<PAGE>
THIS DOCUMENT IS A COPY OF THE REGISTRATION
STATEMENT ON FORM S-2 (Registration No. 33-80223)
filed on December 8, 1995 pursuant to a Rule 202(d)
Continuing Hardship Exemption.
As Filed with the Securities and Exchange Commission on December 8, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ICC TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2368845
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
441 North 5th Street, Suite 102
Philadelphia, Pennsylvania 19123
(215) 625-0700
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
---------
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street, 38th Floor
Philadelphia, PA 19103-7598
(215) 994-1046
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------
Copy to:
Richard J. Busis, Esquire
Cozen and O'Connor
1900 Market Street
Philadelphia, Pennsylvania 19103
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------
(Calculation of Registration Fee Appears on Following Page)
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
===============================================================================================================================
Title of each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered(1) Offering Price per Aggregate Offering Registration Fee
Registered Share(2) Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 2,875,000 $11.75 $33,781,250 $11,649
$.01 par value
==============================================================================================================================
</TABLE>
(1) Includes 375,000 shares to cover the Underwriters' over-allotment options.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933. The proposed
maximum offering price is based upon the average of the high and low
prices reported by Nasdaq on December 5, 1995.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-2
FILED AS PART OF REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Item
Number
in Form
S-2 Item Caption in Form S-2 Caption in Prospectus
- ------- ------------------------ ---------------------
<S> <C> <C>
1 Forepart of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Inside Front and Outside Back
Prospectus Cover Pages
3 Summary of Information, Risk Factors and Prospectus Summary; Risk
Ratio of Earnings to Fixed Charges Factors; Inapplicable
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Cover Page
6 Dilution Dilution
7 Selling Security Holders Inapplicable
8 Plan of Distribution Underwriting
9 Description of Securities to be Registered Description of Capital Stock
10 Interests of Named Experts and Counsel Inapplicable
11 Information with Respect to Registrant Prospectus Summary; Risk
Factors; Price Range of
Common Stock; Dividend
Policy; Dilution; Capitalization;
Selected Consolidated Financial
Data of the Company;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management;
Principal Stockholders; Certain
Transactions; Description of
Capital Stock; Shares Eligible
for Future Sale; Incorporation
of Certain Information by
Reference; Financial Statements
12 Incorporation of Certain Information by Incorporation of Certain
Reference Information by Reference
13 Disclosure of Commission Position Indemnification of Directors,
on Indemnification for Securities Act Officers and Controlling
Liabilities Persons
</TABLE>
(ii)
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1995
PROSPECTUS
2,500,000 Shares
ICC TECHNOLOGIES, INC.
Common Stock
------------------
All of the 2,500,000 shares of Common Stock of ICC Technologies, Inc. (the
"Company") being offered hereby are being sold by the Company. The Common Stock
is traded on the Nasdaq Small Cap Market under the symbol "ICGN"; however, the
Company has applied for the listing of its Common Stock on the Nasdaq National
Market and for trading to commence on that market on the effective date of this
offering. On December 5, 1995, the reported last sale price of the Common Stock,
as reported by Nasdaq, was $11.625. See "Price Range of Common Stock."
--------------------
The Common Stock offered hereby is speculative and involves a high degree
of risk. The Company has experienced losses since inception. See "Risk Factors"
commencing on page 9 of this Prospectus.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................................ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
Total(3)......................................... $ $ $
=============================================================================================================================
</TABLE>
(1) See "Underwriting" for a description of indemnification arrangements with
the several Underwriters.
(2) Before deducting estimated aggregate expenses for the offering of $313,500
payable by the Company.
(3) The Company has granted to the Underwriters an option, exercisable for 45
days from the date of this Prospectus, to purchase up to an additional
375,000 shares of Common Stock solely to cover over-allotments. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $___________,
$__________ and $___________, respectively. See "Underwriting."
--------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by them
and subject to certain other conditions, including the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the shares of Common Stock will be made against payment
therefor at the offices of Janney Montgomery Scott Inc. in Philadelphia,
Pennsylvania on or about ________________, 1996.
--------------------
Janney Montgomery Scott Inc. Gerard Klauer Mattison & Co., LLC
The date of this Prospectus is _____________, 1996
<PAGE>
DESICCANT AND HEAT EXCHANGE ROTORS [Picture]
ETS(TM) DESICCANT [Picture]
HONEYCOMB SUBSTRATE [Picture]
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
<PAGE>
[Picture]
<PAGE>
DESICCANT COOLING.
<TABLE>
<S> <C>
1 - Recirculated or up to 100% fresh air is drawn into the unit by a fan and pushed through
the slowly turning desiccant rotor.
2 - Desiccant rotor removes the majority of moisture from the air.
3 - The dry air is driven through a heat exchange rotor that cools the airstream.
4 - Post cooling options include an evaporative cooler (which
partially rehumidifies the air) or a downsized conventional
cooling coil. A hot water coil for winter heat is standard
in the DESI/AIR(R) and Desert Cool(TM) systems.
5 - Outside air or building exhaust air is drawn into the regeneration air stream.
6 - Evaporative cooler saturates regeneration air stream with water, significantly lowering its
temperature.
7 - The cooled air is drawn through the heat exchange rotor, cooling (regenerating) the heat
exchange rotor and warming the regeneration air.
8 - Regeneration airstream is further heated by a heating coil to 180(degree)F or greater in the
DESI/AIR(R) and Desert Cool(TM) systems and to 140(degree)F in the Desert Breeze(TM) systems and
drawn through the desiccant rotor to dry (regenerate) it.
9 - A fan exhausts the regeneration airstream to the outside atmosphere.
10 - Boiler.
</TABLE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Prospectus constitutes part of a registration statement
on Form S-2 (the "Registration Statement") filed by the Company with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus omits certain of the information contained in the Registration
Statement and the exhibits thereto, in accordance with the rules and regulations
of the Commission. For further information concerning the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits filed therewith, which may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
which may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the
Commission pursuant to the Exchange Act are incorporated by reference into this
Prospectus: (i) the Company's Annual Report on Form 10-K for the Year ended
December 31, 1994, which incorporates by reference certain portions of its
definitive Proxy Statement dated April 11, 1995 distributed to the Company's
stockholders in connection with the annual meeting of stockholders held on June
1, 1995; (ii) the Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1995; (iii) the Company's Quarterly Report on Form 10-Q/A for the
Quarter ended March 31, 1995; (iv) the Company's Quarterly Report on Form
10-Q/A2 for the Quarter ended March 31, 1995; (v) the Company's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1995; and (vi) the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995; and
(vii) Current Report on Form 8-K/A dated January 26, 1995 (Date of Report:
December 1, 1994).
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge, to each person,
including any beneficial owner, to whom this Prospectus is delivered, on the
oral or written request of such person, a copy (without exhibits, unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates) of any and all information that has been
incorporated by reference in this Prospectus. Written or telephone requests for
such information should be directed to Manfred Hanuschek, Chief Financial
Officer and Treasurer, ICC Technologies, Inc., 441 North 5th Street,
Philadelphia, Pennsylvania 19123, telephone:
(215) 625-0700.
(3)
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted herein: (i)
ICC Technologies, Inc., a Delaware corporation, and its wholly-owned subsidiary,
ICC Desiccant Technologies, Inc., a Delaware corporation, are collectively
referred to herein as the "Company"; and (ii) all information in this Prospectus
gives effect to the Preferred Stock Transactions (as hereinafter defined) and
assumes no exercise of the Underwriters' over-allotment option. Investors should
carefully consider the information set forth under the heading "Risk Factors."
The Company
The Company, through a joint venture called "Engelhard/ICC" (the
"Partnership") with Engelhard Corporation ("Engelhard"), designs, manufactures
and markets innovative climate control systems to supplement or replace
conventional air conditioning systems. The Partnership's climate control systems
are based on proprietary desiccant cooling designs initially developed by the
Company, licensed honeycomb rotor technology, and Engelhard's patented titanium
silicate desiccant, called ETS(TM). The Partnership's climate control systems
are designed to address indoor air quality, energy, and environmental concerns
and regulations currently affecting the air conditioning market. The Partnership
currently markets its systems to certain targeted applications within the
commercial air conditioning market in North America and Asia-Pacific. The
Company estimates that annual sales to these targeted applications were
approximately $2 billion of the $7 billion North American and Asian- Pacific
commercial air conditioning markets in 1994. The worldwide commercial air
conditioning market is expected to grow to approximately $12 billion by the year
2000, and the Company expects the Partnership's systems to compete in most
applications in this market as awareness and acceptance of the Partnership's
systems grows and their initial cost declines.
Desiccant cooling dehumidifies air before cooling, making it easier and
more energy efficient to cool. A desiccant is a material that removes moisture
from air. The Partnership's systems circulate fresh or recirculated air through
a honeycomb rotor treated with ETS(TM) to remove much of the moisture before the
air passes through a second heat exchange honeycomb rotor to cool the dry air.
On the other side of the unit, recirculated air is used to cool the heat
exchange rotor and remove the moisture captured by the desiccant rotor. The
Company believes that the Partnership's indoor climate control systems offer
several advantages over conventional air conditioning, including:
o Independent Control of Temperature and Humidity - The
Partnerships' systems independently control temperature and
humidity, unlike conventional air conditioning which reduces
humidity primarily as a result of temperature control. The
Partnership's systems can be designed to yield desired
temperature and humidity levels for a particular indoor
environment.
o Improved Indoor Air Quality - Ventilation standards
recommended by the American Society of Heating,
Refrigeration and Air Conditioning Engineers ("ASHRAE") and
incorporated into many building codes throughout the
country now require that up to 300-400% more fresh air be
circulated into buildings compared to prior ventilation
standards in order to greatly reduce indoor air pollutants
associated with "Sick Building Syndrome." The
Partnership's climate control systems meet or exceed these
standards and codes. In addition, lower humidity levels
reduce airborne bacteria, mold, mildew and fungi, another
major source of indoor air quality problems.
(4)
<PAGE>
- ------------------------------------------------------------------------------
o Energy-Efficient and Cost-Effective - Less humid air
requires less energy to cool than more humid air.
Accordingly, by dehumidifying air before cooling, the
Partnership's systems consume less energy and are more cost
effective to operate than conventional air conditioning
systems. As a supplement to conventional air conditioning,
by first dehumidifying the air, the Partnership's systems
are designed to improve the efficiency of existing
conventional air conditioning. Where significant humidity
reduction is desired, conventional air conditioning systems
often cool indoor air below desired levels, thereby
consuming additional energy.
o Versatile and Reliable - The Partnership's systems are
available in natural gas, electric, steam or waste heat
options and are available in several sizes which treat from
2,000 to 25,000 cubic feet of air per minute. Use of
alternative energy sources allows customers to take
advantage of utility incentives and adapt to fuel shortages
in certain areas. The systems are also expected to require
less maintenance than conventional equipment because of
simplicity of design and fewer moving parts.
o Environmentally Safer - None of the Partnership's climate
control systems use chlorofluorocarbons ("CFCs") or
hydrochlorofluorocarbons ("HCFCs"), refrigerants used in
conventional air conditioning equipment that cause damage
to stratospheric ozone and contribute to global warming.
CFCs have been banned from production and use commencing
in 1996 and HCFCs are scheduled to be banned from
production and use in 2030 by approximately 130 countries.
The Partnership's electric systems sold under the name
"Desert Breeze(TM)" currently use hydrofluorocarbons
("HFCs"), a CFC substitute, at significantly reduced levels
compared to conventional air conditioning systems. HFCs are
global warming gases that are under consideration for
regulation by approximately 180 countries.
o Year-round Performance - The Partnership's natural gas
systems provide year-round indoor climate control. In hot,
humid weather they supply cool, dry air. In cool, "clammy"
weather they supply warm, dry air. In cold weather the
natural gas driven systems supply heat. The Partnership is
currently developing heating capability for the electric
driven systems.
The Company believes that the Partnership's climate control systems
also offer several advantages over competing desiccant-based climate control
systems. The Partnership's honeycomb rotor technology, together with Engelhard's
patented ETS(TM), removes and then releases moisture at lower temperatures than
other desiccant-based systems currently being marketed. As a result, the Company
believes that Partnership's systems are more efficient and economical to operate
than other desiccant-based climate control systems.
The Partnership's strategy is to target applications within the
commercial air conditioning market in which humidity control, indoor air quality
and energy consumption are important health issues or a significant cost of
business. The Partnership has identified and marketed its systems to supermarket
chains, department stores, fast food restaurants, theaters, hotels,
manufacturers, schools, health care
- -------------------------------------------------------------------------------
(5)
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
facilities, and federal, state and local governments. To expand its business in
the United States, the Partnership plans to increase its sales force, seek to
acquire an existing air conditioning business, and may establish joint ventures
or license its technology with one or more major air conditioning companies.
Internationally, the Partnership's strategy is to continue to expand in the
rapidly growing and humid countries of the Asian-Pacific and the Middle Eastern
markets where its systems offer the greatest advantages over conventional air
conditioning. Chung-Hsin Electric and Machinery Manufacturing Corporation
("Chung-Hsin") in Taiwan, Samsung Corporation ("Samsung") in South Korea and
Nichimen Engine Sales Company ("Nichimen") in Japan have agreements or
arrangements with the Partnership to manufacture and/or sell the Partnership's
components or systems. The Partnership plans to enter into joint ventures or
licensing arrangements with one or more additional companies in the
Asian-Pacific and Middle Eastern markets.
Through September 1995, the Partnership and, prior to its formation,
the Company, have sold 166 systems worldwide. In the United States, customers
include the Shop Rite, Grand Union and Genuardi's supermarket chains, JCPenney
and Liz Claiborne. Internationally sales have been made in association with
Chung-Hsin in Taiwan, Samsung in South Korea and Nichimen in Japan. The
Partnership's natural gas systems have been awarded the "Blue Star"
certification for safety and quality by the American Gas Association Laboratory.
The systems are marketed and sold under the names "DESI/AIR(R)," "Desert
Cool(TM)" and "Desert Breeze(TM)." The DESI/AIR(R) and Desert Cool(TM) systems
operate on natural gas, steam or waste heat and do not use CFC refrigerants or
any CFC substitutes. The Desert Breeze(TM) systems operate on electricity and
utilize conventional compressors which use HFCs, a CFC substitute to cool
processed air.
In connection with the formation of the Partnership, the Company granted
Engelhard options to acquire up to all of the Company's interest in the
Partnership, subject to acceleration upon default, at the rate of 25% per year
starting on December 31, 1997, based on a price equal to 95% of the fair market
value of the Partnership as determined by an investment banking firm selected by
the Company and Engelhard.
The executive offices of the Company and the Partnership are located at
441 North Fifth Street, Suite 102, Philadelphia, Pennsylvania 19123. The
Company's telephone number is (215) 625-0700.
- -------------------------------------------------------------------------------
(6)
<PAGE>
- -------------------------------------------------------------------------------
The Offering
<TABLE>
<S> <C>
Common Stock offered by the Company................................... 2,500,000 shares
Common Stock to be outstanding after the offering..................... 20,851,299 shares(1)
Use of proceeds....................................................... To fund the Company's half of the
aggregate estimated funds needed to
finance certain Partnership activities
and for working capital of the
Partnership; to redeem certain shares of
Preferred Stock of the Company and to
pay certain accrued Preferred Stock
dividends; to repay a note to a
stockholder; and the balance to be used
for working capital of the Company.
See "Use of Proceeds."
Nasdaq Symbol......................................................... ICGN
</TABLE>
- ---------------
(1) Gives effect to the Preferred Stock Transactions pursuant to which an
aggregate of 3,758,759 shares of Common Stock are to be issued. See "Preferred
Stock Transactions." Does not include outstanding options to purchase 3,019,885
shares of Common Stock pursuant to the Company's stock option plans and
outstanding warrants to purchase 1,465,000 shares of Common Stock.
- -------------------------------------------------------------------------------
(7)
<PAGE>
- ------------------------------------------------------------------------------
Summary Financial Information
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------- ----------------------------------------
ICC TECHNOLOGIES, INC. (the Company) 1995 1994 1994 1993 1992
- ------------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $ 7 $ 88 $ 88 $ 1,201 $ 957
Cost of goods sold.......................... 6 80 80 1,177 939
------- ------- ------- ------ ------
Gross profit................................ 1 8 8 24 18
Operating expenses.......................... (1,027) (1,239) (1,735) (4,072) (2,563)
Other income (expenses)..................... 263 60 148 (10) (22)
Equity interest in net loss of
Partnership(1).............................. (3,394) - (2,812) - -
------- ------- ------- ------- ------
Net loss.................................... (4,157) (1,171) (4,391) (4,058) (2,567)
Preferred stock dividend requirements....... (215) (176) (228) (261) (242)
----- ----- ----- ----- ------
Net loss applicable to common
stockholders............................... $(4,372) $(1,347) $(4,619) $(4,319) $(2,809)
======= ======= ======= ======= =======
Net loss per common share................... $ (0.34) $(0.12) $ (0.41) $ (0.51) $ (0.47)
Weighted average shares outstanding......... 12,955 11,082 11,391 8,551 5,979
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
---------------------------------
Pro Forma
Actual As Adjusted(2)
------ --------------
<S> <C> <C>
Balance Sheet Data:
Cash........................................ $3,855 $30,013
Working capital............................. 3,901 30,208
Total assets................................ 6,738 32,896
Total debt.................................. 150 -
Losses in Partnership in excess of
investment............................... 2,905 2,905
Stockholders' equity........................ 3,503 29,811
</TABLE>
(1) The Company had no obligation or commitment to provide additional financing
to the Partnership during the period ended September 30, 1994 and the Company's
share of losses was not recognized.
(2) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby at an assumed offering price of $12 per share and the
application of the net proceeds therefrom, and pro forma adjustments to reflect
the Preferred Stock Transactions and the repayment of a note payable to a
stockholder.
<TABLE>
<CAPTION>
ENGELHARD/ICC (the Partnership) Period from Period from
Nine Months Feb. 7, 1994 Feb. 7, 1994
Ended (date of formation) (date of formation)
Sept. 30, 1995 to Sept. 30, 1994 to Dec. 31, 1994
-------------- ----------------- ----------------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales.............................. $ 7,171 $ 997 $1,620
Cost of goods sold..................... 7,175 877 1,592
------ ------ -----
Gross profit........................... (4) 120 28
Operating expenses..................... 6,201 3,664 5,728
Other income (expenses)................ (582) 102 75
-------- -------- -------
Net loss............................... $(6,787) $(3,442) $(5,625)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, 1995
--------------
<S> <C>
Balance Sheet Data:
Cash................................... $ 41
Working capital........................ 1,518
Total assets........................... 16,786
Total debt............................. 11,465
Partners' capital...................... 3,693
</TABLE>
- -------------------------------------------------------------------------------
(8)
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby
involves a high degree of risk. In evaluating a purchase of shares, prospective
investors should consider carefully the following risk factors, in addition to
the other information set forth elsewhere in, and incorporated by reference
into, this Prospectus.
Management and Control of the Partnership. The Company and
Engelhard each own a 50% interest in the Partnership. The Partnership is managed
by a management committee ("Management Committee") comprised of two members, one
selected by each of the Company and Engelhard. Currently, the Management
Committee is comprised of Irwin L. Gross, Chairman and President of the Company,
and Robert J. Schaffhauser, Vice President-Technology and Corporate Development
of Engelhard. Accordingly, the Company does not control the Partnership and its
affairs and there is no assurance that the Company and Engelhard will agree on
the business strategy, operations or financing of the Partnership, which could
have an adverse effect on the Partnership's business. In addition, there is no
assurance that the net proceeds received by the Company from the sale of the
Common Stock offered hereby will be expended in the manner set forth under "Use
of Proceeds." Moreover, if Engelhard exercises a sufficient portion of its
option to acquire the Company's interest in the Partnership such that it owns
more than 70% of the Partnership, Engelhard will have the right to expand the
Management Committee to three members and to designate the third member of the
Management Committee, thereby effectively controlling the business of the
Partnership. See "Business - The Partnership."
Mr. Gross may encounter conflicts of interest in connection
with his responsibilities as Chief Executive Officer and member of the
Management Committee of the Partnership, Chairman and President of the Company.
It is expected that Mr. Gross will attempt to resolve any such conflict of
interest in a manner consistent with his fiduciary duties to both the
Partnership and the Company.
History of Losses. Since its inception, the Company has
suffered recurring losses accumulating to approximately $31.4 million through
September 30, 1995, including the Company's reported share of losses sustained
by the Partnership through that date. From its formation through September 30,
1995, the Partnership has incurred losses totalling approximately $12.4 million.
While the Company believes that the business strategy adopted by the Company and
the Partnership has potential for profits and returns on investments in the
future, there can be no assurance that the Partnership or the Company will
operate profitability in the near future, if ever. The reports of the
independent accountants on the Company's and Partnership's financial statements
for the fiscal year ended December 31, 1994 include explanatory paragraphs which
refer to conditions that raise substantial doubt about the Company's and
Partnership's ability to continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and the
financial statements of the Company and the Partnership and notes thereto
included elsewhere herein.
Working Capital and Other Financing Requirements. At present,
the Company has no operations or source of funds other than borrowings or
proceeds from the issuance of equity securities. To date, the Partnership has
incurred losses and, therefore, not only has the Partnership been unable to
generate sufficient cash from operations to fund the Company's working capital
requirements but it also has required capital investments by the Company. If the
Partnership were to become profitable, the Company expects that all of such cash
would be retained to support and grow the Partnership's business for the
foreseeable future. The Company historically has met its financing needs
primarily through the sale of its capital stock. While the Company believes that
it currently has sufficient resources to support its operations for the
foreseeable future, no assurance can be given that it will not be required to
obtain
(9)
<PAGE>
additional financing in the future. If such additional financing were
required, there can be no assurance that additional financing will be available
on acceptable terms or at all. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
To date, the Partnership has incurred losses and has been
unable to generate sufficient cash from operations to fund its operations or
expand its business. Consequently, the Partnership has relied on the Company and
Engelhard to fund its operations and expand its business. While the Company
believes that the net proceeds from the sale of the Common Stock offered hereby
will be sufficient to fund the Company's 50% share of the working capital and
capital investment requirements of the Partnership for the twelve-month period
following the date of the offering, no assurance can be given in that regard.
Further, even if the net proceeds from this offering are sufficient for such
activities, it is anticipated that the Partnership will require additional
financing in the future, and there is no assurance that such additional
financing will be available to the Partnership on acceptable terms or that the
Company or Engelhard would be willing or able to provide such financing. While
neither the Company nor Engelhard is required to provide additional financing to
the Partnership under the terms of the Partnership Agreement, in the event
additional financing is required by the Partnership and the Company is unwilling
or unable to provide its share of such additional financing, additional funding
by Engelhard might have a dilutive effect on the Company's percentage ownership
of the Partnership. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Market Acceptance of the Partnership's Products. While the
Company believes there is a significant market for the Partnership's
desiccant-based climate control systems, through September 30, 1995, the
Partnership had sold only 84 units which incorporate the Partnership's honeycomb
rotors and Engelhard's ETS(TM) desiccant. The Partnership's systems are an
emerging technology in the air conditioning business, with uncertain demand and
market acceptance. The Company believes that the Partnership's systems are
innovative, efficient, cost effective supplements or alternatives to
conventional air conditioning systems in many applications and that no other
desiccant cooling systems operate as effectively or economically as the
Partnership's systems. Nevertheless, the Partnership has only recently begun
significant marketing activities relating to the commercialization of its
climate control systems and will need to expend considerable efforts and
resources to create awareness and acceptance of such systems. There can be no
assurance that the Partnership will be able to create sufficient market
acceptance or that the Partnership's products can be sold at the prices
anticipated. See "Business - Strategy."
Partnership Buy-Out Option. In connection with the formation
of the Partnership, the Company granted Engelhard options to acquire up to all
of the Company's interest in the Partnership at the rate of 25% of such interest
per year starting on December 31, 1997, with each option exercisable based upon
a price equal to 95% of the fair market value of the Partnership as determined
by an investment banking firm selected by the Company and Engelhard. Upon the
occurrence of an event of default by the Company under the Partnership Agreement
(including bankruptcy of the Company or violation of or failure by the Company
to comply with any material term or condition of the Partnership Agreement which
is not cured within a 45-day period), Engelhard's options can be accelerated.
There can be no assurance whether Engelhard will or will not exercise any or all
of its options to purchase the Company's interest in the Partnership or that the
valuation assigned the Company's interest will be sufficient to generate an
acceptable return to investors. See "Business - The Partnership."
Dependence on Proprietary Technology. The Partnership's
ability to compete effectively with other manufacturers of climate control
systems is dependent upon, among other factors, a combination of (i) the
Partnership's proprietary desiccant system designs, (ii) Engelhard's patented
desiccant material, ETS(TM), which is sold to the Partnership pursuant to a
Supply Agreement (the "Engelhard Supply
(10)
<PAGE>
Agreement") and is exclusively licensed to the Partnership for use in climate
control applications pursuant to a Technology License Agreement (the "Engelhard
License Agreement"), and (iii) the proprietary process used to manufacture the
small cell, honeycomb substrate material for the Partnership's rotors, for which
the Partnership has a perpetual license from Ciba-Geigy Corporation
("Ciba-Geigy"). The Partnership owns three United States patents covering
certain of its desiccant technology and has filed additional United States and
foreign patent applications. In addition to its patent rights, the Partnership
generally enters into confidentiality agreements and licensing agreements with
its partners, employees, distributors and customers and attempts to limit access
to proprietary information and equipment. There can be no assurance that the
steps taken by the Partnership in this regard will be adequate to deter
misappropriation of its proprietary technology and manufacturing processes or
that independent development of similar technology or processes will not occur.
Further, patents are presumed valid, but the validity of any patent may be
challenged and there is no way to accurately predict the outcome of litigation
challenging the validity of a patent. In addition, although the Company believes
that the Partnership's owned and licensed technology and manufacturing processes
do not infringe any existing patents or other proprietary rights, there can be
no assurance that other parties will not assert infringement claims against the
Partnership or the licensors of its licensed technology. The failure to receive
additional patents, to defend its existing patents or licensed technology or to
defend against infringement claims asserted by others, or the independent
development of similar or competing proprietary technology and processes would
likely have a material adverse effect on the Partnership's, and therefore the
Company's, results of operations and financial condition. See "Business -
Patents and Proprietary Information."
Management of Growth. The Partnership has experienced, and
expects to continue to experience, rapid growth that has placed, and will
continue to place, a significant strain on its management and operational and
financial resources. The Partnership's ability to manage its growth effectively
will require it to expand and continue to improve its operations and information
systems, and to attract, train, motivate and manage its employees effectively.
In particular, the Partnership plans to expand its manufacturing facilities to
meet the anticipated demand for its products and to enter new markets in the
Asian-Pacific region. The Partnership's success will depend on the Partnership's
ability to expand its operations, enter new markets and retain and motivate its
employees and there can be no assurance that the Partnership will implement such
changes successfully. The Partnership's failure to manage such growth
effectively would have a material adverse effect on the Partnership's and the
Company's businesses and results of operations. See "Use of Proceeds"; "Business
- - Strategy" and "Business - Manufacturing."
Unproven Reliability of Products. To date, all of the systems
sold by the Partnership which incorporate the Partnership's honeycomb rotors and
the Engelhard ETS(TM) desiccant, have been in service for less than 24 months.
While the Company believes that product reliability to date has been
commercially acceptable and provides a reasonable basis for estimating future
reliability, there can be no assurance that the reliability of the Partnership's
products will remain satisfactory in the future. See "Business - Products."
Acquisition and Alliance Strategy. The Company believes that
acquiring, or entering into alliances with, other businesses will be an
important element of the Partnership's strategy for achieving growth. There can
be no assurance that suitable acquisition or alliance candidates will be
identified, or if identified, that they will enter into joint venture, license
or merger arrangements acceptable to the Partnership and the Company.
Furthermore, there can be no assurance that financing for any such transactions
will be available on satisfactory terms or at all, or that the Partnership will
be able to accomplish its strategic objectives as a result of any such
transaction. See "Business - Strategy."
(11)
<PAGE>
Dependence on Key Personnel. The Company is highly dependent
on the Company's Chairman and President, Irwin L. Gross. Mr. Gross has an
employment agreement with the Partnership, but does not have an employment
agreement with the Company. The loss of Mr. Gross could have a material
adverse effect on the Partnership's and the Company's businesses. Neither the
Company nor the Partnership has key-man life insurance on Mr. Gross.
See "Management."
Competition. There are a number of other companies in the air
conditioning industry that have significantly greater resources and experience
than the Partnership in designing, manufacturing and marketing air conditioning
equipment. While the Company believes that the Partnership has developed
proprietary products and has established limited market acceptance for its
products, there can be no assurance that other companies do not currently market
or will not develop competing products that have advantages over the
Partnership's products in either price or performance. See "Business -
Competition."
Dilution. The purchasers of the shares of Common Stock
offered hereby will experience immediate and substantial dilution of $10.57
in pro forma book value per share of Common Stock after the offering at an
assumed public offering price of $12.00 per share. See "Dilution."
No Cash Dividends. The Company has not declared any cash
dividends on its Common Stock and does not expect to declare any cash dividends
in the foreseeable future. Payment of future dividends will rest within the
discretion of the Board of Directors and will depend, among other things, on the
earnings, capital requirements and financial condition of the Company and the
Partnership. No assurance can be given that the Company's results of operations
or its interest in the Partnership will ever permit the payment of cash
dividends. In addition, future borrowings or issuances of Preferred Stock may
prohibit or restrict the Company's ability to pay or declare dividends. The
Company currently has a note payable to a stockholder and Preferred Stock
outstanding which prohibit or restrict the Company's ability to pay dividends;
however, upon completion of this offering, the note is to be repaid and pursuant
to the Preferred Stock Transactions, the Preferred Stock is to be redeemed or
converted into shares of Common Stock. See "Dividend Policy."
Control by Principal Stockholders. As of September 30, 1995,
all officers and directors of the Company as a group owned outstanding shares of
Common Stock and Preferred Stock which, on a pro forma basis after giving effect
to the Preferred Stock Transactions and as adjusted to give effect to the sale
of the Common Stock offered hereby, would equal 4,374,032 shares of Common
Stock, representing 21.0% of the outstanding Common Stock. In addition, such
officers and directors as a group held options and warrants to purchase an
aggregate of 3,201,611 shares of Common Stock. Assuming all such options and
warrants were exercised, and no other options or warrants were exercised, as of
September 30, 1995, all officers and directors of the Company as a group on a
pro forma basis giving effect to the Preferred Stock Transactions and as
adjusted to give effect to the sale of the Common Stock offered hereby, would
own 31.5% of the Common Stock, including approximately 15.2% by Irwin L. Gross,
the Company's Chairman and President. Consequently, Mr. Gross and the other
officers and directors can and will be able to continue to exercise significant
influence over the Company and its affairs.
See "Principal Stockholders."
Shares Eligible for Future Sale. As of September 30, 1995,
after giving effect to the Preferred Stock Transactions, there would have been
4,366,057 shares of Common Stock outstanding which constituted "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, substantially all of which may be sold at any time, subject to
the restrictions of Rule 144. In addition, as of September 30, 1995, the Company
had granted options to purchase 3,019,885 shares of Common Stock under its stock
option plans, of which options to purchase 1,380,085 shares of Common
(12)
<PAGE>
Stock were currently exercisable. An additional 1,910,942 shares of Common Stock
were reserved for issuance under such plans. All of the shares underlying
options under such plans are covered by effective registration statements. The
Company also had outstanding warrants to purchase 1,465,000 shares of Common
Stock, of which warrants to purchase 540,000 shares of Common Stock are
currently exercisable. Of the outstanding warrants, 450,000 underlying shares of
Common Stock are registered pursuant to an effective registration statement and
the balance of 1,015,000 shares of Common Stock have certain registration
rights. Possible or actual sales made under Rule 144, or pursuant to
registration or other exemptions from registration under the Securities Act, of
the aforementioned shares of Common Stock may have an adverse effect upon the
market price of the Common Stock. Of the shares of the Common Stock referred to
above, an aggregate of 7,950,643 shares of Common Stock held, after giving
effect to the Preferred Stock Transactions, or which may be acquired upon
exercise of outstanding options and warrants by the officers, directors and
certain stockholders of the Company, are subject to "lock-up" agreements for a
period of 180 days from the date of this Prospectus. See "Shares Eligible for
Future Sale."
(13)
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common
Stock offered hereby are estimated (assuming a public offering price of $12.00
per share) to be approximately $27.6 million ($31.8 million if the Underwriters'
over-allotment option is exercised in full) after deduction of underwriting
discounts and commissions and estimated offering expenses. The Company plans to
use the net proceeds from the offering (a) to fund half of the aggregate funds
estimated to be required by the Partnership to finance the Partnership's
activities, as follows (the following amounts represent the Company's share of
the expenditures): (i) up to approximately $6.0 million to finance the expansion
of the Partnership's rotor manufacturing facilities; (ii) up to approximately
$3.0 million to finance a new manufacturing facility to replace the
Partnership's Philadelphia facility; (iii) up to approximately $5.0 million to
fund expenditures relating to the Partnership's joint venture and other
licensing activities internationally; and (iv) to finance a possible acquisition
of an existing air conditioning company by the Partnership and to fund the
working capital requirements of the Partnership, (b) to redeem its Series F, I
and J Preferred Stock for approximately $967,000, including payment (as of
September 30, 1995) of approximately $312,000 of accrued dividends on its Series
F, G, I and J Preferred Stock, and to pay a $150,000 note payable to a
stockholder, and (c) the balance to fund the Company's working capital
requirements. Pending the use of the net proceeds, the Company will invest the
proceeds from the sale of the Common Stock offered hereby in government
securities or money market funds. Although the Company and Engelhard have agreed
in principle for the Partnership to make the expenditures referred to above, as
of the date hereof, the Management Committee which governs the Partnership has
not authorized formally any of the foregoing expenditures, and there is no
assurance that the proceeds will be expended in the manner set forth above. The
use of the proceeds by the Company is subject to certain restrictions described
under "Management - Expansion of Board; Approval of Certain Transactions." See
also "Risk Factors" and "Business."
(14)
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company has applied for the listing of its Common Stock on
the Nasdaq National Market under the symbol ICGN and for trading to commence on
that market on the effective date of this offering. Prior to this offering, the
Common Stock traded on the Nasdaq Small Cap Market. Based on reports provided by
Nasdaq, the price range of high and low bid prices for the Common Stock for the
periods indicated are as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1993
First Quarter.................................................... $ 3.16 $ 1.44
Second Quarter................................................... 4.31 2.63
Third Quarter.................................................... 5.31 3.75
Fourth Quarter................................................... 5.13 3.63
1994
First Quarter.................................................... 5.31 3.38
Second Quarter................................................... 5.31 3.13
Third Quarter.................................................... 10.00 4.94
Fourth Quarter................................................... 10.38 6.94
1995
First Quarter.................................................... 13.63 7.81
Second Quarter................................................... 15.50 11.50
Third Quarter.................................................... 18.38 13.88
Fourth Quarter (through December 5, 1995)........................ 15.63 10.50
</TABLE>
The above quotations reported by Nasdaq represent prices between
dealers and do not include retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions. On December 5, 1995, the last
reported sale price for the Common Stock, as reported by Nasdaq, was $11.63 per
share. On December 5, 1995, there were 1,117 holders of record of the Common
Stock.
(15)
<PAGE>
DIVIDEND POLICY
Other than an in-kind warrant dividend declared by the Board of
Directors in June 1990, no dividends have ever been paid on the Common Stock and
it is unlikely that any dividends will be paid in the foreseeable future. The
payment of cash dividends on the Common Stock will depend on, among other
things, the earnings, capital requirements and financial condition of the
Company and the Partnership, and general business conditions. In addition,
future borrowings or issuances of Preferred Stock may prohibit or restrict the
Company's ability to pay or declare dividends. The Company currently has a note
payable to a stockholder and Preferred Stock outstanding which prohibit or
restrict the Company's ability to pay dividends; however, upon completion of the
offering, the note is to be repaid and pursuant to the Preferred Stock
Transactions, the Preferred Stock is to be redeemed or converted into shares of
Common Stock.
PREFERRED STOCK TRANSACTIONS
The Company currently has five classes of Preferred Stock outstanding.
Upon consummation of the sale of the shares offered hereby, the Series G and H
Convertible Preferred Stock will be automatically converted into 2,859,696 and
750,000 shares of Common Stock, respectively. In addition, upon such conversion,
the Company will pay accrued dividends on the Series G Convertible Preferred
Stock in cash ($43,092 as of September 30, 1995), and the accrued dividends on
the Series H Convertible Preferred Stock are payable, at the option of the
holder, in Common Stock at the rate of $4.00 per share. Accordingly, pursuant to
the holder's request, the Company will issue approximately 149,063 shares of
Common Stock with respect to the accrued dividends on the Series H Convertible
Preferred Stock ($596,250 at September 30, 1995). Moreover, upon the
consummation of the offering, the holders of Series I Preferred Stock will
require the Company to redeem the Series I Preferred Stock for $500,000, plus
accrued dividends ($177,500 as of September 30, 1995). In addition, upon
consummation of the offering, the Company will redeem the Series F Preferred
Stock for $241,764 plus accrued dividends ($16,620 as of September 30, 1995) and
its Series J Preferred Stock for $225,000 plus accrued dividends ($74,813 as of
September 30, 1995). The transactions referred to above, all of which are
expected to be completed upon the closing of the offering, are referred to as
the "Preferred Stock Transactions."
(16)
<PAGE>
DILUTION
As of September 30, 1995, the net tangible book value of the Company
was $3,503,266 or $.24 per share of Common Stock. Net tangible book value per
share represents total tangible assets, less total liabilities, divided by the
number of shares of Common Stock outstanding. After pro forma adjustment to give
effect to the Preferred Stock Transaction and as adjusted to give effect to the
receipt by the Company of the estimated proceeds from the sale of the 2,500,000
shares of Common Stock offered hereby, at an assumed public offering price of
$12.00 per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses, the pro forma as adjusted net
tangible book value of the Company as of September 30, 1995 would have been
$29,810,977 or $1.43 per share. This represents an immediate increase in net
tangible book value of $1.19 per share to the existing stockholders of the
Company and an immediate dilution of $10.57 per share to new stockholders
purchasing the shares of Common Stock offered hereby. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share......................................... $12.00
Net tangible book value per share as of
September 30, 1995............................................................ $.24
Pro forma effect of Preferred Stock Transactions................................ (.12)
-----
Pro forma net tangible book value per share as of September 30, 1995 .--........ .12
Increase per share attributable to new stockholders............................. 1.31
Pro forma as adjusted net tangible book value per share
after the offering .......................................................... 1.43
------
Dilution to new stockholders.................................................... $10.57
======
</TABLE>
(17)
<PAGE>
CAPITALIZATION
The following table reflects the capitalization of the Company
as of September 30, 1995, and the pro forma as adjusted capitalization to give
effect to the sale of the 2,500,000 shares of Common Stock offered hereby at an
assumed public offering price of $12.00 per share and the application of the
estimated net proceeds therefrom and the Preferred Stock Transactions. See "Use
of Proceeds" and "Preferred Stock Transactions."
<TABLE>
<CAPTION>
September 30, 1995
----------------------------------
Pro Forma
Actual As Adjusted
-------- -------------
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Series F, authorized, issued and outstand- $ 1 $ -
ing 135 shares and 0 shares, pro forma as
adjusted
Series G Convertible, authorized, issued 4 -
and outstanding 350 shares and 0 shares
pro forma as adjusted
Series H Convertible, authorized, issued 15 -
and outstanding 1,500 shares and 0 shares,
pro forma as adjusted
Series I, authorized, issued and outstanding 5 -
500 shares and 0 shares, pro forma as
adjusted
Series J, authorized, issued and outstanding 2 -
225 shares and 0 shares, pro forma as
adjusted
Common stock, $.01 par value, authorized 145,925 208,513
50,000,000 shares, issued and outstanding
14,592,540 shares and 20,851,299 shares,
pro forma as adjusted
Additional paid-in capital 34,907,976 61,153,126
Accumulated deficit (31,379,232) (31,379,232)
Less - Treasury common stock, at cost,
66,227 shares (171,430) (171,430)
------------ -------------
Total stockholders' equity $ 3,503,266 $ 29,810,977
============ ============
</TABLE>
(18)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected consolidated financial data of the Company at and
for the years ended December 31, 1994, 1993, 1992, 1991, and 1990 have been
derived from the Company's financial statements, which have been audited by
Coopers & Lybrand L.L.P. (whose reports thereon include an explanatory paragraph
which refer to conditions that raise substantial doubt about the Company's
ability to continue as a going concern). The selected consolidated financial
data for the nine month periods ended September 30, 1995 and 1994 and as of
September 30, 1995 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited interim financial data include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for
those periods. The data should be read in conjunction with the Company's
consolidated financial statements and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------------- ------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data: 1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
Revenues $ 7 $ 88 $ 88 $ 1,201 $ 957 $ 1,354 $ 2,370
Cost of goods sold 6 80 80 1,177 939 1,641 1,957
-------- --------- --------- --------- -------- -------- -------
Gross profit (loss) 1 8 8 24 18 (287) 413
Operating expenses (1,027) (1,239) (1,735) (4,072) (2,563) (2,586) (2,166)
Net interest income (expense) 263 60 148 (10) (22) (20) (157)
Equity interest in net loss of
Partnership(1) (3,394) - (2,812) - - - -
-------- --------- --------- --------- -------- -------- -------
Net loss (4,157) (1,171) (4,391) (4,058) (2,567) (2,893) (1,910)
Preferred stock dividend
requirements (215) (176) (228) (261) (242) (124) -
-------- --------- --------- --------- -------- -------- -------
Net loss applicable to
common stockholders $ (4,372) $ (1,347) $ (4,619) $ (4,319) $ (2,809) (3,017) (1,910)
======== ========= ========= ========= ======== ======= =======
Loss per common share $ (0.34) $ (0.12) $ (0.41) $ (0.51) $ (0.47) (0.57) (0.50)
Weighted average shares
outstanding 12,955 11,082 11,391 8,551 5,979 5,292 3,819
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995 December 31,
------------------------------- ------------------------------------------------------------
(In thousands, except per share data)
Pro Forma
Balance Sheet Data: Actual As Adjusted(2) 1994 1993 1992 1991 1990
------ ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 3,855 $ 30,013 $ 1,114 $ 1,143 $ 34 $ 182 $ 161
Working capital (deficit) 3,901 30,208 1,072 1,207 (416) 494 (131)
Investment in Partnership - - 1,048 - - - -
Total assets 6,738 32,896 2,398 2,564 998 1,990 2,583
Losses of Partnership in excess
of investment 2,905 2,905 - - - - -
Total debt 150 - 150 800 360 326 975
Total liabilities 3,235 3,085 427 1,521 1,459 1,398 3,196
Stockholders' equity (deficit) $ 3,503 $ 29,811 $ 1,971 $ 1,044 $ (461) $ 592 $ (613)
</TABLE>
(1) The Company had no obligation or commitment to provide additional
financing to the Partnership during the period ended September 30, 1994
and the Company's share of losses was not recognized.
(2) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby at an assumed offering price of $12 per share, and
the application of the net proceeds therefrom and pro forma adjustments to
reflect the Preferred Stock Transactions and the repayment of a note
payable to a stockholder. See "Use of Proceeds" and "Preferred Stock
Transactions."
(19)
<PAGE>
SELECTED FINANCIAL DATA OF THE PARTNERSHIP
The following selected financial data of the Partnership at and for the
period ended December 31, 1994 have been derived from the Partnership's
financial statements, which have been audited by Coopers & Lybrand L.L.P. (whose
report thereon includes an explanatory paragraph which refers to conditions that
raise substantial doubt about the Partnership's ability to continue as a going
concern). The selected financial data for the periods ended September 30, 1995
and 1994 and as of September 30, 1995 have been derived from the unaudited
financial statements of the Partnership. The unaudited interim financial data
include all adjustments, consisting of normal recurring accruals, which the
Partnership considers necessary for a fair presentation of the results of
operations for those periods. The data should be read in conjunction with the
Partnership's financial statements and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period February 7 Period February 7
Nine Months Ended (date of formation) (date of formation)
September 30, to September 30, to December 31,
1995 1994 1994
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 7,171 $ 997 $ 1,620
Cost of goods sold 7,175 877 1,592
------ ----- -----
Gross profit (loss) (4) 120 28
Marketing expenses (2,524) (1,373) (2,061)
Research, development and
engineering expenses (1,593) (1,291) (2,128)
General and administrative (2,084) (1,000) (1,539)
Net interest income
(expense) (582) 102 75
------- -------- --------
Net loss $(6,787) $ (3,442) $ (5,625)
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------ ----
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash $ 41 $ 648
Working capital (deficit) 1,518 (5,931)
Total assets 16,786 13,386
Total debt 11,465 8,175
Total liabilities 13,093 9,906
Partners' capital $ 3,693 $ 3,481
</TABLE>
(20)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company, through the Partnership, designs, manufactures and markets
innovative climate control systems to supplement or replace conventional air
conditioning systems. The Partnership's climate control systems are based on
proprietary desiccant cooling designs initially developed by the Company, a
licensed honeycomb rotor technology and Engelhard's patented titanium silicate
desiccant, ETS(TM).
Pursuant to the formation of the Partnership, on February 7, 1994, the
Company transferred its assets related to its desiccant air conditioning
business, subject to certain liabilities, to the Partnership in exchange for a
50% interest in the Partnership through its wholly-owned subsidiary, ICC
Desiccant Technologies, Inc. Engelhard, in exchange for a 50% interest in the
Partnership, contributed capital to the Partnership, entered into the Engelhard
Supply Agreement to provide the Partnership with ETS(TM) and entered into the
Engelhard License Agreement granting the Partnership an exclusive royalty-free
license to use ETS(TM) in the Partnership's business, including heating,
ventilation and air conditioning. The desiccant climate control business
conducted by the Company prior to the formation of the Partnership is now being
conducted by the Partnership, and the Company has become principally a holding
company. Further, substantially all of the employees of the Company have become
employees of the Partnership and the leases for the space occupied by, and
certain other obligations of, the Company have been assumed by the Partnership.
Since the formation of the Partnership, the Company's sole activities
have related to its participation in the management of the Partnership and the
sale of the Company's remaining cogeneration assets. The Company is not
permitted to engage directly or indirectly in any activities which would
conflict with the Partnership's business as long as the Partnership is in
effect, but the Company is not precluded from engaging in other activities. The
Company currently does not have any plans to engage in other activities and,
therefore, is not expected to generate any significant revenues, although it
will continue to incur general and administrative expenses.
The Company accounts for its 50% interest in the Partnership under the
equity method of accounting for investments. At February 7, 1994, the date of
formation of the Partnership ("Formation"), the Company's investment in the
Partnership was approximately $0. The Company had no obligation or commitment to
provide additional financing to the Partnership and losses of the Partnership
were not recognized through the period ended September 30, 1994. During the
fourth quarter of 1994, the Company and Engelhard each loaned the Partnership
$4,000,000 to acquire a manufacturing facility in Miami, Florida. As a result,
and because the Company expects to continue to fund the Partnership's
activities, the Company has and will continue to recognize its share of the
losses of the Partnership.
Results of Operations
Three Months Ended September 30, 1995 and 1994.
The Partnership's revenue for the three months ended September 30, 1995
increased to $2,001,000 compared to $380,000 for the same period in 1994. The
increase in revenue is primarily attributable to the fabrication of substrates
for Ciba-Geigy pursuant to a supply agreement and increased equipment sales.
Revenues from Ciba-Geigy were $1,504,000 for the three months ended September
30, 1995 as compared
(21)
<PAGE>
to none for the same period in 1994. Equipment sales increased to $491,000 for
the three months ended September 30, 1995, compared to $364,000 for the same
period in 1994. The Partnership recorded a gross loss of $274,000 for the three
months ended September 30, 1995 compared to a gross profit of $52,000 for the
same period in 1994 due primarily to increases in manufacturing costs of
equipment without a corresponding increase in unit sales.
The net loss of the Partnership was $2,641,000 and $1,572,000 for the
three months ended September 30, 1995 and 1994, respectively. The net loss was
primarily attributable to losses from operations of $2,522,000 and $1,597,000
for the three months ended September 30, 1995 and 1994, respectively. The
increase in the Partnership's loss from operations for the three month period
ended September 30, 1995 compared to the same period in 1994 was attributable
primarily to higher marketing and general and administrative costs. Marketing
expenses increased $203,000 for the three months ended September 30, 1995
compared to the same period in 1994 as the result of the Partnership's increased
marketing efforts and increased sales and marketing staff. General and
administrative expenses increased $381,000 for the three months ended September
30, 1995 compared to the same period in 1994 as the result of increased staff,
along with costs associated with the Miami plant acquired in December 1994.
The Company did not have any revenues from its cogeneration business for
the three months ended September 30, 1995 and 1994. The Company's revenues have
been limited to sales of cogeneration spare parts since the formation of the
Partnership.
The Company's general and administrative expenses decreased $103,000 to
$343,000 for the three month period ended September 30, 1995 compared to the
same period in 1994 primarily as a result of a decrease in professional fees. In
connection with the private placement of 300,000 shares of Common Stock in March
1995, the Company entered into a consulting arrangement expiring in March 1996
with the placement agent; general and administrative expenses include consulting
expenses of $25,000 for the three months ended September 30, 1995.
The Company's net loss for the three months ended September 30, 1995 was
$1,595,000 compared to a net loss of $395,000 for the same period in 1994. This
increase in loss was attributable to the Company's 50% share of the
Partnership's loss of $1,320,000 for the three months ended September 30, 1995
as compared to none recognized for the same period in 1994. Net loss per share
of Common Stock was $.12 and $.04 for the three month periods ended September
30, 1995 and 1994, respectively.
Nine months ended September 30, 1995 and 1994.
The Partnership's revenue for the nine months ended September 30, 1995
increased to $7,172,000 compared to $997,000 for the period from Formation to
September 30, 1994 due to the fabrication of substrate for Ciba-Geigy pursuant
to a supply agreement, increased equipment sales and licensing fees. Fabrication
of substrate at the Miami plant amounted to $4,797,000 for the nine months ended
September 30, 1995 as compared to none for the period from Formation to
September 30, 1994. Equipment sales amounted to $1,833,000 for the nine months
ended September 30, 1995 compared with $958,000 for the period from Formation to
September 30, 1994. Licensing fees of $500,000 were recognized in 1995. The
Partnership recorded a gross loss of $4,000 for the nine months ended September
30, 1995 compared to a gross profit of $120,000 for the same period in 1994. The
gross loss was due primarily to increases in manufacturing costs of equipment
without a corresponding increase in unit sales, partially offset by the
licensing fees.
(22)
<PAGE>
The net loss of the Partnership was $6,787,000 for the nine months ended
September 30, 1995 and $3,442,000 for the period from Formation to September 30,
1994. The net loss was primarily attributable to a loss from operations of
$6,205,000 for the nine month period ended September 30, 1995 and $3,545,000 for
the period from Formation to September 30, 1994. The increase in the
Partnership's loss from operations for the nine month period ended September 30,
1995 compared to the period from Formation to September 30, 1994 was
attributable primarily to higher marketing, general and administrative costs and
research and development costs. Marketing expenses increased $1,151,000 for the
nine months ended September 30, 1995 compared to the period from Formation to
September 30, 1994. The increase in marketing expenses was the result of the
Partnership's increased marketing efforts and increases to its sales and
marketing staff. General and administrative expenses increased $1,084,000 for
the nine months ended September 30, 1995 compared to the period from Formation
to September 30, 1994, primarily as the result of increased staff and costs
associated with the Miami plant acquired in December 1994. Research and
development expenses increased $357,000 for the nine months ended September 30,
1995 compared to the period from Formation to September 30, 1995 primarily due
to an increase in the number of research staff and increased testing of
equipment by independent laboratories.
The Company generated nominal revenues of $7,000 for the nine months
ended September 30, 1995 which were attributable to the sale of cogeneration
spare parts compared to revenues of $88,000 for the same period in 1994 which
were attributable to sales of the desiccant climate control systems prior to the
formation of the Partnership on February 7, 1994.
The Company's general and administrative expenses increased $93,000 to
$1,027,000 for the nine months ended September 30, 1995 compared to the same
period in 1994 as a result of increased payroll expenses and other
administrative costs offset by a reduction in professional fees. The Company
accrued an expense of $30,000 for the nine months ended September 30, 1995 for
services rendered in 1993 by an investor relations firm. Pursuant to an
agreement with such firm, the obligation was satisfied by the issuance of 20,000
shares of Common Stock. The Company's expenses relating to marketing,
engineering and development decreased or were eliminated in 1995 as compared to
1994 primarily as a result of the transfer of substantially all operations to
the Partnership on February 7, 1994. Consulting expenses of $25,000 were
recognized in the nine months ended September 30, 1995 related to the March 1995
private placement of 300,000 shares of Common Stock.
The Company's net loss for the nine months ended September 30, 1995 was
$4,157,000 compared with a net loss of $1,171,000 for the same period in 1994.
This increase in loss is attributable to the Company's 50% interest in the
Partnership's loss of $3,394,000 for the nine months ended September 30, 1995 as
compared to none recognized for the same period in 1994. Continued losses of the
Partnership have resulted in recognition of the losses in excess of the
Company's investment and advances in the amount of $2,905,000 at September 30,
1995. Net loss per share of Common Stock was $.34 and $.12 for the nine month
periods ended September 30, 1995 and 1994, respectively.
Year ended December 31, 1994 and 1993.
Total revenues for the Company for the year ended December 31, 1994 were
$88,000 compared with $1,201,000 in 1993. The decrease in revenues was
attributable to the transfer of substantially all of the assets, operations and
employees in connection with the Formation. The Partnership's revenues for the
period from Formation to December 31, 1994 were $1,620,000. The Company's gross
profit was negligible for 1994 and 1993. The Company's gross profit on equipment
sales was offset by gross loss associated with service revenue in 1994 and 1993.
(23)
<PAGE>
The Company incurred $151,000 in engineering and development expenses for
the year ended December 31, 1994, while engineering and development expenses
were $1,100,000 in 1993. The decrease in engineering and development expenses
was attributable to the transfer of substantially all of the assets, operations
and employees in connection with the Formation. The Partnership's engineering
and development expenses for the period from Formation to December 31, 1994 were
$2,128,000.
The Company's operating expenses for the year ended December 31, 1994
were $1,734,000 as compared with $4,072,000 for the year ended December 31,
1993. The decrease in operating expenses was attributable to the transfer of
substantially all of the assets, operations and employees in connection with the
Formation. The Partnership's operating expenses for the period to December 31,
1994 were $5,728,000.
The Company's net loss for the year ended December 31, 1994 was
$4,391,000 compared with a net loss of $4,058,000 for the same period in 1993.
Loss from operations for the year ended December 31, 1994 was $1,726,000
compared with a loss from operations of $4,047,000 for the same period in 1993.
This decrease in loss resulted from the transfer of substantially all of the
assets, operations and employees of the Company in connection with the
Formation. The Company ceased to incur marketing, engineering and development,
and certain general and administrative expenses after the Formation. The
Partnership incurred a net loss of $5,625,000 for the period from Formation to
December 31, 1994. Prior to the fourth quarter of 1994, the Company's investment
in the Partnership was recorded at zero since the Company was not obligated or
committed to fund the Partnership. In the fourth quarter of 1994, the Company
loaned the Partnership $4,000,000 for the purpose of acquiring certain assets.
Consequently, the Company recognized its 50% share of previously unrecognized
accumulated losses in the fourth quarter of 1994. Net loss per share of Common
Stock was $.41 and $.51 for the years ended December 31, 1994 and 1993,
respectively. The decrease in loss per share of Common Stock in 1994 versus 1993
was primarily attributable to the increase in the number of shares of Common
Stock outstanding.
Year ended December 31, 1993 and 1992.
The Company's revenues for the year ended December 31, 1993 were
$1,201,000 as compared with $957,000 for the same period of 1992. The revenue
increase of $244,000 was due to higher equipment sales of $324,000 in 1993 which
was partially offset by a reduction of $80,000 in revenue from energy and
maintenance services.
The Company's operating expenses for the year ended December 31, 1993
were $4,072,000 as compared with $2,563,000 for the year ended December 31,
1992. The Company's expenses related to product development, marketing and
administration increased by $1,509,000 for the year ended December 31, 1993
compared to the same period in 1992. Marketing expenses increased $225,000 due
to the Company's efforts to increase sales. General and administrative expenses
increased by $705,000 primarily from start-up costs of approximately $166,000
related to a new manufacturing facility, a one-time charge of $70,000 for
severance expense related to an employment contract with a former officer of the
Company, a one-time charge of approximately $215,000 accrued for compensation
expense in connection with the issuance of stock for services and increased
legal, accounting and corporate expenses of $111,000. Engineering expenses
increased by $578,000 due primarily to the Company's obligation to fund
$1,000,000 of the joint development program with Engelhard.
The Company's loss from operations for the year ended December 31, 1993
was $4,047,000 compared with a loss from operations of $2,545,000 for the same
period in 1992. The increase in loss resulted from lower than expected revenues
and operating margins, higher operating costs for marketing
(24)
<PAGE>
and administrative expenses, and higher engineering expenses in connection with
the joint development program with Engelhard. The major cause of the low
operating margins was losses in energy and maintenance services.
The Company's and the Partnership's operations have not been
significantly affected by inflation.
Liquidity and Capital Resources
As of September 30, 1995, the Company's working capital amounted to
$3,901,000 and cash amounted to $3,855,000. The Company's net cash flow used in
operating activities decreased to $890,000 for the nine months ended September
30, 1995 compared to $1,378,000 for the same period in 1994 primarily as a
result of decreased operating costs and increased interest income.
As of December 31, 1994, the Company's working capital amounted to
$1,072,000 and cash amounted to $1,114,000. As of December 31, 1993, the
Company's working capital amounted to $1,207,000 and cash amounted to
$1,143,000. As of December 31, 1992, the Company's negative working capital
amounted to $416,000 and cash amounted to $34,000. For the years ended December
31, 1994, 1993 and 1992, the Company's net cash used in operating activities of
$1,373,000, $3,675,000 and $1,427,000, respectively, was primarily attributable
to net loss for those years.
Until the Partnership generates sufficient cash flow from operations, it
will primarily be dependent upon its partners to provide any required working
capital. There can be no assurance that the partners will be able or willing to
provide such working capital.
In August 1995, a capital contribution of $1,000,000 to the Partnership
was made by each partner. Subsequently, another $1,000,000 capital contribution
to the Partnership was made by each partner in October 1995 and again in
December 1995.
In December 1994, the general partners each loaned $4,000,000 to the
Partnership in connection with the acquisition of the real property and
substantially all other assets of an existing manufacturing facility located in
Miami, Florida. In May 1995, each general partner was repaid $1,500,000 of the
aforementioned loan, of which the remaining amount, $2,500,000 for each general
partner, was converted into an investment in the Partnership. In April 1995, the
Partnership obtained financing from the issuance of $8.5 million in industrial
development revenue bonds. The proceeds of these bonds were utilized to repay a
portion of the loan provided by the general partners to fund improvements and
capital equipment at the Miami facility. In May 1995, the Company guaranteed 50%
of the Partnership's indebtedness associated with the industrial development
revenue bonds. The Company has established an irrevocable letter of credit for
$2,500,000 to support its portion of the guarantee. The Company's letter of
credit is collateralized by a $2,500,000 certificate of deposit.
In August 1995, the Partnership entered into a joint development
agreement with AB Air in Israel for the development of a residential
desiccant-based, all electric climate control system. The Partnership has agreed
to share equally in the cost of the development program which is initially
estimated to be approximately $250,000. The Company has agreed to finance 60% of
AB Air's portion of the program costs pursuant to an interest-bearing loan. As
of December 5, 1995, no funds have been loaned to AB Air.
The capital needs of the Company have been satisfied primarily through
proceeds from the issuance of Common Stock and exercise of stock options and
warrants. Management believes the Partnership will require additional capital
contributions during 1996, and the Company plans to use the net proceeds from
(25)
<PAGE>
the offering as set forth under "Use of Proceeds" in this Prospectus. To the
extent Partnership capital contributions in excess of the proceeds of this
offering are required, or the Company requires additional funds to continue its
operations, the Company would expect to satisfy such requirements by seeking
equity financing. The Company's ability to successfully obtain equity financing
in the future is dependent in part on market conditions and the performance of
the Partnership. There can be no assurance that the Company will be able to
obtain equity financing in the future.
Equity Issuances
In March 1995, pursuant to a private placement, the Company issued
300,000 shares of Common Stock for gross proceeds of $3,300,000. The Company
granted warrants to purchase 375,000 shares of Common Stock at $9 per share to
the finder in connection with the private placement. Expenses incurred in
conjunction with the private placement amounted to approximately $260,000.
Through September 30, 1995, the Company received proceeds of approximately
$2,629,000 from the exercise of stock options and warrants to purchase
approximately 1,059,000 shares of Common Stock.
In June 1994, the Company sold 1,100,000 shares of Common Stock at a
purchase price of $3.56 per share for aggregate cash proceeds of $3,916,000, and
two directors each sold 150,000 shares of Common Stock at a purchase price of
$3.56 for aggregate cash proceeds to each of $534,000. Pursuant to an agreement
between the Company and the two directors, the Company agreed to pay all
commissions and expenses incurred in connection with the offering. Accordingly,
the net proceeds to the Company, after payment of such commissions and expenses
were $3,489,000. In connection with the offering, the Company granted to an
individual, who subsequently became a director, for financial advisory services,
warrants for the purchase of 215,000 shares of Common Stock. Those warrants have
an exercise price of $3.25 - $4.75 per share and expire in 1999. During 1994,
the Company received $1,543,000 in cash for 732,000 shares of Common Stock upon
the exercise of incentive and nonqualified stock options. Also during 1994, the
Company received net proceeds of $286,000 upon the exercise of warrants to
acquire 187,000 shares of Common Stock granted to placement agents in connection
with the March and April 1993 private placements referred to below.
To help fund the Company's net cash used in operating activities of
$3,675,000 for the year ended December 31, 1993, the Company raised $4,600,000
through the issuance of Common Stock and exercise of stock options. In March and
April 1993, the Company sold 374,000 shares of Common Stock for gross proceeds
of approximately $561,000 and net proceeds, after payment of commissions and
expenses of the offering of approximately $459,000. In July 1993, the Company
registered under the Securities Act, 1,060,000 shares of Common Stock of which
950,000 shares were to be issued upon the exercise of outstanding warrants and
110,000 shares were to be issued in exchange for certain obligations: 100,000
shares to an equipment vendor in settlement of approximately $388,000 in
accounts payable and 10,000 shares to a former officer of the Company as
severance pay. As of December 31, 1993, the Company had received $2,088,000 in
cash for 950,000 shares of Common Stock purchased upon the exercise of
outstanding warrants. Expenses for this offering for legal, accounting and
printing costs amounted to approximately $112,000. These expenses were offset
against cash received resulting in net proceeds of the offering amounting to
approximately $1,976,000.
In order to fund the Company's net cash used in operating activities of
$1,427,000 in 1992, the Company raised approximately $1,300,000 in capital as
discussed below: In March 1992, the Company sold to the Company's Chairman and
two other board members 500 shares of the Series I Preferred Stock for $500,000.
The investors also received nonqualified stock options to purchase 400,000
shares of Common Stock for $4.8125 per share, exercisable beginning in March
1993. The exercise price of these
(26)
<PAGE>
options was subsequently reduced to $2.25 per share by the Board of Directors on
December 17, 1992. In June 1992, the Company sold to an investor group led by
the Company's Chairman, 225 shares of newly created Series J Preferred Stock for
$225,000. The investors also received nonqualified stock options to purchase
128,574 shares of Common Stock at $1.75 per share, exercisable beginning in June
1993. Also in June 1992, the Company sold to two private investors 228,572
shares of Common Stock for a total purchase price of $400,000.
The independent accountants' report on the audit of the Company's 1994
financial statements includes an explanatory paragraph regarding substantial
doubt about the Company's ability to continue as a going concern. The Company's
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has incurred cumulative losses since
inception amounting to approximately $31 million through September 30, 1995. In
order to continue operations , the Company has had to raise additional capital
to offset cash consumed in operations and support of the Partnership. The
Company's continuation as a going concern is dependent upon its ability to: (i)
generate sufficient cash flows to meet its obligations on a timely basis; (ii)
obtain additional financing or refinancing as may be required; and (iii)
ultimately, attain profitable operations and positive cash flow from its
operations and its investment in the Partnership. The independent accountants'
report on the audit of the Partnership's 1994 financial statements also includes
an explanatory paragraph regarding substantial doubt about the Partnership's
ability to continue as a going concern. The Partnership's continuation as a
going concern will remain dependent upon its ability to: (i) generate sufficient
cash flows to meet its obligations on a timely basis; (ii) obtain additional
financing or refinancing as may be required; and (iii) ultimately, attain
profitable operations and positive cash flow from operations.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 establishes a fair value based method of
accounting for stock-based compensation plans. It encourages entities to adopt
that method in place of the intrinsic value method currently in place under the
provisions of Opinion No. 25 of the Accounting Principles Board (APB). Under the
fair value method accounting, all arrangements under which employees receive
shares of stock or other equity instruments or under which employers incur
liabilities to employees in amounts based on the price of its stock result in
the measurement of compensation cost at the grant date of the award which is
recognized over the service period, usually the vesting period. Under the
intrinsic value method, compensation cost is measured by the excess of the
quoted market price of the stock, if any, over the amount the employee must pay
to acquire the stock. For example, granting immediately exercisable stock
options to an employee at an exercise price equal to the quoted market price of
the stock results in the recognition of compensation expense at the date of
grant under the fair value method of SFAS No. 123; under the intrinsic value
method of APB No. 25, no compensation expense is recognized. However, SFAS No.
123 allows the Company to elect to continue its current method of accounting
under APB No. 25 for employee stock-based compensation arrangements. The Company
expects to continue its current method of accounting under APB No. 25 for
employee stock- based compensation arrangements. If the Company continues its
current method of accounting, pro forma disclosures of net income and earnings
per share must be disclosed, as if the Company had adopted the recognition
provisions of SFAS No. 123.
Although the Company is permitted to continue accounting for employee
stock-based compensation arrangements under APB No. 25, SFAS No. 123 requires
the Company to utilize the fair value method of accounting for transactions
involving stock options or other equity instruments issued to nonemployees
(27)
<PAGE>
as consideration for goods or services. Presently, those transactions are
accounted for by the Company under the intrinsic value principles of APB No. 25.
The use of intrinsic value versus fair value did not have a material effect on
any period presented.
The accounting and disclosure requirements of SFAS No. 123 are effective
for the Company in 1996. The Company has not yet determined the impact of
SFAS No. 123.
(28)
<PAGE>
BUSINESS
Introduction
The Company, through the Partnership with Engelhard, designs,
manufactures and markets innovative climate control systems to supplement or
replace conventional air conditioning systems. The Partnership's climate control
systems are based on proprietary desiccant cooling designs initially developed
by the Company, licensed honeycomb rotor technology and Engelhard's patented
titanium silicate desiccant, ETS(TM). The Partnership's climate control systems
are designed to address indoor air quality, energy and environmental concerns
and regulations currently affecting the air conditioning market. The Partnership
currently markets its systems to certain targeted applications within the
commercial air conditioning market in North America and Asia-Pacific. The
Company estimates that annual sales to these targeted applications are
approximately $2 billion of the $7 billion worldwide commercial air conditioning
market in 1994.
The Company believes that the Partnership's climate control systems offer
several advantages over conventional air conditioning systems, including the
ability to (i) control humidity and temperature independently, (ii) improve
indoor air quality, (iii) reduce energy consumption, (iv) utilize various
sources of energy such as natural gas, steam, waste heat and electricity, and
(v) address certain environmental concerns and regulations. Through September
30, 1995, the Partnership and, prior to formation of the Partnership, the
Company, have sold approximately 166 systems worldwide, including 84 systems
which incorporate both the honeycomb rotors and ETS(TM), to customers in the
United States such as the Shop Rite, Grand Union and Genuardi's supermarket
chains, JCPenney and Liz Claiborne, and internationally, through Chung-Hsin in
Taiwan, Samsung in South Korea and Nichimen in Japan.
The Company was incorporated in 1984 under the name "International
Cogeneration Corporation." Initially, the Company designed, manufactured and
sold cogeneration equipment. The Partnership's proprietary desiccant cooling
design was initially developed by the Company as an extension of its
cogeneration business. In 1990, the Company changed its strategy and began to
design, manufacture and sell climate control equipment based upon desiccant
technology, at which time the Company also changed its name to "ICC
Technologies, Inc." The Company has since discontinued its cogeneration
business. In May 1992, the Company entered into a joint development agreement
with Engelhard in order to design a desiccant-based climate control system
utilizing ETS(TM). The Company and Engelhard formed the Partnership in February
1994, which replaced the joint development agreement and succeeded to the
desiccant-based climate control business which had been conducted by the
Company. In connection with the formation of the Partnership, the Company
granted Engelhard an option to acquire the Company's interest in the Partnership
in installments commencing on December 31, 1997. See "Business -The
Partnership."
Since December 1994, the Partnership has (i) acquired from Ciba-Geigy,
the honeycomb substrate manufacturing facility in Miami, Florida, (ii) entered
into a five year license agreement with Chung-Hsin, Taiwan's largest air
conditioning manufacturer, for Chung-Hsin to manufacture and sell the
Partnership's climate control systems on an exclusive basis in Taiwan and on a
non-exclusive basis in mainland China, (iii) received the "Blue Star"
certification for safety and quality for its natural gas operated systems from
The American Gas Association Laboratory and (iv) hired a new Chief Operating
Officer, Vice President of Operations, Vice President of Marketing and North
American Sales and Vice President of Market Development. In addition, in 1995
the Partnership entered into a field demonstration agreement with Carrier
Corporation ("Carrier"), pursuant to which Carrier is testing and collecting
data from multiple units throughout the United States.
(29)
<PAGE>
Market Overview
The Company estimates that the worldwide annual market for residential
and commercial air conditioning systems was approximately $26 billion in
revenues in 1994 and is expected to grow to approximately $37 billion by the
year 2000. The Partnership has specifically targeted certain applications within
the commercial air conditioning market in North America and Asia-Pacific. The
Company estimates that these targeted applications had annual sales of
approximately $2 billion of the $7 billion market for commercial air
conditioning equipment in North America and Asia-Pacific in 1994. The Company
expects the Partnership's desiccant-based systems to compete in the worldwide
commercial air conditioning market as market awareness and acceptance grows and
the initial cost of the Partnership's systems declines. The Partnership has also
entered into two international joint ventures to develop desiccant-based
residential climate control systems, but no such system has yet been developed
and the Partnership cannot reasonably predict if and when any such system will
be developed. See "Business - Sales."
The Asian-Pacific commercial air conditioning market had sales of
approximately $5 billion of the worldwide commercial air conditioning market in
1994 and is expected to increase to approximately $6 billion by the year 2000.
Many of the Asian-Pacific countries are located in very humid climates where the
Partnership's climate control systems are most effective. The Asian-Pacific
market is dominated by Japan, which predominantly utilizes natural gas powered
air conditioning systems. As in Japan, many countries throughout Asia-Pacific
are experiencing shortages of electricity, creating a demand for air
conditioning systems powered by alternative energy sources.
The North American commercial air conditioning market had sales of
approximately $2 billion of the worldwide commercial air conditioning market in
1994 and is expected to increase to approximately $3 billion by the year 2000.
Air conditioning systems in North America predominately utilize electric powered
systems. The Partnership's strategy is to continue to target commercial
applications in which humidity control, indoor air quality and energy
consumption are important health issues or a significant cost of business.
Indoor air quality has become an important issue currently affecting the air
conditioning industry in the United States. Fungal and microbial growth in damp
duct work and the build-up of pollutants from furniture, appliances and other
equipment in recirculated air, can lead to unhealthy indoor environments
sometimes identified as "Sick Building Syndrome." To combat this problem, in
1989, ASHRAE issued recommendations to increase the amount of outdoor air
brought into buildings by as much as 300 to 400% above prior ventilation
standards. These recommendations have been incorporated into many building codes
across the United States since 1989. See "Business - Government Regulation."
International accords which address various energy and environmental
concerns are also having a significant impact in air conditioning markets
throughout the world. Under the 1987 Montreal Protocol, as amended,
approximately 130 countries have agreed to halt production of, and ban from use
completely, all ozone-destroying CFCs by 1996. At present, available substitute
refrigerants also have significant environmental and efficiency drawbacks and,
in the case of HCFCs, will also be banned from production and use by 2030
pursuant to the Montreal Protocol. Other replacement refrigerants, including
HFCs, are currently being considered for regulation by the United States and
other countries pursuant to the 1992 Rio Accord as a result of their
categorization as global warming gases. Under the 1992 Rio Accord, approximately
180 signatory countries agreed to establish a process to monitor and control the
emission of "greenhouse gases" and have set as an initial goal the reduction of
emission of such gases to 1990 levels by the year 2000. See "Business -
Government Regulation."
(30)
<PAGE>
Desiccant Technology
Comfort is directly affected by both temperature and humidity. People are
generally more comfortable in less humid environments. Lower humidity allows
water to evaporate from the skin, causing a cooling effect. Conventional air
conditioning systems control indoor temperature and humidity by cooling air.
Humidity control is principally a by-product of the cooling process and is
reduced by condensation of airborne moisture on a conventional air conditioning
system's cooling coil. In conditions where significant humidity reduction is
desired, conventional air conditioning systems may have to continue to cool
indoor air below desired levels, thereby also consuming additional energy.
Desiccant cooling systems, however, remove humidity independently of cooling
and, as a result, control humidity while consuming less energy and without
overcooling the air.
Systems which utilize desiccant technology have been in existence for
more than 50 years. A desiccant is a generic term for any drying agent that
removes moisture from the air. Prior desiccant-based equipment met limited
success and market acceptance outside of industrial drying applications because
of less effective desiccants and rotors, higher maintenance costs, inefficient
designs, and high initial and operating costs. The Company believes that the
Partnership's climate control system design, which incorporates Engelhard's
ETS(TM) desiccant and a small cell, honeycomb substrate material used in the
manufacture of the Partnership's desiccant and thermal rotors, has principally
overcome these problems and in many applications is an energy efficient and
environmentally safer supplement or alternative to conventional air conditioning
systems.
ETS(TM) is a white crystalline powder, classified as a molecular sieve.
Molecular sieves are capable of differentiating chemicals on a
molecule-by-molecule basis and, therefore, can be designed to remove single
compounds, such as water, from liquids and gases. ETS(TM) is unique in its
capabilities to release moisture at lower regeneration temperatures, thereby
requiring less energy than other desiccants. The heat necessary to remove the
moisture can be provided by almost any source of heat capable of generating
temperatures of at least 140(degree)F. As a result, the Partnership's systems
can use a wider variety of heat sources, including waste heat, than other
desiccant-based systems.
The Partnership's systems control humidity and temperature by circulating
air through two wheel-shaped rotors with honeycomb passages. The honeycomb
substrate material used to make the rotors is manufactured through a variation
in Ciba-Geigy's proprietary process used to manufacture lightweight structural
honeycomb core utilized in aircraft construction. This substrate material offers
lighter weight, superior airflow and more efficient heat and moisture transfer
than the corrugated rotors used by the Partnership's competitors. The Company
believes that the Partnership's honeycomb rotors are unique and would be
difficult and costly for competitors to duplicate.
The first rotor in the Partnership's two rotor systems is coated with
ETS(TM) and the second serves as a heat exchange rotor. Recirculated air, or up
to 100% fresh air, is first dehumidified by passing it through a slowly rotating
rotor treated with ETS(TM) that adsorbs airborne moisture (the "desiccant
rotor"). As the desiccant rotor rotates to the other side of the unit, heated
air is blown through the desiccant rotor which releases the moisture from the
ETS(TM), thereby regenerating the desiccant rotor for further dehumidification.
The warm, dehumidified air is next cooled by passing it through a similar rotor
which has not been coated with ETS(TM) (the "heat exchange rotor"). This rotor,
cooled by an evaporative cooler on the other side of the unit, reduces the
temperature of the air. The moderate temperature, dry air can be cooled further
by partially rehumidifying the air through an evaporative cooler or a
conventional refrigerant coil. The process air is then delivered to the building
by the normal system of fans and ducts.
(31)
<PAGE>
The basic operation of the Partnership's climate control systems is
depicted below:
[GRAPHIC OMITTED]
Building Supply Air Stream
A - Recirculated or up to 100% fresh air is drawn into the unit by
a fan and pushed through the slowly turning desiccant rotor.
B - Desiccant rotor removes the majority of moisture from the air.
C - The dry air is driven through a heat exchange rotor that cools the
airstream.
D - Post cooling options include an evaporative cooler (which partially
rehumidifies the air) or a downsized conventional cooling coil. A
hot water coil for winter heat is standard in the DESI/AIR(R)
and Desert Cool(TM) systems.
Regeneration Air Stream
E - Outside air or building exhaust air is drawn into the regeneration
air stream.
F - Evaporative cooler saturates regeneration air stream with water,
significantly lowering its temperature.
G - The cooled air is drawn through the heat exchange rotor,
cooling (regenerating) the heat exchange rotor and warming the
regeneration air.
H - Regeneration airstream is further heated by a heating coil to
180(degree)F or greater in the DESI/AIR(R) and Desert Cool(TM)
systems and to 140(degree)F in the Desert Breeze(TM) systems and
drawn through the desiccant rotor to dry (regenerate) it.
I - A fan exhausts the regeneration airstream to the outside atmosphere.
(32)
<PAGE>
The Company believes that the Partnership's systems provide the following
features and benefits:
o Independent Control of Temperature and Humidity - The
Partnership's systems independently control temperature and
humidity, unlike conventional air conditioning which reduces
humidity primarily as a result of temperature control. The
Partnership's systems can be designed to yield desired
temperature and humidity levels for a particular indoor
environment.
o Improved Indoor Air Quality - Ventilation standards
recommended by ASHRAE and incorporated into many building
codes throughout the country now require that up to 300 - 400%
more fresh air be circulated into buildings compared to prior
ventilation standards in order to greatly reduce indoor air
pollutants associated with "Sick Building Syndrome." The
Partnership's climate control systems meet or exceed these
standards and codes. In addition, lower humidity levels reduce
airborne bacteria, mold, mildew and fungi, another major
source of indoor air quality problems.
o Energy-Efficient and Cost-Effective - Less humid air requires
less energy to cool than more humid air. Accordingly, by
dehumidifying air before cooling, the Partnership's systems
consume less energy and are more cost effective to operate
than conventional air conditioning systems. As a supplement
to conventional air conditioning, by first dehumidifying the
air, the Partnership's systems are designed to improve the
efficiency of existing conventional air conditioning. Where
significant humidity reduction is desired, conventional air
conditioning systems often cool indoor air below desired
levels, thereby consuming additional energy.
o Versatile and Reliable - The Partnership's systems are
available in natural gas, electric, steam or waste heat
options and are available in several sizes which treat from
2,000 to 25,000 cubic feet of air per minute. Use of
alternative energy sources allows customers to take advantage
of utility incentives and adapt to fuel shortages in certain
areas. The systems are also expected to require less
maintenance than conventional equipment because of simplicity
of design and fewer moving parts.
o Environmentally Safer - None of the Partnership's climate
control systems use CFCs or HCFCs, refrigerants used in
conventional air conditioning equipment that cause damage
to stratospheric ozone and contribute to global warming.
CFCs have been banned from production and use commencing in
1996 and HCFCs are scheduled to be banned from production
and use in 2030 by approximately 130 countries. The
Partnership's electric systems sold under the name "Desert
Breeze(TM)" currently use HFCs, a CFC substitute, at
significantly reduced levels compared to conventional
air conditioning systems. HFCs are global warming gases that
are under consideration for regulation by approximately 180
countries.
o Year-round Performance - The Partnership's natural gas
systems provide year-round indoor climate control. In hot,
humid weather they supply cool, dry air. In cool, "clammy"
weather they supply warm, dry air. In cold weather the natural
gas driven systems supply heat. The Partnership is currently
developing heating capability for the electric driven systems.
(33)
<PAGE>
Business Strategy
The Partnership's strategy is to target specific applications
within the commercial air conditioning market in which humidity control, indoor
air quality and energy consumption are important health issues or a significant
cost of business. Although the Partnership currently markets its systems
primarily as a supplement to conventional air conditioning systems, the Company
believes that as market awareness and acceptance grows and the initial cost of
its systems declines, the Partnership will market its climate control systems as
a replacement for conventional air conditioning in most other commercial
applications. The Partnership is also developing a residential unit with certain
of its international joint venture partners, but currently does not have a
residential unit to offer for sale. The Company believes that market awareness
and acceptance for the Partnership's systems may develop more rapidly in the
Asian- Pacific market and other similar regions of the world with high humidity
and where the demand for energy is increasing faster than supply. More
specifically, the Partnership is pursuing the following strategies:
o Establish Strategic Relationships with Domestic and
International Manufacturers and Distributors of Air
Conditioning Equipment - The Partnership has developed
strategic relationships with three major corporations in
Asia-Pacific and is in discussions with a number of domestic
and international manufacturers and distributors of air
conditioning equipment. The Partnership plans to enter into
additional licenses or joint venture arrangements. Taiwan's
largest air conditioning manufacturer, Chung Hsin, has
licensed the Partnership's desiccant-based technology and is
in the process of developing a residential unit. The
Partnership has strategic marketing alliances with Samsung in
South Korea and Nichimen in Japan. Japan and South Korea are
the first and sixth largest air conditioning markets,
respectively. The Partnership is also working with AB Air
Technologies ("AB Air") in Israel to develop a residential
unit, and to establish local manufacturing and distribution
for the Partnership's existing systems. In addition, Carrier
is in the process of field-testing a number of the
Partnership's systems in the United States. The Partnership
believes that the reputation and resources of its licensees
and joint venture partners will accelerate market acceptance
and awareness for its products.
o Acquisition of an Air Conditioning Manufacturer - The Company
believes that the acquisition of an air conditioning
manufacturer is important to the Partnership's overall
strategy of developing market awareness and acceptance of its
products and to provide increased production capabilities.
In addition to immediately increasing the Partnership's
production capacity and distribution system, the acquisition
of an air conditioning manufacturer would allow the
Partnership to offer its customers a larger selection of
solutions for their climate control needs. Currently, there
are no firm commitments or agreements to acquire an air
conditioning manufacturer and there can be no assurance that
any agreements will be executed or any acquisition will be
consummated.
o Reduction of Manufacturing Costs - The Partnership
has reduced by approximately 30% the cost of its
rotors, a major cost component of its systems, when it
acquired Ciba-Geigy's Miami manufacturing facility.
The Partnership expects to further reduce
manufacturing and material costs through production
line innovations and substitute materials.
o Target Specific Commercial Applications - The
Partnership's strategy is to continue to market its
climate control systems to users in which humidity
control, indoor air quality
(34)
<PAGE>
and energy consumption are important health issues or
a significant cost of business. The applications
targeted by the Partnership and the benefits that its
systems can provide include:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Segment Benefits
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Supermarkets Reduces frost and condensation on refrigerated goods, which improves
appearance and extends shelf life, as a result of fewer defrost cycles. Also,
improves comfort in refrigerated aisles and increases efficiency of refrigerated
cases.
- -------------------------------------------------------------------------------------------------------------------------
Healthcare Limits the opportunity for bacteria and fungus to grow in the building and its
heating, ventilation and air conditioning ("HVAC") system. Allows for
warmer temperatures at lower humidity for greater
comfort of patients and health care workers.
- -------------------------------------------------------------------------------------------------------------------------
Hotels Limits the growth of mold and mildew.
- -------------------------------------------------------------------------------------------------------------------------
Schools Limits the opportunity for infectious bacteria and
fungus to grow in the building and its HVAC system.
- -------------------------------------------------------------------------------------------------------------------------
Restaurants Provides building pressurization to compensate for
concentration of kitchen exhaust and reduces
cooking odors.
- -------------------------------------------------------------------------------------------------------------------------
Manufacturing Reduces concentration of volatile organic compounds
generated in the manufacturing process and improves
comfort for workers. May be particularly important
to humidity-sensitive manufacturing processes.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Products
The Partnership currently manufactures and sells three types of
desiccant-based climate control systems, the "DESI/AIR(R)," "Desert Cool(TM),"
and "Desert Breeze(TM)," which differ based upon function and energy source. All
of the systems now incorporate the Partnership's proprietary honeycomb rotors
and ETS(TM). The Partnership's systems are currently being marketed as energy
efficient supplements to enhance the performance of existing air conditioning
systems, but can also replace conventional air conditioning systems in certain
applications. The "DESI/AIR(R)" and Desert Cool(TM) systems do not require use
of either a compressor or any refrigerants. The units typically operate on
natural gas, but are also available in steam or waste heat operated models. The
systems also have gas heating capabilities.
The DESI/AIR(R) system is larger, customized and more heavy duty than
the Partnership's other systems, and is marketed primarily as a supplement to
large conventional air conditioning systems. These units can displace from 25 to
250 tons of conventional cooling with the flexibility of utilizing any
combination of circulated or fresh air. The DESI/AIR(R) system was first sold in
June 1989, and has received general acceptance in the supermarket industry. The
Partnership and prior to the Partnership's formation, the Company, has sold 105
DESI/AIR(R) units through September 30, 1995. The list price for a DESI/AIR(R)
system varies from approximately $50,000 for the Partnership's smallest unit
that can displace up to 25 to 40 tons of conventional cooling, to $159,000 for
the largest unit which displaces up to 250 tons of conventional cooling, with
the number of units required for each application depending on the size and
configuration of the building.
(35)
<PAGE>
The "Desert Cool(TM)" system is primarily marketed as a supplement or
replacement for smaller air conditioning systems. The Desert Cool(TM) system is
designed to cool small commercial applications with the flexibility of utilizing
any combination of circulated or fresh air and can displace as much as 25 tons
of conventional cooling. The "Desert Cool(TM)" line is expected to be expanded
in 1996 to include a unit which can displace as much as 50 tons of conventional
air conditioning. The Desert Cool(TM) system was successfully field-demonstrated
by the Partnership in 1994 in conjunction with certain members of the natural
gas industry and was introduced commercially in January 1995. Through September
30, 1995, 58 Desert Cool(TM) units have been sold. The list price for a Desert
Cool(TM) unit that displaces up to 25 tons of conventional cooling is
approximately $12,000. The list price for a Desert Cool(TM) unit that displaces
up to 50 tons of conventional cooling is expected to be approximately $30,000.
The "Desert Breeze(TM)" system, the first all-electric desiccant-based
climate control system, was first shipped in July 1995. The Partnership has sold
three Desert Breeze(TM) units through September 30, 1995. An all-electric model
is important to compete in those markets where electricity is the only or most
practical source of energy. Currently, the majority of air conditioning systems
worldwide are electric powered. The Desert Breeze(TM) system is designed to cool
small commercial applications with the flexibility of utilizing either
circulated or fresh air, and can displace up to 25 tons of conventional cooling.
The electric units combine desiccant technology and conventional compressors
which utilize HFCs, a CFC substitute refrigerant. The system uses a smaller
compressor than conventional air conditioning equipment, reducing power usage
and peak kilowatt demand. The Partnership is currently developing heating
capability in the Desert Breeze(TM) system.
Consistent with general industry practices, the Partnership warrants
its systems for one year from the date of installation and warrants its
desiccant and thermal wheels for an additional four years. No significant
warranty claims have been experienced by the Partnership or the Company to date.
Additionally, the Partnership offers to its customers a service contract under
which it will provide maintenance services for a monthly fee. Even though most
of the Partnership's customers have obtained service contracts, maintenance
services do not constitute a significant portion of the Partnership's business.
Sales and Marketing
Currently, the Partnership markets its systems to specific
applications in the commercial air conditioning market in which its systems
offer the greatest advantages compared to conventional air conditioning systems.
The Partnership's desiccant-based climate control technology represents a major
technological change in the air conditioning industry. Since the Partnership's
products utilize an emerging technology, potential customers carefully evaluate
and, in most cases, purchase the Partnership's systems for testing before
committing to further purchases. The Partnership sells its systems principally
to end users. The Partnership has developed separate plans and departments for
domestic and international sales and marketing.
United States. The Partnership employs a direct sales staff of five
sales people and approximately 36 independent manufacturers representatives
to market its systems in the United States. The direct sales staff markets the
systems to supermarket chains and national retailers, and oversees the
manufacturers representatives. The Partnership's manufacturers representatives
market to regional customers and to national accounts which are not assigned to
the direct sales staff. At present, a majority of the manufacturers
representatives are located in the southern and eastern regions of the country.
(36)
<PAGE>
The Partnership plans to increase its sales staff and manufacturers
representative network throughout the country.
In September 1995, the Partnership entered into a field demonstration
agreement with Carrier pursuant to which Carrier is monitoring and evaluating
the performance of eleven Desert Cool(TM) and Desert Breeze(R) units in
commercial use throughout the United States. All monitoring equipment costs
which are not paid for by third parties such as local utility companies or the
U.S. Department of Energy, will be shared equally by the Partnership and
Carrier. Carrier has not committed to purchase or distribute any of the
Partnership's systems.
Gas and electric utilities have supported the Partnership's efforts to
create market awareness and acceptance for the Partnership's systems. The Gas
Research Institute has funded and endorsed independent testing to validate the
performance of ETS(TM) in the Partnership's natural gas systems and is currently
funding the testing of the Partnership's rotors used in such systems for
validation. In addition, gas utilities sponsored the initial test sites for the
Desert Cool(TM) system, and have formed a consortium, under the auspices of the
American Gas Cooling Center to promote the Partnership's natural gas systems.
The consortium, with 77 utilities currently participating, provides financial
incentives and sponsors training programs for engineers and building owners. In
1995, the Desert Cool(TM) system became the first desiccant- based unit ever to
receive the "Blue Star" certification for safety and quality from the American
Gas Association.
Similarly, several electric companies and research organizations are
promoting the Desert Breeze(TM) system. Southern Company, a major electric
company in the southeastern United States, assisted in the development of the
Desert Breeze(TM) system, and five electric utilities are participating in
various projects that promote the Desert Breeze(TM) system. The Company has also
received financial support from the Electric Power Research Institute for field
testing, and marketing support from the Edison Electric Institute, two electric
industry sponsored organizations.
As part of the federal government's program to evaluate two-wheel
desiccant-based air conditioning systems for possible inclusion in future
federal government building specifications, the federal government has purchased
two units to test and evaluate in field demonstrations, including an initial
unit in 1994 at a government-owned Burger King in Aberdeen, Maryland and a
follow-up unit in 1995 in a government-owned office building in Tampa, Florida.
The Company anticipates that the federal government will purchase additional
units for testing in 1996.
International. International sales and marketing efforts have focused
on the high humidity, rapidly developing regions of the Asian-Pacific market. In
this region, manufacturing and industrial companies are generally interested in
the Partnership's systems to improve workers' comfort by lowering humidity. To
date, the Partnership has manufactured and sold a total of 32 units assembled in
the Partnership's Philadelphia manufacturing facility to Japan, South Korea and
Taiwan. The Partnership plans to continue to market, sell and, in certain
situations, assemble its climate control systems through licensing arrangements
or joint ventures with other major companies in Asia-Pacific.
In March 1995, the Partnership entered into a license agreement with
Chung-Hsin, Taiwan's largest air conditioning manufacturer, pursuant to which
Chung-Hsin has been granted an exclusive license to manufacture and sell the
Partnership's gas and electric systems in Taiwan for a period of up to five
years based on achieving certain sales targets, and a non-exclusive license to
manufacture and sell such systems
(37)
<PAGE>
in mainland China. In consideration for such license, Chung-Hsin paid to the
Partnership an initial fee of $500,000, and is required to pay a royalty of 2.5%
of Chung-Hsin's sales of all desiccant-based climate control systems which are
manufactured and sold by Chung-Hsin and utilize the Partnership's technology.
Chung-Hsin and the Partnership are also currently developing a desiccant-based
residential window unit. In addition, Chung-Hsin has agreed to purchase all
desiccant and thermal rotors utilized in the desiccant- based systems which it
sells at 105% of their base price. Pursuant to a supply agreement, Chung-Hsin is
required to purchase its desiccant and heat-exchange rotors from the
Partnership. The Partnership also has the option to purchase systems
manufactured by Chung-Hsin for resale in other Asian-Pacific countries.
Nichimen, a Japanese trading company with $58 billion in annual sales
in 1994, has been appointed a non-exclusive distributor of the Partnership's
systems in Japan. Nichimen has established a relationship with Osaka Gas, Tokyo
Gas and Toho Gas and is in the process of establishing a national distribution
network for the Partnership's systems. To date, 13 units have been sold through
Nichimen. In August 1995, Osaka Gas of Japan completed its initial evaluation
and testing of the Partnership's Desert Cool(TM) and DESI-AIR(R) systems and
began recommending the system for sale and further testing in November 1995. As
part of Osaka Gas's phase-in-program to approve and endorse new products for
marketing and sale through its distribution network, Osaka Gas will monitor the
performance of any systems which it sells for a period of approximately twelve
months commencing in November 1995. Osaka Gas is the second largest seller of
natural gas in Japan and as part of its marketing program promotes and sells
natural gas operated equipment to promote the use of natural gas.
In July 1995, the Partnership entered into a memorandum of
understanding with Samsung to sell its systems in South Korea. To date, 15 units
have been sold through Samsung in South Korea. The Partnership is presently
negotiating a formal technology license and distribution agreement with Samsung
for the manufacture and sale of systems in South Korea and a supply agreement
for rotor products. There can be no assurance that any formal agreements will be
executed.
In August 1995, the Partnership entered into a joint development
agreement with AB Air in Israel for the development of a residential
desiccant-based, all electric climate control system. The Partnership has agreed
to share equally in the cost of the development program which is initially
estimated to be approximately $250,000. The Company has agreed to finance 60% of
AB Air's portion of the program costs pursuant to an interest-bearing loan. In
addition, AB Air has been granted the exclusive right to manufacture and sell
desiccant-based climate control systems incorporating the Partnership's
technology in Israel, Turkey, Greece, Cyprus and Egypt. In lieu of a royalty for
such license, AB Air has agreed to pay to the Partnership a mark-up of 10% over
the base price of the desiccant and heat-exchange rotors which the Partnership
is supplying to AB Air. To date, six of the Partnership's rotors have been
incorporated into systems manufactured and sold by AB Air.
Backlog. As of October 31, 1995, the Partnership's backlog of firm
purchase orders was approximately $1,600,000 compared to a backlog of $460,000
as of October 31, 1994. The Partnership typically ships its systems within 8-10
weeks of receiving an order and expects to ship most of the October 31, 1995
backlog by the end of 1995.
(38)
<PAGE>
Manufacturing
At its Miami facility, the Partnership manufactures all of its
proprietary honeycomb desiccant and heat-exchange rotors and coats the desiccant
rotors with ETS(TM). The Partnership also manufactures certain other parts and
assembles, tests and ships completed systems from a leased manufacturing
facility in Philadelphia, Pennsylvania. The Partnership plans to expand the
capacity of its rotor manufacturing facility and move to a larger facility in
Philadelphia to support anticipated growth.
In December 1994, the Partnership acquired for $8 million in cash, the
real property and substantially all of the assets of Ciba-Geigy's manufacturing
facility in Miami, from which the Partnership had been purchasing the honeycomb
substrate currently used in producing the Partnership's desiccant and heat-
exchange rotors. The Partnership sought to manufacture its own substrate and
rotors to lower production costs, further improve the rotors and expand
production capacity to meet potential market demand. The Partnership also
acquired a perpetual, exclusive technology license for the proprietary process
to manufacture such small cell, honeycomb substrate material for use in air
cooling, conditioning and dehumidification applications, and certain other fluid
applications. In addition, the acquisition gives the Partnership more control of
a critical technology and manufacturing process for its current products. The
Partnership also assumed the lease of a 24,000 square foot storage space and a
parking lot adjacent to the Miami manufacturing facility. In connection with the
acquisition of the Miami facility, the Partnership entered into a five-year
requirements contract to continue to supply Ciba-Geigy with the substrate
material for the aerospace industry. The Partnership is required to make
available to Ciba-Geigy in each year of the contract certain percentages of the
Miami facility's production capacity, ranging from 85% in 1995 to 30% in 2000.
The contract is subject to early termination by Ciba-Geigy at any time after 18
months, upon six months' notice.
As described above, the Partnership has entered into several licensing
arrangements with respect to manufacturing or marketing its products. The
Partnership may also license, or otherwise permit, other companies in the United
States or internationally to manufacture its systems but the Partnership expects
to continue to remain the exclusive manufacturer of the proprietary desiccant
and heat exchange rotors for such licensees.
Supplies and Materials
Except as described under "Business - Sales and Marketing," the
Partnership generally uses standard parts and components in the manufacture of
its systems and obtains such parts and components from various independent
suppliers. The Company believes that the Partnership is not highly dependent on
any specific supplier and could obtain similar components from other suppliers,
except for the substrate material used in its rotors and ETS(TM).
The Partnership purchases a proprietary strong, lightweight material
from a single supplier which is used as the base material in manufacturing the
honeycomb substrate for the Partnership's desiccant and heat-exchange rotors.
While this material is critical in the manufacture of the rotors and the
Partnership does not have a contractual agreement with such supplier, the
Company believes that the Partnership can obtain all of its requirements for
such material from such supplier for the foreseeable future.
ETS(TM) is a patented desiccant material manufactured exclusively by
Engelhard. Pursuant to the Engelhard Supply Agreement, the Partnership has
agreed to purchase exclusively from Engelhard all of
(39)
<PAGE>
the ETS(TM) or any improved desiccant material developed by Engelhard that the
Partnership may require in connection with the conduct of the Partnership's
business. In turn, Engelhard has agreed to sell to the Partnership its total
requirements for ETS(TM) or any improved desiccant material developed by
Engelhard. The price for ETS(TM) is adjusted as of January 1 of each year during
the term of the Engelhard Supply Agreement, which initially expires December 31,
1997, but may be extended by either party for additional two-year periods up to
December 31, 2003. The Engelhard Supply Agreement does not include specific
purchase prices but does contain a "competitive offer" provision, whereby the
Partnership is able to purchase from third parties similar desiccant products
that are equal to or better than the products sold by Engelhard should they
become available, at a price that is lower than the price established for
ETS(TM) or any improved desiccant material sold by Engelhard under the Engelhard
Supply Agreement, provided, however, that (i) Engelhard has the right to meet
such "competitive offer" in all material respects, and (ii) any such third party
offer must be able to meet the Partnership's requirements for such desiccants in
all material respects in order to be considered a "competitive offer."
The Partnership
The Company and Engelhard formed the Partnership in February 1994 to
pursue the desiccant air conditioning business which previously had been
conducted by the Company. In exchange for a 50% interest in the Partnership, the
Company transferred to the Partnership substantially all of its assets relating
to its desiccant-based air conditioning business, subject to certain
liabilities. Engelhard, in exchange for a 50% interest in the Partnership, (i)
contributed $8,600,000 in capital to the Partnership, (ii) entered into the
Engelhard Supply Agreement and the Engelhard License Agreement for ETS(TM), and
(iii) agreed to provide credit support to the Partnership in the amount of
$3,000,000. In addition, Engelhard extinguished a $900,000 obligation due to it
by the Company.
Pursuant to the Partnership Agreement, the Partnership is managed by a
Management Committee comprised of two members, one selected by each of the
Company and Engelhard. At present, such committee is comprised of Irwin L.
Gross, Chairman and President of the Company, and Robert J. Schaffhauser, Vice
President-Technology and Corporate Development of Engelhard. Mr. Gross is also
the Chief Executive Officer of the Partnership and has an employment agreement
with the Partnership that expires in 1999.
In accordance with the Partnership Agreement, the Company has granted
Engelhard options to acquire up to all of the Company's interest in the
Partnership at the rate of 25% of such interest per year, with each such 25%
option exercisable on December 31 of each year commencing 1997 through and
including 2000 (each an "Exercise Date"), based on a price equal to 95% of the
fair market value of the Partnership as of the Exercise Date of each year in
which an option is exercisable, determined by an investment banking firm
selected by the Company and Engelhard. Each 25% option is exercisable for a
limited period of time after the respective Exercise Date. Upon the occurrence
of an event of default by the Company under the Partnership Agreement (including
bankruptcy of the Company or failure by the Company to comply with, or a
violation of, any material term or condition of the Partnership Agreement which
is not cured within a 45-day period), Engelhard may accelerate the option. In
addition, Engelhard's purchase options are cumulative and any option unexercised
as of the end of the Exercise Period may be exercised as of any future Exercise
Period, provided that all previously unexercised options must be exercised and
all options automatically expire if Engelhard does not elect to exercise both of
its first two options. There can be no assurances as to whether Engelhard will
or will not exercise any or all of its options to purchase the Company's
interest in the Partnership. In the event that Engelhard's interest in
(40)
<PAGE>
the Partnership increases to more than 70%, Engelhard will be entitled to
designate an additional member to the Management Committee and will control the
management of the Partnership.
The Partnership entered into a Royalty Agreement as of February 7,
1994 with James Coellner and Dean Calton, engineers and employees of the
Partnership and former employees of the Company. Pursuant to the Royalty
Agreement, in exchange for each individual's patents and trade secrets, Messrs.
Coellner and Calton are each entitled to receive royalty payments from the
Partnership equal to 0.5% of the Partnership's net revenues received from sales
of separate components, royalties and one-time payments for licensed technology
and sales of desiccant cooling and air treatment systems to the extent such
revenues result from the utilization of technology developed by such individual.
The royalty payments do not commence until the first year in which the net
revenues of the Partnership exceed $15 million. The maximum amount of combined
royalty payments to be made under the Royalty Agreement shall not exceed $5
million in the aggregate and $300,000 for any one year. No royalty is payable
for any year in which the Partnership had no net income (or would have had no
net income after giving effect to such payments) or if, after giving effect to
such royalty payments, the Partnership had no net income on a cumulative basis
since its inception; provided that to the extent any royalty payments otherwise
payable are not required to be made due to such restrictions, such payments
shall be carried forward and made with respect to the next subsequent year or
years in which the aforementioned restrictions are satisfied. The Royalty
Agreement terminates on December 31, 2010 or, with respect to either employee,
the termination of employment of such individual, voluntarily or for cause,
prior to February 7, 1999.
Patents and Proprietary Information
The Partnership's ability to compete effectively with other
manufacturers of climate control equipment is dependent upon, among other
things, a combination of (i) the Partnership's proprietary desiccant system
design, (ii) Engelhard's patented ETS(TM) and (iii) Ciba-Geigy's proprietary
process licensed to the Partnership and utilized in manufacturing the small
cell, honeycomb substrate material used to make the Partnership's rotors. The
Partnership has been issued three United States patents covering certain of its
desiccant technology and has filed additional United States and foreign patent
applications. See "Risk Factors - Dependence on Proprietary Technology."
The Company was granted a U.S. patent expiring in 2010, which it
assigned to the Partnership, related to using a microprocessor to control the
desiccant cooling systems in order to increase the energy efficiency or
effectiveness of the desiccant cooling process. Similar patents have also been
issued to the Partnership in several European countries.
The Partnership was granted a U.S. patent expiring in 2013, related to
the use of an electric heat pump in conjunction with a desiccant climate control
system which can use recirculated air for dehumidification, dehumidification
with cooling and heating. Prior desiccant climate control systems sold by the
Company or the Partnership required the use of natural gas as an energy supply,
which limited the markets in which they could be sold.
The Partnership was also granted a U.S. patent which expires in 2013,
directed to creating humidity gradients within a supermarket. A low humidity,
relatively warm temperature area is created in the frozen food section of the
supermarket, and a higher humidity, warm temperature area is created near the
produce section of the supermarket. This is accomplished by combining a
conventional air conditioning system with a desiccant unit. Creating a low
humidity area in the frozen food section of the supermarket
(41)
<PAGE>
significantly improves the efficiency of refrigerated cases and a higher
humidity area in the produce section helps to preserve the fresh produce.
Several U.S. and foreign patent applications are pending which are
directed to the products manufactured and sold by the Partnership and additional
patent filings are expected to be made in the future.
Under the Engelhard License Agreement, Engelhard granted the
Partnership an exclusive, royalty-free license during the existence of the
Partnership to use Engelhard's proprietary technology relating to ETS(TM) for
use in the Partnership's business, including heating, ventilation and air
conditioning applications. The license also includes any new technology
conceived by Engelhard's employees or representatives after execution of the
Engelhard License Agreement, which is developed for use by the Partnership in
connection with the Partnership's business. In turn, the Partnership has agreed
not to license or grant any rights in technology owned by the Partnership to any
person or entity, except that the Partnership will grant Engelhard, upon its
request, and the Company, upon its request, a non-exclusive license to make,
utilize and sell Partnership technology in any business other than the
Partnership's business at a reasonable royalty rate to be negotiated at the time
of the grant of such license. See "Business - Supplies and Materials."
In connection with the acquisition of Ciba-Geigy's manufacturing
facility in Miami, Florida, the Partnership acquired an exclusive, perpetual
technology license to use Ciba-Geigy's proprietary process which is currently
necessary to manufacture the small cell, honeycomb substrate material used in
manufacturing the Partnership's proprietary desiccant and thermal rotors. See
"Business - Manufacturing".
The Partnership owns the registered trademark for "DESI/AIR(R)" and
has filed trademark applications for "Desert Cool(TM)" and "Desert Breeze(TM)"
in the United States for heating, ventilation and air conditioning systems.
Several foreign trademark applications for "DESI/AIR(R)" and "Desert Breeze(TM)"
are pending.
Engineering, Research and Development
The Partnership's engineering, research and development activities
focus on designing systems for specific applications such as supermarkets, as
well as improving the performance and efficiency and lowering the costs of its
climate control systems. As of October 31, 1995, the Partnership had 17
employees engaged in engineering, research and development. The Partnership's
engineering, research and development expenses for 1994 and the nine months
ended September 30, 1995 were approximately $2,100,000 and $1,600,000,
respectively.
Competition
The Partnership competes against other manufacturers of conventional
and desiccant-based air conditioning systems primarily on the basis of
capabilities, performance, reliability, price and operating efficiencies. The
Partnership competes with numerous other manufacturers in the conventional
heating, ventilation and air conditioning equipment industry, including Trane
Company, York International Corporation, Carrier and others that have
significantly more resources and experience in designing, manufacturing and
marketing of air conditioning systems than does the Partnership. The Company
believes the Partnership's systems provide the following advantages over
conventional air conditioning: the ability
(42)
<PAGE>
to control humidity as well as temperature; improve indoor air quality; consume
less energy; offer energy versatility; and eliminate or substantially reduce the
refrigerants required in conventional air conditioning systems. The Partnership
also competes with several companies selling desiccant-based climate control
systems, including Munters Corporation and Semco Incorporated. However, the
Company believes its systems perform better and are more economical to operate
than competing desiccant-based systems due to its honeycomb rotors and
Engelhard's ETS(TM).
Employees
Effective February 7, 1994, substantially all of the employees of the
Company became employees of the Partnership. The Company employed five full-time
persons and the Partnership employed 176 full-time persons as of October 31,
1995, none of whom are represented by unions.
Government Regulation
In recent years, increasing concern about damage to the earth's ozone
layer caused by ozone depleting substances has resulted in significant
legislation governing the production and use of products containing CFCs. Under
the Montreal Protocol on Substances that Deplete the Ozone Layer (the "Montreal
Protocol"), as amended in 1992, the approximately 130 signatory countries have
agreed to cease the production and consumption of CFCs, some of which are
utilized in air conditioning and refrigeration equipment, by the end of 1995.
The Montreal Protocol has been implemented in the United States through the
Clean Air Act and the regulations promulgated thereunder by the Environmental
Protection Agency (the "EPA"). The production and use of refrigerants containing
CFCs are subject to extensive and changing federal and state laws and
substantial regulation under these laws by federal, state and local government
agencies. In addition to the United States, Japan, mainland China, Israel and
Thailand, among other countries, are signatories to the Montreal Protocol. The
manner in which other countries implement the Montreal Protocol could differ
from the approach taken in the United States.
As a result of the regulation of CFCs, the air conditioning and
refrigeration industries are turning to substitute substances such as HCFCs,
HFCs and light hydrocarbons. HCFCs have 1 to 10% of the ozone-depleting
potential of CFCs. However, HCFCs are scheduled to be phased out of production
and use by the year 2030 in the United States and other signatory countries
pursuant to the Montreal Protocol. As discussed below, pursuant to the 1992 Rio
Accord, reduction of the use of HFCs is also being considered because of their
substantial global warming potential.
The Framework Convention on Climate Change (the "1992 Rio Accord") and
related conferences and agreements focused on the link between economic
development and environmental protection. Principles were declared providing, in
part, that countries should work together for the benefit of the Earth's
ecosystem. This cooperation was intended to promote an international economic
and legal system that would result in economic growth while discouraging or
preventing the relocation and transfer of activities and substances that have
adverse environmental effects. Under the Rio Accord, approximately 180 countries
have agreed to establish a process by which they can monitor and control the
emission of "greenhouse gases," defined as gaseous constituents of the
atmosphere that absorb and re-emit infrared radiation, which include HFCs.
Parties to the 1992 Rio Accord must provide national inventories of "sources"
(which release greenhouse gases, aerosols or precursors thereof into the
atmosphere) and "sinks" (which remove greenhouse gases, aerosols or precursors
thereof from the atmosphere), and regular reports on policies and measures which
limit the emissions by sources and enhance the removal by sinks of gases
(43)
<PAGE>
not controlled by the Montreal Protocol. No given level or specific date for the
control of greenhouse gas emissions was explicitly provided, although the United
States government submitted a plan to the Rio Standing Committee on its proposal
for achieving this goal by the year 2000 and Articles 2(a) and (b) of the 1992
Rio Accord indicated there was an initial goal of returning to 1990 levels of
greenhouse gas emissions by the year 2000.
The Clean Air Act also requires the recycling and recovery of all
refrigerants used in residential and commercial air conditioning and
refrigeration systems, and the EPA mandates that non-CFC refrigerants must be
recycled as of November 1, 1995. As a result, there are increasing costs
involved in the manufacturing, handling and servicing of refrigerant-based
equipment. The Company does not believe that such costs will have a material
impact on the Partnership's business. Other than the Desert Breeze(TM) system,
the Partnership's systems do not require the use of refrigerant-based
compressors. Within the Desert Breeze(TM) system, a smaller compressor is used
than in a conventional air conditioning system of comparable capacity.
The Company believes that the Partnership's business prospects are
actually enhanced by the enforcement by the EPA and other government agencies of
the comprehensive environmental regulations. The conventional air conditioning
and refrigeration industries will have to make significant changes to comply
with such restrictions, often at substantial financial costs.
The indoor air quality standards and building code requirements for
indoor air quality in the United States, as set forth by ASHRAE, now require
that up to 300-400% more fresh air be introduced into buildings as compared to
prior regulations. The purpose of such standards is to specify minimum
ventilation levels and indoor air quality levels in order to minimize the
potential for adverse health effects typically associated with "Sick Building
Syndrome." These standards have been incorporated into many building codes
throughout the country.
Similar to the regulations with respect to refrigerants described
above, the Company believes that the Partnership's business prospects are
enhanced because the Partnership's climate control systems currently meet and
have the capacity to exceed such standards and building code requirements
without significant technological changes or expenses.
Properties
The principal executive offices of both the Company and the
Partnership are located at 441 North 5th Street, Suite 102, Philadelphia,
Pennsylvania 19123. The Partnership currently has approximately 15,000 square
feet of office space under a month-to-month lease at this location. The Company
occupies office space within the Partnership's offices and is charged for such
space proportionately. The Partnership's lease requires a monthly rental payment
of approximately $10,000 plus utility and tax costs, of which the Company's
share is approximately $1,000 per month, plus its proportionate share of utility
and tax costs.
The Partnership assembles its systems at its 55,000 square foot
manufacturing facility located in Philadelphia, Pennsylvania leased by the
Partnership through March 31, 1998. Additionally, the Partnership rents various
storage facilities under short-term leases to serve as depots for parts and
supplies.
(44)
<PAGE>
The Partnership currently produces the small cell, honeycomb substrate
material and the desiccant and heat-exchange rotors in its 75,000 square feet
manufacturing facility in Miami, Florida and leases a 24,000 square foot storage
facility and parking lot adjacent to the manufacturing facility.
Legal Proceedings
Neither the Company nor the Partnership is a party to any material
lawsuits.
(45)
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information concerning the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position With the Company
- ---- --- -------------------------
<S> <C> <C>
Irwin L. Gross (1)(5) 52 Chairman and President
William A. Wilson 62 Vice Chairman
Albert Resnick(1) 65 Secretary and Director
Stephen Schachman (2)(3)(4) 51 Director
Andrew L. Shapiro (1)(2)(4)(5) 40 Director
Mark S. Hauser (2)(3) 37 Director
Manfred Hanuschek 34 Chief Financial Officer and Treasurer
</TABLE>
- ------------------
(1) Member of Equity Plan Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Stock Option Committee
(5) Member of Nominating Committee
The executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors. The following information with respect to
the directors and executive officers of the Company has been furnished by such
persons.
Irwin L. Gross is a founder of the Company and has been the Chairman
of the Company and a director since the Company's inception in May 1984. Mr.
Gross has served as the President of the Company since February 1994 and also
held such position from the Company's inception through July 1991. In addition,
Mr. Gross has served as the Chief Executive Officer of the Partnership since its
formation in February 1994 and is one of two members of the Management Committee
of the Partnership. Mr. Gross also serves as the Chairman of the Board of
Directors of EA Industries, Inc. (formerly called Electronic Associates, Inc.),
a publicly-held company engaged in the contract manufacturing of electronic
products and systems. Mr. Gross has a Bachelor of Science degree in Accounting
from Temple University and a Juris Doctor degree from Villanova University.
William A. Wilson has been the Vice Chairman of the Company since
February 1994 and a director of the Company since July 1991, and served as
Treasurer of the Company from February 1994 to December 1994. Mr. Wilson also
served as President and Chief Executive Officer of the Company from July 1991 to
February 1994 when he retired from such positions. Prior to joining the Company,
Mr. Wilson held a series of senior management positions with United Technologies
Corporation from 1980 to 1991, including most recently as Senior Vice President
of its Commercial/Industrial Group and prior
(46)
<PAGE>
thereto as President and Chief Executive Officer of Carrier, President of
European Operations for Otis Elevator Company, President of Latin American
Operations for Otis Elevator Company, and Vice President of Otis Elevator
Company responsible for manufacturing planning. Mr. Wilson has a Bachelor of
Science degree in Mechanical Engineering from Drexel University.
Albert Resnick has been a director of the Company since July 1991 and
was appointed the Secretary of the Company in February 1994. From 1953 until his
retirement in July 1991, Mr. Resnick was a Vice President of G.B. Goldman Paper
Company, a paper distribution company located in Philadelphia, Pennsylvania. At
G.B. Goldman, he was responsible for purchasing, marketing and advertising. Mr.
Resnick has a Bachelor of Science degree in Economics from the Wharton School of
the University of Pennsylvania.
Stephen Schachman has served as a director of the Company since
August 1984. Mr. Schachman has been a Managing Director and a member of the
Board of Directors of Public Affairs Management, Inc., a consulting company in
political affairs, since April 1993. Mr. Schachman served as President and Chief
Executive Officer of Enercom, Ltd., a consulting company in the energy and
communications fields, from April 1991 to January 1993. From January 1992 to
February 1995, Mr. Schachman served in various capacities at Penn Fuel Inc.,
having served most recently as Executive Vice President. From September 1988 to
April 1991, Mr. Schachman practiced law with the law firm of Dilworth, Paxson,
Kalish and Kauffman. Mr. Schachman has also served as President of Philadelphia
Gas Works and was a director of the American Gas Association. Mr. Schachman
currently serves on the Board of Elizabethtown Gas Company. Mr. Schachman has a
Bachelor of Science degree in Economics from the Wharton School of the
University of Pennsylvania and a Juris Doctor degree from Georgetown University
Law Center.
Andrew L. Shapiro has served as a director of the Company since May
1990. He has been President of Andy's Janitorial Service Co., Inc. since
1973 and Afford-A-Maid, Inc. since 1988. Mr. Shapiro has also been President of
Shapiro Communications, Inc., a provider of special mobile radio services in the
Boston area, since 1987. Mr. Shapiro also serves as a director of Associated
Builders and Contractors, a national trade association of builders. Mr. Shapiro
has a Bachelor of Arts degree in Education from Glassboro State College.
Mark S. Hauser has served as a director of the Company since December
1994. He is a founder and has been a Managing Director of Hauser, Richards
& Co. since March 1991 and of Tamarix Capital Corporation since June 1994,
investment and merchant banking firms. Prior to founding Hauser, Richards & Co.
in March 1991, Mr. Hauser was a Managing Director at Ocean Capital Corporation,
a private international investment banking firm from January 1986 to March 1991.
Mr. Hauser has been an Advisory Director of Direct Language Communications since
November 1993 and Vice Chairman of the Board of Directors of The Holmes
Protection Group, Inc. since September 1994. Mr. Hauser has economics and law
degrees from Sydney University and a Master of Law degree from the London School
of Economics and Political Science.
Manfred Hanuschek has been the Chief Financial Officer of the Company
since October 1994 and Treasurer since December 1994. From 1983 to October
1994, he was employed by Coopers & Lybrand, certified public accountants, most
recently as Senior Audit Manager. Mr. Hanuschek is a Certificated Public
Accountant, licensed in the Commonwealth of Pennsylvania. Mr. Hanuschek has a
Bachelor of
(47)
<PAGE>
Science degree in Accounting from Pennsylvania State University and is a member
of the American and Pennsylvania Institutes of Certified Public Accountants.
Expansion of Board; Approval of Certain Transactions
The Company has undertaken that within 60 days of the date of this
Prospectus, it will appoint two additional nonemployee members to the Board of
Directors who are reasonably satisfactory to the Representatives (as hereinafter
defined). In addition, the Company has undertaken that for a period of three
years from the date of this Prospectus, the Company will use its best efforts to
nominate and recommend to the Company's stockholders for approval such directors
or two other directors who are reasonably satisfactory to the Representatives
(the "Independent Directors"). Moreover, the Company has undertaken that it will
amend its Bylaws to provide that for a period of three years from the date of
this Prospectus, any use of the proceeds of this offering other than as set
forth under "Use of Proceeds" shall be approved by a majority of the nonemployee
directors of the Company, including at least one of the Independent Directors.
In addition, during such three-year period, the Company will obtain similar
approval before it (i) raises any capital pursuant to the issuance of equity
securities or securities convertible into or exchangeable for equity securities
of the Company for any purpose other than to make a contribution to the
Partnership substantially similar to investments to be made by Engelhard (other
than with respect to stock options covered by plans which have been approved by
the Company's stockholders) or (ii) raises any capital for any purpose through
the issuance to any officer, director or 5% or greater stockholder of the
Company of equity securities or other securities convertible into or
exchangeable for equity securities of the Company (other than with respect to
stock options covered by plans which have been approved by the Company's
stockholders). During such three-year period, at least one of the Independent
Directors will be a member of the Compensation, Audit and Stock Option
Committees of the Board of Directors.
Executive Compensation
As a condition to the formation of the Partnership pursuant to the
Joint Venture Asset Transfer Agreement, Mr. Gross entered into a five year
employment agreement with the Partnership, dated February 7, 1994, pursuant to
which Mr. Gross is employed as the Chief Executive Officer of the Partnership
and is required to devote a majority of his business time to the business of the
Partnership, at an annual salary of $155,000, subject to certain adjustments.
Mr. Gross also received an annual salary in 1994 of $105,735 from the Company
for his services as its Chairman of the Board and President, although he does
not have a written employment agreement with the Company. In June 1995, the
Company increased Mr. Gross's salary to $150,000 per annum.
Prior to the formation of the Partnership, the Company entered into an
employment agreement with William A. Wilson, the former President and Chief
Executive Officer and a director of the Company, that was to expire on December
31, 1996. Under the terms of the agreement, Mr. Wilson received an annual salary
of $150,000 and options vesting over five years to purchase 500,000 shares of
Common Stock at an exercise price of $2.60 per share. The agreement also
stipulated that Mr. Wilson would receive one year of salary plus benefits if he
were terminated from employment without cause during the term of the agreement.
Effective February 28, 1994, Mr. Wilson resigned as President and Chief
Executive Officer of the Company, was appointed Vice Chairman of the Board and
Treasurer, and he became a part-time employee of the Company. Under the terms of
the amended employment agreement, Mr. Wilson receives an annual salary of
$50,000 and the options to purchase 200,000 shares of Common
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<PAGE>
Stock which had not yet vested, vest over a four year period commencing in
February 1994, subject to his continued employment with the Company and subject
to acceleration upon the occurrence of certain extraordinary corporate events,
such as a merger, sale or change in control of the Company.
Stock Option Plans
The Company has adopted an Incentive Stock Option Plan ("ISOP") and a
Nonqualified Stock Option Plan ("NQSOP") for directors, officers and key
employees of the Company and others. Under these plans, options may be granted
for the purchase of up to an aggregate of 6,850,000 shares of Common Stock. The
number of options to be granted and the exercise prices are determined by the
Stock Option Committee of the Board of Directors in accordance with the terms of
the plans. Under the terms of the ISOP, the option price cannot be less than
100% of the fair market value of the Common Stock on the date of the grant.
Incentive stock options generally are exercisable for three to five years based
on a vesting schedule from the grant date. Under the NQSOP, the option price as
determined by the Stock Option Committee may be greater or less than the fair
market value of the Common Stock as of the date of the grant, and the options
are generally exercisable for three to five years subsequent to the grant date.
At September 30, 1995, options to purchase an additional 1,560,942 shares of
Common Stock may be granted under the plans.
During 1994, the Company adopted its Equity Plan for Directors (the
"Formula Plan") pursuant to which nonemployee Eligible Directors (defined below)
receive automatic option grants whose vesting are dependent on the market price
of the Common Stock. The Company does not intend to issue options to its
nonemployee directors other than pursuant to the Formula Plan. Under the Formula
Plan, each director who was an Eligible Director on adoption of the Plan was
automatically granted an option to purchase 50,000 shares of Common Stock and,
thereafter, each person who becomes an Eligible Director is automatically
granted an option to purchase 50,000 shares of Common Stock on the date such
person first becomes an Eligible Director. Each Eligible Director is
automatically granted an options to purchase an additional 50,000 shares of
Common Stock on each fifth anniversary of the initial grant for such director.
An "Eligible Director" is a director who is not, and has not been during the
preceding twelve months, an officer of employee of the Company. The exercise
price for the options granted under the Formula Plan is the fair market value of
a share of Common Stock on date of the grant. Options to purchase 500,000 shares
of Common Stock may be granted under the Formula Plan. As of September 30, 1995,
options to purchase 350,000 additional shares of Common Stock were available for
grant under the Formula Plan.
Grants under the Formula Plan provide for vesting in five equal annual
installments commencing on the first anniversary of the date of grant, have a
term of ten years (subject to earlier termination under specified conditions)
and provide for accelerated vesting in the event of death or a change in control
of the Company. A "change in control" means the consummation of any merger or
consolidation involving the Company, any sale of substantially all of the
Company's assets or other transaction or related transactions as a result of
which a single person or several persons acting in concert own a majority of the
Common Stock (except for certain transactions that do not involve a change in
the holders of a majority of the outstanding Common Stock and the ownership of a
majority of the outstanding shares of Common Stock by a single person).
During 1994, the Company granted nonqualified stock options under the
NQSOP to the following officers and directors: (i) on July 1, 1994, the Company
granted options to purchase 500,000 shares of
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<PAGE>
Common Stock to Mr. Gross and options to purchase 50,000 shares to each of
Messrs. Resnick and Wilson, in each case at an exercise price of $5.60 per
share; (ii) on July 7, 1994, the Company granted to Messrs. Gross and Resnick
options to purchase 175,000 shares and 200,000 shares of Common Stock,
respectively, at an exercise price of $5.50 per share; and (iii) on October 4,
1994, the Company granted to Mr. Hanuschek options to purchase 50,000 shares of
Common Stock, at an exercise price of $9.125 per share. In addition, the vesting
of the options referred to in clause (i) of this paragraph and all options
granted under the Formula Plan are contingent upon the satisfaction of certain
performance criteria relating to the future market price (higher than the market
price on the date of grant) of the Common Stock.
Under the ISOP, the Company granted to certain employees who were
neither officers nor directors options to purchase 424,200 shares of Common
Stock as of September 30, 1995, of which options to purchase 244,400 shares of
Common Stock are currently exercisable.
Under the Formula Plan, Messrs. Schachman and Shapiro were granted on
July 1, 1994 options to purchase 50,000 shares of Common Stock at an exercise
price of $5.60 per share, and Mr. Hauser was granted on December 15, 1994 an
option to purchase 50,000 shares of Common Stock at an exercise price of $8.125
per share.
Compensation of Directors
Commencing June 1, 1995, each non-employee director receives an annual
retainer of $7,500, plus $500 for each Board meeting and each committee meeting
attended, together with reimbursement for expenses incurred in connection with
such meetings.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of September
30, 1995, regarding the beneficial ownership of the Common Stock by (i) each
person who is known to the Company to be the beneficial owner of 5% or more of
the Common Stock, (ii) each director and executive officer of the Company, and
(iii) all executive officers and directors as a group. Unless otherwise
indicated, the stockholders listed possess sole voting and investment power with
respect to the shares indicated as owned by them.
<TABLE>
<CAPTION>
Percentage Owned
--------------------------------
Shares
Beneficially Before After
Name and Address (1) Owned Offering Offering(2)
- -------------------- ------------ -------- -----------
<S> <C> <C> <C>
Irwin L. Gross(3) 2,675,046 15.9% 13.2%
Albert Resnick(4) 1,601,620 9.9% 8.8% (5)
Andrew L. Shapiro (6) 969,914 6.3% 4.9%
Stephen Schachman(7) 60,000 * *
William A. Wilson(8) 35,000 * *
Mark S. Hauser(9) 165,000 1.1% *
Manfred Hanuschek(8) 10,000 * *
All Executive Officers, Directors 5,516,580 28.4% 27.0%
as a group (7 persons)(10)
</TABLE>
- ---------------------
* Less than 1%.
(1) Addresses are included for beneficial owners of 5% or more of the Common
Stock. Beneficial ownership has been determined pursuant to Rule 13d-3 of
the Exchange Act. Mr. Shapiro's business address is 1273 North Church Road,
Suite 107, Moorestown, New Jersey 08057. The business address for each of
the other 5% stockholders is the address of the Company at 441 North 5th
Street, Philadelphia, PA 19123.
(2) Amounts indicated reflect the Preferred Stock Transactions, including
the conversion of the Series G and H Convertible Preferred Stock and
the issuance of Common Stock as payment for the accrued dividends on
the Series H Convertible Preferred Stock, and the issuance of
2,500,000 shares of Common Stock in connection with this offering.
(51)
<PAGE>
(3) Includes 403,181 shares of Common Stock and 108 shares (30.9%) of Series G
Convertible Preferred Stock currently convertible into 882,420 shares of
Common Stock, currently exercisable options to purchase 317,753 shares of
Common Stock, and currently exercisable warrants to purchase 300,000 shares
of Common Stock. Also includes 20,000 shares of Common Stock and 92 shares
(26.3%) of Series G Convertible Preferred Stock, currently convertible into
751,692 shares of Common Stock, held of record by a trust for the benefit
of the children of Mr. Gross, with respect to which Mr. Gross exercises
shared voting and investment power.
(4) Includes 27,828 shares of Common Stock, 75 shares (21.4%) of Series G
Convertible Preferred Stock currently convertible into 612,792 shares of
Common Stock, 1,500 shares (100%) of Series H Convertible Preferred Stock
currently convertible into 750,000 shares of Common Stock, and currently
exercisable options to purchase 211,000 shares of Common Stock.
(5) Includes 149,063 shares of Common Stock issued as payment for the accrued
dividends on the Series H Convertible Preferred
Stock.
(6) Includes 154,264 shares of Common Stock, 75 shares (21.4%) of Series G
Convertible Preferred Stock currently convertible into 612,792 shares of
Common Stock, and currently exercisable options to purchase 202,858 shares
of Common Stock.
(7) Includes 10,000 shares of Common Stock and currently exercisable options
to purchase 50,000 shares of Common Stock.
(8) Consists of shares of Common Stock which may be acquired pursuant to
currently exercisable options.
(9) Consists of currently exercisable options and warrants to purchase Common
Stock.
(10) Includes (i) 615,273 shares of Common Stock, (ii) 350 shares of
Series G Convertible Preferred Stock currently convertible into
2,859,696 shares of Common Stock, (iii) 1,500 shares of Series H
Convertible Preferred Stock currently convertible into 750,000 shares
of Common Stock, and (iv) currently exercisable options and warrants
to purchase 465,000 shares of Common Stock.
(52)
<PAGE>
CERTAIN TRANSACTIONS
In April 1993, the Company loaned Irwin L. Gross, Chairman and
President, $70,000 pursuant to a promissory note which provides that such amount
is payable on demand together with interest at an annual rate of 10%. As of
September 30, 1995, the unpaid balance of the loan was $28,667. The loan was
reduced to the present balance by the offsetting of deferred salary on December
31, 1993.
On June 17, 1994, the Company, Mr. Gross and Albert Resnick, a
director of the Company, completed a private placement of a total of 1,400,000
shares of Common Stock, of which 1,100,000 shares were sold by the Company and
150,000 shares were sold by each of Messrs. Gross and Resnick. Pursuant to an
agreement between the Company and Messrs. Gross and Resnick, the Company paid
all expenses incurred in connection with the offering, including placement agent
selling commissions of $64,732 with respect to the shares sold by Messrs. Gross
and Resnick.
During 1994, the Company paid fees to companies affiliated with Mark
S. Hauser, a director of the Company, for financial advisory services, and
reimbursed such companies for certain expenses. The fees paid consisted of
approximately $125,000 in cash and the granting of immediately exercisable
warrants to purchase 340,000 shares of Common Stock at exercise prices of $3.25
for 50,000 shares, $3.56 for 90,000 shares and $4.75 for 200,000 shares,
exercisable until May 23, 1999.
Concurrent with the completion of the offering as part of the
Preferred Stock Transactions: (i) the 350 shares outstanding of Series G
Convertible Preferred Stock, owned by Messrs. Gross, Resnick and Shapiro will be
converted into 2,859,696 shares of Common Stock; (ii) the 1,500 shares
outstanding of the Series H Convertible Preferred Stock owned by Mr. Resnick
will be converted into 750,000 shares of Common Stock; (iii) the accrued Series
H Convertible Preferred Stock dividends of approximately $596,000 as of
September 30, 1995 will be paid in the form of Common Stock at the rate of $4.00
per share; (iv) the 135 shares outstanding of the Series F Preferred Stock owned
by Mr. Gross and Resnick will be redeemed for approximately $242,000 and the
accrued dividends of approximately $17,000 as of September 30, 1995 will be
paid; (v) the 500 shares outstanding of the Series I Preferred Stock owned by
Messrs. Gross, Resnick and Shapiro will be redeemed for $500,000 and the accrued
dividends of approximately $178,000 as of September 30, 1995 will be paid; and
(vi) the 225 shares outstanding of the Series J Preferred Stock owned by Messrs.
Gross, Resnick and Shapiro will be redeemed for $225,000, and the accrued
dividends of approximately $75,000 as of September 30, 1995 will be paid.
(53)
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $.01 per share, and 10,000,000 shares of Preferred Stock, par value
$.01 per share. As of September 30, 1995, there were outstanding 14,592,540
shares of Common Stock, 135 shares of Series F Preferred Stock, 350 shares of
Series G Convertible Preferred Stock (which are currently convertible into
2,859,696 shares of Common Stock), 1,500 shares of Series H Convertible
Preferred Stock (which are currently convertible into 750,000 shares of Common
Stock), 500 shares of Series I Preferred Stock and 225 shares of Series J
Preferred Stock. In addition, as of such date there were outstanding warrants to
purchase 1,465,000 shares of Common Stock and options to purchase 3,019,885
shares of Common Stock, plus an additional 1,910,942 shares of Common Stock
reserved for issuance under the Company's stock option plans.
Upon completion of the offering pursuant to the Preferred Stock
Transactions, all the outstanding series of Preferred Stock will be converted or
redeemed for 3,609,696 shares of Common Stock and approximately $967,000 cash.
Accrued and unpaid dividends will be declared and paid in cash, except with
respect to the Series H Convertible Preferred Stock. The unpaid dividends on the
Series H Convertible Preferred Stock will be paid in shares of Common Stock.
Accordingly, after the sale of the shares offered hereby and the Preferred Stock
Transactions, there will be 20,861,299 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
Common Stock. Each share of Common Stock is entitled to one vote on
each matter submitted to the stockholders without cumulative voting rights in
the election of directors. The shares of Common Stock have no preemptive rights.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of any
Preferred Stock then outstanding. Subject to preferences that may be applicable
to any outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. Except for an
in-kind warrant dividend paid in June 1990, the Company has not declared any
dividends on the Common Stock and does not expect to declare dividends in the
foreseeable future on the Common Stock. Payment of future dividends rests with
the discretion of the Board of Directors and will depend, among other things, on
the earnings, capital requirements and financial condition of the Company and
the Partnership. See "Dividend Policy." All outstanding shares of Common Stock
are fully paid and non-assessable, and the shares of Common Stock offered
hereby, when issued, will be fully paid and non-assessable.
Preferred Stock. The Company's Certificate of Incorporation authorizes
the Board of Directors to designate and issue from time to time one or more
classes or series of Preferred Stock, without approval of the stockholders. The
Board of Directors may fix and determine the relative designations, powers,
preferences, rights and dividends of any class or series of Preferred Stock. The
issuance of Preferred Stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate transactions, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company.
Transfer Agent. The transfer agent for the Common Stock of the
Company is American Stock Transfer & Trust Company, 40 Wall Street,
New York, NY 10005.
(54)
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1995, there were 14,592,520 shares of Common Stock
outstanding. The 2,500,000 shares of Common Stock offered hereby and 13,985,222
of the shares of Common Stock currently outstanding are freely transferrable
without restriction or further registration under the Securities Act, except
that any such shares owned by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with Rule 144 as described below, but without regard to the holding
period. The remaining shares of Common Stock are "restricted securities" within
the meaning of Rule 144 and may not be sold in the absence of a registration
under the Securities Act unless an exemption from registration is available,
including an exemption contained in Rule 144. The Company, its executive
officers and directors and certain stockholders of the Company (holding, as of
September 30, 1995 and after giving effect to the Preferred Stock Transactions,
an aggregate of 4,374,032 shares of Common Stock, together with options and
warrants to purchase 3,576,611 shares of Common Stock) have agreed with the
Underwriters not to sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable for any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Representatives of the Underwriters.
In addition, as of September 30, 1995, there were outstanding warrants
to purchase 1,465,000 shares of Common Stock, of which warrants to purchase
540,000 shares are currently exercisable, and options to purchase 3,019,885
shares of Common Stock, of which options to purchase 1,380,085 shares are
currently exercisable. Of the outstanding warrants, 450,000 underlying shares of
Common Stock are registered pursuant to an effective registration statement and
the balance of 1,015,000 shares of Common Stock have certain registration
rights. Under the Company's stock option plans, options to purchase an
additional 1,910,942 shares of Common Stock may be granted. All of the shares
underlying the options are covered by effective Registration Statements. In
addition, there are outstanding shares of Preferred Stock that are currently
convertible into an aggregate of 3,609,696 shares of Common Stock. All of such
shares, except for 149,063 shares are eligible for sale under Rule 144.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated) including an officer, director or
controlling stockholder ("affiliate"), who has beneficially owned shares for at
least two years (including, in the case of a nonaffiliate holder, any period of
ownership of preceding non-affiliate holders) is entitled to sell, within any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years, would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.
The Company is unable to estimate the amount, timing or nature of
future sales of outstanding shares of Common Stock. Sales of substantial amounts
of the Common Stock in the public market or the availability of shares for sale
may have an adverse effect on the market price thereof.
(55)
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Janney Montgomery Scott Inc. and Gerard Klauer Mattison & Co., LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement by and among the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the Underwriters, the number of shares of Common Stock set
forth opposite their respective names below, at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
Janney Montgomery Scott Inc.....................
Gerard Klauer Mattison & Co., LLC...............
TOTAL........................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will purchase the total number of shares of Common Stock shown
above if any of such shares are purchased. The Underwriting Agreement provides
that, in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public initially
at the offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $___ per share,
and the Underwriters may allow, and such dealers may reallow, a concession not
in excess of $______ per share to certain other dealers. After the public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
The Company has granted the Underwriters an over-allotment option,
exercisable for 45 days after the date of this Prospectus, to purchase up to an
aggregate of 375,000 additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each Underwriter will be committed, subject to
certain conditions, to purchase a number of the additional shares of Common
Stock proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
The Company has agreed to indemnify the Underwriters against, or to
contribute to losses arising out of, certain liabilities in connection with this
offering, including liabilities under the Securities Act.
(56)
<PAGE>
The Company and its directors and executive officers and certain other
stockholders have agreed not to sell, contract to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of the Representatives.
The Company has retained Gerard Klauer Mattison & Co., LLC ("GKM"), on
an exclusive basis, to render certain investment banking and other advisory
services pursuant to an agreement that can be terminated at any time by either
party. Under the arrangement, GKM does not receive any retainer or periodic
compensation, but is entitled to receive customary compensation during the term
of the agreement. In September 1995, the Company paid GKM a fee of $231,000 in
connection with a 3,300,000 private placement of Common Stock. GKM will also be
entitled to receive a fee equal to 7% of the proceeds received by the Company in
the event any of the warrants to purchase 375,000 shares of Common Stock
exercisable at $9.00 per share issued in the private placement are exercised.
In connection with the offering, certain Underwriters and selling
group members (if any) who are qualifying registered market makers on Nasdaq may
engage in passive market making transactions in the Common Stock on Nasdaq in
accordance with Rule 10b-6A under the Exchange Act during the two business day
period before commencement of sales in the offering. The passive market making
transactions must comply with applicable price and volume limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security. If all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded. Net
purchases by a passive market maker on each day are generally limited to a
specified percentage of the passive market making average daily trading volume
in the Common Stock during a reference period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
(57)
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon
for the Company by Mesirov Gelman Jaffe Cramer & Jamieson, Philadelphia,
Pennsylvania. Certain legal matters are being passed upon for the Underwriters
by Cozen and O'Connor, Philadelphia, Pennsylvania.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993 and
the consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows of the Company for each of the three years in the
period ended December 31, 1994, included and incorporated by reference in this
Prospectus, have been audited by Coopers & Lybrand L.L.P. (whose report dated
March 24, 1995 includes an explanatory paragraph which refers to conditions that
raise substantial doubt about the Company's ability to continue as a going
concern) and have been included herein in reliance upon the authority of that
firm as experts in accounting and auditing.
The balance sheet as of December 31, 1994 and the statements of
operations, changes in partners' capital and cash flows for the period February
7, 1994 (date of formation) to December 31, 1994, of the Partnership, included
and incorporated by reference in this Prospectus have been audited by Coopers &
Lybrand L.L.P. (whose report dated March 24, 1995 includes an explanatory
paragraph which refers to conditions that raise substantial doubt about the
Partnership's ability to continue as a going concern) and have been included
herein in reliance upon the authority of that firm as experts in accounting and
auditing.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND CONTROLLING PERSONS
The Company's Certificate of Incorporation contains a provision which
limits the personal liability of directors to the Company or the stockholders
for monetary damages for breach of fiduciary duty. The Certificate of
Incorporation provides that a director of the Company shall not be personally
liable for a breach of fiduciary duty as a director except for liabilities (i)
for any breach of the director's duty of loyalty, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for an unlawful dividend payment or an unlawful repurchase of stock,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation also provides that the
Company will indemnify and pay legal expenses and damages incurred by officers
and directors in any legal action arising from their actions as agents of the
Company as long as the officer or director had acted in good faith in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful.
Nothing in these provisions eliminates a director's fiduciary duty to
act with care or precludes a stockholder from pursuing injunctive or other
equitable remedies.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and therefore is unenforceable.
(58)
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
ICC Technologies, Inc.
Page
----
<S> <C>
Financial statements for the three and nine month periods ended September
30, 1995 and 1994:
Consolidated Balance Sheets at September 30, 1995 and December 31, 1994 F-3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the nine months ended September 30,
1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
Financial statements for the years ended December 31, 1994, 1993 and 1992:
Report of Independent Accountants F-12
Consolidated Balance Sheet at December 31, 1994 and 1993 F-13
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 F-14
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1994, 1993 and 1992 F-15
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 F-16
Notes to Consolidated Financial Statements F-17
</TABLE>
F-1
<PAGE>
Index to Financial Statements, continued
<TABLE>
<CAPTION>
Engelhard/ICC
Page
----
<S> <C>
Financial statements for the three month periods ended September 30, 1995
and 1994 and the nine months ended September 30, 1995 and the period
February 7, 1994 (date of formation) to September 30, 1994:
Balance Sheets at September 30, 1995 and December 31, 1994 F-33
Statements of Operations for the three months ended September 30, 1995
and 1994, the nine months ended September 30, 1995, and the period
February 7, 1994 (date of formation) to September 30, 1994 F-34
Statements of Cash Flows for the nine months ended September 30, 1995, and the period
February 7, 1994 (date of formation) to September 30, 1994 F-35
Notes to Financial Statements F-36
Financial statements for the period February 7, 1994 (date of formation) to
December 31, 1994:
Report of Independent Accountants F-42
Balance Sheet at December 31, 1994 F-43
Statement of Operations for the period February 7, 1994 (date of formation)
to December 31, 1994 F-44
Statement of Changes in Partners' Capital for the period February 7, 1994
(date of formation) to December 31, 1994 F-45
Statement of Cash Flows for the period February 7, 1994 (date of formation)
to December 31, 1994 F-46
Notes to Financial Statements F-47
</TABLE>
F-2
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,855,335 $ 1,114,335
Receivables:
Employees 28,667 28,667
Engelhard/ICC 157,543 124,095
Inventories, net 2,000 16,960
Prepaid expenses and other 187,284 65,210
-------------- -------------
Total current assets 4,230,829 1,349,267
RESTRICTED BANK CERTIFICATE OF DEPOSIT 2,500,000 -
INVESTMENTS IN ENGELHARD/ICC - 1,048,255
PROPERTY AND EQUIPMENT, net 3,944 -
OTHER ASSETS 3,414 -
-------------- -------------
Total assets $ 6,738,187 $ 2,397,522
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 15,059 $ 93,838
Current portion of note payable to stockholder 150,000 -
Accrued liabilities 165,058 182,944
-------------- -------------
Total current liabilities 330,117 276,782
-------------- -------------
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 2,904,804 -
-------------- -------------
NOTE PAYABLE TO STOCKHOLDER - 150,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Series F, authorized, issued and outstanding 135 shares at September
30, 1995, and 6,885 shares at December 31, 1994 (liquidation value
$241,764 at September 30, 1995 and
$11,632,063 at December 31, 1994) 1 69
Series G Convertible, authorized 400 shares; issued and outstanding
350 shares at September 30, 1995 and December 31, 1994
(liquidation value $626,797 at September 30, 1995 and $591,318 at 4 4
December 31, 1994)
Series H Convertible, authorized, issued and outstanding 1,500
shares at September 30, 1995 and December 31, 1994 15 15
Series I, authorized, issued and outstanding 500 shares at
September 30, 1995 and December 31, 1994 5 5
Series J, authorized, issued and outstanding 225 shares at
September 30, 1995 and December 31, 1994 2 2
Common stock, $.01 par value, authorized 50,000,000 shares, issued
14,592,540 shares at September 30, 1995 and 12,288,632 shares at
December 31, 1994 145,925 122,887
Additional paid-in capital 34,907,976 29,241,534
Accumulated deficit (31,379,232) (27,222,346)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
-------------- -------------
Total stockholders' equity 3,503,266 1,970,740
-------------- -------------
Total liabilities and stockholders' equity $ 6,738,187 $ 2,397,522
============== =============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-3
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES - - $ 6,500 $ 88,360
COST OF GOODS SOLD - - 5,961 80,335
------------- ------------- ------------- -------------
Gross profit - - 539 8,025
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Marketing - - - 155,283
Engineering and development - - - 150,523
General and administrative $ 343,283 $ 446,266 1,026,768 933,435
------------- ------------- ------------- -------------
Total operating costs 343,283 446,266 1,026,768 1,239,241
------------- ------------- ------------- -------------
Loss from operations (343,283) (446,266) (1,026,229) (1,231,216)
INTEREST:
Interest income 72,251 54,207 275,312 71,447
Interest expense on
stockholder's loans (4,031) (2,750) (12,219) (10,736)
------------- ------------- ------------- -------------
68,220 51,457 263,093 60,711
------------- ------------- ------------- -------------
EQUITY INTEREST IN NET LOSS OF
ENGELHARD/ICC (1,320,262) - (3,393,750) -
------------- ------------- ------------- -------------
NET LOSS (1,595,325) (394,809) (4,156,886) (1,170,505)
PREFERRED STOCK DIVIDEND REQUIREMENTS (84,446) (45,125) (215,339) (175,875)
------------- ------------- ------------- - ------------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (1,679,771) $ (439,934) $ (4,372,225) $ (1,346,380)
============= ============= ============= ============
NET LOSS PER COMMON SHARE $ (0.12) $ (0.04) $ (0.34) $ (0.12)
============= ============= ============= ============
WEIGHTED AVERAGE COMMON SHARES 13,785,330 12,083,108 12,955,334 11,081,990
============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1995 1994
------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (4,156,886) $ (1,170,505)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 826 49,181
Equity interest in net loss of Engelhard/ICC 3,393,750 -
Warrants issued for services rendered 25,000 -
Increase in bad debt and inventory reserve 9,000 111,112
(Increase) decrease in:
Receivables (33,448) 45,035
Inventories 5,960 (67,664)
Prepaid expenses and other (97,074) (20,341)
Increase (decrease) in:
Accounts payable (78,779) (21,361)
Accrued expenses 41,423 (62,825)
------------- -----------
Net cash used in operating activities (890,228) (1,137,368)
------------- -----------
Cash Flows from Investing Activities:
Capital contribution to Engelhard/ICC (1,000,000) -
Repayments of loans from Engelhard/ICC 1,500,000 -
Purchase of restricted certificate of deposit (2,500,000) -
Purchase of property and equipment, net (8,184) (9,300)
------------- -----------
Net cash used in investing activities (2,008,184) (9,300)
------------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and warrants, net 5,639,412 5,062,303
Repayments of borrowings from stockholders - (185,272)
Borrowings from Engelhard Corporation - 400,000
------------- -----------
Net cash provided by financing activities 5,639,412 5,277,031
------------- -----------
Net increase in cash and cash equivalents 2,741,000 4,130,363
Cash and Cash Equivalents, Beginning of Period 1,114,335 1,142,674
------------- -----------
Cash and Cash Equivalents, End of Period $ 3,855,335 $ 5,273,037
============= ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
F-5
<PAGE>
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been reflected
herein. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1994 included
elsewhere herein. Results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of results of
operations expected for the full year.
(2) BUSINESS AND GOING CONCERN CONSIDERATIONS:
Business
ICC Technologies, Inc. ("ICC" or the "Company") is a Delaware
corporation. On February 7, 1994, pursuant to the terms and conditions
of a Joint Venture Asset Transfer Agreement ("Transfer Agreement"), by
and among ICC, its newly formed wholly-owned subsidiary, ICC Desiccant
Technologies, Inc. ("I Partner"), and Engelhard Corporation
("Engelhard") and its newly formed wholly-owned subsidiary, Engelhard
DT, Inc. ("E Partner"), ICC and Engelhard, through their respective
subsidiaries, formed a Pennsylvania general partnership named
"Engelhard/ICC" (the "Partnership"). In exchange for a 50% interest in
the Partnership, ICC transferred to the Partnership through its
wholly-owned subsidiary, I Partner, substantially all of its assets,
with the exception of cash and certain other assets not related to the
desiccant air conditioning business, subject to certain liabilities,
and Engelhard, in exchange for a 50% interest in the Partnership, (a)
contributed to the Partnership through its wholly-owned subsidiary, E
Partner, approximately $8,600,000 in cash, (b) entered into a Supply
Agreement pursuant to which it agreed to supply desiccants to the
Partnership, (c) entered into a Technology License Agreement pursuant
to which Engelhard and the Partnership licensed to each other certain
technology rights, and (d) agreed to provide credit support to the
Partnership in the amount of $3,000,000.
The Partnership was formed to engage in the business of designing,
manufacturing and marketing climate control systems to supplement or
replace conventional air conditioning systems ("Partnership Business"),
and succeed to the desiccant air conditioning business conducted by ICC
prior to the formation of the Partnership and the activities of ICC and
Engelhard under the Joint Development Agreement dated May 26, 1992. As
a result of the consummation of the Transfer Agreement, ICC has become
principally a holding company, owning a 50% interest in the Partnership
through ICC's wholly-owned subsidiary, I Partner, which is a co-general
partner of the Partnership. Although ICC is not permitted to engage
directly or indirectly in any activities that would conflict with the
Partnership Business as long as the Partnership is in effect, ICC is
not precluded from engaging in other activities.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) BUSINESS AND GOING CONCERN CONSIDERATIONS, Continued:
Prior to consummation of the Transfer Agreement, ICC was engaged in the
business of designing, manufacturing and marketing desiccant cooling
systems for climate control for commercial buildings. The Partnership
has and the Company expects the Partnership to continue to conduct such
business and to market its products to such potential users.
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Revenues
and the Company's share of results of operations of Engelhard/ICC have
been insufficient to cover costs of operations for the nine months
ended September 30, 1995. The Company has incurred cumulative losses
since inception of $31,379,232 through September 30, 1995. In order to
continue operations, the Company has had to raise additional capital to
offset cash consumed in operations and support of the Partnership.
Until the Partnership generates positive cash flows from operations, it
will be primarily dependent upon its partners to provide any required
working capital. The Company's continuation as a going concern is
dependent on its ability to: (i) generate sufficient cash flows to meet
its obligations on a timely basis; (ii) obtain additional financing as
may be required; and (iii) ultimately attain profitable operations and
positive cash flows from operations and its investment in the
Partnership. The accompanying financial statements do not include any
adjustments that may result from the Company's inability to continue as
a going concern.
Management intends to raise additional capital as required to continue
operations and to support the Partnership; however, there can be no
assurance that the Company will be able to raise additional capital.
See Note 4, Stock Transactions.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVESTMENT IN ENGELHARD/ICC PARTNERSHIP:
The following are the summarized unaudited financial results of the
Partnership:
<TABLE>
<CAPTION>
Period
February 7
Quarter Quarter Nine months (date of
ended ended ended formation) to
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Results of operations:
Revenues $ 2,009,538 $ 379,912 $ 7,171,504 $ 997,156
Cost of goods sold 2,283,118 328,282 7,175,429 876,872
------------ ------------ ------------ -------------
Gross profit(loss) (273,580) 51,630 (3,925) 120,284
Operating expenses:
Marketing 862,851 659,882 2,524,468 1,373,024
Engineering 280,470 290,897 694,747 750,357
Research and development 257,556 231,904 898,135 540,999
General and administrative 847,423 466,093 2,084,030 1,000,461
------------ ------------ ------------ -------------
Loss from operations (2,521,880) (1,597,146) (6,205,305) (3,544,557)
Interest expense (income) 118,643 (24,947) 582,194 (102,093)
------------ ------------ ------------ -------------
Net loss $(2,640,523) $ (1,572,199) $(6,787,499) $ (3,442,464)
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Balance sheet information: September 30, December 31,
1995 1994
----------- -------------
<S> <C> <C>
Cash and cash equivalents $ 40,998 $ 648,451
Receivables 1,497,441 663,551
Inventory 4,358,148 2,439,509
Other current assets 47,181 75,836
Cash held in escrow 1,060,865 -
Property, plant and
equipment 7,988,625 7,946,511
Other noncurrent assets 1,792,549 1,612,497
------------ ------------
Total assets $16,785,807 $13,386,355
============ ============
Current liabilities $ 1,628,157 $ 1,730,732
Short term loan 2,750,000 -
Long term debt 8,714,570 175,044
Notes payable to general
partners - 8,000,000
Partners' capital 3,693,080 3,480,579
------------ ------------
Total liabilities and capital $16,785,807 $ 13,386,355
============ ============
</TABLE>
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVESTMENT IN ENGELHARD/ICC PARTNERSHIP, Continued:
The Company's investment in the Partnership is owned by its
wholly-owned subsidiary, I-Partner, whose principal asset is the
Partnership investment. The investment in the Partnership is accounted
for under the equity method of accounting. On February 7, 1994, date of
formation, the Company's investment in the Partnership was
approximately $0. The investment remained at $0 through September 30,
1994 because the Company had no obligation to provide additional
financial support to the Partnership. In December 1994, each general
partner provided additional financing in the amount of $4,000,000 to
the Partnership ("General Partners' Bridge Loan") in connection with
the acquisition of the real property and substantially all other assets
of an existing manufacturing facility located in Miami, Florida. The
General Partners' Bridge Loan resulted in the Company increasing its
investment in the Partnership as well as recording its proportionate
share of previously unrecognized accumulated losses at that time. In
May 1995, $1,500,000 of the bridge loan was repaid to each general
partner. The remaining $2,500,000 for each general partner was
converted into an investment in the Partnership.
In April 1995, the Partnership obtained financing from the issuance of
$8,500,000 of industrial development revenue bonds. The proceeds of
these bonds were used to repay $3,000,000 of the General Partners'
Bridge Loan, $1,500,000 to each general partner, and provide for
improvements and capital equipment at the Miami facility. As of
September 30, 1995, $1,060,865 of proceeds were held in escrow and will
be released upon the Partnership's incurring qualified expenditures.
In May 1995, the Company guaranteed 50% of the Partnership's
indebtedness associated with the industrial development revenue bonds.
The Company has established an irrevocable letter of credit for
$2,500,000 to support its portion of the guarantee. The Company's
letter of credit is collateralized by a certificate of deposit in the
amount of $2,500,000.
The general partners are guarantors of the Partnership's long-term debt
which totals approximately, $8,700,000 as of September 30, 1995.
Subsequent to September 30, 1995, each general partner contributed an
additional $2,000,000 to the Partnership.
The Company's proportionate share of losses in the Partnership are
$1,320,262 and $3,393,750 for the three and nine months ended September
30, 1995. The Partnership has incurred cumulative losses of
approximately $12,400,000 since inception. The Company's share of the
cumulative losses have resulted in recognition of losses in excess of
the Company's investment in and advances to the Partnership of
$2,904,809, which has been reflected as a liability in the September
30, 1995 balance sheet.
Receivables from the Partnership were $157,543 at September 30, 1995.
Interest income earned by the Company in connection with the General
Partners' Bridge Loan amounted to approximately $164,000 for the nine
months ended September 30, 1995. The Partnership charged the Company
approximately $24,000 and $64,000 for the three and nine months ended
September 30, 1995, respectively, for various administrative office
support services which were provided.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) STOCK TRANSACTIONS:
Equity Issuances
On March 31, 1995, pursuant to a private placement, the Company issued
300,000 shares of Common Stock for gross proceeds of $3,300,000. At
closing, cash of $1,100,000 was received along with a $2,200,000
promissory note. In August 1995, the promissory note was paid. The
Company issued warrants to purchase 375,000 shares of Common Stock at
$9 per share to the placement agents in connection with the private
placement.
The Company received proceeds of approximately $932,000 from the
exercise of stock options to purchase approximately 476,000 shares of
Common Stock granted under its option plans for the three months ended
September 30, 1995. The Company received proceeds of approximately
$1,683,000 from the exercise of options to purchase approximately
794,000 shares of Common Stock granted under its option plans for the
nine months ended September 30, 1995.
The Company received proceeds of approximately $946,000 from the
exercise of warrants to purchase approximately 265,000 shares of Common
Stock for the nine month period ended September 30, 1995.
Preferred Stock
The shares of Series G and H Convertible Preferred Stock may be
converted into Common Stock at the demand of the holder of such shares.
The conversion rates are 8170.56 shares of Common Stock for each Series
G share and 500 shares of Common Stock for each Series H share.
In April 1995, the Series F Preferred Stock and Series G Convertible
Preferred Stock began to accrue a cash dividend at a rate equal to 15%
of their respective accrued liquidation preference. Cumulative
undeclared and unpaid dividends as of September 30, 1995 for the
Preferred Stock amounted to approximately $908,000. The Company may pay
the redemption of Series F Preferred Stock in shares of Common Stock.
In August 1995, the 6,750 shares of Series F Preferred Stock were
redeemed by the issuance of 925,000 shares of Common Stock.
(5) NEW ACCOUNTING STANDARD:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 establishes a fair value
based method of accounting for stock-based compensation plans. It
encourages entities to adopt that method in place of the intrinsic
value method currently in place under the provisions of Opinion No. 25
of the Accounting Principles Board (APB). Under the fair value method
accounting, all arrangements under which employees receive shares of
stock or other equity instruments or under which employers incur
liabilities to employees in amounts based on the price of its stock
result in the measurement of compensation cost at the grant date of the
award which is recognized over the service period, usually the vesting
period. Under the intrinsic value
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) NEW ACCOUNTING STANDARD, Continued:
method, compensation cost is measured by the excess of the quoted
market price of the stock, if any, over the amount the employee must
pay to acquire the stock. For example, granting immediately exercisable
stock options to an employee at an exercise price equal to the quoted
market price of the stock results in the recognition of compensation
expense at the date of grant under the fair value method of SFAS No.
123; under the intrinsic value method of APB No. 25, no compensation
expense is recognized. However, SFAS No. 123 allows the Company to
elect to continue its current method of accounting under APB No. 25 for
employee stock-based compensation arrangements. The Company expects to
continue its current method of accounting under APB No. 25 for employee
stock-based compensation arrangements. If the Company continues its
current method of accounting, pro forma disclosures of net income and
earnings per share must be disclosed, as if the Company had adopted the
recognition provisions of SFAS No. 123.
Although the Company is permitted to continue accounting for employee
stock-based compensation arrangements under APB No. 25, SFAS No. 123
requires the Company to utilize the fair value method of accounting for
transactions involving stock options or other equity instruments issued
to nonemployees as consideration for goods or services. Presently,
those transactions are accounted for by the Company under the intrinsic
value principles of APB No. 25. The use of intrinsic value versus fair
value did not have a material effect on any period presented.
The accounting and disclosure requirements of SFAS No. 123 are
effective for the Company in 1996. The Company has not yet
determined the impact of SFAS No. 123.
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders of ICC Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of ICC
Technologies, Inc. as of December 31, 1994 and 1993 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ICC Technologies,
Inc. as of December 31, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
incurred losses accumulating to $27,222,346 through December 31, 1994. This
factor, among others, raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 1. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 24, 1995
F-12
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,114,335 $ 1,142,674
Receivables:
Trade, net of allowance for doubtful accounts of
$19,112 and $35,000, respectively - 243,127
Employees 28,667 90,095
Engelhard/ICC 124,095 -
Inventories, net 16,960 533,008
Prepaid expenses and other 65,210 68,427
------------- -------------
Total current Assets 1,349,267 2,077,331
INVESTMENTS IN NET ASSETS OF AND LOANS TO
ENGELHARD/ICC 1,048,225 -
PROPERTY AND EQUIPMENT, net - 329,319
OTHER ASSETS, net - 157,652
------------- -------------
Total assets $ 2,397,522 $ 2,564,302
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 93,838 $ 407,595
Current portion of long-term debt - 150,000
Accrued liabilities 182,944 313,036
-------------- -------------
Total current liabilities 276,782 870,631
-------------- -------------
NOTE PAYABLE TO ENGELHARD CORPORATION - 500,000
-------------- -------------
NOTE PAYABLE TO STOCKHOLDERS 150,000 150,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Series F, authorized, issued and outstanding 6,885 shares at December 31,
1994 and 1993 (liquidation value $11,632,063 at
December 31, 1994 and $10,352,494 at December 31, 1993) 69 69
Series G Convertible, authorized 400 shares; issued and outstanding
350 shares at December 31, 1994 and 1993 (liquidation value $591,318
at December 31, 1994 and $526,271 at December 31, 1993) 4 4
Series H Convertible, authorized, issued and outstanding 1,500
shares at December 31, 1994 and 2,100 shares at December 31, 1993 15 21
Series I, authorized, issued and outstanding 500 shares at
December 31, 1994 and 1993 5 5
Series J, authorized, issued and outstanding 225 shares at
December 31, 1994 and 1993 2 2
Common stock, $.01 par value, authorized 50,000,000 shares; issued
12,288,632 shares at December 31, 1994 and 9,969,278 shares at
December 31, 1993 122,887 99,693
Additional paid-in capital 29,241,534 23,946,571
Accumulated deficit (27,222,346) (22,831,264)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
-------------- -------------
Total stockholders' equity 1,970,740 1,043,671
-------------- -------------
Total liabilities and stockholders' equity $ 2,397,522 $ 2,564,302
============== =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-13
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 88,360 $ 1,201,156 $ 957,459
COST OF GOODS SOLD 80,419 1,176,619 939,199
----------- ----------- -----------
Gross profit 7,941 24,537 18,260
----------- ----------- -----------
OPERATING EXPENSES:
Marketing 155,822 878,542 653,557
Engineering and development 150,523 1,099,575 521,161
General and administrative 1,427,929 2,093,733 1,388,209
----------- ----------- -----------
Total operating costs 1,734,274 4,071,850 2,562,927
----------- ----------- -----------
Loss from operations (1,726,333) (4,047,313) (2,544,667)
INTEREST:
Interest income 162,285 14,876 4,726
Interest expense - (1,415) (2,181)
Interest expense on stockholders' loans (14,611) (24,000) (24,751)
----------- ----------- -----------
147,674 (10,539) (22,206)
----------- ----------- -----------
EQUITY INTEREST IN NET LOSS OF ENGELHARD/ICC (2,812,423) - -
----------- ----------- -----------
NET LOSS (4,391,082) (4,057,852) (2,566,873)
PREFERRED STOCK
DIVIDEND REQUIREMENTS (227,750) (261,500) (241,938)
----------- ----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(4,618,832) $(4,319,352) $(2,808,811)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.41) $ (0.51) $ (0.47)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 11,390,981 8,550,852 5,978,505
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-14
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Common Treasury Total
Stock Additional Common Stockholders'
Preferred ($0.01 par Paid-in Accumulated Stock, Equity
Stock value) Capital Deficit at Cost (Deficit)
---------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $ 94 $ 57,897 $ 16,911,776 $(16,206,539) $ (171,430) $ 591,798
Sale of 500 shares of Series
I preferred stock 5 - 499,995 - - 500,000
Sale of 225 shares of Series
J preferred stock 2 - 224,998 - - 225,000
Issuance of 405,772 shares of
common stock, net of offering
expenses - 4,058 785,001 - - 789,059
Net loss - - - (2,566,873) - (2,566,873)
------- ---------- ------------ ------------ ----------- -----------
BALANCE DECEMBER 31, 1992 101 61,955 18,421,770 (18,773,412) (171,430) (461,016)
Conversion of 50 shares Series
G preferred stock into
408,528 shares of common stock - 4,085 (4,085) - - -
Issuance of 2,918,998 shares of
common stock through a
private placement, net of
offering expenses - 28,200 4,309,924 - - 4,338,124
Issuance of shares of common
stock - 1,875 713,712 - - 715,587
Issuance of 357,900 shares of
common stock through
exercise of stock options - 3,578 505,250 - - 508,828
Net loss - - - (4,057,852) - (4,057,852)
------- ---------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1993 101 99,693 23,946,571 (22,831,264) (171,430) 1,043,671
Conversion of 600 shares Series
H preferred stock into
300,000 shares of common stock (6) 3,000 (2,994) - - -
Issuance of 1,100,000 shares of
common stock through a
private placement, net of
offering expenses - 11,000 3,477,920 - - 3,488,920
Issuance of 919,354 shares of
common stock through
exercise of stock options and
warrants - 9,194 1,640,837 - - 1,650,031
Issuance of warrants to
purchase 40,000 shares of
common stock - - 179,200 - - 179,200
Net loss - - - (4,391,082) - (4,391,082)
------- ---------- ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1994 $ 95 $ 122,887 $ 29,241,534 $(27,222,346) $ (171,430) $ 1,970,740
======= ========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-15
<PAGE>
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (4,391,082) $(4,057,852) $(2,566,873)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 49,181 107,590 111,106
Equity interest in net loss of Engelhard/ICC 2,812,423 - -
Termination expense - 30,000 -
(Gain)loss on retirements of fixed assets - (225) 87,683
Common stock and warrants issued for services
rendered 179,200 212,969 2,900
Provision for doubtful accounts 16,112 15,000 10,000
Increase in inventory reserve 95,000 48,000 69,000
Write-off of equipment and other assets - 70,044 86,838
(Increase) decrease in:
Receivables 67,321 (110,588) 149,930
Inventories (67,664) (164,472) 354,159
Prepaid expenses and other (23,873) (31,138) 32,580
Other assets - (32,151) (36,847)
Increase (decrease) in:
Accounts payable (53,418) 109,813 27,719
Accrued expenses (55,918) 128,193 244,531
------------ ----------- -----------
Net cash used in operating activities (1,372,718) (3,674,817) (1,427,274)
------------ ----------- -----------
Cash Flows from Investing Activities:
Loans to Engelhard/ICC (4,000,000) - -
Purchases of property and equipment, net (9,300) (300,040) (17,329)
------------ ----------- -----------
Net cash used in investing activities (4,009,300) (300,040) (17,329)
------------ ----------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants, net 5,138,951 4,643,208 550,805
Proceeds from sale of preferred stock, net - - 725,000
Borrowings from stockholders - - 60,000
Repayments of borrowings from stockholders (185,272) (60,000) -
Payments made under capital lease obligations and
long-term debt - - (39,113)
Borrowings from Engelhard Corporation, net 400,000 500,000 -
------------ ----------- -----------
Net cash provided by financing activities 5,353,679 5,083,208 1,296,692
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents (28,339) 1,108,351 (147,911)
Cash and Cash Equivalents, Beginning of Period 1,142,674 34,323 182,234
------------ ----------- -----------
Cash and Cash Equivalents, End of Period $ 1,114,335 $ 1,142,674 $ 34,323
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-16
<PAGE>
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND GOING CONCERN CONSIDERATIONS:
Business
ICC Technologies, Inc. (the "Company" or "ICC") is a Delaware
corporation. On February 7, 1994, the Company and Engelhard
Corporation, through their respective subsidiaries, formed a
Pennsylvania General Partnership named "Engelhard/ICC" (the
"Partnership"). In exchange for a 50% interest in the Partnership, the
Company transferred to the Partnership substantially all of its assets,
with the exception of cash and certain other assets not related to the
desiccant air conditioning business, subject to certain liabilities;
Engelhard Corporation, in exchange for a 50% interest in the
Partnership, (a) contributed to the Partnership approximately
$8,600,000, (b) entered into a Supply Agreement pursuant to which it
agreed to supply desiccants to the Partnership, (c) entered into a
Technology License Agreement pursuant to which Engelhard Corporation
and the Partnership licensed to each other certain technology rights,
and (d) agreed to provide credit support to the Partnership in the
amount of $3,000,000. In addition, Engelhard Corporation extinguished a
$900,000 obligation due to it by the Company.
The Partnership was formed on February 7, 1994 to engage in the
business of designing, manufacturing and marketing climate control
systems to supplement or replace conventional air conditioning systems
("Partnership Business"). The desiccant air conditioning business
conducted by the Company prior to the formation of the Partnership is
now being conducted by the Partnership. As a result, the Company has
become principally a holding company, owning a 50% interest in the
Partnership. Although the Company is not permitted to engage directly
or indirectly in any activities which would conflict with the
Partnership Business as long as the Partnership is in effect, the
Company is not precluded from engaging in other activities. The Company
will continue to sell its remaining cogeneration inventory. Although
the Company is exploring the possibility of pursuing other ventures, to
date it has not entered into any agreements or commitments to engage in
any other activities.
Prior to the formation of the Partnership, the Company was engaged, in
the business of designing, manufacturing and marketing environmentally
beneficial and energy efficient, desiccant cooling systems for climate
control for commercial buildings. The Company's desiccant cooling
products were marketed to chain operators of supermarkets, department
stores, and to manufacturers, schools, healthcare facilities, federal,
state and local governments, and to users of other types of air
conditioning and dehumidification products. The Company expects the
Partnership to continue such business and to market its products to
such potential users.
The Company believes that the desiccant cooling system it has developed
and which the Partnership is now further developing, is an innovative
and energy efficient technology for providing cooling and heating for
commercial facilities which, in its natural gas version, does not
employ the chemicals used in conventional air conditioning that cause
damage to the stratospheric ozone layer and contribute to global
warming.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) BUSINESS AND GOING CONCERN CONSIDERATIONS, Continued:
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Revenues
have been insufficient to cover costs of operations. The Company has
incurred cumulative losses since inception of $27,222,346 and a net
loss during 1994 of $4,391,082. In order to continue operations, the
Company has had to raise additional capital to offset cash consumed in
operating and investing activities. The Company's continuation as a
going concern is dependent on its ability to: (i) generate sufficient
cash flows to meet its obligations on a timely basis, (ii) obtain
additional financing as may be required, and (iii) ultimately attain
profitable operations and positive cash flows from operations and its
investment in the Partnership. The accompanying financial statements do
not include any adjustments that may result from the Company's
inability to continue as a going concern.
In response to the aforementioned conditions, the Company has
transferred the net assets of the desiccant air conditioning line of
business to the Engelhard/ICC Partnership. Although ICC is not
obligated to contribute additional capital to the Partnership, in 1994,
it loaned to the Partnership $4,000,000 for the purchase of certain
assets and has guaranteed certain obligations of the Partnership. ICC
may be requested by Engelhard to provide additional financial support
to the Partnership as a condition for Engelhard to provide additional
financial support to the Partnership. Until the Partnership generates
sufficient cash flows from operations, it will be primarily dependent
upon the partners to provide any required working capital. Capital of
approximately $8,600,000 to the Partnership has been contributed by
Engelhard Corporation which is also obligated to provide a $3,000,000
line of credit to the Partnership. In 1994, Engelhard also loaned
$4,000,000 to the Partnership for the purchase of certain assets.
Because ICC is a 50% partner, ICC will record its proportionate share
of future losses of the Partnership under the equity method of
accounting to the extent of any remaining balance of positive
investment in and advance to the Partnership or commitment to provide
funds to the Partnership in the future.
Management intends to raise additional capital as required to continue
operations and to pursue other business activities; however, there can
be no assurance that the Company will be able to raise additional
capital as required to continue operations or to pursue other
activities.
(2) THE PARTNERSHIP:
On February 7, 1994 ICC and Engelhard, through their respective
subsidiaries, formed a Pennsylvania general partnership named
Engelhard/ICC (the "Partnership"). In exchange for a 50% interest in
the Partnership, ICC transferred to the Partnership, through ICC's
wholly-owned subsidiary, substantially all of its assets, with the
exception of cash and certain other assets not related to the desiccant
air conditioning business, subject to certain liabilities. The assets
and liabilities were transferred by the Company at historical cost with
no gain or loss being recorded by the Company.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) THE PARTNERSHIP, Continued:
Summarized results of operations and balance sheet information of the
Partnership as of December 31, 1994 and for the period from formation
(February 7, 1994) through December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Period ended
December 31, 1994
-----------------
<S> <C>
Results of operations:
Revenues $ 1,620,386
Loss from operations (5,699,721)
Net loss $(5,624,845)
Balance sheet information: December 31, 1994
-----------------
Cash and cash equivalents $ 648,451
Receivables 663,551
Inventory 2,439,509
Other current assets 75,836
Property plant and equipment 7,946,511
Other noncurrent assets 1,612,497
-----------
Total assets $13,386,355
===========
Accounts payable and accrued expenses $ 1,543,798
Payable to general partners 186,934
Long-term debt 175,044
Notes payable to general partners 8,000,000
Partners' capital 3,480,579
-----------
Total liabilities and partners' capital $13,386,355
===========
</TABLE>
In December 1994, the Partnership acquired for $8 million in cash, the
real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from
Ciba-Geigy Corporation ("Ciba"), which currently produces the small
cell, honeycomb substrate used to manufacture the desiccant and heat
exchange rotors that are an integral part of the Partnership's
products. The former Ciba plant produced primarily large cell substrate
which the Partnership is prohibited to produce or sell other than to
Ciba. The Partnership also acquired, as part of the transaction, an
exclusive technology license to use Ciba's proprietary process which is
necessary to manufacture such small cell, honeycomb structures. The
Company's and the Partnership's management believe that the acquisition
gives the Partnership complete control of the critical technologies and
manufacturing processes for its current products as well as those in
the foreseeable future. Assets acquired consisted of approximately $6.9
million of plant, property and equipment and $1.1 million of
intangibles.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) THE PARTNERSHIP, Continued:
To finance the acquisition, the Company and Engelhard each lent to the
Partnership $4,000,000. The loans, which are evidenced by promissory
notes, mature on December 31, 1995 and bear interest payable monthly at
the Prime Rate plus 1%. A portion of the principal amount of each of
the loans is intended to be repaid by the Partnership prior to the
maturity date upon the receipt of replacement financing which the
Partnership is currently seeking and the remainder would be repaid from
funds from operations to the extent such funds were available. The
Partnership is in the process of obtaining third party replacement
financing. There is no assurance that the Partnership will be able to
obtain replacement financing prior to the maturity date or that such
replacement financing will be sufficient to repay the loans.
In connection with the formation of the Partnership, the Company
granted to Engelhard an option to acquire 100% of the Company's
interest in the Partnership at the rate of 25% of such interest per
year starting in 1998, at a price equal to 95% of the fair market value
of the Partnership as determined by an investment banking firm selected
by the Company and Engelhard. The Partnership Agreement provides that
under certain circumstances, such option can be accelerated. There can
be no assurances that Engelhard will or will not exercise its option to
purchase the Company's interest in the Partnership.
The Company's investment in the Partnership is owned by a subsidiary,
ICC Desiccant Technologies Inc., whose principal asset is the
Partnership investment. The investment in the Partnership is accounted
for under the equity method of accounting. In December 1994, the
general partners each loaned $4,000,000 to the Partnership. The
Company's proportionate share of losses in the Partnership is
$2,812,423, which has been recognized and offset against the Company's
investment in net assets and loans to Engelhard/ICC as of December 31,
1994.
Receivables from the Partnership were $124,095 at December 31, 1994.
Interest income earned from the Partnership amounted to approximately
$32,000 in 1994. The Company received $250,000 in connection with the
formation of the Partnership for reimbursement of certain expenses
incurred in connection with the Joint Development Program efforts which
preceded the formation of the Partnership. The Partnership provided
approximately $91,000 in various administrative office support services
to the Company. The general partners are guarantors of the long-term
debt of $175,044.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for the purpose
of determining cash flows.
Inventories
Inventories are valued at the lower of cost (using specific
identification) or market.
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and
improvements are capitalized and replacements, maintenance and repairs,
which do not improve or extend the life of the respective assets, are
charged to operations as incurred.
When an asset is sold, retired or otherwise disposed of, the cost of
the property and equipment and the related accumulated depreciation are
removed from the respective accounts, and any resulting gains or losses
are reflected in operations.
Depreciation is computed using the straight-line method over the
estimated useful lives of three to seven years.
Income Taxes
In 1993, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
requires that deferred income taxes be computed using the asset and
liability method rather than the deferred method previously in effect.
Adoption of SFAS No. 109 did not have a material effect on the
Company's financial statements.
Revenue Recognition
Revenues are recognized when equipment is shipped for equipment sales
contracts, when equipment is installed and operating for installation
contracts, and when the electric and thermal energy is used by the
customer for energy sales contracts. Energy and maintenance service
revenue is recognized when services provided are complete. Energy and
maintenance service revenues totaled $0, $97,101 and $177,023, for
1994, 1993 and 1992, respectively. Energy and maintenance service cost
of goods sold totaled $12,750, $263,833 and $247,363, for 1994, 1993
and 1992, respectively.
Development Costs
Development costs are expensed as incurred. Development costs amounted
to approximately $24,000, $1,000,000 and $365,000 in 1994 ,1993, and
1992, respectively.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:
Net Loss Per Common Share
The net loss per common share is based on the weighted average number
of shares of Common Stock outstanding during each year. Stock options,
warrants and convertible preferred stock have not been included, since
they are antidilutive. Cumulative dividends on the Series H Convertible
Preferred Stock, the Series I Preferred Stock, and the Series J
Preferred Stock amounting to $227,750, $261,500 and $241,938 for the
periods ended December 31, 1994, 1993 and 1992, respectively (see note
9), have been added to the net loss for determining the net loss
applicable to common stockholders in computing the net loss per common
share for the years ended December 31, 1994 and 1993. The computations
of fully diluted loss per share for the years ended December 31, 1994,
1993, and 1992 were antidilutive; therefore, the amounts reported
herein for primary and fully diluted loss per share are the same.
Concentration of Credit Risk
The Company invests its cash primarily in deposits with major banks.
Ongoing credit evaluations of customers' financial condition are
performed and generally no collateral is required. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.
(4) SUPPLEMENTAL CASH FLOWS AND EQUITY DISCLOSURE:
Cash paid during the year for interest was $35,628, $1,415 and $2,169,
in 1994, 1993, and 1992, respectively.
Included in the Statement of Cash Flows for 1994 were cash proceeds of
$3,488,920 from the issuance of 1,100,000 shares of Common Stock. Also
included were cash proceeds of $1,650,031 from the issuance of 919,354
shares of Common Stock upon exercise of stock options and warrants.
Excluded from the Statement of Cash Flows in 1994 were the effects of
certain non-cash financing transactions related to the conversion of
600 shares of Series G Convertible Preferred Stock into 300,000 shares
of Common Stock. Also the Company transferred to the Partnership, upon
formation, approximately $60,000 of net liabilities which consisted of
approximately: $240,000 in receivables; $ 490,000 of inventory;
$290,000 of property and equipment; $ 180,000 in other assets; $360,000
in accounts payable and accrued liabilities and $900,000 of notes
payable to Engelhard.
Included in the Statement of Cash Flows for 1993 were cash proceeds of
$4,643,208 from the issuance of 3,144,598 shares of Common Stock.
Excluded from the Statement of Cash Flows in 1993 were the effects of
certain non-cash financing transactions related to: the issuance of
4,000 shares of the Company's Common Stock in settlement of
approximately $43,000 of accounts payable to an equipment vendor; the
issuance of 100,000 shares of Common Stock to an equipment vendor in
settlement of approximately $388,000 of accounts payable and the
establishment of a prepaid
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUPPLEMENTAL CASH FLOWS AND EQUITY DISCLOSURE, Continued:
equipment account of approximately $45,000; the issuance of 7,140
shares of Common Stock to a vendor in settlement of approximately
$35,000 of accounts payable; the issuance of 10,000 shares of Common
Stock with a fair market value of $30,000 to a former officer and
recorded as severance expense; the issuance of incentive stock options
to purchase 33,300 shares of Common Stock upon exercise of incentive
stock options by an employee borrowing $60,150 from the Company which
was repaid in installments through March 1994; the issuance of 408,528
shares of common stock upon the conversion of 50 shares of Series G
Convertible Preferred Stock. Also, an employee receivable of
approximately $5,000 was offset against the deferred salaries account
included in accrued liabilities.
Included in the Statement of Cash Flows for 1992 were cash proceeds of
$550,805 from the sale of 373,472 shares of Common Stock. Also included
were cash proceeds of $725,000 from the sale of 500 shares of Series I
Preferred Stock and 225 shares of Series J Preferred Stock. Excluded
from the Statement of Cash Flows in 1992 were the effects of certain
non-cash financing transactions related to: the issuance of 18,000
shares of Common Stock upon the conversion of accounts payable of a
related party for legal services of approximately $171,000; the
issuance of 12,000 shares of Common Stock to an equipment vendor in
settlement of approximately $60,000 of accounts payable; and the
issuance of 2,300 shares of Common Stock upon the exercise of options
for approximately $2,900, the exercise price for which was forgiven and
charged to bonus expense. Also, a $15,000 note was issued to a former
officer and director in exchange for approximately $8,200 in deferred
salary and approximately $6,800 in severance costs.
(5) INVENTORIES:
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
---- ----
<S> <C> <C>
Purchased parts $16,960 $380,745
Work-in-process - 152,263
------- --------
$16,960 $533,008
======= ========
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) INVENTORIES, Continued:
Purchased parts at December 31, 1994 consist only of cogeneration
equipment and related parts that have been recorded at their net
realizable value. Purchased parts at December 31, 1993 consist
primarily of desiccant dehumidification equipment and related
components to be used in the manufacture of the Company's products.
Work-in-process represents the costs (including acquisition and
installation costs) of the Company's products and system installations
currently in progress which are to be completed in the next year. If a
loss is indicated on an installation, a provision is made currently for
that loss. At December 31, 1994 and 1993, the Company's inventory
balance of $16,960 and $533,008, respectively, is net of a reserve for
obsolete inventory of approximately $430,000 and $383,000,
respectively. For the years ended 1994, 1993, and 1992, the Company
made provisions of approximately $95,000, $48,000, and $69,000
respectively, for inventory obsolescence. The increase in inventory
obsolescence reserve was included in engineering and development
expense in the accompanying Consolidated Statement of Operations. The
Company disposed of inventory which was charged directly to engineering
and development of approximately $52,000, and $87,000 in 1993, and
1992, respectively.
(6) PROPERTY AND EQUIPMENT:
Property and equipment, net, comprise the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1994 1993
----------- ---------
<S> <C> <C>
Office and computer
equipment - $ 471,330
Cogeneration equipment $ 66,106 66,106
Furniture and fixtures - 155,535
----------- ---------
66,106 692,971
Less- Accumulated depreciation (66,106) (363,652)
----------- ---------
$ - $ 329,319
=========== =========
</TABLE>
The Company retired $79,847 and $139,030 of equipment in the years
ended December 31, 1993 and 1992, resulting in a (gain) or loss on
retirement of $(225) and $87,683, respectively.
Property and equipment included fully depreciated assets of
approximately $66,106 and $145,000 as of December 31, 1994 and 1993,
respectively.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) ACCRUED EXPENSES:
Accrued expenses comprise the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
-------- --------
<S> <C> <C>
Professional fees $ 30,202 $142,000
Accrued interest 49,142 70,158
Other 103,600 100,878
-------- --------
$182,944 $313,036
======== ========
</TABLE>
(8) LONG-TERM DEBT AND NOTES PAYABLE TO STOCKHOLDERS:
Long-term debt and notes payable to stockholders comprise the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
-------- --------
<S> <C> <C>
Notes payable to stockholders $150,000 $300,000
Note payable to Engelhard - 500,000
-------- --------
150,000 800,000
Less- current portion - 150,000
-------- --------
$150,000 $650,000
======== ========
</TABLE>
The future minimum payments for the Company consist of the note payable
to stockholder of $150,000 due in 1996.
Upon entering into the Joint Venture Asset Transfer Agreement,
Engelhard loaned the Company $500,000, which loan was evidenced by a
promissory note, dated September 8, 1993. The loan to the Company,
together with $500,000 of the Company's own funds, was to be used
solely for (i) funding operations of the Company related to its
desiccant air conditioning business and (ii) to reimburse Engelhard for
all costs, charges and expenses incurred by Engelhard for work
conducted by it in accordance with the Joint Development Agreement. No
interest was payable on the principal amount of the promissory note.
In January 1994, Engelhard loaned to the Company an additional
$400,000, evidenced by a promissory note dated January 15, 1994. The
note has the same terms and conditions as the September 8, 1993
promissory note. On February 7, 1994, pursuant to the Joint Venture
Asset Transfer Agreement, the net assets of the Company's desiccant
line of business were transferred to the Partnership and the
Partnership assumed the indebtedness evidenced by the $500,000
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) LONG-TERM DEBT AND NOTES PAYABLE TO STOCKHOLDERS, Continued:
Engelhard loan and the $400,000 Engelhard loan and such indebtedness
was converted by Engelhard into a capital contribution of the
Partnership.
Two directors of the Company provided working capital demand loans
amounting to a total of $60,000 in December 1992. The loans were repaid
in April 1993.
Warburg Pincus Capital Company L.P. (WPCC) and RIT Capital Partners
RIT) provided working capital loans of $450,000 each prior to 1991 at
the prime interest rate plus 2 percent. The prime interest rate as of
December 31, 1994, 1993, and 1992, was 8.5%, 6.0%, and 6.0%,
respectively. During 1991, WPCC and RIT purchased 300 shares each of
Series H Convertible Preferred Stock. The Stock was purchased through
the exchange of $600,000 in debt plus accrued interest of approximately
$138,000. The remaining loans totalling $300,000 were scheduled to
mature in April 1996. On February 4, 1994 the Company paid the
Warburg Pincus $150,000 loan plus accrued interest of $35,628.
At December 31, 1994 the Company was not in compliance with a reporting
covenant contained in the debt agreement which stated that RIT would
receive audited financial statements by February 28 of each year. RIT
waived compliance with the covenant through January 1, 1996. The most
restrictive covenant of this debt agreement provides that the Company
will not pay or declare any dividends until such time as the principal
and interest have been paid in full.
Interest expense on all stockholder loans were $14,611, $24,000, and
$24,751 in 1994, 1993, and 1992, respectively.
(9) STOCK TRANSACTIONS:
Equity Issuances
In June, 1994, the Company sold 1,100,000 shares of common stock at a
purchase price of $3.56 per share for aggregate cash proceeds of
$3,916,000, and two directors each sold 150,000 shares, at a purchase
price of $3.56 for aggregate cash proceeds to each of $534,000.
Pursuant to an agreement between the Company and the two directors, the
Company agreed to pay all commissions and expenses incurred in
connection with the offering. Accordingly, the net proceeds to the
Company, after payment of such commissions and expenses, were
$3,488,920. In connection with the offering the Company issued to an
individual, who subsequently became a director, for financial advisory
services, warrants for the purchase of 215,000 shares of common stock.
Those warrants have an exercise price of $3.25 - $4.75 per share and
expire in 1999.
In July 1993, the Company registered under the Securities Act of 1933
up to 1,060,000 shares of common stock of which 950,000 shares were to
be issued upon the exercise of outstanding warrants and 110,000 shares
were to be issued in exchange for certain obligations: 100,000 shares
to an equipment vendor in settlement of approximately $388,000 in
accounts payable and 10,000 shares
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) STOCK TRANSACTIONS, Continued:
to a former officer of the Company as severance pay. As of December 31,
1993 the Company had received $2,087,500 in cash for 950,000 shares of
Common Stock purchased upon the exercise of outstanding warrants.
Expenses for this offering for legal, accounting, and printing costs
amounted to approximately $112,000. This amount was offset against
proceeds, reducing net proceeds from the offering to approximately
$1,976,000.
The Company received $1,543,009 in cash for 732,354 shares of Common
Stock upon the exercise of incentive and nonqualified stock options for
the year ended December 31, 1994. Also, the Company received during
1994 net proceeds of $286,222 from the exercise of warrants to acquire
187,000 shares of Common Stock granted to placement agents in
connection with the February and March 1993, private placements,
referred to below.
In March and April 1993, pursuant to a private placement commenced on
March 30, 1993, the Company sold 374,000 shares of Common Stock for
gross proceeds of approximately $561,000 and net proceeds, after
payment of commissions and expenses of the offering, of approximately
$459,000.
In March 1993, pursuant to a private placement commenced in February
1993, the Company sold 1,496,000 shares of Common Stock for gross
proceeds of $2,244,000 and net proceeds, after payment of commissions
and expenses of the offering, of approximately $1,903,000.
In June 1992, the Company sold to an investor group led by the Chairman
of the Board, who is also a stockholder, for $225,000, 225 shares of
Series J Preferred Stock. The Series J Preferred Stock bears a 10%
dividend which will accrue, but not be payable until declared by the
Board of Directors of the Company. The investors also received options
to purchase 128,574 shares of Common Stock at $1.75 per share,
exercisable for a period of four years beginning June 3, 1993. The
Series J Preferred Stock dividend in 1994 was $22,500 and had
accumulated to a total of $57,938 at December 31, 1994, all of which
has accrued but is not payable until declared.
Also in June 1992, two private investors purchased 228,572 shares of
Common Stock for $400,000.
In March 1992, the Company sold to an investor group led by the
Chairman of the Board, who is also a stockholder, for $500,000, 500
shares of Series I Preferred Stock. The Series I Preferred Stock bears
a 10% dividend which will accrue, but not be payable until declared by
the Board of Directors of the Company. The investors also received
options to purchase 400,000 shares of Common Stock at $2.25 per share,
exercisable for a period of four years beginning March 12, 1993. The
Series I Preferred Stock dividend in 1994 was $50,000 and had
accumulated to a total of $140,000 at December 31, 1994, all of which
has accrued but is not payable until declared.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) STOCK TRANSACTIONS, Continued:
The Company's Series H Convertible Preferred Stock bears a 9% dividend
which will accrue, but not be payable until declared by the Board of
Directors of the Company. The Series H Convertible Preferred Stock
dividend in 1994 was $155,250 and had accumulated to a total of
$659,250 all of which has accrued but is not payable until declared.
The Company's Series G and H Preferred Stock, which have voting rights,
are convertible into 2,859,696 and 750,000 shares of Common Stock,
respectively.
Conversion of Debt to Equity and Issuance of Equity for Assets or
Services
During 1993 and 1992 , the Company issued Common Stock to settle
various liabilities and to acquire various assets or services (see note
4).
(10) STOCK OPTIONS AND WARRANTS:
The Company provides an incentive and a nonqualified stock option plan
for directors, officers, and key employees of the Company and others.
Under these plans, options may be granted for the purchase of up to
6,850,000 shares of Common Stock. The number of options to be granted
and the option prices are determined by the Stock Option Committee of
the Board of Directors in accordance with the terms of the plans. Under
the terms of the Incentive Stock Option Plan, the option price cannot
be less than 100% of the fair market value of the Common Stock on the
date of the grant. Incentive stock options are exercisable based on a
vesting schedule from the grant date. Under the Nonqualified Stock
Option Plan, the option price as determined by the Stock Option
Committee may be greater or less than the fair market value of the
Common Stock as of the date of the grant, and the options are generally
exercisable for three to five years subsequent to the grant date. At
December 31, 1994 the Company had 1,750,000 and 5,100,000 shares of
Common Stock reserved for the Company's Incentive Stock Option Plan and
Nonqualified Stock Option Plan, respectively.
The Company also authorized in 1994 the Equity Plan For Directors. The
Equity Plan For Directors is a formula based stock option plan that is
dependent upon the performance of the market price of the Common Stock.
Under the Equity Plan For Directors, options may be granted for the
purchase of up to 500,000 shares of Common Stock to outside directors.
Under the terms of the Equity Plan For Directors, the option price
cannot be less than 100% of the fair market value of the Common Stock
on the date of the grant.
In 1993 three employees, including an officer of the Company, exercised
options to purchase 54,600 shares of common stock. The employees
borrowed the amount of the exercise price of $82,850 from the Company.
At December 31, 1993, $60,150 was outstanding and was included in
receivable - employees. The outstanding amount was repaid in
installments through March 14, 1994. Compensation expense of $142,969
was recorded on these transactions in 1993.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) STOCK OPTIONS AND WARRANTS, Continued:
Information with respect to stock options is summarized as follows:
<TABLE>
<CAPTION>
Available for Outstanding Exercisable
Grant Options Options Price Range
------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1992 1,127,752 1,931,203 $.01 - $2.785
Additional shares authorized in 1992 1,000,000 -
Granted (1,577,874) 1,577,874 $.907 - $5.00
Canceled 145,000 (145,000) $1.00 - $2.50
Exercised - (169,200) $1.00 - $5.00
---------- ----------
Balance at December 31, 1992 694,878 3,194,877 $ .01 - $4.50
---------- ---------
Exercisable at December 31, 1992 811,335 $ .01 - $4.50
=========
Additional shares authorized in 1993 1,500,000 -
Granted (1,167,140) 1,167,140 $1.75 - $4.937
Canceled 375,801 (375,801) $.907 - $2.375
Exercised - (435,440) $.01 - $4.937
---------- ----------
Balance at December 31, 1993 1,403,539 3,550,776 $.01 - $4.50
========= =========
Exercisable at December 31, 1993 1,531,774 $.01 - $4.50
=========
Additional shares authorized in 1994 1,500,000 -
Granted (1,295,000) 1,295,000 $4.375 - $9.125
Canceled 502,403 (502,403) $1.00 - $4.50
Exercised - (732,354) $.05 - $3.625
---------- ----------
Balance at December 31, 1994 2,110,942 3,611,019 $.05 - $9.125
========== =========
Exercisable at December 31, 1994 1,219,784 $.01 - $9.125
=========
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) STOCK OPTIONS AND WARRANTS, Continued:
In connection with the settlement of a claim, warrants to purchase
40,000 shares of Common Stock were issued as described in Note 12. In
addition to the warrants and Convertible Preferred Stock issued in
connection with the transactions described in Note 9, the Company had
the following warrants to purchase shares of common Stock outstanding
at December 31, 1994, 1993, and 1992, respectively:
<TABLE>
<CAPTION>
Warrants outstanding
----------------------------------------
Number
of Shares Price Range
---------- -----------
<S> <C> <C>
December 31, 1994
Consultants 140,000 $2.25-$3.00
Officers and directors 965,000 $2.00-$4.75
---------
1,105,000
=========
December 31, 1993
Consultants 100,000 $3.00
Investors 187,000 $1.65
Officers and directors 750,000 $2.00-$2.50
---------
1,037,000
=========
December 31, 1992
Consultants 100,000 $3.00
Officers and directors 950,000 $2.00-$3.00
---------
1,050,000
=========
</TABLE>
(11) 401(k) PROFIT SHARING PLAN:
All full-time employees of the Company and those part-time employees of
the Company who complete at least 1,000 hours of service in a given
year are eligible to participate in the Company's 401(k) Profit Sharing
Plan ("the Plan"). Under the Plan, an employee may elect to contribute
on a pre-tax basis to a retirement account from 1% to 20% of the
employee's compensation up to the maximum annual contributions
permitted by the Internal Revenue Code. Each employee is fully vested
at all times with respect to his or her contributions. Within certain
limits prescribed by the Plan and applicable law, the Board of
Directors may authorize matching contributions and discretionary
employer contributions to the Plan. Discretionary employer
contributions are allocated, subject to certain limitations, pro-rata
to eligible employees who have completed at least 1,000 hours of
service for a given year based on their compensation. The Company did
not make any matching or discretionary contributions during the years
ended December 31, 1994, 1993 or 1992.
The Company does not provide any post-retirement medical benefits.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) COMMITMENTS AND CONTINGENCIES:
Net rental expense under operating leases was $20,833, $145,819 and
$104,868 for the years ended December 31, 1994, 1993 and 1992,
respectively. The Company assigned all of its leases to the Partnership
upon its formation and the Partnership assumed the lease obligations.
Employment Contracts
At December 31, 1994, the Company had an employment contract with one
officer. The terms of the contract, which were modified in February,
1994, provide for total annual compensation of $50,000, plus certain
other benefits, through December 31, 1996.
Claims and Legal Actions
In 1994, the Company settled certain litigation brought against it
pursuant to which the Company granted a warrant to purchase 40,000
shares of its Common Stock at $2.25 per share.
(13) OTHER RELATED-PARTY TRANSACTIONS:
Employee accounts receivable amounted to $28,667, $90,095 and $9,729,
at December 31, 1994, 1993, and 1992, respectively. In December 1993,
$59,150 was due from an officer related to the exercise price of stock
options. The amount was collected in full in March 1994. In April 1993,
the Company loaned $70,000 to its Chairman of the Board, a major
stockholder of the Company, pursuant to the terms of a promissory note,
which provides that such amount is due and payable on demand together
with interest at the rate of 10%. As of December 31, 1994 the balance
remaining on the Note was $28,667 plus accrued interest.
(14) CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES:
Effective January 1, 1993 the Company adopted SFAS No. 109 "Accounting
for Income Taxes." Primarily due to the Company's history of losses,
adoption of SFAS No. 109 did not have any significant effect on its
results of operations or financial position. SFAS No. 109 requires the
use of the liability method in accounting for income taxes. Deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance has
been provided on the net deferred tax assets due to the uncertainty of
realization. The adoption of SFAS No. 109 was not material to the
Company. Prior to the adoption of SFAS No. 109 the Company utilized the
deferred method of accounting for income taxes.
Temporary differences and carryforwards which give rise to deferred tax
assets at December 31, 1994 and 1993 are as follows:
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES, Continued:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Net operating loss carryforward $ 8,740,000 $7,113,000
Inventory reserve and bad debt allowance 180,000 276,000
Other 6,000 18,000
----------- ----------
8,926,000 7,417,000
Less valuation allowance (8,926,000) (7,417,000)
----------- ----------
Total
$ - $ -
=========== ===========
</TABLE>
The Company has incurred losses since inception. At December 31, 1994
the Company had net operating loss carryforwards of approximately $25
million, which begin to expire in 1999. The availability and use of
losses against future taxable income, if any, may be limited by
Internal Revenue Code Section 382 as a result of certain changes in
ownership that have occurred.
(15) OPERATING STATEMENT INFORMATION:
Selected operating statement information for each of the three years in
the period ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Maintenance and
repairs $ 1,411 $ 26,119 $ 9,166
Advertising $ 12,031 $ 109,071 $ 104,460
Amortization:
Patent and
Software $ 1,650 $ 16,278 $ 35,835
</TABLE>
For the years ended December 31, 1994, 1993 and 1992, the Company's
reserve for doubtful accounts was approximately $19,000, $35,000 and
$20,000, respectively. During 1994, 1993 and 1992 the provision for
doubtful accounts was increased by approximately $16,000, $18,000 and
$10,000, respectively, which was included in the general and
administrative expense in the accompanying Statement of Operations. In
1993 accounts receivable deemed uncollectible and charged to the
reserve for doubtful accounts amounted to approximately $3,000. In
connection with the formation of the Partnership in 1994, $32,000 of
the reserve for doubtful accounts was transferred to the Partnership
along with the related receivables.
F-32
<PAGE>
ENGELHARD/ICC
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,998 $ 648,451
Receivables:
Trade, net of allowance for doubtful accounts 1,495,691 661,801
Employees 1,750 1,750
Inventories, net 4,358,148 2,439,509
Prepaid expenses and other 47,181 75,836
----------- -----------
Total current assets 5,943,768 3,827,347
PROPERTY, PLANT AND EQUIPMENT, net 7,988,625 7,946,511
PURCHASED INTANGIBLES 1,149,069 1,252,613
OTHER ASSETS, net 643,480 359,884
CASH HELD IN ESCROW 1,060,865 -
----------- -----------
Total assets $ 16,785,807 $ 13,386,355
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts Payable:
Trade $ 608,653 $ 1,309,570
ICC Technologies, Inc. 157,543 124,095
Engelhard Corporation 160,007 62,839
Accrued liabilities 701,954 234,228
Notes payable to general partners:
ICC Technologies, Inc. - 4,000,000
Engelhard Corporation - 4,000,000
Short-term loan 2,750,000 -
Current portion of long-term debt 47,331 28,013
----------- -----------
Total current liabilities 4,425,488 9,758,745
----------- -----------
LONG-TERM DEBT 8,667,239 147,031
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 3,693,080 3,480,579
----------- -----------
Total liabilities and partners' capital $ 16,785,807 $ 13,386,355
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-33
<PAGE>
ENGELHARD/ICC
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
February 7,
Nine months 1994 (date of
Three months ended ended formation) to
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
REVENUES $ 2,009,538 $ 379,912 $ 7,171,504 $ 997,156
COST OF GOODS SOLD 2,283,118 328,282 7,175,429 876,872
------------ ------------ ------------- -----------
Gross (loss) profit (273,580) 51,630 (3,925) 120,284
------------ ------------ ------------- -----------
OPERATING EXPENSES:
Marketing 862,851 659,882 2,524,468 1,373,024
Engineering 280,470 290,897 694,747 750,357
Research and development 257,556 231,904 898,135 540,999
General and administrative 847,423 466,093 2,084,030 1,000,461
------------ ------------ ------------- -----------
Total operating costs 2,248,300 1,648,776 6,201,380 3,664,841
------------ ------------ ------------- -----------
Loss from operations (2,521,880) (1,597,146) (6,205,305) (3,544,557)
INTEREST:
Interest income 11,847 24,947 40,741 102,601
Interest expense (130,490) - (622,935) (508)
------------ ------------ ------------- -----------
(118,643) 24,947 (582,194) 102,093
------------ ------------ ------------- -----------
NET LOSS $ (2,640,523) $ (1,572,199) $ (6,787,499) $ (3,442,464)
============ ============ ============= ===========
</TABLE>
F-34
<PAGE>
ENGELHARD/ICC
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the period
February 7, 1994
For the nine (date of formation)
months ended to
September 30, 1995 September 30, 1994
------------------ -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (6,787,499) $ (3,442,457)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 650,940 408,352
Amortization 144,311 56,096
(Increase) decrease in:
Receivables (833,890) (253,858)
Inventories (1,918,639) (1,088,240)
Prepaid expenses and other 28,655 (40,415)
(Decrease) increase in:
Accounts payable (700,917) 152,957
Payables to ICC Technologies, Inc. 33,448 1,444
Payables to Engelhard Corporation 97,168 -
Customer deposits - 24,485
Accrued expenses and other liabilities 467,726 107,894
------------ ------------
Net cash used in operating activities (8,818,697) (4,073,742)
------------ ------------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment - Miami (462,106) -
Purchases of property, plant and equipment - other, net (230,948) (944,850)
Purchases of intangibles - other (108,384) (169,332)
------------ ------------
Net cash used in investing activities (801,438) (1,114,182)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 69,956 15,477
Proceeds from bond issuance, net of cash held in escrow 7,439,135 -
Bond issuance costs (215,979) -
Borrowings from short-term loan 2,750,000 -
Repayment of long-term debt (30,430) -
Capital contributions by general partners 2,000,000 -
Proceeds from Engelhard Corporation (at formation) - 8,633,434
Proceeds from Joint Development Program (at formation) - 21,990
Equalization payment to ICC Technologies, Inc. - (250,000)
Repayments of notes payable to general partners (3,000,000) -
------------ ------------
Net cash provided by financing activities 9,012,682 8,420,901
------------ ------------
Net (decrease) increase in cash and cash equivalents (607,453) 3,232,977
Cash and Cash Equivalents, Beginning of Period 648,451 -
------------ ------------
Cash and Cash Equivalents, End of Period $ 40,998 $ 3,232,977
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-35
<PAGE>
ENGELHARD/ICC
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. For further information, refer to the Financial Statements
and Footnotes thereto for the period February 7, 1994 (date of
formation) to December 31, 1994, included elsewhere herein. Results of
operations for the three and nine months ended September 30 are not
necessarily indicative of results of operations expected for the full
year.
(2) BUSINESS:
Business and Formation
Engelhard/ICC (the "Partnership") is a Pennsylvania general
partnership. The Partnership is engaged in the business of designing,
manufacturing and marketing climate control systems to supplement or
replace conventional air conditioning systems. On February 7, 1994,
ICC Technologies, Inc. ("ICC") and Engelhard Corporation
("Engelhard"), through their respective subsidiaries (the "general
partners"), formed the Partnership. The desiccant air conditioning
business conducted by ICC prior to the formation of the Partnership is
now being conducted by the Partnership.
The general partners both have an equal 50% interest in the
Partnership. In exchange for its 50% interest in the Partnership, ICC
transferred to the Partnership substantially all of its assets, with
the exception of cash and certain other assets not related to the
desiccant air conditioning business, subject to certain liabilities;
Engelhard, in exchange for a 50% interest in the Partnership, (a)
contributed to the Partnership approximately $8,600,000 in cash, (b)
entered into a Supply Agreement pursuant to which it agreed to supply
desiccants to the Partnership, (c) entered into a Technology License
Agreement pursuant to which Engelhard and the Partnership licensed to
each other certain technology rights, and (d) agreed to provide credit
support to the Partnership in the amount of $3,000,000.
ICC transferred to the Partnership, upon formation, approximately
$60,000 of net liabilities which consisted of approximately: $240,000
in receivables; $490,000 of inventory; $290,000 of property and
equipment; $180,000 in other assets; $360,000 in accounts payables and
accrued liabilities; and $900,000 notes payable to Engelhard. The
amounts transferred were recorded at ICC's historical cost basis.
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(2) BUSINESS, Continued:
Going Concern
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. Until the Partnership generates sufficient
cash flows from operations, it will be primarily dependent upon its
partners to provide any required working capital. Revenues have been
insufficient to cover costs of operations for the Partnership. The
Partnership's continuation as a going concern is dependent on its
ability to: (i) generate sufficient cash flows to meet its obligations
on a timely basis; (ii) obtain additional financing as may be
required; and (iii) ultimately attain profitable operations and
positive cash flows from operations.
The Partnership obtained third party financing through the issuance of
bonds in April 1995 (see note 7). Additional financial support
continues to be supplied to the Partnership by the Partners until the
Partnership attains sufficient positive cash flows; however, there can
be no assurance that the Partnership will be able to obtain the
sufficient cash flows. The financial statements do not include any
adjustments should the Partnership be unable to continue as a going
concern.
(3) REVENUES:
Revenues comprise the following:
<TABLE>
<CAPTION>
Period from
Three months ended Three months ended Nine months ended February 7, 1994 to
September 30, 1995 September 30, 1994 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Equipment sales $ 491,313 $ 364,412 $1,832,807 $ 958,106
Substrate processing 1,503,725 - 4,796,697 -
Licensing fees - - 500,000 -
Maintenance and
service 14,500 15,500 42,000 39,050
---------- ---------- ---------- ---------
$2,009,538 $ 379,912 $7,171,504 $ 997,156
========== ========== ========== =========
</TABLE>
The Partnership fabricates large cell honeycomb substrate materials at
its Miami facility under a Manufacturing and Supply Agreement with
Ciba-Geigy Corporation ("Ciba"). Ciba provides the raw materials to be
fabricated into large cell honeycomb substrate and retains title to
the raw materials, work-in-process and finished goods. The partnership
receives processing fees for fabricating the raw materials into large
cell honeycomb substrate. Processing fees are recognized in revenues
in the period the fabricated substrate material is shipped.
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(4) INVENTORIES:
Inventories comprise the following:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Raw materials and purchased parts $ 2,897,857 $ 1,388,498
Work-in-process 1,042,078 39,818
Finished goods 418,213 659,193
----------- -----------
$ 4,358,148 $ 2,439,509
=========== ===========
</TABLE>
Inventories are carried at lower of cost (first in, first out) or
market. Market for raw materials is based in replacement costs and for
finished goods and work-in-process at net realizable value. Inventory
of $120,000 was written off against the inventory allowance for the
nine months ended September 30, 1995.
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, net, consist of the following:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Land $ 390,000 $ 390,000
Building 1,610,000 1,610,000
Machinery and equipment 6,947,342 6,253,877
Furniture, fixtures and
leasehold improvements 289,509 262,228
----------- ------------
9,236,851 8,516,105
Less -
accumulated depreciation (1,248,226) (569,594)
----------- ----------
$ 7,988,625 $ 7,946,511
=========== ============
</TABLE>
F-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(6) OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Patents $ 513,893 $ 410,373
Bond issuance costs 215,979 -
Accumulated amortization (111,764) (75,861)
----------- -----------
618,108 334,512
Deposits 25,372 25,372
----------- -----------
$ 643,480 $ 359,884
=========== ============
</TABLE>
(7) ASSET ACQUISITION:
On December 1, 1994, the Partnership acquired for $8 million in cash,
real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from Ciba
which currently produces the small cell, honeycomb substrate used to
manufacture the desiccant and heat exchange rotors that are an
integral part of the Partnership's products. The former Ciba plant
produced primarily large cell substrate which the Partnership is
prohibited to produce or sell to parties other than Ciba. The
Partnership also acquired, as part of the transaction, an exclusive
technology license to use Ciba's proprietary process which is
necessary to manufacture such small cell, honeycomb structures. Assets
acquired consisted of approximately $6.9 million of property, plant
and equipment and $1.1 million of intangibles. To finance the
acquisition, the general partners each lent to the Partnership
$4,000,000 ("General Partners' Loan"). In April 1995, the Partnership
obtained financing from the issuance of $8,500,000 of industrial
development revenue bonds (see note 8). The proceeds of these bonds
were used to repay $3,000,000 of the General Partners' Loan,
$1,500,000 to each general partner and provide for improvements and
capital equipment at the Miami facility (see note 9).
F-39
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(8) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Industrial development revenue bonds interest determined weekly
and payable weekly; bonds mature on April 1, 2020, but
are subject to redemption at the option of the
Partnership from April 1, 2000 $ 8,500,000 -
Notes payable
due April 2000; interest at 2% per annum; interest payable
monthly; interest and principal payable in equal monthly
installments over 60-month period
commencing April 1995 191,000 $ 152,200
Notes payable
due February 1998; interest at 3% per annum; principal
installments over 60-month interest at 3% per annum;
principal and interest payable in equal monthly
installments over 36-month period commencing
April 1995 23,560 22,844
------------ -----------
8,714,570 175,044
Less - current portion (47,331) (28,013)
------------ -----------
$ 8,667,239 $ 147,031
=========== ===========
</TABLE>
In connection with the issuance of the industrial revenue bonds (see
note 7), cash of $1,060,865 was held in escrow pending the
Partnership's incurrence of certain qualified expenditures.
Maturities of long-term debt at September 30, 1995 for the Partnership
consist of:
1995 $ 8,534
1996 51,870
1997 53,016
1998 45,370
1999 44,512
thereafter 8,511,268
---------
$8,714,570
The general partners are guarantors of the long-term debt. The notes
payable due April 2000 are collateralized by related purchased
property and equipment. In addition, Engelhard is the guarantor on the
short-term loan which amounts to $2,750,000 as of September 30, 1995.
(9) PARTNERS' CAPITAL:
In conjunction with the General Partners' Loan of $8,000,000 and
issuance of $8,500,000 of industrial development revenue bonds (see
note 7), $3,000,000 was repaid to each general partner and the
remaining $5,000,000 outstanding balance on the loan was converted
into a capital contribution, $2,500,000 for each general partner.
F-40
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(9) PARTNERS' CAPITAL, Continued:
In August 1995, $1,000,000 was contributed by each of the general
partners. Subsequent to September 30, 1995, an additional $2,000,000
was contributed by each of the general partners.
(10) RELATED-PARTY TRANSACTIONS:
The Partnership provided approximately $24,000 and $64,000 during the
three and nine months ended September 30, 1995, and $19,000 and
$67,000 for the three month and year to date periods ended September
30, 1994 in various administrative office support services to ICC.
Furthermore, Engelhard provided approximately $147,000 and $285,000
during the three and nine months ended September 30, 1995, and
$137,000 and $254,000 during the three month and year to date periods
ended September 30, 1994, in various administration services to the
Partnership. The Partnership incurred approximately $10,000 and
$328,000 for the three and nine months ended September 30, 1995, of
interest expense payable to the general partners in connection with
the $8,000,000 promissory notes (see note 7).
(11) SUPPLEMENTAL CASH FLOW DISCLOSURES:
Excluded from the Statement of Cash Flows for the period ended
September 30, 1994, were the effects of assets and liabilities
transferred to the Partnership from ICC which consisted of
approximately $240,000 in receivables; $490,000 of inventory; $290,000
of property and equipment; $180,000 in other assets; $360,000 in
accounts payable and accrued liabilities; and $900,000 notes payable
to Engelhard.
Excluded from the Statement of Cash Flows for the nine months ended
September 30, 1995 was the conversion of $5,000,000 of General
Partners' Loans to Partners' Capital and the write-off of $14,283 of
bad debts against the allowance.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of Engelhard/ICC:
We have audited the accompanying balance sheet of Engelhard/ICC as of December
31, 1994 and the related statements of operations, changes in partners' capital
and cash flows for the period February 7, 1994 (date of formation) to December
31, 1994. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Engelhard/ICC as of December
31, 1994 and the results of its operations and its cash flows for the period
February 7, 1994 (date of formation) to December 31, 1994 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1, the
Partnership incurred losses of $5,624,845 through December 31, 1994 and the
Partnership is primarily dependent upon its partners for financial support.
These factors, among others, raise substantial doubt about the Partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 24, 1995
F-42
<PAGE>
ENGELHARD/ICC
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1994
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 648,451
Receivables:
Trade, net of allowance for doubtful accounts of $23,179 661,801
Employees 1,750
Inventories, net 2,439,509
Prepaid expenses and other 75,836
------------
Total current assets 3,827,347
PROPERTY, PLANT AND EQUIPMENT, net 7,946,511
PURCHASED INTANGIBLES 1,252,613
OTHER ASSETS, net 359,884
------------
============
Total assets $ 13,386,355
============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable:
Trade $ 1,309,570
ICC Technologies, Inc. 124,095
Engelhard Corporation 62,839
Accrued liabilities 234,228
Notes payable to general partners:
ICC Technologies, Inc. 4,000,000
Engelhard Corporation 4,000,000
Current portion of long-term debt 28,013
------------
Total current liabilities 9,758,745
------------
LONG-TERM DEBT 147,031
------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 3,480,579
------------
Total liabilities and partners' capital $ 13,386,355
============
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-43
<PAGE>
ENGELHARD/ICC
STATEMENT OF OPERATIONS
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
REVENUES $ 1,620,386
COST OF GOODS SOLD 1,591,821
-----------
Gross profit 28,556
-----------
OPERATING EXPENSES:
Marketing 2,061,027
Engineering 1,233,282
Research and development 894,837
General and administrative 1,539,140
-----------
Total operating costs 5,728,286
-----------
Loss from operations (5,699,721)
INTEREST:
Interest income 138,718
Interest expense (63,842)
-----------
74,876
-----------
NET LOSS $(5,624,845)
===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-44
<PAGE>
ENGELHARD/ICC
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Capital contributed by Engelhard, cash $ 8,633,434
Net assets of ICC transferred, excluding $900,000 note payable to Engelhard
contributed to partners' capital 839,322
Equalization amount due ICC at formation (389,322)
Residual funds from joint development program contributed to partners' capital 21,990
Net loss of Partnership (5,624,845)
------------
Partners' capital, December 31, 1994 $ 3,480,579
============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-45
<PAGE>
ENGELHARD/ICC
STATEMENT OF CASH FLOWS
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss $ (5,624,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 224,516
Amortization 24,219
(Increase) decrease in:
Receivables (426,602)
Inventories (1,950,797)
Prepaid expenses and other (49,346)
Increase (decrease) in:
Accounts payable 1,049,231
Payables to ICC Technologies, Inc. (15,227)
Payables to Engelhard Corporation 62,839
Accrued expenses and other liabilities 134,649
------------
Net cash used in operating activities ... (6,571,363)
------------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment - Miami (6,900,000)
Purchases of intangibles - Miami (1,100,000)
Purchases of property, plant and equipment - other (979,939)
Purchases of intangibles - other (380,715)
------------
Net cash used in investment activities (9,360,654)
------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 175,044
Proceeds from Engelhard Corporation (at formation) 8,633,434
Proceeds from Joint Development Program (at formation) 21,990
Equalization payment to ICC (250,000)
Proceeds from notes payable to general partners 8,000,000
------------
Net cash provided by financing activities 16,580,468
------------
Net increase in cash and cash equivalents 648,451
Cash and Cash Equivalents, Beginning of period --
------------
Cash and Cash Equivalents, End of period $ 648,451
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-46
<PAGE>
ENGELHARD/ICC
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS:
Business and Formation
Engelhard/ICC (the "Partnership") is a Pennsylvania general
partnership. The Partnership is engaged in the business of designing,
manufacturing and marketing climate control systems to supplement or
replace conventional air conditioning systems. On February 7, 1994, ICC
Technologies, Inc. ("ICC") and Engelhard Corporation ("Engelhard"),
through their respective subsidiaries (the "general partners"), formed
the Partnership. The desiccant air conditioning business conducted by
ICC prior to the formation of the Partnership is now being conducted by
the Partnership.
The general partners both have an equal 50% interest in the
Partnership. In exchange for its 50% interest in the Partnership, ICC
transferred to the Partnership substantially all of its assets, with
the exception of cash and certain other assets not related to the
desiccant air conditioning business, subject to certain liabilities.
Engelhard in exchange for a 50% interest in the Partnership: (a)
contributed to the Partnership approximately $8,600,000; (b) entered
into a Supply Agreement pursuant to which it agreed to supply
desiccants to the Partnership; (c) entered into a Technology License
Agreement pursuant to which Engelhard and the Partnership licensed to
each other certain technology rights; and (d) agreed to provide credit
support to the Partnership in the amount of $3,000,000.
ICC transferred to the Partnership, upon formation, approximately
$60,000 of net liabilities which consisted of approximately: $240,000
in receivables; $490,000 of inventory; $290,000 of property and
equipment; $180,000 in other assets; $360,000 in accounts payables and
accrued liabilities; and $900,000 notes payable to Engelhard
Corporation. The amounts transferred were recorded at ICC's historical
cost basis.
Going Concern
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. Until the Partnership generates sufficient cash
flows from operations, it will be primarily dependent upon the partners
to provide any required working capital. Revenues have been
insufficient to cover costs of operations for the Partnership. The
Partnership's continuation as a going concern is dependent on its
ability to: (i) generate sufficient cash flows to meet its obligations
on a timely basis; (ii) obtain additional financing as may be required;
and (iii) ultimately attain profitable operations and positive cash
flows from operations.
F-47
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(1) BUSINESS, Continued:
The Partnership intends to seek additional financial support from the
partners or third parties as needed to continue operations until the
Partnership attains positive sufficient cash flows; however, there can
be no assurance that the Partnership will be able to obtain the
additional financing or sufficient cash flows. The financial statements
do not include any adjustments should the Partnership be unable to
continue as a going concern.
Basis of Presentation
The financial statements include the accounts of the Partnership for
the period from February 7, 1994 (date of formation) to December 31,
1994 (the "period ended December 31, 1994").
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for the purpose
of determining cash flows.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Assets under capital
lease are recorded at the present value of the future lease payments.
Costs of major additions and improvements are capitalized and
replacements, maintenance and repairs, which do not improve or extend
the life of the respective assets, are charged to operations as
incurred.
When an asset is sold, retired or otherwise disposed of, the cost of
the property and equipment and the related accumulated depreciation are
removed from the respective accounts, and any resulting gains or losses
are reflected in operations.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leased assets under capital
leases are amortized over the period of the lease or the service lives
of the improvements, whichever is shorter, using the straight-line
method.
Purchased Intangible Assets
Purchased intangible assets, consisting primarily of a license
agreement acquired in connection with the acquisition of certain assets
(see note 6), are amortized over ten years using the straight-line
method.
F-48
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(1) BUSINESS, Continued:
Patents
Patents are amortized over their estimated useful lives not exceeding
seventeen years.
Income Taxes
Partnership income, if any, is taxable to the general partners.
Accordingly, no provision for income taxes has been made by the
Partnership.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized when equipment is shipped for equipment sales
contracts, and when equipment is installed and operating for
installation contracts. Maintenance service revenue is recognized when
services provided are complete. Maintenance revenues totaled $55,230
for the period ended December 31, 1994.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs amounted to approximately $895,000 for the period
ended December 31, 1994. Included in this amount are approximately
$320,000 of development costs incurred by Engelhard Corporation on
behalf of and paid for by the Partnership.
Warranty
The Partnership's warranty on its equipment is for one year from date
of shipment. The Partnership records a reserve for the estimated cost
of repairing or replacing any faulty equipment covered under the
Partnership's warranty.
Concentration of Credit Risk
The Partnership invests its cash primarily in deposits with major
banks. The Partnership has sold its equipment and services to end-users
in retail industry, primarily in the continental United States.
Concentration of credit risk with respect to trade receivables is
moderate due to the relatively diverse customer base. Ongoing credit
evaluations of customers' financial condition are performed and
generally no collateral is required. The Partnership maintains reserves
for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
F-49
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(3) INVENTORIES:
<TABLE>
<CAPTION>
Inventories comprise the following:
<S> <C>
December 31,
1994
------------
Raw materials and purchased parts $ 1,388,498
Work-in-process 391,818
Finished goods 659,193
-------------
$ 2,439,509
=============
</TABLE>
Raw materials purchased from Engelhard amounted to approximately $169,000.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, net, consist of the following:
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Land $ 390,000
Building 1,610,000
Machinery and equipment 6,253,877
Furniture, fixtures and
leasehold improvements 262,228
-----------
8,516,105
Less - accumulated depreciation (569,594)
-----------
$ 7,946,511
===========
Machinery and equipment purchased through or from Engelhard amount to
approximately $122,000.
</TABLE>
F-50
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(5) OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1994
-------------
<S> <C>
Patents $ 410,373
Accumulated amortization (75,861)
------------
334,512
Deposits 25,372
------------
$ 359,884
============
</TABLE>
(6) ASSET ACQUISITION:
On December 1, 1994, the Partnership acquired for $8 million in cash,
real property and substantially all other manufacturing assets of an
existing manufacturing facility located in Miami, Florida from
Ciba-Geigy Corporation ("Ciba"), which currently produces the small
cell, honeycomb substrate used to manufacture the desiccant and heat
exchange rotors that are an integral part of the Partnership's
products. The former Ciba plant produced primarily large cell substrate
which the Partnership is prohibited to produce or sell other than to
Ciba. The Partnership also acquired, as part of the transaction, an
exclusive technology license to use Ciba's proprietary process which is
necessary to manufacture such small cell, honeycomb structures. Assets
acquired consisted of approximately $6.9 million of plant, property and
equipment and $1.1 million of intangibles.
To finance the acquisition, the general partners each lent to the
Partnership $4,000,000. The loans, which are evidenced by promissory
notes, mature on December 31, 1995 and bear interest payable monthly at
the Prime Rate plus 1%. The principal amount of each of the loans is
intended to be repaid by the Partnership prior to the maturity date
upon the receipt of replacement financing which the Partnership is
currently seeking. The Partnership is in the process of obtaining third
party replacement financing. There is no assurance that the Partnership
will be able to obtain replacement financing prior to the maturity date
or that such replacement financing will be sufficient to repay the
loans.
F-51
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(7) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Notes payable
due April 2000; interest at 2% per annum; interest payable monthly;
interest and principal payable in equal monthly installments over
60-month period commencing April 1995 $ 152,200
Notes payable
due February 1998; interest at 3% per annum; principal and interest
payable in equal monthly installments over 36-month period commencing
March 1995 22,844
------------
175,044
Less - current portion (28,013)
------------
$ 147,031
============
</TABLE>
The future minimum payments for the Partnership consists of:
1995 $ 28,013
1996 37,251
1997 38,081
1998 32,211
1999 31,511
2000 7,977
---------
$ 175,044
=========
The general partners are guarantors of the long-term debt. The notes
payable due April 2000 are collateralized by related purchased
property and equipment.
F-52
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(8) COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Partnership has operating lease commitments for its facilities,
vehicles and certain equipment. In certain instances, these leases
contain purchase and renewal options, both of which are at fair market
value. The Partnership's offices are leased on a month-to-month basis.
The future minimum lease payments for these leases at December 31,
1994 are as follows:
1995 $ 214,230
1996 235,840
1997 176,844
1998 45,849
Rental expense under these operating leases was $188,158 for the
period ended December 31, 1994.
The Partnership assumed, at formation, a five-year lease commitment
which began April 1993, for approximately 55,000 square feet of
manufacturing and assembly space. Additionally, the Partnership is
responsible for paying its allocable portion of all real estate taxes,
water and sewer rates, and common expenses. The Partnership assumed a
lease, which expires in 1996, in connection with the asset acquisition
(see note 6), for a building with approximately 24,000 square feet and
corresponding parking lot adjacent to the Miami manufacturing
facility.
Employment Contracts
At December 31, 1994, the Partnership had an employment contract with
one officer. The contract expires in 1999, subject to certain
provisions in the contract. The contract provides for total annual
compensation of $155,000, plus certain benefits.
F-53
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
(9) RELATED-PARTY TRANSACTIONS:
The Partnership provided approximately $91,000 in various
administrative office support services to ICC. Engelhard provides
research and development services to the Partnership. Furthermore,
Engelhard provided approximately $297,000 in various administration
services to the Partnership. The Partnership incurred approximately
$63,000 interest expense payable to the general partners in connection
with the $8 million promissory notes issued (See note 6). In
accordance with the Transfer Agreement entered into by the general
partners, a distribution of approximately $140,000 was due ICC.
(10) SUPPLEMENTAL CASH FLOW DISCLOSURES:
Excluded from the Statement of Cash Flows were the effects of assets
and liabilities transferred to the Partnership from ICC which
consisted of approximately $240,000 in receivables; $490,000 of
inventory; $290,000 of property and equipment; $180,000 in other
assets; $360,000 in accounts payable and accrued liabilities; and
$900,000 notes payable to Engelhard.
F-54
<PAGE>
<TABLE>
<S> <C>
============================================================ ======================================================
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representations other than those contained in this
Prospectus in connection with the offering covered by this
Prospectus. If given or made, any such information or 2,500,000 Shares
representations must not be relied upon as having been
authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the securities ICC TECHNOLOGIES, INC.
offered thereby in any jurisdiction to any person to whom it
is unlawful to make such an offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, Common Stock
create any implication that there has been no change in the
affairs of the Company or that information contained herein
is correct as of any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS _____________________
AVAILABLE INFORMATION................................... 3 PROSPECTUS
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE............................................. 3 _____________________
PROSPECTUS SUMMARY..................................... 4
RISK FACTORS........................................... 9
USE OF PROCEEDS........................................ 14
PRICE RANGE OF COMMON STOCK............................ 15
DIVIDEND POLICY........................................ 16
PREFERRED STOCK TRANSACTIONS........................... 16
DILUTION............................................... 17
CAPITALIZATION......................................... 18
SELECTED CONSOLIDATED FINANCIAL DATA OF
THE COMPANY........................................... 19 Janney Montgomery Scott Inc.
SELECTED FINANCIAL DATA OF
THE PARTNERSHIP....................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF Gerard Klauer Mattison
OPERATIONS............................................ 21 & Co., LLC
BUSINESS............................................... 29
MANAGEMENT............................................. 46
PRINCIPAL STOCKHOLDERS................................. 51
CERTAIN TRANSACTIONS................................... 53
DESCRIPTION OF CAPITAL STOCK........................... 54
SHARES ELIGIBLE FOR FUTURE SALE........................ 55
UNDERWRITING........................................... 56
LEGAL MATTERS.......................................... 58
EXPERTS................................................ 58 _______________, 1996
INDEMNIFICATION OF DIRECTORS, OFFICERS
AND CONTROLLING PERSONS............................... 58
INDEX TO FINANCIAL STATEMENTS..........................F-1
------------------
============================================================ ==========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee $ 11,649
NASD Filing Fee 3,878*
NASDAQ National Market Listing fee 20,000
Legal fees and expenses 150,000*
Accounting fees and expenses 90,000*
Blue sky fees and expenses 10,000*
Transfer Agent and Registrar fees and expenses 2,000*
Printing costs 30,000*
Miscellaneous 973*
---------
TOTAL $313,500
========
- -------------------
*Estimated.
Item 15. Indemnification of Directors and Officers
The Company's Certificate of Incorporation contains a
provision which limits the personal liability of directors to the Company or the
stockholders for monetary damages for breach of fiduciary duty. The Certificate
of Incorporation provides that a director of the Company shall not be personally
liable for a breach of fiduciary duty as a director except for liabilities (i)
for any breach of the director's duty of loyalty, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for an unlawful dividend payment or an unlawful repurchase of stock,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation also provides that
the Company will indemnify and pay legal expenses and damages incurred by
officers and directors in any legal action arising from their actions as agents
of the Company as long as the officer or director had acted in good faith in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful.
Nothing in these provisions eliminates a director's fiduciary
duty to act with care or precludes a stockholder from pursuing injunctive or
other equitable remedies.
Under Section 145 of the Delaware General Corporation Law, as
amended, the Company has the power to indemnify directors and officers under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorney's fees, actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which any of them is a party by
reason of his being a director or officer of the Company if it is determined
that he acted in accordance with the applicable standard of conduct set forth in
such statutory provisions.
II-1
<PAGE>
See Section 8(b) of the Underwriting Agreement, filed as
Exhibit 1 hereto, pursuant to which the Underwriters agree to indemnify the
Company, its directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act.
The Company has also purchased directors' and officers'
liability insurance.
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Item 16 Exhibits
--------
Exhibit No.
- -----------
1 Form of Underwriting Agreement among the Company, Janney Montgomery Scott Inc. and
Gerard Klauer Mattison & Co., LLC
2.1 Joint Venture Asset Transfer Agreement between Engelhard and Engelhard DT, Inc. and
the Company and ICC Desiccant Technologies, Inc., dated September 8, 1993, was filed
as Exhibit A to the Company's Definitive Proxy Statement dated December 23, 1993 for
Stockholders Meeting held January 17, 1994 and is hereby incorporated by reference.
2.2 Amendment dated December 20, 1993 to Joint Venture Asset Transfer Agreement between
Engelhard and Engelhard DT, Inc. and the Company and ICC Desiccant Technologies,
Inc., dated September 8, 1993.
2.3 Agreement for Purchase and Sale of Assets by and between the Partnership and Ciba-Geigy
dated November 29, 1994 was filed as Exhibit 10(p) to the Company's Form 10-K for year
ended December 31, 1994 and is hereby incorporated by reference.
4.1 The Company's Certificate of Designation for Series F Preferred Stock and Series G
Convertible Preferred Stock, was filed as an Exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1989 and is hereby incorporated by reference.
4.2 The Company's Certificate of Designation for Series H Convertible Preferred Stock, was
filed as an Exhibit to the Company's Form 8-K dated March 26, 1991 and is hereby
incorporated by reference.
4.3 The Company's Certificate of Designation for Series I Preferred Stock, was filed as an
Exhibit to the Company's Form 8-K dated March 12, 1992 and is hereby incorporated by
reference.
4.4 The Company's Certificate of Designation for Series J Preferred Stock, was filed as an
Exhibit to the Company's Form 8-K dated June 8, 1992 and is hereby incorporated by
reference.
*5 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
10.1 Lease Agreement for the Partnership's Executive Offices dated June 14, 1989, was filed
as an Exhibit to the Company's Form 8-K filed June 12, 1990 and is hereby incorporated
by reference.
10.2 The Company's Incentive Stock Option Plan, as amended, was filed as Exhibit 4(g) to the
Company's Registration Statement on Form S-8, No. 33-85636 filed on October 26, 1994
and is hereby incorporated by reference.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.3 The Company's Nonqualified Stock Option Plan, as amended and restated, was filed as
Exhibit C to the Company's Definitive Proxy Statement dated November 18, 1994 for
Stockholders Meeting held December 15, 1994 and is hereby incorporated by reference.
10.4 The Company's Equity Plan for Directors, was filed as Appendix A to the Company's
Definitive Proxy Statement dated November 18, 1994 for Stockholders Meeting held
December 15, 1994 and is hereby incorporated by reference.
10.5 Agreement to Restructure and Retire the ICC Technologies, Inc. Lease Financing
Obligations to Textron Financial Corporation, was filed as an exhibit to the Company's
Form 8-K filed June 12, 1990 and is hereby incorporated by reference.
10.6 Conversion and Waiver Agreement between RIT Capital Partners, plc, Warburg, Pincus
Capital Company L.P. and the Company dated June 6, 1990 including all exhibits thereto,
was filed as an exhibit to the Company's Form 10-K for the fiscal year ended December
31, 1989 and is hereby incorporated by reference.
10.7 Joint Development Program Agreement between the Company and Engelhard dated May
26, 1992, was filed as Exhibit 10(f) to the Company's Form 10-K for the fiscal year ended
December 31, 1992 and is hereby incorporated by reference.
10.8 Employment Agreement between William A. Wilson and the Company, dated July 2, 1991,
was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for period ended
September 30, 1991 and is hereby incorporated by reference.
10.9 Amendment dated February 28, 1994 to Employment Agreement between William A.
Wilson and the Company was filed as Exhibit 10(h)2 to the Company's 10-K for the fiscal
year ended December 31, 1994 and is hereby incorporated by reference.
10.10 General Partnership Agreement of Engelhard/ICC, between Engelhard DT Inc. and ICC
Desiccant Technologies, Inc., dated February 7, 1994.
10.11 Technology License Agreement between Engelhard and the Company and the
Partnership, dated February 7, 1994, was filed as Exhibit 10(j) to the
Company's Form 10-K for the fiscal year ended December 31, 1993 and is
hereby incorporated by reference.
10.12 Supply Agreement between the Partnership and Engelhard dated February 7,
1994, was filed as Exhibit 10(k) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and is hereby incorporated by
reference.
10.13 Employment Agreement between Irwin L. Gross and the Partnership dated
February 8, 1994, was filed as Exhibit 10(l) to the Company's Form 10-K
for the fiscal year ended December 31, 1993 and is hereby incorporated by
reference.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.14 Royalty Agreement between the Partnership and James Coellner and Dean
Calton dated February 8, 1994, was filed as Exhibit 10(m) to the
Company's Form 10-K for the fiscal year ended December 31, 1993 and is
hereby incorporated by reference.
10.15 Lease Agreement for the Partnership's manufacturing space, dated March
25, 1993, was filed as Exhibit 10(n) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and is hereby incorporated by
reference.
10.16 License Agreement by and between the Partnership and Ciba Composites
Anaheim, a business unit of Ciba Composites, a Division of Ciba-Geigy,
dated November 29, 1994, was filed as Exhibit 10.1 to the Company's 10-Q
for period ended September 30, 1995 and is hereby incorporated by
reference.
10.17 Manufacturing and Supply Agreement by and between the Partnership and
Ciba Composites Anaheim, a business unit of Ciba Composites, a Division
of Ciba-Geigy Corporation, dated November 29, 1994, was filed as Exhibit
10.2 to the Company's 10-Q for period ended September 30, 1995 and is
hereby incorporated by reference.
10.18 Technical Information, Trademark and Patent License Agreement by and
between the Partnership and Chung-Hsin, dated March 27, 1995, was filed
as Exhibit 10.3 to the Company's 10-Q for period ended September 30, 1995
and is hereby incorporated by reference.
10.19 Supply Agreement by and between the Partnership and Chung-Hsin, dated
March 27, 1995, was filed as Exhibit 10.4 to the Company's 10-Q for
period ended September 30, 1995 and is hereby incorporated by reference.
10.20 Agreement by and among Engelhard, the Company and the Partnership, dated
April 1, 1995 relating to the Dade County Industrial Development Revenue
Bonds, was filed as Exhibit 10.5 to the Company's 10-Q for period ended
September 30, 1995 and is hereby incorporated by reference.
10.21 Memorandum of Understanding by and between the Partnership and Samsung,
dated June 30, 1995, was filed as Exhibit 10.6 to the Company's 10-Q for
period ended September 30, 1995 and is hereby incorporated by reference.
10.22 Form of Amendment dated August 9, 1995 to Agreement of October 6, 1992
regarding formation of ICC International by and between the Partnership
and AB Air was filed as Exhibit 10.7 to the Company's 10-Q for period
ended September 30, 1995 and is hereby incorporated by reference.
23.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included in their opinion filed as
Exhibit 5 hereto.
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
24 Power of attorney (set forth on signature page hereto).
27 Financial Data Schedule
- --------------------
* To be filed by Amendment.
</TABLE>
II-6
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(i) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as at the time it was declared effective.
(ii) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions discussed in Item 15 of this registration
statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed in its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
December 8, 1995.
ICC TECHNOLOGIES, INC.
By: /s/ Irwin L. Gross
------------------------------------------
Irwin L. Gross
Chairman and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Irwin L. Gross, William A. Wilson and
Manfred Hanuschek, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Irwin L. Gross Chairman of the Board December 8, 1995
- ----------------------------------- and President
Irwin L. Gross (Principal
Executive Officer)
/s/ William A. Wilson Vice Chairman of the December 8, 1995
- -------------------------------- Board and Director
William A. Wilson
</TABLE>
[Signatures continued on next page]
II-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Manfred Hanuschek Chief Financial December 8, 1995
- ------------------------------- Officer and Treasurer
Manfred Hanuschek (Principal Financial and
Accounting Officer)
/s/ Albert Resnick Director December 8, 1995
- -------------------------------
Albert Resnick
/s/ Stephen Schachman Director December 8, 1995
- -------------------------------
Stephen Schachman
/s/ Andrew Shapiro Director December 8, 1995
- -------------------------------
Andrew Shapiro
/s/ Mark S. Hauser Director December 8, 1995
- --------------------------------
Mark S. Hauser
</TABLE>
II-9
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C>
1 Form of Underwriting Agreement among the Company, Janney
Montgomery Scott Inc. and Gerard Klauer Mattison & Co., LLC
2.1 Joint Venture Asset Transfer Agreement between Engelhard and Engelhard DT, Inc.
and the Company and ICC Desiccant Technologies, Inc., dated September 8, 1993,
was filed as Exhibit A to the Company's Definitive Proxy Statement dated
December 23, 1993 for Stockholders Meeting held January 17, 1994 and is hereby
incorporated by reference.
2.2 Amendment dated December 20, 1993 to Joint Venture Asset Transfer Agreement
between Engelhard and Engelhard DT, Inc. and the Company and ICC Desiccant
Technologies, Inc., dated September 8, 1993.
2.3 Agreement for Purchase and Sale of Assets by and between the Partnership and
Ciba-Geigy Corporation dated November 29, 1994 was filed as Exhibit 10(p) to the
Company's Form 10-K for year ended December 31, 1994 and is hereby incorporated
by reference.
4.1 The Company's Certificate of Designation for Series F Preferred Stock and Series
G Convertible Preferred Stock, was filed as an Exhibit to the Company's Form
10-K for the fiscal year ended December 31, 1989 and is hereby incorporated by
reference.
4.2 The Company's Certificate of Designation for Series H Convertible Preferred
Stock, was filed as an Exhibit to the Company's Form 8-K dated March 26, 1991
and is hereby incorporated by reference.
4.3 The Company's Certificate of Designation for Series I Preferred Stock, was filed
as an Exhibit to the Company's Form 8-K dated March 12, 1992 and is hereby
incorporated by reference.
4.4 The Company's Certificate of Designation for Series J Preferred Stock, was filed
as an Exhibit to the Company's Form 8-K dated June 8, 1992 and is hereby
incorporated by reference.
*5 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
10.1 Lease Agreement for the Partnership's Executive Offices dated June 14, 1989, was
filed as an Exhibit to the Company's Form 8-K filed June 12, 1990 and is hereby
incorporated by reference.
10.2 The Company's Incentive Stock Option Plan, as amended, was filed as Exhibit 4(g)
to the Company's Registration Statement on Form S-8, No. 33-85636 filed on
October 26, 1994 and is hereby incorporated by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C>
10.3 The Company's Nonqualified Stock Option Plan, as amended and restated, was filed
as Exhibit C to the Company's Definitive Proxy Statement dated November 18, 1994
for Stockholders Meeting held December 15, 1994 and is hereby incorporated by
reference.
10.4 The Company's Equity Plan for Directors, was filed as Appendix A to the
Company's Definitive Proxy Statement dated November 18, 1994 for Stockholders
Meeting held December 15, 1994 and is hereby incorporated by reference.
10.5 Agreement to Restructure and Retire the ICC Technologies, Inc. Lease Financing
Obligations to Textron Financial Corporation, was filed as an exhibit to the
Company's Form 8-K filed June 12, 1990 and is hereby incorporated by reference.
10.6 Conversion and Waiver Agreement between RIT Capital Partners, plc, Warburg,
Pincus Capital Company L.P. and the Company dated June 6, 1990 including all
exhibits thereto, was filed as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1989 and is hereby incorporated by reference.
10.7 Joint Development Program Agreement between the Company and Engelhard dated May
26, 1992, was filed as Exhibit 10(f) to the Company's Form 10-K for the fiscal
year ended December 31, 1992 and is hereby incorporated by reference.
10.8 Employment Agreement between William A. Wilson and the Company, dated July 2,
1991, was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
period ended September 30, 1991 and is hereby incorporated by reference.
10.9 Amendment dated February 28, 1994 to Employment Agreement between William A.
Wilson and the Company was filed as Exhibit 10(h)2 to the Company's 10-K for the
fiscal year ended December 31, 1994 and is hereby incorporated by reference.
10.10 General Partnership Agreement of Engelhard/ICC, between Engelhard
DT Inc. and ICC Desiccant Technologies, Inc., dated February 7, 1994.
10.11 Technology License Agreement between Engelhard and the Company and the
Partnership, dated February 7, 1994, was filed as Exhibit 10(j) to the Company's
Form 10-K for the fiscal year ended December 31, 1993 and is hereby incorporated
by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C>
10.12 Supply Agreement between the Partnership and Engelhard dated February 7, 1994,
was filed as Exhibit 10(k) to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and is hereby incorporated by reference.
10.13 Employment Agreement between Irwin L. Gross and the Partnership dated February
8, 1994, was filed as Exhibit 10(l) to the Company's Form 10-K for the fiscal
year ended December 31, 1993 and is hereby incorporated by reference.
10.14 Royalty Agreement between the Partnership and James Coellner and Dean Calton
dated February 8, 1994, was filed as Exhibit 10(m) to the Company's Form 10-K
for the fiscal year ended December 31, 1993 and is hereby incorporated by
reference.
10.15 Lease Agreement for the Partnership's manufacturing space, dated March 25, 1993,
was filed as Exhibit 10(n) to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and is hereby incorporated by reference.
10.16 License Agreement by and between the Partnership and Ciba Composites Anaheim, a
business unit of Ciba Composites, a Division of Ciba-Geigy, dated November 29,
1994, was filed as Exhibit 10.1 to the Company's 10-Q for period ended September
30, 1995 and is hereby incorporated by reference.
10.17 Manufacturing and Supply Agreement by and between the Partnership and Ciba
Composites Anaheim, a business unit of Ciba Composites, a Division of
Ciba-Geigy, dated November 29, 1994, was filed as Exhibit 10.2 to the Company's
10-Q for period ended September 30, 1995 and is hereby incorporated by
reference.
10.18 Technical Information, Trademark and Patent License Agreement by and between the
Partnership and Chung-Hsin, dated March 27, 1995, was filed as Exhibit 10.3 to
the Company's 10-Q for period ended September 30, 1995 and is hereby
incorporated by reference.
10.19 Supply Agreement by and between the Partnership and Chung-Hsin, dated March 27,
1995, was filed as Exhibit 10.4 to the Company's 10-Q for period ended September
30, 1995 and is hereby incorporated by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C>
10.20 Agreement by and among Engelhard, the Company and the Partnership, dated April
1, 1995 relating to the Dade County Industrial Development Revenue Bonds, was
filed as Exhibit 10.5 to the Company's 10-Q for period ended September 30, 1995
and is hereby incorporated by reference.
10.21 Memorandum of Understanding by and between the Partnership and Samsung, dated
June 30, 1995, was filed as Exhibit 10.6 to the Company's 10-Q for period ended
September 30, 1995 and is hereby incorporated by reference.
10.22 Form of Amendment dated August 9, 1995 to Agreement of October 6, 1992 regarding
formation of ICC International by and between the Partnership and AB Air was
filed as Exhibit 10.7 to the Company's 10-Q for period ended September 30, 1995
and is hereby incorporated by reference.
23.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included in their opinion
filed as Exhibit 5 hereto.
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants.
24 Power of attorney (set forth on signature page hereto).
27 Financial Data Schedule
- ---------------------------
* To be filed by Amendment.
</TABLE>
Exhibit No. 1
Form of Underwriting Agreement
Among ICC Technologies, Inc.,
Janney Montgomery Scott, Inc. and
Gerard Klauer Mattison & Co., LLC
<PAGE>
2,500,000 Shares
ICC Technologies, Inc.
Common Stock
--------------------
UNDERWRITING AGREEMENT
--------------------
Philadelphia, Pennsylvania
______________, 199_
JANNEY MONTGOMERY SCOTT INC.
GERARD KLAUER MATTISON & CO., LLC
As Representatives of the Several
Underwriters Named in Schedule I Hereto
c/o Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, PA 19103
Ladies and Gentlemen:
ICC Technologies, Inc., a Delaware corporation (the "Company"), proposes to
sell to Janney Montgomery Scott Inc. and Gerard Klauer Mattison & Co., LLC
(collectively, the "Representatives") and the several other underwriters named
in Schedule I hereto (together with the Representatives, the "Underwriters")
2,500,000 shares of the Company's common stock, par value $.01 per share
("Common Shares"). The Common Shares to be sold to the Underwriters by the
Company are referred to herein as the "Firm Shares." The respective amounts of
the Firm Shares to be purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The Firm Shares shall be offered to
the public a public offering price of $__________ per Firm Share (the "Offering
Price").
In order to cover over-allotments in the sale of the Firm Shares, the
Underwriters may purchase for the Underwriters' own accounts up to 375,000
additional Common Shares from the Company. Such 375,000 additional Common Shares
are referred to herein as the "Optional Shares." If any Optional Shares are
purchased, the Optional Shares shall be purchased for offering to the public at
the Offering Price and in accordance with the terms and conditions set forth
herein. The Firm Shares and the Optional Shares are referred to collectively
herein as the "Shares."
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
<PAGE>
(a) The Company has prepared, in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Regulations") of the Securities and Exchange Commission (the "SEC") under
the Act in effect at all applicable times, and has filed with the SEC a
registration statement on Form S-2 (File No. 33-_________) and one or more
amendments thereto for the purpose of registering the Shares under the Act.
Copies of such registration statement and any amendments thereto, and all forms
of the related prospectus contained therein, have been delivered to the
Representatives. Any preliminary prospectus included in such registration
statement or filed with the SEC pursuant to Rule 424(a) of the Regulations is
hereinafter called a "Preliminary Prospectus." The various parts of such
registration statement, including all exhibits thereto and the information
contained in the form of final prospectus filed with the SEC pursuant to Rule
424(b) of the Regulations in accordance with Section 5(a) of this Agreement and
deemed by virtue of Rule 424 of the Regulations to be part of the registration
statement at the time it was declared effective, each as amended at the time the
registration statement became effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A of the Regulations, are hereinafter collectively called
the "Registration Statement." The final prospectus in the form included in the
Registration Statement or first filed with the SEC pursuant to Rule 424(b) of
the Regulations and any amendments or supplements thereto, including the
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A of the Regulations, is hereinafter called
the "Prospectus." All references to the Registration Statement, the Preliminary
Prospectus and the Prospectus include all documents incorporated therein by
reference. If the Company has filed an abbreviated registration statement to
register additional Common Shares pursuant to Rule 462(b) under the Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
(b) The Registration Statement has become effective under the Act, and the
SEC has not issued any stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the Preliminary
Prospectus, nor has the SEC instituted or threatened to institute proceedings
with respect to such an order. No stop order suspending the sale of the Shares
in any jurisdiction designated by the Representatives as provided for in Section
5(f) hereof has been issued, and no proceedings for that purpose have been
instituted or threatened. The Company has complied in all material respects with
all requests of the SEC, or requests of which the Company has been advised of
any state securities commission in a state designated by the Representatives as
provided for in Section 5(f) hereof, for additional information to be included
in the Registration Statement, any Preliminary Prospectus or the Prospectus.
Each Preliminary Prospectus conformed to all the requirements of the Act and the
Regulations as of its date in all material respects and did not as of its date
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
the foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon and in conformity with information supplied to the
Company in writing by or on behalf of any Underwriter through the
Representatives expressly for use therein. The Registration Statement, on the
date on which it was declared effective by the SEC (the "Effective Date") and
when any post-effective amendment thereof shall become effective, and the
Prospectus, at the time it is filed with the SEC pursuant to Rule 424(b) and on
the Closing Date (as defined in Section 3 hereof) and any Option Closing Date
(as defined in Section 4(b) hereof), conformed and will conform in all material
respects to all the requirements of the Act and the Regulations, and did not and
will not, on any of such
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<PAGE>
dates, include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of any Underwriter through the
Representatives expressly for use therein.
(c) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all necessary
corporate power and authority, and all required licenses, permits,
certifications, registrations, approvals, consents and franchises to own or
lease and operate its properties and to conduct its business as described in the
Prospectus, and to execute, deliver and perform this Agreement. ICC Desiccant
Technologies, Inc. (the "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority, and all required licenses, permits,
certifications, registrations, approvals, consents and franchises to own or
lease and operate its properties and to conduct its business as described in the
Prospectus, and to execute, deliver and perform this Agreement. The Subsidiary
has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with all necessary corporate
power and authority, and all required licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the Prospectus. The
Company and the Subsidiary are duly qualified to do business as foreign
corporations, and are in good standing, in all jurisdictions in which such
qualification is required, except where the failure to so qualify would not have
a material adverse effect on the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders' equity, business
or prospects (collectively, the "Business Conditions") of the Company and the
Subsidiary taken as a whole. ICC/Engelhard Partnership (the "Partnership"), a
general partnership of which the Subsidiary is a 50% general partner, has been
duly organized and is validly existing as a general partnership under the laws
of the Commonwealth of Pennsylvania, with all necessary power and authority, and
all required licenses, permits, certifications, registrations, approvals,
consents and franchises to own or lease and operate its properties and to
conduct its business as described in the Prospectus. The Partnership is duly
qualified to do business, and is in good standing, in all jurisdictions in which
such qualification is required, except where the failure to so qualify would not
have a material adverse effect on the Business Conditions of the Partnership or
the Company.
(d) The outstanding shares of capital stock of the Subsidiary have been
duly authorized and validly issued, are fully paid and non-assessable and are
owned by the Company free and clear of all liens, encumbrances and security
interests; and no options, warrants or other rights to purchase, agreements or
other obligations to issue, or other rights to convert any obligations into,
shares of capital stock or ownership interests in the Subsidiary or securities
convertible into or exchangeable for capital stock of, or other ownership
interests in, the Subsidiary are outstanding. Neither the Company nor the
Subsidiary owns any stock or other interest whatsoever, whether equity or debt,
in any corporation, partnership or other entity other than the Company's
ownership of Subsidiary and the Subsidiary's 50% general partnership interest in
the Partnership. The Subsidiary owns a 50% general partnership interest in the
Partnership free and clear of all liens, encumbrances and security interests;
and no rights to purchase or agreements or other obligations of the Subsidiary
to issue ownership interests in the Partnership are outstanding, except for the
purchase option of
- 3 -
<PAGE>
Engelhard Corporation ("Engelhard") set forth in the General Partnership
Agreement dated as of February 7, 1994 between the Subsidiary and Engelhard DT,
Inc., a wholly-owned subsidiary of Engelhard.
(e) This Agreement has been duly authorized, executed and delivered by the
Company and constitutes its legal, valid and binding obligation, enforceable
against the Company in accordance with its terms.
(f) The execution, delivery and performance of this Agreement and the
transactions contemplated herein, including without limitation, the Preferred
Stock Transactions defined in the Prospectus by the Company do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) conflict
with any term or provision of the Company's or the Subsidiary's Certificate of
Incorporation or Bylaws or the Partnership's formation documents; (ii) result in
a breach of, constitute a default under, result in the termination or
modification of, result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties of the Company, the
Subsidiary or the Partnership, or require any payment by the Company, the
Subsidiary or the Partnership or impose any liability on the Company, the
Subsidiary or the Partnership pursuant to, any contract, indenture, mortgage,
deed of trust, commitment or other agreement or instrument to which the Company,
the Subsidiary or the Partnership is a party or by which any of their properties
are bound or affected; (iii) assuming compliance with Blue Sky laws applicable
to the offer and sale of the Shares, violate any law, rule, regulation,
judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction over the
Company, the Subsidiary or the Partnership or any of their respective properties
or businesses; or (iv) result in a breach, termination or lapse of the Company's
or the Subsidiary's corporate power and authority, or the Partnership's power
and authority, to own or lease and operate their respective properties and
conduct their respective businesses.
(g) At the date or dates indicated in the Prospectus, the Company had the
duly authorized and outstanding capitalization set forth in the Prospectus under
the caption "Capitalization" and will have, as of the issuance of the Firm
Shares on the Closing Date, the pro forma as adjusted capitalization set forth
therein. On the Effective Date, the Closing Date and any Option Closing Date,
there will be no options or warrants or other outstanding rights to purchase,
agreements or obligations to issue or agreements or other rights to convert or
exchange any obligation or security into, capital stock of the Company or
securities convertible into or exchangeable for capital stock of the Company,
except as expressly described in the Prospectus with respect to outstanding
options and warrants to purchase __________ and __________ Common Shares,
respectively, and Preferred Stock convertible into an aggregate of Common
Shares. As of the Closing Date, all shares of Preferred Stock will be converted
into Common Shares or redeemed as described in the Prospectus under "Preferred
Stock Transactions" so that as of the Closing Date there will be no shares of
Preferred Stock outstanding and no rights to any dividends, whether or not
accrued or declared, with respect to any Preferred Stock. The information in the
Prospectus insofar as it relates to all outstanding options and other rights to
acquire securities of the Company as of the Effective Date and immediately prior
to the Closing Date and any Option Closing Date is true and correct in all
material respects.
(h) The currently outstanding shares of the Company's capital stock have
been duly authorized and are validly issued, fully paid and non-assessable, and
none of such
- 4 -
<PAGE>
outstanding shares of the Company's capital stock has been issued in violation
of any preemptive rights of any security holder of the Company. As of the
Closing Date, all shares of Preferred Stock will be converted into Common Shares
or redeemed in connection with the Preferred Stock Transactions. The holders of
the outstanding shares of the Company's capital stock are not subject to
personal liability solely by reason of being such holders. All previous offers
and sales of the outstanding shares of the Company's capital stock, whether
described in the Registration Statement or otherwise, were made in conformity
with applicable federal and state securities laws. The authorized capital stock
of the Company, including, without limitation, the outstanding Common Shares,
the Shares being issued, the outstanding Preferred Stock, the authorized but
unissued Preferred Stock and the outstanding options and warrants to purchase
shares of Common Stock conform in all material respects with the descriptions
thereof in the Prospectus, and such descriptions conform in all material
respects with the instruments defining the same.
(i) When the Shares have been duly delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and non-assessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. The certificates representing
the Shares are in proper legal form under, and conform in all respects to the
requirements of, the Delaware General Corporation Law, as amended (the "DGCL").
Neither the filing of the Registration Statement nor the offering or sale of
Shares as contemplated by this Agreement gives any security holder of the
Company any rights for or relating to the registration of any Common Shares or
any other capital stock of the Company or any rights to convert or have redeemed
or otherwise receive anything of value with respect to any other security of the
Company.
(j) No consent, approval, authorization, order, registration, license or
permit of, or filing or registration with, any court, government, governmental
agency, instrumentality or other regulatory body or official is required for the
valid and legal execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby or
described in the Prospectus, except such as may be required for the registration
of the Shares under the Act, the Regulations and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and for compliance with the applicable
state securities or Blue Sky laws or the Bylaws, rules and other pronouncements
of the National Association of Securities Dealers, Inc. (the "NASD").
(k) The Common Shares (including the Shares) are registered pursuant to
Section 12(g) of the Exchange Act, the Common Shares are included for quotation
in the Nasdaq Small Cap Market and the Common Shares (including the Shares and
the Shares issued in the Preferred Stock Transactions) have been approved for
listing, subject only to official notice of issuance, on the Nasdaq National
Market on the Effective Date, and neither the Company nor any other person has
taken any action designed to cause, or likely to result in, the termination of
the registration of the Common Shares under the Exchange Act or the inclusion
thereof on the Nasdaq National Market. The Company has not received any
notification that the SEC or Nasdaq is contemplating terminating such
registration or inclusion. On the Effective Date, the Closing Date and any
Option Closing Date, the Shares shall be included for quotation on the Nasdaq
National Market.
- 5 -
<PAGE>
(l) The statements in the Registration Statement and Prospectus, insofar as
they are descriptions of or references to contracts, agreements or other
documents, are accurate in all material respects and present or summarize
fairly, in all material respects, the information required to be disclosed under
the Act and/or the Regulations, and there are no contracts, agreements or other
documents, instruments or transactions of any character required to be described
or referred to in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that have not been so described, referred
to or filed, as required.
(m) Each contract or other instrument (however characterized or described)
to which the Company, the Subsidiary or the Partnership is a party or by which
any of their respective properties or businesses is bound or affected and which
is material to the conduct of the Company's, the Subsidiary's or the
Partnership's business has been duly and validly executed by the Company, the
Subsidiary or the Partnership, as applicable, and, to the knowledge of the
Company, by the other parties thereto. Each such contract or other instrument is
in full force and effect and is enforceable against the parties thereto in
accordance with its terms and neither the Company, the Subsidiary nor the
Partnership is, and to the knowledge of the Company, no other party is, in
default thereunder, and no event has occurred that, with the lapse of time or
the giving of notice, or both, would constitute a default under any such
contract or other instrument. All necessary consents under such contracts or
other instruments to the disclosure in the Prospectus with respect thereto have
been obtained.
(n) The consolidated financial statements of the Company and the financial
statements of the Partnership (including, in each case, the notes thereto) filed
as part of any Preliminary Prospectus, the Prospectus and the Registration
Statement present fairly, in all material respects, the financial position of
the Company and the Partnership, respectively, as of the respective dates
thereof, and the results of operations and cash flows of the Company and the
Partnership for the periods indicated therein, all in conformity with generally
accepted accounting principles. The supporting notes and schedules included in
the Registration Statement fairly state in all material respects the information
required to be stated therein in relation to the financial statements taken as a
whole. The financial information included in the Prospectus under the captions
"Summary Financial Information," "Selected Consolidated Financial Data of the
Company" and "Selected Consolidated Financial Data of the Partnership presents
fairly the information shown therein and has been compiled on a basis consistent
with that of the audited financial statements included in the Registration
Statement. The unaudited pro forma adjustments to financial information included
in the Registration Statement have been properly applied to the historical
amounts in the compilation of that information.
(o) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
there has not been (i) any material adverse change (including, whether or not
insured against, any material loss or damage to any material assets), or
development involving a prospective material adverse change, in the Business
Conditions of the Company or the Partnership; (ii) any material adverse change,
loss, reduction, termination or non-renewal of any contract to which the
Company, the Subsidiary or the Partnership is a party; (iii) any transaction
entered into by the Company, the Subsidiary or the Partnership not in the
ordinary course of its business that is material to the Company or the
Partnership; (iv) any dividend or distribution of any kind declared, paid or
made by the Company on its capital stock, except for and to the extent described
in the Prospectus in connection with the
- 6 -
<PAGE>
Preferred Stock Transactions; (v) any liabilities or obligations, direct or
indirect, incurred by the Company, the Subsidiary or the Partnership that are
material to the Company, the Subsidiary or the Partnership; (vi) any change in
the capitalization or stock ownership of the Company, the Subsidiary or the
Partnership except for the Preferred Stock Transactions; or (vii) any change in
the indebtedness of the Company, the Subsidiary or the Partnership that is
material to the Company or the Partnership. Neither the Company, the Subsidiary
nor the Partnership has any contingent liabilities or obligations that are
material and that are not expressly disclosed in the Prospectus.
(p) The Company has not distributed, and will not distribute, any offering
material in connection with the offering and sale of the Shares other than the
Registration Statement, a Preliminary Prospectus, the Prospectus and other
material, if any, permitted by the Act and the Regulations. Neither the Company
nor any of its officers, directors or affiliates has taken, nor shall the
Company or such persons take, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Common Shares.
(q) The Company, the Subsidiary and the Partnership have filed with the
appropriate federal, state and local governmental agencies, and all foreign
countries and political subdivisions thereof, all tax returns that are required
to be filed or has duly obtained extensions of time for the filing thereof and
have paid all taxes shown on such returns or otherwise due and all material
assessments received by them to the extent that the same have become due.
Neither the Company, the Subsidiary nor the Partnership has executed or filed
with any taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income or other tax and none of them
is a party to any pending action or proceeding by any foreign or domestic
governmental agency for the assessment or collection of taxes, and no claims for
assessment or collection of taxes have been asserted against the Company, the
Subsidiary or the Partnership that might materially adversely affect the
Business Conditions of the Company or the Partnership.
(r) Coopers & Lybrand L.L.P., which has given its reports on certain
financial statements included as part of the Registration Statement, is a firm
of independent certified public accountants as required by the Act and the
Regulations both with respect to the Company and the Partnership.
(s) Neither the Company, the Subsidiary nor the Partnership is in violation
of, or in default under, any of the terms or provisions of (i) its Certificate
of Incorporation or Bylaws or similar governing instruments, (ii) any indenture,
mortgage, deed of trust, contract, commitment or other agreement or instrument
to which it is a party or by which it or any of its assets or properties is
bound or affected, (iii) any law, rule, regulation, judgment, order or decree of
any government or governmental agency, instrumentality or court, domestic or
foreign, having jurisdiction over it or any of its properties or business, or
(iv) any license, permit, certification, registration, approval, consent or
franchise.
(t) Except as expressly disclosed in the Prospectus, there are no claims,
actions, suits, protests, proceedings, arbitrations, investigations or inquiries
pending before, or threatened or contemplated by, any governmental agency,
instrumentality, court or tribunal, domestic or foreign, or before any private
arbitration tribunal to which the Company, the Subsidiary or the Partnership is
or may be made a party that could reasonably be expected to affect the validity
of any of the outstanding Common Shares, or that, if determined adversely to the
Company or the
- 7 -
<PAGE>
Partnership, would, in any case or in the aggregate, result in any material
adverse change in the Business Conditions of the Company or the Partnership, nor
is there any reasonable basis for any such claim, action, suit, protest,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency, instrumentality
or other tribunal enjoining the Company, the Subsidiary or the Partnership from,
or requiring the Company, the Subsidiary or the Partnership to take or refrain
from taking, any action, or to which the Company, the Subsidiary or the
Partnership or their properties, assets or businesses are bound or subject.
(u) Each of the Company, the Subsidiary and the Partnership owns, or
possesses adequate rights to use, all patents, patent applications, trademarks,
trademark registrations, applications for trademark registration, trade names,
service marks, licenses, inventions, copyrights, know-how (including any
unpatented and/or unpatentable proprietary or confidential technology,
information, systems, design methodologies and devices or procedures developed
or derived from or for the Company's or the Partnership's business), trade
secrets, confidential information, processes and formulations and other
proprietary information necessary for, used in, or proposed to be used in, the
conduct of the business of the Company or the Partnership as described in the
Prospectus (collectively, the "Intellectual Property"). All patents owned by the
Company and/or the Partnership are listed on Schedule II hereto, all of which
patents are valid and enforceable. Neither the loss nor the unenforceability of
Patent No. 5450730 will have a material adverse effect on the Business
Conditions of the Company or the Partnership. Neither the Company nor the
Partnership has infringed, is infringing and, except as expressly disclosed in
the Prospectus, neither the Company nor the Partnership has received any notice
of conflict with, the asserted rights of others with respect to the Intellectual
Property that, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could materially adversely affect the
Business Conditions of the Company or the Partnership, and neither the Company
nor the Partnership knows of any reasonable basis therefor. To the knowledge of
the Company, no other parties have infringed upon or are in conflict with any
Intellectual Property. Neither the Company nor the Partnership is a party to, or
bound by, any agreement pursuant to which royalties, honorariums or fees are
payable by the Company or the Partnership to any person by reason of the
ownership or use of any Intellectual Property, except for any royalty payments
due James Coellner or Dean Calton pursuant to the Royalty Agreement dated as of
February 7, 1994.
(v) Each of the Company, the Subsidiary and the Partnership has good and
marketable title to all property described in the Prospectus as being owned by
it, free and clear of all liens, security interests, charges or encumbrances and
the like, except such as are expressly described or referred to in the
Prospectus or such as do not materially affect the value of such property and do
not interfere in any material respect with the use made, or proposed to be made,
of such property. Each of the Company, the Subsidiary and the Partnership has
adequately insured its property against loss or damage by fire or other casualty
and maintains, in amounts reasonably believed by the Company to be adequate,
insurance against such other risks as management of the Company deems
appropriate. All real and personal property leased by the Company, the
Subsidiary or the Partnership, as described or referred to in the Prospectus, is
held by the Company, the Subsidiary or the Partnership, as applicable, under
valid leases. The executive offices and the manufacturing and storage facilities
of the Company, the Subsidiary and the Partnership (the "Premises"), and all
operations presently or formerly conducted thereon by the Company, the
Subsidiary or the Partnership or any predecessors thereof, are now and, since
the Company, the
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Subsidiary or the Partnership began to use such Premises, always have been and,
to the knowledge of the Company, prior to when the Company, the Subsidiary or
the Partnership began to use such Premises, always had been, in compliance with
all federal, state and local statutes, ordinances, regulations, rules, standards
and requirements of common law concerning or relating to industrial hygiene and
the protection of health and the environment (collectively, "the Environmental
Laws"), except to the extent that any failure in such compliance would not
materially adversely affect the Business Conditions of the Company or the
Partnership. There are no conditions on, about, beneath or arising from the
Premises or at any other location that might give rise to liability, the
imposition of a statutory lien or require a "Response," "Removal" or "Remedial
Action," as defined herein, under any of the Environmental Laws, and that would
materially adversely affect the Business Conditions of the Company or the
Partnership. Except as expressly disclosed in the Prospectus, which disclosed
items will not materially adversely affect the Business Conditions of the
Company or the Partnership, (i) neither the Company, the Subsidiary nor the
Partnership has received notice or has knowledge of any claim, demand,
investigation, regulatory action, suit or other action instituted or threatened
against the Company, the Subsidiary or the Partnership or any portion of the
Premises relating to any of the Environmental Laws and (ii) neither the Company,
the Subsidiary nor the Partnership has received any notice of material
violation, citation, complaint, order, directive, request for information or
response thereto, notice letter, demand letter or compliance schedule to or from
any governmental or regulatory agency arising out of or in connection with
"hazardous substances" (as defined by applicable Environmental Laws) on, about,
beneath, arising from or generated at the Premises or at any other location. As
used in this subsection, the terms "Response," "Removal" and "Remedial Action"
shall have the respective meanings assigned to such terms under Sections
101(23)-101(25) of the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act,
42 U.S.C. 9601(23)-9601(25).
(w) Each of the Company, the Subsidiary and the Partnership maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(x) Except for the plans that are expressly disclosed in the Prospectus,
neither the Company, the Subsidiary nor the Partnership have had and do now have
any employee benefit plan, profit sharing plan, employee pension benefit plan or
employee welfare benefit plan or deferred compensation arrangements ("Plans")
that are subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended, or the rules and regulations thereunder ("ERISA"). All
Plans that are subject to ERISA are in compliance with ERISA, in all material
respects, and, to the extent required by the Internal Revenue Code of 1986, as
amended (the "Code"), in compliance with the Code in all material respects.
Neither the Company, the Subsidiary nor the Partnership has had any employee
pension benefit plan that is subject to Part 3 of Subtitle B of Title I of ERISA
or any defined benefit plan or multi-employer plan. Neither the Company, the
Subsidiary nor the Partnership has maintained retiree life or retiree health
insurance plans that are employee welfare benefit plans providing for continuing
benefit or coverage for any employee
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or any beneficiary of any employee after such employee's termination of
employment, except as required by Section 4980B of the Code. No fiduciary or
other party in interest with respect to any of the Plans has caused any of such
Plans to engage in a prohibited transaction as defined in Section 406 of ERISA.
As used in this subsection, the terms "defined benefit plan," "employee benefit
plan," "employee pension benefit plan," "employee welfare benefit plan,"
"fiduciary" and "multiemployer plan" shall have the respective meanings assigned
to such terms in Section 3 of ERISA.
(y) No labor dispute exists with the Company's, the Subsidiary's or the
Partnership's employees, and no such labor dispute is threatened. The Company
has no knowledge of any existing or threatened labor disturbance by the
employees of any of the principal suppliers, contractors or customers of the
Company, the Subsidiary or the Partnership that would materially adversely
affect the Business Conditions of the Company or the Partnership. None of the
Company's or the Partnership's employees are covered by a collective bargaining
agreement and no union organizing activity exists with respect to any of such
employees.
(z) Neither the Company, the Subsidiary nor the Partnership has incurred
any liability for any finder's fees or similar payments in connection with the
transactions contemplated herein other than as disclosed in the Prospectus.
(aa) The Company is familiar with the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, and has in
the past conducted, and the Company intends to conduct, its affairs in such a
manner as to ensure that it will not be an "investment company" within the
meaning of the 1940 Act and the rules and regulations thereunder.
(bb) No statement, representation, warranty or covenant made by the
Company, the Subsidiary or the Partnership in this Agreement or in any
certificate or document required by this Agreement to be delivered to the
Representatives is, was when made, or as of the Closing Date or any Option
Closing Date will be, inaccurate, untrue or incorrect in any material respect.
No transaction has occurred or is proposed between or among the Company or the
Subsidiary and any of their respective officers, directors or stockholders or
any affiliate of the foregoing, or between or among the Partnership and any of
its officers, partners or management committee members or any affiliate of the
foregoing that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(cc) Neither the Company, the Subsidiary, the Partnership, nor any officer,
director, employee, partner, agent or other person acting on behalf of the
Company, the Subsidiary or the Partnership has, directly or indirectly, given or
agreed to give any money, property or similar benefit or consideration to any
customer or supplier (including any employee or agent of any customer or
supplier) or official or employee of any agency or instrumentality of any
government (foreign or domestic) or political party or candidate for office
(foreign or domestic) or any other person who was, is or in the future may be in
a position to affect the Business Conditions of the Company or the Partnership
or any actual or proposed business transaction of the Company, the Subsidiary or
the Partnership that (i) could subject the Company, the Subsidiary or the
Partnership to any liability (including, but not limited to, the payment of
monetary damages) or penalty in any civil, criminal or governmental action or
proceeding that would have a material adverse effect on the
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Business Conditions of the Company or the Partnership, or (ii) violates any law,
rule or regulation to which the Company, the Subsidiary or the Partnership is
subject.
Any certificate signed by any officer of the Company, the Subsidiary or the
Partnership in such capacity and delivered to the Representatives or to counsel
for the Underwriters pursuant to this Agreement shall be deemed a representation
and warranty by the Company, the Subsidiary or the Partnership, as the case may
be, to the several Underwriters as to the matters covered thereby.
2. Purchase and Sale of Firm Shares. On the basis of the representations,
warranties, covenants and agreements contained herein, but subject to the terms
and conditions set forth herein, the Company shall sell the Firm Shares to the
several Underwriters at the Offering Price less the Underwriting Discounts and
Commissions shown on the cover page of the Prospectus, and the Underwriters,
severally and not jointly, shall purchase from the Company on a firm commitment
basis, at the Offering Price less the Underwriting Discounts and Commissions
shown on the cover page of the Prospectus, the respective amounts of the Firm
Shares set forth opposite their names on Schedule I hereto. In making this
Agreement, each Underwriter is contracting severally and not jointly, and except
as provided in Sections 4 and 11 hereof, the agreement of each Underwriter is to
purchase only that number of Shares specified with respect to that Underwriter
in Schedule I hereto. The Underwriters shall offer the Shares to the public as
set forth in the Prospectus.
3. Payment and Delivery. Payment for the Firm Shares shall be made by
certified or official bank check or checks payable to the order of the Company
in New York Clearing House (next day) funds, at the offices of Janney Montgomery
Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, or in immediately
available funds wired to such accounts as the Company may specify (with all
costs and expenses incurred by the Underwriters in connection with such
settlement in immediately available funds, including, but not limited to,
interest or cost of funds and expenses, to be borne by the Company), against
delivery of the Firm Shares to the Representatives at the offices of Janney
Montgomery Scott Inc, 1801 Market Street, Philadelphia, Pennsylvania for the
respective accounts of the Underwriters. Such payment and delivery will be made
at 10:00 AM., Philadelphia, Pennsylvania time, on the third business day after
the date of this Agreement, or at such other time on the same or such other
date, not later than seven business days thereafter as shall be designated in
writing by the Representatives. Such time and date are referred to herein as the
"Closing Date." The certificates representing the Firm Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the Philadelphia correspondent office of the Company's
transfer agent not less than one full business day prior to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Prospectus,
subject to the terms and conditions herein set forth, the several Underwriters
are hereby granted an option by the Company to purchase all or any part of the
Optional Shares (the "Over-allotment Option"). The purchase price to be paid for
the Optional Shares shall be the Offering Price less the Underwriting
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Discounts and Commissions shown on the cover page of the Prospectus. The
Over-allotment Option granted hereby may be exercised by the Representatives on
behalf of the several Underwriters as to all or any part of the Optional Shares
at any time and from time to time within 45 days after the date of the
Prospectus. No Underwriter shall be under any obligation to purchase any
Optional Shares prior to an exercise of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters by giving notice to the
Company by a letter sent by registered or certified mail, postage prepaid,
telex, telegraph, telegram or facsimile (such notice to be effective when
received), addressed as provided in Section 13 hereof, setting forth the number
of Optional Shares to be purchased, the date and time for delivery of and
payment for the Optional Shares and stating that the Optional Shares referred to
therein are to be used for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares. If such notice is given prior
to the Closing Date, the date set forth therein for such delivery and payment
shall be not earlier than the Closing Date. If such notice is given on or after
the Closing Date, the date set forth therein for such delivery and payment shall
be a date selected by the Representatives not later than five full business days
after the exercise of the Over-allotment Option. The date and time set forth in
such a notice is referred to herein as an "Option Closing Date," and a closing
held pursuant to such a notice is referred to herein as an "Option Closing."
Upon each exercise of the Over-allotment Option, and on the basis of the
representations, warranties, covenants and agreements herein contained, and
subject to the terms and conditions herein set forth, the several Underwriters
shall become severally, but not jointly, obligated to purchase from the Company
the number of Optional Shares specified in each notice of exercise of the
Over-allotment option (allocated among them in accordance with Section 4(c)
hereof).
(c) The number of Optional Shares to be purchased by each Underwriter
pursuant to each exercise of the Over-allotment Option shall be the number that
bears the same ratio to the aggregate number of Optional Shares being purchased
through such Over-allotment Option exercise as the number of Firm Shares
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of all Firm Shares. Notwithstanding the foregoing, the number of Optional
Shares purchased and sold pursuant to each exercise of the Over-allotment Option
shall be subject to such adjustment as the Representatives may approve to
eliminate fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set forth
in the agreement entered into by and among the Underwriters in connection
herewith (the "Agreement Among Underwriters").
(d) Payment for the Optional Shares shall be made to the Company, by
certified or official bank check payable to the order of the Company, in New
York Clearing House (next day) funds, at the offices of Janney Montgomery Scott
Inc., 1801 Market Street, Philadelphia, Pennsylvania, or such other place as
shall be agreed upon by the Company and the Representatives, or in immediately
available funds wired to such accounts as the Company may specify (with all
costs and expenses incurred by the Underwriters in connection with such
settlement in immediately available funds, including, but not limited to,
interest or cost of funds and expenses, to be borne by the Company), against
delivery of the Optional Shares to the Representatives at the offices of Janney
Montgomery Scott Inc., 1801 Market Street, Philadelphia, Pennsylvania, for the
respective accounts of the Underwriters. The certificates representing the
Optional Shares to be issued and delivered will be in such denominations and
registered in such names as the Representatives request upon
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reasonable notice prior to such Option Closing Date, and will be made available
to the Representatives for inspection, checking and packaging at the
Philadelphia correspondent office of the Company's transfer agent at a
reasonable time in advance of such Option Closing Date.
5. Certain Covenants and Agreements of the Company. The Company covenants
and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, the Company will timely
file the Prospectus pursuant to and in compliance with Rule 424(b) of the
Regulations and will advise the Representatives of the time and manner of such
filing.
(b) The Company will not file or publish any amendment or supplement to the
Registration Statement, Preliminary Prospectus or Prospectus at any time before
the completion (in the opinion of the Underwriters' counsel) of the distribution
of the Shares by the Underwriters that is not (i) in compliance with the
Regulations and (ii) approved by the Representatives (such approval not to be
unreasonably withheld or delayed).
(c) The Company will advise the Representatives immediately, and confirm
such advice in writing, (i) when any post-effective amendment to the
Registration Statement is filed with the SEC under Rule 462(c) under the Act or
otherwise, (ii) any Rule 462(b) Registration Statement is filed, (iii) of the
receipt of any comments from the SEC concerning the Registration Statement, (iv)
when any post-effective amendment to the Registration Statement becomes
effective, or when any supplement to the Prospectus or any amended Prospectus
has been filed, (v) of any request of the SEC for amendment or supplementation
of the Registration Statement or Prospectus or for additional information, (vi)
during the period when the Prospectus is required to be delivered under the Act
and Regulations, of the happening of any event as a result of which the
Registration Statement or the Prospectus would include an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, (vii) during the period noted in clause (vi) above, of
the need to amend the Registration Statement or supplement the Prospectus to
comply with the Act, (viii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, and (ix) of the suspension of the qualification of any of the Shares
for offering or sale in any jurisdiction in which the Underwriters intend to
make such offers or sales, or of the initiation or threatening of any
proceedings for any of such purposes known to the Company. The Company will use
its best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use, and if any such order is issued, to obtain as
soon as possible the lifting thereof.
(d) The Company has delivered to the Representatives, without charge, as
many copies of each Preliminary Prospectus as the Representatives have
reasonably requested. The Company will deliver to the Representatives, without
charge, from time to time during the period when delivery of the Prospectus is
required under the Act, such number of copies of the Prospectus (as supplemented
or amended) as the Representatives may reasonably request. The Company hereby
consents to the use of such copies of the Preliminary Prospectus and the
Prospectus for purposes permitted by the Act, the Regulations and the securities
or Blue Sky laws of the states in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in connection
with the offering and sale of the Shares and for such period of time
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thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. The Company has furnished or
will furnish to the Representatives at least three original signed copies of the
Registration Statement as originally filed and of all amendments and supplements
thereto, whether filed before or after the Effective Date, at least three copies
of all exhibits filed therewith and of all consents and certificates of experts,
and will deliver to the Representatives such number of conformed copies of the
Registration Statement, including financial statements and exhibits, and all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act, the Regulations, the Exchange Act
and the rules and regulations thereunder so as to permit the continuance of
sales of and dealings in the Shares for as long as may be necessary to complete
the distribution of the Shares as contemplated hereby.
(f) The Company will furnish such information and pay such filing fees and
other expenses as may be required, and otherwise cooperate in the registration
or qualification of the Shares, or exemption therefrom, for offering and sale by
the several Underwriters and by dealers under the securities or Blue Sky laws of
such jurisdictions in which the Representatives determine to offer the Shares,
after consultation with the Company, and will file such consents to service of
process or other documents necessary or appropriate in order to effect such
registration or qualification; provided, however, that no such qualification
shall be required in any jurisdiction where, solely as a result thereof, the
Company would be subject to taxation or qualification as a foreign corporation
doing business in such jurisdiction where it is not now so qualified or to take
any action which would subject it to service of process in suits, other than
those arising out of the offering or sale of the Shares, in any jurisdiction
where it is not now so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as is required under the laws of
such jurisdictions for such offering and sale.
(g) Subject to Section 5(b) hereof, in case of any event (occurring at any
time within the period during which, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered under the Act or the
Regulations), as a result of which any Preliminary Prospectus or the Prospectus,
as then amended or supplemented, would contain, in the opinion of counsel for
the Underwriters, an untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, if it is necessary
at any time to amend any Preliminary Prospectus or the Prospectus to comply with
the Act or the Regulations or any applicable securities or Blue Sky laws, the
Company promptly will prepare and file with the SEC, and any applicable state
securities commission, an amendment, supplement or document that will correct
such statement or omission or effect such compliance and will furnish to the
several Underwriters such number of copies of such amendments, supplements or
documents (in form and substance satisfactory to the Representatives and counsel
for the Underwriters) as the Representatives may reasonably request. For
purposes of this Section 5(g), the Company will provide such information to the
Representatives, the Underwriters' counsel and counsel to the Company as shall
be necessary to enable such persons to consult with the Company with respect to
the need to amend or supplement the Registration Statement, Preliminary
Prospectus or Prospectus or file any document, and shall furnish to the
Representatives and the Underwriters' counsel such further information as each
may from time to time reasonably request.
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(h) The Company will make generally available to its security holders not
later than 45 days after the end of the period covered thereby, an earnings
statement of the Company (which need not be audited unless required by the Act
or the Regulations) that shall comply with Section 11(a) of the Act and cover a
period of at least 12 consecutive months beginning not later than the first day
of the Company's fiscal quarter next following the Effective Date (or, if later,
the effective date of the Rule 462(b) Registration Statement).
(i) For a period of three years from the Effective Date, the Company will
deliver to the Representatives and, upon request, to each of the Underwriters:
(i) a copy of each report or document, including, without limitation, reports on
Forms 8-K, 10-C, 10-K and 10-Q (or such similar forms as may be designated by
the SEC), registration statements and any exhibits thereto, filed or furnished
to the SEC or any securities exchange or the NASD, on the date each such report
or document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
security holders; and (iii) every material press release in respect of the
Company or its affairs that is released or prepared by the Company.
(j) For a period of three years from the Effective Date, the Company will
deliver to the Representatives, subject to execution of an appropriate
confidentiality agreement, such additional information concerning the business
and financial condition of the Company as the Representatives may from time to
time reasonably request, and which can be prepared or obtained by the Company
without unreasonable effort or expense.
(k) During the course of the distribution of the Shares, the Company will
not take, directly or indirectly, any action designed to, or that could
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Shares.
(l) The Company has caused each person listed on Schedule III hereto to
execute an agreement (a "Lock-up Agreement") in form and substance satisfactory
to the Representatives and the Underwriters' counsel which provides that for a
period of 180 days after the Effective Date, such persons will not, without the
prior written consent of the Representatives, offer, sell, contract to sell or
otherwise dispose of any Common Shares or any securities convertible into or
exercisable for any Common Shares or grant options to purchase any Common
Shares. The Company has delivered such agreements to the Representatives prior
to the date of this Agreement. Appropriate stop transfer instructions will be
issued by the Company to the transfer agent for the Common Shares, and a copy of
such instructions will be delivered to the Representatives.
(m) The Company will not engage in any transactions with affiliates (as
defined in the Regulations) without the prior approval of a majority of the
disinterested members of its Board of Directors.
(n) For a period of 180 days after the Effective Date, the Company will
not, without the prior written consent of the Representatives, offer, sell,
contract to sell or otherwise dispose of any Common Shares or any securities
convertible into or exercisable for any Common Shares or grant options to
purchase any Common Shares, except (i) issuance of Common Shares upon conversion
of currently outstanding Preferred Stock, in accordance with the Preferred Stock
Transactions, (ii) issuance of Common Shares upon currently outstanding options
and warrants as
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described in the Prospectus and (iii) grant of options to purchase Common Shares
under the Company's currently outstanding stock option plans as described in the
Prospectus.
(o) The Company will use all reasonable efforts to maintain the listing of
the Common Shares (including, without limitation, the Shares) on the Nasdaq
National Market.
(p) The Company shall, at its sole cost and expense, supply and deliver to
the Representatives and the Underwriters' counsel, within a reasonable period
from the Closing Date, transaction binders in such number and in such form and
content as the Representatives reasonably request.
(q) The Company will use the net proceeds from the sale of the Shares to be
sold by it hereunder substantially in accordance with the description set forth
in the Prospectus.
(r) Within 60 days after the date hereof, the Company shall appoint two
nonemployee directors who are reasonably satisfactory to the Representatives to
its Board of Directors and will use its best efforts to continue to nominate and
recommend for election by the Company's stockholders two directors reasonably
acceptable to the Representatives at any elections for directors held within
three years from the date hereof (any such directors appointed or elected, the
"Independent Directors"). At least one of the Independent Directors will be a
member of the Compensation, Audit and Stock Option Committees of the Board of
Directors. The Company shall amend its By-laws, within 60 days of the Closing
Date, to provide that the following actions require a majority vote of the
nonemployee directors of the Board (including at least one of the Independent
Directors):
(i) Any use of the proceeds of the offering other than as described under
"Use of Proceeds" in the Prospectus;
(ii) The issuance of the Company of equity securities or securities
convertible into or exchangeable for equity securities by the Company, other
than for purposes of providing funds to make a contribution to the Partnership
substantially similar to investments to be made by Engelhard; and
(iii) The issuance by the Company of equity securities or securities
convertible into or exchangeable for equity securities of the Company to
officers, directors or 5% or greater stockholders of the Company (other than
with respect to options covered by plans which have been approved by the
Company's stockholders).
The Bylaw amendments referred to above shall further provide that such
amendments shall not be altered or amended by the Board of Directors within
three years of the date hereof without the approval of a majority of the
nonemployee directors (including at least one of the Independent Directors).
(s) The Company shall establish a policy for the issuance of press releases
which shall be effective as of the Closing Date and continue for three years
thereafter which shall require that each press release shall be approved by a
committee of the Board of Directors prior to release by the Company.
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(t) The Company shall use its best efforts to obtain from the Partnership a
letter dated as of the date of the Closing Date or Option Closing Date, as the
case may be, addressed to the Representatives and in form and substance
satisfactory to the Representatives, to the effect that the Partnership has
carefully reviewed the Prospectus and that no facts have come to its attention
that would cause it to have reason to believe that, with respect to the
descriptions therein of the Partnership and of the use of proceeds of the
offering, the Prospectus on the Closing Date or Option Closing Date, as the case
may be, contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
6. Payment of Fees and Expenses.
(a) Whether or not the transactions contemplated by this Agreement are
consummated and regardless of the reason this Agreement is terminated, the
Company will pay or cause to be paid, and bear or cause to be borne, all costs
and expenses incident to the performance of the obligations of the Company under
this Agreement, including: (i) the fees and expenses of the accountants and
counsel for the Company incurred in the preparation of the Registration
Statement and any post-effective amendments thereto (including financial
statements and exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; (ii) printing and mailing expenses associated
with the Registration Statement and any post-effective amendments thereto, any
Preliminary Prospectus, the Prospectus, this Agreement, the Agreement Among
Underwriters, the Underwriters' Questionnaire, the power of attorney executed by
each of the Underwriters, the Selected Dealer Agreement and related documents
and the Preliminary Blue Sky Memorandum (and any supplement thereto); (iii) the
costs and expenses (other than fees and expenses of the Underwriters' counsel,
except such fees incurred in connection with Blue Sky and NASD filings or
exemptions as provided herein) incident to the authentication, issuance, sale
and delivery of the Shares to the Underwriters; (iv) the fees, expenses and all
other costs of qualifying the Shares for sale under the securities or Blue Sky
laws of those states in which the Shares are to be offered or sold, including,
without limitation, the reasonable fees and expenses of Underwriters' counsel
and such local counsel as may have been reasonably required and retained for
such purpose; (v) the fees, expenses and other costs of, or incident to,
securing any review or approvals by or from the NASD, including the reasonable
fees and expenses of the Underwriters' counsel; (vi) the filing fees of the SEC;
(vii) the cost of furnishing to the Underwriters copies of the Registration
Statement, Preliminary Prospectuses and Prospectuses as herein provided; (viii)
the Company's travel expenses in connection with meetings with the brokerage
community and institutional investors; (ix) the costs and expenses associated
with settlement in same day funds (including, but not limited to, interest or
cost of funds expenses), if desired by the Company; (x) any fees or costs
payable to the Nasdaq National Market as a result of the offering; (xi) the cost
of printing certificates for the Shares; (xii) the cost and charges of any
transfer agent; (xiii) the costs of advertising the offering, including, without
limitation, with respect to the placement of "tombstone" advertisements in
publications selected by the Representatives; (xiv) all taxes, if any, on the
issuance, delivery and transfer of the Shares sold by the Company; and (xv) all
other costs and expenses reasonably incident to the performance of the Company's
obligations hereunder that are not otherwise specifically provided for in this
Section 6(a); provided, however, that, except as specifically set forth in
Section 6(c) hereof, the Underwriters shall be responsible for their
out-of-pocket expenses, including those associated with meetings with the
brokerage community and institutional investors, other than the Company's
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travel expenses, and the fees and expenses of their counsel for other than with
respect to Blue Sky and NASD matters.
(b) The Company shall pay as due any state registration, qualification and
filing fees and any accountable out-of-pocket disbursements in connection with
such registration, qualification or filing in the states in which the
Representatives determine to offer or sell the Shares.
(c) If (i) the Underwriters are willing to proceed with the offering, and
the transactions contemplated by this Agreement are not consummated because the
Company elects not to proceed with the offering for any reason or (ii) the
Representatives terminate this Agreement pursuant to Section 10(b) hereof, then
the Company will reimburse the Representatives for their reasonable
out-of-pocket expenses, including, without limitation, fees and disbursements of
counsel for the Underwriters, incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder, in an amount not to exceed $75,000.
7. Conditions of Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which it exercises its right to purchase under Section 4 on an
Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy and fulfillment of the
representations and warranties of the Company, to the performance by the Company
of its covenants and obligations hereunder, and to the following additional
conditions:
(a) If required by the Regulations, the Prospectus shall have been filed
with the SEC pursuant to Rule 424(b) of the Regulations within the applicable
time period prescribed for such filing by the Regulations. On or prior to the
Closing Date or any Option Closing Date, as the case may be, no stop order or
other order preventing or suspending the effectiveness of the Registration
Statement or the sale of any of the Shares shall have been issued under the Act
or any state securities law, and no proceedings for that purpose shall have been
initiated or shall be pending or, to the Representatives' knowledge or the
knowledge of the Company, shall be contemplated by the SEC or by any authority
in any jurisdiction designated by the Representatives pursuant to Section 5(f)
hereof. Any request on the part of the SEC or any state securities authority for
additional information shall have been complied with to the reasonable
satisfaction of counsel for the Underwriters.
(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form of
the Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall be
satisfactory in all material respects to counsel for the Underwriters. The
Company shall have furnished to such counsel all documents and information that
they may have reasonably requested to enable them to pass upon such matters. The
Representatives shall have received from the Underwriters' counsel, Cozen and
O'Connor, an opinion, dated as of the Closing Date and any Option Closing Date,
as the case may be, and addressed to the Representatives individually and as
representatives of the several Underwriters, which opinion shall be satisfactory
in all respects to the Representatives.
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(c) The NASD shall have indicated it has no objection to the underwriting
arrangements pertaining to the sale of any of the Shares.
(d) The Representatives shall have received a copy of an executed Lock-up
Agreement from each person described on Schedule III hereto.
(e) The Representatives shall have received at or prior to the Closing Date
from the Underwriters' counsel a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the securities or Blue
Sky laws of such jurisdictions designated by the Representatives pursuant to
Section 5(f) hereof.
(f) On the Closing Date and any Option Closing Date, there shall have been
delivered to the Representatives signed opinions of Mesirov Gelman Jaffe Cramer
& Jamieson, counsel for the Company, dated as of each such date and addressed to
the Representatives individually and as representatives of the several
Underwriters to the effect set forth in Exhibit A hereto or to such effect as is
otherwise reasonably satisfactory to the Representatives.
(g) On the Closing Date and any Option Closing Date, there shall have been
delivered to the Representatives a signed opinion of Panitch Schwarze Jacobs &
Nadel, patent counsel for the Company, dated as of each such date and addressed
to the Representatives, individually and as representatives of the several
Underwriters to the effect set forth in Exhibit B hereto or as is otherwise
reasonably satisfactory to the Representatives.
(h) At the Closing Date and any Option Closing Date: (i) the Registration
Statement and any post-effective amendment thereto and the Prospectus and any
amendments or supplements thereto shall contain all statements that are required
to be stated therein in accordance with the Act and the Regulations and in all
material respects shall conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor any post-effective
amendment thereto nor the Prospectus and any amendments or supplements thereto
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) since the respective dates as of which information
is given in the Registration Statement and any post-effective amendment thereto
and the Prospectus and any amendments or supplements thereto, except as
otherwise stated therein, there shall have been no material adverse change in
the Business Conditions of the Company or the Partnership, from that set forth
therein, whether or not arising in the ordinary course of business; (iii) since
the respective dates as of which information is given in the Registration
Statement and the Prospectus or any amendment or supplement thereto, there shall
have been no event or transaction, contract or agreement entered into by the
Company, the Subsidiary or the Partnership, other than in the ordinary course of
business and as set forth in the Registration Statement or Prospectus, that has
not been, but would be required to be, set forth in the Registration Statement
or Prospectus; (iv) since the respective dates as of which information is given
in the Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto, there shall have been no
material adverse change, loss, reduction, termination or non-renewal of any
contract to which the Company, the Subsidiary or the Partnership is a party; and
(v) no action, suit or proceeding at law or in equity shall be pending or
threatened against the Company, the Subsidiary or the Partnership that would be
required to be set forth in the Prospectus, other than as set forth
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therein, and no proceedings shall be pending or threatened against or directly
affecting the Company, the Subsidiary or the Partnership before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
Business Conditions of the Company or the Partnership.
(i) The Representatives shall have received at the Closing Date and any
Option Closing Date certificates of the Chief Executive Officer and the Chief
Financial Officer of the Company dated as of the date of the Closing Date or
Option Closing Date, as the case may be, and addressed to the Representatives,
individually and as representatives of the several Underwriters, to the effect
that (i) the signers of the certificate have read this Agreement carefully, and
the representations and warranties of the Company in this Agreement are true and
correct, as if made at and as of the Closing Date or the Option Closing Date, as
the case may be, and the Company has complied with all the agreements, fulfilled
all the covenants and satisfied all the conditions on its part to be performed,
fulfilled or satisfied at or prior to the Closing Date or the Option Closing
Date, as the case may be, and (ii) the signers of the certificate have carefully
examined the Registration Statement and the Prospectus and any amendments or
supplements thereto, and the conditions set forth in Section 7(h) hereof have
been satisfied.
(j) At the time this Agreement is executed and at the Closing Date and
any Option Closing Date the Representatives shall have received a letter, dated
the date of delivery thereof, addressed to the Representatives, individually and
as representatives of the several Underwriters, in form and substance
satisfactory to the Representatives in all respects (including, without
limitation, the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) from Coopers & Lybrand L.L.P.:
(i) confirming they are independent certified public accountants within the
meaning of the Act and the Regulations, and stating that the section of the
Registration Statement under the caption "Experts" is correct insofar as it
relates to them;
(ii) stating that, in their opinion, the consolidated financial statements,
schedules and notes of the Company and the financial statements, schedules and
notes of the Partnership examined by them and included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of specified procedures, which included a
reading of the latest available unaudited interim consolidated financial
statements of the Company and unaudited financial statements of the Partnership
(with an indication of the date of the latest available unaudited interim
financial statements), a reading of the minutes of the meetings of the
stockholders and the Boards of Directors of the Company and the Subsidiary and
the Management Committee of the Partnership, and audit and compensation
committees of such Boards and Committee, if any, and inquiries to certain
officers and other employees of the Company, the Subsidiary and the Partnership
responsible for operational, financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention that
would cause them to believe that (A) the unaudited consolidated financial
statements of the Company or the unaudited financial statements of the
Partnership included in the Registration Statement and related schedules, if
any, (I) do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations, or (II) were not fairly
presented in conformity with
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<PAGE>
generally accepted accounting principles or statutory accounting practices on a
basis substantially consistent with that of the audited consolidated financial
statements and related schedules included in the Registration Statement; or (B)
at a specified date not more than five business days prior to the date of such
letter, there was any change in the capital stock or debt of the Company or the
Partnership or any decrease in net current assets, total assets or stockholders'
or partners' equity of the Company or the Partnership as compared with the
amounts shown in the respective September 30, 1995 unaudited balance sheets of
the Company and the Partnership included the Registration Statement, or that for
the periods from October 1, 1995 to the date of the latest available unaudited
financial statements of the Company and the Partnership and to a specified date
not more than five days prior to the date of the letter, there were any
decreases (or increases with respect to losses), as compared to the
corresponding periods in the prior year, in sales, operating income or total or
per share amounts of net loss, except in all instances for changes, decreases or
increases that the Registration Statement discloses have occurred or may occur
and except for such other changes, decreases or increases which are described in
such letter and which the Representatives shall in their sole discretion accept;
and
(iv) stating that they have compared specific dollar amounts (or
percentages delivered from such dollar amounts), numbers of shares and other
numerical data and financial information set forth in the Registration Statement
that have been specified by the Representatives prior to the date of this
Agreement (in each case to the extent that such dollar amounts, percentages and
other information is derived from the general accounting records subject to the
internal controls of the Company's, the Subsidiary's or the Partnership's
accounting systems, or has been derived directly from such accounting records by
analysis or comparison or has been derived from other records and analyses
maintained or prepared by the Company, the Subsidiary or the Partnership) with
the results obtained from the application of readings, inquiries and other
appropriate procedures set forth in the letter, and found them to be in
agreement.
All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statement for purposes of this subsection.
(k) On the Closing Date, there shall have been delivered to the
Representatives certified copies of resolutions of the Company's Board of
Directors undertaking to appoint two Independent Directors to the Board of
Directors, to establish a press release policy in accordance with subparagraphs
5(r) and (s) above and to amend the Company's Bylaws in accordance with
subparagraph 5(r) above.
(l) There shall have been duly tendered to the Representatives for the
respective accounts of the Underwriters certificates representing all of the
Shares to be purchased by the Underwriters on the Closing Date or any Option
Closing Date, as the case may be.
(m) The issuance and sale of the Shares shall be legally permitted under
applicable Blue Sky or state securities laws.
(n) All corporate and other proceedings and other matters incident to the
authorization, form and validity of this Agreement and the form of the
Registration Statement and Prospectus and all other legal matters related to
this Agreement and the transactions contemplated
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<PAGE>
hereby shall be satisfactory in all respects to counsel to the Underwriters. The
Company shall have furnished to such counsel all documents and information that
they shall have reasonably requested to enable them to pass upon such matters.
(o) At the Closing Date and any Option Closing Date, the Representatives
shall have been furnished such additional documents, information and
certificates as they shall have reasonably requested.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to the Representatives and the Underwriters' counsel. The
Company shall furnish the Representatives with such conformed copies of such
opinions, certificates, letters and other documents as they shall reasonably
request. If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or any Option Closing Date, as the
case may be, is not fulfilled, the Representatives may on behalf of the several
Underwriters, terminate this Agreement with respect to the Closing Date or such
Option Closing Date, as applicable, or, if they so elect, waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. Any such termination shall be without liability of the Underwriters
to the Company.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter, and
each person, if any, who controls each Underwriter within the meaning of the
Act, against any and all loss, liability, claim, damage and expense whatsoever,
including, but not limited to, any and all reasonable expenses incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever or in connection with any investigation or
inquiry of, or action or proceeding that may be brought against, the respective
indemnified parties, arising out of or based upon any breach of the Company's
representations and warranties made in this Agreement or any untrue statements
or alleged untrue statements of material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, any application or
other document (in this Section 8 collectively called "application") filed in
any jurisdiction in order to qualify all or any part of the Shares under the
securities laws thereof or filed with the SEC or the NASD, or the omission or
alleged omission from any of the foregoing of a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing indemnity shall not apply in respect of
any statement or omission made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereto, or
in any application or in any communication to the SEC, as the case may be. The
obligations of the Company under this Section 8(a) will be in addition to any
liability the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, each of the directors of the Company, each of the officers
of the Company who shall have signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act to the
same extent as the foregoing indemnities from the Company to the several
Underwriters, but only with respect to any loss, liability, claim, damage or
expense resulting from statements or omissions, or alleged statements or
omissions, if any, made in
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any Preliminary Prospectus, Registration Statement or Prospectus or any
amendment or supplement thereof or any application in reliance upon, and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereof or
any application, as the case may be. The obligations of each Underwriter under
this Section 8(b) will be in addition to any liability which such Underwriter
may otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought against
any person in respect of which indemnification may be sought pursuant to Section
8(a) or (b) hereof, such person (hereinafter called the "indemnified party")
shall, promptly after notification of, or receipt of service of process for,
such action, inquiry, investigation or proceeding, notify in writing the party
or parties against whom indemnification is to be sought (hereinafter called the
"indemnifying party") of the institution of such action, inquiry, investigation
or proceeding. The indemnifying party, upon the request of the indemnified
party, shall assume the defense of such action, inquiry, investigation or
proceeding, including, without limitation, the employment of counsel (reasonably
satisfactory to such indemnified party) and payment of expenses. No
indemnification provided for in this Section 8 shall be available to any
indemnified party who shall fail to give such notice if the indemnifying party
does not have knowledge of such action, inquiry, investigation or proceeding to
the extent that such indemnifying party has been materially prejudiced by the
failure to give such notice, but the omission to so notify the indemnifying
party shall not relieve the indemnifying party otherwise than under this Section
8. Such indemnified party shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action or if the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party or if such
indemnified party or parties shall have been advised by counsel that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties or that there may be legal defenses available
to such indemnified party or parties different from or in addition to those
available to the indemnifying party or parties, in any of which events the
indemnified party or parties shall be entitled to select counsel to conduct the
defense to the extent determined by such counsel to be necessary to protect the
interests of the indemnified party or parties, and the reasonable fees and
expenses of such counsel shall be borne by the indemnifying party. Expenses
covered by the indemnification in this Section 8 shall be paid by the
indemnifying party as they are incurred by the indemnified party. Anything in
this Section 8 to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of a claim effected without its written consent. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under Section 8(a) or (b)
hereof in respect of any losses, liabilities, claims, damages or expenses (or
actions, inquiries, investigations or proceedings in respect thereof) referred
to therein, except by reason of the failure to give notice as required in
Section 8(c) hereof (provided that the indemnifying party does not have
knowledge of the action, inquiry, investigation or proceeding and to the extent
such party has been materially prejudiced by
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<PAGE>
the failure to give such notice), then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
liabilities, claims or reasonable expenses (or actions, inquiries,
investigations or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discount and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, liabilities,
claims, damages or reasonable expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), (i) the
provisions of the Agreement Among Underwriters shall govern contribution among
Underwriters, (ii) no Underwriter (except as provided in the Agreement Among
Underwriters) shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their individual underwriting
obligations and not joint.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters and the Company,
including, without limitation, the indemnity and contribution agreements
contained in Section 8 hereof and the agreements contained in Sections 6, 9, 10
and 13 hereof, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any Underwriter or any controlling
person, and shall survive delivery of the Shares and termination of this
Agreement, whether before or after the Closing Date or any Option Closing Date.
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<PAGE>
10. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at 10:00 a.m., Philadelphia,
Pennsylvania time, on the first business day following the Effective Date or at
the time of the public offering by the Underwriters of the Shares, whichever is
earlier, except that the provisions of Sections 6, 8, 9, 10 and 13 hereof shall
be effective upon execution hereof. The time of the public offering, for the
purpose of this Section 10, shall mean the time when any of the Shares are first
released by the Underwriters for offering by dealers. The Representatives may
prevent the provisions of this Agreement (other than those contained in sections
6, 8, 9, 10 and 13) hereof from becoming effective without liability of any
party to any other party, except as noted below, by giving the notice indicated
in Section 10(c) hereof before the time the other provisions of this Agreement
become effective.
(b) The Representatives shall have the right to terminate this Agreement at
any time prior to the Closing Date or any Option Closing Date as provided in
Sections 7 and 11 hereof or if any of the following have occurred: (i) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the Business Conditions of
the Company or the Partnership, whether or not arising in the ordinary course of
business, that would, in the Representatives' opinion, make the offering or
delivery of the Shares impracticable; (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic, political or
financial market conditions if the effect on the financial markets of the United
States of such outbreak, calamity, crisis or change would, in the
Representatives' opinion, make the offering or delivery of the Shares
impracticable; (iii) any suspension or limitation of trading generally in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the over-the-counter market or any setting of minimum
prices for trading or the promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority that in
the Representatives' opinion materially and adversely affects trading on such
exchange or the over-the-counter market; (iv) the enactment, publication, decree
or other promulgation of any federal or state statute, regulation, rule or order
of any court or other governmental authority which in the Representatives'
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company or the Partnership; (v) declaration of
a banking moratorium by either United States, New York or Pennsylvania
authorities; (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in the
Representatives' opinion has a material adverse effect on the securities markets
in the United States; or (vii) trading in any securities of the Company shall
have been suspended or halted by Nasdaq or the SEC.
(c) If the Representatives elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Representatives shall notify the Company hereof promptly by telephone, telex,
telegraph, telegram or facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Optional Shares hereunder, and if the Firm
Shares or Optional
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<PAGE>
Shares with respect to which such default relates do not exceed in the aggregate
10% of the number of Firm Shares or Optional Shares, as the case may be, that
all Underwriters have agreed to purchase on the relevant Closing Date or Option
Closing Date, then the Representatives may make arrangements satisfactory to the
Company for the purchase of such Firm Shares by other persons, including any of
the Underwriters, but if no such arrangements are made by the relevant Closing
Date or Option Closing Date, such Firm Shares or Optional Shares to which the
default relates shall be purchased severally by the non-defaulting Underwriters
in proportion to their respective commitments hereunder.
(b) If such default relates to more than 10% of the Firm Shares or Optional
Shares, as the case may be, the Representatives may in their discretion arrange
for another party or parties (including a non-defaulting Underwriter) to
purchase such Firm Shares or Optional Shares to which such default relates, on
the terms contained herein. In the event that the Representatives do not arrange
for the purchase of the Firm Shares or Optional Shares to which a default
relates as provided in this Section 11, this Agreement may be terminated by the
Representatives or by the Company without liability on the part of the several
Underwriters (except as provided in Section 8 hereof) or the Company (except as
provided in Sections 6 and 8 hereof); provided that if such default occurs with
respect to Optional Shares after the Closing Date, this Agreement will not
terminate as to the Firm Shares or any Optional Shares purchased prior to such
termination. Nothing herein shall relieve a defaulting Underwriter of its
liability, if any, to the other several Underwriters and to the Company for
damages occasioned by its default hereunder.
(c) If the Firm Shares or Optional Shares to which the default relates are
to be purchased by the nondefaulting Underwriters, or are to be purchased by
another party or parties, the Representatives or the Company shall have the
right to postpone the Closing Date or any Option Closing Date, as the case may
be, for a reasonable period but not in any event exceeding seven days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment to the Registration Statement or
supplement to the Prospectus that in the opinion of counsel for the Underwriters
may thereby be made necessary. The terms "Underwriters" and "Underwriter" as
used in this Agreement shall include any party substituted under this Section 11
with like effect as if it had originally been a party to this Agreement with
respect to such Firm Shares and/or Optional Shares.
12. Information Furnished by Underwriters. The statement set forth on the
last paragraph at the bottom of the cover page of the Prospectus regarding the
terms of the Offering by the Underwriters, the legends on the inside cover page
regarding stabilization and passive market making, the concession and
reallowance figures appearing in the third paragraph under the caption
"Underwriting" and the last paragraph under the caption"Underwriting" regarding
passive market making constitute the only written information furnished by or on
behalf of any Underwriter referred to in Sections l(a)(ii) and 8 hereof.
13. Notice. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Janney Montgomery Scott Inc., 1801 Market
Street, Philadelphia, Pennsylvania 19103, Attention: Mr. Michael J. Mufson, with
a copy to Cozen and O'Connor, 1900 Market Street, Philadelphia, Pennsylvania
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<PAGE>
19103, Attention: Richard J. Busis, Esquire; and if sent to the Company, shall
be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to ICC Technologies, Inc., 441 North Fifth Street, Philadelphia,
Pennsylvania 19123, Attention: Mr. Irwin L. Gross, with a copy to Mesirov Gelman
Jaffe Cramer & Jamieson, 1735 Market Street, 38th Floor, Philadelphia, PA 19103,
Attention: Richard P. Jaffe, Esquire.
14. Parties. This Agreement shall inure solely to the benefit of, and shall
be binding upon, the several Underwriters, the Company and the controlling
persons, directors and officers thereof, and their respective successors,
assigns, heirs and legal representatives, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
terms "successors" and "assigns" shall not include any purchaser of the Shares
merely because of such purchase.
15. Definition of Business Day. For purposes of this Agreement, "business
day" means any day on which the Nasdaq National Market is opened for trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
17. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.
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<PAGE>
If the foregoing correctly sets forth your understanding of our agreement,
please sign and return to the Company the enclosed duplicate hereof, whereupon
it will become a binding agreement in accordance with its terms.
Very truly yours,
ICC TECHNOLOGIES, INC.
By:____________________________________
Irwin L. Gross, President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
JANNEY MONTGOMERY SCOTT INC.
GERARD KLAUER MATTISON & CO., LLC
As Representatives of the Several Underwriters
named in Schedule I hereto
By: JANNEY MONTGOMERY SCOTT INC.
By:_____________________________________
Authorized Representative
- 28 -
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C>
Janney Montgomery Scott Inc. ............................................................
Gerard Klauer Mattison & Co., LLC .......................................................
Total ...................................................................................
====================
</TABLE>
I-1
<PAGE>
SCHEDULE II
Patents and Patent Applications
Owned by the Company and/or Partnership
II-1
<PAGE>
SCHEDULE III
Persons Who Are to Deliver Lock-Up Agreements
Lock-Up Agreements are to be delivered by the following
persons and entities who are stockholders of the Company immediately prior to
the time the SEC declares the Registration Statement effective:
III - 1
<PAGE>
EXHIBIT A
Matters to be Covered in the opinion of Mesirov Gelman Jaffe Cramer & Jamieson
Counsel for the Company
1. Each of the Company and the Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with all necessary corporate power and authority to own or lease and operate its
properties and to conduct its business as described in the Prospectus and to
execute, deliver and perform this Agreement. The Partnership is a general
partnership duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania, with all necessary power and authority to own or
lease and operate its properties and conduct its business as described in the
Prospectus. To the knowledge of such counsel, each of the Company, the
Subsidiary and the Partnership has all licenses, permits, certifications,
registrations, approvals, consents and franchises required to own or lease and
operate its properties and to conduct its business as described in the
Prospectus. Each of the Company, the Subsidiary and the Partnership is duly
qualified to do business as a foreign corporation or partnership and is in good
standing in all jurisdictions in which such qualification is required, except
where the failure to so qualify would not have a material adverse effect on the
Business Conditions of the Company or the Partnership.
2. The Company has all requisite power and authority to enter into this
Agreement and the Preferred Stock Transactions, and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes its legal,
valid and binding obligation, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, arrangement or similar laws affecting creditors'
rights generally or by general equitable principles, and except that the
enforceability of the indemnification and contribution provisions set forth in
this Agreement may be limited by the federal securities laws. The Preferred
Stock Transactions have been approved by all necessary corporate action.
3. The execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated herein, including without
limitation, the Preferred Stock Transactions, do not and will not, with or
without the giving of notice or the lapse of time, or both, (a) conflict with
any terms or provisions of the Company's or the Subsidiary's Certificate of
Incorporation, as amended, or Bylaws, as amended, or the Partnership's
partnership formation documents; (b) result in a breach of, or constitute a
default under, result in the termination or modification of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties of the Company or the Partnership pursuant to, any
indenture, mortgage, deed of trust, contract, commitment or other agreement or
instrument, known to such counsel, to which the Company, the Subsidiary or the
Partnership is a party or by which any of their respective properties is bound
or affected; (c) violate any law, rule or regulation, or to such counsel's
knowledge, any judgment, order or decree, of any government or governmental
agency, instrumentality or court, domestic or foreign, having jurisdiction over
the Company, the Subsidiary or the Partnership or any of their respective
properties or businesses; or (d) result in a breach, termination or lapse of the
Company's, the Subsidiary's or the Partnership's necessary power and authority
to own or lease and operate its respective properties and to conduct its
respective businesses as described in the Prospectus.
A-1
<PAGE>
4. At the date or dates indicated in the Prospectus, the Company had the
duly authorized and outstanding capitalization set forth under the caption
"Capitalization" and "Description of Capital Stock" in the Prospectus. To the
knowledge of such counsel, there are no options or warrants for the purchase of,
other outstanding rights to purchase, agreements or obligations to issue, or
agreements or other rights to convert or exchange any obligation or security
into, capital stock of the Company or securities convertible into or
exchangeable for capital stock of the Company, except as and to the extent
expressly described in the Prospectus.
5. The authorized capital stock of the Company, including, without
limitation, the outstanding Common Shares, the Shares being issued, the
outstanding Preferred Stock and the authorized but unissued Preferred Stock,
conforms in all material respects with the descriptions thereof in the
Prospectus, and such descriptions conform in all material respects with the
instruments defining the same. The information in the Prospectus insofar as it
relates to options, warrants and any other derivative or convertible security
with respect to the Common Shares and preferred stock is true and correct in all
material respects.
6. The Common Shares outstanding immediately prior to the Closing Date have
been duly authorized and are validly issued, fully paid and non-assessable. The
Common Shares issuable upon exercise of outstanding options and warrants or,
upon Preferred Stock Transactions, when issued in accordance with the respective
terms thereof, will be duly authorized, validly issued, fully-paid and
non-assessable; and none of such outstanding Common Shares, were, and none of
such issuable Common Shares will be, issued in violation of any statutory
preemptive rights, preemptive rights in the Company's Certificate of
Incorporation or Bylaws or, to such counsel's knowledge, any other preemptive
right of any securityholder of the Company.
7. The issuance and sale of the Shares by the Company have been duly
authorized and, when duly delivered against payment therefor as contemplated by
this Agreement, the Shares will be validly issued, fully paid and nonassessable,
the holders thereof will not be subject to personal liability solely by reason
of being such holders, and good and valid title to the Shares, free and clear of
all liens, claims, encumbrances, security interests, restrictions, and defects
of title whatsoever, will pass to each of the Underwriters who has purchased
such Shares. None of the Shares will be issued in violation of any statutory
preemptive rights, preemptive rights in the Company's Certificate of
Incorporation or Bylaws or, to such counsel's knowledge, any other preemptive
right of any securityholder of the Company. The certificates representing the
Common Shares are in proper legal form under, and conform in all respects to the
requirements of, the DGCL. To the knowledge of such counsel, neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives any securityholder of the Company any
rights, other than those which have been waived, for or relating to the
registration of any Common Shares or any other securities of the Company.
8. To such counsel's knowledge, the Common Shares (including the Shares and
the shares issued in connection with the Preferred Stock Transactions) have been
duly listed on the Nasdaq National Market. To the best of such counsel's
knowledge, all previous transactions by or on behalf of the Company in its own
securities complied in all material respects with the provisions of all
applicable federal and state securities and corporate laws.
A-2
<PAGE>
9. All outstanding shares of capital stock of the Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by the Company free and clear of all liens, encumbrances and security interests.
To such counsel's knowledge, except for the common stock of the Subsidiary owned
by the Company, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or other rights to convert any obligations into,
shares of capital stock of the Subsidiary or securities convertible into or
exchangeable for capital stock of the Subsidiary are outstanding. To the
knowledge of such counsel, the Company owns no stock or other interests
whatsoever, whether equity or debt, in any corporation, partnership or other
entity other than its ownership of all of the outstanding shares of capital
stock of the Subsidiary, and the Subsidiary owns no stock or other interests
whatsoever, whether equity or debt, in any corporation, partnership or other
entity other than its 50% general partnership interest in the Partnership.
10. No consent, approval, authorization, order, registration, license or
permit of any court, government, governmental agency, instrumentality or other
regulatory body or official is required for (a) the valid authorization,
issuance, sale and delivery by the Company of any of the Shares, (b) the
execution, delivery or performance by the Company of this Agreement or (c) the
taking of any action contemplated herein or in the Registration Statement or the
Prospectus, including without limitation, the Preferred Stock Transactions,
except such as may be required for the registration of the Shares under the Act,
the Regulations or the Exchange Act (all of which have been obtained), or for
compliance with the applicable state securities or Blue Sky laws, or the Bylaws,
rules and other pronouncements of the NASD.
11. The statements in the Registration Statement and Prospectus, insofar as
they are descriptions or summaries of, or references to, statutes, regulations,
governmental proceedings, contracts, agreements, or other documents, are
accurate in all material respects and present or summarize fairly the
information required to be disclosed under the Act or the Regulations. To such
counsel's knowledge, there are no contracts, agreements or other documents
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations that have not been so described, referred to or filed as
required. Such counsel has read all contracts referred to in the Registration
Statement or the Prospectus, and such contracts (including, but not limited to,
the Partnership Agreement, the Engelhard Technology License Agreement, the
Engelhard Supply Agreement and the Partnership's agreements with Ciba-Geigy
Corporation) are fairly summarized or described therein conform in all material
respects to the descriptions thereof contained therein.
12. To such counsel's knowledge, neither the Company, the Subsidiary nor
the Partnership is in violation of, or in default under, any of the terms or
provisions of (a) its Certificate or Articles of Incorporation, as amended, or
Bylaws, as amended, or similar governing instruments, or (b) except to the
extent such action would not have a material adverse effect on the Business
Conditions of the Company or the Partnership, (i) any indenture, mortgage, deed
of trust, contract, commitment or other agreement or instrument to which it is a
party or by which it or any of its properties is bound; (ii) any law, rule,
regulation, judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction over it or
any of its properties or business; or (iii) any license, permit, certification,
registration, approval, consent or franchise referred to in Paragraph 1 hereof.
A-3
<PAGE>
13. To such counsel's knowledge, the Company, the Subsidiary and the
Partnership are (a) in compliance with all applicable Environmental Laws, (b)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (c) are
in compliance with all terms and conditions of any such permit, license or
approval, except where any non-compliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not
singularly or in the aggregate have a material adverse effect on the Business
Conditions of the Company or the Partnership.
14. To such counsel's knowledge, there are no claims, actions, suits,
protests, proceedings, arbitrations, investigations or inquiries pending before,
or threatened or contemplated by, any governmental agency, instrumentality,
court or tribunal, domestic or foreign, or before any private arbitration
tribunal, to which the Company, the Subsidiary or the Partnership is a party or
is threatened to be made a party that, if determined adversely to the Company or
the Partnership, would, in any case or in the aggregate, result in any material
adverse change in the Business Conditions of the Company or the Partnership.
15. The Registration Statement has become effective under the Act, as of
the Effective Date and, if applicable, any Rule 462 Registration Statement
became effective under the Act upon its filing, and to such counsel's knowledge,
the SEC has not issued any stop order suspending the effectiveness of the
Registration Statement, nor has the SEC instituted or threatened to institute
proceedings with respect to any such order. Any and all filings required to be
made by Rules 424, 430A and 462 under the Act have been made.
16. The Registration Statement and the Prospectus, as of the Effective Date
(and any Rule 462 Registration Statement upon its filing), and each amendment or
supplement thereto as of its effective or issue date (except for the financial
statements, schedules and the notes thereto, as to which such counsel need not
express an opinion) comply as to form in all material respects with, and appear
on their face to be appropriately responsive in all material respects to the
applicable requirements of the Act and Regulations.
17. The Company is not, and will not be immediately after receiving the
proceeds from the sale of any of the Shares, an "investment company" within the
meaning of the 1940 Act.
18. Such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including reviews and discussions of the contents
thereof, and while such counsel (for the purposes of this Paragraph 18) is not
passing upon the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, in the course of such reviews and
discussions, no facts came to its attention that would cause it to have reason
to believe that (a) the Registration Statement or any post-effective amendment
thereto, on the date it became effective, contained any untrue statement of a
material fact or omitted to state any material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or that (b) the Prospectus on the Effective Date, on the date it was
filed pursuant to Rule 424(b) and on the Closing Date or Option Closing Date, as
the case may be, contains any untrue statement of material fact or omits to
state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, except that such
counsel need express
A-4
<PAGE>
no opinion with respect to the financial statements, schedules and the notes
thereto included in the Registration Statement or the Prospectus.
The foregoing opinion may be limited to the laws of the United States, the
laws of the Commonwealth of Pennsylvania and the General Corporation Law of the
State of Delaware, and such counsel may rely as to questions of fact upon the
representations of the Company set forth in this Agreement and upon certificates
of officers of the Company and of government officials, all of which
certificates must be satisfactory in form and scope to counsel for the
Underwriters.
A-5
<PAGE>
EXHIBIT "B"
Matters to be Covered in the Opinion of
Panitch Schwarze Jacobs & Nadel, Patent Counsel for the Company
1. The statements made in the Registration Statement and Prospectus under
the headings "Risk Factors -- Dependence on Proprietary Technology" and
"Business -- Patents and Proprietary Information" (the "Intellectual Property
Sections") to the extent they constitute matters of law or legal conclusions,
have been reviewed by counsel and fairly present the information disclosed
therein.
2. The Company and the Partnership, respectively, own or possess adequate
licenses or other rights to use all patents, technology, know-how and other
rights necessary to conduct their respective businesses presently and as
proposed to be conducted by them as described in the Registration Statement and
the Prospectus and, to such counsel's knowledge, except as described in the
Prospectus, neither the Company nor the Partnership has received any notice of
infringement of or conflict with, and does not otherwise know of any basis for,
notice of any such infringement of or conflict with, asserted rights of others
with respect to any patents, technology, know-how or other property rights.
3. The Company's and the Partnership's respective discoveries, inventions,
products or processes referred to in the Registration Statement and the
Prospectus do not, to the knowledge of such counsel, infringe or conflict with
any right or patent which is the subject of a patent application, which
infringement or conflict could result in any material adverse effect on the
Business Conditions of the Company or the Partnership.
4. To the knowledge of such counsel, the Partnership has the exclusive
right in the United States and in [list foreign jurisdictions] to use or license
the use of the trademarks described in the Registration Statement and the
Prospectus, as registered in the United States and [list foreign jurisdictions]
in connection with the advertising, promotion and sale of its products.
5. To the knowledge of such counsel, the Partnership is in the position to
prevent the adoption and use by third parties of any trademarks confusingly
similar to the trademarks described in the Registration Statement and the
Prospectus.
6. To such counsel's knowledge, the patents set forth on Schedule II to
this Agreement are the only patents issued to the Company or the Partnership and
all such patents have been validly issued by the Company or the Partnership, as
the case may be, with the rights attendant to a validly issued patent.
7. Such counsel has participated in the preparation of the Intellectual
Property Sections, including reviews and discussions of the contents thereof,
and while such counsel (for the purposes of this Paragraph 7) is not passing
upon the accuracy or completeness of the statements contained in the
Intellectual Property Sections, in the course of such reviews and discussions,
no facts came to its attention that would cause it to have reason to believe
that (a) the Intellectual Property Sections, on the date the Registration
Statement or any post-effective amendment thereto
B-1
<PAGE>
became effective, contained any untrue statement of a material fact or omitted
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or (b) the Prospectus
on the Effective Date, on the date it was filed pursuant to Rule 424(b) and on
the Closing Date or Option Closing Date, as the case may be, contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
B-2
<PAGE>
Exhibit No. 2.2
Amendment to Joint Venture
Asset Transfer Agreement
<PAGE>
Amendment to Joint Venture
Asset Transfer Agreement
Reference is hereby made to Section 11.1 of the Joint Venture Asset Transfer
Agreement dated as of September 8, 1993 (the "Agreement") among ICC
Technologies, Inc., ICC Desiccant Technologies, Inc., Engelhard Corporation and
Engelhard DT, Inc., pursuant to which Engelhard may extend the Termination Date
(as defined in the Agreement) to March 1, 1994 by giving written notice to such
extension (which Engelhard has done) and by making a loan to ICC by December 31,
1993. The parties hereby agree that Section 11.1 of the Agreement is hereby
amended to extend the date by which Engelhard must make such loan to January 15,
1994. Except as amended hereby, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
duly executed in its name and on its behalf, all as of December 20, 1993.
ICC TECHNOLOGIES, INC.
By: /s/ Irwin Gross
-------------------------------
Name: Irwin Gross
Title: Chairman
ICC DESICCANT TECHNOLOGIES, INC.
By: /s/ Irwin Gross
-------------------------------
Name: Irwin Gross
Title: Chairman
ENGELHARD CORPORATION
By: /s/ R.J. SCHAFFHAUSER
-------------------------------
Name: R.J.Schaffhauser
Title: Vice President
ENGELHARD DT, INC.
By: /s/ R.J. SCHAFFHAUSER
-------------------------------
Name: R.J.Schaffhauser
Title: Vice President
Exhibit No. 10.10
General Partnership Agreement
of Engelhard/ICC
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL PARTNERSHIP AGREEMENT
OF
ENGELHARD/ICC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
PAGE
-----
ARTICLE I DEFINITIONS..................................................................... 1
ARTICLE II FORMATION OF PARTNERSHIP
2.1 Formation....................................................................... 6
2.2 Documents....................................................................... 6
2.3 Name............................................................................ 7
2.4 Purposes........................................................................ 7
2.5 Location and Principal Place of Business........................................ 7
2.6 Term of Partnership............................................................. 7
2.7 Ownership of Property........................................................... 7
ARTICLE III PARTNERSHIP CAPITAL
3.1 Initial Capital Contributions................................................... 7
3.2 Additional Capital Contributions................................................ 7
3.3 Capital Accounts................................................................ 8
3.4 Allocation of Items of Partnership Income, Gain, Loss, Deduction and Credit..... 9
3.5 Definition of Profits and Losses................................................ 10
3.6 Special Allocation of Depreciation Recapture.................................... 10
3.7 Distributions................................................................... 10
3.8 Partnership Funds............................................................... 11
3.9 Credit Support.................................................................. 11
ARTICLE IV MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business........................................ 11
4.2 Management Committee............................................................ 12
4.3 Engelhard Employees............................................................. 13
4.4 Budget and Business Plan Approval............................................... 13
4.5 Limitation on Agency............................................................ 15
4.6 Approved Agreements............................................................. 15
ARTICLE V BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records............................................................... 15
5.2 Financial Reports............................................................... 16
5.3 Tax Returns and Information..................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE VI PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners............................................................ 18
6.2 Additional Provisions Relating to Transfer...................................... 19
6.3 Withdrawals and Admissions Generally............................................ 19
6.4 Tax Allocation Adjustments; Distributions After Transfer........................ 19
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default............................................................... 20
7.2 Remedies of Non-Defaulting Partner.............................................. 21
ARTICLE VIII E PARTNER'S PURCHASE OPTIONS
8.1 Grant of Options; Option Price.................................................. 21
8.2 Exercise of Options............................................................. 23
8.3 Payment of Option Price......................................................... 23
8.4 Acceleration of Options......................................................... 23
ARTICLE IX I PARTNER'S PURCHASE OPTION: SALE PROCEDURE
9.1 I Partner's Purchase Option; Sale Procedure..................................... 23
ARTICLE X DURATION AND TERMINATION OF THE PARTNERSHIP
10.1 Events of Termination........................................................... 26
10.2 Winding-Up...................................................................... 26
ARTICLE XI COVENANTS, REPRESENTATIONS AND WARRANTIES
11.1 Compliance with Applicable Law.................................................. 28
11.2 Indemnification of Partners; Contribution....................................... 28
ARTICLE XII MISCELLANEOUS
12.1 Waiver of Partition............................................................. 29
12.2 Modification: Waivers........................................................... 29
12.3 Entire Agreement................................................................ 29
12.4 Severability.................................................................... 29
12.5 Notices......................................................................... 30
12.6 Successors and Assigns.......................................................... 30
12.7 Counterparts.................................................................... 30
12.8 Headings........................................................................ 30
12.9 Construction.................................................................... 31
12.10 Property Rights; Confidentiality................................................ 31
12.11 Valuation....................................................................... 32
12.12 Governing Law; Effect and Interpretation........................................ 32
12.13 Merger, etc..................................................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
12.14 Further Actions................................................................. 32
12.15 Survival........................................................................ 32
ANNEXES
A Approved Agreements
B List of Initial Property Contributions
C Form of Promissory Note
</TABLE>
iii
<PAGE>
GENERAL PARTNERSHIP AGREEMENT
OF
ENGELHARD/ICC
THIS GENERAL PARTNERSHIP AGREEMENT OF ENGELHARD/ICC (the 'Partnership')
dated as of February 7, 1994, by and among ICC Desiccant Technologies, Inc., a
Delaware corporation ('I Partner'), and Engelhard DT, Inc., a Delaware
corporation ('E Partner'), as general partners (each of I Partner and E Partner
being hereinafter referred to as a 'Partner' and collectively as the
'Partners').
W I T N E S S E T H :
WHEREAS, I Partner, E Partner, ICC Technologies, Inc. and Engelhard
Corporation have entered into a Joint Venture Asset Transfer Agreement (the
'Transfer Agreement'), dated as of September 8, 1993, providing for (i) the
transfer from I Partner to the Partnership of the ICC Assets (as defined in the
Transfer Agreement) (ii) the assumption by the Partnership of the ICC
Liabilities (as defined in the Transfer Agreement); and (iii) the transfer from
E Partner to the Partnership of the Engelhard Contribution (as defined in the
Transfer Agreement); and
WHEREAS, the parties hereto wish to set forth their respective rights and
obligations with respect to the operation of the Partnership, the ICC Assets,
the ICC Liabilities and the Engelhard Contribution;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
intending to be legally bound hereby agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings assigned to them in
this Article (except as otherwise expressly provided) and include the plural as
well as the singular, and all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted accounting
principles as in effect in the United States from time to time:
Affiliate: As defined in the Transfer Agreement.
Agreement: This General Partnership Agreement of the Partnership as of
the date first above written,
1
<PAGE>
as the same may be amended from time to time pursuant to the terms hereof.
Approved Agreements: The agreements listed in Annex A to this
Agreement as the same may be amended from time to time in accordance with
the provisions hereof and thereof.
Arm's-length basis: As to any transaction, agreement or other
arrangement, being on terms that would be reached by unrelated parties not
under any compulsion to contract.
Bankruptcy: The 'Bankruptcy' of a Partner shall be deemed to have
occurred upon the happening of any of the following:
(a) The valid appointment of a receiver or trustee or other
representative to administer all or a substantial portion of a Partner's
assets or a Partner's Interest in the Partnership;
(b) The filing by a Partner of a voluntary petition for relief
under the Bankruptcy Code or any similar statute of any jurisdiction or
of a pleading in any court or tribunal admitting in writing its
inability to pay its debts as they become due;
(c) The making by a Partner of a general assignment for the benefit
of creditors;
(d) The filing by a Partner of an answer admitting the material
allegations of, or its consenting to or defaulting in answering, a
petition for relief filed against it in any proceeding under the
Bankruptcy Code or any similar statute of any jurisdiction (including
any foreign jurisdiction); or
(e) The entry of an order, judgment or decree by any court of
competent jurisdiction, granting relief against a Partner in a
proceeding under the Bankruptcy Code or any similar statute of any
jurisdiction, and such order, judgment or decree continuing unstayed and
in effect for a period of thirty (30) days after such entry.
2
<PAGE>
Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended from
time to time, or any state law for the relief of debtors.
Budget: As at any time, the Partnership's then-effective annual
operating and capital budget prepared and approved in the manner
contemplated by Section 4.4.
Business Plan: The Initial Business Plan for the Partnership or the
then-effective business plan, as the case may be.
Capital Account: As defined in Section 3.1.
Capital Expenditures: Funds spent for additions or improvements to any
plant, property or equipment of the Partnership with an economic life
exceeding one year.
Chief Executive Officer: As defined in Section 4.1.
Chief Financial Officer: As defined in Section 5.1.
Chief Officers: The Chief Executive Officer and the Chief Operating
Officer.
Chief Operating Officer: As defined in Section 4.1.
Closing: The date and time when this Agreement was executed and
delivered.
Closing Date: As defined in the Transfer Agreement.
Code: As defined in the Transfer Agreement.
Control, Controlling, Controlled: As defined in the Transfer
Agreement.
Damages: As defined in Section 7.2.
Defaulting Partner: As defined in Section 7.1.
Engelhard: Engelhard Corporation, a Delaware corporation, which owns
all of the capital stock of E Partner.
Engelhard Contribution: As defined in the Transfer Agreement.
Engelhard Employees: As defined in Section 4.3.
3
<PAGE>
E Partner: Engelhard DT, Inc., a Delaware Corporation.
Event of Default: As defined in Section 7.1.
Event of Termination: As defined in Section 10.1.
Exercise Date: As to any given year, the last day of the second month
preceding the month in which the Closing Date occurs (for example, if the
Closing Date is in December, the Exercise Date for all years shall be
October 31).
Fair Market Value: As to any property, the price at which a willing
seller would sell and a willing buyer would buy such property having full
knowledge of the facts that are relevant to the purchase and sale of such
property, and assuming each party acts on an Arm's-length basis with the
expectation of concluding the purchase or sale within a reasonable time.
Firm: As defined in Section 8.1.
ICC Assets: As defined in the Transfer Agreement.
ICC Liabilities: As defined in the Transfer Agreement.
I Partner: ICC Desiccant Technologies, Inc., a Delaware Corporation.
Initial budget: The initial Budget of the Partnership as agreed to by
the Partners prior to the Closing Date.
Initial Business Plan: The initial business plan of the Partnership as
agreed to by the Partners prior to the Closing Date.
Initial Capital Account Balance: The amount in the Capital Account of
each Partner as of the Closing Date as specified in Section 3.1.
Initial Property Contribution: As to each Partner, the property
contributed by such Partner to the Partnership as an initial capital
contribution, which property is identified as such on Annex B annexed
hereto and, with respect to I Partner, shall include the ICC Liabilities.
4
<PAGE>
Interest: As to each Partner, such Partner's rights to participate in
the income, gains, losses, deductions and credits of the Partnership,
together with all other rights and obligations of such Partner under this
Agreement.
Losses: As defined in Section 3.5.
Management Committee: As defined in Section 4.2.
Management Member: As defined in Section 4.2.
Net Income: The amount of net income shown on the audited statement of
income or such interim reports prepared pursuant to Section 5.2 hereof.
Non-Defaulting Partner: As defined in Section 7.2.
Operating Income: For any fiscal year, the Net Income for such year
plus the amount of interest expense, if any, for such year (to the extent
deducted from Net Income) minus the amount of any payments included in Net
Income in such year resulting from a sale or grant of technology or
distribution rights not based on a percentage of sales minus the amount of
any interest income included in Net Income for such year.
Option(s): As defined in Section 8.1.
Partner: I Partner or E Partner and any other Person hereafter
admitted to the Partnership in accordance with the terms hereof, but
excluding any Person that ceases to be a Partner in accordance with the
terms hereof.
Partnership: Engelhard/ICC, a Pennsylvania general co-partnership.
Partnership business: The design, manufacture and sale of desiccant
wheel components and desiccant air conditioners for the dehumidification
and cooling markets, the industrial drying/dehumidification market and the
air conditioning and microbe reduction market for health care facilities.
Partnership Property: As defined in Section 2.7.
Person or person: As defined in the Transfer Agreement.
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Profits: As defined in Section 3.5.
Related Person: As to each Partner, (i) such Partner, (ii) any
Affiliate of such Partner, (iii) any director, officer or general partner
of, or any stockholder or limited partner known to the Partner to own,
directly or indirectly, an equity interest greater than 10% in such Partner
or any Affiliate of such Partner, or (iv) any Person in which such Partner
or, to the knowledge of such Partner, any Affiliate of such Partner has,
directly or indirectly, an equity interest greater than 10%; provided, that
I Partner and E Partner shall not be deemed to be Related Persons to each
other (nor shall their respective Affiliates) by virtue of their Interests
in the Partnership.
Sharing Percentage: As to each Partner, the percentage specified as
follows: I Partner -- 50%; E Partner -- 50%; as such Partner's percentages
may be adjusted from time to time in accordance with Article VIII.
Subsidiary: As defined in the Transfer Agreement.
Tax Matters Partner: As defined in Section 5.3.
Transfer Agreement: As defined in the recitals hereto.
Value Opinion: As defined in Section 8.1.
$: U.S. dollars.
ARTICLE II
FORMATION OF PARTNERSHIP
2.1 Formation. The Partners hereby form the Partnership as a general
partnership under the Partnership Law of the Commonwealth of Pennsylvania. I
Partner and E Partner shall be the Partners of the Partnership. Initially, I
Partner and E Partner shall be the only Partners. New Partners may be admitted
to the Partnership only upon the written agreement of all the Partners or upon a
disposition of an Interest in accordance with all applicable provisions hereof
and applicable law.
2.2 Documents. Each Partner shall promptly execute all certificates or
other documents, and shall perform or cause to be performed such filings and
recordings and other acts as shall from time to time constitute compliance with
all requirements for the
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formation and continuation of the Partnership under the laws
of the State of Pennsylvania and pursuant to the terms and conditions
contained in this Agreement. The Partners, upon the request of the Management
Committee, shall cause to be executed and filed for and on behalf of the
Partnership any and all documents as shall be required from time to time by the
rules and regulations of any regulatory body or commission having jurisdiction
over the Partnership. All such acts shall be at Partnership expense.
2.3 Name. The name of the Partnership is Engelhard/ICC and the Partners
shall operate the Partnership under the name of Engelhard/ICC or such other name
or names as the Management Committee may select from time to time.
2.4 Purposes. The purpose of the Partnership shall be to conduct and
operate the Partnership Business and to engage in any such other business or
activity as may be lawfully engaged in by general partnerships organized under
the laws of the State of Pennsylvania. The Partnership shall have all powers
necessary to engage in any and all activities which are deemed by the Management
Committee necessary or desirable to accomplish the purpose of the Partnership.
2.5 Location and Principal Place of Business. The location of the principal
offices of the Partnership shall be at 441 North 5th Street, Philadelphia,
Pennsylvania, or at such other place as may be selected from time to time by the
Management Committee.
2.6 Term of Partnership. The term of the Partnership shall continue for
ninety-nine (99) years from the Closing, unless the Partnership is sooner
dissolved and terminated as provided in Article X.
2.7 Ownership of Property. Legal title to all assets, rights and property,
whether real, personal or mixed, owned by the Partnership (collectively, the
'Partnership Property') shall be acquired, held and conveyed only in the name of
the Partnership or any Subsidiary of the Partnership.
ARTICLE III
PARTNERSHIP CAPITAL
3.1 Initial Capital Contributions. Each Partner shall make an initial
capital contribution to the Partnership of the property constituting the initial
Property Contributions of such Partner (which shall include the ICC Liabilities
with respect to I Partner). The value of the various items of property listed
on Annex B hereto contributed to the Partnership are conclusively agreed by the
Partners to be calculated in the manner set forth on Annex B and the total value
of such contributions are conclusively
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agreed to be calculated in the manner set forth on such Annex B.
A separate capital account (each a 'Capital Account') shall be maintained
for each Partner during the term of the Partnership. Except as otherwise
provided in this Agreement, no Partner shall have the right to withdraw any
amount from its Capital Account.
3.2 Additional Capital Contributions. Unless otherwise agreed by unanimous
decision of the Management Committee and the Partners, the Partners will not be
required to make any additional capital contributions following the Closing.
3.3 Capital Accounts.
(a) Subject to the provisions of paragraphs (b), (c) and (d) of this
Section 3.3, the Capital Account of each Partner shall be (i) increased by
Profits allocated to such Partner pursuant to Section 3.4 and (ii) decreased by
(A) the amount of cash and the Fair Market Value of any property distributed to
such Partner pursuant to Section 3.7 and (B) Losses allocated to such Partner
pursuant to Section 3.4, and otherwise maintained in accordance with U.S.
Treasury Regulations (specifically Treas. Reg. 1.704-l(b)(2)(iv), as amended
from time to time, or its successor provisions) in order for the allocation of
Profits and Losses pursuant to Section 3.4 hereof to have substantial economic
effect within the meaning of Section 704(b) of the Code. At the election of the
Management Committee, the value of Partnership property shall be adjusted in
accordance with Treasury Regulation Section 1.704-l(b)(2)(iv)(f) to reflect a
revaluation of Partnership property in the event of either (i) a contribution of
money or other property to the Partnership by a new or existing Partner as
consideration for an interest in the Partnership; or (ii) a distribution of
money or property by the Partnership to a retiring or continuing Partner as
consideration for an interest in the Partnership. If a Partner contributes to
the Partnership property to which Section 704(c) of the Code applies, or if a
revaluation of Partnership property occurs under one of the circumstances
described in the preceding sentence, the Capital Accounts shall be adjusted as
provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(b) Immediately prior to the distribution of any property (other than cash)
to a Partner, the Capital Account of each Partner shall be increased or
decreased, as the case may be, to reflect the manner in which the unrealized
income, gain, loss and deduction inherent in such property (that has not
previously
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been reflected in the Capital Accounts) would be allocated among the
Partners if there were a taxable disposition of such property for its Fair
Market Value on the date of the distribution.
(c) Immediately prior to a distribution of money or other property by the
Partnership to a retiring or continuing Partner as consideration for an Interest
in the Partnership, the Capital Account of each Partner shall be increased or
decreased, as the case may be, to reflect the Fair Market Value of all the
Partnership Property. Such adjustment shall reflect the manner in which the
unrealized income, gain, loss or deduction inherent in such property (that has
not previously been reflected in the Capital Accounts) would be allocated among
the Partners if there were a taxable disposition of such property for its Fair
Market Value on the date of the contribution or distribution.
(d) No Partner shall be entitled to interest on its capital contributions
or on the positive balance in its Capital Account and no such interest shall be
accrued.
3.4 Allocation of Items of Partnership Income, Gain, Loss, Deduction and
Credit.
(a) Except as otherwise set forth in this Article III, all Partnership
Profits and Losses and other items of income, gain, loss, deduction and credit,
including, but not limited to, any tax credits and cost recovery deductions, as
determined for U.S. Federal income tax purposes, shall be allocated to the
Partners in accordance with their respective Sharing Percentages, taking into
account both the amount or amounts of such Sharing Percentages and the portions
of the year during which such amount or amounts were held. For U.S. Federal
income tax purposes, all gain, loss, depreciation or amortization and credits
with respect to property which is reflected in the Capital Accounts of the
Partners at a basis different from the tax basis of such property shall be
allocated pursuant to the principles of Section 704(c) of the Code.
(b) Any items of income relating to the Partnership's ownership of any
foreign corporation, such as 'subpart F income' under the Code, and any credits
related thereto which are taken into account for U.S. Federal income tax
purposes by the Partnership in the year in which one of the Partners transfers
stock of a foreign corporation to the Partnership shall be allocated for U.S.
Federal income tax purposes to the transferor to the extent the income is
attributable to events occurring prior to transfer to the Partnership; and for
all events occurring on or after such transfer to the Partnership, such items
shall be allocated in accordance with paragraph 3.4(a).
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3.5 Definition of Profits and Losses. For purposes hereof, the 'Profits or
losses' of the Partnership for any fiscal year shall be the Net Income or loss
of the Partnership for such fiscal year, as reflected on the audited statement
of income pursuant to Section 5.2 hereof. Where property is reflected in the
Capital Accounts at a book basis different from the basis of such property for
U.S. Federal income tax purposes, all gain, loss, depreciation and amortization
on such property shall be determined for purposes of adjusting Capital Accounts
based on the book basis of such property in accordance with U.S. Department of
Treasury Regulations Section 1.704-1(b)(2)(iv)(g).
3.6 Special Allocation of Depreciation Recapture. The parties hereto
recognize that part of any gain recognized by the Partnership in any fiscal year
on the sale, exchange or other disposition of all or any part of the assets of
the Partnership may be treated for U.S. Federal income tax purposes (as a result
of the application of Section 1245 or 1250 of the Code) as ordinary income by
reason of 'Depreciation Recapture.' It is the understanding and agreement of the
parties that, to the extent possible, without increasing the total taxable gain
to the Partnership or the amount of taxable gain allocable to any Partner by
reason of any such sale, exchange or other disposition, to the extent not
attributable, at the time of contribution, to the excess of the basis of
contributed property reflected in the Capital Accounts over the tax basis of
that property that portion of such gain which shall constitute Depreciation
Recapture shall be allocated among the Partners in the proportion that the
depreciation deductions (or basis reductions treated as depreciation deductions)
giving rise to such Depreciation Recapture were taken by or allocated to the
Partners after the Closing Date. Depreciation Recapture with respect to
depreciation deductions taken before an asset is contributed to the Partnership
will be allocable to the Partner who contributed the asset to the Partnership.
3.7 Distributions. No Partner shall have the right to demand or receive a
distribution from the Partnership, unless otherwise agreed by all the Partners;
provided, that, at I Partner's election, the Partnership shall make periodic
distributions (in each case in accordance with the Partners' Sharing
Percentages) to each Partner in amounts such that, after giving effect to such
distribution, I Partner shall have received an amount sufficient to satisfy all
federal, state and local income taxes actually payable by I Partner as a result
of its Interest in the Profits of the Partnership for such period. In addition,
the Partnership shall, at such times as the Management Committee shall
determine, distribute cash to the Partners in amounts that the Management
Committee determines are in excess of the amounts reasonably necessary for the
continued efficient operation of the
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business of the Partnership. All distributions shall be made in accordance
with the Partners' Sharing Percentages. Each of the Partners hereby agree
to cause the Partnership to make any payments required by Section 2.6 of
the Transfer Agreement.
3.8 Partnership Funds. The Partnership's funds shall not be commingled
with funds not belonging to the Partnership and shall be used only for the
affairs or business of the Partnership.
3.9 Credit Support. Engelhard shall provide credit support in the form of a
guaranty of a Partnership line of credit from a commercial lending institution
selected by the Partnership and approved by Engelhard in the amount of
$3,000,000. If a commercial lending institution is not willing to provide the
Partnership with such line of credit, then Engelhard itself shall make loans to
the Partnership up to $3,000,000 in the aggregate, which loans shall be
evidenced by and have the terms set forth in the promissory note of the
Partnership set forth on Annex C hereto. The obligation of Engelhard to provide
such credit support shall terminate on the fifth anniversary of the Closing
Date.
ARTICLE IV
MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnerships Business.
(a) The general supervisory authority and responsibility for the existence
and conduct of the Partnership shall be vested in the Management Committee.
Except as expressly delegated by the Management Committee or as expressly
delegated herein to the Chief Executive Officer of the Partnership (the 'Chief
Executive Officer') and the Chief Operating Officer of the Partnership (the
'Chief Operating Officer'), all significant and material actions by the
Partnership require approval of the Management Committee, including, but not
limited to, those matters set forth on Schedule 4.1(a) hereto.
(b) Subject to Section 4.1(a), the day-to-day business and affairs of the
Partnership shall be directed and controlled by the Chief Executive Officer and
the Chief Operating Officer who shall be employees of the Partnership. The
initial Chief Executive Officer shall be Irwin L. Gross and the Chief Operating
Officer shall be Carl Dranoff. The Chief Officers shall jointly conduct the
Partnership Business in conformity with the Business Plan and Budget on a
day-to-day basis and shall have the responsibilities and powers set forth in
Schedule 4.1(b) hereto. If the Operating Income of the Partnership for the
fiscal year ended December 31, 1995 or any fiscal year thereafter does not
exceed $5,000,000, then at all times thereafter E Partner shall have the
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exclusive right to appoint the Chief Operating Officer and, in such event, I
Partner will have the right to appoint the Chief Financial Officer as provided
in Section 5.1.
4.2 Management Committee. Initially, I Partner shall designate one
Individual and E Partner shall designate one individual (each, a 'Management
Member') to serve on a committee (the 'Management Committee') which shall be
responsible for taking all action required under this Agreement to be taken by
the Management Committee. I Partner initially appoints Irwin L. Gross as a
Management Member and E Partner initially appoints Robert J. Schaffhauser as a
Management Member. Upon E Partner's Sharing Percentage being increased to more
than 70%, the size of the Management Committee shall be increased to three (3)
Management Members and E Partner shall designate one additional Management
Member to the Management Committee, giving E Partner a majority position on such
Management Committee. Each of the Management Members appointed by I Partner and
E Partner shall have one vote at meetings of the Management Committee, which
votes may be exercised in person or by proxy, such votes to be exercised in such
manner as I Partner or E Partner, respectively, shall direct.
The Management Committee shall meet by telephone or, at the request of
either Partner, in person, not less frequently than (i) quarterly to receive the
report of the Chief Officers and to review development plans, the financial
position of the Partnership, the preparation of financial projections, and any
material matters relating to the business of the Partnership, (ii) annually to
review and approve the annual Budget and revise the Business Plan, and (iii) as
often as shall be necessary to take any other action required to be taken or
approved by the Management Committee. Any action that may be taken at a meeting
of the Management Committee may be taken without a meeting by unanimous written
consent of the Management Members or their proxies or by written consent of a
majority of the Management Committee or their proxies (in which case a copy of
such consent shall be given to any Management Member not signatory thereto).
Any Management Member shall have the right to call a meeting of the
Management Committee by giving ten (10) days' prior written notice to all of the
Management Members of the time, date and location (which shall be at the
principal office of the Partnership unless otherwise agreed by all of the
Management Members) or means of conducting such meeting. The presence or
participation in person or by proxy of one representative designated hereunder
by each Partner shall constitute a quorum for the taking of any action and any
action required or permitted to be taken by the Management Committee shall be by
majority vote of the Management Members or their proxies present at such
meeting. Any
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Management Member may be removed without cause at any time by the
Partner who designated such Management Member. If at any time a Partner removes
one of its representatives on the Management Committee, such Partner shall give
written notice of such removal to the other Partner and shall promptly appoint a
successor Management Member to represent such Partner on the Management
Committee by giving written notice of such appointment to the other Partner. In
the absence of written notice to the contrary, any representative of either
Partner shall be conclusively presumed to have the authority to take action by
written consent or vote in the name and on behalf of such Partner. Members of
the Management Committee shall serve as such without compensation from the
Partnership.
4.3 Engelhard Employees. Engelhard shall have the exclusive right to
appoint those employees of the Partnership listed on Schedule 4.3 hereto (the
'Engelhard Employees') who will serve in the positions set forth on such
Schedule. Any Chief Financial Officer appointed by E Partner also shall be an
Engelhard Employee. The Engelhard Employees will be independent contractors with
respect to the Partnership and the base salary, pension, fringe benefits and
other compensation of the Engelhard Employees will be paid by Engelhard. The
Partnership shall pay Engelhard on a monthly basis for the services of the
Engelhard Employees in such amounts as Engelhard pays to such persons plus the
cost of fringe benefits at normal budgeted Engelhard allocation rates. In
addition, the Partnership shall reimburse Engelhard an amount to be paid to the
Engelhard Employees as an incentive bonus each year as determined by the
Management Committee. In the event that one or more of the employees listed on
Schedule 4.3 hereto is unwilling or unable to perform services for the
Partnership or is dismissed by E Partner, E Partner shall have the right to
designate a replacement employee reasonably satisfactory to the Management
Committee and such replacement employee shall then become an Engelhard Employee.
4.4 Budget and Business Plan Approval.
(a) The Chief Officers shall submit annually to the Management Committee no
later than October 31 of each year (i) a proposed Budget for the forthcoming
calendar year including an income statement prepared on an accrual basis which
shall show in substantially the same detail as the Initial Budget, the revenues
and expenses projected for the Partnership's business for the forthcoming
calendar year and a cash flow statement which shall show in substantially the
same detail as the Initial Budget, the receipts and disbursements projected for
the Partnership's business for the forthcoming calendar year and the amount of
any corresponding cash deficiency or surplus, and the required capital
contributions, if any, and any contemplated borrowings of the
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Partnership, (ii) a revised Business Plan for the year covered by the
Budget and the succeeding two years containing substantially the same categories
of information in substantially the same detail as the Initial Business Plan,
and (iii) such other documents as may be reasonably requested by any Partner
from time to time. Such Budget and Business Plan shall be prepared on a basis
consistent with the Partnership's audited financial statements and generally
accepted accounting principles.
Within 30 days after the submission of such Budget and revised Business
Plan, the Management Committee shall advise the Chief Officers in writing
whether it approves or disapproves of such Budget and revised Business Plan. If
such Budget and revised Business Plan are approved by the Management Committee,
then such Budget and revised Business Plan shall be considered approved for all
purposes of this Agreement. The Partners hereby approve the Initial Budget and
Initial business Plan. If a submitted Budget and revised Business Plan are not
approved by the Management Committee, then the Chief Officers and the Management
Committee shall promptly meet or otherwise confer for the purpose of attempting
to arrive at a budget and revised Business Plan that can secure the approval of
the Management Committee.
(b) If, notwithstanding the foregoing procedures, on January 1 of any year
no Budget shall have been approved by the Management Committee for such calendar
year, then the Budget for such calendar year shall be identical to the Budget
for the prior calendar year (until approval, if any, of a Budget for such
calendar year), adjusted to reflect increases or decreases resulting from:
(i) the operation of escalation or de-escalation provisions in
contracts in effect at the time of approval of the prior fiscal year's
Budget solely as a result of the passage of time or the occurrence of
events beyond the control of the Partnership or elections made under
contracts by the Partnership in any prior fiscal year; and
(ii) increases in expenses attributable to the annualized effect of
employee additions during the prior fiscal year contemplated by the Budget
for the prior fiscal year.
Notwithstanding the foregoing, the aggregate amount of Capital Expenditure
items in any Budget established pursuant to this Section 4.4(b) for any fiscal
year shall be 105% of the amount projected for such fiscal year in the most
recent Business Plan to have been submitted with a Budget that received the
approval of the Management Committee pursuant to Section 4.4(a). Except as
otherwise provided herein, any Budget established pursuant to this
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Section 4.4(b) shall be deemed to have been approved by the Management
Committee.
4.5 Limitation on Agency. No Partner shall have any authority to act for,
or to assume any obligation or responsibility on behalf of, another Partner or
the Partnership (or to authorize any other Person to do so) except as may
otherwise be designated in writing by the Management Committee or as expressly
approved by further express written agreement between the Partners.
4.6 Approved Agreements. Notwithstanding any provision of this Agreement to
the contrary, no action by the Management Committee or any Partner shall be
required in order to authorize the Partnership to enter into and perform any of
the Approved Agreements, nor shall any such action be required in order to
authorize the Partnership to renew any Approved Agreement; provided, however,
that such renewal shall be pursuant to an automatic renewal provision under the
terms of such Approved Agreement or shall be on terms no less favorable to the
Partnership than those prevailing prior to such renewal. Each Approved Agreement
shall, for purposes of this Agreement, be deemed to be on an Arm's-length basis.
ARTICLE V
BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records.
(a) At all times during the continuance of the Partnership, the Chief
Financial Officer of the Partnership (the "Chief Financial Officer") shall keep
or cause to be kept full and complete books of account and business records in
which shall be entered fully and accurately each transaction of the Partnership.
The initial Chief Financial Officer shall be appointed by E Partner. Unless the
Management Committee otherwise determines, the Chief Financial Officer may be
removed at any time by E Partner and, upon such removal, a new Chief Financial
Officer shall be appointed by E Partner; provided, that in the event that E
Partner has appointed the Chief Operating Officer under the circumstances
contemplated by Section 4.1(b), then I Partner shall have the right to make such
appointment.
(b) All such books of account and business records shall at all times be
maintained at the principal offices of the Partnership; provided, however, that
duplicates of such books of account and business records may be maintained in
such other place or places as may be designated by the Management Committee.
Each of the Partners or its duly authorized representatives shall have the
right, upon reasonable notice, at its own expense to examine and inspect, during
normal business hours and for any purpose, any of
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the books of account, business records, properties and operations of the
Partnership, and to copy any of the books of account and business records of the
Partnership. Such examination, inspection and copying may be conducted by the
Partner's own employees, by its own independent certified public accountants, or
by its duly authorized representatives. Any information obtained by any Partner
of the type described in this Section 5.1 shall be treated as confidential to
the extent required by Section 12.10 hereof. The Partnership's books of account
and business records shall be filed and preserved for a period of at least seven
years and until both Partners agree that such books of account and business
records may be disposed of, or such longer period as required by law.
The Partnership's books of account shall be kept in United States Dollars
on an accrual basis in accordance with U.S. generally accepted accounting
principles consistently applied. The fiscal year of the Partnership shall end on
December 31.
(c) After the termination of the Partnership or at any time that a Partner
ceases to be a Partner in the Partnership, each of the Partners will continue to
have the right to examine and inspect any of the books of account and business
records of the Partnership for the period of time during which such former
partner was a Partner in the Partnership, as such former partner may reasonably
request on the same basis as provided in Section 5.1(b).
5.2 Financial Reports.
The Chief Financial Officer shall deliver to each Partner, no later than 20
days after the end of each calendar month, a statement of income (loss) for the
Partnership for such month prepared in accordance with U.S. generally accepted
accounting principles consistently applied. The Chief Financial Officer shall
deliver to each Partner, no later than 30 days after the close of each of the
first three quarters of the Partnership's fiscal year, and 45 days after the end
of each such year, a financial report of the business and operations of the
Partnership prepared in accordance with generally accepted accounting principles
consistently applied (and, if required by any Partner for purposes of reporting
under the Securities Exchange Act of 1934, in accordance with Regulation S-X or
any successor regulation), relating to such period, which report shall include a
balance sheet, a statement of income (loss) and partners' capital (deficiency)
which, in the case of the report furnished after the close of the fiscal year,
shall be audited by the Partnership's independent certified public accountants
and such other documents as may be reasonably requested by any Partner from time
to time. In addition to the foregoing financial statements, the financial report
furnished after the close of each fiscal year shall also
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include a statement of cash flows. Additionally, the Partnership shall
provide on a monthly basis any other financial information available which any
Partner reasonably requests. The Partnership shall bear the cost of each annual
audit and of any other services furnished to the Partnership by its independent
certified public accountants. The initial independent certified public
accountants of the Partnership shall be Coopers & Lybrand.
5.3 Tax Returns and Information.
(a) I Partner is hereby designated 'Tax Matters Partner' for the
Partnership and shall be so designated in each U.S. Federal information return
filed on behalf of the Partnership. The Tax Matters Partner shall not be liable
to the Partnership or any other Partner for any act or omission taken or
suffered by it in such capacity in good faith and in the belief that such act or
omission is in or is not opposed to the best interests of the Partnership;
provided, however, that such act or omission is not in violation of this
Agreement and does not constitute gross negligence, fraud or a willful violation
of law. Within five business days of receipt, a Partner shall give to the other
Partner written notice of the first Partner's receipt from any taxing authority
of any notification of any audit or investigation of the Partnership. Each
Partner shall have the right to participate in (i) any administrative proceeding
relating to the determination of Partnership items at the Partnership level and
(ii) any discussions with the Internal Revenue Service relating to the
allocations pursuant to this Agreement and no settlement or compromise of any
issue related to said allocations will be made without the consent of all
affected Partners.
(b) The Tax Matters Partner shall cause income tax returns for the
Partnership to be prepared and sent (together with related work papers showing
allocations to the Partners of the Partnership's taxable income, gains, losses,
deductions and credits) to each Partner for review at least ten business days
prior to filing, and to be timely filed with the appropriate authorities. The
Tax Matters Partner may cause the Partnership to make an election under Section
754 of the Code to adjust the basis of Partnership Property under Sections 734
and 743 of the Code. The Tax Matters Partner may maintain in effect such an
election under Section 754 of the Code for taxable years subsequent to the
Closing. Subject to Section 4.1(a), the Tax Matters Partner may make such other
elections as it shall deem to be in the best interests of the Partnership and
the Partners. The Tax Matters Partner may retain outside consultants,
accountants and other tax professionals and the costs of such persons, if any,
shall be borne by the Partnership.
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(c) The Tax Matters Partner shall cause to be provided to each Partner no
later than August 15 of each year information concerning the Partnership's
projected Profits or Losses and each class of income, gain, loss, deduction or
credit which is relevant to reporting a Partner's share of Partnership income,
gain, loss, deduction or credit for purposes of U.S. Federal or state income
tax. Information required for the preparation of a Partner's income tax returns
shall be furnished to the Partners as soon as possible after the close of the
Partnership's calendar year.
(d) The Tax Matters Partner shall upon request of the other Partner cause
the Partnership's attorneys and accountants to confer with attorneys and
accountants for the other Partner on any matters relating to a Partnership tax
return or any tax election.
(e) Each Partner and the Partnership will cooperate with and assist, at its
own expense, the Tax Matters Partner in connection with any U.S. Federal, state,
local or foreign tax matter affecting the Partnership or any entity in which the
Partnership has an interest, including, but not limited to, providing any
records or supporting data with respect to assets or liabilities transferred to
the Partnership, preparing any tax return or assisting as requested on any
audit.
ARTICLE VI
PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.
(a) Except with the prior written consent of the other Partner and except
as provided in Section 9.1(h), no Partner shall have the right to sell, assign,
transfer, pledge or otherwise dispose of, or encumber, directly or indirectly,
all or any part of its Interest, in whole or in part, and such transaction shall
be void and of no force or effect.
(b) After any transfer effected with the prior written consent of the other
Partner, the transferred Interest shall continue to be subject to all the
provisions of this Agreement including, without limitation, the provisions of
this Article VI and Article VIII. In the event of a partial transfer of an
Interest made in accordance with this Section 6.1, appropriate amendments to
this Agreement shall be made so that the rights and obligations of the
transferring Partner and the transferee Partner, on the one hand, and the rights
and obligations of the non-transferring Partner, on the other hand, after giving
effect to the transfer, are the same as the relative rights and obligations
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of the transferring Partner and the non-transferring Partner hereunder
immediately prior to such transfer.
6.2 Additional Provisions Relating to Transfer. In the case of any
transfer of any Interest:
(i) Except as provided therein, the transfer of an Interest shall not
affect the Approved Agreements.
(ii) The transferee or the transferor shall be required to pay any and
all filing and recording fees, fees of counsel and accountants and other
costs and expenses reasonably incurred by the Partnership as a result of
such transfer.
6.3 Withdrawals and Admissions Generally. No Partner shall withdraw from
the Partnership, except in accordance with Article VI, Article VIII or Article
IX.
No transfer shall be recognized for any purpose until the transferee shall
have executed written instruments, unanimously approved by the Management
Committee, which provide for such party to become a party to this Agreement and
assume the rights and obligations of the transferring Partner hereunder
Except as the result of a transfer permitted by Article VI, Article VIII or
Article IX, without the consent of all the Partners no Person shall be admitted
as a Partner in the Partnership.
No transfer (whether by sale, assignment, operation of law or otherwise) of
any Interest shall be effective to convey any interest in the Partnership until
the transferee executes all necessary certificates or other documents and
performs all acts required in accordance with the laws of the State of
Pennsylvania and any other applicable law, and any and all documents as shall be
required from time to time by the rules and regulations of any regulatory body
or commission having a jurisdiction over the Partnership, to the full extent the
same may be necessary to constitute such transferee a substituted Partner and
preserve the status of the Partnership as a partnership after the completion of
such transfer in accordance with such laws (excluding transfers to another
Partner or to the Partnership). Each such transferee by accepting the transfer
of an Interest agrees upon the request of a Partner to execute such certificates
or other documents and to perform such acts.
6.4 Tax Allocation Adjustments. Distributions After Transfer. In the event
of a transfer of any Interest, regardless of whether the transferee becomes a
substitute Partner, all items of
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<PAGE>
income, gain, loss, deduction and credit for the fiscal period in
which the transfer occurs shall be allocated for U.S. Federal
income tax purposes between the transferor and the transferee on the
basis of the ownership of the Interest at the time the particular item is taken
into account by the Partnership for U.S. Federal income tax purposes and
assuming that the taxable income, such as 'subpart F income' under the Code,
resulting from ownership of any foreign corporation is taken into account by the
Partnership, when the events occur giving rise to such income, except to the
extent otherwise required by Section 706(d) of the Code. Distributions made on
or after the effective date of transfer shall be made to the transferee,
regardless of when such distributions accrued on the books of the Partnership.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. An 'Event of Default' shall be considered to have
occurred with respect to a Partner (a defaulting Partner') if:
(i) Such Partner sells, assigns, transfers, pledges or otherwise
disposes of or encumbers, directly or indirectly, all or any part of its
Interest, except as permitted in this Agreement, or suffers such sale,
assignment, transfer, pledge, disposition or encumbrance to occur;
provided, however, that no Event of Default shall be considered to have
occurred for 30 days following the involuntary encumbrance of all or any
part of such Interest if during such 30-day period such Partner removes any
such encumbrance, including, but not limited to, effecting the posting of a
bond to prevent foreclosure wherever necessary;
(ii) Such Partner fails to perform or violates any material term or
condition of this Agreement and such failure or violation continues for 45
days after such Partner has been given written notice thereof by the other
Partner; provided, however, that if the failure or violation is not a
failure to pay money and is of such a nature that it cannot reasonably be
cured within such 45-day period, but if it is curable and such Partner in
good faith begins efforts to cure it within such 45-day period and
continues diligently to do so, it shall have a reasonable additional period
thereafter to effect the cure;
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<PAGE>
(iii) Such Partner otherwise causes the dissolution of the Partnership
in contravention of the terms of this Agreement; or
(iv) A bankruptcy shall occur with respect to such Partner.
7.2 Remedies Of Non-Defaulting Partner. Upon the occurrence and during the
continuance of an Event of Default, the non-defaulting Partner (the
'Non-Defaulting Partner') may elect:
(i) to initiate the procedures provided in Sections 8.4 or 9.1(a), or
(ii) to dissolve the Partnership as provided in Section 10.1(e), in
which event the affairs of the Partnership shall be wound up as provided in
Section 10.2.
The election of any remedy pursuant to clauses (i) or (ii) of this Section
7.2 shall not for any purpose be deemed to be a waiver of any other remedy
available hereunder or under applicable law including, without limitation, the
right of either Partner to enjoin such default or to obtain specific performance
of the Defaulting Partner's obligations.
The Defaulting Partner shall be liable to the Partnership and to the
Non-Defaulting Partner for any and all damages, losses and expenses (including
reasonable attorneys' fees and disbursements) (collectively, 'Damages') suffered
or incurred by the Partnership or the Non-Defaulting Partner as a result of such
Event of Default; provided, however, that neither the Partnership nor the
Non-Defaulting Partner shall have or assert any claim against the Defaulting
Partner for indirect, special or consequential Damages suffered or incurred by
the Partnership or the Non-Defaulting Partner as a result of an Event of
Default.
ARTICLE VIII
E PARTNER'S PURCHASE OPTIONS
8.1 Grant of Options; Option Price. (a) Upon the terms and subject to the
conditions set forth in this Article VIII, I Partner hereby grants to E Partner
options (the 'Options') to purchase I Partner's entire Interest in the
Partnership, such Options to be exercisable as of the Exercise Date in each year
pursuant to the following schedule:
21
<PAGE>
<TABLE>
<CAPTION>
I PARTNER'S
EXERCISE DATES INTEREST
- ---------------------------------------------------------- -------------
<S> <C>
December 31, 1997......................................... 12.5%
December 31, 1998......................................... 12.5%
December 31, 1999......................................... 12.5%
December 31, 2000......................................... 12.5%
</TABLE>
The Options are cumulative and any Option not exercised on its initial
Exercise Date may be exercised at any future Exercise Date; provided that (x) at
any time an Option is exercised, all previously unexercised Options must be
exercised, (y) if E Partner elects not to exercise both of the first two Options
(i.e., the Options having the initial Exercise Dates of December 31, 1997 and
December 31, 1998), then all Options shall automatically expire (subject to
Section 8.4) and (z) all Options, to the extent not previously exercised, shall
expire on the date which is the 75th day next succeeding the date on which the
Partners receive the Value Opinion with respect to the Exercise Date on December
31, 2000. The exercise price for each Option (the 'Option Price') shall be equal
to 95% of the Fair Market Value (as hereinafter defined) of the Partnership,
determined as of the Exercise Date as to which such Option is being exercised,
multiplied by a percentage equal to the Partner's Interest being purchased
pursuant to such Option.
(b) The Partnership shall engage an investment banking firm to be selected
by the Partners as provided below (the 'Firm') to render an opinion (the 'Value
Opinion') as to its estimate of the Fair Market Value of the Partnership as of
the Exercise Date of each year in which an Option is exercisable; provided, that
E Partner may waive such requirement for any year in which it does not intend to
exercise an option, other than the Exercise Date of December 31, 2000. In
selecting the Firm, the Partners shall first try to mutually agree on one of the
five following investment banking firms (the 'Eligible Firms'): Dillon, Read &
Co. Inc., Goldman Sachs & Co., J.P. Morgan & Co., Merrill Lynch & Co. and S.G.
Warburg & Co. If within 10 days the Partners cannot so mutually agree, then the
Partners shall promptly meet in person and on a random basis select one name
from among the Eligible Partners. If either Partner objects to the Eligible Firm
so selected, another name shall be randomly selected and such process shall
continue until such time as the Partners agree on the Eligible Firm selected or
there is only one Eligible Firm left, in which case that Eligible Firm shall
serve as the Firm, unless it cannot be so engaged, in which case it shall be the
next to last Eligible Firm that had been randomly selected. In any case, the
Firm shall render the Value Opinion in writing to the Partners and the
Partnership on or before the 30th day after the Exercise Date
22
<PAGE>
of each such year and the cost of such opinion shall be borne entirely
by the Partnership.
8.2 Exercise of Options. Each Option may be exercised by E Partner by the
giving of written notice to I Partner of such exercise at any time within 60
days of the Partners' receipt of the Value Opinion with respect to a given
Exercise Date and such Option (together with all previously unexercised Options
then being exercised) shall be deemed to be exercised as of such Exercise Date.
8.3 Payment of Option Price. In consideration for the grant by I Partner of
the Options, E Partner agrees to pay, or cause to be paid, to I Partner an
amount equal to the Option Price for each Option exercised by E Partner plus
interest on such amount at a rate per annum equal to three-month London
Interbank Offered Rate (LIBOR) as published in the Wall Street Journal from the
Exercise Date as to which such Option was exercised. Payment of the Option Price
for each Option exercised and such interest shall be made in immediately
available funds on or before the tenth day following the giving of notice
pursuant to Section 8.2 for which such Option was exercised. Upon payment of the
Option Price and such interest, the Sharing Percentage of I Partner shall
automatically be decreased (and the Sharing Percentage of E Partner shall be
automatically increased) by the amount of the Interest in the Partnership so
purchased as of the preceding Exercise Date.
8.4 Acceleration of Options. Notwithstanding Section 8.1 above, E Partner
shall have the right to exercise all Options (to the extent not previously
exercised) and purchase I Partner's entire interest in the Partnership after the
occurrence of an Event of Default by I Partner by giving notice to I Partner at
any time when such Event of Default is continuing. All other terms with respect
to the Options shall be as provided in Sections 8.1, 8.2 and 8.3, except that
the Value Opinion shall estimate the Fair Market Value of the Partnership as of
the date of such notice and the Exercise Date shall be the date of such notice.
ARTICLE IX
I PARTNER'S PURCHASE OPTION; SALE PROCEDURE
9.1 I Partner's Purchase Option; Sale Procedure. (a) Upon the terms and
subject to the conditions set forth in this Article IX, in the event that I
Partner owns any Interest in the Partnership at any time when an Event of
Default by E Partner occurs and is continuing, then within 30 days thereafter, I
Partner, at its sole option, may by a written notice to E Partner, purchase E
Partner's entire Interest in the Partnership, paying a price in immediately
available funds for each 1% Interest of E
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<PAGE>
Partner equal to the price E Partner would have paid to I Partner for each
1% Interest of I Partner had E Partner elected to purchase I Partner's
Interest pursuant to Section 8.4.
(b) In the event that I Partner holds any remaining Interest in the
Partnership on the later of (x) the date which is six months after the last
Exercise Date (without regard to any expiration thereof) set forth in the table
in Section 8.1 or (y) the date on which E Partner's Options pursuant to Section
8.1 expire, then either Partner, at its option, may on ten (10) days' prior
written notice to the other Partner, commence a Sale Procedure as hereinafter
provided. Prior to commencing a Sale Procedure the Partner who wishes to
commence the Sale Procedure shall negotiate in good faith with the other Partner
for a 30-day period and attempt to negotiate a sale of such Partner's Interest
to the other Partner on terms satisfactory to both Partners.
(c) A 'Sale Procedure' shall be the sale of the Interests of all Partners
pursuant to this Section 9.1(c). The Interests of the Partners shall be sold
according to the following procedures:
(i) An investment banking firm shall be selected by the Partners in
accordance with the same procedures utilized in selecting a firm pursuant
to Section 8.1(b) (the 'Sale Firm') and the Sale Firm shall solicit bids
(and the identity of the bidder and the amount of the bid shall be made
known to each Partner when such bids are received) for the Interests of
both the Partners. I Partner and E Partner shall be permitted to bid on the
same basis as other bidders;
(ii) bids (including price and terms) will be solicited for a period
of up to 120 days after the Sale Firm has been retained;
(iii) I Partner and E Partner shall review each bid and will choose a
bidder with whom to negotiate a definitive agreement. If I Partner and E
Partner fail to choose a bidder with whom to negotiate a definitive
agreement, then the Sale Firm, after soliciting input from both Partners to
ascertain the best bid, will select the bid and bidder which represents the
best overall value for the Interest of the Partners. Each Partner agrees
that it will cooperate fully and in good faith in the negotiations for the
definitive agreement with the bidder chosen pursuant to the procedures set
forth herein; and
24
<PAGE>
(iv) notwithstanding the foregoing, the Partner who commenced the Sale
Procedure will have the right to reject all bids and end the Sale Procedure
if such Partner gives 10 days' prior written notice to the other Partner
and pays all of the Sale Firm's fees and expenses, subject to any rights of
the other Partner to commence a Sale Process as herein provided.
(d) In the event of a Sale Procedure, E Partner shall cause Engelhard to
enter into a new supply agreement with the selected bidder, and the new bidder
shall be required to enter into an agreement containing terms substantially
similar to the Supply Agreement as in effect immediately prior to the
commencement of the Sale Procedure.
(e) If the Partners jointly decide that the air conditioning business and
wheel component business of the Partnership can and should be separated to
realize the maximum value, then I Partner will be granted a right of first
refusal on the air conditioning business and E Partner will be granted a right
of first refusal on the wheel component business.
(f) During the pendency of the transactions contemplated in this Article,
the business and affairs of the Partnership shall be conducted in the ordinary
course as provided in this Agreement, unaffected by the pendency of such
transactions and the Partners shall remain obligated under this Agreement.
(g) The closing of the purchase and sale of any Interest pursuant to
Section 9.1 shall be held at an acceptable place on an acceptable date (the
'Sale Closing Date') not more than 90 days after the earlier of the receipt of
the notice of election or as provided in the definitive agreement for a Sale
Procedure; provided, however, that the Sale Closing Date may be postponed until
such time as any consent, approval or authorization required of any governmental
or regulatory authority has been obtained; and provided, further, however, that
I Partner and E Partner agree to use their best efforts to obtain such consents,
approvals or authorizations in a timely manner. At such closing, the party or
parties selling the Interest shall assign to the party that is purchasing the
Interest or its designee all right, title and interest in the Interest or
Interests, free and clear of all liens, claims and encumbrances, and shall
execute such documents as may be necessary to effectuate the sale.
(h) If by the date which is six months after the date referred to in clause
(x) of Section 9.1(b) either no Sale Procedure has been commenced or a Sale
Procedure has been commenced but no bidder was selected, either Partner may sell
its Interest in
25
<PAGE>
the Partnership to a third party in accordance with the terms of Article VI
of this Agreement.
ARTICLE X
DURATION AND TERMINATION OF THE PARTNERSHIP
10.1 Events of Termination. The Partnership shall be dissolved and its
affairs wound up pursuant to Section 10.2, and this Agreement shall terminate
(except as provided in Section 12.15), upon the first to occur of any of the
following events (each, an 'Event of Termination'):
(a) the expiration of the term of the Partnership (provided, however,
that the Partners may at any time prior to such expiration amend this
Agreement to extend the term);
(b) the execution by each Partner of a unanimous written consent to
dissolution;
(c) the sale or other disposition of substantially all of the assets
of the Partnership;
(d) the dissolution, winding up, cessation of business, withdrawal or
removal of all of the Partners; or
(e) the election of the Non-Defaulting Partner pursuant to Section
7.2(ii) to terminate the Partnership upon the occurrence and during the
continuance of an Event of Default.
10.2 Winding-Up. Upon the occurrence of an Event of Termination, if the
Partnership is not continued as provided herein, the Partnership affairs shall
be wound up as follows:
(a) The Chief Officers shall cause to be made a proper accounting Of
the Capital Account of each Partner and of the Profits and Losses of the
Partnership from the date of the last previous accounting to the date of
dissolution. Financial statements presenting such accounting shall include
a report of a certified public accountant. The Chief Officers shall also
cause to be prepared a statement of the assets and liabilities of the
Partnership as of the date of dissolution.
(b) The assets and properties of the Partnership shall be liquidated
as promptly as possible, and receivables collected, all in an orderly and
businesslike manner so as not to involve undue sacrifice. Notwithstanding
the foregoing, the Partners may determine not to sell, or authorize the
sale of, all or any portion of the assets and properties of the
Partnership, in
26
<PAGE>
which event such assets and properties shall be distributed
in kind pursuant to Section 10.2(c).
(c) The proceeds of liquidation under Section 10.2(b) and all other
assets and properties of the Partnership shall be applied and distributed
as follows in the following order of priority:
(i) to the payment of the debts and liabilities of the Partnership
(including any amounts which may be owed to any Partner or any Affiliate of
a Partner in respect of loans made by them or any other amounts owed to any
Partner or any Affiliate of a Partner) and the expenses of liquidation;
(ii) to establish any reserves that the Chief Officers, acting in
accordance with sound business judgment, deems reasonably necessary for any
contingent or unforeseen liabilities or obligations of the Partnership,
which reserves may be paid over by the Chief Officers to an escrow agent
selected by him to be held by such agent for the purpose of (x)
distributing such reserves in payment of the aforementioned contingencies
and (y) upon the expiration of such period as the Chief Officers may deem
advisable, distributing the balance thereof in the manner provided in this
Section 10.2(c);
(iii) to the Partners in an amount equal to the positive balance in
each Partner's Capital Account, provided that if any assets are to be
distributed in kind, they will be valued at their Fair Market Value in the
manner set forth in Section 12.11 before the distribution; provided,
however, that if the proceeds of distribution and other assets and
properties of the Partnership are insufficient to pay in full the positive
balance in each Partner's Capital Account, then such distribution shall be
made pro rata to the balance in each Partner's Capital Account. This
adjustment up (or down) to Fair Market Value will be reflected in an
adjustment to the Partners' Capital Accounts in accordance with each
Partner's Sharing Percentage immediately prior to any liquidating
distribution. If any Partner shall have a negative balance in such
Partner's Capital Account immediately prior to a distribution pursuant to
this Section 10.2(c)(iii) (and after giving effect to adjustments for
deemed gain or loss on property to be distributed in kind), then such
Partner shall pay to the Partnership in cash the amount of such negative
Capital Account. Any distribution
27
<PAGE>
pursuant to this Section 10.2(c)(iii) and any payment by a
Partner to the Partnership due to a negative balance in a Partner's
Capital Account shall be made no later than (1) the end of the
Partnership taxable year in which the liquidation of the Partnership occurs
or (2) if later, within 90 days after the date of such liquidation.
Distributions pursuant to this paragraph may be distributed to a trust
established for the benefit of the Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership and paying
any contingent or unforeseen liabilities or obligations of the Partnership
or of any Partner arising out of or in connection with the Partnership. The
assets of any such trust shall be distributed to the Partners from time to
time in proportion to each Partner's Sharing Percentage; and
(iv) all remaining amounts shall be distributed to the Partners in
accordance with the Partner's respective Sharing Percentages.
(d) If the value of the Partnership assets, including profits from any sale
thereof, are insufficient to pay the liabilities of the Partnership, then such
additional liabilities and reserve needs shall be funded by the Partners in
accordance with their respective Sharing Percentages.
(e) The Partners shall comply with all requirements of applicable law
pertaining to the winding-up of the Partnership.
ARTICLE XI
COVENANTS, REPRESENTATIONS AND WARRANTIES
11.1 Compliance with Applicable Law. Each Partner shall comply with all
applicable laws, regulations, rules and orders of governmental authorities the
non-compliance with which would have a material adverse effect on the business
affairs or financial condition of the Partnership.
11.2 Indemnification of Partners; Contribution. The Partnership shall
indemnify and hold each Partner harmless from and against any claim, demand,
loss, damage, liability or expense (including, without limitation, amounts paid
in settlement, reasonable costs of investigation and reasonable legal expenses)
incurred by or against such Partner and (i) arising out of or resulting from any
act or omission of the Partnership or (ii) relating to the ICC Liabilities (as
defined in the Transfer Agreement). As among the Partners, no Partner shall be
liable to
28
<PAGE>
bear responsibility for more than its Sharing Percentage of each and
all of the liabilities and obligations of the Partnership. In the event that
(whether before or following any dissolution of the Partnership) either Partner
shall be required to pay, discharge or otherwise bear responsibility for any
amount of any liability or obligation of the Partnership in excess of such
Partner's Sharing Percentage thereof, the other Partner hereby agrees, to the
extent not prohibited by law or applicable court order to indemnify, hold
harmless and reimburse (directly or through the Partnership) such Partner
against such excess. It is the intention of this contribution clause that,
following the operation of this clause, each Partner will have borne exactly its
Sharing Percentage of the liability or obligation of the Partnership at issue.
ARTICLE XII
MISCELLANEOUS
12.1 Waiver of Partition. Except as may be otherwise provided by law in
connection with the winding-up, liquidation and dissolution of the Partnership,
each Partner hereby irrevocably waives any and all rights that it may have to
maintain an action for partition of any of the Partnership Property.
12.2 Modification; Waivers. This Agreement may be modified or amended only
with the written consent of each Partner. Neither Partner shall be released from
its obligations hereunder without the written consent of the other Partner. The
observance of any terms of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively) by the party or
parties entitled to enforce such term, but any such waiver shall be effective
only if in a writing signed by the party or parties against which such waiver is
to be asserted. Except as otherwise specifically provided herein, no delay on
the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
12.3 Entire Agreement. This Agreement, including the Annexes hereto, and
the Transfer Agreement (including the Annexes thereto), represent the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof.
12.4 Severability. If any provision of this Agreement, or the application
of such provision to any Person or circumstance,
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<PAGE>
shall be held invalid, the remainder of this Agreement or the application
of such provision to other Persons or circumstances shall not be affected
thereby; provided, however, that the parties shall negotiate in good faith with
respect to an equitable modification of the provision or application thereof
held to be invalid.
12.5 Notices. All notices, requests, demands, consents and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given on the date delivered by hand or
mailed by registered or certified mail, postage prepaid or sent by overnight
courier, and, pending the designation by written notice of another address,
addressed as follows:
<TABLE>
<S> <C>
If to I Partner: ICC Desiccant Technologies, Inc.
441 North 5th Street
Philadelphia, PA 19123
Attn: Irwin L. Gross
With a copy to: Mesirov Gelman Jaffe
Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attn: Richard P. Jaffe, Esquire
If to E Partner: Engelhard DT, Inc.
c/o Engelhard Corporation
101 Wood Avenue
Iselin, NJ 08830-0770
Attention: Vice President, Corporate Development
With a copy to: General Counsel
</TABLE>
12.6 Successors and Assigns. Except as otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Partners,
their Affiliates and their respective legal representatives, successors and
permitted assigns.
12.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which for all purposes shall be deemed to be an original
and all of which together shall constitute the same agreement.
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12.8 Headings. The Article and Section headings in this Agreement are for
convenience of reference only, and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
12.9 Construction. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Partnership. Except as
otherwise expressly provided herein, no one, including but not limited to the
Partners or any creditor of the Partnership or any of its Partners, shall have
any rights under this Agreement against any Affiliate of any Partner.
12.10 Property Rights; Confidentiality. All books, records and accounts
maintained exclusively for the Partnership (including, without limitation,
marketing reports and all other data whether stored on paper or in electronic or
other form), and any contracts or agreements entered into by or exclusively on
behalf of the Partnership, and all technology developed by the Partnership shall
at all times be the exclusive property of the Partnership. All property (real or
personal or mixed) purchased with Partnership funds, and all moneys held or
collected for or on behalf of the Partnership shall at all times be the
exclusive property of the Partnership. No Partner shall, during the period such
Partner is a Partner and for a period of five (5) years after such Partner has
ceased to be a Partner, disclose any confidential or proprietary information
with respect to the Partnership to any Person, except (i) with the prior written
consent of the other Partner (ii) to the extent necessary to comply with law or
the valid order of a court of competent jurisdiction, in which event the party
making such disclosure shall so notify the other as promptly as practicable
(and, if possible, prior to making such disclosure) and shall seek confidential
treatment of such information; (iii) as part of its normal reporting or review
procedure to its parent company, its auditors and its attorney; provided,
however, that such parent company, auditors and attorneys agree to be bound by
the provisions of this Section: (iv) in connection with the enforcement of such
Partner's rights hereunder; (v) disclosures to an Affiliate of, or professional
advisor to, such Partner in connection with the performance by such Partner of
its obligations hereunder; provided, however, that such Affiliate or
professional advisor agrees to be bound by the provisions of this Section; (vi)
to a prospective purchaser of all or a portion of such Partner's Interest in
connection with a sale in accordance with the terms of this Agreement; provided,
however, that such prospective purchaser agrees to be bound by the provisions of
this Section; (vii) to the extent such information is or becomes generally
available to the public other than as a result of the disclosure by such Partner
and (viii) to the extent such
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<PAGE>
information is disclosed to such Partner by a third party that is not
subject to any confidentiality agreement or is independently developed by such
Partner or its Affiliates other than by means of access to confidential
information of the Partnership. Except as provided in the immediately preceding
sentence, no Partner, nor any of its Affiliates, shall, during the periods
referred to in such sentence, use any confidential or proprietary information
with respect to the Partnership other than for the benefit of the Partnership.
12.11 Valuation. To determine the Partnership's Fair Market Value upon
liquidation, the Partners shall engage the Firm to render an Opinion as to its
estimate of the liquidation value of the Partnership as of the date of the
opinion. The Firm shall render its opinion in writing to the Partners and the
Partnership within 60 days of its appointment and the cost of such opinion shall
be borne entirely by the Partnership.
12.12 Governing Law; Effect and Interpretation. This Agreement shall be
governed by and construed in conformity with the laws of the State of
Pennsylvania, without regard to principles of conflicts of laws.
12.13 Merger, etc. The Partnership shall not merge, consolidate or wind up
its business without the consent of each Partner except as otherwise
contemplated by Sections 10.1, 10.2 and 7.2(ii).
12.14 Further Actions. Each Partner shall execute and deliver such other
certificates, agreements and documents, and take such other actions, as may be
reasonably required in connection with the formation of the Partnership and the
achievement of its purposes.
12.15 Survival. Sections 3.4, 3.5, 3.6, 4.5, 5.1(c), 5.3, 10.2, 11.2, 12.3,
12.10, 12.11 and 12.12 shall survive the termination of this Agreement and the
dissolution of the Partnership.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date first
written above.
ICC DESICCANT TECHNOLOGIES, INC.
By: /S/________I. GROSS_______________
Name: I. Gross
Title: President
ENGELHARD DT, INC.
By: /S/__R.J. SCHAFFHAUSER____________
Name: R.J. Schaffhauser
Title: V.P.
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SCHEDULE 4.1(a)
Actions Requiring Management Committee Approval
1. Start any lines of business outside of the
Partnership Business;
2. Appoint or change the Partnership's certified
public accountants;
3. Acquire or dispose of any real property;
4. Acquire any interest in a third party or enter
into a license agreement with a third party;
5. Other than in the ordinary course of business, sell,
transfer or pledge (except for pledges of working capital items to secure
working capital loans) any material (tangible or intangible) asset, or any
substantial portion of the assets of the Partnership or of the Partnership
Business; a material asset would be inclusive of any asset or portion of assets
having a fair market value in excess of $250,000 or any technology or
intellectual property right, regardless of value;
6. Enter into any transaction or agreement with a
Partner or Related Person;
7. Terminate, modify, extend or renew any lease or
agreement established with a Related Person (except for pro forma
renewals wherein costs are increased by no more than 5% per year);
8. Approval of the Budget, marketing plan and Busi-
ness Plan;
9. Approval of budgeted capital projects in excess
Of $2,000,000 and unbudgeted capital projects in excess of
$250,000;
10. Incur indebtedness (excluding trade payables
incurred in the ordinary course of business) or establish lines of
credit greater than a cumulative level of $10,000,000;
11. Make cash distributions to the Partners other
than as specified in Section 3.7;
12. Make any capital contribution call on the
Partners;
13. Enter into leases not provided for in the Budget
which have aggregate rental expense of more than $250,000;
<PAGE>
14. Adopt or change any accounting principle which
will materially affect the Partnership's Operating Income, or adopt
any position for purposes of any tax return that will have material
effect on either Partner;
15. Enter into any contract, transaction or arrange-
ment not in the ordinary course of business (except as otherwise
specifically permitted by the Partnership Agreement);
16. Enter into any major contract in the ordinary course of
business such as a product sale or purchase contract; a major contract is one in
which the cumulative dollar value is reasonably expected to be greater than
$2,000,000 or has a term of greater than 3 years or otherwise could have a major
impact on the Partnership Business;
17. Make any change in the legal structure of the
Partnership;
18. Hire or dismiss the chief executive officer, chief
operating officer, the vice president/director of sales/marketing, the vice
president/director of manufacturing or the vice president/director of
engineering and technology of the Partnership or modify the conditions of
employment of such persons;
19. Institute, change or modify employee benefit
plans or pension plans;
20. Grant loans to employees in excess of one month's
salary;
21. Appoint sales distributors or representatives or
enter into any exclusive arrangements except as is set forth in the
Business Plan; and
22. Initiate or settle litigation that is or could be
material in any respect to the business, operations, financial
condition or prospects of the Partnership.
<PAGE>
SCHEDULE 4.1(b)
Responsibilities and Authority of Chief Officers
(i) Prepare the proposed Budget, Business Plan and other items
as provided in Section 4.4 of the Partnership Agreement and conduct the
day-to-day business and affairs of the Partnership in a manner consistent with
the then effective budget and Business Plan;
(ii) Keep the Management Committee informed with respect to all
matters of material interest to the Partners and report to them not less
frequently than once each quarter;
(iii) Enter into contracts or agreements in the ordinary
course of business which do not require Management Committee approval under
Schedule 4.1(a);
(iv) Delegate power and authority to managers, employees and
representatives of the Partnership as necessary or appropriate for the conduct
of the Partnership Business;
(v) Prepare and distribute the agenda for meetings of the
Management Committee;
(vi) Maintain the minutes of Management Committee meetings;
(vii) Consult with and otherwise seek the advice of the
Management Committee in formulating fundamental policy with respect to the
Partnership's business;
(viii) Hire and dismiss employees, representatives, agents and
consultants of the Partnership (other than as set forth in Schedule 4.1(a)) and
set the terms of their employment and benefits; and
(ix) Arrange for working capital loans (and pledge working
capital items to secure such loans) up to $10,000,000 principal amount in the
aggregate.
<PAGE>
SCHEDULE 4.3
Engelhard Employees
1. Director of Business Development and Planning.
<PAGE>
ANNEX A
List of Approved Agreements
1. Transfer Agreement.
2. Employment Agreement dated February 7, 1994 with
Irwin L. Gross.
3. Technology License Agreement dated February 7,
1994 with Engelhard Corporation and ICC
Technologies, Inc.
4. Supply Agreement dated February 7, 1994 with
Engelhard Corporation.
<PAGE>
ANNEX B
The total value of the Initial Property Contribution of each
Partner is as follows:
E Partner - $10,000,000
I Partner - $10,000,000
<PAGE>
ANNEX C
REVOLVING PROMISSORY NOTE
[Date]
FOR VALUE RECEIVED, Engelhard/ICC, a Pennsylvania
partnership (hereinafter the "Borrower"), hereby promises to pay to Engelhard
Corporation, a Delaware corporation (hereinafter the Holder"), the principal sum
of THREE MILLION DOLLARS ($3,000,000), or, if less, the aggregate unpaid
principal amount of loans made by the Holder to the Borrower, together with
interest on the unpaid principal amount hereof, all as hereinafter set forth.
This promissory note (the "Note") is being delivered pursuant to Section 3.9 of
the General Partnership Agreement dated as of January __, 1994 among ICC
Desiccant Technologies, Inc., a Delaware corporation and Engelhard DT, Inc., a
Delaware corporation, and will evidence loans made by the Holder to the Borrower
pursuant to the line of credit established pursuant thereto.
SECTION 1. Interest. Interest on the unpaid principal amount
hereunder shall be paid from the date hereof on a monthly basis commencing with
the first day of the next succeeding month and on the first day of each month
thereafter at a rate per annum equal to the prime rate (as published in the Wall
Street Journal) in effect from time to time plus 1%.
SECTION 2. Maturity. The entire principal amount
hereunder plus any accrued and unpaid interest thereon shall be
paid on January __, 1999.
SECTION 3. Prepayments. The Borrower may, at its option, at
any time after the date hereof, prepay all or a portion of the outstanding
principal amount of this Note without penalty or premium, in whole or in part,
together with accrued interest thereon to the prepayment date.
SECTION 4. Payments. All payments of principal and interest
on this Note shall be made in immediately available funds by wire transfer to
such account as shall be designated in writing by the Holder to the Borrower.
Whenever any payment to be made under this Note shall be on a day that is not a
business day, such payment shall be made on the next succeeding business day
and, if applicable, shall continue to bear interest until such payment.
SECTION 5. Default. Any of the following events
shall be deemed an "Event of Default":
<PAGE>
(a) the Borrower fails to make any interest or
principal payment when due, and such failure remains unremedied for 5 days after
demand is made by the Holder;
(b) the valid appointment of a receiver or
trustee or other representative to administer all or a substantial
portion of the Borrower's assets or property;
(c) the filing by the Borrower of a voluntary
petition for relief under the Bankruptcy Reform Act of 1978, as amended from
time to time, or any state law for the relief of debtors (the "Bankruptcy Code")
or any similar statute of any jurisdiction or of a pleading in any court or
tribunal admitting in writing its inability to pay its debts as they become due;
(d) the making by the Borrower of a general
assignment for the benefit of creditors;
(e) the filing by the Borrower of an answer
admitting the material allegations of, or its consenting to or defaulting in
answering, a petition for relief filed against it in any proceeding under the
Bankruptcy Code or any similar statute of any jurisdiction (including any
foreign jurisdiction); or
(f) the entry of an order, judgment or decree
by any court of competent jurisdiction, granting relief against the
Borrower in a proceeding under the Bankruptcy Code or any similar statute of any
jurisdiction, and such order, judgment or decree continuing unstayed and in
effect for a period of thirty (30) days after such entry.
In case any Event of Default specified above shall have
happened, the Holder may declare the entire principal amount of this Note,
together with all accrued and unpaid interest thereon, to be immediately due and
payable and may proceed to protect and enforce its rights either by suit in
equity and/or by action at law or by other appropriate proceedings, and the
Borrower shall reimburse the Holder for all costs and expenses (including
reasonable attorneys fees, legal expenses and advances) incurred by Holder in
connection with its exercise of any of its rights and remedies hereunder. The
Borrower hereby waives presentment, protest, demand, diligence, notice of
dishonor and of nonpayment and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note.
SECTION 6. Miscellaneous. (a) This Note shall be
governed in all respects, including validity, interpretation and effect, by
the laws of the State of New York applicable to contracts made and to be
performed in that State.
(b) All the covenants, stipulations, promises
and agreements contained by or in this Note on behalf of the Borrower shall
<PAGE>
bind its successors, whether so expressed or not. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom such agreement is sought to be enforced.
(c) No waiver of any default hereunder shall be
construed as a waiver of any subsequent default, and the exercise of any right
hereunder shall not waive the right to exercise the right thereafter.
(d) This Note is not negotiable and may not be
assigned by the Borrower without the written consent of the Holder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
signed in its corporate name by its duly authorized officer and to be dated as
of the day and year above written.
ENGELHARD/ICC
By:__________________________
Name:
Title:
Exhibit No. 23.2
Consent of Independent Accountants
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference and inclusion in this Registration
Statement of ICC Technologies, Inc. (the Company) on Form S-2 of our report,
which includes an explanatory paragraph which refers to conditions that raise
substantial doubt about the Company's ability to continue as a going concern,
dated March 24, 1995, on our audits of the consolidated financial statements of
ICC Technologies, Inc. as of December 31, 1994 and 1993 and for the years ended
December 31, 1994, 1993 and 1992, which report is included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. We also consent
to the incorporation by reference and inclusion in this Registration Statement
of the Company of our report, which includes an explanatory paragraph which
refers to conditions that raise substantial doubt about Engelhard/ICC's ability
to continue as a going concern, dated March 24, 1995, on our audit of the
financial statements of Engelhard/ICC as of December 31, 1994 and for the period
February 7, 1994 (date of formation) to December 31, 1994, which report is also
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1994. We consent to the references to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
December 8, 1995
Document No. 271382.12
