<PAGE> 1
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, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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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
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Warrants for Class A Common Stock Boston Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act:
NONE
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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. $5,877,974
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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) $3,593,965 at $1.125 per share on February 4, 1999
---------------------------------------------------
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 February 4, 1999
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 9, 1999 are incorporated into Part
III of this report
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
<PAGE> 3
KYZEN CORPORATION
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INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <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 14
Report of Independent Accountants 15
Balance Sheet as of December 31, 1998, and 1997 16
Statement of Operations for the years ended
December 31, 1998 and 1997 17
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1998 and 1997 18
Statement of Cash Flows for the years ended
December 31, 1998 and 1997 19
Notes to Financial Statements 20
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 27
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. 28
Item 10. Executive Compensation 28
Item 11. Security Ownership of Certain Beneficial Owners and Management 28
Item 12. Certain Relationships and Related Transactions 28
Item 13. Exhibits and Reports on Form 8-K 28
</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") is a specialty chemical company
focused on CFC-replacement chemistries and processes for electronics and other
high technology industries 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 customers
of the Company's chemical solutions. Typically the Company's products are sold
as separate items and are integrated into a cleaning process by the customer, or
by the Company as part of a contract service.
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 inventories are depleted.
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. Today, no single replacement product has been found that had the
broad applicability of the ODPs produced before 1995. As such, the market for
high technology cleaning has fragmented into smaller niche cleaning applications
where specific products were developed to meet specialized market needs. In
addition, this market continues to evolve as newer technology and
miniaturization of products presents more difficult cleaning challenges for
manufacturers.
CHEMICAL CLEANING PRODUCTS
Kyzen has formulated seven general lines of cleaning chemistries that serve
different market niches. These chemistries are:
- semi-aqueous electronic cleaning (Ionox(R));
- aqueous cleaner concentrates for electronic cleaning (Aquanox(R));
- metal/plastic precision cleaners which can be aqueous or
semi-aqueous (Metalnox(R));
- volatile organic chemical ("VOC") compliant cleaning agents for
electronics and metals (Lonox(TM));
- optical solvents and cleaning agents (Optisolv(TM));
- semi-conductor cleaning agents (Micronox(TM)); and
- waterless solvents and hand-wipe solvents (Kryptonol(R)).
In addition, Kyzen has identified product niches in cleaning chemistries and
processes for batteries and medical devices and is currently selling limited
amounts of specialty cleaning products in those industries.
Page 4
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KYZEN CORPORATION
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PART I (CONTINUED)
The Company's strategy is to patent its formulations where unique materials,
blends or uses are identified. In other formulations the Company uses a
combination of multiple ingredients and suppliers to protect and maintain as
proprietary information the key active materials used in each 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 of its products; however,
customized products for key high volume customers and new niche applications
frequently have unique requirements, which may necessitate departures from these
general standards. The Company is currently developing new cleaning chemistries
and processes for its existing electronics niche in addition to developing new
products for the semiconductor, optics, medical device and other niche cleaning
markets. Kyzen believes its unique chemical products will be an attractive
alternative in each of these industries. Management of the Company also believes
that future product lines may be obtained through acquisitions or licensing
agreements. In 1998, the Company entered in to a licensing agreement with
AlliedSignal and Hewlett Packard to sell and market a patented cleaning product
jointly developed by both companies. The Company has been in discussions from
time to time with potential acquisition candidates or licensors of cleaning
technology and products. The Company has not entered into definitive agreements
and there can be no assurance that any particular acquisition or licensing
opportunities will materialize.
EQUIPMENT PRODUCTS AND PERIPHERALS
The goal of Kyzen's Equipment Products and Peripherals ("EP&P") group is to
enhance processes and expedite and eliminate 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 had 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 manpower level smaller than its historical level in 1996 and 1997. This
group however, is 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. EP&P sales amounted to 3% of sales
in 1998, down from 8% of sales in 1997.
Process Control Systems ("PCS"). The Company's PCS system is a fully integrated
tool based on the Company's proprietary developed technology that automatically
samples and adjusts cleaning agent concentration to a specified level in a
cleaning tank or machine. The PCS 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 is to further develop Kyzen's technologies in the PCS
area and use them to differentiate the Company's cleaning agents from
competitors. The Company plans to pursue the construction and sale of its PCS to
potential customers in current markets and to continue to develop the PCS system
for new niche cleaning applications and possibly for other chemical
applications.
Process Rinse Water Reuse Technology. Because historically, the majority of
chemical cleaning products designed to replace ODPs require the use of water in
the cleaning process, either as a part of the washing process or as a rinsing
agent and because the Company determined that most potential customers in the
early 1990's 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 problematic
for the Company's customers because most publicly owned treatment works ("POTW")
now accept rinse water effluent. Additionally, certain suppliers of water reuse
equipment are now able to handle water recycling within the precision cleaning
industry. If environmental laws become more stringent and require more water
recycling, the Company may be able to penetrate new markets with its water reuse
technology, but this technology does not currently represent a growth area for
the Company.
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KYZEN CORPORATION
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PART I (CONTINUED)
The Company's strategy regarding its process water reuse technology is to
maintain Kyzen's installed base and to offer its technology in this area to
potential cleaning agent customers as a differentiated competitive advantage to
the Company's competitors. The Company plans to assist customers in developing
processes for water reuse with Kyzen's cleaning products but will use third
party vendors to construct and sell the actual mechanical systems to the
potential customer.
Specialized Cleaning Machine. In the past the Company was involved with the
development and manufacture of specialized cleaning machines, primarily
developed for a specific application within Intel Corporation. The Company's
strategy is to retain Kyzen's technology and development work used in the
development of the cleaning machine for Intel in the event a potential customer
opportunity for such equipment arises. Since the second quarter of 1997,
however, the Company has downsized its machine manufacturing capability and does
not plan to aggressively pursue the manufacture or sale of the specialized
cleaning machines for 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 precision cleaning industry 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 numerous focused specialty
chemical companies. Management believes its most significant competitors are
Petroferm(R), Church & Dwight, Valtron, Alpha Metals, Multicore and Dr. O.K.
Wack Chemie. Management believes the Company has a competitive advantage in the
Company's targeted markets because the Company's strategic method of selling
directly to its customers rather than utilizing distribution. This provides the
Company the advantage of closer customer contact, less "middlemen" in the
selling process resulting in lower costs for the Company's customers and higher
gross profit margins for the Company. Another competitive advantage is that
Kyzen is one of few companies whose primary source of revenue is from the sale
of high technology cleaning products. This focus on the cleaning market niche
allows the Company's sales force to be totally committed to selling and
servicing the customer, as opposed to competitive sales forces or distributors
that are less focused due to demands from multiple product lines in multiple
markets.
DEPENDENCE ON SUPPLIERS AND OTHERS
The Company purchases its raw materials, components and finished machines from a
variety of sources. While the Company is generally not significantly dependent
on any one supplier for raw materials, components and finished machines, it had
historically, relied on one domestic chemical producer for its supply of the
nonlinear alcohol used in many of the Company's cleaning formulations. In 1998,
the Company became less reliant on this specific vendor as the Company sourced
this material from both domestic and international sources. 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 chemicals 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. In addition the Company has had discussions with other
producers who have indicated an interest in producing the nonlinear alcohol.
SALES AND DISTRIBUTION
Marketing. There are a number of precision cleaning market niches ranging in
size from $5 million to $50 million in which management believes 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 cleaning processes and products for niches such as high volume
precision cleaning of plastic and metal parts, peripheral cleaning products such
as hand cleaning products and wipes, cleaning of other electronic devices,
optical lenses and moulds, medical devices and semiconductors.
Page 6
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KYZEN CORPORATION
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PART I (CONTINUED)
Cleaning Applications and Evaluation Centers. The Company currently operates
comprehensive Cleaning Applications and Evaluation Centers in Manchester, New
Hampshire and 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 cleaning technologies to customers who have limited experience with
water-based cleaning agents and processes. Consequentially, these sales often
require long relationship building periods and 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 is designed to shorten the period required for testing and problem solving
and will increase customer's exposure to Kyzen and its products. 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 through a direct regional sales force,
complemented in certain geographic regions or niches with manufacturer
representatives or agents. The Company also uses sales engineers, chemists,
application lab personnel and inside sales personnel in the Company's sales
efforts depending on the customer application, sales volume potential and the
status of the customer in testing, buying and/or implementing the cleaning
chemical.
CUSTOMERS
During the year ended December 31, 1998, 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 holds two patents for its chemical cleaning formulations in the
United States. The Company also has obtained one patent in each of Mexico,
China, Taiwan, Australia, Korea, Australia, Brazil, European Union and Japan.
These existing patents, which expire between 2009 and 2014, and pending
international patents related to the two U.S. 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 during
1997 and 1998. These filings relate to work performed during the past three
years on a number of formulations to be used in existing and new market niches.
These patents are currently being reviewed by the patent office.
The Company is also required to pay patent 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 the Company. In 1998 and 1997, $46,675
and $71,925, respectively, 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. Decreased public concern over ozone depletion or water
contamination or less governmental pressure to remedy such problems could
substantially reduce demand for the Company's products. Although the Company is
not aware of any such pending or proposed federal legislation or regulation, any
such legislation or regulation that limits the sale of the Company's products,
chemicals, 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 effect on the Company.
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KYZEN CORPORATION
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PART I (CONTINUED)
RESEARCH AND DEVELOPMENT
The Company's research and development expenses in 1998 were $424,335 and in
1997 were $461,470. Of this amount, $398,962 in 1998 and $430,460 in 1997 were
spent for chemical research and development of products. Research and
development activities are expensed as incurred because the majority of the
Company's research and development activities consist of developing
technologically feasible products and processes for niche specific applications.
Management expects that the Company will continue to maintain research and
development activity in the same 6% to 8% of revenue level for the foreseeable
future 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, 1998, the Company had 34 full-time employees and 1 part-time
employee. The Company considers its employee relations to be satisfactory. The
management of the Company believes the current staffing level is adequate to
accomplish the necessary tasks for 1999 given historical growth levels of the
Company. Higher growth rates, acquisitions or licensing of new product lines may
require additional staff to properly staff increased marketing, sales,
development and technical support functions. Management of the Company intends
to hire additional personnel as they are required.
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 management of the Company estimates
the current annual cost of compliance with environmental laws is less than
$10,000 per year. The Company derives a large portion of its 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 24,000 square
feet of leased space, 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 leases
an approximately 6,625 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 facilities under two operating lease
agreements. The lease for the New Hampshire facility terminates in May 2000 with
an option to renew for one year, and the Tennessee facility lease terminates in
February 2001 with an option to renew for two years. As of December 31, 1998,
future annual rental payments are summarized as follows:
<TABLE>
<S> <C>
1999 $129,958
2000 110,550
2001 8,000
</TABLE>
Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in rent
expense for 1998 and 1997 is approximately $96,536 and $92,198, respectively, of
rent paid to a shareholder.
The Company carries general property and casualty insurance in an amount
management considers to be adequate.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1998, 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
1998.
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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 Class A Common Stock and Warrants to purchase Class A Common Stock
are quoted on the Nasdaq Small Cap Stock Market (symbols KYZN and KYZNW,
respectively) and listed on the Boston Stock Exchange (symbols KYZ and KYZW,
respectively). 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
--------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Quarter ended: March 31, 1997 $0 $ 1/2 $9/32 $ 3 $ 1 3/4
June 30, 1997 0 3/8 3/16 1 15/16 1 11/32
September 30, 1997 0 11/16 1/4 2 1/2 1 1/4
December 31, 1997 0 3/4 1/8 2 15/32 1 1/4
March 31, 1998 0 7/16 3/16 2 1 3/8
June 30, 1998 0 7/16 3/16 1 1/2 1 3/16
September 30, 1998 0 7/16 1/32 1 1/2 13/16
December 31, 1998 0 3/16 1/16 1 1/16 1/2
</TABLE>
There were approximately 100 shareholders of record and approximately 1,000
beneficial shareholders of Class A Common Stock on December 31, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Net sales for the year ended December 31,1998 from all business activities
increased approximately 8% or $418,128 to $5,877,974, while net chemical sales
increased 13% from the year ended December 31, 1997. 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
56% during the year ended December 31, 1998, from 8% of net sales in 1997 to 3%
of net sales in 1998, reflecting the Company's focus on more profitable chemical
products and downsizing of its EP&P group in the year ended December 31, 1997.
Gross profit for the year ended December 31, 1998 increased 20% or $565,378 to
$3,341,094 as compared to $2,775,716 in the year ended December 31, 1997. This
increase is attributable to increased sales volume of the Company's cleaning
agents in addition to selling a higher margin chemical product mix. Gross profit
margins from all business activities increased from 51% in the year ended
December 31, 1997 to 57% in the year ended December 31, 1998. This increase
reflects a larger percentage of total sales attributable to higher margin
chemical products.
Selling, general and administrative expenses for the year ended December 31,
1998 decreased 2% or $48,556 to $2,912,453 in the year ended December 31, 1998
as compared to $2,961,009 in the year ended December 31, 1997. This decrease
reflects decreased spending on advertising in the year ended December 31, 1998
and decreases in commissions to manufacturers' representatives partially offset
by higher general and administrative expenses.
Research and development expenses for the year ended December 31, 1998 decreased
8% or $37,135 to $424,335 from $461,470 for the year ended December 31, 1997.
Research and development as a percentage of sales decreased from 8.5% to 7.2%.
The reduction reflects lower costs of supplies in the year ended December 31,
1998 and lower machine prototype costs associated with the development of the
PCS in the year ended December 31, 1998 versus the year ended December 31, 1997.
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KYZEN CORPORATION
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PART II (CONTINUED)
Operating income for the year ended December 31, 1998 increased $651,069 from a
loss of $646,763 in the year ended December 31, 1997 to income of $4,306 for the
year ended December 31, 1998. This increase is due to decreased expenses in
conjunction with increased chemical product sales partially offset by reduced
EP&P sales. The increased chemical sales and lower EP&P revenues from downsizing
of the EP&P group resulted in a product mix that had a higher percentage of
chemical sales. The higher concentration of chemical product sales in the year
ended December 31, 1998 increased gross profit margins by approximately 6%
thereby contributing to the operating income increase.
Interest income for the year ended December 31, 1998 decreased 18% to $68,271
from $83,222 for the year ended December 31, 1997. This $14,951 decrease results
from lower cash and short-term investment balances as a result of investment of
cash in the operations of the Company. A total of $45,312 of the interest income
in both the year ended December 31, 1998 and the year ended December 31, 1997
was non-cash interest accrued from notes receivable from officers and former
employees of the Company.
Interest expense for the year ended December 31, 1998 decreased 40% to $5,074
from $8,467 in the year ended December 31, 1997. This decrease reflects
management's decision to repay all the Company's outstanding notes payable in
the second quarter of 1998.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 from all business activities
increased approximately 10% or $500,844 to $5,459,846, while net chemical sales
increased 20% from the year ended December 31, 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 converted to the Company's
products. Sales of equipment, processes and peripheral systems have decreased
during the year ended December 31, 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 the year ended December 31, 1997 increased 18% or $424,935 to
$2,775,716, as compared to $2,350,781 in the year ended December 31, 1996. This
increase was attributable to increased sales volume of the Company's cleaning
agents. Gross profit margins from all business activities increased from 47% in
the year ended December 31, 1996 to 51% in the year ended December 31, 1997.
This increase reflected 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 the year ended December 31, 1997
as compared to $2,640,983 for the year ended December 31, 1996. This increase
reflects increased spending on advertising and sales personnel partially offset
by lower general and administrative expenses.
Research and development expenses for the year ended December 31, 1997 decreased
20% or $114,838 to $461,470 from $576,308 for the year ended December 31, 1996.
Development expenses for chemical cleaning products increased approximately 7%
while expenditures for development of equipment, processes and peripherals
decreased significantly in the year ended December 31, 1997. This change
reflects the one-time research and development expenses associated with
developing the cleaning machine in the year ended December 31, 1996 for Intel.
Operating loss for the year ended December 31, 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 the year ended December 31, 1996 to the year
ended December 31, 1997.
Interest income for the year ended December 31, 1997 decreased 34% to $83,222
from $126,481 for the year ended December 31, 1996. This $43,259 decrease is due
to lower cash balances during the year ended December 31, 1997 as a result of
investment of cash in the operations of the Company.
Interest expense for the year ended December 31, 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 the year ended December 31, 1996 related to a one
time put repurchase obligation settled in the year ended December 31, 1996. This
expense did not occur in the year ended December 31, 1997 resulting in a lower
expense.
Page 10
<PAGE> 11
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards that require entities to report in
current earnings, changes in equity that result from transactions and economic
events other than those that are the product of transactions with shareholders.
The statement also requires the presentation of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other required financial statements. The Company adopted the provisions of
this Statement effective January 1, 1998. Adoption of this statement did not
have an impact on the Company's financial condition or results of operations.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
adopted the provisions of this Statement effective January 1, 1998. Based upon a
review of its operations, management believes that the Company operated in only
one reportable segment at December 31, 1998.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Post-retirement Benefits." SFAS No. 132 revises and
standardizes employers' disclosures about pension and other post-retirement
benefit plans, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. The Company adopted the provisions
of this Statement effective January 1, 1998.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. The Company will adopt
the provisions of this Statement effective January 1, 2000. As the Company has
not engaged, and does not plan to engage in derivative or hedging activities,
adoption of this Statement will not have an impact on the Company's financial
condition or results of operations.
FORWARD-LOOKING STATEMENTS
Management has included in this report 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 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 results 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 DISCLOSURE
Many computer systems (including application software and operating systems)
will not accurately interpret dates after December 31, 1999. The year
2000-century change can directly (in its own computer systems) or indirectly (if
its suppliers' and customers' systems are not able to accommodate the year
2000-century change) affect the Company.
The Company is currently evaluating its internal computing, communication and
non-computational systems and believes they will 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
12
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KYZEN CORPORATION
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PART II (CONTINUED)
and beyond will not have a material adverse effect on the Company's financial
condition or results of operations. The company expects to complete its
assessment of these systems by the end of the third quarter of 1999.
The Company is also in the process of evaluating non-computational systems such
as embedded chip technology, microprocessors and specific function chips.
Because of the relatively simple nature of the Company's product manufacturing
process and products, management believes any impact on such systems and
modifications required resulting from the year 2000 and beyond will not have a
material adverse effect on the Company's financial condition or results of
operations. The Company expects to complete its assessment of these systems by
the end of the third quarter of 1999.
The Company is also evaluating major vendors and suppliers of goods and services
to the Company and its major customers. The Company is currently uncertain as to
whether or not all such vendors, suppliers and customers will be able to
accommodate the year 2000-century change. Although management believes that
failure of any one vendor or supplier or customer to accommodate the year 2000
century change should not have a material adverse effect on the Company's
financial condition or results of operations, the inability of a significant
vendor or supplier, such as a provider of utilities, or a key chemical producer
such as a producer of alcohol used in many of the Company's cleaning
formulations, to accommodate the year 2000 century change could have a material
adverse effect on all customers of such vendor or supplier, including the
Company. The failure of a material vendor or supplier to accommodate the century
change could cause significant delays in the Company's manufacturing process or
the delivery of products to its customers as a result of problems such as,
inventory shortages and shipping delays. The failure of any material customer to
accommodate the century change could cause significant payment delays and could
have a material adverse effect on the Company's net sales. At the present time
the Company has no contingency plan to cover such year 2000 century change
issues, but intends to adopt such a plan by the fourth quarter of 1999.
The Company estimates it has spent less than $5,000 on its assessment of vendors
and suppliers, and in assessment and modification of the Company's systems to
accommodate the year 2000-century change. The Company expects future costs for
assessment and modification for the year 2000 century change to be
insignificant. The Company is currently working to upgrade some of its software
used in database management and electronic communications. The Company is making
this change based on the need to have better and improved software performance
and considers this change not to be driven by year 2000 compliance issues. All
vendors of these upgrades have represented to the Company that their products
are year 2000 compliant. After installation of these upgrades, the Company plans
to test them to further verify year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds have been the remaining proceeds from its
initial public offering in 1995 and cash flows from operations. The Company's
primary uses of funds are the funding of research and development of new product
lines, purchase of capital equipment, construction and expansion of the Cleaning
Applications and Evaluation Centers and sales and marketing activities.
As of December 31, 1998, the Company had working capital of $1,241,818, compared
to $1,250,588 as of December 31, 1997, representing a decrease of $8,770 or 1%.
This decrease resulted primarily from the construction of fixed assets,
repayment of long-term debt and the purchase of patent rights and related
expenditures during 1998, offset partially by $67,503 of net income earned
during year ended December 31, 1998.
The Company is currently negotiating with several lenders to obtain a credit
facility to replace the credit facility terminated by the Company in April 1998.
There can be no assurance, however, that the Company will be able to obtain
another credit facility on terms favorable to the Company.
Cash provided by operations was $48,379 in the year ended December 31, 1998, an
increase of $374,523 from $326,144 of cash used by operations in the year ended
December 31, 1997. This increase is the result of a $639,511 increase in net
income in 1998 versus the same period in 1997. This increase in net income was
offset by lower accounts payable as a result of more timely payment of bills.
Cash used by investing activities of $151,120 for the year ended December 31,
1998, represented a decrease of $372,533 as compared to cash provided by
investing activities during the year ended December 31, 1997 of $221,413. This
change was due primarily to the liquidation of the short-term investments during
the first quarter of 1998, partially
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KYZEN CORPORATION
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PART II (CONTINUED)
offset by higher fixed asset purchases for the completion of the Company's
laboratories and Cleaning Applications and Evaluation Centers, and continuing
expenditures for patents in 1998.
Capital expenditures for the year ended December 31, 1998 increased 39% to
$207,783 from $149,739 in the year ended December 31, 1997. This increase of
$58,044 was attributed to the construction of the Nashville Cleaning
Applications and Evaluation Center, addition of cleaning equipment to both the
Nashville and Manchester Cleaning Applications and Evaluation Centers, addition
of laboratory equipment and addition of smaller equipment used in the normal
course of business. Capital expenditures for patents decreased slightly for the
year ended December 31, 1998 to $42,545 from $58,056 in the year ended December
31, 1997. This decrease is the result of timing of examinations of patents the
Company has on file in various countries.
Cash used by financing activities of $84,122 for the year ended December 31,
1998, represented an increase of $157,811 from cash provided by financing
activities of $73,689 during the year ended December 31, 1997. This difference
was due to obtaining the note payable in the fourth quarter of 1997 and
subsequent repayment of the note during the quarter ended June 30, 1998.
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 December 31, 1999. The
Company's cash requirements for the year 1999 and beyond will depend primarily
upon the level of sales of chemical products, product development, product
procurement, sales and marketing expenditures, timing of expansion plans and
capital expenditures. If the Company's plans change, or its assumptions change
or prove to be inaccurate (due to unanticipated expenses, delays, deterioration
of customer base, financial condition 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.
Further, there can be no assurance that the Company will obtain a credit
facility on favorable terms to replace the terminated Credit Facility if
financing of the Company's cash requirements becomes necessary. 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.
The Company sells its products to customers involved in a variety of industries
including electronics, optics 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. The
Company was informed in October 1998 of the closing of a facility in December
1998 which represents approximately 4.6% of the Company's net sales in the year
ended December 31, 1998. The Company believes that this customer has sold this
facility to a competitor within its marketplace. This customer ceased purchasing
products in the fourth quarter of 1998 and the Company is uncertain as to
whether or not sales will be made to this customer or its acquirer in 1999 and
beyond. The Company expects the loss of this customer to reduce net sales, gross
profit and earnings of the Company's in 1999, although the Company is currently
unable to determine the magnitude of this effect.
INTERNATIONAL TRADE DEVELOPMENTS
In 1998, manufacturers in the Peoples Republic of China became significant
suppliers to the Company. The Company expects to import up to approximately 30%
of the Company's purchases of raw materials from China. The United States has
threatened trade sanctions of up to $2 billion if China does not increase its
efforts to stop piracy and other intellectual property violations. In addition,
annual renewal of China's most-favored-nation trading status will be under
review by the United States government in 1999. Failure of the United States
government to continue to grant most-favored-nation treatment to China could
raise duties, thereby increasing the cost of certain of the Company's raw
materials. The Company has historically and continues to obtain a portion of
these raw materials domestically, and the Company has contingency plans in case
Chinese sources are no longer able to provide these raw materials. There can be
no assurance, however, that such developments will not have a material adverse
effect on the Company's financial condition and results of operations.
Page 13
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KYZEN CORPORATION
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PART II (CONTINUED)
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 15
Balance Sheet as of December 31, 1998 and 1997 16
Statement of Operations for the years ended December 31, 1998 and 1997 17
Statement of Changes in Shareholders' Equity for the years ended December 31, 1998 and 1997 18
Statement of Cash Flows for the years ended December 31, 1998 and 1997 19
Notes to Financial Statements 20
</TABLE>
Page 14
<PAGE> 15
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, 1998 and 1997, 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/ Pricewaterhouse Coopers LLP
PricewaterhouseCoopers LLP
Nashville, Tennessee
January 22, 1999
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KYZEN CORPORATION
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BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 523,915 $ 710,778
Short-term investments -- 99,208
Accounts receivable, net of allowance for doubtful accounts
of $8,160 in 1998, and $8,068 in 1997 831,717 802,400
Costs and estimated losses in excess of billings on
uncompleted contracts -- 7,155
Inventory 345,898 332,367
Other 46,093 28,892
----------- -----------
Total current assets 1,747,623 1,980,800
Property and equipment, net 861,521 928,079
Patents, net 177,150 147,296
Interest receivable from related parties 215,463 170,151
----------- -----------
Total assets $ 3,001,757 $ 3,226,326
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of note payable $ -- $ 15,816
Current portion of capital lease obligation 593 1,234
Accounts payable and accrued expenses 503,951 707,781
Accounts payable to related parties 1,261 5,381
----------- -----------
Total current liabilities 505,805 730,212
Note payable -- 62,174
Long-term portion of capital lease obligation -- 5,491
----------- -----------
Total liabilities 505,805 797,877
----------- -----------
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding in 1998 or
1997
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 1998 and 1997 50,068 50,068
Class B Common Stock, $0.001 par value, 1,200,000 shares
authorized, no shares issued or outstanding in 1998 or
1997
Additional paid-in capital 5,294,633 5,294,633
Treasury stock, at cost (313) (313)
Accumulated deficit (2,848,436) (2,915,939)
----------- -----------
Total shareholders' equity 2,495,952 2,428,449
----------- -----------
Total liabilities and shareholders' equity $ 3,001,757 $ 3,226,326
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 16
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KYZEN CORPORATION
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STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 5,877,974 $ 5,459,846
Cost of sales 2,536,880 2,684,130
----------- -----------
Gross profit 3,341,094 2,775,716
Operating costs and expenses:
Selling, marketing, general and administrative expenses 2,912,453 2,961,009
Research and development expenses 424,335 461,470
----------- -----------
Total operating expenses 3,336,788 3,422,479
----------- -----------
Operating income (loss) 4,306 (646,763)
Other income (expense):
Interest income 68,271 83,222
Interest expense (5,074) (8,467)
----------- -----------
Total other income (expense) 63,197 74,755
----------- -----------
Net income (loss) $ 67,503 $ (572,008)
=========== ===========
Earnings (loss) per share - basic $ 0.01 $ (0.11)
----------- -----------
Earnings (loss) per share - diluted $ 0.01 $ (0.11)
----------- -----------
Weighted average shares outstanding
- basic 5,006,681 5,005,081
Weighted average shares outstanding
- diluted 5,086,409 5,005,081
</TABLE>
The accompanying notes are an integral part of the financial statements.
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KYZEN CORPORATION
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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, 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
Issuance of Stock
Net Income 67,503 67,503
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,006,681 $ 50,068 $ 5,294,633 (313) $(2,848,436) $ 2,495,952
=========== =========== =========== =========== =========== ===========
</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.
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KYZEN CORPORATION
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 67,503 $(572,008)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 287,032 210,662
(Increase) decrease in accounts receivable (29,317) 58,385
Decrease in costs and estimated losses in excess of billings on
uncompleted contracts 7,155 73,166
Increase in inventory (13,531) (319,443)
(Increase) decrease in other current assets (17,201) 8,245
Increase in interest receivable from related parties (45,312) (45,312)
(Decrease) increase in accounts payable and accrued expenses (207,950) 260,161
--------- ---------
Net cash provided (used) by operating activities 48,379 (326,144)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments 99,208 429,208
Purchase of fixed assets (207,783) (149,739)
Purchase of patent rights and related expenditures (42,545) (58,056)
--------- ---------
Net cash provided (used) by investing activities (151,120) 221,413
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock -- 1,281
Proceeds from issuance of note payable -- 80,000
Payment on note payable (77,990) (2,010)
Payment on capital lease obligation (6,132) (5,582)
--------- ---------
Net cash provided (used) by financing activities (84,122) 73,689
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (186,863) (31,042)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 710,778 741,820
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 523,915 $ 710,778
========= =========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used for interest payments was $5,074 in 1998 and $8,467 in 1997. The
Company paid no income taxes in 1998 or 1997.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company reclassified inventory of $78,177 and $192,202 to fixed assets in
1998 and 1997, respectively.
The accompanying notes are an integral part of the financial statements.
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KYZEN CORPORATION
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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 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
customers of the Company's chemical solutions. Sales of such equipment totaled
3% of net sales in 1998 and 8% of net sales in 1997. Typically these products
are sold as separate items and are integrated into a cleaning process by the
customer, or by the Company as part of a contract service. The Company's
operations are located in Nashville, Tennessee and Manchester, New Hampshire.
The Company's operations are conducted within one reportable business segment.
Sales to customers outside the United States totaled $807,680 in 1998 and
$743,141 in 1997, representing approximately 14% of 1998 and 1997 net sales, in
each year. No individual customer or foreign country accounted for more than 10%
of the Company's revenues in 1998 or 1997.
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 were not significant. There were no short-term investments
outstanding at December 31, 1998.
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 for certain equipment
contracts are recorded using the percentage of completion method 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 at December 31, 1997 was not
significantly different than its carrying amount based upon the interest rate
environment at such date.
Page 20
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KYZEN CORPORATION
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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 was $65,372 and $52,681 at December 31, 1998 and
1997, respectively.
IMPAIRMENT OF VALUE
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," long lived assets held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows before
consideration of interest expense. As of December 31, 1998 and 1997, the Company
determined its long-lived assets were not impaired.
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 $173,506 in 1998 and $203,895 in 1997.
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.
EARNINGS PER SHARE
Effective December 31, 1997, SFAS No. 128, "Earnings per Share" requires a dual
presentation of earnings per share, basic and diluted. Basic earnings per share
have been computed by dividing net income (loss) by the weighted average number
of shares outstanding. Diluted earnings per share has been computed by dividing
net income (loss) by the weighted average number of common shares outstanding,
including the dilutive effects of common stock options using the treasury stock
method of 79,728 in 1998. Because the Company incurred a net loss in 1997, the
effect of common stock options were not included in the computation of diluted
earnings per share as such effect was anti-dilutive.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which was adopted by the Company on January 1,
1998. SFAS No. 130 requires presentation of comprehensive income and its
components in the financial statements. The Company did not have any other
components of comprehensive income other than net income in 1998 and 1997.
Page 21
<PAGE> 22
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 balance of $906,263 at December 31, 1998 and 1997
has been reflected as a reduction of shareholders' equity. Interest receivable
on the notes of $215,463 and $170,151 at December 31, 1998 and 1997,
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
------------
<S> <C>
Costs incurred on uncompleted contracts $ 325,219
Estimated losses (11,182)
------------
314,037
Less: Billings to date 306,882
------------
Costs and estimated losses in excess of billings on
uncompleted contracts $ 7,155
============
</TABLE>
There were no uncompleted contracts in 1998.
NOTE 4 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Raw materials $194,242 $206,811
Work in process 1,705 78,813
Finished goods 149,951 46,743
-------- --------
$345,898 $332,367
======== ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Manufacturing equipment $ 611,892 $ 595,234
Office furniture and fixtures 339,902 333,931
Demonstration equipment 410,166 327,112
Leasehold improvements 267,014 164,914
----------- -----------
1,628,974 1,421,191
Less-accumulated depreciation (767,453) (493,112)
----------- -----------
$ 861,521 $ 928,079
=========== ===========
</TABLE>
Assets under capital lease amounted to $17,008 at December 31, 1998 and 1997,
respectively. Depreciation expense totaled $287,032 in 1998 and $200,658 in
1997. Included in depreciation expense in 1998 and 1997 was $2,430 and $2,706,
respectively, related to the amortization of assets under capital lease.
Page 22
<PAGE> 23
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Accounts payable $362,602 $623,626
Salaries, wages and commissions 22,891 75,076
Deferred revenue -- 3,365
Accrued expenses 118,458 5,714
-------- --------
$503,951 $707,781
======== ========
</TABLE>
NOTE 7 - NOTES PAYABLE
CAPITAL LEASE AND CREDIT FACILITY OBLIGATIONS
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 cash
balance (the "Credit Facility"). On November 13, 1997, the Credit Facility was
reduced to $420,000 and the Company obtained a term loan of $80,000 for the
financing of certain improvements to the Company's offices, laboratories and
demonstration facilities (the "Term Loan"). The Term Loan had a stated rate of
interest of 10% and required monthly interest and principal payments of $2,039
through December 2001. In April 1998, the Company repaid the outstanding balance
and terminated the Term Loan.
Due to its operating loss, the Company was in violation of certain of its
financial debt covenants under the Credit Facility during 1997 and received
waivers of these covenants from its lender. On April 12, 1998, the Company
terminated the Credit Facility and the lender released all security agreements
thereunder. The Company paid no fees related to this facility during 1998 or
1997.
In addition, the Company has a capital lease obligation of $593 included in its
current liabilities at December 31, 1998.
NOTE 8 - CAPITAL STOCK
COMMON STOCK
The Company's authorized common stock is comprised of two classes, Class A and
Class 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 Common Stock has
equaled or exceeded $7.50 for ten trading days. All warrants remained
outstanding at December 31, 1998.
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, 1998 and 1997 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
Page 23
<PAGE> 24
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 remained outstanding at
December 31, 1998.
In accordance with the provisions of SFAS No. 123, "Accounting for Stock Based
Compensation," 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>
1998 1997
------------------ ------------------
<S> <C> <C>
Net income (loss), reported $ 67,503 $ (572,008)
Net loss, pro forma (124,622) (749,902)
Net income (loss), per share reported (basic and diluted) 0.01 (0.11)
Net loss per share, pro forma (basic and diluted) (0.03) (0.15)
</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>
1998 1997
--------------------- ---------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 75% 76%
Risk-free interest rate 6.2% 6.4%
Expected life of options 5-10 years 10 years
</TABLE>
The weighted average fair value at date of grant for options granted during 1998
and 1997 was $1.18 and $1.54 per option, respectively.
Stock option transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
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
Granted 91,100 1.49
Exercised -- --
Forfeited (35,333) $ 3.17
-------- --------
OUTSTANDING, DECEMBER 31, 1998 564,150 $ 2.30
======== ========
</TABLE>
Page 24
<PAGE> 25
KYZEN CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------- -------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
(YEARS)
- ---------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.19 93,333 3.4 $0.19 93,333 $0.19
1.25 - 1.86 132,700 8.6 1.60 59,200 1.57
2.81 - 3.99 337,617 4.9 3.16 309,300 3.11
4.50 500 5.0 4.50 500 4.50
-------------- -------------
564,150 462,333
============== =============
</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 after 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 employee 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 1998 nor 1997. The Plan expense for 1998 and 1997 was $3,334 and $1,771
respectively.
NOTE 10 - INCOME TAXES
The Company did not record a provision for income taxes in 1998 due to the
availability of net operating loss carryforwards to offset taxable income and in
1997 due to the Company's net loss. A reconciliation of the total provision for
income taxes with amounts determined by applying the statutory U.S. federal
income tax rate to income before income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Income tax provision at statutory rate $ 22,951 $(194,483)
State income taxes, net of federal tax provision 1,738 (14,723)
Research and development credit, net of federal tax provision (20,308) (27,504)
Non-deductible expenses 10,574 10,640
Other (11,890) --
Change in valuation allowance (3,065) 226,070
--------- ---------
Total income tax provision $ -- $ --
========= =========
</TABLE>
Page 25
<PAGE> 26
KYZEN CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Significant components of the Company's deferred tax assets at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 756,629 $ 801,672
Research and development credits 134,593 102,562
Other 21,841 11,894
--------- ---------
Deferred tax assets 913,063 916,128
Valuation allowance (913,063) (916,128)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards available
to reduce future taxable income of approximately $2,067,000. The Company has
provided a valuation allowance for the entire balance of its deferred tax
assets, including its net operating loss carryforwards, due to the uncertainty
of future realization.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts its operations from facilities under two operating lease
agreements. The lease for the New Hampshire facility terminates in May 2000 with
an option to renew for one year, and the Tennessee facility lease terminates in
February 2001 with an option to renew for two years. As of December 31, 1998,
future annual rental payments are summarized as follows:
<TABLE>
<S> <C>
1999 $129,958
2000 110,550
2001 8,000
</TABLE>
Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in rent
expense for 1998 and 1997 is approximately $96,536 and $92,198, respectively, of
rent paid to a shareholder.
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 is also required to pay royalties to Bix (a shareholder). Royalties
are based on 2% of revenues related to the patented chemistry, and amounted to
$46,675 and $71,925 in 1998 and 1997, respectively. The Company is currently
settling its royalty obligation through consulting services performed by the
Company.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company purchased approximately $188,000 and $141,000 of advertising,
investor relations, rent and transportation services from shareholders 1998 and
1997, respectively.
Page 26
<PAGE> 27
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART II (CONTINUED)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 27
<PAGE> 28
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 to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April, 9, 1999.
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 1998 and 1997, $46,675 and
$71,925, respectively, was recorded as royalty expense to reflect these
transactions. Michael L. Bixenman, a director and officer of the Company is a
10% shareholder of Bix Manufacturing Company.
The Company paid $19,850 and $26,262 in 1998 and 1997 for transportation
services from Benco Sales. Benco Sales is owned by Benny Bixenman, who is a
shareholder of the Company and the brother of Michael L. Bixenman a director and
officer of the Company.
The Company paid approximately $57,193 and $22,540 in 1998 and 1997 for
advertising services from Valentino Design. Valentino Design is owned by G.N.
Valentino who is a shareholder of the Company.
Total rent expense was $132,882 in 1998 and $163,434 in 1997. Included in the
rent expense for 1998 and 1997 is approximately $96,536 and $92,198,
respectively, of rent paid to Charles Hawkins Company who's pension plan is a
shareholder.
The Company paid $14,633 in 1998 for investor relations and consulting services
from John A. Davis III. Mr. Davis is a director 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, as amended
Exhibit 3.2 Bylaws of Registrant (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 dated January 1, 1994 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 5% Promissory Notes between officers and key employees and
Registrant: (1)
(a) Kyle J. Doyel*
</TABLE>
Page 28
<PAGE> 29
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (CONTINUED)
<TABLE>
<S> <C>
(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 (2)
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 (2)
Exhibit 10.25 Amended Lease Agreement, dated December 30, 1997 between Five-Forty North Associates a
Partnership and the Registrant, for Registrant's offices, demonstration facility, and
equipment manufacturing facilities (2)
Exhibit 10.29 Amended Lease Agreement, dated April 1, 1998 between Harding Business Park, a
Partnership, and the Company, for the Company's Nashville, TN headquarters
and chemical manufacturing facilities (3)
Exhibit 10.30 Rights Agreement, dated January 15, 1999, between Kyzen Corporation and American
Stock Transfer & Trust (4)
Exhibit 21.1 Subsidiaries of the Company
Exhibit 23.1 Consent of PricewaterhouseCoopers LLP
Exhibit 27.1 Financial Data Schedule (for SEC Use Only)
</TABLE>
* Indicates a management contract or compensation plan or
arrangement.
(1) Filed as an exhibit to the Company's Registration Statement
on Form SB-2 (No. 33-91854-A) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(2) Filed as an exhibit to the Company's annual report on
Form 10-KSB for the year ended December 31, 1997, previously
filed pursuant to the Securities Exchange Act of 1934 and
hereby incorporated by reference.
(3) Filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended March 31, 1998, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.
(4) Filed as an exhibit to the Company's filing on Form 8-A dated
January 15, 1999 previously filed pursuant to the Securities
Exchange Act of 1934 and hereby incorporated by reference.
Page 29
<PAGE> 30
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
(b) Reports on Form 8-K
During the fourth quarter of 1998 the Company filed no reports on Form 8-K.
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.
<TABLE>
<CAPTION>
(Registrant) Kyzen Corporation
-----------------------------------------------------------------------------------------------
<S> <C>
By /s/ Michael L. Bixenman
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Michael L. Bixenman, Chairman, Vice President, Director
------------------------------
By /s/ Kyle J. Doyel
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Kyle J. Doyel, President, CEO (Principal Executive Officer), Director
--------------------------------
By /s/ Thomas M. Forsythe
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Thomas M. Forsythe, Vice President, Treasurer (Principal Accounting
-------------------------------
Officer), Director
By /s/ Thomas J. Herrmann
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Thomas J. Herrmann, Vice President, Secretary
-------------------------------
By /s/ John A. Davis III
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 John A. Davis, III, Director
-------------------------------
By /s/ James A. Gordon
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 James A. Gordon, Director
-------------------------------
By /s/ Larry A. Lofgreen
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Larry A. Lofgreen, Director
-------------------------------
By /s/ Janet Korte Baker
---------------------------------------------------------------------------------------------------------
Date March 15, 1999 Janet Korte Baker, Director
--------------------
</TABLE>
Page 30
<PAGE> 31
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (CONTINUED)
EXHIBIT INDEX AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 3.1 Registrant's Amended and Restated Articles of Incorporation, as amended
Exhibit 3.2 Bylaws of Registrant (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 dated January 1, 1994 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 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 (2)
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 (2)
Exhibit 10.25 Amended Lease Agreement, dated December 30, 1997 between Five-Forty North Associates a
Partnership and the Registrant, for Registrant's offices, demonstration facility, and equipment
manufacturing facilities (2)
Exhibit 10.29 Amended Lease Agreement, dated April 1, 1998 between Harding Business Park, a Partnership,
and the Company, for the Company's Nashville, TN headquarters and chemical manufacturing
facilities (3)
Exhibit 10.30 Rights Agreement, dated January 15, 1999, between Kyzen Corporation and American Stock
Transfer & Trust (4)
Exhibit 21.1 Subsidiaries of the Company
Exhibit 23.1 Consent of PricewaterhouseCoopers LLP
Exhibit 27.1 Financial Data Schedule (for SEC Use Only)
</TABLE>
* Indicates a management contract or compensation plan or
arrangement.
(1) Filed as an exhibit to the Company's Registration Statement on
Form SB-2 (No. 33-91854-A) previously filed pursuant to the
Securities Act of 1933 and hereby incorporated by reference.
(2) Filed as an exhibit to the Company's annual report on
Form 10-KSB for the year ended December 31, 1997, previously
filed pursuant to the Securities Exchange Act of 1934 and
hereby incorporated by reference.
(3) Filed as an exhibit to the Company's quarterly report on
Form 10-QSB for the quarter ended March 31, 1998, previously
filed pursuant to the Securities Exchange Act of 1934 and
hereby incorporated by reference.
(4) Filed as an exhibit to the Company's filing on Form 8-A dated
January 15, 1999 previously filed pursuant to the Securities
Exchange Act of 1934 and hereby incorporated by reference.
Page 31
<PAGE> 1
Exhibit 3.1 Registrant's Amended and Restated Articles of
Incorporation, as amended
ARTICLES OF INCORPORATION
OF
ORGANIC CHEMICAL DEVELOPMENT CORPORATION
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
KNOW ALL PERSONS BY THESE PRESENTS:
The undersigned natural person of the age of twenty-one or more, for
the purpose of organizing a corporation pursuant to the Utah Business
Corporation Act, does hereby adopt the following Articles of Incorporation:
ARTICLE I
Name of Corporation
The name of the corporation is Organic Chemical Development Corporation.
ARTICLE II
Term
The duration of the corporation is perpetual.
ARTICLE III
Purpose
The general nature of the corporation's business and the corporation's
purposes, are as follows:
1. To engage in the development and production of organic-based
chemical products.
2. To acquire by purchase, lease or otherwise manage and operate,
sell, transfer, rent, lease, mortgage, pledge, and otherwise dispose
of, or encumber any and all classes of property whatsoever, whether
real or personal, or any interest therein, as principal, agent, broker
or dealer.
<PAGE> 2
3. To acquire by purchase, assignment, grant, license or
otherwise to apply for, secure, lease or in any manner obtain to
develop, hold, own, user exploit, operate, enjoy and introduce, rights
of all kinds in respect thereof, or otherwise dispose of to secure to
it the payment of agreed royalties or other consideration, and
generally to deal in and with and to turn to account for any or all
purposes, either for itself or as nominee or agent for others:
(a) Any and all inventions, devices, processes,
discoveries and formulas, improvements and modifications
thereof, and rights and interests therein;
(b) Any and all letters patent or applications for letters
patent of the United States of America or any other country,
state, or locality or authority and any and all rights,
interests and privileges connected therewith or incidental or
appertaining thereto; and
(c) Any and all copyrights granted by the United States or any
other country, state, locality or authority, and any and all
rights, interests, and privileges connected therewith or
incidental or appertaining thereto; and
(d) Any and all trademarks, trade names, trade symbols,
labels, designs and other indicates of origin and ownership
granted by or recognized under the laws of the United States
of America or any other country, state, locality or authority,
connected therewith or incidental or appertaining thereto.
4. To acquire by purchase, subscription or otherwise, and to
receive, hold, own, guarantee, sell, assign, transfer, mortgage, pledge
or otherwise dispose of or deal in and with any of the shares of the
capital stock, script, warrants, rights, bonds, debentures, notes,
trust receipts, and other
2
<PAGE> 3
securities, obligations, choses-in-action and evidences of indebtedness
or interest issued or created by any corporation, joint stock
companies, syndicates, associations, firms, trusts or persons, public
or private, or by the government, or by any state, territory, province,
municipality, or other political subdivision or by any governmental
agency, and as owner thereof to possess and exercise all the rights,
powers and privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all things and acts
necessary or advisable for the preservation, protection , improvement
and enhancement in value thereof.
5. To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and property of
any person, firm, association or corporation, and to undertake or
assume the whole or any part of the obligations or liabilities of any
per son, firm, association or corporation.
6. To borrow or raise money for any of the corporation's purposes
and, from time to time without limit as to amount, to drawl make,
accept, endorse, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures, and other negotiable or
non-negotiable instruments and evidences of indebtedness, and to secure
the payment of any thereof and any of the interest thereon by mortgage
upon or pledge, conveyance or assignment in trust of the whole or any
part of the property of the corporation, whether at the time owned or
thereafter acquired, and to sell, pledge or otherwise dispose of such
bonds or other obligations of the corporation for its corporate
purposes.
7. To loan to any person, firm or corporation, any of its surplus
funds, either with or without security.
3
<PAGE> 4
8. To purchase, hold, sell and transfer the shares of its own
capital stock; provided it shall not use its funds or property for the
purchase of its own shares of capital stock when such use would cause
any impairment of its capital, except as otherwise permitted by law,
and provided further that shares of its own capital stock belonging to
it shall not be voted upon directly or indirectly.
9. To have one or more offices, to carry on all of or any of its
operations and business and, without restriction or limit as to amount,
to purchase or otherwise acquire, hold, own, mortgage, sell, convey or
otherwise dispose of, real and personal property of every class and
description, as principal, agent, broker or dealer, in any of the
states, districts, or territories of the United States, in any and all
foreign countries, subject to the laws of such states, districts,
territories, or countries.
10. To enter into joint ventures and partnerships with
individuals, associations and/or other corporations.
11. In general to do any and all things that are incidental and
conducive to the attainment of any above object and purpose, to the
same extent as natural persons might or could do, which now or
hereafter may be authorized by the laws of the United States and the
State of Utah, and all other applicable laws, as the Board of Directors
may deem to be to the corporation's advantage.
ARTICLE IV
Capital Stock
The aggregate number of shares which this corporation may issue is
1,000,000 shares of common voting stock, all of which shall have $ .01 par value
and all of which are of the same class, with the same rights and preferences.
pre-emptive rights.
4
<PAGE> 5
ARTICLE V
Minimum Paid in Capital
The corporation shall not commence business until it has received at
least $1,000.00 for the issuance of such shares.
ARTICLE VI
Registered Office and Agent
The name and address of the corporation's original registered agent is:
Milton J. Morris
2200 Eagle Gate Tower
Salt Lake City, Utah 84111
ARTICLE VII
Initial Board of Directors
The number of directors constituting the corporation's initial Board of
Directors is one (1), and the name and address of the person who is to serve as
director until the first annual meeting of shareholders, or until a successor or
successors are elected and qualified, are:
Scott L. Crowley
2200 Eagle Gate Tower
Salt Lake City, Utah 84111
ARTICLE VIII
Officers
Officers of this corporation shall include a president, one or more
vice-presidents, a secretary, such assistant secretaries as may be necessary,
and a treasurer. The president, vice-president or vice-presidents, the
secretary, any assistant secretaries, and the treasurer shall be elected by the
Board of Directors and may, but need not be, elected from the members of the
Board.
5
<PAGE> 6
ARTICLE IX
Non-Assessability of Stock
Shares of the corporation's stock shall be issued fully paid and shall
be non-assessable for any purposes. The stockholder's private property shall not
be liable for the corporation's debts, obligations or liabilities.
ARTICLE X
Indemnification and Limits on Liability
1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending,
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person
is or was a corporate director, officer, employee, or agent, or is or
was serving at the corporation's request as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against expenses, including attorney's fees,
actually and reasonably incurred by that person in connection with the
defense or settlement of the action or suit, if such person has acted
in good faith and in a manner that person reasonably has believed to be
in or not opposed to the corporation's best interests. There shall be
no indemnification in respect of any claim, issue, or matter as to
which that person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all circumstances
of the case, the person is fairly and reasonably entitled to indemnity
for such expenses as the court considers proper. To the extent that a
corporate director, officer, employee, or agent has
6
<PAGE> 7
been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in this Article X, or in defense of any
claim, issue, or matter therein, such person shall be indemnified
against expenses, including attorneys' fees, which that person actually
and reasonably incurred in connection therewith.
2. Unless ordered by a court of competent jurisdiction, the
corporation shall provide for any indemnification under this Article X,
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper
under the circumstances because such person has met the applicable
standard of conduct set forth in this Article X. This determination
shall be made by majority vote of a quorum of the Board of Directors or
the shareholders.
3. The corporation may pay expenses incurred in defending a civil
or criminal action, suit, or proceeding, in advance of the final
disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee, or
agent that the amount advanced shall be repaid if it is ultimately
determined that such person is not entitled to be indemnified by the
corporation as authorized in this Article X. The indemnification and
advancement of expenses provided by this Article shall not be exclusive
of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise, both as
to action in that person's official capacity and as to action in
another capacity while holding office.
4. The corporation may purchase and maintain insurance on behalf
of any person who is or was a corporate director, officer, employee, or
agent, or is or was serving at the
7
<PAGE> 8
corporation's request as a director, officer, employee, or agent,
partnership, joint venture, trust, or other enterprise, against any
liability asserted against such person and incurred by that person in
any such capacity or arising out of that person 's status in any such
capacity, whether or not the corporation would have the power to
indemnify the person against the liability under the provisions of this
Article.
5. Any indemnification or advancement of expense under this
Article X shall, unless otherwise provided when the indemnification or
advancement of expenses is authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of such person's heirs, executors, personal
representatives and administrators.
6. A director shall not be liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty, except
for:
(a) Any breach of the director's duty of loyalty to the
corporation or its shareholders;
(b) Acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) Actions under Section 16-10-44, Utah Code Annotated
(1953), as amended; or
(d) Any transaction from which the director derived an
improper personal benefit.
ARTICLE XI
Incorporator
The name and address of the incorporator are:
Helen Kathryn
1100 Eagle Gate Tower
Salt Lake City, Utah 84111
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned original incorporator hereinabove
named, has hereunder set her hand this ninth day of March, 1990
/S/ Helen Kathryn,
--------------------------------------
Helen Kathryn, Incorporator
Acceptance of Appointment
as Registered Agent:
/s/ Milton J. Morris
- -------------------------------------
Milton J. Morris
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE)
On the ninth day of March, 1990, personally appeared before me Helen
Kathryn who, being by me first duly sworn, declared that she is the person who
signed the foregoing instrument and that the statements therein contained are
true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal as of the date
hereinabove mentioned.
/s/ Pamelia Ann Brent
NOTARY PUBLIC
Residing at:
My Commission Expires /s/ Oakley, Utah 84055
/s/ January 28,1994
9
<PAGE> 10
ARTICLES OF AMENDMENT
to the Articles of Incorporation
ORGANIC CHEMICAL DEVELOPMENT CORPORATION
A Utah Corporation
Pursuant to the provisions of Section 16-10-54 through -60 of the Utah
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
First: The name of the corporation is Organic Chemical Development
Corporation.
Second: Article I of the Articles of Amendment of the corporation shall
be deleted in its entirety and the following inserted in lieu thereof:
ARTICLE I
NAME OF CORPORATION
THE NAME OF THE CORPORATION IS KYZEN CORPORATION.
Third: The number of shares of the corporation outstanding at the time
of said adoption was Five Hundred Twelve Thousand Five Hundred (512,500), and
the number of shares entitled to vote thereon was Five Hundred Twelve Thousand
Five Hundred (512,500)
Fourth: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common stock 512,500
</TABLE>
Fifth: The number of shares voted for such amendment was 512,500 and
the number of shares voted against such amendment was zero.
10
<PAGE> 11
DATED this 17 day of June, 1991.
ORGANIC CHEMICAL
DEVELOPMENT CORPORATION
By /s/ Kyle Doyel
---------------------
Kyle Doyel
Its President
By /s/ Milton J. Morris
---------------------
Milton J. Morris
Its Secretary
STATE OF TENNESSEE }
} SS.
County of Davidson }
On the 17th day of June, 1991, personally appeared before me
Kyle J. Doyel who, being by me duly sworn, did say that he is the president of
Organic Chemical Development Corporation, a Utah corporation, and that the
within and foregoing instrument was signed on behalf of said corporation by
authority of a resolution of its Board of Directors, and he duly acknowledged to
me that said corporation executed the same.
Expires 9-25-92
/s/ KA Harris
-----------------------
Notary Public
STATE OF UTAH }
} SS.
County of Salt Lake }
On the 24th day of June, 1991, personally appeared before me Milton J.
Morris who, being be me duly sworn, did say that he is the Secretary of Organic
Chemical Development Corporation, a Utah corporation, and that the within and
foregoing instrument was signed on behalf of said corporation by authority of a
resolution of its Board of Directors, and he duly acknowledged to me that said
corporation executed the same.
/s/ Ann Peterson
-----------------------
Notary Public
Commission Expires February 20, 1994
11
<PAGE> 12
ARTICLES OF AMENDMENT
To the Articles of Incorporation of
KYZEN CORPORATION
A Utah Corporation
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Kyzen Corporation.
SECOND: Article IV of the Articles of Incorporation of the corporation
shall be deleted in its entirety and the following inserted in lieu
thereof:
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which this corporation is
authorized to issue is 12,500,000, of which 30,000,000 shares shall be shares of
Class A Common Stock, having a par value of $0.01 per share, 1,500,000 shares
shall be shares of Class B Redeemable Common Stock, having a value of $0.001 per
share, 1,000,000 shares shall be shares of Class C Redeemable Common Stock,
having a par value of $0.001 per shared and 10,000,000 shares shall be shares of
Preferred Stock, having a par value of $0.001 per share. The Class A Common
Stock, Class B Common Stock and Class C Common Stock are sometimes referred to
collectively herein as the "Common Stock."
The designation, powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of each class of stock, and the express grant of authority to the Board
of Directors to fix by resolution the designation, powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of each share of Preferred Stock which are
not fired by these Articles of Incorporation, are as follows:
12
<PAGE> 13
A. Common Stock
1. Voting Rights. Except as otherwise expressly provided by law or in
this Article IV, each outstanding share of Common Stock of whichever class shall
be entitled to one (1) vote on each matter to be voted on by the shareholders of
the corporation. Except as otherwise expressly required by applicable law, the
votes of all shares of all classes of Common Stock shall be counted together
with all other shares of Common Stock, and not as separate classes.
2. Liquidation Rights. Subject to any prior or superior rights of
liquidation as may be conferred upon any shares of Preferred Stock, and after
payment or provision for payment of the debts and other liabilities of the
corporation, upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the corporation, the holders of Common Stock, of
whichever class, then outstanding shall be entitled to receive all of the assets
and funds of the corporation remaining and available for distribution. Such
assets and funds shall be divided among and paid to the holders of Common Stock,
on a pro-rata basis, according to the number of shares of Common Stock, of
whatever class, held by them.
3. Dividends. Dividends may be paid on the outstanding shares of Common
Stock as and when declared by the Board of Directors, out of funds legally
available therefore, provided, however, that no such dividends may be declared
or paid on any shares of any class of Common Stock unless at the same time an
equivalent dividend is declared or paid on all outstanding shares of each class
of Common Stock, and no dividends shall be made with respect to the Common Stock
until any preferential dividends required to be paid or set apart for any shares
of Preferred Stock have been paid or set apart.
4. Redemption Provisions.
a. No Redemption of Class A Common Stock. The corporation shall
not have the right to call or redeem any of the shares of Class A Common Stock.
b. Mandatory Redemption of Class B Redeemable Common Stock.
(1) So long as any shares of Class B Redeemable
Common Stock (hereinafter referred to as the "Class B Common Stock") may be
outstanding, the corporation shall, within thirty (30) days following the end of
each calendar quarter commencing with the quarter ending June 30, 1992, set
aside as and for a sinking fund for the redemption of shares of Class B Common
Stock in cash out of any funds legally available therefor, a sum equal to a
percentage of the gross sales revenues of the corporation
13
<PAGE> 14
received during the calendar quarter just ended, as set forth in the following
schedule:
<TABLE>
<CAPTION>
Percentage of Gross
Sales Revenues to be
Used for Redemption of
Quarters Ending Class B Common Stock
--------------- --------------------
<S> <C>
June 30, September 30 and
December 31,1992 3%
March 31, June 3O, September 30
and December 31, 1993 4%
March 31, June 30, September 30
and December 31, 1991 5%
March 31, June 30, September 30
and December 31, 1995 6%
March 31, June 30, September 30
and December 31, 1996 7%
All subsequent quarters until all
shares of Class B Common Stock are
redeemed 7%
</TABLE>
Each date on which funds are set aside as and for a sinking fund for the
redemption of Class B Common Stock is sometimes referred to herein as a "Sinking
Fund Payment Date." The sinking fund so created is sometimes referred to as the
"Sinking Fund."
Notwithstanding the foregoing, in no event shall the corporation be
obligated to set aside for the redemption of shares of Class B Common stock any
amount in excess of the lesser of (i) the total redemption price of all shares
of Class B Common Stock then outstanding; or (ii) the maximum amount the
corporation is then permitted to expend in the purchase of its own shares as
provided in applicable law, including section 5 of the Utah Business Corporation
Act, or any successor provision.
(2) Each outstanding share of Class B Common Stock
not previously redeemed as provided in this paragraph I, and for which no
payments have been placed into the sinking Fund, shall be redeemed by the
corporation immediately upon the effectiveness of a registration statement under
the Securities Act of 1933, as amended, covering a firm-commitment
underwritten offer and sale of any Common Stock of the corporation to the public
for an aggregate consideration of at least 83,000,000. Such redemption shall be
effected by the corporation issuing to each of the holders of Class B Common
Stock its promissory note in a principal
14
<PAGE> 15
amount equal to the issuance price of all of the shares of Class B Common Stock
to be redeemed for such holder (being all of the Shares of Class B Common Stock
not otherwise redeemed as provided in this paragraph I). interest shall accrue
on the principal amount of each promissory note at the rate of twelve percent
(12%) per annum, commencing from the date of the original issuance of the shares
being redeemed by the promissory note. The promissory notes shall be unsecured,
general obligations of the corporation, The entire principal amount and all
accrued interest under all such promissory notes issued to redeem outstanding
shares of Class B Common Stock shall be due and payable on the closing of the
public offering which triggered the redemption obligation.
(3) The mandatory redemption price (the "Redemption
Price") for each share of Class B Common Stock shall for purposes of a
redemption out of revenues provided in paragraph (I) (b)(l) above be: ii) an
amount in cash equal to 81.80 per share (subject to adjustment for stock splits
and the like), plus all declared but unpaid dividends thereon, to and including
the date fixed for redemption; or (ii) for purposes of a redemption by
promissory note triggered by a public offering of securities of the corporation
as provided in paragraph (I) (b)(2) above, an amount equal to the original
issuance price of the shares to be redeemed, plus all declared but unpaid
dividends thereon, with the entire redemption price earning interest at a simple
rate of twelve percent (12%) per annum, commencing from the date of redemption,
and the portion of the redemption price based on the original issuance price of
the shares earning such interest from the date of original issuance of the
shares.
(4) The cash in the Sinking Fund shall be used to
acquire by redemption, in the manner provided below, the maximum number of
shares of Class B Common Stock which ray be purchased out of the Sinking Fund at
the Redemption Price.
(5) Upon each cash redemption of outstanding shares
of Class B Common Stock, until all outstanding shares of Class B Common Stock
have been redeemed, the corporation shall effect such redemption pro-rata
according to the number of shares held by each holder of Class B Common Stock.
(6) Upon each Sinking Fund Payment Date, written
notice (the "Mandatory Redemption Notice") shall be mailed, postage prepaid, to
each holder of record of Class B Common Stock to be redeemed, at the post office
address last shown on the records of the corporation. The Mandatory Redemption
Notice shall state:
15
<PAGE> 16
(i) The total number of shares of Class B Common Stock to
be redeemed, and the percentage of all outstanding shares of Class B Common
Stock represented by that number;
(ii) The number of shares of Class B Common Stock to be
redeemed from the holder to whom the notice is mailed;
(iii) The Redemption Price applicable to the shares to be
redeemed, and the date fined for the redemption, which shall be not more than 30
days after the date of sailing of the Mandatory Redemption Notice (the
"Mandatory Redemption Date"); and
(iv) That the holder is to surrender to the corporation, in
the manner and at the place designated, such holder's certificate or certificate
representing the shares of Class B Common Stock to be redeemed.
In the event of a redemption of shares triggered by a
public offering of securities of the corporation, as provided in paragraph (2)
above, a Mandatory Redemption Notice shall be sent as provided above, specifying
that all remaining outstanding shares of Class B Common Stock are to be redeemed
or the terms and conditions set forth in paragraph (I) (b) (2).
(7) On or before or promptly after the Mandatory
Redemption Date, each holder of Class B Common Stock to be redeemed shall
surrender the certificate or certificates representing such shares to the
corporation, in the manner and at the place designated in the Mandatory
Redemption Notice, and thereupon the Redemption Price for such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired. In the event less than all of the shares represented by
such certificate are redeemed, a new certificate shall be issued representing
the unredeemed shares.
(8) If the Mandatory Redemption Notice shall have been
duly given, and if on the Mandatory Redemption Date the Redemption Price is
either paid or made available for payment through the deposit arrangement
specified in subparagraph (i) below, or through the issuance of a promissory
note as contemplated by paragraph (I)(b)(2) above, then notwithstanding that the
certificates evidencing any of the shares of Class B Common Stock so called for
redemption shall not have been surrendered, the dividends with respect to such
shares shall cease to accrue after the Mandatory Redemption Date and all rights
with respect to such shares shall forthwith after the Mandatory Redemption Date
terminate, except only the right of the holders to receive the Redemption Price
without interest, or the issuance of
16
<PAGE> 17
a promissory note as contemplated by paragraph (2), as the case may be, upon
surrender of their certificate or certificates therefor.
(i) On or prior to the Mandatory Redemption Date, the
corporation shall deposit with any bank or trust company having a capital and
surplus of at least 8100,000,000 as a trust fund, a sun equal to the aggregate
Redemption Price of all shares of Class B Common Stock called for redemption and
not yet redeemed, with irrevocable instructions and authority to the bank or
trust company to pay, on or after the Redemption Date or prior thereto, the
Redemption Price to the respective holders upon the surrender of their share
certificates. From and after the date of such deposit, the shares so called for
redemption shall be redeemed. The deposit shall constitute full payment of the
shares to their holders, and from and after the date of the deposit the shares
shall be deemed to be no longer outstanding, and the holders thereof shall cease
to be shareholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payment of the Redemption Price of the shares, without interest, upon surrender
of their certificates therefor. Any funds so deposited and unclaimed at the end
of one year from the Mandatory Redemption Date shall be released or repaid to
the corporation, after which the holders of shares called for redemption shall
be entitled to receive payment of the Redemption Price only from the
corporation.
c. Optional Accelerated Redemption of Class B Common Stock. The
corporation may, at any time, at the option of the board of directors, redeem
all or any part of the outstanding shares of Class B Common Stock prior to the
mandatory redemption contemplated in paragraph (4) (b) above by setting aside in
the Sinking Fund funds in addition to those required to be set aside for the
redemption of Class B Common stock as provided in paragraph (4) (b) (1) above,
and following the same notification and purchase procedures applicable to a
mandatory redemption of shares of Class B Common Stock as set forth in paragraph
(4)(b) above and applicable to a redemption out of revenues. The purchase price
for shares acquired in such a redemption shall be the same Redemption Price
applicable to a redemption out of revenues as set forth in paragraph (4) (b) (3)
above. In case of a redemption of only a part of the Class B Common Stock
pursuant to this paragraph (4) (c), the corporation shall designate pro-rata the
shares to be redeemed, consistent with the requirements of paragraph (4) (b) (5)
above.
d. Mandatory Redemption of Class C Redeemable Common Stock. The
class C Redeemable Common Stock (the "Class C Common
17
<PAGE> 18
Stock") shall be subject to mandatory redemption provisions identical to those
applicable to the Class B Common Stock as set forth in paragraph (b) above,
except that: (i) no contributions shall be made to any sinking Fund for the
redemption of Class C Common Stock until all shares of Class B Common Stock have
been redeemed; and (ii) the Redemption Price applicable to the Class C Common
Stock to be redeemed out of any funds placed in a Sinking Fund shall be such
multiple of the original issuance price of the Class C Common Stock as may be
fixed by the Board of Directors of the corporation.
5. Transfer Restrictions.
a. No person holding shares of Class B Common stock or Class C Common
Stock (hereinafter called a "Class B or C Holder") may transfer, and the
corporation shall not register the transfer of, such shares of Class B or Class
C Common Stock, whether by sale, assignment, gift, bequest, appointment or
otherwise, except to a Permitted Transferee of such Class B or C Holder, which
term shall have the following meanings:
(1) In the case of any class B or C holder,
"Permitted Transferee" means any other person or entity which is a record holder
of any shares of the corporation's Common Stock or Preferred stock at the time
such Class B or C Holder effects a transfer.
(2) In the case of a Class B or C Holder who is
a natural person holding record and beneficial ownership of the shares of Class
B or Class C Common Stock in question, such holder's "Permitted Transferee"
means (i) the spouse of such Class B or C Holder, (ii) a lineal descendant of a
great grandparent of such Class B or C Holder, (iii) the trustee of a trust
(including a voting trust) for the benefit of one or more of such Class B or C
Holders, other lineal descendants of a great grandparent of such Class B or C
Bolder, the spouse of such Class B or C Holder, and an organization
contributions to which are deductible for federal income, estate or gift tax
purposes (hereinafter called a "Charitable Organization"), and for the benefit
of no other person, and provided that such trust must prohibit transfer of
shares of Class B or Class C Common Stock to persons other than Permitted
Transferees as defined herein, (iv) i corporation all of the outstanding capital
stock of which is owned by, or a partnership all of the partners of which are,
one or more of such Class B or C Holders, other lineal descendants of a great
grandparent of such Class 8 or C Holder, and the spouse of such Class B or C
Holder.
18
<PAGE> 19
(3) In the case of a Class B or C Bolder holding
the shares of Class B Common Stock in question as trustee pursuant to a trust
other than a trust described in clause (I) below, such holder's "Permitted
Transferee" means (i) the person who established such trust, and (ii) a
Permitted Transferee of such person determined pursuant to clause (2) above.
(4) In the case of a Class B or C Holder holding
the shares of Class B or Class C Common Stock in question as trustee pursuant to
a trust which was irrevocable on the date as of which the corporation first
issued Class B or Class C Common Stock (hereinafter in this paragraph b called
the "Issuance Date"), such holder's "Permitted Transferee" means any person to
whom or for whose benefit principal may be distributed either during or at the
end of the term of such trust whether by power of appointment or otherwise,
(5) In the case of a Class B or C Bolder holding
record (but not beneficial) ownership of the shares of Class B or Class C Common
Stock in question as nominee for the person who was the beneficial owner thereof
on the issuance Date, such holder's "Permitted Transferee" means such beneficial
owner and a Permitted Transferee of such beneficial owner as defined herein.
(6) In the case of a Class B or C Holder which
is a partnership holding record and beneficial ownership of the shares of Class
B or Class C Common Stock in question, such holder's "Permitted Transferee"
means any partner of such partnership on the Issuance Date.
(7) In the case of a Class B or C Holder which
is a corporation holding record and beneficial ownership of the shares of Class
B or Class C Common Stock in question, such holder's "Permitted Transferee"
means any stockholder of such corporation receiving shares of Class B or Class C
Common Stock through a dividend or through a distribution made upon liquidation
of such corporation, and the survivor of a merger or consolidation of such
corporation.
(8) In the case of a Class B or C Holder which
is the estate of a deceased Class B or C Holder, or which is the estate of a
bankrupt or insolvent Class B or C Holder, and provided such deceased, bankrupt
or insolvent Class B or C Holder, as the case may be, holds record and
beneficial ownership of the shares of Class B or Class C Common Stock in
question, such holder's "Permitted Transferee" means a Permitted Transferee of
such deceased, bankrupt or insolvent Class B or C Holder.
19
<PAGE> 20
b. Notwithstanding anything to the contrary set forth herein, any Class
B or C Holder may pledge such Holder's shares of Class B or Class C Common Steak
to a pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee, provided that such shares shall
not be transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this paragraph S, In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class S or Class C
Common Stock may only be transferred to a Permitted Transferee of the pledgor.
c. For purposes of this paragraph 5:
(1) The relationship of any person that is
derived by or through legal adoption shall be considered a natural one.
(2) Each joint owner of shares of Class B or
Class C Common Stock shall be considered a "Class B or C Holder" of such shares.
(3) A minor for whom shares of Class B or Class
C Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law
shall be considered a Class B or C Holder of such shares.
(4) Unless otherwise specified, the term
"person" means both natural persons and legal entities.
d. Any purported transfer of shares of Class B or Class C Common Stock
not permitted hereunder shall be void and of no effect and the purported
transferee shall have no rights as a stockholder of the corporation and no other
rights against or with respect to the corporation. The corporation may, as a
condition to the transfer or the registration of transfer of shares of Class B
or Class C Common Stock to a purported Permitted Transferee, require the
furnishing of such affidavits or other proof as it may reasonable request to
establish that such transferee is a Permitted Transferee. The corporation shall
note on the certificates for shares of Class B and Class C Common Stock the
restrictions on transfer and registration of transfer imposed by this paragraph
5.
6. Residual Rights. All rights accruing to the outstanding shares of
capital stock of the corporation not expressly provided for to the contrary
herein or in the corporation's bylaws shall be vested in the Common Stock.
20
<PAGE> 21
B. Preferred Stock
The shares of Preferred Stock authorized by these Articles of
Incorporation may be issued from time to time in one or more series. To the
extent, that these Articles of Incorporation, as they may be amended, have not
established series of Preferred Stock and fixed the variations in the relative
rights and preferences between series of Preferred Stock, the Board of Directors
is hereby authorized to: (i) divide the Preferred Stock into series; (ii) fix
the number of shares constituting any series so established and the designation
of each such series; and (iii) fix and determine the relative rights and
preferences of the shares of any series so established, all in the manner and
within the limitations set forth in Section Is of the Utah Business corporation
Act (or any successor provision) as currently in effect or as it may hereafter
be amended.
For any wholly unissued series of Preferred Stock, the Board of Directors
may change the designation of the series, the number of shares constituting the
series and the relative rights and preferences of the shares of such series, in
the manner and within the limitations set forth above.
For any series of Preferred Stock having issued and outstanding shares,
the Board of Directors is hereby authorized to increase or decrease the number
of shares of such series when the number of shares of such series was originally
fixed by the Board, but such increase or decrease shall be subject to the
limitations and restrictions stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the number of shares
of any series is so decreased, the decrease shall not reduce the number of
shares of such series below the number then issued and outstanding and the
shares constituting such decrease shall resume the status that they had prior to
the adoption of the resolution originally fixing the number of shares of such
series.
C. Reclassification of Common Voting Stock
Upon the effective date of this amendment of the Articles of
Incorporation, all shares of common voting stock the corporation was authorized
to issue immediately prior to such effective date shall be reclassified,
redesignated and reconstituted into an equal number of shares of Class A Common
Stock, and each outstanding share of common voting stock, $0.01 per value per
share, shall be reclassified, redesignated and reconstituted into one share of
Class A Common Stock, $0.01 per value per share.
D. No Pre-emptive Rights
No holder of shares of the Capital Stock of the corporation shall have
any pre-emptive rights to acquire additional shares of the corporation, whether
now or hereafter authorized.
21
<PAGE> 22
THIRD: The amendment to the Articles of Incorporation set forth in the
preceding paragraph was adopted by the shareholders of the corporation by
unanimous written consent effective as of February 28, 1992.
FOURTH: Prior to the effectiveness of these Articles of Amendment, the
corporation had one class of stock outstanding, designated common voting stock
and having a par value of $0.01 per share. One million shares of common voting
stock were outstanding upon the adoption of the above described amendment to the
Articles of Incorporation, and all such shares were entitled to vote on the
amendment.
FIFTH: The number of shares voted for the above referenced amendment
was one million and the number of shares voted against such amendment was zero.
SIXTH: The amendment increases the number of shares the corporation is
authorized to issue, redesignates the previously authorized shares of common
voting stock as Class A Common Stock, increases the number of shares of Class A
Common Stock the corporation is authorized to issue, creates two new classes of
Common Stock designated as Class B Redeemable Common Stock and Class C
Redeemable Common Stock, fixes the rights, terms, limitations and restrictions,
of the Class B and Class C Common Stock, creates a class of Preferred Stock, and
authorizes the Board of. Directors to divide the Preferred Stock into series and
to determine the relative rights and preferences of the shares of any series so
established. The amendment does not effect a change in the amount of stated
capital of the corporation.
22
<PAGE> 23
IN WITNESS WHEREOF, we have signed these Articles of Amendment this
28th day of April, 1992.
KYZEN CORPORATION
By:/s/Kyle Doyel
---------------------------------
Kyle Doyel, President
By:/s/Milton J. Morris
---------------------------------
Milton J. Morris, Secretary
Attested and Verified
/s/Milton J. Morris
- ---------------------------
Milton J. Morris, Secretary
23
<PAGE> 24
ARTICLES OF AMENDMENT
to the Articles of Incorporation
of
KYZEN CORPORATION
-------------------------
Pursuant to the provisions of Section 16-10a-602 of the Utah
Revised Business Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
First: The name of the corporation is Kyzen Corporation (the
"Corporation").
Second: The following new Article XII shall be added to the
Corporation's Articles of Incorporation:
ARTICLE XII
Series A Junior Participating Preferred Stock
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 100,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $.01 per share (the "Common Stock"),
of the Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of
24
<PAGE> 25
all noncash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on
the Common Stock since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
25
<PAGE> 26
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
26
<PAGE> 27
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Articles of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon
any liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by
27
<PAGE> 28
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Articles of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
Third: The amendments to the Corporation's Articles of
Incorporation contained in these Articles of Amendment were adopted by the Board
of Directors at a meeting duly called and held on January 15, 1999.
Fourth: The amendments to the Corporation's Articles of
Incorporation contained in these Articles of Amendment were adopted by the Board
of Directors without shareholder action, which was not required.
28
<PAGE> 29
IN WITNESS WHEREOF, these Articles of Amendment are executed
on behalf of the Corporation by its Chief Executive Officer and attested by its
Secretary this 15th day of January, 1999.
/s/ Kyle J. Doyel
--------------------------
Chief Executive Officer
and President
Attest:
/s/ Thomas J. Herrmann
Secretary
29
<PAGE> 1
Exhibit 21.1 Subsidiaries of the Company
SUBSIDIARIES OF THE COMPANY
NAME STATE OF INCORPORATION
- --------------------------------------------------------------------------------
Kyzen Acquisition Corporation Tennessee
<PAGE> 1
Exhibit 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 22, 1999 appearing on
page 15 of this Form 10-KSB of Kyzen Corporation.
PricewaterhouseCoopers LLP
Nashville, TN
March 15, 1999
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 523,915
<SECURITIES> 0
<RECEIVABLES> 839,877
<ALLOWANCES> 8,160
<INVENTORY> 345,898
<CURRENT-ASSETS> 1,747,623
<PP&E> 1,421,191
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,001,757
<CURRENT-LIABILITIES> 505,805
<BONDS> 0
0
0
<COMMON> 50,068
<OTHER-SE> 2,445,884
<TOTAL-LIABILITY-AND-EQUITY> 3,001,757
<SALES> 5,877,974
<TOTAL-REVENUES> 5,877,974
<CGS> 2,536,880
<TOTAL-COSTS> 2,536,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,074
<INCOME-PRETAX> 67,503
<INCOME-TAX> 0
<INCOME-CONTINUING> 67,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,503
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
