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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO CURRENT REPORT ON
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
Date of Report (Date of Earliest Event Reported): January 14, 2000
ADVANCED TECHNOLOGY INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
0-23761
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(Commission
File Number)
Delaware 33-0751685
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Number) Identification)
Taubenstrasse 20, D-10117, Berlin 10117
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(Address of principal executive offices) (Zip Code)
49 30 201 7780
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(Registrant's Executive Office Telephone Number)
KURCHATOV RESEARCH HOLDINGS, LTD.
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(Former name and former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization (the
"Acquisition Agreement") effective January 14, 2000, Advanced Technology
Industries, Inc. ("we" or "us"), a Delaware corporation, acquired all the
outstanding shares of common stock of Aberdeen Acquisition Corporation
("Aberdeen"), a Delaware corporation, from the shareholders thereof in an
exchange for an aggregate of 400,000 shares of our common stock, plus $150,000
in cash (the "Acquisition"). As a result, Aberdeen became our wholly-owned
subsidiary.
The Acquisition was approved by the unanimous consent of our Board of
Directors on January 14, 2000. The Acquisition is intended to qualify as a
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended.
Prior to the Acquisition, we had 14,695,911 shares of common stock
issued and outstanding and 15,095,911 shares of common stock issued and
outstanding following the Acquisition.
Upon effectiveness of the Acquisition, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, we
elected to become the successor issuer to Aberdeen for reporting purposes under
the Securities Exchange Act of 1934 and elected to report under the Act
effective January 14, 2000.
Business of Advanced Technology Industries, Inc.
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General
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Advanced Technology Industries, Incorporated ("we" or "us"), was
incorporated under the laws of the State of Delaware on October 25, 1995. We
were organized to identify, assess, acquire and capitalize on innovative
technologies introduced and developed by scientists throughout the world with
particular emphasis on technologies originating in Israel, Russia and Germany.
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Until recently, our principal activities encompassed identifying,
reviewing and assessing technologies for their commercial applicability and
potential. As of the date hereof, we have:
o made investments in or otherwise acquired interests in three
technologies, namely, a heating element technology, a waste
conversion technology and, a silicon (EKOR) compound technology;
and
o acquired 100% of Cetoni Umwelttechnologie-Entwicklungs GmbH, a
German company engaged in the development of consumer products.
Our focus in the near term will be to:
o successfully commercialize our acquired technologies; and
o continue to identify and acquire new technologies, specifically in
Israel, Russia and Germany.
We acquire interests in a portfolio of technologies and companies.
Daily operation of our companies in which we have stock ownership is handled
directly by each company's existing management. All acquired technologies and
companies function fully autonomous of us. When we acquire an interest in a
company, we negotiate for representation on its board of directors. Our
designated representative is responsible for monitoring all aspects of our
investment and reporting material events directly to our Board of Directors. In
instances where we own a controlling interest in a portfolio company, we have
the ability to direct the development, marketing, and commercialization of
products. However, where we own only a minority interest or do not otherwise
exercise control over a portfolio company we must rely upon and be governed by
the decisions of management of those companies concerning those matters. In
addition, where we have a non-controlling interest in a portfolio company, in
the absence of other agreements (such as revenue sharing agreements), we will
earn revenues from the portfolio company only in the form of dividends which may
be declared by the portfolio company and the declaration of said dividends are
solely within the discretion of the Board of Directors of the portfolio company.
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Portfolio Technologies and Companies
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Described below are the various technologies in which we presently own
an interest.
We have acquired a 20% interest in each of two Israeli companies,
Flexitech, Ltd. ("Flexitech") and Pirocat, Ltd. ("Pirocat"). Flexitech has
developed a heating element which can be printed on a thin film substrate and
Pirocat has developed a technology which allows for conversion of plastic waste
into fuel which can be used to produce gasoline, diesel fuel and heating oil.
A. Polymer Heating Element ("PHE") Technology.
PHE technology allows for the application of a proprietary polymer
thick film onto a polymer, ceramic or metal surface, which, when charged with an
energy source, emits heat. The surface to which the film is applied becomes a
heating element, thereby allowing for the application of heat directly to the
surface to be heated. The more energy supplied to the polymer film, the higher
the temperature emitted. The heating element involved is highly conductive,
flexible and energy efficient. The proprietary film which forms the basis of the
PHE technology may be applied onto multidimensional surfaces. The advantages of
the PHE technology over the existing heat sources include its higher heat
dissipation from the unit surface on the surface to be heated, its durability,
versatility, very low thermal mass and high price competitiveness with similar
heat technologies. The commercial applications of the PHE technology may include
consumer heating appliances, automotive industry for heated rear view mirrors
and industrial machinery requiring heating elements.
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B. Organic Waste Conversion Technology.
Organic Waste Conversion technology represents a process whereby
organic elements present primarily in plastics are converted into liquid fuel
base products which are used to make market grade gasoline, diesel fuel and fuel
oils. The process is based on pyrolisis and catalytic cracking of the
hydrocarbons and fluidized bed technologies, which have been in use for many
years. More specifically, pyrolisis is the process of heating plastic into a
liquid. Once liquified, plastic is subjected to catalytic cracking whereby the
plastic is broken down to elemental components, including hydrocarbons, which
comprise fuels such as gasoline. The process, when developed may offer oil
products that are both ecologically cleaner and more economical to produce.
We have entered into agreements with Ofek Le-Oleh Foundation, Ltd. (the
"Foundation"), an Israeli company with the authority to manage and distribute
Israeli government funds needed to create the infrastructure for incubation
technologies. We have acquired a 20% equity interest in each of Flexitech, Ltd.
and Pirocat, Ltd. We have agreed to pay to each of Flexitech and Pirocat the sum
of $60,000 in four tranches of $15,000 each, the first three of which have been
paid to date. The agreements further provide that the inventor of the technology
has an option to purchase an additional 20% to 25% of the common equity of each
company from the Foundation for a sum to be determined in the future, which
options are exercisable for a period of 90 days commencing after the first year
of the Development Period (defined in each agreement as the period during which
the Foundation or the Israeli Technology Company is being financed by the
government of Israel). In addition, we have entered into a verbal agreement with
the inventors of each technology which permit us to (i) acquire from them an
additional 31% of each corporation's common equity, which verbal options are
exercisable at any time during the Development Period, each at an exercise price
to be negotiated in the future, (ii) acquire from the inventor of the technology
the shares of each company's stock which he has the option to acquire from the
Foundation, and (iii) direct the voting of the common equity in said entities
owned by the inventors of each of the technologies, giving us voting control of
each of Flexitech and Pirocat. There is no assurance that if and when such
options become exercisable we will have sufficient funds to exercise any of
them.
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Each of Flexitech and Pirocat are required to pay the Foundation a
royalty equal to 3% of the total annual revenues generated from the technologies
or products derived therefrom for the first three years after execution of the
respective agreements governing the transfer of the technology to us. The
royalty payable to the Foundation increases to 4% for the ensuing three years,
to 5% for the three years thereafter until all funds invested by the Foundation
in each of Flexitech and Pirocat have been repaid.
At all times, we are represented by our agent on each of Flexitech's
and Pirocat's Board of Directors, which is comprised initially of four persons,
including two directors appointed by the Foundation and a director appointed by
the scientist, and all decisions of the Board must be carried by a majority of
the directors.
During the Development Period (generally two years commencing as of the
date of registration of the project as an Israeli corporation), the sale or
other transfer of 25% or more of the inventor's equity of each of Flexitech and
Pirocat requires the consent of the Chief Scientist of the Israeli Ministry of
Commerce and Technology. In the event we wish to transfer our shares in either
company, we would be required to pay to the Foundation a sum equal to 25% of the
value we receive for our shares in either company. Our options to acquire the
common equity of Flexitech and Pirocat from the respective inventors of the
technologies are exercisable within such two-year periods and any acquisition of
the common equity purchasable thereunder will, therefore, require the Chief
Scientist's consent. Although we presently expect, based upon discussions with
the Chief Scientist's office that, if requested, such consent would be given,
there is no assurance that such consent will be obtained.
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EKOR COMPOUND TECHNOLOGY
We have acquired from Eurotech, Ltd., a former affiliate, an interest
which entitles us to receive 2% of the gross revenues generated by Eurotech from
the sale, licensing and servicing of a certain Silicon Compound Technology (the
"EKOR Compound"). EKOR Compound is a patented silicon geo-polymer developed by
scientists at the Kurchatov Institute in Moscow, Russia, specifically designed
and developed for possible containment of ecologically hazardous radioactive
materials that persist from the 1986 explosion of the Chernobyl Nuclear Power
Plant Reactor 4 in Chernobyl, Ukraine. Application of the EKOR Compound foam
layer is intended to contain radioactive dust in an enclosed area by forming a
permanent barrier between the soil and the air thus trapping the contamination.
Eurotech, Ltd. has advised us that in tests conducted at the Kurchatov
Institute, the EKOR Compound has been shown to be highly resistant to radiation
and structural degradation from exposure to radiation, and is fire-resistant,
water-proof, and capable of being formulated in densities that display
considerable structural strength and weight-bearing properties. Eurotech has
stated that in high dosage radiation tests, the EKOR compound has met or
exceeded all specifications for containment materials developed by the Chernobyl
authorities. Eurotech has exclusive licensing rights to the production and
application of this compound, with the exception of the Former Soviet Union, and
is marketing it to the nuclear waste industry as a tested material capable of
containing radioactive waste for hundreds of years. Eurotech has publicly stated
that the EKOR compound has completed preliminary field and laboratory testing
and Eurotech has begun commercialization of the product. Eurotech advises us
that the EKOR compound has completed all testing.
Our interest in the EKOR Compound is based upon a series of agreements
between us and Eurotech. During 1996, we entered into an agreement with
Eurotech, Ltd. which entitled us to receive 50% of the net profits (after
deducting development costs and related expenses attributable to EKOR) derived
from the sale or licensing by Eurotech of the EKOR Compound. In addition,
pursuant to two separate oral agreements, Eurotech granted to us the right to
(i) manufacture EKOR Compound and (ii) develop and manufacture the equipment by
which the EKOR Compound is applied. We funded the development of two generations
of EKOR Compound mixing and application equipment.
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By agreement dated November 30, 1999, we transferred to Eurotech all of
our rights to an interest in the EKOR Compound, including the right (i) to
receive 50% of the net revenues derived by Eurotech from the EKOR Compound, (ii)
the right to manufacture the EKOR Compound and (iii) the right to manufacture
the EKOR Compound mixing and application equipment. In consideration of ceding
these rights, Eurotech (i) issued to us 2,000,000 restricted shares of its
common stock (each share of which was traded at $5 on April 27, 2000 having an
aggregate value of $10,000,000) with demand registration rights, for which we
would be responsible for all costs, (ii) granted to us a right to receive 2% of
the gross revenues derived by Eurotech from the sale, service and licensing of
the EKOR Compound, (iii) returned to us for cancellation 6,795,000 shares of our
common stock;(iv) assumed $1,200,000 of our debt (which included $750,000 of
debt plus accrued interest incurred by us pursuant to certain 8% Convertible
Debentures issued by us in 1999) and (v) transferred all of its right, title and
interest in and to a certain resealable can technology which we had contracted
to purchase from Eurotech earlier in 1999. We and through our wholly-owned
subsidiary had paid a total of $150,000 towards the total purchase price of
$495,000. Our obligation to pay an additional $345,000 in cash for the right to
the resealable can technology was extended by Eurotech until September 30, 2000.
CONSUMER PRODUCTS
By agreement dated December 6, 1999, we acquired all of the outstanding
shares of the capital stock of Cetoni Umwelttechnologies-Entwicklungs GmbH
("Cetoni"). Cetoni is a German based design and engineering firm focused on
developing and patenting technologies and products for the consumer market.
Since 1995, Cetoni has successfully designed and patented products for the
beverage, automotive accessory, sport, healthcare, household, office and general
consumer markets. Cetoni's products are designed to fill a gap in a market where
products do not exist or to make a significant improvement over products
currently serving the target market. The markets for Cetoni's products are the
consumer beverage (resealable aluminium beverage can and resealable tetra pak
carton), automotive accessory (Tool Star, Rain Safe, Car Plus and Ring Memory),
healthcare (Pharmaceutical packaging and Table Boy), household goods (butter
dish, sugar dispenser, candy dispenser, fruit peeler and fruit peeler with tray)
sports (Power Ball and Walk and Roll), office (Desk Organizer) and overall
general consumer markets (Light Boy, Inflatable Umbrella, Mega Contour, Cleaning
Center, Alarm Transmission System and Multi-Table System). Cetoni markets its
products by way of strategic partnerships and through entering into global
distribution agreements with major product wholesalers. Cetoni has completed the
research and development stage on the majority of its products and believes that
they are ready for commercialization in consumer markets. Cetoni has entered
into manufacturing agreements for the Tool Star, Rain Safe and Household
Consumer Goods. These agreements are with manufactures located in low cost
countries which management believes allows Cetoni to offer quality products at
competitive prices. It is anticipated that the main emphasis for Cetoni in the
calendar year will be on the successful commericialization of its beverage
packaging products (resealable aluminum beverage can and resealabe tetra pak
carton), automotive accessory products (Tool Star) and office products (desk
organizer).
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Pursuant to our agreement to acquire Cetoni, we issued 5,000,000 shares
of our common stock to the holder of all of the authorized capital stock of
Cetoni and agreed to assume up to DM4,500,000 ($2,250,000) of Cetoni's
liabilities.
Marketing.
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Our primary business focus is the acquisition and commercialisation of
advanced technologies and the commercial products that result from these
efforts. We anticipate that e-commerce, automotive manufacturing, chemical
manufacturing, radioactive contamination containment, beverage packaging,
general consumer, and transportation markets will be the primary markets for our
products and technologies. We have limited experience in marketing of products
and services in these fields and intend to rely on licensing and joint venture
opportunities with multinational companies for the marketing and sale of its
technologies. Consequently, we will rely on our distribution partners and
affiliates to market our technologies world-wide.
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We believe that several of our acquired technologies and products are
ready for commercialisation and marketing. As a result, we will devote
significant business activities and resources to the successful
commercialisation and marketing of our acquired technologies and products. We
also have little experience marketing products of a technological or consumer
nature. The introduction of a new product or technology into the market place
requires vast capital resources and an increase in corporate personnel. Our
product marketing relies on the development of strategic alliances with global
distributors. This places the burden of marketing the products directly on the
strategic partners and keeps our cost risk low and reduces the amount of capital
resources we need to operate successfully. Conversely, the risks include the
inability to locate the proper partner and or the partner is ineffective.
By the acquisition of Cetoni, we acquired a wide range of basic
consumer products that will be distributed both at the retail and wholesale
level worldwide. Cetoni's marketing plan is focused on developing strategic
alliances with global product distributors. Cetoni has entered into discussions
with several global product distributors that have expressed an interest in
marketing and distributing Cetoni's products on a world-wide basis. No
agreements have been entered into as of the date of this filing and no assurance
can be given that any agreement will be consummated as a result of these
discussions. It is believed that this strategy will reduce required marketing
expenditures and lower the overall risk profile of the firm. All product
manufacturing is outsourced to producers located in low cost countries. Current
manufacturing for Cetoni's products are with producers located in
Kiskinfelegyhazo, Hungary and Jimbolia, Romania. These agreements relate to the
manufacture and distribution of the Tool Star and household products. Management
of Cetoni believes this strategy will allow its products to achieve market
acceptance based upon competitive prices as well as superior quality.
Competition.
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Competition in all of the areas in which we own and propose to purchase
technologies is intense. We compete against a wide range of companies,
universities, think-tanks, consumer product companies and others, most which
possess substantially greater financial and marketing resources and experience
than us. Competition in our core business segments is typically based on product
recognition and acceptance, price, and sales and marketing expertise and
resources. Any one or more of our competitors or other enterprises not presently
identified by or known to us may develop technologies and/or products which are
superior to ours, less expensive than our products and technologies or market
more successfully existing or new competing products and technologies.
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Government Regulation.
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We are not aware of any U.S. or foreign laws or regulations that govern
the marketing, sale or use of any of its present technologies, other than U.S.,
Russian and Western European environmental safety laws and regulations
pertaining to the containment and remediation of radioactive contamination and
the toxicity of materials used in connection therewith (in the case of the EKOR
compound). Based on the results of tests conducted at the Kurchatov Institute,
Eurotech believes that the EKOR compound meets applicable U.S. and German
regulatory standards. However, there can be no assurance that more stringent or
different standards may not in the future be adopted or applied depending on
EKOR'S intended use, or that if adopted or applied, they will not materially
increase the cost to Eurotech of licensing and using the EKOR compound, or
prevent its use altogether. Moreover, there can be no assurance that any or all
jurisdictions in which we presently operate or in the future may conduct our
business will not enact laws or adopt regulations which increase the cost of or
prevent us from licensing or marketing its other technologies or otherwise doing
business therein. Particularly in the cases of Russia and Ukraine, the enactment
of such laws or the adoption of such regulations may have a presently
unquantifiable, substantial adverse impact on our financial condition, business
and business prospects.
Intellectual Property.
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Set forth below is a description of all intellectual property rights
owned by us and Cetoni.
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Israeli PHE and Waste Conversion Patents. We have entered into
exclusive patent arrangements with Flexitech and Pirocat concerning Heating
Element and Waste Conversion technologies. Patent applications for these
technologies have been filed in Israel. We intend to file additional patent
applications in the industrial countries of the world.
EKOR Compound Technology. Eurotech, Ltd. holds all right, title and
interest, inclusive of all patent and other intellectual property rights, in and
to the EKOR Compound technology in Canada, China, Japan, Republic of Korea, the
United States of America, Ukraine and all member countries of the European
Patent Agreement until August 1, 2014. On March 23, 1999 Euro-Asian Physical
Society ("EAPS") was issued a patent on the process for manufacturing its EKOR
Compound from the United States Patent and Trademark Office, Patent No.
5,886,060. On November 28, 1997, the Ministry of Health of the Russian
Federation certified the EKOR Compound and its components as non-toxic, thereby
allowing for EKOR's production, delivery, sale and use in the Russian
Federation.
Cetoni has applied for patents covering twenty-two products developed
through its in-house research and development department in the major industrial
countries in the world. Currently, 17 patents and design patents have been
granted.
Internet strategy.
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We are in the process of establishing a Web site in which we will list
all of our technologies and other relevant information. We expect to have our
Web site operational during the second quarter, 2000. We are organizing and
listing our technologies on well-known technology related internet sites. These
sites allow companies to list developed technologies and enter into technology
license or cross-license agreements. In addition, as our technologies and
products enter into commercialialization, specific homepages will be developed
for customers and investor information. We believe that developing a successful
Internet strategy is paramount with the distribution of our products and
technologies.
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Employees.
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We currently employ four full-time and no part-time employees. We
engage a number of independent consultants to assist in the identification,
assessment, acquisition and marketing of technologies in the regular course of
our business. Our subsidiary, Cetoni, currently employs seven full-time and one
part-time employee. Cetoni's employees engage in product research, development
and marketing. We have good relations with our employees.
Facilities.
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We maintain our principal executive offices at Taubenstrasse 20,
D-10117 Berlin, Germany where we have leased 192 square meters of office space.
We have leased this facility for a term of five years at a monthly rent of
DM10,088, or $6,505, subject to annual adjustment.
Cetoni's principal executive offices are located in Passau, Germany.
The 220 square meter executive space is located at Patriching 26, D-94034
Passau, Germany and its telephone number is (49) 851 955 260. The facility is
leased at a monthly rent of $750 (DM1500). The lease has no expiration date and
may be terminated by either party with one months notice. This facility is
leased from the sister-in-law of the former principal shareholder of Cetoni.
Legal Proceedings
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We are not aware of any current outstanding litigation involving us nor
are we aware of any pending actions or claims against us.
Risk Factors.
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Set forth below are certain risks and uncertainties relating to our
business. These are not the only risks and uncertainties we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business. If any of the following risks actually
occur, our business, operating results or financial condition could be
materially adversely affected.
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OUR ACCOUNTANTS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN
The report of our independent public accountants and the notes to our
financial statements included elsewhere in this document state that the
continuation of our business as a going concern depends, among other things, on:
o obtaining additional funds to develop and implement our marketing plan
and to complete the commercialization of our present technologies;
o the generation of significant future revenues and income; and
o market acceptance of our technologies and products
We can provide no assurance that we will be able to achieve any of the
foregoing. See "Financial Statements - Independent Auditor's Report, - Note 1"
and "Risk Factors - Need for Additional Financing; Possibility of Future
Dilution."
WE HAVE A LIMITED OPERATING HISTORY; WE HAVE NOT GENERATED ANY REVENUES FROM
OPERATIONS; WE EXPECT TO INCUR SIGNIFICANT ADDITIONAL LOSSES.
We were incorporated in 1995 and have conducted only limited
operations to date consisting primarily of activities related to identifying and
acquiring our technologies and products. We are subject to all of the business
risks associated with a new enterprise, including, but not limited to:
o our inability to successfully market our technologies and products;
o risks of unforeseen capital requirements;
o failure of market acceptance of our technologies and products;
o failure to establish business relationships; and
o competitive disadvantages as against larger and more established
companies.
At December 31, 1999, we had stockholders' equity of $743,430, working
capital of $697,942, and an accumulated deficit since inception of $3,697,340.
We anticipate that we will continue to incur significant operating
losses through 2000. We may incur additional losses thereafter, depending upon
our ability to generate revenues from the license or sale of our technologies
and products or to enter into any or a sufficient number of joint ventures or
collaborations working. We have had no meaningful revenues to date. Although our
management believes that we may recognize revenues during 2000, based on
expressions of interest from third parties to acquire licenses to use our
technologies and purchase our products, there can be no assurance as to when or
whether we will be able to commercialize our products and technologies and
realize any revenues therefrom. Our products and technologies have never been
utilized on a large-scale commercial basis.
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NEED FOR ADDITIONAL FINANCING; POSSIBLE LOSS OF ISRAELI TECHNOLOGIES;
POSSIBILITY OF FUTURE DILUTION
In order to fully implement our business plan and marketing
strategy, we will require significant additional capital. Future capital
requirements could vary significantly and will depend upon certain factors, many
of which are not within our control. Factors which may bear on our future
capital requirements include:
o the timing of licensing of our technologies and sales of our
products;
o market acceptance of our technologies and products;
o the existence and terms of any licensing and/or joint venture
agreements for the marketing and sales of our technologies and
products; and
o the ongoing development and testing of our technologies and
products; and
o the availability of financing.
Our lack of marketing and operational experience and limited capital
resources could make it difficult to attract joint venture partners or to
consummate licensing or sales agreements and our failure to enter into joint
ventures or consummate any such agreements could have a material adverse effect
on our results of operations.
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In order to maintain our ownership interest in two Israeli incubator
companies (which developed the Pirocat Technology and Flexitech's PHE
technology), we must continue to make payments to those entities. If we are
unable to pay the third and fourth installments of the purchase price for our
ownership interests in these incubator companies, we will forfeit our interests
therein which would have a material adverse effect on our business and
negatively impact our future results of operations. We will also require
$345,000, the balance due for the acquisition of the interest in the reseable
can.
In addition, we will require substantial additional capital to
expand our business to hire administrative, marketing, technical and operational
support personnel, and to a lesser extent, for research and development
activities. As of the date hereof, we have not identified any sources of and we
cannot provide any assurances that we ever will obtain the additional capital
necessary to fully effectuate our business goals. Moreover, we cannot provide
assurances that additional capital requirements will not arise, or that for
periods following fiscal year 2000 we will generate sufficient revenues to cover
our expenses or generate profits. If adequate financing is not available, we may
be required to delay, scale back or eliminate certain of its research and
development programs and marketing and sales programs, forego technology
acquisition opportunities, or license third parties to commercialize
technologies that we would otherwise seek to develop ourselves. To the extent we
raise additional capital by issuing equity securities, holders of our equity
securities will be diluted.
No assurance can be given that we will be able to obtain any working
capital or complete any further offerings of securities, or that, if obtained or
completed, that such funding will be sufficient or that it will not cause
substantial dilution to our shareholders. Further, no assurance can be given as
to the completion of research and development activities and the successful
marketing of our technologies.
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WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS, INVESTMENTS, STRATEGIC
PARTNERSHIPS OR OTHER VENTURES, INCLUDING WHETHER SUCH TRANSACTIONS CAN BE
LOCATED, COMPLETED AND THE OTHER PARTY INTEGRATED WITH OUR BUSINESS ON FAVORABLE
TERMS
As part of our long-term growth strategy, we may seek to acquire or
make investments in complementary businesses, technologies, services or products
or enter into strategic relationships with parties who can provide access to
those assets, if appropriate opportunities arise. From time to time, we may
enter into discussions and negotiations with companies regarding our acquiring,
investing in, or partnering with their businesses, products, services or
technologies. We may not identify suitable acquisition, investment or strategic
partnership candidates, or if we do identify suitable candidates, we may not
complete those transactions on commercially acceptable terms or at all.
Acquisitions often involve a number of special risks, including the following:
o we may experience difficulty integrating acquired operations,
products, services and personnel;
o the acquisition may disrupt our ongoing business;
o we may not be able to successfully incorporate acquired technology
and rights into our service offerings and maintain uniform
standards, controls, procedures, and policies;
o we may not be able to retain the key personnel of the acquired
company;
o the businesses we acquire may fail to achieve the revenues and
earnings we anticipated; and
o we may ultimately be liable for contingent and other liabilities,
not previously disclosed to us, of the companies that we acquire.
We may not successfully overcome problems encountered in connection
with potential future acquisitions. In addition, an acquisition could materially
adversely affect our operating results by:
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o diluting your ownership interest;
o causing us to incur additional debt; and
o forcing us to amortize expenses related to goodwill and other
intangible assets.
Any of these factors could have a material adverse effect on our
business. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may incur
indebtedness or issue equity securities to pay for any future acquisitions.
WE WILL RELY ON OUR RELATIONSHIPS WITH OUR STRATEGIC PARTNERS TO GENERATE A
PORTION OF OUR BUSINESS AND REVENUES AND OUR BUSINESS COULD SUFFER IF THESE
RELATIONSHIPS ARE TERMINATED
We intend to enter into strategic partnerships, joint ventures and/or
teaming arrangements with regional and multinational corporations to promote our
technologies and products. In the event that we are unable to develop these
relationships or once developed maintain them for any reason, our business,
operating results and financial condition could be materially adversely
affected. Moreover, we can give you no assurances that any such relationships
will result in the sale or licensing of our technologies or products.
UNCERTAINTY OF MARKET ACCEPTANCE OF TECHNOLOGIES AND PRODUCTS
None of the technologies or products we offer have been available on a
commercial basis in the past and we cannot assure you that any of these
technologies or products will gain acceptance among the potential users thereof.
If we are not successful in promoting our technology products in the future, our
ability to generate revenues and our results of operations will be materially
adversely effected. See "Business."
17
<PAGE>
OUR MANAGEMENT HAS NO EXPERIENCE OPERATING A PUBLIC COMPANY
None of the members of our current management team have ever operated a
public company. We must develop the skills and knowledge required to operate
effectively as a public company and there can be no assurance that we will be
able to do so. If we are not successful in developing these skills or do not
retain individuals who have significant experience operating a public company,
we may never be able to implement all or any portion of our business plan and
our business could be materially and adversely affected. Please see the
biographies of our management under Item 5. Directors and Executive Officers,
Promoters and Control Persons.
UNCERTAINTY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
We have prepared and filed patent applications covering several of
our consumer products in industrial countries. We have not as yet filed patent
applications for all of our industrial technologies. Our success depends, in
part, on our ability to obtain and protect patents covering, and maintain trade
secrecy protection of our industrial technologies, as well as other, future
technologies, and to operate without infringing on the proprietary rights of
third parties. There can be no assurance that any of our pending or future
patent applications will be approved, that we will develop additional
proprietary technology that is patentable, that any patents issued to us will
provide us with a competitive advantage or will not be challenged by third
parties or that the patents of others will not have an adverse effect on our
ability to conduct business.
Furthermore, there can be no assurance that others will not
independently develop similar or superior technologies, duplicate any of our
processes, or design around any technology that is patented by us. It is
possible that we may need to acquire licenses to, or to contest the validity of,
issued or pending patents of third parties relating to our products. There can
be no assurance that any license acquired under such patents would be made
available to us on acceptable terms, if at all, or that we would prevail in any
such contest. In addition, we would incur substantial costs in defending itself
in suits brought against us on our patents or in bringing patent suits against
other parties.
18
<PAGE>
In addition to patent protection, we rely on trade secrets,
proprietary know-how and technology which we seek to protect, in part, by
confidentiality agreements with our prospective working partners and
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that we would have adequate remedies for any
breach, or that our trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.
OUR SERVICES AND REPUTATION MAY BE ADVERSELY AFFECTED BY PRODUCT DEFECTS OR
INADEQUATE PERFORMANCE
In the event that our products do not perform to specifications or are
defective in any way, our reputation may be materially adversely affected and we
may suffer a loss of business and a corresponding loss in revenues.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES OR HIRE NEW QUALIFIED PERSONNEL, OUR
BUSINESS WILL BE ADVERSELYAFFECTED
Our success greatly depends on our ability to attract and retain key
technical, sales, marketing, information systems, and financial and executive
personnel. We are especially dependent on the continued services of our senior
management team, particularly Hans Joachim Skrobanek and Peter Goerke, our
President, and Vice President, respectively, and our key marketing personnel.
The loss of either of these persons could have a materially detrimental effect
on us. We have not entered into employment agreements with either of these
persons. We do not maintain key person life insurance on any of our personnel.
If we fail to attract, hire or retain the necessary personnel, or if we lose the
services of any member of our senior management team, our business could be
adversely affected.
19
<PAGE>
RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES
We expect to conduct a significant portion of our business outside the
United States. Certain risks attach to operations in foreign countries, some of
which are described below:
THE UNCERTAINTY OF THE ENFORCEABILITY OF OUR CONTRACTUAL RIGHTS MAY
HAVE A SERIOUS ADVERSE IMPACT ON OUR BUSINESS
Legal systems in some of the nations in which we expect to conduct
operations, including the licensing of our technologies and selling our
products, may not be as developed as the United States legal system.
Consequently, contract rights which we take for granted in the United States may
be unenforceable in some of these jurisdictions. Any inability to enforce
contracts or collect payment from clients located in these areas would have
material adverse effect on our business and our results of operations.
CURRENCY EXCHANGE RATE FLUCTUATION
Some of the overseas contracts by which we provide products and
services will be denominated in currencies other than United States Dollars. As
a result, we will be subject to the effects of exchange rate fluctuations with
respect to any of these currencies.
20
<PAGE>
CURRENCY REPATRIATION RESTRICTIONS
Some of the foreign countries in which our clients are located have or
may enact laws which restrict conversion of their currencies into United States
Dollars. Any inability to convert the entire amount received from contracts
performed overseas may limit our ability to utilize revenue generated in such
currencies outside of that jurisdiction and restrict us to fund our business
activities outside those countries
WE FACE SIGNIFICANT COMPETITION IN ALL ASPECTS OF OUR BUSINESS AND WE CANNOT
ASSURE YOU THAT WE CAN COMPETE AGAINST OUR COMPETITORS
Our technologies and products, which include industrial technologies
and consumer products, cover a broad spectrum of industries. We compete against
a wide range of companies in all of our technology and product offerings from
multinational corporations to universities to local consumer product development
companies. Virtually all of our competitors in every business segment in which
we offer technologies and products are larger, have greater financial and
personnel resources and possess significantly more experience than us. Any one
or more of our competitors or other enterprises not presently known to us could
develop technologies and/or products which are superior to ours, significantly
underprice our products and technologies and/or more successfully market
existing, new or competing products and technologies. To the extent that our
competitors are able to achieve any of the foregoing, our ability to compete
could be materially adversely affected. We can offer no assurance that we will
be able to compete successfully against any of our competitors now existing or
which enter the market in the future.
RISKS RELATING TO OUR STOCK
FACTORS AFFECTING MARKET PRICE OF COMMON STOCK
The price of our Common Stock will be influenced by many factors, including:
o the depth and liquidity of the market for the Common Stock;
o investor perception of us and our technologies and products; and
o general economic and market conditions.
The market price of our Common Stock may also be significantly influenced by
factors such as announcements by us of new projects or similar announcements by
our competitors and quarter-to-quarter variations in our results of operations.
21
<PAGE>
FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND CAUSE OUR
RESULTS TO FLUCTUATE
Our financial results may fluctuate significantly because of several factors,
many of which are beyond our control. These factors include:
o our inability to effectively market our technologies and products;
o our failure to keep pace with changing technology;
o cost associated with marketing our products and services may
increase significantly;
o downward pressure on prices due to increased competition;
o changes in our operating expenses; and
o the effect of potential acquisitions.
Fluctuations caused by these and other factors could cause our business to
suffer.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.
THE FUTURE SALE OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD EFFECT THE MARKET
FOR ANY OF OUR PUBLICLY TRADED SECURITIES
We may have to sell and issue Common Stock or securities convertible
into Common Stock in order to obtain the funding necessary to support our
operations which will dilute your shareholdings and may negatively impact the
price of our Common Stock. In addition, the market price of our common stock
could fall if our stockholders sell substantial amounts of common stock,
including shares issued upon the exercise of outstanding options, in the public
market following this offering. Such sales might also make it more difficult for
us to sell equity securities in the future at a time and price that we deem
appropriate. Please refer to our discussion in "Shares Eligible for Future
Sale."
22
<PAGE>
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Form 8K may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. We intend the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All statements
regarding our expected financial position and operating results, our business
strategy, our financing plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be identified by our
use of forward-looking words such as "may," "believe," "plan," "will,"
"anticipate," "estimate," "expect," "intend" and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Although we believe that our expectations
that are expressed in these forward-looking statements are reasonable, we cannot
promise that our expectations will turn out to be correct. Our actual results
could be materially different from our expectations, including the following:
- we may not be able to secure funds to implement our marketing
strategy;
- we may not successfully integrate technologies, operations,
personnel or assets obtained through acquisitions;
- we may fail to compete with existing and new competitors;
- we may not adequately respond to technological developments; and
- we may not be able to find needed financing.
23
<PAGE>
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in this prospectus under the caption "Risk Factors."
Directors and Executive Officers, Promoters and Control Persons
- ---------------------------------------------------------------
Name Age Title
---- --- -----
Hans Joachim Skrobanek 51 President and Director
Peter Goerke 39 Vice President
James Samuelson 30 Vice President
Jacques Saunder 79 Secretary and Director
Hans Joachim Schuerholz 74 Director
All directors hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified. The Board of
Directors elects the officers annually.
Hans Joachim Skrobanek has been our President since October 27, 1999
and a Director since December, 1999. From December 1999 to present, Mr.
Skrobanek has been a managing director of ERBC Holdings, Ltd., an affiliate by
reason of the fact that it holds in excess of 5% of our outstanding shares of
common stock. While with ERBC Holdings, Mr. Skrobanek was engaged in project
financing and technology transfers from Russia and the Ukraine to the West. From
1995 to 1999, Mr. Skrobanek was employed as a consultant to Eurotech, Ltd. and
was directly involved in technology transfers from Russia and Israel to Western
markets. Mr. Skrobanek graduated from the University of Frankfurt in 1976 with a
Bachelor of Commerce degree.
24
<PAGE>
Peter Goerke joined us as a Vice President in March of 2000. Mr. Goerke
has served as our Vice President since March, 2000. Prior to this he served as
the Chief of Department of Intracamion, an international transportation company.
He also served as a consultant to the Treuhandanstalt. Mr. Goerke has a Master
Degree in Politics from the Institute of International Relations, Moscow,
Russia. He is fluent in German, Russian, English and French.
James Samuelson joined us as a Vice President on February 2000. Mr.
Samuelson also serves as the Chief Operating Officer and Chief Financial Officer
of our wholly-owned subsidiary Cetoni. From February 1998 to January 2000, Mr.
Samuelson served as a Vice President of Corporate Finance for Eastbrokers AG/WMP
Bank AG in Vienna, Austria, where he was responsible for all aspects of the
firms Investment Banking activities. In 1997, Mr. Samuelson was employed as a
Vice President for Grammont, Ltd., a boutique investment banking firm in Paris,
France, where he was responsible for the firms private placement and road show
activities. Prior to 1997, Mr. Samuelson was engaged in graduate studies. Mr.
Samuelson received a Master of Business Administration Degree in 1996 and a
Bachelor of Science in Business Administration degree in 1992, both from
Creighton University.
Jacques J. Saunder joined us as a Director in March, 1999. Mr. Saunder
also has served, at various times, as our Vice President and Secretary. For the
past five years, Mr. Saunder has been the President of Advanced Technologies
Industries and from inception until January 2000, President of that company. Mr.
Saunder graduated from College Royale Francais in Berlin, Germany in 1938 with a
degree in business, from the Haute Etude Commercial in Paris, France in 1949 and
from City College of New York in 1965.
25
<PAGE>
Hans Joachim Schuerholz has served as one of our directors since May,
1999. From 1995 to present, Mr. Schuerholz has served as a managing director and
consultant for a real estate company in Saxony, Germany. From 1993 to 1995, Mr.
Schuerholz was employed as a legal consultant to the City of Dresden, Germany,
in the area of restitution and priority investment law. He graduated from the
University of Menster in 1953 with a legal degree.
Executive Compensation
- ----------------------
The following table sets forth the information regarding compensation
paid (on an annualized basis) for the Named Executive Officer for the periods
indicated.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Principle Position Year Salary Non Cash Compensation
- --------------------------- ---- ------ ---------------------
<S> <C> <C> <C> <C>
Hans Joachim Skrobanek-President 1999 -0- $ -0- (1)
</TABLE>
No other officer, director or employee received a salary (including cash and
other compensation) during 1999 in excess of $100,000.
1. Does not include 175,000 shares of common stock issued to Mr. Skrobanek
during 1999 as a consultant and prior to his becoming an officer or director.
STOCK OPTIONS
INCENTIVE STOCK OPTION PLAN. In 1996, we adopted an Incentive Stock
Option Plan whereby we reserved 500,000 shares of common stock for issuance to
our employees. Our Board of Directors administers the Stock Option Plan but may
delegate such administration to a committee of three persons, one of whom must
be a member of the Board. The Board or the Committee has the authority to
determine the number of options to be granted, when the options may be exercised
and the exercise price of the options, provided that the exercise price may
never be less than the fair market value of the shares of the Common Stock on
the date the option is granted (110% in the case of any employee who owns more
than 10% of the combined voting power or value of all classes of stock. Options
may be granted for terms not exceeding ten years from the date of the grant,
except for options granted to person holding in excess of 5% of the common
stock, in which case the options may not be granted for a term not to exceed
five years from the date of the grant.
26
<PAGE>
As of the date hereof, no options have been granted under the Incentive
Stock Option Plan.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth information as of April 27, 2000,
regarding the beneficial ownership of Common Stock of (1) each person or group
known by us to beneficially own 5% or more of the outstanding shares of Common
Stock, (2) each director and officer and (3) all executive officers and
directors as a group. Unless otherwise noted, the persons named below have sole
voting and investment power with respect to the shares shown as beneficially
owned by them.
Amount of
Name of Beneficial Percent of Outstanding
Beneficial Owner 1 Ownership Shares of Class Owned
- ------------------ --------- -------------------------
Hans Joachim Skrobanek 175,000 .01
Peter Goerke 0 *
James Samuelson 0 *
Jacques Saunder 15,000 *
Hans Joachim Schuerholz 15,000 *
Kurt Seifman 4,184,940 27.7
Cetoni Holdings 5,000,000 33.1
All officers
and directors as a group (4 persons) 205,000 .01
27
<PAGE>
1. The address for each of the officers and directors named in the foregoing
chart is c/o the company.
Certain Relationships and Related Party Transactions
- ----------------------------------------------------
By agreement dated July 7, 1999, we agreed to acquire the 50% interest
in the resealable can technology which we did not own from Eurotech, Ltd., a
former affiliate of ours by virtue of common principal shareholders, officers
and directors. In consideration of such acquisition, we agreed to pay an
aggregate purchase price of $495,000 for the resealable can technology, $150,000
of which was paid upon execution of the agreement and grant to Eurotech a 6%
royalty from revenues generated from the sale or licensing of the technology. We
have agreed to pay the balance due under the agreement by September 30, 2000.
Eurotech had acquired its interest in the resealable can technology from ERBC
Holdings, Ltd. a company of which one of our principle shareholders is the sole
shareholder, in 1997 for a purchase price of $495,000.
During 1996, we entered into an agreement with Eurotech, Ltd. which
entitled us to receive 50% of the net profits (after deducting development costs
and related expenses attributable to EKOR) derived from the sale or licensing by
Eurotech of the EKOR Compound. In addition, pursuant to two separate oral
agreements, Eurotech granted to us the right to (i) manufacture EKOR Compound
and (ii) develop and manufacture the equipment by which the EKOR Compound is
applied. We funded the development of two generations of EKOR Compound mixing
and application equipment. By agreement dated November 30, 1999, we transferred
to Eurotech all of our right to an interest in the EKOR Compound, including the
right (i) to receive 50% of the net revenues derived by Eurotech from the EKOR
Compound, (ii) the right to manufacture the EKOR Compound and (iii) the right to
manufacture the EKOR Compound mixing and application equipment. In consideration
of ceding these rights, Eurotech (i) issued to us 2,000,000 restricted shares of
its common stock (each share of which was traded at $5.00 on April 27, 2000
having an aggregate value of $10,000,000), with demand registration rights with
the costs to be paid by us, (ii) granted to us a right to receive 2% of the
gross revenues derived by Eurotech from the sale, service and licensing of the
EKOR Compound, (iii) assumed approximately $1,200,000 of our debt (which
included all debt and interest incurred by us under the $750,000 8% Convertible
Debentures issued by us in 1999; (iv) Eurotech agreed to extend the due date of
the remaining portion owed to them for the repurchase of the resealable
technology to September 30, 2000; and (v) returned to us for cancellation
6,975,000 shares of common stock formerly held by CIS Development Corp., one of
our founders, which previously had sold those shares to Eurotech.
28
<PAGE>
By agreement dated June 1996, we engaged ERBC Holdings, Ltd., a company
all of whose shares are owned by one of our principal stockholders, to perform
certain business and administrative functions for us outside of the United
States. ERBC's duties included identifying and negotiating for technologies and
products in Europe, Israel and Russia and was responsible for, among other
things, assisting us to consummate the transaction by which we acquired Cetoni.
In consideration of such services, we agreed to pay to ERBC Holdings, Ltd. the
sum of $115,000, which we owe them at the date hereof under this agreement.
Further, during 1998 and 1999, ERBC made advances to Cetoni, which aggregated
$278,500 as of December 31, 1999. These loans are due on demand and provide for
interest at 10% per annum.
Hans Joachim Skrobanek, our President and a Director, served as a
consultant to Eurotech, Ltd. for the period 1995 through 1999. Since our
inception, we have been engaged in several transactions with Eurotech, some of
which are described above.
Descriptions of Securities
- --------------------------
GENERAL
Our authorized capital consists of 50,000,000 shares of common stock,
par value $.0001 per share, and 1,000,000 shares of Preferred Stock, par value
$.001 per share. At April 12, 2000 there were 15,095,911 shares of common stock
and no shares of Preferred Stock outstanding. Set forth below is a summary
description of certain provisions relating to our capital stock contained in our
Certificate of Incorporation and By-Laws and under the Business Corporation Law
of the State of Delaware. The summary is qualified in its entirety by reference
to our Certificate of Incorporation and By-Laws and the Delaware corporation
laws.
29
<PAGE>
COMMON STOCK
Each share of Common Stock entitles the holder thereof to share ratably
in dividends and distributions, if any, on the Common Stock when, as and if
declared by the Board of Directors, from funds legally available. There are no
preemptive, subscription or conversion rights. Upon liquidation, dissolution or
winding up of the affairs of the company and after payment of creditors and
satisfaction of any amounts outstanding to holders of the Preferred Stock, the
assets legally available for distribution will be divided ratably on a
share-for-share basis among the holders of the outstanding shares of Common
Stock. The holders of the outstanding shares of Common Stock are not entitled to
cumulative voting and are entitled to one vote per share with respect to all
matters that are required by law to be submitted to a vote of shareholders,
including the election of Directors. Accordingly, the holders of more than 50%
of the outstanding shares of Common Stock will have the ability to elect all of
the Directors.
PREFERRED STOCK
As yet, no shares of Preferred Stock have been designated by the Board
of Directors. The Board of Directors has the authority, without further action
by the holders of the Common Stock, to issue Preferred Stock in one or more
series and to fix as to any such series the dividend rate, redemption prices,
preferences on liquidation or dissolution, sinking fund terms, if any,
conversion rights, voting rights and any other preference or special rights and
qualifications. Shares of Preferred Stock issued by the Board of Directors could
be utilized, under certain circumstances, as a method of raising additional
capital, for possible acquisitions or for any purpose. The Board of Directors
has not authorized the issuance of any series of Preferred Stock and there are
no agreements, understandings or plans for the issuance of any Preferred Stock.
30
<PAGE>
WARRANTS
In connection with the sale of certain debentures sold during the first
quarter of 1999, we issued 770,000 warrants to certain persons who assisted in
identifying investors in the debentures, to legal counsel for services rendered
in connection with that transaction, and have reserved a like number of shares
of Common Stock for issuance upon exercise of such Warrants. Each Warrant
entitles the holder to purchase one share of Common Stock at a price of $.65 per
share or to exercise the Warrants on a cashless basis for a number a of shares
determined based upon the market price for the Common Stock on the date of any
cashless exercise. Of the outstanding Warrants, 270,000 of them may be
exercised through March 5, 2004, 250,000 may be exercised through March 12, 2004
and 250,000 may be exercised through April 14, 2004. The exercise price and the
number of shares which a holder of the Warrants is entitled to purchase are
subject to adjustment under certain circumstances. We have granted piggy-back
registration rights with respect to the shares of Common Stock underlying the
Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date hereof, we have a total of 15,095,911 shares of common
stock outstanding. Of these outstanding shares, 3,348,471 shares are freely
tradable, without restriction by or further registration under the Securities
Act of 1933 by persons other than our "affiliates," as defined in Rule 144 under
the Securities Act.
All the other outstanding shares of common stock (11,747,440 shares)
are "restricted securities" for purposes of the Securities Act and may not be
sold unless they are registered under the Securities Act or unless an exemption
from registration, such as that provided by Rule 144, is available.
We can make no prediction as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
significant numbers of shares of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair our
future ability to raise capital through an offering of its equity securities.
31
<PAGE>
TRADING MARKET
The Common Stock is traded on the EBB-OTC under the symbol "AVDI".
PRINCIPAL MARKET-MAKERS
On March 31, 2000, there were eleven (11) active market makers of our
common stock. The principal market makers of the Common Stock during 1999 have
been EBI Securities Corporation, Fleet Trading Division of Fleet Securities, GVR
Company, Sharpe Capital Inc., Hill Thompson Magid and Co. Inc., Herzog, Heine,
Geduld, Inc., Knight Securities, Inc., North American Institutional Brokers,
North Coast Securities Corporation, Paragon Capital Corporation and Wien
Securities Corp.
NUMBER OF SHAREHOLDERS OF RECORD
As of March 31, 2000, there were approximately 359 shareholders of
record of the Common Stock.
DIVIDENDS
To date, we have not declared or paid dividends on our Common Stock. We
presently plans to retain earnings, if any, for use in our business.
TRANSFER AGENT
Interwest Stock Transfer Company, located at 1981 East Holiday Road,
Salt Lake City, Utah, is the transfer agent and registrar for our common stock.
32
<PAGE>
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, we elected to become the successor
issuer to Aberdeen for reporting purposes under the Securities Exchange
Act of 1934 and elect to report under the Act effective January 14,
2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
James M. Cassidy resigned as an officer and director of Aberdeen
effective upon completion of the Acquisition.
ITEM 7. FINANCIAL STATEMENTS
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
33
<PAGE>
EXHIBITS
2.1. Agreement and Plan of Reorganization between Kurchatov Research
Holdings, Ltd. and Aberdeen Acquisition Corporation. *
3.1. Articles of Incorporation of Advanced Technology Industries, Inc.
3.2. By-Laws of Advanced Technology Industries, Inc.
4.1. Specimen Common Stock Certificate
4.2. Specimen Warrant Certificate issued in connection with an Offering of
Debentures.
10.1. Agreement with Eurotech, Ltd. to Acquire Resealable Can Technology
10.2. Flexitech, Ltd Acquisition Agreement
10.3. Pirocat, Ltd. Acquisition Agreement
10.4. Agreement with the Holder of All Oustanding Equity of Cetoni
Umwelttechnologies-Entwicklungs.
10.5. Agreement with Eurotech, Ltd. relating to Silicon (EKOR) Compound.
10.6. Lease Agreement for Office Space in Berlin, Germany.
23.1. Consent of Tabb, Conigliaro & McGann, P.C.
27.1. Financial Data schedule.
* Previously filed by Form 8-K dated January 20, 2000.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
By: /s/ Hans Joachim Skrobanek
----------------------------------------
Hans Joachim Skrobanek, President
Date: May 1, 2000
35
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
FINANCIAL REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Nos.
---------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
CONSOLIDATED BALANCE SHEET F-2
December 31, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
For the Years Ended December 31, 1998
and 1999 For the Period from Inception
(October 25, 1995) to December 31, 1999
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) F-4-F-6
For the Period from Inception (October 25, 1995) to
December 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
For the Years Ended December 31, 1998
and 1999 For the Period from Inception (October 25, 1995) to
December 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8-F-29
<PAGE>
Board of Directors and Stockholders
Advanced Technology Industries, Inc.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited the accompanying consolidated balance sheet of Advanced
Technology Industries, Inc., formerly Kurchatov Research Holdings, Ltd. (a
development stage company) as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity (deficiency), and cash flows for
the years ended December 31, 1998 and 1999 and the period from inception
(October 25, 1995) to December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Technology
Industries, Inc. (a development stage company) at December 31, 1999 and the
consolidated results of its operations, stockholders' equity (deficiency) and
its cash flows for the years ended December 31, 1998 and 1999 and the period
from inception (October 25, 1995) to December 31, 1999, in conformity with
generally accepted accounting principles.
As discussed in Notes 1, 5 and 12, during November of 1999, the Company sold its
profit interest in certain technology in exchange for the purchaser's stock.
While these shares are restricted, their estimated fair value represents a
significant portion of the Company's assets and working capital. In addition,
the Company recognized an extraordinary gain of $3,349,688 related to the sale
of its profit interest, which significantly reduced its net loss for the year
ended December 31, 1999.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company incurred losses
from operations since inception and, as of December 31, 1999, had a deficit
accumulated during the development stage of $3,697,340. As discussed further in
Note 1 to the consolidated financial statements, these factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ TABB, CONIGLIARO & McGANN, P.C.
New York, New York
April 18, 2000
F-1
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
Current Assets:
Prepaid expenses $ 26,780
Securities available-for-sale 3,859,000
------------
Total Current Assets 3,885,780
Equipment, net of accumulated depreciation 65,171
------------
Total Assets $ 3,950,951
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Cash overdraft $ 87,896
Accrued liabilities 1,511,116
Current portion of obligations under capital leases 11,269
Due to related parties 973,557
Deferred tax liability 604,000
------------
Total Current Liabilities 3,187,838
------------
Long-term portion of obligations under capital leases 19,683
------------
Total Liabilities 3,207,521
------------
Commitments and Other Matters (Notes 1,3,4,7,11,12,13
14,15 and 16)
Stockholders' Equity:
Preferred stock - $0.001 par value; 1,000,000 shares
authorized; -0- shares issued and outstanding -
Common stock - $0.0001 par value; 50,000,000 shares
authorized; 14,675,911 shares issued and outstanding 1,468
Additional paid-in capital 3,246,918
Accumulated other comprehensive income 1,192,384
Deficit accumulated during the development stage (3,697,340)
------------
Total Stockholders' Equity 743,430
------------
Total Liabilities and Stockholders' Equity $ 3,950,951
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
DECEMBER 31, FROM INCEPTION
------------------------- (OCTOBER 25,1995)
1998 1999 TO DECEMBER 31, 1999
------------ ------------ --------------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
------------ ------------ ------------
Costs and Expenses:
Research and development 205,983 1,098,192 1,670,374
Stock-based compensation - 1,070,411 2,125,411
Consulting fees 271,253 348,023 926,776
Other general and administrative
expenses 221,503 382,226 960,897
Depreciation expense 36,293 58,883 109,479
Interest and amortization of
debt issuance costs 60,536 1,140,889 1,254,091
------------ ------------ ------------
Total Costs and Expenses 795,568 4,098,624 7,047,028
------------ ------------ ------------
Loss before extraordinary item (795,568) (4,098,624) (7,047,028)
Extraordinary item - gain on sale
of technology interest to former
affiliate, net of income taxes
of $-0- - 3,349,688 3,349,688
------------ ------------ ------------
Net Loss $ (795,568) $ (748,936) $(3,697,340)
============ ============ ============
Basic and diluted loss per share
Before extraordinary item $ (.06) $ (.28)
Extraordinary item - .23
------------ ------------
Net Loss $ (.06) $ (.05)
============ ============
Weighted average shares used in
basic and diluted loss per share 13,666,500 14,573,509
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH DECEMBER 31, 1999
<CAPTION>
Common Stock Additional
Date of ------------------------- Paid-in
Transaction Shares Amount Capital
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Period from Inception (October 25, 1995)
through December 31, 1997:
- ----------------------------------------
Issuance of common stock to founders for
subscriptions ($0.0001 per share) 10/25/95 12,300,000 $ 1,230 $ -
Issuance of stock for legal fees
($0.04 per share) 10/25/95 500,000 50 19,950
Issuance of stock under consulting agreement
($0.04 per share) 10/25/95 1,375,000 138 54,862
Issuance of stock under consulting agreements
($1.00 per share) 12/02/96 230,000 23 229,977
Net loss - 1996 - - -
Issuance of stock under consulting agreements
($1.00 per share) 01/10/97 750,000 75 749,925
Issuance of stock for cash pursuant to
offering ($2.00 per share) 04/97-09/97 306,500 30 612,970
Offering costs 04/97 - - (50,000)
Comprehensive income:
Net loss - 1997 - - -
----------- ----------- -----------
Balance - December 31, 1997 15,461,500 $ 1,546 $1,617,684
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Period from Inception (October 25, 1995)
through December 31, 1997:
- ----------------------------------------
Issuance of common stock to founders for
subscriptions ($0.0001 per share) $ - $ - $ 1,230
Issuance of stock for legal fees
($0.04 per share) - - 20,000
Issuance of stock under consulting agreement
($0.04 per share) - - 55,000
Issuance of stock under consulting agreements
($1.00 per share) - - 230,000
Net loss - 1996 - (372,500) (372,500)
Issuance of stock under consulting agreements
($1.00 per share) - - 750,000
Issuance of stock for cash pursuant to
offering ($2.00 per share) - - 613,000
Offering costs - - (50,000)
Comprehensive income:
Net loss - 1997 - (1,267,567) (1,267,567) $ (1,267,567)
------------- ------------- ------------- -------------
Balance - December 31, 1997 $ - $ (1,640,067) $ (20,837) $ (1,267,567)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH DECEMBER 31, 1999
<CAPTION>
Common Stock Additional
Date of ------------------------- Paid-in
Transaction Shares Amount Capital
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
- ----------------------------
Balance - December 31, 1997, as
previously reported 15,461,500 $ 1,546 $1,617,684
Effect of Cetoni pooling-of-
interests 5,000,000 500 27,245
----------- ----------- -----------
Balance - December 31, 1997,
restated 20,461,500 2,046 1,644,929
Comprehensive income:
Net loss, restated for Cetoni
pooling-of-interests - - -
Other comprehensive income,
net of tax:
Translation adjustments - - -
Unrealized gains - - -
----------- ----------- -----------
Balance - December 31, 1998,
Restated 20,461,500 $ 2,046 $1,644,929
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
- ----------------------------
Balance - December 31, 1997, as
previously reported $ - $ (1,640,067) $ (20,837)
Effect of Cetoni pooling-of-
interests 36,122 (512,769) (448,902)
------------- ------------- -------------
Balance - December 31, 1997,
restated 36,122 (2,152,836) (469,739)
Comprehensive income:
Net loss, restated for Cetoni
pooling-of-interests - (795,568) (795,568) $ (795,568)
Other comprehensive income,
net of tax:
Translation adjustments (54,137) - (54,137) (54,137)
Unrealized gains - - - -
------------- ------------- ------------- -------------
Balance - December 31, 1998,
Restated $ (18,015) $ (2,948,404) $ (1,319,444) $ (849,705)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH DECEMBER 31, 1999
<CAPTION>
Common Stock Additional
Date of ------------------------- Paid-in
Transaction Shares Amount Capital
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
- ----------------------------
Balance - December 31, 1998,
Restated 20,461,500 $2,046 $1,644,929
Cancellation of shares issued to
founders 11/99 (6,795,000) (679) 679
Stock issued pursuant to
employment and consulting
agreements 01/99 1,009,411 101 1,009,310
Value assigned to stock options
issued in connection with
consulting agreement 01/99 - - 61,000
Value assigned to 770,000 warrants
issued in connection with
convertible debt 03/99 - - 531,000
Comprehensive income:
Net loss - - -
Other comprehensive income, net of tax:
Translation adjustments - - -
Unrealized gains - - -
----------- ----------- -----------
Balance - December 31, 1999 14,675,911 $1,468 $3,246,918
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
- ----------------------------
Balance - December 31, 1998,
Restated $ (18,015) $ (2,948,404) $ (1,319,444)
Cancellation of shares issued
to founders - - -
Stock issued pursuant to
employment and consulting
agreements - - 1,009,411
Value assigned to stock options
issued in connection with
consulting agreement - - 61,000
Value assigned to 770,000
warrants issued in connection
with convertible debt - - 531,000
Comprehensive income, net of tax:
Net loss - (748,936) (748,936) $ (748,936)
Other comprehensive income, net of
tax:
Translation adjustments 92,899 - 92,899 92,899
Unrealized gains 1,117,500 - 1,117,500 1,117,500
------------- ------------- ------------- -------------
Balance - December 31, 1999 $ 1,192,384 $ (3,697,340) $ 743,430 $ 461,463
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS FOR THE PERIOD
ENDED DECEMBER 31, FROM INCEPTION
------------------------------ (OCTOBER 25, 1995)
1998 1999 TO DECEMBER 31,1999
------------ ------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (795,568) $ (748,936) $(3,697,340)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary gain - (3,349,688) (3,349,688)
Stock-based compensation - 1,070,411 2,125,411
Interest and amortization of debt issuance
costs - 1,068,191 1,068,191
Research and development costs - 437,368 437,368
Depreciation 36,293 58,883 109,480
Cash provided by (used in) the change
in assets and liabilities:
Decrease (increase) in prepaid expenses 88,602 (14,567) (26,780)
Decrease in deferred costs 198,801 - -
Increase (decrease) in cumulative translation
adjustment (54,137) 92,899 74,884
Increase in accrued liabilities 421,195 746,409 1,511,116
------------ ------------ ------------
Net Cash Used in Operating Activities (104,814) (639,030) (1,747,358)
------------ ------------ ------------
CASH USED IN INVESTING ACTIVITIES
Capital expenditures - (37,057) (137,346)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - - 641,975
Offering costs - - (50,000)
Proceeds from convertible debentures - 750,000 750,000
Financing costs - (75,000) (75,000)
Advances from related parties 123,972 4,746 536,186
Payments under capital lease obligations - (6,353) (6,353)
------------ ------------ ------------
Net Cash Provided by Financing Activities 123,972 673,393 1,796,808
------------ ------------ ------------
Increase (Decrease) in Cash 19,158 (2,694) (87,896)
Cash Overdraft - Beginning of Period (104,360) (85,202) -
------------ ------------ ------------
Cash Overdraft - End of Period $ (85,202) $ (87,896) $ (87,896)
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ 72,898 $ 72,898
============ ============ ============
Income taxes $ - $ - $ -
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH AND FINANCING ACTIVITIES:
Equipment purchased under capital
lease obligations $ 13,890 $ 23,415 $ 37,305
============ ============ ============
Convertible debentures and interest
assumed by Eurotech $ - $ 1,212,188 $ 1,212,188
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS
Description of Business
- -----------------------
Advanced Technology Industries, Inc. (the "Company" or "ATI") was incorporated
under the laws of the State of Delaware on October 25, 1995. On February 1,
2000, the Company changed its name from Kurchatov Research Holdings, Ltd. to
Advanced Technology Industries, Inc. The Company was organized to identify,
assess and commercialize technologies introduced and developed by scientists
throughout the world with particular emphasis on technologies originating in
Israel, Germany and Russia.
The Company is in the development stage and its efforts, until recently,
included the appointment of Russian scientists to the Company's technical
advisory board, the negotiation of an agreement with ERBC Holdings, Ltd.
("ERBC") to manage the Company's operations in Russia (Note 14), the review of
certain technologies for commercialization, the negotiation of an agreement with
Eurotech, Ltd. ("Eurotech"), a development-stage technology transfer, holding,
marketing and management company, to undertake commercialization of the
technologies and products which may be identified by the technical advisory
board, including the introduction of a certain compound technology known as
"EKOR" to Eurotech (Note 3).
During April of 1999, the Company acquired a 20% equity interest in two Israeli
technology companies, Flexitech, Ltd. and Pirocat, Ltd. (Note 4). Further, in
December of 1999, the Company acquired all of the outstanding capital stock of
Cetoni Umwelttechnologie Entwicklungs GmbH ("Cetoni"), a German-based design and
engineering firm focused on developing and patenting technologies and products
for the consumer market.
In November of 1999, the Company sold its profit interest in the EKOR technology
to Eurotech (see Note 12).
To date, the Company and Cetoni have not generated any revenues from operations.
F-8
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
Continued Existence
- -------------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, as shown in the
accompanying consolidated financial statements, the Company has incurred losses
from operations since inception. Management anticipates incurring substantial
additional losses in 2000. Further, the Company may incur additional losses
thereafter, depending on its ability to generate revenues from the licensing or
sale of its technologies and products, or enter into any or a sufficient number
of joint ventures. The Company has no revenue to date. There is no assurance
that the Company can successfully commercialize any of its technologies and
products and realize any revenues therefrom. The Company's technologies and
products have never been utilized on a large-scale commercial basis and there is
no assurance that any of its technologies or products will receive market
acceptance. There is no assurance that the Company can continue to identify and
acquire new technologies. As of December 31, 1999, the Company had an
accumulated deficit since inception of $3,697,340.
Management's business plan will require financing. To support its operations
during 1999, the Company completed a convertible debenture financing for
$750,000 (see Note 8). During November of 1999, the Company sold its profit
interest in the EKOR technology to Eurotech in exchange for 2,000,000 shares of
Eurotech's restricted common stock, approximately 5% of the outstanding common
stock of Eurotech, plus other consideration described in Note 12. These shares
are restricted, however, the Company has demand registration rights and
piggy-back registration rights. Eurotech's common shares trade in the
over-the-counter market and are quoted through the NASD OTC Bulletin Board. The
Company plans on either borrowing funds secured by these securities or selling
all or a portion of such securities to fund its operations. The market value of
the Eurotech securities approximated $3,859,000 at December 31, 1999.
While no assurance can be given, management believes the Company can raise
adequate capital to keep the Company functioning during 2000. No assurance can
be given that the Company can continue to obtain any working capital or sell all
or any of its Eurotech securities, or obtain a loan against its Eurotech
securities, or if obtained, that such funding will not cause substantial
dilution to shareholders of the Company. If the Company is unable to raise
additional funds, it may be forced to change or delay its contemplated marketing
and business plans.
Being a start-up stage entity, the Company is subject to all the risks inherent
in the establishment of a new enterprise and the marketing and manufacturing of
a new product, many of which risks are beyond the control of the Company. All of
the factors discussed above raise substantial doubt about the Company's ability
to continue as a going concern.
F-9
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
Continued Existence (Continued)
- -------------------
These consolidated financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts that might be necessary as a
result of the above uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of ATI and its
majority and wholly-owned subsidiary (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
- ----------------
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equity Method of Accounting for Unconsolidated Foreign Affiliates
- -----------------------------------------------------------------
Investments in companies in which the Company has a 20% to 50% interest and has
the ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. Accordingly, the Company's
proportionate share of their undistributed earnings or losses are included in
the statement of operations.
At December 31, 1999, investments in companies accounted for under the equity
method consist of the following foreign development-stage technology companies
which are located in Israel:
Flexitech, Ltd. ("Flexitech") 20%
Pirocat, Ltd. ("Pirocat") 20%
F-10
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
- -----------------------------------
The consolidated financial statements include various estimated fair value
information at December 31, 1999, as required by Statement of Financial
Accounting Standards 107, "Disclosures about Fair Value of Financial
Instruments". Such information, which pertains to the Company's financial
instruments, is based on the requirements set forth in that Statement and does
not purport to represent the aggregate net fair value to the Company. The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: The carrying amount approximates fair value because
of the short-term maturity of those instruments.
Investment in marketable securities: The fair value of investments in marketable
securities is based on quoted prices.
Receivables and payables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
All of the Company's financial instruments are held for purposes other than
trading.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with original maturity dates
of three months or less to be cash equivalents.
F-11
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Marketable Securities
- ------------------------------------
The Company accounts for its investments using Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in debt and Equity
Securities" ("SFAS No. 115"). This standard requires that certain debt and
equity securities be adjusted to market value at the end of each accounting
period. Unrealized market value gains and losses are charged to earnings if the
securities are traded for short-term profit. Otherwise, such unrealized gains
and losses are charged or credited to comprehensive income.
Management determines the proper classifications of investments in obligations
with fixed maturities and marketable equity securities at the time of purchase
and reevaluates such designations as of each balance sheet date. At December 31,
1999, all securities covered by SFAS No. 115 were designated as available for
sale. Accordingly, these securities are stated at fair value, with unrealized
gains and losses reported in comprehensive income. Realized gains and losses on
sales of investments are determined on a specific identification basis.
Equipment
- ---------
Equipment is stated at cost. Depreciation is calculated using the straight-line
method over the estimated useful life of 3 to 5 years.
Impairment of Assets
- --------------------
The Company evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets.
Advertising Expenses
- --------------------
Advertising expenses are charged to operations when incurred. There were no
advertising expenses for the years ended December 31, 1998 and 1999.
F-12
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
- ------------
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Revenue Recognition
- -------------------
The Company expects that it will derive substantially all of its revenue from
the sale, licensing and sub-licensing of its technologies and products. Revenue
from the sale of technology will be recognized in the year of sale. Revenue from
licensing and sub-licensing will be recognized in the periods when the fees have
been earned.
Research and Development
- ------------------------
Research and development costs are charged to expense as incurred, unless they
are reimbursed under specific contracts. Losses incurred on the equity basis in
the Company's interest in two Israeli technology companies are included in
research and development expenses. In addition, a technology acquisition
concluded during 1999 by its German subsidiary, aggregating $495,000, was
charged to research and development expenses during 1999.
Stock-Based Compensation
- ------------------------
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company accounts for its stock-based compensation arrangements pursuant to APB
Opinion No. 25, "Accounting for Stock Issued to Employees". In accordance with
the provisions of SFAS No. 123, the Company discloses the proforma effects of
accounting for these arrangements using the minimum value method to determine
fair value.
Translation of Foreign Currencies
- ---------------------------------
In accordance with Statement No. 52 of the Financial Accounting Standards Board,
balance sheet accounts are translated at the exchange rate as of the balance
sheet date and income statement accounts are translated at the average rate of
exchange prevailing during the period. Translation adjustments arising from the
use of different exchange rates from period to period are included in
Comprehensive Income and no longer as a separate component of Stockholders'
Equity.
F-13
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share of Common Stock
- ------------------------------
Basic net loss per share of common stock has been computed based on the weighted
average number of common shares outstanding during the periods presented.
Common stock equivalents, consisting of options and warrants, discussed in Note
11, were not included in the calculation of diluted loss per share because their
inclusion would have had the effect of decreasing the loss per share otherwise
computed.
Deferred Financing Costs
- ------------------------
Financing costs in connection with the March and April 1999 Convertible
Debenture offerings are being amortized over the expectant life (180 days) of
the obligation. The expectant life was determined to be the conversion date that
was most beneficial to the noteholder, in accordance with Emerging Issues Task
Force ("EITF") topic no. D-60.
Segment Information
- -------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for the way public enterprises report information
about operating segments in annual consolidated financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports issued to stockholders. Adoption of SFAS
No. 131 did not have a material effect on the Company's financial position or
results of operations, but did affect the disclosure of segment information, as
presented in Note 15.
Software
- --------
In March 1998, the American Institute of Certified Public Accountants issued SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which revises the accounting for software development costs and
will require the capitalization of certain costs. The adoption of SOP 98-1 did
not have an effect on the Company's financial position or results of operations.
F-14
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
- --------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on the
Company's financial position or results of operations. SFAS No. 130 requires
foreign currency translation adjustments and unrealized gains or losses on
investments to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130. Accumulated other comprehensive income, at December 31, 1999, consists of
the following:
Foreign currency translation adjustments $ 74,884
Unrealized gains on investments, net of
taxes of $604,000 1,117,500
----------
$1,192,384
==========
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform with the current
year presentation.
NOTE 3 - RESEARCH AND DEVELOPMENT AGREEMENT
In 1996, the Company executed an agreement with Eurotech, a former affiliate,
pursuant to which Eurotech will remit to the Company 50% of the net profits
derived from the commercialization of, or other income generated from, any
technologies furnished to Eurotech by the Company's technical advisory board.
Under this agreement, the Company's technical advisory board will identify
technologies and forward such technologies to Eurotech which will seek avenues
for their commercialization.
Under the agreement with Eurotech, the Company has identified and introduced to
Eurotech a certain technology known as "EKOR" with potential uses in connection
with containing both solid and liquid radioactive materials, suppressing
radioactive dust and preventing such materials and dust from escaping into the
atmosphere and from leaching into and contaminating ground/water supplies. There
can be no assurance that this technology will be commercially saleable or
profitable.
On November 30, 1999, the Company sold its profit interest in the EKOR
technology to Eurotech (see Note 12).
F-15
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS
Investments in Israeli Technology Companies
- -------------------------------------------
During April of 1999, pursuant to agreements with Ofek Le-Oleh Foundation, Ltd.
(the "Foundation"), an Israeli incubator with authority from the Israeli
government, the Company has invested in two Israeli technology companies:
Flexitech, Ltd. and Pirocat, Ltd. Under those agreements, the Company received
20% of each Israeli technology company's common equity in exchange for its
investment of $60,000 in each company.
The investment is payable in installments of $15,000, to each company, due in
April of 1999, October of 1999, April of 2000 and October of 2000. In connection
with these investments, the Company also has obtained an option to purchase an
additional 20% to 25% of the common equity for a sum to be determined in the
future, which options are exercisable for a period of 90 days commencing after
the first year of the development period (generally two years from registration
as an Israeli corporation). During the development period, the sale or other
transfer of 25% or more of the inventor's equity of each of Flexitech and
Pirocat requires the consent of the Chief Scientist of the Israeli Ministry of
Commerce and Technology. The Company's options to acquire additional common
equity of the Israeli technology companies are exercisable within such two-year
periods and any acquisition of the common equity purchasable thereunder will,
therefore, require the Chief Scientist's consent. The agreements require the
Company to pay royalties on future revenue generated from the commercialization
of the technologies developed by these Israeli companies.
The Company's share of losses incurred from these research companies has been
accounted for on the equity basis and is included in research and development
expenses. The amount charged to research and development expenses for the year
ended December 31, 1999 was $60,000, which reduced the Company's investment in
these two companies to zero.
There can be no assurance that these development projects will result in useful
technologies or that the same will be commercially saleable or profitable.
F-16
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (Continued)
Cetoni Umwelttechnologie-Entwicklungs GmbH - Pooling-of-Interests
- -----------------------------------------------------------------
On December 6, 1999, the Company completed the acquisition of all of the
outstanding shares of the capital stock of Cetoni Umwelttechnologie-Entwicklungs
GmbH ("Cetoni") for 5,000,000 shares of the Company's restricted common stock.
Cetoni is a German-based design and engineering firm focused on developing and
patenting technologies and products for the consumer market. Since 1995, Cetoni
has designed and patented products for the beverage, automotive accessory,
sport, healthcare, household, office and general consumer markets. Cetoni has no
revenues through April 18, 2000. Management of Cetoni believes that the research
and development stage has been completed on the majority of its products and
believes that they are ready for commercialization in consumer markets.
The acquisition has been accounted for as a pooling-of-interests. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combination to include the combined results of ATI
and Cetoni.
Net sales, loss before extraordinary item and net loss for the individual
companies reported prior to the business combination were as follows:
Years Ended December 31,
-------------------------------
1998 1999
------------ ------------
Net Sales:
ATI $ - $ -
Cetoni - -
------------ ------------
Total $ - $ -
============ ============
Loss Before Extraordinary Item:
ATI $ (414,446) $(2,916,735)
Cetoni (381,122) (1,181,889)
------------ ------------
Total $ (795,568) $(4,098,624)
============ ============
Net Income (Loss):
ATI $ (414,446) $ 432,953
Cetoni (381,122) (1,181,889)
------------ ------------
Total $ (795,568) $ (748,936)
============ ============
F-17
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (Continued)
Cetoni Umwelttechnologie-Entwicklungs GmbH - Pooling-of-Interests
- -----------------------------------------------------------------
(Continued)
- ----------
The conforming of the accounting practices of ATI and Cetoni resulted in no
adjustments to net loss or shareholders' equity. There were no significant
intercompany transactions between ATI and Cetoni other than loans by ATI to
Cetoni during 1999.
Resealable Can Technology
- -------------------------
During 1999, the Company's German subsidiary acquired from Eurotech the rights
to a certain resealable can technology for $150,000 in cash and $345,000 due on
September 30, 2000. The purchase price of $495,000 was charged to research and
development expenses during the year ended December 31, 1999.
NOTE 5 - SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of 2,000,000 shares of Eurotech restricted
common stock, which trade in the over-the-counter market and are quoted through
the NASD OTC Bulletin Board. The fair value of such equity securities at
December 31, 1999 was estimated at $3,859,000. The amortized cost basis was
$2,137,500 and the unrealized gain was $1,721,500 at December 31, 1999.
NOTE 6 - EQUIPMENT
Equipment at December 31, 1999 consisted of the following:
Cost $ 149,259
Less: Accumulated depreciation 84,088
---------
$ 65,171
=========
Depreciation expense for the years ended December 31, 1998 and 1999 amounted to
$36,293 and $58,883.
F-18
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES
The Company is the lessee of transportation equipment under capital leases
expiring in 2002. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
market value of the asset.
The assets are depreciated over their estimated productive lives. Depreciation
of assets under capital leases is included in depreciation expense for the years
ended December 31, 1998 and 1999.
As of December 31, 1999, property held under capital leases was as follows:
Transportation equipment $ 50,849
Less: Accumulated depreciation 9,250
--------
$ 41,599
========
Minimum future lease payments under capital leases are as follows:
As of December 31,
-----------------
2000 $ 13,133
2001 13,133
2002 7,839
--------
Total minimum lease payments 34,105
Less: Amount representing interest 3,153
--------
Obligations Under Capital Leases $ 30,952
========
Interest rates on capitalized leases vary from 6.868% to 7.502%, based upon the
lower of the Company's incremental borrowing rate at the inception of the lease
or the lessors' implicit rate of return.
Current portion of obligations under
capital leases $ 11,269
Long-term portion of obligations
under capital leases 19,683
--------
$ 30,952
========
F-19
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - CONVERTIBLE DEBENTURES
During March and April 1999, the Company completed a private placement of
$750,000 of 9% convertible debenture notes, due in March and April of 2001.
Interest on the debentures is payable in cash or in shares of common stock
calculated by dividing the interest accrued by the lesser of $1.05 or 60% of the
average closing bid price per share of common stock for the five trading days
preceding the interest payment date. As additional consideration, the Company
issued separate warrants to the purchasers to acquire an aggregate of 375,000
shares of the Company's common stock at $0.65 per share. The value of the
warrants issued to the purchasers was estimated at $259,000, as further
described in Note 11, and was charged to operations as interest expense over the
six-month period ended September 30, 1999. The warrants are exercisable over
five years. In addition, the Company issued warrants to the finders of the
transaction and its counsel to purchase an aggregate of 395,000 shares of common
stock at a price of $0.65 per share, exercisable for a five-year period after
the closing of the transaction. Further, the holders of the warrants were
granted piggy-back registration rights with respect to the shares of common
stock underlying the warrants.
The debenture agreement permits the holders of the debentures to convert the
debt into shares of common stock at beneficial conversion rates over the
two-year term of the debentures. The conversion price is the lower of $1.05, or
the average bid price per share of the Company's common stock for five trading
days immediately preceding the conversion date, multiplied by 60%. The Company,
at its option, may redeem the debentures at $1,162,500. The excess of the
redemption price of $1,162,500 over $750,000, or $412,500, was charged to
operations as interest expense over the six-month period ended September 30,
1999.
Costs in connection with the $750,000 Convertible Debenture offering allocated
to the Convertible Debentures were comprised of: (I) a placement fee to an
unrelated party amounting to $75,000 and (ii) warrants issued to the placement
agent and its counsel to purchase 395,000 shares of the Company's common stock
at $0.65 per share, valued at $272,000, as further described in Note 11. The
Company amortized such costs as interest expense over the six-month period ended
September 30, 1999.
Proceeds of the offering were used to pay the first payment for the acquisition
of equity interests in two Israeli technology companies, past due legal fees,
and advances to Cetoni.
On November 30, 1999, as part of the sale of the Company's rights to the EKOR
technology, all outstanding principal, interest and other fees related to the
convertible debentures were assumed by Eurotech. The Company accounted for the
assumption of the debt by Eurotech as if the Company had redeemed the debt.
F-20
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The Company was not required to provide for a provision for income taxes for the
years ended December 31, 1998 and 1999 as a result of net operating losses
incurred during those years.
The components of deferred tax assets and liabilities at December 31, 1999 are
as follows:
Deferred Tax Assets:
Net operating loss carryforwards $ 85,000
Compensatory element of stock issuances 518,000
--------
Total Gross Deferred Tax Assets 603,000
Less: Valuation allowance 518,000
--------
Net Deferred Tax Assets $ 85,000
Deferred Tax Liability:
Unrealized gains on available-for-sale
securities $689,000
========
Net Deferred Tax Liability - Current $604,000
========
The net change in the valuation allowance for deferred tax assets was a decrease
of approximately $303,000. The current deferred tax liability of approximately
$604,000 was recorded in other comprehensive income during 1999 and included in
accumulated other comprehensive income in stockholders' equity as of December
31, 1999.
As of December 31, 1999, the Company had available approximately $211,000 of net
operating losses ("NOL") for income tax purposes that may be carried forward to
offset future taxable income, if any. The NOL carryforwards from December 31,
1997 and prior years expire during the years 2010 through 2013, and the December
31, 1998 and 1999 NOL carryforwards expire in the years 2018 and 2019,
respectively. Pursuant to Section 382 of the Internal Revenue Code, substantial
restrictions are imposed on the utilization of net operating loss carryforwards
in the event of an ownership change.
F-21
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
A reconciliation between the statutory federal income tax rate (34%) and the
Company's effective rate is as follows:
1998 1999
------- -------
Federal statutory rate (34.0)% (34.0)%
Non-deductible expenses and
unutilized foreign losses 17.3 54.0
Change in valuation allowance 16.7 (20.0)
------- -------
Effective rate -0- % -0- %
======= =======
NOTE 10 - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 consist of the following:
Professional fees $ 252,279
Consulting fees 693,048
Obligation for resealable
can technology purchase 345,000
Other 220,789
----------
Total $1,511,116
==========
NOTE 11 - STOCKHOLDERS' EQUITY
Common Stock
- ------------
In connection with the organization of the Company, in October 1995, the Company
issued 12,300,000 shares to its founders, CIS Development Corp. ("CIS") and
ERBC, for subscriptions totalling $1,230.
For the period from inception (October 25, 1995) through December 31, 1996, the
Company issued 2,105,000 shares of common stock as consideration for legal and
consulting services performed by various consultants, including related parties,
through December 31, 1996. Shares issued under these arrangements were valued at
$305,000, which was charged to operations for the year ended December 31, 1996.
F-22
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
Common Stock (Continued)
- ------------
During the year ended December 31, 1997, the Company issued 750,000 shares of
common stock pursuant to consulting arrangements with various consultants,
including related parties. Shares issued under these arrangements were valued at
$750,000, which was charged to operations during 1997.
Pursuant to an offering under Rule 504 of Regulation D of the Securities Act of
1933, the Company offered for sale 487,500 shares of its common stock at $2.00
per share. During 1997, the Company sold 306,500 shares of its common stock
under this offering, and derived aggregate proceeds of $613,000. Costs in
connection with this offering approximated $50,000 and were charged against
paid-in capital during the year ended December 31, 1997.
In January of 1999, the Company issued 1,009,411 shares of its common stock
pursuant to one-year consulting agreements with various consultants, including
related parties. Shares issued under these agreements were valued at $1,009,411,
which was charged to operations during 1999.
In December of 1999, in connection with the acquisition of the capital stock of
Cetoni, the Company issued 5,000,000 shares of its common stock to the
shareholders of Cetoni (Note 4).
Warrants
- --------
At December 31, 1999, there were warrants outstanding to purchase 770,000 shares
of the Company's common stock at $0.65 per share as described in Note 8. The
warrants were valued at $531,000 using the Black-Scholes pricing model with the
following assumptions:
Risk-free interest rate 5.0%
Expected life 2 years
Expected volatility 65.0%
Dividend yield 0%
F-23
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
Options - Outside the Stock Option Plan
- ---------------------------------------
Pursuant to a financial consulting agreement executed in January of 1999, the
Company issued to the consultant options to purchase 100,000 shares of its
common stock at prices ranging from $0.50 to $2.00 per share. The options expire
on December 31, 2000. These options were valued at $0.61 each on the grant date
using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate 5.0%
Expected life 2 years
Expected volatility 65.0%
Dividend yield 0%
Compensation costs charged to operations was $61,000 in 1999.
Earnings Per Share
- ------------------
Securities that could potentially dilute basic earnings per share ("EPS") in the
future that were not included in the computation of diluted EPS because to do so
would have been anti-dilutive for the periods presented consist of the
following:
Options to purchase common stock 100,000
Warrants to purchase common stock 770,000
Letter of intent to acquire Bavaria Tech based
on estimate of exchange ratio 3,000,000
---------
Total as of December 31, 1999 3,870,000
=========
Substantial issuance after December 31, 1999
through March 31, 2000:
Issuance of common stock for acquisition of
Aberdeen Corp. - January 2000 400,000
=========
Preferred stock
- ---------------
The Company has authorized 1,000,000 shares of preferred stock, par value -
$.001 per share. The Board of Directors of the Company has broad discretion to
create one or more series of preferred stock and to determine the rights,
preferences and privileges of any such series.
F-24
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
Stock Option Plan
- -----------------
In 1996, the Company adopted an incentive stock option plan. Under the plan,
which authorizes the granting of incentive stock options or non-incentive stock
options, the maximum number of shares of common stock for which options may be
granted is 500,000 shares. Options may be granted for terms not exceeding ten
years from the date of grant, except for options granted to persons holding in
excess of 5% of the common stock, in which case the options may not be granted
for a term not to exceed five years from the date of grant. As of December 31,
1999, no options have been granted under this stock option plan.
NOTE 12 - EXTRAORDINARY GAIN ON SALE OF RIGHTS TO TECHNOLOGY
On November 30, 1999, the Company transferred to Eurotech its rights to receive
50% of the net revenues derived by Eurotech from the EKOR technology. In
consideration of ceding these rights, Eurotech (I) issued to the Company
2,000,000 restricted shares of its common stock valued at $2,137,500; (ii)
granted the Company a right to receive 2% of the gross revenues derived by
Eurotech from the sale, service and licensing of the EKOR technology; (iii)
returned to the Company for cancellation 6,795,000 shares of the Company's
common stock previously issued to one of its founders; (iv) assumed $1,212,188
of the Company's debt, which included $750,000 of debt, plus accrued interest,
incurred by the Company, pursuant to certain 9% Convertible Debentures issued by
the Company in 1999; and (v) transferred its royalty rights to a certain
resealable can technology, which the Company's German subsidiary had purchased
from Eurotech earlier in 1999. The Company recognized an extraordinary gain of
$3,349,688 related to the sale of its profit interest in the EKOR technology.
NOTE 13 - RELATED PARTY TRANSACTIONS
Amounts due to related parties represent various demand notes, including
interest at 10%, payable to certain shareholders, relatives of shareholders and
companies affiliated with shareholders. Interest expense accrued on these demand
notes totalled $72,850 in 1999 and $47,131 in 1998.
F-25
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND OTHER MATTERS
Consulting Agreement - ERBC
- ---------------------------
By letter dated June 1, 1996, the Company engaged ERBC, an affiliate of the
Company by virtue of common shareholders, as a consultant for a one-year period
to undertake all aspects of the Company's operations in Russia. Pursuant to the
letter agreement, the Company agreed to pay ERBC a fee of $115,000 for the year
during which it has been engaged. During June 1997, the Company renewed the
agreement with ERBC for an additional one year period on like terms. During June
1998, the Company renewed the agreement with ERBC for an additional one year
term and agreed to pay ERBC a fee of $168,577 for the year during which it has
been engaged. This agreement was extended under the same terms for one-year
period commencing June 1, 1999. For the years ended December 31, 1998 and 1999,
the Company incurred $146,253 for each year related to this agreement. Included
in accrued liabilities as of December 31, 1999 is $413,048 related to this
agreement.
Consulting Agreement - CIS
- --------------------------
By letter dated January 1, 1997, the Company engaged CIS, an affiliate of the
Company by virtue of common shareholders, and common management, as a consultant
for a three-year period to review technologies developed by the Russian
researchers and scientists and to identify commercial outlets for such
technology. The agreement automatically renews for a two-year period upon
expiration of the initial term. Under the terms of the agreement, CIS will
receive $125,000 per year. The agreement was cancelled effective December 31,
1999.
Included in consulting fees for each of the years ended December 31, 1998 and
1999 is $125,000 per year related to this agreement. Included in accrued
liabilities as of December 31, 1999 is $230,000 related to this agreement.
F-26
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND OTHER MATTERS (Continued)
International Operations
- ------------------------
The Company has strategic alliances, collaboration agreements, licensing
agreements with entities which are based and/or have operations in Russia and
Ukraine. Both of these countries have experienced volatile and frequently
unfavorable economic, political and social conditions. The Russian economy and
the Ukrainian economy are characterized by declining gross domestic production,
significant inflation, increasing rates of unemployment and underemployment,
unstable currencies, and high levels of governmental debt as compared to gross
domestic production. The prospects of wide-spread insolvencies and the collapse
of various economic sectors exist in both countries.
In view of the foregoing, the Company's business, earnings, asset values and
prospects may be materially and adversely affected by developments with respect
to inflation, interest rates, currency fluctuations, government policies, price
and wage controls, exchange control regulations, taxation, expropriation, social
instability, and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such conditions
and developments, and can provide no assurance that such conditions and
developments will not adversely affect the Company's operations.
Letter of Intent
- ----------------
On May 26, 1999, the Company entered into a non-binding letter of intent with
Bavaria Tech, Ltd., formerly known as Arbat American Autopark, Ltd. and
hereinafter referred to as "Bavaria Tech", an affiliate of the Company by virtue
of common principal shareholders. The letter of intent contemplates that the
Company will acquire all Bavaria Tech's outstanding common shares for common
shares of ATI based upon a valuation of the assets of Bavaria Tech. The Company
estimates that the number of shares which the Company would issue under this
letter of intent would approximate 3 million shares.
The letter of intent is subject to the completion of a definitive agreement,
Bavaria Tech completing its acquisition of certain technology developed by
scientists in Israel, satisfactory due diligence review, satisfactory technology
appraisal, approval of the transaction by the board of directors of ATI and
Bavaria Tech, approval of the transaction by shareholders of ATI and Bavaria
Tech, and satisfactory confirmation from an investment banker that the
transaction is fair to the ATI's shareholders and Bavaria Tech's shareholders.
F-27
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SEGMENT REPORTING
The Company's business is organized on a geographic basis, and the Company's
Chief Operating Decision Maker assesses performance and allocates resources on
this basis. The information provided in the following section is representative
of the information used by the Chief Operating Decision Maker in deciding how to
allocate resources and in assessing performance.
The Company has two geographic reportable segments: U.S.A. and Germany. The
accounting policies of the segments are the same as described in the summary of
significant accounting policies. The Company evaluates segment performance based
on income (loss) before interest and extraordinary item. Segment results for
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
U.S.A. Germany Eliminations Consolidated
----------- ----------- ------------ ------------
1998:
----
<S> <C> <C> <C> <C>
Loss before interest
and extraordinary
item $ (414,446) $ (320,585) $ - $ (735,031)
============ ============ ============ ============
Depreciation and
amortization $ 25,000 $ 11,293 $ - $ 36,293
============ ============ ============ ============
Identifiable Assets $ 42,745 $ 47,784 $ - $ 90,529
============ ============ ============ ============
1999:
----
Loss before interest
and extraordinary
item $(1,848,547) $(1,109,188) $ - $(2,957,735)
============ ============ ============ ============
Depreciation and
amortization $ 42,500 $ 16,383 $ - $ 58,883
============ ============ ============ ============
Identifiable Assets $ 4,248,988 $ 91,951 $ (389,988) $ 3,950,951
============ ============ ============ ============
</TABLE>
F-28
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SUBSEQUENT EVENTS
Options - Outside the Stock Option Plan
- ---------------------------------------
On January 7, 2000, the consultant exercised 30,000 options at $0.50.
Reorganization
- --------------
Pursuant to an Agreement and Plan of Reorganization, effective January 14, 2000,
the Company acquired all the outstanding shares of common stock of Aberdeen
Acquisition Corporation ("Aberdeen"), a Delaware corporation, from the
shareholders thereof, in an exchange for cash of $150,000, plus 400,000 shares
of common stock of the Company valued at $500,000. As a result of this
transaction, Aberdeen has become a wholly-owned subsidiary of ATI effective on
January 14, 2000. The costs of this transaction will be charged to operations
during 2000.
Leases
- ------
On February 28, 2000, ATI entered into a lease for office space in Berlin at a
monthly rental rate of DM10,088, or $6,505, subject to annual adjustment. Its
lease term begins March 1, 2000 and expires on February 28, 2005.
F-29
State of Delaware
OFFICE OF THE SECRETARY OF STATE
PAGE 1
------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "KURCHATOV RESEARCH HOLDINGS, LTD.", FILED IN THIS OFFICE ON
THE TWENTY-FIFTH DAY OF OCTOBER, A.D. 1995, AT 9 O'CLOCK A.M.
2555570 /s/ Edward J. Freel
[SEAL] -----------------------------------
001180869 Edward J. Freel, Secretary of State
AUTHENTICATION: 0369687
DATE: 04-10-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED O9:OO AM 10/25/1995
950246841 - 2555570
CERTIFICATE OF INCORPORATION
OF
KURCHATOV RESEARCH HOLDINGS, LTD.
(a Delaware corporation)
FIRST: The name of the corporation is Kurchatov Research Holdings. Ltd.
(the "CorporatIon").
SECOND: The registered office of the corporation is located at 32
Lockerman Square, in the City of Dover, in the State of Delaware. The name of
its registered agent at that address is The Prentice-Hall Corporation System,
Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation, shall be to conduct any lawful business, to promote
any lawful purpose and to engage in any lawful activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
For the accomplishment of the aforesaid purposes, and in furtherance
thereof, the corporation shall have and may exercise all of the powers, rights
and privileges which are now and may hereafter be conferred by the General
Corporation Law upon corporations formed thereunder, subject to any limitations
thereof contained in the laws of the State of Delaware.
FOURTH: The total number of shares of all classes of shares of which
the Corporation shall have authority to issue is 11,000,000 shares consisting
of:
(a) 10,000,000 common shares, par value $.O01 per share; and
(b) 1,000,00O preferred shares, par value $.O1 per share.
The Corporation is authorized to issue the preferred shares from time
to time in one or more series with such designations, preferences and relative
participating, optional or other special rights, and qualifications or
restrictions, as shall be fixed by the board of directors in the resolution or
resolutions providing for the issue of such shares, subject to the limitation.
The board of directors is expressly authorized to adopt such resolution or
resolutions providing for the issue of such shares from time to time as the
board of dlrectors, in its discretion, may deem desirable.
SIXTH: The name and address of the single incorporator is: William P.
Ruffa, Ruffa & Ruffa, 160 East 58th Street, New York, New York 10155.
<PAGE>
SEVENTH: The by-laws of the Corporation may be made, altered, amended,
changed, added to, or repealed by the board of directors of the Corporation with
out the assent or vote of the stockholders. Election of directors need not be by
ballot unless the by-laws so provide.
EIGHT: The personal liability of a director to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty is hereby
eliminated to the full extent permitted by Delaware law (including attorneys'
fees), provided that this Article shall not eliminate or limit the liability of
a director for (i) any breach of a director's duty or loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from
which the director derived improper personal benefit.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein, shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of the stockholders or disinterested directors, or
otherwise both as to the action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to such person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
Notwithstanding any other provision of this Article, no person shall be entitled
to be indemnified by the Corporation in connection with any action, suit, or
proceeding in which he is a plaintiff unless the board or directors consents to
such indemnification within ninety days after the commencement of such action,
suit or proceeding.
TENTH: The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
I, THE UNDERSIGNED, to form a corporation for the purposes hereinabove
stated, under and pursuant to the provision of the General Corporation Law of
the State of Delaware, do hereby certify that the facts stated herein are true
and hereunto set my hand and seal this 25th day of October, 1995.
/s/ William P. Ruffa
----------------------------------------
William P. Ruffa, Incorporator
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "KURCHATOV RESEARCH HOLDINGS, LTD.", CHANGING ITS NAME FROM
"KURCHATOV RESEARCH HOLDINGS, LTD." TO "ADVANCED TECHNOLOGY INDUSTRIES, INC.",
FILED IN THIS OFFICE ON THE FIRST DAY OF FEBRUARY, A.D. 2000, AT 9 O'CLOCK A.M.
2555570 /s/ Edward J. Freel
[SEAL] -----------------------------------
001180869 Edward J. Freel, Secretary of State
AUTHENTICATION: 0369683
DATE: 04-10-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:30 AM 03/19/1997
971089135 - 2555570
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION OF
KURCHATOV RESEARCH HOLDINGS, LTD.
Kurchatov Research Holdings, Ltd., a corporation organized and existing
under the General Corporation Laws of the State of Delaware (the "Corporation"),
does hereby certify:
FIRST: That the Board of Directors of the Corporation by unanimous
written consent duly adopted resolutions (i) setting forth the proposed
amendments to the Certificate of Incorporation of the Corporation and (ii)
calling for the submission of the proposed amendments to a vote of the
stockholders of the Corporation for their approval and adoption. The resolutions
setting forth the proposed amendments are as follows:
"RESOLVED, that the Corporation amend its certificate of
incorporation so that:
Article FOURTH be amended in its entirety and that such
Article, as amended, read as follows:
"FOURTH: (a) The total number of shares of capital stock which
the Corporation shall have authority to issue is Fifty One
Million (51,000,000) shares of which Fifty Million
(50,000,000) shares shall be designated as common stock with a
par value of one mil ($.0001) per share and One Million
(1,000,000) shares shall be designated as preferred stock with
a par value of One Tenth of One Cent ($.OO1) per share.
(b) The Corporation is authorized to issue the preferred
shares from time to time in one or more series with such
designations, relative rights, preference, or limitations as
shall be fixed by the Board of Directors in the resolution or
resolutions providing for the issue of such shares, subject to
the limitation, that if the stated dividends and amounts
payable on liquidation are not paid in full, the shares of all
series shall share ratably in the payment of dividends
including accumulations, if any, in accordance with the sums
which would be payable on such shares if all dividends were
declared and paid in full, and in any distribution of assets
other than by way of dividends in accordance with the sums
payable were discharged in full. The Board of Directors is
expressly authorized to adopt such resolution or resolutions
providing for the issue of such shares from time to time as
the Board of Directors, in its discretion, may deem
desirable."
<PAGE>
SECOND: That the holders of a majority of the outstanding shares of
common stock of the Corporation, by a written consent in accordance with Section
228 of the Delaware General Corporation Law, did duly adopt said amendments
proposed by the Board of Directors.
THIRD: This amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Laws.
IN WITNESS WHEREOF, the undersigned has caused its corporate seal to be
affixed hereto and this Certificate to be executed by its President and attested
by its Secretary, this 12th day of March, 1997.
KURCHATOV RESEARCH HOLDINGS, LTD.
Attest:
/s/ William P. Ruffa By: /s/ William Hustwit
- ---------------------------- -------------------------------
William P. Ruffa, William Hustwit, President
Assistant Secretary
2
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
PAGE 1
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RENEWAL OF "KURCHATOV RESEARCH HOLDINGS, LTD.", FILED IN THIS OFFICE ON THE
FIFTH DAY OF APRIL, A.D. 1999, AT 9 O'CLOCK A.M.
2555570 /s/ Edward J. Freel
[SEAL] -----------------------------------
001180869 Edward J. Freel, Secretary of State
AUTHENTICATION: 0369684
DATE: 04-10-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/24/1997
971094643 - 2555570
STATE OF DELAWARE
CERTIFICATE FOR RENEWAL
AND REVIVAL OF CHARTER
KURCHATOV RESEARCH HOLDINGS, LTD, a
corporation organized under the laws of Delaware, the charter of which was
voided for non-payment of taxes, now desires to procure a restoration, renewal
and revival of its charter, and hereby certifies as follows:
1. The name of this corporation is Kurchatov Research Holdings, Ltd.
___________________________________________________________________
2. Its registered office in the State of Delaware is located at 1013
Centre Road, City of Wilmington Zip Code 19805-1297, County of
Newcastle, the name and address of its registered agent is
Corporation Service Company.
___________________________________________________________________
3. The date of filing of the original Certificate of Incorporation in
Delaware was 10/25/95 _____________________________________________
4 The date when restoration, renewal, and revival of the charter of
this company is to commence is the 28th day of February 1997, same
being prior to the date of the expiration of the charter. This
renewal and revival of the charter of this corporation is to be
perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the 1st day of March A.D. 1997, at
which time its charter became inoperative and void for non-payment
of taxes and this certificate for renewal and revival is filed by
authority of the duly elected directors of the corporation in
accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of charters, William a.
Hustwit the last and acting authorized officer hereunto set his/her hand to this
certificate this 21st day of March 1997.
BY: /s/ William Hustwit
--------------------------
TITLE OF OFFICER: President
--------------------------
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
RENEWAL OF "KURCHATOV RESEARCH HOLDINGS, LTD.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF MARCH, A.D. 1997, AT 9 O'CLOCK A.M.
2555570 /s/ Edward J. Freel
[SEAL] -----------------------------------
001180869 Edward J. Freel, Secretary of State
AUTHENTICATION: 0369686
DATE: 04-10-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/05/1999
991132363 - 2555570
STATE OF DELAWARE
CERTIFICATE FOR RENEWAL
AND REVIVAL OF CHARTER
KURCHATOV RESEARCH HOLDINGS, LTD, a
corporation organized under the laws of Delaware, the charter of which was
voided for non-payment of taxes, now desires to procure a restoration, renewal
and revival of its charter, and hereby certifies as follows:
1. The name of this corporation is Kurchatov Research Holdings, Ltd.
___________________________________________________________________
2. Its registered office in the State of Delaware is located at 1013
Centre Road, City of Wilmington Zip Code 19805-1297, County of
Newcastle, the name and address of its registered agent is
Corporation Service Company.
___________________________________________________________________
3. The date of filing of the original Certificate of Incorporation in
Delaware was October 25, 1995 _____________________________________
4 The date when restoration, renewal, and revival of the charter of
this company is to commence is the 28th day of February 1999, same
being prior to the date of the expiration of the charter. This
renewal and revival of the charter of this corporation is to be
perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the 1st day of March A.D. 1999, at
which time its charter became inoperative and void for non-payment
of taxes and this certificate for renewal and revival is filed by
authority of the duly elected directors of the corporation in
accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of charters, Jacques
Saunder the last and acting authorized officer hereunto set his/her hand to this
certificate this 31st day of March 1999.
BY: /s/ Jacques Saunder
--------------------------
TITLE OF OFFICER: Vice President
--------------------------
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OF THE CERTIFICATE OF AMENDMENT OF "KURCHATOV RESEARCH HOLDINGS, LTD.", FILED
IN THIS OFFICE ON THE NINETEENTH DAY OF MARCH, A.D. 1997, AT 11:30 O'CLOCK A.M.
2555570 /s/ Edward J. Freel
[SEAL] -----------------------------------
001180869 Edward J. Freel, Secretary of State
AUTHENTICATION: 0369685
DATE: 04-10-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/01/2000
001049700 - 2555570
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
KURCHATOV RESEARCH HOLDINGS, LTD.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is
KURCHATOV RESEARCH HOLDINGS, LTD.
SECOND: The corporation hereby amends its Certificate of Incorporation
as follows:
Paragraph FIRST of the Certificate of Incorporation, relating to the
corporate title of the corporation, is hereby amended to read as follows:
"FIRST: The name of the corporation is;
ADVANCED TECHNOLOGY INDUSTRIES, INC."
THIRD: The amendment effected herein was authorized by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
thereon at a meeting of shareholders pursuant to Sections 222 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I hereunto sign my name and affirm that the
statements made herein are true under the penalties of perjury, this
twenty-eighth day of January, 2000.
S/ JACQUES SAUNDER
------------------
Jacques Saunder, Vice President
BY-LAWS
OF
KURCHATOV RESEARCH HOLDINGS, LTD.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.-- The registered office shall be
established and maintained at 1013 Centre Road, in the City of Wilmington, in
the County of New Castle, in the State of Delaware. The name of its registered
agent at that address is Corporation Service Company.
SECTION 2. OTHER OFFICES. -- The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.-- Annual Meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS.-- Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting, shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be elected by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
<PAGE>
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.-- Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as originally noticed shall
be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. -- Special meetings of the stockholders
for any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS.-- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING.-- Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
2
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. -- The number of directors initially shall
be three (3). The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify. Directors need not be
stockholders.
SECTION 2. RESIGNATIONS. -- Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. -- If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL -- Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER. -- The number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS. -- The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
3
<PAGE>
SECTION 7. COMMITTEES. -- The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent in
writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. -- A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
adjourned.
4
<PAGE>
SECTION 10. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. -- Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the board, or of such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualify. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. -- The Chairman of the Board of Directors, if
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. -- The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
5
<PAGE>
SECTION 5. VICE PRESIDENT. -- Each Vice President, if elected, shall
have such powers and shall perform such duties as shall be assigned to him by
the directors.
SECTION 6. TREASURER. -- The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. -- The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. -- Assistant
Treasurers, and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. -- Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all of
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. --A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
6
<PAGE>
SECTION 3. TRANSFER OF SHARES. -- The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made or
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. -- In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS. -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. -- The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. -- The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
7
<PAGE>
SECTION 9. NOTICE AND WAIVER OF NOTICE. -- Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be may be made, altered, amended, changed, added to,
or repealed by the board of directors of the Corporation with out the assent or
vote of the stockholders, except as otherwise required by law.
8
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF
DELAWARE
NUMBER SHARES
+----------+ ADVANCED TECHNOLOGY +----------+
| | INDUSTRIES, INC. | |
+----------+ +----------+
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.0001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of ADVANCED TECHNOLOGY INDUSTRIES, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[ADVANCED TECHNOLOGY
CORPORATE SEAL]
/s/ signature /s/ signature
- ----------------------------- -----------------------------
SECRETARY PRESIDENT
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
KURCHATOV RESEARCH HOLDINGS, LTD.
WARRANT
-------
Dated: April 14, 1999
KURCHATOV RESEARCH HOLDINGS, LTD., a corporation organized under the
laws of the State of Delaware (the "Company"), hereby certifies that, for value
received, ____________________________or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to a total of___________________________________ shares of Common Stock, $.0001
par value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $0.65 per share (as adjusted from time to time as provided in Section
8, the "Exercise Price"), at any time and from time to time from and after April
14, 1999 and through and including April 14, 2004 (the "Expiration Date"), and
subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
<PAGE>
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at the office specified in or pursuant to Section 3(b). Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 5:00 P.M., New York City time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
5:00 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in the manner provided
hereunder, all as specified by the Holder in the Form of Election to Purchase,
the Company shall promptly (but in no event later than 3 business days after the
Date of Exercise (as defined herein)) issue or cause to be issued and cause to
be delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares issuable
upon such exercise, free of restrictive legends except (i) either in the event
that a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective or
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), or (ii) if this Warrant shall have been issued pursuant
to a written agreement between the original Holder and the Company, as required
by such agreement. Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become holder of record of such Warrant Shares as
of the Date of Exercise of this Warrant.
-2-
<PAGE>
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at anytime, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the term of this Warrant, the
Company may not file any registration statement with the Securities and Exchange
Commission (other than registration statements of the Company filed on Form S-8
or Form S-4, each as promulgated under the Securities Act, pursuant to which the
Company is registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including supplements
thereto, but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder (unless the Warrant Shares are otherwise freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Act), unless the Company provides the Holder with not less than 20
days notice of its intention to file such registration statement and provides
the Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in connection
therewith.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein
-3-
<PAGE>
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 8). The Company
covenants that all Warrant Shares that shall be so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
8. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8. Upon each such adjustment of the Exercise
Price pursuant to this Section 8, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock and not the Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to
-4-
<PAGE>
give to the Holder the right to receive the securities or property set forth in
this Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Exercise Price then in effect, then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance, and
(ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in fill of such
rights, warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Exercise Price, and the denominator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made.
(e) For the purposes of this Section 8, the following clauses shall
also be applicable:
(i) RECORD DATE. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
-5-
<PAGE>
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to Section 8(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of
any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
-6-
<PAGE>
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price in
one of the following manners:
(a) CASH EXERCISE. The Holder shall deliver immediately available
funds; or
(b) CASHLESS EXERCISE. The Holder shall surrender this Warrant to
the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of fill Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
-7-
<PAGE>
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
11. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 5:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
to, at ______________________________ or to facsimile no. (,) ________, or (ii)
if to the Holder, to the Holder at the address or facsimile number appearing on
the Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 11.
12. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent. My corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holders last
address as shown on the Warrant Register.
13. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 13(a), above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
-8-
<PAGE>
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute
apart of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
KURCHATOV RESEARCH HOLDINGS, LTD.
By:______________________________________
Name: Jacob Ben Avi
-------------
Title: President
---------
-10-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: Kurchatov Research Holdings, Ltd.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _______________
shares of Common Stock ("Common Stock"), $.0001 par value per share, of
Kurchatov Research Holdings, Ltd., and, if such Holder is not utilizing the
cashless exercise provisions set forth in this Warrant, encloses herewith
$__________ in cash, certified or official bank check or checks, which sum
represents the aggregate Exercise Price (as defined in the Warrant) for the
number of shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
___________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:_______________ Name of Holder:
(Print)_______________________________
(By:)_________________________________
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________ the right represented by the within
Warrant to purchase _____________ shares of Common Stock of Kurchatov Research
Holdings, Ltd. to which the within Warrant relates and appoints
__________________ attorney to transfer said fight on the books of Kurchatov
Research Holdings, Ltd. with full power of substitution in the premises.
Dated:
________________, _______
________________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
________________________________________
Address of Transferee
________________________________________
________________________________________
In the presence of:
________________________________
Agreement
---------
Made and entered into on the ............. day of ............. ...199 ;
By and Between: Ofek Le-Oleb Foundation
P.O.B. 73, Migdal Ha-Emek 10550
Tel: 972-66543081 Fax: 972-66543082
(hereinafter "The Foundation") First Party
-----------
and: V. Stankevitch and V. Fairberg
I.D. No.: 310642467 302299428
Address: 32/8 Dren St. 11/20 Na-Prahim St.
P.O.B. 3305 Wesher 36760 Haifa
Tel: 04-32000161 06-8247538
Fax: - 06-8247538
(hereinafter "The Initiator") Second Party
------------
and: KRH Ltd.
I.D. No.:
Address: Weisbadeher Str. 17a, Berlin
Tel: 49-30-7465209
Fax: 49-3074681914
(hereinafter "The Investor") Third Party
-----------
Whereas the Initiator has declared that he invented the invention in
the field of .................... in respect whereof he has
applied for patent rights (patent application No. ...... ) and
wishes to conduct research and development in respect thereof
in accordance with the program approved by the Chief Scientist
under project No. (hereinafter "the Project") copy whereof is
hereto annexed marked "A";
**
And Whereas the Initiator has declared that he is the sole and exclusive
owner of the invention and of all the rights, title and
interest thereto and that he has the necessary knowledge
qualification and experience for the research and development
of the Project;
And Whereas the Foundation has declared that it is a legal body approved
by the Chief Scientist of the Ministry of Commerce and
Technology and the Steering Committee of
<PAGE>
-2-
the Center for Technological Initiative and any other related
body and/or authorized institution under the Law for the
Support of Research and Development in Industry, 1984
(hereinafter "the RDL") for the purposes of the Chief
Scientist's R & D program in Technological Initiatives;
And Whereas the Initiator has declared that he has filed a proposal with
the Foundation for the execution of the Project in the
Foundation's framework in accordance with and subject to the
Chief Scientist's program which has been approved by the
Foundation's projects committee;
And Whereas the Investor has undertaken to obtain supplementary finance
for the Project as hereunder defined as also to promote, the
project subject to the terms of this agreement;
And Whereas the Initiator has declared that he has disclosed to the
Parties hereto all the information at his disposal relating
to the Project and that he is not under any restriction,
whether by contract or in law, prohibiting him from entering
into this contract or carrying out his obligations hereunder;
And Whereas the Parties are desirous of regulating their respective rights
and obligations for the execution of the Project in the
framework of the Foundation as set out in this agreement:
Now Therefore the parties do hereby declare and agree as follows:
- -----------------------------------------------------------------
1. Preamble and Definitions
------------------------
a) The Preamble and Annexures to this Agreement form and integral part
thereof.
b) The terms specified herein shall have the following definitions: -
(i) Holding Company Yosmot Ha-Emek Initiatives
Incubator LTD (Co No 51-183764-3) a company wholly
<PAGE>
-3-
controlled by the Foundation which manages and operates the
Incubator for the Foundation. It is hereby agreed that the
Foundation is entitled to take all necessary steps and
decisions and to exercise all its rights in terms of this
agreement by way of and through the Holding Company;
(ii) The Development Period - the period during which the
Foundation and/or the Holding Company receives financial
assistance from the State for the Project and/or for the
period during which the Project is within the Foundation's
framework, control and/or responsibility.
2. RDL Approval
------------
a) This agreement is subject to the RDL and the Regulations thereunder,
the Chief Scientist's instructions, directives and procedures as also
to the terms and conditions of the Chief Scientist's program as also to
the various agreements between the Chief Scientist, the State and the
Foundation.
b) This agreement is subject to the granting of all the necessary
approvals in terms of the RDL and the Chief Scientist's program as also
to the Chief Scientist's approval.
3. Formation of company for the implementation of the project
----------------------------------------------------------
a) During the first year of the Development of the Period a limited
private company shall be formed for the implementation of the Project
(hereinafter "the Company"). The Memorandum and Articles of the Company
shall be formulated in terms of this agreement or any agreement that
may replace this agreement.
b) Upon registration of the Company, the Parties shall immediately take
the necessary steps for the approval of this Agreement by the Company
and for the signature at an agreement between the Company and the
Foundation and/or the Holding Company, ratifying this Agreement.
Such agreement shall in no way diminish the Initiator's obligations
under this agreement.
<PAGE>
-4-
4. Company structure and decisions:
--------------------------------
a) Shares: Class and distribution:
-------------------------------
The Company shall have two classes of shares:
(i) Ordinary shares granting the shareholder the rights to dividends
and a share in any residue upon liquidation of the Company.
ii) Management Shares granting the holder voting rights at the
general meeting and the right to elect or be elected to the Board
of Directors of the Company.
b) Both the Ordinary and Management Shares shall be issued as follows:
-------------------------------------------------------------------
The Initiator: 50%.
EMPLOYEES: (excluding the Initiator): 10%.
During the Development Period the employees' shares shall be held in
trust by the Foundation.
Upon termination of the Development Period, the Foundation shall
transfer such shares to the employees entitled thereto subject to the
directives of the Chief Scientist and in the Foundation's discretion.
Should any of such shares remain unallocated, they shall be allocated
to the Parties to this Agreement in proportion of each Party's share
holding upon this Agreement.
The Foundation: 20%.
The Investor: 20%.
c) Issue and\or allocation of further shares
-----------------------------------------
should a general meeting of the company decide to issue and or allocate
further sahres whether of one or both of the classes defined above,
such decision shall require a majority vote of 80%.
<PAGE>
-5-
d) Board of Directors:
-------------------
(i) The Board of Directors shall he comprised of no less then 4
directors and until decided otherwise by the unanimous vote of
the General Meeting of the Company. There shall not be more than
ten directors.
(ii) Notwithstanding clause (d)(i) above, during the Development
Period, the Board of Directors shall be comprised as follows:
The General Manager of the Foundation and a further
representative of the Foundation, the Initiator or his
representative and the Investor's representative. The manager or
the other representative of the Foundation shall be the chairman
of the Board.
(iii) Upon termination of the Development Period, the directors shall
be appointed by the shareholders; each shareholder holding at
least 20% of the Management Shares shall be entitled to appoint
one director, but subject to each Party to this Agreement being
entitled to appoint at least one director if such party owns at
least 10% of the issued Management Shares.
e) Board meetings and Decisions:
-----------------------------
(i) During the Development Period, the legal quorum for Board
meetings and Board decisions, shall be not less than 3 directors;
at least one director representing each Party to this Agreement.
(ii) Decisions shall be by majority vote of those present.
(iii) Notwithstanding clause (e)(ii) above, during the Development
Period, the chairman shall have the deciding vote in regard to
differences of opinion that may arise relating to the
Foundation's duties, the Foundation's Supervision of the Company
and Project and the fulfillment of the provisions of the RDL,
agreements between the Chief Scientist and the Foundation and the
instructions, regulations and directives of the Chief Scientist.
The Chairman's
<PAGE>
-6-
decision that a subject included in the Board's meeting agenda
falls within the ambit of his deciding vote, shall be binding
upon the Parties to this Agreement.
f) General meeting decisions during the Development Period:
--------------------------------------------------------
During the Development Period the parties hereto shall endeavour to
co-ordinate their voting rights in the General Meeting of the Company
in order to give full support to the Foundation's stand in matters
relating to the Foundation a duties and management of the Company
according to the RDL, the agreements between the Foundation and the
Chief Scientist and the Chief Scientist's directives and regulations
from time to time.
g) Authorized signatories:
-----------------------
i) During the Development Period the signatures of two directors,
namely the Foundation's general manager or representative or the
representative of the Holding Company and the signature of either
the Initiator or the Investor, shall bind the company and/or the
Project in every respect.
Notwithstanding the above, during the Development Period, the
following shall apply:
(1) Payments in excess of 20,000 NIS shall be made only after
prior co-ordination with the Investor or his
representative.
(2) Orders by the Project from third parties shall require
written confirmation signed by two signatories, namely, the
Foundation's manager or his representative and the Project
manager.
(ii) Upon termination of the Development Period, the authorized
signatories shall be appointed by the unanimous vote of the Board
of Directors. Until such appointment clause (g)(i) above shall
apply.
<PAGE>
-7-
5. Company operations
------------------
a) All the Company activities shall be subject to the RDL, its laws and
regulations, the instructions and directives of the Chief Scientist,
programs prepared by him and to all agreements that may be entered into
from time to time between the Foundation and the Chief Scientist.
b) All the rights, in existing know-how patents, copyrights and
intellectual in the Project, as also every result and document relating
to the execution of the Project, in the Foundation's framework,
including all research by the Company in regard to the Project, shall
vest exclusively in the Project and upon registration of the Company,
in the Company. The Initiator hereby cedes and transfers all his rights
as set out above, free of consideration, to the Project and to the
Company as aforesaid.
c) The Foundation and/or the Holding Company shall make suitable
accommodation available to the Company for the purposes of the Project,
subject to the terms, conditions and reasonable payment as stipulated
by the Foundation and/ or Holding Company. The Foundation and/or
Holding Company shall in addition, provide various services to the
Company upon such terms to be agreed upon between the Foundation and/or
Holding Company and the company.
The Project and/or the Company shall pay a proportionate share of the
insurance premiums in respect of the accommodation aforesaid.
All the aforesaid services and costs in respect thereof shall be
determined according to the Project budget.
d) The Company shall keep proper accounting records as is required by law
and accepted in similar ventures, and shall furnish reports from time
to time to the Foundation and to the Chief Scientist as requested by
them.
e) The Company shall carry out and comply with all its representations,
obligations and time schedules in terms of and as represented to the
Foundation and the Chief Scientist in order to obtain the necessary
consent for carrying out the Project, and as confirmed by them, and/or
<PAGE>
-8-
as may be presented and/or confirmed by them during the execution of
the Project.
f) At least 50% of all employees shall be new immigrants. Professional
employees shall be appointed during the Development Period by the
Initiator with the approval of the Foundation's general manager. The
rest of the employees and the Initiator shall be employed in terms of
the Foundation's standard personal employment agreement.
g) The Company shall conduct its business in accordance with the approved
and/or to be approved budgets for the Project by the Foundation and/or
the Holding Company and the Chief Scientist. The Project and/or Company
shall be obliged to operate strictly within the framework of the said
budget and any deviation therefrom shall not be recognized or allowed
by the Foundation and/or Chief Scientist.
The budget shall be financed by means of the financial assistance of
the Chief Scientist as allocated to the Project and by the
supplementary finance of the Investor as hereinafter set forth.
h) The Investor hereby undertakes to provide the sum of US$60,000 for
the purpose of financing portion of the budget of the project,
specifically excluding employees salaries, (hereinafter "the
supplementary finance"). Such sum of US$60,000 shall not be returned or
repaid to the Investor. The supplementary finance aforesaid shall be
made available to the company and/or project as follows:
4 equal payments of US$15,000 each, in NIS according to the known
dollar exchange rate on the date of each payment:
The first payment of US$15,000 shall be made an the 1 day of
199 .
The second payment of US$15,000 shall be made on the 1 day of
199 .
<PAGE>
-9-
The third payment of US$15,000 shall be made on the 1 day of .
The final payment of US$15,000 shall be made on the 1 day of
It is hereby agreed that in the event of the project and/or company
requiring further finance in addition to the supplementary finance as
set out above, the parties hereto shall be entitled to introduce an
additional investor to this agreement subject to the Investor (the
third party to this agreement as set out in the preamble) having the
first right of refusal to invest such further finance as is required.
i) The Initiator shall present both the Foundation and the Investor with a
bi-annual technical report. The Foundation shall be entitled to demand
additional technical reports during the Development Period. The
Initiator shall provide and furnish, both during and after the
Development Period, all such information as may be required, to the
Foundation and/or the Holding Company in order to fulfil their
obligations to the Chief Scientist and to third parties.
j) The Initiator shall maintain a full and detailed written record of each
and every stage of the research and development carried out by him and
furnish copies thereof to the Foundation, the Company and the Investor
as requested from time to time.
k) Upon registration of the Company, the Company shall register a Floating
Charge of the first preference in respect of all of its assets as also
a permanent Charge over its equipment and fixed assets, in favor of the
Foundation and/ or Holding Company in order to secure its obligations
as hereunder set forth in clause 6.
1) Property and equipment purchased with the finance of the Chief
Scientist and/or with his assistance, shall represent security for the
repayment of the State's investment in the Project and/or Company.
Until registration of the aforesaid Charges, neither the Parties nor
the Company shall be entitled to dispose of or cede any rights in any
manner in
<PAGE>
-10-
and to the assets and property of the Project and/or Company which were
acquired with the Chief Scientist's finance.
m) The Initiator and Investor hereby declare and confirm that they are
aware of the fact that the Foundation and the Holding Company have no
personal obligation in regard to financing the project. In order to
avoid any misunderstanding, the Foundation hereby undertakes to hand
over to the Project and/or Company all sums received from the Chief
Scientist and in accordance with the Chief Scientist's directions.
n) The Initiator and Investor hereby confirm that they are aware of the
fact that the Chief Scientist's approval for the Project is for a
period of one financial year only and the continuation of the Project
thereafter is subject to renewal of such approval by the Chief
Scientist.
o) The Initiator and Investor shall take all such steps as are necessary
for the commercialization and/or application of the results of the
Project in the framework of the Company. The Foundation shall give all
possible assistance in this respect to the Initiator, Investor and the
Company.
p) The Initiator shall work in the Project and/or Company on a full-time
basis and he shall not be entitled to work in any other manner of
employment unless he receives the prior written consent of the
Foundation and the Investor and subject to their conditions.
6. Completion of the Project:
--------------------------
Upon completion of the Development Period, the Parties shall act as follows:
a) The Company shall pay the Chief Scientist royalties derived from the
consideration received from sales of the product and/or know-how
developed by the Company, until the full repayment of the real value of
the sum paid by the Chief Scientist in respect of the Project, such
royalties to be paid in terms of the Chief Scientist's instructions.
<PAGE>
-11-
The Parties declare that they know that as at the date hereof the Chief
Scientist's regulations in respect of royalties, provide for the
Company to pay the Chief Scientist and/or the Foundation for transfer
to the Chief Scientist, royalties at the rate of 3% of the total annual
sales of the Company in respect of the Project during the first three
years;
4% for the following three years and 5% for the seventh year until the
full repayment of all monies received from the Chief Scientist
according to their real value - such monies to be repaid shall be
linked to the U.S. dollar in this respect.
The above directives may be changed from time to time by the Chief
Scientist.
In regard to the above, sales shall be deemed to be and shall include
all income derived from products of the Project and/or that have been
developed, or relating to their sale and/or the sale of any rights
thereto, including the obligation to provide services, all the above
subject to the Chief Scientist's directives.
b) Without detracting from its obligations as set out in clause (a) above,
the Company and/or its shareholders, according to the circumstances,
shall pay the Chief Scientist or the Foundation for transfer, to the
Chief Scientist, 25% of the value received for the sale of shares to a
non-shareholder, and which value has not been invested in the Company
within three months of such sale. Such repayment shall be limited to
the aforesaid true value of the amount financed by the Chief Scientist.
c) The Company, with the Initiator's assistance, shall file a bi-annual
report with the Foundation approved by a Certified Accountant in
relation to the sales of the Company as set out above, until such time
as all the royalties have been paid in terms of clause (a) above.
d) All the books of account and documents relating to the Project of the
Company and/or Project shall be open to the inspection of the
Foundation until the final payment as set out in clause (a) above.
<PAGE>
-12-
e) Upon completion of the final payment aforesaid, the liens shall be
cancelled.
f) The Company and its employees shall vacate the Foundations premises
occupied by it.
g) The Company shall present final financial and technical reports in
respect of the project within three months of the termination of the
Development Period.
h) The Foundation shall not be obliged to invest any monies in the future
in the Company, nor to sign security for the obligations of the Company
nor to provide security to enable the Company to obtain finance or
credit.
The Company shall not be entitled to make any such demands of the
Foundation.
i) The products developed in the Project shall be manufactured in Israel
alone, unless the Chief Scientist has given contrary permission.
7. The investor's right to acquire the Foundation's shares
-------------------------------------------------------
a) The Foundation hereby grants the Investor an option to purchase its
shares upon termination of the Development Period. Such option shall be
exercised by the investor in writing to the Foundation within 90 days
of the termination of the Development Period.
8. Confidentiality
---------------
The parties hereto undertake to maintain strict confidentiality and secrecy
in regard to all the present and future knowledge and information relating to
the Project, whether of the Foundation that is divulged to the Initiator or
knowledge and information acquired and/or accumulated by the Company,
including all proprietary knowledge and/or secrets of the Company and/or the
Foundation and/or of the Project, that may be divulged to one or more of the
Parties.
<PAGE>
-13-
9. Non-Competition
---------------
a) The Initiator and Investor undertake not to directly or indirectly
compete with the business of the Project and/or Company and/or
Foundation. Such prohibition and undertaking shall remain in force
while the said Initiator and Investor are shareholders in the Company,
and should they cease to be shareholders, in any event, for a period of
three years after they cease to be employed by the Company - such
prohibition and undertaking aforesaid remaining in effect until the
later of such two eventualities, namely: date of ceasing to be
shareholder or 3 years after ceasing to be employed as aforesaid.
Such prohibition and undertaking shall include direct or indirect
dealings in the development and/or manufacture and/or sale and/or
marketing of products of the Project and/or the use in any manner
whatsoever of the knowledge and information and/or being connected
directly or indirectly in any manner whatsoever in the present or
future, in the field of the Project and/or Company, which may compete
with their business or occupations.
b) The Initiator undertakes to co-ordinate the activities of the Project
and/or Company in respect of the fields relating to them, whether
directly or indirectly, lie furthermore undertakes not to copy and/or
to make use of knowledge and/or information in regard to the products
to be developed by the Company or Project, in any manner whatsoever
which is contrary to the framework of the Project and/or Company, nor
to receive any profit and/or benefits therefrom contrary to this
agreement.
c) The present and future knowledge and information relating to the
Project and/or the rights thereto, shall not be ceded in any manner
whatsoever, directly or indirectly, unless the Chief Scientist has
given written permission so to do.
10. This agreement in general and clauses 9 and 11 in particular shall in no way
prohibit the Investor from engaging in the development of products and using
such information that is public knowledge, including the knowledge that was
available to him prior to the execution of this agreement and/or information
<PAGE>
-14-
obtained by him which is not related to nor as a result of this agreement.
11. Cession of rights
-----------------
a)(i) During the Development Period the Initiator shall not be entitled to
transfer and/or cede any of their rights or obligations in terms of
this agreement to another nor to transfer their shares in any manner
without the specific written consent of the Foundation (in case of
third party).
(ii) During the Development Period, any transfer of shares in the Company
by the Investor to a third party, shall be subject to such transfer
not in any way prejudicing the Company's obligations to the
Foundation and/or to the Chief Scientist and shall be subject to the
Chief Scientist's directions, as given by him from time to time.
b) The Parties hereto acknowledge that the transfer of 25% or more of the
rights in the Project and/or Company requires the Chief Scientist's
prior approval.
In this respect, rights in the Company and/or Project, shall mean
shares and/or the holding of one or more of the following methods of
control:
Voting rights at Company meetings.
The right to elect directors of the Company.
The right to participate in the profits and/or income of the Company.
c) Transfer and cession of one or more of such controlling rights to a
foreign resident or foreign company, requires the prior written consent
of the Research Committee of the Chief Scientist.
d) The Initiator and the Investor hereby acknowledge and consent to the
Foundation having the right to transfer its rights and obligations
under this Agreement to the holding Company and/or to carry out any
obligation, to exercise any authority, right and/or discretion by means
of the Holding Company.
<PAGE>
-15-
12. Termination and cancellation of this Agreement and consequences
---------------------------------------------------------------
a) The Initiator and the Investor hereby declare that they are aware of
the fact that the Chief Scientist and/or the State is entitled to
withdraw from any agreement to which they are a party in regard to the
Project, for governmental reasons, and in such event, every agreement
between the Initiator and/or the Investor and/or the Company with the
Foundation and/or the Holding Company, shall be cancelled.
b) The Initiator and the Investor acknowledge that during the Development
Period, the Foundation shall be entitled to cancel this Agreement by
prior written notice of 14 days in the event of one or more of the
following occurring:
i) The Chief Scientist has withdrawn his support of the project.
ii) The State has withdrawn its support of the Foundation.
iii) The Foundation has decided to terminate the Agreement on the
grounds that the desired results were not achieved or that continuation
of the Agreement would demand and entail substantial costs not covered
by the budget or that the Foundation deems to be unjustified, and that
the Chief Scientist has consented to the termination of the program.
c) in the event of the cancellation of this Agreement as set out in (a) or
(b) above, and/or in the event that the Chief Scientist refuses to
consent to the continuance of the Project in terms of his program, the
Parties hereto shall be absolved of all their financial obligations in
terms of this Agreement as also for the payment of any damages
resulting from loss and/or damage to any of the Parties. In such event
all the assets, rights, equipment, knowledge and information, both
present and accumulated (hereinafter "the Assets") in the Project
and/or Company, shall remain with the Foundation until such time as the
amount owing to the Chief Scientist has been repaid and if necessary,
such assets, in part or all, shall be realized to repay such debt.
<PAGE>
-16-
Upon payment in full to the Chief Scientist, the Charges shall be
cancelled and the remaining assets shall he divided between the
initiator, the Foundation and the Investor according to their
respective shares in the Company and/or Project
13. a) Any Party to this Agreement shall be entitled to cancel same should one
or more of the following events occur:
(i) Breach of a fundamental condition of this Agreement by one of the
other Parties, which breach has not been rectified within a
period of 30 days from receiving notice so to do.
(ii) In the event of insolvency or liquidation proceedings being
instituted against one of the Parties or should a receiver be
appointed in relation to his/its property - subject to prior
notice of 30 days grace during which period the said proceedings
have not been cancelled or the receiver released from his
appointment.
iii) In the event of a party being convicted of a criminal offense
involving dishonesty.
b) in the event of termination of this Agreement as set out in (a) above,
the following shall apply:
i) The assets of the Project and/or Company shall be utilized as far
as is necessary in order to repay the Chief Scientist in full.
ii) Upon repayment of the amount owing to the Chief Scientist the
Charges shall be cancelled.
iii) The balance of monies received from the realization of the
Project and the remaining assets, shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the Company and/or Project.
c) The Foundation and the Initiator, hereby declare that should the
Foundation breach any one or more of the
<PAGE>
-17-
fundamental conditions of this agreement and fail to remedy such breach
within 30 days of receiving written notice so to do, or in the event
of the Investor coming to the conclusion that the results of the
Project do not justify the Investor investing further monies in the
Company, and the Investor will try to finds a new investor (hereinafter
"the New Investor") who is acceptable to the Foundation and initiator
and who is prepared to acquire shares in the Company by investing the
remainder of the sum which the Investor undertook to invest, the
Foundation and the initiator hereby undertake to make every effort to
reach agreement with the New Investor in accordance with which the
Investor is entitled to retain ownership of his proportionate share in
the Company or that the New Investor will acquire all or a portion of
the investor's shares in the Company.
14. Arbitration
-----------
a) Any dispute whatsoever between the Parties arising out of or relating
to this Agreement, shall be settled by arbitration by a single
Arbitrator, appointed by the mutual consent of the parties.
b) In the event of the parties failing to agree upon the Arbitrator within
14 days of a party requesting Arbitration, such Arbitrator shall be
appointed by the sides.
c) The substantive law shall apply to the Arbitration, but not the laws of
evidence nor the civil procedure regulations. The Arbitrator shall be
obliged to give his reasons for his decision.
d) The Arbitrator shall be entitled to give such relief, decision or
judgment, whether temporary or final, according to his sole dicision.
e) The provisions of this clause shall be and form the Arbitration
Agreement between the Parties, in terms of the Arbitration Act of 1968.
<PAGE>
-18-
15. General Conditions
------------------
The entire agreement between the parties with respect to the subject
matter hereof is stated herein and this Agreement cancels any other
verbal or written agreements between the parties and may be
amended only in writing signed by the duly authorized representatives
of the Parties.
16. This agreement shall also apply to the State of Israel insofar as is
provided in the Contract Law (General Part) act of 1973.
17. Wherever there appears in this Agreement the obligation of the Company, such
obligation shall be deemed to be that of each of the Parties hereto to carry
out all such steps as are necessary for the Company to fulfi11 its
obligations hereunder.
18. The Law Courts at Afula and Nazareth shall have the sole and exclusive
jurisdiction in all matters relating to this Agreement.
19. The cost and stamp duty relating to this Agreement shall be paid by the
Project.
20. a) The Foundation shall be entitled to deduct any monies due to the
Foundation from monies payable to the Project and/or Company and/or
Initiator.
b) The Foundation shall be entitled to require payment of linkage and
interest on all amounts owing to the Foundation by the project and/or
company and/or Initiator.
21. The addresses of the parties are as set out in the Preamble above.
Any notice or letter sent by one of the Parties to another party hereto,
shall be deemed to have been received within 3 working days from the date of
dispatch thereof by registered mail.
In Witness whereof, the parties hereto, each by its duly authorized signatory
have set their hands on the date aforesaid.
/s/ signature /s/ signature /s/ signature
- -------------------- -------------------- --------------------
The Foundation The Initiator The Investor
Agreement
---------
Made and entered into on the ............. day of ............. ...199 ;
By and Between: Ofek Le-Oleb Foundation
P.O.B. 73, Migdal Ha-Emek 10550
Tel: 972-66543081 Fax: 972-66543082
(hereinafter "The Foundation") First Party
-----------
and: Kleimer Leonid, IDN 313021917
Address: Yokheved g/b, 34674, Haifa
Tel: 04-8241323
Fax: 04-8241323
(hereinafter "The Initiator") Second Party
------------
and: KRH Ltd.
I.D. No.:
Address: Weisbadeher Str. 17a, Berlin
Tel: 49-30-7465209
Fax: 49-3074681914
(hereinafter "The Investor") Third Party
-----------
Whereas the Initiator has declared that he invented the invention in
the field of .................... in respect whereof he has
applied for patent rights (patent application No. ...... ) and
wishes to conduct research and development in respect thereof
in accordance with the program approved by the Chief Scientist
under project No. (hereinafter "the Project") copy whereof is
hereto annexed marked "A";
**
And Whereas the Initiator has declared that he is the sole and exclusive
owner of the invention and of all the rights, title and
interest thereto and that he has the necessary knowledge
qualification and experience for the research and development
of the Project;
<PAGE>
-2-
the Center for Technological Initiative and any other related
body and/or authorized institution under the Law for the
Support of Research and Development in Industry, 1984
(hereinafter "the RDL") for the purposes of the Chief
Scientist's R & D program in Technological Initiatives;
And Whereas the Initiator has declared that he has filed a proposal with
the Foundation for the execution of the Project in the
Foundation's framework in accordance with and subject to the
Chief Scientist's program which has been approved by the
Foundation's projects committee;
And Whereas the Investor has undertaken to obtain supplementary finance
for the Project as hereunder defined as also to promote, the
project subject to the terms of this agreement;
And Whereas the Initiator has declared that he has disclosed to the
Parties hereto all the information at his disposal relating
to the Project and that he is not under any restriction,
whether by contract or in law, prohibiting him from entering
into this contract or carrying out his obligations hereunder;
And Whereas the Parties are desirous of regulating their respective rights
and obligations for the execution of the Project in the
framework of the Foundation as set out in this agreement:
Now Therefore the parties do hereby declare and agree as follows:
- -----------------------------------------------------------------
1. Preamble and Definitions
------------------------
a) The Preamble and Annexures to this Agreement form and integral part
thereof.
b) The terms specified herein shall have the following definitions: -
(i) Holding Company Yosmot Ha-Emek Initiatives
Incubator LTD (Co No 51-183764-3) a company wholly
<PAGE>
-3-
controlled by the Foundation which manages and operates the
Incubator for the Foundation. It is hereby agreed that the
Foundation is entitled to take all necessary steps and
decisions and to exercise all its rights in terms of this
agreement by way of and through the Holding Company;
(ii) The Development Period - the period during which the
Foundation and/or the Holding Company receives financial
assistance from the State for the Project and/or for the
period during which the Project is within the Foundation's
framework, control and/or responsibility.
2. RDL Approval
------------
a) This agreement is subject to the RDL and the Regulations thereunder,
the Chief Scientist's instructions, directives and procedures as also
to the terms and conditions of the Chief Scientist's program as also to
the various agreements between the Chief Scientist, the State and the
Foundation.
b) This agreement is subject to the granting of all the necessary
approvals in terms of the RDL and the Chief Scientist's program as also
to the Chief Scientist's approval.
3. Formation of company for the implementation of the project
----------------------------------------------------------
a) During the first year of the Development of the Period a limited
private company shall be formed for the implementation of the Project
(hereinafter "the Company"). The Memorandum and Articles of the Company
shall be formulated in terms of this agreement or any agreement that
may replace this agreement.
b) Upon registration of the Company, the Parties shall immediately take
the necessary steps for the approval of this Agreement by the Company
and for the signature at an agreement between the Company and the
Foundation and/or the Holding Company, ratifying this Agreement.
Such agreement shall in no way diminish the Initiator's obligations
under this agreement.
<PAGE>
-4-
4. Company structure and decisions:
--------------------------------
a) Shares: Class and distribution:
-------------------------------
The Company shall have two classes of shares:
(i) Ordinary shares granting the shareholder the rights to dividends
and a share in any residue upon liquidation of the Company.
ii) Management Shares granting the holder voting rights at the
general meeting and the right to elect or be elected to the Board
of Directors of the Company.
b) Both the Ordinary and Management Shares shall be issued as follows:
-------------------------------------------------------------------
The Initiator: 50%.
EMPLOYEES: (excluding the Initiator): 10%.
During the Development Period the employees' shares shall be held in
trust by the Foundation.
Upon termination of the Development Period, the Foundation shall
transfer such shares to the employees entitled thereto subject to the
directives of the Chief Scientist and in the Foundation's discretion.
Should any of such shares remain unallocated, they shall be allocated
to the Parties to this Agreement in proportion of each Party's share
holding upon this Agreement.
The Foundation: 20%.
The Investor: 20%.
c) Issue and\or allocation of further shares
-----------------------------------------
should a general meeting of the company decide to issue and or allocate
further sahres whether of one or both of the classes defined above,
such decision shall require a majority vote of 80%.
<PAGE>
-5-
d) Board of Directors:
-------------------
(i) The Board of Directors shall he comprised of no less then 4
directors and until decided otherwise by the unanimous vote of
the General Meeting of the Company. There shall not be more than
ten directors.
(ii) Notwithstanding clause (d)(i) above, during the Development
Period, the Board of Directors shall be comprised as follows:
The General Manager of the Foundation and a further
representative of the Foundation, the Initiator or his
representative and the Investor's representative. The manager or
the other representative of the Foundation shall be the chairman
of the Board.
(iii) Upon termination of the Development Period, the directors shall
be appointed by the shareholders; each shareholder holding at
least 20% of the Management Shares shall be entitled to appoint
one director, but subject to each Party to this Agreement being
entitled to appoint at least one director if such party owns at
least 10% of the issued Management Shares.
e) Board meetings and Decisions:
-----------------------------
(i) During the Development Period, the legal quorum for Board
meetings and Board decisions, shall be not less than 3 directors;
at least one director representing each Party to this Agreement.
(ii) Decisions shall be by majority vote of those present.
(iii) Notwithstanding clause (e)(ii) above, during the Development
Period, the chairman shall have the deciding vote in regard to
differences of opinion that may arise relating to the
Foundation's duties, the Foundation's Supervision of the Company
and Project and the fulfillment of the provisions of the RDL,
agreements between the Chief Scientist and the Foundation and the
instructions, regulations and directives of the Chief Scientist.
The Chairman's
<PAGE>
-6-
decision that a subject included in the Board's meeting agenda
falls within the ambit of his deciding vote, shall be binding
upon the Parties to this Agreement.
f) General meeting decisions during the Development Period:
--------------------------------------------------------
During the Development Period the parties hereto shall endeavour to
co-ordinate their voting rights in the General Meeting of the Company
in order to give full support to the Foundation's stand in matters
relating to the Foundation a duties and management of the Company
according to the RDL, the agreements between the Foundation and the
Chief Scientist and the Chief Scientist's directives and regulations
from time to time.
g) Authorized signatories:
-----------------------
i) During the Development Period the signatures of two directors,
namely the Foundation's general manager or representative or the
representative of the Holding Company and the signature of either
the Initiator or the Investor, shall bind the company and/or the
Project in every respect.
Notwithstanding the above, during the Development Period, the
following shall apply:
(1) Payments in excess of 20,000 NIS shall be made only after
prior co-ordination with the Investor or his
representative.
(2) Orders by the Project from third parties shall require
written confirmation signed by two signatories, namely, the
Foundation's manager or his representative and the Project
manager.
(ii) Upon termination of the Development Period, the authorized
signatories shall be appointed by the unanimous vote of the Board
of Directors. Until such appointment clause (g)(i) above shall
apply.
<PAGE>
-7-
5. Company operations
------------------
a) All the Company activities shall be subject to the RDL, its laws and
regulations, the instructions and directives of the Chief Scientist,
programs prepared by him and to all agreements that may be entered into
from time to time between the Foundation and the Chief Scientist.
b) All the rights, in existing know-how patents, copyrights and
intellectual in the Project, as also every result and document relating
to the execution of the Project, in the Foundation's framework,
including all research by the Company in regard to the Project, shall
vest exclusively in the Project and upon registration of the Company,
in the Company. The Initiator hereby cedes and transfers all his rights
as set out above, free of consideration, to the Project and to the
Company as aforesaid.
c) The Foundation and/or the Holding Company shall make suitable
accommodation available to the Company for the purposes of the Project,
subject to the terms, conditions and reasonable payment as stipulated
by the Foundation and/ or Holding Company. The Foundation and/or
Holding Company shall in addition, provide various services to the
Company upon such terms to be agreed upon between the Foundation and/or
Holding Company and the company.
The Project and/or the Company shall pay a proportionate share of the
insurance premiums in respect of the accommodation aforesaid.
All the aforesaid services and costs in respect thereof shall be
determined according to the Project budget.
d) The Company shall keep proper accounting records as is required by law
and accepted in similar ventures, and shall furnish reports from time
to time to the Foundation and to the Chief Scientist as requested by
them.
e) The Company shall carry out and comply with all its representations,
obligations and time schedules in terms of and as represented to the
Foundation and the Chief Scientist in order to obtain the necessary
consent for carrying out the Project, and as confirmed by them, and/or
<PAGE>
-8-
as may be presented and/or confirmed by them during the execution of
the Project.
f) At least 50% of all employees shall be new immigrants. Professional
employees shall be appointed during the Development Period by the
Initiator with the approval of the Foundation's general manager. The
rest of the employees and the Initiator shall be employed in terms of
the Foundation's standard personal employment agreement.
g) The Company shall conduct its business in accordance with the approved
and/or to be approved budgets for the Project by the Foundation and/or
the Holding Company and the Chief Scientist. The Project and/or Company
shall be obliged to operate strictly within the framework of the said
budget and any deviation therefrom shall not be recognized or allowed
by the Foundation and/or Chief Scientist.
The budget shall be financed by means of the financial assistance of
the Chief Scientist as allocated to the Project and by the
supplementary finance of the Investor as hereinafter set forth.
h) The Investor hereby undertakes to provide the sum of US$60,000 for
the purpose of financing portion of the budget of the project,
specifically excluding employees salaries, (hereinafter "the
supplementary finance"). Such sum of US$60,000 shall not be returned or
repaid to the Investor. The supplementary finance aforesaid shall be
made available to the company and/or project as follows:
4 equal payments of US$15,000 each, in NIS according to the known
dollar exchange rate on the date of each payment:
The first payment of US$15,000 shall be made an the 1 day of April
1999.
The second payment of US$15,000 shall be made on the 1 day of October
1999.
<PAGE>
-9-
The third payment of US$15,000 shall be made on the 1 day of .
The final payment of US$15,000 shall be made on the 1 day of
It is hereby agreed that in the event of the project and/or company
requiring further finance in addition to the supplementary finance as
set out above, the parties hereto shall be entitled to introduce an
additional investor to this agreement subject to the Investor (the
third party to this agreement as set out in the preamble) having the
first right of refusal to invest such further finance as is required.
i) The Initiator shall present both the Foundation and the Investor with a
bi-annual technical report. The Foundation shall be entitled to demand
additional technical reports during the Development Period. The
Initiator shall provide and furnish, both during and after the
Development Period, all such information as may be required, to the
Foundation and/or the Holding Company in order to fulfil their
obligations to the Chief Scientist and to third parties.
j) The Initiator shall maintain a full and detailed written record of each
and every stage of the research and development carried out by him and
furnish copies thereof to the Foundation, the Company and the Investor
as requested from time to time.
k) Upon registration of the Company, the Company shall register a Floating
Charge of the first preference in respect of all of its assets as also
a permanent Charge over its equipment and fixed assets, in favor of the
Foundation and/ or Holding Company in order to secure its obligations
as hereunder set forth in clause 6.
1) Property and equipment purchased with the finance of the Chief
Scientist and/or with his assistance, shall represent security for the
repayment of the State's investment in the Project and/or Company.
Until registration of the aforesaid Charges, neither the Parties nor
the Company shall be entitled to dispose of or cede any rights in any
manner in
<PAGE>
-10-
and to the assets and property of the Project and/or Company which were
acquired with the Chief Scientist's finance.
m) The Initiator and Investor hereby declare and confirm that they are
aware of the fact that the Foundation and the Holding Company have no
personal obligation in regard to financing the project. In order to
avoid any misunderstanding, the Foundation hereby undertakes to hand
over to the Project and/or Company all sums received from the Chief
Scientist and in accordance with the Chief Scientist's directions.
n) The Initiator and Investor hereby confirm that they are aware of the
fact that the Chief Scientist's approval for the Project is for a
period of one financial year only and the continuation of the Project
thereafter is subject to renewal of such approval by the Chief
Scientist.
o) The Initiator and Investor shall take all such steps as are necessary
for the commercialization and/or application of the results of the
Project in the framework of the Company. The Foundation shall give all
possible assistance in this respect to the Initiator, Investor and the
Company.
p) The Initiator shall work in the Project and/or Company on a full-time
basis and he shall not be entitled to work in any other manner of
employment unless he receives the prior written consent of the
Foundation and the Investor and subject to their conditions.
6. Completion of the Project:
--------------------------
Upon completion of the Development Period, the Parties shall act as follows:
a) The Company shall pay the Chief Scientist royalties derived from the
consideration received from sales of the product and/or know-how
developed by the Company, until the full repayment of the real value of
the sum paid by the Chief Scientist in respect of the Project, such
royalties to be paid in terms of the Chief Scientist's instructions.
<PAGE>
-11-
The Parties declare that they know that as at the date hereof the Chief
Scientist's regulations in respect of royalties, provide for the
Company to pay the Chief Scientist and/or the Foundation for transfer
to the Chief Scientist, royalties at the rate of 3% of the total annual
sales of the Company in respect of the Project during the first three
years;
4% for the following three years and 5% for the seventh year until the
full repayment of all monies received from the Chief Scientist
according to their real value - such monies to be repaid shall be
linked to the U.S. dollar in this respect.
The above directives may be changed from time to time by the Chief
Scientist.
In regard to the above, sales shall be deemed to be and shall include
all income derived from products of the Project and/or that have been
developed, or relating to their sale and/or the sale of any rights
thereto, including the obligation to provide services, all the above
subject to the Chief Scientist's directives.
b) Without detracting from its obligations as set out in clause (a) above,
the Company and/or its shareholders, according to the circumstances,
shall pay the Chief Scientist or the Foundation for transfer, to the
Chief Scientist, 25% of the value received for the sale of shares to a
non-shareholder, and which value has not been invested in the Company
within three months of such sale. Such repayment shall be limited to
the aforesaid true value of the amount financed by the Chief Scientist.
c) The Company, with the Initiator's assistance, shall file a bi-annual
report with the Foundation approved by a Certified Accountant in
relation to the sales of the Company as set out above, until such time
as all the royalties have been paid in terms of clause (a) above.
d) All the books of account and documents relating to the Project of the
Company and/or Project shall be open to the inspection of the
Foundation until the final payment as set out in clause (a) above.
<PAGE>
-12-
e) Upon completion of the final payment aforesaid, the liens shall be
cancelled.
f) The Company and its employees shall vacate the Foundations premises
occupied by it.
g) The Company shall present final financial and technical reports in
respect of the project within three months of the termination of the
Development Period.
h) The Foundation shall not be obliged to invest any monies in the future
in the Company, nor to sign security for the obligations of the Company
nor to provide security to enable the Company to obtain finance or
credit.
The Company shall not be entitled to make any such demands of the
Foundation.
i) The products developed in the Project shall be manufactured in Israel
alone, unless the Chief Scientist has given contrary permission.
7. The investor's right to acquire the Foundation's shares
-------------------------------------------------------
a) The Foundation hereby grants the Investor an option to purchase its
shares upon termination of the Development Period. Such option shall be
exercised by the investor in writing to the Foundation within 90 days
of the termination of the Development Period.
8. Confidentiality
---------------
The parties hereto undertake to maintain strict confidentiality and secrecy
in regard to all the present and future knowledge and information relating to
the Project, whether of the Foundation that is divulged to the Initiator or
knowledge and information acquired and/or accumulated by the Company,
including all proprietary knowledge and/or secrets of the Company and/or the
Foundation and/or of the Project, that may be divulged to one or more of the
Parties.
<PAGE>
-13-
9. Non-Competition
---------------
a) The Initiator and Investor undertake not to directly or indirectly
compete with the business of the Project and/or Company and/or
Foundation. Such prohibition and undertaking shall remain in force
while the said Initiator and Investor are shareholders in the Company,
and should they cease to be shareholders, in any event, for a period of
three years after they cease to be employed by the Company - such
prohibition and undertaking aforesaid remaining in effect until the
later of such two eventualities, namely: date of ceasing to be
shareholder or 3 years after ceasing to be employed as aforesaid.
Such prohibition and undertaking shall include direct or indirect
dealings in the development and/or manufacture and/or sale and/or
marketing of products of the Project and/or the use in any manner
whatsoever of the knowledge and information and/or being connected
directly or indirectly in any manner whatsoever in the present or
future, in the field of the Project and/or Company, which may compete
with their business or occupations.
b) The Initiator undertakes to co-ordinate the activities of the Project
and/or Company in respect of the fields relating to them, whether
directly or indirectly, lie furthermore undertakes not to copy and/or
to make use of knowledge and/or information in regard to the products
to be developed by the Company or Project, in any manner whatsoever
which is contrary to the framework of the Project and/or Company, nor
to receive any profit and/or benefits therefrom contrary to this
agreement.
c) The present and future knowledge and information relating to the
Project and/or the rights thereto, shall not be ceded in any manner
whatsoever, directly or indirectly, unless the Chief Scientist has
given written permission so to do.
10. This agreement in general and clauses 9 and 11 in particular shall in no way
prohibit the Investor from engaging in the development of products and using
such information that is public knowledge, including the knowledge that was
available to him prior to the execution of this agreement and/or information
<PAGE>
-14-
obtained by him which is not related to nor as a result of this agreement.
11. Cession of rights
-----------------
a)(i) During the Development Period the Initiator shall not be entitled to
transfer and/or cede any of their rights or obligations in terms of
this agreement to another nor to transfer their shares in any manner
without the specific written consent of the Foundation (in case of
third party).
(ii) During the Development Period, any transfer of shares in the Company
by the Investor to a third party, shall be subject to such transfer
not in any way prejudicing the Company's obligations to the
Foundation and/or to the Chief Scientist and shall be subject to the
Chief Scientist's directions, as given by him from time to time.
b) The Parties hereto acknowledge that the transfer of 25% or more of the
rights in the Project and/or Company requires the Chief Scientist's
prior approval.
In this respect, rights in the Company and/or Project, shall mean
shares and/or the holding of one or more of the following methods of
control:
Voting rights at Company meetings.
The right to elect directors of the Company.
The right to participate in the profits and/or income of the Company.
c) Transfer and cession of one or more of such controlling rights to a
foreign resident or foreign company, requires the prior written consent
of the Research Committee of the Chief Scientist.
d) The Initiator and the Investor hereby acknowledge and consent to the
Foundation having the right to transfer its rights and obligations
under this Agreement to the holding Company and/or to carry out any
obligation, to exercise any authority, right and/or discretion by means
of the Holding Company.
<PAGE>
-15-
12. Termination and cancellation of this Agreement and consequences
---------------------------------------------------------------
a) The Initiator and the Investor hereby declare that they are aware of
the fact that the Chief Scientist and/or the State is entitled to
withdraw from any agreement to which they are a party in regard to the
Project, for governmental reasons, and in such event, every agreement
between the Initiator and/or the Investor and/or the Company with the
Foundation and/or the Holding Company, shall be cancelled.
b) The Initiator and the Investor acknowledge that during the Development
Period, the Foundation shall be entitled to cancel this Agreement by
prior written notice of 14 days in the event of one or more of the
following occurring:
i) The Chief Scientist has withdrawn his support of the project.
ii) The State has withdrawn its support of the Foundation.
iii) The Foundation has decided to terminate the Agreement on the
grounds that the desired results were not achieved or that continuation
of the Agreement would demand and entail substantial costs not covered
by the budget or that the Foundation deems to be unjustified, and that
the Chief Scientist has consented to the termination of the program.
c) in the event of the cancellation of this Agreement as set out in (a) or
(b) above, and/or in the event that the Chief Scientist refuses to
consent to the continuance of the Project in terms of his program, the
Parties hereto shall be absolved of all their financial obligations in
terms of this Agreement as also for the payment of any damages
resulting from loss and/or damage to any of the Parties. In such event
all the assets, rights, equipment, knowledge and information, both
present and accumulated (hereinafter "the Assets") in the Project
and/or Company, shall remain with the Foundation until such time as the
amount owing to the Chief Scientist has been repaid and if necessary,
such assets, in part or all, shall be realized to repay such debt.
<PAGE>
-16-
Upon payment in full to the Chief Scientist, the Charges shall be
cancelled and the remaining assets shall he divided between the
initiator, the Foundation and the Investor according to their
respective shares in the Company and/or Project
13. a) Any Party to this Agreement shall be entitled to cancel same should one
or more of the following events occur:
(i) Breach of a fundamental condition of this Agreement by one of the
other Parties, which breach has not been rectified within a
period of 30 days from receiving notice so to do.
(ii) In the event of insolvency or liquidation proceedings being
instituted against one of the Parties or should a receiver be
appointed in relation to his/its property - subject to prior
notice of 30 days grace during which period the said proceedings
have not been cancelled or the receiver released from his
appointment.
iii) In the event of a party being convicted of a criminal offense
involving dishonesty.
b) in the event of termination of this Agreement as set out in (a) above,
the following shall apply:
i) The assets of the Project and/or Company shall be utilized as far
as is necessary in order to repay the Chief Scientist in full.
ii) Upon repayment of the amount owing to the Chief Scientist the
Charges shall be cancelled.
iii) The balance of monies received from the realization of the
Project and the remaining assets, shall be divided between the
Initiator, the Foundation and the Investor according to their
respective shares in the Company and/or Project.
c) The Foundation and the Initiator, hereby declare that should the
Foundation breach any one or more of the
<PAGE>
-17-
fundamental conditions of this agreement and fail to remedy such breach
within 30 days of receiving written notice so to do, or in the event
of the Investor coming to the conclusion that the results of the
Project do not justify the Investor investing further monies in the
Company, and the Investor will try to finds a new investor (hereinafter
"the New Investor") who is acceptable to the Foundation and initiator
and who is prepared to acquire shares in the Company by investing the
remainder of the sum which the Investor undertook to invest, the
Foundation and the initiator hereby undertake to make every effort to
reach agreement with the New Investor in accordance with which the
Investor is entitled to retain ownership of his proportionate share in
the Company or that the New Investor will acquire all or a portion of
the investor's shares in the Company.
14. Arbitration
-----------
a) Any dispute whatsoever between the Parties arising out of or relating
to this Agreement, shall be settled by arbitration by a single
Arbitrator, appointed by the mutual consent of the parties.
b) In the event of the parties failing to agree upon the Arbitrator within
14 days of a party requesting Arbitration, such Arbitrator shall be
appointed by the sides.
c) The substantive law shall apply to the Arbitration, but not the laws of
evidence nor the civil procedure regulations. The Arbitrator shall be
obliged to give his reasons for his decision.
d) The Arbitrator shall be entitled to give such relief, decision or
judgment, whether temporary or final, according to his sole dicision.
e) The provisions of this clause shall be and form the Arbitration
Agreement between the Parties, in terms of the Arbitration Act of 1968.
<PAGE>
-18-
15. General Conditions
------------------
The entire agreement between the parties with respect to the subject
matter hereof is stated herein and this Agreement cancels any other
verbal or written agreements between the parties and may be
amended only in writing signed by the duly authorized representatives
of the Parties.
16. This agreement shall also apply to the State of Israel insofar as is
provided in the Contract Law (General Part) act of 1973.
17. Wherever there appears in this Agreement the obligation of the Company, such
obligation shall be deemed to be that of each of the Parties hereto to carry
out all such steps as are necessary for the Company to fulfi11 its
obligations hereunder.
18. The Law Courts at Afula and Nazareth shall have the sole and exclusive
jurisdiction in all matters relating to this Agreement.
19. The cost and stamp duty relating to this Agreement shall be paid by the
Project.
20. a) The Foundation shall be entitled to deduct any monies due to the
Foundation from monies payable to the Project and/or Company and/or
Initiator.
b) The Foundation shall be entitled to require payment of linkage and
interest on all amounts owing to the Foundation by the project and/or
company and/or Initiator.
21. The addresses of the parties are as set out in the Preamble above.
Any notice or letter sent by one of the Parties to another party hereto,
shall be deemed to have been received within 3 working days from the date of
dispatch thereof by registered mail.
In Witness whereof, the parties hereto, each by its duly authorized signatory
have set their hands on the date aforesaid.
/s/ signature /s/ signature /s/ signature
- -------------------- -------------------- --------------------
The Foundation The Initiator The Investor
AGREEMENT
AGREEMENT dated this 12th day of October, 1999, by and between
Kurchatov Research Holdings, Ltd., a Delaware corporation ("KRH"); and Alice
Schlattl, being the registered owner of record of all of the capitalization and
any and all other ancillary rights of Cetoni Umwelttechnologie Entwicklungs
GmbH, a close corporation organized pursuant to the Gesetz betreffend die
Gesellschaften mit beschrankter Haftung of the Federal Republic of Germany
("Cetoni"), as recorded in the Handelsregister of Cetoni is registered at
Amtsgericht Passau, Handelregister (Trade Register) Number HRB 5321 (Ms.
Schlattl may sometimes herein, be referred to as the "Registered Owner").
This Agreement sets forth the terms and conditions upon which Alice
Schlattl will assign and transfer to KRH, and KRH will acquire from Alice
Schlattl, all of her right, title and interest in and to the authorized
capitalization of Cetoni registered in her name, representing the entire
authorized capitalization of Cetoni, as provided in Cetoni's certificate of
incorporation, and any and all ancillary rights attaching thereto (Alice
Schlattl's ownership interest in and ancillary rights thereto may sometimes
herein be referred to as the "Cetoni Share").
Unless otherwise defined after their first use, capitalized terms and
certain German words have the meaning ascribed to them in ARTICLE II hereof
In consideration of the mutual agreements contained herein, intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF CETONI SHARE CAPITAL
----------------------------
1.01. INTEREST TO BE SOLD
(a) Subject to the terms and conditions of this Agreement, the
Registered Owner hereby:
(i) sells to KRH, free and clear of all liens, charges,
options or encumbrances of whatsoever nature, all of her right, title and
interest in and to the Cetoni Share Capital, and KRH hereby accepts such sale of
the Cetoni Share, effective as of the date hereof;
<PAGE>
(ii) assigns the Cetoni Share to KRH free and clear of all
liens, charges, options or encumbrances of whatsoever nature, and KRH hereby
accepts such assignment of the Cetoni Share, effective as of the date hereof;
(iii) grants her consent, as the sole registered owner of all
of the Cetoni Share, by way of a shareholder's resolution adopted in accordance
with the provisions of Section 5 of the Cetoni Articles of Association, her
consent, to the sale, assignment and transfer of the Cetoni Share to KRH (which
is attached hereto as Exhibit A);
(iv) grants her consent, as the Geschaftsfuhrer of the
Gesellschaft, having the sole power of representation and not otherwise limited
by the restrictions of Section 181 of the German Civil Code, to the sale,
assignment and transfer of the Cetoni Share (which is attached hereto as Exhibit
B); and
(v) grants to KRH a power of attorney to notify and cause
Cetoni to transfer the Cetoni Share to KRH pursuant to paragraph 1 of Section 16
of the Gesetz betreffend die Gesellschaften mit beschrankter Haftung of the
Federal Republic of Germany (which is attached hereto as Exhibit C).
1.02. CONSIDERATION (a) Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties and agreements of KRH
and the Registered Owner contained herein, and in consideration of the sale,
assignment and transfer of the Cetoni Share, referred to in Section 1.01 hereof,
KRH herewith delivers to the Record Owner 5,000,000 shares (the "Shares") of
KRH Stock (as hereafter defined), registered in the name of the Registered
Owner or in the names of her designee(s).
(b) In the event that the audited financial, statements of Cetoni
for the period ended June 30, 1999, as shall be prepared in United States
Dollars in accordance with US GAAP, evidence liabilities of Cetoni on such date
in excess of 4.5 million German Deutsche marks, the Registered Owner shall
return to KRH for cancellation a number of the shares of KRH Stock delivered
pursuant to this Agreement as shall be calculated by dividing Cetoni's excess
liabilities, determined in reliance upon the above-referenced to be prepared
audited financial statements, by the average trading price per share of KRH
Stock over the five (5) trading days prior to the issuance of the Shares.
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(c) The parties hereto recognize that the documents and other
information which the Registered Owner is furnishing to KRH herewith regarding
the business, financial condition and operations of Cetoni, including all
Exhibits and the information set forth in the Disclosure Schedule, are prepared
in German and that KRH is accepting such documents and is relying on the
representations and warranties of the Registered Holder herein with respect to
the information included in all such Exhibits and the Disclosure Schedule. In
the event that KRH determines, after having translated all such Exhibits and the
Disclosure Schedule, that there are any material misrepresentations relating to
the business, assets or financial condition of Cetoni, then KRH shall calculate
the monetary value attributable to such misrepresentation (which such
determination shall be based upon some tangible evidence or facts), if a
monetary value can be properly assigned thereto, and if no monetary value can be
assigned thereto, KRH shall negotiate in good faith with the Registered Owner to
determine a monetary value therefor, and the Registered Owner shall return to
KRH a number of shares of the KRH Common Stock delivered to the Registered Owner
hereunder as shall be calculated by dividing the monetary value assigned to such
misrepresentation by the average trading price per share of KRH Stock over the
five (5) trading days prior to the issuance of the Shares. If the monetary value
of any misrepresentation shall be determined by KRH because it has in its
possession evidence or facts which permit it make such determination, then it
shall furnish a copy of the documents upon which it is relying to make such
determination to the Registered Owner along with the notice demanding the return
of the shares of KRH Common Stock.
1.03. DOCUMENTS TO BE DELIVERED HEREWITH. (a) The Registered Owner is
herewith delivering to KRH the following: (i) a copy of the notarial contract
evidencing the transfer and assignment of the Cetoni Share as filed with would
also be Amtsgericht Passau, Handelsregister. However, to my knowledge, there
has been no notorial contract signed yet, authenticated under German law, and
any other appropriate evidence that the Cetoni Share has been transferred,
assigned and registered in the Handelsregister in the name of KRH; (ii) the
opinion of counsel, a copy of the form of which is attached hereto as Exhibit E;
(iii) originally executed resolutions referred in Section l.0l(a)(iii);(iv) a
copy of the consent referred to in Section 1.0l(a)(iv); (v) the power of
attorney referred to in Section l.Ol(a)(v); (vi) the balance sheet referred to
in Section 3.06 hereof; (vii) all consents and other documents required pursuant
to Cetoni's jurisdiction of incorporation necessary to pass effectively title to
the Cetoni Stock to KRH, and (viii) all other previously undelivered
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documents required to be delivered by Cetoni to KRH pursuant to the provisions
of this Agreement and not heretofore received by KRH.
(b) KRH is herewith delivering to the Registered Owner (i)
certificates evidencing 5,000,000 shares of KRH Stock registered in such names
and denominations as the Registered Owner may reasonably request; (ii) a
certified copy of the Certificate of Incorporation of KRH with Apostille
attached; and (iii) a duly executed power of attorney with Apostille attached
authorizing KRH's representative to execute this Agreement in behalf of KRH.
1.04. FURTHER ASSURANCES. The Registered Owner hereby covenants and
agrees with KRH that after the Closing Date, she shall from time to time, at the
request of KRH and without further cost or expense to KRH, execute and deliver
such other instruments of assignment and do and take such other actions as KRH
may reasonably request, in order to more effectively consummate the transactions
contemplated hereby and to vest in KRH good title to the Cetoni Share being
transferred hereunder.
ARTICLE II
RELATED MATTERS
---------------
2.01. CONFIDENTIALITY. Each party hereto will hold and will cause its
Affiliates, associates, consultants, representatives and advisors to hold in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
documents and information concerning the other party furnished it by such other
party or its representatives in connection with the transactions contemplated by
this Agreement (except to the extent that such information can be shown to have
been (i) previously known by the party to which it was furnished, (ii) in the
public domain through no fault of such party, or (iii) later lawfully acquired
from other sources by the party to which it was furnished), and each party will
not release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors in connection with this Agreement. Such confidence shall be maintained,
except to the extent such information comes into the public domain through no
fault of the party required to hold it in confidence, and such information shall
not be used to the detriment of, or in relation to any investment in, the other
party arid all such documents (including copies thereof) shall be returned to
the other party immediately upon the written request
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of such other party. Each party shall, be deemed to have satisfied its
obligation to hold confidential information concerning or supplied by the other
party if it exercises the same care as it takes to preserve confidentiality for
its own similar information.
2.02. DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
The terms "Affiliate' and "Associate" have the meanings prescribed by
Rule l2b-2 of the regulations promulgated pursuant to the Securities Exchange
Act.
"Cetoni Articles of Association" means the Articles of Association
included in the Cetoni Certificate of Incorporation.
"Cetoni Certificate of Incorporation" means the certificate of
incorporation of Cetoni as filed with the Handelsregister.
"Closing Date' means the date of this Agreement.
"DM" means the German Deutsche Mark.
"Disclosure Schedule" Means the document delivered by the Registered
Owner to KRH simultaneously with the execution hereof containing the information
required to be included therein pursuant to this Agreement.
"Gesetz betreffend die Gesellschaften mit beschrankter Haftung" means
the Limited Liability Companies Law of the Federal Republic of Germany.
"Handelsregister" means the Commercial Register in which Cetoni and the
Cetoni Share is registered.
"Organizational Documents" means, in the case of Cetoni, the
Certificate of Incorporation and Articles of Association, and the case of KRH,
the Certificate of Incorporation and By-laws.
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"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Subsidiary" (whether used on its own or in conjunction with other
defined terms) means any corporation of which any entity which is party to this
Agreement (a) directly or indirectly owns or controls at the time outstanding
shares of stock which have in ordinary circumstances (not dependent upon the
happening of a contingency) voting power to elect a majority of the board of
directors of said corporation, or (b) of which shares of stock of the character
described in the foregoing clause (a) shall at the time be owned or controlled
directly or indirectly by Cetoni or any Subsidiary of any of them as defined in
the foregoing clause (a) or by one or more such Subsidiaries.
The plural of any defined term shall have a meaning correlative to such
defined term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE REGISTERED OWNER
------------------------------------------------------
The Registered Owner hereby represents, covenants and warrants to KRH
as follows:
3.01. CORPORATE ORGANIZATION; ETC. Cetoni is a limited liability
corporation duly organized, validly existing and in good standing under the laws
of the Federal Republic of Germany and has full corporate power and authority to
carry on its business as it is now being conducted and to own the properties and
assets it now owns. The copies of the Organizational Documents of Cetoni
attached hereto as Exhibit D is a complete and correct copy of such instrument
as presently in effect. Cetoni is duly qualified or licensed, to do business as
a foreign corporation in good standing in every jurisdiction in which such
qualification is required, a list of which is set forth in Section 3.01 of the
Disclosure Schedule.
3.02. CAPITALIZATION OF THE CETONI; OWNERSHIP OF CETONI SHARE. As of
the Closing Date, the nominal share capital of Cetoni consists of DM50,000
denominated into the equivalent of one share of capital stock in the nominal
amount of DM50,000 which has been registered in
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Handelsregister the name of the Registered Owner. The Cetoni Share has been
validly issued and is fully paid and is not subject to contribution of any kind.
The Cetoni Share has not been adversely affected, in whole or in part, by any
repayments to the Registered Owner. The Cetoni Share is not subject to any
rights of any third party.
3.03. SUBSIDIARIES AND AFFILIATES. Section 3.03(a) of the Disclosure
Schedule sets forth the name, jurisdiction of incorporation and capitalization
of each subsidiary of Cetoni ("Cetoni Subsidiary") and the jurisdictions in
which each Cetoni Subsidiary is qualified to do business. Except as disclosed in
Section 3.03(b) of the Disclosure Schedule, Cetoni does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business not
listed in Section 3.03(a) of the Disclosure Schedule. Except as and to the
extent set forth in Section 3.03(a) of the Disclosure Schedule, all the
outstanding capital stock of each Cetoni Subsidiary is owned directly or
indirectly by Cetoni free and clear of all liens, options or encumbrances of any
kind and all material claims or charges of any kind, and is validly issued,
fully paid and nonassessable, and there are no outstanding options, rights or
agreements of any kind relating to the issuance, sale or transfer of any capital
stock or other equity securities of any such Cetoni Subsidiary to any person
except the Company. Each Cetoni Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation; (ii) has full corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns; and (iii) is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which such qualification
is required. Attached hereto as Exhibit G are complete and correct copies of the
incorporation and other governing documents in respect of each Cetoni
Subsidiary, as presently in effect, and the certificate(s) evidencing the
capital stock owned by Cetoni in each of said entities.
3.04. POWER AND AUTHORITY; CONSENTS AND EFFECTIVE TRANSFER. (a) The
Registered Owner has full right, power, and authority to execute and deliver,
and to perform her obligations under, this Agreement and this Agreement and all
other documents to be delivered in accordance herewith, including, without
limitation, the power of attorney referred to in Section 1.0l(a)(v) hereof have
been duly executed and delivered by her and constitute her valid and binding
agreements and obligations under each such document. The Registered Owner has
obtained all consents of the persons or governmental entities necessary to
effectuate the sale, assignment and transfer of the Cetoni Share, including,
without limitation, (i) the consent of the shareholder of Cetoni pursuant to a
resolution adopted in accordance with the provisions of Sections of the Cetoni
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Articles of Association and (ii) the consent, as the Geschaftsfuhrer of the
Gesellschaft, having the sole power of representation and not otherwise limited
by the restrictions of Section 181 of the German Civil Code, to the sale,
assignment and transfer of the Cetoni Share, each of which is valid and binding
under German law, all of which are listed in Section 3.04 of the Disclosure
Schedule.
(b) Except for delivery and filing of certain documents being
executed by KRH or its representative described in Section 3.04 of the
Disclosure Schedule and which are being delivered herewith, as required under
German law and the Cetoni Organizational Documents, the Registered Owner has
taken all action required by German law, the Cetoni Organizational Documents or
otherwise necessary to effectuate the sale, assignment and transfer of the
Cetoni Share to KRH. Upon the filing and registration of the documents described
in Section 3.04 of the Disclosure Schedule by the Registered Owner with the
proper authorities, KRH will be the due and valid registered owner of the Cetoni
Share on the books and records of Cetoni and the Handelsregister.
3.05. NO VIOLATION. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Cetoni Organizational Documents, or, except as
specified in Section 3.05 of the Disclosure Schedule, violate, or be in conflict
with, or constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any security interest, lien or other encumbrance upon any property
or assets of Cetoni under, any agreement or commitment to which Cetoni is a
party or by which Cetoni is bound, or to which the property of Cetoni is
subject, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.
3.06. FINANCIAL STATEMENTS. Attached hereto as Exhibit H is an
unaudited balance sheet of Cetoni and the Cetoni Subsidiaries as at December 31,
1998 prepared and signed by management of Cetoni and certified that the balance
sheet is true and accurate at the date thereof (the "Cetoni Balance Sheet"). The
Cetoni Balance Sheet and the notes thereto are true, complete and accurate and
fairly present the assets, liabilities and financial condition of Cetoni and the
Cetoni Subsidiaries as at the date thereof.
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3.07. NO UNDISCLOSED LIABILITIES; ETC Except as described in Section
3.07 of the Disclosure Schedule, Cetoni has no liabilities or obligations of any
nature (absolute, accrued, contingent or otherwise) which were not fully
reflected or reserved against in the Cetoni Balance Sheet, including reserves
for all income and other taxes and all other liabilities of Cetoni at such
dates, except for liabilities and obligations incurred in the ordinary course of
business and consistent with past practice since the date thereof.
3.08 ACCOUNTS RECEIVABLE. All, accounts receivable of Cetoni, whether
reflected in the Cetoni Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Cetoni Balance Sheet (which reserves are adequate and
were calculated consistent with past practice). Subject to such reserve, each of
the accounts receivable either has been collected in full or will be collected
in full, without any set-off, within 120 days after the day on which it became
due and payable.
3.09. INVENTORY. All inventory of Cetoni, whether reflected in the
Cetoni Balance Sheet or otherwise, consists of a quality and quantity usable
and salable in the ordinary course of business, except for items of obsolete
materials and materials of below-standard quality, all of which have been
written down in the Cetoni Balance Sheet to realizable market value or for which
adequate reserves have been provided therein. The quantities of all inventory of
Cetoni are reasonable and warranted in the present circumstances of their
respective businesses.
3.1.0. INTERIM OPERATIONS. Since the date of the Cetoni Balance Sheet,
the business of Cetoni has been conducted only in the ordinary and usual course
consistent with past practice. Since the date of the Cetoni Balance Sheet, there
have not been any material adverse changes in the financial condition, assets or
results of operations of Cetoni. Since such date, such assets have not been
affected in any way as a result of flood, fire, explosion or other casualty
(whether or not covered by insurance). The Registered Owner is not of any
circumstances which may cause Cetoni to suffer any material adverse change in
its business, operations or prospects.
3.11. ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Section 3.11 of the Disclosure Schedule, since the date of the Cetoni Balance
Sheet, Cetoni has not:
(a) Suffered any material adverse change in its working capital,
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business, operations or prospects;
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(b) Incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except non-material items incurred in the ordinary
course of business and consistent with past practice, or increased, or
experienced any change in any assumptions underlying or methods of calculating,
any bad debt, contingency or other reserves;
(c) Paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice or liabilities and obligations reflected or reserved against in
the Cetoni Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Cetoni Balance Sheet;
(d) Permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind;
(e) Written down the value of any inventory (including write-downs
by reason of shrinkage or mark-down) or written-off as uncollectible any notes
or accounts receivable, except for immaterial write-downs and write-offs in the
ordinary course of business and consistent with past practice;
(f) Canceled any debts or waived any claims or rights of
substantial value;
(g) Sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(h) Disposed of or permitted to lapse any rights to the use of any
patent, trademark, trade name or copyright, or disposed of or disclosed (except
as necessary in the conduct of its business) to any person other than
representatives of KRH any trade secret, formula, process or know-how not
theretofore a matter of public knowledge;
(i) Granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan
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or commitment) or any increase in the compensation payable or to become payable
to any officer or employee, and no such increase is customary on a periodic
basis or required by agreement or understanding;
(j) Declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of Cetoni.
(l) Made any change in any method of accounting or accounting
practice;
(m) Paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers or directors or any affiliate or associate of any of its officers or
directors except for directors' fees, and compensation to officers at rates not
exceeding the rates of compensation paid during the year ended 1998; or
(n) Agreed, whether in writing or otherwise, to take any action
described in this Section.
3.12. TITLE TO PROPERTIES: ENCUMBRANCES. Cetoni has good, valid and
marketable title to all the properties and assets which it purports to own
(real, personal and mixed, tangible and intangible), including, without
limitation, all the properties and assets reflected in the Cetoni Balance Sheet,
and all the properties and assets purchased by Cetoni since the date of the
Cetoni Balance Sheet, which subsequently acquired properties and assets (other
than inventory) are listed in Section 3.12 of the Disclosure Schedule and copies
of legal title to all real property owned by Cetoni are attached hereto as
Exhibit I. All properties and assets reflected in the Cetoni Balance Sheet have
a fair market or realizable value at least equal to the value thereof as
reflected therein, and, except as disclosed in Section 3.12 of the Disclosure
Schedule, which such Section sets forth a list of all mortgages, liens and
encumbrances and the amounts outstanding under each of them, all such
properties and assets are free and clear of all title defects or objections,
liens, claims, charges, security interests or other encumbrances of any nature
whatsoever including, without limitation leases, chattel mortgages, conditional,
sales contracts, collateral security arrangements and other title or interest
retention arrangements. The rights, properties and other assets presently owned,
leased or licensed by Cetoni and described elsewhere in this Agreement include
all rights, properties and
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other assets necessary to permit Cetoni to conduct its business in all material
respects in the same manner as its business has been conducted prior to the date
hereof. The transactions contemplated by this Agreement will not constitute an
event of default under any mortgage, lien or encumbrance on any of the property
of Cetoni.
3.13. PLANT AND EQUIPMENT. Section 3.13(a) of the Disclosure Schedule
contains an accurate and complete description of all plants, structures,
equipment and other items having a value in excess of DM25,000 used by Cetoni in
the operation of its business. The plants, structures and equipment of Cetoni
are structurally sound with no defects and are in good operating condition and
repair and are adequate for the uses to which they are being put; and none of
such plants, structures or equipment are in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not material in
nature or cost. Except as set forth in Section 3.13(b) of the Disclosure
Schedule, neither Mrs. Schlattl nor Cetoni has received notification that Cetoni
is in violation of any applicable building, zoning, anti-pollution, health or
other law, ordinance or regulation in respect of its plants or structures or
their operations and no such violation exists.
3.14. PATENTS TRADEMARKS, TRADE NAMES, ETC. Cetoni owns, or is licensed
or otherwise has the full and exclusive right to use, all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of the business as heretofore conducted. Section 3.14 of the
Disclosure Schedule contains an accurate and complete description of (a) all
patents, trademarks, trade names and copyrights used or proposed to be used by
Cetoni, all applications therefor, and a summary of the terms of all licenses
and other agreements relating thereto and (b) a summary of the terms of all
agreements relating to technology, know-how or processes which Cetoni is
licensed or authorized to use by others. Except as set forth in Section 3.14 of
the Disclosure Schedule, Cetoni has the sole and exclusive right to use the
patents, trademarks, trade names, copyrights, technology, know-how, intellectual
property and processes referred to in the Disclosure Schedule, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights; no claims have been asserted by any person to the use of any
such patents, trademarks, trade names, copyrights, technology, know-how,
intellectual property or processes or challenging or questioning the validity or
effectiveness of any such license or agreement, and Mrs. Schlattl does not know
of any valid basis for any such claim; and the use of such patents, trademarks,
trade names, copyrights, technology, intellectual property, know-how or
processes by Cetoni does not infringe on the rights of any person.
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3.15. LEASES. Section 3.15 of the Disclosure Schedule contains an
accurate and complete description, of the terms of all leases pursuant to which
Cetoni leases real or personal property and copies of each such lease are
attached hereto as Exhibit J. Except as set forth in Section 3.15 of the
Disclosure Schedule, all such leases are valid, binding and enforceable in
accordance with their terms, and are in full force and effect; there are no
existing defaults by Cetoni thereunder; no event of default has occurred which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a default thereunder; and all lessors under
such leases have consented (where such consent is necessary) to the consummation
of the transactions contemplated by this Agreement without requiring
modification in the rights or obligations of the lessee under such leases.
Executed counterpart copies of all consents referred to in the preceding
sentence are being delivered to KRH herewith and are included in Exhibit K.
3.16. BANK ACCOUNTS. Section 3.16 of the Disclosure Schedule sets forth
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which Cetoni maintains safe
deposit boxes or accounts of any nature and the names of all persons authorized
to draw thereon, make withdrawals therefrom or have access thereto. Cetoni is
herewith delivering to KRH as Exhibit L copies of all records, including all
signature or authorization cards, pertaining to such bank accounts.
3.17. TAXES. Cetoni duly filed all tax reports and returns required to
be filed by it and has duly paid all taxes and other charges due or claimed to
be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales or payrolls of any of it); the reserves for taxes
reflected in the Cetoni Balance Sheet are adequate; and there are no tax liens
upon any property or assets of Cetoni.
3.18. CONTRACTS AND COMMITMENTS. Section 3.18 of the Disclosure
Agreements sets forth a list of all "Material Contracts" to which Cetoni is
party or from which material rights and privileges inure to or obligations which
are the responsibility of, Cetoni, copies of which such agreements are attached
hereto as Exhibit M. For purposes hereof, the term "Material Contracts"
includes all material contracts and commitments all indentures, mortgages,
security agreements, leases loan and credit agreements, and all other material
agreements (including employment agreements or deferred compensation, pension,
profit sharing or retirement plans, supply contracts or contracts for the
purchase or sale of products or services), oral or written, imposing any
obligation on Cetoni or to which its properties are subject. A contract,
commitment or agreement shall be
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deemed to be material if it either (i) involves or may involve the payment of
more than DM25,000 over the life of the contract or commitment or (ii)
regardless of the amount involved, if it is not terminable without penalty
solely at the will of Cetoni upon notice of thirty days or less. Said list is
true and correct in all material respects; and, except as disclosed thereon,
Cetoni is not bound by any Material Contract whatsoever. Except as set forth in
Section 3.18 of the Disclosure Schedule:
(a) Cetoni has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of Cetoni continue for a
period of more than 12 months or are in excess of the normal, ordinary and usual
requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of Cetoni which continue for a period of more than 12 months or will
result in any loss to Cetoni upon completion or performance thereof, after
allowance for direct distribution expenses;
(d) Cetoni has no outstanding contracts with officers, employees,
agents, consultants, advisors, salesmen, sales representatives, distributors or
dealers that are not cancelable by it on notice of not longer than 30 days and
without liability, penalty or premium;
(e) Cetoni has no employment agreement, or any other agreement that
contains any severance or any severance or termination pay liabilities or
obligations;
(f) Cetoni has no collective bargaining or union contracts or
agreements;
(g) Cetoni is not in default, nor is there any known basis for any
valid claim of default, under any contract made or obligation owed by it;
(h) Cetoni is not restricted by agreement from carrying on its
business anywhere in the world;
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(i) Cetoni is under no liability or obligation with respect to the
return of inventory or merchandise in the possession of wholesalers,
distributors, retailers or their customers;
(j) Cetoni has no debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation of others;
(k) Cetoni has no outstanding loan to any person; and
(1) Cetoni has no power of attorney outstanding or any obligations
or liabilities (whether absolute, accrued, contingent or otherwise), as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
3.19. CUSTOMERS AND SUPPLIERS. Sections 3.19(a) and (b), respectively,
of the Disclosure Schedule sets forth: (a) a list of the three largest customers
of Cetoni in terms of sales during the fiscal year December 31, 1999, and (b) a
list of the three largest suppliers of Cetoni in terms of purchases during the
fiscal year ended December 31, 1999. Except to the extent set forth in Section
3.19(c) of the Disclosure Schedule, there has not been any material adverse
change in the business relationship of Cetoni with any customer or supplier
named in Sections 3.19(a) and 3.19(b) of the Disclosure Schedule. Except for the
customers and suppliers named in Sections 3.19(a) and 3.19(b) of the Disclosure
Schedule, Cetoni has had no customer which accounted for more than 5% of
Company's sales during the period from 1997 to December 31, 1999, or any
supplier from whom it purchased more than 5% of the goods or services which it
purchased during the period 1997 to December31, 1999.
3.20. ORDERS, COMMITMENTS AND RETURNS. As of the date of this
Agreement, the aggregate of all accepted and unfulfilled orders for the sale of
merchandise entered into by Cetoni approximates DM -0-, and the aggregate of all
contracts or commitments for the purchase of supplies by them approximates
DM333,000 all of which orders, contracts and commitments were made in the
ordinary course of business. As of the date of this Agreement, there are no
claims against Cetoni to return in excess of an aggregate of DM -0- of
merchandise by reason of alleged overshipments, defective merchandise or
otherwise, or of merchandise in the hands of customers under an understanding
that such merchandise would be returnable.
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<PAGE>
3.21. AGREEMENTS IN FULL FORCE AND EFFECT. All contracts, agreements,
plans, leases, policies and licenses referred to in the Disclosure Schedule are
valid and in full force and effect, and true copies thereof heretofore have been
or will, prior to the Closing, be made available to KRH.
3.22. INSURANCE. Section 3.22(a) of the Disclosure Schedule contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by Cetoni,
copies of which such policies are attached hereto as Exhibit N. All such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements of law
and of all agreements to which Cetoni is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage for the assets and
operations of Cetoni; will remain in full force and effect through the
respective dates set forth in Section 3.22(a) of the Disclosure Schedule without
the payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
3.23. LABOR DIFFICULTIES. Except to the extent set forth in Section
3.23 of the Disclosure Schedule, (a) Cetoni is in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair labor
practice; (b) there is no unfair labor practice complaint against Cetoni pending
before any government agency; (c) there is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against or affecting Cetoni; and (d)
Cetoni has not experienced any work stoppage or other labor difficulty since
1996.
3.24. LITIGATION. Except as set forth in Section 3.24 of the Disclosure
Schedule, there is no action, suit, inquiry, proceeding or investigation by or
before any court or governmental or other regulatory or administrative agency or
commission pending or to the best knowledge of Cetoni, threatened against or
involving Cetoni, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by Cetoni pursuant to this
Agreement or in connection with the transactions contemplated hereby; and Cetoni
does not know or have any reason to know of any valid basis for any such action,
proceeding or investigation. Except as set forth in Section 3.24 of the
Disclosure Schedule, Cetoni is not in default under or in violation of, nor is
there nor does it know of any valid basis for any claim of default under or
violation of, any contract, commit-
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<PAGE>
ment or restriction to which it is a party or by which it is bound. Cetoni is
not subject to any judgment, order or decree entered in any lawsuit or
proceeding which may have an adverse effect on its business practices or on its
ability to acquire any property or conduct its business in any area. Copies of
all papers relating to any litigation described in Section 3.24 of the
Disclosure Schedule are attached hereto as Exhibit O.
3.25. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES Except as
provided in Section 3.04 and as otherwise set forth and described in Section
3.25 of the Disclosure Schedule, no consent, approval, or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
Copies of any consents described in Section 3.25 are attached hereto as Exhibit
P.
3.26. ENVIRONMENTAL PROTECTION. Except as set forth in Section 3.26 of
the Disclosure Schedule, Cetoni has obtained all permits, licenses and other
authorizations which are required under national and local laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes.
Except as set forth in Section 3.26 of the Disclosure Schedule, Cetoni is in
full compliance with all terms and conditions of the required permits, licenses
and authorizations, and are also in full compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. Except as set forth in Section 3.26 of the
Disclosure Schedule, neither Mrs. Schlattl nor Cetoni is aware of, nor has
either Schlattl or Cetoni received notice of, any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent continued compliance, or which may
give rise to any legal liability, or otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste.
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<PAGE>
3.27. CONSENTS. Except as set forth in Section 3.04, 3.15 and 3.25 of
the Disclosure Schedule, no consent of any person is necessary to the
consummation of the transactions contemplated hereby, including, without
limitation, consents from parties to loans, contracts, leases or other
agreements.
3.29 COMPLIANCE WITH LAW. The operations of Cetoni have been conducted
in accordance with all applicable laws, regulations and other requirements of
all national governmental authorities, and of all states, municipalities and
other political subdivisions and agencies thereof, having jurisdiction over
Cetoni, including, without limitation, all such laws, regulations and
requirements relating to antitrust, consumer protection, currency exchange,
equal opportunity, health, occupational safety, pension, securities and
trading-with-the-enemy matters. Neither Mrs. Schlattl nor Cetoni has not
received any notification of any asserted present or past failure by Cetoni to
comply with such laws, rules or regulations.
3.30. BROKERS AND FINDERS. Neither Cetoni nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
3.31. RESTRICTIONS ON TRANSFER OF KRH STOCK (a) The Registered Owner
acknowledges and agrees that (i) the Shares have not been registered under the
Securities Act or any state securities laws and are issued in reliance upon
certain exemptions included in federal and state securities laws from such
registration, (ii) there are substantial restrictions on the sale of the Shares
and the Shares may be transferred only in accordance with the provisions of
Section 3.31(b), below, and (iii) each certificate representing the Shares
issuable hereunder and any other securities issued in respect of the Shares,
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted or unless the shares of KRH
Stock evidenced by such certificate shall have been registered under the
Securities Act) also be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE
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<PAGE>
SECURITIES UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION 1S
NOT REQUIRED."
(b) The Registered Owner acknowledges and agrees that the Shares
may be transferred only upon (i) registration under the Securities Act, (ii) the
receipt by KRH of an opinion of counsel acceptable to KRH (including then
counsel to KRH) that such transfer is exempt from the registration provisions of
the Securities Act and state securities laws (if any such transfer is to be made
into any state of the United States) or (ii) the receipt by KRH of a "no-action"
letter form the SEC to the effect that any transfer by such holder of the
securities evidenced by such certificate will not violate the Securities Act and
applicable state securities laws.
3.32. NO REGISTRATION OF SHARES. The Registered Owner acknowledge that
Shares have not been registered under the Act, and that, except as provided in
Article V hereof, KRH is under no obligation to register the Shares in behalf of
the Registered Owner.
3.33. DISCLOSURE. No representations or warranties made by Cetoni or
the Record Owners in this Agreement and no statement contained in any document
(including, without limitation, the financial statements, Exhibits hereto and
the Disclosure Schedule), certificate, or other writing furnished or to be
furnished by Cetoni and the Record Owners to KRH or any of its representatives
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of material
fact or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was made, in order to make the statements
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF KRH
-------------------------------------
KRH hereby represents, covenants and warrants to the Registered Owner
as follows:
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<PAGE>
4.01. CORPORATE ORGANIZATION; ETC KRH is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to carry on its business as it is now
being conducted and to own the properties and assets it now owns. The copies of
the Certificate of Incorporation and By-Laws of KRH attached hereto as Exhibits
J and K, respectively, are complete and correct copies of such instruments as
presently in effect.
4.02. CAPITALIZATION OF KRH. As of the date of this Agreement, the
authorized capital stock of KRH consists of 50,000,000 shares of Common Stock,
$.00l par value per share ("KRH Stock"), of which 16,505,911 shares are issued
and outstanding and no shares are held in the treasury of KRH. All issued and
outstanding shares of capital stock of KRH are validly issued, fully paid and
nonassessable. Except as described in Section 4.02 of the Disclosure Schedule,
there are no outstanding (a) securities convertible into or exchangeable for KRH
Stock or any securities of Cetoni; (b) options, warrants or other rights to
purchase or subscribe to Cetoni Stock or any securities of Cetoni; or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any for KRH Stock or any securities of KRH, any such
convertible or exchangeable securities or any such options, warrants or rights.
4.03. AUTHORIZATION, ETC KRH has full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby.
The Board of Directors of KRH has taken all action required by law, KRH's
Certificate of Incorporation, its By-Laws or otherwise to be taken by them to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and this Agreement is a valid and binding
agreement of KRH enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefore may be brought.
4.04. NO VIOLATION. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or By-Laws of KRH, or
violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, any
agreement or commitment to which KRH is a party or by which KRH is bound, or
to which the
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<PAGE>
property of KRH is subject, or violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental authority.
4.05. LITIGATION. There is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best knowledge of KRH,
threatened against or involving KRH, or which questions or challenges the
validity of this Agreement or any action taken or to be taken by KRH pursuant to
this Agreement or in connection with the transactions contemplated hereby; and
KRH does not know or have any reason to know of any valid basis for any such
action, proceeding or investigation. KRH is not subject to any judgment, order
or decree entered in any lawsuit or proceeding which may have an adverse effect
on its business practices or on its ability to acquire any property or conduct
its business in any area.
4.06. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.07. CONSENTS. No consent of any person is necessary to the
consummation of the transactions contemplated hereby.
4.08. FINANCIAL STATEMENTS. Attached hereto as Exhibit K are: (i)
audited financial statements of KRH for the fiscal years ended December 31,
1996, 1997 and 1998, including balance sheets; and consolidated statements of
operations, changes in stockholders' equity and statements of cash flow for each
of the years then ended (the "KRH Financial Statements"); and (ii) an unaudited
balance sheet of KRH (the "KRH Balance Sheet"), all prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods in question. The KRH Financial Statements and the notes thereto are
true, complete and accurate and fairly present the assets, liabilities and
financial condition of KRH as at the respective dates thereof and such
statements of income, changes in stockholders' equity and changes in cash flows
and the notes thereto are true, complete and accurate and fairly present the
results of operations for the periods therein referred to; all in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved.
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<PAGE>
4.09. NO UNDISCLOSED LIABILITIES; ETC. KRH has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise) which
were not fully reflected or reserved against in its KRH Balance Sheet, except
for liabilities and obligations incurred in the ordinary course of business and
consistent wit past practice since the date thereof
4.10. COMPLIANCE WITH LAW. The operations of KRH have been conducted
in accordance with all applicable laws, regulations and other requirements of
all national governmental authorities, and of all states, municipalities and
other political subdivisions and agencies thereof, having jurisdiction over KRH,
including, without limitation, all such laws, regulations and requirements
relating to antitrust, consumer protection, currency exchange, equal
opportunity, health, occupational safety, pension, securities and
trading-with-the-enemy matters. KRH has not received any notification of any
asserted present or past failure by KRH to comply with such laws, rules or
regulations.
4.11. BROKERS AND FINDERS. Neither KRH nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
4.12. DISCLOSURE. No representations or warranties by KRH in this
Agreement and no statement contained in any document (including, without
limitation, financial statements and the Disclosure Schedule), certificate, or
other writing furnished or to be furnished by KRH to Cetoni or any of its
representatives pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, contains or will, contain any untrue statement
of material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
ARTICLE V
REGISTRATION OF SHARES
----------------------
5.01. REGISTRATION RIGHTS WITH RESPECT TO THE SHARES.
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<PAGE>
(a) FILING OF REGISTRATION STATEMENT. KRH will use its best efforts
to file, within 180 days from the Closing Date hereof a registration statement
under the Securities Act which will include the Shares (the "Registration
Statement"), and, subject to its right to withdraw such filing as described
below, shall use its best efforts to cause the effectiveness of the Registration
Statement within ninety (90) days after the filing of said Registration
Statement. Any such Registration Statement may include other shares of KRH Stock
which KRH is obligated to register including shares of KRH Stock underlying
certain, convertible debentures and common stock purchase warrants issued during
March and April of 1999. KRH shall maintain the effectiveness of the
Registration Statement until the expiration of a period which is two years after
the Registration Statement is declared effective by the SEC or such earlier date
when all Shares have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act, as determined by
the counsel to KRH pursuant to a written opinion letter to such effect,
addressed and acceptable to KRH's transfer agent.
(b) (i) Notwithstanding the provisions of Section 5.01(a),
above, if the Shares are to be included in a Registration Statement in which KRH
proposes to offer shares of Common Stock in connection with an underwritten
public offering, KRH shall promptly notify the Registered Owner and any other
holders of the Shares (all of whom, including the Registered Owner, for purposes
of this Article V are referred to as "Holders") as to its selection of
investment bankers for the offering. If the managing underwriters for the
offering advise KRH in writing that in their good faith opinion the number of
shares of KRH Stock being registered in behalf of the Holders as well as the
other persons for whom KRH is registering shares, when aggregated with the other
securities to be registered by said Registration Statement exceeds that which
can be sold in an orderly manner in such offering, KRH shall include in such
registration, first, the securities which KRH proposes to sell, second shares of
KRH Stock issuable upon the conversion of the certain convertible debentures and
common stock purchase warrants described in Section 4.02 of the Disclosure
Schedule and, thereafter, shall use its best efforts to have all such Shares
included in said Registration Statement subject to the provision that the
Holders shall agree to lock-up all Shares, for a period not to exceed ninety
(90) days from the date the Registration Statement is declared effective by the
Commission, which the managing underwriter believes, in its good faith opinion,
it cannot sell. In the event that KRH is obligated to register shares of KRH
Stock in behalf of other persons, the Shares shall be aggregated with such
shares and KRH will register on behalf of the Holders a number of shares of KRH
Stock as shall be equal to the percentage the Shares represents to the total
number of shares which the managing underwriters may allow KRH to register in
the
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<PAGE>
offering after deducting the total number of shares which are being registered
in behalf of the holders of the convertible debentures and common stock purchase
warrants, who shall have first priority to register shares of KRH Stock issuable
to them.
(ii) In the event that KRH can not register all of the Shares
in the Registration Statement for the reasons described above, it shall, within
ninety (90) days of the effective date of said Registration Statement and
subject to the provisions of any underwriting agreement to which it is a party
in connection, with the registration of the capital stock it offered on its own
behalf, use its best efforts to file a Registration Statement covering the
balance of the Shares not registered in the Registration Statement described in
Section 5.01(a), and will use its best efforts to cause such Registration
Statement to be declared effective within ninety (90) days of the filing
thereof.
(c) POSTPONEMENT OF EFFECTIVE DATE OF REGISTRATION STATEMENT. KRH
will be entitled to postpone or interrupt the effective date of any Registration
Statement filed in connection with such registration (and the use of the
prospectus contained therein) if KRH determines, in its best judgment, after
consultation with counsel, that such registration statement would require the
premature announcement of any material financing, acquisition, corporate
reorganization or other material corporate transaction or development involving
KRH which, in KRH's reasonable determination, would be materially detrimental to
the interests of KRH and its stockholders. Any such postponement or interruption
will be for a minimum period reasonably required to avoid such premature
disclosure. KRH promptly will give the Holders notice of such postponement or
interruption.
(d) ADDITIONAL REGISTRATION PROCEDURES. In connection with KRH's
obligations to file a Registration Statement, it shall:
(i) Notify the Holders promptly after it shall receive notice
thereof, of the time when such Registration Statement has become effective with
the SEC or a supplement to any prospectus forming a part of such Registration
Statement has been filed;
(ii) Notify the Holders of any request by the SEC for the
amending or supplementing of such Registration Statement or prospectus or for
additional information;
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<PAGE>
(iii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the offer of
Shares covered by such Registration Statement during the period required for
distribution of such Shares, as provided in Section 5.01(a), above;
(iv) Furnish to the Holders such number of copies of the
prospectus (including any preliminary prospectus or supplemental or amended
prospectus) as the Holders may reasonably request in order to facilitate the
sale and distribution of the Shares.
(v) Prepare and file promptly with the SEC, and promptly
notify the Holders of the filing of, such amendment or supplement to such
Registration Statement or prospectus as may be necessary to correct any untrue
statements of fact or omissions to state any facts necessary to make the
statements therein not misleading in light of the circumstances in which they
were made;
(vi) Advise the Holders, promptly after it receives notice or
obtains knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(vii) Prepare and file with the SEC, promptly upon the request
of any of the Holders, any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of counsel for the Holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Shares by the Holders;
(viii) Make available for inspection by the Holders and any
underwriter participating in any disposition of the Shares pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
any underwriter, or the Holders, all financial and other records, pertinent
corporate documents and properties of KRH, and cause KRH's officers,
directors, employees and independent accountants to supply all information
reasonably requested by the Holders, any such underwriter, attorney, accountant
or agent in connection with such Registration Statement; and
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<PAGE>
(ix) Use its best efforts to register or qualify the Shares
covered by each Registration Statement under such state securities or blue sky
laws of such jurisdictions as the Holders and any underwriters may reasonably
request; provided, that KRH shall not be required to execute any general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified and provided
further that any such qualification or registration shall not exceed $5,000 for
any one jurisdiction.
(e) KRH may require the Holders to furnish to KRH such information
regarding the distribution of such Registrable Securities and the beneficial
ownership of the Shares as is required by law to be disclosed in the
Registration Statement and KRH may exclude from such registration Shares of any
holder who unreasonably fails to furnish such information within a reasonable
time after receiving such request.
(f) If the Registration Statement refers to any holder of Shares by
name or otherwise as the holder of any securities of KRH, then such holder of
Shares shall have the right to require (if such reference to such holder of
Shares by name or otherwise is not required by the Securities Act or any similar
Federal statute then in force) the deletion of the reference to such holder in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
(g) Each holder of Shares agrees by its acquisition of such Shares
that (i) it will not offer or sell any Shares under the Registration Statement
until it has received copies of the prospectus included in the Registration
Statement as then amended or supplemented and notice from KRH that such
Registration Statement and any post-effective amendments thereto have become
effective and that such holder will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Shares pursuant to the Registration Statement, (ii) it will sell only ten
percent (10%) of the total number of Shares owned by them during each six (6)
month period after the effectiveness of the Registration Statement, which such
covenant shall continue in effect after such time as the Shares may be sold
pursuant to the provisions of Rule 144(k).
(h) Each holder of Shares agrees by its acquisition of such Shares
that, upon receipt of a notice from KRH of the occurrence of any event of the
kind described in this Section
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<PAGE>
5,01 such holder will forthwith discontinue disposition of Shares until such
Holders receipt of the copies of the supplemented prospectus and/or amended
Registration Statement or until it is advised in writing by KRH that the use of
the applicable prospectus may be resumed.
(i) EXPENSES. All expenses incident to KRH's performance of or
compliance with this undertaking in this Section 5.01, including without
limitation all registration and filing fees (other than registration and filing
fees in excess of $5,000 imposed by state securities or blue sky laws), printing
expenses, messenger and delivery expenses, and fees and disbursements of
counsel for KRH and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by KRH (all
such expenses being herein called "Registration Expenses"), will be borne by
KRH. KRH will, in all events, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and the expense of
any liability insurance. KRH shall not be responsible for any commission or
selling expenses incurred by the holders of Shares, fees of counsel or
accountants retained by holders of the Shares or of any other fees not
specifically referenced above.
(j) REPORTING REQUIREMENTS UNDER THE SECURITIES EXCHANGE ACT OF
1934. At such time as KRH becomes subject to the reporting requirements of the
Exchange Act, it shall timely file all such information, documents, and reports
as the Commission may require or prescribe under either Section 13 or 15(d)
(whichever is applicable) thereof KRH shall, whenever requested by the
Holders, notify the Holders, in writing whether KRH has, as of the date
specified by the Holders, complied with the Exchange Act reporting requirements
to which it is subject for a period prior to such date as shall be specified by
the Holders. KRH acknowledges and agrees that the purposes of the requirements
contained in this Section 5.01(j) are: (i) to enable the Holders to comply with
the current public information requirement contained in Paragraph (c) of Rule
144 under the Act should the Holders ever wish to dispose of any of the Shares
without registration under the Securities Act in reliance upon Rule 144 (or any
equivalent successor provision); and (ii) to qualify KRH for the use of
registration statements on Form S-3, or its equivalent successor form, in
connection with secondary distributions of securities of KRH. In addition, KRH
shall take such other measures and file such other information, documents, and
reports as shall hereafter be required by the SEC as a condition to the
availability of Rule 144 under the Securities Act (or any equivalent successor
provision), including, without limitation, using its best efforts to assure that
there shall be available at all times adequate public information with respect
to KRH and the KRH Stock. The obligation
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<PAGE>
to make available adequate public information and otherwise take such measures
necessary to maintain the availability of Rule 144 shall continue in the event
that KRH shall cease to become subject to the filing requirements of Section 13
or Section 15(d) of the Exchange Act.
ARTICLE VI
REMEDIES FOR BREACH OF THIS AGREEMENT
-------------------------------------
6.01. INVESTIGATIONS; SURVIVAL OF REPRESENTATIONS AND WARRANTIES The
representations and warranties of the Registered Owner on the one hand, and KRH
on the other hand, contained herein or in any certificates, exhibits or other
documents delivered herewith shall not be deemed waived or otherwise affected by
any investigation made by any party hereto. Each and every such representation
and warranty shall survive the date hereof (even if the party had reason to know
of any misrepresentation or breach of warranty on the date hereof) and shall
continue in full force and effect for a period of one year thereafter (subject
to any statutes of limitations).
6.02. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE REGISTERED OWNER. The Registered Owner
shall indemnify and hold harmless KRH in respect of any and all, actions,
suits, proceedings, hearings, investigations, charges complaints, demands,
injunctions, judgments, orders, decrees, rulings, claims, losses, damages,
liabilities, dues, penalties, fines costs obligations, taxes, liens and expenses
(including, without limitation, court costs, settlement costs and any legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by KRH in connection with each and all
of the following:
(i) any breach of any representation or warranty made by the
Registered Owner in this Agreement; or (ii) any misrepresentation contained in
any statement or certificate furnished by the Registered Owner pursuant to this
Agreement.
(b) INDEMNIFICATION BY KRH. KRH shall indemnify and hold harmless
the Registered Owner in respect of any and all actions, suits, proceedings,
hearings, investigations,
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charges complaints, demands, injunctions, judgments, orders, decrees, rulings,
claims, losses, damages, liabilities, dues, penalties, fines costs obligations,
taxes, liens and expenses (including, without limitation, court costs,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) reasonably incurred by the
Registered Owner, in connection with each and all of the following:
(i) any breach of any representation or warranty made by KRH
in this Agreement; or (ii.) any misrepresentation contained in any statement or
certificate furnished by KRH pursuant to this Agreement.
(c) CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party (the "indemnifying
party") of the claim and, when known, the facts constituting the basis for such
claim. In the event of any claim by a third party, the notice to the
indemnifying party shall specify, if known, a reasonable estimate of the amount
of the liability arising therefrom. The indemnified party shall not settle or
compromise any claim by the third party without the prior written consent of the
indemnifying party (which shall not be unreasonably withheld) unless suit shall
have been instituted against it and the indemnifying party shall not have taken
control of such suit in, accordance with subsection (d), below.
(d) DEFENSE BY INDEMNIFYING PARTY. In connection with any
claim by a third party giving rise to indemnity hereunder, the indenmifying
party at its sole cost and expense may, upon written notice to the indemnified
party, assume the defense of such claim if it acknowledges to the indemnified
party in writing its obligations to indemnify the indemnified party with respect
to all elements of such claim. The indemnified party shall be entitled to
participate in (but not control) the defense of any such action, with its
counsel and at its own expense. If the indemnifying party does not assume the
defense of any such claim or litigation resulting therefrom, (a) the indemnified
party may defend against such claim or litigation, in such manner as it may deem
appropriate, including settling such claim or litigation, after giving notice of
the same to the indemnifying party, on such terms as the indemnified party may
deem appropriate, and (b) the indemnifying party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense.
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<PAGE>
(e) CLAIMS SUBJECT TO THIS ARTICLE. All claims by any party for any
losses, damages, liabilities and expenses reasonably incurred by such party in
connection with any breach of any representation or warranty of any other party
hereto shall be subject to the provision of this Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
7.01. EXPENSES; TRANSFER TAXES, ETC Whether or not the transaction
contemplated by this Agreement shall be consummated, Cetoni agrees that all
fees and expenses incurred by it in connection with this Agreement shall be
borne by it and KRH agrees that all fees and expenses incurred by it in
connection with this Agreement shall be borne by it, including, without
limitation as to Cetoni or KRH, all fees of counsel, actuaries and accountants.
7.02. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid:
(a) If to the Registered Owner, to:
Mrs. Alice Schlattl
Tittlinger Strasse 22
94034 Passau-Patriching, Germany
(with a copy to)
Dr. Thomas Schinogl
Mainzer Landstrasse 27-31
Frankfurt, D60329 Germany
or to such other person or address as the Registered Owner shall furnish to KRH
in writing.
(b) If to KRH, to:
Kurchatov Research Holdings, Ltd.
Weisbadnerstrasse 17, D-12309
Berlin, Germany
(with a copy to:)
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<PAGE>
William P. Ruffa, Esq.
Ruffa & Ruffa, P.C.
150 East 58th Street
35th Floor
New York, New York 10155
or to such other person or address as KRH shall furnish to the Registered Owner
in writing.
7.03. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
7.04. PUBLICITY. Neither the Registered Owner nor KRH shall make or
issue or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
party. This provision shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any federal or state
governmental agency or any stock exchange, except that the party required to
make such announcement shall, whenever practicable, consult with the other party
concerning the timing and content of such announcement before such announcement
is made.
7.05. GOVERNING LAW: CONSENT TO JURISDICTION. This Agreement and the
legal relations among the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflicts of law doctrine. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
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<PAGE>
7.06. COUNTERPARTS: FACSIMILE EXECUTION. This Agreement may be executed
in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
7.07. HEADINGS. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
7.08. ENTIRE AGREEMENT. This Agreement, including the Exhibits hereto,
the Disclosure Schedule and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
7.09. THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall, be construed
to confer upon or give to any person or corporation other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
7.10. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be construed to be only so broad as is
enforceable.
7.11. INCORPORATION OF SCHEDULES AND EXHIBITS. The Schedules and
Exhibits identified in this Agreement are incorporated herein by reference and
made a part hereof
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<PAGE>
7.12. CONSTRUCTION. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state or local statute or law
shall be deemed to also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The parties intend that each representation,
warranty or covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the party has not breached shall not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
REMAINDER OF PAGE INTENT1ONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be affixed hereto, all on
the day and year first above written.
KURCHATOV RESEARCH HOLDINGS, LTD.
By: /s/ Hans Joachim Skrobanek
---------------------------------
Hans Joachim Skrobanek, President
ALICE SCHLATTL
/s/ Alice Schlattl
-----------------------
[Seal]
Attest:
__________________________
Title:
STOCK PURCHASE AND CROSS-RELEASE AGREEMENT
THIS AGREEMENT, made as of this 30 day of November, 1999, by and
between EUROTECH, LTD., a District of Columbia corporation, the principal place
of business of which is 1216 16th Street, NW, Suite 200, Washington, D.C. 20036
("Eurotech") and KURCHATOV RESEARCH HOLDINGS, LTD., a Delaware corporation, the
principal place of business of which is Wiesbadener Street, 17A, DD-l2309
Berlin, Germany ("Kurchatov")
W I T N E S S E T H:
WHEREAS, Eurotech is the exclusive world-wide licensee except for the
territory comprised of Russian Federation of the family of technologies
evidenced by United States patent 5,886,060, issued March 23, 1999; and Russian
patent number 2111982 received May 27, 1998; and applications numbers:
PCT/RU98/00009, application date January 1998; PCT/RU98/000073, application date
March 12, 1998, PTC/RU98/000429, application date December 23, 1998 and
subsequent developments, collectively known as EKOR (such technologies
hereinafter collectively, EKOR); and
WHEREAS, pursuant to a letter agreement, dated January 28, 1997,
between Eurotech and Kurchatov, Kurchatov is entitled to receive from Eurotech
one-half (1/2) of the net operating profits derived by Eurotech from the
operation, licensing, sale or other exploitation by Eurotech of EKOR and whereas
Kurchatov paid for certain EKOR equipment (hereinafter, the EKOR Operating
Interests); and
WHEREAS, Eurotech has provided Kurchatov a complete description of the
commercial applications of EKOR as known to Eurotech; and
WHEREAS, Eurotech is the owner, of record and beneficially, of six
million seven hundred ninety-five thousand (6,795,000) shares of the common
stock of Kurchatov (the "Kurchatov Shares); and
WHEREAS, Kurchatov acquired from Eurotech that certain technology of
the resealable can evidenced by German patent numbers (i) Behaelter sowie
Verschluiss fuer einen solchen Behaelter" sasnle Registreation 296 16 133.0 and
(ii) patent registration 196 46 437.4 and Wiederverschliessbare
Weicvhverpackung, die unter anderem fuer geeignet is (reclosing soft-material
packaging suited, e.g., for Tetrapak) application-number for patent registration
197 21 408.2 dated 5-21-1997m plus amendment number 197 29 194.5 dated 7-8-1997
(such technology hereinafter, the "Resealable Can") pursuant to which
acquisition transaction Kurchatov owes Eurotech a six percent (6%) royalty
interest with respect to Kurchatov's commercial exploitation of the Resealable
Can; and
WHEREAS, Kurchatov is indebted in the principal amount of Seven Hundred
Fifty Thousand Dollars ($750,000.00) in addition to accrued interest, penalties
and conveyances of common stock, to Spinneret Financial Systems, Inc.
(Spinneret"); and
WHEREAS, it is in the best interests of both Eurotech and Kurchatov to
simplify their business relationship in the manner hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
conveyances and promises set forth hereinafter and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Purchase of Stock.
Subject to the terms and conditions of this Agreement,
Kurchatov hereby agrees to purchase and purchases from Eurotech, and Eurotech
hereby agrees to sell and sells to Kurchatov, two million (2,000,000) authorized
and unissued shares of the common stock, par value $0.00025 per share ("Common
Stock") of Eurotech (the "Eurotech shares") Eurotech is delivering to Kurchatov
herewith a certificate or certificates representing the Eurotech Shares sold
pursuant to this Section 1 to Kurchatov.
2. Consideration.
In full consideration for the Eurotech Shares and subject to
the terms and conditions of this Agreement, Eurotech is paying concurrently
herewith the amount of five million Dollars ($5,000,000.00), which amount is
deemed by the parties hereto to be comprised in and constituted by part, but not
all, of the fair value to Eurotech of the release by Kurchatov of the EKOR
Operating Interest as hereinafter set forth.
3. Representations, Warranties and Agreements of Eurotech.
Eurotech hereby represents and warrants to Kurchatov as
follows:
3.1 Status of Eurotech. Eurotech is a corporation duly
organized, validly existing and in good standing under the laws of the District
of Columbia, and has all requisite corporate power and authority to own its
properties and to conduct its business as presently conducted, and is duly
qualified to do business as either a foreign or domestic corporation in each
state in which it is deemed to transact business under applicable law.
3.2 The Eurotech Shares. The authorized capital stock of
Eurotech consists of fifty million (50,000,000) shares of Common stock, of which
the Eurotech Shares constitute four per cent, (4%) of all such shares which are
issued, outstanding and obligated after giving effect to such issuance. All of
the Eurotech Shares are validly issued, fully paid and non-assessable. There are
outstanding subscriptions, options, warrants, convertible securities or other
agreements or commitments obligating Eurotech to issue or to transfer from its
treasury additional shares of its capital stock to bring the total of issued
shares, fifty million (50,000,000). No capital Event (as defined in Section 6
hereof) shall occur prior to the expiration date (as defined in Section 5.1
hereof) unless authorized by a duly ca4ed and held meeting of the shareholders
of Eurotech.
<PAGE>
3.3 Good Title Transferred. Upon delivery to Kurchatov of the
stock certificate or certificates referred to in Section 1 above, Kurchatov will
receive good and marketable title to four per cent, (4%) of all of the issued,
obligated and outstanding common stock of Eurotech in addition to such common
stock as Kurchatov has already acquired prior to the date hereof, all of which
such securities acquired by Kurchatov pursuant to this Agreement shall be
received by Kurchatov as validly issued, fully paid and non-assessable, free and
clear of all liens, encumbrances, security interests, equities, options, claims,
charges, limitations on voting rights or rights to receive dividends, or other
restrictions of any kind (other than any generally imposed by federal or state
securities laws).
3.4 Subsidiaries. Eurotech does not own, directly or
indirectly, any interest or investment, whether debt or equity, in any
corporation, partnership, business trust or other entity, except securities
listed on a national securities exchange or traded in the over-the-counter
market not exceeding in market value for any issue five per cent. (5%) of the
total outstanding market value of such issue listed or traded.
3.5 Liabilities. Eurotech has no debt, liability or obligation
or any nature, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, that is not reflected or reserved against in Eurotech
financial statements previously furnished to Kurchatov or set forth in
Eurotech's most recent periodic tiling on Form 8-K, l0-Q or 10-K with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended, except for those previously disclosed to
Kurchatov (i) that may have been incurred since the date of the most recent
balance sheet included therein or (ii) that are not required by generally
accepted accounting principles to be included in a balance sheet. All debts,
liabilities and obligations incurred after such date were incurred in the
ordinary course of business, and are usual and normal in amount both
individually and in the aggregate.
3.6 Taxes. Within the times and in the manner prescribed by
law, Eurotech has filed all federal, state and local tax returns required by law
and has paid all taxes, assessments and penalties due and payable. The
provisions for taxes reflected in Eurotech's most recent balance sheet furnished
to Kurchatov are adequate for any and all federal, state, county and local taxes
for the period ending on such date and for all prior periods, whether or not
disputed. There are no present disputes as to taxes of any nature payable by
Eurotech.
3.7 Authority to Consummate Transactions. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein are within the corporate powers of Eurotech and have been duly authorized
by all necessary corporate proceedings. No approval or material consent of any
person or entity (other than o Kurchatov) must be obtained by Eurotech prior to
consummating the within transactions, or such approval or material consent has o
been or will be obtained.
<PAGE>
3.8 Compliance with Other Instruments, etc. Neither the
execution of this Agreement nor the consummation of the transactions
contemplated herein will (i) require Eurotech to obtain the consent of any
governmental agency not already obtained; (ii) result in any violation or breach
of any term or provision of the articles of incorporation or by-laws of
Eurotech; (iii) constitute a material default under any indenture, mortgage,
deed of trust or other contract or agreement to which Eurotech is a party or to
which it or any of its properties may be subject; or (iv) cause the creation or
imposition of any lien, charge or encumbrance on any of the assets or the
business of Eurotech.
3.9 Binding Obligation. This Agreement, when executed and
delivered, will constitute the valid and binding obligation of Eurotech,
assuming due authorization, execution and delivery by Kurchatov.
3.10 Brokerage and Finder's Fee. Neither Eurotech nor any
officer, director or agent of Eurotech has incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees or commissions with
respect to the transactions contemplated by this Agreement.
3.11 Business Assets. Except as previously disclosed to
Kurchatov, Eurotech has good and marketable title to all of its assets,
including, but not limited to, EKOR.
3.12 Compliance with Law. Except as previously disclosed to
Kurchatov, the business of Eurotech is not in violation of any applicable
federal, state or local statutes, laws or regulations (including, without
limitation, building, health, nuisance, zoning and other laws, ordinances and
regulations)
3.13 Litigation and Other Proceedings. Except as previously
disclosed to Kurchatov, there is no known suit, action, arbitration or legal,
administrative or other proceeding or governmental investigation pending,
threatened or likely to be asserted against or affecting the business of
Eurotech. Eurotech is not in default with respect to any order, writ, injunction
or decree of any federal, state, local or foreign court, department, agency or
instrumentality affecting such business. Eurotech will assume responsibility and
liability for all suits, actions, arbitrations or other proceedings so disclosed
to Kurchatov to the extent it would be liable under Section 9.1.
3.14 EKOR Technologies. The information provided by Eurotech
to Kurchatov concerning the commercial applications of EKOR is complete and
accurate in all material respects as of the date of this Agreement.
3.15 Adverse Changes. Except as previously disclosed to
Kurchatov, there has not been any material adverse change affecting Eurotech's
business, financial condition or prospects since the date of its financial
statements referred to in Section 3.5, including, but not limited to, any of the
following:
(a) any transaction by Eurotech not in the ordinary
course of business as conducted on such date;
(b) any capital expenditure by Eurotech exceeding
$25,000.00;
<PAGE>
(c) the destruction, damage to or loss of any assets
of Eurotech (whether or not covered by insurance) that materially and adversely
affects the financial condition, business or prospects of Eurotech;
(d) labor trouble or other event or condition of any
character materially and adversely affecting the financial condition, business,
assets or prospects of Eurotech;
(e) any change in accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) by Eurotech;
(f) any revaluation by Eurotech of any of its assets;
(g) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of Eurotech, or
any other direct or indirect redemption, purchase or other acquisition by
Eurotech of any of its shares of capital stock;
(h) any increase in the salary or the compensation
payable or to become payable by Eurotech to any of its officers, directors or
employees; or the declaration of, payment of or commitment to pay by Eurotech of
any bonus or other additional salary or compensation to any such person;
(i) the sale or transfer of any assets of Eurotech,
except sales of inventories in the ordinary course of business;
(j) the amendment or termination of any contract,
agreement or license to which Eurotech is or was a party, except in the ordinary
course of business;
(k) any loan by Eurotech to any person or entity
(other than normal extensions of trade credit to customers), or guarantee by
Eurotech of any loan;
(1) any mortgage, pledge or other encumbrance of any
asset of Eurotech;
(m) the waiver or release of any right or claim of
Eurotech, except in the ordinary course of business;
(n) any other event or condition of any character
that has or might reasonably have a material or adverse effect on the financial
condition, business, assets or prospects of Eurotech;
(o) the issuance or sale by Eurotech (except as
contemplated by this Agreement and the agreement for sale of shares to Horizon
Capital of America) of any shares of its capital stock of any class, or of any
other of its securities; or
(p) the agreement by Eurotech to do any of the things
described in the preceding clauses (a) through (o)
<PAGE>
4. Representations, Warranties And Agreements of Kurchatov.
Kurchatov hereby represents and warrants to Eurotech as
follows:
4.1 Status of Kurchatov. Kurchatov is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own its
properties and to conduct its business as presently conducted.
4.2 Kurchatov's Authority to Consummate Transactions. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein are within the corporate powers of Kurchatov
and have been duly authorized by all necessary corporate proceedings. No
approval or material consent of any person or entity (other than Eurotech) must
be obtained by Kurchatov prior to consummating the within transactions, or such
approval or material consent has been or will be obtained.
4.3 Compliance with Other Instruments, etc. Neither the
execution of this Agreement nor the consummation of the transactions
contemplated herein and therein will (i) require Kurchatov to obtain the consent
of any governmental agency not already obtained; (ii) result in any violation or
breach of any term or provision of Kurchatov's articles of incorporation or
by-laws; or (iii) will constitute a material default under any indenture,
mortgage, deed of trust or other contract or agreement to which Kurchatov is a
party or to which it or any of its properties may be subject.
4.4 Binding Obligations. This Agreement when executed and
delivered will constitute the valid and binding obligation of Kurchatov,
assuming due authorization, execution and delivery by Eurotech.
4.5 Brokerage and Finder's Fees. Neither Kurchatov nor any
officer, director or agent of Kurchatov has incurred any liability to any
broker, finder or agent for any brokerage fees, finder's fees or commissions
with respect to the transactions contemplated by this Agreement.
4.6 Restricted Securities. Kurchatov understands and hereby
acknowledges that the Eurotech Shares will be issued pursuant to an exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Act") and the Rules and Regulations of the Commission promulgated
thereunder; that the Eurotech Shares will be "Restricted Securities" as defined
in Rule 144(a)(3) promulgated under the Act; and that the stock certificate or
certificates to be issued to Kurchatov in respect of such securities may bear a
legend of a form satisfactory to counsel for Eurotech reflecting the status of
such Eurotech Shares as "Restricted Securities" under Rule 144(a)(3) promulgated
under the Act. Kurchatov further acknowledges that the transfer agent or
registrar for Eurotech may be instructed to restrict the transfer of such
securities in accordance with the legend mentioned herein and any other
applicable restrictions, and Kurchatov hereby agrees not to sell, transfer,
hypothecate, pledge, assign or otherwise dispose of any of the Eurotech Shares
except pursuant to a registration statement filed under the Act, a favorable
no-action or interpretative letter received from the Commission or an opinion of
counsel satisfactory to Eurotech that such sale, transfer, hypothecation,
pledge, assignment or other disposition is exempt from the registration
requirements of the Act.
<PAGE>
5. Registration Rights.
5.1 Piggy-Back Registration Rights. If at any time on or
before the fifth (5th) anniversary of the execution and delivery of this
Agreement (the "Expiration Date") Eurotech shall file a registration statement
on Form S-1 or any form substituted therefore, with respect to any shares of its
Common Stock under the Act, or files a post-effective amendment to any
registration statement on Form S-1 or any form substituted therefore, which
post-effective amendment contains a prospectus complying with Section 10(a) of
the Act, Eurotech will give to Kurchatov timely notice of its intention to file
such registration statement or post-effective amendment, as the case may be, and
promptly after receipt of a written request made by Kurchatov within fifteen
(15) days after the giving of such notice, Eurotech will register under the Act
all Eurotech Shares held by Kurchatov and covered by any such request, and will
maintain the prospectus included in any registration statement which may be so
filed current for a period of ninety (90) days subsequent to the effective date
of such registration statement; provided, however, that Eurotech's obligations
to register shares of Common Stock and to maintain prospectuses hereunder shall
be subject to the approval of any underwriters engaged by Eurotech in connection
with any such registration, which approval by any such underwriters may be
unreasonably withheld, in such underwriters' absolute discretion. The
obligations of Eurotech under this Section 5.1 shall be fully satisfied upon the
effective date of the first such registration statement or post-effective
amendment to which this Section 5.1 is applicable, and notwithstanding a delay
in Kurchatov's ability to sell such shares by reason of applicable securities
regulations; provided, however, that in the event of any such delay, Kurchatov
shall be entitled to offer such shares for sale within a reasonable time not
exceeding nine (9) months after the said effective date; and provided, further,
in the event any underwriters engaged by Eurotech in connection with such
registration statement or post-effective amendment withhold approval pursuant to
the preceding sentence of this Section 5.1, the obligations of Eurotech under
this Section 5.1 shall continue in full force and effect.
5.2 Demand Registration Rights. Upon receipt by Eurotech, at
any time during the period from the date of the execution and delivery of this
Agreement by each of the parties to and including the Expiration Date, of a
written request by Kurchatov to register the Eurotech Shares under the Act,
Eurotech will, as promptly as practicable, at Kurchatov's sole cost and expense
(including, but not limited to, printing, legal and accounting fees), (i)
prepare and file under the Act a registration statement relating to such
Eurotech Shares (the term "registration statement") as used in this Section 5.2
being deemed to include any form which may be used to register a distribution of
securities to the public for cash or a post-effective amendment to a
registration statement); (ii) prepare and file with the appropriate state
securities regulatory ("Blue Sky") authorities the necessary documents to
register or qualify such Eurotech Shares; provided, however, that Eurotech shall
<PAGE>
not be required to qualify as a foreign corporation in any jurisdiction or to
give a general consent to service of process in any jurisdiction except in
connection with matters arising from the sale of Common Stock in such
jurisdiction; and (iii) use its best efforts to cause such registration
statement to become effective and to keep such registration statement and Blue
Sky filings current and effective until such time as an amendment is required to
be filed pursuant to the provisions of Section 10(a)(3) of the Act. Eurotech
shall not be obligated to prepare and file more than two (2) registration
statements under this Section 5.2 during the effectiveness of this Agreement and
not more than one (1) in any year, and, in any year in which a request for
registration is made pursuant to this Section 5.2, Eurotech may postpone the
preparation and filing of such registration statement, if necessary, until its
year-end financial statements required for use in such registration statements
become available.
5.3 Amendments. If at any time within nine (9) months after a
post-effective amendment or a new registration statement covering the Eurotech
Shares as provided in Section 5.1 or 5.2 hereof shall have become effective, to
the knowledge of Eurotech any event occurs as a result of which a prospectus
included therein relating to the Eurotech Shares as then amended or supplemented
would include any untrue statement of a material fact, or would not state a
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, Eurotech will promptly notify
Kurchatov and, if such event occurs within ninety (90) days (excluding any
period during which a stop order suspending the effectiveness of the
registration statement or post-effective amendment to a registration statement
of which such prospectus forms a part), Eurotech will at its own cost and
expense amend or supplement such prospectus in order to correct such statement
or omission in order that the prospectus as so amended or supplemented will
comply with the requirements of Section 10(a) of the Act. In case Kurchatov is
required to deliver a prospectus after such 90-day period, Eurotech will, at
Kurchatov's expense, prepare promptly such prospectus or prospectuses and
thereafter amend or supplement the same as may be necessary to permit compliance
with Section 10(a) of the Act.
5.4 Compliance. In connection with any registration statement
or post-effective amendment pursuant to Section 5.1 or 5.2:
(a) Eurotech will comply with all applicable rules
and regulations of the Commission or any similar Federal commission and will
make available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) covering a period of at least twelve (12)
months, but no more than eighteen (18) months, beginning with the first month
after the effective date of the registration statement or post-effective
amendment, as the case may be, which earnings statement will satisfy the
provisions of Section 11(a) of the Securities Act;
(b) Each holder of the shares of Common Stock covered
by such post-effective amendment or registration statement, as the case may be,
shall furnish in writing to Eurotech such information regarding such holder and
its proposed plan of distribution of such shares as Eurotech shall request in
order to have such post-effective amendment or registration statement declared
effective;
<PAGE>
(c) Eurotech agrees to furnish to Kurchatov a
prospectus (in such reasonable quantities as Kurchatov shall request) containing
certified financial statements and other information meeting the requirements of
the Act and the rules and regulations thereunder and relating to the Eurotech
Shares. The furnishing of such prospectus shall be at the expense of the party
or parties bearing the cost and expense of the registration statement or
post-effective amendment, as the case may be, of which such prospectus is a part
as provided for in Section 5.1 or 5.2 above, as the case may be; and
(d) Eurotech will use its best efforts to qualify the
shares of Common Stock covered by any registration statement or post-effective
amendment for public offering or sale on the effectiveness thereof in such
jurisdictions as the holders offering the same shall reasonably request;
provided, however, that Eurotech shall not be required to qualify as a foreign
corporation in any jurisdiction or to give a general consent to service of
process in any jurisdiction except in connection with matters arising from the
sale of shares of Common Stock in such jurisdiction. The filing fees and
reasonable fees and expenses of counsel in connection with such qualification
shall be paid for by the party or parties bearing the cost and expense of the
registration statement or post-effective amendment, as the case may be, covering
the shares being qualified as provided for in Section 5.1 or 5.2 above, as the
case may be.
5.5 Indemnification. In the event of any such registration of
any Eurotech Shares, Eurotech will indemnify and hold harmless each holder of
shares of Common Stock being offered and each person, if any, who may be deemed
to control such holder within the meaning of Section 15 of the Act against any
losses, claims, damages or liabilities, joint or several, to which any of them
may become subject under the Act, or otherwise, in so far as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any registration statement or
post-effective amendment under which such shares of Common Stock were registered
under the Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each of them for any legal or any other expenses reasonably
incurred by them in connection with investigating, defending or settling any
such loss, claim, damage, liability or action; provided, however, that Eurotech
will not be liable in any such case to any of them to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon any
untrue statement of any material fact contained, on the effective date thereof,
in such registration statement or post-effective amendment, such preliminary
prospectus or such final prospectus or any such amendment or supplement in
<PAGE>
reliance upon and in conformity with information furnished in writing by such
persons to Eurotech expressly for use in the preparation thereof, or arises out
of or is based upon any omission Or alleged omission to state a material fact in
connection with such written information required to be stated in such
registration statement, such post-effective amendment, such preliminary
prospectus or such final prospectus or any such amendment or supplement, or
necessary to make such information when used in such registration statement or
post-effective amendment, such preliminary prospectus or such final prospectus
or any such amendment or supplement, in the light of the circumstances under
which it is used, not misleading. For purposes of this Section 5.5, "information
furnished in writing by such persons" shall include such post-effective
amendment, such preliminary prospectus or such final prospectus or any such
amendment or supplement which has been expressly identified and approved in
writing in a letter signed by the person or persons involved. Each such person
shall promptly give notice to Eurotech after such person has actual knowledge of
any such claim as to which indemnity may be sought hereunder, or of the
commencement of any legal proceedings against such person as to such claim,
whichever shall first occur, and shall permit Eurotech to assume the defense of
any such claim or any litigation resulting from such claim; provided, however,
that (i) counsel satisfactory to Eurotech and each such person involved shall
act as counsel for Eurotech and shall conduct the defense of such claim or
litigation, and (ii) each such person may participate in such defense at the
expense of such person; and provided, further, that the omission by any such
person to give notice to Eurotech as provided in this sentence or the failure to
permit Eurotech to conduct such defense shall relieve Eurotech of its
obligations to conduct such defense under this Section 5.5, but shall not
relieve Eurotech of its obligations otherwise than under this Section 5.5.
Eurotech shall notify each such person involved within fifteen (15) days after
Eurotech shall have received such notice. If Eurotech shall elect to defend such
claim or litigation resulting therefrom, the obligation of Eurotech under this
Section 5.5 shall be limited to taking all steps necessary in holding the person
involved harmless from and against any losses, damages or liabilities caused by
or arising out of any settlement approved by Eurotech or from any judgment on
such claim or litigation arising therefrom; provided, however, that in defending
such claim or litigation resulting therefrom, Eurotech shall not consent to
entry of any judgment except with the consent of each such person involved or
enter into any settlement (except with the consent of each such person involved)
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such person of a release from all liability in respect
of such claim or litigation.
6. Changes in Capital Structure.
In the event that prior to the Expiration Date there is any
change in the Common Stock by reason of a stock dividend issued with respect to
the Common Stock, or a recapitalization, reclassification, stock split or
combination of shares with respect to the Common Stock, or if the outstanding
Common Stock should, by reason of a merger, consolidation, acquisition of stock
or property, reorganization or liquidation, be exchanged for other shares of
capital stock of Eurotech or of another corporation which is a party to such
transaction, (each of foregoing hereinafter "Capital Events") the Eurotech
Shares to be issued and delivered to Kurchatov under this Agreement shall not be
affected differently than any other Common Stock shares.
7. Cross-Releases.
<PAGE>
7.1 Release of the EKOR Operating Interest. In consideration
of the issuance to Kurchatov of the Eurotech Shares to the extent of the
consideration set forth in Section 2 hereof, as well as further set forth
herein, Kurchatov hereby releases, except to the extent hereinafter specified,
all interest, ownership or title it has in the EKOR Operating Interest.
7.2 Surrender of Kurchatov Shares. In further consideration of
Kurchatov's release of the EKOR Operating Interest, Eurotech hereby surrenders
to Kurchatov all of its certificates evidencing the Kurchatov Shares, which
certificates are duly endorsed by Eurotech for transfer or accompanied by stock
powers duly endorsed in blank by Eurotech, with signatures guaranteed by a
member of the New York Stock Exchange or by a bank or trust company.
Consideration in the amount of Four million eight-hundred-forty-one thousand,
four-hundred-thirty-eight dollars ($4,841,438) is deemed by the parties to be
allocated to the Kurchatov Shares out of and comprised in the release by
Kurchatov of the EKOR Operating Interest.
7.3 Release of Resealable Can Obligations. In further
consideration of Kurchatov's release of the EKOR Operating Interest, Eurotech
hereby surrenders its six per cent. (6%) royalty interest therein. Consideration
in the amount of one million dollars ($1,000,ooo) is deemed by the parties to be
allocated to Eurotech's release of Kurchatov's obligations with respect to the
Resealable Can out of and comprised in the release by Kurchatov of the EKOR
Operating Interest.
7.4 Assumption of the Spinneret Debt. In further consideration
of Kurchatov's release of the EKOR Operating Interest, Eurotech hereby assumes
and agrees to pay and perform on a timely basis all of Kurchatov's obligations
to Spinneret. Consideration in the amount of two million five hundred thousand
dollars ($2,500,000.00) is deemed by the parties to be allocated to Eurotech's
assumption of the Spinneret debt out of and comprised in the release by
Kurchatov of the EKOR Operating Interest, with approving concurrence of
Spinneret.
8. Overriding Royalty Interest.
8.1 Retention of Overriding Royalty Interest by Kurchatov. So
long as the patents, or any of them, listed in the first recital to this
Agreement shall remain valid, enforceable and unexpired, Eurotech shall pay to
Kurchatov an overriding royalty interest (the "ORR") of two per cent. (2%) of
gross sales (hereinafter, "Gross Sales"), defined as the gross selling price as
received by Eurotech of all products or services arising out of the commercial
exploitation of EKOR established in bona fide, arm's length transactions between
Eurotech and an individual or entity (a "Purchaser") not related to Eurotech by
reason of material stock ownership or direct or indirect participation in
Eurotech's management, f.o.b. factory, after deducting any quantity, quality and
customary trade discounts (other than cash) or rebates, whether indicated on the
invoice or compiled for a given period, such as a calendar quarter, but not
deducting packing, freight, insurance, customs duties and federal, state and
local taxes and fees (such as sales taxes) directly applied to such price,
unless separately itemized on the invoice and charged directly to the Purchaser;
provided, however, that freight and insurance may be deducted for c.i.f. sales
and f.o.b. customer sales although not separately stated.
<PAGE>
8.2 Payment. Payment of the ORR shall be converted into U.S.
dollars at the rate of exchange applicable to the currency in which the Gross
sales are made as established by the trustee New York City bank as Kurchatov may
from time to time designate (the "Trustee") All payments of the ORR shall be
made in U.S. dollars to be deposited to Kurchatov's credit at the Trustee. Such
payments shall be paid to Kurchatov within thirty (30) days after the end of
each calendar quarter, accompanied by a written royalty report, certified as
accurate by Eurotech's Chief Financial Officer, setting forth in as much detail
as possible the basis of calculation of the amount of ORR paid with respect to
the calendar quarter just ended.
8.3 Monetary Controls. In the event that the United States
shall impose any law, rule or regulation prohibiting or limiting Eurotech's
right to comply with Sections 8.1 and 8.2, Eurotech shall be deemed to fulfill
its obligations under those sections if it pays the royalty due into the
Trustee, or, if that shall not then be permissible, in the name of a nominee for
and on behalf of Kurchatov.
8.4 Compliance With U.S. Regulation. Eurotech shall be
responsible for compliance with applicable United States regulations concerning
payments and for the preparation, filing and securing, where required, of
approval of all applications, reports and other documents and services which may
be required by the United States of America in connection with this Agreement
and remittances to be made under this Agreement.
8.5 Records. Eurotech shall keep true and accurate books of
account and shall keep and maintain all records, documents and other instruments
relating to Gross Sales in such detail as shall enable Kurchatov to ascertain
the ORR due under this Agreement and compliance with payment. Kurchatov shall
have the right to designate a firm of certified public accountants, reasonably
acceptable to Eurotech, to inspect Eurotech's books of accounts, records,
documents and instruments and to make copies thereof, at any time during
Eurotech's regular business hours, but not more than one (1) time annually,
during the term of this Agreement and for a period of one hundred eighty (180)
days immediately after its termination, to ascertain the accuracy of such
report. The expense of such audit shall be Kurchatov's unless the audit shall
demonstrate a discrepancy (in Eurotech's favor) greater than five per cent. (5%)
between the amount of ORR reported and paid by Eurotech and that which was
actually due, in which event the audit expenses shall be borne by Eurotech.
9. Indemnification.
9.1 Indemnity by Eurotech. Eurotech agrees to defend,
indemnify and hold harmless Kurchatov against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies (including reasonable attorney's fees), arising,
resulting from or relating to any misrepresentation by Eurotech made or
contained in this Agreement or Eurotech's breach of any warranty, covenant or
agreement made or contained in this Agreement.
<PAGE>
9.2 Indemnity by Kurchatov. Kurchatov agrees to defend,
indemnify and hold harmless Eurotech against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies (including reasonable attorney's fees), arising,
resulting from or relating to any misrepresentation by Kurchatov made or
contained in this Agreement or Kurchatov's breach of any warranty, covenant or
agreement made or contained in this Agreement.
9.3 Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall survive the date of
this Agreement for a period of five (5) years thereafter.
9.4 Defense of Claims. Kurchatov, on the one hand, and
Eurotech, on the other hand, will give each other prompt notice of any claims
for which the other may be liable under this Section 9, and each will permit the
other at its sole expense the opportunity to assist in the defense of any such
claims.
9.5 Construction. It is understood and agreed that in the
event of a conflict between the terms and provisions of this Section 9 and those
of Section 5.5 should such latter provision be applicable, Section 5.5 shall
control. It is further understood and agreed that nothing in this Section 9
shall be construed as a limitation or waiver of any right of indemnification,
subrogation or similar right accruing to any party independent of this Agreement
under any applicable statute, rule, code or common law principle.
10. Miscellaneous.
10.1 Governing Law. This Agreement and the other agreements
attached hereto shall be construed in accordance with, and governed by, the laws
of the State of New York.
10.2 Notices. All communications under this Agreement shall be
in writing, shall be mailed by first class mail, postage prepaid to the
addresses specified in the preamble to this Agreement, or to such other address
as any party hereto may have furnished in writing to the other parties, and
shall be deemed to be given four (4) days after being so mailed.
10.3 Amendment and Waiver. This Agreement may be amended, and
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
10.4 Duplicate Originals; Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute but one and the same instrument.
10.5 Severability. In the event that any particular provision
or provisions of this Agreement shall for any reason hereafter be determined to
be unenforceable, or in violation of any law, governmental order or regulation,
such unenforceability or violation shall not affect the remaining provisions of
this Agreement, which shall continue in full force and effect and be binding
upon the respective parties hereto.
<PAGE>
10.6 Assignment. Unless otherwise provided, the rights and
obligations of Eurotech and Kurchatov under this Agreement shall be binding upon
and inure to the benefit of the parties and their respective representatives,
administrators, heirs, successors and assigns, but may not be assigned by either
party without the prior written consent of the other party.
10.7 Announcements. Eurotech and Kurchatov agree that except
in accordance with applicable laws, neither will make any public announcement
concerning the consummation of the transactions provided herein without first
obtaining the written permission of the other.
10.8 Expenses. Except as otherwise provided herein, Eurotech
and Kurchatov agree that each of the parties hereto shall bear its own expenses
incurred in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
10.9 Headings. All headings in this Agreement are for
convenience only and shall not affect the meaning of any provision hereof.
10.10 Entirety of Agreement. This Agreement states the entire
agreement of the parties, merges all prior negotiations, agreements and
understandings, if any, and states in full the representations and warranties
which have induced this Agreement, there being no representations or warranties
other than those herein stated.
10.11 Benefit of Agreement. This Agreement is for the benefit
of the parties hereto only, and there is no intent to create benefits, rights or
remedies in any other persons or entities.
10.12 No Strict Construction. The language of this Agreement
shall be construed as a whole, according to its fair meaning and intendment, and
not strictly for or against either party hereto, regardless of who drafted or
was principally responsible for drafting the Agreement or any specific term or
condition thereof.
10.13 Execution Knowing and voluntary. In executing this
Agreement, Eurotech and Kurchatov severally acknowledge and represent that each
(a) has fully and carefully read and considered this Agreement, (b) has been or
has had the opportunity to be fully apprised by his, her or its attorneys of the
legal effect and meaning of this document and all terms and conditions hereof,
(c) has been afforded the opportunity to negotiate as to any and all terms
hereof and (d) is executing this Agreement voluntarily, free from any influence,
coercion or duress of any kind.
10.14 Attorneys' Fees. In any action at law or in equity to
enforce or construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as determined by a court
pursuant to a final order, judgment or decree, shall pay to the successful party
or parties all costs, expenses and reasonable attorneys' fees incurred by such
successful party or parties (including, without limitation, such costs, expenses
and fees on any appeal), which costs, expenses and attorneys' fees shall be
included as part of any order, judgment or decree.
<PAGE>
10.15 Confidential Information. All confidential, financial or
business information (except publicly available or freely usable material
otherwise obtained from another source) respecting the parties hereto will be
used solely by any party in connection with the within transaction, will be
revealed only to employees or contractors of the other parties who are necessary
to the conduct of such transactions, and will be otherwise held in strict
confidence. In the event the transactions contemplated by this Agreement are not
consummated, all confidential information received by any party thereto shall be
returned to the party delivering such confidential information. The terms of
this Section 10.15 shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be dully executed by their authorized representatives as of the day
and year first above written.
"EUROTECH"
ATTEST: EUROTECH, LTD.,
a District of Columbia
Corporation
By: By: /s/ Don V. Hahnfeldt
----------------------------- ------------------------------
Secretary Don V. Hahnfeldt,
(Seal) President
"KURCHATOV"
ATTEST: KURCHATOV RESEARCH
HOLDINGS, LTD.,
a Delaware Corporation
By: By: /s/ Hans Joachim Skrobanek
----------------------------- ------------------------------
Secretary Hans Joachim Skrobanek,
(Seal) President
"SPINNERET"
ATTEST: SPINNERET FINANCIAL SYSTEMS, INC.,
a Delaware Corporation
By: By: /s/ Fred Hahnfeldt
----------------------------- ------------------------------
Secretary Fred Hahnfeldt,
(Seal) President (Seal)
LEASE AGREEMENT
Concerning Commercial Space
between
Unternehmensgruppe Roland Ernst
Aufbaugesellschaft Taubenstrasse GdbR, consisting of
RE-Gesellschaft zur Planung der Beseitigung und Verwertung von Reststoffen mbH
& Co. KG,
VGO Verwaltungsgesellschaft mbH & Co. Beteiligungs KG,
Vangerowstrasse 16/1
69115 Heidelberg
represented by Mr. Roland Ernst
(hereinafter, the "Lessor")
and
ADVANCED TECHNOLOGY INDUSTRIES LTD
Taubenstrasse 20
10117 Berlin
represented by Mr. Hans-Joachim Skrobanek
private address: Wiesbadener Strasse 17a
12309 Berlin
(hereinafter, the "Lessee")
<PAGE>
Contents
Recitals ..................................................................... 3
ss. 1 Subject-Premises and Purpose of Lease ................................ 3
ss. 2 Rent ................................................................. 4
ss. 3 Escalator Clause ..................................................... 5
ss. 4 Ancillary Costs ...................................................... 6
ss. 5 Term, Delivery and Termination ....................................... 7
ss. 6 Early Termination of Term ............................................ 7
ss. 7 Subletting ........................................................... 8
ss. 8 Maintenance; Interior Decorative Repairs ............................. 9
ss. 9 Warranty and Liability of Lessor .....................................10
ss. 10 Liability of Lessee ..................................................10
ss. 11 Insurance ............................................................11
ss. 12 Structural Alterations Before and During Term of Lease ...............11
ss. 13 Advertising Installations ............................................13
ss. 14 Access to the Subject-Premises by the Lessor .........................13
ss. 15 Cessation of Term of Lease ...........................................13
ss. 16 Legal Succession .....................................................15
ss. 17 Protection from Competition ..........................................15
ss. 18 Security Deposit .....................................................15
ss. 19 Lessors Lien .........................................................16
ss. 20 Sale of Subject-Premises .............................................16
ss. 21 Final Provisions .....................................................16
-2-
<PAGE>
RECITALS
WHEREAS, the Lessor is owner of the property and the building thereupon located
at Taubenstrasse 20 in Berlin-Mitte; WHEREAS, the Lessee has inspected the
building; WHEREAS, the Lessee is therefore aware of the location, condition and
furnishings of the building;
NOW, THEREFORE, the Parties hereby agree as follows:
ss. 1 SUBJECT-PREMISES AND PURPOSE OF LEASE
1) The Lessor hereby leases to the Lessee from the above-mentioned
building those building components/spaces which are circled in red on
the attached plans (Annex 1).
2) The Lessee shall be entitled to use commonly with the other lessees
those spaces and building components which are provided jointly by the
Lessor to some or all lessees (such as the entranceway, lobby, elevator
anterooms, etc. ("functional spaces and trafficways")).
3) The exact location and the structural design and furnishing of the
subject-premises are evident from the plans attached as Annex 1
hereto.
The Lessor shall be entitled, however, even during the term of lease to
undertake alterations which are based on administrative conditions or
are technically required or advisable and which only immaterially
prejudice the fitness for use and the quality standards of the
subject-premises.
4) The subject-premises are hereby exclusively leased to be used as office
and administrative space and for the ancillary purposes associated
therewith, such as archiving, etc. (purpose of lease).
5) In light of the fact that the Lessor has opted for turnover tax, the
Lessee hereby warrants that the Lessee is an entrepreneur in the terms
of the provisions of tax law. The Lessee must therefore guarantee that
the subject-premises are only used for turnover which does not exclude
the deduction of input tax. The subject-premises may be used for
tax-free turnover at most to an extent which is non-prejudicial to the
exercise of the option in accordance with the applicable provisions of
tax law (currently a maximum of 5% pursuant to the writing of Federal
Ministry of Economics of 24 November 1997) ("insignificance
threshold"). The Lessee must furnish proof to the Lessor of the
observance of these conditions prior to 31 March of the following year
by presenting a corresponding written confirmation from its tax advisor
and independent auditor for the preceding year. The Lessee must
compensate the Lessor for any damage arising from the breach of this
duty, particularly in accordance with ss. 9(2) of the Turnover Tax Act.
-3-
<PAGE>
ss. 2 RENT
1) The monthly rent, advance payment for ancillary costs and turnover tax
shall amount to DM 10,088.15. This figure is computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Office space approx. 191.97 m2 @ CM DM 7,486.83
39.00 per m2
Underground parking garage space 1 parking space @ DM 250.00 DM 250.00
Advance payment for ancillary costs 191.97 m2 @ DM 5.00 per m2 DM 959.85
-------------------------------------------------------------------------------------
Subtotal DM 8,696.68
Plus applicable turnover tax DM 1,391.47
(currently 16%)
Total DM 10,088.15
</TABLE>
The leased space shall be the net floor space pursuant to DIN 277,
i.e., the principal and ancillary usable space, the trafficways less
the elevator shafts and ramps, and the functional spaces, insofar as
space of individual technical operating facilities of the user are
concerned. The structural surface area of non-fixed walls shall
likewise represent leased space.
2) The Lessee must pay the applicable turnover tax on the rent and
(advance payments for) ancillary costs.
3) The rent plus the ancillary costs and turnover tax shall be due prior
to the third business day of each month at the latest and shall be
payable in advance without any charges onto the following bank account
of the Lessor:
Bank: Bayer. Hypo Vereinsbank Augsburg
Account Holder: Aufbaugesellschaft Taubenstrasse GdbR
Account No.: 2266172
Bank Code: 72020070
The credit entry of the amount to the bank account of the Lessor shall
be decisive for the timeliness of the payment.
4) Incoming payments which are not sufficient to redeem all outstanding
claims of the Lessor shall initially offset interest, then ancillary
costs (first the older and then the more recent ones) and finally the
basic rent (first the older and then the more recent rent) in
accordance with ss. 366 of the Civil Code, even if the Lessee
determines another redemption upon payment.
5) In the event the Lessee is in default in payment, the Lessor shall be
entitled to invoice interest as of the due date until the date the
payment is received at a rate of 5% above the respectively applicable
discount rate of the German Bundesbank in addition to a flat rate for
payment reminder costs of DM 10.00. Each Party hereby reserves the
right to prove higher or lower damage.
-4-
<PAGE>
6) The Lessee may only set off the rent with uncontested counterclaims or
counterclaims recognized by non-appealable judgment or assert a
retention right in relation to such claims provided the Lessee gives
written notice of the exercise of such rights at least one month prior
to the due date of the affected rent. The limitation of the retention
right in accordance with Sentence 1 above shall only apply to
counterclaims directed towards payment. The above limitations on setoff
and retention rights shall apply even after the cessation of the term
of lease until the delivery of the subject-premises to the Lessor.
7) In the event of the introduction of the euro, the Lessee hereby agrees
to render the payments owed from this Agreement exclusively in euros,
if the Lessee is requested by the Lessor to do so upon observance of a
notice period of two months. Until such date, payments within the
transition period are to be rendered exclusively in Deutsche marks.
ss. 3 ESCALATOR CLAUSE
The rent shall be secured as follows:
1) In the event the cost-of-living index for all private households in
Germany (base year 1995 = 100) published by the Federal Statistics
Office increases or decreases by 10 points or more from the
commencement of the term of lease or the level after the effective date
of the most recent change, the rent shall increase or decrease
accordingly. The rent shall change automatically effective on the first
of the month after the occurrence of the element of change. The
consequences of default shall only take effect provided the Lessor in
the case of an increase or the Lessee in the case of a decrease has
notified the change in writing and presented a calculation.
2) The Lessor in the case of an increase and the Lessee in the case of a
decrease must notify the change and present a calculation. In the event
no notice is provided or is not provided in due time, such shall not
signify a waiver of the adjustment. The modified rent amount is then to
be paid retroactively; any reduced amount is to be reimbursed
retroactively. However, the Parties shall first be in default after the
respective settlement statement has been received and a payment
reminder issued.
3) The Parties are aware that this escalator clause requires the approval
of the state central bank. The approval is to be obtained by the
Lessor.
4) Should the state central bank not approve this clause, the Parties
hereby agree in the event of a change in the cost-of-living index of 10
points or more compared to the level at the commencement of this
Agreement or the most recent rent adjustment to reach an agreement on
the rent adjustment which corresponds to the result of the adjustment
in accordance with the cost-of living index.
5) In the event the agreed-upon cost-of-living index is discontinued,
particularly in relation to the introduction of the euro, that
cost-of-living index then applicable which is comparable to the index
agreed upon here shall then be considered as agreed upon. The Lessor
-5-
<PAGE>
shall be entitled to specify the corresponding index and to undertake
the conversion in a suitable fashion. Section 315 of the Civil Code
shall be applicable in this regard. The above Nos. 1 to 5 shall apply
accordingly.
ss. 4 ANCILLARY COSTS
1) The Lessee shall bear all operating costs incurred on the
subject-premises and prorated operating costs (Paragraph 6 below)
incurred on the other components of the property and overall building
pursuant to Annex 3 to ss. 72(1) of the Second Regulation on the
Calculation of Costs, which is attached as Annex 2 to this Agreement,
as amended upon the date the costs are incurred. The Lessee shall also
bear those ancillary costs which are incurred on the common facilities
outside the overall building. The heating costs shall also include the
costs of any ventilation and air-conditioning systems.
The Lessee shall moreover bear the following ancillary costs: costs of
continuous surveillance, the lockup services, and the reception
personnel (doorperson, etc.), including the costs of the spaces
necessary for such services and the costs of the systems installed in
this regard, e.g., telephone, loudspeaker, code/card, door/closet and
alarm systems; costs of the commercial and technical administration in
the amount of 3% of the applicable net rent without heating costs; the
costs of maintenance in accordance with ss. 8 hereof and the interior
decorative costs for common spaces in accordance with ss. 1(2) hereof
and common facilities outside the overall building.
2) In the event public charges are newly introduced or other costs
relating to the management of the subject-premises arise for the first
time or are increased directly or indirectly, such costs may likewise
be invoiced by the Lessor as appears fair from the date such are
incurred in accordance with the provisions agreed upon herein.
3) If possible, the Lessee must conclude in its own name and for its own
account any utility agreements relating to heating, electricity, water
and telephone for the spaces used alone by the Lessee.
4) Those ancillary costs which are not incurred under Paragraph 3 above
shall be settled by the Lessor on a quarterly basis. The Lessee shall
be allowed to inspect the settlement documents. The Lessee must assert
any objections against the settlement to the Lessor in writing within
one month after receipt of the settlement statement; otherwise, the
settlement statement shall be considered as approved, provided the
Lessor has referred to this legal consequence when sending the
settlement statement.
5) The Lessee must pay the advance payment on the ancillary costs agreed
upon in ss. 2(1) hereof, which shall correspond to the foreseeable
costs. The Lessor shall be entitled to adjust the amount of such
advance payment in accordance with the settlement of the actually
incurred costs and redetermine for the future as appears fair the type
of settlement for the ancillary costs or individual items of the
-6-
<PAGE>
ancillary costs, except for the heating and hot water costs. Any
subsequent payments or reimbursements related to the advance payments
rendered by the Lessee are to be made after the settlement pursuant to
Paragraph 4 above.
6) The Heating Costs Regulation shall apply with regard to the allocation
criterion related to hot water and heating costs. Otherwise, the
ancillary costs from the Lessee are to be borne on a prorated basis in
the ratio of the leased space to the total leased space of the overall
building. In the event ancillary costs relate to the Lessee alone or to
one or more lessees jointly, such costs are to be paid by the Lessee
alone or on a prorated basis in relation to the respective leased space
of the affected lessee.
ss. 5 TERM, DELIVERY AND TERMINATION
1) The term shall commence on 1 March 2000 and cease on 28 February 2005.
2) The delivery must be made in conformance with the plans attached as
Annex I hereto and otherwise in the current conditions. The Lessee
hereby acknowledges such conditions as conforming to this Agreement.
A delivery record is to be created upon the delivery; any variations
from the conditions owed pursuant to this Agreement and any defects are
to be recorded therein. Arrangements related to the remedy of defects
are moreover to be reached.
3) The Lessee shall be granted a renewal option of five years beyond the
fixed term at the conditions of this Lease Agreement. In the event the
Lessee desires to avail itself of the respective option, the Lessee
must notify the Lessor thereof in writing 12 months prior to the
expiration of the fixed term or option period. In the event the option
is not validly exercised, all option rights shall be extinguished.
4) In the event the lease relation is not terminated with notice of 12
months effective from the expiration of the fixed term or option period
by either Party in writing, the lease relation shall automatically be
extended for an indefinite period of time and may then be terminated in
writing upon notice of 12 months effective from the end of any quarter.
5) Unless the Parties agree otherwise, the Lessor shall not be obligated
to restore the subject-premises in the event of the complete
destruction or the destruction of any material portion thereof.
ss. 6 EARLY TERMINATION OF TERM
1) Apart from the grounds for termination stipulated by law, the Lessor
shall be entitled to terminate the lease relation without notice for
good cause. "Good cause" shall exist particularly in the event:
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<PAGE>
a) the Lessee subleases the subject-premises, even though the
conditions in ss. 7 hereof have not been met;
b) the Lessee does not use the subject-premises in accordance with
the purpose of lease and continues the use in breach hereof even
after a warning by the Lessor;
c) bankruptcy or composition proceedings regarding the Lessee's
assets are initiated, the petition for bankruptcy or composition
is not withdrawn within three weeks or the initiation of
bankruptcy or composition proceedings is refused due to a lack of
assets, whereby the Lessee is obligated to immediately inform the
Lessor regarding any petition for bankruptcy or composition;
d) the Lessee relinquishes the pursuit of activity subject to
turnover tax or earns more than merely an insignificant amount of
turnover exempted from turnover tax, unless the Lessee proves
that the Lessor will not derive any disadvantages from this,
e.g., in accordance with ss. 9(2) of the Turnover Tax Act.
2) In the event the lease relation ceases as a result of termination
without notice by the Lessor, the Lessee shall be liable for the damage
incurred by the Lessor therefrom, particularly for the fact that the
subject-premises cannot be leased after the Lessee has moved out or can
only be leased at a lower rent.
ss. 7 SUBLETTING
1) The Lessee may only sublet or transfer the use of the subject-premises
or components thereof within the framework of the purpose of lease in
accordance with ss. 1 hereof and only provided the Lessor is notified
thereof by the Lessee prior to the conclusion of the sublease agreement
by presenting the planned sublease agreement. The Lessor hereby
reserves the right to oppose the sublet in any specific case in the
event good cause exists to do so in the person of the sublessee or the
business operations thereof (protection from competition); "good cause"
shall exist particularly if the sublessee does not exercise any
activity subject to turnover tax or earns more than merely an
insignificant amount of turnover which is exempted from turnover tax,
unless the Lessee proves that the Lessor will not derive any
disadvantages therefrom, e.g., in accordance with ss. 9(2) of the
Turnover Tax Act.
2) In the event of any subletting of the subject-premises or components
thereof, the Lessee hereby agrees in advance to terminate the lease
relation by mutual agreement upon the Lessor's request. The Lessor
shall simultaneously be entitled to subrogate the Lessee in the
latter's lease relation with the sublessee. The Lessee hereby agrees to
contractually obligate the sublessee to continue the contractual
relation with the Lessor upon the latter's request.
Alternatively, the Lessor may waive this right prior to the conclusion
of the sublease agreement and request the Lessee to pay the Lessor as
additional rent 50% of the sublease rent exceeding the rent.
-8-
<PAGE>
3) In the event of any subletting or transfer of use to third parties, the
Lessee shall assign to the Lessor the claims to which the Lessee is
entitled vis-a-vis the sublessee or the third party as security for all
claims of the Lessor from this Agreement.
ss. 8 MAINTENANCE; INTERIOR DECORATIVE REPAIRS
1) The Lessor shall be responsible for the maintenance and servicing of
the subject-premises. The Lessee shall be entitled with the Lessor's
approval and obligated upon the request thereof to issue maintenance
and servicing orders relating to the interior spaces of the
subject-premises in the Lessees own name and for its own account.
2) Subject to Paragraph 3 below, however, the Lessee shall only bear the
costs of maintenance and servicing of the subject-premises and the
maintenance measures for the overall building on a prorated basis
pursuant to ss. 4(6) hereof, provided the conditions of the
subject-premises and the overall building were unobjectionable upon the
delivery date and the maintenance measures have been occasioned by the
agreed-upon use.
3) The Lessor shall bear the maintenance costs for the roofing, the
structural components (such as outside walls, bearing inside walls,
supports and foundations of the building) and the facade, except for
the glass in the windows and the mounts pertaining thereto or other
movable mechanical parts, and all outside doors (even rolling grates),
entry doors, revolving door installations, etc. The Lessor shall
further bear the costs of the complete exchange of technical systems,
in the event such can no longer be maintained from a financial point of
view through repairs or similar measures.
4) In the event the costs for remedying damage for which the Lessee is not
responsible and which is not attributable to the Lessee's scope of risk
exceed one monthly rent within one year of lease, the Lessor shall bear
the excess amount.
5) In the event warranty claims of the Lessor exist vis-a-vis parties
involved in the construction of the subject-premises, the Lessor shall
be obligated to assert such claims.
6) The Lessee must conduct at its own cost the necessary interior
decorative repairs at normal temporal intervals, depending on the
degree of wear and tear or damage. Interior decorative repairs shall
also include the renovation of textile floor coverings and, if
necessary, the renovation/sanding and sealing of wooden floors
(parquet).
7) Prior to setting up technical systems which are capable of disturbing
third parties or jeopardizing the subject-premises, the overall
building or the property due to the effects emitted thereby, the Lessee
must obtain the Lessor's approval and present the relevant legal
provisions.
-9-
<PAGE>
8) If and insofar as the Lessee intends to handle materials in the
subject-premises which are suited to harm health or the environment,
the Lessee shall be obligated vis-a-vis the Lessor to observe all
relevant legal provisions for handling such hazardous substances and to
release the Lessor from all risks and administrative claims related
thereto. The above provisions shall apply accordingly in the event any
material which originally appears to be unobjectionable later proves to
be a hazardous substance. The Lessee shall be obligated to prove to the
Lessor the conclusion and maintenance of adequate liability coverage.
ss. 9 WARRANTY AND LIABILITY OF LESSOR
1) Any damage compensation claims of the Lessee against the Lessor due to
any defect of the subject-premises may only be asserted if such defects
are based on negligent breach of a material contractual duty or on any
intentional or grossly negligent breach of contract by the Lessor or
the vicarious agents thereof or on the absence of any warranted feature
of the subject-premises.
2) Moreover, the Lessor shall be liable to the degree to which the damage
is compensated by an insurance company or can be successfully asserted
against any other third party.
3) The Lessor shall not be liable: for the supply of energy, such as heat,
electricity and water, by the corresponding utility providers, unless
the Lessor is responsible for the shutdown of the above-mentioned
supplies; for the existence of the scope of use of the driveway, the
service road or other trafficways to the subject-premises, provided
such limitations are not attributable to any administrative measures
initiated by the Lessor and access to the subject-premises is generally
warranted; for the hindrance of the fitness for use of the
subject-premises due to measures on adjacent properties, such as
construction measures; the Lessor shall, however, support the Lessee as
reasonable and permitted by law in averting such hindrances at the
Lessee's costs; for defects in the subject-premises present at the
outset, unless such defects have been expressly noted upon the delivery
of the subject-premises.
4) The rent may only be reduced if the fitness for use of the
subject-premises has been substantially hindered and the Lessor has
been granted a reasonable period to remedy such and the reduction claim
is acknowledged or the ground therefore or amount thereof is recognized
by non-appealable judgment.
ss. 10 LIABILITY OF LESSEE
1) The Lessee shall be liable for all damage which is caused negligently
through any breach of the duties to exercise due care incumbent on the
Lessee.
2) The Lessee shall also be liable to compensate damage which any third
party commissioned by it to perform work negligently causes in the
execution thereof. The Lessee shall furthermore be liable for damage
which is negligently caused through its employees or sublessees.
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<PAGE>
Furthermore, the Lessee shall be liable for damage which is caused
negligently by visitors, suppliers, manual laborers or other persons,
provided such persons come into relation with the subject-premises at
the Lessee's instigation.
3) The Lessee shall bear the burden of proving that the damage has not
been caused by it or that it is not responsible for such damage,
provided the damage has been caused from within the subject-premises.
ss. 11 INSURANCE
1) The Lessee must conclude the following insurance policies, maintain
such for the duration of the lease relation, and furnish proof of such
upon the Lessors request:
a) a reasonable amount of liability/business liability insurance;
b) insurance regarding building contents;
c) business interruption insurance;
d) other insurance policies common to the Lessee's operations.
2) In the event the Lessee does not conclude the insurance policies in
accordance with Literi b to d above, the Lessor shall not be liable for
damage which would have been covered by such insurance.
3) The Lessor shall conclude or has concluded the following insurance
policies which shall be allocated to the ancillary cost settlement:
a) building insurance against fire, water, storm damage, broken
grass;
b) building and property owner liability insurance.
ss. 12 STRUCTURAL ALTERATIONS BEFORE AND DURING TERM OF LEASE
1) In the event the Lessee desires, prior to the delivery of the
subject-premises, alterations in relation to the planning and
furnishing thereof which do not prejudice the building as a whole or
the space used jointly by the Lessee together with the other lessees,
the Lessee must notify the Lessor in due time of such desired
alterations. The Lessor shall then submit the Lessee a cost estimate.
In the event the Lessee issues a separate commission based on such cost
estimate, the Lessee hereby agrees to pay the costs incurred. Prior to
conducting the structural alterations, the Lessor may request
securities in the form of bank guaranties or advance payments. In the
event the delivery of the subject-premises is delayed based on the
execution of such construction measures, the Lessee must pay the
agreed-upon rent for the period of the delay.
2) The Lessee shall be entitled at its cost to remodel the interior of the
subject-premises or to conduct structural alterations, provided the
overall building or the spaces not used exclusively by the Lessee are
not prejudiced thereby. The Lessee must notify the Lessor of the
construction measures in writing two weeks prior to the commencement
thereof at the latest, presenting plans/descriptions of the measures.
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<PAGE>
In the event structural measures of the Lessee are suited to prejudice
other lessees, the Lessee must desist from the measures or release the
Lessor from all claims of other lessees (including rent reductions) and
render security for such, if necessary.
3) Any structural modifications which require official permits shall
require the Lessor's approval. The approval may only be denied for good
cause; among other things, "good cause" shall include any limitation on
subsequent use or leasing of the subject-premises by the Lessor.
4) The Lessee shall be responsible for requesting official permits for
structural alterations and for the costs thereof. The Lessee shall bear
all dangers and risks associated with the initiation of structural
measures.
5) In the event construction measures become necessary after delivery of
the subject-premises based on new official provisions or conditions
relating to the operation of the subject-premises for the agreed-upon
purpose, such measures are to be conducted by the Lessee at its own
cost. This shall also apply to any construction measures which are
necessary based on any modification or extension of the use by the
Lessee.
6) The Lessee shall be obligated to immediately notify the Lessor in
writing of installations and alterations in or to the subject-premises
which increase the value thereof, provided such affect a modification
of the risk estimate in the terms of the fire and liability insurance
conditions. The Lessee shall bear any surcharges to insurance premiums
incurred in this regard.
7) The Lessor may undertake improvements, repairs and structural
alterations which are necessary to preserve the subject-premises and
the overall building and to avert imminent danger or to remedy damage
(preservation measures), even without the Lessee's approval; however,
the Lessor must thereby take the legitimate interests of the Lessee
into account, particularly in relation to the date of execution, and
notify the Lessee of such measures in advance.
8) The Lessor may only undertake measures to improve the subject-premises
and the overall building (modernization measures) or energy saving
measures (ss. 541 b of the Civil Code), provided the Lessor announces
such to the Lessee at least one month in advance, insofar as such
measures are to be conducted in the Lessee's leased area. With regard
to measures outside the leased area, a notice period of one week shall
be sufficient, even if the subject-premises could be affected. A right
to terminate this Agreement in accordance with ss. 541 b of the Civil
Code shall only exist in the event the Lessee's interests are
unreasonably hindered by the toleration duty. After the execution of
modernization or energy savings measures, the Lessor shall be entitled
to charge a rent surcharge in the amount of 11% per year based on the
respective investment costs.
9) The Lessee must tolerate expansion/remodeling measures which are
conducted in order to further lease other leasable units and which
cause hindrances. Damage compensation claims shall be excluded in this
regard, unless the Lessor acts intentionally or with gross negligence
-12-
<PAGE>
in relation to damage to the Lessee. One week before the measures at
the latest, the Lessor shall inform the Lessee of the type, scope and
foreseeable duration of the planned measures in a general fashion. The
toleration duty shall exist irrespective of any absence of information.
10) The Lessee may only reduce the rent or exercise a retention right due
to the above-mentioned measures if such measures rule out or
substantially prejudice the use of the subject-premises for the
agreed-upon purpose in whole or in part.
ss. 13 ADVERTISING INSTALLATIONS
1) The Lessee shall be provided free of charge outside space on the
building--which is still to be determined--exclusively for its own
advertising purposes (illuminated advertising, signs and other devices
for advertising material). The advertising installations must be
adapted to the image of the subject-premises and the overall building.
In the event the Lessor specifies installations in order to preserve a
uniform image for the building, the Lessee must use exclusively the
installations specified. The Lessee shall be responsible for requesting
official permits to mount advertising installations; the Lessee must
bear the cost thereof.
2) The Lessor shall likewise be entitled to install advertising on the
subject-premises, even for third parties (product advertising, etc.).
3) Upon the cessation of the term of lease, the Lessee must remove the
advertising installations mounted by it at its own cost upon the
Lessor's request and restore the subject-premises again to their
original conditions.
ss. 14 ACCESS TO THE SUBJECT-PREMISES BY THE LESSOR
1) The Lessor and the persons commissioned thereby may access the
subject-premises with interested parties, experts or witnesses during
normal business hours but only after prior notice in order to exercise
the legal lien under the conditions of ss. 561 of the Civil Code, to
review the structural condition of the subject-premises and the
operability and safety of technical systems in the subject-premises, to
further lease or sell the subject-premises, and in other similar cases.
2) In events of imminent danger, the Lessor may access the
subject-premises even without notice and in the absence of the Lessee.
ss. 15 CESSATION OF TERM OF LEASE
1) The provisions of ss. 568 of the Civil Code (tacit extension of the
lease relation) shall not apply in the event of any cessation of the
lease relation.
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<PAGE>
2) Any payments of the Lessee after termination or cessation of the lease
relation for other reasons shall be accepted as indemnity for use, even
if such are designated with the payment or correspondence as a rent
payment.
3) Upon the cessation of the term of lease, the Lessee must return the
subject-premises to the Lessor in conditions which conform to this
Agreement with due regard to wear and tear which conforms to this
Agreement. The conditions shall "conform to this Agreement"
particularly when all space has been cleaned and vacated, all interior
decorative repairs executed, damage to the subject-premises beyond wear
and tear through normal usage remedied, all keys and code cards have
been returned to the Lessor, any restoration obligations have been
performed and the Lessee has returned any accessories and other
facilities provided for use in operable and clean conditions.
When the Lessee moves out, a joint record of the return is to be
completed which lists any existing or non-remedied defects, interior
decorative repairs, etc. The Lessee shall cooperate personally as the
record is created or be represented thereby by an agent authorized in
writing. Without such collaboration of the Lessee, the Lessor shall not
be obligated to take the subject-premises back.
4) In the event the work in the subject-premises to be conducted by the
Lessee in accordance with Paragraph 3 above is not conducted prior to
the cessation of the lease relation, an indemnity for use corresponding
to the rent plus ancillary costs is to be further paid until the end of
the month in which such work is completed. Any further claims of the
Lessor shall not be prejudiced hereby. The Lessor shall be entitled in
particular to demand damage compensation for interior decorative
repairs not executed by the Lessee after establishing a period for this
and threatening refusal. The Lessee shall retain the right to prove
that lesser damage has been incurred.
5) In the event objects are left in the subject-premises by the Lessee
after the cessation of the lease relation, the Lessor shall be entitled
to remove such objects after a written warning establishing a period
for this; the Lessor shall not have any duty to store such objects. Any
claims of the Lessor due to the delayed return of the subject-premises
shall not be prejudiced hereby.
6) Any structural alterations to the subject-premises pursuant to ss. 12
hereof which are conducted by the Lessee are to be restored upon the
cessation of the lease relation, unless the Lessor has waived the
reconstruction obligation. In the event any structural alterations are
left, the Lessee shall not be entitled to any damage compensation
claim. Instead of the restoration of the structural alterations by the
Lessee, the Lessor shall be entitled to demand compensation of the
costs for executing the required work. In the event no agreement is
reached regarding the amount of the costs, the amount to be compensated
is to be determined in a binding fashion by an expert to be appointed
by the local chamber of industry and commerce. The Parties shall bear
the costs of the expert in the ratio in which the amount last specified
by them varies from the amount determined by the expert.
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<PAGE>
7) The Lessor, however, shall have the right to request the Lessee to
leave the structural alterations. In such event, the Lessee shall
receive an indemnity in the amount of the market value of the remaining
structural installation after the disassembly less the costs calculated
for the disassembly.
8) The Lessor shall be entitled three months prior to the cessation of the
term of lease at the latest to put up "for lease" signs on the outside
windows of the subject-premises.
ss. 16 LEGAL SUCCESSION
1) The Lessee must immediately notify the Lessor in the event of any
modification of the legal form or of any other basic modification in
the commercial register or in the event the Lessee sells its business
operations in whole or in any essential part to third parties or in the
event of any change of shareholders. In the event such change alters
the bases of liability and credit to the Lessor's disadvantage, the
Lessor may request security from the Lessee, such as the provision of
bank guaranties.
2) In the event obligations from this Agreement are not transferred to the
respective legal successor by operation of law, each Party hereby
agrees to also impose the obligations on its respective legal
successors.
3) The Lessor shall be entitled to transfer all rights and duties from
this Agreement to any third party. If relevant, the Lessee may only
deny any required approval declarations with good cause.
ss. 17 PROTECTION FROM COMPETITION
The Lessee shall not be granted any protection from competition.
ss. 18 SECURITY DEPOSIT
1) To secure all claims of the Lessor against the Lessee from this
Agreement, the Lessee hereby agrees to pay the Lessor within 14 days
prior to the commencement of the lease at the latest a security deposit
in the amount of three gross monthly rent installments including the
monthly advance payment for ancillary costs estimated by the Lessor. In
the event of any increase of the rent pursuant to ss. 3 hereof, the
Lessee shall be obligated to pay the difference resulting therefrom.
2) The Lessor may satisfy itself from the security deposit due to the
claims owed to it. The Lessee shall be obligated in such event to
immediately increase the security deposit again to the original amount.
The Lessee may not set off the repayment claim related to the security
deposit against any due claims of the Lessor prior to the due date of
the repayment claim pursuant to Paragraph 4 below.
-15-
<PAGE>
3) After return of the subject-premises, the Lessor must settle the
security deposit and pay out the residual security amount to the
Lessee. The Lessee's repayment claim shall be due upon the Lessor's
receipt of the settlement statement or six months after the return of
the subject-premises at the latest. With regard to the ancillary costs
to be settled in accordance with ss. 4 of this Agreement, a portion of
the security deposit in the amount of one month's rent may be retained
until the presentation of a settlement statement or, at maximum, until
the due date of the ancillary cost settlement or the subsequent payment
amount arising therefrom.
5) [sic] In place of the security deposit, the Lessee shall be entitled to
transfer the Lessor a guaranty of a major German bank or public-law
credit institution pursuant to Annex 4 hereto which is due upon first
demand and secures all claims of the Lessor from this Agreement and any
damage compensation claims of the Lessor against the Lessee from all
further liability-establishing elements.
ss. 19 LESSOR'S LIEN
1) The Lessee hereby agrees to inform the Lessor of any attachment of
things brought onto the subject-premises.
2) In the event of the exercise of the Lessor's lien, the Lessor shall be
entitled under the conditions of ss. 1221 of the Civil Code to conduct
the realization by way of private sale after threatening to do so and
establishing a period pursuant to ss. 1220 of the Civil Code.
ss. 20 SALE OF SUBJECT-PREMISES
1) In the event of any sale of the subject-premises, the Lessor shall
cause the buyer to fulfill the obligations from this Agreement. The
Lessor shall not be liable to the Lessee as a surety for the
fulfillment of this Lease Agreement by the buyer; ss. 571(2) of the
Civil Code shall not be applicable hereto.
2) In the event of any sale of the subject-premises, the Lessor shall be
entitled to request the Lessee for a declaration of general
representativeness, enclosing a list of the documents related to this
Lease Agreement. The Lessee shall be obligated to communicate in
writing within 14 days whether the Lessor's list is complete. In the
event the Lessee issues such a declaration of general
representativeness and the Lessee does not notify any incompleteness or
inaccuracies within 14 days, the Lessee may not subsequently invoke any
agreements which were not specified in the Lessor's list, provided
reference is made to this legal consequence in the request.
ss. 21 FINAL PROVISIONS
1) No verbal collateral agreements hereto have been reached.
-16-
<PAGE>
2) In the event any provisions of this Agreement are or become invalid or
impracticable, the remaining provisions shall not be affected thereby.
This shall also apply to any material or fundamental provisions of this
Agreement. In place of the invalid provision, the Parties shall be
obligated to reach a provision which most closely approximates the
legally desired result and the financial sought outcome.
3) In the event several persons are party to this Agreement for the part
of the Lessee, such persons hereby irrevocably empower each other to
receive or issue all declarations effecting the lease relation,
particularly to issue or receive notice of termination.
4) The Parties are aware of the special legal requirement for the written
form in ss. 566, Sentence 1 and ss. 126 of the Civil Code. The Parties
hereby mutually agree upon the request of either Party at any time to
undertake all acts and to issue any statements which are necessary in
order to satisfy the legal requirement for the written form and not to
terminate this Agreement early invoking the non-observance of the
written form required by law. This shall not only apply to the
conclusion of the original/main agreement but also to any riders or
modification or supplementary agreements.
5) The Lessee is aware that data will be stored within the framework of
the administration of the subject-premises. The Lessor hereby
represents that only such data will be stored which is necessary for
the due processing of the lease relation and that the data will be
stored in conformance with the provisions of data protection law.
6) The Lessee shall be obligated to notify the Lessor at the commencement
of the lease relation of an address for correspondence to which all
statements related to the lease relation are to be sent. Any
modifications of this address are to be immediately notified to the
Lessor. This obligation shall continue to exist for a period of 6
months after the return of the subject-premises to the Lessor.
7) The provisions of the building rules attached as Annex 3 hereto shall
apply in a supplementary fashion to this Agreement.
8) The following annexes are attached to this Agreement:
- Annex 1: Plans
- Annex 2: Annex 3 to ss. 72(1) of the Second Regulation on the
Calculation of Costs
- Annex 3: Building Rules
- Annex 4: Sample Guaranty
Heidelberg, 28 February 2000 Berlin, 29 February 2000
[SIGNATURE] [SIGNATURE]
Lessor Lessee
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
TECHNOLOGY INDUSTRIES, INC. AS OF DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<OTHER-SE> 741,962
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<EXTRAORDINARY> 3,349,688
<CHANGES> 0
<NET-INCOME> (748,936)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
