<PAGE> 1
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, 1999
----------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 000-26434
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Kyzen Corporation
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(Name of Small Business Issuer in Its Charter)
Tennessee 87-0475115
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State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
430 Harding Industrial Drive, Nashville, TN 37211
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(Address of Principal Executive Offices) (Zip Code)
615-831-0888
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title Of Each Class Name Of Each Exchange On Which Registered
Common Stock Boston Stock Exchange
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Warrants for 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. [ ]
State issuer's revenues for its most recent fiscal year. $5,759,850
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act)
$2,292,329 at $0.8438 as of February 17, 2000
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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) of 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.
4,777,787 shares of Common Stock outstanding as of February 17, 2000
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 27, 2000 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>
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, 1999, and 1998 16
Statement of Operations for the years ended
December 31, 1999 and 1998 17
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1999 and 1998 18
Statement of Cash Flows for the years ended
December 31, 1999 and 1998 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 29
</TABLE>
Page 3 of 56
<PAGE> 4
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, optics,
aerospace, semiconductor 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. On April 28, 1999, the
Shareholders of the Company approved the merger of the Company with a wholly
owned subsidiary of the Company, the result of which was to change the state of
incorporation to Tennessee. The reincorporation became effective on May 26,
1999. The Company's 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 present more difficult cleaning challenges for
manufacturers.
CHEMICAL CLEANING PRODUCTS
Kyzen has formulated eight 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));
- solvent cleaning agent licensed from Honeywell International
Inc. (formerly AlliedSignal) (Synergy CCS(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(R)); and
- waterless solvents and hand-wipe solvents (Kryptonol(R)) and
(Cybersolv(R)).
Page 4 of 56
<PAGE> 5
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, aerospace 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 into a licensing agreement
with AlliedSignal now known as Honeywell International Inc., ("Honeywell") and
Hewlett Packard to sell and market a patented cleaning product jointly
developed by both companies. In 1999, the Company entered into an exclusive
agreement to sell and market a patented chemical developed by DuPont. This
chemical will be targeted by the Company into formulated applications for
electronics and semiconductor industries. 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 opportunity 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. This group 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 3.8% of sales in 1999, as compared to 3.3% of sales during
1998.
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 manufacture and sale of its PCS
systems to potential customers in current markets and to continue to develop
the PCS system for new niche cleaning applications and for other chemical
applications with the largest interest being generated by the semiconductor
industry.
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 the Company'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. Probably the Company's greatest competitive challenge comes
from the advent of soldering technologies that do not require cleaning. As
electronic assembly becomes more commodity-oriented, many original equipment
manufacturers ("OEM's") are outsourcing the production of their products to
contract assembly manufacturers. Many of the products produced by the contract
manufacturers are not cleaned, thereby slowly reducing the size of the cleaning
market in the electronic assembly area. The cleaning challenges that remain in
the contract assembly market tend to be smaller and more oriented to "off line"
production processes. Management believes its most significant competitors in
the sale of
Page 5 of 56
<PAGE> 6
KYZEN CORPORATION
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PART I (CONTINUED)
cleaning chemicals 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
sells directly to the end user 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 of
the Company is that few companies have as their primary source of revenue 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 or 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 1999, the Company became less reliant on this specific vendor
as the Company obtained 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 are widely available from numerous sources.
SALES AND PRODUCT DISTRIBUTION
Marketing. There are a number of precision cleaning market niches ranging in
size from $1,000,000 to $50,000,000 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 and has targeted the niches
in optics, semiconductors and aerospace for expansion. The Company is currently
developing other cleaning processes and products for these niches with some
emphasis on peripheral cleaning products such as hand cleaning products and
wipes, and cleaning using smaller machines and batch type processes.
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 demonstration facilities in the
industrial cleaning industry. The centers are used to expedite the sales cycle
for Kyzen's chemical solutions, to accelerate the development of new chemical
products, and to increase potential customer's exposure to Kyzen and its
products.
Sales Force. One of the primary sales challenges facing the Company is selling
its cleaning technologies to customers who have limited experience with
cleaning agents and processes. Consequently, these sales often require long
relationship building periods and considerable time for solving problems and
testing of process and chemistry. To shorten the sales cycle, the Company has
invested in Cleaning Applications and Evaluation Centers as noted above, which
allow new and existing customers to test and collect data on various cleaning
products and processes. The Company's sales cycle 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, 1999, 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.
Page 6 of 56
<PAGE> 7
KYZEN CORPORATION
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PART I (CONTINUED)
PATENTS
The Company holds four patents for its chemical cleaning formulations in the
United States. Two patents cover applications in the electronic area, the other
two cover applications in the optical and semiconductor area. The Company also
has obtained one patent for electronic applications in each of Mexico, China,
Taiwan, Australia, Korea, Brazil, European Union and Japan. The two electronic
patents, which expire between 2009 and 2014, and pending international patents
related to these two U.S. patents, are jointly owned by the Company and Delphi
Automotive Systems ("Delphi", formerly Delco Electronics, a division of General
Motors). Delphi has retained the right to use the chemistry developed under the
patents and the Company has retained the right to market the patented
formulations. Delphi 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 Delphi.
The Company has applied for additional patents in the United States and several
foreign countries covering electronic, optical and semiconductor cleaning
formulations and the use of novel materials and processes. 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. Two US patents were issued to the
Company in October 1999 and January 2000, and additional patents from this and
other applications are currently being reviewed by the patent office. These two
US patents will expire in 2018.
The Company is also required to pay patent royalties to Bix Manufacturing
Company, a shareholder of the Company. Royalties are based on 2% of revenues
related to the patented chemistry, and amounted to $41,100 and $46,675 in 1999
and 1998, respectively. The Company is currently settling its royalty
obligation through consulting services performed by the Company. In addition,
the Company also pays a royalty to Honeywell for the sale of products under a
licensing arrangement made with Honeywell. The royalty is based on a percentage
of sales made by Kyzen under the agreement. In 1999, these royalty payments
were less than $50,000.
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, or
any 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.
The Company has an agreement with DuPont to formulate and market products based
on a chemical compound developed by DuPont. The compound is currently subject
to the EPA's Significant New Use Regulations ("SNUR"), and as such, can only be
sold to and used in the semiconductor marketplace. DuPont has petitioned the
EPA to remove the SNUR limitation on the compound so that it may be used in a
number of markets. The Company believes that DuPont will be successful in its
SNUR petition which will enable the compound to be used in many of the niche
markets the Company serves. The Company knows of no other raw materials or
products that it anticipates using in the future that require government
approval prior to use in the marketplace
RESEARCH AND DEVELOPMENT
The Company's research and development expenses in 1999 were $406,166 and in
1998 were $424,335. Of this amount, $384,172 in 1999 and $398,962 in 1998 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 gross sales 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, 1999, 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 2000 given historical growth levels of the
Company. Higher growth rates, acquisitions or licensing of new product lines
may require additional employees to properly staff increased sales, development
and technical support functions. Management of the Company intends to hire
additional personnel as they are required.
Page 7 of 56
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KYZEN CORPORATION
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PART I (CONTINUED)
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 material 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. The New Hampshire 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 the 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 lease for the Tennessee facility
terminates in February 2001 with an option to renew for two years. As of
December 31, 1999, future annual rental payments are summarized as follows (not
including optional periods):
<TABLE>
<CAPTION>
<S> <C>
2000 $110,550
2001 8,000
2002 -0-
</TABLE>
Total rent expense was $132,425 in 1999 and $132,882 in 1998. Included in rent
expense for 1999 and 1998 is approximately $97,462 and $96,536, respectively,
of rent paid to Charles Hawkins Company, whose pension plan is a shareholder.
The Company carries general property and casualty insurance in an amount
management considers to be adequate.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings and the Company is not
aware of any proceedings contemplated by any party against the Company.
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
of 1999.
Page 8 of 56
<PAGE> 9
KYZEN CORPORATION
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants to purchase Common Stock are quoted on
the OTC Bulletin Board (symbols KYZN and KYZNW, respectively) and listed on the
Boston Stock Exchange (symbols KYZ and KYZW, respectively). In February 2000,
the Company's securities were removed from the Nasdaq SmallCap Stock Market for
failure of the common stock to meet the requirements for minimum bid price. The
following table provides the range of the high and low bid quotations for the
Company's Warrants and Common Stock on the Nasdaq SmallCap 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>
Warrants Common Stock
Dividends High Low High Low
--------- ------ ------ -------- -------
<S> <C> <C> <C> <C> <C>
Quarter ended: March 31, 1998 * $ 7/16 $ 3/16 $ 2 $ 1 3/8
June 30, 1998 * 7/16 3/16 1 1/2 1 3/16
September 30, 1998 * 7/16 1/32 1 1/2 13/16
December 31, 1998 * 3/16 1/16 1 1/16 1/2
March 31, 1999 * 3/16 3/32 1 1/4 17/32
June 30, 1999 * 5/32 3/32 1 3/8 11/16
September 30, 1999 * 5/32 1/4 1 3/16 11/16
December 31, 1999 * 1/4 1/32 15/16 5/16
</TABLE>
* The Company historically has not paid dividends and does not expect to
pay dividends in the foreseeable future.
There were approximately 100 shareholders of record and approximately 1,300
beneficial shareholders of Common Stock on December 31, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Net sales for the year ended December 31,1999 from all business activities
decreased approximately 2% or $118,124 to $5,759,850, as compared to $5,877,974
in the year ended December 31, 1998. Net chemical sales during the same time
period decreased 3% over the year ended December 31, 1998. These decreases are
due to reduced volume of sales of the Company's chemical cleaning agents to
existing customers, reduced international sales primarily due to the relocation
of a major customer's facility and cleaning process equipment, and the loss of
a major domestic customer that closed its production facility in December 1998.
The customer closing its production facility represented approximately 5% of
net sales for the year ended December 31, 1998 and provided no sales for the
year ended December 31, 1999. Sales of equipment, processes and peripheral
systems have increased 15% during the year ended December 31, 1999, from 3% of
net sales in 1998 to 4% of net sales in 1999. The Company remains focused on
chemical sales, but continues to maintain its base of equipment sales which
help to support future chemical sales.
Gross profit for the year ended December 31, 1999 decreased 1% or $35,746 to
$3,305,348 as compared to $3,341,094 in the year ended December 31, 1998. Gross
profit margins from all business activities for 1999 remained at approximately
57%, the same as in 1998, reflecting the relatively consistent trends in sales
and costs of goods sold for chemicals and equipment.
Selling, marketing, general and administrative expenses for the year ended
December 31, 1999 increased 6% or $161,969 to $3,074,422 as compared to
$2,912,453 in the year ended December 31, 1998. This increase reflects
non-recurring expenses related to the implementation of the Company's
Shareholder Rights Plan, non-recurring expenses associated with the Company's
redomestication from Utah to Tennessee and increased spending for the
development and printing of new sales brochures during 1999.
Research and development expenses for the year ended December 31, 1999
decreased 4% or $18,169 to $406,166 from $424,335 for the year ended December
31, 1998. The decrease was the result of personnel changes and timing in the
ordering of supplies for the year ended December 31, 1999 compared to the year
ended December 31, 1998. As a percentage of gross sales, research and
development expenses have remained constant at 7% of sales for both 1999 and
Page 9 of 56
<PAGE> 10
KYZEN CORPORATION
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PART II (CONTINUED)
1998, reflecting the continued commitment by Kyzen to pursue new products and
markets through research and development.
The operating loss for the year ended December 31, 1999 was $175,240, a net
increased loss of $179,546 compared to the operating income of $4,306 in 1998.
This increased loss is primarily the result of the increased selling,
marketing, general and administrative expenses mentioned above. With chemical
sales down slightly, and margins at the same level for both years, the
increased administrative expenses attributable mostly to one time charges in
connection with the Company's redomestication, resulted in operating losses in
1999.
Net interest decreased $258,689 from an income of $63,197 in the year ended
December 31, 1998 to an expense of $195,492 for the year ended December 31,
1999. This expense is the result of management's decision to record a non-cash
charge of $215,463 relating to the write-off of interest receivable on certain
long term notes receivable from officers and former employees. These notes,
which were supported by collateral of 322,227 shares of Kyzen Common Stock,
were deemed to have been materially impaired by the continued low trading
prices of Kyzen Common Stock. These shares have been returned to the Company.
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, as compared to $5,459,846
in the year ended December 31, 1997. 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, reflecting
a larger percentage of total sales attributable to higher margin chemical
products.
Selling, marketing, 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%, reflecting 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 compared to the year ended December 31, 1997.
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 per
year of 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.
Page 10 of 56
<PAGE> 11
KYZEN CORPORATION
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PART II (CONTINUED)
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, 1999.
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 adopted 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 a material impact on the Company's
financial condition or results of operations.
RECENT BUSINESS DEVELOPMENTS
The Company on January 25, 2000 was awarded a patent entitled "Cleaning
Compositions and Methods for Cleaning Resin and Polymeric Materials used in
Manufacture". The art disclosed in this patent is intended to be used for the
cleaning of articles used in the manufacture of ophthalmic lenses,
semiconductor devices and other industrial processes that require cleaning of
polymers and resins.
Recent developments in the electronic assembly marketplace indicate a trend for
manufacturers to outsource their production to contract manufacturers. The
Company has traditionally sold both to original equipment manufacturers and
contract manufacturers and this trend may result in more consolidation of the
cleaning processes. This consolidation may have an effect on shrinking the
overall cleaning market. In addition because contract manufacturers use a
number of production and cleaning techniques, cleaning opportunities may shift
from larger applications using in-line conveyorized machines to smaller
applications using batch cleaning processes. This trend towards batch cleaning
processes may also be accelerated by the growth in more miniaturized electronic
products. The Company has historically participated in the batch cleaning
market, and the Company anticipates continuing to emphasize the development of
new products and processes for this growing segment of the marketplace.
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 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;
changes in the import and export rules, regulations and tariffs as they apply
to countries where the Company conducts its business; the ability of the
Company to obtain financing or equity capital with favorable terms and
conditions; the 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
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<PAGE> 12
KYZEN CORPORATION
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PART II (CONTINUED)
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
Prior to January 1, 2000, the Company conducted significant testing and
planning and implemented certain system upgrades to address potential
malfunctions by its internal computing, communication and non-computations
systems such as embedded chip technology, microprocessors and specific function
chips related to calendar dates after December 31, 1999. The Company has not
experienced any material Year 2000 disruptions or malfunctions, and has not
been informed of any material Year 2000 disruptions or malfunctions experienced
by any of its significant vendors or customers, or by the municipal agencies
that provide services to the Company. The Company will continue to monitor its
internal operations and its significant vendors and customers with respect to
Year 2000 problems and intends to take appropriate measures to prevent or
alleviate any malfunction or failures identified. Based upon the Company's
operation thus far during the Year 2000, the Company does not anticipate that
it will experience any material problems related to the Year 2000; however, no
assurance can be given that this will be the case.
The Company estimates that it spent less than $15,000 on its assessment of
vendors and suppliers in its assessment and modification of the Company's
systems to accommodate the Year 2000 century change.
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, sales and marketing
activities.
As of December 31, 1999, the Company had working capital of $1,247,429,
compared to $1,241,818 as of December 31, 1998, representing an increase of
$5,611. This increase results primarily from increases in cash, inventory and
other receivables, offset by decreases in year-end receivables and to
insignificant changes in total accounts payable. Management attributes
increases in cash and inventory to the Company's strategy to prepare for the
year 2000 change.
Cash provided by operations was $191,030 in the year ended December 31, 1999,
an increase of $142,651 from $48,379 of cash provided by operations in the year
ended December 31, 1998. This increase is the result of the write-off of
interest receivable from related parties, normal depreciation charges,
decreases in accounts receivable balances offset by increases in inventory and
other current assets.
Cash used by investing activities of $131,107 for the year ended December 31,
1999, represented a decrease of $20,013 as compared to cash used by investing
activities during the year ended December 31, 1998 of $151,120. This change is
primarily due to the purchase of fixed assets, mostly in the form of computers
and the continued expenditure on the pursuit of patent and trademark rights in
the US and in countries around the world.
Capital expenditures for the year ended December 31, 1999 decreased 61% to
$82,206 from $207,783 for the year ended December 31, 1998. This decrease of
$125,577 is attributed to reduced capital spending on office additions and
build-outs of both the Nashville, Tennessee and Manchester, New Hampshire
Cleaning Application and Evaluation Centers, which were completed during 1998.
Capital expenditures for patents increased slightly for the year ended December
31, 1999 to $ 48,901 from $42,545 in the year ended December 31, 1998. This
increase is the result of execution of the Company's strategy to protect its
technology and trademarks.
Cash provided by financing activities of $5,201 for the year ended December 31,
1999, represented an increase of $89,323 from cash used by financing activities
of $84,122 during the year ended December 31, 1998. There were no long term
notes requiring payment during 1999 and additionally the Company received
proceeds of $5,794 from the exercise of stock options.
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, 2000. The
Company's cash requirements for the year 2000 and beyond will depend primarily
upon the level of sales of chemical products, product development, product
procurement, sales and marketing expenditures, timing of potential acquisitions
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
may have to seek additional financing from public or private debt and equity
markets. There can be no assurance, however, that these sources will be
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KYZEN CORPORATION
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PART II (CONTINUED)
available to the Company on favorable terms, and unfavorable markets could
limit the Company's ability to obtain additional financing. In addition the
Company's recent delisting of its common stock from the Nasdaq SmallCap market
may impact the ability of the Company to obtain equity financing on terms
favorable to the Company. Further, there can be no assurance that the Company
will obtain a credit facility on favorable terms 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 strategy, 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, semiconductors and aerospace. The Company
performs continuing credit evaluations of its customers and does not require
the pledging of collateral. Historically, the Company has not experienced
significant losses related to individual customers or groups of customers in
any particular industry or geographic area.
INTERNATIONAL TRADE DEVELOPMENTS
In 1998, manufacturers in the Peoples Republic of China became significant
suppliers of the Company. In 1999, the Company imported up to approximately 35%
of its raw material purchases from foreign sources, the largest being China.
Recent trade negotiations between the United States and China has lead
President Clinton to submit legislation to Congress to extend Permanent Normal
Trade Relations (PNTR) status to the People's Republic of China. Ratification
of this legislation will make it easier to import and export products between
the two countries and may expedite China's eventual entry into the World Trade
Organization. The Company believes ratification of this legislation should
mitigate some of the potential risk of importing materials from China. In the
event that Congress fails to approve the pending legislation, the Company will
continue to obtain a large portion of these raw materials domestically and has
contingency plans if Chinese sources are no longer able to provide these raw
materials.
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<PAGE> 14
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, 1999 and 1998 16
Statement of Operations for the years ended December 31, 1999 and 1998 17
Statement of Changes in Shareholders' Equity for the years ended December 31, 1999 and 1998 18
Statement of Cash Flows for the years ended December 31, 1999 and 1998 19
Notes to Financial Statements 20
</TABLE>
Page 14 of 56
<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, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles in the United States. 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 in the United States 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Nashville, Tennessee
February 7, 2000
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<PAGE> 16
KYZEN CORPORATION
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BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 589,039 $ 523,915
Accounts receivable, net of allowance for doubtful accounts
of $8,334 in 1999, and $8,160 in 1998 650,639 831,717
Inventory 445,438 345,898
Other 69,605 46,093
------------ ------------
Total current assets 1,754,721 1,747,623
Property and equipment, net 673,545 861,521
Patents, net 210,040 177,150
Interest receivable from related parties -- 215,463
------------ ------------
Total assets $ 2,638,306 $ 3,001,757
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligation $ -- $ 593
Accounts payable and accrued expenses 505,832 503,951
Accounts payable to related parties 1,460 1,261
------------ ------------
Total current liabilities 507,292 505,805
------------ ------------
Total liabilities 507,292 505,805
------------ ------------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred Stock, $0.01 par value in 1999 and $0.001 in 1998,
10,000,000 shares authorized, no shares issued or
outstanding in 1999 and 1998; 100,000 of which have
been designated series A Junior Participating Preferred -- --
Stock
Common Stock, $0.01 par value, 40,000,000 shares
authorized, 5,100,014 shares issued and outstanding, in
1999 51,001
Class A Common Stock, $0.01 par value, 30,000,000 shares
authorized, 5,006,781 shares issued and outstanding in
1998 50,068
Class B Redeemable Common Stock, $0.001 par value,
1,500,000 shares authorized, no shares issued or
outstanding in 1999 or 1998 -- --
Class C Redeemable Common Stock, $0.001 par value,
1,000,000 shares authorized, no shares issued or
outstanding in 1999 or 1998 -- --
Additional paid-in capital 5,299,494 5,294,633
Treasury stock, at cost (313) (313)
Accumulated deficit (3,219,168) (2,848,436)
------------ ------------
Total shareholders' equity 2,131,014 2,495,952
------------ ------------
Total liabilities and shareholders' equity $ 2,638,306 $ 3,001,757
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
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<PAGE> 17
KYZEN CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 5,759,850 $ 5,877,974
Cost of sales 2,454,502 2,536,880
------------ ------------
Gross profit 3,305,348 3,341,094
Operating costs and expenses:
Selling, marketing, general and administrative expenses 3,074,422 2,912,453
Research and development expenses 406,166 424,335
------------ ------------
Total operating expenses 3,480,588 3,336,788
------------ ------------
Operating income (loss) (175,240) 4,306
Other income (expense):
Interest income 60,738 68,271
Interest expense (256,230) (5,074)
------------ ------------
Total other income (expense) (195,492) 63,197
------------ ------------
Net income (loss) $ (370,732) $ 67,503
============ ============
Earnings (loss) per share - basic $ (0.07) $ 0.01
============ ============
Earnings (loss) per share - diluted $ (0.07) $ 0.01
============ ============
Weighted average shares outstanding
- basic 5,016,398 5,006,681
Weighted average shares outstanding
- diluted 5,016,398 5,086,409
</TABLE>
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
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<PAGE> 18
KYZEN CORPORATION
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STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(CLASS A - 1998) ADDITIONAL
COMMON STOCK PAID-IN TREASURY STOCK ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT TOTAL
---------- ---------- ---------- -------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,006,681 $ 50,068 $5,294,633 100 $(313) $ (2,915,939) $ 2,428,449
Issuance of Stock
Net Income 67,503
--------- ---------- --------- --- ----- ----------- ------------
Balance at December 31, 1998 5,006,681 50,068 5,294,633 100 (313) (2,848,436) 2,495,952
Exercise of Stock Options 93,333 933 16,567 17,500
Officer Loan Contra Account (17,500) (17,500)
Issuance of stock options
pursuant to a consulting
agreement
5,794 5,794
Net Loss (370,732) (370,732)
--------- --------- ---------- --- ------ ------------ ------------
Balance at December 31, 1999 5,100,114 $ 51,001 $5,299,494 100 $ (313) $ (3,219,168) $ 2,131,014
========= ========= ========== === ====== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
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<PAGE> 19
KYZEN CORPORATION
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (370,732) $ 67,503
Depreciation and amortization 286,193 287,032
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
(Increase) decrease in accounts receivable 181,078 (29,317)
Decrease in costs and estimated losses in excess of billings on
uncompleted contracts -- 7,155
Increase in inventory (99,540) (13,531)
Increase in other current assets (23,512) (17,201)
Decrease (increase) in interest receivable from related parties 215,463 (45,312)
Increase (decrease) in accounts payable and accrued expenses 2,080 (207,950)
------------ ------------
Net cash provided by operating activities 191,030 48,379
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments -- 99,208
Purchase of fixed assets (82,206) (207,783)
Purchase of patent rights and related expenditures (48,901) (42,545)
------------ ------------
Net cash used by investing activities (131,107) (151,120)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Stock Options 5,794 --
Payments of Long Term Debt (593) --
Payment on note payable -- (77,990)
Payment on capital lease obligation -- (6,132)
------------ ------------
Net cash provided (used) by financing activities 5,201 (84,122)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,124 (186,863)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 523,915 710,778
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 589,039 $ 523,915
============ ============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash used for interest payments was $338 in 1999 and $5,074 in 1998. The
Company paid no income taxes in 1999 or 1998. During 1999, certain officers of
the Company exercised options to purchase 93,333 shares of common stock in the
amount of $17,500 by each such officer executing a promissory note payable to
the Company.
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------
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<PAGE> 20
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. On May 26, 1999 the Company reincorporated
under the laws of Tennessee. 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 and
maintenance services totaled 4% of net sales in 1999 and 3% of net sales in
1998. 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 $699,583 in 1999 and $807,680 in 1998, representing approximately 12% of
net sales in 1999 and 14% of net sales in 1998. No individual customer or
foreign country accounted for more than 10% of the Company's revenue in 1999 or
1998.
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 1998 were not significant. There were no short-term investments
outstanding at December 31, 1999. 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 customers to pledge
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 sales of 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.
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.
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.
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<PAGE> 21
KYZEN CORPORATION
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NOTES TO FINANCIAL STATEMENTS
INCOME TAXES
Deferred income taxes 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 are 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 10) 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 $81,383 and $65,372 at December 31, 1999 and
1998, 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, 1999, the Company
determined that certain long lived assets of the company had been impaired and
subsequently made adjustments to write off the carry value of those assets to
reflect the changes. During 1998, the Company determined that no long-lived
assets were 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 $167,733 in 1999 and $173,506 in 1998.
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 1999, 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 (loss) in 1999 and
1998.
Page 21 of 56
<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 executing non-recourse promissory notes payable to the
Company. The notes bear interest at 5% per year and are secured by the Company's
stock held by such employees. Both principal and interest were due January 2000.
Due to collectibility concerns and the value of the Kyzen Common Stock which
secured these notes, the Company decided to write-off the interest receivable on
these notes as of December 31, 1999. These notes have also been written off and
the shares of Common Stock were returned to the Company during the first quarter
of 2000. Additionally, during 1999, certain key executives of the Company
exercised options to purchase 93,333 shares of the Company's common stock by
executing non-recourse promissory notes payable to the Company. The notes bear
interest at 5% per year and are secured by the Company's common stock held by
such employees. The interest income is being withheld from the applicable
executives' paychecks. The total dollar amount of the stock exercised (based on
the exercise price contained within the related options) is $17,500.
NOTE 3 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Raw materials $ 294,042 $ 194,242
Work in process 1,705 1,705
Finished goods 149,691 149,951
---------- ----------
$ 445,438 $ 345,898
========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Manufacturing equipment $ 620,835 $ 611,892
Office furniture and fixtures 399,157 339,902
Demonstration equipment 413,614 410,166
Leasehold improvements 277,574 267,014
---------- ----------
1,711,180 1,628,974
Less-accumulated depreciation (1,037,635) (767,453)
---------- ----------
$ 673,545 $ 861,521
========== ==========
</TABLE>
Assets under capital lease amounted to $-0- at December 31, 1999 and $17,008 at
December 31, 1998. Depreciation expense totaled $286,193 in 1999 and $287,032 in
1998.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Accounts payable $ 329,587 $ 362,602
Salaries, wages and commissions 21,035 22,891
Accrued expenses 155,210 118,458
========== ==========
$ 505,832 $ 503,951
========== ==========
</TABLE>
Page 22 of 56
<PAGE> 23
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE
CAPITAL LEASE AND CREDIT FACILITY OBLIGATIONS
The Company had no Credit Facility obligations or fees in 1999 or 1998. During
1999, the Company made final payments on all outstanding capital leases. In 1999
the Company had discussions with potential lenders to obtain a credit facility
to replace the credit facility terminated by the Company in April 1998. A
replacement credit facility was expected to be in place prior to the end of
1999. However, recent operating losses may make it more difficult to obtain a
credit facility if needed for liquidity purposes with terms favorable to the
Company. There can be no assurance that the Company will be able to obtain
another credit facility or that, if obtained, it will be on terms favorable to
the Company.
NOTE 7 - CAPITAL STOCK
COMMON STOCK
On April 28, 1999 the Shareholders of the Company approved an amendment to the
Articles of Incorporation to change the capital structure of the Company. The
amended structure provides for capitalization of 40,000,000 authorized shares of
common stock, $.01 par value per share (the "Common Stock").
The Company's Restated Charter authorizes a single class of common stock. The
incumbent structure before 1999 divided the common stock into three (3) classes:
Class A Common Stock, Class B Redeemable Common Stock and Class C Redeemable
Common Stock. Prior to the amendment, the Company was authorized to issue
30,000,000 shares of Class A common stock, $0.01 par value, 1,500,000 shares of
$0.001 par value Class B redeemable common stock and 1,000,000 shares of Class C
Redeemable Common Stock, $0.001 par value.
The term "(Class A) Common Stock" in this document refers to Class A Common
Stock issued and outstanding prior to the amendment and those same shares issued
and outstanding as Common Stock subsequent to the amendment. As indicated in
Note 2, certain officers of the Company executed non-recourse promissory notes
in 1994 payable to the Company as payment for the exercise of stock options. The
total number of shares issued for these promissory notes was 322,227 with a
value of $906,263. These shares were returned in the first quarter of 2000. Had
these shares been returned on December 31, 1999 (and thus not considered
outstanding), the net loss per share would have increased slightly (due to the
anti-dilutive effect of such return)."
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, 2002. 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, 1999.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred stock
with a par value of $0.01 per share. The Board of Directors is authorized to
establish the terms and rights of the preferred stock. On April 28, 1999, the
Shareholders of the Company approved an amendment to the Articles of
Incorporation to change the par value of the Preferred Stock from $0.001 to
$0.01 per share. The terms of any Preferred Stock to be authorized, including
dividend rates, conversion prices, voting rights, redemption prices, and similar
matters, will be determined by the Board of Directors.
As of December 31, 1999 there were no preferred shares issued or outstanding.
STOCK OPTIONS
The Company has an incentive stock option plan. Under this plan, officers,
directors and other key employees may be granted options, each of which allows
for the purchase of shares of the Company's (Class A) Common Stock. The per
share price of the options granted under the plan is equal to the estimated fair
value of the (Class A) Common Stock on such date as determined by the Board of
Directors, except for options granted to 10% or greater shareholders for which
the per share price is 110% of the estimated fair value. Under the plan, 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 five to ten years from
the date of the grant and vest ratably over a three-year period, except for
options granted to directors, which vest
Page 23 of 56
<PAGE> 24
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
immediately upon grant. In 1993 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. As of December 31, 1999 all those options have been
exercised. In 1999 the Company granted 250,000 non-qualified options to
Institutional Equity Corporation (formerly Redstone Securities) at prices
ranging from $0.50 to $3.00 as compensation for future financial advisory
services. The Company recognized $5,794 as compensation expense in the quarter
ending December 31, 1999 as fair market value of this grant.
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 for options issued to
employees and directors. 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>
1999 1998
------------- -------------
<S> <C> <C>
Net income (loss), reported $ (370,732) $ 67,503
Net loss, pro forma (498,810) (124,622)
Net income (loss), per share reported (basic and diluted) (0.07) 0.01
Net loss per share, pro forma (basic and diluted) (0.10) (0.03)
</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>
1999 1998
------------- -------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 87.5% 75%
Risk-free interest rate 5.6% 6.2%
Expected life of options 1-10 years 5-10 years
</TABLE>
The weighted average fair value at date of grant for options granted during 1999
and 1998 was $ 0.20 and $1.18 per option, respectively. Stock option
transactions were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
<S> <C> <C>
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
Granted 386,867 1.61
Exercised (93,333) 0.18
Forfeited (76,634) $ 2.96
------------- -------------
OUTSTANDING, DECEMBER 31, 1999 781,050 $ 2.15
============= =============
</TABLE>
Page 24 of 56
<PAGE> 25
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------- -------------------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
(YEARS)
- -------------------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.50 - 0.75 143,400 4.9 $ 0.62 107,000 $ 0.57
1.00 - 1.38 124,900 3.9 1.12 113,239 1.11
1.69 - 2.00 128,800 5.1 1.87 107,348 1.89
2.81 - 3.99 383,450 4.0 3.14 383,450 3.14
4.50 500 4.0 4.50 500 4.50
------- -------
781,050 711,537
======= =======
</TABLE>
NOTE 8 - 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 the Plan
during 1999 nor 1998. The Plan expense for 1999 and 1998 was $2,986 and $3,334
respectively.
NOTE 9 - 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
1999 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,
1999 1998
------------- -------------
<S> <C> <C>
Income tax provision at statutory rate $ (126,049) $ 22,951
State income taxes, net of federal tax provision (9,543) 1,738
Research and development credit, net of federal tax provision (15,913) (20,308)
Other 15,841 (1,316)
Adjustments of prior years' taxes 95,177 --
Change in valuation allowance 40,487 (3,065)
------------- -------------
Total income tax provision $ -- $ --
============= =============
</TABLE>
Significant components of the Company's deferred tax assets at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 786,509 $ 756,629
Research and development credits 156,142 134,593
Other 10,899 21,841
------------- -------------
Deferred tax assets 953,550 913,063
Valuation allowance (953,550) (913,063)
------------- -------------
Net deferred tax assets $ -- $ --
============= =============
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards available
to reduce future taxable income of approximately $2,151,000. The carryforwards
expire between 2007 and 2014. The Company has provided a valuation
Page 25 of 56
<PAGE> 26
KYZEN CORPORATION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
allowance for the entire balance of its deferred tax assets, including its net
operating loss carryforwards, due to the uncertainty of future realization.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts its operations from facilities under two operating lease
agreements. The lease of the New Hampshire facility terminates in May 2000 with
an option to renew for one year, and the lease of the Tennessee facility
terminates in February 2001 with an option to renew for two years. As of
December 31, 1999, future annual rental payments are summarized as follows (The
table omits payment if the option is exercised):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 110,550
2001 8,000
2002 -0-
</TABLE>
Total rent expense was $132,425 in 1999 and $132,882 in 1998. Included in rent
expense for 1999 and 1998 is approximately $97,462 and $96,536, 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 Delphi
Automotive Systems ("Delphi", formerly Delco Electronics, 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 Delphi in 1989. The Company
purchased the patent rights from Bix in 1990 and two patents were subsequently
issued jointly to Kyzen and Delphi in the United States. Delphi 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 Delphi and the
Company.
The Company is also required to pay royalties to Bix, a shareholder of the
Company. Royalties are based on 2% of revenues related to the patented
chemistry, and amounted to $41,100 and $46,675 in 1999 and 1998, respectively.
The Company is currently settling its royalty obligation through consulting
services performed by the Company. In addition the Company also pays a royalty
to Honeywell International, Inc. (formerly AlliedSignal) for the sale of
products under a licensing arrangement made with Honeywell. The royalty is based
on a percentage of sales made by Kyzen under the agreement. In 1999, these
royalty payments were less than $50,000.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company purchased approximately $204,000 and $188,000 of advertising,
investor relations, rent and transportation services from shareholders 1999 and
1998, respectively.
Page 26 of 56
<PAGE> 27
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART II (CONTINUED)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Page 27 of 56
<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 27, 2000.
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 27, 2000.
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 27, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April 27, 2000.
Page 28 of 56
<PAGE> 29
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 2.1 Articles of Merger of Kyzen Corporation into Kyzen
Acquisition Corporation, as filed with the Tennessee
Secretary of State as of May 25, 1999
Exhibit 2.2 Articles of Merger of Kyzen Corporation into Kyzen
Acquisition Corporation, as filed with the Utah
Secretary of State as of May 26, 1999
Exhibit 3.1 Registrant's Amended and Restated Charter (6)
Exhibit 3.2 Amended Bylaws of Registrant (6)
Exhibit 4.1 Warrant and Registration Rights Agreement by and
among Kyzen Corporation, Paulson Investment Company,
Inc., Nutmeg Securities, Ltd. And LaJolla Securities
dated August 3, 1995 (1)
Exhibit 4.5 Specimen of Common Stock Certificate (7)
Exhibit 4.6 Specimen of Warrant Certificate (7)
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 10.24 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
Registrant for the Registrant'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 10.31 Form of Amendment No. 1 to Employment Agreements with
certain officers of the Company: (5)
(a) Kyle J. Doyel*
(b) Michael L. Bixenman*
(c) Thomas M. Forsythe*
</TABLE>
Page 29 of 56
<PAGE> 30
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
<TABLE>
<S> <C>
Exhibit 10.32 Consulting Agreement with Redstone Securities
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.
(5) Filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1999, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-82021) dated June 30, 1999, previously filed
pursuant to the Securities Act of 1933 and hereby incorporated
by reference.
(7) Filed as an exhibit to the Company's Registration Statement on
Form S-3\A (No. 333-82021) dated August 2, 1999, previously
filed pursuant to the Securities Act of 1933 and hereby
incorporated by reference.
(b) Reports on Form 8-K
During the fourth quarter of 1999 the Company filed no reports on Form 8-K.
Page 30 of 56
<PAGE> 31
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) Kyzen Corporation
--------------------------------------------------------------------
By /s/ Kyle J. Doyel
-----------------------------------------------------------------------------
Kyle J. Doyel, President, CEO (Principal Executive Officer), Director
Date: March 20, 2000
--------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Michael L. Bixenman
- --------------------------------------------------------------------------------
Michael L. Bixenman, Chairman, Vice President, Director
Date: March 20, 2000
By /s/ Kyle J. Doyel
- --------------------------------------------------------------------------------
Kyle J. Doyel, President, CEO (Principal Executive Officer), Director
Date: March 20, 2000
By /s/ Thomas M. Forsythe
- --------------------------------------------------------------------------------
Thomas M. Forsythe, Vice President, Treasurer (Principal Accounting
Officer and Principal Financial Officer), Director
Date: March 20, 2000
By /s/ John A. Davis III
- --------------------------------------------------------------------------------
John A. Davis, III, Director
Date: March 20, 2000
By /s/ James A. Gordon
- --------------------------------------------------------------------------------
James A. Gordon, Director
Date: March 20, 2000
By /s/ Janet Korte Baker
- --------------------------------------------------------------------------------
Janet Korte Baker, Director
Date: March 20, 2000
Page 31 of 56
<PAGE> 32
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT INDEX AND EXHIBITS
--------------------------
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 2.1 Articles of Merger of Kyzen Corporation into Kyzen
Acquisition Corporation, as filed with the Tennessee
Secretary of State as of May 25, 1999
Exhibit 2.2 Articles of Merger of Kyzen Corporation into Kyzen
Acquisition Corporation, as filed with the Utah
Secretary of State as of May 26, 1999
Exhibit 3.1 Registrant's Amended and Restated Charter (6)
Exhibit 3.2 Amended Bylaws of Registrant (6)
Exhibit 4.1 Warrant and Registration Rights Agreement by and
among Kyzen Corporation, Paulson Investment Company,
Inc., Nutmeg Securities, Ltd. And LaJolla Securities
dated August 3, 1995 (1)
Exhibit 4.5 Specimen of Common Stock Certificate (7)
Exhibit 4.6 Specimen of Warrant Certificate (7)
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)
(d) Kyle J. Doyel*
(e) Michael L. Bixenman*
(f) 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)
(f) Kyle J. Doyel*
(g) Michael L. Bixenman*
(h) James J. Andrus
(i) Benjamin D. Wolfley*
(j) 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 10.24 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
Registrant for the Registrant'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 10.31 Form of Amendment No. 1 to Employment Agreements with
certain officers of the Company: (5)
(d) Kyle J. Doyel*
(e) Michael L. Bixenman*
(f) Thomas M. Forsythe*
</TABLE>
Page 32 of 56
<PAGE> 33
KYZEN CORPORATION
- --------------------------------------------------------------------------------
PART III (CONTINUED)
<TABLE>
<S> <C>
Exhibit 10.32 Consulting Agreement with Redstone Securities
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.
(5) Filed as an exhibit to the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1999, previously filed
pursuant to the Securities Exchange Act of 1934 and hereby
incorporated by reference.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-82021) dated June 30, 1999, previously filed
pursuant to the Securities Act of 1933 and hereby incorporated
by reference.
(7) Filed as an exhibit to the Company's Registration Statement on
Form S-3\A (No. 333-82021) dated August 2, 1999, previously
filed pursuant to the Securities Act of 1933 and hereby
incorporated by reference.
Page 33 of 56
<PAGE> 1
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
Exhibit 2.1 Articles of Merger
ARTICLES OF MERGER
OF
KYZEN CORPORATION
(A UTAH CORPORATION)
INTO
KYZEN ACQUISITION CORPORATION
(A TENNESSEE CORPORATION)
Pursuant to Sections 48-21-105 and 48-21-107 of the Tennessee Business
Corporation Act, Kyzen Corporation, a Utah corporation ("Kyzen"), and Kyzen
Acquisition Corporation, a Tennessee corporation and wholly-owned subsidiary of
Kyzen ("KAC"), hereby adopt the following Articles of Merger:
1. The Plan of Merger is attached hereto as Exhibit A and incorporated
herein by reference. The surviving corporation is KAC, a Tennessee corporation
2. As to KAC, shareholder approval is not required. The Plan of Merger
was adopted by its Board of Directors on April 28, 1999.
3. As to Kyzen, there are no voting groups other than the holders of
Class A Common Stock and the Plan of Merger was approved by the affirmative vote
of the majority of all of the votes entitled to be cast at the shareholders'
annual meeting held on April 28, 1999.
4. As to Kyzen, the Plan of Merger and the performance of its terms
were duly authorized by all action required by the laws of the State of Utah and
by the Articles of Incorporation of Kyzen.
5. The Plan of Merger shall be effective upon the later of the filing
of the Articles of Merger with the Secretary of State of Utah and the filing of
Articles of Merger with the Secretary of State of Tennessee.
1
<PAGE> 2
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
IN WITNESS WHEREOF, each of the undersigned corporations has duly
caused these Articles of Merger to be executed by their respective duly
authorized officers as of this 25th day of May, 1999.
KYZEN CORPORATION
By: /s/ Kyle J. Doyel
-----------------------------------
Kyle J. Doyel, President
KYZEN ACQUISITION
CORPORATION
By: /s/ Kyle J. Doyel
-----------------------------------
Kyle J. Doyel, President
2
<PAGE> 3
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
EXHIBIT A
PLAN OF MERGER
WHEREAS, Kyzen Corporation ("Kyzen") is a corporation duly organized
and validly existing under the laws of the State of Utah;
WHEREAS, Kyzen Acquisition Corporation ("KAC") is a corporation duly
organized and validly existing under the laws of the State of Tennessee and a
wholly-owned subsidiary of Kyzen;
WHEREAS, the Boards of Directors of Kyzen and KAC have each determined
that it is advisable that Kyzen merge with and into KAC upon the terms and
conditions provided herein (the "Merger"); and
WHEREAS, the Boards of Directors of Kyzen and KAC have approved this
Plan of Merger between Kyzen and KAC.
NOW, THEREFORE, Kyzen and KAC hereby agree to merge into a single
corporation as follows:
FIRST: Pursuant to this Plan of Merger, Kyzen shall be merged with and
into KAC and the separate corporate existence of Kyzen shall thereupon cease
(the "Merger"). KAC shall be the surviving corporation (the "Surviving
Corporation") and shall retain its corporate identity and succeed to all of the
rights, assets, liabilities and obligations of KAC and Kyzen.
SECOND: The Merger shall become effective on the later of the filing of
Articles of Merger with the Secretary of State of Tennessee and the filing of
Articles of Merger with the Secretary of State of Utah, such time being
hereinafter referred to as the "Effective Time."
THIRD: (a) KAC Stock. At the Effective Time, each share of Common
Stock, $.01 par value per share, of KAC (the "KAC Common Stock") issued and
outstanding immediately prior to the Effective Time shall automatically be
redeemed by the Surviving Corporation and, upon payment to the former holders
thereof, shall have no further rights or represent any further claim against the
Surviving Corporation.
(b) Kyzen Securities. (i) At the Effective Time, each share of
Common Stock, $.01 par value per share, of Kyzen (the "Kyzen Common Stock"),
issued and outstanding immediately prior to the Effective Time, other than
shares to be canceled pursuant to subparagraph (b)(iii) hereof below, by virtue
of the Merger and without any action on the part of the holder thereof, shall
automatically be converted into the right to receive one fully paid and
non-assessable share of the KAC Common Stock. At the Effective Time, no shares
of Kyzen Common Stock shall be outstanding and all such shares shall
automatically be canceled and returned and shall cease to exist.
(ii) As a result of the Merger, each certificate nominally
representing shares of Kyzen Common Stock shall for all purposes be deemed to
evidence the ownership of a like number of shares of KAC Common Stock. The
holders of certificates of Kyzen Common Stock shall not be required immediately
to surrender the certificates in exchange for certificates of KAC Common Stock
but, as certificates nominally representing shares of Kyzen Common Stock are
surrendered for transfer, KAC will cause to be issued certificates for a like
number of shares of KAC Common Stock.
1
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KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
(iii) Each share of Kyzen Common Stock issued and held in
Kyzen's treasury at the Effective Time shall, by virtue of the Merger, cease to
be outstanding and shall automatically be canceled and retired and shall cease
to exist without payment of any consideration therefor.
(iv) As a result of the Merger, each outstanding warrant to
purchase one share of Kyzen Common Stock (each a "Kyzen Warrant"), whether or
not then vested or exercisable, will automatically be converted into a warrant
to purchase one share of KAC Common Stock (each a "KAC Warrant"). The holders of
Kyzen Warrant certificates shall not be required immediately to surrender the
certificates in exchange for certificates of KAC Warrants but, as certificates
nominally representing Kyzen Warrants are surrendered for transfer, KAC will
cause to be issued certificates for a like number of KAC Warrants.
(v) As a result of the Merger, each outstanding option to
purchase one share of Kyzen Common Stock (each a "Kyzen Option"), whether or not
then vested or exercisable, will automatically be converted into an option to
purchase one share of KAC Common Stock (each a "KAC Option") on the same terms
and conditions. The holders of Kyzen Options shall not be required immediately
to surrender their option agreements in exchange for option agreements for KAC
Options.
(vi) As a result of the Merger, each preferred share
purchase right issued with each share of Kyzen Common Stock and representing the
right to purchase 1/100th of a share of Kyzen's Series A Junior Participating
Preferred Stock will automatically be converted into one preferred share
purchase right representing the right to purchase 1/100th of a share of KAC's
Series A Junior Participating Preferred Stock, which will have identical rights
and preferences as Kyzen's Series A Junior Participating Preferred Stock.
FOURTH: The Charter of KAC in effect immediately prior to the Effective
Time shall be the Charter of the Surviving Corporation, until duly amended in
accordance with applicable law; provided, however, Article 1 shall hereby be
deleted in its entirety and replaced with the following:
1. Name. The name of the corporation is Kyzen Corporation.
FIFTH: The Bylaws of KAC in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with applicable law.
SIXTH: The members of the board of directors and the officers of Kyzen
immediately prior to the Effective Time shall be the members of the board of
directors and the officers, respectively, of the Surviving Corporation, until
their respective successors are elected and qualified.
SEVENTH: KAC agrees that it may be served with process in Tennessee in
any proceeding for enforcement of any obligation of Kyzen as well as for the
enforcement of any obligation of KAC arising from the Merger.
EIGHTH: This Plan of Merger may be terminated and abandoned by action
of the board of directors of Kyzen at any time prior to the Effective Time,
whether before or after approval by the shareholders of the two corporate
parties hereto.
Dated: May 25, 1999
2
<PAGE> 1
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
Exhibit 2.2 Articles of Merger of Kyzen Corporation into Kyzen Acquisition
Corporation as filed with the Utah Secretary of State as of
May 26, 1999
ARTICLES OF MERGER
OF
KYZEN CORPORATION
(A UTAH CORPORATION)
INTO
KYZEN ACQUISITION CORPORATION
(A TENNESSEE CORPORATION)
Pursuant to Sections 16-10a-1104, 16-10a-1105 and 16-10a-1107 of the
Utah Revised Business Corporation Act, Kyzen Corporation, a Utah corporation
("Kyzen"), and Kyzen Acquisition Corporation, a Tennessee corporation and
wholly-owned subsidiary of Kyzen ("KAC"), hereby adopt the following Articles of
Merger:
1. The Plan of Merger is attached hereto as Exhibit A and incorporated
herein by reference. The surviving corporation is KAC, a Tennessee corporation.
2. As to Kyzen, shareholder approval is required. There were 5,006,781
shares of Class A Common Stock of Kyzen outstanding as of February 4, 1999.
There are no voting groups other than the holders of Class A Common Stock. At
the annual meeting of shareholders on April 28, 1999, there were 2,557,566 votes
cast in favor of the Plan of Merger, and 37,150 votes cast against the Plan of
Merger.
3. As to KAC, shareholder approval is not required.
4. Immediately prior to the effectiveness of the Plan of Merger, Kyzen
owned all ten (10) of the outstanding shares of common stock of KAC.
5. The principal office of KAC is 430 Harding Industrial Drive,
Nashville, Davidson County, Tennessee 37211.
6. The Plan of Merger shall be effective upon the later of the filing
of the Articles of Merger with the Secretary of State of Utah and the filing of
Articles of Merger with the Secretary of State of Tennessee, which date complies
with section 16-10a-1104(5) of the Act.
1
<PAGE> 2
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
IN WITNESS WHEREOF, each of the undersigned corporations has duly
caused these Articles of Merger to be executed by their respective duly
authorized officers as of this 25th day of May, 1999.
KYZEN CORPORATION
By: /s/ Kyle J. Doyel
----------------------------------
Kyle J. Doyel, President
KYZEN ACQUISITION
CORPORATION
By: /s/ Kyle J. Doyel
----------------------------------
Kyle J. Doyel, President
2
<PAGE> 3
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
EXHIBIT A
PLAN OF MERGER
WHEREAS, Kyzen Corporation ("Kyzen") is a corporation duly organized
and validly existing under the laws of the State of Utah;
WHEREAS, Kyzen Acquisition Corporation ("KAC") is a corporation duly
organized and validly existing under the laws of the State of Tennessee and a
wholly-owned subsidiary of Kyzen;
WHEREAS, the Boards of Directors of Kyzen and KAC have each determined
that it is advisable that Kyzen merge with and into KAC upon the terms and
conditions provided herein (the "Merger"); and
WHEREAS, the Boards of Directors of Kyzen and KAC have approved this
Plan of Merger between Kyzen and KAC.
NOW, THEREFORE, Kyzen and KAC hereby agree to merge into a single
corporation as follows:
FIRST: Pursuant to this Plan of Merger, Kyzen shall be merged with and
into KAC and the separate corporate existence of Kyzen shall thereupon cease
(the "Merger"). KAC shall be the surviving corporation (the "Surviving
Corporation") and shall retain its corporate identity and succeed to all of the
rights, assets, liabilities and obligations of KAC and Kyzen.
SECOND: The Merger shall become effective on the later of the filing of
Articles of Merger with the Secretary of State of Tennessee and the filing of
Articles of Merger with the Secretary of State of Utah, such time being
hereinafter referred to as the "Effective Time."
THIRD: (a) KAC Stock. At the Effective Time, each share of Common
Stock, $.01 par value per share, of KAC (the "KAC Common Stock") issued and
outstanding immediately prior to the Effective Time shall automatically be
redeemed by the Surviving Corporation and, upon payment to the former holders
thereof, shall have no further rights or represent any further claim against the
Surviving Corporation.
(b) Kyzen Securities. (i) At the Effective Time, each share of
Common Stock, $.01 par value per share, of Kyzen (the "Kyzen Common Stock"),
issued and outstanding immediately prior to the Effective Time, other than
shares to be canceled pursuant to subparagraph (b)(iii) hereof below, by virtue
of the Merger and without any action on the part of the holder thereof, shall
automatically be converted into the right to receive one fully paid and
non-assessable share of the KAC Common Stock. At the Effective Time, no shares
of Kyzen Common Stock shall be outstanding and all such shares shall
automatically be canceled and returned and shall cease to exist.
(ii) As a result of the Merger, each certificate nominally
representing shares of Kyzen Common Stock shall for all purposes be deemed to
evidence the ownership of a like number of shares of KAC Common Stock. The
holders of certificates of Kyzen Common Stock shall not be required immediately
to surrender the certificates in exchange for certificates of KAC Common Stock
but, as certificates nominally representing shares of Kyzen Common Stock are
surrendered for transfer, KAC will cause to be issued certificates for a like
number of shares of KAC Common Stock.
1
<PAGE> 4
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
(iii) Each share of Kyzen Common Stock issued and held in
Kyzen's treasury at the Effective Time shall, by virtue of the Merger, cease to
be outstanding and shall automatically be canceled and retired and shall cease
to exist without payment of any consideration therefor.
(iv) As a result of the Merger, each outstanding warrant
to purchase one share of Kyzen Common Stock (each a "Kyzen Warrant"), whether or
not then vested or exercisable, will automatically be converted into a warrant
to purchase one share of KAC Common Stock (each a "KAC Warrant"). The holders of
Kyzen Warrant certificates shall not be required immediately to surrender the
certificates in exchange for certificates of KAC Warrants but, as certificates
nominally representing Kyzen Warrants are surrendered for transfer, KAC will
cause to be issued certificates for a like number of KAC Warrants.
(v) As a result of the Merger, each outstanding option to
purchase one share of Kyzen Common Stock (each a "Kyzen Option"), whether or not
then vested or exercisable, will automatically be converted into an option to
purchase one share of KAC Common Stock (each a "KAC Option") on the same terms
and conditions. The holders of Kyzen Options shall not be required immediately
to surrender their option agreements in exchange for option agreements for KAC
Options.
(vi) As a result of the Merger, each preferred share
purchase right issued with each share of Kyzen Common Stock and representing the
right to purchase 1/100th of a share of Kyzen's Series A Junior Participating
Preferred Stock will automatically be converted into one preferred share
purchase right representing the right to purchase 1/100th of a share of KAC's
Series A Junior Participating Preferred Stock, which will have identical rights
and preferences as Kyzen's Series A Junior Participating Preferred Stock.
FOURTH: The Charter of KAC in effect immediately prior to the Effective
Time shall be the Charter of the Surviving Corporation, until duly amended in
accordance with applicable law; provided, however, Article 1 shall hereby be
deleted in its entirety and replaced with the following:
1. Name. The name of the corporation is Kyzen Corporation.
FIFTH: The Bylaws of KAC in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with applicable law.
SIXTH: The members of the board of directors and the officers of Kyzen
immediately prior to the Effective Time shall be the members of the board of
directors and the officers, respectively, of the Surviving Corporation, until
their respective successors are elected and qualified.
SEVENTH: KAC agrees that it may be served with process in Tennessee in
any proceeding for enforcement of any obligation of Kyzen as well as for the
enforcement of any obligation of KAC arising from the Merger.
EIGHTH: This Plan of Merger may be terminated and abandoned by action
of the board of directors of Kyzen at any time prior to the Effective Time,
whether before or after approval by the shareholders of the two corporate
parties hereto.
Dated: May 25, 1999
2
<PAGE> 1
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
Exhibit 10.32 Consulting Agreement with Redstone Securities
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Financial Advisory and Consulting Agreement (the "Agreement")
effective as of the 23rd day of November, 1999 (the "Effective Date") by and
between Kyzen Corporation ("Kyzen"), whose principal business address is 430
Harding Industrial Drive, Nashville, Tennessee 37211 and Redstone Securities,
Inc. ("Redstone"), whose principal business address is 101 Fairchild Avenue,
Plainview, New York 11803-1788.
WHEREAS, Redstone is a member of the National Association of Securities
Dealers, Inc. ("NASD") and engages in a general securities business, which
includes providing financial advisory and consulting services; and
WHEREAS, Kyzen desires to retain Redstone to provide certain financial
advisory and consulting services;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto, agree as follows:
1. Financial Advisory and Consulting Services. Redstone agrees to
provide Kyzen with financial advisory and consulting services to assist Kyzen in
raising capital and enhancing shareholder value in the capital stock of Kyzen,
and to assist with other projects as directed by Kyzen (the "Services"), from
time to time. The Services shall be provided on a timely basis and without
unreasonable delay. The scope of the Services includes, but is not limited to
(a) assisting in locating appropriate financing services, including but not
limited to institutional buyers, individual investors or financial institutions
to provide equity and/or debt financing, (b) assisting in the preparation of
description of Kyzen and its business, operations, properties, financial
condition and prospects, (c) undertaking the study and analysis of the business,
operations, financial condition and prospects of Kyzen, (d) reviewing Kyzen's
financial plans and analyzing Kyzen's business alternatives in light of Kyzen's
strategic plans, (e) updating and maintaining its knowledge of Kyzen's business,
operations, financial condition and prospects during the term of this Agreement,
and (f) being available to meet with Kyzen's Board of Directors (in person or by
telephone) to discuss strategic alternatives and their financial implications.
Redstone will utilize its best efforts in providing the
Services to Kyzen. Redstone, however, gives no warranty, expressed or implied,
as to the success of Kyzen's business, nor can it guaranty the results of any
Services provided. It is expressly understood that Redstone, in performing its
obligations under this Agreement, will rely primarily upon publicly available
information and certain financial and other information provided by Kyzen and it
will not undertake any independent audit or confirmation of the accuracy or
completeness of such information.
2. Term; Survival. The term of this Agreement shall be one year
from the Effective Date, and thereafter will continue on a month-to-month basis
with each party retaining the right to terminate the Agreement at any time upon
thirty calendar days prior written notice to the other party. Any provision of
this Agreement related to confidentiality or indemnification, or which by its
terms provides for survival, shall survive any termination hereof.
3. Confidentiality. Redstone acknowledges that the Services
contemplated by this Agreement will involve the exchange, use and development of
confidential information of Kyzen and agrees that it will not use or disclose
and will not permit its affiliates or officers, directors, shareholders,
partners or principals to use or disclose any confidential information relating
to Kyzen. Should disclosure of any such confidential information to a third
party be required to carry out the Services or by law, Redstone must request
prior written approval from Kyzen to disclose such information to the third
party; provided, however, that the foregoing restrictions will not apply to such
information that is or becomes generally available to the public other than as a
result of disclosure in violation of this Agreement. Any such disclosure to a
third party must be preceded by a signed non-disclosure agreement with that
third party. Further, any disclosure of such confidential information shall be
made in compliance with all applicable federal and state securities laws.
1
<PAGE> 2
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
Upon expiration or termination of this Agreement, Redstone will
promptly return to Kyzen all confidential information in the form of materials,
documents, and data, whether in written or graphic form, which was supplied by
Kyzen in connection with this Agreement.
4. Compensation. As compensation for the Services provided
hereunder, Kyzen shall grant Redstone options to purchase Kyzen Corporation
Common Stock, par value $0.01 per share (the "Common Stock"), in accordance with
the terms and conditions set forth in the Stock Option Grant attached hereto as
EXHIBIT A.
5. Relationship of the Parties. Redstone, in its performance of
the Services pursuant to this Agreement is acting as an independent contractor
and not as a partner, affiliate, co-joint venturer or agent with or of Kyzen.
Redstone shall have no authority to bind Kyzen to arrangements, agreements,
contracts or expenses of any kind.
6. Indemnification.
a. Kyzen. Kyzen shall indemnify, hold harmless and
defend Redstone and its representatives, affiliates, directors,
officers, agents and employees, and their respective successors and
assigns and each other person controlled (within the meaning of the
Securities Act of 1933, as amended (the "1933 Act")) by Redstone
("Redstone indemnified parties") to the fullest extent permitted by
law, from and against any losses, claims, damages, demands, expenses,
liabilities or actions, including shareholder actions in respect
thereof, in connection with claims relating to or arising out of
Redstone's performance of the terms of this Agreement, to the extent
that such claims concern directly or indirectly inaccurate, incomplete
or misleading information provided by Kyzen and relied upon by Redstone
in the performance of its Services pursuant to this Agreement, and will
reimburse any Redstone indemnified party for expenses (including
reasonable attorneys' and accountants' fees and expenses of one law
firm and one accounting firm for all Redstone indemnified parties, in
the absence of a conflict of interest) as they are incurred by any
Redstone indemnified party in connection with investigating, preparing,
defending or settling any such action or claim. Nothing herein shall be
construed to require Kyzen to indemnify Redstone for liabilities
related to any action by Redstone that resulted in a violation by
Redstone of applicable federal or state securities laws, rules or
regulations or the rules or any applicable self-regulatory
organization. Notwithstanding the foregoing, Kyzen will not be
responsible for any claims, liabilities, losses, damages or expenses
which are finally judicially determined to have resulted from the
willful misconduct or gross negligence of a Redstone indemnified party.
b. Redstone. Redstone shall indemnify, hold harmless and
defend Kyzen and its representatives, affiliates, directors, officers,
agents and employees, and their respective successors and assigns and
each other person controlled (within the meaning of the 1933 Act) by
Kyzen ("Kyzen indemnified parties") to the fullest extent permitted by
law, from and against any losses, claims, damages, demands, expenses,
liabilities or actions, including shareholder actions in respect
thereof, in connection with claims relating to or arising out of any
violation by Redstone of applicable federal or state securities laws,
rules or regulations or the rules of any applicable self-regulatory
organization or Redstone's performance of the terms of this Agreement,
and will reimburse any indemnified party for expenses (including
reasonable attorneys' and accountants' fees and expenses of one law
firm and one accounting firm for all Kyzen indemnified parties, in the
absence of a conflict of interest) as they are incurred by any Kyzen
indemnified party in connection with investigating, preparing,
defending or settling any such action or claim.
c. Indemnification Procedure. Any indemnified party must
give the indemnifying parties: (i) written notice within a reasonable
time after the indemnified party is served with legal process in an
action asserting such claims, provided that the failure or delay to
notify the indemnifying parties shall not relieve them from any
liability they may have to the indemnified parties hereunder so long as
the failure or delay shall not have prejudiced the defense of such
claim; (ii) reasonable assistance in defending the claim; and (iii)
sole authority to defend or settle the claim. In the event that the
indemnifying parties elect not to defend any such claim, the
indemnified party shall have the option, but not the duty, to
reasonably settle or defend the claim at its cost and the indemnifying
parties shall indemnify the indemnified parties for such
2
<PAGE> 3
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
settlement or any damages finally awarded attributable to such claim,
reasonable costs and expenses (including attorneys' and accountants'
fees) and interest on such recoverable funds advanced.
7. Representations, Warranties and Covenants.
(a) Redstone.
(i) This Agreement and the transactions
contemplated herein will not (A) conflict with or result in a
breach of Redstone's organizational documents, (B) violate any
applicable statute, law, rule, regulation, decision or order
of any court or governmental agency, or (C) conflict with or
result in a breach of any undertaking, agreement or contract
to which Redstone is a party or by which it is otherwise
bound, which, in the case of (A), (B) or (C) would materially
limit or have a material adverse effect on its ability to
perform its duties under this Agreement;
(ii) As of the Effective Date Redstone is, and at
all times during the term of this Agreement will be, a company
duly organized and validly existing under the laws of the
jurisdiction of its formation and it has full capacity and
authority to enter into this Agreement, to conduct its
business and to perform its obligations under this Agreement;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by Redstone and is a valid,
binding and enforceable obligation of Redstone, except as such
enforceability is limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws and
subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
at law);
(iv) There is no pending, or to the best of
Redstone's knowledge, threatened action, investigation, suit
or proceeding, before or by any court, governmental,
administrative or self-regulatory body or arbitration panel to
which it or any of its principals, shareholders, directors,
officers or employees is a party, or to which any of its
assets is subject which might be reasonably expected to result
in any material adverse change in its condition (financial or
otherwise), business or prospects or might be reasonably
expected to have a material adverse effect on any of its
material assets or which reasonably might be expected to
materially impair its ability to discharge its obligations to
Kyzen;
(v) Redstone's business operations and any
Services provided pursuant to this Agreement have been tested
as part of an internal Year 2000 compliance plan and it does
not believe that an interruption of the Services will occur as
a result of the Year 2000; provided, however, that it cannot
assure that third parties on which it relies will not have an
interruption of services as a result of the Year 2000;
(vi) Redstone is properly registered, licensed
and/or qualified to act under all applicable United States
federal and state securities statutes and regulations in order
for it to perform its duties under this Agreement;
(vii) Any communications used by Redstone in
connection with this Agreement and the actions contemplated
thereby will not contain any untrue statement of material fact
or omit to state a material fact required to be stated
therein, in light of the circumstances under which they were
made, not misleading.
(viii) Redstone is and will remain for the term of
this Agreement, a member in good standing of the NASD and is
registered as a broker-dealer under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and in any state in
which it is required to be licensed or registered; and
(ix) Redstone will comply with all federal and
state securities laws, the rules and regulations of the
Securities and Exchange Commission (the "SEC") and applicable
state
3
<PAGE> 4
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
regulatory agencies, and the Constitution and Bylaws and Rules
of Conduct of the NASD applicable to it in connection with
this Agreement and the Services it is to provide hereunder.
The representations, warranties and covenants contained herein
shall continue during the term of this Agreement and Redstone will promptly
notify Kyzen if any event has occurred which would make any of the foregoing
untrue or could have a material adverse effect on its operations.
(b) Kyzen:
(i) This Agreement and the transactions contemplated
herein will not (A) conflict with or result in a breach of Kyzen's
organizational documents, (B) violate any applicable statute, law,
rule, regulation, decision or order of any court or governmental
agency, or (C) conflict with or result in a breach of any undertaking,
agreement or contract to which Kyzen is a party or by which it is
otherwise bound, which, in the case of (A), (B) or (C) would materially
limit or have a material adverse effect on its ability to perform its
duties under this Agreement;
(ii) As of the Effective Date Kyzen is, and at all times
during the term of this Agreement will be, a company duly organized and
validly existing under the laws of the jurisdiction of its formation
and it has full capacity and authority to enter into this Agreement, to
conduct its business and to perform its obligations under this
Agreement;
(iii) This Agreement has been duly and validly authorized,
executed and delivered by Kyzen and is a valid, binding and enforceable
obligation of Kyzen, except as such enforceability is limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws and subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law);
(iv) There is no pending, or to the best of Kyzen's
knowledge, threatened action, investigation, suit or proceeding, before
or by any court, governmental, administrative or self-regulatory body
or arbitration panel to which it or any of its principals,
shareholders, directors, officers or employees is a party, or to which
any of its assets is subject which might be reasonably expected to
result in any material adverse change in its condition (financial or
otherwise), business or prospects or might be reasonably expected to
have a material adverse effect on any of its material assets or which
reasonably might be expected to materially impair its ability to
discharge its obligations to Redstone; and
(v) Kyzen's business operations and any Services provided
pursuant to this Agreement have been tested as part of an internal Year
2000 compliance plan and it does not believe that an interruption of
the Services will occur as a result of the Year 2000; provided,
however, that it cannot assure that third parties on which it relies
will not have an interruption of services as a result of the Year 2000.
8. Governing Law. This Agreement is made and shall be construed
under the laws of the state of Tennessee irrespective of conflicts or choice of
law principles.
9. Severability. If and to the extent that any court of competent
jurisdiction holds any provision of this Agreement to be invalid or
unenforceable, such holding shall in no way affect the validity of the remainder
of this Agreement, to the extent that such severed provision does not materially
change the understanding of the parties pursuant to this Agreement.
10. Entire Understanding. This Agreement, including all exhibits
hereto, contains the entire agreement of the parties hereto and supersedes all
prior agreements, negotiations, and understandings between the parties with
regard to the subject matter of this Agreement.
11. Counterparts. This Agreement may be executed in two or more
counterparts, all of which together shall be considered a single instrument. In
making proof of this Agreement it shall not be necessary to produce or account
for more than one such counterpart executed by the party against whom
enforcement of this Agreement is sought.
4
<PAGE> 5
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
12. Amendments. This Agreement may not be amended or otherwise
modified except in writing by both parties hereto.
13. Assignment. Neither party hereto may assign this Agreement
without the prior written consent of the other party. For purposes of this
restriction on assignment, the term "Assignment" shall include any direct or
indirect transfer of a controlling block of the assigning party's outstanding
voting securities by one or more security holders of the assigning party.
14. Captions. All sections headings are for convenience of
reference only, and do not form part of this Agreement and shall not affect the
meaning or interpretation of this Agreement.
5
<PAGE> 6
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
IN WITNESS HEREOF, this Agreement has been duly executed for, and on
behalf of the parties hereto in a manner binding upon them as of the Effective
Date written above.
KYZEN CORPORATION
By: /s/ Kyle J. Doyel
-------------------------------------
Kyle J. Doyel,
President and Chief Executive Officer
REDSTONE SECURITIES, INC.
By: /s/ Robert A. Shuey, III
-------------------------------------
Robert A. Shuey III,
Managing Director
6
<PAGE> 7
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
KYZEN CORPORATION EXHIBIT A
STOCK OPTION GRANT
Optionee: Redstone Securities, Inc.
Address: 101 Fairchild Avenue
Plainview, New York 11803-1788
Total Shares Subject to Option: 250,000
DATE OF GRANT: NOVEMBER 23, 1999
Type of Stock Option: Stock Options
1. Grant of Option. Kyzen Corporation, a Tennessee corporation
(the "Company"), hereby grants to the optionee named above (the "Optionee") an
option to purchase a total of up to 250,000 shares, $0.01 par value per share,
of the Company's Common Stock (the "Shares") at the exercise price per share set
forth in Section 2 below (the "Exercise Price"), subject to all of the terms and
conditions of this Stock Option Grant (the "Grant or the Option"). This Option
is granted effective as of the Date of Grant set forth above (the "Date of
Grant").
2. Option Grant.: Kyzen hereby grants Redstone the following
options:
(a) options to purchase 75,000 shares of Common Stock at
an exercise price of $0.50 per share, to vest
immediately
(b) options to purchase 75,000 shares of Common Stock at
an exercise price of $1.00 per share, to vest
immediately.
(c) options to purchase 50,000 shares of Common Stock
with an exercise price of $2.00 per share to vest
immediately.
(d) options to purchase 50,000 shares of Common Stock
with an exercise price of $3.00 per share to vest
immediately.
Optionee shall in no event be entitled under this Option to purchase a
number shares of the Company's common stock greater than the total number of
Shares set forth above.
3. Restrictions on Exercise. Exercise of this Option is subject
to the following limitations:
(a) This Option may not be exercised unless such exercise
is in compliance with the Securities Act of 1933, as
amended (the "1933 Act"), and all applicable state
securities laws, as they are in effect on the date of
exercise.
(b) This Option may not be exercised as to fewer than 100
Shares unless it is exercised as to all Shares as to
which this Option is then exercisable.
4. Termination of Option. This Option shall terminate and vested
options will automatically expire on the earlier to occur of one year after
vesting dates set forth in Section 2(a)-(d) above or six months after the
termination of that certain Financial Advisory and Consulting Agreement, dated
as of November 23, 1999 (the "Agreement"). All unvested options shall expire
upon termination of the Agreement.
7
<PAGE> 8
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
5. Manner of Exercise.
(a) This Option may be exercised at any time during the
exercise period commencing on the Date of Grant and
ending on the termination or expiration date as
determined in Section 4 above by delivery to the
Company of a written Stock Option Exercise Notice and
Agreement in the form attached hereto as Schedule A.
(B) THE STOCK OPTION EXERCISE NOTICE AND AGREEMENT SHALL
BE ACCOMPANIED BY FULL PAYMENT OF THE EXERCISE PRICE
FOR THE SHARES BEING PURCHASED. THE METHOD OF PAYMENT
FOR EXERCISE OF THIS OPTION OR ANY PART THEREOF SHALL
BE DETERMINED BY THE COMPANY IN ITS SOLE DISCRETION
AND MAY CONSIST OF (I) CASH, (II) CHECK, (III) WIRE
TRANSFER, (IV) ANY COMBINATION OF THE FOREGOING
METHODS OF PAYMENT, OR (V) SUCH OTHER CONSIDERATION
AND METHOD OF PAYMENT FOR THE ISSUANCE OF SHARES AS
MAY BE PERMITTED UNDER APPLICABLE LAWS AND AGREED TO
BY THE COMPANY.
(c) Prior to the issuance of the Shares, Optionee must
pay or make adequate provisions for any applicable
federal or state withholding obligations of the
Company therefor.
(d) Provided that such notice and payment are in form and
substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the
name of the Optionee.
6. Compliance With Laws and Regulations. The issuance and
transfer of Shares shall be subject to compliance by the Company and the
Optionee with all applicable requirements of federal and state securities laws
and regulations and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed or quotation system on which the
Company's Common Stock may be quoted at the time of such issuance or transfer.
Optionee understands that the Company is under no obligation to register,
qualify, list or quote the Shares with the Securities and Exchange Commission,
any state securities commission, any stock exchange or quotation system to
effect such compliance, except pursuant to the terms of that certain
Registration Rights Agreement, dated as of November 23, 1999.
7. Nontransferability of Option. This Option may not be sold,
assigned, pledged, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent and distribution and may be exercised
during the lifetime of the Optionee only by the Optionee. The terms of this
Option shall be binding upon the Optionee's executors, administrators, personal
representatives, successors and permitted assigns.
8. Representations by Optionee. By accepting this Option Grant,
Optionee represents and warrants the following to the Company:
(i) Optionee has been furnished with such materials and
has been given access to such financial and other
information relating to the Company as Optionee or
Optionee's qualified representatives have requested,
and Optionee has been afforded the opportunity to ask
questions regarding the Company and the Shares which
are the subject hereof as Optionee has found
necessary in order to make an informed investment
decision;
(ii) Optionee hereby acknowledges that it is an
"accredited investor" as that term is defined in
Regulation D promulgated under the 1933 Act;
(iii) Optionee intends to acquire the Common Stock options
for its own account for investment purposes only and
not with a view toward resale or distribution; and
(iv) Optionee acknowledges that it is aware that there are
substantial restrictions on the transferability of
the Common Stock options because they will not be,
and it has no right to require that they be,
registered under the 1933 Act or under any state
securities laws, in reliance upon exemptions
therefrom; such options and the Common Stock reserved
for issuance upon exercise thereof may not be, and it
agrees that they shall not be, sold
8
<PAGE> 9
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
unless such sale is exempt from such registration
under the 1933 Act and applicable state securities
laws.
9. Stock Dividends and Stock Splits. If outstanding shares of the
Company's Common Stock shall be subdivided into a greater number of shares
thereof, or a dividend of shares of stock shall be paid pursuant thereto, the
exercise price in effect immediately prior to such subdivision or at the record
date of such dividends shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately reduced; and, conversely, if outstanding shares of stock shall
be combined into a smaller number of shares thereof, the exercise price in
effect immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased.
10. Reservation of Shares. The Company covenants that it will at
all times reserve and keep available, or retain the authority to issue, a
sufficient number of shares of Common Stock to permit the exercise hereof in
full.
11. No Rights as Shareholder. Until Optionee timely exercises
Optionee's rights to acquire the Shares hereunder, Optionee shall not be
entitled to vote or receive dividends or be deemed to be a shareholder of the
Company for any purpose, nor shall anything contained in this Option be
construed to grant to Optionee any rights of a shareholder of the Company or any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings, receive dividends, subscription rights or otherwise.
12. Assumption of Options by Successor Companies. In the event of
a dissolution or liquidation of the Company, a merger in which the Company is
not the surviving corporation, a transaction in which 100% of the then
outstanding voting stock is sold or otherwise transferred, or the sale of
substantially all of the assets of the Company, any or all outstanding Options
shall, notwithstanding any contrary terms of this Grant, accelerate and become
exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or sale
of assets on such conditions as the Company shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options.
13. Interpretation. Any dispute regarding the interpretation of
this Agreement shall be submitted by Optionee or the Company forthwith to the
Company's Board of Directors, which shall review such dispute at its next
regular meeting. The resolution of such a dispute by the Company's Board of
Directors shall be final and binding on the Company and on the Optionee.
14. Governing Law. This Agreement is made and shall be construed
according to the laws of the United States and the laws of the State of
Tennessee irrespective of conflicts or choice of law principles.
15. Entire Agreement. This Grant, including Schedule A attached
hereto, constitutes the entire agreement of the parties and supersedes all prior
undertakings and agreements with respect to the subject matter hereof.
16. Paragraph Number and Headings. Headings and section numbers have
been inserted herein solely for convenience of reference and shall not be
construed to affect the meanings, construction or effect of this Agreement.
9
<PAGE> 10
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
IN WITNESS HEREOF, this Option has been duly executed for, and on behalf of the
parties hereto in a manner binding upon them as of the Date of Grant written
above.
KYZEN CORPORATION
By: /s/ Kyle J. Doyel
-----------------------------------
Kyle Doyel, Chief Executive Officer
10
<PAGE> 11
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of this Stock Option
Grant and Schedule A attached hereto, represents that Optionee has read and
understands the terms and provisions thereof, and accepts this Option subject to
all the terms and conditions of this Stock Option Grant. Optionee acknowledges
that there may be adverse tax consequences upon exercise of this Option or
disposition of the Shares and that Optionee should consult a tax advisor prior
to such exercise or disposition.
OPTIONEE: Date:
--------------------------------- -------------------------
Sign Name Here
---------------------------------
Print Name Here
11
<PAGE> 12
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
SCHEDULE A
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
To: Kyzen Corporation
430 Harding Industrial Drive
Nashville, TN 37211
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") elects to exercise
Optionee's option to purchase _______ shares of the Common Stock, par
value $.01 per share (the "Shares"), of Kyzen Corporation (the
"Company") (the "Option" or the "Grant").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Grant, restates all representations
of Optionee made in the Grant, and agrees to abide by and be bound by
its terms and conditions.
3. Compliance with Securities Laws. Optionee understands and acknowledges
that, notwithstanding any other provision of the Grant to the contrary,
the exercise of any rights to purchase any Shares are expressly
conditioned upon compliance with the Securities Act of 1933, as amended
(the "1933 Act"), and all applicable state securities laws. Optionee
agrees to cooperate with the Company to ensure compliance with such
laws.
4. Federal Restrictions on Transfer. Optionee understands that the Shares
must be held indefinitely unless they are registered under the 1933 Act
or unless an exemption therefrom is available and that the
certificate(s) representing the Shares may bear a legend to that
effect. Except as provided in that certain Registration Rights
Agreement dated as of November 23, 1999, Optionee understands that the
Company is under no obligation to register the Shares and that an
exemption may not be available or may not permit Optionee to transfer
Shares in the amounts or at the times proposed by Optionee.
Specifically, Optionee has been advised that Rule 144 promulgated under
the 1933 Act, which permits certain resales of unregistered securities,
is not presently available with respect to the Shares and, in any
event, requires that the Shares be paid for and then held for a minimum
of one year before they may be resold under Rule 144.
5. Legend. Optionee understands and agrees that the Shares are subject to
restrictions on transfer as set forth herein and that the
certificate(s) representing the Shares will bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
SECURITIES ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
6. Stop-Transfer Notices. Optionee understands and agrees that, in order
to ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop-transfer" instructions to its
transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its
own records.
7. Tax Consequences. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any
tax consultant(s) Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying
on the Company for any tax advice.
1
<PAGE> 13
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
8. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price of the Shares that Optionee has elected to
purchase and has made provisions for the payment of any federal or
state withholding taxes required to be paid or withheld by the Company.
9. Entire Agreement. That certain Stock Option Grant, dated as of November
23, 1999 (the "Grant") is incorporated herein by reference. This
Agreement and the Grant constitute the entire agreement of the parties
and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof,
and is governed by Tennessee law irrespective of conflicts or choice of
law principles.
Accepted by:
KYZEN CORPORATION
By:
-------------------------------
Its:
------------------------------
Dated:
----------------------------
Submitted by:
OPTIONEE:
By:
-------------------------------
Address: 101 Fairchild Avenue
Plainview, New York 11803-1788
Dated:
----------------------------
2
<PAGE> 1
KYZEN CORPORATION
- -------------------------------------------------------------------------------
PART III (Continued)
(i) 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 February 7, 2000 relating to
the financial statements, which appear in this Form 10-KSB.
PricewaterhouseCoopers LLP
Nashville, TN
March 27, 2000
Page 55 of 56
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999-KYZEN CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 589,039
<SECURITIES> 0
<RECEIVABLES> 650,639
<ALLOWANCES> 8,334
<INVENTORY> 445,438
<CURRENT-ASSETS> 1,754,721
<PP&E> 1,711,180
<DEPRECIATION> 1,037,635
<TOTAL-ASSETS> 2,638,306
<CURRENT-LIABILITIES> 507,292
<BONDS> 0
0
0
<COMMON> 51,018
<OTHER-SE> 2,079,996
<TOTAL-LIABILITY-AND-EQUITY> 2,638,306
<SALES> 5,759,850
<TOTAL-REVENUES> 5,759,850
<CGS> 2,454,502
<TOTAL-COSTS> 2,454,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> (370,732)
<INCOME-TAX> 0
<INCOME-CONTINUING> (370,732)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (370,732)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
