methods, ideas, processes, research, developments, specifications, know how, or
any copy thereof. Employee specifically acknowledges, understands, and agrees
that he does not and shall not have any ownership or interest in any Proprietary
and/or Confidential Information, whether learned developed, modified, or
improved, through the efforts of Employee or otherwise. Employee shall keep
himself informed of Employer's policies and procedures for safeguarding
Employer's property, including and Proprietary and/or Confidential Information,
and shall reasonably comply with those policies and procedures at all times.
Employee shall not, without the express authorization of Employer, remove any of
Employer's property from Employer's premises; and shall return to Employer,
immediately upon expiration or termination of his employment or this Agreement,
any and all of Employer's property in his possession or control. Each covenant
contained or described in this paragraph 7 shall survive expiration or
termination of this Agreement.
8. Modification of Agreement. This Agreement can only be modified by a
separate writing, other than an instrument of payment, signed by both parties.
9. Binding. This Agreement is for the benefit of and is binding upon
the parties hereto, their successors, heirs, and personal representatives.
10. Notices. Any notices, request, instruction, report, or other
document to be given to the parties shall be in writing and delivered
personally, by courier, by Federal Express or sent by certified mail, postage
prepaid. Agreed upon addresses for notice deliveries are:
<PAGE> 3
Employer: 430 Harding Industrial Drive
Nashville, TN 37211
Employee: 9132 Demery Ct.
Brentwood, TN 37027
11. Paragraph number and headings. Headings and paragraph numbers have
been inserted herein solely for convenience and reference and shall not be
construed to affect the meanings, construction or effect of this Agreement.
12. Arbitration. Any and all disputes, or disagreements controversies
with the exception of those arising out of paragraphs 6 and 7, relating to or
arising out of this Agreement shall be submitted to binding arbitration in the
City of Nashville, Tennessee, according to the rules and regulations of the
American Arbitration Association, and binding judgment based on the decision of
the arbitrator may be entered in any court of competent jurisdiction.
13. Default. If either party defaults in any of the covenants or
agreements herein contained, the defaulting party shall pay all costs and
expenses, including reasonable attorney's fees, incurred by the other party in
enforcing its rights arising under this Agreement, whether incurred through
legal action or otherwise.
14. Enforcement. Employee acknowledges that any remedy at law for
breach of paragraphs 6 and 7 would be inadequate, acknowledges that Employer
would be irreparably damaged by an actual or threatened breach thereof, and
agrees that Employer shall be entitled to an injunction restraining Employee
from any actual or threatened breach of paragraphs 5 and 6, as well as any
further appropriate equitable relief, without any bond or other security being
required. In addition to the foregoing, each of the parties hereto shall be
entitled to any remedies available at law, in equity, or by statute.
15. Applicable Law. This agreement shall be governed by the laws of the
State of Tennessee.
16. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part hereof to be invalid or
unenforceable, such holding shall in no way affect the validity of the remainder
of this Agreement.
17. Waiver. No failure by either party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement, or
to exercise any right or remedy upon the breach thereof, shall constitute a
waiver of any breach of this Agreement.
18. Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes all prior agreements, negotiations, and
understandings between the parties with regard to employment of Employee by
Employer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove written.
EMPLOYEE EMPLOYER
/s/ Thomas J. Herrmann By: /s/ Kyle J. Doyel
------------------------ ----------------------
Its: President & CEO
<PAGE> 1
10.24 Lease Agreement, dated April 25, 1995 between Five-Forty North
Associates a Partnership and the Registrant, for Registrant's
offices, demonstration facility, and equipment manufacturing
facilities.
LEASE AGREEMENT
FIVE-FORTY NORTH ASSOCIATES
(Landlord)
KYZEN CORPORATION
(Tenant)
First Floor, South End and
Second Floor, Center
540 North Commercial Street
Manchester, New Hampshire
<PAGE> 2
CONTENTS
ARTICLE I - Leased Premises; Construction; Possession
ARTICLE II - Term of Lease
ARTICLE III - Option to Renew
ARTICLE IV - Rent
ARTICLE V - Security Deposit
ARTICLE VI - Quiet Enjoyment
ARTICLE VII - Common Areas of the Building; Maintenance Thereof
ARTICLE VIII - Condition of Leased Premises; Repairs
ARTICLE IX - Improvements by Tenant
ARTICLE X - Machinery and Equipment - Trace Fixtures
ARTICLE XI - Utilities
ARTICLE XII - Use of Leased Premises
ARTICLE XIII - Hazardous Waste or Substances
ARTICLE XIV - Assignment; Subleasing
ARTICLE XV - Taxes and Assessments
ARTICLE XVI - Mechanic's Lien
ARTICLE XVII - Eminent Domain
ARTICLE XVIII - Liability
ARTICLE XIX - Rules and Regulations
ARTICLE XX - Landlord's Insurance
ARTICLE XXI - Tenant's Insurance
ARTICLE XXII - Destruction or Damage
ARTICLE XXIII - Repossession by Landlord
ARTICLE XXIV - Mortgage Lien
ARTICLE XXV - Default
ARTICLE XXVI - Access to Leased Premises
ARTICLE XXVII - Notices
ARTICLE XXVIII - Signs; Exterior Appearance; Pylon; Sign
ARTICLE XXIX - Short Form Recording
ARTICLE XXX - No Broker
ARTICLE XXXI - Warranties and Representations of Tenant
ARTICLE XXXII - Succession
ARTICLE XXXIII - Waiver
ARTICLE XXXIV - Governing Law
ARTICLE XXXV - Counterparts
ARTICLE XXXVI - Modification; Entire Agreement
ARTICLE XXXVII - Section Headings
ARTICLE XXXVIII- Severability
<PAGE> 3
LEASE dated this 25th day of April, 1995, by and between FIVE-FORTY
NORTH ASSOCIATES, a New Hampshire limited partnership ("Landlord") and KYZEN
CORPORATION, a Utah corporation ("Tenant").
WITNESSETH:
ARTICLE I - LEASED PREMISES; CONSTRUCTION; POSSESSION
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, upon and subject to the terms and provisions of this Lease, an area of
approximately Eleven Thousand Three Hundred Twenty-Nine (11,329) square feet, as
cross-hatched on the floor plan attached hereto as Exhibit A-1 (the "Leased
Premises"), which area is a part of a warehouse located at 540 Commercial
Street, Manchester, Hillsborough County, New Hampshire, as more particularly
described in Exhibit A-2 attached hereto (the "Building").
1.2 Landlord shall perform the "Landlord's Work" substantially in
accordance with the Landlord's and Tenant's Architectural and Construction Work
described in Exhibit B attached hereto by approximately June 1, 1995 subject to
delays caused by governmental restrictions, strikes, lock-outs, shortages of
labor or material, acts of God, war or civil commotion, fire, unavoidable
casualty, inclement weather or cause beyond the reasonable control of Landlord.
1.3 For all purposes in this Lease, the term "Tenant's Proportionate
Share" shall mean six and four tenths percent (6.4%), which is the ratio that
the gross square feet of the Leased Premises bears to the total rentable square
feet of the Building.
ARTICLE II - TERM OF LEASE
2.1 The original term of this Lease is for a period of three (3) years,
which period will commence on June 1, 1995 and will end on May 31, 1998.
2.2 The term "Lease Year", as used herein, shall mean the period which
commences on June 1 of each year and terminates on May 31 of each year.
2.3 If Tenant holds over after the expiration of this term or any
exercised option term without objection from Landlord, then such holding over
will not extend the term of this Lease, but will create a month-to-month tenancy
under the same conditions as this Lease except that rent shall be paid in the
amount of one hundred twenty-five percent (125%) the base rent set forth in
Section 4.1 hereof.
ARTICLE III - OPTION TO RENEW
3.1 Tenant shall have the option to renew this Lease for one (1)
additional terms of one (1) year. So long as Tenant is not in default under the
terms of this Lease, said option may be exercised by giving notice to Landlord
at least ninety (90) days prior to the expiration of the original term of the
Lease of Tenant's intent to exercise the option. The rent payable by Tenant
during the renewal term shall be as specified in Section 4.ltd) below.
ARTICLE IV - RENT
4.1 Tenant shall pay Landlord (at the address specified in Article
XXVIII hereof), as base rent for the Leased Premises during the term of this
Lease (the "Base Rent"), as follows:
(a) During Lease Year 1, the annual sum of Fifty-Six Thousand Seven
Hundred Dollars ($56,700), payable in equal monthly installments of Four
Thousand Seven Hundred Twenty-Five Dollars ($4,725);
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(b) During Lease Year 2, the annual sum of Sixty-One Thousand Five
Hundred Dollars ($61,500), payable in equal monthly installments of Five
Thousand One Hundred Twenty-Five Dollars ($5,125);
(c) During Lease Year 3, the annual sum of Sixty-Six Thousand Nine
Hundred Dollars ($66,900), payable in equal monthly installments of Five
Thousand Five Hundred Seventy-Five Dollars ($5,575; and
(d) During Lease Year 4 (in the event that Tenant exercises its option
to renew), the annual sum of Seventy-Three Thousand Five Hundred Sixty Dollars
($73,560), payable in equal monthly installments of Six Thousand One Hundred
Thirty Dollars ($6,130).
4.2 All rent is payable in advance, without demand, in fixed monthly
installments of one-twelfth (1/12) of the then-current yearly Base Rate on or
before the first day of each and every month during the term hereof. If this
lease begins on any day other than the first (1st) of any calendar month, then
the rent for the first month will be prorated for the number of days in that
month that this lease is effective. A similar proration will be made for the end
of the term.
4.3 The Base Rent and all other sums payable by Tenant hereunder shall
be referred to as "Rent". For further sums payable by Tenant as Rent (sometimes
called "Additional Rent") see Articles VII, VIII, XI, XV and XX.
4.4 It is understood that the Base Rent, Monthly Estimated Common Area
Maintenance Charge (hereinafter defined) and Tenant Proportionate Share of Real
Estate Taxes (hereinafter defined) is payable on or before the first day of each
month without offset or deduction of any nature. In the event such Rent is not
received when due or any check tendered to Landlord is returned to Landlord as
uncollectible, Tenant shall pay the applicable service charges set forth in this
Section 4.4, which Landlord and Tenant agree are a fair and reasonable estimate
of the costs to be incurred by Landlord by reason of such late payment. The
service charge for a late payment shall be an amount equal to five percent (5%)
of any installment of rent and other charges past due for more than five (5)
days; provided, however, interest on such past due installment and late payment
charge shall accrue at the rate of eighteen percent (18%) per annum after the
thirtieth (30th) day such installment is past due until paid. The service charge
for a returned check shall be Thirty-Five Dollars ($35). In no event shall the
aggregate of the interest to be paid by Tenant, plus any other amounts paid in
connection with the transaction evidenced hereby which would under applicable
law be deemed "interest", ever exceed the maximum amount of interest which,
under applicable law, could be lawfully charged to Tenant hereunder (the
"Maximum Rate"). Therefore, none of the terms of this Lease shall ever be
construed to create a contract to pay interest at a rate in excess of the
Maximum Rate, and Tenant shall not be liable for interest in excess of that
determined at the Maximum Rate, and the provisions of this Section shall control
all other provisions of this Lease. If any amount of interest taken or received
by Landlord shall be in excess of the maximum amount of interest which, under
applicable law, could lawfully have been collected under this Lease, then the
excess shall be deemed to have been the result of a mathematical error by
Landlord and Tenant and shall be refunded promptly to Tenant.
4.5 Any payment by Tenant or acceptance by Landlord of an amount less
than that due under the terms hereof will be treated as a payment on account,
regardless of any endorsement appearing on any such check or any statement made
by Tenant to the contrary.
ARTICLE V - SECURITY DEPOSIT
5.1 Upon the execution hereof, and prior to the commencement of the
lease term under Article II hereof, Tenant shall pay to and deposit with
Landlord the sum of Four Thousand Seven Hundred Twenty-Five Dollars ($4,725), as
security for the full and faithful performance by Tenant of all the terms of
this Lease required to be performed by Tenant. Landlord may use, apply, or
retain the whole or any part of the money deposited as security hereunder to the
extent required for the payment of any rent and additional rent or other sum(s)
as to which Tenant is in default or for any sum(s) which Landlord may expend or
may be required to expend by reason of Tenant's default in respect of any of the
conditions of this Lease, including, but not limited to, any damages or
deficiency in reletting of the Leased Premises whether such damages or
deficiency accrued before or after summary
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proceedings or other reentry by Landlord. In the event of Landlord's sale or
lease of the Leased Premises of which the Leased Premises forms apart, Landlord
shall have the right to transfer said security deposit to the purchaser or
lessee, and Landlord shall thereupon be released from all liability for the
return of such security deposit. In the event of such a transfer, Tenant shall
look solely to said transferee for the return of said security deposit. Tenant
shall not assign or encumber the money deposited as security without the prior
written consent of Landlord, and Tenant agrees that neither Landlord nor its
successors and assigns shall be bound by any such assignment or encumbrance.
Tenant agrees that the money deposited as security hereunder will not be used to
pay the Rent for the last month of the term hereof without the prior written
consent of Landlord. Tenant shall not be entitled to any interest on the money
deposited as security hereunder. Subject to the terms of this Section, in the
event that Tenant shall comply with all of the terms of this Lease, the money
deposited as security hereunder will be returned to Tenant at the expiration of
the term hereof and after delivery of possession of the Leased Premises to
Landlord.
ARTICLE VI - QUIET ENJOYMENT
6.1 Landlord shall put Tenant into possession of the Leased Premises
on the Commencement Date, and Tenant, upon paying the rent and observing the
other covenants and conditions herein, upon its part to be observed, shall have
peaceable and quiet and enjoyment of the Leased Premises.
ARTICLE VII - COMMON AREAS OF THE BUILDING; MAINTENANCE THEREOF
7.1 The term "Common Area" is defined for all purposes of this Lease
as that part of the Building intended for the common use of all tenants,
including among other facilities (as such may be applicable to the Building)
parking areas, private streets and alleys, landscaping, curbs, loading areas,
sidewalks, lobbies, hallways, lighting facilities, drinking fountains, public
toilets, and the like but excluding space in buildings (now or hereafter
existing) designed for rental for commercial purposes, as the same may exist
from time to time, and further excluding streets and alleys maintained by a
public authority. Landlord reserves the right to change from time to time the
dimensions and location of the Common Area. Tenant, its employees and customers,
and, when duly authorized pursuant to the provisions of this Lease, its
subtenants shall have the nonexclusive right to use the Common Area as
constituted from time to time. Such use shall be in common with Landlord, other
tenants in the Building and other persons permitted by Landlord to use the same,
and shall be subject to such reasonable rules and regulations governing use as
Landlord may from time to time prescribe, including the designation of specific
areas within the Building or in reasonable proximity thereto, in which
automobiles owned by Tenant, its employees, subtenants, licensees and
concessionaires shall be parked. The Tenant shall be provided twenty (20)
parking spaces; ten (10) of which shall be on site [three (3) in front of the
Building and seven (7) on the river side of the Building 1 and ten (10) of which
shall be in the Arms Parking Lot. Tenant shall not take any action which would
interfere with the rights of other persons to use the Common Area. Landlord may
temporarily close any part of the Common Area for such periods of times as may
be necessary to make repairs or alterations or to prevent the public from
obtaining prescriptive rights. Landlord shall be responsible for the operation,
management, and maintenance of the Common Area, the manner of maintenance and
the expenditures therefor to be in the sole discretion of Landlord.
7.2 - (a) In addition to Monthly Rent and any other charges prescribed
in this Lease, beginning in Lease Year 2, Tenant shall pay to Landlord Tenant's
Proportionate Share of any increase from the cost incurred in the calendar year
1995, for the cost of ownership, operation and maintenance of the Common Area
(including, among other costs, those for lighting, painting, cleaning,
inspecting, repairing, replacing, and removing of snow and ice from the Common
Area, and the cost of heating, cooling and other utilities for any lobbies and
hallways, and, in the event that the Leased Premises and other areas of the
Building which are leased are not separately metered for utilities, the costs of
electricity, heating, cooling and other utilities servicing the Building) which
may be incurred by Landlord in its discretion, including the cost of maintaining
and repairing all utility mains, lines, conduits and other facilities located
on, above or under the Common Area, a reasonable allowance for Landlord's
overhead costs and for depreciation of maintenance equipment (collectively, the
"Common Area Maintenance Charges"). Tenant's Proportionate Share of the Common
Area Maintenance Charges for Lease Year 1 is calculated to be $12,348 per year,
which amount is included in the Base Rent stated in Article IV.
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(b) During Lease Year 2, Tenant will pay Landlord a "Monthly Estimated
Common Area Maintenance Charge" in an amount to be determined by Landlord,
monthly in advance, payable at the same time and place as the Monthly Rent is
payable. Landlord shall have the right to adjust such monthly estimate on an
annual basis, pursuant to the following paragraph.
(c) Beginning in 1996, within ninety (90) days of the end of each
calendar year occurring during the Term of this Lease (or subsequent to the
expiration or other termination of this Lease, if such occurs on a date other
than the last day of a calendar year), Landlord will give Tenant notice of the
total amount paid by Tenant for the relevant calendar year together with the
actual amount of Tenant's Proportionate Share of the Common Area Maintenance
Charges (the "Total Cost") for such calendar year. If the actual amount of
Tenant's Proportionate Share of the Total Cost with respect to such period
exceeds the aggregate amount previously paid by Tenant with respect thereto
during such period, Tenant shall pay to Landlord the deficiency within fifteen
(15) days following notice from Landlord; however, if the aggregate amount
previously paid by Tenant with respect thereto exceeds Tenant's Proportionate
Share of the Total Cost for such period, then, at Landlord's election, such
surplus (net of any amount then owing by Tenant to Landlord) shall be credited
against the next ensuing installment of any such cost due hereunder by Tenant or
against any other amount of Rent owing by Tenant to Landlord hereunder, or
Landlord may refund such net surplus to Tenant. Periodically, during the Term of
this Lease, Landlord shall have the right to estimate Tenant's Proportionate
Share of Common Area Maintenance Charges for the next fiscal period (determined
by Landlord) of the Term of this Lease, whereupon, Tenant shall pay Landlord
such amounts as may be so indicated by Landlord in the same manner as the
Monthly Estimated Common Area Maintenance Charge.
7.3 Tenant shall furnish to Landlord upon request a complete list of
license numbers of all automobiles operated by Tenant, its employees,
subtenants, licensees or concessionaires. Tenant agrees that if any automobile
or other vehicle owned by Tenant or any of its employees, subtenants, licensees
or concessionaires, or any of their respective employees, shall at any time be
parked in any part of the Building, other than the specific areas designated by
Landlord from time to time for employee parking, Landlord shall be and is hereby
authorized to cause such automobile or other vehicle to be removed to such other
location, either within or beyond the Building. Tenant agrees to indemnify
Landlord, its employees, and agents and holds each of them harmless from any and
all claims of whatsoever nature which may arise by reason of such removal of
vehicles owned by Tenant or any of its employees, subtenants, licensees or
concessionaires.
ARTICLE VIII - CONDITION OF LEASED PREMISES; REPAIRS
8.1 Subject to the terms of Article I of this Lease, Tenant accepts the
Building, improvements, and any equipment or fixtures on or in the Leased
Premises "as is" and in their existing condition and agrees that no
representation, statement or warranty, express or implied, has been made by or
on behalf of Landlord as to such condition, or as to the use that may be made of
such property.
8.2 If the Leased Premises is now, or at any time during the term of
this Lease becomes, a "Public Accommodation" under the Americans with
Disabilities Act of 1990 (the "ADA"), Tenant shall, at its sole expense, be
responsible for (i) compliance with Title ILI of the ADA to the extent that the
AD.A imposes obligations on the procedure and design of any alterations to the
Leased Premises made by Tenant, and (ii) making modifications in its policies,
practices and procedures in connection with the operating of Tenant's business.
If a failure to make such modifications constitutes a violation of the ADA,
Tenant shall indemnify and hold harmless Landlord with respect to its failure to
comply with the foregoing responsibilities. Any work to be performed Tenant
pursuant to this Section 8.2 shall be governed by all the provisions set forth
in Section 9.1 below. Tenant shall have no responsibility for, nor shall it be a
part of the Common Area Maintenance, any work required by the ADA to other
tenant space in the Building or in the common areas of the Building unless such
work is required by Tenant's use of the Leased Premises.
8.3 Landlord shall maintain in good repair the structural integrity of
the roof, and exterior walls of the Leased Premises, and the structural beams,
structural columns and other structural parts of the Leased Premises, and the
cost of such amount shall be reimbursed to Landlord as part of the Common Area
Maintenance Charges. Tenant shall keep, during the term hereof, at its own cost
and expense, both the interior of the Leased
<PAGE> 7
Premises, excluding the structural integrity of the roof and exterior walls, in
as good condition as the same was at the commencement of the term hereof,
reasonable wear and tear, taking by eminent domain and damage due to fire or
casualty insured against excepted. Tenant shall replace, at its own cost and
expense, window glass, if any, of the same kind and quality, reasonable wear and
tear, taking by eminent domain and damage due to fire or other casualty insured
against excepted. Tenant shall replace and/or repair, at its own cost and
expense, all light bulbs and lighting fixtures which are damaged, broken or
cease to function during the term hereof, with bulbs or fixtures of the same
kind and quality. Tenant shall be responsible for regular service and routine
maintenance of the heating/ventilating/air conditioning system servicing the
Leased Premises.
8.4 Tenant shall rake good we of the Leased Premises and keep the same
free from waste at all times. Tenant shall keep the Leased Premises and
sidewalks, service-ways and loading areas adjacent to the Leased Premises neat,
clean and free from dirt or rubbish at all times, and shall store all trash and
garbage within the Leased Premises, arranging for the regular pick-up of such
trash and garbage at Tenant's expense. Removal of garbage and trash shall be
made only in the manner and areas prescribed by Landlord. Tenant shall arrange
for the regular pick up of trash and refuse at Tenant's expense, unless Landlord
provides other refuse service, in which case Tenant shall use such other refuse
service and pay the cost of such service as specified by Landlord. Tenant shall
not operate an incinerator or burn trash or garbage within the Building. Tenant
shall procure at its sole expense all permits and licenses required for the
transaction of business in the Leased Premises and otherwise comply with all
applicable laws, ordinances, and governmental regulations affecting the
Building, including those relating to Hazardous Waste or Substance (hereinafter
defined) now in force or that may be hereafter enacted or promulgated.
ARTICLE IX - IMPROVEMENTS BY TENANT
9.1 Tenant shall not make or allow to be made an alterations,
installations, additions or improvement in or to the Leased Premises, or place
heavy furniture or equipment within the Leased Premises, without Landlord prior
written consent, which consent shall not be unreasonably withheld or delayed.
Any such alterations, additions or improvements to the Leased Premises shall be
governed by the following terms:
(a) No such alteration, addition or improvement shall lessen the fair
market value of the Leased Premises or the Building and all such
improvements are performed in class and quality at least equal to the
original construction work;
(b) All work for any such alteration, addition or improvement shall be
performed by a contractor approved by Landlord prior to the
commencement of the work, and Landlord shall approve the construction
contract which shall be between the Tenant and the approved contractor;
(c) Prior to the commencement of work on any such alteration, addition
or improvement, Tenant shall procure, at its own cost and expense, all
necessary permits; furthermore, the plans and specifications covering
the same will have been submitted to and approved by (I) Landlord,
(ii) all municipal or other governmental departments or agencies
having jurisdiction over the subject matter thereof, and (iii) any
mortgagee having an interest in or lien upon the Leased Premises or
the Building if required by the terms of the mortgage, it being
understood that Landlord will not unreasonably refuse to join in any
application to any such mortgagee or governmental agency to obtain
such approval with respect to any reasonable alteration, addition or
improvement;
(d) In carrying out all such alterations, additions and improvements,
Tenant shall comply with the standards, guidelines and specifications
imposed by all municipal or other governmental departments and
agencies having jurisdiction over the same, including without
limitation, all building codes;
(e) Prior to the commencement of work on any such alteration, addition
or improvements, Tenant shall have procured and delivered to Landlord
the policy of Builder's Risk insurance hereinafter referred to in
Section 21.2 hereof or additional fire and extended coverage insurance
as required by Section 21.3 hereof, whichever is applicable;
(f) All work shall be completed promptly and in a good and workman
like manner and shall be performed in such a manner that no mechanics,
materialmens or other similar liens shall attach to Tenant's leasehold
estate, and in no event shall Tenant permit, or be authorized to
permit, any such liens or other claims to be asserted against Landlord
or Landlord's rights, estate and interest with respect to the
<PAGE> 8
Leased Premises or the Building; and at the completion of all work
Tenant shall obtain waivers of mechanics and materialmens liens from
all persons performing work on or on furnished material to the Leased
Premises; and
(g) Any such alteration, addition or improvement made by Tenant
pursuant to the terms hereof shall, at the expiration of the term
hereof become and remain the property of Landlord, provided, however,
that Landlord may, at its option and upon notice to Tenant not less
than ninety (90) days prior to such expiration, require Tenant to
remove any such alterations, additions, and improvements and to
restore the Leased Premises to their condition as at the beginning of
the term hereof, reasonable wear and tear, taking by eminent domain
and damage due to fire or other casualty insured against excepted.
ARTICLE X - MACHINERY AND EQUIPMENT - TRADE FIXTURES
10.1 All alterations, installations, additions or improvements, other
than moveable furniture and moveable trade fixtures, made by Tenant to the
Leased Premises shall remain upon and be surrendered with the Leased Premises
and become the property of Landlord at the expiration or termination of this
Lease or the termination of Tenant's right to possession of the Leased Premises;
provided, however, that Landlord may require Tenant, at Tenants cost, to remove
any and all of such items that are not building standard within ten (10) days
following the expiration or termination of this Lease, or the termination of
Tenant's right to possession of the Leased Premises. Tenant, at it's sole cost
and within ten (10) days following the expiration or termination of this Lease,
shall remove all of Tenant's property from the Leased Premises. Any such
property which may be removed pursuant to the preceding sentence and which is
not so removed prior to the expiration or earlier termination of this Lease may
be removed from the Leased Premises by Landlord and stored for the account of
Tenant; and if Tenant fails to reclaim such property within thirty (30) days
following such expiration or earlier termination of this Lease, then such
property will be deemed to have been abandoned by Tenant, and may be
appropriated, sold, destroyed or otherwise disposed of by Landlord without
notice to Tenant and without obligation to account therefor. Tenant shall pay to
Landlord the cost incurred by Landlord in moving, storing, selling, destroying
or otherwise disposing of any such property.
ARTICLE XI - UTILITIES
11.1 The electricity servicing the Leased Premises is not currently
separately metered. At Landlord's option, Tenant shall:
(a) Reimburse Landlord for electricity usage pursuant to an agreement
based upon Tenant's power usage at its former facility; or
(b) Landlord will submeter Tenant's electric usage, in which event
Tenant will reimburse Landlord based on its actual usage; or
(c) Landlord will install a separately metered electric service to the
Leased Premises, and Tenant shall pay for its usage directly to Public Service
Company of New Hampshire.
11.2 Subject to the provisions of 11.1 above, if the following
utilities are separately provided to the Leased Premises, Tenant shall make
arrangements for and pay when due all charges for gas, oil, electricity, water,
light, heat, air conditioning, sewer, power, telephone and any other services
used on or about or supplied to the Leased Premises and shall indemnify Landlord
against any liability on such account. Landlord shall not be liable for any
failure of water supply or electric current or of any service by any utility; or
injury to persons (including death) or damage to property resulting from steam,
gas, electricity, water, rain or snow which may flow or leak from any part of
the Leased Premises or from any pipes, appliances or plumbing works, on the
street or subsurface, or from any other place; or for interference with light or
other easements, however caused.
11.3 Tenant shall, at its sole cost and expense, maintain, repair,
change and improve the water, sewer, electric and other utility systems which
are located within the Leased Premises. Any work performed by Tenant under this
Section 11.2 shall be governed by all of the terms contained in Section 9.1 of
this Lease.
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ARTICLE XII - USE OF LEASED PREMISES
12.1 Without the prior written consent of Landlord, Tenant may use the
Leased Premises only for the purpose related to its water purification equipment
and precision cleaning equipment business with offices on the second floor,
center [Four Thousand Seven Hundred Four (4,704) square feet] and production on
the first floor, south end [Six Thousand Six Hundred Twenty-Five (6,625) square
feet] and for other services and purposes reasonably incident thereto.
12.2 In its use of the Leased Premises, Tenant shall comply with all
statutes, ordinances and regulations applicable to the use thereof, including,
without limiting the generality of the foregoing, the Zoning Ordinances of the
City of Manchester, New Hampshire, as now in effect or as hereafter amended.
12.3 Tenant shall not injure or deface, or commit waste with respect to
the Leased Premises nor occupy or use the Leased Premises, or permit or suffer
any part thereof to be occupied used, for any unlawful or illegal business, use
or purpose, nor for any business, use or purpose deemed to be disreputable or
extra-hazardous, nor in such manner as to constitute a nuisance of any kind, nor
for any purpose nor in any manner in violation of any present or future laws,
rules, requirements, orders, directions, ordinances or regulations of any
governmental or lawful authority including Boards of Fire Underwriters. Tenant
shall, immediately upon the discovery of any such unlawful illegal, disreputable
or extra-hazardous use, take, at its own cost and expense, all necessary steps,
legal and equitable, to compel the discontinuance of such use and to oust and
remove the subtenants, occupants or other persons guilty of such unlawful,
illegal, disreputable or extra-hazardous use.
12.4 Tenant shall procure any licenses or permits required by any use
of the Leased Premises by Tenant.
ARTICLE XIII - HAZARDOUS WASTE OR SUBSTANCES
13.1 Except for the Tenant's use of the Leased Premises as described
and permitted in Article XII above ("Tenant's Use"), Tenant shall not use the
Leased Premises for the generation, storage or treatment of hazardous waste or
substances, and hereby certifies that its operations or other use of the Leased
Premises will not involve same. For purposes of this lease, the term "Hazardous
Waste or Substances" is defined by cumulative reference to the following sources
as amended from time to time: (1) The Resource Conservation and Recovery Act of
1976, 42 USC ~901 et seq (RCRA); (2) Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ~9601 et seq.; (3) Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. ~6901 et seq; (4) CPA
Federal Regulations promulgated thereunder and codified in 40 C.F.R. Parts
260-265 and Parts 122-124; (5) New Hampshire R.S.A. Ch 147 and 147-A; (6) New
Hampshire Regulations promulgated thereunder by any Agency or Department of the
state.
13.2 Tenant agrees not to release or dispose of any Hazardous Waste or
Substances at the Leased Premises, nor to permit the same, at any time other
than in accordance with ordinary business practice and in compliance with
applicable laws, rules, ordinances and regulations. Tenant covenants to strictly
comply with all the requirements of all environmental laws and to immediately
notify Landlord of the presence (except as permitted in conjunction with
Tenant's Use), release, discharge, spill or threat of release, discharge or
spill of any Hazardous Waste or Substance at or from the Leased Premises or any
notice or claim received by it of any violation of any environmental laws.
13.3 Tenant warrants and acknowledges that at no time have funds been
expended from the State of New Hampshire's hazardous waste cleanup fund
established under RSA 147-B with respect to any of Tenant's property located
within New Hampshire which would entitle the State to also called superlien
under RSA 147-B: 10 III. Tenant also acknowledges same with respect to similar
laws of any other state which liens might possibly affect the Leased Premises.
The warranty of this section will survive the expiration or termination of this
Lease.
<PAGE> 10
13.4 To the fullest extent permissible according to law, and without
limiting other rights or remedies of Landlord, Tenant unconditionally,
absolutely and irrevocably agrees to defend, hold harmless and indemnify
Landlord and the holder of a mortgage lien on the Building (the "Mortgagee") and
their officers, employees, agents and contractors (the "Indemnified Parties")
against all damages, claims, costs, losses, liabilities and expenses, including
attorney's fees and expenses, suffered or incurred by the Indemnified Parties
due to the existence at any time of any Hazardous Waste or Substances (except as
permitted in conjunction with Tenant's Use) at the Leased Premises or the
Building, or by any other person for whose conduct Tenant is responsible,
including without limitation, any claims, costs, losses, liabilities and
expenses arising from the violation of any environmental laws or the imposition
by any local, state or federal government or governmental agency, department or
authority of a lien, attachment or other encumbrance on any part of the
Building. The foregoing indemnification shall survive the expiration or the
termination of this Lease.
13.5 If the presence or release of Hazardous Waste or Substances at or
from the Leased Premises or the Building has resulted in contamination of any
portion of the Leased Premises or the Building resulting in a level of
contamination greater than the levels permitted or established by any
governmental agency having jurisdiction, then Tenant shall promptly take any and
all action necessary to clean up such contamination to the extent required by
any governmental authority having jurisdiction or as a condition to the issuance
or continuing effectiveness of any governmental approval or any insurance policy
that relates to the Building or the use thereof. Tenant shall further be solely
responsible for, and shall defend, indemnify and hold the Indemnified Parties
harmless from and against all damages, claims, costs, losses, liabilities and
expenses, including attorney's fees and expenses, of whatever nature, on account
of, arising out of or in connection with any removal, clean up or restoration
work which is required to return the Leased Premises or the Building and any
other affected property of whatever nature to their condition existing prior to
the presence or release of the Hazardous Waste or Substances.
13.6 Landlord has no knowledge of the existence of any Hazardous Waste
or Substance in the Leased Premises. To the fullest extent permissible according
to law, and without limiting other rights or remedies of Tenant, Landlord
unconditionally, absolutely and irrevocably agrees to defend, hold harmless and
indemnify Tenant and its officers, employees, agents and contractors (the
"Indemnified Parties") against all damages, claims, costs, losses, liabilities
and expenses, including attorney's fees and expenses, suffered or incurred by
the Indemnified Parties due to the existence of any Hazardous Waste or
Substances at the Leased Premises prior to the term of this lease, in the
remaining portion of the Building arising solely out activities by Landlord, of
any Hazardous Waste or Substances, including without limitation, any claims,
costs, losses, liabilities and expenses arising from the violation of any
environmental laws or the imposition by any local, state or federal government
or governmental agency, department or authority of a lien, attachment or other
encumbrance on any part of the Building. The foregoing indemnification shall
survive the expiration or the termination of this Lease.
13.7 If, as the result of the activities of Landlord, the presence or
release of Hazardous Waste or Substances at or from the Leased Premises or the
Building has resulted in contamination of any portion of the Leased Premises or
the Building resulting in a level of contamination greater than the levels
permitted or established by any governmental agency having jurisdiction, then
Landlord shall promptly take any and all action necessary to clean up such
contamination to the extent required by any governmental authority having
jurisdiction or as a condition to the issuance or continuing effectiveness of
any governmental approval or any insurance policy that relates to the Building
or the use thereof.
ARTICLE XIV - ASSIGNMENT; SUBLEASING
14.1 Tenant shall not, voluntarily, by operation of law, or otherwise,
assign, transfer, mortgage, pledge or encumber this Lease or sublease the Leased
Premises or any part thereof, or grant a right to any person other than Tenant,
its employees, agents, servants and invitees to occupy or use the Leased
Premises or any portion thereof, without the express prior written consent of
Landlord. Any attempt to do any of the foregoing without such written consent
shall be null and void and of no affect, and shall further constitute a material
default under this Lease. If Tenant so requests Landlord's consent, said request
shall be in writing specifying the duration of said desired sublease or
assignment, the date same is to occur, the exact location of the space affected
thereby and the proposed rentals on a square foot basis chargeable thereunder,
and shall be submitted to Landlord at least sixty (60) days in
<PAGE> 11
advance of the date on which Tenant desires to make such assignment or sublease
or allow such occupancy or use. Upon such request, Landlord may, in its sole
discretion, (i) deny such consent, or (ii) grant such consent subject to
Landlord's approval of the assignee, transferee, subtenant or mortgagee, or
(iii) elect to terminate this Lease, or (iv) suspend this Lease as to the space
to be affected by such assignment, sublease or other event specified above for
the duration specified by Tenant in its notice, in which event Tenant will be
relieved of all obligations hereunder as to such space during such suspension,
including a suspension of the rent hereunder in proportion to the portion of the
Leased Premises affected thereby (but after said suspension, if the suspension
is not for the full term hereof, Tenant shall once again become liable hereunder
as to the applicable space).
14.2 Tenant shall, despite any permitted assignment or sublease, remain
directly and primarily liable for the performance of all of the covenants,
duties and obligations of Tenant hereunder, and Landlord shall be permitted to
enforce the provisions of this Lease against Tenant or any assignee: or
sublessee without demand upon or proceeding in any way against any other person.
14.3 Consent by Landlord to a particular assignment or sublease shall
not be deemed a consent to any other subsequent transaction. If this Lease is
assigned or if the Leased Premises are subleased without the permission of
Landlord, then Landlord may nevertheless collect rent from the assignee or
sublessee and apply the net amount collected to the rent payable hereunder, but
no such transaction or collection of rent or application thereof by Landlord
shall be deemed a waiver of any provision hereof or a release of Tenant from the
performance of the obligations of the Tenant hereunder.
14.4 All cash or other proceeds of any assignment, sale or sublease of
Tenant's interest in this Lease, whether consented to by Landlord or not, shall
be paid to Landlord notwithstanding the fact that such proceeds exceed the rent
called for hereunder, and Tenant hereby assigns to Landlord all rights it might
have or ever acquire in such proceeds.
ARTICLE XV - TAXES AND ASSESSMENTS
15.1 Beginning in Lease Year 2, Tenant shall pay, in addition to Base
Rent and other charges, an amount equal to Tenant's Proportionate Share of the
increase in "Real Estate Taxes" (hereinafter defined) from the amount of Real
Estate Taxes for the 1995 tax year and levies and charges and governmental
impositions, duties and charges of like kind and nature which are or may during
the term of this Lease be charged, laid, levied or imposed upon or become a lien
or liens upon the Building or any part thereof, or upon any buildings or
appurtenances thereto or any parts thereof, or which may become due and payable
with respect thereto and any and all taxes charged, laid or levied in addition
to the foregoing under or by virtue of any present or future laws, requirements,
rules, orders, directions, ordinances or regulations of the United States of
America, the State of New Hampshire, County of Hillsborough, City of Manchester
government, or of any other municipal government or lawful authority whatsoever.
All such duties and charges, including Real Estate Taxes, are referred to herein
as "Taxes". Tenant's Proportionate Share of Real Estate Taxes for Lease Year 1
is calculated to be $4,764 per year, which amount is included in the Base Rent
stated in Article TV.
15.2 "Real Estate Taxes" means all real estate taxes, sewer taxes, and
any other charges made by a public authority which upon assessment or failure of
payment become a lien or liens upon the Building or any part thereof, or upon
any buildings or appurtenances thereto, or any parts thereof, or which may
become due and payable with respect thereto. If any betterment assessments are
payable by law in installments, said betterment assessments are deemed payable
not for the period in which the same are assessed but in installments for the
periods in which the installments thereof are payable. Peal estate taxes shall
not include any franchise, estate, inheritance, succession, capital levy or
transfer tax of Landlord or any income tax of Landlord.
15.3 Beginning in Lease Year 2, Tenant shall pay to Landlord along with
each installment of rent, an amount equal to one-twelfth (1/12th) of Tenant's
Proportionate Share of the increase of the Taxes from the 1995 tax year for the
current tax year, if the amount thereof is known, or of an estimate of said
increase, if the amount thereof for the current tax year is not known. Upon
receipt by Landlord of the final tax bill for any tax year during the term of
this Lease, Landlord shall give Tenant notice of the total amount of said
increase in Taxes paid by
<PAGE> 12
landlord for such tax year. If the actual amount of Tenant's Proportionate Share
of said increase in Taxes with respect to such tax year exceeds the aggregate
amount previously paid by Tenant, Tenant shall pay to Landlord the deficiency
within fifteen (15) days following notice from Landlord. If the aggregate amount
previously paid by Tenant with respect thereto exceeds Tenant's Proportionate
Share of said increase in Taxes for such tax year, then, at Landlord's election,
such surplus (net of any amounts then owing by Tenant to Landlord) shall be
credited against the next ensuing installment of any such cost due hereunder by
Tenant. Periodically, during the Term of this Lease, Landlord shall have the
right to estimate Tenant's Proportionate Share of said increase in Taxes for the
next tax year (determined by Landlord) of the term of this Lease, whereupon
Tenant shall pay Landlord such revised amount as set forth in the first sentence
of this Section 15.3.
15.4 Tenant shall also punctually pay and discharge all taxes which are
or may during the term of this Lease be charged, laid, levied or imposed upon or
become a lien upon any personal property of Tenant attached to or used in
connection with Tenant's business conducted on the Leased Premises which
personal property constitutes a fixture. Nothing herein contained requires
Tenant to pay any taxes on the rent reserved to Landlord hereunder.
15.5 Landlord, at its option, may, but shall not be obligated to,
contest or review by any appropriate proceedings, and at Landlord's expense, any
tax, charge or other governmental imposition aforementioned which shall not be
contested or reviewed as aforesaid by Tenant, and Tenant shall promptly join
with Landlord in such contest or review if Landlord so requests. Any abatement
in such taxes shall be reflected in the amount of taxes to be paid by Tenant the
following year pursuant to this Article XV.
ARTICLE XVI - MECHANIC'S LIEN
16.1 In the event of the filing in the Hillsborough County Registry of
Deeds of any notice of a builder's, supplier's or mechanic's lien on the Leased
Premises or the Building arising out of any work performed by or on behalf of
Tenant (excluding any work performed by Landlord), Tenant shall cause without
delay proper proceedings to be instituted to test the validity of die lien
claimed, and before the end of the term to discharge the same by the posting of
bond or otherwise; and during the pendency of any such proceeding, Tenant shall
completely defend and indemnify Landlord against any such claim or lien and all
costs of such proceedings wherein the validity of such lien is contested by
Tenant, and during the pendency of such proceeding such lien may continue until
disposition of such proceeding, and after disposition thereof, Tenant shall
cause said lien to be released and discharged.
ARTICLE XVII - EMINENT DOMAIN
17.1 If the Leased Premises is lawfully condemned or taken by any
public authority either in its entirety or in such proportion that it is no
longer suitable for the intended use by Tenant, then this Lease will
automatically terminate without further act of either party hereto on the date
when possession of the Leased Premises is taken by such public authority, and
each party hereto will be relieved of any further obligation to the other except
that Tenant shall be liable for and shall promptly pay to Landlord any rent or
other payments due hereunder then in arrears or Landlord shall promptly rebate
to Tenant a pro rata portion of any rent or other such payments paid in advance.
In the event the proportion of the Leased Premises so condemned or taken is such
that the Leased Premises is still suitable for its intended use by Tenant, this
Lease will continue in effect in accordance with its terms and a portion of the
rent and other payments due hereunder will abate equal to the proportion of the
rental value of the Leased Premises so condemned or taken. In either of the
above events, the award for the property so condemned or taken will be payable
solely to Landlord without apportionment to Tenant, except that Tenant shall be
entitled to a separate award, if any, for moving expenses.
ARTICLE XVIII - LIABILITY
18.1 Except for injury or damage caused by the gross negligence or
willful misconduct of Landlord, its servants or agents, Landlord shall not be
liable for any injury or damage to any person happening on or about the Leased
Premises or the Building or for any injury or damage to the Leased Premises or
to any property of Tenant or to any property of any third person, firm,
association, or corporation on or about the Leased Premises or the
<PAGE> 13
Building. Tenant shall, except for injury or damage caused as aforesaid, defend
(with counsel reasonably acceptable to Landlord), indemnify and hold Landlord
harmless from and against any and all liability and damages, costs and expenses,
including reasonable attorneys' fees, and from and against any and all suits,
claims and demands of any kind or nature whatsoever, by and on behalf of any
person, firm, association or corporation arising out of or based upon any
incident, occurrence, injury or damage which happens or may happen on or about
the Leased Premises and from and against any matter or thing growing out of the
condition, maintenance, repair, alteration, use, occupation or operation of the
Leased Premises or the installation of any property therein or the removal of
any property therefrom.
ARTICLE XIX - RULES AND REGULATIONS
19.1 Tenant, its servants, employees, agents, visitors, invitees, and
licensees, shall observe faithfully and comply strictly with the Rules and
Regulations set forth in Exhibit C hereto, and shall abide by and conform to
such further rules and regulations as Landlord may from time to time reasonably
make, amend or adopt, after Tenant receives a copy thereof.
ARTICLE XX - LANDLORD'S INSURANCE
20.1 In the event of loss, Landlord shall promptly initiate action to
effect a settlement with the insurer. Tenant shall cooperate with Landlord and
any mortgagee in connection with the proceeding and collection of claims, and
shall execute and deliver to Landlord such proofs of loss, releases and other
instruments as may be necessary to settle any such claims and obtain the
proceeds thereof, and in the event Tenant fails or neglects to so cooperate or
to execute and deliver any such instrument, Landlord may, as the agent or
attorney in fact of Tenant, execute and deliver any such instrument, and Tenant
hereby nominates and appoints Landlord the proper and legal attorney in fact of
Tenant for such purpose, hereby ratifying all that Landlord may lawfully do as
such attorney in fact.
20.2 If and to the extent permitted without prejudice to any rights of
Landlord under the applicable insurance policies, Tenant shall be held free and
harmless from liability for loss or damage to the Leased Premises by fire, the
extended coverage perils, sprinkler leakage, vandalism and malicious mischief if
and to the extent actually insured against, whether or not such loss or damage
is the result of the negligence of Tenant, its employees or agents. This
subsection does not impose any added obligation or expense upon Landlord nor
require that it carry any insurance of any kind and is to be construed only as a
limitation upon the rights of the insurance carriers to subrogation.
ARTICLE XXI - TENANT'S INSURANCE
21.1 Tenant shall, from the Delivery of Possession of the Leased
Premises, even if such date precedes the commencement of the term hereof, and
throughout the term hereof procure and carry at its own expense comprehensive
liability insurance on the Leased Premises with an insurance company authorized
to do business in New Hampshire and acceptable to Landlord. Such insurance will
be carried in the name of and for the benefit of Tenant and Landlord ; will be
written on an "occurrence" basis; and shall provide coverage of at least One
Million Dollars ($1,000,000) in case of death of or injury to one person, Three
Million Dollars ($3,000,000) in case of death of or injury to more than one
person in the same occurrence, and One Million Dollars (S1,000,000) in case of
loss, destruction or damage to property. If applicable, Tenant shall comply with
the requirements of the Boilers and Unfired Pressure Vessels Law (RSA 157-A),
and in such event the policy or policies referred to above shall contain an
endorsement providing pressure vessels insurance coverage and naming Landlord as
an additional insured. Tenant shall furnish to Landlord a certificate of such
insurance which must provide that the insurance indicated therein will not be
canceled without at least ten (10) days written notice to Landlord.
21.2 During any period or periods of construction by Tenant on the
Leased Premises, the construction of which (a) is of a type to which Builder's
Risk Insurance is applicable and (b)requires the-advance written approval of
Landlord pursuant to Article M hereof, Tenant shall obtain and maintain in
effect standard Builder's Risk Insurance written on a completed value basis,
including extended coverage, and utilizing a maximum value at
<PAGE> 14
date of completion not less than the greater of (y) the aggregate contract price
or prices for the construction of such facilities or (z) the amount which may be
required by a mortgagee which is financing such construction. Such insurance
shall be obtained from an insurance company authorized to do business in New
Hampshire and acceptable to Landlord, and Lessee shall furnish to Landlord a
certificate of such insurance which shall provide that the insurance indicated
therein shall not be canceled without at least ten (10) days written notice to
Landlord. If such construction by Tenant is of a type to which Builder's Risk
Insurance is not applicable, Tenant shall provide the necessary additional
coverage under the policies referred to in this ARTICLE XXI.
21.3 Tenant shall procure and continue in force during the term hereof,
all-risk insurance which contains fire and extended coverage on a full value,
repair or replacement basis upon facilities, machinery, equipment and
appurtenances constructed, erected or installed on or in the Leased Premises by
Tenant and which have or: may become the property of Landlord pursuant hereto.
The policies evidencing such insurance must provide that loss, if any, payable
thereunder will be payable to Landlord and/or Tenant and/or mortgagee of the
Leased Premises or the Building as their respective interests may appear, and
all such policies together with evidence of payment of the premiums thereon will
be delivered to Landlord and/or any such mortgagee. All such policies must be
taken in such responsible companies authorized to do business in New Hampshire
as Landlord shall approve (which approval shall not be unreasonably withheld)
and must be in form satisfactory to Landlord. Upon receipt of a copy of notice
of cancellation of any insurance which is the responsibility of Tenant
hereunder, Landlord may pay the premiums necessary to reinstate the same. The
amount so paid will constitute Additional Rent payable by Tenant at the next
rental payment date. Payment of premiums by Landlord will not be deemed a waiver
or release by Landlord of the default by Tenant in failing to pay the same or of
any action which Landlord may take hereunder as a result of such default. Tenant
shall neither violate, nor allow its agents or employees to violate any of the
terms, conditions and provisions of such policies.
21.4 If and to the extent permitted without prejudice to any rights of
Tenant under the applicable insurance policies, Landlord shall be held free and
harmless from liability for loss or damage to personal property of Tenant in the
Leased Premises by fire, the extended coverage perils, sprinkler leakage,
vandalism and malicious mischief if and to the extent actually insured against,
whether or not such loss or damage is the result of the negligence of Landlord,
its employees or agents. This subsection does not impose any added obligation or
expense upon Tenant nor require that it carry any insurance of any kind and is
to be construed only as a limitation upon the rights of the insurance carriers
to subrogation.
ARTICLE XXII - DESTRUCTION OR DAMAGE
22.1 In the event that the Leased Premises, as it exists at the
beginning of the term hereof, is totally destroyed by fire or other casualty
insured against, or is so damaged that repairs and restoration cannot, in the
opinion of Landlord in its sole discretion, be accomplished within a period of
one hundred twenty (120) days from the date of such destruction or damage, this
Lease will automatically terminate without further act of either party hereto,
and each party shall be relieved of any further obligation to the other except
for the rights and obligations of the parties under ARTICLES XX and XXI hereof,
and except that Tenant shall be liable for and shall promptly pay Landlord any
Rent then in arrears or Landlord shall promptly rebate to Tenant a pro rata
portion of any Rent paid in advance. In the event that the Leased Premises is so
damaged that repairs and restoration can be accomplished within a period of one
hundred twenty (120) days from the date of such destruction or damage, this
Lease will continue in effect in accordance with its terms; such repairs and
restoration will, unless otherwise agreed by Landlord and Tenant, be performed
as closely as practicable to the original specifications (utilizing therefor the
proceeds of the insurance applicable thereto without any apportionment thereof
for damages to the leasehold interest created by this Lease), and until such
repairs and restoration have been accomplished, a portion of the rent will abate
equal to the proportion of the Leased Premises rendered unusable by the damage.
Landlord's obligation to restore, replace or rebuild such facilities will not
exceed in amount the sum of the insurance proceeds paid to it and/or released to
it by any mortgagee with which settlement was made. In the event the Leased
Premises may be repaired and/or restored within the aforementioned one hundred
twenty (120) day period, but the cost of such repair or restoration exceeds the
available insurance proceeds, at Landlord's discretion, this Lease will be
terminated in which event the rights and duties of the parties shall be governed
by the first sentence of this Section 22.1. Tenant shall execute and deliver to
Landlord all instruments and documents necessary to evidence the fact
<PAGE> 15
that the right to such insurance proceeds is vested in Landlord. In the event of
damage or destruction, partial or total, to or of machinery, equipment and
appurtenances constructed or installed on or in the Leased Premises by Tenant,
Tenant, provided it then be in full compliance with ARTICLE XXI hereof, will be
entitled to receive an apportionment of the insurance proceeds in accordance
with the relative damage or destruction to or of (a) the Leased Premises as it
exists at the beginning of the term hereof and (b) the machinery, equipment and
appurtenances, if any, constructed or installed on or in the Leased Premises by
Tenant at its expense after the beginning of the term hereof and which could
have been removed by Tenant pursuant to ARTICLE X hereof. Notwithstanding
anything contained herein to the contrary, in the event that the damage to the
Leased Premises results from the fault or negligence of Tenant, its agents,
employees, licensees or invitees, Tenant shall not be entitled to any abatement
or reduction of any rent or other sums due hereunder, and such damage shall be
repaired by Tenant, or at Landlord's option by Landlord at Tenant's expense.
ARTICLE XXIII - REPOSSESSION BY LANDLORD
23.1 At the expiration of this Lease or upon the earlier termination of
this Lease for any cause herein provided for, Tenant shall peaceably and quietly
quit the Leased Premises and deliver possession of the same to Landlord together
with the improvements thereon at the beginning of the term hereof and all
improvements constructed thereon by Tenant which are not removed pursuant to the
terms hereof, and all machinery, equipment and appurtenances installed therein
which have become part of the Leased Premises, or which are not to be removed
pursuant to ARTICLE X hereof. At the time of delivery of possession to Landlord
at the expiration of this Lease any and all machinery, equipment and
appurtenances constructed or installed on or in the Leased Premises by Tenant at
its expense after the beginning of the term hereof, which constitute fixtures
and which have become the property of Landlord pursuant to ARTICLE X hereof will
be free and clear of any mortgage, lien, pledge or other encumbrance or charge.
Landlord acknowledges that Tenant intends to install the equipment listed on
Exhibit D hereto and further acknowledges that said equipment shall remain the
sole property of Tenant and shall not become fixtures. Tenant shall have the
absolute right to remove the equipment listed on Exhibit D.
ARTICLE XXIV - MORTGAGE LIEN
24.1 This Lease and all rights of Tenant hereunder are and will remain
subject and subordinate to the lien of (a) any mortgage(s) constituting a lien
on the Building, or any part thereof, at the date hereof, and b) the lien of any
mortgage(s) hereafter executed to a person, bank, trust company, insurance
company or other recognized lending institution to provide permanent financing
or refinancing of the facilities on the Building, and (c) any renewal,
modification, consolidation or extension of any mortgage or deed of trust
referred to in clause (a) or b). Tenant shall, upon demand at any time or times,
execute, acknowledge and deliver to Landlord, any and all instruments that may
be necessary or proper to subordinate this Lease and all rights of Tenant here
under to the lien of any mortgage, deed of trust or other instrument referred to
in clause (b) or clause (c) of the preceding sentence, and, in the event that
Tenant shall fail or neglect to execute, acknowledge and deliver any such
subordination instrument notwithstanding its receipt of a reasonable
subordination, nondisturbance and attornment agreement (see below) from said
mortgagee, Landlord, in addition to any other remedies, may, as the agent or
attorney-in-fact of Tenant, execute acknowledge and deliver the same, and Tenant
hereby nominates, constitutes and appoints Landlord as Tenant's proper legal
attorney-in-fact for such purposes; provided, however, that the subordination of
this Lease shall be conditioned upon the execution and delivery by the mortgagee
or trustee of an agreement (i) that so long as Tenant is not in default under
the terms of this Lease the mortgagee or trustee, or any person succeeding to
the rights of the mortgagee or trustee, or any purchaser at a foreclosure sale
under said mortgage or deed of trust, shall not disturb the peaceful possession
of Tenant hereunder, and (ii) that the proceeds of insurance policies received
by it in settlement of losses under insurance policies held by it will be
applied to the cost of repairs and restoration in those instances in which
Landlord is obligated to repair and restore pursuant to the provisions hereof.
24.2 Tenant shall execute and acknowledge a certificate containing such
information as may be reasonably requested for the benefit of Landlord, any
prospective purchaser or any current or prospective mortgagee of the Building
within ten (10) days of receipt of same. In the event Tenant fails to deliver
such certificate to Landlord, Tenant irrevocably appoints Landlord as Tenant's
attorney-in-fact to execute the same.
<PAGE> 16
ARTICLE XXV - DEFAULT
25.1 In the event that (a) any installment of Rent or Additional Rent
is not paid within ten (10) days after the same is due and payable, or b) Tenant
defaults in the performance or observance of any other covenant or condition in
this Lease and such default remains unremedied for ten (10) days after written
notice thereof has been given or sent to Tenant by Landlord, or (c) any warranty
or representation made by Tenant herein proves to be false or misleading, or (d)
Tenant makes an assignment for the benefit of creditors, is generally not paying
its debts as such debts become due, a custodian is appointee or takes possession
of its assets other than a trustee, receiver or agent appointed or authorized to
take charge of less than substantially all of the property of Tenant for the
purpose of enforcing a lien against such property, commences any proceeding
relating to Tenant or any substantial part of its property arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction whether now or hereafter in effect, or there is commenced against
Tenant any such proceeding which remains undismissed for a period of sixty (60)
days, or any order approving the petition in any such proceeding is entered, or
Tenant by any act indicates its consent to, or acquiescence in, any such
proceeding or the appointment of any receiver or trustee for Tenant or any
substantial part of its property, or suffers any such receivership or
trusteeship to continue undischarged for a period of sixty (60) days, or any
party holding a security interest in any of Tenant's fixtures or personal
property of any nature whatsoever that are located on the Leased Premises
institutes or gives notice of foreclosure against any such property, or (e)
Tenant shall have assigned or sublet the Leased Premises without the prior
written consent of Landlord, or (f) Tenant shall abandon or vacate or shall
commence to abandon or vacate the Leased Premises or any substantial portion of
the Leased Premises or shall remove or attempt to remove, without the prior
written consent of Landlord, all or a substantial portion of Tenant's goods,
wares, equipment, fixtures, furniture, or other personal property, or (g) the
dissolution of Tenant, in any of such events, Landlord may immediately or at any
time thereafter and without demand or notice enter upon the Leased Premises or
any part thereof in the name of the whole and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove their effects forcibly if necessary, without being deemed
guilty in any manner of trespass and without prejudice to any remedies which
might otherwise be used for arrears of rent or preceding breach of covenant, and
upon such entry this Lease will terminate, and in case of such termination or in
case of termination under the provisions of statute by reason of the default of
Tenant, Tenant shall remain and continue liable to Landlord in an amount equal
to the total Rent reserved for the balance of the term plus all additional Rent
reserved for the balance of such term less the net amounts (after deducting the
expenses of repair, renovation or demolition) which Landlord realizes, or with
due diligence should have realized, from the reletting of the Leased Premises,
plus all costs associated with the termination of the Lease, including
Landlord's reasonable attorneys' fees. As used in this Section, the term
"Additional Rent" means the value of all considerations other than Base Rent
agreed to be paid or performed by Tenant hereunder, including, without limiting
the generality of the foregoing, taxes, assessments, maintenance charges, and
insurance premiums. Landlord will have the right from time to time to relet the
Leased Premises upon such terms as it deems fit, and if a sufficient sum is not
thus realized to yield the net rent required under this Lease, Tenant shall
satisfy and pay all deficiencies as they may become due during each month of the
remaining term of this Lease. Nothing herein contained will be deemed to require
Landlord to await the date on which this Lease, or the term hereof, would have
expired had there been no default by Tenant, or no such termination or
cancellation. Landlord's rights and remedies under this Lease are distinct,
separate and cumulative remedies, and no one of them, whether or not exercised
by Landlord, will be deemed to be in exclusion of any of the others herein or by
law or equity provided. Nothing contained in this Section will limit or
prejudice the right of Landlord to prove and obtain, in proceedings involving
the bankruptcy or insolvency) of, or a composition with creditors by, Tenant the
maximum allowed by any statute or rule of law at the time in effect.
ARTICLE XXVI - ACCESS TO LEASED PREMISES
26.1 Landlord of its representatives shall have free access to the
Leased Premises at all times in cases of emergency and at reasonable intervals
during normal business hours for the purpose of inspection, or for the purpose
of showing the Leased Premises to prospective purchasers or tenants, or for the
purpose of making repairs which Tenant is obligated to make hereunder but has
failed or refused to make; provided, that (with the exception of emergency
situations), Landlord shall not unreasonably interfere with Tenant's business.
The preceding sentence
<PAGE> 17
does not impose upon Landlord any obligation to make repairs. During the ninety
(90) day period preceding the expiration of this Lease, Landlord may keep
affixed to any suitable part of the outside of the building on the Leased
Premises a notice that the Leased Premises is for sale or rent.
ARTICLE XXVII - NOTICES
27.1 Any written notice, request or demand required or permitted by
this Lease will, until either party notifies the other in writing of a different
address, be properly given if hand delivered or sent by certified or registered
first class mail, postage prepaid, and addressed as follows:
If to Landlord: Mr. John C. Madden
Five-Forty North Associates
c/o JCM Management Company, Inc.
540 North Commercial Street
Manchester, NH 03101
With a copy to: Karen S. McGinley, Esq.
Devine, Millimet & Branch, P.A.
111 Amherst Street, P.O. Box 719
Manchester, NH 03105-0719
If to Tenant: Mr. James J. Andrus
Kyzen Corporation
13 Hampshire Drive
Hudson, NH 03051
With a copy to: Mr. Ben Wolfley
Kyzen Corporation
430 Harding Industrial Drive
Nashville, TN 37211
ARTICLE XXVIII - SIGNS; EXTERIOR APPEARANCE; PYLON
28.1 Tenant shall not, without Landlord's prior written consent,
install any exterior lighting, decorations, paintings, or the like; or erect or
install any signs, banners, window or door lettering, placards, decorations or
advertising media of any type that can be viewed from the exterior of the Leased
Premises. Tenant may install a sign on the outside of the building to identify
its business and logo in a style and coloring consistent with the other Tenant
signs and shall be no larger than ten inches by thirty-six inches (10" X 36").
All signs, banners, lettering, placards, decorations and advertising media shall
conform in all respects to the requirements, if any, of all applicable laws,
codes and ordinances and to the sign criteria established by Landlord for the
Building from time to time in the exercise of its sole discretion, and shall be
subject to the prior written approval of Landlord as to construction, method of
attachment, size, shape, height, Lighting, color and general appearance. All
signs shall be kept in good condition and in proper operating order at all
times. In the event that Tenant enters into a co-venture with another company,
Tenant shall be permitted to add an additional sign at the building entrance
identifying such party, subject to the conditions set forth in this Section
28.1. Upon the expiration or earlier termination of this Lease, Tenant shall
remove the sign and restore the surface to which the sign was attached to its
original condition at Tenant's expense. In the event Tenant fails to remove the
sign within three (3) days from expiration or earlier termination of this Lease,
the sign shall become the property of Landlord without any credit or
compensation to Tenant, and Landlord may, but is not obligated to, remove and
store or dispose of the sign and Tenant shall be liable to Landlord for all
costs incurred by Landlord in connection therewith. Tenant shall indemnify and
hold Landlord harmless from all loss, damage, cost, expense and liability in
connection with Such removal, storage or disposal.
<PAGE> 18
ARTICLE XXIX - SHORT FORM RECORDING
29.1 If required by the applicable statute, there shall be recorded in
the Hillsborough County Registry of Deeds a Notice of this Lease that complies
in content and form with New Hampshire RSA Section 477:7-a. Landlord and Tenant
shall execute and deliver a Notice of Lease in such form for such purpose. In
the event of termination, cancellation or assignment of this Lease prior to the
expiration of the term hereof, Landlord and Tenant shall execute and deliver, in
recordable form, an instrument setting forth such termination, cancellation or
assignment.
ARTICLE XXX - NO BROKER
30. 1 The parties covenant that no broker was involved in any capacity
in bringing about the relationship evidenced by this Lease, except for Kanteres
Real Estate, Inc., whose fee, if any, is the responsibility of Landlord; and
further agree that if any claim on behalf of any broker or agent is made or
upheld, then the party against or through whom such claim is made shall defend
(with counsel reasonably acceptable to the other party), indemnify and hold the
other harmless against any damages, costs or expenses in any way attributable to
such claim, including without limitation reasonable attorney's fees.
ARTICLE XXXI - WARRANTIES AND REPRESENTATIONS OF TENANT
31.1 Tenant warrants and represents to Landlord that Tenant's entrance
into this Lease does not violate any other contracts, agreements, Leases or any
other arrangements of any nature whatsoever that Tenant has with any third
parties.
31.2 Tenant represents and warrants to Landlord that Tenant (i) is a
corporation duly organized, validly existing under the laws of the state of its
incorporation and in good standing under the laws of the state of its
incorporation and the laws of the State of New Hampshire, (ii) has paid all
franchise and other taxes, if any, required to maintain the corporate existence
of Tenant, and (iii) is not the subject of voluntary or involuntary proceedings
for the forfeiture of the Articles of Incorporation of Tenant for its
dissolution.
ARTICLE XXXII - SUCCESSION
32.1 This Lease is binding upon and will inure to the benefit of the
heirs, executors, administrators, successor and permitted assigns of the parties
hereto.
ARTICLE XXXIII - WAIVER
33.1 Any consent, express or implied, by Landlord to any breach by
Tenant of any covenant or condition of this Lease will not constitute a waiver
by Landlord of any prior or succeeding breach by Tenant of the same or any other
covenant or condition of this Lease. Acceptance by Landlord of rent or other
payment with knowledge of a breach of or default under any condition hereof by
Tenant will not constitute a waiver by Landlord of such breach or default.
ARTICLE XXXIV - GOVERNING LAW
34.1 This Lease will be construed and interpreted in accordance with
the laws of the State of New Hampshire.
ARTICLE XXXV - COUNTERPARTS
35.1 This Lease may be executed in two (2) or more counter-parts, each
of which will be deemed an original and all collectively but one and the same
agreement.
<PAGE> 19
ARTICLE XXXVI - MODIFICATION; ENTIRE AGREEMENT
36.1 This Lease contains and embraces the entire agreement between the
parties hereto and no part of it may be changed, altered, amended, modified,
limited or extended orally or by agreement between the parties unless such
agreement is expressed in writing and signed by Landlord and Tenant or their
respective successors in interest.
ARTICLE XXXVII - SECTION HEADINGS
37.1 The headings at the beginning of each of the Sections in this
Lease are solely for purposes of convenience and identification and are not to
be deemed or construed to be part of this Lease.
ARTICLE XXXIII - SEVERABILITY
38.1 If any term, clause or provision of this Lease is judged to be
invalid and/or unenforceable, the validity and/or enforceability of any other
term, clause or provision in this Lease will not be affected thereby.
IN WITNESS WHEREOF, the parties execute this Lease as of the day and
year first above written.
FIVE-FORTY NORTH ASSOCIATES
("Landlord")
By: /s/ John C. Madden
--------------------------------------
John C. Madden, General Partner
KYZEN CORPORATION
("Tenant")
By: /s/ James J. Andrus
--------------------------------------
James J. Andrus,-Vice President
<PAGE> 1
Exhibit 10.25 Amended Lease Agreement, dated December 30 25, 1997
between Five-Forty North Associates a Partnership and the
Registrant, for Registrant's offices, demonstration
facility, and equipment manufacturing facilities
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement dated as of this 30th day of
December, 1997, by and between FIVE-FORTY NORTH ASSOCIATES, a New Hampshire
limited partnership having a mailing address of 540 North Commercial Street,
Manchester, NH 03101 (hereinafter referred to as the "Landlord"), and KYZEN
CORPORATION, a Utah corporation (hereinafter referred to as the "Tenant").
WHEREAS, Landlord and Tenant are parties to a Lease Agreement dated
Apri1 25, 1995 (the "Lease") under which Landlord leased to Tenant and Tenant
leased from Landlord a portion of the building located on land owned by the
Landlord at 540 North Commercial Street in Manchester, New Hampshire (the
"Building");
WHEREAS, Landlord desires to lease to Tenant and Tenant desired to
vacate the portion of the Leased Premises located on the second floor of the
Building and consolidate its operations into the portion of the Leases Premises
located on the first floor of the Building, and to extend the term of the Lease;
and
WHEREAS, the parties desire to amend the Lease to provide for the terms
and conditions under which the Leased Premises are reduced and the term of the
Lease extended.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. All defined terms, not otherwise defined herein, shall have the
definitions ascribed to them in the Lease.
2. Effective January 1, 1998, Section 1.I of the Lease is amended by
deleting the words "Eleven Thousand Three Hundred Twenty-Nine (11,329)", and
inserting the following in its place: "Six Thousand Six Hundred Twenty-Five
(6,625), all located on the first floor."
3. Effective January 1, 1998, Exhibit A-1 of the Lease is deleted and
the attached Exhibit A-1 is inserted in its place.
4. Section 1.2 of the Lease is deleted in its entirety and the
following inserted in its place:
1.2 Landlord shall perform certain work to the Leased Premises as
described in Exhibit 1.2 attached hereto by approximately January 1,
1998, subject to delays caused by governmental restrictions, strikes,
lockouts, shortages of labor or material, acts of God, war or civil
commotion, fire, unavoidable casualty, inclement weather or cause
beyond the reasonable control of Landlord. The cost of such
improvements shall be paid by Tenant within thirty (30) days following
the receipt by Tenant of an invoice from Landlord after completion of
the work.
5. Section 2.1 of the Lease is amended by adding the following
sentence: "The term of this Lease is extended for a two (2) year period
commencing June 1, 1998 and terminating May 31, 2000."
6. The first sentence of Section 3.1 is amended by adding the following
to the end of the sentence: ", which additional term, if renewed, shall be from
June 1, 2000 until May 31, 2001."
7. Subsection (d) of Section 4.1 is deleted in its entirety and the
following subsections added to Section 4.1:
<PAGE> 2
(d) From February 1, 1998 until May 31, 1999, the annual sum
of Thirty-three Thousand One Hundred Dollars ($33,120),
payable at equal monthly installments of Two Thousand
Seven Hundred Sixty Dollars ($2,760).
(e) From June 1, 1999 until May 3 1, 2000, the annual sum of
Thirty-four Thousand Nine Hundred Twenty Dollars
($34,920), payable in equal monthly installments of Two
Thousand Nine Hundred Ten Dollars ($2,910).
(f) From June 1, 2000 until May 31, 2002 (if the option is
exercised), the annual sum of Thirty-six Thousand Eight
Hundred Forty Dollars ($36,840), payable in equal monthly
installments of Three Thousand Seventy Dollars ($3,070).
8. Section 4. 1 of the Lease is further amended by the addition of the
following paragraph:
"Notwithstanding any other provisions contained in the Lease to the
contrary, the amount stated above for Base Rent, beginning February 1,
1998, shall be inclusive of Tenant's Common Area Maintenance Charge and
Tenant's Proportionate Share of Real Estate Taxes, and all provisions
with regard to payment by Tenant of said amounts in addition to Base
Rent, beginning February 1, 1998 shall be of no further force and
effect.
9. Section 5.1 is amended to delete "Four Thousand Seven Hundred
Twenty-Five Dollars ($4,725)" and inserting the following in its place: "Two
Thousand Seven Hundred Sixty Dollars ($2,760)".
10. The fifth sentence of Section 7. 1 of the Lease is deleted in its
entirety and the following inserted in its place: "Tenant shall be provided
eleven (11) parking spaces, including six (6) parking spaces on site [one (1) in
front and five (5) on riverside] and five (5) parking spaces in the Arms Parking
Lot."
11. Section 12.1 is amended by deleting the following words from the
first sentence: "...with offices on the second floor, [Four Thousand Seven
Hundred Four (4,704) square feet] and production on the first floor, south end
[Six Thousand Six Hundred Twenty-Five (6,625) square feet] ...
12. Exhibit C , Rules and Regulations, of the Lease Agreement is
amended and attached hereto. Tenant, its servants, employees, agents, visitors,
invitees, and licensees, shall observe faithfully and comply strictly with the
revised Rules and Regulations set forth in Exhibit C hereto, and shall abide by
and conform to such further rules and regulations as Landlord may from time to
time reasonably make, amend or adopt, after Tenant receives a copy thereof.
13. Section 27.1 is hereby amended as follows: "If to tenant: Mr. James
J. Andrus" is deleted and replaced with: "Mr. Thomas J. Herrmann, 430 Harding
Industrial Drive, Nashville, TN 37211."
14. Except as amended herein, all terms and conditions of the Lease
remain in full and effect, unless they have previously expired.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Lease Agreement as of the day and year first written above.
FIVE-FORTY NORTH ASSOCIATES
Dated: December 30, 1997
By: /s/ John C. Madden
-------------------------------------
John C. Madden, General Partner
KYZEN CORPORATION
Dated: December 30, 1997
By: /s/ Thomas J. Herrmann
-------------------------------------
Thomas J. Herrmann, Vice President
<PAGE> 1
Exhibit 10.26 Loan Agreement dated March 11. 1996 between Registrant and
First Union National Bank of Tennessee
LOAN AGREEMENT
First Union National Bank of Tennessee
First Union Tower
150 4th Avenue North
Nashville, Tennessee 37219
(Hereinafter referred to as the "Bank")
Kyzen Corporation, a Utah Corporation
430 Harding Industrial Drive
Nashville, Tennessee 37211
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into as of March 11. 1996, by and
between Bank and Borrower, a Corporation organized under the laws of Utah.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Line of Credit - in the principal amount of $500,000.00 which is evidenced by
the promissory Note dated as of March 11, 1996 ("Line of Credit Note"), under
which Borrower may borrow, repay, and reborrow, from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the principal
amount. The loan proceeds are to be used by Borrower solely for providing
working capital. Bank's obligation to advance or readvance under the Line of
Credit Note shall terminate if Borrower is in Default under the Line of Credit
Note.
This Agreement applies to the loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term 'Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation at
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower- As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S,C. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Bonower's financial condition as of the date(s) thereof,
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power. have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantees and, if necessary,
by making appropriate filings with any governmental agency Or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
Of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) On any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Bonower or any
<PAGE> 2
guarantor to any other creditor. ASSET OWNERSHIP. Borrower has goad and
marketable title to all of the properties and assets reflected an the balance
sheets and financial statements supplied Bank by Borrower, and all such
properties and assets are free and clear of mortgages, security deeds, pledges,
liens, charges, and all other encumbrances, except as otherwise disclosed to
Bank by Bonower in writing ("Permitted Liens"). To Bonower's knowledge. no
default has occurred under any Permitted Liens and no claims or interests
adverse to Borrower's present rights in its properties and assets have arisen.
DISCHARGE OF LIENS AND TAXES. Borrower has duly flied, paid and/or discharged
all taxes or other claims which may become a lien on any of its property Or
assets. except to the extent that such items am being appropriately contested in
good faith and an adequate reserve for the payment thereof is being maintained.
SUFFICIENCY OF CAPITAL. Borrower is not, and after consummation of this
Agreement and after giving effect to all indebtedness incurred and liens created
by Borrower in connection with the loan, ;will not be, insolvent within me
meaning of 11 U.S.C. S 101(32). COMPLIANCE WITH LAWS. Borrower is in compliance
In all respects with all federal. state and local laws, rules and regulations
applicable to its properties, operations, business, and finances, including,
without limitation. any federal Or State laws relating to liquor (including 18
U.S.C. 5 3617, et see.) or narcotics [including 21 U.S.C. S 841, et seq.) and/or
any commercial crimes; alt applicable federal, state and local laws and
regulations intended to protect the environment; and the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), it applicable. ORGANIZATION
AND AUTHORITY. Each corporate or limited liability company Borrower and any
guarantor, as applicable, is duly created, validly existing and in good standing
under the laws of the scare of its organization, and has all powers, government
licenses, authorizations, consents and approvals required to operate its
business as now conducted. Each Corporate or limited liability company Borrower
and any guarantor is duly qualified, licensed and in good standing in each
jurisdiction where qualification or licensing is required by the nature of its
business or the character and location of its property, business or customers,
and in which the failure to so qualify or be licensed, as the case may be. in
the aggregate, could have a material adverse effect on the business, financial
position, results of operations, properties or prospects of Borrower or any such
guarantor. NO LITIGATION. There are no pending or threatened suits, claims or
demands against Borrower or any guarantor that have not been disclosed to Bank
by Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement ACCESS TO BOOKS & RECORDS. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents Of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. INSURANCE. Maintain adequate insurance coverage with respect
to Its properties and business against loss Or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability) insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER NOTICES.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice oz lapse of
time or both, may become a Default. written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. (b) Other Notices. promptly notify Bank in writing
of (i) any material adverse change in he financial condition or its business;
(ii) any default under any material agreement, contract or Other instrument to
which it is a patty or by which any of its properties am bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Bonower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least thirty (30) days prior thereto, any
change in Borrower's name or address as shown above, and/or any change in
Bonower's structure. COMPLIANCE WITH OTHER AGREEMENTS. Comply with all terms and
conditions Contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. PAYMENT OF DEBTS. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. REPORTS AND PROXIES. Deliver
<PAGE> 3
to Bank, promptly, a copy of an financial statements, reports, notices, and
proxy statements, sent by Borrower to stockholders, and all regular or periodic
reports required to be filed by Borrower with any governmental agency or
authority. OTHER FINANCIAL INFORMATION. Deliver promptly such other information
regarding the operation, business affairs, and financial condition of Borrower
which Bank may reasonably request. NON-DEFAULT CERTIFICATE FROM BORROWER.
Deliver to Bank. with the Financial Statements required herein, a certificate
signed by Borrower, if Borrower is an individual, or by a principal financial
officer of Borrower warranting that no "Default" 'as specified in the Loan
Documents nor any event which, upon the giving Of notice or lapse of time or
both, would constitute such a Default, has occurred. ESTOPPEL CERTIFICATE.
Furnish, within fifteen days after request: by Bank, a written statement duly
acknowledged of the amount due under the loan and whether offsets Or defenses
exist against the Obligations. Deposit Relationship-Maintain its primary
depository account and cash management account with Bank..
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing. Borrower will not: DEFAULT AN OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the time of performance of any of any obligation to a
third party incurred for money borrowed. JUDGEMENT ENTERED. Permit the entry of
any monetary judgment or the assessment against, the filing of any tax lien
against, or the issuance of any writ of garnishment or attachment against any
property of or debts due Borrower that is not discharged or execution is not
stayed within 30 days of entry. GOVERNMENT INTERVENTION. Permit the assertion or
making of any seizure, vesting or intervention by or under authority of any
government by which the management of Borrower or any guarantor is displaced of
its authority in the conduct of its respective business or such business is
curtailed or materially impaired. PREPAYMENT OF OTHER DEBT. Retire any long-term
debt entered into prior to the date of this Agreement at a date in advance of
its legal obligation to do so. RETIRE OR REPURCHASE CAPITAL STOCK. Retire or
otherwise acquire any of its capital stock. ENCUMBRANCES. Create, assume, or
permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge
or other encumbrance on any of its assets. whether now owned or hereafter
acquired, other than: (i) security interests required by the Loan Documents;
(ii) liens for taxes contested in good faith; (iii) liens accruing by law for
employee benefits; or (iv) Permitted Liens. INVESTMENTS. purchase any stock,
securities, or evidence of indebtedness of any other person or entity except
investments in direct obligations of the United States Government and
certificates of deposit of United States commercial banks having a tier 1
capital ratio of not less than 6% and then in an amount not exceeding 10% of the
issuing bank's unimpaired capital and surplus.
FINANCIAL COVENANTS. Borrower, on a consolidated basis. agrees to the following
Provisions from the date of this Agreement and until final payment in full of
the Obligations, unless Bank shall otherwise consent in writing; ANNUAL
FINANCIAL STATEMENTS. Deliver to Bank, within ninety days after the close of
each such annual period, audited financial statements reflecting its operations
during such annual period, including, without limitation, a balance sheet,
profit and loss statement and statement of cash flows, with supporting
schedules: all on consolidated and consolidating basis and in reasonable detail.
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. All such statements shall be
examined by an independent certified public accountant acceptable to Bank. The
opinion of such independent certified public accountant shall not be acceptable
to Bank if qualified due to any limitations in scope imposed by Borrower. Any
other qualification of the opinion by the accountant shall render the
acceptability of the financial statements subject to Bank's approval. QUARTERLY
FINANCIAL STATEMENTS. Deliver to Bank within 45 days of the quarter end an
executed copy of a 10-Q. The 10-Q shall include without limitation, a balance
sheet, profit and loss statement, and statement of cash flows, with supporting
schedules. ACCOUNTS RECEIVABLE AGING LISTING. Borrower shall deliver to Bank a
current updated accounts receivable aging listing before each draw request. DEBT
SERVICE COVERAGE. Shall at the year-end 1996, have a Debt Service Coverage of
not less than 1.20. "Debt Service Coverage" shall mean the sum of net profit,
interest expense, income tax expense, depreciation expense and amortization
divided by the sum of current maturities of long term debt, current maturities
of capital leases and interest expense. LIMITATION ON DEBT. Borrower shall not,
directly or indirectly, create, incur, assume or become liable for, contingently
or otherwise any debt if, upon giving effect to such incurrence on a pro forms
basis, the aggregate amount of debt incurred by Borrower, shall exceed
$100,000.00 without Bank's prior written consent.
<PAGE> 4
BORROWING BASE. As to the Line of Credit Note in the principal amount of
$500,000.00, the following provisions shall apply: See also attached Exhibit
"A".
BORROWING LIMITATION. The maximum principal amount that Borrower may borrow
shall be the lesser of the principal amount stated in the Line of Credit Note or
the maximum principal amount allowed under this addendum (the "Maximum Principal
Amount")
At all times, the amount of Qualified Accounts receivable shall: be greater than
Three Hundred Thirty Four Thousand and 00/100 ($334,000.00) Dollars.
"Qualified Account" refers to an account receivable not more than ninety days
from the date of the original invoice that arises in the ordinary course of
Borrower's business and meets the following eligibility requirements: (a) the
sale of goods or services reflected in such account is final and such, goods and
services have been delivered or provided and accepted by the account debtor and
payment for such is owing; (b) the invoices comprising an account are not
subject to any claims, returns or disputes of any kind; c) the account debtor is
not insolvent: (d) the account debtor has its principal place of business in the
United States: (e) the account debtor is not an affiliate of Borrower and is not
a supplier to Borrower and the account is not otherwise exposed to risk of
set-off; (f) not more than thirty percent of the original invoices owing
Borrower by the account debtor are more than ninety days from the date of the
original invoice.
REQUIRED REPORTS. Borrower shall certify to Bank prior to each draw request, the
amount of qualified Accounts as of the first day of each month, on forms
required by Bank together with all detail and supporting documents requested by
Bank. Bank may at any time and from time to time, during Bank's normal business
hours, enter upon any business premises of Borrower and audit Borrower's
accounts and inventory. Bank's determination of the amount of Qualified Accounts
shall at all times be indisputable and deemed correct. The Borrower, at all
times, shall cooperate with Bank without limitation by providing Bank
information and access to Borrower's premises and business records and shall be
courteous to Bank's agents.
CONTINUING REPRESENTATIONS. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the amount stated in the Line of Credit Note ( the
"Borrowing Limit"). Borrower agrees to pay any advances in excess of the
Borrowing Limit immediately upon receipt by Borrower of written notice that the
Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligations of Bank to male the loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower. as of the day and year first written above, has
caused this Agreement to be executed under seal.
Kyzen Corporation, a Utah Corporation
Taxpayer Identification Number: 87-0475115
CORPORATE By: /s/ Benjamin D. Wolfley
SEAL -------------------------------------------
Benjamin D. Wolfley, Treasurer
First Union National Bank of Tennessee
By: /s/ Kathleen L. Nelson
-------------------------------------------
Kathleen L. Nelson, Vice President
<PAGE> 1
10.27 Amended Loan Agreement dated July 7, 1997 between Registrant and
First Union National Bank of Tennessee
MODIFICATION NUMBER 1
TO THE PROMISSORY NOTE AND THE LOAN AGREEMENT
Kyzen Corporation
430 Harding Industrial Drive
Nashville, Tennessee 37221
(Individually and Collectively, "Borrower")
First Union National Bank of Tennessee
First Union Tower
150 4th Avenue North
Nashville, Tennessee 37219
(Hereinafter referred to as the "Bank")
THIS AGREEMENT is entered into as of July 7, 1997 by and between Bank and
Borrower.
WHEREAS, Bank is the holder of a Promissory Note executed and delivered by
Borrower, dated March 11, 1996, in the original principal amount of $ 500,000.00
(the "Note"); and
WHEREAS, in connection the execution of the Note, Borrower also executed and
delivered to Bank certain other Loan Documents, including a Loan Agreement,
dated March 11.'1996 (the 'Loan Agreement"); and
WHEREAS, Borrower and Bank have agreed to modify the terms of the Promissory
Note and the Loan Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and other good
and valuable consideration receipt and sufficiency of which is acknowledged, the
parties agree an follows:
OUTSTANDING BALANCE. The total outstanding unpaid principal balance under the
Note as of June 30, 1997 is $0.00. The parties acknowledge that interest on the
obligations under the Note is paid through May 27, 1997.
MODIFICATIONS.
1. The Note is hereby modified by deleting the provisions in the Note
establishing the repayment terms and by substituting the following in
their place and stead:
REPAYMENT TERMS. The Note shall be due and payable in consecutive
monthly payments of accrued interest only commencing on July, 27, 1997,
and on the same day of each month thereafter until fully paid. In any
event all principal and accrued interest shall be due and payable on
April 30, 1998.
LINE OF CREDIT ADVANCE. Borrower may borrow, repay and reborrow, and
Bank may advance and readvance under the Note rest actively from time
to time until the maturity hereof (each an "Advance" and together the
"Advances"), so long as the total indebtedness outstanding at any one
time does not exceed the principal amount stated on the face of the
Note. Bank's obligation to make Advances under the Note shall terminate
if Borrower is in Default or a representation in any of the Loan
Documents is false or has become false. As of the date of each proposed
Advance, Borrower shall be deemed to represent that each representation
made in the Loan Documents is true as of' such date.
2. The section and FINANCIAL COVENANTS of the Loan Agreement is hereby
amended by adding the following:
<PAGE> 2
FINANCIAL COVENANTS. Borrower agrees to the following provisions from
the date hereof until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing:
Working Capital. Borrower shall, at all times, maintain Working Capital
of at least $1,200,000.00.
"Working Capital" shall mean the excess of the current assets over the
current liabilities.
Net Income. Borrower shall maintain a minimum net income (as defined
pursuant to generally accepted accounting principals presently in
effect and currently employed by Borrower in its financial accounting)
during fiscal year 1997 and the first quarter of fiscal year 1998 based
or the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE FISCAL YEAR TO DATE INCOME
-------------------------------------
<S> <C>
July, 1997 ($340.000.00)
August, 1997 ($310,000.00)
September, 1997 ($260,000.00)
October, 1997 ($160,000.00)
November, 1997 ($110,000.00)
December, 1997 $0
January, 1998 $ 50,000.00
February, 1998 $100,000.00
March, 1998 $150,000.00
</TABLE>
ACKNOWLEDGMENTS. Borrower acknowledges and represents that the Note and other
Loan Documents. as amended hereby, and in full force and effect and are binding
upon it, its successors, assigns, administrators and heirs without any defense,
counterclaim, right or claim of set-off or of other sum due; that, after giving
effect to this Agreement, no default or event that with the passage of time or
giving of notice would constitute a default under the Loan Documents has
occurred; that all representations and warranties contained in the Loan
Documents are true and correct as of this date; that there have been no changes
in the ownership of any collateral pledged to secure the Obligations since the
dates of the instruments originally pledging such collateral; and that Borrower
has taken all necessary action (corporate or otherwise) to authorize the
execution and delivery of this Agreement. This Agreement constitutes: only a
modification of an existing obligation owing by Borrower to Bank and is not a
novation.
LIENS. Borrower acknowledges and confirms the extent, validity end priority of
the Bank's security interests and liens in the collateral pledged, if any,
pursuant to the Loan Documents, and agrees that such security interests and
liens shall secure the Borrower's Obligations to Bank, including any
modification of the Note or Loan Agreement, and all future modifications,
extensions, renewals and/or replacements of the Loan Documents.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the applicable state as originally provided in the Loan
Documents, without reference to that state's conflicts of laws principles. This
Agreement and the other Loan Documents constitute the sole agreement of the
parties with respect to the subject matter thereof and supersede all oral
negotiations and prior writings with respect to the subject matter thereof. No
amendment of this Agreement, and no waiver of any one or more of the provisions
hereof shall be effective unless set forth in writing and signed by the parties
hereto. The illegality, unenforceability or inconsistency of any provision of
this Agreement shall not in any way affect or- impair the legality,
enforceability or consistency of the remaining provisions of this Agreement or
the other Loan Documents. This Agreement and the other Loan Documents are
intended to be consistent. However, in the event of any inconsistencies among
this Agreement and any of the Loan Documents, the terms of this Agreement, and
then the Note, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement.
DEFINITIONS. The term "Loan Documents" used in this Agreement and other Loan
Documents refers to all documents, agreements and instruments executed in
connection with any of the Obligations (as defined herein),
<PAGE> 3
and may include, without limitation, modification agreements, a commitment
letter that survives closing a loan agreement, any note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any renewals or modifications, whenever any
of the foregoing are executed, but does not include swap agreements (as defined
in 11 U.S.C. - 101). The term "Obligations" used in this Agreement refers to any
and an indebtedness and other obligations of every kind and description of the
Borrower to any Bank affiliate, whether or not under the Loan Documents, and
whether such debts or obligations are primary or secondary, direct or indirect,
absolute or contingent, sole, joint or several, secured or unsecured, due or to
became due, contractual, including, without limitation swap agreements (as
defined in 11 U.S.C. - 101), arising by tort, arising by operation of law, by
overdraft or otherwise, or now or hereafter existing, including, without
limitation, principal, interest, fees, late fees, expenses, attorneys' fees and
costs that have been or may hereafter be contracted or incurred. Terms used in
this Agreement which are capitalized and not otherwise defined herein shall have
the meanings ascribed to such terms in the Note and/or other Loan Documents.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution or any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement and other Loan
Documents ("Dispute") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising a out of or connected with the transaction reflected
by this Agreement.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq.. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing, the
arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without limitation,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose, against any real
or personal property or other security by exercising a power of sale Under Loan
Documents or under applicable law or by judicial foreclosure and sale, including
proceeding to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment, of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement the
day and year first above written.
Kyzen Corporation
Taxpayer Identification Number 87-0475115
<PAGE> 4
CORPORATE By: /s/ Benjamin D. Wolfley
SEAL -------------------------------------
Benjamin D. Wolfley, Treasurer
First Union National Bank of Tennessee
CORPORATE By: /s/ Kathleen Nelson
SEAL -------------------------------------
Kathleen Nelson, Vice President
<PAGE> 1
10.28 Loan Agreement and $80,000 Promissory Note dated November 3, 1997
between Registrant and First Union National Bank of Tennessee
PROMISSORY NOTE
$80,000.00 November 3, 1997
Kyzen Corporation, a Utah Corporation
430 Harding Industrial Drive
Nashville, Tennessee 37211
(Individually and collectively "Borrower")
First Union National Bank
First Union Tower
150 4th Avenue North
Nashville, Tennessee 37219
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Eighty Thousand and No/100 Dollars ($80,00.00) or such sum
as may be advanced and outstanding from time to time with interest on the unpaid
principal balance at the rate and on the terms provided in this Promissory Note
(including all renewals, extensions or modifications hereof, this "Note")
SECURITY. Borrower has granted Bank a security interest. in the collateral
described in the loan Documents, including, but not limited to, (i) personal
property collateral described in that certain Security Agreement of even date
herewith and (ii) That certain Assignment of Money Market investment
Account/Instrument between Bank am Kyzen Corporation dated November 13, 1997.
INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the rate of Bank's Prime Rate plus 1.0% as that
rate may change from time to time in accordance with changes in the Bank's Prime
Rate ("Interest Rate"). Bank's Prime Rate shall be that rate announced by Bank
from time to time as its Prime Rate and is one of several interest rate bases
used by Bank. Bank lends at both above and below Bank's prime Rate, and Borrower
acknowledges that Bank's Prime Rate is not represented or intended to be the
lowest or most favorable rate of interest offered by Bank.
DEFAULT RATE. In addition to other rights contained in this Note, if a Default
(defined herein) occurs and as long as Default continues all outstanding
Obligations shall bear interest at the Interest Rate plus 3% ("Default Rate").
The Default Rate shall also apply from acceleration until the Obligations or any
judgment is paid in full,
INTEREST AND FEE(S) COMPUTATION. (Actual/360). Interest and fees, if any, shall
be computed on the basis of a 360 day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Acnral/360 computation
determines the annual effective yield by taking the stated (nominal) rate for a
year's period and there dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the applicable period. Application
of the Actua1/360 Computation produces an annual effective rate exceeding that
of the nominal rate.
REPAYMENT TERMS. Note shall be due and payable in consecutive monthly payments
of principal and interest in the amount of $2,010.00 commencing on December 13,
1997, and on the same day of each month thereafter until fully paid. In any
event, all principal and accrued interest shall be due and payable on October,
15, 2001.
<PAGE> 2
Scheduled Payment Adjustment (for variable interest rate loans only). At Bank's
option and with notice to Borrower, the scheduled payment amount will increase
as is necessary (i) to pay all accruals of interest for the periodic and
previous periods and (ii) to maintain principal repayment according to the
amortization that would have occurred if the Interest Rate in effect on the date
of this Note had remained constant. The increased payment shall remain in effect
for as long as the original scheduled payment amount is insufficient to pay
accrued interest and principal and shall be further adjusted upward or downward
to reflect changes in the variable interest rate. The scheduled payment amount
will not be reduced below the original scheduled payment amount.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may applied to the Obligation in any
manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment has not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, and any letters of credit issue
pursuant to any loan agreement executed in connection with this Note, any
applications for such letter of credit and any other documents executed in
connection therewith, and may include, without limitation, a commitment letter
that survives dosing, a loan agreement, this Note, guarantee agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any renewals or modifications, whenever any
of the foregoing are exercised, but does not include swap agreements (as defined
in 11 U.S.C. - 101).
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations under any other Loan
Documents, and an obligations under any swap agreements as defined in 11 U.S.C.
- - 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 15 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
nor be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay an of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals' attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to and shall be such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be applied to the reduction of the principal balance of this Note and not
to the payment of interest, and (ii) if the loan evidenced by this Note has been
or is thereby paid in full, the excess shall be returned to the party paying
same, such application to the principal balance of this Note or to the refunding
of excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs a default ("Default") under this Note
shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations or Default (however denominated) under this Note
or any other Loan Documents. FALSE WARRANTY. A warranty or representation made
or deemed mate in the :Loan Documents or furnished Bank in connection with the
loan evidenced by this
<PAGE> 3
Note proves materially false, or if of a continuing nature, becomes materially
false. CROSS DEFAULT. At Bank's option, any default in payment a performance of
any obligation under any other loans, contract; or agreements of Borrower, any
Subsidiary or Affiliate of Borrower, any general partner of the holder(s) of the
majority ownership interests of Borrower with Bank or its affiliate ("Affiliate"
shall have the meaning at defined in 11 U.S.C. - 101, except that the term
"debtor" therein shall be substituted by the term "Borrower" herein;
"Subsidiary' shall mean any corporation which more than 50% of the issued and
outstanding voting stock is owned directly or indirectly by Borrower).
CESSATION; BANKRUPTCY. The death of, appointment of guardian for, dissolution
of, termination of existence of , loss of good standing status by, appointment
of , receiver for, assignment for the benefit of creditors of, or commencement
of any bankruptcy or insolvency proceeding by or against the Borrower, its
Subsidiaries or Affiliates, if any, or any general partner of or the holder(s)
of the majority ownership interests of Borrower, or any party to the Loan
Documents. MATERIAL CAPITAL STRUCTURE OR BUSINESS ALTERATION. Without prior
written consent of Bank, (I) a material alteration in the kind or type of
Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any;
(ii) the sale of substantially all of the business or assets of Borrower, any of
Borrower's Subsidiaries Or Affiliates or guarantor or a material portion (10% or
more) of such business or assets if such a sale is outside the ordinary course
of business of Borrower, or any of Borrower's Subsidiaries or Affiliates or any
guarantor or more than 50% of the outstanding stock or voting power of or in any
such entity in a single transaction or a series of transactions; (iii) the
acquisition of substantially all of the business or assets or more than 50% of
the outstanding stock or voting power of any other entity; or (v) should any
Borrower, or any of Borrower's Subsidiaries or Affiliates or guarantor enter
into any merger or consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: BANK
LIEN. Foreclose its security interest or lien against Borrower's accounts
without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note
and all other Obligations and all of the Obligations shall be immediately due
and payable. CUMULATIVE. Exercise any right and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
WAIVERS AND AMENDMENTS: No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor the
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of acceleration of maturity.
notice of sale and all other notices of any kind. Further, each agrees that Bank
may extend, modify or renew this Note or make a novation of the loan evidenced
by this Note for any period and grant any releases, compromise; or indulgences
with respect to any collateral securing this Note, or with respect to any other
Borrower or any other person liable under this Note or other Loan Documents, all
without notice to or consent of each Borrower or any person who may be liable
under this Note or other Loan Documents and without affecting the liability of
Borrower or any person who may be liable under this Note or Other Loan
Documents.
MISCELLANEOUS. This Note and other Loan Documents shall inure to the benefit of
and be binding upon the parties and their respective heirs, legal
representatives, successors and assigns. Bank's interests in and rights under
this Note and other Loan Documents we freely assignable, in whole or in part, by
Bank. In addition, nothing in this Note or any of the Loan Documents shall
prohibit Bank from pledging or assigning this Note or any of the Loan Documents
or any interest therein to any Federal Reserve Bank. Borrower shall not assign
its rights and interest hereunder without prior written consent of Bank, and any
attempt by Borrower to assign without Bank's prior written consent is null and
void. Any assignment shall not release Borrower from the Obligations.
<PAGE> 4
APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other Loan Documents
shall be governed by and construed under the laws of the state named in Bank's
address shown above without regard to that state's conflict of laws principles.
If the terms of this Note should conflict with the terms of the loan agreement
or any commitment letter and survives closing, the terms of this Note shall
control. BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank
a security interest in all of Borrower's accounts with Bank and any of its
affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive personal
jurisdiction in the state named in Bank's address shown above. SEVERABILITY. If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. NOTICES. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank may
specify in writing from time to time. In the event that Borrower changes
Borrower's address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
PLURAL; CAPTIONS. All references in the Loan Documents to Borrower, guarantor,
person, document or other noun reference mean both he singular and plural form,
as the case may be, and the term "person" shall mean any individual, person or
entity. The captions contained in the Loan Documents are inserted for reference
only and shall not affect the meaning or interpretation of me Loan Documents.
BINDING CONTRACT. Borrower by execution of and Bank by acceptance of this Note
agree that each party is bound to all terms and provisions of this Note.
ADVANCES. Bank in its sole discretion may make other Advances under this Note
pursuant hereto. POSTING OF PAYMENTS. All payments received during normal
banking hours after 2:00 p.m. local time at the office of Bank first shown above
shall be deemed received at the opening of the next banking day. JOINT AND
SEVERAL OBLIGATIONS. Each Borrower is jointly and severally obligated under this
Note. FEES AND TAXES. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution or any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Dispute") between or among parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims arising a
out of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the 'Arbitration Rules') of the American Arbitration
Association (the 'AAA') and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq.. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing, the
arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without limitation,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose, against any real
or personal property or other security by exercising a power of sale Under Loan
Documents or under applicable law or by judicial foreclosure and sale, including
proceeding to confirm the sale; (ii) all rights of self-help including
<PAGE> 5
peaceful occupation of real property and collection of rents, set-off, and
peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment, of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and1 hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, the undersigned have signed and sealed this Note the day and
year first above written.
Kyzen Corporation
Taxpayer Identification Number 87-0475115
CORPORATE By: /s/ Benjamin D. Wolfley
SEAL -----------------------------------
Benjamin D. Wolfley, Treasurer
<PAGE> 1
23.1 Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 333-13095) of Kyzen
Corporation of our report dated January 23, 1998 appearing on page 14
of this Form 10-KSB of Kyzen Corporation.
Price Waterhouse LLP
Nashville, TN
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 - KYZEN CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 710,778
<SECURITIES> 99,208
<RECEIVABLES> 810,468
<ALLOWANCES> 8,068
<INVENTORY> 332,367
<CURRENT-ASSETS> 1,980,800
<PP&E> 1,421,191
<DEPRECIATION> 493,112
<TOTAL-ASSETS> 3,226,326
<CURRENT-LIABILITIES> 730,212
<BONDS> 0
0
0
<COMMON> 50,068
<OTHER-SE> 2,378,381
<TOTAL-LIABILITY-AND-EQUITY> 3,226,326
<SALES> 5,459,846
<TOTAL-REVENUES> 5,459,846
<CGS> 2,684,130
<TOTAL-COSTS> 2,684,130
<OTHER-EXPENSES> 3,422,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,467
<INCOME-PRETAX> (572,008)
<INCOME-TAX> 0
<INCOME-CONTINUING> (572,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572,008)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
